UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
| ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number 001-39633
Abcam plc
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
United Kingdom
(Jurisdiction of incorporation or organization)
Discovery Drive
Cambridge Biomedical Campus
Cambridge, CB2 0AX
United Kingdom
(Address of principal executive offices)
Alan Hirzel
Chief Executive Officer
Telephone: +44 (0) 1223 696000
Discovery Drive
Cambridge Biomedical Campus
Cambridge, CB2 0AX
United Kingdom
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered, pursuant to Section 12(b) of the Act
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Ordinary shares, nominal value £0.002 per share* | ABCM | The Nasdaq Global Select Market |
| * | The ordinary shares are represented by American Depositary Shares, which are exempt from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12a-8 thereunder. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annual report: 228,883,639 ordinary shares, nominal value of £0.002 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ Large accelerated filer | ☐ Accelerated filer | ☐ Non-accelerated filer | ☐ Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☐ U.S. GAAP | ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board |
☐ Other |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
| Auditor Firm Id: 876 | Auditor Name: PricewaterhouseCoopers LLP | Auditor Location: Cambridge, United Kingdom |
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Except where the context otherwise requires or where otherwise indicated, all references in this Annual Report to the terms “Abcam,” the “Company,” the “Group,” “we,” “us,” “our company” and “our business” refer to Abcam plc, together with its consolidated subsidiaries as a consolidated entity.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
This Annual Report includes our audited consolidated financial statements as of and for the fiscal years ended December 31, 2021, June 30, 2020 and 2019, and the six months ended December 31, 2020 prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
This Annual Report also includes our financial data as of and for the 12-months ended December 31, 2020 for the purpose of providing meaningful comparisons with the audited consolidated financial statements as of and for the fiscal year ended December 31, 2021. None of our financial statements were prepared in accordance with U.S. GAAP. Our financial information is presented in pounds sterling. For the convenience of the reader, in this Annual Report, unless otherwise indicated, translations from pounds sterling into U.S. dollars were made at the rate of £1.00 to $1.35, which was the noon buying rate of the Federal Reserve Bank of New York on December 30, 2021. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of pounds sterling at the dates indicated. All references in this Annual Report to “$” mean U.S. dollars and all references to “£” and “GBP” mean pounds sterling.
Our fiscal year begins on January 1 and ends on December 31. On June 1, 2021, our board of directors approved a change of fiscal year end from June 30 to December 31. Throughout this Annual Report, we refer to the 12-months ended June 30, 2020 and 2019 as fiscal years and we do not refer to the 12-months ended December 31, 2020 as a fiscal year, as those periods predated the change of fiscal year end.
Certain monetary amounts, percentages, and other figures included in this Annual Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Revisions to Previously Reported Financial Information
In March 2021, the IFRS Interpretations Committee (“IFRIC”) published an agenda decision on how an entity should account for costs of configuring or customizing application software in a Cloud Computing or Software as a Service (“SAAS”) arrangement. As a result of this change in accounting policy, we revised our audited consolidated financial statements as of and for the fiscal years ended December 31, 2021, the six months ended December 31, 2020, and the fiscal years ended June 30, 2020 and 2019. See Note 1(d) to our consolidated financial statements included elsewhere within this Annual Report for more information.
Within this Annual Report, we reference information and statistics regarding the industries in which we operate, including the life science industry. We are responsible for these statements included in this Annual Report. We have obtained industry, market and competitive position data from our own internal estimates, surveys and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties, such as reports by CiteAb, a compiler and provider of citation data to the life science industry that uses its proprietary text mining technology and extensive human validation to search millions of scientific publications, and Pivotal Scientific.
Our estimates of our addressable market include several key assumptions based on our industry knowledge, industry publications, and third-party research, as well as other surveys. Moreover, these estimates of our addressable market are based on analyzing five specific markets, their current market size value and their estimated growth rates. These markets include: (1) Immunohistochemistry (a type of tissue diagnostic), (2) Tissue Diagnostic, (3) Diagnostic Specialty Antibody Market, (4) Research Antibodies and (5) Therapeutic Antibodies. The information and data we have relied on in determining our estimates is obtained from:
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(i) MarketsandMarkets; (ii) Grand View Research; (iii) Market Data Forecast; (iv) Market Study Report; (v) Future Market Insight; (vi) Transparency Market Research; (vii) Mordor Intelligence; (viii) Nova One Advisor; (ix) Research and Markets; (x) Biospace; and (xi) Polaris Market Research. While we believe that our internal assumptions are reasonable, the sources we have relied on may be based on a small sample size and may fail to accurately reflect market opportunities. Moreover, no independent source has verified such assumptions, and we did not commission any of the market and industry data presented in this Annual Report. Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed.
Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Annual Report. We cannot guarantee the accuracy or completeness of any such information contained in this Annual Report. Forecasts and other forward-looking information are subject to uncertainty and risk due to a variety of important factors, including those described in this Annual Report. See Item 3.D. “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the forecasts or estimates from independent third parties and us.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
We have proprietary rights to trademarks used in this Annual Report that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this Annual Report may appear without the “®”or“™” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this Annual Report is the property of its respective holder.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information currently available to our management. These forward-looking statements are contained principally in Item 3.D. “Risk Factors,” Item 4. “Information on the Company” and Item 5. “Operating and Financial Review and Prospects.” In some cases, you can identify forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Statements regarding our future results of operations and financial position, growth strategy and plans and objectives of management for future operations are forward-looking statements.
Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends which affect or may affect our business, operations and industry. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties.
Many important factors could adversely impact our business and financial performance, including but not limited to those discussed under the caption “Risk Factor Summary” below and in Item 3.D. “Risk Factors” of this Annual Report. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from estimates or forward-looking statements. We qualify all of our estimates and forward-looking statements by these cautionary statements.
The estimates and forward-looking statements contained in this Annual Report speak only as of the date of this Annual Report. Except as required by applicable law, we undertake no obligation to publicly update or revise any estimates or forward-looking statements whether as a result of new information, future events or otherwise, or to reflect the occurrence of unanticipated events.
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Our business is subject to numerous risks and uncertainties, including those described in Item 3.D. “Risk Factors” of this Annual Report. You should carefully consider these risks and uncertainties when investing in our ADSs. Principal risks and uncertainties affecting our business include the following:
| • | the ongoing COVID-19 pandemic, including variants, continues to affect our business, including impacts on our operations and supply chains; |
| • | challenges in implementing our strategies for revenue growth in light of competitive challenges; |
| • | the development of new products or the enhancement of existing products, and the need to adapt to significant technological changes or respond to the introduction of new products by competitors to remain competitive; |
| • | failing to successfully identify or integrate acquired businesses or assets into our operations or fully recognize the anticipated benefits of businesses or assets that we acquire; |
| • | our customers discontinuing or spending less on research, development, production or other scientific endeavors; |
| • | failing to successfully use, access and maintain information systems and implement new systems to handle our changing needs; |
| • | cyber security risks and any failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions; |
| • | failing to successfully manage our current and potential future growth; |
| • | any significant interruptions in our operations; |
| • | our products fail to satisfy applicable quality criteria, specifications and performance standards; |
| • | failing to maintain and enhance our brand and reputation; |
| • | ability to react to unfavorable geopolitical or economic changes that affect life science funding; |
| • | failing to deliver on transformational growth projects; |
| • | our dependence upon management and highly skilled employees and our ability to attract and retain these highly skilled employees; and |
| • | as a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and Nasdaq corporate governance rules and are permitted to file less information with the SEC than U.S. companies, which may limit the information available to holders of our American Depositary Shares (“ADS”). |
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Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
An investment in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainty described below, together with all of the other information in this Annual Report, before deciding to invest in our ADSs. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our ADSs could decline due to any of these risks, and you may lose all or part of your investment.
Risks Relating to Our Business and Industry
A regional or global health pandemic, including COVID-19, could severely affect our business, operating results and financial condition due to impacts on our operations and supply chains, as well as actions taken to contain the disease or treat its impact and the speed and extent of the recovery.
We engage in business globally, which subjects us to a number of unpredictable or unexpected risks and factors outside our control, including risks associated with public health crises such as epidemics and pandemics. In December 2019, a novel coronavirus (SARS-CoV-2) was reported and in March 2020, the World Health Organization (“WHO”) characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment in which we do business, and the extent to which it may impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, elements of our business (including elements of our operations, supply chains and distribution systems) as a result of impacts associated with preventive and precautionary measures that we, other businesses, our communities and governments are taking. Many employers in our primary locations of business, including the United States, United Kingdom and China, temporarily closed sites and required their employees to work from home or not work at all. These site closures included some of our customers’ labs, which have caused and may continue to cause customers to delay or forego purchases of our products. During the pandemic, we have experienced significant and unpredictable reductions or increases in demand for certain of our products and may continue to experience such unpredictability in the future. Further, as the research community began to focus on COVID-19, other types of research were put on hold, which resulted in many of our customers’ research labs being forced to temporarily shut down or to operate at reduced capacity. As a substantial majority of our catalogue revenue is purchased for research use only, these shutdowns and reductions in capacity have negatively impacted the global demand for our products, which has resulted in slower than expected revenue growth. We also saw a reduction in demand due to the ongoing COVID-19 pandemic, particularly in North America where the number of COVID-19 cases is rising in several states with large research lab demand. While many of our customers’ labs have reopened, such labs may be required to continue to operate at reduced capacity, and there can be no assurance
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that our customers will not be subject to further shutdowns or reductions in capacity in the future, which could have a material adverse effect on our business and results of operations. As the impact of the COVID-19 pandemic remains uncertain, we may continue to experience slower than normal sales activity.
In an effort to halt the outbreak of COVID-19, many countries throughout the world have placed significant restrictions on travel, and many jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and business activity, which could significantly impact our ability to support our operations and customers, the ability of our employees to get to their workplaces to produce products and provide services and the availability of materials for production of our products, as well as significantly hinder or increase the costs associated with our products from moving through the supply chain. Despite the roll out of vaccines in many of our countries in which we operate, due to uncertainties that will be dictated by the length of time that the COVID-19 pandemic and related disruptions continue, there can be no assurance that our operations will not continue to be adversely impacted.
During the COVID-19 pandemic, we asked that all employees who are able to do so work remotely, and it is possible that widespread remote work arrangements could have a negative impact on our operations, the execution of our business plans and productivity and availability of key personnel and other employees necessary to conduct our business, and of third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in consumer privacy, IT security and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.
Further, in connection with the global COVID-19 pandemic and in an effort to increase the wider availability of needed medical and other supplies and products, we may elect to, or governments may require us to (for example pursuant to the U.S. Defense Production Act), allocate our products in a way that adversely affects our regular operations and financial results, results in differential treatment of customers and/or adversely affects our reputation and customer relationships. Although we do not currently elect to, nor have we been required to, allocate our products in this way, there can be no assurance that we will not have to allocate our products in this way in the future. In addition, unpredictable increases in demand for certain of our products could exceed our capacity to meet such demand, which could adversely affect our financial results and customer relationships and result in negative publicity.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as vaccine and booster rollouts, impact of vaccine hesitancy, the severity and transmission rate of the virus and variants, and the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, suppliers and partners. Such impact on our business, cash flows and/or financial condition, and results of operations could be material.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
We may face challenges in implementing our strategies for revenue growth in light of competitive challenges.
We face significant competition from a diverse and fragmented base of competitors, many of whom focus on specific regions, customers and/or specific product segments. Competitors range from smaller, specialized companies, which may be able to more quickly respond to customers’ specific needs, to large multinational companies who provide a full suite of products to research labs, which may have greater financial, marketing, operational and research and development resources than we do. Such greater resources may allow our competitors to respond more effectively with new, alternative or emerging technologies. In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have created concentrated purchasing decisions for some customers, resulting in increased pricing pressure on us. Moreover, customers may believe that consolidated businesses are better able to compete as sole-source vendors and therefore, prefer to purchase from such businesses. New procurement channels, such as e-procurement and aggregators, may prove more attractive to customers through better delivery of products or blocking other channels where we have strength, and a failure by us to sufficiently engage and participate in these channels may lead to a loss of
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customer relationships. Failure to anticipate and respond to our competitors’ actions may impact our future sales and earnings, in particular failure to react to competitors strengthening their brand, marketing or customer experience may negatively impact our ability to attract and retain customers.
We are pursuing a number of strategies to maintain and improve our revenue growth, including:
| • | increase usage of our research use only (“RUO”) antibodies and grow sales over time; |
| • | grow our product portfolio and expand within adjacent markets; |
| • | expand our product offering for diagnostic and biopharmaceutical companies; |
| • | enhance our digital platform and online presence; |
| • | strengthen our teams, systems and infrastructure to support our growth; and |
| • | selectively pursue strategic acquisitions. |
We may not be able to successfully implement these strategies, and these strategies may not result in the expected growth of our business. Failure to anticipate and respond to our competitors’ actions may adversely affect our business, financial condition and results of operations.
We must develop new products and enhance existing products, adapt to significant technological and innovative changes and respond to introductions of new products by competitors to remain competitive.
We sell our products in industries that are characterized by significant technological changes, frequent new product and technology introductions and enhancements and evolving industry standards. As a result, our customers’ needs continue to evolve. If we do not appropriately innovate and invest in new products or technologies, our product offerings may become less desirable in the markets we serve, and our customers could move to new technologies offered by our competitors or even choose to make products themselves. Though we believe customers in our markets display a significant amount of loyalty to a particular product, we also believe that because of the initial time investment required by many of our customers to reach a purchasing decision for a new product, it may be difficult to regain that customer once the customer purchases a product from a competitor. In order to maintain positive relationships with and maintain the trust of our customers, it is crucial that we are able to continue to innovate and create new products that directly support our customers’ research goals in a cost effective, timely and efficient manner. If our competitors are able react more directly and effectively to a customer’s specific demand, this could harm our ability to retain our customers, even if we manufacture a product that is responsive to their needs. There is also a risk that we may invest significant amounts of time and resources into a new product or product enhancement that fails to meet our high quality standards or does not perform in the way that was intended, which could adversely affect our business. Without the timely introduction of new products, services and enhancements to existing products or adequately meeting the changing demands of the industry, our offerings will likely become less competitive over time, in which case our competitive position, sales and operating results could suffer. Further, if a competitor were able to create a product or service that either eliminated or reduced the need for RUO antibodies and the related tools and solutions, or if there were an innovative development in the industry that made the use of antibodies no longer necessary for life science research, this could have a material adverse effect on our business and results of operations. Accordingly, we focus significant efforts and resources on the research, development and identification of new products and services that are attractive to our customers and gain acceptance in the markets we serve to further broaden our offerings. It can take significant time to identify an unmet customer need and develop a product to meet that need, and to the extent we fail to adequately anticipate or meet our customers’ needs or fail to obtain desired levels of market acceptance, our business, financial condition or results of operations could be adversely affected.
Our estimates of our addressable market include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for our products may be smaller than we expect, and as a result, our product revenue may be limited and our business, financial condition or results of operations could be adversely affected.
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We may not successfully identify or integrate acquired businesses or assets into our operations or be able to fully recognize the anticipated benefits of businesses or assets that we acquire.
A key element of our business strategy is to complement our organic growth with acquisitions. We routinely explore acquiring other businesses and assets, and we have completed six acquisitions in the last three years, including: BioVision, Inc. (“BioVision”) in October 2021, Marker Gene Technologies, Inc. in March 2020, the gene editing platform and oncology product portfolio of Applied StemCell, Inc. in January 2020, the proteomics and immunology businesses from Expedeon AG in January 2020, the entire live cell line and lysates portfolio of EdiGene Inc. in July 2019 and Calico Biolabs Inc. in January 2019. In addition, we have acquired minority interests in SomaServe Limited and BrickBio Inc.
However, we may be unable to identify or complete promising acquisitions for many reasons, including any misjudgment of the key elements of an acquisition, competition among buyers, the high valuations of businesses in our industry, the need for regulatory and other approvals, lack of internal resources to actively pursue all attractive opportunities and availability of capital. When we do identify and complete acquisitions, we may face financial, managerial and operational challenges, including diversion of management attention and resources needed for existing operations, difficulty with integrating acquired businesses, acquiring business that are not consistent with our long-term strategies, integration of different corporate cultures, increased expenses, potential dilution of our brand, assumption of unknown liabilities, indemnities, potential disputes with the sellers and the need to evaluate the financial systems of and establish internal controls for acquired entities. Further, we seek out acquisitions of companies that maintain the same high quality standards that we maintain, and if we misjudge or overestimate a company’s product quality standards, we may not be able to use these products or implement the strategies that were the primary reason for the acquisition, which would lead to a significant loss both financially and in time spent by our teams trying to integrate the product or implement the strategy. There can be no assurance that we will engage in any additional acquisitions or that we will be able to do so on terms that will result in any expected benefits.
In addition, our ability to realize the benefits we anticipate from our acquisition activities, including any anticipated sales growth, cost synergies and other anticipated benefits, will depend in large part upon whether we are able to integrate such businesses efficiently and effectively. Integration is an ongoing process, and we may not be able to fully integrate such businesses smoothly or successfully, and the process may take longer than expected. Further, the integration of certain operations and the differences in operational culture following such activity will continue to require the dedication of significant management resources, which may distract management’s attention from day-to-day business operations. There may also be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of target businesses. If we are unable to successfully integrate the operations of acquired businesses into our business, we may be unable to realize the sales growth, cost synergies and other anticipated benefits of such transactions, and our business, results of operations and cash flow could be adversely affected.
Our business may be harmed if our customers discontinue or spend less on research, development, production or other scientific endeavors.
A majority of our revenue is derived from consumers who are publicly funded through research grants. We have three primary categories of customers including: academic institutions, research institutions and pharmaceutical, biotechnology and diagnostic companies. Many factors, including public policy spending priorities, available resources and product and economic cycles, have a significant effect on the capital spending policies of these entities. For example, the United Kingdom’s withdrawal from the European Union has caused, and is likely to continue to cause, uncertainty in the European markets regarding the availability of public funding for research, which has had an indirect, but not significant, impact on our U.K. business. Fluctuations in the research and development budgets of our customers could have a significant effect on the demand for our products. Our customers determine their research and development budgets based on several factors, including the need to develop new products, continued availability of governmental and other funding, competition and the general availability of resources. If research and development budgets are reduced, or if any funding source were to influence customer selection toward another supplier, the impact could adversely affect our business, financial condition and results of operations.
Our business depends on our ability to use and access information systems, and any failure to successfully maintain these systems or implement new systems to handle our changing needs could materially harm our operations.
We depend on standardized procedures and multiple information systems, including our online platform and distribution and ERP systems, for our operations, customer service and quality and safety procedures.
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Furthermore, we rely on information technology systems to process, transmit, store and protect electronic information, including confidential customer, supplier, employee or other business information. Through our online platform, we collect and store confidential information that customers provide in order to, among other things, purchase products and services and register on our website.
We are currently updating our systems and processes by implementing Oracle Cloud ERP and other software solutions to replace our legacy IT systems on a scale reflecting the increased size, scope and complexity of our operations, and the process of migrating our legacy systems could disrupt our ability to timely and accurately process information. Further, any significant delay, failure, increase in costs of this project, or any issues in transitioning from our legacy systems to new information systems could have a negative impact on our ability to upgrade our information systems and may consequently adversely affect our business, financial condition and results of operations, see Item 15. “Controls and Procedures”. We utilize commercially available third-party technology solutions, software and software systems with some proprietary configurations. We also store data using third-party cloud services. Our information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, catastrophic events, natural disasters, terrorist attacks, hackers and other security issues as well as human error. Given the age and lack of support of some of our legacy systems, these risks may be greater. If our information systems are damaged, fail to work properly or otherwise become unavailable, particularly in light of the COVID-19 pandemic, we may incur substantial costs to repair or replace them, and we may experience a loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions and implement new and innovative services. If the cloud service providers we use were to experience unplanned downtime, delays or other issues delivering data to our information technology systems, including due to increased usage during the COVID-19 pandemic, it could significantly and adversely impact business operations. A compromise of our information systems or those with which we interact could harm our reputation and expose us to regulatory actions and claims from customers and other persons, any of which could adversely affect our business, financial condition and results of operations.
In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our increasing volume and/or our changing needs, and we may experience unanticipated delays, complications and expenses in implementing and integrating our systems. Any interruptions in operations would adversely affect our ability to properly allocate resources and timely deliver our products, which could result in customer dissatisfaction. We currently rely on certain legacy systems that are no longer supported by the manufacturers, with only a small number of current employees able to maintain these systems. Any failure of these systems could have a significant business impact. The failure to successfully implement and maintain information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our sales and profit margins, any of which could adversely affect our business, financial condition and results of operations.
Cyber security risks and the failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions, could result in damage to our reputation, data integrity and/or subject us to costs, fines or lawsuits under data privacy or other laws or contractual requirements.
The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Implementing and maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability to market our products and services to customers. Although our computer and communications hardware are protected through physical and software safeguards, they are still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses and similar events. These events could lead to the unauthorized access, disclosure and use of non-public information.
We could be subject to risks caused by misappropriation, misuse, leakage, falsification, system malfunction or intentional or accidental release or loss of information maintained in our information systems and networks and those of our OEM suppliers. In addition, the companies we acquire (as well as contractors, consultants, business partners, and/or other third parties that we work with) may not maintain the same high-quality physical and software safeguards and information and technology systems and controls to prevent cyber security threats that we maintain. Further, these third parties may be vulnerable to breakdown, intrusions, or other damage or interruption from service interruptions, system malfunctions, natural disasters, terrorism, cyberattack, and telecommunication and electrical failures, as well as security breaches from their own inadvertent or intentional
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actions. There may also be pre-existing cybersecurity incidents or risks that we failed or were unable to discover or identify in the course of performing due diligence investigations of target businesses. Moreover, the techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. We are also reliant on the quality of our training of employees to allow them to spot and appropriately respond to cyber security threats.
We have been subject to a number of actual and attempted cyber attacks such as through phishing scams and require employees to remain vigilant to ensure that such attempts are unsuccessful. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future. If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, customers could curtail or cease using its applications, and we could lose trade secrets, the occurrence of which could harm our business. If we are unable to maintain reliable information technology systems and appropriate controls with respect to global data privacy and security requirements and prevent data breaches, we may suffer regulatory consequences in addition to business consequences. As a global organization, we are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in the course of our business. There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information”) and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretation. Although we take measures to protect sensitive data from unauthorized access, use or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could compromise our networks, and the information stored there could be accessed by unauthorized parties, manipulated, publicly disclosed, lost or stolen. Any such access, breach or other loss of information could result in legal claims or proceedings and liability under federal or state laws that protect the privacy of personal information, such as the HIPAA and the Health Information Technology for Economic and Clinical Health Act and may result in regulatory penalties. Notice of breaches must be made to affected individuals, the United States Department of Health and Human Services (“HHS”), and for extensive breaches, notice may need to be made to the media or state Attorneys General. Such a notice could harm our brand and reputation and adversely affect our ability to compete.
Additionally, the Gramm-Leach-Bliley Act of 1999 (along with its implementing regulations) (the “GLBA”) restricts certain collection, processing, storage, use and disclosure by covered companies of certain personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent the use and disclosure of certain non-public or otherwise legally protected information. The GLBA also imposes requirements regarding the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. In addition, many U.S. states in which we operate now or may operate in the future have laws that protect the privacy and security of sensitive and personal information. Certain U.S. state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020, imposes stringent data privacy and security requirements and obligations with respect to the personal information of California residents and households. Among other things, it requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information that may increase the likelihood of, and risks associated with, data breach litigation. It remains unclear how various provisions of the CCPA will be interpreted and enforced, and multiple states have enacted or are expected to enact similar laws. The effects of the CCPA and other similar state laws on our business are potentially significant and may require us to modify our data processing practices and policies and to incur costs and expenses in an effort to comply. State laws are changing rapidly, and there is discussion in U.S. Congress of a new federal data protection and privacy law to which we may be subject.
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In Europe, laws, regulations and standards in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information. For example, in the European Economic Area (the “EEA”), the collection and use of personal data is governed by the provisions of the General Data Protection Regulation (the “GDPR”). The GDPR came into effect in May 2018, superseding the European Union Data Protection Directive and imposing more stringent data privacy and security requirements on companies in relation to the processing of personal data of European Union (“EU”) data subjects. The GDPR, together with national legislation, regulations and guidelines of EU member states govern the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates; providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting rights for data subjects in regard to their personal data (including data access rights, the right to be “forgotten” and the right to data portability); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; and complying with the principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
Fines for certain violations of the GDPR are significant, e.g. up to 4% of a company’s global annual revenue or €20 million, whichever is greater. Such fines are in addition to any civil litigation claims by customers and data subjects. European data protection authorities may interpret the GDPR and national laws differently and` impose additional requirements, which contributes to the complexity of processing personal data in or from the EEA. Guidance on implementation and compliance practices is often updated or otherwise revised. From January 1, 2021, we are subject to the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, e.g. fines up to the greater of €20 million / £17.5 million or 4% of global turnover.
We are also subject to EU and United Kingdom rules with respect to cross-border transfers of personal data out of the EEA and the United Kingdom, respectively. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA and the United Kingdom to the United States. Most recently, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield Framework (“Privacy Shield”) under which personal data could be transferred from the EEA to US entities who had self-certified under the Privacy Shield scheme.
While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place. The European Commission has published revised standard contractual clauses for data transfers from the EEA: the revised clauses have been mandatory for relevant transfers since September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. The United Kingdom’s Information Commissioner’s Office has published new data transfer standard contracts for transfers from the UK under the UK GDPR. This new documentation will be mandatory for relevant data transfers from September 21, 2022; existing standard contractual clauses arrangements must be migrated to the new documentation by March 21, 2024.
Several other countries, such as China and Russia, have also passed laws that require personal data relating to their citizens to be maintained on local servers and impose additional data transfer restrictions, which could increase the cost and complexity of delivering our products and services.
We are also reliant on certain manual processes for collecting and processing data, and any failures in these processes or failure to handle the data collected in accordance with relevant regulations could lead to enforcement actions. Complying with all applicable laws, regulations, standards and obligations relating to data privacy, security and transfers may cause us to incur substantial operational costs or require us to modify our data processing practices and processes. Government enforcement actions can be costly and interrupt the regular operation of our business, and data breaches or violations of data privacy laws can result in significant fines, reputational damage and civil lawsuits, any of which may adversely affect our business, financial condition and
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results of operations. We may not be able to respond quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability to commercialize our products or increase our cost of doing business. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions or reputational damage. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.
Our business may suffer if we do not successfully manage our current and potential future growth.
We have rapidly expanded our operations and anticipate expanding further as we pursue our growth strategies. Such expansion increases the complexity of our business and places a significant strain on our management, operations, technical systems, financial resources and internal control over financial reporting functions. Our current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel and maintain manufacturing facilities and distribution networks in several geographic locations. Across a range of business areas, we currently use systems and processes that are overly manual and reaching the limit of their scalability, and as we continue to grow and expand our business, these systems and processes will become outdated and will need to be replaced with more automated and up-to-date systems to maintain our growth. These systems and processes also interact with our inventory management and demand planning, and any failure in these systems or in the transition to updated systems may make it more likely we do not adequately anticipate and plan for business growth, potentially resulting in increased times for order fulfilment, order backlogs, reduced customer satisfaction and reduced order conversion. In addition, given the rapid growth of our business on these overly manual systems, there may be certain contractual terms, including royalties, that are not properly monitored. We may not be able to manage our expansion effectively, and failure to update and replace these systems and processes may adversely affect our reputation, business, financial condition and results of operations.
We are also continuously expanding our product portfolio and establishing and developing these new products requires significant management time and attention. If these products do not achieve the anticipated success or require greater levels of time and investment to reach the expected levels, it could adversely affect our business, financial condition and results of operations. Failure to appropriately integrate new products and business lines into our existing operations and systems can also affect the success of these products, and failure to adequately anticipate and plan for this integration could affect the success of these products and may also negatively impact our existing product offerings.
Significant interruptions in our operations could materially harm our business, financial condition and results of operations.
Manufacturing, distribution, service and logistics problems can and do arise, particularly in light of the COVID-19 pandemic, and any such problems could have a significant impact on our business, financial condition and results of operations. Accordingly, any significant disruptions to the operations of our manufacturing or distribution centers or logistics providers for any reason, including labor relations issues, power interruptions, severe weather, fire or other circumstances beyond our control could cause our operating expenses to increase without coverage or compensation or seriously harm our ability to fulfill our customers’ orders or deliver products on a timely basis, or both. We must also maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed costs that we may not be able to offset if orders slow, which would adversely affect our operating margins. If we are unable to manufacture or source our products consistently, in sufficient quantities and on a timely basis, our sales, gross margins and our other operating results will be materially and adversely affected. Prompt shipment of our products is also very important to our business. We have experienced problems with or delays in our production, shipping and logistics capabilities, including as a result of the COVID-19 pandemic, that resulted in delays in our ability to ship finished products, and there can be no assurance that we will not encounter such problems in the future. If we experience significant delays in our manufacturing, shipping or logistics processes, this could cause disruption to our customers and damage our current and future customer relationships and may adversely affect our business. Such delays may also adversely impact our new product development. For example, if we were to lose one of our sites where new product development is undertaken, we may not be able to transfer or replicate that product development at another site, with the result of a loss of the time and financial costs of development of the new product. We also use small quantities of high-risk chemicals in the manufacture of certain of our products, which are subject to handling risks, and any disruption in our ability to source or appropriately store these chemicals could adversely affect our manufacturing operations.
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In addition, as we are reliant on biological processes to manufacture many of our products, any loss or interruption to the systems that allow us to maintain optimal growth or storage conditions for our materials or products could lead to a loss of significant sections of our product portfolio, which may adversely affect our business, financial condition and results of operations. If a biological contaminant, such as bacteria, mold, yeasts, viruses or mycoplasma, were to affect our materials or our products, or if our materials or products were cross contaminated, it could affect the quality of our products, our inventory levels and disrupt our manufacturing and distribution processes, as well as those of our customers. We have quality control procedures in place to detect and correct such disruptions, but there can be no assurance that these procedures will always function properly. Any disruption to our manufacturing operations would disrupt our ability to serve our customers, which could have a material adverse effect on our reputation, business, financial condition and results of operations. Similarly, any contamination of our customers’ laboratories caused by our products could have a material adverse effect on our reputation, business, financial condition and results of operations.
Our offerings are highly complex, and, if our products do not satisfy applicable quality criteria, specifications and performance standards, we could experience lost sales, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.
The products we offer are highly exacting and complex due to their biological nature and demanding customer specifications. Providing high-quality products in terms of specificity, sensitivity and consistency, together with extensive product validation data is a fundamental driver of customer loyalty and our reputation with life science researchers. Our operating results depend on our ability to execute and, when necessary, improve our global quality control systems, including our ability to effectively train and maintain our employees with respect to quality control. A failure of our global quality control systems could result in problems with facility operations or preparation or provision of defective or non-compliant products. In each case, such problems could arise for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with critical materials and components, or environmental factors and damage to, or loss of, manufacturing operations. Such problems could affect production of a particular batch or series of batches of products, requiring the destruction of such products or a halt of facility production altogether.
Our success depends on our customers’ confidence that we can provide reliable, consistently high-quality products, which includes our ability to provide validated data to support our customers’ use of our products. We believe that customers in our target markets are likely to be particularly sensitive to our products failing to meet the specifications shown on our data sheets. Our reputation and the public image of our products and technologies may be impaired if our products fail to perform as expected or fail to meet applicable quality criteria, specifications or performance standards. High-quality reagents, for example, are necessary for critical research progress; unreliable reagents may impede researchers’ ability to reproduce experiments and can lead to wasted time and money. If our products experience, or are perceived to experience, a material defect or error, this could result in loss or delay of sales, damaged reputation, diversion of development resources and increased insurance or warranty costs, any of which could harm our business. These risks are amplified in respect of our new product lines as we implement appropriate quality control criteria. We are reliant to an extent on customer feedback on the quality of our products, and it may take additional time for new products to meet the desired quality. Such defects or errors could also result in our inability to timely deliver products to our customers, which could in turn cause disruptions to our customers’ ability to obtain results, narrowing the scope of the use of our products and ultimately hindering our or their success in relevant markets. Even after any underlying concerns or problems are resolved, any lingering concerns in our target markets regarding our technology, product defects or performance standards could continue to result in lost sales, delayed market acceptance and damaged reputation, among other things. If problems in preparation or manufacture of a product or failures to meet required quality standards for that product or other product defects are not discovered before such product is released to our customers, we may be subject to adverse legal or regulatory actions, including halting of manufacture and distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such problems or failures subject us to other litigation claims, including claims from our customers for reimbursement for the cost of lost or damaged materials. Our customers also require specific information regarding our products and their uses, and any inaccuracies in this information could lead to products being sold for the wrong uses and may result in our having to refund or replace the products in question. Any of the above problems may adversely affect our reputation, business, financial condition and results of operations.
If we fail to maintain and enhance our brand and reputation, our business, results of operations and prospects may be materially and adversely affected.
We believe that maintaining and enhancing our brand and reputation are of significant importance to the success of our business. We work to set a very high standard for the quality of our products and our ethical
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business practices, and we believe that this has been crucial to our success. We have employed and will continue to employ different types of consumer experience and interaction touchpoints designed to gauge consumer satisfaction with our products, including our customer website, e-sales and digital marketing, and we also engage in rigorous product validation in order to continue to improve our product quality. We cannot assure you, however, that these activities will be successful or that we will be able to continue to maintain our brand and reputation as we expect. If our brand strength deteriorates, or if our brand is no longer associated with high-quality products, it could lead to fewer publication citations for our products, which could in turn further weaken our brand recognition and reputation. Customers often choose the most-cited brand or product, and if another brand were to overtake ours in frequency of citations, our business could be adversely affected. In addition, our competitors may increase the intensity of their consumer interactions or customer feedback processes, which may force us to increase our advertising spend to engage with our customer base and maintain brand and reputational awareness. Our ability to attract and retain customers is also influenced by our prominence in search engines. Any changes to our prominence in search engines, whether as a result of revised algorithms, improved search engine optimization by our competitors or failure to respond to changes in online activity may negatively impact our brand and reputation or to convert customer interactions into sales.
In addition, any negative publicity relating to our products or services, regardless of its veracity, could harm our brand and the perception of our brand in the market. With an increasing global focus on ethical business practices and good corporate behavior, and with such issues directly influencing consumer behavior, any failure to achieve or maintain the levels of corporate governance, social and environmental impact and corporate behaviors expected of us, including demonstrating dedication to the benefits of diversity, could negatively impact our brand and reputation. If our brand is harmed, we may not be able to gain new customers or continue to maintain positive relationships with our customers, and our business, prospects, financial condition and results of operations could be materially and adversely affected.
Part of our growth strategy is to increase direct customer interactions in multiple countries. Failure to anticipate and react to particular geographic requirements and sensitivities may have a negative impact on our brand and reputation, which may result in a decrease in sales or sales growth in such countries, which may adversely affect our business, prospects, financial condition and results of operations.
The loss of a significant number of customers or a reduction in orders from a significant number of customers could reduce our sales and harm our operating results.
Our operating results could be negatively affected by the loss of revenue from a significant number of our customers. Our sales are widely distributed, and many of our customers typically place smaller value orders in high volumes. We have other customers with whom we maintain close business relationships, working closely to build the specific custom tools they need, which will then become part of our product portfolio. These relationships often present larger commercial opportunities, and our operating results could be adversely affected by the loss of a significant number of these customers, particularly during the product development phase. For the year ended December 31, 2021, no single customer accounted for more than 2% of our revenue.
Though we often offer pricing and volume incentives, our customers are generally not obligated to purchase any fixed quantities of products, and they may stop placing orders with us at any time. If a significant number of customers purchase fewer of our products, defer orders or fail to place additional orders with us for any reason, our sales could decline, and our operating results may not meet our expectations. In addition, if those customers order our products, but fail to pay on time or at all, our liquidity and operating results could be adversely affected.
Our contracts generally do not contain minimum purchase requirements, and the majority of our sales are on a purchase order basis. Therefore, our sales are subject to changes in demand from our customers. The level and timing of orders placed by our customers vary for a number of reasons, including individual customer strategies, the introduction of new technologies, the desire of our customers to reduce their exposure to any single supplier and general economic conditions. If we are unable to anticipate and respond to the demands of our customers, if we have an inadequate supply of products, insufficient capacity in our sites or if we experience any disruptions to our supply chain or distribution network, we may lose customers. Alternatively, we may have excess inventory or excess capacity, and either of these factors may have a material adverse effect on our business, financial condition and results of operations.
Though we do generate a portion of our sales from long-term contracts, the majority of these contracts are non-exclusive and do not require a minimum purchase volume. This makes it difficult to estimate our customers’
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demand for our products and our critical material and component needs. In addition, though we believe customers in our markets display a significant amount of loyalty to a particular product, we may not be able to renew a contract on favorable pricing terms if our competitors reduce their prices in order to procure business, or if a customer insists that we lower the price charged under the contract being renewed in order to retain the contract. In addition, if we enter into a contract with a customer on unfavorable terms, it may harm our ability to negotiate our future contracts with that customer or with other customers. The loss of sales obtained through long-term contracts or the reduced profitability of such sales could adversely affect our business, financial position and results of operations.
Our business, financial condition and results of operations depend upon the availability of critical materials and components.
Our operations depend upon our ability to obtain high-quality third-party products and materials meeting our specifications and other requirements at reasonable prices, including various components, storage and growth media and other materials. Our ability to maintain an adequate supply of such critical materials and components could be impacted by the availability and price of those materials and maintaining relationships with suppliers. While we may seek to minimize the impact of price increases and potential shortages by, among other things, entering into long-term supply agreements, increasing our own prices and implementing cost-saving measures, our earnings and cash flows could be adversely affected in the event these measures are insufficient to cover our costs. Moreover, while we aim to maintain a large network of product suppliers, we are unable to predict any interruption or disruption in service from our key suppliers, due to for example health epidemics, pandemics and other outbreaks, including the COVID-19 pandemic. Any interruption or disruption in service from particular suppliers of components and materials means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers, to the extent any alternate suppliers acceptable to us and, if applicable, to our customers, even exist. If this occurs, we could expend substantial expense and time in re-establishing relationships with third-party suppliers that meet the appropriate quality, cost and regulatory requirements needed for commercially viable manufacture of our products or in re-designing our products to incorporate different components and materials that are available from third-party suppliers. If we are unable to obtain the materials we need at reasonable prices or at all, we may not be able to produce certain of our products at a marketable price or at all. If our supply of materials and components is adversely affected, including among other reasons, as a result of the COVID-19 pandemic, we could impact our customers’ ability to conduct their research, damage our relationship with current and prospective customers and our operating results and financial condition could be adversely affected.
Moreover, we are dependent upon the ability of our suppliers to provide materials and components that meet our specifications, quality standards, other applicable criteria and delivery schedules. Our suppliers’ failure to provide expected materials or components that meet such criteria could adversely affect production schedules and contract profitability. The continued supply of high-quality third-party products and materials from our suppliers is subject to a number of risks, including:
| • | the destruction of or damage to our suppliers’ facilities or their distribution infrastructure; |
| • | work stoppages or strikes by our suppliers’ employees; |
| • | the failure of our suppliers to provide materials of the requisite quality or in compliance with strict specifications; |
| • | the failure of essential equipment at our suppliers’ plants; |
| • | the failure of our suppliers to satisfy import and export control laws for goods that we purchase from them; |
| • | the failure of our suppliers to meet regulatory standards where applicable; |
| • | the failure, shortage or delay in the delivery of materials to our suppliers; |
| • | contractual amendments and disputes with our suppliers; and |
| • | inability of our suppliers to perform as a result of the weakened global economy, the COVID-19 pandemic or otherwise. |
If we experience problems with suppliers, we may not be able to find acceptable alternatives, and any such alternatives could result in increased costs for us and possible forward losses on certain contracts. Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business, might lead to termination of our supply agreements with our customers and might disrupt the
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operations of our customers leading to potential claims, any of which could adversely affect our business, financial condition and results of operations.
We are subject to risks associated with global operations.
We engage in business globally, with 65% and 64% of our catalogue revenue in the 12-months ended December 31, 2020 and the fiscal year ended December 31, 2021, respectively, coming from outside the United States. Global operations subject us to a number of risks, many of which are exacerbated by the COVID-19 pandemic, including international economic, political and labor conditions; currency fluctuations; tax laws (including U.S. taxes on foreign subsidiaries); increased financial accounting and reporting burdens and complexities; unexpected changes in, or impositions of, legislative or regulatory requirements; failure of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing international operations; delays resulting from difficulty in obtaining import or export licenses; limitations on repatriation of funds; tariffs, quotas and other trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and fraudulent business practices; limitations on our ability to enforce legal rights and remedies with third parties and other factors beyond our control, including terrorism, war (including in light of the developing conflict between Russia and Ukraine), natural disasters, climate change and diseases. Overall demand for our products could be reduced as a result of a global economic recession or political unrest, especially in areas such as healthcare, education and research. Customers or suppliers may experience cash flow problems, particularly in light of the COVID-19 pandemic and related response measures, and as a result, customers have and may continue to modify, delay or cancel plans to purchase our products. Any inability of current and/or potential customers to purchase and/or pay for our products due to, among other things, declining economic conditions as a result of inflation, rising interest rates, changes in spending patterns and the effects of governmental initiatives to manage economic conditions may have a negative impact on our financial condition and results of operations.
Changes in U.S. social, political, regulatory and economic conditions or laws and policies governing the healthcare system and drug prices, foreign trade, manufacturing and development and investment in the territories and countries where we or our customers operate could adversely affect our business and our operating results.
The application of laws and regulations implicating global transactions is often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. For example, we may be exposed to any changes in national or international regulations governing the transport of biological products across borders. Non-compliance could also result in fines, damages, criminal sanctions, prohibited business conduct and damage to our reputation. We incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which may be substantially different from those in the United Kingdom or United States. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our business and result in significant fines or penalties.
Trade relations between China and the United States could materially and adversely affect our business.
Changes in political conditions in the United States and China and changes in the state of China-U.S. relations are difficult to predict and could adversely affect our business. We currently sell products in China and have invested, and will continue to invest, in providing localized product support, operations and technology to better serve customers in China, and if the Chinese government makes any changes to its laws or policy concerning foreign ownership of companies or assets located within China, or imposes any significant increases on tariffs on goods imported into or out of China, it could have a significant impact on our business and financial results.
In addition, because of our continuing focus on strategic investment into providing more products to the life science and academic research market in China, any deterioration in political or trade relations might cause a public perception in the United States or elsewhere that may cause our products to become less attractive. We cannot predict what effect any changes in China-U.S. relations may have on our ability to access capital or effectively operate in China, which could have a material adverse effect on our business and results of operations.
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As a multinational corporation, we are exposed to fluctuations in currency exchange rates, which could adversely affect our cash flows and results of operations.
International markets contribute a substantial portion of our revenue, and we intend to continue expanding our presence in these regions. The exposure to fluctuations in currency exchange rates takes on different forms. International revenue and costs are subject to the risk that fluctuations in exchange rates could adversely affect our reported revenue and profitability when translated into pounds sterling for financial reporting purposes. The majority of our revenue is denominated in U.S. dollars, and the majority of our costs are in British pounds sterling. These fluctuations could also adversely affect the demand for products and services provided by us. As a multinational corporation, our businesses occasionally invoice third-party customers in currencies other than the one in which they primarily do business (the “functional currency”). Movements in the invoiced currency relative to the functional currency could adversely impact our cash flows and our results of operations. As our international sales grow, exposure to fluctuations in currency exchange rates could have a larger effect on our financial results. In the fiscal year ended December 31, 2021, currency translation had a negative effect in the amount of £10.9 million on revenue due to the exchange rate between Pound Sterling and U.S. Dollar. See Item 11. “Quantitative and Qualitative Disclosures About Market Risk.”
We are subject to product liability and other claims in the ordinary course of business.
Our business involves risk of product liability, claims related to providing incorrect product information at the time of purchase and other claims in the ordinary course of business arising from the products that we source from various manufacturers or produce ourselves. Furthermore, there may be product liability risks that are unknown, or which become known in the future. Substantial, complex or extended litigation on any claim could cause us to incur significant costs and distract our management. For example, lawsuits by governmental authorities, employees, shareholders, suppliers, collaborators, distributors, customers, competitors or others could be very costly and substantially disrupt our business. Our exposure to such claims may increase as we seek to increase the geographic scope of our sourcing and sales activities and to the extent that we expand our manufacturing operations. We maintain insurance policies and, in some cases, our suppliers, customers and predecessors of acquired companies have indemnified us against certain claims. We cannot assure you that our insurance coverage or indemnification agreements will be available in all pending or any future cases brought against us. Furthermore, our ability to recover under any insurance or indemnification arrangements is subject to the terms and conditions of such insurance or indemnification agreement, as well as the financial viability of our and such third parties’ insurers, as well as legal enforcement under the local laws governing these arrangements. Insurance coverage in general or coverage for certain types of liabilities, such as product liability in developing markets, may not be readily available for purchase or cost-effective for us to purchase. Furthermore, many of our insurance policies are subject to deductibles and retentions. Accordingly, we could be subject to uninsured and unindemnified future liabilities requiring us to provide additional reserves to address such liabilities. An unfavorable result in a case for which adequate insurance or indemnification is not available could adversely affect our business, financial condition and results of operations.
We are also involved in various disputes, litigation and regulatory matters incidental to and in the ordinary course of our business, including employment matters, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business. Where merited, we will vigorously defend ourselves in such matters. While the impact of this litigation has or may be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition or results of operations in the future.
Our business, financial condition and results of operations depend upon maintaining our relationships with suppliers.
Our ability to sustain our gross margins has been, and will continue to be, dependent in part upon our ability to obtain favorable terms from our suppliers. These terms may change from time to time, and such changes could adversely affect our gross margins over time. In addition, our results of operations and cash flows could be adversely impacted by the acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements. Further, if for any reason we enter into a contract with a supplier on unfavorable terms, it may harm our ability to negotiate our future contracts with that supplier or with other suppliers.
Some of our competitors are increasing their manufacturing operations both internally and through acquisitions of manufacturers, including manufacturers that supply products to us. In addition, we manufacture
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certain products that may compete directly with products we source from our suppliers. To date, we have not experienced an adverse impact on our ability to continue to source products from manufacturers that have been vertically integrated or otherwise compete with us, although there is no assurance that we will not experience such an impact in the future.
The loss of one or more of our large suppliers, including as a result of consolidation, a material reduction in their supply of products or provision of services to us, extended disruptions or interruptions in their operations or material changes in the terms we obtain from them, could have a material adverse effect on our business, financial condition and results of operations.
We are highly dependent on our management and employees. Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees that we need to support our business and our intended future growth.
Our success largely depends on the skills, experience and continued efforts of our management, including our Chief Executive Officer and our senior leadership. The replacement of certain members of our global leadership team would likely involve the expenditure of significant time and financial resources, and the loss of any such individual may significantly delay or prevent the achievement of our business objectives. As we continue to grow, our success also depends on our ability to attract, motivate and retain highly qualified individuals who will also fit within the Abcam culture. Competition for senior management and other personnel in our industry is intense, and the pool of suitable candidates is limited. If qualified personnel become scarce or difficult to attract or retain in our industry for compensation-related or other reasons, we could experience higher labor, recruiting or training costs. Further, new hires may require significant training and time before they achieve full productivity and may not become as productive as we expect. The failure to attract, retain and properly motivate members of our senior management team and other employees, to find suitable replacements for them in the event of death, illness or their desire to pursue other professional opportunities, or to maintain our corporate culture as we continue to grow, could have a negative effect on our operating results.
We are also reliant on contractors in certain key operational roles. While we are seeking to replace such contractors with permanent employees, until such appointments are made, we are subject to the risk inherent in the use of contractors, including the risk that they accept an alternative engagement or that they are not sufficiently motivated, incentivized or aligned to our commercial objectives.
We may be required to record a significant charge to earnings if our goodwill and other amortizable intangible assets or other investments become impaired.
We are required under IFRS to test goodwill for impairment at least annually and to review our goodwill, amortizable intangible assets and other investments, including those acquired through acquisition activity, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.
Factors that could lead to impairment of goodwill, amortizable intangible assets and other investments, including those acquired through acquisitions, include significant adverse changes in the business climate and actual or projected operating results and declines in the financial condition of our business. For example, for the fiscal year ended December 31, 2021, we experienced an impairment charge of £2.1 million as a result of a software asset developed as part of the ERP project that was no longer required. In this same period, we experienced an impairment charge of £1.1 million in internally developed technology assets related to AxioMx, Inc. for which the technology developed will not be used. The assets were capitalized in 2020. In addition, for the 12-months ended December 31, 2020, we experienced an impairment charge of £14.9 million that was related to the full impairment of the acquisition intangible in respect of our in vitro monoclonal antibody production technology that we acquired from AxioMx, Inc. in 2015 and subsequent post-acquisition expenditures that were capitalized. This arose following an appraisal of the ability to utilize at scale this technology, whereby, although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to further pursue active development and substantive utilization of this specific acquired technology. Additionally, in the fiscal year ended June 30, 2019, we experienced an impairment of software assets under construction of £12.8 million as a result of changes in the scope and nature of our ERP project and the corresponding usability of historical work performed on certain outstanding modules. We may be required in the future to record additional charges to earnings if our goodwill, amortizable intangible assets or other investments become impaired. Any such charge would adversely impact our financial results.
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Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents or business partners.
We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents or business partners of ours (including third-party suppliers, distributors or of businesses we acquire or partner with) that would violate U.S. and/or other national laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering and data privacy. In particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced corruption to some degree. All of our employees are required to undertake regular training on topics like anti-bribery, corruption and data protection legislation, among others. Additionally, we require our suppliers and distributors to sign up and abide by our Supplier and Distributor Codes of Conduct; however, there can be no assurance that our employees, suppliers and distributors will not engage in improper actions. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions, and any related shareholder lawsuits could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees. In addition, a government may seek to hold us liable as a successor for violations committed by companies in which we invest or that we acquire. We also rely on our suppliers to adhere to our supplier standards of conduct, and material violations of such standards of conduct could occur that could have a material effect on our business, reputation, financial condition and results of operations.
The indemnification provisions of acquisition agreements by which we have acquired companies or businesses may not fully protect us, and we may face unexpected liabilities.
Certain of the acquisition agreements by which we have acquired companies or businesses require the former owners to indemnify us against certain liabilities related to the operation of the company or business before we acquired it. In most of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities. While we have limited escrow and retention agreements in place relating our acquisitions, these may not be enough to cover our exposure if a significant liability arose in connection with any acquisition agreement. We cannot assure you that these indemnification provisions, escrow agreements and retention agreements will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our business, financial condition and results of operations.
Certain aspects of our business rely on relationships with collaborative partners, distributors and other third parties for development, supply and marketing of certain products and potential products, and such collaborative partners or other third parties could fail to perform sufficiently.
We believe that success in penetrating certain geographic markets depends in part on our ability to develop and maintain relationships with key distributors. Relying on distribution relationships is risky because, among other things, our distributors may: not devote sufficient resources to the sales of our products; fail to obtain approvals necessary to distribute our products; be acquired by other companies and terminate our distribution agreements or become insolvent; or decline to renew existing agreements on acceptable terms. Because these and other factors may be beyond our control, the distribution of our products in certain jurisdictions may be delayed or otherwise adversely affected. If we or any of our distributors terminate a distribution agreement, we may be required to devote additional resources to commercialization and distribution, which could adversely affect our business, financial condition and results of operations.
Changes in our tax rates, unavailability of certain tax credits or reliefs or exposure to additional tax liabilities or assessments could affect our profitability, and audits by tax authorities could result in additional tax payments for prior periods.
We are affected by various U.S. and non-U.S. taxes, including direct and indirect taxes imposed on our global activities, such as corporate income, withholding, customs, excise, value-added, sales and other taxes. Significant judgment is required in determining our provisions for taxes, and there are many transactions and calculations where the ultimate tax determination is not fully certain.
The amount of income tax we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits result in payments or assessments different from our reserves, our
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future results may include unfavorable adjustments to our tax liabilities, and our financial statements could be adversely affected. Any further significant changes to the tax system and tax rates in the United States or in other jurisdictions (including changes in the taxation of international income as further described below) could adversely affect our business, financial condition and results of operations.
We carry out extensive research and development activities, and as a result, we benefit in the United Kingdom from HMRC’s research and development expenditure credit (“RDEC”), which provides relief against U.K. corporation tax. Broadly, RDECs provide a tax credit currently equal to 13% of “qualifying research and development expenditure” made from April 1, 2020 (the rate was previously 12% of qualifying research and development expenditure made from January 1, 2018 to March 31, 2020) by certain companies where certain criteria are met. Based on criteria established by HMRC, a portion of expenditures incurred in relation to our research and development and manufacturing development activities are eligible for RDEC relief. Our qualifying research and development expenditures largely consist of employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive revenue and are loss generating. To the extent a company cannot utilize the RDEC against U.K. corporation tax, then certain rules apply that allow the RDEC to reduce the tax liability of certain specified taxes, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is repaid to the company by HMRC.
We also benefit from the U.K.’s “patent box” regime, which allows certain profits attributable to revenues from patented products (and other qualifying income) to be taxed at an effective corporation tax rate of 10%.
If, however, there are unexpected adverse changes U.K. tax legislation governing the RDEC scheme or the “patent box” regime, or for any reason we are unable to qualify for such advantageous tax legislation, in full or in part, then our business, results of operations and financial condition may be adversely affected.
Changes in tax law relating to multinational corporations could adversely affect our tax position.
The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the Organization for Economic Cooperation and Development (“OECD”) have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an agreed set of international rules for addressing base erosion and profit shifting.
As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, whether a permanent establishment exists in a particular jurisdiction, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. For example, if the taxing authority in one country where we operate were to reallocate income from another country where we operate, and the taxing authority in the second country did not agree with the reallocation asserted by the first country, we could become subject to tax on the same income in both countries, resulting in double taxation. If taxing authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it could increase our tax liability, which could adversely affect our financial position and results of operations.
Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to recent or proposed tax reform in the United States), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, uncertainties regarding the geographic mix of earnings in any particular period, and other factors, our estimates of effective tax rate and income tax assets and liabilities may be incorrect and our financial statements could be adversely affected. The impact of the factors referenced in the first sentence of this paragraph may be substantially different from period-to-period.
The application of indirect taxes could adversely affect our business and results of operations.
The application of indirect taxes, such as sales and use tax, value-added tax, provincial taxes, goods and services tax, business tax and gross receipt tax, to our business is a complex and evolving issue. Significant judgment is required to evaluate applicable tax obligations. As a result, amounts recorded may be subject to
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adjustments by the relevant tax authorities. In many cases, the ultimate tax determination is not fully certain because it is not clear how new and existing statutes might apply to our business. A number of jurisdictions globally have introduced (or are looking to introduce) additional reporting, record-keeping or value-added tax (or similar taxes) calculation, collection and remittance obligations on businesses like ours that are engaged in ecommerce.
Further, in the United States, states are able to tax their residents on remote sales. Following the U.S. Supreme Court’s decision in 2018 in South Dakota v. Wayfair, a U.S. state may require by way of “economic nexus laws” an online seller to collect sales taxes imposed by that state, even if the seller has no physical presence in that state, thus permitting a wider enforcement of such sales tax collection requirements against non-U.S. companies that have historically not been responsible for state or local tax collection unless they had physical presence in the U.S. customer’s state. Such legislation could require us to incur substantial costs in order to comply, including costs associated with legal advice, tax calculation, collection, remittance and audit requirements, which could make selling in such markets less attractive and could adversely affect our business.
We are required to comply with a wide variety of laws and regulations and are subject to regulation by various federal, state and foreign agencies.
The vast majority of our products are marketed and sold as being for research use only, and as such, they are not generally subject to the extensive laws and regulations that would apply if our products were to be marketed and sold for diagnostic or therapeutic use.
RUO products are regulated by the U.S. Food and Drug Administration (the “FDA”) as medical devices, and include in vitro diagnostic products in the laboratory research phase of development that are being shipped or delivered for an investigation that is not subject to the FDA’s investigational device exemption requirements. Although medical devices are subject to stringent FDA oversight, products that are intended for RUO and are labeled as RUO are exempt from compliance with most FDA requirements, including premarket clearance or approval, manufacturing requirements, and others. A product labeled RUO but which is actually intended for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the Federal Food, Drug, and Cosmetic Act (“FDCA”), and subject to FDA enforcement action. The FDA has indicated that when determining the intended use of a product labeled RUO, the FDA will consider the totality of the circumstances surrounding distribution and use of the product, including how the product is marketed and to whom. The FDA could disagree with our assessment that our products are properly marketed as RUOs, or could conclude that products labeled as RUO are actually intended for clinical diagnostic use and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would reduce our revenue, increase our costs and adversely affect our business, prospects, results of operations and financial condition. In the event that the FDA requires us to obtain marketing authorization of our RUO products in the future, there can be no assurance that the FDA will grant any clearance or approval requested by us in a timely manner, or at all.
In the event that the applicable laws and regulations were to change such that our products were subject to greater regulatory control, it could have a significant impact on our ability to market and sell our products and could require us to spend significant amounts to ensure and monitor compliance with such laws and regulations such that our business, financial condition and results of operations could be adversely affected. Similarly, if we fail to appropriately market and sell our products as being for research use only, we may be found to be selling products for diagnostic use and in breach of the appropriate laws and regulations. Though we are careful to ensure that our products are clearly identified as being for research use only and have processes in place to ensure we are not selling our products to customers who may intend to use our products other than for research, including for diagnostic use, we cannot be certain that our customers will not use our products for purposes other than those for which they are manufactured, identified and marketed.
Generally, we are subject to various local, state, federal, foreign and transnational laws and regulations, which include the requirements of the FDA, the HHS and other comparable agencies and, in the future, any changes to such laws and regulations could adversely affect us. In particular, for a very small number of our products which are regulated as non-RUO medical devices, we are subject to laws and regulations concerning current good manufacturing practices and certain other requirements applicable to medical devices. We also maintain certain quality management systems accreditations at our facilities in Cambridge, United Kingdom, Hangzhou, China (ISO9001) and Fremont, California (ISO13485). Our subsidiaries may be required to register for permits and/or licenses with, and may be required to comply with the laws and regulations of, the FDA, the HHS, foreign agencies and/or comparable state agencies as well as certain accrediting bodies depending upon the
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type of operations and location of product distribution, manufacturing and sale. The manufacture, distribution and marketing of certain of our products are subject to extensive ongoing regulation by the FDA and other equivalent local, state, federal and non-U.S. regulatory authorities. In addition, we are subject to inspections by these regulatory authorities. Failure by us or by our customers to comply with the requirements of these regulatory authorities or quality accreditation agencies, including without limitation, remediating any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal sanctions or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition, such a failure could expose us to contractual or product liability claims, contractual claims from our customers, as well as ongoing remediation and increased compliance costs, any or all of which could be significant.
Although we do not sell such products ourselves, a limited number of our products are classified as in vitro diagnostic medical devices in the EU. The EU regulatory landscape concerning medical devices (including in vitro diagnostic medical devices) is evolving. On April 5, 2017 Regulation (EU) 2017/746 of the European Parliament and of the Council on in vitro diagnostic medical devices and repealing Directive 98/79/EC and Commission Decision 2010/227/EU (“IVDR”) was adopted to establish a modernized and more robust EU legislative framework, with the aim of ensuring better protection of public health and patient safety. Unlike directives, the IVDR does not need to be transposed into national law and therefore reduces the risk of discrepancies in interpretation across the different European markets.
The IVDR will become applicable on May 26, 2022. However, on October 14, 2021, the European Commission proposed a “progressive” roll-out of the IVDR to prevent disruption in the supply of in vitro diagnostic medical devices. The European Parliament and Council voted to adopt the proposed regulation on December 15, 2021 and the regulation entered into force on January 2022.
The IVDR will fully apply on May 26, 2022 but there will be a tiered system extending the grace period for many devices, depending on their risk classification, before they have to be fully compliant with the regulation.
We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the importation and exportation of products, animal welfare, the handling, transportation and manufacture of substances that could be classified as hazardous, laws governing government contracts and our business practices such as anti-corruption and antitrust laws. Although we believe that we comply in all material respects with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion concerning the compliance of our operations with applicable laws and regulations. In addition, there can be no assurance that we will be able to maintain or renew existing permits, licenses or other regulatory approvals or obtain, without significant delay, future permits, licenses or other approvals needed for the operation of our businesses. Furthermore, loss of a permit, license or other approval in any one portion of our business may have indirect consequences in other portions of our business if regulators or customers, for example, cease doing business with such other portion due to fears that such loss is a sign of broader concerns about our ability to deliver products or services of sufficient quality.
Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on our business, financial condition and results of operations. Failure to comply with these laws and regulations can lead to agency action, including warning letters, product recalls, product seizures, monetary sanctions, injunctions to halt manufacturing or distribution, restrictions on our operations, withdrawal of existing or denial of future approvals, permits or registrations, including those relating to products or facilities and civil and criminal sanctions. To the extent these agencies were to take enforcement action, such action may be publicly available, and such publicity could harm our ability to sell these regulated products globally and may harm our reputation. In addition, such actions could limit the ability of our customers to obtain regulatory clearance or approval for their products in the United States or abroad and/or our customers may incur significant costs in obtaining or maintaining such regulatory clearances or approvals in the United States or abroad. In addition, any such failure relating to the products we provide exposes us to direct and third-party product liability claims as well as contractual claims from our customers, including claims for reimbursement for lost or damaged products, as well as potential recall liability, which could be significant. Customers may also claim loss of profits due to lost or delayed sales, although our direct contracts with end customers typically place limits on such claims. There can be no assurance that any such contractual limitation will be applicable or sufficient or fully enforced in any given situation.
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Risks Relating to our Intellectual Property
If we are unable to obtain and maintain patent protection for our technology, products and potential products, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely, and will continue to rely, upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our proprietary technologies, products and potential product. In the aggregate, these intellectual property assets are of material importance to our business. We believe, however, that no single patent, technology, trademark, trade secret, intellectual property asset or license is material in relation to Abcam’s business as a whole. Our success depends, in part, on our ability to secure and maintain patent protection in the United States and other countries with respect to our technology, current products and potential products, and any future potential products and technology we may develop. We seek to protect our proprietary position by filing or collaborating with our licensors to file patent applications in the United States and abroad related to our proprietary technologies, products and potential products. Our pending and future patent applications may not result in patents being issued which protect our technology or their intended uses or which effectively prevent others from commercializing competitive technologies or products.
The patent prosecution process is expensive, time consuming and complex, and we may not be able to file, prosecute, maintain, defend, enforce or license all necessary or desirable patents at a reasonable cost or in a timely manner in all desirable jurisdictions. As a result, we may not be able to prevent competitors or other third parties from developing and commercializing competitive products in all such fields and jurisdictions.
It is possible that we will fail to identify patentable aspects of our research and development output or fail to take the necessary steps to seek patent protection before it is too late to obtain patent protection. We may not have the right to control the preparation, filing, and prosecution of patent applications, or to maintain the rights to patents licensed from third parties. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our relevant proprietary products and technology, including current products, potential products, and any future potential products we may develop in the United States or in other foreign countries, in whole or in part. Our existing patents may have issues with claims that fail to cover our relevant proprietary products and technology, including current products, potential products and any future potential products we may develop in the United States or in other foreign countries, in whole or in part. Alternately, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing products and technologies. Patents may not be granted for a number of reasons, including known or unknown prior art, deficiencies in the patent application or the lack of novelty of the underlying invention or technology. In addition, publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases, not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications or that we or our licensors were the first to file for patent protection of such inventions.
Even if patents do successfully issue and even if such patents cover our current products, current potential products and any future potential products we may develop, third parties may challenge their validity, ownership, enforceability or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable or circumvented. We may become involved in proceedings challenging our owned or licensed patent rights, including, but not limited to, opposition, derivation, reexamination, inter partes review, post grant review or interference. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any of our products and may result in loss of patent rights or freedom to operate, loss of exclusivity, or patent claims being narrowed, invalidated or held unenforceable, any of which could limit our ability to stop others from using or commercializing similar or identical technology and products, or could limit the duration of the patent protection of our technology, products and potential products. Such proceedings also may result in substantial costs and require significant time from our management and employees, even if the eventual outcome is favorable to us. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our products, if approved, or practicing our own patented technology. Our competitors may also be able to circumvent our patents by developing similar or alternative potential products in a non-infringing manner.
The patent position of life sciences companies can be uncertain, involves complex legal, scientific and factual questions, and is characterized by the existence of large numbers of patents and litigation based on
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allegations of patent or other intellectual property infringement, misappropriation, violation or invalidity. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are uncertain. If the patent applications we hold or have in-licensed with respect to our technology products and potential products fail to issue, if the validity, breadth or strength of protection of our patents and patent applications with respect to our technology, products and potential products is threatened or if they fail to provide meaningful exclusivity for any of our current or future technology products and potential products, it could dissuade companies from collaborating with us, encourage competitors to develop competing products or technologies and threaten our ability to commercialize future potential products. Any such outcome could harm our business.
In addition, we may in the future be subject to claims by former employees, consultants or other third parties asserting an ownership right in our owned or licensed patents or patent applications. An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar products, potential products or technology, without payment to us, or could limit the duration of the patent protection covering our products, potential products and technology. Such challenges may also result in our inability to develop, manufacture or commercialize our products, potential products and technologies without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our owned or licensed patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future products, potential products or technologies. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.
Variability and developments in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products and potential products.
As is the case with other companies in our industry, our success depends in part on obtaining, maintaining, enforcing and defending intellectual property, particularly patents. Obtaining and enforcing patents in the life science industry involves technological and legal complexity, and obtaining and enforcing life science patents is costly, time-consuming and inherently uncertain. Changes in either the patent laws or their interpretation in the United States or other jurisdictions may increase the uncertainties and costs surrounding the prosecution of our patents, diminish our ability to protect our inventions, obtain, maintain, defend, and enforce our intellectual property rights and, more generally, affect the value of our intellectual property or narrow the scope of our patent rights.
The Leahy-Smith America Invents Act (the “AIA”), which was passed in September 2011, resulted in significant changes to the U.S. patent system. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-inventor-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-inventor-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the United States Patent and Trademark Office (the “USPTO”), after March 16, 2013 but before us could therefore be awarded a patent covering an invention similar or identical to one of ours even if we made our invention before the third party made theirs. This will require us to be cognizant going forward of the time from invention to filing of a patent application and be diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide additional opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal district courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. It is not clear what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.
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In addition, the United States federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The federal government retains a “nonexclusive, nontransferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself. Some of our licensed patents are subject to the provisions of the Bayh-Dole Act. If our licensors fail to comply with the regulations of the Bayh-Dole Act, they could lose title to any patents subject to such regulations, which could affect our license rights under the patents and our ability to stop others from using or commercializing similar or identical technology and products, or limit patent protection for our technology and products.
The United States and many other countries have adopted a doctrine of “patent exhaustion,” which provides that once a patentee sells one of its products, it can no longer exercise control over the specific product. This could limit our ability to rely on our patents to prevent the import of products we have placed into the market in one jurisdiction into another jurisdiction.
Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations, and there are other open questions under patent law that courts have yet to decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, European patent laws can be complex and uncertain, and there could be similar changes in the laws of foreign jurisdictions that may impact the value of our patent rights or our other intellectual property rights. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business, and changes in such laws may have an adverse effect on our patent rights and our ability to protect, defend and enforce our patent rights in the future, as well as on our competitive position, business, financial condition, results of operations and prospects.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO, European Patent Office (“EPO”) and other patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO, EPO and other patent agencies over the lifetime of the patent. While an inadvertent failure, including due to the effect of the COVID-19 pandemic on us or our patent maintenance vendors, to make timely payment of such fees or to comply with such provisions can in many cases within a reasonable timeframe be cured by additional payment of a late fee or by other means in accordance with the applicable rules, there are situations and time frames in which non-compliance with such provisions will result in the abandonment or lapse of the patent or patent application, and the partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents within prescribed time limits. If we or our licensors fail to maintain the patents and patent applications covering our products and potential products or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our products.
We enjoy only limited geographical protection with respect to certain patents, and we may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents covering our technology, products and potential products in all countries throughout the world would be prohibitively expensive, and even in countries where we have sought protection for our intellectual property, such protection can be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. In-licensing patents
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covering our products and potential products in all countries throughout the world may similarly be prohibitively expensive, if such opportunities are available at all. And in-licensing or filing, prosecuting and defending patents even in only those jurisdictions in which we develop or commercialize our products and potential products may be prohibitively expensive or impractical. Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection or licensed patents to develop their own products and, further, may export otherwise infringing products to territories where we and our licensors have patent protection, but where enforcement is not as strong as that in the United States or the European Union. These products may compete with our products, and our or our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many jurisdictions have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many jurisdictions limit the enforceability of patents against government agencies or government contractors. In these jurisdictions, the patent owner may have limited remedies, which could materially diminish the value of such patents. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be adversely impacted, which could have a material adverse effect on our business.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal system in certain foreign jurisdictions, particularly those in certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection which could make it difficult for us to stop the infringement, misappropriation or other violation of our patents or other intellectual property rights, or the marketing of competing products in violation of our proprietary rights in these jurisdictions. Proceedings to enforce our patent and other intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents and other intellectual property rights at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a commercial advantage from the intellectual property that we develop or license. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.
Patent terms may be inadequate to protect our competitive position on our products and potential products for an adequate amount of time.
The term of any individual patent depends on applicable law in the country where the patent is granted. In the United States, provided all maintenance fees are timely paid, a patent generally has a term of 20 years from its application filing date or earliest claimed non-provisional filing date. Extensions and adjustments may be available under certain circumstances. For example, upon issuance, the life of a patent can be increased based on certain delays caused by the USPTO, but this increase can be concomitantly reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. Regardless, the life of a patent and, correspondingly, the protection it affords is limited. For example, in the United States, patent term extension based on regulatory delay may be available, but only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product, and patent protection only extends to the scope of the single product as approved. Laws governing the ability to obtain multiple patents from a single patent family in foreign jurisdictions also varies widely. Additionally, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Even if we, or our licensors, obtain patents covering our products and potential products, when the terms of all patents covering a product or potential product expire, our business may become subject to competition with respect to that product. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours for an adequate amount of time.
We may not be able to rely on our patents to stop certain activities by third parties.
The United States and many other countries have provisions that exempt certain activities from patent infringement. For example, in the United States, “safe harbor” provisions shield infringement activities that are reasonably related to obtaining regulatory approval for certain medicinal products. This may limit our ability to stop others from using our technology, products and potential products. Third parties might use our patented
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technology, make and sell our patented products or otherwise perform an act that infringes one or more of our patents. We may not have sufficient financial or other resources to conduct appropriate litigation or other proceedings to stop such infringing acts. This could diminish the value of our patents.
We depend on proprietary technology licensed from others. If we lose our existing licenses or are unable to acquire or license additional proprietary rights from third parties, we may not be able to continue developing our potential products.
We are a party to certain license agreements for certain intellectual property and proprietary technology, and we may enter into additional agreements, including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance and other obligations on us. If we fail to comply with our obligations to our licensors or any of our other current or future collaborators, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product, potential product or other technology that is covered by these agreements, which could adversely affect the value of the potential product being developed under any such agreement, or we may face claims for monetary damages or other penalties under these agreements. Termination of these agreements or reduction or elimination of our rights under these agreements may result in us having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. In addition, such an event may cause us to experience significant delays in the development and commercialization of our products, potential products or technologies or incur liability for damages. If any such license is terminated, our competitors or other third parties could have the freedom to seek regulatory approval of, and to market, products and technologies identical or competitive to ours, and we may be required to cease our development and commercialization of certain of our products, potential products or technologies.
We may rely on third parties from whom we license proprietary technology to file and prosecute patent applications and maintain patents and otherwise protect the intellectual property we license from them. We may have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We may have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that may be licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than if we conduct them ourselves.
The growth of our business may depend in part on our ability to acquire or in-license additional proprietary rights. We may be unable to acquire or in-license any relevant third-party intellectual property rights that we identify as necessary or important to our business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. In that event, we may be required to expend significant time and resources to redesign our products, potential products or technologies or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected products, potential products or technologies, which could adversely impact our business, financial condition, results of operations and prospects. Even if we are able to obtain a license under such intellectual property rights, any such license may be non-exclusive, which may allow our competitors access to the same technologies licensed to us.
Disputes may arise regarding intellectual property subject to a license agreement, including:
| • | the scope of rights granted under the license agreement and other interpretation-related issues; |
| • | our or our licensors’ obligation to obtain, maintain and defend intellectual property and to enforce intellectual property rights against third parties; |
| • | the extent to which our technology, potential products and processes infringe, misappropriate or otherwise violate intellectual property of the licensor that is not subject to the license agreement; |
| • | the sublicensing of patent and other intellectual property rights under our license agreements; |
| • | our diligence, financial or other obligations under the license agreement and what activities satisfy those diligence obligations; |
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| • | the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and the priority of invention of patented technology. |
In addition, the agreements under which we license intellectual property or technology from third parties are, and any such future license agreements are likely to be, complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our diligence, financial or other obligations under the relevant agreement, or we may face claims for monetary damages or other penalties under these agreements, any of which could have an adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed or any other dispute described above related to our license agreements prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected products, potential products or technologies. Any of the foregoing could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.
Our technology licensed from third parties may be subject to retained rights.
Any license we may enter into could provide for the retention by the licensor of certain rights under their agreements with us, including the right to use the underlying technology for non-commercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether any future licensors will limit their use of the technology or their scholarly disclosures of information relating to the technology, and we may incur substantial expenses to enforce our rights to our licensed technology in the event of misuse.
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and have an adverse effect on the success of our business.
Competitors or other third parties may infringe, misappropriate or otherwise violate our patents or other intellectual property. If we or one of our licensors were to initiate legal proceedings against a third party to enforce a patent covering one of our products or potential products, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and in European countries, defendant counterclaims alleging invalidity or unenforceability are commonplace. Third parties may initiate invalidity proceedings even in the absence of infringement proceedings. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness, lack of written description, non-enablement or lack of entitlement. Third parties might allege unenforceability of our patents in the United States because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable.
If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products, potential products and other technology, which may allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or could require us to obtain license rights from the prevailing party in order to be able to manufacture or commercialize our products, potential products or technologies without infringing third-party patent rights. Even if a defendant does not prevail on a legal assertion of invalidity or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. Furthermore, many of our current and potential competitors may have, or may gain, the ability to dedicate substantially greater resources to enforce and defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. Our patents and other intellectual property rights also will not protect our technology, products and potential products if competitors design around our protected technology, products and potential products without infringing our patents or other intellectual property rights.
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We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop and market our technology.
We have not performed comprehensive searches or analyses of third-party patents that may be relevant to our technology. We may not be able to conduct complete and thorough searches, we may not be able to identify all relevant third-party patents, and we may not be able to fully predict the scope of the patent claims or the expiration of relevant third-party patent applications that may issue as patents. We cannot be certain that we are aware of all third-party patents and pending applications in the United States and abroad that are relevant to or necessary for the commercialization of our technology in any jurisdiction.
The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our technology. We may incorrectly determine that our technology is not covered by a third-party patent or may incorrectly predict whether a third-party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our technology. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our technology.
Third parties may assert claims against us alleging infringement, misappropriations or other violations of their patents and proprietary rights, or we may need to become involved in lawsuits to defend or enforce our patents, either of which could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of our products and potential products, or prohibit our use of proprietary technology or sale of products.
Our commercial success depends, in part, upon our ability to develop, manufacture, market and sell our products and other technologies without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe, misappropriate or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Litigation relating to infringement or misappropriation of patent and other intellectual property rights in the life science industry is common, including patent infringement lawsuits, interferences, derivation and administrative law proceedings, inter partes review and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions. The various markets in which we plan to operate can be subject to litigation regarding patents and other intellectual property rights. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. In addition, many companies in intellectual property-dependent industries, including the life science industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.
We may be subject to third-party claims including infringement, interference or derivation proceedings, post-grant review and inter partes review before the USPTO or similar adversarial proceedings or litigation in other jurisdictions. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our ability to commercialize the applicable product or potential product unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our products, potential products or technologies may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies, products and potential products infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover aspects of our products, potential products or technologies, the holders of any such patents may be able to prohibit our commercialization of the applicable product, potential product or technology until such patent expires or is finally determined to be invalid or unenforceable or unless we obtained a license.
In addition, defending such claims would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages if we are found to be infringing a third party’s patent rights. These damages
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potentially include royalties, increased damages (possibly treble damages) and attorneys’ fees if we are found to have infringed such rights willfully. Further, if a patent infringement suit is brought against us, our development, manufacturing or sales activities relating to the product, potential product or technology that is the subject of the suit may be delayed or terminated, as parties making claims against us may obtain injunctive or other equitable relief. As a result of patent infringement claims, or in order to avoid potential infringement claims, we may choose to seek, or be required to seek, a license from the third party, which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights. These licenses may not be available on reasonable terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same intellectual property rights. If we are unable to enter into a license on acceptable terms, we could be prevented from commercializing one or more of our products, potential products or technologies, or forced to modify such products or potential products, or to cease some aspect of our business operations, which could harm our business significantly. We might also be forced to redesign or modify our products, potential products or technologies so that we no longer infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or which redesign or modification could be impossible or technically infeasible.
Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. Intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit us from manufacturing, importing, marketing or otherwise commercializing our products, potential products, services and technology. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
Our trade secrets may be misappropriated or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets and protect other proprietary information.
We consider proprietary trade secrets, confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect, and we have limited control over the protection of trade secrets and confidential know-how used by our licensors, collaborators and suppliers.
To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with us prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our competitive position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable, and the enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Courts outside the United States are sometimes less willing to protect proprietary information, technology and know-how. Furthermore, if any of our trade secrets and confidential know-how were to be lawfully obtained or independently developed by a competitor or other third party, we
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would have no right to prevent them from using that technology or information to compete with us, and our competitive position would be harmed.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties, and we may be subject to claims asserting ownership of what we regard as our own intellectual property.
We do and may employ individuals who were previously employed at universities or other life science companies, including our licensors, competitors or potential competitors. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, consultants, collaborators, independent contractors and other third parties with whom we do business include provisions requiring such parties to assign rights in inventions to us and to not use the know-how or confidential information of their former employer or other third parties, we may be subject to claims that we or our employees, consultants, collaborators or independent contractors have inadvertently or otherwise used or disclosed know-how or confidential information of their former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property, which could result in customers seeking other sources for the technology, or in ceasing from doing business with us. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or potential product. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful, litigation could result in substantial cost and reputational loss and be a distraction to our management and other employees. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, financial condition and results of operations.
In addition, while we typically require our employees, consultants and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. Furthermore, even when we obtain agreements assigning intellectual property to us, the assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, each of which may result in claims by or against us related to the ownership of such intellectual property to determine the ownership of what we regard as our intellectual property. In addition, individuals executing agreements with us may have pre-existing or competing obligations to a third party, such as an academic institution, and thus an agreement with us may be ineffective in perfecting ownership of inventions developed by that individual. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending any of the foregoing claims, litigation could result in substantial costs and be a distraction to our management and employees.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected. We currently own issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third-party objection, which could prevent the registration or maintenance of the same. We cannot assure you that any currently pending trademark applications or any trademark applications we may file in the future will be approved. During trademark registration proceedings, we may receive rejections and although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in proceedings before the USPTO and in proceedings before comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unsuccessful in obtaining trademark protection for our primary brand, we may be required to change our brand name, which could adversely affect our business.
We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly
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leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
Intellectual property rights do not necessarily protect us from all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
| • | others may be able to make products that are similar to any products and potential products we may develop or utilize similar technology that are not covered by the claims of the patents that we own or license now or in the future; |
| • | we, our licensors or current or future collaboration partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future; |
| • | we or our licensors or current or future collaboration partners, might not have been the first to file patent applications covering certain of our or their inventions; |
| • | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating or otherwise violating our owned or licensed intellectual property rights; |
| • | it is possible that our pending owned or licensed patent applications or those that we may own or license in the future will not lead to issued patents; |
| • | issued patents that we hold rights to may not provide us with a competitive advantage, or may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; |
| • | our competitors or other third parties might conduct research and development activities in jurisdictions where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| • | we may not develop additional proprietary technologies that are patentable; |
| • | the patents of others may harm our business; and |
| • | we may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property. |
Should any of these events occur, they could have an adverse effect on our competitive position, business, financial condition or results of operations.
Risks Relating to Our ADSs
The price of our ADSs may be volatile and may fluctuate due to factors beyond our control.
The initial public offering price for the ADSs was determined through negotiations between the underwriters and us. If you purchased at the initial public offering price, you may not be able to resell those ADSs at or above that price. The market price of our ADSs may fluctuate significantly due to a variety of factors, including:
| • | operating results that vary from our financial guidance or the expectations of securities analysts and investors; |
| • | the financial performance of the major end markets that we target; |
| • | the operating and securities price performance of companies that investors consider to be comparable to us; |
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| • | announcements of strategic developments, acquisitions and other material events by us or our competitors; |
| • | failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; |
| • | issuance of new or updated research or reports by securities analysts; |
| • | changes in government regulations; |
| • | financing or other corporate transactions; |
| • | the loss of any of our key personnel; |
| • | sales of our ADSs or ordinary shares by us, our executive officers and board members, holders of our ADSs or our shareholders in the future; |
| • | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and |
| • | other events and factors, many of which are beyond our control. |
These and other market and industry factors may cause the market price and demand for our ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of our ADSs. In addition, the stock market in general, and pharmaceutical, biotechnology and diagnostics companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of the holders of our ADSs were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our senior management would be diverted from the operation of our business. Any adverse determination in litigation could also subject us to significant liabilities.
We cannot assure you that a market for our ADSs will be sustained to provide adequate liquidity, and public trading markets may experience volatility. Investors may not be able to resell their ADSs at or above the price they pay.
We cannot assure you that an active trading market will be sustained for our ADSs. If a market is not sustained, it may be difficult for you to sell your ADSs. Public trading markets may also experience volatility and disruption. This may affect the pricing of the ADSs in the secondary market, the transparency and availability of trading prices, the liquidity of the ADSs and the extent of regulation applicable to us. We cannot predict the prices at which our ADSs will trade. It is possible that, in future quarters, our operating results may be below the expectations of securities analysts and investors. As a result of these and other factors, the price of our ADSs may decline.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our ADSs and our trading volume could decline.
The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no or too few securities or industry analysts commence coverage on us, the trading price for our ADSs would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ADSs or publish inaccurate or unfavorable research about our business, the price of our ADSs would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our ADSs could decrease, which might cause the price of our ADSs and trading volume to decline.
The dual listing of our ordinary shares and our ADSs may adversely affect the liquidity and value of our ordinary shares and ADSs.
Currently, our ADSs are trading on Nasdaq and our ordinary shares are admitted to trading on AIM. We cannot predict the effect of the dual listing on the value of our ADSs and ordinary shares, and the dual listing may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for our ADSs in the United States. The price of our ADSs could also be adversely affected
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by trading in our ordinary shares on AIM. Although our ordinary shares are currently admitted to trading on AIM, we may decide to cancel the admission of our ordinary shares to trading on AIM. Cancellation of the admission of our ordinary shares to trading on AIM would require the requisite consent of shareholders in a general meeting prescribed by AIM Rules for Companies, unless the London Stock Exchange agrees otherwise. We cannot predict the effect such cancellation would have on the market price of our ADSs or ordinary shares.
We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers, some investors may find the ADSs less attractive, and there may be a less active trading market for the ADSs.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
As a foreign private issuer listed on Nasdaq, we are subject to corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country in lieu of certain Nasdaq corporate governance listing standards, provided that we disclose which requirements that we have not complied with in any year and confirm the U.K. corporate governance practices we have complied with. Certain corporate governance practices in the United Kingdom, which is our home country, may differ significantly from Nasdaq corporate governance listing standards. For example, neither the laws of the United Kingdom nor our articles of association (“Articles of Association”) have quorum requirements similar to Nasdaq Rule 5602(c). Although we voluntarily comply with the higher corporate governance standards of the U.K. Corporate Governance Code, we could include non-independent directors as members of our nomination and remuneration committee, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. We may in the future elect to follow home country practices in the United Kingdom with regard to other matters. Therefore, our shareholders may be afforded less protection than they otherwise would have under Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. See Item 6.C. “Directors, Senior Management and Employees—Board Practices.”
We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
As discussed above, we are a foreign private issuer, and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2022. In order to maintain our current status as a foreign private issuer, either (a) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors cannot be U.S. citizens or residents, (ii) more than 50 percent of our assets must be located outside the United States and (iii) our business must be administered principally outside the United States. If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers,
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including the requirement to prepare our financial statements in accordance with U.S. generally accepted accounting principles, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. If we lose foreign private issuer status and are unable to comply with the reporting requirements applicable to a U.S. domestic issuer by the applicable deadlines, we would not be in compliance with applicable SEC rules or the rules of the Nasdaq, which could cause investors could lose confidence in our public reports and could have a material adverse effect on the trading price of our ADSs. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
Failure to comply with requirements to design, implement and maintain effective internal control over financial reporting could have a material adverse effect on our business. We have identified material weaknesses in our internal control over financial reporting.
As a public company in the United States, we are required to evaluate our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We must maintain effective internal control over financial reporting in order to report in an accurate and timely manner the results of our operations and financial condition. The process of designing and implementing effective internal control over financial reporting is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal control that is adequate to satisfy our reporting obligations as a public company. If we are unable to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. In addition, we are required, pursuant to Section 404(a), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. In addition, as we no longer qualify as an emerging growth company, our independent registered public accounting firm is required to issue an audit report on the effectiveness of our internal control over financial reporting.
In connection with the implementation of the necessary procedures and practices related to our internal control over financial reporting, we may identify deficiencies that we may not be able to remediate. In addition, we may encounter problems or delays in completing the remediation of any deficiencies that may be identified by our independent registered public accounting firm in connection with the issuance of their audit report.
For the fiscal year ended June 30, 2019, we identified a material weakness in our internal control over financial reporting relating to access to program and data controls within one of our legacy IT systems that did not allow for appropriate IT General Controls (“ITGC”). This material weakness remained in the fiscal year ended December 31, 2021. In addition, in the current fiscal year ended December 31, 2021, additional contributing factors to the existing ITGC material weakness described above were identified, leading to our conclusion that the existing material weakness with respect to ITGC related to all of our information systems relevant to the preparation of our financial statements.
In addition, prior to issuing our unaudited interim results for the six months ended December 31, 2020, management reviewed and identified errors in respect of the Goods Received Not Invoiced (“GRNI”) accrued liabilities account on our balance sheet as at December 31, 2020, that resulted in an understatement of profit for the 12-months ended December 31, 2020. Accordingly, we restated our consolidated financial statements as of and for the six months ended December 31, 2020. As a consequence, the results presented within our Transition Report on Form 20-F filed with the SEC on August 31, 2021 (the “Transition Report”) were different from those presented within the Form 6-K for the six months ended December 31, 2020 and furnished with the SEC on March 8, 2021. Therefore, the results included in the Transition Report were presented as restated. Management
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assessed the internal controls over financial reporting in place around the GRNI accrued liabilities account and concluded that the financial system was not configured to provide a sufficiently detailed invoice and purchase order reconciliation report that would allow the GRNI review control to be performed effectively and timely. In addition, the design of the control did not define a threshold to enable sufficient investigation and for management to properly evaluate the accuracy of the account. This material weakness remained in the fiscal year ended December 31, 2021.
As of December 31, 2021, we have identified additional material weakness in our internal controls over financial reporting in relation to revenue, inventory, payroll and manual journal entries. See Item 15 “Controls and Procedures—Material Weaknesses in Internal Control Over Financial Reporting.” It may not be possible to complete remediation work in accordance with our planned timetable due to resource constraints.
We cannot give assurance that the measures we are taking to remediate the aforementioned material weaknesses will be sufficient or that they will prevent future material weaknesses. As management continues to evaluate and work to improve our internal control over financial reporting, we may determine it necessary to take additional measures or modify the remediation measures. Obstacles including complexities in our operational environment, challenges in fully transitioning to the Oracle Cloud ERP system, integrating BioVision, and resource constraints to complete an effective risk assessment process and implement controls in a timely manner may require further remediation efforts, all of which individually and in aggregate may increase implementation time.
In undertaking complex system implementations across the revenue cycle, product data and distribution capabilities, the operation of existing controls over financial reporting may be temporarily impacted. For example, it may take longer than anticipated to deploy the required integrations between various system components. During new system deployment initial data quality may be insufficient to allow the effective operation of internal controls over financial reporting. The development of system generated reports required for the operation of such controls may take longer than anticipated. Relatedly, as the deployment of new systems and processes will be phased in through the year ending December 31, 2022 we will not be able to operate the complete suite of internal controls over financial reporting in general, and in particular IT general controls, across the whole of the year.
If our remedial measures are insufficient to address any of the material weaknesses we have identified, these will continue to be disclosed as material weaknesses. Additionally, if there is a change in conditions, or the degree of compliance with policies or procedure deteriorates, internal review of our internal control over financial reporting or the subsequent testing by our independent registered public accounting firm may reveal other deficiencies in our internal controls over financial reporting that are deemed material weaknesses. If this occurs, our consolidated financial statements or disclosures may contain material misstatements and we could be required to restate our financial results. In addition, if we are unable to successfully remediate any of these material weaknesses, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting or our independent registered public accounting firm may not in future issue an unqualified opinion, each of which could lead to investors losing confidence in our reported financial information, which could have a material adverse effect on the trading price of our ADSs, and we may be unable to maintain compliance with applicable stock exchange listing requirements.
In addition, while we were entitled to exclude BioVision, which we acquired in October 2021, from the assessment of internal control over financial reporting and from the assessment of disclosure controls and procedures to the extent subsumed in such internal control over financial reporting, in the course of integrating the activities of BioVision into our existing operations and systems we may encounter additional issues which may require an extension to our planned timetable.
We continue to incur increased costs as a result of operating as a public company in the United States and loss of our status as an emerging growth company, and our management is required to devote substantial time to new compliance initiatives and corporate governance practices.
As a U.S. public company we incur significant legal, accounting and other expenses, and we expect to incur additional costs as we no longer qualify as an emerging growth company as of December 31, 2021. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on non-U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and
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financial compliance costs and have made some activities more time consuming and costly. Moreover, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.
These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our senior management on our internal control over financial reporting and are also required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
As of December 31, 2021, we no longer qualify as an emerging growth company. To achieve compliance with Section 404 and as part of our efforts to remediate the material weaknesses we have identified, we have had to dedicate internal resources, engage outside consultants and adopt a detailed work plan to evaluate and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, we have not been able to conclude that our internal control over financial reporting is effective as required by Section 404. Any failure to implement and maintain effective remediations to our internal control over financial reporting to mitigate the identified material weaknesses could continue to adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting. If we identify one or more additional material weaknesses, or we are unable to remediate the existing material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. As a result, the market price of our shares could be negatively affected, and we could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.
A significant portion of our total issued and outstanding ADSs are eligible to be sold into the market, which could cause the market price of our ADSs to drop significantly, even if our business is doing well.
Sales of a substantial number of our ADSs in the public market, or the perception in the market that the holders of a large number of ADSs intend to sell, could reduce the market price of our ADSs. As of December 31, 2021, we had 228,886,439 ordinary shares (including those represented by ADSs) outstanding. All of our ADSs are freely tradable without restriction under the Securities Act, except for any of our ADSs that may be held by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
In the future, we may also issue additional securities if we need to raise capital or make acquisitions, which could constitute a material portion of our then-issued and outstanding ADSs.
If we issue shares in future financings, shareholders may experience dilution and, as a result, our ADS price may decline.
We may from time to time issue additional shares at a discount from the trading price of our shares. As a result, our shareholders would experience immediate dilution upon the issuance of any of our shares at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt or equity securities. If we issue shares or securities convertible into shares of our share capital, our shareholders would experience additional dilution and, as a result, our ADS price may decline.
Because we may not pay any cash dividends on our ADSs in the future, capital appreciation, if any, may be your sole source of gains and you may never receive a return on your investment.
Under current U.K. law, a company’s accumulated realized profits, so far as not previously utilized by distribution or capitalization, must exceed its accumulated realized losses so far as not previously written off in a reduction or reorganization of capital duly made (on a non-consolidated basis), before dividends can be paid. Therefore, we must have distributable profits before issuing a dividend. In the future, our board of directors may decide, in its discretion, whether dividends may be declared and paid. As a result, capital appreciation, if any, on our ADSs may be your sole source of gains, and you will suffer a loss on your investment if you are unable to
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sell your ADSs at or above the price you acquired your ADSs. See Item 8.A. “Financial Information—Consolidated Statements and Other Financial Information—Dividend Policy.”
Securities traded on AIM may carry a higher risk than securities traded on other exchanges, which may impact the value of your investment.
Our ordinary shares are currently traded on AIM. Investment in equities traded on AIM is sometimes perceived to carry a higher risk than an investment in equities quoted on exchanges with more stringent listing requirements, such as the main market of the London Stock Exchange, New York Stock Exchange or Nasdaq. This is because AIM imposes less stringent corporate governance and ongoing reporting requirements than those other exchanges. In addition, AIM requires only half-yearly, rather than quarterly, financial reporting. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-quoted companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our ordinary shares, our ADSs, or of the ordinary shares underlying our ADSs, may not reflect the underlying value of our company.
You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.
ADS holders may only exercise voting rights with respect to the ordinary shares underlying their respective ADSs in accordance with the provisions of the deposit agreement, which provides that a holder may vote the ordinary shares underlying any ADSs for any particular matter to be voted on by our shareholders either by withdrawing the ordinary shares underlying the ADSs or, to the extent permitted by applicable law and as permitted by the depositary, by requesting a temporary registration as shareholder and authorizing the depositary to act as proxy. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares, and after such a withdrawal you would no longer hold ADSs, but rather you would directly hold the underlying ordinary shares. You also may not know about the meeting far enough in advance to request a temporary registration.
The depositary will try, as far as practical, to vote the ordinary shares underlying the ADSs as instructed by the ADS holders. In such an instance, if we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself. If the depositary does not receive timely voting instructions from you, it may give a discretionary proxy to a person designated by us to vote the ordinary shares underlying your ADSs; provided, however, that no such discretionary proxy shall be given with respect to any matter to be voted upon as to which we inform the depositary that (i) we do not wish such proxy to be given, (ii) substantial opposition exists, or (iii) the rights of holders of ordinary shares may be adversely affected. Voting instructions may be given only in respect of a number of ADSs representing an integral number of ordinary shares or other deposited securities. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise any right to vote that you may have with respect to the underlying ordinary shares, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested. In addition, the depositary is only required to notify you of any particular vote if it receives notice from us in advance of the scheduled meeting.
You will not be directly holding our ordinary shares. Holders of the ADSs will not be able to exercise the preemptive subscription rights related to the ordinary shares that they represent and may suffer dilution of their equity holding in the event of future issuances of our ordinary shares.
English law generally provides shareholders with preemptive rights when new shares are issued for cash. Shareholders’ preemptive subscription rights, in the event of issuances of ordinary shares against cash payment, may be disapplied by a special resolution of the shareholders at a general meeting of our shareholders. On November 13, 2019, our shareholders approved the exclusion of preemptive rights, with such authority expiring at the conclusion of our next annual general meeting or, if earlier, the date 15 months after the date of approval. Such exclusion will need to be renewed upon expiration on the conclusion of our next annual general meeting to remain effective but may be sought more frequently for additional five-year terms (or any shorter period). The absence of preemptive rights for existing equity holders may cause dilution to such holders.
Furthermore, the ADS holders would not be entitled, even if such rights accrued to our shareholders in any given instance, to receive such preemptive subscription rights related to the ordinary shares that they represent.
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Rather, the depositary is required to endeavor to sell any such subscription rights that may accrue to the ordinary shares underlying the ADSs and to remit the net proceeds therefrom to the ADS holders pro rata. In addition, if the depositary is unable to sell rights, the depositary will allow the rights to lapse, in which case you will receive no value for these rights. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or ordinary shares, under the deposit agreement, ADS holders will not be permitted to elect to receive dividends in ordinary shares or cash, but will receive whichever option we provide as a default to shareholders who fail to make such an election.
Purchasers of ADSs may not receive distributions on our ordinary shares in the form of ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.
The depositary for our ADSs has agreed to pay to purchasers of ADSs the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. Purchasers of our ADSs will receive these distributions in proportion to the number of our ordinary shares their ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs, which means that purchasers of ADSs may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to them. These restrictions may have a material adverse effect on the value of a purchaser’s ADSs.
Purchasers of ADSs may be subject to limitations on transfer of their ADSs.
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by applicable law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim that they may have against us or the depositary arising from or relating to our ordinary shares, our ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. The waiver continues to apply to claims that arise during the period when a holder holds the ADSs, even if the ADS holder subsequently withdraws the underlying ordinary shares.
However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. In fact, you cannot waive our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. If we or the depositary opposed a demand for jury trial relying on above-mentioned jury trial waiver, it is up to the court to determine whether such waiver was enforceable considering the facts and circumstances of that case in accordance with the applicable state and federal law.
If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court or by the United States Supreme Court. Nonetheless, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York. In determining whether to enforce a jury trial waiver provision, New York courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim, none of which we believe are applicable in the case of the deposit agreement or the ADSs. If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary relating to the matters arising under the deposit agreement or our ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not have
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the right to a jury trial regarding such claims, which may limit and discourage lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary according to the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may have different outcomes compared to that of a jury trial, including results that could be less favorable to the plaintiff(s) in any such action.
Moreover, as the jury trial waiver relates to claims arising out of or relating to the ADSs or the deposit agreement, we believe that, as a matter of construction of the clause, the waiver would likely continue to apply to ADS holders who withdraw the ordinary shares from the ADS facility with respect to claims arising before the cancellation of the ADSs and the withdrawal of the ordinary shares, and the waiver would most likely not apply to ADS holders who subsequently withdraw the ordinary shares represented by ADSs from the ADS facility with respect to claims arising after the withdrawal. However, to our knowledge, there has been no case law on the applicability of the jury trial waiver to ADS holders who withdraw the ordinary shares represented by the ADSs from the ADS facility.
ADS holders have limited choice of forum, which could limit your ability to obtain a favorable judicial forum for complaints against us, the depositary or our respective directors, officers or employees.
The deposit agreement governing our ADSs provides that, (i) the deposit agreement and the ADSs will be interpreted in accordance with the laws of the State of New York, and (ii) as an owner of ADSs, you irrevocably agree that any legal action arising out of the deposit agreement and the ADSs involving us or the depositary may only be instituted in a state or federal court in the city of New York. Any person or entity purchasing or otherwise acquiring any our ADSs, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. This choice of forum provision may increase your cost and limit your ability to bring a claim in a judicial forum that you find favorable for disputes with us, the depositary or our and the depositary’s respective directors, officers or employees, which may discourage such lawsuits against us, the depositary and our and the depositary’s respective directors, officers or employees. However, it is possible that a court could find such choice of forum provisions to be inapplicable or unenforceable. The enforceability of similar choice of forum provisions has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable.
To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, actions by our ADS holders to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in a federal court in the city of New York. Our ADS holders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the provisions of the U.K. Companies Act 2006 (the “Companies Act 2006”), and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See Exhibit 2.3 to this Annual Report for a description of the principal differences between the provisions of the Companies Act 2006 applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.
Claims of U.S. civil liabilities may not be enforceable against us.
We are incorporated under English law. Substantially all of our assets are located outside the United States. The majority of our management and board of directors reside outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce judgments obtained in U.S. courts against them or us, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws.
The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final
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judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in the United Kingdom. In addition, uncertainty exists as to whether U.K. courts would entertain original actions brought in the United Kingdom against us or our directors or senior management predicated upon the securities laws of the United States or any state in the United States. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S. courts would be treated by the courts of the United Kingdom as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws, including whether the award of monetary damages under such laws would constitute a penalty, is an issue for the court making such decision. If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. These methods generally permit the English court discretion to prescribe the manner of enforcement.
As a result, U.S. investors may not be able to enforce against us or our executive officers, board of directors or certain experts named herein who are residents of the United Kingdom or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
If we are classified as a passive foreign investment company for U.S. federal income tax purposes, U.S. Holders may incur adverse tax consequences.
Based on the nature and composition of our income, assets and operations and the income, assets and operations of our subsidiaries, we do not believe that we were a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”), for the taxable year ending December 31, 2021, and we do not expect to be a PFIC in the foreseeable future. However, this is a factual determination that depends on, among other things, the nature and composition of our income and assets, and the market value of our shares and assets, including the nature and composition of income and assets and the market value of shares and assets of our subsidiaries, from time to time. Therefore, no assurance can be given that we were not a PFIC for the taxable year ending on December 31, 2021 or will not be classified as a PFIC for the current taxable year or any future taxable year.
If we are considered a PFIC at any time that a U.S. Holder (as defined below under Item 10.E. “Material United States Tax Considerations”) holds the ordinary shares or ADSs, U.S. Holders may suffer material adverse tax consequences, including with respect to any “excess distribution” received from us and any gain from a sale or other taxable disposition of the ordinary shares or ADSs. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an investment in the ordinary shares or ADSs and the potential consequences related thereto. For further discussion, see Item 10.E. “Material United States Tax Considerations.”
If a United States person is treated as owning at least 10% of the ordinary shares or ADSs, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person (as defined in the Internal Revenue Code of 1986, as amended) is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of the ordinary shares or ADSs, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” (a “CFC”) in our group (if any). Under current law, if our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as CFCs regardless of whether or not we are treated as a CFC (although there is currently a pending legislative proposal to significantly limit the application of these rules). A United States shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by CFCs, regardless of whether the Company makes any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such United States shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist holders of the ordinary shares or ADSs in determining whether we or any of our non-U.S. subsidiaries are treated as a CFC or whether any holder of the ordinary shares or ADSs is treated as a United States shareholder with respect to any such CFC or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and taxpaying obligations with respect to foreign-controlled CFCs. A
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U.S. Holder should consult its advisors regarding the potential application of these rules to an investment in the ordinary shares or ADSs.
Item 4. Information on the Company
A. History and Development of the Company
We were incorporated as a private limited company with the legal name Tayvin 103 Limited under the laws of England and Wales on February 12, 1998 with the company number 03509322. On March 26, 1998, we changed our company name to Abcam Limited, and on October 26, 2005, we re-registered as a public listed company with the name Abcam plc. Our principal office is located at Discovery Drive, Cambridge Biomedical Campus, Cambridge, United Kingdom, CB2 0AX, and our telephone number at this address is +(44) 1223 696000. Since 2005, our ordinary shares have traded on the AIM market of the London Stock Exchange, under the symbol “ABC.” In October 2020, we added a secondary listing of American Depository Shares “ADSs” on the Nasdaq Global Select Market, under the symbol “ABCM.” Our website address is www.abcam.com. The information contained on, or that can be accessed from, our website does not form part of this Annual Report. The SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. Our agent for service of process in the United States is Abcam Inc., 152 Grove Street, Suite 1100, Waltham, Massachusetts 02453, United States of America.
We have made, and intend to continue to make, strategic acquisitions in our existing and adjacent customer markets to supplement our organic growth, solidify our current market presence and expand into new markets. In October 2021, we acquired BioVision, Inc., a leading innovator of bio-chemical and cell-based assays, and developer, producer and seller of a wide portfolio of other products including recombinant proteins, antibodies, enzymes, and biochemical compounds. We acquired BioVision for cash consideration of: $340.0 million, on a cash-free, debt-free basis, adding one of our largest suppliers to our in-house portfolio. For a description of our principal capital expenditures and divestitures for the fiscal year ended December 31, 2021 and 12-months ended December 31, 2020 and for those currently in progress, see Item 5.B. “Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
We are a global life science company focused on identifying, developing and distributing high-quality reagents and tools for our customers at the forefront of life science research. Our products are used by researchers to study biological pathways, which is critical for scientific research, diagnostics and drug discovery. Our mission is to provide life science researchers with highly validated products and services to advance biological research and achieve their goals faster. We do this by continuously innovating and providing our customers with high-quality tools, together with expert customer support. Our product offering includes an extensive portfolio of antibodies and related protein research tools that are fundamental to our customers’ research and experimental workflow. Our customers are primarily scientists and researchers in academic institutions, research institutes and pharmaceutical, biotechnology and diagnostics companies. Headquartered in Cambridge, United Kingdom; with additional locations in Adelaide, Australia; Beijing, Hangzhou and Shanghai, China; Tokyo, Japan; Amsterdam, Netherlands; Singapore; Taipei City, Taiwan; as well as locations in the United States including Fremont and Milpitas, California; Branford, Connecticut; Waltham, Massachusetts; and Eugene, Oregon. Supported by a global team of approximately 1,750 employees (including contractors), we have served customers in over 130 countries.
Our addressable market can be broadly classified into two categories, based on the application of our products and type of customer they serve:
| • | Research use only proteomic tools. These products include protein binding reagents, such as primary and secondary antibodies and singleplex and multiplex immunoassays, and related reagents, such as kits, proteins, peptides, lysates, cell lines and biochemicals. Our research products are used to help detect, quantify, visualize and modify proteins in scientific research experiments, and enable our customers to develop insights about targets and pathways of interest. Our customers include academic labs for scientific research and clinical labs in pharmaceutical and biotechnology companies working in the drug discovery and diagnostic markets. Our catalogue revenue, the substantial majority of which is purchased for RUO, accounted for 94% of our total revenue for the fiscal year ended December 31, 2021. |
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| • | Antibody development for clinical application. In recent years, through the custom development of new antibodies and the out-licensing of our existing antibodies to biopharmaceutical and diagnostic companies, we have extended the commercial potential of our products into these markets. The substantial majority of our Custom Products and Licensing revenue, which includes custom development services, in vitro diagnostic medical devices (“IVD”) sales and royalty and license income, is generated from these activities, and accounted for 6% of our total revenue for the fiscal year ended December 31, 2021. |
We have developed an industry leading innovation platform that is informed by data analytics, research area specialists and the relationships we have built with our customers, enable us to anticipate and align our innovation efforts with our customers’ research priorities. Today, approximately two-thirds of our primary antibody innovation pipeline is driven by our proprietary algorithms that interrogate a wide variety of internal and external data sources, including research literature and our web data, to predict product and market demand, which inform our development efforts. We leverage this data to anticipate which tools researchers will need in the future in order to help advance their research, as well as to identify breakthrough opportunities in areas where there is a lack of high-quality products or where we identify custom opportunities in collaboration with our customers.
We offer a large and differentiated portfolio of approximately 90,000 products as of December 31, 2021. Our flexible sourcing model enables us to grow our product offering in line with researchers’ needs. This is achieved by developing and manufacturing in-house products, as well as sourcing products from our suppliers. We demand high product quality standards from our suppliers, and we enhance the utility of these products for our customers by providing additional data and product validation as well as by making them available through our global distribution platform and customer service. Over the last several years, we have increased focus on the development of in-house products for research areas we expect to have high demand. Notably, we have increased our portfolio of proprietary recombinant monoclonal antibodies and assays, which are recognized for their leading specificity, high sensitivity and consistency, to over 27,000 as of December 31, 2021. Alongside these highly validated protein binders, we offer additional related tools and reagents that customers require to study biological pathways and disease. This focus has seen our proprietary product portfolio grow to represent 61% of our total revenue for the fiscal year ended December 31, 2021 (including BioVision revenues), compared to 54% of our total revenue in the 12-months ended December 31, 2020. We are continuously expanding our portfolio to provide our customers with additional solutions and further expand within our addressable markets.
We make our extensive product characterization and validation data available to our customers across our portfolio. This data is sourced by our in-house laboratories, our network of collaborators and independent consumer product reviews. Researchers use this to be able to select the right product for their highly specific needs. Stringent quality control and validation processes are carried out by our global laboratories to check the activity, stability and performance of our products. Whether it is antibodies, kits, proteins or other products, the validation process is continuous, and the data obtained is made available on our product datasheets and in our protocols. We are continuing to invest in product validation in order to raise quality standards. For example, our knockout CRISPR gene editing program is one of the most accepted and trusted validation processes for antibody specificity, and we have been recognized for carrying out the largest number of such knockout validations for antibodies in the industry, according to CiteAb, who presented us with an award in 2020.
Since 2001, we have sold our products and services to customers in over 130 countries through a variety of channels, including our ecommerce sites, a network of distributors and a targeted field sales team. As of December 31, 2021, we estimate a global population of approximately 750,000 life science researchers based within academic, research, government and biopharmaceutical organizations that we aim to serve. As of December 31, 2021, we had eight manufacturing facilities and a global distribution network that enables prompt delivery to our customers, with orders generally shipped within 24 to 48 hours of ordering. Our multilingual scientific support team, which is mostly comprised of individuals with PhDs, together with our customer support team are available to help customers around the world with technical and order-related queries.
We recorded revenue of £315.4 million, profit for the year of £4.4 million and Adjusted Operating Profit of £60.4 million for the fiscal year ended December 31, 2021. For the fiscal year ended December 31, 2021, our revenue grew by 17.1% on a reported basis compared to the 12-months ended December 31, 2020. For the definition of Adjusted Operating Profit and a reconciliation of Adjusted Operating Profit to profit for the year, please see Item 5.B. “Liquidity and Capital Resources.”
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Products and Services
Catalogue Products
In total, we offer approximately 90,000 products in our catalogue as of December 31, 2021. These catalogue products support the research of proteins in biological pathways. Ultimately, findings from this research can translate into treatments for diseases such as cancer and immune deficiency disorders.
In the fiscal year ended December 31, 2021, catalogue sales comprised 94% of our total revenue.
Principal catalogue product lines include the following:
Primary and secondary antibodies
We provide antibodies intended for basic research, or those that are typically used in academic, pharmaceutical and biotechnology laboratories to investigate fundamental scientific questions. High-quality research antibodies are critical to scientists’ research and their ability to reproduce experiments, as unreliable research reagents lead to wasted time and money. We strive to offer high-quality antibodies that provide specificity, sensitivity, and consistency, which helps to increase confidence in research outcomes and reduce waste across the industry.
Conjugated antibodies and conjugation kits
Conjugation is the process of attaching a label to an antibody to enable visualization and measurement. Labels come in many forms, such as enzymes, fluorescent molecules and metals. We offer directly conjugated primary antibodies and antibody conjugation labelling kits for customers to undertake conjugation of their own antibodies.
Singleplex and multiplex immunoassays
An immunoassay is a test that uses one or more antibodies to detect and quantify a molecule of interest within a sample. We offer ELISA kits, which are based on reliable and optimized matched antibody pairs. Our matched antibody pairs are recombinant, monoclonal antibodies that are developed and optimized for use in relevant sample types like plasma and serum for reliable performance.
We offer a range of in-house multiplex immunoassay products that can be used with standard laboratory equipment. We also offer our innovative FirePlex multiplex product, which features customizable multiplex panels, with fast and easy readout on standard flow cytometers.
Our antibodies and antibody pairs are also made available to a range of third parties developing either novel multiplex platforms or upgrading their existing platforms.
Proteins and peptides
We offer a range of proteins and peptides including cytokines, which can initiate an immune response, growth factors, which help scientists culture cells in a laboratory, and enzymes, which catalyze reactions. Scientists use these proteins and peptides as part of more complex experiments to test how cells and organisms function.
Edited cell lines and lysates
Cell lines and lysates are an important emerging tool for antibody validation by both our customers and in our own labs. We offer a range of knockout cell lysates and lines, which are being used for our in-house validation needs and are being made available to our customers for their own research.
Other products
We offer a wide variety of other products, including cellular activity kits, miRNA kits, biochemicals and cell signaling pathway tools, which help researchers to find molecules needed for their research.
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Custom Products and Licensing
Alongside our catalogue offering we provide a comprehensive range of solutions for custom antibody, protein and cell line development. Our custom antibody development incorporates initial evaluation and target identification through to the delivery of purified, fit-for-purpose antibodies for research, diagnostic or therapeutic application.
In other situations, antibodies that are already available on our online catalogue for research use purposes are requested for potential clinical use. In such case, we work with those customers to provide a license for commercial use on third-party platforms or within in vitro diagnostics. Antibody-based IVD assays are tools typically used in a clinical setting, such as a hospital or medical institute laboratory, to help diagnose a disease or condition. These tools are used on patient samples (such as blood, urine or tissue) and help clinicians to diagnose or assess the progression of a disease. IVD assays can also provide information on the type of treatment to use and assist with disease prognosis. We sell these products directly and through specialist distributors.
For the fiscal year ended December 31, 2021, Custom Products and Licensing revenue comprised 6% of our total revenue.
Research & Development
We are constantly searching for new ways to bring more products in house and to improve our internal innovation capabilities through the use of data analytics, especially where we see that a customer’s needs are not being fulfilled or if there is demand for a higher quality alternative. We are engaged in ongoing research and development in all of our major product lines and believe that our future success depends, to a large extent, on our ability to continue to serve our customer’s needs and keep pace with changing technologies. In the fiscal year ended December 31, 2021 we developed over 5,000 new products.
Underpinning our differentiated and innovative product development capability is a strong and dedicated team of experts, which we increased by 16 after we acquired BioVision in October 2021. For more information about BioVision, see Item 10.C. “Additional Information—Material Contracts.”
Manufacturing and Distribution
As of December 31, 2021, we have eight manufacturing facilities strategically located across four continents in close proximity to many of the largest clusters of life science research hubs, which enhances supply chain efficiency and ensures that in most cases, our customers are able to have the product they require for their research within 24 to 48 hours of ordering. In October 2021, we acquired BioVision, and through that acquisition an additional manufacturing facility in Milpitas, California. For more information about BioVision, see Item 10.C. “Additional Information—Material Contracts.”
We have the expertise and government licenses to manage multiple controlled environments globally, enabling us to handle highly regulated chemicals and other materials in a compliant manner. We are committed to maintaining industry leading standards for our manufacturing processes at our global facilities in order to continue to provide our high-quality products to our customers. We follow strict global quality control procedures across all of our manufacturing facilities to ensure consistent lot-to-lot performance for our customers. We also impose the same quality standards on our third-party suppliers, to ensure that our customers receive a consistently high level of quality across products offered in our catalogue.
Our primary manufacturing site, based in Hangzhou, China, is ISO 9001:2015 certified and all other sites work to these standards. The facility of our IVD group, located in Fremont, California, is registered as a medical device establishment with the FDA and is subject to the FDA’s Quality System Regulation (“QSR”) and in compliance with ISO 13485:2016. This facility has a Device Manufacturing License granted by the California Department of Public Health.
Customers
We have three primary categories of customers including: academic institutions, research institutions, and pharmaceutical, biotechnology and diagnostic companies. While across all categories our ultimate customers are life science researchers, customer orders are received from individual scientists ordering on their own behalf, laboratory managers ordering on behalf of their lab teams, purchasing managers ordering on behalf of several
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labs, or central procurement teams ordering on behalf of labs, divisions or entire organizations. Orders can be received directly, through a variety of means, or via one of our distributors. As of December 31, 2021, 41% of our total revenue came from the United States, with 59% of our total revenue originating from all other countries in which we operate.
As of December 31, 2021, we estimate a worldwide population of approximately 750,000 life science researchers based within academic, research, government, and biopharmaceutical organizations that we aim to serve. For the fiscal year ended December 31, 2021, excluding sales through our distribution partners, approximately 38% of our catalogue revenue was derived from academic institutions, and the remaining approximately 62% was derived from our other customers including research institutes and biopharmaceutical, biotechnology and diagnostics companies. Our sales are widely distributed, and no single customer accounted for more than 2% of our revenue for the fiscal year ended December 31, 2021.
Sales Channels
Since 2001, we have sold our products and services to customers in over 130 countries through a variety of channels, including our ecommerce sites, a network of distributors and a targeted field sales team. These channels provide customers the flexibility to purchase our products quickly and from any location in the world. We continue to focus on ways to improve the ease and efficiency with which customers are able to find and access the products and services they need. In addition to our digital platform, we have an extensive range of offline channels, which include our global sales and customer and scientific support teams and Abcam and other industry hosted conferences, among others. In the fiscal year ended December 31, 2021, approximately 70% of our total revenue was sold through our direct channels, with 30% sold through our global network of distributors.
Suppliers
We maintain a large network of product suppliers and collaborators. We select suppliers that adhere to high-quality and ethical standards, and we monitor their performance through audits, reviewing the progress of any corrective action plans and measuring of key performance indicators. If any of our suppliers do not comply with our high quality and ethical standards or underperform on key performance indicators, we reassess our relationship with such supplier. In some cases, we delist a non-complying third-party product from our platform and supply channels. Our product suppliers benefit from our global distribution network, digital platform and recognized brand to support the sales of their products. Our suppliers are widely distributed, with no single Third party supplier accounting for more than 2% of our revenue for the fiscal year ended December 31, 2021.
We are transparent about how we work in terms of ethics, quality, the environment and general business principles, and aim to build long-term collaborative relationships based on trust.
Competition
We operate in a highly competitive environment with a diverse and fragmented base of competitors, many of whom focus on specific regions, customers and/or specific product segments. While many customers weigh and balance competitive factors differently in our industry, many focus upon consistency of product quality and performance, service and delivery, breadth of product line, consistency across products, price, customer support, online capabilities and the ability to meet the special and local needs of our customers. Market success is primarily dependent upon product innovation and quality, selection of products, price and reputation. For certain customers, competition is driven not only by the product quality across our industry, but also by the adaptability of the supplier as a developmental and commercial partner. We rely on our scale, expertise, deep customer access, depth of product offering, marketing strategies and sales force, acquisition strategy, financial profile and management team to deliver superior solutions to our customers and provide extensive market channel access to our suppliers.
Although only a few competitors have significant global scale and liquidity, the marketplace for reagents and biological tools, including RUO antibody suppliers, is fragmented and competitive, reflecting the wide range of technologies and applications that use these products and the unregulated status of the market. For a discussion of risks related to competition, see “Item 3.D. Risk Factors.”
Intellectual Property and Licenses
Our success depends in part upon our ability to protect our core technologies and intellectual property. We own significant intellectual property, including patents, patent applications, technology, trade secrets, know-how,
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copyrights and trademarks in the United States and other countries. Abcam is also licensed under domestic and foreign patents, patent applications, technology, trade secrets, know-how, copyrights and trademarks owned by others. In the aggregate, these intellectual property assets and licenses are of material importance to our business. We believe, however, that no single patent, technology, trademark, intellectual property asset or license is material in relation to Abcam’s business.
Patents
As of December 31, 2021, we own approximately 73 issued U.S. patents, 6 pending U.S. patent applications, 192 issued foreign patents and 27 pending foreign patent applications.
As of December 31, 2021, we exclusively licensed from MIT, through our acquisition of Firefly Bioworks Inc., five issued U.S. patents and 15 issued foreign patents. We also have non-exclusive patent licenses with the Broad Institute, Inc., ERS Genomics Limited, and Sigma-Aldrich Co. LLC, allowing us to use certain patented CRISPR technology to manufacture and sell CRISPR modified cell lines for research use.
Antibodies
Through our acquisition of Epitomics Inc., as of December 31, 2021, we own several patent families related to the generation of antibodies, including, for example: (1) a patent family consisting of six issued U.S. patents related to a fusion partner and the generation of monoclonal rabbit antibodies therefrom. Patents in this family are expected to expire in June 2026, exclusive of possible patent term adjustments or extensions or other forms of exclusivity; (2) a patent family consisting of one issued U.K. patent, one Australian patent under notification of acceptance, and four pending patent applications in Europe, Canada, China and the United States, related to the method of producing a recombinant allotype specific rabbit monoclonal antibody, with the issued U.K. patent expected to expire in December 2034 and any patents issuing from the pending applications (including a U.K. patent which may be obtained through the pending European application) expected to expire in December 2035, exclusive of possible patent term adjustments or extensions or other forms of exclusivity; and (3) a patent family consisting of one issued U.S patent and a pending application in Europe, related to methods of generating rabbit monoclonal antibodies by B cell panning and proliferation (without using any fusion partner), with the issued patent and any patents issuing from the pending applications are expected to expire in March 2036, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.
Through our acquisition of AxioMx, Inc., as of December 31, 2021, we own several patent families related to the generation of recombinant antibodies, including, for example, a patent family consisting of two issued U.S. patents, an issued patent in China and an issued patent in five European countries, together with four pending applications in Australia, China, Canada, and Europe, all related to methods and compositions for producing a chimeric polypeptide, such as converting single-chain variable fragment to properly folded immunoglobulin. The issued patents and any patents issuing from the pending applications are expected to expire in June 2036, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.
Assays
Through our acquisition of Firefly Bioworks, Inc., as of December 31, 2021, we have rights to, through ownership and exclusive license, several patent families related to our Fireplex product, consisting of nine issued U.S. patents, one pending U.S. patent application, 44 issued foreign patents, and two pending foreign patent applications, of which five issued U.S. patents and 15 issued foreign patents are exclusively licensed from MIT. The issued patents and any patents issuing from the pending applications in those families are expected to expire between 2026 and 2035, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.
Through the Expedeon Acquisition, as of December 31, 2021, we own three patent families related to the CaptSure technology utilized in our SimpleStep ELISA kits, consisting of four issued U.S. patents, 15 issued foreign patents in France, Germany, Netherlands, Switzerland, and the United Kingdom, and two pending foreign patent applications in Europe. The issued patents and any patents issuing from the pending applications in those families are expected to expire between 2030 and 2036, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.
Conjugation
Through the Expedeon Acquisition, as of December 31, 2021, we own four patent families related to our conjugation products, consisting of four issued U.S. patents, and 40 issued foreign patents. The issued patents are expected to expire between 2026 and 2034, exclusive of possible patent term adjustments or extensions or other forms of exclusivity.
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Individual patents have terms for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, utility patents issued for applications filed in the United States are granted a term of 20 years from the earliest effective filing date of a non-provisional patent application. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. All taxes, annuities or maintenance fees for a patent, as required by the USPTO and certain foreign jurisdictions, must be timely paid in order for the patent to remain in force during this period of time.
The actual protection afforded by a patent may vary on a product by product basis, from country to country and can depend upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions and the availability of legal remedies in a particular country and the validity and enforceability of the patent. Our patents and patent applications may be subject to procedural or legal challenges by others. We may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and we may be subject to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For more information, see the “Item 3.D. Risk Factors—Risks Relating to our Intellectual Property.”
Trademarks
As of December 31, 2021, we own trademark registrations or registration applications including ABCAM, RABMAB, FIREPLEX, SIMPLESTEP ELISA, and LIGHTNING LINK in the United States and in other foreign jurisdictions, such as in Europe and China.
Trade Secrets and Proprietary Information
In addition to patents and trademarks, we rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. However, trade secrets and know-how can be difficult to protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our collaborators and scientific advisors, and non-competition, non-solicitation, confidentiality, and invention assignment agreements with our employees, consultants, and independent contractors. We have also executed agreements requiring assignment of inventions with selected scientific advisors and collaborators. The confidentiality agreements we enter into are designed to protect our proprietary information and the agreements or clauses requiring assignment of inventions to us are designed to grant us ownership of technologies that are developed through our relationship with the respective counterparty. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties, such agreements will not be breached, or that these agreements will afford us adequate protection of our intellectual property and proprietary rights. See “Item 3.D. Risk Factors—Risks Relating to our Intellectual Property.”
People and Culture
We employed approximately 1,682 full-time and part-time employees (excluding contractors) as of December 31, 2021. The table below sets out the number of employees by geography as of December 31, 2021, 2020 and 2019:
| Geography |
As of December 31, 2021 |
As of December 31, 2020 |
As of December 31, 2019 |
|||||||||
| United States |
405 | 402 | 325 | |||||||||
| EMEA(1) |
762 | 691 | 551 | |||||||||
| APAC(2) |
515 | 462 | 384 | |||||||||
| Total |
1,682 | 1,555 | 1,260 | |||||||||
| (1) | The significant majority of our EMEA employees are in Cambridge, United Kingdom. |
| (2) | APAC includes employees in Shanghai, Beijing and Hangzhou in China, Tokyo, Japan, Singapore, Taiwan and Australia. |
Our people are guided by our purpose, to serve life scientists to achieve their mission faster, and our culture. Attracting, developing and retaining talented people in research and development, marketing, sales, digital, manufacturing and logistics and other positions is crucial to executing our strategy and our ability to compete effectively in a highly competitive industry. Our ability to recruit and retain such talent depends on several factors, including compensation and benefits, talent development and career opportunities, and our unique
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culture. To that end, we continually invest in our people in order to create an exceptional workplace and be an employer of choice. In 2022, for the third year running, Glassdoor awarded us a “Glassdoor Employees’ Choice Award,” which is based on feedback from employees about their job, work environment and their employer. Based on employee feedback provided to Glassdoor from October 2020 to October 2021, we were ranked fifth in the “Best Places to Work 2022 Employees’ Choice” in the United Kingdom.
Engagement, Diversity and Inclusion
We are committed to creating an exceptional work environment where people feel valued, respected and engaged. We encourage open, frequent dialogue through a number of channels, including our group-wide intranet, “town hall” meetings and global updates from our CEO and other members of the Leadership Team. Our anonymous “Ask Alan,” a forum that allows employees to ask the CEO questions and the answers are made available to all employees. In March 2020, we implemented a new employee insights tool to track engagement and better understand how our people feel. The tool, which includes access to global comparative data, enables managers to receive real-time, actionable insights.
For our business to succeed and effectively serve our global customers, it is vital that our business includes people from diverse backgrounds and a culture of inclusion, which is free from bias and discrimination. Our newly launched Diversity and Inclusion strategy is focused on providing a welcoming working environment for all employees, continued education, a broadening of our recruitment pools and implementing and sustaining inclusion programs. Our active Employee Resource Groups (“ERGs”) offer mentorship, support and engagement to help our employees, including those from underrepresented groups, succeed and thrive. As of December 31, 2021, we had seven ERGs operating globally. Furthermore, as of December 31, 2021, 54% of our total employee population was female, and 48% of our managerial employees were female. In our latest U.K. Gender Pay Gap Report, covering the 12-month period ended April 2021, our median and mean pay gap were 20.8% and 27.4%, respectively, a decrease of 6.1ppts and 0.6ppts, respectively, compared to the 12-month period ended April 2020. During the year, 59% of promotions to senior leadership positions were women. In recent years we have increased our effort to recruit and develop women through our organization by, for example, introducing Diversity & Inclusion targets that are linked to Senior Leadership remuneration and increasing our recruitment target of at least two woman on every shortlist for senior vacancies.
Training and Development
We offer a range of online and offline development opportunities to support personal and provisional growth. For the fiscal year ended December 31, 2021, approximately 2,000 internal courses were delivered online and offline, and over 15,000 digital content items were delivered via our curated learning platform, Abcampus. In the fiscal year ended December 31, 2021, we offered 12 different apprenticeship standards at levels two to seven in the United Kingdom and had 23 active apprentices including four senior leaders masters apprenticeships and four digital and technology solutions degree apprenticeships. We aim to create a positive, collaborative culture, and we want to ensure everyone is aware of the contribution they can make across our business. We recognize that the work environment has an impact on productivity, innovation and collaboration, which is why we have dedicated resources to building new facilities. We want employees to be engaged and motivated and have opportunities to develop and progress.
Compensation and Benefits
We believe rewarding employees fairly, equitably and competitively is crucial to attracting, retaining and maintaining a motivated workforce. To that end, we offer a comprehensive and wide-ranging compensation and benefits program (which vary by region) including market-competitive pay, broad-based share awards and bonuses, healthcare benefits, pension contributions, paid time off and family leave, flexible work schedules, well-being education and resources. With an emphasis on flexibility and personalization, each year we review and implement enhancements to ensure our benefits are inclusive and meet of the needs of our people.
In particular, we are focused on fostering an ‘owner mindset’ throughout the organization through greater share ownership. A central initiative of this effort was our AbShare scheme, an all employee share plan. The scheme vested in November 2021, with over 90% of our global employees becoming shareholders as a result. Two subsequent successor plans, the “Profitable Growth Incentive Plan” for senior leaders, and the “Abcam Growth Plan” for all other employees, have since been launched.
We believe that we maintain a good relationship with our employees. Currently, none of our employees belong to unions.
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Information Technology
Data Privacy and Security
We may also be subject to data privacy and security regulations by state, federal and foreign governments in which we conduct our business. Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of critical or sensitive personal information. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, federal and state consumer protection laws and regulations (for example, Section 5 of the Federal Trade Commission Act and the Health Insurance Portability and Accountability Act (“HIPAA”)), govern the collection, use, disclosure, and protection of personal information could apply to our operations or the operations of our partners. In particular, regulations promulgated pursuant to HIPAA establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information” or “PHI”) and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretation. State laws may be more stringent, broader in scope or offer greater individual rights with respect to PHI than HIPAA, and state laws may differ from each other, which may complicate compliance efforts. Entities that are found to be in violation of HIPAA as the result of a breach of unsecured PHI, a complaint about privacy practices, or an audit by the HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations, as well as significant reputational harm, if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.
In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. For example, California recently enacted the California Consumer Privacy Act (the “CCPA”), which creates new individual privacy rights for California consumers, as defined in the law, and places increased privacy and security obligations on entities handling certain personal data of consumers or households. The CCPA requires covered companies to provide new disclosures to consumers about such companies’ data collection, use and sharing practices, provide such consumers new ways to opt out of certain sales or transfers of personal information. The CCPA also provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information that may increase the likelihood of, and risks associated with, data breach litigation. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters on November 3, 2020. When it goes into effect on January 1, 2023, the CPRA will modify significantly the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Both the CCPA and CPRA could impact our business activities depending on how they are interpreted and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information.
EU member states, Switzerland, China, Russia and other countries, have also adopted data protection laws and regulations that impose significant compliance obligations. For instance, the collection and use of personal health data in the EEA is governed by the provisions of the General Data Protection Regulation (“GDPR”). The GDPR became effective on May 25, 2018 and imposes strict obligations and restrictions on the ability to collect, analyze, and transfer personal data. In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, rights for data subjects in regard to their personal data (including data access rights, the right to be “forgotten” and the right to data portability), limitations on retention of personal data, the principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit, demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities, the transfer of personal data out of the EEA, security breach notifications, security and confidentiality of the personal data, and the imposition of substantial potential fines for breaches of the data protection obligations. Data protection authorities from the different EU member states may impose additional requirements, which add to the complexity of processing personal data in the EU. From January 1, 2021, we are subject to the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, e.g. fines up to the greater of €20 million / £17.5 million or 4% of global turnover. The European Commission has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the UK
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adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/ extends that decision, and remains under review by the Commission during this period. In September 2021, the UK government launched a consultation on its proposals for wide-ranging reform of UK data protection laws following Brexit. There is a risk that any material changes which are made to the UK data protection regime could result in the Commission reviewing the UK adequacy decision, and the UK losing its adequacy decision if the Commission deems the UK to no longer provide adequate protection for personal data. These changes will lead to additional costs and increase our overall risk exposure.
We are also subject to EU rules with respect to cross-border transfers of personal data out of the EU and EEA; for example, in July 2020, the Court of Justice of the European Union limited how organizations could lawfully transfer personal data from the EEA to the United States by invalidating the EU-US Privacy Shield and imposing further restrictions on use of the standard contractual clauses, which could increase our costs and our ability to efficiently process personal data from the EEA. We are subject to the supervision of local data protection authorities in those EU jurisdictions where we are established or otherwise subject to the GDPR, and we maintain an office in Switzerland, which has its own set of stringent privacy and data protection laws and regulations. Fines for certain breaches of the GDPR are significant: up to the greater of €20 million or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR or other applicable privacy and data protection laws and regulations could result in regulatory investigations, reputational damage, orders to cease/change our use of data, enforcement notices, or potential civil claims including class action type litigation.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules. See “Risk Factors—Risks Relating to our Business and Industry—Cyber security risks and the failure to maintain the confidentiality, integrity and availability of our computer hardware, software and internet applications and related tools and functions, could result in damage to our reputation, data integrity and/or subject us to costs, fines or lawsuits under data privacy or other laws or contractual requirements.”
On August 20, 2021, China passed the Personal Information Protection Law (“PIPL”), effective on November 1, 2021. Notably, the PIPL, similar to the GDPR, applies extra-territorially. The PIPL is intended to clarify the scope of application, the definitions of personal information and sensitive personal information (which includes medical and health information), the legality of personal information processing and the basic requirements of notice and consent, among other things. The PIPL also sets out data localization requirements for operators of critical information infrastructure (“CIIOs”) and personal information processors who process personal information above a certain threshold prescribed by the relevant authorities. The PIPL also includes a list of rules which must be complied with prior to the transfer of personal information outside of China, such as compliance with a security assessment or certification by an agency designated by the relevant authorities or entering into standard form model contracts approved by the relevant authorities with the overseas recipient. Failure to comply with PIPL can result in fines of up to RMB 50 million or 5% of the prior year’s total annual revenue for the personal information processor and/or a suspension of services or data processing activities. Other potential penalties include a fine of up to RMB one million on the person in charge or directly responsible personnel and, in serious cases, individuals and entities may be exposed to criminal liabilities under other local Chinese law, such as the Criminal Law of the People’s Republic of China. The PIPL also prohibits responsible personnel for violations of the PIPL from holding high level management or data protection officer positions in relevant enterprises.
Regulatory Matters
U.S. Regulation
Our products and operations may be subject to regulation by the FDA and other federal, state, or local authorities, as well as foreign regulatory authorities. The FDA regulates, among other things, the research, development, testing, manufacturing, clearance, approval, labeling, storage, recordkeeping, advertising, promotion, marketing, distribution, post-market monitoring and reporting, and import and export of medical devices. The vast majority of our products are currently marketed as research use only medical devices.
Pursuant to its authority under the FDCA, the FDA has jurisdiction over medical devices, which are defined to include, among other things, IVD devices. IVD devices that are marketed as RUO are not intended for use in a clinical investigation or for clinical diagnostic use outside an investigation and must be labeled “For Research Use Only. Not for use in diagnostic procedures.” Products that are intended for RUO and are properly labeled as
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RUO are exempt from compliance with the FDA’s requirements applicable to medical devices more generally, including the requirements for clearance or approval and compliance with manufacturing requirements known as the QSR. A product labeled RUO but intended to be used diagnostically may be viewed by the FDA as adulterated and misbranded under the FDCA and is subject to FDA enforcement. The FDA may consider the totality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed, when determining its intended use.
RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended for human clinical diagnostic use. In November 2013, the FDA issued a final guidance on products labeled RUO, which, among other things, reaffirmed that a company may not make any clinical or diagnostic claims about an RUO product. If the FDA were to determine, based on the totality of circumstances, that our products labeled and marketed for RUO are intended for diagnostic purposes, they would be considered medical devices that could require clearance or approval prior to commercialization.
Regulation of Medical Devices in the European Union
A limited number of our products are classified as IVD in the European Union (“EU”). The EU has adopted specific directives and regulations regulating the design, manufacture, clinical investigations, conformity assessment, labeling and adverse event reporting for medical devices (including IVD).
In the EU, there is currently no premarket government review of medical devices (including IVD). However, the EU requires that all IVD placed on the market in the EU must meet the essential requirements of the EU IVD Directive (Directive 98/79/EC) (“IVDD”) including the requirement that an IVD must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner.
Compliance with the essential requirements of the IVDD is a prerequisite for European conformity marking (“CE mark”) without which IVD cannot be marketed or sold in the EU. To demonstrate compliance with the essential requirements, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Except for (general) IVD (i.e., all IVD other than those covered by Annex II to the IVDD and IVD for self-testing), where the manufacturer can self-assess the conformity of its products with the essential requirements, a conformity assessment procedure requires the intervention of a notified body. Notified bodies are independent organizations designated by EU member states to assess the conformity of devices before being placed on the market. A notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system. If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE mark to the device, which allows the device to be placed on the market throughout the EU.
Throughout the term of the certificate of conformity, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In particular, there will be a new audit by the notified body before it will renew the relevant certificate(s).
The EU regulatory landscape concerning IVD is evolving. On April 5, 2017 Regulation (EU) 2017/746 of the European Parliament and of the Council on IVD and repealing Directive 98/79/EC and Commission Decision 2010/227/EU (“IVDR”) was adopted to establish a modernized and more robust EU legislative framework, with the aim of ensuring better protection of public health and patient safety. Unlike the IVDD, the IVDR is directly applicable in all EU member states without the need for member states to implement into national law. This aims at reducing the risk of discrepancies in interpretation across the different European markets. The IVDR will become applicable on May 26, 2022. However, on October 14, 2021, the European Commission proposed a “progressive” roll-out of the IVDR to prevent disruption in the supply of in vitro diagnostic medical devices. The European Parliament and Council voted to adopt the proposed regulation on December 15, 2021 and the regulation entered into force in January 2022. The IVDR will fully apply on May 26, 2022 but there will be a tiered system extending the grace period for many devices (depending on their risk classification) before they have to be fully compliant with the regulation.
Once applicable, the IVDR will among other things:
| • | strengthen the rules on placing devices on the market and reinforce surveillance once they are available; |
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| • | establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; |
| • | establish explicit provisions on importers’ and distributors’ obligations and responsibilities; |
| • | impose an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation; |
| • | improve the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk; |
| • | set up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and |
| • | strengthen rules for the assessment of certain high-risk devices that may have to undergo an additional check by experts before they are placed on the market. |
The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”) which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland.
Legal Proceedings
We are not subject to any material legal proceedings.
Insurance
We maintain commercial insurance programs with third parties in the areas of property and business interruption, employers’ liability, product liability and cyber security, among others. In addition, we hold warrant indemnity insurance in respect of the Expedeon acquisition. We self-insure certain risks inherent in our business which, taken together with the deductible levels and exclusions contained within our third-party programs, results in our recording of accruals for incurred claims. Our ultimate exposure may be mitigated by amounts we expect to recover from third parties associated with such claims.
The legal name of our company is Abcam plc and we are incorporated under the laws of England and Wales. We have 28 wholly-owned subsidiaries. Please refer to Note 16 to our audited consolidated financial statements included elsewhere in this Annual Report for a listing of our significant subsidiaries, including name, country of incorporation, and proportion of ownership interest.
D. Property, Plant and Equipment
Corporate Offices
Our headquarters is located at Discovery Drive, Cambridge Biomedical Campus, Cambridge, CB2 0AX United Kingdom, housing central support functions, and is leased for a term of 20 years expiring in 2038. The lease covers an aggregate of approximately 100,000 square feet, divided over three floors. We also operate from a property in Waltham, Massachusetts. Our Waltham, Massachusetts office is our main corporate facility in the United States, housing U.S. support functions, and is leased for a term of 12 years expiring in 2032. The lease currently covers 75,000 square feet with the option to extend square footage over the course of the lease to 98,985 square feet. We also operate from properties in Shanghai, China; Taiwan and Singapore.
Sales and Distribution
Our major sales and distribution offices are located in Beijing, Hangzhou and Shanghai, China; Tokyo, Japan; Taiwan; Singapore; Cambridge, United Kingdom; and the United States including Milpitas, California; Waltham, Massachusetts, and Eugene, Oregon.
Research and Development, Supply Chain Operations and Manufacturing
Our research and development, supply chain operations and manufacturing sites are located in Adelaide, Australia; Hangzhou, China; Cambridge, United Kingdom and the United States including Branford, Connecticut; Eugene, Oregon; Fremont and Milpitas, California; and Waltham, Massachusetts.
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During the fiscal year ended December 31, 2021, to accommodate anticipated future growth, we continued the expansion of our new and existing leased office spaces in Fremont, California and Eugene, Oregon, among others. We believe that our existing facilities are adequate to meet current requirements and that suitable additional or substitute space will be available as needed to accommodate any further physical expansion of operations and for any additional offices.
IT Development hub
Our IT development hubs are located in Shanghai, China; Amsterdam, Netherlands; and Cambridge, United Kingdom.
Financing
We are financing expansions and improvements to our property portfolio through a mixture of bank debt and cash. We expect to continue to use this combination of financing to fund our continued expansion.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
You should read the following discussion together with consolidated financial statements and the related notes included elsewhere in this Annual Report. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors,” “Risk Factor Summary,” and “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Certain information called for by this Item 5, including a discussion of the 12-months ended June 30, 2019 and 2020, as well as the year-over-year comparison of our 2020 financial performance to 2019, has been reported previously in our final prospectus filed pursuant to Rule 424(b)(4) on October 22, 2020 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, a discussion of the six months ended December 31, 2020, as well as a comparison against performance in the six months ended December 31, 2019, has been reported previously in our transition report on Form 20-F filed on September 1, 2021 under Item 5. “Operating and Financial Review and Prospects.”
Overview
We are a global life science company focused on identifying, developing and distributing high-quality reagents and tools for our customers at the forefront of life science research. Our products are used by researchers to study biological pathways, which is critical for scientific research, diagnostics and drug discovery. Our mission is to provide life science researchers with highly validated products and services to advance biological research and achieve their goals faster. We do this by continuously innovating and providing our customers with high-quality tools, together with expert customer support. Our product offering includes an extensive portfolio of antibodies and related protein research tools that are fundamental to our customers’ research and experimental workflow. Our customers are primarily scientists and researchers in academic institutions, research institutes and pharmaceutical, biotechnology and diagnostics companies. Headquartered in Cambridge, United Kingdom, we operate across 14 locations around the world, supported by our world-class team of approximately 1,750 employees (including contractors), comprised of individuals, a large number of whom have PhDs, who have served customers in over 130 countries.
We believe that our product portfolio enables breakthrough proteomics discovery by our customers and partners. Our customers and partners are working to innovate and discover proteomic mechanisms such as the role of signaling and regulatory proteins in biological pathways—ultimately leading to diagnostics and treatments for diseases such as cancer and immune deficiency disorders. Their success depends on rigorous product performance and reliability, and it is these factors that continue to guide our innovation efforts.
Since 2019, we have put more resource into innovating faster in antibodies and immunoassays, and we have complemented these areas with new product categories such as conjugation kits, proteins/cytokines, engineered
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cell lines, and now a range of BioVision cellular and biochemical assays. In total, new products introduced since 2019 represented approximately 7% of our revenue for the fiscal year ended December 31, 2021. In addition, our in-house catalogue revenue grew by 41% for the fiscal year ended December 31, 2021. We are confident that our customer data insights and our approach to innovation and marketing underly this strong growth driver from internal innovation.
In the fiscal year ended December 31, 2021, our teams developed and launched over 2,500 high-quality antibody products including recombinant RabMAb antibodies, antibody pairs, SimpleStep ELISA kits and new formulations that enable faster labelling and assay development. These new product introductions combined to meet two objectives for our new product development: fill unmet needs in research and increase product quality. As we have developed our high throughput innovation capability, we have also made bolder moves to delist third-party supplied products that do not meet our customer quality needs. Together, these actions have substantially improved Abcam’s quality and our overall brand preference. As a global supplier of critical life science research reagents and tools, we are focused on strengthening our position as a partner of choice for organizations that are looking to access high-quality antibodies and antibody expertise for commercial use within their products and assays, a philosophy we refer to as “Abcam Inside.”
For the fiscal year ended December 31, 2021, our Abcam Inside philosophy has resulted in a further increase in the number of customers and partners adopting our products for use on their third-party platforms or development of clinical products. For the fiscal year ended December 31, 2021 we entered into 85 new agreements with such organizations, including Alamar Biosciences, Inc. and Nautilus Biotechnology, Inc..
To date, almost 1,000 of our antibodies have been commercialized through these partners, for use on third-party platforms or as diagnostic tools, with over three thousand more currently undergoing evaluation by our partners. We believe that these areas present significant long-term opportunities for the Group.
We recorded revenue of £315.4 million, operating profit for the year of £7.1 million and adjusted operating profit of £60.4 million for the fiscal year ended December 31, 2021. Revenue grew by 17.1% for the fiscal year ended December 31, 2021, as compared to the 12-months ended December 31, 2020. Operating profit grew 610.0% and adjusted operating profit grew by 19.4% for the same period. For the definition of Adjusted Operating Profit and reconciliation of Adjusted Operating Profit to profit for the period, please see “Non-IFRS Financial Measures.”
We present our results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We have determined that we only have one reportable segment, which is the sale of antibodies and related products.
Factors Affecting Our Performance
Our financial condition and results of operations have been, and will continue to be, affected by a number of important factors, including the following:
Product Mix, Growth and Innovation
We offer a variety of products, and the products in our portfolio are sold at different prices and in different volumes. In any particular period, changes in the volume of particular products sold across our various markets and the prices of those products relative to other products will impact our cost of sales, our gross profit and our gross margin. We continue to increase our focus on our innovation platform to extend and improve our in-house proprietary product offering, which we believe will continue to expand our market share in research use markets. Sales of in-house products generate a substantially higher gross margin than third-party product sales, and we also believe that in-house products will support continued market share expansion in research use markets while also enabling us to extend our product offering, through industry partners, to clinical applications. We expect to continue to devote significant resources to developing innovative new products, both as part of our existing portfolio and in complementary and adjacent markets. The acceptance and growth of such new products may vary. The volume of our products sold during a given period in any particular market will depend in part on successfully introducing new products that generate additional demand as well as the extent to which new products may impact our sales of existing products.
Seasonality
We experience modest seasonal customer demand, generally as a result of vacation and academic schedules of our worldwide customer base. We typically see minor slowdowns around the summer and winter holidays and
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a slight increase during the academic year. We believe that this is caused by factors unique to those particular product markets such as customer manufacturing schedules, inventory levels in the supply chain and government approval processes. As a result, we may see fluctuations across periods as the timing of our customers’ demand for certain products may change.
Currency Exchange Rates
We have substantial global operations whose financial condition and results of operations have been, and will continue to be, impacted by changes in the exchange rate of pound sterling into other currencies.
Strategic Acquisitions
We have made, and intend to continue to make, strategic acquisitions in our existing and adjacent customer markets to supplement our organic growth, solidify our current market presence and expand into new markets. In October 2021, we acquired BioVision, Inc. (“BioVision”), a leading innovator of bio-chemical and cell-based assays, and developer, producer and seller of a wide portfolio of other products including recombinant proteins, antibodies, enzymes, and biochemical compounds. We acquired BioVision for cash consideration of $340.0 million, on a cash-free, debt-free basis, adding one of our largest suppliers to our in-house portfolio.
Our strategic acquisitions may affect our business growth and the comparability of our financial results. Since the date of the BioVision acquisition to December 31, 2021, the acquisition contributed £2.6 million to our revenue and a loss before tax of £2.6 million. If the BioVision acquisition had been completed on January 1, 2021, our revenue and profit before tax would have been £331.6 million and £9.8 million, respectively.
We intend to continue to selectively pursue strategic acquisitions to further strengthen our competitiveness. We will evaluate and execute opportunities that complement and scale our business, optimize our profitability, help us expand into adjacent markets and add new capabilities to our business.
Impact of the COVID-19 Pandemic
Preventative and precautionary measures that we, other businesses, our communities and governments have taken to mitigate the spread of the COVID-19 pandemic, including variants, has adversely affected, and is expected to continue to adversely affect, elements of our business. In particular, precautionary measures taken by our customers, such as staggered shifts, social distancing and temporary laboratory closures, have adversely affected, and are expected to continue to adversely affect our business. Having begun to reopen in the latter half of 2020, laboratories continued to reduce COVID-19 related restrictions during the fiscal year ended December 31, 2021, with a resultant benefit to our revenues over this period. Despite this reopening, we do not believe activity had fully returned to pre-COVID levels by the end of the fiscal year ended December 31, 2021, due to the emergence of the Omicron variant in late 2021.
Global supply chains have faced significant challenges and delays. These additional pressures have been resolved by additional investment in manufacturing equipment and processes, while also introducing additional shift patterns in order to achieve better utilization of our resources. Further progress is expected as we pursue changes to our processes including quality control, kit development and logistics as well as benefits expected from our integrated business planning process.
Operating Expenses
As expected, over the last two years profit margins have been suppressed by the effects of both COVID-19 and the implementation of the Group’s five-year growth plan to 2024. Many of our major investment plans are now substantially complete, and as we look forward, we expect to see the rate of investment reduce and the resultant delivery of operational leverage as the value of our investments are realized.
For the 12-months ended December 31, 2020 and fiscal year ended December 31, 2021, our operating profit margin was 0.4% and 2.3%, respectively, and our adjusted operating profit margin was 18.8% and 19.2%, respectively.
As we look forward, we expect our operating leverage to continue to levels consistent with our five-year growth plan, comprising a 30% operating profit margin in 2024.
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Key Indicators of Performance and Financial Condition
As the prior year is a six-month period, we have included a 12-months ended December 31, 2020 for the purpose of providing a meaningful comparison to the fiscal year ended December 31, 2021.
The following table sets forth our key indicators of performance and financial condition for the 12-months ended December 31, 2020 and the fiscal year ended December 31, 2021.
| 12-months ended December 31, 2020 |
Fiscal Year ended December 31, 2021 |
|||||||
| (in millions unless otherwise stated) | ||||||||
| Total CER revenue growth(1) |
(0.9 | )% | 22.3 | % | ||||
| Net cash inflow from operating activities |
£ | 58.9 | £ | 62.9 | ||||
| Free Cash Flow(2) |
£ | 5.6 | £ | 6.0 | ||||
| (Loss) / Profit for the year |
£ | (0.9 | ) | £ | 4.4 | |||
| Adjusted Operating Profit(3) |
£ | 50.6 | £ | 60.4 | ||||
| Adjusted Operating Profit Margin(4) |
18.8 | % | 19.2 | % | ||||
| ROCE(5) |
6.6 | % | 7.6 | % | ||||
| Diluted earnings per share |
£ | (0.004 | ) | £ | 0.019 | |||
| Adjusted Diluted earnings per share(6) |
£ | 0.178 | £ | 0.206 | ||||
| (1) | Total Constant Exchange Rates (“CER”) revenue growth is our total revenue growth from one fiscal period / year to the next on a constant exchange rate basis. We measure CER revenue growth by applying the prior fiscal period’s / year’s actual exchange rates for each month to the current fiscal period’s / year’s equivalent monthly results. We use this measure to identify the relative period-on-period / year-on-year performance of the business by removing the impact of currency movements that are outside of management’s control. Please see “Non-IFRS Financial Measures” for a reconciliation of Total CER revenue growth to the most directly comparable IFRS financial performance measure and why we consider it useful. |
| (2) | Free Cash Flow is defined as net cash inflow from operating activities less net capital expenditure, transfer of cash from/(to) escrow in respect of future capital expenditure and the principal and interest elements of lease obligations and lease incentives received. Free Cash Flow provides an indication of the amount of cash available for discretionary investing or financing after removing capital related items. Free Cash Flow may not be comparable to other similarly titled metrics of others. Please see “Non-IFRS Financial Measures” for a reconciliation of Free Cash Flow to the most directly comparable IFRS financial performance measure and why we consider it useful. |
| (3) | Adjusted Operating Profit is defined as profit for the period / year before taking account of finance income, finance costs, tax, exceptional items, share-based payments and amortization of acquisition intangibles. Exceptional items consist of certain cash and non-cash items that we believe are not reflective of the normal course of our business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from period to period / year to year. Exceptional items currently consist of the impairment of intangible assets, systems and process improvement costs, acquisition costs, integration and reorganization costs, amortization of acquisition intangibles, amortization of fair value adjustments and share-based payments. Adjusted Operating Profit may not be comparable to other similarly titled metrics of others. Please see “Non-IFRS Financial Measures” for a reconciliation of Adjusted Operating Profit to the most directly comparable IFRS financial performance measure and why we consider it useful. |
| (4) | Adjusted Operating Profit Margin is defined as Adjusted Operating Profit calculated as a percentage of revenue. Adjusted Operating Profit Margin may not be comparable to other similarly titled metrics of others. Please see “Non-IFRS Financial Measures” for a reconciliation of Adjusted Operating Profit margin to the most directly comparable IFRS financial performance measure and why we consider it useful. |
| (5) | Return On Capital Employed (“ROCE”) is defined as Adjusted Operating Profit divided by capital employed, which is defined as total assets less current liabilities. We believe that ROCE is a key tool in measuring our financial efficiency and ability to create future growth in value. We aim to maintain ROCE at a level above our estimated cost of capital. ROCE may not be comparable to other similarly titled metrics of others. Please see “Non-IFRS Financial Measures” for a reconciliation of Adjusted Operating Profit, from which ROCE is derived, to the most directly comparable IFRS financial performance measure and why we consider it useful. |
| (6) | Adjusted Diluted earnings per share is defined as Adjusted profit for the period / year divided by the weighted average number of ordinary shares for the purposes of diluted earnings per share. Adjusted profit for the period / year used in this calculation is defined as profit for the period / year less (i) amortization of |
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| fair value adjustments, (ii) impairment of intangible assets, (iii) system and process improvement costs, (iv) acquisition costs, (v) amortization costs of acquired intangibles, (vi) integration and reorganization costs, (vii) share-based payment costs and employer tax contributions thereon and (viii) the tax effect of items (i) to (vii), all for the 12-months ended December 31, 2020 and fiscal year ended December 31, 2021. Adjusted Diluted earnings per share is calculated with an adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. We use Adjusted Diluted earnings per share to measure underlying profitability and to reflect the other adjusted performance measures used. Adjusted Diluted earnings per share may not be comparable to other similarly titled metrics of others. Please see “Non-IFRS Financial Measures” for a reconciliation of Adjusted Diluted earnings per share to the most directly comparable IFRS financial performance measure and why we consider it useful. |
Revisions to Previously Reported Financial Information
In March 2021, the IFRIC published an agenda decision on how an entity should account for costs of configuring or customizing application software in a Cloud Computing or SAAS arrangement. As a result of this change in accounting policy, we revised our consolidated financial statements as of and for the fiscal year ended December 31, 2021, the six months ended December 31, 2020, and the fiscal years ended June 30, 2020 and 2019. See Note 1(d) to our consolidated financial statements included elsewhere within this Annual Report for more information.
Components of Our Results of Operations
Revenue
Our revenue primarily consists of catalogue product sales. Revenue from sales of goods, including revenue generated from products sold from our catalogue and ‘IVD’ products, and which represents the significant majority of our revenue, is recognized upon the earlier of delivery to the customer or the point at which the customer takes control of the goods, if this is sooner. We also earn revenue from custom products and licensing, which we call our Custom Products and Licensing revenue. Custom product and service revenue, which can be the provision of a service or the development of products for customers, is recognized at the point at which a milestone, as defined in the contract, has been completed. Every milestone is typically aligned to a customer deliverable. For example, the amount of services provided, a deliverable arising from the services or the number of products successfully developed and provided to the customers, and accordingly is considered to be a performance obligation. Each milestone has a defined transaction price. If it is identified that the costs will be in excess of the contract revenue, the expected loss is recognized as an expense immediately. License fee income is recognized upon delivery of the licensed technology where our continued performance or future research and development services are not required. Royalty revenue is recognized on an accruals basis based on the contractual terms and the substance of the agreements with the counterparty, provided that the amount can be reliably measured and it is probable that the economic benefit will flow to us.
Cost of sales
Cost of sales primarily consists of:
| • | product costs, which are the costs of inventory associated with a sale, including manufacturing costs; |
| • | costs incurred in bringing goods into a position where they can be sold, for example: shipping costs that are necessarily incurred to bring the inventory to be ready for distribution to customers or distributors as well as those shipping costs incurred for onward distribution to customers; packaging costs incurred on sales; and expenses incurred in moving inventory from one of our locations to another one of our locations; |
| • | other components, such as: inventory provisioning and write off expenses; free of charge replacements, which are provided to customers if any problems with the products they ordered were identified; service costs, which are incurred in the provision of custom products or services and are recognized in line with service revenue. Service costs vary depending on whether revenue is recognized at a point in time or over a period of time; if revenue is recognized over time, the costs are recognized as incurred, and when a performance obligation exists and any costs that were deferred have been fulfilled, then these are recognized in cost of sales; and royalty fees payable for products under license; and |
| • | amortization of fair value adjustments in inventory as a result of acquisitions. |
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Gross profit and gross margin
Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by changes in product mix and changes in foreign currency exchange rates. Gross margin is impacted by the mix of our products growing at different rates or differing growth rates within different geographic territories, as well as future acquisitions and productivity improvements to our manufacturing sites as we introduce more automation.
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of salaries and related benefits. Other general and administrative costs include marketing expenses, facility-related costs and professional services fees for auditing, tax and general legal services, as well as expenses associated with the requirements of being a listed public company on AIM and Nasdaq. We expect that our general and administrative costs will increase in the future as our business expands and we increase our headcount to support the expected growth in our operating activities. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses.
Research and development expenses
Research activities, which are the early stages of product development, are expensed as incurred up until products reach commercial feasibility, after which point such development costs are capitalized and amortized over the anticipated commercial life of the asset. Such research and development expenses, which are expected to increase in the future, consist of salary-related benefits, costs of related facilities, materials and equipment, costs associated with obtaining and maintaining patents and other intellectual property, depreciation of research and development specific assets and amortization of capitalized research and development projects, and include an offset in respect of research and development tax credits as described further below. Development activities generally relate to creating new products, creating variations of existing products, modifying existing products to meet new applications or developing new technology platforms from which to derive new products, but these costs are only capitalized once commercial feasibility is attained whereby this category of capitalized cost is described as Internally Developed Technology (“IDT”).
We carry out extensive research and development activities, and as a result, we benefit in the United Kingdom from HMRC’s Research and Development Expenditure Credit (“RDEC”), which provides relief against UK corporation tax. Broadly, RDECs provide a tax credit currently equal to 13% of “qualifying research and development expenditure” made from April 1, 2020 (the rate was previously 12% of qualifying research and development expenditure made from January 1, 2018 to March 31, 2020) by certain companies where certain criteria are met. Based on criteria established by HMRC, a portion of expenditures incurred in relation to our research and development and manufacturing development activities are eligible for RDEC relief. Our qualifying research and development expenditures largely consist of employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive revenue and are loss generating. To the extent a company cannot utilize the RDEC against UK corporation tax, then certain rules apply that allow the RDEC to reduce the tax liability of certain specified taxes, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is repaid to the company by HMRC.
Exceptional items, share-based payments and amortization of acquisition intangibles
Exceptional items, share-based payments and amortization of acquisition intangibles is comprised of certain cash and non-cash items that we believe are not reflective of the normal course of our business and where the separate disclosure of such items enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of underlying performance of the business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from period to period and from year to year.
Current components consist of impairment of intangible assets including technology and software assets, systems and process improvement costs associated with our Oracle Cloud ERP project that commenced in 2016, costs relating to the implementation of the IFRIC relating to Cloud Computing or Software as a Service (“SAAS”), acquisition costs and integration and reorganization costs, and costs related to a number of our share-based payment schemes offered to certain of our employees and executives.
From the fiscal year December 31, 2021, costs associated with our share-based payment schemes were included within this category. The prior year comparative periods, including the six months ended December 31,
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2020, and the fiscal years ended June 30, 2020 and 2019 have been re-presented to reflect the costs related to our share-based payment schemes. Although our share-based payment schemes are an important aspect of compensation for certain of our employees and executives, management believes it is useful to exclude costs associated with our share-based payment schemes from adjusted profit measures to better understand the long-term performance of our core business. Costs associated with our share-based compensation schemes are non-cash charges and are determined using several factors, including expectations surrounding future performance, employee forfeiture rates, and the share price for employee payroll-related tax items. These factors are beyond our direct control and generally unrelated to operational decisions and our performance in any particular period. Further, costs associated with our share-based compensation schemes are not reflective of the value ultimately received by the recipients of the awards. See Note 7 to our audited consolidated financial statements, which are included elsewhere in this Annual Report, for further discussion of our costs related to our share-based payment schemes.
Amortization of acquisition intangibles includes the amortization of intangible assets brought onto the balance sheet at a fair value in accordance with IFRS 3 Business Combinations and arising specifically from acquisition activity and the amortization of fair value adjustments to the balance sheet arising at the time of the acquisition.
Finance income
Finance income is comprised of interest received or receivable on cash deposits.
Finance costs
Finance costs consist mainly of interest expense on our revolving credit facility (“RCF”) that was drawn down during the fiscal year ended December 31, 2021 and is treated as short term debt. Finance costs additionally include the amortization of upfront fees incurred in setting up our RCF and other related facility fees, such as those for non-utilization. We have no other borrowings upon which interest could be incurred. Finance costs also include interest expense representing the unwinding of discounted lease liabilities in respect of assets now presented on our balance sheet in accordance with IFRS 16, which became effective on July 1, 2019.
Tax
Our tax expense or credit consists of income taxes, with UK income being taxed at the UK rate of tax and taxation for other jurisdictions calculated at the rates prevailing in each respective jurisdiction. Tax also includes the unwinding of temporary differences caused mainly by the manner in which intangible assets related to acquisitions are recognized, and therefore amortized, in our consolidated financial statements compared to the individual entity financial statements, which is the basis upon which taxation is calculated.
We also benefit from the UK “Patent Box” regime that allows profits attributable to revenue from patents registered in the United Kingdom or European Union or patented products to be taxed at an effective rate of 10.0%, rather than the usual UK statutory rate of 19.0%.
Segment Reporting
We present our results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We have concluded that we have only one core business activity, and there are no separately identifiable business segments that provide individual products or services or a group of related products and services that would be subject to separate risks and returns. The financial information reported to our Chief Executive Officer, who is considered our chief operating decision maker, for the purposes of resource allocation and assessment of performance is based wholly on our overall activities. Therefore, we have determined that we only have one reportable segment, which is the sale of antibodies and related products.
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Results of Operations
The following tables set forth our results of operations in pounds sterling and as a percentage of revenue for the 12-months ended December 31, 2020 and the fiscal year ended December 31, 2021:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||||||||||
| 2020 | 2021 | Change | ||||||||||||||
| (in millions) | (in millions and %) | |||||||||||||||
| Revenue |
£ | 269.3 | £ | 315.4 | £ | 46.1 | 17.1 | % | ||||||||
| Cost of sales |
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|
|
|
|
|
|
|
|
|||||||||
| Before exceptional items, share-based payments and amortization of acquisition intangibles |
(80.8 | ) | (87.7 | ) | (6.9 | ) | (8.5 | ) | ||||||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
— | (3.1 | ) | (3.1 | ) | — | ||||||||||
| Gross Profit |
188.5 | 224.6 | 36.1 | 19.2 | ||||||||||||
|
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|
|
|
|
|
|
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| Selling, general and administrative expenses: |
||||||||||||||||
| Before exceptional items, share-based payments and amortization of acquisition intangibles |
(120.6 | ) | (150.6 | ) | (30.0 | ) | (24.9 | ) | ||||||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
(23.9 | ) | (39.1 | ) | (15.2 | ) | (63.6 | ) | ||||||||
| Research and development expenses |
||||||||||||||||
| Before exceptional items, share-based payments and amortization of acquisition intangibles |
(17.3 | ) | (16.7 | ) | 0.6 | 3.5 | ||||||||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
(25.7 | ) | (11.1 | ) | 14.6 | 56.8 | ||||||||||
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|
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| Operating profit |
1.0 | 7.1 | 6.1 | 610.0 | ||||||||||||
| Finance income |
0.4 | 0.3 | (0.1 | ) | (25.0 | ) | ||||||||||
| Finance costs |
(3.6 | ) | (2.7 | ) | 0.9 | 25.0 | ||||||||||
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| (Loss) / Profit before tax |
(2.2 | ) | 4.7 | 6.9 | 313.6 | |||||||||||
| Tax credit / (charge) |
1.3 | (0.3 | ) | (1.6 | ) | (123.1 | ) | |||||||||
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|
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|
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| (Loss) / Profit for the period |
£ | (0.9 | ) | £ | 4.4 | £ | 5.3 | 588.9 | % | |||||||
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|
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| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||
| 2020 | 2021 | |||||||
| (as a % of revenue) | ||||||||
| Revenue |
100.0 | % | 100.0 | % | ||||
| Cost of sales: |
||||||||
| Before exceptional items, share-based payments and amortization of acquisition intangibles |
(30.0 | ) | (27.8 | ) | ||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
— | (1.0 | ) | |||||
| Gross Profit |
70.0 | 71.2 | ||||||
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|
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| Selling, general and administrative expenses: |
||||||||
| Before exceptional items, share-based payments and amortization of acquisition intangibles |
(44.8 | ) | (47.7 | ) | ||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
(8.9 | ) | (12.4 | ) | ||||
| Research and development expenses: |
||||||||
| Before exceptional items, share-based payments and amortization of acquisition intangibles |
(6.4 | ) | (5.3 | ) | ||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
(9.5 | ) | (3.5 | ) | ||||
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|
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| Operating profit |
0.4 | 2.3 | ||||||
| Finance income |
0.1 | 0.1 | ||||||
| Finance costs |
(1.3 | ) | (0.9 | ) | ||||
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|
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| (Loss) / Profit before tax |
(0.8 | ) | 1.5 | |||||
| Tax credit / (charge) |
0.5 | (0.1 | ) | |||||
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|
|||||
| (Loss) / Profit for the period |
(0.3 | )% | 1.4 | % | ||||
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Revenue
Revenue was £315.4 million for the fiscal year ended December 31, 2021 compared to £269.3 million for the 12-months ended December 31, 2020, representing total CER revenue growth of 22.3% and reported revenue growth of 17.1%.
Revenue growth was driven by a continued recovery in laboratory activity that decreased significantly in 2020 due to the COVID-19 pandemic, an increase in demand for our growing portfolio of in-house products, and our acquisition of BioVision in October 2021, which contributed approximately 1.0% to our reported revenue growth, partially offset by an aggregate negative impact of foreign exchange rates of 5.0% as the U.K. pound strengthened against several of our major trading currencies including the U.S. dollar, euro and Japanese yen.
Our revenue is broken down into the following geographical components:
| 12-months Ended December 31, |
Fiscal Year ended December 31, |
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| 2020 | 2021 | |||||||||||||||
| (in millions) | % of revenue |
(in millions) | % of revenue |
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| The Americas |
£ | 111.3 | 41.3 | % | £ | 130.4 | 41.3 | % | ||||||||
| EMEA |
74.6 | 27.7 | 84.3 | 26.7 | ||||||||||||
| China |
43.1 | 16.0 | 58.2 | 18.6 | ||||||||||||
| Japan |
19.3 | 7.2 | 18.7 | 5.9 | ||||||||||||
| Rest of Asia Pacific |
21.0 | 7.8 | 23.8 | 7.5 | ||||||||||||
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| Total revenue |
£ | 269.3 | 100.0 | % | £ | 315.4 | 100.0 | % | ||||||||
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Revenue by type can be further broken down as follows:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
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| 2020 | 2021 | |||||||||||||||
| (in millions) | % of revenue |
(in millions) | % of revenue |
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| Catalogue revenue |
£ | 251.5 | 93.4 | % | £ | 296.4 | 94.0 | % | ||||||||
| Custom products and services |
5.7 | 5.7 | ||||||||||||||
| IVD |
5.9 | 6.3 | ||||||||||||||
| Royalties and licenses |
6.2 | 7.0 | ||||||||||||||
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| Custom Products and Licensing revenue sub-total |
17.8 | 6.6 | 19.0 | 6.0 | ||||||||||||
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| Total revenue |
£ | 269.3 | 100 | % | £ | 315.4 | 100 | % | ||||||||
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Catalogue revenue can be further broken down as follows:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
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| 2020 | 2021 | |||||||||||||||
| (in millions) | % of revenue |
(in millions) | % of revenue |
|||||||||||||
| In-house products |
£ | 128.8 | 51.2 | % | £ | 174.1 | 58.7 | % | ||||||||
| OEM products |
122.7 | 48.8 | 122.3 | 41.3 | ||||||||||||
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| Catalogue revenue sub-total |
£ | 251.5 | 100.0 | % | £ | 296.4 | 100.0 | % | ||||||||
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Catalogue revenue was £296.4 million for the year ended December 31, 2021 compared to £251.5 million for the 12-months ended December 31, 2020, representing 22.9% CER revenue growth and 17.9% reported revenue growth respectively. In-house product revenue was £174.1 million for the year ended December 31, 2021 compared to £128.8 million for the 12-months ended December 31, 2020, representing CER revenue growth of 41.1% and 35.2% reported revenue growth. Except for Japan, which suffered greater COVID-19 related disruption, our revenue growth in the territories listed above grew at double-digit rates (on a CER basis), with China being our fastest revenue growth territory. For the year ended December 31, 2021 China accounted for 19.3% of our reported catalogue revenue and grew 34.0% CER of revenue growth.
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Custom Products & Licensing (‘CP&L’) revenue, rose 13.9% on a CER revenue growth basis (6.7% reported). Within CP&L, IVD and royalty and license sales grew double digit as the number of out-licensed products and commercial deals continued to grow, whilst custom projects returned to growth as customer activity levels improved following a more muted period of activity due to COVID-19.
Cost of sales
Cost of sales before exceptional items, share-based payments and amortization of acquisition intangibles increased by £6.9 million, or 8.5%, to £87.7 million for the year fiscal ended December 31, 2021 compared to £80.8 million for the 12-months ended December 31, 2020. This increase was below the 17.1% growth in reported revenue for the fiscal year ended December 31, 2021 (before exceptional items, share-based payments and amortization of acquisition intangibles) predominantly due to a reduction in the percentage of third-party products sold, which have a higher cost base than our in-house products.
Gross profit
Gross profit increased by £36.1 million, or 19.2%, to £224.6 million for the fiscal year ended December 31, 2021 compared to £188.5 million for the 12-months ended December 31, 2020. This increase predominantly reflects the favorable movement in product mix towards high margin in-house products in addition to volume leverage resulting from the increase in revenue.
Selling, general and administrative expenses
Selling, general and administrative expenses before exceptional items, share-based payments and amortization of acquisition intangibles increased by £30.0 million, or 24.9%, to £150.6 million for the fiscal year ended December 31, 2021 compared to £120.6 million for the 12-months ended December 31, 2020. The overall increase was due to greater business activity and planned investments made during the period, predominantly in innovation and our global team.
More specifically, this increase was driven by: an increase in salaries and related costs of £4.9 million to £83.9 million for the fiscal year ended December 31, 2021 compared to £79.0 million for the 12-months ended December 31, 2020, reflecting the increased headcount, investment in senior leadership and inflationary pay increases offset by a reduction in the untaken vacation accrual as the COVID-19 travel restrictions were lifted; sales and marketing expenditures increased by £2.7 million, driven by online advertising; insurance expenditures increased by £3.2 million, related to the cost of D&O insurance in connection with our public offering that we completed on October 26, 2020; IT and communication costs increased by £4.5 million and depreciation and amortization charges increased by £9.5 million driven by our continued investment in systems and premises.
Research and development expenses
Research and development expenses before exceptional items, share-based payments and amortization of acquisition intangibles decreased by £0.6 million, or 3.2%, to £16.7 million, net of a tax credit of £2.3 million, for the fiscal year ended December 31, 2021 compared to £17.3 million, net of a tax credit of £1.3 million for the 12-months ended December 31, 2020. Excluding the tax credit, the cost base is broadly in line with increases in salary and related costs of £6.8 million being offset by an increase in amounts allocated to intangible fixed assets and inventories as laboratory activity recovered generating greater productivity compared to the COVID-19 impacted 12-months ended December 31, 2020.
Exceptional items, share-based payments and amortization of acquisition intangibles
Exceptional items, share-based payments and amortization of acquisition intangibles were £53.3 million for the fiscal year ended December 31, 2021 compared to £49.6 million for the 12-months ended December 31, 2020. This increase was driven by: £3.1 million in cost of sales which compared to £nil for the 12-months ended December 31, 2020; £39.1 million in selling, general and administrative expenses which compared to £23.9 million for the 12-months ended December 31, 2020; and £11.1 million in research and development expenses which compared to £25.7 million in the 12-months ended December 31, 2020.
Share-based payment expenses of £20.0 million are included within this category in the fiscal year ended December 31, 2021 and the prior year comparatives have been re-presented. For the comparative period of 12-months ended December 31, 2020, the value was £13.3 million, and this increase was driven by the
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introduction of the Profitable Growth Incentive Plan (“PGIP”) in July 2021. Other expenses consisted of amortization of fair value adjustments of £3.1 million relating to the fair value of the inventory acquired in connection with our acquisition of BioVision, compared to £nil in the 12-months ended December 31, 2020; systems process improvement costs of £7.0 million compared to £5.0 million for the 12-months ended December 31, 2020, related to the work performed on the Oracle Cloud ERP project in upgrading our IT systems that did not qualify to be capitalized and an impairment of a software asset developed as part of the ERP project that was no longer required; acquisition costs of £8.3 million for the fiscal year ended December 31, 2021 compared to £2.8 million in the 12-months ended December 31, 2020, related to the BioVision acquisition which completed on October 26, 2021; integration and reorganization costs of £4.7 million for the fiscal year ended December 31, 2021 compared to £4.0 million for the 12-months ended December 31, 2020, related to the integration of the BioVision acquisition; impairment of intangibles of £1.1 million for the fiscal year ended December 31, 2021 compared to £14.9 million for the 12-months ended December 31, 2020; and amortization of acquisition intangibles of £9.1 million for the fiscal year ended December 31, 2021, compared to £9.6 million for the 12-months ended December 31, 2020.
Finance income
Finance income for the fiscal year ended December 31, 2021 decreased by £0.1 million to £0.3 million compared to £0.4 million for the 12-months ended December 31, 2020, which consisted of interest receivable on cash deposits. The benefit of having a relatively high cash balance at the end of the period as well as a higher average cash balance during the year was offset by low interest rates received on these balances.
Finance costs
Finance costs for the fiscal year ended December 31, 2021 decreased by £0.9 million to £2.7 million compared to £3.6 million for the 12-months ended December 31, 2020. This comprised lease liability costs of £1.7 million compared to £1.9 million for the 12-months ended December 31, 2020, representing the unwinding of discounted lease liabilities; interest payable on drawings of our RCF of £0.7 million compared to £1.3 million in the 12-months ended December 31, 2020; and the amortization of arrangement fees of £0.3 million in line with the prior period. Interest payable on the RCF is £0.6 million lower than the 12-months ended December 31, 2020 due to the drawdown in the fiscal year ended December 31, 2021 being for three months only from October 2021, but the facility was drawn down for the majority of the previous year incurring interest.
Tax expense
Tax expense for the fiscal year ended December 31, 2021 was £0.3 million compared to a credit of £1.3 million for the 12-months ended December 31, 2020. This charge was lower than the headline U.K. Corporation Tax rate of 19% due partly to a lower rate of tax applied to profits on certain patented income under HMRC’s “Patent Box” regime. The tax effect of exceptional items, share-based payments and the amortization of acquisition intangibles had a beneficial effect of £10.5 million in the fiscal year ended December 31, 2021 compared to £10.1 million in the 12-months ended December 31, 2020, resulting in an effective tax rate of 19.7% compared to 20.4% in the 12-months ended December 31, 2020. Excluding exceptional items, share-based payments and the amortization of acquisition intangibles, the effective rate was 18.6% compared to 18.6% for the 12-months ended December 31, 2020.
In March 2021, the U.K. government announced that the U.K. Corporation Tax rate would increase from 19% to 25% commencing April 1, 2023. As a result, the deferred tax balances on those timing differences which originate in the U.K. and which are expected to reverse after April 1, 2023 were restated at the higher tax rate of 25%. We anticipate that our effective tax rate will increase towards the U.K. corporate rate and remains subject to further changes to the U.K. Corporation Tax rate, as well as equivalent changes that may occur in other in jurisdictions in which we operate, as various governments take actions to address fiscal deficits caused by the COVID-19 pandemic.
Operating profit and Adjusted Operating Profit
Operating profit increased by £6.1 million, or over 600%, to £7.1 million for the fiscal year ended December 31, 2021 compared to £1.0 million for the 12-months ended December 31, 2020. This increase was primarily driven by strong revenue growth as the COVID-19 pandemic recovery continued, and improvements in gross profit margin with the move to in-house products offset by increases in selling, general and administration expenses driven by the planned investments in our platform and team to support the Group’s growth.
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Adjusted Operating Profit increased by £9.8 million, or 19%, to £60.4 million for the fiscal year ended December 31, 2021 representing an Adjusted Operating Profit Margin of 19.2% compared to £50.6 million for the 12-months ended December 31, 2020, representing an Adjusted Operating Profit Margin of 18.8%. Adjusted Operating Profit was primarily driven by the factors affecting operating profit, with the exception of exceptional items, share-based payments and amortization of acquisition intangible assets, which are excluded from Adjusted Operating Profit. For the fiscal year ended December 31, 2021 these comprised; share-based payment expenses of £20.0 million compared to £13.3 million for the 12-months ended December 31, 2020; the amortization of the fair value adjustments of £3.1 million relating to the fair value of the inventory acquired in connection with our acquisition of BioVision, compared to £nil for the 12-months ended December 31, 2020; systems process improvement costs of £7.0 million compared to £5.0 million for the 12-months ended December 31, 2020, which relates to the work performed on the Oracle Cloud ERP project related to upgrading our IT systems that did not qualify to be capitalized and an impairment a result of a software asset developed as part of the ERP project that was no longer required; acquisition costs of £8.3 million for the fiscal year ended December 31, 2021 compared to £2.8 million for the 12-months ended December 31, 2020 which were related to the BioVision acquisition which completed on October 26, 2021; integration and reorganization costs of £4.7 million for the fiscal year ended December 31, 2021 compared to £4.0 million for the 12-months ended December 31, 2020, related to the integration of the BioVision acquisition; impairment of intangibles of £1.1 million for the fiscal year ended December 31, 2021 compared to £14.9 million for the 12-months ended December 31, 2020; and amortization of acquisition intangibles of £9.1 million for the fiscal year ended December 31, 2021, compared to £9.6 million for the 12-months ended December 31, 2020.
B. Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through cash generated by our operating activities. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. We believe that our sources of liquidity and capital will be sufficient to meet our existing business needs for at least the next 12 months. However, because we are in the growth stage of our business, we expect to continue to invest in our business. We may require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances. In addition, we may, in the short term or long term, require equity or debt financing or enter into credit facilities for other reasons.
Our primary sources of liquidity are our cash and cash equivalents and our RCF. As of December 31, 2020 and 2021 we had cash and cash equivalents of £211.9 million and £95.1 million, respectively with drawings of £120.0 million as at the year ended December 31, 2021, compared to £nil million for the 12-months ended December 31, 2020.
In the prior year on October 26, 2020, we completed the initial public offering of our ADSs in the United States, which resulted in the issuance and sale of 10,287,000 ADSs representing 10,287,000 ordinary shares, generating net proceeds of £126.5 million, although this was partially offset by the repayment of £107.0 million of the Group’s RCF (as described further below). In April 2020, we issued new ordinary shares in the aggregate amount of £110.0 million. Our cash and cash equivalents consist of cash in bank accounts and on deposit.
In February 2019, we entered into an RCF with a syndicate of banks for £200.0 million, with an additional £100.0 million accordion option, providing us with additional financial flexibility for future acquisitions. We may at any time up to six months of the termination date of the RCF, give prior notice of the wish to exercise this accordion option with a minimum value of £10.0 million and a maximum of £100.0 million. We drew down £120.0 million on the RCF during the year ended December 31, 2021 to fund the BioVision acquisition in October 2021, and our RCF remained drawn in this amount as of December 31, 2021. We drew down £107.0 million on the RCF during the 12-months ended December 31, 2020, and repaid the RCF in full in November 2020. As of December 31, 2020, the RCF was undrawn. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular, the widespread COVID-19 pandemic, including variants, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.
The initial term of this RCF is three years with two extension options of one year each. On January 7, 2021, we received approval from all syndicate banks for a two-year extension to the RCF following our exercise of the extension option on December 17, 2020, which extends the expiry of the facility to January 31, 2024. All other terms of the facility remained unchanged. Up until December 31, 2021, the interest rate was the aggregate of:
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(i) a margin, which varies from 0.75% to 1.45%, that is dependent on a debt cover ratio, which for the year ended December 31, 2020 was at the minimum level of 0.75%; and (ii) London Inter-bank Offered Rate (“LIBOR”) or, in relation to any borrowing in Euro, Euro Inter-bank Offered Rate (“EURIBOR”) or in relation to any non-LIBOR currency, the benchmark rate for that currency. The benchmark rate is the applicable screen rate as of the specified time for the currency of the borrowing.
From January 1, 2022, the LIBOR benchmark rate was replaced by the Sterling Overnight Index Average (“SONIA”). Our borrowing costs became the SONIA risk free rate, a risk rated adjustment to the SONIA risk free rate and a margin between 0.75% and 1.45%, dependent upon a debt cover ratio. As at January 1, 2022, the combined interest rate on drawdowns from the RCF amounted to 0.9715%. Borrowings under this facility are unsecured but are guaranteed by certain of our material subsidiary companies.
Our capital expenditures consist primarily of property plant and equipment and intangible assets. Our capital expenditures were £59.8 million during the fiscal year ended December 31, 2021 compared to £45.3 million for the 12-months ended December 31, 2020. Major areas of capital expenditure included £25.4 million in respect of global footprint developments compared to £7.5 million for the 12-months ended December 31, 2020. Capital expenditure of £25.3 million was incurred on intangible assets in the fiscal year ended December 31, 2021 compared to £29.0 million for the 12-months ended December 31, 2020, which included £8.3 million in respect of our ERP implementation project and £7.5 million of internally developed technology relating to new in-house products compared to £15.2 million in respect of our Oracle Cloud ERP project and £10.4 million related to internally developed technology for the 12-months ended December 31, 2020. Other significant items included £5.9 million related to laboratory equipment during the fiscal year ended December 31, 2021, with an equivalent amount of £4.6 million for the 12-months ended December 31, 2020.
We assess our liquidity, in part, through an analysis of our working capital together with our other sources of liquidity. As of December 31, 2021, our working capital balance, which is comprised of inventories, trade and other receivables and trade and other payables, was £51.2 million, an increase of £4.4 million from £46.8 million for the 12-months ended December 31, 2020.
The following table presents the summary consolidated cash flow information for the periods presented.
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||
| 2020 | 2021 | |||||||
| (in millions) | (in millions) | |||||||
| Net cash inflow from operating activities |
£ | 58.9 | £ | 62.9 | ||||
| Net cash outflow from investing activities |
(153.7 | ) | (291.5 | ) | ||||
| Net cash inflow / (outflow) from financing activities |
116.0 | 111.4 | ||||||
| Increase / (decrease) in cash and cash equivalents |
£ | 21.2 | £ | (117.2 | ) | |||
Net cash inflow from operating activities
Fiscal year ended December 31, 2021 compared to 12-months ended December 31, 2020
Net cash inflow from operating activities was £62.9 million for the fiscal year ended December 31, 2021 compared to £58.9 million for the 12-months ended December 31, 2020. This inflow was reflective of the cash revenue generated from the sale of goods and services, offset by cost of sales, selling, general and administrative costs and research and development expenditure and the reduced impact of the COVID-19 pandemic compared to the 12-months ended December 31, 2020, and a working capital inflow of £4.0 million comprised of an increase in inventories of £6.2 million, as manufacturing capacity expanded and inventory is held in anticipation of future revenue growth, a decrease in receivables of £4.0 million as significant prepayments at December 31, 2020 were released and an increase in creditors of £6.2 million made up mainly of accrued expenditures, which reflects the further investment in growing our business.
Net cash outflow from investing activities
Fiscal year ended December 31, 2021 compared to 12-months ended December 31, 2020
Net cash outflow from investing activities was £291.5 million for the fiscal year ended December 31, 2021 compared to £153.7 million for the 12-months ended December 31, 2020, which primarily resulted from the
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acquisition of BioVision for £244.9 million, a £59.8 million outflow on purchase of property, plant and equipment and intangible assets as described above and a reimbursement of leasehold improvement costs of £13.2 million which reimburses us for the capital expenditure incurred.
Net cash inflow from financing activities
Fiscal year ended December 31, 2021 compared to 12-months ended December 31, 2020
Net cash inflow from financing activities was £111.4 million for the fiscal year ended December 31, 2021 compared to £116.0 million for the 12-months ended December 31, 2020. The inflow primarily comprise £120.0 million arising from the drawdown of the Group’s RCF to fund the BioVision acquisition offset by £8.8 million of amounts classified as lease principal payments and £2.2 million of interest payments including £1.5 million of amounts classified as lease interest payments. This contrasts with the 12-months ended December 31, 2020 where the main components were: £237.4 million cash proceeds from the issuance of shares, £127.0 million of which related to the secondary listing on Nasdaq, which was completed in October 2020 and a further £110.0 million upon the issuance and sale of 10.0 million new ordinary shares to an investor offset by the repayment of the Group’s RCF of £127.0 million.
Non-IFRS Financial Measures
We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, profit before tax and other results under IFRS, we assess our performance using a number of financial measures that are not defined under IFRS. We use Total CER revenue growth, Free Cash Flow, Adjusted Operating Profit, Adjusted Operating Profit Margin, ROCE and Adjusted Diluted earnings per share, each of which is described below, to evaluate our business, and we have included these non-IFRS financial measures in this Annual Report because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-IFRS financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. These non-IFRS performance measures exclude certain cash and non-cash items that we believe are not reflective of the normal course of our business. Our calculation of these non-IFRS financial measures may differ from similarly titled non-IFRS measures, if any, reported by other companies. These non-IFRS financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with IFRS.
Total CER Revenue Growth
Total CER revenue growth is our total revenue growth from one fiscal period / year to the next on a constant exchange rate basis. We measure CER revenue growth by applying the prior fiscal period’s / year’s actual exchange rates for each month to the current fiscal period’s/ year’s equivalent monthly results. We use this measure to identify the relative period on period or year-on-year performance of the business by removing the impact of currency movements that are outside of management’s control. Total CER revenue growth is included in this Annual Report because it is a key metric used internally to assess our financial performance. We also believe that Total CER revenue growth is useful to investors, analysts and others in assessing our performance. Management believes that Total CER revenue growth is an appropriate measure of operating performance because it eliminates the impact of currency movements.
Total CER revenue growth is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the period / year as a measure of financial performance or as an alternative to any other performance measure derived in accordance with IFRS. Total CER revenue growth should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Total CER revenue growth as a supplemental measure. Our measure of Total CER revenue growth is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.
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The following tables present a reconciliation of revenue, the most directly comparable IFRS financial measure, to Total CER revenue growth for the periods indicated:
| (in millions) | ||||||||
| Fiscal year ended December 31, 2020 revenue |
£ | 269.3 | $ | 363.6 | ||||
| Fiscal year ended December 31, 2021 revenue at actual exchange rates |
£ | 315.4 | $ | 425.8 | ||||
| Effect of foreign exchange |
£ | 14.0 | $ | 18.9 | ||||
| Fiscal year ended December 31, 2021 revenue at prior period’s exchange rates |
£ | 329.4 | $ | 444.7 | ||||
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| Total CER revenue growth |
22.3 | % | 22.3 | % | ||||
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Free Cash Flow
Free Cash Flow is net cash inflow from operating activities less net capital expenditure, transfer of cash from/(to) escrow in respect of future capital expenditure and the principal and interest elements of lease obligations. Free Cash Flow provides an indication of the amount of cash available for discretionary investing or financing after removing capital related items. Free Cash Flow is included in this Annual Report because it is a key metric used internally to measure our liquidity. We also believe that Free Cash Flow is useful to investors, analysts, and others in assessing our liquidity.
Free Cash Flow is not an IFRS measure of our financial performance and should not be considered as an alternative to net cash inflow from operations as a measure of liquidity, or as an alternative to any other performance measure derived in accordance with IFRS. Free Cash Flow should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Free Cash Flow as a supplemental measure. Our measure of Free Cash Flow is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.
The following table presents a reconciliation of net cash inflow from operating activities, the most directly comparable IFRS financial measure, to Free Cash Flow for the periods indicated:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||||||
| 2020 | 2021 | |||||||||||
| Net cash inflow from operating activities |
£ | 58.9 | £ | 62.9 | $ | 84.9 | ||||||
| Purchase of property, plant and equipment |
(16.3 | ) | (34.5 | ) | (46.6 | ) | ||||||
| Purchase of intangible assets |
(29.0 | ) | (25.3 | ) | (34.2 | ) | ||||||
| Transfer of cash from / (to) escrow in respect of future capital expenditure |
(0.3 | ) | — | — | ||||||||
| Reimbursement of leasehold improvement costs |
1.7 | 13.2 | 17.8 | |||||||||
| Principal element of lease obligations |
(8.4 | ) | (8.8 | ) | (11.9 | ) | ||||||
| Interest element of lease obligations |
(1.0 | ) | (1.5 | ) | (2.0 | ) | ||||||
| Free Cash Flow |
£ | 5.6 | £ | 6.0 | $ | 8.0 | ||||||
Adjusted Operating Profit / Adjusted Operating Profit Margin
We define Adjusted Operating Profit as profit for the period / year before taking account of finance income, finance costs, tax, exceptional items, share-based payments and amortization of acquisition intangibles. Exceptional items consist of certain cash and non-cash items that we believe are not reflective of the normal course of our business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from period to period or year to year. Exceptional items currently consist of the impairment of intangible assets, systems and process improvement costs, acquisition costs, integration and reorganization costs, share-based payments and amortization of acquisition intangibles and fair value adjustments. Adjusted Operating Profit is included in this Annual Report because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Operating Profit is useful to investors, analysts, and others in assessing our performance. We believe that disclosing Adjusted Operating Profit enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of performance from period to period / year to year. Management believes that Adjusted Operating Profit is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business.
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Adjusted Operating Profit Margin is calculated as Adjusted Operating Profit as a percentage of revenue. Adjusted Operating Profit Margin is included in this Annual Report because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Operating Profit Margin is useful to investors, analysts and others in assessing our performance. Adjusted Operating Profit Margin is an appropriate measure of operating performance, as it reflects our ability to turn revenue into profits and because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business.
Adjusted Operating Profit and Adjusted Operating Profit Margin are not IFRS measures of our financial performance and should not be considered as an alternative to profit for the period / year, or as an alternative to any other performance measure derived in accordance with IFRS. Adjusted Operating Profit and Adjusted Operating Profit Margin should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Adjusted Operating Profit and Adjusted Operating Profit Margin as supplemental measures. Our measure of Adjusted Operating Profit and Adjusted Operating Profit Margin are not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.
The following table presents a reconciliation of profit for the period / year, the most directly comparable IFRS financial measure, to Adjusted Operating Profit and includes the calculation of the Adjusted Operating Profit Margin for the periods / years indicated:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||||||
| 2020 | 2021 | |||||||||||
| (in millions) | (in millions) | |||||||||||
| (Loss) / profit for the year |
£ | (0.9 | ) | £ | 4.4 | $ | 5.9 | |||||
| Tax (credit) / charge |
(1.3 | ) | 0.3 | 0.4 | ||||||||
| Finance income |
(0.4 | ) | (0.3 | ) | (0.4 | ) | ||||||
| Finance costs |
3.6 | 2.7 | 3.6 | |||||||||
| Impairment of intangible assets(a) |
14.9 | 1.1 | 1.5 | |||||||||
| System and process improvement costs(b) |
5.0 | 7.0 | 9.5 | |||||||||
| Acquisition costs(c) |
2.8 | 8.3 | 11.2 | |||||||||
| Integration and reorganization costs(d) |
4.0 | 4.7 | 6.3 | |||||||||
| Amortization of acquired fair value adjustments(e) |
— | 3.1 | 4.2 | |||||||||
| Amortization of acquisition intangibles(f) |
9.6 | 9.1 | 12.3 | |||||||||
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| Share-based payments(g) |
13.3 | 20.0 | 27.0 | |||||||||
| Adjusted Operating Profit |
£ | 50.6 | £ | 60.4 | $ | 81.5 | ||||||
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| Revenue |
269.3 | 315.4 | 425.8 | |||||||||
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| Adjusted Operating Profit Margin |
18.8 | % | 19.2 | % | 19.2 | % | ||||||
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| (a) | For the fiscal year ended December 31, 2021 £1.1 million costs related to the impairment of internally developed technology assets relating to AxioMx Inc., for which the technology developed will not be used. the assets were capitalized in 2020. For the 12-months ended December 31, 2020, the £14.9 million cost relates to the full impairment of the acquisition intangible in respect of an in vitro monoclonal antibody production technology that we acquired from AxioMx, Inc. in 2015 and subsequent post-acquisition expenditure, which arose following an appraisal of the ability to utilize this technology at scale. Although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. Expenses are included with research and development expenses. |
| (b) | Consisted of costs of our ERP program implementation that do not qualify for capitalization and the impairment as a result of a software asset developed as part of the ERP project that was no longer required. Such costs are included within selling, general and administrative expenses. |
| (c) | Consisted of legal and other professional fees associated with our acquisition of BioVision in the fiscal year ended December 31, 2021 and for the 12-months ended December 31, 2020, the proteomics and immunology businesses of Expedeon, as well as agreed settlements of Expedeon employee share incentive schemes. Such costs are included within selling, general and administrative expenses. |
| (d) | For the fiscal year ended December 31, 2021, the costs related to the integration of the acquired BioVision business of £1.0 million and costs in the U.S. and Asia Pacific, relating to the ongoing reorganization of the Group’s property portfolio of £3.0 million. For the 12-months ended December 31, 2020 costs related to the integration of the acquired Expedeon business. Such costs are included within selling, general and administrative expenses. |
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| (e) | For the fiscal year ended December 31, 2021, the costs related to the amortization of fair value of inventory assets relating to the BioVision acquisition. These costs are included in cost of sales. |
| (f) | Consisted of amortization of acquisition intangibles included within research and development expenses of £6.8 million and £7.0. million for the fiscal year ended December 31, 2021 and 12-months ended 2020, respectively, with the remaining £2.3 million and £2.6 million over the same respective periods included within selling, general and administrative expenses. |
| (g) | Consisted of share-based payment charges of £17.9 million and employer tax contributions of £2.1 million thereon for all of the Group’s equity- and cash-settled schemes, which have been re-presented as adjusting items. Comparative periods of 12-months to December 31, 2020 and fiscal years ended June 30, 2020 and 2019 have been re-presented for consistency. Charges of £3.1 million and £3.8 million for fiscal year ended December 31, 2021 and 12-months December 31, 2020 respectively are included in research and development expenses, with the remaining £16.9 million and £9.5 million for fiscal year ended December 31, 2021 and 12-months December 31, 2020 respectively are included within selling, general and administrative expense. |
Return On Capital Employed (“ROCE”)
We define ROCE as Adjusted Operating Profit divided by capital employed, which is defined as total assets less current liabilities. We believe that ROCE is a key tool in measuring our financial efficiency and ability to create future growth in value. We attempt to maintain ROCE at a level well above our estimated cost of capital. ROCE is included in this Annual Report because it is a key metric used internally to assess our financial performance. We also believe that ROCE is useful to investors, analysts and others in assessing our performance.
ROCE is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the period / year or as an alternative to any other performance measure derived in accordance with IFRS. ROCE should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using ROCE as a supplemental measure. Our measure of ROCE is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.
The following table presents a reconciliation of profit for the period / year, the most directly comparable IFRS financial measure, to ROCE for the periods indicated:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||||||
| 2020 | 2021 | |||||||||||
| (in millions) | (in millions) | |||||||||||
| (Loss) / profit for the year |
£ | (0.9 | ) | £ | 4.4 | $ | 5.9 | |||||
| Tax (credit) / charge |
(1.3 | ) | 0.3 | 0.4 | ||||||||
| Finance income |
(0.4 | ) | (0.3 | ) | (0.4 | ) | ||||||
| Finance costs |
3.6 | 2.7 | 3.6 | |||||||||
| Impairment of intangible assets(a) |
14.9 | 1.1 | 1.5 | |||||||||
| System and process improvement costs(b) |
5.0 | 7.0 | 9.5 | |||||||||
| Acquisition costs(c) |
2.8 | 8.3 | 11.2 | |||||||||
| Integration and reorganization costs(d) |
4.0 | 4.7 | 6.3 | |||||||||
| Amortization of acquired fair value adjustments(e) |
— | 3.1 | 4.2 | |||||||||
| Amortization of acquisition intangibles(f) |
9.6 | 9.1 | 12.3 | |||||||||
| Share-based payments(g) |
13.3 | 20.0 | 27.0 | |||||||||
| Adjusted Operating Profit |
£ | 50.6 | £ | 60.4 | $ | 81.5 | ||||||
| Total Assets |
818.6 | 986.1 | 1,320.8 | |||||||||
| Current liabilities |
(52.0 | ) | (187.2 | ) | (252.7 | ) | ||||||
| Capital Employed |
766.6 | 798.9 | 1,068.1 | |||||||||
| ROCE |
6.6 | % | 7.6 | % | 7.6 | % | ||||||
| (a) | For the fiscal year ended December 31, 2021 £1.1 million costs related to the impairment of internally developed technology assets relating to AxioMx, Inc for which the technology developed will not be used. The assets were capitalized in 2020. For the 12-months ended December 31, 2020, the £14.9 million cost relates to the full impairment of the acquisition intangible in respect of an in vitro monoclonal antibody production technology that we acquired from AxioMx, Inc. in 2015 and subsequent post-acquisition expenditure, which arose following an appraisal of the ability to utilize this technology at scale. Although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the |
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| conclusion not to pursue further active development and substantive utilization of this technology. Expenses are included with research and development expenses. |
| (b) | Consisted of costs of our ERP program implementation that do not qualify for capitalization and the impairment as a result of a software asset developed as part of the ERP project that was no longer required. Such costs are included within selling, general and administrative expenses. |
| (c) | Consisted of legal and other professional fees associated with our acquisition of BioVision in the fiscal year ended December 31, 2021 and for the 12-months ended December 31, 2020, the proteomics and immunology businesses of Expedeon, as well as agreed settlements of Expedeon employee share incentive schemes. Such costs are included within selling, general and administrative expenses. |
| (d) | For the fiscal year ended December 31, 2021, the costs related to the integration of the acquired BioVision business of £1.0 million and costs in the U.S. and Asia Pacific, relating to the ongoing reorganization of the Group’s property portfolio of £3.0 million. For the 12-months ended December 31, 2020 costs related to the integration of the acquired Expedeon business. Such costs are included within selling, general and administrative expenses. |
| (e) | For the fiscal year ended December 31, 2021, the costs related to the amortization of fair value of inventory assets relating to the BioVision acquisition. These costs are included in cost of sales. |
| (f) | Consisted of amortization of acquisition intangibles included within research and development expenses of £6.8 million and £7.0. million for the fiscal year ended December 31, 2021 and 12-months ended 2020, respectively, with the remaining £2.3 million and £2.6 million over the same respective periods included within selling, general and administrative expenses. |
| (g) | Consisted of share-based payment charges of £17.9 million and employer tax contributions of £2.1 million thereon for all of the Group’s equity- and cash-settled schemes, which have been re-presented as adjusting items. Comparative periods of 12-months to December 31, 2020 and fiscal years ended June 30, 2020 and 2019 have been re-presented for consistency. Charges of £3.1 million and £3.8 million for fiscal year ended December 31, 2021 and 12-months December 31, 2020 respectively are included in research and development expenses, with the remaining £16.9 million and £9.5 million for fiscal year ended December 31, 2021 and 12-months December 31, 2020 respectively are included within selling, general and administrative expense. |
Adjusted Diluted earnings per share
We define Adjusted Diluted earnings per share as Adjusted profit for the period / year divided by the weighted average number of ordinary shares for the purposes of diluted earnings per share. Adjusted profit for the year used in this calculation is defined as profit for the period / year less impairment of intangible assets which was applicable for the fiscal years ended June 30, 2020 and June 30, 2019, system and process improvement costs, acquisition costs, which were applicable for the six months ended December 31, 2020 and the year ended June 30, 2020, integration and reorganization costs, which were applicable for the six months ended December 31, 2020 and the years ended June 30, 2020 and June 30, 2019, amortization of acquisition intangibles, the tax effect of these items and the net tax effect of new U.S. tax legislation which was applicable for the fiscal years ended June 30, 2019 and the net tax effect of the initial recognition in respect of historical periods of “patent box” claims which were applicable for the fiscal year ended June 30, 2020. Adjusted Diluted earnings per share is calculated with an adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. We use Adjusted Diluted earnings per share to measure underlying profitability and to reflect the other adjusted performance measures used.
We measure Adjusted Diluted earnings per share because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Diluted earnings per share is useful to investors, analysts and others in assessing our performance. Management believes that Adjusted Diluted earnings per share is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business. Adjusted Diluted earnings per share has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for earnings per share measures prepared in accordance with IFRS. Adjusted Diluted earnings per share may not be comparable to other similarly titled metrics of others.
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The following table presents a reconciliation of profit for the year/ period, the most directly comparable IFRS financial measure, to Adjusted profit for the year / period for the years/ periods indicated, which is used in the calculation of Adjusted Diluted earnings per share:
| 12-months Ended December 31, |
Fiscal Year Ended December 31, |
|||||||||||
| 2020 | 2021 | |||||||||||
| (in millions) | (in millions) | |||||||||||
| (Loss) / profit for the year |
£ | (0.9 | ) | £ | 4.4 | $ | 5.9 | |||||
| Weighted average ordinary shares for the purposes of diluted earnings per share |
217.0 | 228.9 | 228.9 | |||||||||
| Diluted earnings per share |
£ | (0.004 | ) | 0.019 | 0.026 | |||||||
| (Loss) / profit for the year |
£ | (0.9 | ) | 4.4 | 5.9 | |||||||
| Impairment of intangible assets(a) |
14.9 | 1.1 | 1.5 | |||||||||
| System and process improvement costs(b) |
5.0 | 7.0 | 9.5 | |||||||||
| Acquisition costs(c) |
2.8 | 8.3 | 11.2 | |||||||||
| Integration and reorganization costs(d) |
4.0 | 4.7 | 6.3 | |||||||||
| Amortization of acquisition fair value adjustments(e) |
— | 3.1 | 4.2 | |||||||||
| Amortization of acquisition intangibles(f) |
9.6 | 9.1 | 12.3 | |||||||||
| Share-based payments(g) |
13.3 | 20.0 | 27.0 | |||||||||
| Tax effect of items(a) to(g) |
(10.1 | ) | (10.5 | ) | (14.2 | ) | ||||||
| Adjusted profit for the year |
£ | 38.6 | £ | 47.2 | $ | 63.7 | ||||||
| Weighted average ordinary shares for the purposes of diluted earnings per share |
217.0 | 228.9 | 228.9 | |||||||||
| Adjusted diluted earnings per share |
£ | 0.178 | £ | 0.206 | $ | 0.278 | ||||||
| (a) | For the fiscal year ended December 31, 2021 £1.1 million costs related to the impairment of internally developed technology assets relating to AxioMx, Inc for which the technology developed will not be used. The assets were capitalized in 2020. For the 12-months ended December 31, 2020, the £14.9 million cost related to the full impairment of the acquisition intangible in respect of an in vitro monoclonal antibody production technology that we acquired from AxioMx, Inc. in 2015 and a subsequent post-acquisition expenditure, which arose following an appraisal of the ability to utilize this technology at scale. Although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion that we will not pursue further development and substantive utilization of this technology. The above costs for the fiscal year ended December 31, 2021 and the 12-months ended December 31, 2020 are included within research and development expenses. |
| (b) | Consisted of costs related to our ERP program implementation that do not qualify for capitalization and the impairment as a result of a software asset developed as part of the ERP project that was no longer required. Such costs are included within selling, general and administrative expenses. |
| (c) | Consisted of legal and other professional fees associated with our acquisition of BioVision in the fiscal year ended December 31, 2021 and for the 12-months ended December 31, 2020, the proteomics and immunology businesses of Expedeon AG, as well as agreed settlements of Expedeon employee share incentive schemes. Such costs are included within selling, general and administrative expenses. |
| (d) | For the fiscal year ended December 31, 2021, this consisted of costs related to the integration of the acquired BioVision business of £1.0 million and costs in the U.S. and Asia Pacific, relating to the ongoing reorganization of the Group’s property portfolio of £3.0 million. For the 12-months ended December 31, 2020 this consisted of costs related to the integration of the acquired Expedeon business Such costs are included within selling, general and administrative expenses. |
| (e) | For the fiscal year ended December 31, 2021, this consisted of costs related to the amortization of fair value of inventory assets relating to the BioVision acquisition, included within cost of sales. |
| (f) | For the fiscal year ended December 31, 2021 and 12-months ended December 31, 2020, this consisted of costs related to the amortization of acquisition intangibles of £6.8 million and £7.0. million respectively, with the remaining £2.3 million and £2.6 million in the same respective periods included within selling, general and administrative expenses. |
| (g) | Consisted of share-based payment charges of £17.9 million and employer tax contributions of £2.1 million thereon for all of the Group’s equity- and cash-settled schemes, which have been re-presented as adjusting items. Comparative periods of 12-months to December 31, 2020 and fiscal years ended June 30, 2020 and 2019 have been re-presented for consistency. Charges of £3.1 million and £3.8 million for the fiscal year ended December 31, 2021 and 12-months ended December 31, 2020, respectively were included within research and development expenses, with the remaining |
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| £16.9 million and £9.5 million for the fiscal year ended December 31, 2021 and 12-months ended December 31, 2020 respectively are included within selling, general and administrative expenses |
C. Research and Development, Patents and Licenses, etc.
See Note 7 to our consolidated financial statements included in elsewhere in this Annual Report.
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events since December 31, 2021 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E. Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with IFRS, as issued by the IASB. In preparing our consolidated financial statements, we make judgements, estimates and assumptions about the application of our accounting policies which affect the reported amounts of assets, liabilities, revenue and expenses. Our critical accounting judgements and sources of estimation uncertainty are described in Note 4 to our consolidated financial statements, which are included elsewhere in this Annual Report.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Executive Officers and Board Members
The following table presents information about our current executive officers and board members, including their ages as of the date of this Annual Report:
| Name |
Age | Position | ||||
| Executive officers |
||||||
| Alan Hirzel |
54 | Chief Executive Officer and Director | ||||
| Michael Baldock |
58 | Chief Financial Officer and Director | ||||
| Non-executive board members |
||||||
| Peter Allen(2)(3) |
66 | Chairman of the Board | ||||
| Mara Aspinall(1)(2)(3) |
59 | Director | ||||
| Mark Capone(2) |
59 | Director | ||||
| Sally Crawford(1)(2) |
68 | Director | ||||
| Giles Kerr(1)(2)(3) |
62 | Director | ||||
| Bessie Lee |
56 | Director | ||||
| (1) | Audit and Risk Committee member |
| (2) | Remuneration Committee member |
| (3) | Nomination Committee member |
The current business addresses for our executive officers and board members is c/o Abcam plc, Discovery Drive, Cambridge Biomedical Campus, Cambridge CB2 0AX, United Kingdom.
Executive Officers
The following is a brief summary of the business experience of our executive officers.
Alan Hirzel has served as our Chief Executive Officer since September 2014 and as a member of our board since January 2014. Prior to joining Abcam, Mr. Hirzel was a partner at Bain & Company where he advised global executives and private equity investors on growth strategy, performance improvement and acquisitions. Early in his career, Mr. Hirzel worked in a variety of roles from life science researcher at Cornell University to new product development research at Kraft Foods. Mr. Hirzel holds BS, MS, and MBA degrees from Cornell University.
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Michael Baldock has served as our Chief Financial Officer since February 2020 and as a member of our board since February 2020. From November 2008 to January 2020, Mr. Baldock was a founding partner at Ondra Partners, an independent financial advisory firm. Prior to that, from 2004 to 2007, he was a Managing Director, Global Head of Healthcare and Head of Investment Banking, Americas for HSBC plc, a global universal bank. From 2000 to 2004, he was a Partner of Lazard Frères & Co. LLC, a financial advisory and asset management firm. Mr. Baldock received an A.B. in Social Studies from Harvard College.
Non-executive Board Members
The following is a brief summary of the business experience of our non-executive board members.
Peter Allen has served as a member of our board since June 2018. Mr. Allen is currently Non-Executive Chairman of Advanced Medical Solutions plc, Clinigen plc and Oxford Nanopore Technologies plc, a company that recently listed on the London Stock Exchange. He is a Non-Executive Director of Istesso Ltd. Mr. Allen has nearly 30 years’ experience as an executive director, non-executive director and chairman in a wide range of life science companies. From 2015 to 2020, Mr. Allen served as the Chairman of Diurnal Group plc. From 2009 to 2012, Mr. Allen served as Chairman of Proximagen Neurosciences plc, from 2007 to 2013 he served as Chairman of ProStrakan Group plc, including as interim CEO from 2010 to 2011, and he served as CFO and Deputy CEO of Celltech Group plc from 1992 to 2004. Mr. Allen holds a B.A. in Accountancy and Law from the University of Kent.
Mara Aspinall has served as a member of our board since September 2015. Ms. Aspinall is a Director of Allscripts Healthcare Solutions Inc., Castle Biosciences Inc., Blue Cross Blue Shield Arizona Inc., OraSure Technologies Inc., Strateos (previously 3Scan Inc.), RainBird and Paradigm Diagnostics. Ms. Aspinall is a co-founder and Managing Director of BlueStone Venture Partners and CEO of Health Catalysts Group. Previously, Ms. Aspinall was President and CEO of Ventana Medical Systems/Roche Tissue Diagnostics. Ms. Aspinall spent twelve years at Genzyme Corporation (now part of Sanofi) as President of Genzyme Genetics and Genzyme Pharmaceuticals. Ms. Aspinall is co-founder of the International School of Biomedical Diagnostics at Arizona State University, the only institution dedicated to the study of diagnostics as an independent discipline. Ms. Aspinall is also a Fellow of the American Institute for Medical and Biological Engineering. Ms. Aspinall holds a B.A. in International Relations from Tufts University and an M.B.A. from Harvard Business School.
Mark Capone has served as a member of our board since January 2021. Mr. Capone is an accomplished life sciences executive. He spent over 17 years with Myriad Genetics, of which he served as CEO and President for 5 years and helped Myriad Genetics grow into a leading global precision medicine company. Prior to this Mr. Capone spent 17 years with Eli Lilly and Company in positions across the entire value chain. Mr. Capone is currently CEO of Precision Medicine Advisors, a consultancy for molecular diagnostics, pharmaceuticals, and biotechnology organizations, which he founded in 2020. In addition, he is a Non-Executive Director of Nephrosant, a private U.S. based company focused on developing diagnostic tools for chronic kidney disease, and a Non-Executive Director of Microba, a precision microbiome science company and a non-executive director and member of the remuneration committee of Owlstone Medical Ltd, a breath biopsy diagnostic company focused on early detection of cancer and precision medicine. Mr. Capone holds a B.Sc in Chemical Engineering from Pennsylvania State University and a M.Sc. in Management and a M.Sc in Chemical Engineering from Massachusetts Institute of Technology.
Sally W. Crawford has served as a member of our board since August 2021. Ms. Crawford has held a number of senior leadership and board positions in the healthcare industry spanning more than three decades. She served as Chief Operating Officer of Healthsource Inc., a publicly held managed care organization, from its founding in April 1985 until January 1997. Ms. Crawford has extensive board experience, and currently serves on the Board of Directors of Hologic, Inc., Insulet Corporation and Prolacta Bioscience. She is also the current Compensation Chair at Prolacta Bioscience and former Compensation Chair at Hologic, Inc and Insulet Corporation. Ms. Crawford holds a B.A. in English from Smith College and an M.S. in Communications and Media Studies from Boston University.
Giles Kerr has served as a member of our board since December 2018. Mr. Kerr is currently a Non-Executive Director of Arix Bioscience plc, Senior plc and Oxford Sciences Innovation and is the Chairman of Paypoint plc. Since 1990, Mr. Kerr has served in a variety of increasingly senior roles at Amersham plc, including Chief Financial Officer and a board member from 1997 to 2004, when the company was acquired by GE Healthcare. Prior to his role at Amersham, Mr. Kerr was a National Partner with Arthur Andersen & Co. Mr. Kerr was Director of Finance of the University of Oxford from 2005 until 2018 and was previously a Director of Victrex plc, BTG plc, Quanta Dialysis Technologies and Elan Corporation Inc. Mr. Kerr holds a B.A. in Economics from the University of York.
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Bessie Lee has served as a member of our board since January 2021. Ms. Lee is based in China and is the CEO, Greater China of JonesLangLaSalle and Founder of Withinlink (Shanghai) Investment Management Co Ltd, a China-based venture capital firm and start-up incubator focused on marketing technology. Prior to this Ms. Lee spent almost three decades at WPP plc and served as CEO, China from 2013 to 2017. In addition, Ms. Lee served as CEO for Mindshare and GroupM. Ms. Lee is currently a Non-Executive Director of Electrocomponents plc, Homeplus Digital Co Ltd (formerly China Networks Systems Co Ltd) and Shanghai Fuge Information Technology Co Ltd, and is an Advisor to Didi Chuxing and Greater Pacific Capital. Ms. Lee holds a B.A. in German and English, from Wen Tzao Ursula Foreign Language College, a B.Sc. in Mass Communications and a M.S. in Communications both from Illinois State University.
Board Diversity
The table below provides certain information regarding the diversity of our board of directors as of the date of this Annual Report.
| Board Diversity Matrix | ||||||||
| Country of Principal Executive Offices: |
England | |||||||
| Foreign Private Issuer |
Yes | |||||||
| Disclosure Prohibited under Home Country Law |
No | |||||||
| Total Number of Directors |
8 | |||||||
| Female | Male | Non- Binary |
Did Not Disclose Gender | |||||
| Part I: Gender Identity |
||||||||
| Directors |
3 | 5 | — | — | ||||
| Part II: Demographic Background |
||||||||
| Underrepresented Individual in Home Country Jurisdiction |
— | |||||||
| LGBTQ+ |
— | |||||||
| Did Not Disclose Demographic Background |
— | |||||||
Executive Officer Remuneration
The following table presents the individual compensation and benefits provided to our current executive officers during the fiscal year ended December 31, 2021:
| Name |
Salary | Bonus(1) | All Other Compensation(2) |
Total(3) | ||||||||||||
| (in £) | ||||||||||||||||
| Executive officers |
||||||||||||||||
| Alan Hirzel |
629,760 | 3,103,245 | 61,579 | 3,794,584 | ||||||||||||
| Michael Baldock |
408,000 | 802,802 | 115,275 | 1,326,077 | ||||||||||||
| (1) | Amounts shown reflect bonuses awarded, both in cash and shares, following the achievement of performance goals. During 2021, we changed our fiscal year to the 12-months ended December 31, 2021. As a result, two performance periods were operated for the Annual Bonus Plan during 2021: (1) 12-months to June 30, 2021; and (2) six months to December 31, 2021. The figures included under Bonus in the table above reflect the total bonus award for the 18-months ended December 31, 2021 and the 2018 Long Term Incentive Plan award which vested in November 2021. |
| (2) | Amounts shown represent the value of benefits paid by us, including health benefit payments and pension contributions over the 12 months ended December 31, 2021. |
| (3) | Total compensation set out in this table does not include the value of options to acquire our ordinary shares or awards granted to or held by our current executive officers, which is described below in “—Equity Compensation Arrangements” . |
Executive Officer Service Agreements
Alan Hirzel
We entered into a service agreement with Alan Hirzel, which became effective on September 9, 2014. This agreement entitles Mr. Hirzel to receive an initial annual base salary of £320,000 (which, following a number of increases, was increased to £629,760 on July 1, 2020) and an opportunity to earn an annual discretionary
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performance-based bonus of up to 150% of his annual base salary (with an initial target of 75% of his annual base salary), subject to the achievement of performance goals determined in accordance with our annual bonus plan. Of any bonus earned, at least 30% of such bonus amount will be paid in the form of a deferred share award that is expected to vest in full on the second anniversary of the date of grant.
Mr. Hirzel is also enrolled in our defined contribution pension scheme at a contribution rate of at least 8% of his annual base salary, with at least 5% of which Mr. Hirzel must contribute and at least 3% of which we will contribute on Mr. Hirzel’s behalf. However, we provide Mr. Hirzel with an allowance equal to 5% of his annual base salary, which will be applied to Mr. Hirzel’s contribution to the pension scheme or may instead be applied towards other benefits within our flexible benefits scheme. If the annual and/or lifetime ceiling for pension contributions has already been reached, Mr. Hirzel can take this allowance as additional compensation. Additionally, Mr. Hirzel is entitled to the following benefits: (i) eligibility to participate in our life insurance scheme with coverage equal to at least five times his annual base salary, (ii) private medical insurance coverage for himself, his partner and his children (while under age 18 or pursuing full-time education) at our expense, (iii) an annual health screening and (iv) annual tax compliance support for his statutory filings in the United Kingdom or United States.
Either party may terminate the service agreement by giving the other party at least 12 months’ written notice, unless Mr. Hirzel is terminated for cause (as described in Mr. Hirzel’s service agreement) or we terminate Mr. Hirzel and make a payment in lieu of notice equal to his base salary and any benefits to which he would otherwise be entitled for any remaining notice period. Mr. Hirzel is obliged to seek alternative income during this period (subject to the restrictive covenants referenced below), and such payment in lieu of notice will be reduced by the amount of any alternative income Mr. Hirzel receives. Mr. Hirzel’s service agreement also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our key employees or customers for a period of six months following his termination of employment.
Michael Baldock
We entered into a service agreement with Michael Baldock, which became effective on February 3, 2020. This agreement entitles Mr. Baldock to receive an initial annual base salary of £400,000 (which was subsequently increased to £408,000 on July 1, 2020) and an opportunity to earn an annual discretionary performance-based bonus of up to 150% of his annual base salary (with an initial target of 75% of his annual base salary), subject to the achievement of performance goals determined in accordance with our annual bonus plan. Of any bonus earned, at least 30% of such bonus amount will be paid in the form of a deferred share award that is expected to vest in full on the second anniversary of the date of grant.
Mr. Baldock is also enrolled in our defined contribution pension scheme at a contribution rate of at least 8% of his annual base salary, with at least 5% of which Mr. Baldock must contribute and at least 3% of which we will contribute on Mr. Baldock’s behalf. However, we provide Mr. Baldock with an allowance equal to 5% of his annual base salary, which will be applied to Mr. Baldock’s contribution to the pension scheme or may instead be applied towards other benefits within our flexible benefits scheme. If the annual and/or lifetime ceiling for pension contributions has already been reached, Mr. Baldock can take this allowance as additional compensation. Additionally, Mr. Baldock is entitled to the following benefits: (i) eligibility to participate in our life insurance scheme with coverage equal to at least five times his annual base salary, (ii) private medical insurance coverage for himself, his partner and his children (while under age 18 or pursuing full-time education) at our expense, (iii) certain relocation expenses, (iv) an annual health screening and (v) annual tax compliance support for his U.K. and U.S. statutory filings.
Either party may terminate the service agreement by giving the other party at least 12 months’ written notice (provided that Mr. Baldock’s employment term will not expire before February 3, 2022), unless Mr. Baldock is terminated for cause (as described in Mr. Baldock’s service agreement) or we place Mr. Baldock on garden leave for all or part of the applicable notice period (up to 26 weeks). In the event of Mr. Baldock’s termination without cause or voluntary resignation (other than as would constitute constructive dismissal), Mr. Baldock will remain eligible to receive a prorated portion of his annual bonus in cash, and his unvested equity awards will remain outstanding and vest in full on the relevant vesting dates and, if applicable, subject to the relevant performance conditions, with certain awards under the LTIP subject to proration for the portion of the applicable performance period that has elapsed
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prior to termination. Mr. Baldock’s service agreement also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our key employees or customers for a period of six months following his termination of employment.
Equity Compensation Arrangements
We have granted or may grant equity-based awards under the following eight share schemes: (i) AbShare; (ii) the Annual Bonus Plan; (iii) the Company Share Option Plan; (iv) the Share Incentive Plan; (v) the Long-Term Incentive Plan and (vi) the Share Option Scheme; (vii) the Profitable Growth Incentive Plan; (viii) Abcam Growth Plan (as defined below). As a foreign private issuer, we may follow our home country corporate governance rules instead of certain corporate governance requirements of Nasdaq, and we intend to be exempt from Nasdaq regulations that require a listed U.S. company to seek shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares.
AbShare
Our Remuneration Committee adopted AbShare on September 4, 2018. Awards under AbShare fully vested in November 2021, making over 90% of our global team shareholders. We have since communicated the launch of our new all employee equity incentive plan to our employees, building on AbShare’s success with another equity incentive programme intended to provide market-leading opportunities. We do not intend to grant equity awards under the AbShare plan in the future.
Annual Bonus Plan
Our board of directors adopted The Abcam plc Annual Bonus Plan (the “Annual Bonus Plan”) on September 18, 2012, which has been subsequently amended.
Eligibility, Awards, and Administration
All employees who devote substantially all of their working hours to us are eligible to receive awards under the Annual Bonus Plan. However, we typically only grant Annual Bonus Plan awards to employees in executive and senior management positions. Under the Annual Bonus Plan, each participant has a target bonus that is based on a percentage of the employee’s base salary. The extent to which target bonus amounts are paid out depends on whether certain performance targets are achieved. These performance targets currently involve financial, strategic and individual criteria, and bonuses awarded under the Annual Bonus Plan can be up to twice the target bonus amounts. Under the Annual Bonus Plan, our Remuneration Committee may pay bonuses in the form of cash awards and/or deferred share awards. Our current policy is to grant 70% of each bonus as a cash award and 30% of each bonus as a deferred share award. Deferred share awards may be in the form of either a conditional right to acquire our ordinary shares or nil cost options, which convey a right to acquire a certain number of our ordinary shares for no payment or nominal payment. We may not grant awards under the Annual Bonus Plan if such awards would cause the number of ordinary shares committed under the Annual Bonus Plan and any other Company employee share plan in the preceding 10 year period to exceed 10% of our ordinary shares. The Annual Bonus Plan is administered by our Remuneration Committee, which may make, amend, or rescind regulations for the administration of the Annual Bonus Plan.
Vesting, Exercise, and Clawback
Cash awards granted under the Annual Bonus Plan are fully vested upon grant. Deferred share awards generally vest on the second anniversary of the date that is ten business days from the date on which we announce our preliminary results for the relevant fiscal year, subject to applicable share dealing restrictions and the achievement of performance targets. Our Remuneration Committee may, in its discretion, settle any deferred share awards in cash instead of ordinary shares. Furthermore, our Remuneration Committee may require the forfeiture of any unpaid cash award or the reduction or cancellation of certain deferred share awards in the event there is (i) a material adverse adjustments to our audited consolidated accounts for any accounting period ending before the vesting of the award or (ii) reasonable evidence of fraud or other gross misconduct or, for awards granted after July 1, 2015, material dishonesty, risk management failure or material wrongdoing on the part of the award recipient.
Upon termination of employment, all unvested awards and unexercised nil cost options shall lapse, unless such termination of employment is due to illness, permanent disability, redundancy, retirement (by way of
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mutual agreement with us), certain changes to the employee’s employing entity or any other reason our Remuneration Committee may determine. Upon such a termination and unless our Remuneration Committee determines otherwise, deferred shares awards shall remain outstanding with vested nil cost options remaining exercisable for 12 months following such termination, unless the award recipients are U.S. tax residents, in which case deferred share awards shall become fully vested.
Certain Transactions
Upon certain change in control events such as takeovers, compulsory acquisitions, reconstructions, amalgamations and wind-ups, all deferred share awards that are not substituted shall fully vest on the date of the applicable event. Furthermore, if our Remuneration Committee becomes aware that we will be affected by a demerger, distribution (other than an ordinary dividend) or other transaction, it may accelerate vesting of all or a portion of unvested and outstanding deferred share awards.
Amendment and Termination
Our Remuneration Committee may, at any time, amend the Annual Bonus Plan, except that no amendment may be made that would adversely affect the existing rights of award recipients, unless the affected award recipients have approved such amendment.
Company Share Option Plan
Our board of directors adopted the Company Share Option Plan 2009 (the “CSOP”) on November 5, 2009, which was subsequently amended. As of June 30, 2019 and 2020, we had no ordinary shares authorized for issuance under the CSOP. We do not intend to grant equity awards under the CSOP in the future.
Long-Term Incentive Plan
Our board of directors adopted the LTIP on November 3, 2008, which was subsequently amended.
Eligibility, Awards, and Administration
All our employees are eligible to participate in the LTIP. Under the LTIP, our Remuneration Committee may grant share-based incentive awards to attract, motivate and retain the talent for which we compete. LTIP awards can be in the form of conditional rights to acquire our ordinary shares (typically for non-U.K. tax residents), or nil cost options (typically for U.K. tax residents), which convey a right to acquire a certain number of our ordinary shares for no payment or nominal payment. LTIP awards vest based on achievement of certain performance targets, which may involve financial and strategic criteria. We may not grant awards under the LTIP if such awards would cause the number of ordinary shares committed under the LTIP and any other Company employee share plan in the preceding 10 year period to exceed 10% of our ordinary shares. The LTIP is administered by our Remuneration Committee, which may make and amend regulations for the implementation and administration of the LTIP.
The current Executive Directors will not receive awards under the LTIP while the Profitable Growth Incentive Plan (“PGIP”) described below is in operation. One-off recruitment-related LTIP awards may be granted to any new Executive Directors hired during the plan period.
Vesting, Exercise, and Clawback
LTIP awards typically vest on the third anniversary of the date on which they are granted. The portion of the LTIP award that vests depends on how we perform as a company over a three-year performance period (starting with the fiscal year in which the LTIP award is granted), as measured against predefined performance requirements. Upon vesting, shares are immediately transferred to employees who hold conditional rights to acquire our ordinary shares and nil cost options become exercisable. Nil cost options generally remain exercisable until the tenth anniversary of the grant date, subject to earlier termination upon a cessation of employment. Our Remuneration Committee may impose post-exercise retention requirements on shares received by a participant. Our Remuneration Committee may reduce or cancel any unvested LTIP award in the event there is a material adverse adjustment to our audited consolidated accounts for any accounting period ending before the vesting of the award. Additionally, our Remuneration Committee may reduce or reclaim any LTIP award in the event there is a material adverse adjustment to our audited consolidated accounts due to fraud or other gross
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misconduct, material dishonesty, material failure of risk management or material wrongdoing on the part of the employee for a period of two years following the vesting of the award or throughout any period that the employee is subject to a work related criminal investigation.
Upon termination of employment, all unvested awards and unexercised nil cost options shall lapse, unless our Remuneration Committee determines otherwise for reasons including illness, disability, injury, death, redundancy or retirement. Upon such a termination and unless our Remuneration Committee determines otherwise, LTIP awards shall vest as to a prorated portion of the award based on the time elapsed between the grant date and the termination date and the achievement of the predefined performance requirements as of the termination date.
Certain Transactions
Upon certain change in control events described in the LTIP plan rules, our Remuneration Committee will notify each LTIP participant of the event and determine, in its absolute discretion, what portion of the LTIP awards will become vested, taking into account considerations such as the time elapsed from the grant date and the achievement level of the predetermined performance requirements. Alternatively, LTIP awards may be cancelled and substituted with replacement awards of equivalent value covering shares of the new controlling entity. In the event of our voluntary winding up, all LTIP awards will fully vest. Upon a merger or demerger that does not constitute a change in control, our Remuneration Committee will have discretion regarding whether to vest or adjust any portion of outstanding LTIP awards. Our Remuneration Committee has the discretion to adjust the exercise period for nil cost options in light of the previously described events.
Amendment and Termination
Our Remuneration Committee may, at any time, amend the regulations for implementing and administering the LTIP, except that no amendment may be made that would materially affect the subsisting rights of award recipients unless a majority of affected award recipients have consented to and sanctioned such amendment. Certain amendments to the LTIP rules require our approval in a general meeting, including the limit on the aggregate number of shares over which awards can be made and the price at which shares may be acquired under an award. The LTIP will terminate on the earlier of the fifth anniversary of the LTIP’s adoption or renewal or another termination date determined by our Remuneration Committee.
Share Incentive Plan
We adopted the Abcam plc Share Incentive Plan (the “SIP”) on September 26, 2008, which was subsequently amended.
Eligibility, Awards, and Administration
The SIP is an HMRC approved plan, which we maintained until October 2018 and under which all U.K.-based employees were eligible to participate and purchase our ordinary shares. These shares are referred to as “partnership shares” and are held in trust on behalf of the employees. For every partnership share bought by the employee up to a limit of £1,800 per tax year, we award the employee one matching share, provided the employee remained employed with us for a period of at least three years. Additionally, until October 2018, we awarded “free shares” to employees with a value of up to £3,600 per tax year, and we also awarded “dividend shares” to employees that were equivalent to the cash dividends paid in respect of shares held on behalf of SIP participants.
We do not intend to make awards under the SIP in the future (with the exception of dividend reinvestments). The SIP is administered by our board of directors, which may make and amend regulations for the implementation and administration of the SIP.
Vesting and Holding
Partnership shares that are purchased with employee contributions are fully vested upon acquisition by the employee. Matching shares and free shares that we grant are subject to a holding period of at least three years (but no more than five years). At our board of directors’ discretion, granting of free shares may be conditioned upon the achievement of certain performance targets that it specifies.
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Upon a termination of employment, any shares held on behalf of such employee will be removed from the SIP and all contributions made by such employee will be returned as soon as practicable following the termination date. Any matching shares or free shares held on behalf of such employee (whether during the accumulation period or the holding period) shall be forfeited upon such employee’s termination, unless such termination is due to death, injury, disability, retirement, redundancy, certain changes to the participant’s employing entity, or certain transferences. Upon such a termination, the participant is entitled to retain any matching shares and free shares held on his or her behalf.
Amendment and Termination
Our board of directors may, at any time, amend the SIP plan rules, except that no amendment may be made which would materially affect the subsisting rights of award recipients unless a majority of affected award recipients have consented to and sanctioned such amendment and except in other limited circumstances (including where such amendment would cause the SIP to cease to be a qualified share incentive plan under applicable U.K. law).
Share Option Scheme
Our board of directors adopted the 2005 Share Option Scheme, which was subsequently amended, and 2015 Share Option Plan (ISO/Unapproved) (together, the “Share Option Scheme” or “SOS”) on October 31, 2005 and November 5, 2015, respectively. We do not intend to grant equity awards under the SOS in the future, however there are vested but unexercised stock options outstanding from previous awards granted.
Profitable Growth Incentive Plan
Our board of directors adopted the PGIP on June 1, 2021 and it was approved by shareholders on July 1, 2021. The current Executive Directors’ awards under the PGIP were granted on July 14, 2021, and no further awards will be made to them under the PGIP during the remainder of the plan period. PGIP awards may be granted to any new Executive Director hires during the remainder of the plan period, and to any other eligible employee of the Company.
Eligibility, Awards, and Administration
Under the PGIP, our Remuneration Committee may grant share-based incentive awards to attract, motivate and retain the talent for which we compete. PGIP awards are in the form of conditional rights to acquire our ordinary shares. PGIP awards vest based on achievement of revenue growth targets, underpinned by ROCE. All of our employees are eligible to participate in the PGIP. However, we typically only grant Annual Bonus Plan awards to employees in executive and senior management positions.
We may not grant an award that would cause the number of shares allocated under the Plan to exceed such number as represents 3.5% of the ordinary share capital of the Company then in issue. No eligible employee may be granted an Award that would, at the time it is granted, exceed such number of shares as represents 0.6% of the ordinary share capital of the Company. We also must not grant an Award that would cause the number of Shares allocated under the Plan and under any other employee share plan adopted by the Company to exceed such number as represents 10% of the ordinary share capital of the Company then in issue. The PGIP is administered by our Remuneration Committee, which may make and amend regulations for the implementation and administration of the PGIP.
Vesting, Exercise, and Clawback
PGIP awards currently outstanding vest subject to a three and a half year performance period from July 1, 2021 to December 31, 2024, or, for a newly appointed Executive Director, such other period set by the Remuneration Committee in its discretion. The portion of PGIP awards that vests depends on how we perform as a company over the performance period, as measured against predefined performance requirements. Upon vesting, shares are generally immediately transferred to employees. PGIP awards for the Executive Directors include a post-vesting holding period. Our Remuneration Committee may reduce or cancel any unvested PGIP award in the event there is a material adverse adjustment to our audited consolidated accounts for any accounting period ending before the vesting of the award. Additionally, our Remuneration Committee may reduce or reclaim any PGIP award in the event there is a material adverse adjustment to our audited consolidated accounts due to fraud or other gross misconduct, material dishonesty, material failure of risk management or material wrongdoing on the part of the employee during the period ending on the fifth anniversary of the grant date or throughout any period that the employee is subject to a work-related criminal investigation.
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Awards will be subject to a cap at vesting. No Award will vest at a value that exceeds the initial value of the award, calculated by multiplying the number of shares under award by three times the average closing share price over the 30 dealing days leading up to the date of the General Meeting (the ‘Cap’). If the value of any vested shares exceeds the Cap then awards will be reduced accordingly.
The value at vesting is calculated by multiplying the number of shares that are due to vest by the average closing price of shares over the 30 dealing days prior to the vesting date (or such other averaging period as the Remuneration Committee determines).
Upon termination of employment, all unvested awards shall generally lapse, unless in the event of certain changes to the participant’s employing entity, or certain transferences or if our Remuneration Committee determines otherwise for reasons including illness, disability, injury, redundancy or retirement. Upon such a termination the Remuneration Committee may determine, in its discretion, that up to 50% of the unvested awards held by a participant will lapse. The award, or the balance of the award, will usually continue until the normal vesting and release dates. In determining the extent to which the award, or balance of the award, vests the Remuneration Committee will, in its discretion, apply the following: the extent to which the performance condition has been satisfied, any downwards discretion, and the Cap. The vested award will also be reduced to reflect the proportion of the vesting period that has elapsed on cessation. The holding period will continue to apply.
Where a participant dies, the award will vest and be released at the time of the participant’s death. The extent to which an award vests will be determined by the Remuneration Committee in its discretion by applying the following: the extent to which the performance condition has been satisfied, any downwards discretion, and the Cap. The vested award will also be reduced to reflect the proportion of the vesting period that has elapsed on death.
If an award that does not lapse was subject to a restriction, the restriction will continue to apply following cessation of employment unless the participant ceases by reason of death. If a participant is dismissed for gross misconduct during a restricted period, the shares may be forfeited on the date of cessation.
Certain Transactions
In the event of a change of control of the Company, unvested PGIP awards will vest to the extent determined by the Remuneration Committee, by applying the following: the extent to which the performance condition has been satisfied at the time of the change of control including consideration of any other performance factors that the Remuneration Committee considers relevant, any downwards discretion and the Cap. The vested award will also be reduced to reflect the proportion of the vesting period that has elapsed at the date of the change of control. Awards will be released immediately following vesting.
Alternatively, the Remuneration Committee may permit awards to be exchanged for shares in the acquiring company. If the change of control is an internal re-organization of the Group or if the Remuneration Committee so decides, participants will be required to exchange their awards (rather than awards vesting and being released as part of the transaction).
If other corporate events occur such as a winding-up of the Company, a variation of share capital, demerger, delisting, special dividend or other event which, in the opinion of the Remuneration Committee, may affect the current or future value of shares, the Remuneration Committee may determine that awards will vest or lapse. The extent to which an award vests will be determined by the Remuneration Committee by applying the following: the extent to which the performance condition has been satisfied, any downwards discretion, and the Cap. The vested award will also be reduced to reflect the proportion of the vesting period that has elapsed at the date of the change of control. Awards will be released immediately following vesting.
Amendment and Termination
Our Remuneration Committee may, at any time, amend the regulations for implementing and administering the PGIP, except that no amendment may be made that would materially affect the subsisting rights of award recipients unless a majority of affected award recipients have consented to and sanctioned such amendment. Certain amendments to the PGIP rules require approval in a general meeting, including the limit on the aggregate number of shares over which awards can be made and the price at which shares may be acquired under an award. The PGIP will terminate on the earlier of December 31, 2024 or another termination date determined by our Remuneration Committee.
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Abcam Growth Plan
Our Remuneration Committee adopted the Abcam Growth Plan (“AGP”) on September 10, 2021. The AGP is the successor equity plan to AbShare described above. It aims to build on AbShare’s success by incentivizing and rewarding employees globally in shares on the achievement of annual and long-term goals.
Eligibility, Awards, and Administration
The AGP provides for the grant of fully paid ordinary shares to employees who are employed on a permanent contract or equivalent basis, except participants in the PGIP. Participants in PGIP are not eligible to participate in the AGP.
The AGP is a three year performance-based equity plan which awards 60% of base salary in conditional shares across two components: (1) annual incentive with a face value of 10% of salary per annum released after each fiscal year subject to operational and financial performance; and (2) strategic incentive released in April 2025 subject to the same financial performance conditions as the PGIP described above. Vesting of any AGP award is subject to participants being employed on the respective vesting date. The AGP is administered by our board of directors who has authority to adopt any regulations necessary for administering the AGP and has final authority to interpret and construe AGP provisions.
Vesting and Holding
Awards vest at the end of their respective performance period to the extent that our board of directors has determined the financial performance criteria has been met. Each Annual Incentive award vests subject to a 12 month performance period (Jan 1 to Dec 31). Strategic Incentive awards vest subject to a three and a half year performance period from 1 July 1, 2021 to December 31, 2024. The portion of AGP awards that vest depends on how we perform as a company over each performance period, as measured against predefined performance requirements. Upon vesting, shares are generally immediately transferred to employees.
Our Remuneration Committee may reduce or cancel any unvested AGP award in the event there is a material adverse adjustment to our audited consolidated accounts for any accounting period ending before the vesting of the award. Additionally, our Remuneration Committee may reduce or reclaim any AGP award in the event there is a material adverse adjustment to our audited consolidated accounts due to fraud or other gross misconduct, material dishonesty, material failure of risk management or material wrongdoing on the part of the employee during the period ending on the first anniversary of the vesting date or throughout any period that the employee is subject to a work-related criminal investigation.
Leavers
Upon a termination of employment, AGP awards will lapse, unless such termination of employment is due to death, illness, injury, retirement, disability, redundancy, certain changes to the participant’s employing entity, certain transferences or any other reason our board of directors may determine. Upon such a termination and unless our Remuneration Committee determines otherwise, AGP awards shall vest as to a prorated portion of the award based on the time elapsed between the grant date and the termination date and the achievement of the predefined performance requirements as of the termination date.
Certain Transactions
In the event of a change of control of the Company, unvested AGP awards will vest to the extent determined by the Remuneration Committee, by applying the following: the extent to which the performance condition has been satisfied at the time of the change of control including consideration of any other performance factors that the Remuneration Committee considers relevant, and any downwards discretion. The vested award will also be reduced to reflect the proportion of the vesting period that has elapsed at the date of the change of control. Awards will be released immediately following vesting.
Alternatively, the Remuneration Committee may permit awards to be exchanged for shares in the acquiring company. If the change of control is an internal re-organization of the Group or if the Remuneration Committee so decides, participants will be required to exchange their awards (rather than awards vesting and being released as part of the transaction).
If other corporate events occur such as a winding-up of the Company, a variation of share capital, demerger, delisting, special dividend or other event which, in the opinion of the Remuneration Committee, may affect the
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current or future value of shares, the Remuneration Committee may determine that awards will vest or lapse. The extent to which an award vests will be determined by the Remuneration Committee by applying the following: the extent to which the performance condition has been satisfied and any downwards discretion. The vested award will also be reduced to reflect the proportion of the vesting period that has elapsed at the date of the change of control. Awards will be released immediately following vesting.
Amendment and Termination
Our board of directors may, at any time, amend the AGP plan rules, except that no amendment may be made that would disadvantage the existing rights of participants, unless consent from a majority of the affected participants is obtained. Additionally, our board of directors may pass a resolution at any time terminating AGP, provided such termination does not prejudice the existing rights of participants.
The following table summarizes the number of outstanding shares and options granted to executive officers and non-employee directors, as of December 31, 2021:
| Name |
Ordinary Shares |
Ordinary Shares Underlying Options |
Exercise Price Per Ordinary Share (in £) |
Grant Date | Expiration Date (if applicable) |
Plan Name | ||||||||||||||||||
| Executive officers |
||||||||||||||||||||||||
| Alan Hirzel |
283,895 | 1,360,486 | — | 07/14/2021 | 04/14/2025 | PGIP | ||||||||||||||||||
| 178,832 | — | 12/07/2020 | 12/07/2023 | LTIP | ||||||||||||||||||||
| 193,547 | — | 11/14/2019 | 12/14/2022 | LTIP | ||||||||||||||||||||
| 15,401 | — | 10/26/2021 | 09/23/2023 | ABP | ||||||||||||||||||||
| 8,502 | — | 10/26/2020 | 09/24/2022 | ABP | ||||||||||||||||||||
| 18 | — | 04/12/2019 | N/A | SIP—Dividend | ||||||||||||||||||||
| 39 | — | 11/29/2019 | N/A | SIP—Dividend | ||||||||||||||||||||
| 19 | — | 04/17/2020 | N/A | SIP—Dividend | ||||||||||||||||||||
| Total |
283,895 | 1,756,844 | ||||||||||||||||||||||
| Michael Baldock |
9,976 | 680,243 | — | 07/14/2021 | 04/14/2025 | PGIP | ||||||||||||||||||
| 57,928 | — | 12/07/2020 | 12/07/2023 | LTIP | ||||||||||||||||||||
| — | 62,942 | — | 03/09/2020 | 12/14/2022 | LTIP | |||||||||||||||||||
| 13,758 | — | 03/09/2020 | 03/05/2022 | LTIP | ||||||||||||||||||||
| 13,758 | — | 03/09/2020 | 03/05/2023 | LTIP | ||||||||||||||||||||
| 10,189 | — | 10/26/2021 | 09/23/2023 | ABP | ||||||||||||||||||||
| 2,242 | — | 10/26/2020 | 09/24/2022 | ABP | ||||||||||||||||||||
| Total |
9,976 | 841,060 | ||||||||||||||||||||||
| Non-executive board members |
||||||||||||||||||||||||
| Peter Allen |
18,563 | — | — | — | — | — | ||||||||||||||||||
| Mara Aspinall |
14,545 | — | — | — | — | — | ||||||||||||||||||
| Mark Capone |
— | — | — | — | — | — | ||||||||||||||||||
| Sally Crawford |
— | — | — | — | — | — | ||||||||||||||||||
| Giles Kerr |
1,485 | — | — | — | — | — | ||||||||||||||||||
| Bessie Lee |
— | — | — | — | — | — | ||||||||||||||||||
Non-Employee Director Remuneration
The following table presents the individual compensation and benefits provided to our current non-employee directors during the fiscal year ended December 31, 2021:
| Name |
Fees Delivered in Cash |
Fees Delivered in Shares |
Total Fees | |||||||||
| (in £) | ||||||||||||
| Non-executive board members(1) |
||||||||||||
| Peter Allen |
186,897 | 93,564 | 280,461 | |||||||||
| Mara Aspinall(2)(3) |
66,384 | 29,143 | 95,527 | |||||||||
| Mark Capone(2) |
52,823 | 23,205 | 76,028 | |||||||||
| Sally Crawford(4) |
20,192 | 10,096 | 30,288 | |||||||||
| Giles Kerr(2) |
59,612 | 29,821 | 89,433 | |||||||||
| Bessie Lee(2) |
49,060 | 23,205 | 72,265 | |||||||||
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| (1) | Shares will be awarded at the beginning of the first open period following the announcement of our annual results in March 2022. |
| (2) | Mara Aspinall, Mark Capone and Bessie Lee received tax compliance support in the preparation of tax returns relating to their fee from Abcam for which £8,117, £6,701 and £2,938 was paid by Abcam and is included in each of the applicable total fee figures. |
| (3) | Mara Aspinall began receiving a £15,000 supplemental fee following her appointment as Interim Chairman of the Remuneration Committee on May 18, 2021. This supplemental fee ceased on January 1, 2022 following the end of her interim period as Chairman of the Remuneration Committee. |
| (4) | Sally Crawford began receiving a £15,000 supplemental fee following her appointment as Chairman of the Remuneration Committee on December 1, 2021. |
Non-Employee Director Letter Agreements
We review our fee structure for non-executive directors on an annual basis and determine remuneration based on, among other things, a review of current practices in other companies. We have entered into letter agreements with our non-employee directors for their services, which are subject to a one-month notice period, provided that, following a change in control of the Company, we may only terminate Mr. Allen upon three months’ prior notice.
In 2016, we introduced a fee structure whereby a portion of non-employee director fees would be delivered as a fixed number of fully paid ordinary shares. These shares are not granted under any of our equity incentive plans. Currently, one-third of non-employee director fees are delivered as fully paid ordinary shares and the remainder of such fees are delivered as cash. Shares delivered to non-employee directors are awarded at the beginning of the first open period following the announcement of the annual results. Applicable taxes are deducted from the share component of the annual fees and the net amount is used to purchase the actual shares delivered to each non-employee director. Each non-employee director has committed not to sell or transfer these shares during the term of their directorship. Effective as of July 1, 2018, our non-executive directors receive a supplemental allowance for service as chair of the Audit and Risk Committee and chair of the Remuneration Committee, which is currently set at £15,000 per annum.
Pension, Retirement or Similar Benefits
We operate a flexible benefits scheme, which includes a defined contribution pension plan, in which all of our employees are eligible to participate. We generally make payments of up to 8% of annual base salary for all U.K. participants. Our executive officers also receive a range of other benefits such as life insurance, private medical cover and annual health screens, as described in “—Executive Officer Service Agreements” above.
The total amount set aside or accrued by us in respect of pension, retirement or similar benefits to our current directors and our executive officers in the fiscal year ended December 31, 2021 was £102,261, which represents contributions made by us in respect of a defined contribution scheme in which our executive officers who served throughout the fiscal year ended December 31, 2021 participated.
Insurance and Indemnification
To the extent permitted by the Companies Act 2006, we are empowered to indemnify our directors against any liability they incur by reason of their directorship. We maintain directors’ and officers’ insurance to insure such persons against certain liabilities. We expect to enter into a deed of indemnity with each of our directors and executive officers.
In addition to such indemnification, we provide our directors and executive officers with directors’ and officers’ liability insurance.
Insofar as indemnification of liabilities arising under the Securities Act may be permitted to our board, executive officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Composition of our Board of Directors
Our board of directors currently consists of eight directors, all of whom, other than Mr. Hirzel and Mr. Baldock, have been determined by our board of directors to not have a relationship that would interfere with
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the exercise of independent judgment in carrying out the responsibilities of a director and to be “independent” as that term is defined under the rules of Nasdaq. In addition, there are no family relationships among any of our directors or executive officers.
Our articles of association provide that our board of directors must not have less than three and not more than 12 directors. In accordance with our articles of association, at each annual general meeting, the following directors will retire from office and be eligible for re-election:
| • | any director who was not elected or re-elected at either of the two preceding annual general meetings and any director who wishes to retire and offer himself for re-election (whether by reason of the U.K. Corporate Governance Code or for any other reason); and |
| • | such number of the directors (excluding any director who is required to retire under our articles of association) as would, when added to the number of directors (if any) retiring in accordance with (i) above represent one third of the directors. If one third is not a whole number then the number of directors to retire is the number nearest to one third. |
We intend to continue to comply with the requirements of provision 18 of the U.K. Corporate Governance Code that all directors be subject to annual re-election. Retiring directors are eligible for re-election. For more information on the length of time each director has served, see Item 6.A. “Directors and Senior Management.”
Our directors may be removed by special resolution or in accordance with and subject to the provisions of the Companies Act 2006 by ordinary resolution at a meeting of which special notice has been given. See Item 10.B. “Memorandum and Articles of Association.”
Committees of our Board of Directors
Our board has three standing committees: an Audit and Risk Committee, a Remuneration Committee and a Nomination Committee. Each of these committees is governed by a charter that is consistent with applicable U.K. law and SEC and Nasdaq corporate governance rules and is available on the Investors section of our website at coprorate.abcam.com. The information contained on our website is not incorporated by reference in this Annual Report.
Audit and Risk Committee
Our Audit and Risk Committee consists of Mara Aspinall, Sally Crawford and Giles Kerr. Mr. Kerr serves as the chair of the Audit and Risk Committee. Our board has determined that that all members of our Audit and Risk Committee meet the requirements for financial literacy under the applicable rules and regulations of the Nasdaq corporate governance rules, as well as the additional independence requirements applicable to the members of an audit committee under the Nasdaq rules. Our board has determined that that Mr. Kerr is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq corporate governance rules.
The board has determined that each member of our audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.
The Audit and Risk Committee is responsible for, among other things:
| • | recommending the appointment of the independent auditor to the general meeting of shareholders; |
| • | the appointment, remuneration, retention and oversight of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit services; |
| • | pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services; |
| • | evaluating the independent auditor’s qualifications, performance and independence, and presenting its conclusions to the full board on at least an annual basis; |
| • | reviewing and discussing with the executive officers, the board and the independent auditor our financial statements and our financial reporting process; |
| • | approving or ratifying any related party transaction (as defined in our related party transaction policy) in accordance with our related party transaction policy; |
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| • | reviewing and overseeing the adequacy and effectiveness of our financial reporting and internal control policies and systems, covering all material controls, including financial, operational and compliance controls, and the procedures for the identification, assessment, management and reporting of risks; and |
| • | periodically reviewing with management and the independent auditor our code of conduct and reviewing and reassessing the adequacy of the procedures in place to enforce the code of conduct, and consider and discuss and, as appropriate, grant requested waivers from the code of conduct. |
The Audit and Risk Committee meets at least four times per year and at such other times as the chair of the Audit and Risk Committee shall think fit. The Audit and Risk Committee will meet at least once per year with our independent auditor, without our management being present.
Remuneration Committee
Our Remuneration Committee consists of Sally Crawford, Peter Allen, Mara Aspinall, Giles Kerr and Mark Capone. Ms. Crawford serves as chair of the committee. Our board has determined that each member of our Remuneration Committee is independent under the Nasdaq corporate governance rules, including the additional independence requirements applicable to the members of a remuneration committee.
The Remuneration Committee is responsible for, among other things:
| • | identifying, reviewing and proposing policies relevant to, and setting of individual remuneration packages for, the Chairman, the executive members of the board and senior management (the remuneration of non-executive directors shall be a matter for Chairman and the executive members of the board); |
| • | evaluating each executive leadership team member’s performance in light of such policies and reporting to the board; |
| • | analyzing the possible outcomes of the variable remuneration components and how they may affect the remuneration of the executive leadership team; |
| • | recommending any equity long-term incentive component of each executive leadership team member’s compensation in line with the remuneration policy and reviewing our executive officer compensation and benefits policies generally; and |
| • | reviewing and assessing risks arising from our compensation policies and practices. |
The Remuneration Committee meets at least twice each year, and at such other times as the chair of the Remuneration Committee shall think fit.
Nomination Committee
Our Nomination Committee consists of Peter Allen, Mara Aspinall, and Giles Kerr. Mr. Allen serves as chair of the committee.
The Nomination Committee is responsible for, among other things:
| • | drawing up selection criteria and appointment procedures for board members; |
| • | regularly reviewing and evaluating the structure, size and composition of our board and making recommendations to the board with regard to any adjustments that are deemed necessary or advisable; |
| • | identifying and nominating, for the approval of our board, candidates to fill vacancies on the Board and its corresponding committees; |
| • | assessing the functioning of our board and individual members and reporting the results of such assessment to the Board; and |
| • | keeping under review the leadership needs of the Company, both executive and non-executive, and planning the orderly succession of such appointments. |
The Nomination Committee meets at least once each year, and at such other times as the chair of the Nomination Committee shall think fit.
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Service Agreements
For a description of directors’ service contracts providing for benefits upon termination of employment, please see Item 6.B. “Directors, Senior Management and Employees—Compensation—Executive Officer Service Agreements.”
The table below sets out the number of employees (excluding contractors) by geography as of December 31, 2021, 2020 and 2019:
| Geography |
As of December 31, 2021 |
As of December 31, 2020 |
As of December 31, 2019 |
|||||||||
| United States |
405 | 402 | 325 | |||||||||
| EMEA(1) |
762 | 691 | 551 | |||||||||
| APAC(2) |
515 | 462 | 384 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
1,682 | 1,555 | 1,260 | |||||||||
|
|
|
|
|
|
|
|||||||
| (1) | The significant majority of our EMEA employees are in Cambridge, United Kingdom. |
| (2) | APAC includes employees in Shanghai, Hangzhou and Hong Kong in China, Tokyo, Japan and Sydney, Australia. |
The table below sets out the number of employees (excluding contractors) by category as of December 31, 2021, 2020 and 2019:
| Department |
As of December 31, 2021 |
As of December 31, 2020 |
As of December 31, 2019 |
|||||||||
| Management, administrative, marketing and distribution |
1,254 | 1,119 | 896 | |||||||||
| Laboratory |
428 | 436 | 364 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
1,682 | 1,555 | 1,260 | |||||||||
|
|
|
|
|
|
|
|||||||
| (1) | Other employees includes departments such as Regional Sales and Marketing, Data & Analytics, Scientific Support, In-House Manufacturing, Core Finance and Facilities Health & Safety. |
We believe that we maintain a good relationship with our employees. Currently, none of our employees belong to unions.
For information regarding the share ownership of directors and officers, see Item 7.A. “Major Shareholders and Related Party Transactions—Major Shareholders.” For information regarding our equity compensation arrangements, see Item 6.B. “Director, Senior Management and Employees—Compensation—Equity Compensation Arrangements.”
Item 7. Major Shareholders and Related Party Transactions
The following table sets forth information relating to the beneficial ownership of our ordinary shares as of February 28, 2022 by:
| • | each person, or group of affiliated persons, known by us to beneficially own 5% or more of our outstanding ordinary shares; |
| • | each of our board members and executive officers individually; and |
| • | all of our board members and executive officers as a group. |
The number of ordinary shares beneficially owned by each entity, person, executive officer or board member is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of March 14, 2022 through the exercise of any option. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares held by that person.
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Unless otherwise indicated below, the address for each beneficial owner listed is c/o Abcam plc, Discovery Drive, Cambridge Biomedical Campus, Cambridge CB2 0AX, United Kingdom.
For further information regarding material transactions between us and principal shareholders, see Item 7.B. “Major Shareholders and Related Party Transactions—Related Party Transactions.”
| 5% or greater shareholders |
Number of ordinary shares |
% | ||||||
| T. Rowe Price Associates, Inc.(1) |
21,255,687 | 9.29 | ||||||
| Wellington Management Group LLP(2) |
17,001,054 | 7.43 | ||||||
| Jonathan Milner(3) |
15,520,820 | 6.78 | ||||||
| Harding Loevner(4) |
15,411,440 | 6.73 | ||||||
| Baillie Gifford & Co. Ltd.(5) |
14,498,818 | 6.33 | ||||||
| Durable Capital Partners LP(6) |
13,338,898 | 5.83 | ||||||
| Name of beneficial owner |
Number of ordinary shares |
% | ||||||
| Executive officers and board members |
||||||||
| Alan Hirzel(7) |
283,895 | * | ||||||
| Michael Baldock(8) |
9,976 | * | ||||||
| Peter Allen(9) |
18,563 | * | ||||||
| Mara Aspinall(10) |
14,545 | * | ||||||
| Giles Kerr(11) |
1,485 | * | ||||||
| Sally Crawford(12) |
— | — | ||||||
| Mark Capone(13) |
— | — | ||||||
| Bessie Lee(14) |
— | — | ||||||
| All executive officers and board members as a group (8 persons) |
328,464 | * | ||||||
| * | Indicates ownership of less than 1%. |
| (1) | Represents 16,831,523 ordinary shares held by T. Rowe Price Associates, Inc. and 4,424,164 ordinary shares held by T. Rowe Price International Ltd. T. Rowe Price International Ltd. may be deemed to have beneficial ownership over the ordinary shares held by T. Rowe Price Associates, Inc., and the address for T. Rowe Price Associates Inc. is 100 East Pratt Street Baltimore, Maryland 21202, United States. The percentage ownership of T. Rowe Price Associates, Inc. and T. Rowe Price International Ltd. decreased from 12.80% in January 2019 to 9.29% in February 2022. |
| (2) | Based on information reported on a Schedule 13G filed on February 4, 2022, each of Wellington Management Group LLP, Wellington Group Holdings LLP and Wellington Investment Advisors Holdings LLP has shared voting power over 15,326,322 of our ordinary shares and shared dispositive power over 17,001,054 of our ordinary shares, and Wellington Management Company LLP has shared voting power over 14,951,076 of our ordinary shares and shared dispositive power over 15,364,090 of our ordinary shares. The respective business addresses of Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP is 280 Congress Street, Boston, Massachusetts 02210. |
| (3) | The percentage ownership of Mr. Milner decreased from 9.61% in January 2019 to 6.78% in February 2022. |
| (4) | Based on information reported on a Schedule 13G filed on February 14, 2022, Harding Loevner L.P. has sole voting and dispositive power over 15,411,440 of our ordinary shares. The business address for Harding Loevner L.P. is 400 Crossings Blvd, Fourth Floor, Bridgewater, NJ 08807. The percentage ownership of Harding Loevner increased from 3.57% in January 2019 to 6.73% in February 2022. |
| (5) | Baillie Gifford & Co. Ltd. may be deemed to have beneficial ownership over the ordinary shares held by Baillie Gifford, and the address for Baillie Gifford & Co. Ltd. is Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom. The percentage ownership of Baillie Gifford increased from 5.58% in January 2019 to 6.33% in February 2022. |
| (6) | Based on information reported on a Schedule 13G/A filed on February 7, 2022, Durable Capital Partners LP (“Durable LP”) has sole voting and dispositive power over 13,338,898 of our ordinary shares held directly by Durable Capital Master Fund LP (“Durable Master Fund”). Durable LP is the investment adviser to Durable Master Fund. Durable Capital Partners GP LLC (“Durable GP”) is the general partner of the Durable LP, and Henry Ellenbogen is the chief investment officer of Durable LP and the managing member of Durable GP. The business address of Durable LP is 5425 Wisconsin Avenue, Suite 802, Chevy Chase, MD 20815. |
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| (7) | Represents for Mr. Hirzel (i) 283,895 ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (8) | Represents for Mr. Baldock (i) 9,976 ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (9) | Represents for Mr. Allen (i) 18,563 ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (10) | Represents for Ms. Aspinall (i) 14,545 ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (11) | Represents for Mr. Kerr (i) 1,485 ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (12) | Represents for Ms. Crawford (i) nil ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (13) | Represents for Mr. Capone (i) nil ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
| (14) | Represents for Ms. Lee (i) nil ordinary shares and (ii) nil underlying options or awards that are currently vested and exercisable or that vest within sixty days of March 14, 2022. |
Significant Changes in Ownership
To our knowledge, other than as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage ownership held by any major shareholder, with a holding of 5% or greater, since January 1, 2019.
Voting Rights
No major shareholders listed above have voting rights with respect to their ordinary shares that are different from the voting rights of other holders of our ordinary shares.
Change in Control Arrangements
We are not aware of any arrangement that may at a subsequent date, result in a change of control of the Company.
Registered Holders
According to the depositary, as of March 9, 2022, the Company had no registered holders of its ADSs with addresses in the United States, excluding any of the Company’s ADSs held by Cede & Co. as a nominee for the Depository Trust Company. According to our registrar, as of March 9, 2022, there were 75 registered holders of our shares, with addresses in the United States representing approximately 0.17935% of our outstanding ordinary shares as of that date. Because some of the Company’s ADSs and ordinary shares are held through brokers or other nominees, the number of record holders of the Company’s ADSs or ordinary shares with addresses in the United States may be fewer than the number of beneficial owners of ADSs and ordinary shares in the United States.
The following includes, among other information, a description of related party transactions, as defined under Item 7.B of Form 20-F, since January 1, 2021.
Agreements with Board Members and Executive Officers
For a description of our other agreements with our board members and executive officers, please see Item 6.B. “Directors, Senior Management and Employees.”
Indemnification Agreements
We have indemnification provisions in the letters of appointment and employment agreements with our board members and executive officers. Our Articles of Association allow us to indemnify our board members and executive officers to the fullest extent permitted by law, subject to certain exceptions. See “Management—Insurance and Indemnification” for a description of these indemnification agreements.
Related Party Transaction Policy
Our board has adopted a written related party transaction policy to set forth the policies and procedures for the review and approval or ratification of related party transactions. Under our related party transaction policy,
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any related party transaction, including all relevant facts and circumstances, must be reviewed and approved or ratified by the audit committee. Such review shall assess whether if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party, the extent of the related party’s interest in the transaction and shall also take into account the conflicts of interest and/or corporate opportunity provisions of our organizational documents and Code of Conduct and, where the related party involves a director or director nominee, whether the related party transaction will impair the director or director nominee’s independence under the rules and regulations of the SEC and Nasdaq.
C. Interests of Experts and Counsel
Not applicable.
A. Consolidated Statements and Other Financial Information
Consolidated Financial Statements
See Item 18. “Financial Statements.”
Legal and Arbitration Proceedings
From time to time, we may be involved in various claims and legal proceedings related to claims arising out of our operations. We are not currently a party to any material legal proceedings, including any such proceedings that are pending or threatened, of which we are aware.
Dividend Policy
In the future, our board of directors may decide, in its discretion, whether dividends may be proposed (in respect of final dividends) or declared and paid (in respect of interim dividends). Under English law, among other things, we may only pay dividends if we have sufficient distributable reserves (on a non-consolidated basis), which are our accumulated realized profits that have not been previously distributed or capitalized less our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital.
In the years ended December 31, 2019, and 2020, we declared and paid dividends of an aggregate of £24.9 million, £25.0 million, respectively, and in the fiscal year ended December 31, 2021 no dividend was declared or paid.
Not applicable.
Our ADSs commenced trading on the Nasdaq Global Select Market on October 22, 2020. Since 2005, our ordinary shares have traded on the AIM market of the London Stock Exchange, under the symbol “ABC.”
Not applicable.
Our ADSs commenced trading on the Nasdaq Global Select Market on October 22, 2020 under the symbol “ABCM.”
Not Applicable.
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Not applicable.
Not applicable.
Item 10. Additional Information
Not applicable.
B. Memorandum and Articles of Association
A copy of our articles of association is attached as Exhibit 1.1 to this Annual Report. The information called for by this Item is set forth in Exhibit 2.3 to this Annual Report and is incorporated by reference into this Annual Report.
Except as disclosed below or otherwise disclosed in this Annual Report (including the Exhibits), we are not currently, nor have we been for the past two years, party to any material contract, other than contracts entered into in the ordinary course of business.
BioVision
On August 1, 2021, we, through our wholly-owned Delaware subsidiary, Abcam US Group Holdings Inc., entered into a share purchase agreement (the “Share Purchase Agreement”) with Boai NKY Medical Holdings Ltd. (“NKY”) and Boai NKY Biotech Co., Ltd. (“NKY Seller”) to acquire NKY Biotech US, Inc. (“Biotech”) and its wholly owned subsidiary, BioVision, Inc. (“BioVision”), a producer of bio-chemical and cell-based assays, and developer, producer and seller of a wide portfolio of other products including recombinant proteins, antibodies, enzymes, and biochemical compounds, and one of our existing third-party suppliers. On October 26, 2021, we completed the acquisition of Biotech and BioVision pursuant to the Share Purchase Agreement, for total cash consideration of approximately $340.0 million, on a cash-free, debt-free basis, of which approximately $27.2 million was deposited into an escrow account held by a third-party financial institution in support of NKY and NKY Seller’s indemnification obligations related to their respective representations, warranties and covenants set forth in the Share Purchase Agreement. The Share Purchase Agreement contains customary representations, warranties, covenants and other agreements by and among the parties, including customary representations, warranties and indemnities by and from NKY and NKY Seller in favor of Abcam plc, Abcam US Group Holdings Inc. and certain of their respective affiliates as well as a customary post-closing purchase price adjustment mechanism.
Other than specific sanctions legislation against a limited list of countries and organizations, there are no governmental laws, decrees, regulations or other legislation in the United Kingdom that affect the import or export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of dividends, interest or other payments by us to non-resident holders of our ordinary shares or ADSs, other than withholding tax requirements, where applicable. There are no general limitations imposed by English law or in our Articles of Association on the right of non-residents to hold shares or vote at our shareholders meetings.
The following summary contains a description of certain United Kingdom and U.S. federal income tax consequences of the acquisition, ownership and disposition of ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase ADSs. The summary is based upon the tax laws of the United Kingdom and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change.
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Material United Kingdom Tax Considerations
The following statements are of a general nature and do not purport to be a complete analysis of all potential U.K. tax consequences of acquiring, holding and disposing of the ADSs. They are based on current U.K. tax law and on the current published practice of HMRC (which may not be binding on HMRC), as of the date of this Annual Report, all of which are subject to change, possibly with retrospective effect. They are intended to address only certain U.K. tax consequences for holders of ADSs who are tax resident in (and only in) the United Kingdom, and in the case of individuals, domiciled in (and only in) the United Kingdom (except where expressly stated otherwise) who are the absolute beneficial owners of the ADSs and any dividends paid on them and who hold the ADSs as investments (other than in an individual savings account or a self-invested personal pension). They do not address the U.K. tax consequences which may be relevant to certain classes of ADS holders such as traders, brokers, dealers, banks, financial institutions, insurance companies, investment companies, collective investment schemes, tax-exempt organizations, trustees, persons connected with the Company or the Group, persons holding their ADSs as part of hedging or conversion transactions, ADS holders who have (or are deemed to have) acquired their ADSs by virtue of an office or employment, and ADS holders who are or have been officers or employees of the Company or a company forming part of the Group. The statements do not apply to any ADS holder who either directly or indirectly holds or controls 10% or more of the Company’s share capital (or class thereof), voting power or profits.
The following is intended only as a general guide and is not intended to be, nor should it be considered to be, legal or tax advice to any particular prospective subscriber for, or purchaser of, any ADSs. Accordingly, prospective subscribers for, or purchasers of, any ADSs who are in any doubt as to their tax position regarding the acquisition, ownership or disposition of any ADSs or who are subject to tax in a jurisdiction other than the United Kingdom should consult their own tax advisers.
U.K. Taxation of Dividends
Withholding tax
The Company will not be required to withhold U.K. tax at source when paying dividends. The amount of any liability to U.K. tax on dividends paid by the Company will depend on the individual circumstances of an ADS holder.
Income tax
An individual ADS holder who is resident for tax purposes in the United Kingdom may, depending on his or her particular circumstances, be subject to U.K. tax on dividends received from the Company. An individual ADS holder who is not resident for tax purposes in the United Kingdom should not be chargeable to U.K. income tax on dividends received from the Company unless he or she carries on (whether solely or in partnership) any trade, profession or vocation in the United Kingdom through a branch or agency to which the ADSs are attributable. There are certain exceptions for trading in the United Kingdom through independent agents, such as some brokers and investment managers.
All dividends received by a U.K. tax resident individual holder of any ADSs from the Company or from other sources will form part of the ADS holder’s total income for income tax purposes and will constitute the top slice of that income. A nil rate of income tax will apply to the first £2,000 of total taxable dividend income received by the ADS holder in a tax year. Income within the nil rate band will be taken into account in determining whether income in excess of the nil rate band falls within the basic rate, higher rate or additional rate tax bands. Where the total dividend income is above the £2,000 dividend allowance, the first £2,000 of the dividend income will be charged at the nil rate and any excess amount will be taxed at 7.5% to the extent that the excess amount falls within the basic rate tax band, 32.5% to the extent that the excess amount falls within the higher rate tax band and 38.1% to the extent that the excess amount falls within the additional rate tax band. From April 6, 2022, these rates are expected to increase to 8.75%, 33.75% and 39.35%, respectively.
Corporation tax
Corporate ADS holders which are resident for tax purposes in the United Kingdom should not be subject to U.K. corporation tax on any dividend received from the Company so long as the dividends qualify for exemption (as is likely) and certain conditions are met (including anti-avoidance conditions). If the conditions for exemption are not met or cease to be satisfied, or such an ADS holder elects for an otherwise exempt dividend to be taxable, the ADS holder will be subject to U.K. corporation tax on dividends received from the Company, at the rate of corporation tax applicable to that ADS holder (the main rate of U.K. corporation tax is currently 19%).
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Corporate ADS holders who are not resident in the United Kingdom will not generally be subject to U.K. corporation tax on dividends unless they are carrying on a trade, profession or vocation in the United Kingdom through a permanent establishment in connection with which the ADSs are used, held, or acquired.
A Shareholder who is resident outside the United Kingdom may be subject to non-U.K. taxation on dividend income under local law.
U.K. Taxation of capital gains
U.K. resident ADS holders
A disposal or deemed disposal of ADSs by an individual or corporate ADS holder who is tax resident in the United Kingdom may, depending on the ADS holder’s circumstances and subject to any available exemptions or reliefs, give rise to a chargeable gain or allowable loss for the purposes of U.K. taxation of chargeable gains.
Any chargeable gain (or allowable loss) will generally be calculated by reference to the consideration received for the disposal of the ADSs less the allowable cost to the ADS holder of acquiring any such ADSs.
The applicable tax rates for individual ADS holders realizing a gain on the disposal of ADSs is, broadly, 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. For corporate ADS holders, Corporation tax is generally charged on chargeable gains at the rate applicable to the relevant corporate ADS holder (the main rate of U.K. corporation tax is currently 19%).
Non-U.K. ADS holders
ADS holders who are not resident in the United Kingdom and, in the case of an individual ADS holder, not temporarily non-resident, should not be liable for U.K. tax on capital gains realized on a sale or other disposal of ADSs unless (i) such ADSs are used, held or acquired for the purposes of a trade, profession or vocation carried on in the United Kingdom through a branch or agency or, in the case of a corporate ADS holder, through a permanent establishment or (ii) where certain conditions are met, the Company derives 75% or more of its gross value from U.K. land (which is not expected to be the case). ADS holders who are not resident in the United Kingdom may be subject to non-U.K. taxation on any gain under local law.
Generally, an individual ADS holder who has ceased to be resident in the United Kingdom for U.K. tax purposes for a period of five years or less and who disposes of any ADSs during that period may be liable on their return to the United Kingdom to U.K. taxation on any capital gain realized (subject to any available exemption or relief).
U.K. Stamp Duty (“stamp duty”) and U.K. Stamp Duty Reserve Tax
The following statements apply to all ADS holders, regardless of their jurisdiction of tax residence.
It is assumed for the purposes of the following statements that all transfers of, or agreements to transfer, the Company’s ordinary shares are only made at times when (i) the Company’s ordinary shares are admitted to trading on AIM but are not listed on any market (with the term “listed” being construed in accordance with section 99A of the Finance Act 1986); and (ii) AIM continues to be accepted as a “recognised growth market” (as construed in accordance with section 99A of the Finance Act 1986).
No stamp duty is payable on the issue of the Company’s ordinary shares into a depositary receipt system (such as that operated by Citibank) or a clearance service (such as DTC). No stamp duty reserve tax (“SDRT”) should be payable on the issue of the Company’s ordinary shares into a depositary receipt system or a clearance service. Accordingly, no stamp duty or SDRT should be payable on the creation and issue of the ADSs pursuant to the issue of the Company’s ordinary shares to the Custodian.
No stamp duty or SDRT should be payable on transfers of, or agreements to transfer, the Company’s ordinary shares into a depositary receipt system or a clearance service.
No stamp duty or SDRT should be payable on paperless transfers of, or agreements to transfer, the ADSs through the facilities of DTC.
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No stamp duty should be payable on a written instrument transferring, or a written agreement to transfer, ADSs provided the instrument or agreement is executed and remains at all times outside the U.K. No SDRT should be payable in respect of agreements to transfer ADSs.
No stamp duty or SDRT should be payable on transfers of, or agreements to transfer, the Company’s ordinary shares outside of a depositary receipt system or a clearance service.
No stamp duty or SDRT should be payable on a repurchase by the Company of the Company’s ordinary shares.
Material United States Federal Income Tax Considerations
The following summary describes certain material U.S. federal income tax considerations generally applicable to U.S. Holders (as defined below), and solely to the extent described below under the heading “U.S. Foreign Account Tax Compliance Act,” to persons other than U.S. Holders, of an investment in the ordinary shares or ADSs. This summary applies only to U.S. Holders that hold the ordinary shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), that have the U.S. dollar as their functional currency.
This discussion is based on the tax laws of the United States, including the Code, as in effect on the date hereof and on U.S. Treasury regulations as in effect or, in some cases, as proposed, on the date hereof, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change or differing interpretations, which change or differing interpretation could apply retroactively and could affect the tax consequences described below. No ruling will be requested from the Internal Revenue Service (the “IRS”) regarding the tax consequences acquiring our ADSs and there can be no assurance that the IRS will agree with the discussion set out below. This summary does not address any estate or gift tax consequences, the alternative minimum tax, the Medicare tax on net investment income or any state, local or non-U.S. tax consequences.
This summary also does not address the tax consequences that may be relevant to persons in special tax situations such as:
| • | banks; |
| • | certain financial institutions; |
| • | insurance companies; |
| • | regulated investment companies; |
| • | real estate investment trusts; |
| • | individual retirement accounts and other tax-deferred accounts; |
| • | broker-dealers; |
| • | traders that elect to mark to market; |
| • | U.S. expatriates; |
| • | tax-exempt entities; |
| • | persons that own the ordinary shares or ADSs as part of a “straddle,” “hedge,” “conversion transaction” or integrated transaction; |
| • | persons that actually or constructively own 10% or more of the Company’s share capital (by vote or value); |
| • | persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; |
| • | persons who acquired the ordinary shares or ADSs pursuant to the exercise of any employee share option or otherwise as compensation; |
| • | persons subject to special tax accounting rules as a result of any item of gross income with respect to the ordinary shares or ADSs being taken into account in an applicable financial statement; or |
| • | pass-through entities or arrangements, or persons holding ordinary shares or ADSs through pass-through entities or arrangements. |
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THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES OR ADSS.
As used herein, the term “U.S. Holder” means a beneficial owner of the ordinary shares or ADSs that is, for U.S. federal income tax purposes:
| • | an individual who is a citizen or resident of the United States; |
| • | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; |
| • | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| • | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If an entity or other arrangement treated as a partnership for U.S. federal income tax purposes holds ordinary shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership and certain determinations made at the partnership level. A person that would be a U.S. Holder if it held ordinary shares or ADSs directly and that is a partner of a partnership holding ordinary shares or ADSs is urged to consult its tax advisor.
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. Generally, a holder of an ADS should be treated for U.S. federal income tax purposes as holding the ordinary shares represented by the ADS. Accordingly, no gain or loss will generally be recognized upon an exchange of ADSs for ordinary shares.
Taxation of Dividends and Other Distributions on the Ordinary Shares or ADSs
Subject to the passive foreign investment company rules discussed below, the gross amount of any distributions the Company makes to a U.S. Holder (including the amount of any tax withheld) with respect to the ordinary shares or ADSs generally will be includible in a U.S. Holder’s gross income as dividend income on the date of receipt, but only to the extent the distribution is paid out of the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. To the extent the amount of the distribution exceeds the Company’s current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a tax-free return of a U.S. Holder’s tax basis in the ordinary shares or ADSs, and then, to the extent such excess amount exceeds such holder’s tax basis in such ordinary shares or ADSs, as capital gain. The Company currently does not, and it does not intend to, calculate its earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, dividends may be taxed at the lower capital gain rates applicable to “qualified dividend income,” provided that (i) the ordinary shares or ADSs, as applicable, are readily tradable on an established securities market in the United States, (ii) certain holding period and at-risk requirements are met and (iii) the Company is not a passive foreign investment company (as discussed below) with respect to the relevant U.S. Holder for either the taxable year in which the dividend was paid or the preceding taxable year. In this regard, the ordinary shares or ADSs will generally be considered to be readily tradable on an established securities market in the United States if they are listed on Nasdaq, as it is expected that the ADSs will be. However, based on existing guidance, it is not entirely clear whether any dividends a U.S. Holder receives with respect to the ordinary shares will be taxed as qualified dividend income, because the ordinary shares will not themselves be listed on a securities market in the United States for trading purposes. U.S. Holders should consult their tax advisors regarding the availability of the
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reduced tax rate on dividends with respect to distributions on the ordinary shares or ADSs in light of their particular circumstances.
The amount of any distribution paid in foreign currency that will be included in the gross income of a U.S. Holder will be the U.S. dollar value of the distribution payment based on the exchange rate in effect on the date such distribution is included in such holder’s income, whether or not the payment is converted into U.S. dollars at that time. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
Any dividends paid by the Company with respect to the ordinary shares or ADSs will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will, in general, be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends paid by the Company with respect to the ordinary shares or ADSs will generally constitute “passive category income” for purposes of the foreign tax credit.
Taxation of Disposition of the Ordinary Shares or ADSs
Subject to the passive foreign investment company rules discussed below, upon a sale or other taxable disposition of the ordinary shares or ADSs, a U.S. Holder will generally recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized (including the amount of any tax withheld) and such holder’s adjusted tax basis in such ordinary shares or ADSs.
If the consideration received upon the sale or other taxable disposition of the ordinary shares or ADSs is paid in foreign currency, the amount realized will be the U.S. dollar value of the payment received, translated at the spot rate of exchange on the date of taxable disposition. If the ordinary shares or ADSs are treated as traded on an established securities market for U.S. federal income tax purposes and the relevant U.S. Holder is either a cash-basis taxpayer or an accrual-basis taxpayer who has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the IRS), such holder will determine the U.S. dollar value of the amount realized in foreign currency by translating the amount received at the spot rate of exchange on the settlement date of the taxable disposition. An accrual-basis taxpayer that does not make the special election will recognize exchange gain or loss to the extent attributable to the difference between the exchange rates on the date of disposition and the settlement date, and such exchange gain or loss generally will constitute U.S.-source ordinary income or loss.
A U.S. Holder’s initial tax basis in the ordinary shares or ADSs generally will equal the cost of such ordinary shares or ADSs. If a U.S. Holder used foreign currency to purchase the ordinary shares or ADSs, the cost of such ordinary shares or ADSs will be the U.S. dollar value of the foreign currency purchase price on the date of purchase, translated at the spot rate of exchange on that date. If the ordinary shares or ADSs are treated as traded on an established securities market for U.S. federal income tax purposes and the relevant U.S. Holder is either a cash-basis taxpayer or an accrual-basis taxpayer who has made the special election described above, the U.S. Holder will determine the U.S. dollar value of the cost of such ordinary shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
Any gain or loss on the sale or other taxable disposition of the ordinary shares or ADSs will generally be treated as U.S. source income or loss, and treated as long-term capital gain or loss if the U.S. Holder’s holding period in the ordinary shares or ADSs at the time of the disposition exceeds one year. Accordingly, in the event any United Kingdom tax (including withholding tax) is imposed upon the sale or other taxable disposition, a U.S. Holder may not be able to utilize foreign tax credits unless such holder has foreign source income or gain in the same category from other sources. Long-term capital gain of non-corporate U.S. Holders generally will be subject to U.S. federal income tax at reduced tax rates. The deductibility of capital losses is subject to significant limitations.
Passive Foreign Investment Company Considerations
The Company will be classified as a PFIC for any taxable year if either: (a) at least 75 per cent of its gross income is “passive income” for purposes of the PFIC rules or (b) at least 50 per cent of the value of its assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the
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production of passive income. For this purpose, the Company will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other entity treated as a corporation for U.S. federal income tax purposes in which the Company owns, directly or indirectly, 25 per cent or more (by value) of the stock.
Under the PFIC rules, if the Company were considered a PFIC at any time that a U.S. Holder holds the ordinary shares or ADSs, the Company would continue to be treated as a PFIC with respect to such investment unless (i) it ceased to be a PFIC and (ii) the U.S. Holder made a “deemed sale” election under the PFIC rules. If such election is made, a U.S. Holder will be deemed to have sold its ordinary shares or ADSs at their fair market value on the last day of the last taxable year in which the Company is classified as a PFIC, and any gain from such deemed sale would be subject to the consequences described below. After the deemed sale election, the ordinary shares or ADSs with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless the Company subsequently becomes a PFIC.
Based on the nature and composition of the Company’s income, assets and operations and the income, assets and operations of the Company’s subsidiaries, the Company does not believe that it is was a PFIC for the current taxable year for the taxable year ending December 31, 2021 and it does not expect to be a PFIC for the current taxable year or in the foreseeable future. However, this is a factual determination that depends on, among other things, the nature and composition of the Company’s income and assets, and the market value of the Company’s shares and assets, including the nature and composition of income and assets and the market value of shares and assets of the Company’s subsidiaries, from time to time. Therefore, no assurance can be given that the Company was not a PFIC for the taxable year ending December 31, 2021 or will not be classified as a PFIC for the current taxable year or any future taxable year.
If the Company is considered a PFIC at any time that a U.S. Holder holds the ordinary shares or ADSs, any gain recognized by the U.S. Holder on a sale or other disposition of the ordinary shares or ADSs, as well as the amount of any “excess distribution” (as defined below) received by the U.S. Holder, would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition (or the taxable year of receipt, in the case of an excess distribution) and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed. For the purposes of these rules, an excess distribution is the amount by which any distribution received by a U.S. Holder on the ordinary shares or ADSs exceeds 125% of the average of the annual distributions on the ordinary shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. In addition, if the Company is a PFIC and any of the Company’s subsidiaries is also a PFIC, a U.S. Holder may also be subject to the adverse tax consequences described above with respect to any gain or “excess distribution” realized or deemed realized in respect of such subsidiary PFIC.
Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment or treatment as a qualified electing fund (“QEF”)) of the ordinary shares or ADSs if the Company is considered a PFIC. However, the Company does not expect to furnish U.S. Holders of the ordinary shares or ADSs with the tax information necessary to enable a U.S. Holder to make a QEF election. In addition, an election for mark-to-market treatment is unlikely to be available to mitigate any adverse tax consequences with respect to a subsidiary that is also a PFIC. If the Company is considered a PFIC, a U.S. Holder will also be subject to annual information reporting requirements. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an investment in the ordinary shares or ADSs and the potential consequences related thereto.
Information Reporting and Backup Withholding
Distributions on the ordinary shares or ADSs and proceeds from the sale, exchange or redemption of the ordinary shares or ADSs may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding or that is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status generally must provide such certification on IRS Form W-9.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability, and such holder may obtain a refund of any excess
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amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Foreign Financial Asset Reporting
Certain U.S. Holders may be required to report information relating to an interest in the ordinary shares or ADSs, subject to certain exceptions (including an exception for ordinary shares or ADSs held in accounts maintained by certain financial institutions). Penalties can apply if U.S. Holders fail to satisfy such reporting requirements. U.S. Holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of the ordinary shares or ADSs.
U.S. Foreign Account Tax Compliance Act
Certain provisions of the Code and U.S. Treasury regulations (commonly collectively referred to as “FATCA”) generally impose 30 percent withholding on certain “withholdable payments” and, in the future, may impose such withholding on “foreign passthru payments” made by a “foreign financial institution” (as defined under FATCA) (an “FFI”) that has entered into an agreement with the IRS to perform certain diligence and reporting obligations with respect to the FFI’s U.S.-owned accounts. If the Company were to be treated as an FFI, (i) such withholding may be imposed on such payments to any other FFI (including an intermediary through which an investor may hold the ordinary shares or ADSs) that is not a “participating FFI” (as defined under FATCA) or any other investor who does not provide information sufficient to establish that the investor is not subject to withholding under FATCA, unless such other FFI or investor is otherwise exempt from FATCA and (ii) the Company may be required to report certain information regarding investors to the relevant tax authorities, which information may be shared with taxing authorities in the United States. Under current guidance, the term “foreign passthru payment” is not defined, and it is therefore not clear whether or to what extent payments on the ordinary shares or ADSs would be considered foreign passthru payments. Withholding on foreign passthru payments would not be required with respect to payments made before the date that is two years after the date of publication in the Federal Register of final U.S. Treasury regulations defining the term “foreign passthru payment.” The United States has entered into an intergovernmental agreement, or IGA, with the United Kingdom (the “U.K. IGA”), which modifies the FATCA withholding regime described above. If the Company was treated as an FFI under the U.K. IGA, it would be subject to these diligence, withholding and reporting obligations under FATCA. Prospective investors should consult their tax advisors regarding the potential impact of FATCA, the U.K. IGA and any non-U.S. legislation implementing FATCA on the investment in the ordinary shares or ADSs.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS SET OUT ABOVE IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES OR ADSS.
F. Dividends and Paying Agents
Not applicable.
Not applicable.
We are subject to the informational requirements of the Exchange Act. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the
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Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each subsequent fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm. We also intend to furnish certain other material information to the SEC under cover of Form 6-K.
We maintain a corporate website at coprorate.abcam.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 20-F. We also make available on the Investors section of our website, free of charge, our Annual Report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The information contained on our website is not incorporated by reference in this Annual Report.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of risks in the ordinary course of our business, including, but not limited to, currency risk, liquidity risk and credit risk, as discussed below. We regularly assess each of these risks to minimize any adverse effects on our business as a result of those factors. See Note 26 to our audited consolidated financial statements, which are included elsewhere in this Annual Report, for further discussion of our exposure to these risks.
Currency Risk
We have transactions denominated in various currencies, with the principal currency exposure being fluctuations in U.S. Dollars (“USD”), Euros, Japanese Yen and Chinese Renminbi (“RMB”). Collectively, these currencies make up approximately 90.0% of our revenue and cash inflows. While a large portion of our manufacturing and research and development costs are USD and RMB, giving a natural offset against the currency inflows, the majority of administration costs remain as pound sterling, leaving an overall net currency inflow in our cash flows.
This remaining currency exposure is centrally managed with the objective being to secure a level of certainty of pound sterling value for up to 90.0% of our future net exposure based on forecast cash flows expected to occur up to 12 months ahead. We use forward currency contracts to achieve this objective and apply hedge accounting where applicable. Foreign currency forward contracts are valued using quoted forward exchange rates and yield curves matching maturities of the contracts.
A decrease of 10.0% in the USD/pound sterling exchange rate would have resulted in a decrease of our other comprehensive income by £1.3 million for the fiscal year ended December, 31 2021. A decrease of 10.0% in the Euro/pound sterling exchange rate would have resulted in a decrease of our other comprehensive income by £1.5 million for the fiscal year ended December, 31 2021. If the pound sterling fluctuates significantly against the USD or Euro, it may have a negative impact on our results of operations.
Liquidity Risk
Liquidity risk is our risk of not having sufficient funds available in the right currency to settle its obligations as they fall due. As at December 31, 2020 and 2021, we held cash and cash equivalents of $286.1 million and $128.4 million, respectively, with drawings of $161.7 million as at the year ended December 31, 2021, £nil in the prior year. As of December 31, 2021 we also had access to further loan funding of $134.8 million. We generate funds from operational activities in excess of our operational requirements and have substantial cash balances available for our current investment activities. The Board reviews our funding requirement as part of the budgeting and long-term planning processes and considers as necessary alternative possible sources of funding where the requirement is not satisfied by our forecast operational cash generation.
We manage liquidity risk by maintaining an adequate level of easily accessible cash reserves, in a currency profile representative of our cost base and matching customer and supplier terms where possible. We also have access to daily currency trading facilities, which provides the ability to convert currency within the agreed settlement limits as required.
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Credit Risk
We are exposed to credit risk on our financial assets; however, there is not deemed to be a significant exposure due to the nature of our customer base and the types of transaction that are undertaken. Exposure to counterparty default risk is managed by limiting the concentration of funds and contracts held with individual financial institutions and ensuring funds are only placed with institutions or in products rated BBB- or above by Standard & Poor’s.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
Not applicable.
Not applicable.
Fees and Charges
ADS holders are required to pay the following fees under the terms of the deposit agreement:
| Service |
Fees | |
| • Issuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary shares, upon a change in the ADS(s)-to-ordinary share(s) ratio, or for any other reason, excluding ADS issuances as a result of distributions of ordinary shares) |
Up to U.S. 5¢ per ADS issued | |
| • Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property, upon a change in the ADS(s)-to-ordinary share(s) ratio, or for any other reason) |
Up to U.S. 5¢ per ADS cancelled | |
| • Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) |
Up to U.S. 5¢ per ADS held | |
| • Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs |
Up to U.S. 5¢ per ADS held | |
| • Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin-off) |
Up to U.S. 5¢ per ADS held | |
| • ADS Services |
Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the depositary | |
| • Registration of ADS transfers (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason) |
Up to U.S. 5¢ per ADS (or fraction thereof) transferred | |
| • Conversion of ADSs of one series for ADSs of another series (e.g., upon conversion of Partial Entitlement ADSs for Full Entitlement ADSs, or upon conversion of Restricted ADSs (each as defined in the Deposit Agreement) into freely transferable ADSs, and vice versa). |
Up to U.S. 5¢ per ADS (or fraction thereof) converted | |
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ADS holders are also responsible to pay certain charges such as:
| • | taxes (including applicable interest and penalties) and other governmental charges; |
| • | the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively; |
| • | certain cable, telex and facsimile transmission and delivery expenses; |
| • | the fees, expenses, spreads, taxes and other charges of the depositary and/or service providers (which may be a division, branch or affiliate of the depositary) in the conversion of foreign currency; |
| • | the reasonable and customary out-of-pocket expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and ADRs; and |
| • | the fees, charges, costs and expenses incurred by the depositary, the custodian, or any nominee in connection with the ADR program. |
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee is payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after acquiring our ADSs. Note that the fees and charges that ADS holders may be required to pay may vary over time and may be changed by us and by the depositary. ADS holders receive prior notice of such changes. The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary agree from time to time.
Payment of Taxes
ADS holders are responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. ADS holders are liable for any deficiency if the sale proceeds do not cover the taxes that are due.
The depositary may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, ADS holders may be required to provide to the depositary and to the custodian proof of taxpayer status and residence and such other information as the depositary and the custodian
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may require to fulfill legal obligations. ADS holders are required to indemnify us, the depositary and the custodian for any claims with respect to taxes based on any tax benefit obtained for their behalf.
Foreign Currency Conversion
The depositary will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. ADS holders may have to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.
If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary may take the following actions in its discretion:
| • | Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical. |
| • | Distribute the foreign currency to holders for whom the distribution is lawful and practical. |
| • | Hold the foreign currency (without liability for interest) for the applicable holders. |
The remainder of the information called for by this Item is set forth in Exhibit 2.3 to this Annual Report and is incorporated by reference into this Annual Report.
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Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Use of Proceeds
On October 21, 2020, the SEC declared effective our registration statement on Form F-1 (File No. 333-249526), as amended, filed in connection with our IPO (the “Registration Statement”). Pursuant to the Registration Statement, we registered the offer and sale of 10,287,000 of our ADSs, representing the same number of ordinary shares with a proposed maximum aggregate offering price of approximately $180.0 million. We offered 8,945,218 ADSs, and provided the underwriters the option to purchase an additional 1,341,782 ADSs. Morgan Stanley & Co. LLC and BofA Securities, Inc LLC acted as representatives of the underwriters for the offering.
On October 26, 2020, we issued and sold 10,287,000 ADSs (including 1,341,782 ADSs that were subject to underwriters option to purchase additional ADS), representing the same number of our ordinary shares at a price to the public of $17.50 per share. The aggregate offering price of the shares sold was approximately $180.0million. Upon completion of the IPO on October 26, 2020, we received net proceeds of $164.7million, after deducting underwriting discounts and commissions of $15.3 million and offering expenses of $2.8 million. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.
The offering terminated after the sale of all securities registered pursuant to the Registration Statement. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated October 21, 2020, filed with the SEC on October 22, 2020 pursuant to Rule 424(b) relating to our Registration Statement.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2021. Based on that evaluation, our CEO and CFO concluded that, as a result of the material weaknesses in our internal control over financial reporting as described below, as of December 31, 2021, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was being recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information was being communicated to our management, including our CEO and CFO, as appropriate, to allow for timely decisions regarding the required disclosures under the Exchange Act.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act and as set forth in Section 404 of the Sarbanes Oxley Act of 2002 (“SOX”). Under the SOX framework, our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision of the CEO and CFO, and under the oversight of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was not effective because of the material weaknesses described below. A material weakness, as defined in SOX, is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual consolidated financial statements will not be prevented or detected on a timely basis.
Management excluded from this assessment BioVision, as permitted by the SEC rules and regulations, because it was acquired during 2021. BioVision’s assets represented approximately 2% of the Company’s consolidated total assets, excluding the effects of purchase accounting, and its revenues represented approximately 1% of the Company’s consolidated total revenues, each as of and for the fiscal year ended December 31, 2021.
Notwithstanding the identified material weaknesses, the CEO and CFO have concluded that the consolidated financial statements included in this Annual Report on Form 20-F fairly represent in all material respects our financial condition, operational results, and cash flows for the period.
Material Weaknesses in Internal Control Over Financial Reporting
Prior to our IPO, we have not previously been required to document, operate, and maintain (ICFR) at the level required to conclude that our ICFR is effective pursuant to SEC requirements. Implementing SOX standards within our environment has been a significant undertaking; although we made substantial progress throughout the year, the design and configuration of SOX-level controls remained ongoing at December 31, 2021. Additionally, we changed our fiscal year end from June 30 to December 31 to better align with similar companies in the market which shortened our window to become SOX compliant by six months.
As of December 31, 2021 we concluded (as previously disclosed in our Registration Statement on Form F-1 (File No. 333-249263) and on transitional Form 20-F (File No. 001-39633), which were filed with the SEC on October 19, 2020, and September 1, 2021, respectively) that, in connection with the preparation and audits of our financial statements, material weaknesses in ICFR remain present. The material weaknesses related to the following:
| • | Our legacy IT system Adminsite (in house developed sales order processing and finished goods inventory system) did not allow for appropriate IT General Controls (“ITGC”). |
| • | There were ineffective and insufficient completeness and accuracy of records in the transactional activity reporting used in the performance of review and variance analysis for the Goods Received Not Invoiced account. |
In the current fiscal year, additional contributing factors to the existing ITGC material weakness described above were identified, which caused us to conclude that the existing material weakness with respect to ITGC related to all of the company’s information systems relevant to the preparation of our financial statements. We did not design and maintain effective controls over information technology (“IT”) general controls for all information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties exist, to adequately restrict user and privileged access to certain financial applications, programs and data to appropriate company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored, (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements, and (v) identification and testing of system-generated reports used in the execution of manual controls. In addition, our business process controls
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(automated and manual) that are dependent on the affected ITGC were also deemed ineffective because they could have been adversely impacted.
Additional material weaknesses in other processes were identified and remained at December 31, 2021:
Revenue: We had inadequate or ineffective controls within our revenue cycle, resulting in a material weakness. Adminsite is unable to enforce segregation of duties or produce detailed audit logs; as a result, we were unable to design or implement controls to adequately mitigate the potential for risk of unauthorized changes being made to purchase order pricing, quantities or discount rates. Additionally, we did not have robust, established, and documented review procedures in place to effectively compensate for the system limitations and we also did not maintain effective manual controls over the review and approval of manual invoices.
Inventory: We did not design and maintain effective controls over inventory. Specifically, we did not design and maintain effective controls over the completeness, accuracy, existence, and valuation of inventory. System limitations within our legacy system, Adminsite, required our complex inventory process to operate manually. In addition, due to resource limitations we did not complete our planned program of inventory counts in full.
Payroll: We did not design and maintain effective controls over the preparation and review of payroll. Specifically, we did not retain sufficient documentation evidencing a detailed review of key data inputs for completeness and accuracy.
Manual Journal Entries: We did not design and maintain effective controls over the review of manual journal entries. Specifically, we did not retain sufficient documentation evidencing a detailed review of key data inputs for completeness and accuracy.
Management’s Planned Remediation Activities
During fiscal year 2021, we undertook efforts to remediate previously disclosed material weaknesses, implement a company-wide formal SOX program, and strengthen our internal controls. Management under the supervision and direction of our CEO and CFO continue to take steps to remediate the material weaknesses described above. In addition, management has committed to strengthening and advancing our internal control environment as a whole. Extensive work was completed during fiscal year ended December 31, 2021 to implement an effective SOX ICFR program, which will continue throughout 2022. Management’s internal control remediation efforts are underway and focused across the following three areas:
Replace Outdated Legacy IT Systems for Financial Statement Reporting:
| • | Oracle design will enable management to secure system access, enforce segregation of duties, formally track audit trails/logs, and leverage standard Oracle reports to enhance data validation procedures, documentation, and evidence in key areas, such as revenue. |
| • | Standardize the inventory process by incorporating the controls into the ERP environment. |
| • | Continue to design current controls to reflect the new ERP component deployment. |
| • | Existing controls identified within Oracle during fiscal year ended December 31, 2021 will continue to be tested to ensure efficacy in design and operation. |
Advance ITGC Rollout:
| • | During the fiscal year ended December 31, 2021, we focused on establishing SOX IT controls within the Oracle system, which we will continue to evaluate, expand, and test in fiscal year ended December 31, 2022. |
| • | Implement program management controls over IT program and data changes for systems for financial systems. |
| • | Perform an assessment over segregation of duties and implement user access controls that restrict access to appropriate personnel. |
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| • | Implement controls to monitor and remediate issues with batch jobs and backups. |
| • | Implement controls for program development that ensure new software development is aligned with business and IT requirements. |
| • | Continue training IT personnel on how to implement ITGC |
| • | Proactively integrate SOX controls into system updates, upgrades, or implementations. |
| • | Finalize the build, test and deployment of a suitable review report for GRNI. |
Enhance Business Process Controls:
| • | Finalize the rollout of a governance, risk and compliance tool to streamline ICFR documentation, internal control updates, overall SOX program monitoring, and internal audit testing. |
| • | Continue to evaluate the assignment of responsibilities associated with the performance of control activities and consider hiring additional resources or providing additional training to existing resources. |
| • | Continue to evaluate and refine the design, implementation, and documentation of the internal controls to ensure controls address the relevant risks, are properly designed, and provide appropriate evidence of the performance. |
| • | Enhance the design of controls that address the completeness and accuracy of reports being utilized in the execution of internal controls. |
| • | Assess whether the company is sufficiently staffed to meet its design objectives for internal control over financial reporting and whether the appropriate resources are performing the control activities. |
| • | Develop and execute upon a monitoring protocol that allows the Company to validate the operating effectiveness of certain controls over financial reporting to gain assurance that such controls are presented and functioning as designed. |
We cannot give assurance that the measures we are taking to remediate the material weaknesses will be sufficient or that they will prevent future material weaknesses. As management continues to evaluate and work to improve our ICFR, we may determine it necessary to take additional measures or modify the remediation plan described above. Obstacles-including complexities in our operational environment, challenges in transitioning to Oracle in full for ERP, integrating BioVision, and resource constraints to timely complete an effective risk assessment process and implement controls-may require further remediation efforts, all of which individually and in aggregate is likely to increase implementation time. As we monitor and evaluate our ICFR, we will continue to assess the effectiveness of our remediation plan and prioritize our resources. The material weaknesses cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Attestation Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited our internal control over financial reporting as of December 31, 2021, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
Other than the remediation efforts described above taken to address the material weaknesses during the period covered by this Annual Report, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Giles Kerr, a member of our audit committee, is a “financial expert,” as defined in Item 16A of Form 20-F. Mr. Kerr is “independent,” as defined in Rule 10A-3 under the Exchange Act. For a description of Mr. Kerr’s experience, see Item 6.A. “Directors, Senior Management and Employees—Executive Officers and Board Members.”
105
We have adopted a Code of Conduct, which covers a broad range of matters including the handling of conflicts of interest, compliance issues and other corporate policies such as equal opportunity and non-discrimination standards. This Code of Conduct applies to all of our executive officers, board members and employees. Our Code of Conduct is intended to meet the definition of “code of ethics” under Item 16B of 20-F under the Exchange Act.
We will disclose on our website any amendment to, or waiver from, a provision of our Code of Conduct that applies to our directors or executive officers to the extent required under the rules of the SEC or Nasdaq. A current copy of the Code of Conduct is available on the Investors section of our website at corporate.abcam.com. The information contained on our website is not incorporated by reference in this Annual Report. We granted no waivers under our Code of Business Conduct and Ethics in 2021.
Item 16C. Principal Accountant Fees and Services
The consolidated financial statements of Abcam plc at December 31, 2020 and December 31, 2021, for the fiscal year ended December 31, 2021, six-months ended December 31, 2020 and fiscal year ended June 30, 2020 that appear in this Annual Report have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The registered business address of PricewaterhouseCoopers LLP is The Maurice Wilkes Building, St John’s Innovation Park, Cowley Road, Cambridge, CB4 0DS, United Kingdom. The table below sets out the total amount billed to us by PricewaterhouseCoopers LLP for services performed in the fiscal year ended December 31, 2021, six-months ended December 31, 2020 and the fiscal year ended June 30, 2020, and breaks down these amounts by category of service:
| Fiscal Year Ended June 20, 2020 |
Six-months Ended December 31, 2020 |
Fiscal Year Ended December 31, 2021 |
||||||||||
| £’000 | £’000 | £’000 | ||||||||||
| Audit Fees |
510 | 489 | 1,315 | |||||||||
| All Other Fees |
76 | 653 | 6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | 586 | 1,142 | 1,321 | |||||||||
|
|
|
|
|
|
|
|||||||
Audit Fees
Audit fees for the fiscal year ended December 31, 2021, six-months ended December 31, 2020 and fiscal year ended June 30, 2020 were related to the audit of our consolidated financial statements, subsidiary the companies pursuant to legislation and interim review services provided in connection with statutory and regulatory filings or engagements.
All Other Fees
All other fees in the fiscal year ended June 30, 2020 and six-month period ended December 31, 2020 related to services provided in connection with the Group’s US listing.
Pre-Approval Policies and Procedures
The advance approval of the Audit Committee or members thereof, to whom approval authority has been delegated, is required for all audit and non-audit services provided by our auditors.
All services provided by our auditors are approved in advance by either the Audit Committee or members thereof, to whom authority has been delegated, in accordance with the Audit Committee’s pre-approval policy.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
106
Item 16F. Change in Registrant’s Certifying Accountant
None.
Item 16G. Corporate Governance
As a public company incorporated in England and Wales and that has shares admitted to AIM, we are not required to have regard to the U.K. Corporate Governance Code. Our board is, however, committed to maintaining high standards of corporate governance, and we intend to apply the U.K. Corporate Governance Code and comply with its principles and provisions so far as is practicable and appropriate given our size and status as an AIM-traded company.
We are a “foreign private issuer.” As a “foreign private issuer,” as defined by the SEC, we are permitted to follow home country corporate governance practices instead of certain corporate governance practices required by Nasdaq applicable to U.S. domestic issuers. We intend to voluntarily follow most Nasdaq corporate governance rules. However, we intend to follow U.K. corporate governance practices in lieu of the Nasdaq corporate governance rules as follows:
| • | We do not intend to follow Nasdaq Rule 5620(c) regarding quorum requirements applicable to meetings of shareholders. Such quorum requirements are not required under English law. In accordance with generally accepted business practice, our Articles of Association provide alternative quorum requirements that are generally applicable to meetings of shareholders. |
| • | We do not intend to follow Nasdaq Rule 5605(b)(2), which requires that independent directors regularly meet in executive session, where only independent directors are present. Our independent directors may choose to meet in executive session at their discretion. |
| • | We do not intend to follow Nasdaq Rule 5635(c), which requires shareholder approval for the establishment of or any material amendments to equity compensation or purchase plans or other equity compensation arrangements. We will follow English law with respect to any requirement to obtain shareholder approval in connection with equity compensation or purchase plans or other equity compensation arrangements. |
| • | We do not intend to follow Nasdaq Rule 5635(d), which requires shareholder approval in order to enter into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the ordinary shares. We will follow English law with respect to any requirement to obtain shareholder approval in connection with any private placements of equity securities. |
We may in the future decide to use other foreign private issuer exemptions with respect to some or all of the other Nasdaq corporate governance rules.
Although we may rely on certain home country corporate governance practices, we are required to comply with the Notification of Noncompliance requirement (Nasdaq Rule 5625) and the Voting Rights requirement (Nasdaq Rule 5640). Further, we are required to have an audit committee that satisfies Nasdaq Rule 5605(c)(3), which addresses audit committee responsibilities and authority, and consists of committee members that meet the independence requirements of Nasdaq Rule 5605(c)(2)(A)(ii).
If we cease to be a “foreign private issuer” under the Nasdaq rules and the Exchange Act, as applicable, we will take all action necessary to comply with applicable Nasdaq corporate governance rules.
Because we are a foreign private issuer, our directors and senior management are not subject to short-swing profit and insider trading reporting obligations under Section 16 of the Exchange Act. They are, however, subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
107
We have provided financial statements pursuant to Item 18.
The audited consolidated financial statements as required under Item 18 are attached hereto starting on page F-1 of this Annual Report. The audit report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, is included herein preceding the audited consolidated financial statements.
The following are filed as exhibits hereto:
108
| Incorporation by Reference | ||||||||||||||||||||||
| Exhibit No. | Description |
Form | File No. | Exhibit No. |
Filing Date | Filed / Furnished |
||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | # | ||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | # | ||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document | # | ||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | # | ||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | # | ||||||||||||||||||||
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Indicates management contract or compensatory plan or arrangement. |
| # | To be filed by amendment pursuant to Rule 405(f)(2) of Regulation S-T. |
Certain agreements filed as exhibits to this Annual Report contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and that may not be reflected in such agreements. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements.
109
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| ABCAM PLC | ||
| Date: March 14, 2022 | ||
| By: | /s/ Alan Hirzel | |
| Name: | Alan Hirzel | |
| Title: | Chief Executive Officer | |
110
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Report of Independent Registered Public Accounting Firm (PCAOB ID 876) |
F-2 | |||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
| F-9 | ||||
| F-10 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Abcam plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Abcam plc and its subsidiaries (the “Group”) as of December 31, 2021, December 31, 2020 and June 30, 2020, and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year ended December 31, 2021, six-months ended December 31, 2020 and years ended June 30, 2020 and June 30, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Group’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2021, December 31, 2020 and June 30, 2020, and the results of its operations and its cash flows for the year ended December 31, 2021, six months ended December 31, 2020 and years ended June 30, 2020 and June 30, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date. The material weaknesses related to (i) lack of controls over information technology systems that are relevant to the preparation of the consolidated financial statements, (ii) insufficient controls over the completeness and accuracy of records for the goods received not invoiced account, (iii) ineffective controls in pricing, quantities and discount rates in the revenue cycle including review and approval of manual invoices, (iv) ineffective controls over the completeness, accuracy, existence and valuation of inventory, (v) insufficient controls over the preparation and review of payroll, including completeness and accuracy of key data inputs and (vi) insufficient controls over the completeness and accuracy of key data inputs in manual journal entries.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2021 consolidated financial statements, and our opinion regarding the effectiveness of the Group’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Changes in Accounting Principles
As discussed in notes 1 and 3 to the consolidated financial statements, the Group changed the manner in which it accounts for cloud computing costs in 2021 and the manner in which it accounts for leases as of July 1, 2019.
Basis for Opinions
The Group’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on the Group’s consolidated financial statements and on the Group’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
F-2
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded BioVision, Inc from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Group in a purchase business combination during 2021. We have also excluded BioVision, Inc from our audit of internal control over financial reporting. BioVision, Inc is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of BioVision, Inc. acquired intangible assets
As described in notes 4 and 29 to the consolidated financial statements, on October 26, 2021 the Group acquired NKY Biotech US, Inc and its 100% owned subsidiary, BioVision, Inc (collectively “BioVision”), for cash consideration of $349.9 million (£253.8 million), which resulted in the recognition of intangible assets of £80.6 million. Management made significant judgement in estimating the fair value of the intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the future cash flows. The significant assumptions used by management included the revenue growth rate and the expected attrition rates associated with the acquired product portfolio.
The principal considerations for our determination that performing procedures relating to the valuation of BioVision acquired intangible assets is a critical audit matter are (i) the significant judgment made by management in determining the fair value of the intangible assets acquired; (ii) a high degree of auditor
F-3
judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions related to the future cash flows, revenue growth rate and expected attrition rates associated with the acquired product portfolio; and (iii) the audit effort involved the use of professionals with specialized skills and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) reading the purchase agreement and assessing the completeness of intangible assets identified and (ii) testing management’s process for determining the fair value of the acquired intangible assets. Testing management’s process included (a) evaluating the appropriateness of the valuation methods, (b) testing the mathematical accuracy of the model, (c) testing the completeness and accuracy of data used in the model and (d) evaluating the reasonableness of significant assumptions used by management in estimating the future cash flows. Evaluating management’s assumptions related to the revenue growth rate and expected attrition rates with the acquired product portfolio involved evaluating whether the assumptions used were reasonable considering consistency with external market and industry data and historical revenue growth rates. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the management’s valuation methods and evaluating the reasonableness of the expected attrition rates assumption.
Impairment assessment of acquired intangible assets
As described in notes 4 and 13 to the consolidated financial statements, the Group holds intangible assets with a carrying value of £234.2 million as of December 31, 2021 which included technology acquired in the Firefly BioWorks acquisition of £11.3 million. Management regularly reviews for indicators of impairment of acquired intangible assets against qualitative and quantitative factors. During the period ended December 31, 2021, management performed an impairment assessment of the Firefly intangible asset. Management utilized the fair value less costs to sell method to assess the recoverable amount of the intangible assets. Management estimated the fair value of the intangible asset utilizing market-based data from comparable companies and recent transactions in the industry. The result was a fair value that significantly exceeded the carrying value of the asset and management has concluded that there are no reasonable possible scenarios that would cause an impairment to be required.
The principal considerations for our determination that performing procedures relating to the impairment assessment of acquired intangible assets is a critical audit matter are (i) the significant judgement made by management in determining the recoverable amount of the Firefly intangible asset; and (ii) a high degree of auditor judgement, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the appropriate comparable companies and recent transactions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for estimating the recoverable amount of the Firefly intangible asset; (ii) evaluating the appropriateness of the methodology used to determine the fair value; (iii) testing the completeness and accuracy of the underlying data used in the models, and (iv) evaluating the reasonableness of significant assumptions when estimating the fair value. Evaluating management’s assumptions involved (a) determining the appropriateness of the comparable companies and recent transactions used by management and (b) considering other sources that corroborated or contradicted management’s assumptions.
/s/ PricewaterhouseCoopers LLP
Cambridge, United Kingdom
March 14, 2022
We have served as the Group’s auditor since 2013 which includes periods before the Group became subject to SEC reporting requirements.
F-4
Consolidated income statements
For the year ended 31 December 2021, the six months ended 31 December 2020 and the years ended 30 June 2020 and 2019
| Note | Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
||||||||||||||||
| Revenue |
5 | 315.4 | 147.5 | 260.0 | 259.9 | |||||||||||||||
| Cost of sales |
(90.8 | ) | (42.9 | ) | (79.8 | ) | (76.7 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Gross profit |
224.6 | 104.6 | 180.2 | 183.2 | ||||||||||||||||
| Selling, general and administrative expenses |
(189.7 | ) | (73.6 | ) | (131.5 | ) | (112.9 | ) | ||||||||||||
| Research and development expenses |
(27.8 | ) | (13.7 | ) | (38.3 | ) | (15.0 | ) | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||||||
| Operating profit |
6 | 7.1 | 17.3 | 10.4 | 55.3 | |||||||||||||||
| Finance income |
9 | 0.3 | 0.2 | 0.7 | 0.6 | |||||||||||||||
| Finance costs |
9 | (2.7 | ) | (1.9 | ) | (2.8 | ) | (0.3 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Profit before tax |
4.7 | 15.6 | 8.3 | 55.6 | ||||||||||||||||
| Tax (charge) / credit |
10 | (0.3 | ) | (2.8 | ) | 4.2 | (11.2 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Profit for the year / period attributable to equity shareholders of the parent |
4.4 | 12.8 | 12.5 | 44.4 | ||||||||||||||||
|
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|
|
|
|
|
|
|
|||||||||||||
| Earnings per share |
||||||||||||||||||||
| Basic |
11 | 1.9p | 5.8p | 6.0p | 21.7p | |||||||||||||||
| Diluted |
11 | 1.9p | 5.8p | 6.0p | 21.5p | |||||||||||||||
|
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|
|
|
|
|
|
|||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-5
Consolidated statements of comprehensive income
For the year ended 31 December 2021, the six months ended 31 December 2020 and the years ended 30 June 2020 and 2019
| Note | Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
||||||||||||||||
| Profit for the year / period attributable to equity shareholders of the parent |
4.4 | 12.8 | 12.5 | 44.4 | ||||||||||||||||
|
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|
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|
|||||||||||||
| Items that may be reclassified to the income statement in subsequent years |
||||||||||||||||||||
| Movement on cash flow hedges |
26 | (0.1 | ) | 1.1 | 0.7 | (1.7 | ) | |||||||||||||
| Exchange differences on translation of foreign operations |
5.7 | (17.5 | ) | 9.6 | 7.0 | |||||||||||||||
| Movement in fair value of investment |
(0.1 | ) | (3.1 | ) | 4.0 | (0.1 | ) | |||||||||||||
| Tax relating to components of other comprehensive income |
0.5 | 0.6 | (1.5 | ) | 0.3 | |||||||||||||||
|
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|
|
|
|
|
|
|
|||||||||||||
| Other comprehensive income / (expense) for the year / period |
6.0 | (18.9 | ) | 12.8 | 5.5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total comprehensive income / (expense) for the year / period |
10.4 | (6.1 | ) | 25.3 | 49.9 | |||||||||||||||
|
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| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-6
As at 31 December 2021, 31 December 2020 and 30 June 2020
| Note | As at 31 December 2021 £m |
As at 31 December 2020 (revised*) £m |
As at 30 June 2020 (revised*) £m |
|||||||||||||
| Non-current assets |
||||||||||||||||
| Goodwill |
12 | 364.8 | 184.3 | 195.0 | ||||||||||||
| Intangible assets |
13 | 234.2 | 151.8 | 150.1 | ||||||||||||
| Property, plant and equipment |
14 | 73.5 | 48.5 | 43.3 | ||||||||||||
| Right-of-use assets |
15 | 88.2 | 108.8 | 121.4 | ||||||||||||
| Investments |
16 | 3.5 | 3.4 | 7.0 | ||||||||||||
| Deferred tax asset |
17 | 10.4 | 15.6 | 13.7 | ||||||||||||
|
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|
|
|
|
|
|||||||||||
| 774.6 | 512.4 | 530.5 | ||||||||||||||
|
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|
|
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|
|
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| Current assets |
||||||||||||||||
| Inventories |
18 | 58.2 | 42.9 | 40.7 | ||||||||||||
| Trade and other receivables |
19 | 47.2 | 47.3 | 44.4 | ||||||||||||
| Current tax receivable |
10.5 | 3.8 | 6.4 | |||||||||||||
| Derivative financial instruments |
20 | 0.5 | 0.3 | — | ||||||||||||
| Cash and cash equivalents |
95.1 | 211.9 | 187.3 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| 211.5 | 306.2 | 278.8 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total assets |
986.1 | 818.6 | 809.3 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Current liabilities |
||||||||||||||||
| Trade and other payables |
21 | (54.2 | ) | (43.4 | ) | (43.8 | ) | |||||||||
| Derivative financial instruments |
20 | (0.2 | ) | (0.1 | ) | (1.2 | ) | |||||||||
| Lease liabilities |
15 | (9.2 | ) | (7.1 | ) | (7.3 | ) | |||||||||
| Borrowings |
22 | (119.2 | ) | — | (106.4 | ) | ||||||||||
| Current tax liabilities |
(4.4 | ) | (1.4 | ) | (0.9 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| (187.2 | ) | (52.0 | ) | (159.6 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Net current assets |
24.3 | 254.2 | 119.2 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Non-current liabilities |
||||||||||||||||
| Deferred tax liability |
17 | (41.5 | ) | (27.6 | ) | (28.3 | ) | |||||||||
| Lease liabilities |
15 | (101.3 | ) | (109.9 | ) | (120.5 | ) | |||||||||
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|
|
|||||||||||
| (142.8 | ) | (137.5 | ) | (148.8 | ) | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
(330.0 | ) | (189.5 | ) | (308.4 | ) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Net assets |
656.1 | 629.1 | 500.9 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Equity |
||||||||||||||||
| Share capital |
23 | 0.5 | 0.5 | 0.4 | ||||||||||||
| Share premium account |
268.3 | 265.1 | 138.2 | |||||||||||||
| Merger reserve |
23 | 68.6 | 68.6 | 68.6 | ||||||||||||
| Own shares |
23 | (2.2 | ) | (2.4 | ) | (2.5 | ) | |||||||||
| Translation reserve |
23 | 31.1 | 25.4 | 42.9 | ||||||||||||
| Hedging reserve |
23 | 0.2 | 0.2 | (0.7 | ) | |||||||||||
| Retained earnings |
289.6 | 271.7 | 254.0 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total equity attributable to the equity shareholders of the parent |
656.1 | 629.1 | 500.9 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-7
Consolidated statements of changes in equity
For the year ended 31 December 2021, the six months ended 31 December 2020 and the years ended 30 June 2020 and 2019
| Note | Share capital £m |
Share premium account £m |
Merger reserve £m |
Own shares £m |
Translation Reserve £m |
Hedging reserve £m |
Retained Earnings £m |
Total £m |
||||||||||||||||||||||||||||
| Balance as at 1 July 2018 |
0.4 | 25.6 | 68.1 | (3.2 | ) | 26.3 | 0.1 | 234.4 | 351.7 | |||||||||||||||||||||||||||
| Revision |
— | — | — | — | — | — | (1.1 | ) | (1.1 | ) | ||||||||||||||||||||||||||
| Balance as at 1 July 2018 (revised*) |
0.4 | 25.6 | 68.1 | (3.2 | ) | 26.3 | 0.1 | 233.3 | 350.6 | |||||||||||||||||||||||||||
| Profit for the year (revised*) |
— | — | — | — | — | — | 44.4 | 44.4 | ||||||||||||||||||||||||||||
| Other comprehensive income / (expense) (revised*) |
— | — | — | — | 7.0 | (1.4 | ) | (0.1 | ) | 5.5 | ||||||||||||||||||||||||||
| Total comprehensive income / (expense) for the year (revised*) |
— | — | — | — | 7.0 | (1.4 | ) | 44.3 | 49.9 | |||||||||||||||||||||||||||
| Issue of ordinary shares, net of share issue costs |
— | 1.4 | — | 0.4 | — | — | (0.4 | ) | 1.4 | |||||||||||||||||||||||||||
| Share-based payments inclusive of deferred tax |
— | — | — | — | — | — | 6.3 | 6.3 | ||||||||||||||||||||||||||||
| Purchase of own shares |
— | — | — | — | — | — | (0.2 | ) | (0.2 | ) | ||||||||||||||||||||||||||
| Equity dividends |
24 | — | — | — | — | — | — | (24.9 | ) | (24.9 | ) | |||||||||||||||||||||||||
| Balance as at 30 June 2019 (revised*) |
0.4 | 27.0 | 68.1 | (2.8 | ) | 33.3 | (1.3 | ) | 258.4 | 383.1 | ||||||||||||||||||||||||||
| Implementation of IFRS16 |
— | — | — | — | — | — | (1.5 | ) | (1.5 | ) | ||||||||||||||||||||||||||
| Balance as at 1 July 2019 |
0.4 | 27.0 | 68.1 | (2.8 | ) | 33.3 | (1.3 | ) | 256.9 | 381.6 | ||||||||||||||||||||||||||
| Profit for the year (revised*) |
— | — | — | — | — | — | 12.5 | 12.5 | ||||||||||||||||||||||||||||
| Other comprehensive income (revised*) |
— | — | — | — | 9.6 | 0.6 | 2.6 | 12.8 | ||||||||||||||||||||||||||||
| Total comprehensive income for the year (revised*) |
— | — | — | — | 9.6 | 0.6 | 15.1 | 25.3 | ||||||||||||||||||||||||||||
| Issue of ordinary shares, net of share issue costs |
— | 111.2 | 0.5 | 0.3 | — | — | (0.3 | ) | 111.7 | |||||||||||||||||||||||||||
| Share-based payments inclusive of deferred tax |
— | — | — | — | — | — | 7.4 | 7.4 | ||||||||||||||||||||||||||||
| Purchase of own shares |
— | — | — | — | — | — | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||||
| Equity dividends |
24 | — | — | — | — | — | — | (25.0 | ) | (25.0 | ) | |||||||||||||||||||||||||
| Balance as at 30 June 2020 (revised*) |
0.4 | 138.2 | 68.6 | (2.5 | ) | 42.9 | (0.7 | ) | 254.0 | 500.9 | ||||||||||||||||||||||||||
| Profit for the period (revised*) |
— | — | — | — | — | — | 12.8 | 12.8 | ||||||||||||||||||||||||||||
| Other comprehensive (expense) / income (revised*) |
— | — | — | — | (17.5 | ) | 0.9 | (2.3 | ) | (18.9 | ) | |||||||||||||||||||||||||
| Total comprehensive (expense) / income for the period (revised*) |
— | — | — | — | (17.5 | ) | 0.9 | 10.5 | (6.1 | ) | ||||||||||||||||||||||||||
| Issue of ordinary shares, net of share issue costs |
0.1 | 126.9 | — | 0.1 | — | — | (0.1 | ) | 127.0 | |||||||||||||||||||||||||||
| Share-based payments inclusive of deferred tax |
— | — | — | — | — | — | 7.4 | 7.4 | ||||||||||||||||||||||||||||
| Purchase of own shares |
— | — | — | — | — | — | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||||
| Balance as at 31 December 2020 (revised*) |
0.5 | 265.1 | 68.6 | (2.4 | ) | 25.4 | 0.2 | 271.7 | 629.1 | |||||||||||||||||||||||||||
| Profit for the year |
— | — | — | — | — | — | 4.4 | 4.4 | ||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | 5.7 | — | 0.3 | 6.0 | ||||||||||||||||||||||||||||
| Total comprehensive income for the year |
— | — | — | — | 5.7 | — | 4.7 | 10.4 | ||||||||||||||||||||||||||||
| Issue of ordinary shares, net of share issue costs |
— | 3.2 | — | 0.2 | — | — | (0.2 | ) | 3.2 | |||||||||||||||||||||||||||
| Share-based payments inclusive of deferred tax |
— | — | — | — | — | — | 13.4 | 13.4 | ||||||||||||||||||||||||||||
| Balance as at 31 December 2021 |
0.5 | 268.3 | 68.6 | (2.2 | ) | 31.1 | 0.2 | 289.6 | 656.1 | |||||||||||||||||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
The accompanying accounting policies and notes form an integral part of these consolidated financial statements.
F-8
Consolidated cash flow statements
For the year ended 31 December 2021, the six months ended 31 December 2020 and the years ended 30 June 2020 and 2019
| Note | Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
||||||||||||||||
| Cash generated from operations |
25 | 72.2 | 33.1 | 65.4 | 82.8 | |||||||||||||||
| Net income taxes (paid) / received |
(9.3 | ) | 0.2 | (2.4 | ) | (13.5 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash inflow from operating activities |
62.9 | 33.3 | 63.0 | 69.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Investing activities |
||||||||||||||||||||
| Investment income |
0.3 | 0.2 | 0.7 | 0.6 | ||||||||||||||||
| Purchase of property, plant and equipment |
(34.5 | ) | (11.5 | ) | (12.7 | ) | (17.7 | ) | ||||||||||||
| Purchase of intangible assets |
(25.3 | ) | (13.0 | ) | (23.0 | ) | (21.8 | ) | ||||||||||||
| Transfer of cash from / (to) escrow in respect of future capital expenditure |
— | 0.4 | (0.6 | ) | 4.5 | |||||||||||||||
| Purchase of investments |
16 | (0.1 | ) | — | (2.2 | ) | — | |||||||||||||
| Reimbursement of leasehold improvement costs |
13.2 | 1.7 | — | — | ||||||||||||||||
| Net cash outflow arising from acquisitions |
29 | (245.1 | ) | — | (110.3 | ) | (14.6 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash outflow from investing activities |
(291.5 | ) | (22.2 | ) | (148.1 | ) | (49.0 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Financing activities |
||||||||||||||||||||
| Dividends paid |
24 | — | — | (25.0 | ) | (24.9 | ) | |||||||||||||
| Principal element of lease obligations |
(8.8 | ) | (3.8 | ) | (6.8 | ) | — | |||||||||||||
| Interest element of lease obligations |
(1.5 | ) | (0.5 | ) | (0.9 | ) | — | |||||||||||||
| Interest paid |
(0.7 | ) | (0.6 | ) | (0.8 | ) | (0.1 | ) | ||||||||||||
| Proceeds on issue of shares, net of issue costs |
3.2 | 127.0 | 111.2 | 1.4 | ||||||||||||||||
| Facility arrangement fees |
(0.8 | ) | — | — | (0.9 | ) | ||||||||||||||
| Utilisation of revolving credit facility |
22 | 120.0 | — | 127.0 | — | |||||||||||||||
| Repayment of revolving credit facility |
22 | — | (107.0 | ) | (20.0 | ) | — | |||||||||||||
| Purchase of own shares |
— | (0.1 | ) | (0.1 | ) | (0.2 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash inflow / (outflow) from financing activities |
111.4 | 15.0 | 184.6 | (24.7 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net (decrease) / increase cash and cash equivalents |
(117.2 | ) | 26.1 | 99.5 | (4.4 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents at beginning of the year / period |
211.9 | 187.3 | 87.1 | 90.2 | ||||||||||||||||
| Effect of foreign exchange rates on cash and cash equivalents |
0.4 | (1.5 | ) | 0.7 | 1.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents at end of the year / period |
(i) | 95.1 | 211.9 | 187.3 | 87.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
| i) | Within cash and cash equivalents at 31 December 2021 is £nil (31 December 2020: £1.3m; 30 June 2020: £0.9m; 30 June 2019: £0.4m) of cash relating to employee contributions to the Group’s share scheme ‘AbShare’, which is reserved for the purpose of purchasing shares upon vesting. |
F-9
Notes to the consolidated financial statements
For the year ended 31 December 2021, the six months ended 31 December 2020 and the years ended 30 June 2020 and 2019
| 1. | Presentation of financial statements |
| a) | General information |
Abcam plc (the Company) is a public limited company, incorporated and domiciled in the UK and is registered in England under the Companies Act 2006. Abcam’s ordinary shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange and its American Depositary Shares trade on the Nasdaq Global Market.
| b) | Basis of preparation and consolidation |
On 2 June 2021, the Group announced that it was amending its financial year end date from 30 June to 31 December. These financial statements are therefore presented for the year ended 31 December 2021, the six months ended 31 December 2020 and the years ended 30 June 2020 and 2019.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The consolidated financial statements have been presented in Sterling, the functional currency of the Company, and on the historical cost basis, except for the revaluation of certain financial instruments.
The consolidated financial statements incorporate the financial statements of the Company and entities under its control (together the ‘Group’). Control is achieved when the Company has power to control the financial and operating policies of an entity either directly or indirectly and the ability to use that power to affect the returns it receives from its involvement with the entity.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies in line with those used by the Group. All intra-group transactions, balances, equity, income and expenses are eliminated on consolidation.
The Group’s subsidiary undertakings are shown in note 16 to these financial statements.
| c) | Going concern |
The Group meets its day-to-day working capital requirements from the cash surpluses generated as a result of normal trading. In considering going concern, the Directors have reviewed the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance. These show that the Group should be able to operate within the limits of its available resources.
Accordingly, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future and at least one year from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing its consolidated financial statements.
| d) | Change in accounting policy—Software as a Service (‘SaaS’) arrangements |
In March 2021, the IFRS Interpretations Committee (‘IFRIC’) published an agenda decision on how an entity should account for costs of configuring or customizing application software in a Cloud Computing or Software as a Service (‘SaaS’) arrangement.
Previously, internal and external costs incurred in connection with the various phases of the Group’s ERP implementation and other projects, have been capitalized as an intangible asset in line with IAS 38 ‘Intangible Assets’.
Following an internal review of the impact of adoption of the IFRIC, for those arrangements where the Group does not have control of the developed software, to the extent that the services were performed by third parties, the Group has derecognized the intangible asset previously capitalized.
F-10
This change in accounting policy has led to adjustments amounting to a £2.7m, £2.1m, and £2.1m reduction in the intangible assets recognized in the 31 December 2020, 30 June 2020 and 30 June 2019 balance sheets, and to a net £0.6m, £0.1m and £0.8m increase in selling, general and administrative expenses in those respective periods.
The following tables summarize the impact of the adjustment to results for each comparative period presented:
Six months ended 31 December 2020:
| As previously reported £m |
Adjustment £m |
Revised £m |
||||||||||
| Impact on income statement |
||||||||||||
| Selling, general and administrative expenses |
(73.0 | ) | (0.6 | ) | (73.6 | ) | ||||||
| Operating profit |
17.9 | (0.6 | ) | 17.3 | ||||||||
| Profit before tax |
16.2 | (0.6 | ) | 15.6 | ||||||||
| Tax |
(2.9 | ) | 0.1 | (2.8 | ) | |||||||
| Profit for the period |
13.3 | (0.5 | ) | 12.8 | ||||||||
|
|
|
|
|
|
|
|||||||
| Impact on statement of comprehensive income |
||||||||||||
| Total comprehensive expense |
(5.6 | ) | (0.5 | ) | (6.1 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Earnings per share |
||||||||||||
| Basic |
6.1 | p | (0.3 | )p | 5.8 | p | ||||||
| Diluted |
6.0 | p | (0.2 | )p | 5.8 | p | ||||||
|
|
|
|
|
|
|
|||||||
| Impact on balance sheet |
||||||||||||
| Intangible assets |
154.5 | (2.7 | ) | 151.8 | ||||||||
| Total non-current assets |
515.1 | (2.7 | ) | 512.4 | ||||||||
| Deferred tax liability |
(28.1 | ) | 0.5 | (27.6 | ) | |||||||
| Total non-current liabilities |
(138.0 | ) | 0.5 | (137.5 | ) | |||||||
| Net assets |
631.3 | (2.2 | ) | 629.1 | ||||||||
| Retained earnings |
273.9 | (2.2 | ) | 271.7 | ||||||||
| Total equity |
631.3 | (2.2 | ) | 629.1 | ||||||||
|
|
|
|
|
|
|
|||||||
| Impact on cash flow statement |
||||||||||||
| Cash generated from operations |
33.7 | (0.6 | ) | 33.1 | ||||||||
| Net cash inflow from operating activities |
33.9 | (0.6 | ) | 33.3 | ||||||||
| Purchase of intangible assets |
(13.6 | ) | 0.6 | (13.0 | ) | |||||||
| Net cash outflow from investing activities |
(22.8 | ) | 0.6 | (22.2 | ) | |||||||
|
|
|
|
|
|
|
|||||||
F-11
Year ended 30 June 2020:
| As previously reported £m |
Adjustment £m |
Revised £m |
||||||||||
| Impact on income statement |
||||||||||||
| Selling, general and administrative expenses |
(131.4 | ) | (0.1 | ) | (131.5 | ) | ||||||
| Operating profit |
10.5 | (0.1 | ) | 10.4 | ||||||||
| Profit before tax |
8.4 | (0.1 | ) | 8.3 | ||||||||
| Tax |
4.1 | 0.1 | 4.2 | |||||||||
| Profit for the period |
12.5 | — | 12.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Impact on statement of comprehensive income |
||||||||||||
| Total comprehensive income |
25.3 | — | 25.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Earnings per share |
||||||||||||
| Basic |
6.0 | p | — | 6.0 | p | |||||||
| Diluted |
6.0 | p | — | 6.0 | p | |||||||
|
|
|
|
|
|
|
|||||||
| Impact on balance sheet |
||||||||||||
| Intangible assets |
154.4 | (2.1 | ) | 152.3 | ||||||||
| Total non-current assets |
532.6 | (2.1 | ) | 530.5 | ||||||||
| Deferred tax liability |
(28.7 | ) | 0.4 | (28.3 | ) | |||||||
| Total non-current liabilities |
(149.2 | ) | 0.4 | (148.8 | ) | |||||||
| Net assets |
502.6 | (1.7 | ) | 500.9 | ||||||||
| Retained earnings |
255.7 | (1.7 | ) | 254.0 | ||||||||
| Total equity |
502.6 | (1.7 | ) | 500.9 | ||||||||
|
|
|
|
|
|
|
|||||||
| Impact on cash flow statement |
||||||||||||
| Cash generated from operations |
65.4 | — | 65.4 | |||||||||
| Net cash inflow from operating activities |
63.0 | — | 63.0 | |||||||||
| Purchase of intangible assets |
(23.0 | ) | — | (23.0 | ) | |||||||
| Net cash outflow from investing activities |
(148.1 | ) | — | (148.1 | ) | |||||||
|
|
|
|
|
|
|
|||||||
F-12
Year ended 30 June 2019:
| As previously reported £m |
Adjustment £m |
Revised £m |
||||||||||
| Impact on income statement |
||||||||||||
| Selling, general and administrative expenses |
(112.1 | ) | (0.8 | ) | (112.9 | ) | ||||||
| Operating profit |
56.1 | (0.8 | ) | 55.3 | ||||||||
| Profit before tax |
56.4 | (0.8 | ) | 55.6 | ||||||||
| Tax |
(11.4 | ) | 0.2 | (11.2 | ) | |||||||
| Profit for the period |
45.0 | (0.6 | ) | 44.4 | ||||||||
|
|
|
|
|
|
|
|||||||
| Earnings per share |
||||||||||||
| Basic |
22.0 | p | (0.3 | )p | 21.7 | p | ||||||
| Diluted |
21.8 | p | (0.3 | )p | 21.5 | p | ||||||
|
|
|
|
|
|
|
|||||||
| Impact on statement of comprehensive income |
||||||||||||
| Total comprehensive income |
50.5 | (0.6 | ) | 49.9 | ||||||||
|
|
|
|
|
|
|
|||||||
| Impact on balance sheet |
||||||||||||
| Intangible assets |
106.7 | (2.1 | ) | 104.6 | ||||||||
| Total non-current assets |
274.9 | (2.1 | ) | 272.8 | ||||||||
| Deferred tax liability |
(16.5 | ) | 0.4 | (16.1 | ) | |||||||
| Total non-current liabilities |
(16.6 | ) | 0.4 | (16.2 | ) | |||||||
| Net assets |
384.8 | (1.7 | ) | 383.1 | ||||||||
| Retained earnings |
260.1 | (1.7 | ) | 258.4 | ||||||||
| Total equity |
384.8 | (1.7 | ) | 383.1 | ||||||||
|
|
|
|
|
|
|
|||||||
| Impact on cash flow statement |
||||||||||||
| Cash generated from operations |
83.7 | (0.9 | ) | 82.2 | ||||||||
| Net cash inflow from operating activities |
70.2 | (0.9 | ) | 69.3 | ||||||||
| Purchase of intangible assets |
(22.7 | ) | 0.9 | (21.8 | ) | |||||||
| Net cash outflow from investing activities |
(49.9 | ) | 0.9 | (49.0 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Decrease in cash and cash equivalents |
(4.4 | ) | — | (4.4 | ) | |||||||
| 2. | New accounting standards, amendments and interpretations |
Standards, amendments and interpretations effective or adopted
The following standards and amendments are effective in the group’s consolidated financial statements:
| • | Amendments to IFRS 9, IAS 39 and IFRS 7 ‘Interest rate benchmark reform’; |
| • | Amendments to IAS 1 and IAS 8 ‘Definition of material’; |
| • | Amendments to IFRS 3 ‘Definition of a business’; |
| • | Amendments to references to the Conceptual Framework in IFRS standards; and |
| • | Amendments to IFRS 16 ‘Covid-19-related rent concessions’. |
Amendments effective during the reporting period did not have any significant impact on adoption.
Standards, amendments and interpretations not yet effective and not early adopted
The following standards and amendments have not been adopted in the group’s consolidated financial statements as they are not yet effective:
| • | Amendments to IFRS 16 ‘Covid-19-related rent concessions beyond 30 June 2021’ (effective from 1 April 2021); |
| • | Interest Rate Benchmark Reform—Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (mandatory for accounting periods beginning after 1 January 2021); |
| • | Amendments to IFRS 3 ‘References to the Conceptual Framework’ (effective from 1 January 2022, endorsed for use in the EU but not in the UK); |
F-13
| • | Amendments to IAS 16 ‘Property, plant and equipment—proceeds before intended use’ (effective from 1 January 2022, endorsed for use in the EU but not in the UK); |
| • | Amendments to IAS 37 ‘Onerous contracts—cost of fulfilling a contract’ (effective 1 January 2022, endorsed for use in the EU but not in the UK); |
| • | Annual Improvements 2018-2020 Cycle—amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (effective from 1 January 2022, endorsed for use in the EU but not in the UK); |
| • | Amendments to IFRS 17 ‘Insurance contracts’ (effective from 1 January 2023, not yet endorsed in the EU or UK); |
| • | Amendments to IAS 1 ‘Classification of liabilities as current or non-current’ (effective from 1 January 2023, not yet endorsed in the EU or UK); |
| • | Amendments to IAS 1 and IFRS Practice Statement 2 ‘Disclosure of accounting policies’ (effective from 1 January 2023, not yet endorsed in the EU or UK); |
| • | Amendments to IAS 8 ‘Definition of accounting estimates’ (effective from 1 January 2023, not yet endorsed in the EU or UK); and |
| • | Amendments to IAS 12 ‘Deferred tax related to assets and liabilities arising from a single transaction’ (effective from 1 January 2023, not yet endorsed in the EU or UK). |
The amendments listed above are not expected to have a material impact on the financial statements of the Group in future periods.
| 3. | Principal accounting policies |
Revenue and income recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services, net of discounts, VAT and other sales-related taxes.
Revenue from sales of goods, including revenue generated from products sold from the Group’s catalogue and IVD and which represents the significant majority of the Group’s revenue, is recognized upon delivery to the customer or the point at which the customer takes control of the goods if this is sooner.
Custom product and service revenue, which can be the provision of a service or the development of products for customers, is recognized at the point at which a milestone, as defined in the contract, has been completed. Each milestone is typically aligned to a customer deliverable, for example, the amount of services provided, a deliverable arising from the services or the number of products successfully developed and provided to customers, and accordingly is considered to be a performance obligation. Every milestone has a defined transaction price. If it is identified that the costs will be in excess of the contract revenue, the expected loss is recognized as an expense immediately.
Licence fee income is recognized upon delivery of the licensed technology where the Group’s continued performance or future research and development services are not required. Royalty revenue is recognized on an accruals basis based on the contractual terms and the substance of the agreements with the counterparty, provided that the amount can be reliably measured and it is probable that the economic benefit will flow to the Group.
Leasing
Accounting policy applied from 1 July 2019 (IFRS 16)
Leased assets are capitalized on inception of the lease as right-of-use assets. A corresponding lease liability, representing the present value of the lease payments is also recognized and split between current and non-current liabilities accordingly.
The lease liability includes; fixed payments, variable lease payments dependent on an index or rate (initially measured using the index or rate on the lease commencement date) and in substance fixed payments. The variable aspect of variable payments are recognized when the rate or index takes effect resulting in an adjustment to the liability and right-of-use asset. Currently the Group’s lease portfolio does not contain variable or in substance lease payments.
F-14
The discounted lease liability is calculated where possible using the interest rate implicit in the lease or where this is not attainable the incremental borrowing rate is utilized. The incremental borrowing rate is the rate the Group would have to pay to borrow the funds necessary to obtain a similar asset under similar conditions. The Group calculates the incremental borrowing rate using risk free rate of the country where the asset is held, adjusted for length of the lease and a risk premium.
Lease payments are allocated against the principal and finance cost. Finance costs, representing the unwinding of the discount on the lease liability are charged to the income statement to produce a constant periodic rate of interest on the remaining liability.
Right-of-use assets are measured at cost including; the discounted initial lease liability, lease payments made at or before the commencement date, any initial direct costs reduced any lease incentives received.
Right-of-use assets are depreciated over the shorter of the non-cancellable lease period and any extension options that are considered reasonably certain to be taken or the useful life of the asset. The Group’s current leases run from 1-17 years.
Modifications to lease agreements result in remeasurement of the lease liability and right-of-use asset.
Short term leases, defined as less than one year, and also of low value are recognized on a straight-line basis in the income statement.
There are no material lease agreements where the Group acts as a lessor.
Contracts may contain both lease and non-lease components. The Group allocates the contract consideration based on the relative stand alone selling prices or if this is not readily determinable based on the best estimates of the stand alone selling prices.
Accounting policy applied until 30 June 2019
To the extent that the terms of a lease transferred substantially all the risks and rewards of ownership to the lessee, leases were classified as finance leases. All other leases were classified as operating leases.
Rentals payable under operating leases were charged to the income statement on a straight-line basis over the fixed term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease were also spread on a straight-line basis over the lease term.
Foreign currencies
Foreign currency transactions are booked at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are retranslated at the rates of exchange ruling at the balance sheet date. Exchange differences arising on settlement or retranslation of monetary assets and liabilities are included in the income statement.
The results of overseas subsidiaries are translated into Sterling using the average exchange rates during the year. Assets and liabilities are translated at the rates ruling at the balance sheet date. Goodwill arising on the acquisition of a foreign operation is treated as an asset of that foreign operation and as such is translated at the relevant foreign exchange rate at the balance sheet date. Exchange differences arising on this translation are recognized in the translation reserve.
Other exchange differences are recognized in the income statement in the period in which they arise except for where items are designated as hedging instruments or where there is a net investment hedge.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. The Group has no further obligations once the contributions have been paid.
Taxation
Current tax payable is based on taxable profit for the year using tax rates that have been enacted or substantively enacted by the balance sheet date. Taxable profit differs from net profit as reported in the income
F-15
statement because it excludes certain items of income or expense that are taxable or deductible in other years and further excludes items that are never taxable or deductible. Where the current tax deduction in respect of share option exercises exceeds the share option accounting charge for the period, the excess is recorded in equity rather than the income statement.
The benefit of UK research and development is recognized under the UK’s Research and Development Expenditure Credit (RDEC) scheme. The benefit is recorded as income included in profit before tax, netted against research and development expenses, as the RDEC is of the nature of a government grant.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group’s liability for deferred tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in the income statement, except where it relates to items charged or credited directly to other comprehensive income or reserves, in which case the deferred tax is also dealt with in other comprehensive income or reserves respectively.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, they relate to income taxes levied by the same taxation authority and the Group intends to settle on a net basis.
Business combinations
Business combinations are accounted for using the acquisition method. On the acquisition of a business, fair values are attributed to the identifiable assets, liabilities and contingent liabilities unless the fair value cannot be reliably measured in which case the value is subsumed into goodwill.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized to reflect new information obtained about facts and circumstances that existed as at the acquisition date that, if known, would have affected the amounts recognized as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year.
Acquisition-related costs are expensed to the consolidated income statement in the period they are incurred.
Goodwill
Goodwill represents the excess of the fair value of the consideration over the fair value of the net assets acquired. Where the fair value of the consideration is less than the fair value of the acquired net assets, the deficit is recognized immediately in the income statement as a bargain purchase.
Goodwill is not amortized, but is subject to an impairment review at least annually and is carried at cost less accumulated impairment losses. Any impairment is recognized immediately in the income statement and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to cash generating units (CGUs). The CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the carrying value may not be recoverable.
F-16
Intangible assets
Acquisition intangibles:
Acquisition intangibles comprise licence fees, customer relationships and distribution rights, patents, technology and know-how and trade names. These are capitalized at fair value and amortized on a straight-line basis over their estimated useful lives. The principal expected useful lives are as follows:
| Licence fees |
Term of licence | |
| Customer relationships and distribution rights |
4 to 10 years | |
| Patents, technology and know-how |
10 to 16 years | |
| Trade names |
8 to 11 years |
Patents, technology and know-how assets are only amortized once the development is complete and being utilized for their intended purpose; until this point the assets are deemed to be in progress.
Other intangibles:
These comprise software and expenditure on capitalized internally developed technology. Internally developed technology costs are recognized as an asset if and only if they meet the recognition criteria set out in IAS 38 ‘Intangible Assets’:
| • | the project must be technically feasible; |
| • | there must be the intention to complete the project; |
| • | there must be adequate resources to be able to complete the project; |
| • | the ability to use or sell the asset or product is secure; |
| • | the future economic benefits must exceed the costs; and |
| • | the ability to reliably measure costs. |
Intangible assets under construction are not amortized.
The principal expected useful lives are as follows:
| Software |
3 to 10 years | |
| Internally developed technology |
3 to 16 years | |
| Patents and licences |
2 to 3 years |
During the year ended 31 December 2021, the Group revised its estimate of the useful life of its software assets from 3 to 5 years to 3 to 10 years. Further details are shown in note 13.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and, where appropriate, provision for impairment in value. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, as follows:
| Laboratory equipment |
2 to 5 years | |
| Cell Line assets |
10 years | |
| Office fixtures, fittings and other equipment |
2 to 5 years | |
| Leasehold improvements |
Term of lease |
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement. Residual values of assets and their useful lives are assessed on an ongoing basis and adjusted, if appropriate, at each balance sheet date. Assets under the course of construction are not depreciated.
Impairment of property, plant and equipment and intangible assets excluding goodwill
A review is undertaken upon the occurrence of events or circumstances which indicate that the carrying amount may not be recoverable. In addition, any assets not yet available for use are tested for impairment annually.
F-17
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If it is not possible to determine the recoverable amount for an individual asset, the assessment is made for the asset’s cash-generating unit (CGU).
Inventories
Inventories and work in progress are stated at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labour costs and an attributable portion of production overheads that have been incurred in bringing the inventories to their present location and condition. The valuation methodology is on a first in first out or a weighted average cost basis, depending on the nature of the inventory, and net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow-moving or defective items where appropriate.
Financial assets
Financial assets and financial liabilities are recognized on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group’s financial assets comprise cash and cash equivalents, receivables which involve a contractual right to receive cash from external parties, and investments.
Investments
Investments in shares are held at fair market value, with any revaluation gain or loss recorded through other comprehensive income.
Trade and other receivables
Trade receivables (excluding derivative financial assets) are recognized at cost less allowances for the expected credit loss to align their cost to fair value. The provision is based on the Group’s expected credit loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities
Financial liabilities are those which involve a contractual obligation to deliver cash to external parties at a future date.
Trade and other payables
Trade payables (excluding derivative financial liabilities) are non-interest bearing and are stated at cost which equates to their fair value.
Equity instruments
Equity instruments issued by the Group are recorded as the proceeds received, net of direct issue costs.
Derivative financial instruments
The Group uses forward contracts to manage the exposure to fluctuating foreign exchange rates in relation to forecast future transactions.
Derivatives are initially recognized at fair value at the date a contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognized in the income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the income statement depends on the nature of the hedge relationship.
F-18
Hedge accounting
At the inception of a hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, its effectiveness along with its risk management objectives, and its strategy for undertaking various hedge transactions. The effectiveness is repeated on an ongoing basis during the life of the instrument to ensure that the instrument remains effective.
Cash flow hedges
The Group designates certain derivatives as cash flow hedges of highly probable forecast foreign currency transactions.
The effective portion of changes in the fair value of derivatives which are designated and qualify as cash flow hedges is deferred in other comprehensive income. Gains or losses relating to the ineffective portion are recognized immediately in the income statement.
Amounts deferred in other comprehensive income are recycled to the income statement in the periods when the hedged item is recognized in the income statement.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or it no longer qualifies for hedge accounting. Any cumulative gain or loss in other comprehensive income at that time remains in other comprehensive income and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss in other comprehensive income is recognized immediately in the income statement.
Share-based payments
Equity settled share-based payments (SBPs) are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant and is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest.
Share-based payments where vesting is by reference to external performance criteria (such as growth in an external index) are measured using the Monte Carlo simulation. Those which are subject only to internal performance criteria or service conditions are measured using the Black-Scholes model.
For all schemes, the number of options expected to vest is recalculated at each balance sheet date based on expectations of leavers prior to vesting. The number of options expected to vest for schemes with internal performance criteria is also adjusted based on expectations of performance against targets. No adjustments are made for expected performance against external or ‘market-based’ targets. Charges made to the income statement in respect of equity settled share-based payments are credited to equity.
For cash settled share-based payments, the Group recognizes a liability for the services acquired, measured initially at the fair value of the liability. This liability is remeasured at each balance sheet date and at the date of settlement, with any changes in fair value recognized in the income statement.
Own shares
No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the Group’s own shares. Any difference between the carrying amount and the consideration is recognized in equity.
4. Critical accounting judgements and sources of estimation uncertainty
The preparation of financial statements requires management to make judgements, estimates and assumptions about the application of its accounting policies which affect the reported amounts of assets, liabilities, revenue and expenses. Actual amounts and results may differ from those estimates.
Judgements and estimates are evaluated regularly and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Any revisions to accounting estimates are recognized in the period in which the estimate is revised.
F-19
a) Key accounting judgements
Capitalization of intangible assets—internal software development
The Group capitalizes internal software development costs, in particular internal staff costs, relating to the enhancement of the Group’s core IT systems architecture and developments. Judgement is required in applying the capitalization criteria of IAS 38 ‘Intangible Assets’, differentiating between enhancements and maintenance. Those costs which are not treated as capital but are directly attributable to the Group’s system and process improvement project are treated as adjusting items.
In establishing the principles on which costs are capitalized, consideration is given to the nature of work being performed, whether the costs and the activities are incremental and whether the associated deliverables meet the characteristics of an asset. Processes are in place to evaluate this, and the same processes are used to confirm whether the expensed costs are related to the system and process improvement project so that classification as an adjusting item is appropriate.
A review of historical capitalized spend on software assets was undertaken, to ascertain whether they met the criteria for capitalization following adoption of the IFRIC, published in March 2021, relating to SaaS arrangements. Identifying the software assets that were impacted and the classification of costs between customization and configuration, was judgemental and technically complex, in particular around the allocation of costs to the appropriate category. As the application of the IFRIC required an historical application, the rationale of recent projects was applied to historical projects and the same estimation and judgements applied.
The review resulted in a restatement of prior year financial statements in line with the IFRIC requirements, details of which can be found in note 1d.
Capitalization of intangible assets—internally developed technology
The Group capitalizes internal costs associated with internally developed technology as intangible assets as described further in notes 3 and 13. This requires judgement to determine that the characteristics of such assets meet the relevant criteria if IAS 38 ‘Intangible Assets’ for classification as an intangible asset.
Internal costs are capitalized as internally developed technology within intangible assets which are used to generate antibodies and kits. The point at which such internal costs are capitalized as well as their magnitude (whereby the amount capitalized comprises mainly of attributable salary costs and consumables used in the manufacture process) is a key area of judgement. A key area in respect of the stage of development of internally developed technology is subject to judgement as to when a product’s future economic value justifies capitalization. Management reviews regularly these factors in order to determine that the costs meet the criteria for capitalization as intangible assets.
During the year, an impairment was booked for assets relating to AxioMx where changes in scope of the project impacted on the usability of the historical work performed, details of which can be seen in note 7 and 13.
Assessment of cash generating units (CGUs)
For the purposes of impairment testing, the Group identifies the CGU that is appropriate for the asset to be measured against if it is not possible to estimate the recoverable amount individually. The goodwill acquired in a business combination is allocated at acquisition to the CGU which is expected to benefit from that business combination.
The Group applies judgement in determining how integrated the acquired business is within the Group. Consideration is given to the product branding and ranges, whether the manufacturing and research and development has broadened since acquisition, whether sales and marketing activity is separate from the Group and how the business is monitored.
For the BioVision acquisition in October 2021, the Group has determined that the business is not sufficiently integrated into the Group and therefore the acquired goodwill has been tested at a BioVision CGU level. Full details can be found in note 12.
F-20
b) Key sources of estimation uncertainty
Valuation of acquired intangible assets
During the current and prior periods, the Group has made a number of acquisitions (see note 29 for further details). Accounting for these in line with IFRS 3 ‘Business Combinations’ requires the use of a number of assumptions and estimates in relation to the future cash flows associated with acquisition intangibles and the use of valuation techniques in order to arrive at the fair value of the intangible assets acquired. The assumptions applied were based on the best information available to management and valuation techniques were supported by third party valuation experts.
In the current period, acquired intangibles totaling £80.6 million were recognized in relation to the acquisition of BioVision, of which the intangible recognized in relation to the acquired technology was the most significant (£77.0 million). Key assumptions in determining the valuation of this included the revenue growth rate and cash flows associated with this asset, its expected useful economic life and the expected attrition rates associated with the acquired product portfolio.
Nevertheless, the actual performance of these assets may differ from the valuations derived through this exercise.
Impairment assessment of acquired intangible assets
As described in note 13 to the consolidated financial statements, the Group holds various intangible assets. As required by IAS 36 ‘Impairment of Assets’, the Group reviews for indicators of impairment regularly by assessing the performance of the assets against qualitative and quantitative factors including the estimates used to value intangibles on acquisition or appropriate business cases.
Examples of impairment indicators are: there is a change in business strategy; asset is not meeting the acquisition forecasts; or the business is approaching the route to market differently. If any of these or other factors are present, a detailed impairment review is undertaken.
A detailed impairment assessment can be performed by either assessing the asset’s value in use or assessing the carrying value as fair value less cost to sell. Either method requires management to make a number of estimates, the most sensitive estimates being:
| • | The five-year business plan – forecasted cashflows require management’s estimates of the assets’ performance in future periods and judgement as to the CGU to which the flows belong; |
| • | Discount rate – judgement is required in estimating the appropriate weighted average cost of capital (WACC) of a typical market participant; and |
| • | Market-based data – judgement is required to ensure companies and recent transactions are comparable in nature when estimating the fair value. |
During the year ended 31 December 2021, the assets relating to Firefly BioWorks multiplex and assay technology were tested for impairment. Given the nascent state of the technology, management used the fair value less costs to sell method of assessing the recoverable amount of the intangible assets and management is satisfied that the fair value significantly exceeds the carrying value of the asset. Details can be found in note 13.
During the year to 30 June 2020, an assessment of the acquired intangible in respect of In Vitro monoclonal antibody production technology acquired with AxioMx, Inc. in 2015 was undertaken. This also included further smaller amounts in respect of this technology which have been capitalized since acquisition as certain commercial feasibility milestones had been achieved.
An appraisal of the ability to utilize at scale this technology has been undertaken whereby although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. As a result of this, the intangible asset in respect of this technology has been fully impaired.
Details of the impairment can be found in note 13.
Useful economic life (UEL) of software assets
The Group determines the UEL of all assets by estimating the length of time the asset is expected to be in use or generating income. The Group’s policy for software assets was determined as 3 to 5 years.
F-21
During the year ended 31 December 2021, the Group revised its estimate of the useful economic life of its ERP software from 5 years to 10 years, changing the Group’s policy from 3 to 5 years to 3 to 10 years. This was due to the complexity of the programme, the investment involved, and the nature of the technology implemented. See note 12 for further details.
Provision for slow-moving or defective inventory
The provision for slow-moving inventory is based on the Directors’ estimation of the future sales of each of the Group’s products over the period from the balance sheet date to the expiry date of the product. Estimated future sales are based on historical actual sales and a growth rate assumption which is derived from the average annual growth over the product life to date.
If actual unit sales growth rates differ from those estimated by management, both the level of provision against existing inventory and the rates of provision applied to inventory in future periods would need to be revised.
5. Operating segments
Products and services from which reportable segments derive their revenues
The Directors consider that there is only one core business activity and there are no separately identifiable business segments which are engaged in providing individual products or services or a group of related products and services which are subject to separate risks and returns. The information reported to the Group’s Chief Executive Officer, who is considered the chief operating decision maker, for the purposes of resource allocation and assessment of performance is based wholly on the overall activities of the Group. The Group has therefore determined that it has only one reportable segment, which is ‘sales of antibodies and related products’. The Group’s revenue and assets for this one reportable segment can be determined by reference to the Group’s income statement and balance sheet.
The Group has no individual product or customer which contributes more than 10% of its revenues.
F-22
Geographical information
Revenues are attributed to regions based primarily on customers’ location. The Group’s revenue from external customers and information about its non-current segment assets (excluding deferred tax) is set out below:
| Revenue | Non-current assets | |||||||||||||||||
| Year ended 2021 |
Six months ended 2020 |
As at 2021 |
As at 2020 (revised*) |
|||||||||||||||
| £m | £m | £m | £m | |||||||||||||||
| The Americas |
130.4 | 58.6 | 464.3 | 200.2 | ||||||||||||||
| EMEA |
(i) | 84.3 | 40.2 | 231.8 | 227.8 | |||||||||||||
| China |
58.2 | 27.4 | 8.6 | 6.7 | ||||||||||||||
| Japan |
18.7 | 9.9 | 0.2 | 0.5 | ||||||||||||||
| Rest of Asia Pacific |
(i) | 23.8 | 11.4 | 59.3 | 61.6 | |||||||||||||
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| 315.4 | 147.5 | 764.2 | 496.8 | |||||||||||||||
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| Revenue | Non-current assets | |||||||||||||||||
| Year ended 2020 |
Year ended 2019 |
As at 2020 (revised*) |
As at 2019 (revised*) |
|||||||||||||||
| £m | £m | £m | £m | |||||||||||||||
| The Americas |
112.4 | 117.5 | 224.8 | 169.9 | ||||||||||||||
| EMEA |
(i) | 69.3 | 67.1 | 222.3 | 89.5 | |||||||||||||
| China |
39.5 | 39.9 | 7.4 | 3.8 | ||||||||||||||
| Japan |
18.8 | 16.9 | 0.6 | 0.1 | ||||||||||||||
| Rest of Asia Pacific |
(i) | 20.0 | 18.5 | 61.7 | 0.1 | |||||||||||||
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| 260.0 | 259.9 | 516.8 | 263.4 | |||||||||||||||
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| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
| (i) | Revenues for the sub-region of Central Asia have been reclassified from EMEA to Asia Pacific for the year ended 31 December 2021 and the six months ended 31 December 2020. This is to better align our data reporting to sales performance and geographical location. The value attributable to Central Asia is £1.6m (six months ended 31 December 2020: £0.6m; year ended 30 June 2020: £1.5m; year ended 30 June 2019: £1.4m). The comparatives presented for 30 June 2020 and 30 June 2019 have not been updated for this change. |
Revenue by type is shown below:
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
|||||||||||||
| Catalogue revenue |
296.4 | 139.0 | 243.1 | 242.8 | ||||||||||||
| Custom products and services |
5.7 | 2.7 | 6.3 | 5.4 | ||||||||||||
| IVD |
6.3 | 2.6 | 4.7 | 6.9 | ||||||||||||
| Royalties and licenses |
7.0 | 3.2 | 5.9 | 4.8 | ||||||||||||
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| Custom products and licensing |
19.0 | 8.5 | 16.9 | 17.1 | ||||||||||||
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| Total reported revenue |
315.4 | 147.5 | 260.0 | 259.9 | ||||||||||||
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Because all custom products and services projects within a contract had an original expected duration of one year or less, the Group has taken advantage of the exemption not to disclose outstanding amounts in respect of uncompleted contracts.
The information reported to the Group’s Chief Executive Officer, who as described above is considered the chief operating decision maker, also includes adjusted operating profit which comprises operating profit before exceptional items, share-based payments and amortization of acquisition intangibles.
F-23
The following table presents the reconciliation of this measure to profit for the year / period:
| Note | Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
||||||||||||||||
| Profit for the year / period |
4.4 | 12.8 | 12.5 | 44.4 | ||||||||||||||||
| Tax |
0.3 | 2.8 | (4.2 | ) | 11.2 | |||||||||||||||
| Finance income |
(0.3 | ) | (0.2 | ) | (0.7 | ) | (0.6 | ) | ||||||||||||
| Finance costs |
2.7 | 1.9 | 2.8 | 0.3 | ||||||||||||||||
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| Operating profit |
7.1 | 17.3 | 10.4 | 55.3 | ||||||||||||||||
| Exceptional items, share-based payments and amortization of acquisition intangibles |
7 | 53.3 | 17.8 | 43.6 | 34.9 | |||||||||||||||
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| Adjusted operating profit for the year / period |
60.4 | 35.1 | 54.0 | 90.2 | ||||||||||||||||
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|
|
|||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
6. Operating profit
Operating profit for the year / period is stated after charging / (crediting):
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
|||||||||||||
| Staff costs |
126.2 | 59.0 | 90.4 | 72.8 | ||||||||||||
| Cost of inventories recognized as an expense |
63.5 | 30.7 | 56.2 | 59.3 | ||||||||||||
| Write down of inventories recognized as an expense |
3.8 | 1.6 | 2.8 | 1.4 | ||||||||||||
| R&D expenditure (excluding UK R&D tax credits) |
7.9 | 5.3 | 24.9 | 16.9 | ||||||||||||
| UK R&D tax credits |
(2.5 | ) | (0.7 | ) | (1.5 | ) | (1.9 | ) | ||||||||
| Depreciation of property, plant and equipment |
11.0 | 4.3 | 7.3 | 4.8 | ||||||||||||
| Amortization of intangible assets |
20.9 | 7.9 | 15.7 | 10.5 | ||||||||||||
| Depreciation of right-of-use assets |
9.1 | 3.8 | 6.7 | — | ||||||||||||
| Movements arising on financial instruments at fair value through profit or loss |
— | (0.4 | ) | — | 0.4 | |||||||||||
| Other net foreign exchange differences (including cash flow hedge movements reclassified from other comprehensive income) |
(0.8 | ) | 1.6 | (0.6 | ) | (0.1 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
F-24
Auditor’s remuneration comprised the following:
| Year ended 31 December 2021 £000 |
Six months ended 31 December 2020 £000 |
Year ended 30 June 2020 £000 |
Year ended 30 June 2019 £000 |
|||||||||||||
| Audit services |
||||||||||||||||
| —Group and parent company |
646 | 426 | 279 | 178 | ||||||||||||
| —Subsidiary companies pursuant to legislation |
12 | — | 8 | 8 | ||||||||||||
| —Assurance services in respect of controls work for US compliance |
— | — | 200 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total audit fees |
658 | 426 | 487 | 186 | ||||||||||||
| Audit related assurance services |
||||||||||||||||
| —Interim review |
87 | 63 | 22 | 22 | ||||||||||||
| —Attestation under s404 of Sarbanes-Oxley Act 2002 and audit of 20-F filing |
535 | — | — | — | ||||||||||||
| —Services in respect of the Group’s US listing |
653 | — | 76 | — | ||||||||||||
| —Other |
35 | — | — | — | ||||||||||||
| Total assurance-related fees |
657 | 716 | 98 | 22 | ||||||||||||
| Other services |
6 | — | 1 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total auditor remuneration |
1,321 | 1,142 | 586 | 209 | ||||||||||||
Fees in respect of controls work for US compliance relate to additional controls work required to comply with the US Public Company Accounting Oversight Board (PCAOB).
Audit related assurance services in respect of the Group’s secondary listing in the US, which was completed in October 2020, relate to work on documents required for the US Securities and Exchange Commission (SEC). This includes the Attestation of the Group’s internal control framework under s404 of the Sarbanes-Oxley Act 2002 and other related services.
7. Exceptional items, share-based payments and amortization of acquisition intangibles
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
|||||||||||||||
| Included within cost of sales |
(3.1 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Affecting gross profit |
(3.1 | ) | — | — | — | |||||||||||||
| Included within selling, general and administrative expenses |
(39.1 | ) | (12.7 | ) | (20.0 | ) | (29.6 | ) | ||||||||||
| Included within research and development costs |
(11.1 | ) | (5.1 | ) | (23.6 | ) | (5.3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Affecting operating profit and profit before tax |
(53.3 | ) | (17.8 | ) | (43.6 | ) | (34.9 | ) | ||||||||||
| Analyzed as: |
||||||||||||||||||
| Amortization of fair value adjustments |
(i) | (3.1 | ) | — | — | — | ||||||||||||
| Impairment of intangible assets |
(ii) | (1.1 | ) | — | (14.9 | ) | (12.8 | ) | ||||||||||
| System and process improvement costs |
(iii) | (7.0 | ) | (2.5 | ) | (4.6 | ) | (5.4 | ) | |||||||||
| Acquisition costs |
(iv) | (8.3 | ) | — | (4.1 | ) | — | |||||||||||
| Integration and reorganization costs |
(v) | (4.7 | ) | (1.9 | ) | (2.1 | ) | (3.7 | ) | |||||||||
| Amortization of acquisition intangibles |
(vi) | (9.1 | ) | (4.4 | ) | (8.6 | ) | (6.5 | ) | |||||||||
| Share-based payments |
(vii) | (20.0 | ) | (9.0 | ) | (9.3 | ) | (6.5 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Affecting operating profit and profit before tax |
(53.3 | ) | (17.8 | ) | (43.6 | ) | (34.9 | ) | ||||||||||
| Tax effect of adjusting items |
10.5 | 3.3 | 9.0 | 6.7 | ||||||||||||||
| Credit arising from patent box claims |
(viii) | — | — | 4.6 | — | |||||||||||||
| Net tax effect of new US tax legislation |
— | — | — | (0.2 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Affecting tax |
10.5 | 3.3 | 13.6 | 6.5 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
(42.8 | ) | (14.5 | ) | (30.0 | ) | (28.4 | ) | ||||||||||
F-25
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
(i) Comprises amortization of fair value adjustments relating to the acquisition of BioVision as detailed in note 29. Following the acquisition, the Group recognized a fair value uplift of £6.0m to inventory carried on the Group’s balance sheet. This adjustment is being amortized over 4 months from November 2021. Such costs are included within cost of sales.
(ii) Year ended 31 December 2021: Comprises an impairment of internally developed technology assets relating to AxioMx, following an assessment of the work performed and costs capitalized to date. Following the review, it was concluded that as a result of changes in the scope and nature of the project to which the costs related, and the corresponding usability of historical work performed, £1.1m of internally developed technology assets were impaired. The impairment charge is included within research and development expenses. Year ended 30 June 2020: Comprises the full impairment of the acquisition intangible in respect of AxioMx in Vitro monoclonal antibody production technology and subsequent post acquisition expenditure capitalized. This has arisen following an appraisal of the ability to utilize at scale this technology whereby although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. The impairment charge is included within research and development expenses. Year ended 30 June 2019: The strategic ERP project is a complex, multi-year global business transformation with numerous phases extending across multiple Group functions. Following achievement of an implementation milestone in April 2019, a review was undertaken of historical expenditure incurred to that point on outstanding modules to assess whether each element remained appropriate to the business’s needs. Following the review, it was concluded that as a result of changes in the scope and nature of the programme and the corresponding usability of historical work performed, software assets of £12.8m were impaired. The charge was included within selling, general and administrative expenses.
(iii) Comprises costs of the strategic ERP implementation which do not qualify for capitalization and, for the year ended 31 December 2021, impairment charges of £2.1m, as a result of a software asset developed as part of the ERP project that was no longer required. Such costs are included within selling, general and administrative expenses. Also included in the year ended 31 December 2021 is £0.6m (six months ended 31 December 2020: £0.7m; year ended 30 June 2020: £0.3m; year ended 30 June 2019: £0.9m) relating to costs associated with the implementation of the SaaS IFRIC as described in note 1(d).
(iv) Year ended 31 December 2021: Comprises legal and other professional fees associated with the acquisition of BioVision, Inc. and other aborted acquisitions. Year ended 30 June 2020: Comprises legal and other professional fees associated with the acquisition of Expedeon as well as agreed settlements of Expedeon employee incentive schemes. Such costs are included within selling, general and administrative expenses.
(v) Year ended 31 December 2021: Integration and reorganization costs relate to the integration of the acquired BioVision business as described in note 29 (comprising mainly legal and professional fees) of £1.0m and costs in the US and Asia Pacific, relating to the ongoing reorganization of the Group’s property portfolio of £3.0m. Six months ended 31 December 2020 and year ended 30 June 2020: Integration and reorganization costs relate partly to the integration of the acquired Expedeon business as described in note 29 (comprising mainly retention and severance costs as well as employee backfill costs for those involved in the integration and consultancy costs) and reorganization costs in respect of alignment of the Group’s operational structure and geographical footprint to its strategic goals. Year ended 30 June 2019: Related to costs associated with major office fit outs, including the new Group headquarters, including dual running costs and depreciation prior to the building being occupied. Such costs are included within selling, general and administrative expenses.
(vi) Amortization of £6.8m (six months ended 31 December 2020: £3.2m; year ended 30 June 2020: £6.0m; year ended 30 June 2019: £4.3m) is included within research and development expenses, with the remaining £2.3m (six months ended 31 December 2020: £1.2m; year ended 30 June 2020: £2.6m; year ended 30 June 2019: £2.2m) included within selling, general and administrative expenses.
(vii) Comprises share-based payment charges of £17.9m and employer tax contributions of £2.1m thereon for all schemes, which have been included as exceptional items for the year ended 31 December 2021. The six months ended 31 December 2020 and the years ended 30 June 2010 and 2019 have been represented for this change. Charges of £3.1m (six months ended 31 December 2020: £2.0m, year ended 30 June 2020: £2.7m and year ended 30 June 2019; £1.0m) are included in research and development expenses, with the remaining £16.9m (six months ended 31 December 2020: £7.0m, year ended 30 June 2020: £6.6m and year ended 30 June 2019; £5.5m) included within selling, general and administrative expenses.
F-26
(viii) Comprises a credit for historical periods in respect of the initial recognition of benefit from the lower rate of tax applied to profits on patented income under HMRC’s ‘patent box’ regime following successful registration of patents during the prior period.
8. Employees
The average monthly number of employees (including Executive Directors) was:
| Year ended 31 December 2021 Number |
Six months ended 31 December 2020 Number |
Year ended 30 June 2020 Number |
Year ended 30 June 2019 Number |
|||||||||||||
| Management, administrative, marketing and distribution |
1,191 | 930 | 879 | 784 | ||||||||||||
| Laboratory |
428 | 594 | 575 | 371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 1,619 | 1,524 | 1,454 | 1,155 | |||||||||||||
During the year ended 31 December 2021, the Group changed the allocation of certain departmental headcount to particular cost centres, which had the effect of reducing the average number of laboratory staff and increasing the average number of management, administrative, marketing and distribution staff. This was in order to more accurately reflect the nature of operations being undertaken by those particular departments. Contractors are not included in the analysis of employee numbers.
Their aggregate remuneration comprised:
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
|||||||||||||
| Wages and salaries |
89.4 | 42.6 | 69.5 | 56.0 | ||||||||||||
| Social security costs |
12.4 | 6.3 | 7.1 | 6.8 | ||||||||||||
| Other pension costs |
6.5 | 2.8 | 4.5 | 3.5 | ||||||||||||
| Share-based payments charge |
17.9 | 7.3 | 9.3 | 6.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total staff costs |
126.2 | 59.0 | 90.4 | 72.8 | ||||||||||||
9. Finance income and costs
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
|||||||||||||
| Interest receivable |
0.3 | 0.2 | 0.7 | 0.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Finance income |
0.3 | 0.2 | 0.7 | 0.6 | ||||||||||||
| Interest expense on lease liabilities* |
(1.7 | ) | (1.0 | ) | (1.5 | ) | — | |||||||||
| Borrowing costs |
(1.0 | ) | (0.9 | ) | (1.3 | ) | (0.3 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Finance costs |
(2.7 | ) | (1.9 | ) | (2.8 | ) | (0.3 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net finance (costs) / income |
(2.4 | ) | (1.7 | ) | (2.1 | ) | 0.3 | |||||||||
| * | On 1 July 2019, the Group adopted IFRS 16 ‘Leases’ using the modified retrospective transition method and as a result, comparative figures for the year ended 30 June 2019 have not been restated. |
F-27
10. Tax
| Note | Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
||||||||||||||||
| Current tax |
||||||||||||||||||||
| Current income tax charge |
11.0 | 4.1 | 4.8 | 9.7 | ||||||||||||||||
| Adjustment in respect of prior years |
(2.4 | ) | — | (0.9 | ) | 0.2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 8.6 | 4.1 | 3.9 | 9.9 | |||||||||||||||||
| Deferred tax |
||||||||||||||||||||
| Origination and reversal of temporary differences |
(11.6 | ) | (1.3 | ) | (9.2 | ) | 0.4 | |||||||||||||
| Adjustment in respect of prior years |
1.9 | — | 0.9 | 1.1 | ||||||||||||||||
| Effect of tax rate change |
1.4 | — | 0.2 | (0.2 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 17 | (8.3 | ) | (1.3 | ) | (8.1 | ) | 1.3 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total income tax charge / (credit) |
0.3 | 2.8 | (4.2 | ) | 11.2 | |||||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
The Group reported a net tax charge of £0.3m (six months ended 31 December 2020: £2.8m; year ended 30 June 2020: credit of £4.2m; year ended 30 June 2019: £11.2m). The net tax charge is reduced due to the credit from the ‘patent box’ benefit in the UK, where a lower rate of tax is applied to profits on patented income.
The UK Corporation Tax rate for the year was 19.0% (six months ended 31 December 2020: 19.0%; year ended 30 June 2020: 19.0%; year ended 30 June 2019: 19.0%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The Finance Act 2021 increased the UK Corporation Tax rate to 25% with effect from 1 April 2023. This 25% rate has been applied in the deferred tax valuations based on the expected timing of when such assets and liabilities will be recovered.
The charge for the year / period can be reconciled to the profit per the income statement as follows:
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
|||||||||||||
| Profit before tax |
4.7 | 15.6 | 8.3 | 55.6 | ||||||||||||
| Tax at the UK corporation tax rate of 19.0% (December 2020: 19.0%; June 2020: 19.0%; June 2019: 19.0%) |
0.9 | 3.0 | 1.6 | 10.6 | ||||||||||||
| Adjustment in respect of overseas tax rates |
2.0 | 0.2 | (1.3 | ) | 1.4 | |||||||||||
| Adjustments in respect of prior years |
(0.5 | ) | — | — | 1.3 | |||||||||||
| Effect of ‘patent box’ benefit |
(4.2 | ) | 0.9 | (6.0 | ) | — | ||||||||||
| Tax effect of non-deductible expenses and non-taxable income |
0.9 | (1.5 | ) | 1.3 | (1.0 | ) | ||||||||||
| Relief in relation to overseas entities |
— | — | — | (0.3 | ) | |||||||||||
| Overseas R&D tax credit uplift |
(0.7 | ) | 0.3 | (0.5 | ) | (0.6 | ) | |||||||||
| Overseas withholding tax |
0.5 | (0.1 | ) | 0.5 | — | |||||||||||
| Effect of tax rate change on deferred tax balances |
1.4 | — | 0.2 | (0.2 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Tax charge / (credit) for the year / period |
0.3 | 2.8 | (4.2 | ) | 11.2 | |||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
F-28
11. Earnings per share
The calculations of earnings per ordinary share (EPS) are based on profit after tax and the weighted number of shares in issue during the year / period.
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised* £m |
|||||||||||||
| Earnings |
||||||||||||||||
| Profit for the year / period |
4.4 | 12.8 | 12.5 | 44.4 | ||||||||||||
| Million | Million | Million | Million | |||||||||||||
| Number of shares |
||||||||||||||||
| Weighted average number of ordinary shares in issue |
227.1 | 220.0 | 208.0 | 205.4 | ||||||||||||
| Less ordinary shares held by Equiniti Share Plan Trustees Limited |
(0.4 | ) | (0.4 | ) | (0.4 | ) | (0.5 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average number of ordinary shares for the purposes of basic EPS |
226.7 | 219.6 | 207.6 | 204.9 | ||||||||||||
| Effect of potentially dilutive ordinary shares—share options and awards |
2.2 | 2.4 | 2.0 | 1.8 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average number of ordinary shares for the purposes of diluted EPS |
228.9 | 222.0 | 209.6 | 206.7 | ||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
Basic EPS is calculated by dividing the profit after tax by the weighted average number of shares outstanding during the year / period. Diluted EPS is calculated on the same basis as basic EPS but with a further adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. Such potentially dilutive ordinary shares comprise share options and awards granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year / period and any unvested shares which have met, or are expected to meet, the performance conditions at the end of the year / period.
| Year ended 31 December 2021 |
Six months ended 31 December 2020 (revised*) |
Year ended 30 June 2020 (revised*) |
Year ended 30 June 2019 (revised*) |
|||||||||||||
| Basic EPS |
1.9p | 5.8p | 6.0p | 21.7p | ||||||||||||
| Diluted EPS |
1.9p | 5.8p | 6.0p | 21.5p | ||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
12. Goodwill
| Note | 31 December 2021 £m |
31 December 2020 £m |
30 June 2020 £m |
30 June 2019 £m |
||||||||||||||||
| Cost and carrying amount |
||||||||||||||||||||
| At beginning of the year / period |
184.3 | 195.0 | 120.9 | 114.2 | ||||||||||||||||
| Additions |
29 | 177.0 | 0.6 | 68.3 | 2.8 | |||||||||||||||
| Exchange differences |
3.5 | (11.3 | ) | 5.8 | 3.9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| At end of the year / period |
364.8 | 184.3 | 195.0 | 120.9 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Allocated to BioVision CGU |
181.0 | — | — | — | ||||||||||||||||
| Allocated to Group CGU |
183.8 | 184.3 | 195.0 | 120.9 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| At end of the year / period |
364.8 | 184.3 | 195.0 | 120.9 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
F-29
Goodwill is converted at the exchange rate on the date of acquisition and retranslated at the balance sheet date.
Goodwill acquired in a business combination is allocated at acquisition to the Cash Generating Unit (CGU) which is expected to benefit from that business combination. Following the acquisition of BioVision (as described in note 29), the acquired business had not been fully integrated into the Group’s operations as at 31 December 2021. As such, BioVision is considered a separate CGU, and goodwill arising from the acquisition has been allocated to this CGU. The Directors consider the remainder of the Group to be one CGU, as previous acquisitions have been fully integrated into the Group’s operations and product portfolio.
Goodwill is subject to an annual impairment review or more frequently if there are any indications that goodwill might be impaired. The reviews are carried out using the following criteria:
| • | The recoverable amount of the CGU is determined from value in use (VIU) calculations; |
| • | The VIU is calculated by applying discounted cash flow modelling to management’s own projections covering a five year period; and |
| • | Cash flows beyond the five year period are extrapolated using a long-term growth rate equivalent to the expected inflationary increases of the economies in which the Group predominantly trades. |
The key assumptions considered most sensitive for the VIU calculations are:
| • | The Directors’ five year projections; and |
| • | The pre-tax adjusted discount rate. |
The Directors have projected cash flows based on strategic financial forecasts over a period of five years and take account of relative performance of competitors, knowledge of the current market, together with the Directors’ views on the future achievable growth in market share and the impact of growth initiatives.
Growth rates of 2.5% and 2.2% have been used in the extrapolation of cash flows beyond the five year period for the BioVision and Group CGU respectively, and have been based on third party long-term growth rate forecasts which are based on GDP growth rates.
Pre-tax discount rates of 12.0% and 7.2% have been applied to the BioVision and Group CGUs respectively, estimated using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU.
Based on the results of this analysis, management is satisfied that the recoverable amount of goodwill exceeds its carrying amount for both CGUs.
Management has performed a sensitivity analysis on each of the key base case assumptions mentioned above. Due to the significant headroom which exists between the recoverable amount and the carrying value, the Directors have concluded that there are no reasonable possible changes in any of these key assumptions which would cause the goodwill to exceed its VIU.
13. Intangible assets
| Acquisition intangibles | ||||||||||||||||||||||||||||||||||||
| Customer relationships and distribution rights £m |
Patents, technology and know- how £m |
Licence fees £m |
Trade names £m |
Sub-total £m |
Software (revised*) £m |
Internally developed technology £m |
Patents and licenses £m |
Total £m |
||||||||||||||||||||||||||||
| Cost |
||||||||||||||||||||||||||||||||||||
| At 1 July 2018 (as previously reported) |
7.3 | 65.6 | 15.5 | 2.5 | 90.9 | 45.3 | 19.7 | — | 155.9 | |||||||||||||||||||||||||||
| Revision |
— | — | — | — | — | (1.3 | ) | — | — | (1.3 | ) | |||||||||||||||||||||||||
| At 1 July 2018 (revised*) |
7.3 | 65.6 | 15.5 | 2.5 | 90.9 | 44.0 | 19.7 | — | 154.6 | |||||||||||||||||||||||||||
| Additions |
— | 0.6 | — | — | 0.6 | 12.5 | 8.0 | — | 21.1 | |||||||||||||||||||||||||||
| Disposals |
(0.6 | ) | — | — | — | (0.6 | ) | (6.9 | ) | — | — | (7.5 | ) | |||||||||||||||||||||||
| Exchange differences |
0.2 | 2.3 | 0.2 | 0.1 | 2.8 | — | 0.2 | — | 3.0 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| At 30 June 2019 (revised*) |
6.9 | 68.5 | 15.7 | 2.6 | 93.7 | 49.6 | 27.9 | — | 171.2 | |||||||||||||||||||||||||||
F-30
| Acquisition intangibles | ||||||||||||||||||||||||||||||||||||
| Customer relationships and distribution rights £m |
Patents, technology and know- how £m |
Licence fees £m |
Trade names £m |
Sub-total £m |
Software (revised*) £m |
Internally developed technology £m |
Patents and licenses £m |
Total £m |
||||||||||||||||||||||||||||
| Additions |
— | — | — | — | — | 14.8 | 9.0 | — | 23.8 | |||||||||||||||||||||||||||
| Acquisition |
1.8 | 45.8 | 0.4 | 1.1 | 49.1 | 0.1 | — | — | 49.2 | |||||||||||||||||||||||||||
| Exchange differences |
0.2 | 3.5 | 0.2 | 0.1 | 4.0 | — | 0.2 | — | 4.2 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| At 30 June 2020 (revised*) |
8.9 | 117.8 | 16.3 | 3.8 | 146.8 | 64.5 | 37.1 | — | 248.4 | |||||||||||||||||||||||||||
| Additions |
— | — | — | — | — | 7.1 | 4.5 | 0.7 | 12.3 | |||||||||||||||||||||||||||
| Exchange differences |
(0.5 | ) | (6.6 | ) | (0.6 | ) | (0.3 | ) | (8.0 | ) | (0.2 | ) | (0.5 | ) | — | (8.7 | ) | |||||||||||||||||||
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|||||||||||||||||||
| At 31 December 2020 (revised*) |
8.4 | 111.2 | 15.7 | 3.5 | 138.8 | 71.4 | 41.1 | 0.7 | 252.0 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| Additions |
— | — | — | — | — | 17.4 | 7.5 | 0.9 | 25.8 | |||||||||||||||||||||||||||
| Acquisition |
3.7 | 77.5 | — | — | 81.2 | — | — | — | 81.2 | |||||||||||||||||||||||||||
| Exchange differences |
0.1 | 0.5 | 0.1 | 0.1 | 0.8 | — | 0.1 | — | 0.9 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| At 31 December 2021 |
12.2 | 189.2 | 15.8 | 3.6 | 220.8 | 88.8 | 48.7 | 1.6 | 359.9 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| Accumulated amortization |
||||||||||||||||||||||||||||||||||||
| At 1 July 2018 (as previously reported and revised*) |
4.8 | 17.9 | 4.7 | 1.9 | 29.3 | 13.0 | 7.3 | — | 49.6 | |||||||||||||||||||||||||||
| Charge for the year |
0.8 | 4.2 | 1.2 | 0.3 | 6.5 | 1.8 | 2.2 | — | 10.5 | |||||||||||||||||||||||||||
| Impairment |
— | — | — | — | — | 12.8 | — | — | 12.8 | |||||||||||||||||||||||||||
| Disposals |
(0.6 | ) | — | — | — | (0.6 | ) | (6.9 | ) | — | — | (7.5 | ) | |||||||||||||||||||||||
| Exchange differences |
0.1 | 0.8 | 0.1 | 0.1 | 1.1 | — | 0.1 | — | 1.2 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| At 30 June 2019 (revised*) |
5.1 | 22.9 | 6.0 | 2.3 | 36.3 | 20.7 | 9.6 | — | 66.6 | |||||||||||||||||||||||||||
| Charge for the year |
0.8 | 6.3 | 1.2 | 0.3 | 8.6 | 4.0 | 3.1 | — | 15.7 | |||||||||||||||||||||||||||
| Impairment |
— | 14.7 | — | — | 14.7 | — | 0.2 | — | 14.9 | |||||||||||||||||||||||||||
| Exchange differences |
0.1 | 0.8 | 0.1 | 0.1 | 1.1 | — | — | — | 1.1 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| At 30 June 2020 (revised*) |
6.0 | 44.7 | 7.3 | 2.7 | 60.7 | 24.7 | 12.9 | — | 98.3 | |||||||||||||||||||||||||||
| Charge for the period |
0.4 | 3.1 | 0.9 | — | 4.4 | 2.0 | 1.5 | — | 7.9 | |||||||||||||||||||||||||||
| Exchange differences |
(0.3 | ) | (4.1 | ) | (0.5 | ) | (0.3 | ) | (5.2 | ) | (0.2 | ) | (0.6 | ) | — | (6.0 | ) | |||||||||||||||||||
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|||||||||||||||||||
| At 31 December 2020 (revised*) |
6.1 | 43.7 | 7.7 | 2.4 | 59.9 | 26.5 | 13.8 | — | 100.2 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| Charge for the year |
1.0 | 6.9 | 1.1 | 0.1 | 9.1 | 8.9 | 2.4 | 0.5 | 20.9 | |||||||||||||||||||||||||||
| Impairment |
— | — | — | — | — | 2.1 | 1.7 | — | 3.8 | |||||||||||||||||||||||||||
| Exchange differences |
(0.1 | ) | 0.3 | 0.1 | 0.1 | 0.4 | 0.1 | 0.3 | — | 0.8 | ||||||||||||||||||||||||||
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|||||||||||||||||||
| At 31 December 2021 |
7.0 | 50.9 | 8.9 | 2.6 | 69.4 | 37.6 | 18.2 | 0.5 | 125.7 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| Carrying amount |
||||||||||||||||||||||||||||||||||||
| At 30 June 2019 |
1.8 | 45.6 | 9.7 | 0.3 | 57.4 | 28.9 | 18.3 | — | 104.6 | |||||||||||||||||||||||||||
| At 30 June 2020 |
2.9 | 73.1 | 9.0 | 1.1 | 86.1 | 39.8 | 24.2 | — | 150.1 | |||||||||||||||||||||||||||
| At 31 December 2020 |
2.3 | 67.5 | 8.0 | 1.1 | 78.9 | 44.9 | 27.3 | 0.7 | 151.8 | |||||||||||||||||||||||||||
| At 31 December 2021 |
5.2 | 138.3 | 6.9 | 1.0 | 151.4 | 51.2 | 30.5 | 1.1 | 234.2 | |||||||||||||||||||||||||||
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|||||||||||||||||||
| Included in carrying amount—Assets under construction |
||||||||||||||||||||||||||||||||||||
| At 30 June 2019 |
— | — | — | — | — | 14.7 | 3.9 | — | 18.6 | |||||||||||||||||||||||||||
| At 30 June 2020 |
— | — | — | — | — | 28.7 | 7.2 | — | 35.9 | |||||||||||||||||||||||||||
| At 31 December 2020 |
— | — | — | — | — | 36.5 | 9.2 | — | 45.7 | |||||||||||||||||||||||||||
| At 31 December 2021 |
— | — | — | — | — | 18.6 | 4.3 | 1.1 | 24.0 | |||||||||||||||||||||||||||
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F-31
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
Amortization of £8.5m (six months ended 31 December 2020: £4.6m; year ended 30 June 2020: £8.2m; year ended 30 June 2019: £6.2m) is included within Research and development expenses and £12.4m (six months ended 31 December 2020: £3.3m; year ended 30 June 2020: £7.5m; year ended 30 June 2019: £4.3m) is included within selling, general and administrative expenses.
During the year ended 31 December 2021, the Group revised its estimate of the useful economic life of its software intangible assets from 3 to 5 years to 3 to 10 years. This was based on an assessment of the enhanced functionality available to the Group from its ERP software following implementation of certain key modules in the year. This change in estimate has been accounted for prospectively in line with IAS 8, ‘Accounting Policies, changes in accounting estimates and errors’ and has led to a reduction in the monthly impairment charge of £0.5m and is expected to lead to an average annual reduction of £3.9m in the amortization charge for the years 2022 to 2026.
During the year ended 31 December 2021, an impairment was made of internally developed technology assets relating to the AxioMx business unit, following an assessment of the work performed and costs capitalized to date. Following the review, it was concluded that as a result of changes in the scope and nature of the project to which the costs related, and the corresponding usability of historical work performed, £1.1m of internally developed technology assets were impaired. The impairment charge is included within research and development expenses and is included in exceptional items.
A further £0.6m impairment charge on internally developed technology was recorded in the year, relating to certain technology assets. The impairment charge is included within selling, general and administrative expenses.
A £2.1m impairment charge was also recognized in respect of capitalized software development that will no longer be used in the Group’s ERP implementation project. The impairment charge is included within selling, general and administrative expenses and is included in exceptional items.
During the year ended 31 December 2021, the assets relating to Firefly BioWorks multiplex and assay technology were tested for impairment. Given the nascent state of the technology, management used the fair value less costs to sell method of assessing the recoverable amount of the intangible assets. The fair value was estimated by utilizing market-based data from comparable companies and recent transactions in the industry. The result was a fair value that significantly exceeded the carrying value of the asset and the Directors have concluded that there are no reasonable possible scenarios that would cause an impairment to be required.
During the six months ended 31 December 2020, a review was undertaken of the performance of historical acquisitions. In respect of Applied Stem Cell, it was determined that the additional knowledge gained of the marketplace in which Applied Stem Cell operates caused the initial valuation of the acquisition intangibles to be revisited as permitted by IFRS 3 ‘Business Combinations’ within the first 12 months of ownership. This has resulted in a £2.2m reduction in the initial valuation of acquisition intangibles from that originally presented in the consolidated financial statements for the fiscal year ended 30 June 2020 with a corresponding increase in goodwill. In accordance with the requirements of IFRS 3 ‘Business Combinations’, this adjustment has been recorded within the fiscal year ended 30 June 2020.
During the year ended 30 June 2020, a full impairment was made of the acquisition intangible in respect of AxioMx in Vitro monoclonal antibody production technology and subsequent post acquisition expenditure. This has arisen following an appraisal of the ability to utilize at scale this technology whereby although technical feasibility remains valid, the challenges to realize material commercial returns have resulted in the conclusion not to pursue further active development and substantive utilization of this technology. This expense was included within Research and development expenses.
During the year ended 30 June 2019, following achievement of a milestone in April 2019, the ERP implementation project, a review was undertaken of historical expenditure incurred to that date on outstanding modules included within software. It was concluded that as a result of changes in the scope and nature of the programme, assets of £12.8m were impaired. This expense was included within selling, general and administrative expenses. Further information is shown in note 7.
Capital commitments at 31 December 2021 amounted to £5.4m (31 December 2020: £2.0m; 30 June 2020: £4.1m; 30 June 2019: £nil).
F-32
Individually material intangible assets
The Group’s ERP system is considered to be an individually material intangible asset. As at 31 December 2021, £31.9m is included within software which is being amortized over a ten year period with a remaining amortization period of 7.4 years with the remainder shown as software assets under construction.
Patents, technology and know-how and Licence fees includes amounts which are considered individually material to the financial statements and are set out as follows:
| Carrying amount £m |
Remaining amortization Years |
|||||||
| Expedeon CaptSure technology |
22.4 | 14 | ||||||
| Expedeon antibody labelling and conjugation technology |
15.8 | 14 | ||||||
| Epitomics RabMAb® technology |
8.9 | 5 | ||||||
| Firefly BioWorks Multiplex and assay technology |
11.3 | 8 | ||||||
| Roche licence agreement |
6.4 | 7 | ||||||
| BioVision Metabolism Assays & Proteins |
77.5 | 10 | ||||||
|
|
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|
|
|||||
F-33
14. Property, plant and equipment
| Laboratory equipment £m |
Office fixtures, fittings and other equipment £m |
Cell line assets £m |
Leasehold improvements £m |
Total £m |
||||||||||||||||
| Cost |
||||||||||||||||||||
| At 1 July 2018 |
16.0 | 13.5 | — | 15.2 | 44.7 | |||||||||||||||
| Additions |
7.2 | 4.7 | — | 4.9 | 16.8 | |||||||||||||||
| Disposals |
(0.4 | ) | (3.3 | ) | — | — | (3.7 | ) | ||||||||||||
| Exchange differences |
0.2 | 0.2 | — | — | 0.4 | |||||||||||||||
|
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|
|||||||||||
| As 30 June 2019 |
23.0 | 15.1 | — | 20.1 | 58.2 | |||||||||||||||
| Additions |
7.0 | 1.3 | 4.2 | — | 12.5 | |||||||||||||||
| Acquisitions |
0.3 | 0.1 | — | 0.2 | 0.6 | |||||||||||||||
| Reclassification |
(1.4 | ) | — | 1.4 | — | — | ||||||||||||||
| Disposals |
— | (1.4 | ) | — | — | (1.4 | ) | |||||||||||||
| Exchange differences |
0.4 | 0.4 | — | — | 0.8 | |||||||||||||||
|
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|||||||||||
| At 30 June 2020 |
29.3 | 15.5 | 5.6 | 20.3 | 70.7 | |||||||||||||||
| Additions |
2.0 | 0.5 | 0.6 | 7.9 | 11.0 | |||||||||||||||
| Disposals |
— | — | — | (0.2 | ) | (0.2 | ) | |||||||||||||
| Exchange differences |
(1.5 | ) | (1.0 | ) | — | (0.3 | ) | (2.8 | ) | |||||||||||
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|||||||||||
| At 31 December 2020 |
29.8 | 15.0 | 6.2 | 27.7 | 78.7 | |||||||||||||||
| Additions |
5.9 | 5.3 | 2.3 | 21.0 | 34.5 | |||||||||||||||
| Acquisitions |
0.8 | — | — | — | 0.8 | |||||||||||||||
| Disposals |
(1.1 | ) | (2.0 | ) | — | — | (3.1 | ) | ||||||||||||
| Exchange differences |
0.7 | 0.2 | — | 0.5 | 1.4 | |||||||||||||||
|
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|||||||||||
| At 31 December 2021 |
36.1 | 18.5 | 8.5 | 49.2 | 112.3 | |||||||||||||||
|
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|
|
|
|
|
|||||||||||
| Accumulated depreciation |
||||||||||||||||||||
| At 1 July 2018 |
10.4 | 9.2 | — | — | 19.6 | |||||||||||||||
| Charge for the year |
2.4 | 2.0 | — | 0.4 | 4.8 | |||||||||||||||
| Disposals |
(0.4 | ) | (3.3 | ) | — | — | (3.7 | ) | ||||||||||||
| Exchange differences |
0.2 | 0.2 | — | — | 0.4 | |||||||||||||||
|
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|
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|
|
|
|
|||||||||||
| At 30 June 2019 |
12.6 | 8.1 | — | 0.4 | 21.1 | |||||||||||||||
| Charge for the year |
3.4 | 2.6 | 0.3 | 1.0 | 7.3 | |||||||||||||||
| Disposals |
— | (1.4 | ) | — | — | (1.4 | ) | |||||||||||||
| Exchange differences |
0.1 | 0.2 | — | 0.1 | 0.4 | |||||||||||||||
|
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|
|||||||||||
| At 30 June 2020 |
16.1 | 9.5 | 0.3 | 1.5 | 27.4 | |||||||||||||||
| Charge for the period |
2.0 | 1.3 | 0.3 | 0.7 | 4.3 | |||||||||||||||
| Exchange differences |
(0.8 | ) | (0.7 | ) | — | — | (1.5 | ) | ||||||||||||
|
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|||||||||||
| At 31 December 2020 |
17.3 | 10.1 | 0.6 | 2.2 | 30.2 | |||||||||||||||
| Charge for the year |
4.3 | 2.8 | 0.6 | 3.3 | 11.0 | |||||||||||||||
| Disposals in the year |
(1.1 | ) | (1.5 | ) | — | — | (2.6 | ) | ||||||||||||
| Exchange differences |
0.3 | 0.1 | — | (0.2 | ) | 0.2 | ||||||||||||||
|
|
|
|
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|
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|
|||||||||||
| At 31 December 2021 |
20.8 | 11.5 | 1.2 | 5.3 | 38.8 | |||||||||||||||
|
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|||||||||||
| Net book value |
||||||||||||||||||||
| At 30 June 2019 |
10.4 | 7.0 | — | 19.7 | 37.1 | |||||||||||||||
| At 30 June 2020 |
13.2 | 6.0 | 5.3 | 18.8 | 43.3 | |||||||||||||||
| At 31 December 2020 |
12.5 | 4.9 | 5.6 | 25.5 | 48.5 | |||||||||||||||
| At 31 December 2021 |
15.3 | 7.0 | 7.3 | 43.9 | 73.5 | |||||||||||||||
| Included in net book value—Assets under construction |
||||||||||||||||||||
| At 30 June 2019 |
— | — | — | — | — | |||||||||||||||
| At 30 June 2020 |
— | — | 1.2 | — | 1.2 | |||||||||||||||
| At 31 December 2020 |
— | — | — | 2.9 | 2.9 | |||||||||||||||
| At 31 December 2021 |
— | — | 2.3 | 0.9 | 3.2 | |||||||||||||||
F-34
Capital commitments at 31 December 2021 amounted to £4.0m (31 December 2020: £6.9m; 30 June 2020: £1.8m; 30 June 2019: £nil).
15. Leases
Right-of-use assets
| Land and Buildings £m |
Other £m |
Total £m |
||||||||||
| Cost |
||||||||||||
| At 1 July 2019 |
— | — | — | |||||||||
| IFRS 16 transition adjustment |
70.6 | 0.2 | 70.8 | |||||||||
| Additions |
58.7 | — | 58.7 | |||||||||
| Disposals and other adjustments |
(2.3 | ) | — | (2.3 | ) | |||||||
| Exchange differences |
0.9 | — | 0.9 | |||||||||
|
|
|
|
|
|
|
|||||||
| At 30 June 2020 |
127.9 | 0.2 | 128.1 | |||||||||
| Additions |
0.5 | — | 0.5 | |||||||||
| Leasehold incentives received |
(2.8 | ) | — | (2.8 | ) | |||||||
| Disposals and other adjustments |
(0.2 | ) | — | (0.2 | ) | |||||||
| Exchange differences |
(6.7 | ) | — | (6.7 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| At 31 December 2020 |
118.7 | 0.2 | 118.9 | |||||||||
| Additions |
4.0 | 0.1 | 4.1 | |||||||||
| Leasehold incentives received |
(12.1 | ) | — | (12.1 | ) | |||||||
| Disposals and other adjustments |
(4.0 | ) | — | (4.0 | ) | |||||||
| Exchange differences |
0.5 | — | 0.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| At 31 December 2021 |
107.1 | 0.3 | 107.4 | |||||||||
|
|
|
|
|
|
|
|||||||
| Accumulated depreciation |
||||||||||||
| At 1 July 2019 |
— | — | — | |||||||||
| Charge for the year |
6.6 | 0.1 | 6.7 | |||||||||
|
|
|
|
|
|
|
|||||||
| At 30 June 2020 |
6.6 | 0.1 | 6.7 | |||||||||
| Charge for the period |
3.8 | — | 3.8 | |||||||||
| Exchange differences |
(0.4 | ) | — | (0.4 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| At 31 December 2020 |
10.0 | 0.1 | 10.1 | |||||||||
| Charge for the year |
9.0 | 0.1 | 9.1 | |||||||||
| Exchange differences |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| At 31 December 2021 |
19.0 | 0.2 | 19.2 | |||||||||
|
|
|
|
|
|
|
|||||||
| Carrying amount |
||||||||||||
| At 30 June 2020 |
121.3 | 0.1 | 121.4 | |||||||||
| At 31 December 2020 |
108.7 | 0.1 | 108.8 | |||||||||
| At 31 December 2021 |
88.1 | 0.1 | 88.2 | |||||||||
|
|
|
|
|
|
|
|||||||
Lease liabilities
Maturity analysis of lease liabilities:
| 31 December 2021 £m |
31 December 2020 £m |
30 June 2020 £m |
||||||||||
| Amounts falling due within |
||||||||||||
| One year |
9.2 | 7.1 | 7.3 | |||||||||
| Between one and five years |
33.9 | 33.0 | 26.9 | |||||||||
| Later than five years |
67.4 | 77.0 | 93.6 | |||||||||
The interest expense incurred on lease liabilities included within finance costs was £1.7m (six months ended 31 December 2020: £1.0m; year ended 30 June 2020: £1.5m) and income recognized from subleases was £0.4m (six months ended 31 December 2020: £0.4m; year ended 30 June 2020: £0.8m). The lease expense relating to short term leases and low value assets (that are not shown in the tables above) was £0.2m (six months ended 31 December 2020: £0.2m; year ended 30 June 2020: £0.3m). Cash outflows in respect of right-of-use assets were £10.3m (six months ended 31 December 2020: £4.3m; year ended 30 June 2020: £7.7m).
F-35
16. Investments
| £m | ||||
| At 1 July 2018 |
0.9 | |||
| Exchange differences |
(0.1 | ) | ||
|
|
|
|||
| At 30 June 2019 |
0.8 | |||
| Additions |
2.2 | |||
| Revaluation to fair value |
4.0 | |||
|
|
|
|||
| At 30 June 2020 |
7.0 | |||
| Revaluation to fair value |
(3.1 | ) | ||
| Exchange differences |
(0.5 | ) | ||
|
|
|
|||
| At 31 December 2020 |
3.4 | |||
| Additions |
0.1 | |||
| Revaluation to fair value |
(0.1 | ) | ||
| Exchange differences |
0.1 | |||
|
|
|
|||
| At 31 December 2021 |
3.5 | |||
Adjustments to fair value in the fiscal year ended 31 December 2021 relate to changes in the fair value of the Group’s investment in Plexbio, Inc. Additions relate primarily to increased investment in Somaserve Limited.
Subsidiary undertakings
| Name |
Registered office |
Country of incorporation or |
Principal activity | |||
| Abcam Australia Pty Limited | Level 16, 414 La Trobe Street, Melbourne, VIC 3000 | Australia | Sales and distribution | |||
| Abcam KK | Sumitomo Fudousan, Ningyocho Bldg 2F, 2-2-1 Nihonbashi Horidomecho Chuo-ku Tokyo 103-0012 | Japan | Sales and distribution | |||
| Abcam (Hong Kong) Limited | 1301 Ruttonjee House, Ruttonjee Centre, 11 Duddell Street, Central Hong Kong SARs | Hong Kong | Sales and distribution | |||
| Abcam Taiwan Company Limited | 15F, No.2-1, Sec. 3, Minquan E. Road., Zhongshan District, Taipei City, Taiwan | Taiwan | Sales and distribution | |||
| Abcam (Netherlands) B.V. | Kingsfordweg 151, 1043GR Amsterdam | Netherlands | Sales and distribution | |||
| Abcam US Group Holdings, Inc. | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | Holding company | |||
| Abcam Singapore Pte. Limited | 711 North Buona Vista Drive, #16-08 The Metropolis Tower Two, Singapore 138589 | Singapore | Sales and distribution | |||
| AbShare Share Plan Limited | Discovery Drive, Cambridge Biomedical Campus, Cambridge, CB2 0AX | England | Employee services | |||
| Ascent Scientific Limited* | C/O BDO LLP, 55 Baker Street, London, W1U 7EU | England | Dormant | |||
| Abcam (Hangzhou) Biotechnology Co., Limited | 1418 Moganshan Road, Hangzhou Zhejiang, 310011 | China | R&D and manufacturing | |||
| Abcam Trading (Shanghai) Co., Limited | Room 5401, Floor 4, Building 5, No. 338 Galileo Road, Pudong New Area, Shanghai | China | Sales and distribution | |||
| Abcam Inc. | 152 Grove Street, Suite 1100, Waltham, MA 02453 | USA | Sales and distribution | |||
| Abcam LLC | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | Holding company | |||
| Abcam (US) Limited | Discovery Drive, Cambridge Biomedical Campus, Cambridge CB2 0AX | England | Holding company | |||
| AxioMx Inc. | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | R&D and manufacturing | |||
| BioVision Inc. | 155 S Milpitas Boulevard, Milpitas, CA 95035, USA | USA | R&D and manufacturing | |||
| Calico Biolabs Inc. | 160 Greentree Drive, Suite 101, Dover, Delaware 19904, Kent County, USA | USA | Dormant | |||
F-36
| Name |
Registered office |
Country of incorporation or |
Principal activity | |||
| Epitomics Inc. | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | R&D and manufacturing | |||
| Epitomics Holdings, Inc. | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | Holding company | |||
| Expedeon Holdings Limited | Discovery Drive, Cambridge Biomedical Campus, Cambridge, CB2 0AX | England | Holding company | |||
| Expedeon Limited | Discovery Drive, Cambridge Biomedical Campus, Cambridge CB2 0AX | England | R&D and manufacturing | |||
| Expedeon Asia Pte Limited | 1531A Upper Cross Street, #04-98 Hong Lim Complex, Singapore 051531 | Singapore | R&D and manufacturing | |||
| Firefly BioWorks Inc. | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | R&D and manufacturing | |||
| Innova BioSciences Limited | Discovery Drive, Cambridge Biomedical Campus, Cambridge, CB2 0AX | England | Dormant | |||
| Marker Gene Technologies, Inc. | 1850 Millrace Drive, Eugene, OR 97403 | USA | R&D and manufacturing | |||
| MitoSciences Inc. | Corporation Service Company, 251 Little Falls Drive, Wilmington, New Castle, DE 19808 | USA | R&D and manufacturing | |||
| NKY Biotech, US Inc | Corporations USA, LLC, 4034 Willow Grove, Camden, DE 19934 | USA | Holding company | |||
| TGR BioSciences Pty Limited | 31 Dalgleish Street, Thebarton, SA 5031, Australia | Australia | R&D and manufacturing | |||
| * | In liquidation |
The Group’s holdings in subsidiaries are all through ordinary shares and are all 100% owned.
F-37
17. Deferred tax assets and liabilities
| Accelerated capital allowances £m |
Cash flow hedges £m |
Share -based payments £m |
Acquired intangible assets £m |
Losses £m |
Other temporary differences £m |
Total £m |
||||||||||||||||||||||
| At 1 July 2018 (as previously reported) |
(0.8 | ) | — | 3.6 | (13.2 | ) | 1.4 | 3.4 | (5.6 | ) | ||||||||||||||||||
| Revision |
0.2 | — | — | — | — | — | 0.2 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At 1 July 2018 (revised*) |
(0.6 | ) | — | 3.6 | (13.2 | ) | 1.4 | 3.4 | (5.4 | ) | ||||||||||||||||||
| (Charge)/credit to income |
(3.1 | ) | — | 0.3 | 1.4 | (0.3 | ) | 0.4 | (1.3 | ) | ||||||||||||||||||
| Credit to equity |
— | 0.3 | 0.1 | — | — | — | 0.4 | |||||||||||||||||||||
| Exchange differences |
— | — | — | (0.6 | ) | 0.2 | — | (0.4 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At 30 June 2019 (revised*) |
(3.7 | ) | 0.3 | 4.0 | (12.4 | ) | 1.3 | 3.8 | (6.7 | ) | ||||||||||||||||||
| (Charge)/credit to income |
(4.6 | ) | — | 2.0 | 5.6 | 4.0 | 1.0 | 8.0 | ||||||||||||||||||||
| Charge to equity |
— | (0.1 | ) | (1.8 | ) | — | — | (1.4 | ) | (3.3 | ) | |||||||||||||||||
| Reclassification |
(0.5 | ) | — | — | — | — | 0.5 | — | ||||||||||||||||||||
| Arising on acquisition |
— | — | — | (12.0 | ) | — | — | (12.0 | ) | |||||||||||||||||||
| Exchange differences |
— | — | — | (0.7 | ) | — | 0.1 | (0.6 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At 30 June 2020 (revised*) |
(8.8 | ) | 0.2 | 4.2 | (19.5 | ) | 5.3 | 4.0 | (14.6 | ) | ||||||||||||||||||
| Credit/(charge) to income |
(0.7 | ) | — | 1.2 | 0.8 | |
— |
|
— | 1.3 | ||||||||||||||||||
| Credit/(charge) to equity |
— | (0.2 | ) | 0.3 | — | — | 0.8 | 0.9 | ||||||||||||||||||||
| Reclassification |
(0.5 | ) | — | — | 0.2 | (0.3 | ) | 0.6 | — | |||||||||||||||||||
| Exchange differences |
0.1 | — | — | 0.7 | (0.1 | ) | (0.3 | ) | 0.4 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At 31 December 2020 (revised*) |
(9.9 | ) | — | 5.7 | (17.8 | ) | 4.9 | 5.1 | (12.0 | ) | ||||||||||||||||||
| (Charge)/credit to income |
(5.3 | ) | — | 6.4 | 5.0 | 1.2 | 1.0 | 8.3 | ||||||||||||||||||||
| (Charge)/credit to equity |
— | — | (4.5 | ) | — | — | 0.9 | (3.6 | ) | |||||||||||||||||||
| Arising on acquisition |
— | — | — | (22.7 | ) | — | (1.6 | ) | (24.3 | ) | ||||||||||||||||||
| Reclassification |
0.5 | — | — | 0.1 | — | (0.6 | ) | — | ||||||||||||||||||||
| Exchange differences |
(0.1 | ) | — | — | 0.4 | — | 0.2 | 0.5 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| At 31 December 2021 |
(14.8 | ) | — | 7.6 | (35.0 | ) | 6.1 | 5.0 | (31.1 | ) | ||||||||||||||||||
|
|
|
|
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|
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|
|||||||||||||||
| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so and an intention to settle net.
Deferred tax balances are comprised as follows:
| 31 December 2021 |
31 December 2020 (revised*) |
30 June 2020 (revised*) |
30 June 2019 (revised*) |
|||||||||||||
| £m | £m | £m | £m | |||||||||||||
| Deferred tax assets to be recovered |
||||||||||||||||
| Within 12 months |
3.6 | 7.9 | 10.1 | 6.9 | ||||||||||||
| After more than 12 months |
6.8 | 7.7 | 3.6 | 2.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 10.4 | 15.6 | 13.7 | 9.4 | |||||||||||||
| Deferred tax liabilities to be recovered |
||||||||||||||||
| Within 12 months |
4.6 | (0.1 | ) | (3.5 | ) | (1.4 | ) | |||||||||
| After more than 12 months |
(46.1 | ) | (27.5 | ) | (24.8 | ) | (14.7 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (41.5 | ) | (27.6 | ) | (28.3 | ) | (16.1 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Deferred tax liabilities (net) |
(31.1 | ) | (12.0 | ) | (14.6 | ) | (6.7 | ) | ||||||||
|
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|
|
|
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|
|
|||||||||
Deferred tax is calculated using tax rates that are expected to apply in the period when the liability or asset is expected to be realized based on rates enacted or substantively enacted by the reporting date.
F-38
18. Inventories
| 31 December 2021 |
31 December 2020 |
30 June 2020 |
30 June 2019 |
|||||||||||||
| £m | £m | £m | £m | |||||||||||||
| Raw materials |
10.0 | 8.3 | 8.0 | 5.7 | ||||||||||||
| Work in progress |
25.0 | 16.2 | 16.0 | 11.9 | ||||||||||||
| Finished goods and goods for resale |
23.2 | 18.4 | 16.7 | 18.4 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 58.2 | 42.9 | 40.7 | 36.0 | |||||||||||||
|
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|
|
|
|
|
|
|
|||||||||
Inventories are stated net of provision for slow moving or defective inventory of £13.7m (31 December 2020: £12.4m; 30 June 2020: £12.5m; 30 June 2019: £11.2m). Cost of inventories recognized as an expense and write down of inventories recognized as an expense (and which are included as part of cost of sales) are set out in note 6.
During the year ended 31 December 2021, the Group changed the method by which it analyses inventories, due to enhanced information available from its ERP system. This has changed the split between work in progress and finished goods. The comparative balances have been represented accordingly.
19. Trade and other receivables
| 31 December 2021 |
31 December 2020 |
30 June 2020 |
30 June 2019 |
|||||||||||||
| £m | £m | £m | £m | |||||||||||||
| Amounts receivable for the sale of goods and services |
34.0 | 28.7 | 31.7 | 29.4 | ||||||||||||
| Less provision for bad and doubtful debts |
(0.8 | ) | (0.7 | ) | (0.3 | ) | (0.1 | ) | ||||||||
|
|
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|
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|
|
|
|
|||||||||
| 33.2 | 28.0 | 31.4 | 29.3 | |||||||||||||
| Other receivables |
8.9 | 8.6 | 8.3 | 9.4 | ||||||||||||
| Prepayments |
5.1 | 10.7 | 4.7 | 4.4 | ||||||||||||
|
|
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|||||||||
| 47.2 | 47.3 | 44.4 | 43.1 | |||||||||||||
|
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|
|
|||||||||
Ageing of trade receivables:
| 31 December 2021 | 31 December 2020 | |||||||||||||||||||||||
| Gross | Provision | Net | Gross | Provision | Net | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
| Not past due |
18.7 | — | 18.7 | 16.4 | — | 16.4 | ||||||||||||||||||
| Past due |
||||||||||||||||||||||||
| 0 to 30 days |
5.8 | — | 5.8 | 3.8 | — | 3.8 | ||||||||||||||||||
| 30 to 60 days |
2.9 | — | 2.9 | 2.3 | — | 2.3 | ||||||||||||||||||
| More than 60 days |
6.6 | (0.8 | ) | 5.8 | 6.2 | (0.7 | ) | 5.5 | ||||||||||||||||
|
|
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|
|
|
|
|
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|
|
|
|
|||||||||||||
| 15.3 | (0.8 | ) | 14.5 | 12.3 | (0.7 | ) | 11.6 | |||||||||||||||||
| 34.0 | (0.8 | ) | 33.2 | 28.7 | (0.7 | ) | 28.0 | |||||||||||||||||
|
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|
|||||||||||||
| 30 June 2020 | 30 June 2019 | |||||||||||||||||||||||
| Gross £m |
Provision £m |
Net £m |
Gross £m |
Provision £m |
Net £m |
|||||||||||||||||||
| Not past due |
22.4 | — | 22.4 | 23.0 | — | 23.0 | ||||||||||||||||||
| Past due |
||||||||||||||||||||||||
| 0 to 30 days |
3.6 | — | 3.6 | 3.8 | — | 3.8 | ||||||||||||||||||
| 30 to 60 days |
0.6 | — | 0.6 | 1.3 | — | 1.3 | ||||||||||||||||||
| More than 60 days |
5.1 | (0.3 | ) | 4.8 | 1.3 | (0.1 | ) | 1.2 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 9.3 | (0.3 | ) | 9.0 | 6.4 | (0.1 | ) | 6.3 | |||||||||||||||||
|
|
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|
|
|
|
|
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|
|
|
|||||||||||||
| 31.7 | (0.3 | ) | 31.4 | 29.4 | (0.1 | ) | 29.3 | |||||||||||||||||
|
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|
|||||||||||||
F-39
Movement in provision for bad and doubtful debts:
| 31 December 2021 £m |
31 December 2020 £m |
30 June 2020 £m |
30 June 2019 £m |
|||||||||||||
| Balance at beginning of the year / period |
(0.7 | ) | (0.3 | ) | (0.1 | ) | (0.1 | ) | ||||||||
| Impairment losses recognized in the income statement |
(0.1 | ) | (0.4 | ) | (0.2 | ) | — | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at end of the year / period |
(0.8 | ) | (0.7 | ) | (0.3 | ) | (0.1 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The average credit period taken for sales is 35 days (31 December 2020: 36 days; 30 June 2020: 41 days; 30 June 2019: 35 days). Trade and other receivables are non-interest bearing and generally on terms between 30 to 90 days. Trade receivables are provided for based on estimated irrecoverable amounts determined by specific circumstances as described in note 3.
The Group does not hold any collateral or other credit enhancements over its trade receivables, nor do they have a legal right to offset against any amounts owed to the counterparty.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
20. Derivative financial instruments
31 December 2021
| Asset £m |
Current Liability £m |
Non-current Liability £m |
Total £m |
|||||||||||||
| Derivatives carried at fair value through profit and loss |
||||||||||||||||
| Forward exchange contracts that are not designated in hedge accounting relationships |
0.2 | (0.1 | ) | — | 0.1 | |||||||||||
| Derivatives that are designated and effective as hedging instruments carried at fair value |
||||||||||||||||
| Forward exchange contracts |
0.3 | (0.1 | ) | — | 0.2 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 0.5 | (0.2 | ) | — | 0.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
31 December 2020
| Asset £m |
Current Liability £m |
Non-current Liability £m |
Total £m |
|||||||||||||
| Derivatives carried at fair value through profit and loss |
||||||||||||||||
| Forward exchange contracts that are not designated in hedge accounting relationships |
0.1 | (0.1 | ) | — | — | |||||||||||
| Derivatives that are designated and effective as hedging instruments carried at fair value |
||||||||||||||||
| Forward exchange contracts |
0.2 | — | — | 0.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 0.3 | (0.1 | ) | — | 0.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
30 June 2020
| Asset £m |
Current Liability £m |
Non-current Liability £m |
Total Asset £m |
|||||||||||||
| Derivatives carried at fair value through profit and loss |
||||||||||||||||
| Forward exchange contracts that are not designated in hedge accounting relationships |
— | (0.4 | ) | — | (0.4 | ) | ||||||||||
| Derivatives that are designated and effective as hedging instruments carried at fair value |
||||||||||||||||
| Forward exchange contracts |
— | (0.8 | ) | — | (0.8 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| — | (1.2 | ) | — | (1.2 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-40
30 June 2019
| Asset £m |
Current Liability £m |
Non-current Liability £m |
Total £m |
|||||||||||||
| Derivatives carried at fair value through profit and loss |
||||||||||||||||
| Forward exchange contracts that are not designated in hedge accounting relationships |
— | (0.4 | ) | — | (0.4 | ) | ||||||||||
| Derivatives that are designated and effective as hedging instruments carried at fair value |
||||||||||||||||
| Forward exchange contracts |
0.2 | (1.6 | ) | (0.1 | ) | (1.5 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 0.2 | (2.0 | ) | (0.1 | ) | (1.9 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Further details of derivative financial instruments are provided in note 26.
21. Trade and other payables
| 31 December 2021 £m |
31 December 2020 £m |
30 June 2020 £m |
30 June 2019 £m |
|||||||||||||
| Amounts falling due within one year |
||||||||||||||||
| Trade payables |
12.9 | 13.8 | 9.4 | 7.0 | ||||||||||||
| Accruals |
28.1 | 19.8 | 23.7 | 24.8 | ||||||||||||
| Deferred income |
6.6 | 6.1 | 7.2 | 6.9 | ||||||||||||
| Other taxes and social security |
3.0 | 1.2 | 1.0 | 1.0 | ||||||||||||
| Other payables |
3.6 | 2.5 | 2.5 | 2.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 54.2 | 43.4 | 43.8 | 41.8 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
At 31 December 2021, the Group had an average of 34 days of purchases (31 December 2020: 35 days; 30 June 2020: 34 days; 30 June 2019: 28 days) outstanding in trade payables (excluding accruals and deferred income). The Group has financial risk management policies in place to ensure that all payables are paid within the credit timetable. The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Deferred income includes contract liabilities of £3.1m (31 December 2020: £3.2m; 30 June 2020: £4.4m; 30 June 2019: £4.0m) which represent consideration received for performance obligations not yet satisfied, in delivering products or services to customers. All deferred income is to be recognized within the next financial year.
Other payables includes £nil (31 December 2020: £0.2m; 30 June 2020: £0.2m; 30 June 2019: £0.7m) of deferred consideration payable on acquisitions.
22. Borrowings
| 31 December 2021 £m |
31 December 2020 £m |
30 June 2020 £m |
30 June 2019 £m |
|||||||||||||
| Amounts falling due within one year |
||||||||||||||||
| Loan |
119.2 | — | 106.4 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The loan comprises drawings on the Group’s three year £200m Revolving Credit Facility (RCF) which was entered into in February 2019 and is shown net of unamortized facility arrangement fees. The RCF has a £100m accordion option which may be requested with prior notice at any time up to six months of the termination date. The initial term of this RCF had two extension options of one year each whereby the Company exercised the option for a two year extension on 17 December 2020 such that on 7 January 2021, the Company received approval from all syndicate banks. This extends the expiry of the facility to 31 January 2024. All other terms of the facility remain unchanged.
During the year ended 30 June 2020, drawings on the RCF comprised an initial amount of €120.0m (£103.4m) to fund the purchase of Expedeon (as set out in note 29). In February 2020, a partial repayment amounting to £20.0m was made and the remaining borrowings redenominated into Sterling, leaving an
F-41
outstanding balance of £82.0m. In March 2020, a subsequent drawing of £25.0m was made in order to provide operational flexibility in light of the COVID-19 pandemic bringing amounts drawn to £107.0m. The maximum amount drawn under the RCF during the year ended 30 June 2020 was £107.0m.
On 23 November 2020, the Group repaid in full the sum of £107.0m which was drawn up until that point.
On 19 October 2021, the Group drew £120.0m to fund the purchase of BioVision (as set out in note 29).
The Group is subject to financial covenants on the RCF and has complied with these at all testing points in 2019, 2020 and 2021.
23. Share capital and reserves
Share capital
| 31 December 2021 |
31 December 2020 |
30 June 2020 |
30 June 2019 |
|||||||||||||
| Authorized, issued and fully paid: |
||||||||||||||||
| 228,886,439 (31 December 2020: 226,665,701; 30 June 2020: 216,173,277; 30 June 2019: 205,671,564) ordinary shares of 0.2 pence each |
0.5 | 0.5 | 0.4 | 0.4 | ||||||||||||
The Company has one class of ordinary shares which carries no right to fixed income.
On 26 October 2020, the Group closed its offering of an aggregate of 10,287,000 American Depositary Shares (“ADSs”) representing 10,287,000 ordinary shares at a price of $17.50 per ADS, following the Group’s secondary listing on Nasdaq. The net proceeds from the offering were £126.5m. In addition, £0.5m of proceeds from the issuance of share options and awards to employees were received during the period.
On 9 April 2020, the Company issued 10,000,000 new ordinary shares of 0.2 pence each to Durable Capital Partners LP at an issue price of £11.00 per share, raising £110.0m. Other share capital issued during the year arose from the exercise of share options and the issue of shares to the Equiniti Share Plan Trustees Limited.
Other reserves
Merger reserve
Comprises the premium on shares issued as consideration for acquisitions where conditions for merger relief have been satisfied.
Own shares
Represents shares in the Company held by the Equiniti Share Plan Trustees Limited. These shares are held in order to satisfy the Free Shares and Matching Shares elements of the SIP, further details of which are set out in note 27.
| 31 December 2021 | 31 December 2020 | 30 June 2020 | 30 June 2019 | |||||||||||||||||||||||||||||
| Nominal value £’000 |
Number | Nominal value £’000 |
Number | Nominal value £’000 |
Number | Nominal value £’000 |
Number | |||||||||||||||||||||||||
| Own shares |
1 | 349,500 | 1 | 401,198 | 1 | 434,268 | 1 | 484,811 | ||||||||||||||||||||||||
Translation reserve
Represents exchange differences on translation of overseas operations.
Hedging reserve
Comprises gains and losses recognized on cash flow hedges and the associated deferred tax assets.
F-42
24. Dividends
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
|||||||||||||
| Amounts recognized as distributions to the equity shareholders: |
||||||||||||||||
| Final dividend for the year ended 30 June 2018 of 8.58 pence per share |
— | — | — | 17.6 | ||||||||||||
| Interim dividend for the year ended 30 June 2019 of 3.55 pence per share |
— | — | — | 7.3 | ||||||||||||
| Final dividend for the year ended 30 June 2019 of 8.58 pence per share |
— | — | 17.7 | — | ||||||||||||
| Interim dividend for the year ended 30 June 2020 of 3.55 pence per share |
— | — | 7.3 | — | ||||||||||||
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| Total distributions to owners of the parent in the year / period |
— | — | 25.0 | 24.9 | ||||||||||||
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25. Notes to the cash flow statement
| Note | Year ended 31 December 2021 £m |
Six months ended 31 December 2020 (revised*) £m |
Year ended 30 June 2020 (revised*) £m |
Year ended 30 June 2019 (revised*) £m |
||||||||||||||||
| Operating profit |
7.1 | 17.3 | 10.4 | 55.3 | ||||||||||||||||
| Adjustments for: |
||||||||||||||||||||
| Depreciation of property, plant and equipment |
14 | 11.0 | 4.3 | 7.3 | 4.8 | |||||||||||||||
| Depreciation of right-of-use assets |
15 | 9.1 | 3.8 | 6.7 | — | |||||||||||||||
| Amortization of intangible assets |
13 | 20.9 | 7.9 | 15.7 | 10.5 | |||||||||||||||
| Impairment of intangible assets |
13 | 3.8 | — | 14.9 | 12.8 | |||||||||||||||
| Loss on disposal of property, plant and equipment |
14 | 0.5 | 0.2 | — | — | |||||||||||||||
| Derivative financial instruments at fair value through profit or loss |
6 | — | (0.4 | ) | — | 0.4 | ||||||||||||||
| Research and development expenditure credit |
6 | (2.5 | ) | (0.7 | ) | (1.5 | ) | (1.9 | ) | |||||||||||
| Share-based payments charge |
27 | 17.9 | 7.3 | 9.3 | 6.5 | |||||||||||||||
| Unrealized currency translation losses / (gains) |
0.4 | 1.0 | (1.4 | ) | (1.1 | ) | ||||||||||||||
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| Operating cash flows before movements in working capital |
68.2 | 40.7 | 61.4 | 87.3 | ||||||||||||||||
| Increase in inventories |
(6.2 | ) | (3.5 | ) | (1.1 | ) | (6.1 | ) | ||||||||||||
| Decrease / (increase) in receivables |
4.0 | (7.7 | ) | 2.7 | (6.1 | ) | ||||||||||||||
| Increase in payables |
6.2 | 3.6 | 2.4 | 7.7 | ||||||||||||||||
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| Cash generated from operations |
72.2 | 33.1 | 65.4 | 82.8 | ||||||||||||||||
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| * | See note 1(d) for details related to the retrospective impact of a change in the Group’s accounting policy for cloud computing costs. |
F-43
Analysis of changes in net (debt) / cash
| Cash and cash equivalents £m |
Lease liabilities* £m |
Borrowings* £m |
Net (debt) / cash £m |
|||||||||||||
| At 1 July 2018 |
90.2 | — | — | 90.2 | ||||||||||||
| Cash flow |
(4.4 | ) | — | — | (4.4 | ) | ||||||||||
| Foreign exchange and other non-cash movements |
1.3 | — | — | 1.3 | ||||||||||||
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| At 30 June 2019 |
87.1 | — | — | 87.1 | ||||||||||||
| IFRS 16 implementation |
— | (76.2 | ) | — | (76.2 | ) | ||||||||||
| Additions to leases |
— | (58.6 | ) | — | (58.6 | ) | ||||||||||
| Cash flow |
99.5 | 7.7 | (107.0 | ) | 0.2 | |||||||||||
| Foreign exchange and other non-cash movements |
0.7 | (0.7 | ) | 0.6 | 0.6 | |||||||||||
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| At 30 June 2020 |
187.3 | (127.8 | ) | (106.4 | ) | (46.9 | ) | |||||||||
| Additions to leases |
— | (0.5 | ) | — | (0.5 | ) | ||||||||||
| Cash flow |
26.1 | 4.3 | 107.0 | 137.4 | ||||||||||||
| Foreign exchange and other non-cash movements |
(1.5 | ) | 7.0 | (0.6 | ) | 4.9 | ||||||||||
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| At 31 December 2020 |
211.9 | (117.0 | ) | — | 94.9 | |||||||||||
| Additions to leases |
— | (4.1 | ) | — | (4.1 | ) | ||||||||||
| Cash flow |
(117.2 | ) | 10.3 | (120.0 | ) | (226.9 | ) | |||||||||
| Foreign exchange and other non-cash movements |
0.4 | 0.3 | 0.8 | 1.5 | ||||||||||||
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| At 31 December 2021 |
95.1 | (110.5 | ) | (119.2 | ) | (134.6 | ) | |||||||||
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Total financial liabilities included within net debt comprise those items marked * and amount to £229.7m (31 December 2020: £117.0m; 30 June 2020: £234.2m; 30 June 2019: £nil).
Liabilities arising from financing activities comprise the Group’s RCF (as set out in note 22) and lease liabilities (as set out in note 15).
26. Financial instruments
Capital risk management
The capital structure of the Group comprises of cash and cash equivalents, a Revolving Credit Facility (RCF) and total equity attributable to the owners of the parent. The RCF of £200m was entered into in February 2019 with an initial term of three years and has a £100m additional accordion option. The Company exercised the option for a two year extension on 17 December 2020 such that on 7 January 2021, the Company received approval from all syndicate banks, extending the expiry of the facility to 31 January 2024). The Group maintains a capital structure with the following objectives:
– to protect the ability of the Group to continue as a going concern and maintain sufficient available resources as protection for unforeseen events;
– to provide flexibility of resource for strategic growth and investment where opportunities arise; and
– to provide reasonable returns to shareholders whilst maintaining a limited level of risk.
As part of achieving these objectives the Group identifies the principal financial risk exposures that are created by the Group’s financial instruments and monitors them on a regular basis. These are considered to be foreign currency risk (a component of market risk), credit risk and liquidity risk.
Where appropriate the Group uses financial derivatives to help mitigate the key risks, the use of which is governed by the Group’s policies approved by the Board of Directors. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Foreign currency risk
This is the risk that a change in currency rates causes an adverse impact on the Group’s performance or financial position.
The Group has transactions denominated in various currencies with the principal currency exposure being fluctuations in US Dollars (USD), Euros, Japanese Yen and Chinese Renminbi (RMB). Collectively these
F-44
currencies make up approximately 90% of the Group’s revenue and cash inflows. Whilst a large portion of the manufacturing and research and development costs are USD and RMB, giving a natural offset against the currency inflows, the majority of administration costs remain as Sterling leaving an overall net currency inflow in the Group’s cash flows.
This remaining currency exposure is centrally managed with the objective being to secure a level of certainty of Sterling value for up to 90% of the future net exposure based on forecast cash flows expected to occur up to 18 months ahead. The Group uses forward currency contracts to achieve this objective and applies hedge accounting where applicable. Foreign currency forward contracts are valued using quoted forward exchange rates and yield curves matching maturities of the contracts.
The Group’s open forward currency contracts and their maturity profile as at the period / year end is as follows:
| 31 December 2021 |
31 December 2020 |
30 June 2020 |
30 June 2019 |
|||||||||||||||||||||||||||||
| Outstanding contracts |
Average rate |
Foreign currency million |
Average rate |
Foreign currency million |
Average rate |
Foreign currency million |
Average rate |
Foreign currency million |
||||||||||||||||||||||||
| Sell US Dollars |
||||||||||||||||||||||||||||||||
| Less than 3 months |
— | — | 1.3 | $ | 0.3 | 1.29 | $ | 3.1 | 1.34 | $ | 8.9 | |||||||||||||||||||||
| 3 to 6 months |
1.36 | $ | 0.2 | 1.3 | $ | 0.7 | 1.31 | $ | 2.0 | 1.32 | $ | 11.5 | ||||||||||||||||||||
| 7 to 12 months |
— | — | 1.3 | $ | 0.2 | 1.24 | $ | 0.1 | 1.33 | $ | 8.3 | |||||||||||||||||||||
| 13 to 18 months |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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| 1.36 | $ | 0.2 | 1.3 | $ | 1.2 | 1.30 | $ | 5.2 | 1.33 | $ | 28.7 | |||||||||||||||||||||
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| Sell Euros |
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| Less than 3 months |
1.16 | € | 8.2 | 1.12 | € | 5.7 | 1.14 | € | 8.1 | 1.11 | € | 11.8 | ||||||||||||||||||||
| 3 to 6 months |
1.16 | € | 6.9 | 1.10 | € | 3.5 | 1.15 | € | 6.5 | 1.11 | € | 13.2 | ||||||||||||||||||||
| 7 to 12 months |
1.17 | € | 5.9 | 1.10 | € | 4.3 | 1.12 | € | 3.4 | 1.11 | € | 17.4 | ||||||||||||||||||||
| 13 to 18 months |
— | — | — | — | — | — | 1.14 | € | 1.4 | |||||||||||||||||||||||
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| 1.16 | € | 21.0 | 1.11 | € | 13.5 | 1.14 | € | 18.0 | 1.11 | € | 43.8 | |||||||||||||||||||||
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| Sell Yen |
||||||||||||||||||||||||||||||||
| Less than 3 months |
150.88 | ¥ | 461.0 | 137.16 | ¥ | 287.5 | 139.13 | ¥ | 373.4 | 145.26 | ¥ | 430.7 | ||||||||||||||||||||
| 3 to 6 months |
152.58 | ¥ | 452.2 | 135.74 | ¥ | 233.0 | 138.02 | ¥ | 219.4 | 143.23 | ¥ | 484.8 | ||||||||||||||||||||
| 7 to 12 months |
151.73 | ¥ | 296.0 | 137.28 | ¥ | 196.4 | 135.36 | ¥ | 268.7 | 141.58 | ¥ | 954.5 | ||||||||||||||||||||
| 13 to 18 months |
— | — | 137.96 | ¥ | 7.9 | 131.73 | ¥ | 6.4 | 141.99 | ¥ | 241.0 | |||||||||||||||||||||
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| 151.72 | ¥ | 1,209.2 | 136.74 | ¥ | 724.8 | 137.60 | ¥ | 867.9 | 142.74 | ¥ | 2,111.0 | |||||||||||||||||||||
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| Sell Chinese Renminbi |
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| Less than 3 months |
9.03 | ¥ | 24.5 | 8.96 | ¥ | 15.4 | 9.11 | ¥ | 19.4 | 8.91 | ¥ | 34.1 | ||||||||||||||||||||
| 3 to 6 months |
8.99 | ¥ | 17.2 | 9.03 | ¥ | 12.6 | 8.99 | ¥ | 7.5 | 8.96 | ¥ | 27.0 | ||||||||||||||||||||
| 7 to 12 months |
8.85 | ¥ | 16.6 | 8.97 | ¥ | 12.0 | 8.90 | ¥ | 6.0 | 9.02 | ¥ | 54.6 | ||||||||||||||||||||
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| 8.96 | ¥ | 58.3 | 8.98 | ¥ | 40.0 | 9.05 | ¥ | 32.9 | 8.97 | ¥ | 115.7 | |||||||||||||||||||||
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At 31 December 2021, the fair value of contracts held as cash flow hedges is a net asset of £0.3m (31 December 2020: net asset £0.2m; 30 June 2020: net liability of £0.8m; 30 June 2019: net liability of £1.5m).
The movement recognized in other comprehensive income in the period:
| 31 December 2021 |
31 December 2020 |
30 June 2020 |
30 June 2019 |
|||||||||||||
| £m | £m | £m | £m | |||||||||||||
| (Loss) / gain in the year / period |
(0.1 | ) | 1.5 | 0.7 | (2.1 | ) | ||||||||||
| Recycled to profit and loss |
— | (0.4 | ) | — | 0.4 | |||||||||||
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| (Loss) / gain recognized in other comprehensive income |
(0.1 | ) | 1.1 | 0.7 | (1.7 | ) | ||||||||||
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Currency risk sensitivity analysis
The following table shows the sensitivity of the Group’s financial instruments to changes in exchange rates by detailing the impact on profit and other comprehensive income of a 10% change in the Sterling exchange rate against the relevant foreign currencies.
F-45
10% represents management’s assessment of a reasonably possible change in foreign exchange rates over a 12 month period.
The sensitivity analysis below only includes financial instruments denominated in non-functional currency and forward currency contracts outstanding at the reporting date and represents the impact of an immediate change in Sterling against other currencies.
| US Dollar currency impact |
Euro currency impact |
Yen currency impact |
RMB currency impact |
|||||||||||||||||||||||||||||
| +10% | -10% | +10% | -10% | +10% | -10% | +10% | -10% | |||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||
| 31 December 2021 |
||||||||||||||||||||||||||||||||
| Income statement |
1.1 | (1.3 | ) | 0.4 | (0.5 | ) | 0.4 | (0.5 | ) | 0.3 | (0.3 | ) | ||||||||||||||||||||
| Other comprehensive income |
— | — | 1.3 | (1.5 | ) | 0.4 | (0.5 | ) | 0.3 | (0.4 | ) | |||||||||||||||||||||
| 31 December 2020 |
||||||||||||||||||||||||||||||||
| Income statement |
0.7 | (0.8 | ) | 0.5 | (0.7 | ) | 0.3 | (0.3 | ) | 0.4 | (0.5 | ) | ||||||||||||||||||||
| Other comprehensive income |
0.1 | (0.1 | ) | 0.7 | (0.8 | ) | 0.2 | (0.3 | ) | 0.1 | (0.1 | ) | ||||||||||||||||||||
| 30 June 2020 |
||||||||||||||||||||||||||||||||
| Income statement |
0.3 | (0.4 | ) | 1.0 | (1.3 | ) | 0.4 | (0.5 | ) | 0.2 | (0.2 | ) | ||||||||||||||||||||
| Other comprehensive income |
0.4 | (0.5 | ) | 0.9 | (1.2 | ) | 0.3 | (0.4 | ) | 0.3 | (0.4 | ) | ||||||||||||||||||||
| 30 June 2019 |
||||||||||||||||||||||||||||||||
| Income statement |
— | (0.2 | ) | 0.7 | (0.8 | ) | 0.1 | (0.5 | ) | 0.5 | (0.7 | ) | ||||||||||||||||||||
| Other comprehensive income |
1.2 | (3.1 | ) | 2.8 | (3.7 | ) | 0.6 | (1.9 | ) | — | (0.1 | ) | ||||||||||||||||||||
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The sensitivity analysis is limited to the period / year end exposure and therefore does not reflect the exposure and inherent risk during the year.
Liquidity risk
This is the risk that the Group will have insufficient funds available in the right currency to settle its obligations as they fall due.
The Group generates funds from operational activities in excess of its operational requirements and has substantial cash balances available for its current investment activities.
The Board reviews the funding requirement of the Group as part of the budgeting and long-term planning processes and considers as necessary alternative possible sources of funding where the requirement is not satisfied by the Group’s forecast operational cash generation.
The Group manages liquidity risk by maintaining an adequate level of easily accessible cash reserves, in a currency profile representative of the Group’s cost base and matching customer and supplier terms where possible. The Group also has access to daily currency trading facilities which provides the ability to convert currency within the agreed settlement limits as required.
F-46
The maturity profile of financial liabilities shown below represents the Group’s gross expected contractual cash flows.
| Less than 1 year |
Between 2 and 5 years |
Over five years |
Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
| 31 December 2021 |
||||||||||||||||
| Trade and other payables |
46.0 | — | — | 46.0 | ||||||||||||
| Borrowings |
120.0 | — | — | 120.0 | ||||||||||||
| Lease liabilities |
11.1 | 47.0 | 64.0 | 122.1 | ||||||||||||
| Derivative financial instruments |
32.4 | — | — | 32.4 | ||||||||||||
| 31 December 2020 |
||||||||||||||||
| Trade and other payables |
33.3 | — | — | 33.3 | ||||||||||||
| Lease liabilities |
8.8 | 38.9 | 82.9 | 130.6 | ||||||||||||
| Derivative financial instruments |
22.5 | 0.1 | — | 22.6 | ||||||||||||
| 30 June 2020 |
||||||||||||||||
| Trade and other payables |
33.8 | — | — | 33.8 | ||||||||||||
| Borrowings |
107.0 | — | — | 107.0 | ||||||||||||
| Lease liabilities |
9.3 | 32.0 | 101.9 | 143.2 | ||||||||||||
| Derivative financial instruments |
30.8 | — | — | 30.8 | ||||||||||||
| 30 June 2019 |
||||||||||||||||
| Trade and other payables |
31.0 | — | — | 31.0 | ||||||||||||
| Derivative financial instruments |
87.5 | 3.0 | — | 90.5 | ||||||||||||
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The Group holds sufficient funds to meet these commitments as they fall due.
Credit risk
This refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group is exposed to credit risk on its financial assets; however, there is not deemed to be a significant exposure due to the nature of its customer base and the types of transaction that are undertaken.
Trade receivables consist of a large number of customers spread globally with the majority being in economically strong geographies. The Group’s customer base is predominantly government-funded institutions, pharmaceutical companies conducting research, and local distributors. The perceived risk of default is deemed to be low.
Further information on the Group’s trade receivable ageing and impairment can be found in note 19.
The Group generates significant levels of operational cash. Cash in excess of local operational requirements is remitted and managed centrally. Exposure to counterparty default risk is managed by limiting the concentration of funds and contracts held with individual financial institutions and ensuring funds are only placed with institutions or in products rated BBB- or above by Standard & Poor’s.
F-47
Categories of financial instruments
| Carrying and fair value | ||||||||||||||||
| 31 December 2021 |
31 December 2020 |
30 June 2020 |
30 June 2019 |
|||||||||||||
| £m | £m | £m | £m | |||||||||||||
| Financial instruments held at amortized cost |
||||||||||||||||
| Trade receivables |
33.2 | 28.0 | 31.4 | 29.3 | ||||||||||||
| Other receivables |
2.8 | 2.8 | 3.9 | 2.5 | ||||||||||||
| Cash and cash equivalents |
95.1 | 211.9 | 187.3 | 87.1 | ||||||||||||
| Trade and other payables |
(46.0 | ) | (33.3 | ) | (33.8 | ) | (31.0 | ) | ||||||||
| Borrowings |
(120.0 | ) | — | (107.0 | ) | — | ||||||||||
| Lease liabilities |
(110.5 | ) | (117.0 | ) | (127.8 | ) | — | |||||||||
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| Financial instruments held at fair value |
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| Derivative financial instruments |
0.3 | 0.2 | (1.2 | ) | (1.9 | ) | ||||||||||
| Investment |
3.5 | 3.1 | 6.7 | 0.8 | ||||||||||||
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The Directors consider there to be no material difference between the carrying value and the fair value of the financial instruments classified as held at amortized cost. For the items classified as held at fair value, the fair value is recognized on the balance sheet as the carrying amount.
Financial instruments held at fair value
Financial instruments that are measured at fair value are classified using a fair value hierarchy that reflects the source of inputs used in deriving the fair value. The three classification levels are:
| • | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| • | Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| • | Level 3: inputs for the asset or liability that are not based on observable market data (unobservable market inputs). |
F-48
The following table presents the Group’s assets and liabilities carried at fair value by valuation method.
| Level 1 £m |
Level 2 £m |
Level 3 £m |
Total £m |
|||||||||||||
| 31 December 2021 | ||||||||||||||||
| Assets |
||||||||||||||||
| Derivative financial instruments |
— | 0.5 | — | 0.5 | ||||||||||||
| Investment |
1.0 | — | 2.5 | 3.5 | ||||||||||||
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| 1.0 | 0.5 | 2.5 | 4.0 | |||||||||||||
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| Liabilities |
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| Derivative financial instruments |
— | (0.2 | ) | — | (0.2 | ) | ||||||||||
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| — | (0.2 | ) | — | (0.2 | ) | |||||||||||
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|||||||||
| 31 December 2020 |
||||||||||||||||
| Assets |
||||||||||||||||
| Derivative financial instruments |
— | 0.3 | — | 0.3 | ||||||||||||
| Investment |
1.2 | — | 1.9 | 3.1 | ||||||||||||
|
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|
|
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|
|||||||||
| 1.2 | 0.3 | 1.9 | 3.4 | |||||||||||||
|
|
|
|
|
|
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|
|
|||||||||
| Liabilities |
||||||||||||||||
| Derivative financial instruments |
— | (0.1 | ) | — | (0.1 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| — | (0.1 | ) | — | (0.1 | ) | |||||||||||
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|||||||||
| 30 June 2020 |
||||||||||||||||
| Assets |
||||||||||||||||
| Derivative financial instruments |
— | — | — | — | ||||||||||||
| Investment |
4.8 | — | 1.9 | 6.7 | ||||||||||||
| 4.8 | — | 1.9 | 6.7 | |||||||||||||
|
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|
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|
|||||||||
| Liabilities |
||||||||||||||||
| Derivative financial instruments |
— | (1.2 | ) | — | (1.2 | ) | ||||||||||
|
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|
|||||||||
| — | (1.2 | ) | — | (1.2 | ) | |||||||||||
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|
|||||||||
| 30 June 2019 |
||||||||||||||||
| Assets |
||||||||||||||||
| Derivative financial instruments |
— | 0.2 | — | 0.2 | ||||||||||||
| Investment |
0.8 | — | — | 0.8 | ||||||||||||
|
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|
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|
|||||||||
| 0.8 | 0.2 | — | 1.0 | |||||||||||||
|
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|
|
|||||||||
| Liabilities |
||||||||||||||||
| Derivative financial instruments |
— | (2.1 | ) | — | (2.1 | ) | ||||||||||
|
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|
|
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|
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|
|||||||||
| — | (2.1 | ) | — | (2.1 | ) | |||||||||||
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|
|
|||||||||
Level 1 investments comprise listed equity securities in Plexbio, Inc. Further information is included in note 16.
Level 2 derivative financial instruments comprise forward foreign exchange contracts. The fair value is remeasured on a monthly basis with reference to available forward market rates and comparative instrument pricing.
Level 3 investments comprise non-listed equity securities in respect of a 13% stake in Brickbio, Inc. and, for the year ended 31 December 2021 includes a 14% stake in Somaserve Limited. The fair value is determined to be equal to the carrying amount of the investment and is reviewed periodically based on information available about the performance of the underlying business.
F-49
27. Share-based payments
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
|||||||||||||
| Expense arising from share-based payment transactions: |
||||||||||||||||
| Included in selling, general and administrative expenses |
15.6 | 5.1 | 6.6 | 5.5 | ||||||||||||
| Included in research and development expenses |
2.3 | 2.2 | 2.7 | 1.0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 17.9 | 7.3 | 9.3 | 6.5 | |||||||||||||
| Equity settled share-based payment expense |
17.8 | 7.2 | 9.2 | 6.2 | ||||||||||||
| Cash settled share-based payment expense* |
0.1 | 0.1 | 0.1 | 0.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 17.9 | 7.3 | 9.3 | 6.5 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | The total liability as at 31 December 2021 was £0.2m (31 December 2020: £0.4m; 30 June 2020: £0.3m; 30 June 2019: £0.6m) of which less than £0.1m (31 December 2020: less than £0.1m; 30 June 2020: less than £0.1m; 30 June 2019: £nil) relates to options which have vested. |
Equity settled share option schemes
The Group operates a number of share schemes for certain employees of the Group as follows:
| • | 2005 and 2015 Share Option Scheme (ISO/Unapproved) (SOS) |
| • | Company Share Option Plan 2009 (CSOP); |
| • | Long Term Incentive Plan (LTIP); |
| • | Profitable Growth Incentive Plan (PGIP); |
| • | Annual bonus plan—deferred share award (DSA); |
| • | Share Incentive Plan (SIP); |
| • | Non-Executive Directors (NED) share award; and |
| • | 2018, 2019 and 2020 Employee Share Scheme (AbShare); |
Options or conditional share grants under each scheme have been aggregated.
The vesting period ranges from one to four years. Options which remain unexercised after a period of 10 years from the date of grant expire. Options are forfeited if the employee leaves the Group before they vest, save where the employee is deemed to be a ‘good leaver’ in which case options awarded are pro-rated to the leaving date.
F-50
Discretionary awards
Share option plans: SOS and CSOP
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
|||||||||||||||
| Number | Weighted average exercise price pence |
Number | Weighted average exercise price pence |
|||||||||||||
| Outstanding at beginning of year / period |
621,755 | 507.9 | 701,272 | 559.7 | ||||||||||||
| Forfeited |
(57,329 | ) | 727.3 | (20,823 | ) | 1,500.1 | ||||||||||
| Exercised |
(172,609 | ) | 753.5 | (58,694 | ) | 774.0 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding at end of year / period |
391,817 | 726.5 | 621,755 | 507.9 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Number of options exercisable at end of year / period |
391,817 | 726.5 | 519,442 | 703.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||||
| Number | Weighted average exercise price pence |
Number | Weighted average exercise price pence |
|||||||||||||
| Outstanding at beginning of year |
947,948 | 640.1 | 1,386,655 | 644.3 | ||||||||||||
| Forfeited |
(72,526 | ) | 1,259.1 | (164,220 | ) | 866.6 | ||||||||||
| Exercised |
(174,150 | ) | 706.4 | (274,487 | ) | 525.6 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding at end of year |
701,272 | 559.7 | 947,948 | 640.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Number of options exercisable at end of year |
519,442 | 661.7 | 281,438 | 536.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Analyzed by range of exercise price:
|
Grant year | Year ended 31 December 2021 |
Six months ended 31 December 2020 |
|||||||||||||||||
| Number outstanding |
Weighted average remaining contractual life |
Number outstanding |
Weighted average remaining contractual life |
|||||||||||||||||
| 180.8p–464.0p |
prior to 2016 | 122,688 | 2.2 years | 184,725 | 2.9 years | |||||||||||||||
| 598.0p |
2016 | 59,852 | 3.8 years | 99,780 | 4.8 years | |||||||||||||||
| 851.0p |
2017 | 94,632 | 4.8 years | 137,463 | 5.8 years | |||||||||||||||
| 1,020.0p |
2018 | 114,645 | 5.8 years | 199,787 | 6.8 years | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 391,817 | 4.2 years | 621,755 | 5.1 years | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Analyzed by range of exercise price:
|
Grant year | Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||||||
| Number outstanding |
Weighted average remaining contractual life |
Number outstanding |
Weighted average remaining contractual life |
|||||||||||||||||
| 180.8p–464.0p |
prior to 2016 | 197,901 | 3.4 years | 256,955 | 4.3 years | |||||||||||||||
| 598.0p |
2016 | 111,033 | 5.3 years | 155,327 | 6.3 years | |||||||||||||||
| 851.0p |
2017 | 161,372 | 6.3 years | 214,798 | 7.4 years | |||||||||||||||
| 1,020.0p |
2018 | 230,966 | 7.3 years | 320,868 | 8.4 years | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 701,272 | 5.7 years | 947,948 | 6.7 years | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Weighted average share price at date of exercise |
1,589.0p | 1,396.4p | 1,329.2p | 1,310.5p | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
There were no grants issued under the SOS in the year ended 31 December 2021, the six months ended 31 December 2020 or the years ended 30 June 2020 and 30 June 2019.
Options issued under the SOS carry market-based performance conditions, whereby they will vest where the percentage growth in Abcam plc shares over the vesting period is equal or greater than the percentage growth of the FTSE AIM All-Share Index.
F-51
The volatility of the options is based on the average of standard deviations of historical daily continuous returns on Abcam plc shares, looking back over the same period as the expected life of the option. The dividend yield is based on Abcam plc’s actual dividend yield in the past. The risk-free rate is the yield on UK government gilts at each date of grant.
Share award plans: LTIP and DSA
| Year ended 31 December 2021 Number |
Six months ended 31 December 2020 Number |
Year ended 30 June 2020 Number |
Year ended 30 June 2019 Number |
|||||||||||||
| Outstanding at beginning of year / period |
1,271,179 | 1,085,162 | 988,127 | 1,022,757 | ||||||||||||
| Granted |
142,314 | 462,460 | 470,834 | 483,339 | ||||||||||||
| Forfeited |
(167,298 | ) | (131,099 | ) | (121,127 | ) | (141,797 | ) | ||||||||
| Exercised |
(240,850 | ) | (145,344 | ) | (252,672 | ) | (376,172 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding at end of year / period |
1,005,345 | 1,271,179 | 1,085,162 | 988,127 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Number of options exercisable at end of year / period |
63,759 | 65,380 | 72,760 | 63,996 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Weighted average fair value of awards granted |
1,380.1p | 1,398.1p | 1,208.3p | 1,245.1p | ||||||||||||
| Weighted average share price at date of exercise |
1,642.1p | 1,329.6p | 1,185.2p | 1,304.4p | ||||||||||||
| Weighted average remaining contractual life |
4 years | 4.3 years | 3.3 years | 4.3 years | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-52
Fair values of the awards with a performance condition based on non-market conditions, for example EPS, are calculated using the Black-Scholes model. The inputs into the models for awards granted in the current and prior periods were as follows:
| Year ended 31 December 2021 | ||||||||||||
| LTIP 1 Dec 2021 |
LTIP 1 Dec 2021 |
DSA 26 October 2021 |
||||||||||
| Share price at grant (pence) |
1,699.0 | 1,699.0 | 1,337.0 | |||||||||
| Expected volatility |
34% | 33% | 33% | |||||||||
| Contractual life (years) |
3.5 years | 2 years | 3 years | |||||||||
| Expected dividend yield |
0.00% | 0.00% | 0.71% | |||||||||
| Risk-free interest rate |
0.52% | 0.43% | (0.06)% | |||||||||
|
|
|
|
|
|
|
|||||||
| Six months ended 31 December 2020 | ||||||||||||
| LTIP 7 Dec 2020 |
LTIP 7 Dec 2020 |
DSA 26 October 2020 |
||||||||||
| Share price at grant (pence) |
1,397.0 | 1,397.0 | 1,435.0 | |||||||||
| Expected volatility |
36% | 36% | 35% | |||||||||
| Contractual life (years) |
3 years | 2 years | 3 years | |||||||||
| Expected dividend yield |
0.00% | 0.00% | 0.71% | |||||||||
| Risk-free interest rate |
(0.07)% | (0.07)% | (0.06)% | |||||||||
|
|
|
|
|
|
|
|||||||
| Year ended 30 June 2020 | ||||||||||||||||||||
| LTIP 14 Nov 2019 |
LTIP 9 March 2020 |
LTIP 9 March 2020 |
LTIP 9 March 2020 |
DSA 25 October 2019 |
||||||||||||||||
| Share price at grant (pence) |
1,245.0 | 1.157.0 | 1,157.0 | 1,157.0 | 1,152.0 | |||||||||||||||
| Expected volatility |
30% | 37% | 35% | 31% | 30% | |||||||||||||||
| Contractual life (years) |
3 years | 1 year | 2 years | 3 years | 3 years | |||||||||||||||
| Expected dividend yield |
0.82% | 0.88% | 0.88% | 0.88% | 0.88% | |||||||||||||||
| Risk-free interest rate |
0.47% | 0.17% | 0.11% | 0.09% | 0.44% | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Year ended 30 June 2019 | ||||||||
| LTIP 7 Nov 2018 |
DSA 26 October 2018 |
|||||||
| Share price at grant (pence) |
1,251.0 | 1,337.0 | ||||||
| Expected volatility |
26% | 24% | ||||||
| Contractual life (years) |
3 years | 3 years | ||||||
| Expected dividend yield |
0.81% | 0.81% | ||||||
| Risk-free interest rate |
0.91% | 0.75% | ||||||
|
|
|
|
|
|||||
The inputs to the Black-Scholes model, such as expected volatility, are based on the same calculation as those for the Monte Carlo simulation.
LTIP: All awards are subject to achievement of the performance conditions over a three year period and can be exercised over the following seven years. Save as permitted in the LTIP rules, awards lapse on an employee leaving the Company.
DSA: For those employees entitled to participate in the annual bonus plan, a portion of the bonus is awarded in the form of shares for which there is a compulsory holding period of two years and a requirement for continued employment before these fully vest to the employees (deferred shares). The number of deferred shares granted is dependent on certain performance criteria, comprising a one-year profit target and achievement of strategic and personal objectives.
Share award plans: PGIP
In Summer 2021, the Company approved a new share scheme (Profitable Growth Incentive Plan) which aims to align the reward to shareholders and incentivize key management employees & the executive directors to deliver the revenue growth ambition underpinned by ROCE. Upon vesting in April 2025, and subject to certain performance conditions being met, vested shares will be released as soon as practicable and will expire 30 days
F-53
from the vesting date. Certain awards within the PGIP are subject to tranche vesting with 25% of vested shares released immediately; 25% after six months; 25% after 12 months; and 25% after 18 months.
| Year ended 31 December 2021 Number |
||||
| Outstanding at beginning of year / period |
— | |||
| Granted |
4,875,141 | |||
| Forfeited |
(2,139 | ) | ||
| Exercised |
— | |||
|
|
|
|||
| Outstanding at end of year / period |
4,873,002 | |||
|
|
|
|||
| Number of options exercisable at end of year / period |
— | |||
|
|
|
|||
| Year ended 31 December 2021 |
||||
| Weighted average fair value of awards granted |
1,360.4p | |||
| Weighted average share price at date of exercise |
— | |||
| Weighted average remaining contractual life |
3.4 years | |||
|
|
|
|||
Fair values of the awards with a performance condition based on non-market conditions, for example EPS, are calculated using the Black-Scholes model. The inputs into the models for awards granted in the current and prior periods were as follows:
| Year ended 31 December 2021 | ||||||||
| PGIP 14 July 2021 |
PGIP 14 September 2021 |
|||||||
| Share price at grant (pence) |
1,341.0 | 1,508.0 | ||||||
| Expected volatility |
34% | 34% | ||||||
| Contractual life (years) |
4 years | 4 years | ||||||
| Expected dividend yield |
0.00% | 0.00% | ||||||
| Risk-free interest rate |
0.24% | 0.27% | ||||||
|
|
|
|
|
|||||
All employee share schemes: AbShare, SIPs
AbShare
In Autumn 2018, the Company launched a share scheme (AbShare) where all employees globally, excluding Executive Directors, are eligible to participate. Each employee who participates is required to contribute 5% of their salary spread across three years (therefore equating to 1.67% per annum). Upon vesting in November 2021, and subject to certain performance conditions being met, the funds contributed have been used as consideration for the issue of the predetermined number of shares to the employee with the Company issuing a further 10 shares for each share issued.
| Year ended 31 December 2021 Number |
Six months ended 31 December 2020 Number |
Year ended 30 June 2020 Number |
Year ended 30 June 2019 Number |
|||||||||||||
| Outstanding at beginning of year / period |
2,001,505 | 1,723,183 | 1,564,167 | — | ||||||||||||
| Granted |
110,633 | 345,510 | 348,425 | 1,694,429 | ||||||||||||
| Forfeited |
(306,059 | ) | (65,802 | ) | (187,715 | ) | (130,262 | ) | ||||||||
| Exercised |
(1,806,079 | ) | (1,386 | ) | (1,694 | ) | — | |||||||||
| Outstanding at end of year / period |
— | 2,001,505 | 1,723,183 | 1,564,167 | ||||||||||||
| Number of options exercisable at end of period / year |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Weighted average fair value of awards granted |
1,280.2p | 1,288.9p | 1,137.8p | 1,131.4p | ||||||||||||
| Weighted average remaining contractual life |
— | 0.9 years | 1.4 years | 2.4 years | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-54
Fair values of the awards are calculated using the Black-Scholes model. The inputs into the models for awards granted in the current year were as follows:
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Share price at grant (pence) |
1,345.0 | 1,397.0 | 1,244.6 | 1,251.0 | ||||||||||||
| Expected volatility |
32% | 39% | 34% | 26% | ||||||||||||
| Contractual life (years) |
0.5 years | 1 year | 2 years | 3 years | ||||||||||||
| Expected dividend yield |
0.00% | 0.00% | 0.82% | 0.81% | ||||||||||||
| Risk-free interest rate |
0.00% | (0.06)% | 0.52% | 0.91% | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The inputs to the Black-Scholes model, such as expected volatility, are based on the same calculation as those for other schemes.
SIP
Up until October 2018, all UK-based employees were eligible to participate in the SIP whereby employees could purchase shares in the Company. These shares are referred to as Partnership Shares and are held in trust on behalf of the employee. For every Partnership Share bought by the employee up to a limit of £1,800 per tax year the Company will give the employee one share (Matching Shares), provided the employee remains employed by the Company for a period of at least three years.
Employees must withdraw their shares from the plan upon leaving the Company and will not be entitled to the Matching Shares if they leave within three years of purchasing the Partnership Shares.
In addition to this, also up until October 2018, the Company also awarded shares to employees (Free Shares) with a value of up to £3,600 per tax year. There are no vesting conditions attached to the Free Shares, other than being continuously employed by the Company for three years from the date of grant.
F-55
The fair value of Matching Shares and Free Shares is determined as the market value of the shares at the date of grant. No valuation model is required to calculate the fair value of awards under the SIP. The fair value of an equity-based payment under the SIP is the face value of the award on the date of grant because the participants are entitled to receive the full value of the shares and there are no market-based performance conditions attached to the awards.
| Number of free shares | ||||||||||||||||
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Outstanding at beginning of year / period |
273,852 | 302,023 | 351,187 | 447,841 | ||||||||||||
| Granted during year / period |
— | — | — | — | ||||||||||||
| Forfeited during year / period |
(493 | ) | (657 | ) | (7,423 | ) | (18,982 | ) | ||||||||
| Exercised during year / period |
(40,969 | ) | (27,514 | ) | (41,741 | ) | (77,672 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding at end of year / period |
232,390 | 273,852 | 302,023 | 351,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Exercisable at end of year / period |
232,390 | 273,852 | 215,268 | 167,425 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Number of matching shares | ||||||||||||||||
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Outstanding at beginning of year / period |
71,381 | 77,534 | 88,539 | 115,928 | ||||||||||||
| Granted during year / period |
— | — | — | 7,323 | ||||||||||||
| Forfeited year / period |
(692 | ) | (597 | ) | (2,203 | ) | (7,227 | ) | ||||||||
| Exercised during year / period |
(10,799 | ) | (5,556 | ) | (8,802 | ) | (27,485 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding at end of year / period |
59,890 | 71,381 | 77,534 | 88,539 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Exercisable at end of year / period |
59,890 | 71,381 | 72,009 | 48,333 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Year ended 31 December 2021 |
Six months ended 31 December 2020 |
Year ended 30 June 2020 |
Year ended 30 June 2019 |
|||||||||||||
| Weighted average fair value of options granted |
— | — | — | 1,042.0p | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Other awards: NED share award
A component of the Non-Executive Directors’ remuneration is delivered as a fixed number of fully paid ordinary shares in the first open period following the announcement of annual results of the financial year to which the award relates.
28. Retirement benefit schemes
| Year ended |
Six months ended |
Year ended |
Year ended |
|||||||||||||
| £m | £m | £m | £m | |||||||||||||
| Total charge to income statement in respect of defined contribution schemes |
6.5 | 2.8 | 4.5 | 3.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Defined contribution schemes
The UK-based employees of the Group have the option to join a defined contribution pension scheme managed by a third party pension provider. For each member the Company contributes a fixed percentage of salary to the scheme.
Employees of the Group’s subsidiaries in the US, Japan, China and Hong Kong are members of state-managed retirement benefit schemes. Depending on location, the subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit schemes to fund the benefits.
F-56
As at 31 December 2021, contributions of £1.1m (31 December 2020: £0.5m; 30 June 2020: £0.5m; 30 June 2019: £0.3m) due in respect of the current reporting period had not been paid over to the schemes.
29. Business combinations
Year ended 31 December 2021
BioVision
On 26 October 2021, Abcam US Group Holdings Inc, a subsidiary of Abcam Plc, acquired 100% of the issued share capital of NKY Biotech US, Inc from Boai NKY Biotech Co. Ltd for total cash consideration of $349.9 million (£253.8 million) and acquisition expenses of £7.8 million. NKY Biotech US, Inc has one wholly owned subsidiary, BioVision Inc (collectively ‘BioVision’). BioVision is a leading provider of biochemical and cell-based assays for biological research. It also develops, produces, and sells a wide portfolio of other products including recombinant proteins, antibodies, enzymes, and biochemical compounds.
The acquisition accelerates accelerate Abcam’s strategic ambitions within the adjacent biochemical and cellular assay market and aligns with existing areas of research focus including oncology, immuno-oncology, neuroscience, and epigenetics.
The provisional fair value of identifiable net assets acquired was as follows:
| £m | ||||
| Non-current assets |
||||
| Intangible assets |
80.6 | |||
| Property, plant and equipment |
0.8 | |||
| Right-of-use assets |
1.9 | |||
| Deferred tax asset |
0.3 | |||
| Current assets |
||||
| Inventory |
8.1 | |||
| Trade and other receivables |
3.3 | |||
| Cash and cash equivalents |
10.0 | |||
| Current liabilities |
||||
| Trade and other payables |
(2.3 | ) | ||
| Lease liabilities |
(1.7 | ) | ||
| Non-current liabilities |
||||
| Deferred tax liabilities |
(23.6 | ) | ||
| Lease liabilities |
(0.6 | ) | ||
|
|
|
|||
| Total identifiable assets acquired |
76.8 | |||
| Goodwill |
177.0 | |||
|
|
|
|||
| Total consideration |
253.8 | |||
|
|
|
|||
| £m | ||||
| Consideration |
||||
| Total consideration |
253.8 | |||
| Adjustment for settlement of pre-existing relationship |
1.4 | |||
| Adjustment for working capital claim |
1.1 | |||
|
|
|
|||
| Consideration paid in cash |
256.3 | |||
|
|
|
|||
| £m | ||||
| Net cash outflow on acquisition |
||||
| Consideration paid in cash |
256.3 | |||
|
|
|
|||
| Adjustment for settlement of pre-existing relationship |
(1.4 | ) | ||
| Acquired cash and cash equivalents |
(10.0 | ) | ||
|
|
|
|||
| Net cash outflow on acquisition |
244.9 | |||
|
|
|
|||
Prior to acquisition, BioVision was a supplier of products to Abcam and there was a trading balance of £1.4m outstanding at the acquisition. As such, the consideration and total identifiable net assets acquired have been adjusted to reflect this pre-existing relationship, which was effectively settled upon acquisition.
F-57
The consideration has also been adjusted by £1.1m, for a claim lodged with the seller subsequent to the close date. Consideration for the issued share capital of NKY was adjustable for certain net working capital balances, for which an estimate was provided on the close date. Subsequent to completing the acquisition it was noted that the actual net working capital balance fell short of the estimated balance and so the consideration has been adjusted downward by £1.1m accordingly. The cash inflow arising from this arrangement had not been received as at 31 December 2021 and so a receivable for £1.1m has been recognized on the Group’s consolidated balance sheet.
The goodwill recognized is attributable to the expertise of the assembled workforce, potential new technology and products and leveraging Abcam’s global channels to market.
Since the date of acquisition to 31 December 2021 the acquisition contributed £2.6m to the Group’s revenue and a loss before tax of £2.6m. The effect on adjusted profit before tax was £1.4m which is before taking into account the effects of the amortization of acquisition intangibles and amortization of fair value adjustments as described in note 7.
Had BioVision been acquired on 1 January 2021, the Group revenue would have been £331.6m and the profit before tax would have been £9.8m.
Six months ended 31 December 2020
No business combinations were undertaken during the period.
Year ended 30 June 2020
The Group made a number of acquisitions during the year. Had all of the acquisitions been completed and consolidated on 1 July 2019, the Group revenue would have been £265.6m, the profit before tax would have been £7.5m and the adjusted profit before tax would have been £45.2m. Acquisitions are set out below.
Expedeon
On 1 January 2020, the Group acquired 100% of the share capital of Expedeon Holdings Limited, including certain subsidiaries and certain other assets from Expedeon AG. This represented the proteomics and immunology business of Expedeon and was for total cash consideration of €122.5m (£104.2m) and acquisition expenses of £4.1m which are described in note 7.
This acquisition accelerates Abcam’s ambitions within the complementary antibody conjugation and labelling market and provides opportunities to combine technologies to create new value adding products to support customer needs.
The fair value of identifiable assets acquired was as follows:
| £m | ||||
| Non-current assets |
||||
| Intangible assets |
47.7 | |||
| Other non-current assets |
0.8 | |||
| Net current assets |
5.9 | |||
| Non-current liabilities |
||||
| Deferred tax on intangibles |
(11.9 | ) | ||
|
|
|
|||
| Total identifiable assets acquired |
42.5 | |||
| Goodwill |
61.7 | |||
|
|
|
|||
| Total consideration |
104.2 | |||
|
|
|
|||
| £m | ||||
| Net cash outflow on acquisition |
||||
| Consideration paid in cash |
104.2 | |||
| Acquired cash and cash equivalents |
(2.3 | ) | ||
|
|
|
|||
| 101.9 | ||||
|
|
|
|||
F-58
Other net current assets comprised inventory of £2.8m, cash of £2.3m, trade and other receivables of £1.9m and trade payables of £1.1m. The goodwill recognized is attributable to the expertise of the assembled workforce, potential future relationships with customers and potential new technology.
Since the date of acquisition to 30 June 2020 the acquisition contributed £5.9m to the Group’s revenue and a profit before tax of £0.3m. The effect on adjusted profit before tax was £2.0m which is before taking into account the effects of the amortization of acquisition intangibles as described in note 7.
Gene editing and oncology business
On 30 January 2020, the Group acquired certain assets and employees comprising the gene editing and oncology business of Applied StemCell, Inc. (Applied Stem Cell) for an initial consideration of US $9.4m (£7.1m).
Abcam intends to expand the Applied Stem Cell platform to become its discovery engine for developing novel edited cell lines, building upon its existing portfolio of knockout cell lines.
The fair value of identifiable assets acquired was as follows:
| Provisional fair value £m |
Adjustment* £m |
Final fair value £m |
||||||||||
| Non-current assets |
||||||||||||
| Intangible assets |
3.3 | (2.2 | ) | 1.1 | ||||||||
| Current assets |
0.2 | — | 0.2 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total identifiable assets acquired |
3.5 | (2.2 | ) | 1.3 | ||||||||
| Goodwill |
3.6 | 2.2 | 5.8 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total consideration |
7.1 | — | 7.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| £m | ||||
| Cash outflow on acquisition |
||||
| Consideration paid in cash |
7.1 | |||
|
|
|
|||
| * | During the six months ended 31 December 2020, a review was undertaken of the performance of historical acquisitions. In respect of Applied Stem Cell, it was determined that the additional knowledge gained of the marketplace in which Applied Stem Cell operates caused the initial valuation of the acquisition intangibles to be revisited as permitted by IFRS 3 ‘Business Combinations’ within the first 12 months of ownership. This has resulted in a reduction in the initial valuation of acquisition intangibles from that originally presented in the consolidated financial statements for the fiscal year ended 30 June 2020 with a corresponding increase in goodwill. In accordance with the requirements of IFRS 3 ‘Business Combinations’, this adjustment has been recorded within the fiscal year ended 30 June 2020. |
Other current assets comprised inventory of £0.2m. The goodwill recognized is attributable to the expertise of the assembled workforce and potential new technology.
Since the date of acquisition to 30 June 2020 the acquisition contributed £0.4m to the Group’s revenue and a profit before tax of £0.1m over the same period. The effect on adjusted profit before tax was £0.2m which is before taking into account the effects of the amortization of acquisition intangibles as described in note 7.
During the six months ended 31 December 2020, the consideration was adjusted to US $10.2m (£7.7m) following the finalization of certain costs to be reimbursed by the seller for an amount that was less than had been estimated at the acquisition date.
Marker Gene Technologies, Inc.
On 4 March 2020, the Group acquired 100% of the share capital of Marker Gene Technologies, Inc. (MGT) for total consideration of $2.2m (£1.7m), of which $0.3m (£0.2m) is deferred for 18 months from the acquisition date, $0.7m (£0.6m) in new ordinary shares and $1.2m (£0.9m) in cash. Deferred consideration was settled during the year ended 31 December 2021.
F-59
MGT has expertise in the areas of biology, organic synthesis and fluorescence chemistry and the team is experienced in the creation of detection tools that enable enhanced understanding of biological processes. This acquisition brings additional proprietary assay development technologies and labelling capabilities.
The fair value of identifiable assets acquired was as follows:
| £m | ||||
| Non-current assets |
||||
| Intangible assets |
0.4 | |||
| Net current assets |
0.6 | |||
| Non-current liabilities |
||||
| Deferred tax on intangibles |
(0.1 | ) | ||
|
|
|
|||
| Total identifiable assets acquired |
0.9 | |||
| Goodwill |
0.8 | |||
| Total consideration |
1.7 | |||
|
|
|
|||
| £m | ||||
| Net cash outflow on acquisition |
||||
| Consideration paid in cash |
0.9 | |||
| Acquired cash and cash equivalents |
(0.3 | ) | ||
|
|
|
|||
| 0.6 | ||||
|
|
|
|||
Net current assets comprised inventory of £0.3m, cash £0.3m trade receivables of £0.1m and trade payables of £0.1m. The goodwill recognized is attributable to the expertise of the assembled workforce.
Since the date of acquisition to 30 June 2020 the acquisition contributed £0.1m to the Group’s revenue and a profit before tax of £0.1m over the same period. The effect on adjusted profit before tax was also £0.1m.
Year ended 30 June 2019
On 24 January 2019, the Group completed the acquisition of 100% of the share capital of Calico Biolabs, Inc. (Calico), a developer of recombinant rabbit monoclonal antibodies for diagnostic and biopharmaceutical companies, for total cash consideration of $4.6m (£3.6m), of which $0.9m (£0.7m) was deferred for 12 months from the acquisition date and paid during the year ended 30 June 2020.
The acquisition strategically expanded Abcam’s leading position in rabbit monoclonal antibodies, bringing a small catalogue of ready-made antibodies for immunohistochemistry (IHC) applications in addition to custom development services.
The fair value of identifiable assets acquired was as follows:
| £m | ||||
| Non-current assets |
||||
| Intangible assets |
0.6 | |||
| Net current assets |
0.2 | |||
|
|
|
|||
| Total identifiable assets acquired |
0.8 | |||
| Goodwill |
2.8 | |||
|
|
|
|||
| Total consideration |
3.6 | |||
|
|
|
|||
Net current assets comprised cash of £0.1m, trade receivables of £0.2m and trade payables of £0.1m. The goodwill recognized is attributable to the expertise of the assembled workforce.
Since the date of acquisition to 30 June 2019, the acquisition contributed £0.3m to the Group’s revenue and a loss before tax of £0.1m over the same period. The effect on adjusted profit before tax was also a loss of £0.1m. Had Calico been consolidated from 1 July 2018, Group revenues and profit before tax for the year ended 30 June 2019 would have been £260.5m and £56.0m, respectively.
F-60
30. Related party transactions
Remuneration of Directors and key management personnel
Key management personnel comprises the Non-Executive Directors, the Executive Directors and the Executive Leadership Team.
The Non-Executive Directors’ fees represent amounts received in cash and an element receivable in shares.
| Directors’ remuneration | Key management personnel (including Directors) |
|||||||||||||||||||||||||||||||
| Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
Year ended 31 December 2021 £m |
Six months ended 31 December 2020 £m |
Year ended 30 June 2020 £m |
Year ended 30 June 2019 £m |
|||||||||||||||||||||||||
| Short-term employee benefits and fees |
2.9 | 1.4 | 1.6 | 1.6 | 5.0 | 2.4 | 4.3 | 4.3 | ||||||||||||||||||||||||
| Post-employment benefits |
0.1 | — | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 | ||||||||||||||||||||||||
| Share-based payments |
4.8 | 0.7 | 1.8 | 1.6 | 8.2 | 0.8 | 2.3 | 2.1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| 7.8 | 2.1 | 3.5 | 3.3 | 13.3 | 3.3 | 6.8 | 6.6 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Directors’ transactions
During the year ended 31 December 2021, the Group made purchases from companies related to Directors of £nil (6 months ended 31 December 2020: £nil; year ended 30 June 2020: £nil; year ended 30 June 2019: less than £0.1m) of which the balance outstanding at 31 December 2021 was £nil (31 December 2020: £nil; 30 June 2020: £nil; 30 June 2019: £0.1m). Total sales to companies related to the Directors was less than £0.1m (6 months ended 31 December 2020: less than £0.1m; year ended 30 June 2020: less than £0.1m; year ended 30 June 2019: less than £0.1m), of which less than £0.1m (31 December 2020: less than £0.1m; 30 June 2020: less than £0.1m; 30 June 2019: less than £0.1m) was outstanding as at 31 December 2021.
31. Transition period comparative data
The following table presents certain information for the six months ended 31 December 2020 and 2019 respectively:
| Six months ended 31 December 2020 £m |
Six months ended 31 December 2019 £m |
|||||||
| Revenue |
147.5 | 138.2 | ||||||
| Gross profit |
104.6 | 96.3 | ||||||
| Profit before tax |
15.6 | 26.0 | ||||||
| Tax |
(2.8) | 0.1 | ||||||
| Profit for the period |
12.8 | 26.1 | ||||||
| Basic EPS |
5.8p | 12.7p | ||||||
| Diluted EPS |
5.8p | 12.7p | ||||||
| Weighted average number of ordinary shares for the purposes of basic EPS |
219.6 | 205.3 | ||||||
| Weighted average number of ordinary shares for the purposes of diluted EPS |
222.0 | 207.2 | ||||||
|
|
|
|
|
|||||
32. Post balance sheet events
There were no adjusting or non-adjusting events between the reporting date and the date the financial statements were authorized for issue.
F-61
Exhibit 2.1
Execution Version
DEPOSIT AGREEMENT
by and among
ABCAM PLC
and
CITIBANK, N.A.,
as Depositary,
and
THE HOLDERS AND BENEFICIAL OWNERS OF
AMERICAN DEPOSITARY SHARES
ISSUED HEREUNDER
Dated as of October 26, 2020
TABLE OF CONTENTS
| ARTICLE I | ||||||
| DEFINITIONS | 1 | |||||
| Section 1.1 |
“ADS Record Date” | 1 | ||||
| Section 1.2 |
“Affiliate” | 1 | ||||
| Section 1.3 |
“American Depositary Receipt(s)”, “ADR(s)” and “Receipt(s)” | 1 | ||||
| Section 1.4 |
“American Depositary Share(s)” and “ADS(s)” | 2 | ||||
| Section 1.5 |
“Beneficial Owner” | 2 | ||||
| Section 1.6 |
“Certificated ADS(s)” | 2 | ||||
| Section 1.7 |
“Citibank” | 3 | ||||
| Section 1.8 |
“Commission” | 3 | ||||
| Section 1.9 |
“Company” | 3 | ||||
| Section 1.10 |
“Custodian” | 3 | ||||
| Section 1.11 |
“Deliver” and “Delivery” | 3 | ||||
| Section 1.12 |
“Deposit Agreement” | 3 | ||||
| Section 1.13 |
“Depositary” | 3 | ||||
| Section 1.14 |
“Deposited Property” | 4 | ||||
| Section 1.15 |
“Deposited Securities” | 4 | ||||
| Section 1.16 |
“Dollars” and “$” | 4 | ||||
| Section 1.17 |
“DTC” | 4 | ||||
| Section 1.18 |
“DTC Participant” | 4 | ||||
| Section 1.19 |
“Exchange Act” | 4 | ||||
| Section 1.20 |
“Foreign Currency” | 4 | ||||
| Section 1.21 |
“Full Entitlement ADR(s)”, “Full Entitlement ADS(s)” and “Full Entitlement Share(s)” | 5 | ||||
| Section 1.22 |
“Holder(s)” | 5 | ||||
| Section 1.23 |
“Partial Entitlement ADR(s)”, “Partial Entitlement ADS(s)” and “Partial Entitlement Share(s)” | 5 | ||||
| Section 1.24 |
“Principal Office” | 5 | ||||
| Section 1.25 |
“Registrar” | 5 | ||||
| Section 1.26 |
“Restricted Securities” | 5 | ||||
| Section 1.27 |
“Restricted ADR(s)”, “Restricted ADS(s)” and “Restricted Shares” | 5 | ||||
| Section 1.28 |
“Securities Act” | 5 | ||||
| Section 1.29 |
“Share Registrar” | 6 | ||||
| Section 1.30 |
“Shares” | 6 | ||||
| Section 1.31 |
“Uncertificated ADS(s)” | 6 | ||||
| Section 1.32 |
“United States” and “U.S.” | 6 | ||||
| ARTICLE II | ||||||
| APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS |
7 | |||||
| Section 2.1 |
Appointment of Depositary | 7 | ||||
| Section 2.2 |
Form and Transferability of ADSs | 7 | ||||
i
| Section 2.3 |
Deposit of Shares | 9 | ||||
| Section 2.4 |
Registration and Safekeeping of Deposited Securities | 11 | ||||
| Section 2.5 |
Issuance of ADSs | 11 | ||||
| Section 2.6 |
Transfer, Combination and Split-up of ADRs | 12 | ||||
| Section 2.7 |
Surrender of ADSs and Withdrawal of Deposited Securities | 13 | ||||
| Section 2.8 |
Limitations on Execution and Delivery, Transfer, etc. of ADSs; Suspension of Delivery, Transfer, etc | 14 | ||||
| Section 2.9 |
Lost ADRs, etc | 15 | ||||
| Section 2.10 |
Cancellation and Destruction of Surrendered ADRs; Maintenance of Records | 15 | ||||
| Section 2.11 |
Escheatment | 15 | ||||
| Section 2.12 |
Partial Entitlement ADSs | 15 | ||||
| Section 2.13 |
Certificated/Uncertificated ADSs | 16 | ||||
| Section 2.14 |
Restricted ADSs | 17 | ||||
| ARTICLE III |
||||||
| CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF ADSs |
19 | |||||
| Section 3.1 |
Proofs, Certificates and Other Information | 19 | ||||
| Section 3.2 |
Liability for Taxes and Other Charges | 20 | ||||
| Section 3.3 |
Representations and Warranties on Deposit of Shares | 20 | ||||
| Section 3.4 |
Compliance with Information Requests | 21 | ||||
| Section 3.5 |
Ownership Restrictions | 21 | ||||
| Section 3.6 |
Reporting Obligations and Regulatory Approvals | 22 | ||||
| ARTICLE IV |
||||||
| THE DEPOSITED SECURITIES |
22 | |||||
| Section 4.1 |
Cash Distributions | 22 | ||||
| Section 4.2 |
Distribution in Shares | 23 | ||||
| Section 4.3 |
Elective Distributions in Cash or Shares | 24 | ||||
| Section 4.4 |
Distribution of Rights to Purchase Additional ADSs | 25 | ||||
| Section 4.5 |
Distributions Other Than Cash, Shares or Rights to Purchase Shares | 26 | ||||
| Section 4.6 |
Distributions with Respect to Deposited Securities in Bearer Form | 28 | ||||
| Section 4.7 |
Redemption | 28 | ||||
| Section 4.8 |
Conversion of Foreign Currency | 28 | ||||
| Section 4.9 |
Fixing of ADS Record Date | 29 | ||||
| Section 4.10 |
Voting of Deposited Securities | 30 | ||||
| Section 4.11 |
Changes Affecting Deposited Securities | 32 | ||||
| Section 4.12 |
Available Information | 33 | ||||
| Section 4.13 |
Reports | 33 | ||||
| Section 4.14 |
List of Holders | 33 | ||||
| Section 4.15 |
Taxation | 33 | ||||
ii
| ARTICLE V |
||||||
| THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY |
35 | |||||
| Section 5.1 |
Maintenance of Office and Transfer Books by the Registrar | 35 | ||||
| Section 5.2 |
Exoneration | 35 | ||||
| Section 5.3 |
Standard of Care | 36 | ||||
| Section 5.4 |
Resignation and Removal of the Depositary; Appointment of Successor Depositary | 37 | ||||
| Section 5.5 |
The Custodian | 38 | ||||
| Section 5.6 |
Notices and Reports | 39 | ||||
| Section 5.7 |
Issuance of Additional Shares, ADSs etc | 39 | ||||
| Section 5.8 |
Indemnification | 40 | ||||
| Section 5.9 |
ADS Fees and Charges | 41 | ||||
| Section 5.10 |
Restricted Securities Owners | 42 | ||||
| ARTICLE VI |
||||||
| AMENDMENT AND TERMINATION |
43 | |||||
| Section 6.1 |
Amendment/Supplement | 43 | ||||
| Section 6.2 |
Termination | 44 | ||||
| ARTICLE VII |
||||||
| MISCELLANEOUS |
45 | |||||
| Section 7.1 |
Counterparts | 45 | ||||
| Section 7.2 |
No Third-Party Beneficiaries/Acknowledgments | 45 | ||||
| Section 7.3 |
Severability | 45 | ||||
| Section 7.4 |
Holders and Beneficial Owners as Parties; Binding Effect | 46 | ||||
| Section 7.5 |
Notices | 46 | ||||
| Section 7.6 |
Governing Law and Jurisdiction | 47 | ||||
| Section 7.7 |
Assignment | 49 | ||||
| Section 7.8 |
Compliance with, and No Disclaimer under, U.S. Securities Laws | 49 | ||||
| Section 7.9 |
English Law References | 49 | ||||
| Section 7.10 |
Titles and References | 49 | ||||
| EXHIBITS |
||||||
| Form of ADR | A-1 | |||||
| Fee Schedule | B-1 | |||||
iii
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT, dated as of October 26, 2020, by and among (i) Abcam plc, a public limited company incorporated under the laws of England and Wales, and its successors (the “Company”), (ii) CITIBANK, N.A., a national banking association organized under the laws of the United States of America (“Citibank”) acting in its capacity as depositary, and any successor depositary hereunder (Citibank in such capacity, the “Depositary”), and (iii) all Holders and Beneficial Owners of American Depositary Shares issued hereunder (all such capitalized terms as hereinafter defined).
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to establish with the Depositary an ADR facility to provide inter alia for the deposit of the Shares (as hereinafter defined) and the creation of American Depositary Shares representing the Shares so deposited and for the execution and Delivery (as hereinafter defined) of American Depositary Receipts (as hereinafter defined) evidencing such American Depositary Shares; and
WHEREAS, the Depositary is willing to act as the Depositary for such ADR facility upon the terms set forth in the Deposit Agreement (as hereinafter defined); and
WHEREAS, any American Depositary Receipts issued pursuant to the terms of the Deposit Agreement are to be substantially in the form of Exhibit A attached hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in the Deposit Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms used, but not otherwise defined, herein shall have the meanings set forth below, unless otherwise clearly indicated:
Section 1.1 “ADS Record Date” shall have the meaning given to such term in Section 4.9.
Section 1.2 “Affiliate” shall have the meaning assigned to such term by the Commission (as hereinafter defined) under Regulation C promulgated under the Securities Act (as hereinafter defined), or under any successor regulation thereto.
Section 1.3 “American Depositary Receipt(s)”, “ADR(s)” and “Receipt(s)” shall mean the certificate(s) issued by the Depositary to evidence the American Depositary Shares
issued under the terms of the Deposit Agreement in the form of Certificated ADS(s) (as hereinafter defined), as such ADRs may be amended from time to time in accordance with the provisions of the Deposit Agreement. An ADR may evidence any number of ADSs and may, in the case of ADSs held through a central depository such as DTC, be in the form of a “Balance Certificate.”
Section 1.4 “American Depositary Share(s)” and “ADS(s)” shall mean the rights and interests in the Deposited Property (as hereinafter defined) granted to the Holders and Beneficial Owners pursuant to the terms and conditions of the Deposit Agreement and, if issued as Certificated ADS(s) (as hereinafter defined), the ADR(s) issued to evidence such ADSs. ADS(s) may be issued under the terms of the Deposit Agreement in the form of (a) Certificated ADS(s) (as hereinafter defined), in which case the ADS(s) are evidenced by ADR(s), or (b) Uncertificated ADS(s) (as hereinafter defined), in which case the ADS(s) are not evidenced by ADR(s) but are reflected on the direct registration system maintained by the Depositary for such purposes under the terms of Section 2.13. Unless otherwise specified in the Deposit Agreement or in any ADR, or unless the context otherwise requires, any reference to ADS(s) shall include Certificated ADS(s) and Uncertificated ADS(s), individually or collectively, as the context may require. Each ADS shall represent the right to receive, and to exercise the beneficial ownership interests in, the number of Shares specified in the form of ADR attached hereto as Exhibit A (as amended from time to time) that are on deposit with the Depositary and/or the Custodian, subject, in each case, to the terms and conditions of the Deposit Agreement and the applicable ADR (if issued as a Certificated ADS), until there shall occur a distribution upon Deposited Securities referred to in Section 4.2 or a change in Deposited Securities referred to in Section 4.11 with respect to which additional ADSs are not issued, and thereafter each ADS shall represent the right to receive, and to exercise the beneficial ownership interests in, the applicable Deposited Property on deposit with the Depositary and the Custodian determined in accordance with the terms of such Sections, subject, in each case, to the terms and conditions of the Deposit Agreement and the applicable ADR (if issued as a Certificated ADS). In addition, the ADS(s)-to-Share(s) ratio is subject to amendment as provided in Articles IV and VI of the Deposit Agreement (which may give rise to Depositary fees).
Section 1.5 “Articles of Association” shall mean the articles of association of the Company, as amended from time to time.
Section 1.6 “Beneficial Owner” shall mean, as to any ADS, any person or entity having a beneficial interest deriving from the ownership of such ADS. Notwithstanding anything else contained in the Deposit Agreement, any ADR(s) or any other instruments or agreements relating to the ADSs and the corresponding Deposited Property, the Depositary, the Custodian and their respective nominees are intended to be, and shall at all times during the term of the Deposit Agreement be, the record holders only of the Deposited Property represented by the ADSs for the benefit of the Holders and Beneficial Owners of the corresponding ADSs. The Depositary, on its own behalf and on behalf of the Custodian and their respective nominees, disclaims any beneficial ownership interest in the Deposited Property held on behalf of the Holders and Beneficial Owners of ADSs. The beneficial ownership interests in the Deposited Property are intended to be, and shall at all times during the term of the Deposit Agreement continue to be, vested in the Beneficial Owners of the ADSs representing the Deposited
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Property. The beneficial ownership interests in the Deposited Property shall, unless otherwise agreed by the Depositary, be exercisable by the Beneficial Owners of the ADSs only through the Holders of such ADSs, by the Holders of the ADSs (on behalf of the applicable Beneficial Owners) only through the Depositary, and by the Depositary (on behalf of the Holders and Beneficial Owners of the corresponding ADSs) directly, or indirectly through the Custodian or their respective nominees, in each case upon the terms of the Deposit Agreement and, if applicable, the terms of the ADR(s) evidencing the ADSs. A Beneficial Owner of ADSs may or may not be the Holder of such ADSs. A Beneficial Owner shall be able to exercise any right or receive any benefit hereunder solely through the person who is the Holder of the ADSs owned by such Beneficial Owner. Unless otherwise identified to the Depositary, a Holder shall be deemed to be the Beneficial Owner of all the ADSs registered in his/her/its name. The manner in which a Beneficial Owner holds ADSs (e.g., in a brokerage account vs. as registered holder) may affect the rights and obligations of, the manner in which, and the extent to which, services are made available to, Beneficial Owners pursuant to the terms of the Deposit Agreement.
Section 1.7 “Certificated ADS(s)” shall have the meaning set forth in Section 2.13.
Section 1.8 “Citibank” shall mean Citibank, N.A., a national banking association organized under the laws of the United States of America, and its successors.
Section 1.9 “Commission” shall mean the Securities and Exchange Commission of the United States or any successor governmental agency thereto in the United States.
Section 1.10 “Company” shall mean Abcam plc, a public limited company incorporated under the laws of England and Wales, and its successors.
Section 1.11 “CREST” shall mean the system for the paperless settlement of trades in securities and the holding of uncertificated securities operated by Euroclear UK & Ireland Limited in accordance with the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), as amended from time to time, or any successor thereto.
Section 1.12 “Custodian”
shall mean (i) as of the date hereof, Citibank, N.A. (London), having its principal office at 25 Canada Square, Canary Wharf, London, E14 5LB, United Kingdom, as the custodian of Deposited Property for the purposes of the Deposit Agreement, (ii) Citibank, N.A., acting as custodian of Deposited Property pursuant to the Deposit Agreement, and (iii) any other entity that may be appointed by the Depositary pursuant to the terms of Section 5.5 as successor, substitute or additional custodian hereunder. The term “Custodian” shall mean any Custodian individually or all Custodians collectively, as the context requires.
Section 1.13 “Deliver” and “Delivery” shall mean (x) when used in respect of Shares and other Deposited Securities, either (i) the physical delivery of the certificate(s) representing such securities, or (ii) the book-entry transfer and recordation of such securities on the books of the Share Registrar (as hereinafter defined) or in the book-entry settlement of CREST, and (y) when used in respect of ADSs, either (i) the physical delivery of ADR(s) evidencing the ADSs, or (ii) the book-entry transfer and recordation of ADSs on the books of the Depositary or any book-entry settlement system in which the ADSs are settlement-eligible.
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Section 1.14 “Deposit Agreement” shall mean this Deposit Agreement and all exhibits hereto, as the same may from time to time be amended and supplemented from time to time in accordance with the terms of the Deposit Agreement.
Section 1.15 “Depositary” shall mean Citibank, N.A., a national banking association organized under the laws of the United States, in its capacity as depositary under the terms of the Deposit Agreement, and any successor depositary hereunder.
Section 1.16 “Deposited Property” shall mean the Deposited Securities and any cash and other property held on deposit by the Depositary and the Custodian in respect of the ADSs under the terms of the Deposit Agreement, subject, in the case of cash, to the provisions of Section 4.8. All Deposited Property shall be held by the Custodian, the Depositary and their respective nominees for the benefit of the Holders and Beneficial Owners of the ADSs representing the Deposited Property. The Deposited Property is not intended to, and shall not, constitute proprietary assets of the Depositary, the Custodian or their nominees. Beneficial ownership in the Deposited Property is intended to be, and shall at all times during the term of the Deposit Agreement continue to be, vested in the Beneficial Owners of the ADSs representing the Deposited Property.
Section 1.17 “Deposited Securities” shall mean the Shares and any other securities held on deposit by the Custodian from time to time in respect of the ADSs under the Deposit Agreement and constituting Deposited Property.
Section 1.18 “Dollars” and “$” shall refer to the lawful currency of the United States.
Section 1.19 “DTC” shall mean The Depository Trust Company, a national clearinghouse and the central book-entry settlement system for securities traded in the United States and, as such, the custodian for the securities of DTC Participants (as hereinafter defined) maintained in DTC, and any successor thereto.
Section 1.20 “DTC Participant” shall mean any financial institution (or any nominee of such institution) having one or more participant accounts with DTC for receiving, holding and delivering the securities and cash held in DTC. A DTC Participant may or may not be a Beneficial Owner. If a DTC Participant is not the Beneficial Owner of the ADSs credited to its account at DTC, or of the ADSs in respect of which the DTC Participant is otherwise acting, such DTC Participant shall be deemed, for all purposes hereunder, to have all requisite authority to act on behalf of the Beneficial Owner(s) of the ADSs credited to its account at DTC or in respect of which the DTC Participant is so acting. A DTC Participant, upon acceptance in any one of its DTC accounts of any ADSs (or any interest therein) issued in accordance with the
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terms and conditions of the Deposit Agreement, shall (notwithstanding any explicit or implicit disclosure that it may be acting on behalf of another party) be deemed for all purposes to be a party to, and bound by, the terms of the Deposit Agreement and the applicable ADR(s) to the same extent as, and as if the DTC Participant were, the Holder of such ADSs.
Section 1.21 “Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended from time to time.
Section 1.22 “Foreign Currency” shall mean any currency other than Dollars.
Section 1.23 “Full Entitlement ADR(s)”, “Full Entitlement ADS(s)” and “Full Entitlement Share(s)” shall have the respective meanings set forth in Section 2.12.
Section 1.24 “Holder(s)” shall mean the person(s) in whose name the ADSs are registered on the books of the Depositary (or the Registrar, if any) maintained for such purpose. A Holder may or may not be a Beneficial Owner. If a Holder is not the Beneficial Owner of the ADS(s) registered in its name, such person shall be deemed, for all purposes hereunder, to have all requisite authority to act on behalf of the Beneficial Owners of the ADSs registered in its name. The manner in which a Holder holds ADSs (e.g., in certificated vs. uncertificated form) may affect the rights and obligations of, and the manner in which, and the extent to which, the services are made available to, Holders pursuant to the terms of the Deposit Agreement.
Section 1.25 “Partial Entitlement ADR(s)”, “Partial Entitlement ADS(s)” and “Partial Entitlement Share(s)” shall have the respective meanings set forth in Section 2.12.
Section 1.26 “Principal Office” shall mean, when used with respect to the Depositary, the principal office of the Depositary at which at any particular time its depositary receipts business shall be administered, which, at the date of the Deposit Agreement, is located at 388 Greenwich Street, New York, New York 10013, U.S.A.
Section 1.27 “Registrar” shall mean the Depositary or any bank or trust company having an office in the Borough of Manhattan, The City of New York, which shall be appointed by the Depositary to register issuances, transfers and cancellations of ADSs as herein provided, and shall include any co-registrar appointed by the Depositary for such purposes. Registrars (other than the Depositary) may be removed and substitutes appointed by the Depositary. Each Registrar (other than the Depositary) appointed pursuant to the Deposit Agreement shall be required to give notice in writing to the Depositary accepting such appointment and agreeing to be bound by the applicable terms of the Deposit Agreement.
Section 1.28 “Restricted Securities” shall mean Shares, Deposited Securities or ADSs which (i) have been acquired directly or indirectly from the Company or any of its Affiliates in a transaction or chain of transactions not involving any public offering and are subject to resale limitations under the Securities Act or the rules issued thereunder, or (ii) are held by an executive officer or director (or persons performing similar functions) or other Affiliate of the Company, or (iii) are subject to other restrictions on sale or deposit under the
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laws of the United States, England and Wales, or under a shareholder agreement or the Articles of Association or under the regulations of an applicable securities exchange unless, in each case, such Shares, Deposited Securities or ADSs are being transferred or sold to persons other than an Affiliate of the Company in a transaction (a) covered by an effective resale registration statement, or (b) exempt from the registration requirements of the Securities Act (as hereinafter defined), and the Shares, Deposited Securities or ADSs are not, when held by such person(s), Restricted Securities.
Section 1.29 “Restricted ADR(s)”, “Restricted ADS(s)” and “Restricted Shares” shall have the respective meanings set forth in Section 2.14.
Section 1.30 “Securities Act” shall mean the United States Securities Act of 1933, as amended from time to time.
Section 1.31 “Share Registrar” shall mean Equiniti or any other institution incorporated under the laws of England and Wales appointed by the Company from time to time to carry out the duties of registrar for the Shares, and any successor thereto.
Section 1.32 “Shares” shall mean the Company’s ordinary shares, with a nominal value £0.002 per share, validly issued and outstanding and fully paid and may, if the Depositary so agrees after consultation with the Company, include evidence of the right to receive Shares; provided that in no event shall Shares include evidence of the right to receive Shares with respect to which the full purchase price has not been paid or Shares as to which preemptive rights have theretofore not been validly waived, disapplied or exercised; provided further, however, that, if there shall occur any change in nominal value, split-up, subdivision, consolidation, reclassification, exchange, conversion or any other event described in Section 4.11 in respect of the Shares of the Company, the term “Shares” shall thereafter, to the maximum extent permitted by law, represent the successor securities resulting from such event.
Section 1.33 “Sterling” or “£” shall mean British Pounds Sterling.
Section 1.34 “Uncertificated ADS(s)” shall have the meaning set forth in Section 2.13.
Section 1.35 “United States” and “U.S.” shall have the meaning assigned to it in Regulation S as promulgated by the Commission under the Securities Act.
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ARTICLE II
APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS;
DEPOSIT OF SHARES; EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
Section 2.1 Appointment of Depositary. The Company hereby appoints the Depositary as depositary for the Deposited Property and hereby authorizes and directs the Depositary to act in accordance with the terms and conditions set forth in the Deposit Agreement and the applicable ADRs. Each Holder and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and the applicable ADR(s), and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof.
Section 2.2 Form and Transferability of ADSs.
(a) Form. Certificated ADSs shall be evidenced by definitive ADRs which shall be engraved, printed, lithographed or produced in such other manner as may be agreed upon by the Company and the Depositary. ADRs may be issued under the Deposit Agreement in denominations of any whole number of ADSs. The ADRs shall be substantially in the form set forth in Exhibit A to the Deposit Agreement, with any appropriate insertions, modifications and omissions, in each case as otherwise contemplated in the Deposit Agreement or required by law. ADRs shall be (i) dated, (ii) signed by the manual or facsimile signature of a duly authorized signatory of the Depositary, (iii) countersigned by the manual or facsimile signature of a duly authorized signatory of the Registrar, and (iv) registered in the books maintained by the Registrar for the registration of issuances and transfers of ADSs. No ADR and no Certificated ADS evidenced thereby shall be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose against the Depositary or the Company, unless such ADR shall have been so dated, signed, countersigned and registered. ADRs bearing the facsimile signature of a duly-authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly-authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the Delivery of such ADR by the Depositary. The ADRs shall bear a CUSIP number that is different from any CUSIP number that was, is or may be assigned to any depositary receipts previously or subsequently issued pursuant to any other arrangement between the Depositary (or any other depositary) and the Company and which are not ADRs outstanding hereunder.
(b) Legends. The ADRs may be endorsed with, or have incorporated in the text thereof, such legends or recitals not inconsistent with the provisions of the Deposit Agreement as may be (i) necessary to enable the Depositary and the Company to perform their respective
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obligations hereunder, (ii) required to comply with any applicable laws or regulations, or with the rules and regulations of any securities exchange or market upon which ADSs may be traded, listed or quoted, or to conform with any usage with respect thereto, (iii) necessary to indicate any special limitations or restrictions to which any particular ADRs or ADSs are subject by reason of the date of issuance of the Deposited Securities or otherwise, or (iv) required by any book-entry system in which the ADSs are held. Holders and Beneficial Owners shall be deemed, for all purposes, to have notice of, and to be bound by, the terms and conditions of the legends set forth, in the case of Holders, on the ADR registered in the name of the applicable Holders or, in the case of Beneficial Owners, on the ADR representing the ADSs owned by such Beneficial Owners.
(c) Title. Subject to the limitations contained herein and in the ADR, title to an ADR (and to each Certificated ADS evidenced thereby) shall be transferable upon the same terms as a certificated security under the laws of the State of New York, provided that, in the case of Certificated ADSs, such ADR has been properly endorsed or is accompanied by proper instruments of transfer. Notwithstanding any notice to the contrary, the Depositary and the Company may deem and treat the Holder of an ADS (that is, the person in whose name an ADS is registered on the books of the Depositary) as the absolute owner thereof for all purposes. Neither the Depositary nor the Company shall have any obligation nor be subject to any liability under the Deposit Agreement or any ADR to any holder or any Beneficial Owner unless, in the case of a holder of ADSs, such holder is the Holder registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner, or the Beneficial Owner’s representative, is the Holder registered on the books of the Depositary.
(d) Book-Entry Systems. The Depositary shall make arrangements for the acceptance of the ADSs into DTC. All ADSs held through DTC will be registered in the name of the nominee for DTC (currently “Cede & Co.”). As such, the nominee for DTC will be the only “Holder” of all ADSs held through DTC. Unless issued by the Depositary as Uncertificated ADSs, the ADSs registered in the name of Cede & Co. will be evidenced by one or more ADR(s) in the form of a “Balance Certificate,” which will provide that it represents the aggregate number of ADSs from time to time indicated in the records of the Depositary as being issued hereunder and that the aggregate number of ADSs represented thereby may from time to time be increased or decreased by making adjustments on such records of the Depositary and of DTC or its nominee as hereinafter provided. Citibank, N.A. (or such other entity as is appointed by DTC or its nominee) may hold the “Balance Certificate” as custodian for DTC. Each Beneficial Owner of ADSs held through DTC must rely upon the procedures of DTC and the DTC Participants to exercise or be entitled to any rights attributable to such ADSs. The DTC Participants shall for all purposes be deemed to have all requisite power and authority to act on behalf of the Beneficial Owners of the ADSs held in the DTC Participants’ respective accounts in DTC and the Depositary shall for all purposes be authorized to rely upon any instructions and information given to it by DTC Participants. So long as ADSs are held through DTC or unless otherwise required by law, ownership of beneficial interests in the ADSs registered in the name of the nominee for DTC will be shown on, and transfers of such ownership will be effected only through, records maintained by (i) DTC or its nominee (with respect to the interests of DTC Participants), or (ii) DTC Participants or their nominees (with respect to the interests of clients of DTC Participants). Any distributions made, and any notices given, by the Depositary to DTC
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under the terms of the Deposit Agreement shall (unless otherwise specified by the Depositary) satisfy the Depositary’s obligations under the Deposit Agreement to make such distributions, and give such notices, in respect of the ADSs held in DTC (including, for avoidance of doubt, to the DTC Participants holding the ADSs in their DTC accounts and to the Beneficial Owners of such ADSs).
Section 2.3 Deposit of Shares. Subject to the terms and conditions of the Deposit Agreement and applicable law, Shares or evidence of rights to receive Shares (other than Restricted Securities) may be deposited by any person (including the Depositary in its individual capacity but subject, however, in the case of the Company or any Affiliate of the Company, to Section 5.7) at any time, whether or not the transfer books of the Company or the Share Registrar, if any, are closed, by Delivery of the Shares to the Custodian. Every deposit of Shares shall be accompanied by the following: (A) (i) in the case of Shares represented by certificates issued in registered form, appropriate instruments of transfer or endorsement, in a form satisfactory to the Custodian, (ii) in the case of Shares represented by certificates in bearer form, the requisite coupons and talons pertaining thereto, and (iii) in the case of Shares delivered by book-entry transfer and recordation, confirmation of such book-entry transfer and recordation in the books of the Share Registrar or of CREST, as applicable, to the Custodian or that irrevocable instructions have been given to cause such Shares to be so transferred and recorded, (B) such certifications and payments (including, without limitation, the Depositary’s fees and related charges) and evidence of such payments (including, without limitation, stamping or otherwise marking such Shares by way of receipt) as may be required by the Depositary or the Custodian in accordance with the provisions of the Deposit Agreement and applicable law, (C) if the Depositary so requires, a written order directing the Depositary to issue and deliver to, or upon the written order of, the person(s) stated in such order the number of ADSs representing the Shares so deposited, (D) evidence reasonably satisfactory to the Depositary (which may be an opinion of counsel) that all necessary approvals have been granted by, or there has been compliance with the rules and regulations of, any applicable governmental agency in England and Wales, and (E) if the Depositary so requires, (i) an agreement, assignment or instrument satisfactory to the Depositary or the Custodian which provides for the prompt transfer by any person in whose name the Shares are or have been recorded to the Custodian of any distribution, or right to subscribe for additional Shares or to receive other property in respect of any such deposited Shares or, in lieu thereof, such indemnity or other agreement as shall be satisfactory to the Depositary or the Custodian and (ii) if the Shares are registered in the name of the person on whose behalf they are presented for deposit, a proxy or proxies entitling the Custodian to exercise voting rights in respect of the Shares for any and all purposes until the Shares so deposited are registered in the name of the Depositary, the Custodian or any nominee.
Without limiting any other provision of the Deposit Agreement, the Depositary shall instruct the Custodian not to, and the Depositary shall not knowingly, accept for deposit (a) any Restricted Securities (except as contemplated by Section 2.14) nor (b) any fractional Shares or fractional Deposited Securities nor (c) a number of Shares or Deposited Securities which upon application of the ADS to Shares ratio would give rise to fractional ADSs. No Shares shall be accepted for deposit unless accompanied by evidence, if any is required by the Depositary, that is reasonably satisfactory to the Depositary or the Custodian that all conditions to such deposit have been satisfied by the person depositing such Shares under the laws and regulations of England
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and Wales and any necessary approval has been granted by any applicable governmental body in England and Wales, if any. The Depositary may issue ADSs against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares. Such evidence of rights shall consist of written blanket or specific guarantees of ownership of Shares furnished by the Company or any such custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares.
Without limitation of the foregoing, the Depositary shall not knowingly accept for deposit under the Deposit Agreement (A) any Shares or other securities required to be registered under the provisions of the Securities Act, unless (i) a registration statement is in effect as to such Shares or other securities or (ii) the deposit is made upon terms contemplated in Section 2.14, or (B) any Shares or other securities the deposit of which would violate any provisions of English law or the Articles of Association. For purposes of the foregoing sentence, the Depositary shall be entitled to rely upon representations and warranties made or deemed made pursuant to the Deposit Agreement and shall not be required to make any further investigation. The Depositary will comply with written instructions of the Company (received by the Depositary reasonably in advance) not to accept for deposit hereunder any Shares identified in such instructions at such times and under such circumstances as may reasonably be specified in such instructions in order to facilitate the Company’s compliance with the securities laws of the United States.
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Section 2.4 Registration and Safekeeping of Deposited Securities. The Depositary shall instruct the Custodian upon each Delivery of registered Shares being deposited hereunder with the Custodian (or other Deposited Securities pursuant to Article IV hereof), together with the other documents above specified, to present such Shares, together with the appropriate instrument(s) of transfer or endorsement, duly stamped, to the Share Registrar for transfer and registration of the Shares (as soon as transfer and registration can be accomplished and at the expense of the person for whom the deposit is made) in the name of the Depositary, the Custodian or a nominee of either. Deposited Securities shall be held by the Depositary, or by a Custodian for the account and to the order of the Depositary or a nominee of the Depositary, in each case, on behalf of the Holders and Beneficial Owners, at such place(s) as the Depositary or the Custodian shall determine. Notwithstanding anything else contained in the Deposit Agreement, any ADR(s), or any other instruments or agreements relating to the ADSs and the corresponding Deposited Property, the registration of the Deposited Securities in the name of the Depositary, the Custodian or any of their respective nominees, shall, to the maximum extent permitted by applicable law, vest in the Depositary, the Custodian or the applicable nominee the record ownership in the applicable Deposited Securities with the beneficial ownership rights and interests in such Deposited Securities being at all times vested with the Beneficial Owners of the ADSs representing the Deposited Securities. Notwithstanding the foregoing, the Depositary, the Custodian and the applicable nominee shall at all times be entitled to exercise the beneficial ownership rights in all Deposited Property, in each case only on behalf of the Holders and Beneficial Owners of the ADSs representing the Deposited Property, upon the terms set forth in the Deposit Agreement and, if applicable, the ADR(s) representing the ADSs. The Depositary, the Custodian and their respective nominees shall for all purposes be deemed to have all requisite power and authority to act in respect of Deposited Property on behalf of the Holders and Beneficial Owners of ADSs representing the Deposited Property, and upon making payments to, or acting upon instructions from, or information provided by, the Depositary, the Custodian or their respective nominees all persons shall be authorized to rely upon such power and authority.
Section 2.5 Issuance of ADSs. The Depositary has made arrangements with the Custodian for the Custodian to confirm to the Depositary upon receipt of a deposit of Shares (i) that a deposit of Shares has been made pursuant to Section 2.3, (ii) that such Deposited Securities have been recorded in the name of the Depositary, the Custodian or a nominee of either on the shareholders’ register maintained by or on behalf of the Company by the Share Registrar or on the books of CREST, (iii) that all required documents have been received, and (iv) the person(s) to whom or upon whose order ADSs are deliverable in respect thereof and the number of ADSs to be so delivered. Such notification may be made by letter, cable, telex, SWIFT message or, at the risk and expense of the person making the deposit, by facsimile or other means of electronic transmission. Upon receiving such notice from the Custodian, the Depositary, subject to the terms and conditions of the Deposit Agreement and applicable law, shall issue the ADSs representing the Shares so deposited to or upon the order of the person(s) named in the notice delivered to the Depositary and, if applicable, shall execute and deliver at its Principal Office Receipt(s) registered in the name(s) requested by such person(s) and evidencing the aggregate number of ADSs to which such person(s) are entitled, but, in each case, only upon payment to the Depositary of the charges of the Depositary for accepting a deposit of Shares and issuing ADSs (as set forth in Section 5.9 and Exhibit B hereto) and all taxes and governmental charges and fees payable in connection with such deposit and the transfer of the Shares and the issuance of the ADS(s). The Depositary shall only issue ADSs in whole numbers and deliver, if applicable, ADR(s) evidencing whole numbers of ADSs.
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Section 2.6 Transfer, Combination and Split-up of ADRs.
(a) Transfer. The Registrar shall register the transfer of ADRs (and of the ADSs represented thereby) on the books maintained for such purpose and the Depositary shall (x) cancel such ADRs and execute new ADRs evidencing the same aggregate number of ADSs as those evidenced by the ADRs canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs and (z) Deliver such new ADRs to or upon the order of the person entitled thereto, if each of the following conditions has been satisfied: (i) the ADRs have been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a transfer thereof, (ii) the surrendered ADRs have been properly endorsed or are accompanied by proper instruments of transfer (including signature guarantees in accordance with standard securities industry practice), (iii) the surrendered ADRs have been duly stamped (if required by the laws of the State of New York or of the United States), and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 and Exhibit B hereto) have been paid, subject, however, in each case, to the terms and conditions of the applicable ADRs, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.
(b) Combination & Split-Up. The Registrar shall register the split-up or combination of ADRs (and of the ADSs represented thereby) on the books maintained for such purpose and the Depositary shall (x) cancel such ADRs and execute new ADRs for the number of ADSs requested, but in the aggregate not exceeding the number of ADSs evidenced by the ADRs canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs and (z) Deliver such new ADRs to or upon the order of the Holder thereof, if each of the following conditions has been satisfied: (i) the ADRs have been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a split-up or combination thereof, and (ii) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 and Exhibit B hereto) have been paid, subject, however, in each case, to the terms and conditions of the applicable ADRs, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.
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Section 2.7 Surrender of ADSs and Withdrawal of Deposited Securities. The Holder of ADSs shall be entitled to Delivery (at the Custodian’s designated office) of the Deposited Securities at the time represented by the ADSs upon satisfaction of each of the following conditions: (i) the Holder (or a duly-authorized attorney of the Holder) has duly Delivered ADSs to the Depositary at its Principal Office (and if applicable, the ADRs evidencing such ADSs) for the purpose of withdrawal of the Deposited Securities represented thereby, (ii) if applicable and so required by the Depositary, the ADRs Delivered to the Depositary for such purpose have been properly endorsed in blank or are accompanied by proper instruments of transfer in blank (including signature guarantees in accordance with standard securities industry practice), (iii) if so required by the Depositary, the Holder of the ADSs has executed and delivered to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of the person(s) designated in such order, and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 and Exhibit B) have been paid, subject, however, in each case, to the terms and conditions of the ADRs evidencing the surrendered ADSs, of the Deposit Agreement, of the Articles of Association and of any applicable laws and the rules of CREST, and to any provisions of or governing the Deposited Securities , in each case as in effect at the time thereof.
Upon satisfaction of each of the conditions specified above, the Depositary (i) shall cancel the ADSs Delivered to it (and, if applicable, the ADR(s) evidencing the ADSs so Delivered), (ii) shall direct the Registrar to record the cancellation of the ADSs so Delivered on the books maintained for such purpose, and (iii) shall direct the Custodian to Deliver, or cause the Delivery of, in each case, without unreasonable delay, the Deposited Securities represented by the ADSs so canceled together with any certificate or other document of title for the Deposited Securities, or evidence of the electronic transfer thereof (if available), as the case may be, to or upon the written order of the person(s) designated in the order delivered to the Depositary for such purpose, subject however, in each case, to the terms and conditions of the Deposit Agreement, of the ADRs evidencing the ADSs so canceled, of the Articles of Association, of any applicable laws and of the rules of CREST, and to the terms and conditions of or governing the Deposited Securities, in each case as in effect at the time thereof.
The Depositary shall not accept for surrender ADSs representing less than one (1) Share. In the case of Delivery to it of ADSs representing a number other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) return to the person surrendering such ADSs the number of ADSs representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Share represented by the ADSs so surrendered and remit the proceeds of such sale (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the person surrendering the ADSs.
Notwithstanding anything else contained in any ADR or the Deposit Agreement, the Depositary may make delivery at the Principal Office of the Depositary of Deposited Property consisting of (i) any cash dividends or cash distributions, or (ii) any proceeds from the sale of any non-cash distributions, which are at the time held by the Depositary in respect of the
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Deposited Securities represented by the ADSs surrendered for cancellation and withdrawal. At the request, risk and expense of any Holder so surrendering ADSs, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any Deposited Property (other than Deposited Securities) held by the Custodian in respect of such ADSs to the Depositary for delivery at the Principal Office of the Depositary. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission.
Section 2.8 Limitations on Execution and Delivery, Transfer, etc. of ADSs; Suspension of Delivery, Transfer, etc.
(a) Additional Requirements. As a condition precedent to the execution and Delivery, the registration of issuance, transfer, split-up, combination or surrender, of any ADS, the delivery of any distribution thereon, or the withdrawal of any Deposited Property, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of ADSs or of an ADR of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in Section 5.9 and Exhibit B, (ii) the production of proof reasonably satisfactory to it as to the identity and genuineness of any signature or any other matter contemplated by Section 3.1, and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of ADRs or ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations as the Depositary and the Company may establish consistent with the provisions of the representative ADR, if applicable, the Deposit Agreement and applicable law.
(b) Additional Limitations. The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the deposit of particular Shares may be refused, or the registration of transfer of ADSs in particular instances may be refused, or the registration of transfers of ADSs generally may be suspended, during any period when the transfer books of the Company, the Depositary, a Registrar or the Share Registrar are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law or regulation, any government or governmental body or commission or any securities exchange on which the ADSs or Shares are listed, or under any provision of the Deposit Agreement or the representative ADR(s), if applicable, or under any provision of, or governing, the Deposited Securities, or because of a meeting of shareholders of the Company or for any other reason, subject, in all cases, to Section 7.8(a).
(c) Regulatory Restrictions. Notwithstanding any provision of the Deposit Agreement or any ADR(s) to the contrary, Holders are entitled to surrender outstanding ADSs to withdraw the Deposited Securities associated herewith at any time subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the deposit of Shares in connection with voting at a shareholders’ meeting or the payment of dividends, (ii) the payment of fees, taxes and similar charges, (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the ADSs or to the withdrawal of the Deposited Securities, and (iv) other circumstances specifically contemplated by Instruction I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time).
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Section 2.9 Lost ADRs, etc. In case any ADR shall be mutilated, destroyed, lost, or stolen, the Depositary shall execute and deliver a new ADR of like tenor at the expense of the Holder (a) in the case of a mutilated ADR, in exchange of and substitution for such mutilated ADR upon cancellation thereof, or (b) in the case of a destroyed, lost or stolen ADR, in lieu of and in substitution for such destroyed, lost, or stolen ADR, after the Holder thereof (i) has submitted to the Depositary a written request for such exchange and substitution before the Depositary has notice that the ADR has been acquired by a bona fide purchaser, (ii) has provided such security or indemnity (including an indemnity bond) as may be required by the Depositary to save it and any of its agents harmless, and (iii) has satisfied any other reasonable requirements imposed by the Depositary, including, without limitation, evidence satisfactory to the Depositary of such destruction, loss or theft of such ADR, the authenticity thereof and the Holder’s ownership thereof.
Section 2.10 Cancellation and Destruction of Surrendered ADRs; Maintenance of Records. All ADRs surrendered to the Depositary shall be canceled by the Depositary. Canceled ADRs shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable against the Depositary for any purpose. The Depositary is authorized to destroy ADRs so canceled, provided the Depositary maintains a record of all destroyed ADRs. Any ADSs held in book-entry form (e.g., through accounts at DTC) shall be deemed canceled when the Depositary causes the number of ADSs evidenced by the Balance Certificate to be reduced by the number of ADSs surrendered (without the need to physically destroy the Balance Certificate).
Section 2.11 Escheatment. In the event any unclaimed property relating to the ADSs, for any reason, is in the possession of Depositary and has not been claimed by the Holder thereof or cannot be delivered to the Holder thereof through usual channels, the Depositary shall, upon expiration of any applicable statutory period relating to abandoned property laws, escheat such unclaimed property to the relevant authorities in accordance with the laws of each of the relevant States of the United States.
Section 2.12 Partial Entitlement ADSs. In the event any Shares are deposited which (i) entitle the holders thereof to receive a per-share distribution or other entitlement in an amount different from the Shares then on deposit or (ii) are not fully fungible (including, without limitation, as to settlement or trading) with the Shares then on deposit (the Shares then on deposit collectively, “Full Entitlement Shares” and the Shares with different entitlement, “Partial Entitlement Shares”), the Depositary shall (i) cause the Custodian to hold Partial Entitlement Shares separate and distinct from Full Entitlement Shares, and (ii) subject to the terms of the Deposit Agreement, issue ADSs representing Partial Entitlement Shares which are separate and distinct from the ADSs representing Full Entitlement Shares, by means of separate CUSIP numbering and legending (if necessary) and, if applicable, by issuing ADRs evidencing such ADSs with applicable notations thereon (“Partial Entitlement ADSs/ADRs” and “Full Entitlement ADSs/ADRs”, respectively). If and when Partial Entitlement Shares become Full Entitlement Shares, the Depositary shall (a) give notice thereof to Holders of Partial Entitlement
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ADSs and give Holders of Partial Entitlement ADRs the opportunity to exchange such Partial Entitlement ADRs for Full Entitlement ADRs, (b) cause the Custodian to transfer the Partial Entitlement Shares into the account of the Full Entitlement Shares, and (c) take such actions as are necessary to remove the distinctions between (i) the Partial Entitlement ADRs and ADSs, on the one hand, and (ii) the Full Entitlement ADRs and ADSs on the other. Holders and Beneficial Owners of Partial Entitlement ADSs shall only be entitled to the entitlements of Partial Entitlement Shares. Holders and Beneficial Owners of Full Entitlement ADSs shall be entitled only to the entitlements of Full Entitlement Shares. All provisions and conditions of the Deposit Agreement shall apply to Partial Entitlement ADRs and ADSs to the same extent as Full Entitlement ADRs and ADSs, except as contemplated by this Section 2.12. The Depositary is authorized to take any and all other actions as may be necessary (including, without limitation, making the necessary notations on ADRs) to give effect to the terms of this Section 2.12. The Company agrees to give timely written notice to the Depositary if any Shares issued or to be issued are Partial Entitlement Shares and shall assist the Depositary with the establishment of procedures enabling the identification of Partial Entitlement Shares upon Delivery to the Custodian.
Section 2.13 Certificated/Uncertificated ADSs. Notwithstanding any other provision of the Deposit Agreement, the Depositary may, at any time and from time to time, issue ADSs that are not evidenced by ADRs (such ADSs, the “Uncertificated ADS(s)” and the ADS(s) evidenced by ADR(s), the “Certificated ADS(s)”). When issuing and maintaining Uncertificated ADS(s) under the Deposit Agreement, the Depositary shall at all times be subject to (i) the standards applicable to registrars and transfer agents maintaining direct registration systems for equity securities in New York and issuing uncertificated securities under New York law, and (ii) the terms of New York law applicable to uncertificated equity securities. Uncertificated ADSs shall not be represented by any instruments but shall be evidenced by registration in the books of the Depositary maintained for such purpose. Holders of Uncertificated ADSs, that are not subject to any registered pledges, liens, restrictions or adverse claims of which the Depositary has notice at such time, shall at all times have the right to exchange the Uncertificated ADS(s) for Certificated ADS(s) of the same type and class, subject in each case to (x) applicable laws and any rules and regulations the Depositary may have established in respect of the Uncertificated ADSs, and (y) the continued availability of Certificated ADSs in the U.S. Holders of Certificated ADSs shall, if the Depositary maintains a direct registration system for the ADSs, have the right to exchange the Certificated ADSs for Uncertificated ADSs upon (i) the due surrender of the Certificated ADS(s) to the Depositary for such purpose and (ii) the presentation of a written request to that effect to the Depositary, subject in each case to (a) all liens and restrictions noted on the ADR evidencing the Certificated ADS(s) and all adverse claims of which the Depositary then has notice, (b) the terms of the Deposit Agreement and the rules and regulations that the Depositary may establish for such purposes hereunder, (c) applicable law, and (d) payment of the Depositary fees and expenses applicable to such exchange of Certificated ADS(s) for Uncertificated ADS(s). Uncertificated ADSs shall in all material respects be identical to Certificated ADS(s) of the same type and class, except that (i) no ADR(s) shall be, or shall need to be, issued to evidence Uncertificated ADS(s), (ii) Uncertificated ADS(s) shall, subject to the terms of the Deposit Agreement, be transferable upon the same terms and conditions as uncertificated securities under New York law, (iii) the ownership of Uncertificated ADS(s) shall be recorded on the books of the Depositary maintained
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for such purpose and evidence of such ownership shall be reflected in periodic statements provided by the Depositary to the Holder(s) in accordance with applicable New York law, (iv) the Depositary may from time to time, upon notice to the Holders of Uncertificated ADSs affected thereby, establish rules and regulations, and amend or supplement existing rules and regulations, as may be deemed reasonably necessary to maintain Uncertificated ADS(s) on behalf of Holders, provided that (a) such rules and regulations do not conflict with the terms of the Deposit Agreement and applicable law, and (b) the terms of such rules and regulations are readily available to Holders upon request, (v) the Uncertificated ADS(s) shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose against the Depositary or the Company unless such Uncertificated ADS(s) is/are registered on the books of the Depositary maintained for such purpose, (vi) the Depositary may, in connection with any deposit of Shares resulting in the issuance of Uncertificated ADSs and with any transfer, pledge, release and cancellation of Uncertificated ADSs, require the prior receipt of such documentation as the Depositary may deem reasonably appropriate, and (vii) upon termination of the Deposit Agreement, the Depositary shall not require Holders of Uncertificated ADSs to affirmatively instruct the Depositary before remitting proceeds from the sale of the Deposited Property represented by such Holders’ Uncertificated ADSs under the terms of Section 6.2. When issuing ADSs under the terms of the Deposit Agreement, including, without limitation, issuances pursuant to Sections 2.5, 4.2, 4.3, 4.4, 4.5 and 4.11, the Depositary may in its discretion determine to issue Uncertificated ADSs rather than Certificated ADSs, unless otherwise specifically instructed by the applicable Holder to issue Certificated ADSs. All provisions and conditions of the Deposit Agreement shall apply to Uncertificated ADSs to the same extent as to Certificated ADSs, except as contemplated by this Section 2.13. The Depositary is authorized and directed to take any and all actions and establish any and all procedures deemed reasonably necessary to give effect to the terms of this Section 2.13. Any references in the Deposit Agreement or any ADR(s) to the terms “American Depositary Share(s)” or “ADS(s)” shall, unless the context otherwise requires, include Certificated ADS(s) and Uncertificated ADS(s). Except as set forth in this Section 2.13 and except as required by applicable law, the Uncertificated ADSs shall be treated as ADSs issued and outstanding under the terms of the Deposit Agreement. In the event that, in determining the rights and obligations of parties hereto with respect to any Uncertificated ADSs, any conflict arises between (a) the terms of the Deposit Agreement (other than this Section 2.13) and (b) the terms of this Section 2.13, the terms and conditions set forth in this Section 2.13 shall be controlling and shall govern the rights and obligations of the parties to the Deposit Agreement pertaining to the Uncertificated ADSs.
Section 2.14 Restricted ADSs. The Depositary shall, at the request and expense of the Company, establish procedures enabling the deposit hereunder of Shares that are Restricted Securities in order to enable the holder of such Shares to hold its ownership interests in such Restricted Securities in the form of ADSs issued under the terms hereof (such Shares, “Restricted Shares”). Upon receipt of a written request from the Company to accept Restricted Shares for deposit hereunder, the Depositary agrees to establish procedures permitting the deposit of such Restricted Shares and the issuance of ADSs representing the right to receive, subject to the terms of the Deposit Agreement and the applicable ADR (if issued as a Certificated ADS), such deposited Restricted Shares (such ADSs, the “Restricted ADSs,” and the ADRs evidencing such Restricted ADSs, the “Restricted ADRs”). Notwithstanding anything contained in this Section 2.14, the Depositary and the Company may, to the extent not prohibited by law,
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agree to issue the Restricted ADSs in uncertificated form (“Uncertificated Restricted ADSs”) upon such terms and conditions as the Company and the Depositary may deem necessary and appropriate. The Company shall assist the Depositary in the establishment of such procedures and agrees that it shall take all steps necessary and satisfactory to the Depositary to ensure that the establishment of such procedures does not violate the provisions of the Securities Act or any other applicable laws. The depositors of such Restricted Shares and the Holders of the Restricted ADSs may be required prior to the deposit of such Restricted Shares, the transfer of the Restricted ADRs and Restricted ADSs or the withdrawal of the Restricted Shares represented by Restricted ADSs to provide such written certifications or agreements as the Depositary or the Company may require. The Company shall provide to the Depositary in writing the legend(s) to be affixed to the Restricted ADRs (if the Restricted ADSs are to be issued as Certificated ADSs), or to be included in the statements issued from time to time to Holders of Uncertificated ADSs (if issued as Uncertificated Restricted ADSs), which legends shall (i) be in a form reasonably satisfactory to the Depositary and (ii) contain the specific circumstances under which the Restricted ADSs, and, if applicable, the Restricted ADRs evidencing the Restricted ADSs, may be transferred or the Restricted Shares withdrawn. The Restricted ADSs issued upon the deposit of Restricted Shares shall be separately identified on the books of the Depositary and the Restricted Shares so deposited shall, to the extent required by law, be held separate and distinct from the other Deposited Securities held hereunder. The Restricted ADSs shall not be eligible for inclusion in any book-entry settlement system, including, without limitation, DTC (unless (x) otherwise agreed by the Company and the Depositary, (y) the inclusion of Restricted ADSs is acceptable to the applicable clearing system, and (z) the terms of such inclusion are generally accepted by the Commission for Restricted Securities of that type), and shall not in any way be fungible with the ADSs issued under the terms hereof that are not Restricted ADSs. The Restricted ADSs, and, if applicable, the Restricted ADRs evidencing the Restricted ADSs, shall be transferable only by the Holder thereof upon delivery to the Depositary of (i) all documentation otherwise contemplated by the Deposit Agreement and (ii) an opinion of counsel satisfactory to the Depositary setting forth, inter alia, the conditions upon which the Restricted ADSs presented, and, if applicable, the Restricted ADRs evidencing the Restricted ADSs, are transferable by the Holder thereof under applicable securities laws and the transfer restrictions contained in the legend applicable to the Restricted ADSs presented for transfer. Except as set forth in this Section 2.14 and except as required by applicable law, the Restricted ADSs and the Restricted ADRs evidencing Restricted ADSs shall be treated as ADSs and ADRs issued and outstanding under the terms of the Deposit Agreement. In the event that, in determining the rights and obligations of parties hereto with respect to any Restricted ADSs, any conflict arises between (a) the terms of the Deposit Agreement (other than this Section 2.14) and (b) the terms of (i) this Section 2.14 or (ii) the applicable Restricted ADR, the terms and conditions set forth in this Section 2.14 and of the Restricted ADR shall be controlling and shall govern the rights and obligations of the parties to the Deposit Agreement pertaining to the deposited Restricted Shares, the Restricted ADSs and Restricted ADRs.
If the Restricted ADRs, the Restricted ADSs and the Restricted Shares cease to be Restricted Securities, the Depositary, upon receipt of (x) an opinion of counsel satisfactory to the Depositary setting forth, inter alia, that the Restricted ADRs, the Restricted ADSs and the Restricted Shares are not as of such time Restricted Securities, and (y) instructions from the Company to remove the restrictions applicable to the Restricted ADRs, the Restricted ADSs and
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the Restricted Shares, shall (i) eliminate the distinctions and separations that may have been established between the applicable Restricted Shares held on deposit under this Section 2.14 and the other Shares held on deposit under the terms of the Deposit Agreement that are not Restricted Shares, (ii) treat the newly unrestricted ADRs and ADSs on the same terms as, and fully fungible with, the other ADRs and ADSs issued and outstanding under the terms of the Deposit Agreement that are not Restricted ADRs or Restricted ADSs, and (iii) take all actions necessary to remove any distinctions, limitations and restrictions previously existing under this Section 2.14 between the applicable Restricted ADRs and Restricted ADSs, respectively, on the one hand, and the other ADRs and ADSs that are not Restricted ADRs or Restricted ADSs, respectively, on the other hand, including, without limitation, by making the newly-unrestricted ADSs eligible for inclusion in the applicable book-entry settlement systems.
ARTICLE III
CERTAIN OBLIGATIONS OF HOLDERS
AND BENEFICIAL OWNERS OF ADSs
Section 3.1 Proofs, Certificates and Other Information. Any person presenting Shares for deposit, any Holder and any Beneficial Owner may be required, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary and the Custodian such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Property, compliance with applicable laws, the terms of the Deposit Agreement or the ADR(s) evidencing the ADSs and the provisions of, or governing, the Deposited Property, to execute such certifications and to make such representations and warranties, and to provide such other information and documentation (or, in the case of Shares in registered form presented for deposit, such information relating to the registration on the books of the Company or of the Share Registrar) as the Depositary or the Custodian may deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement and the applicable ADR(s). The Depositary and the Registrar, as applicable, may, and at the reasonable request of the Company shall, withhold the execution or delivery or registration of transfer of any ADR or ADS or the distribution or sale of any dividend or distribution of rights or of the proceeds thereof or, to the extent not limited by the terms of Section 7.8(a), the delivery of any Deposited Property until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s, the Registrar’s and the Company’s satisfaction. The Depositary shall provide the Company, in a timely manner, with copies or originals if necessary and appropriate of (i) any such proofs of citizenship or residence, taxpayer status, or exchange control approval or copies of written representations and warranties which it receives from Holders and Beneficial Owners, and (ii) any other information or documents which the Company may reasonably request and which the Depositary shall request and receive from any Holder or Beneficial Owner or any person
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presenting Shares for deposit or ADSs for cancellation, transfer or withdrawal. Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners, or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.
Section 3.2 Liability for Taxes and Other Charges. Any tax or other governmental charge payable by the Custodian or by the Depositary with respect to any Deposited Property, ADSs or ADRs shall be payable by the Holders and Beneficial Owners to the Depositary. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Property held on behalf of such Holder and/or Beneficial Owner, and may sell for the account of a Holder and/or Beneficial Owner any or all of such Deposited Property and apply such distributions and sale proceeds in payment of, any taxes (including applicable interest and penalties) or charges that are or may be payable by Holders or Beneficial Owners in respect of the ADSs, Deposited Property and ADRs, the Holder and the Beneficial Owner remaining liable for any deficiency. The Custodian may refuse the deposit of Shares and the Depositary may refuse to issue ADSs, to deliver ADRs, register the transfer of ADSs, register the split-up or combination of ADRs and (subject to Section 7.8(a)) the withdrawal of Deposited Property until payment in full of such tax, charge, penalty or interest is received. Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, and any of their agents, officers, employees and Affiliates for, and to hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from (i) any ADSs held by such Holder and/or owned by such Beneficial Owner, (ii) the Deposited Property represented by the ADSs, and (iii) any transaction entered into by such Holder and/or Beneficial Owner in respect of the ADSs and/or the Deposited Property represented thereby . Notwithstanding anything to the contrary contained in the Deposit Agreement or any ADR, the obligations of Holders and Beneficial Owners under this Section 3.2 shall survive any transfer of ADSs, any cancellation of ADSs and withdrawal of Deposited Securities, and the termination of the Deposit Agreement.
Section 3.3 Representations and Warranties on Deposit of Shares. Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and the certificates therefor are duly authorized, validly allotted and issued, fully paid, not subject to any call for payment of further capital and legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares have been validly waived, disapplied or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, (v) the Shares presented for deposit are not, and the ADSs issuable upon such deposit will not be, Restricted Securities (except as contemplated in Section 2.14), and (vi) the Shares presented for deposit have not been stripped of any rights or entitlements. Such representations and warranties shall survive the deposit and withdrawal of Shares, the issuance and cancellation of ADSs in respect thereof and the transfer of such ADSs. If any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.
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Section 3.4 Compliance with Information Requests. Notwithstanding any other provision of the Deposit Agreement or any ADR(s), each Holder and Beneficial Owner agrees to comply with requests from the Company pursuant to applicable law, the rules and requirements of any stock exchange on which the Shares or ADSs are, or will be, registered, traded or listed or the Articles of Association, which are made to provide information, inter alia, as to the capacity in which such Holder or Beneficial Owner owns ADSs (and Shares as the case may be) and regarding the identity of any other person(s) interested in such ADSs and the nature of such interest and various other matters, whether or not they are Holders and/or Beneficial Owners at the time of such request. The Depositary agrees to use its reasonable efforts to forward, upon the request of the Company and at the Company’s expense, any such request from the Company to the Holders and to forward to the Company any such responses to such requests received by the Depositary.
Section 3.5 Ownership Restrictions. Notwithstanding any other provision contained in the Deposit Agreement or any ADR(s) to the contrary, the Company may restrict transfers of the Shares where such transfer might result in ownership of Shares exceeding limits imposed by applicable law or the Articles of Association. The Company may also restrict, in such manner as it deems appropriate, transfers of the ADSs where such transfer may result in the total number of Shares represented by the ADSs owned by a single Holder or Beneficial Owner to exceed any such limits. The Company may, in its sole discretion but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner in excess of the limits set forth in the preceding sentence, including, but not limited to, the imposition of restrictions on the transfer of ADSs, the removal or limitation of voting rights or mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares represented by the ADSs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Articles of Association. Nothing herein shall be interpreted as obligating the Depositary or the Company to ensure compliance with the ownership restrictions described in this Section 3.5.
Notwithstanding any provision of this Deposit Agreement or of any ADR(s) and without limiting the foregoing, by being a Holder of an ADR, each such Holder agrees to provide such information as the Company may request in a disclosure notice (a “Disclosure Notice”) given pursuant to the U.K. Companies Act 2006 (as amended from time to time and including any statutory modification or re-enactment thereof, the “Companies Act”) or the Articles of Association. By accepting or holding an ADR, each Holder acknowledges that it understands that failure to comply with a Disclosure Notice may result in the imposition of sanctions against the holder of the ADR in respect of which the non-complying person is or was, or appears to be or has been, interested as provided in the Companies Act and the Articles of Association which currently include, the withdrawal of the voting rights of such ADR and the imposition of restrictions on the rights to receive dividends on and to transfer such ADR.
The Company reserves the right to instruct Holders to deliver their ADSs for cancellation and withdrawal of the Deposited Securities so as to permit the Company to deal directly with the Holder thereof as a holder of Shares and Holders agree to comply with such instructions. The Depositary agrees to cooperate with the Company in its efforts to inform Holders, at the Company’s expense, of the Company’s exercise of its rights under this paragraph and agrees to
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consult with, and provide reasonable assistance without risk, liability or expense on the part of the Depositary, to the Company on the manner or manners in which it may enforce such rights with respect to any Holder.
Section 3.6 Reporting Obligations and Regulatory Approvals. Applicable laws and regulations may require holders and beneficial owners of Shares, including the Holders and Beneficial Owners of ADSs, to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. Holders and Beneficial Owners of ADSs are solely responsible for determining and complying with such reporting requirements and obtaining such approvals. Each Holder and each Beneficial Owner hereby agrees to make such determination, file such reports, and obtain such approvals to the extent and in the form required by applicable laws and regulations as in effect from time to time. Neither the Depositary, the Custodian, the Company or any of their respective agents or affiliates shall be required to take any actions whatsoever on behalf of Holders or Beneficial Owners to determine or satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.
ARTICLE IV
THE DEPOSITED SECURITIES
Section 4.1 Cash Distributions. Whenever the Company intends to make a distribution of a cash dividend or other cash distribution in respect of any Deposited Securities, the Company shall give timely notice thereof to the Depositary at least twenty (20) days (or such other number of days as mutually agreed to in writing by the Depositary and the Company) prior to the proposed distribution specifying, inter alia, the record date applicable for determining the holders of Deposited Securities entitled to receive such distribution. Upon the timely receipt of such notice, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9. Upon confirmation of the receipt of (x) any cash dividend or other cash distribution on any Deposited Securities, or (y) proceeds from the sale of any Deposited Property held in respect of the ADSs under the terms hereof, the Depositary will (i) if any amounts are received in a Foreign Currency, promptly convert or cause to be converted such cash dividend, distribution or proceeds into Dollars (subject to the terms and conditions of Section 4.8), (ii) if applicable and unless previously established, establish the ADS Record Date upon the terms described in Section 4.9, and (iii) distribute promptly the amount thus received (net of (a) the applicable fees and charges set forth in the Fee Schedule attached hereto as Exhibit B, and (b) applicable taxes withheld) to the Holders entitled thereto as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent, and any balance not so distributed shall be held by the Depositary (without liability for interest thereon) and shall be added to and become part of the next sum received by the Depositary for distribution to Holders of ADSs outstanding at the time of the next distribution. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities, or from any cash proceeds from the sales of Deposited Property, an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the ADSs shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the
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Depositary to the relevant governmental authority. Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable Holders and Beneficial Owners of ADSs until the distribution can be effected or the funds that the Depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.1, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.1, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.1 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
Section 4.2 Distribution in Shares. Whenever the Company intends to make a distribution that consists of a dividend in, or free distribution of, Shares, the Company shall give timely notice thereof to the Depositary at least twenty (20) days (or such other number of days as mutually agreed to in writing by the Depositary and the Company) prior to the proposed distribution, specifying, inter alia, the record date applicable to holders of Deposited Securities entitled to receive such distribution. Upon the timely receipt of such notice from the Company, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9. Upon receipt of confirmation from the Custodian of the receipt of the Shares so distributed by the Company, the Depositary shall either (i) subject to Section 5.9, distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date, additional ADSs, which represent in the aggregate the number of Shares received as such dividend, or free distribution, subject to the other terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes), or (ii) if additional ADSs are not so distributed, take all actions necessary so that each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional integral number of Shares distributed upon the Deposited Securities represented thereby (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes). In lieu of delivering fractional ADSs, the Depositary shall sell the number of Shares or ADSs, as the case may be, represented by the aggregate of such fractions and distribute the net proceeds upon the terms described in Section 4.1. In the event that the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, if the Company in the fulfillment of its obligation under Section 5.7, has furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of (a) taxes and (b) fees and charges of, and expenses incurred by, the Depositary) to Holders entitled thereto upon the terms described in Section 4.1. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the
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provisions of the Deposit Agreement. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.2, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.2, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.2 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
Section 4.3 Elective Distributions in Cash or Shares. Whenever the Company intends to make a distribution payable at the election of the holders of Deposited Securities in cash or in additional Shares, the Company shall give timely notice thereof to the Depositary at least forty-five (45) days (or such other number of days as mutually agreed to in writing by the Depositary and the Company) prior to the proposed distribution specifying, inter alia, the record date applicable to holders of Deposited Securities entitled to receive such elective distribution and whether or not it wishes such elective distribution to be made available to Holders of ADSs. Upon the timely receipt of a notice indicating that the Company wishes such elective distribution to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders of ADSs. The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution be made available to Holders, (ii) the Depositary shall have determined that such distribution is reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7. If the above conditions are not satisfied or if the Company requests such elective distribution not to be made available to Holders of ADSs, the Depositary shall establish the ADS Record Date on the terms described in Section 4.9 and, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in England and Wales in respect of the Shares for which no election is made, either (X) cash upon the terms described in Section 4.1 or (Y) additional ADSs representing such additional Shares upon the terms described in Section 4.2. If the above conditions are satisfied, the Depositary shall establish an ADS Record Date on the terms described in Section 4.9 and establish procedures to enable Holders to elect the receipt of the proposed distribution in cash or in additional ADSs. The Company shall assist the Depositary in establishing such procedures to the extent necessary. If a Holder elects to receive the proposed distribution (X) in cash, the distribution shall be made upon the terms described in Section 4.1, or (Y) in ADSs, the distribution shall be made upon the terms described in Section 4.2. Nothing herein shall obligate the Depositary to make available to Holders a method to receive the elective distribution in Shares (rather than ADSs). There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in this Section 4.3, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.3, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.3 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
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Section 4.4 Distribution of Rights to Purchase Additional ADSs.
(a) Distribution to ADS Holders. Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give timely notice thereof to the Depositary at least forty-five (45) days (or such other number of days as mutually agreed to in writing by the Depositary and the Company) prior to the proposed distribution specifying, inter alia, the record date applicable to holders of Deposited Securities entitled to receive such distribution and whether or not it wishes such rights to be made available to Holders of ADSs. Upon the timely receipt of a notice indicating that the Company wishes such rights to be made available to Holders of ADSs, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to Holders only if (i) the Company shall have timely requested that such rights be made available to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7, and (iii) the Depositary shall have determined that such distribution of rights is reasonably practicable. In the event any of the conditions set forth above are not satisfied or if the Company requests that the rights not be made available to Holders of ADSs, the Depositary shall proceed with the sale of the rights as contemplated in Section 4.4(b) below. In the event all conditions set forth above are satisfied, the Depositary shall establish the ADS Record Date (upon the terms described in Section 4.9) and establish procedures to (x) distribute rights to purchase additional ADSs (by means of warrants or otherwise), (y) enable the Holders to exercise such rights (upon payment of the subscription price and of the applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes), and (z) deliver ADSs upon the valid exercise of such rights. The Company shall assist the Depositary to the extent necessary in establishing such procedures. Nothing herein shall obligate the Depositary to make available to the Holders a method to exercise rights to subscribe for Shares (rather than ADSs).
(b) Sale of Rights. If (i) the Company does not timely request the Depositary to make the rights available to Holders or requests that the rights not be made available to Holders, (ii) the Depositary fails to receive satisfactory documentation within the terms of Section 5.7, or determines it is not reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, in a riskless principal capacity, at such place and upon such terms (including public or private sale) as it may deem practicable. The Company shall assist the Depositary to the extent necessary to determine such legality and practicability. The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) upon the terms set forth in Section 4.1.
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(c) Lapse of Rights. If the Depositary is unable to make any rights available to Holders upon the terms described in Section 4.4(a) or to arrange for the sale of the rights upon the terms described in Section 4.4(b), the Depositary shall allow such rights to lapse.
The Depositary shall not be liable for (i) any failure to accurately determine whether it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.
Notwithstanding anything to the contrary in this Section 4.4, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act (or other applicable law) covering such offering is in effect or (ii) unless the Company furnishes the Depositary opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactory to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws.
In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of Deposited Property (including rights) an amount on account of taxes or other governmental charges, the amount distributed to the Holders of ADSs shall be reduced accordingly. In the event that the Depositary determines that any distribution of Deposited Property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such Deposited Property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes or charges.
There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive or exercise rights on the same terms and conditions as the holders of Shares or be able to exercise such rights. Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.
Section 4.5 Distributions Other Than Cash, Shares or Rights to Purchase Shares.
(a) Whenever the Company intends to distribute to the holders of Deposited Securities property other than cash, Shares or rights to purchase additional Shares, the Company shall give timely notice thereof to the Depositary and shall indicate whether or not it wishes such distribution to be made to Holders of ADSs. Upon receipt of a notice indicating that the Company wishes such distribution to be made to Holders of ADSs, the Depositary shall consult
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with the Company, and the Company shall assist the Depositary, to determine whether such distribution to Holders is lawful and reasonably practicable. The Depositary shall not make such distribution unless (i) the Company shall have requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7, and (iii) the Depositary shall have determined that such distribution is reasonably practicable.
(b) Upon receipt of satisfactory documentation and the request of the Company to distribute property to Holders of ADSs and after making the requisite determinations set forth in (a) above, the Depositary shall distribute the property so received to the Holders of record, as of the ADS Record Date, in proportion to the number of ADSs held by them respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of taxes withheld. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.
(c) If (i) the Company does not request the Depositary to make such distribution to Holders or requests the Depositary not to make such distribution to Holders, (ii) the Depositary does not receive satisfactory documentation within the terms of Section 5.7, or (iii) the Depositary determines that all or a portion of such distribution is not reasonably practicable, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem practicable and shall (i) cause the proceeds of such sale, if any, to be converted into Dollars and (ii) distribute the proceeds of such conversion received by the Depositary (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to the Holders as of the ADS Record Date upon the terms of Section 4.1. If the Depositary is unable to sell such property, the Depositary may dispose of such property for the account of the Holders in any way it deems reasonably practicable under the circumstances.
(d) Neither the Depositary nor the Company shall be liable for (i) any failure to accurately determine whether it is lawful or practicable to make the property described in this Section 4.5 available to Holders in general or any Holders in particular, nor (ii) any loss incurred in connection with the sale or disposal of such property.
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Section 4.6 Distributions with Respect to Deposited Securities in Bearer Form. Subject to the terms of this Article IV, distributions in respect of Deposited Securities that are held by the Depositary or the Custodian in bearer form shall be made to the Depositary for the account of the respective Holders of ADS(s) with respect to which any such distribution is made upon due presentation by the Depositary or the Custodian to the Company of any relevant coupons, talons, or certificates. The Company shall promptly notify the Depositary of such distributions. The Depositary or the Custodian shall promptly present such coupons, talons or certificates, as the case may be, in connection with any such distribution.
Section 4.7 Redemption. If the Company intends to exercise any right of redemption in respect of any of the Deposited Securities, the Company shall give timely notice thereof to the Depositary at least forty five (45) days (or such other number of days as mutually agreed to in writing by the Depositary and the Company) prior to the intended date of redemption which notice shall set forth the particulars of the proposed redemption. Upon timely receipt of (i) such notice and (ii) satisfactory documentation given by the Company to the Depositary within the terms of Section 5.7, and only, after consultation between the Company and the Depositary, the Depositary shall have determined that such proposed redemption is practicable, the Depositary shall provide to each Holder a notice setting forth the intended exercise by the Company of the redemption rights and any other particulars set forth in the Company’s notice to the Depositary. The Depositary shall instruct the Custodian to present to the Company the Deposited Securities in respect of which redemption rights are being exercised against payment of the applicable redemption price. Upon receipt of confirmation from the Custodian that the redemption has taken place and that funds representing the redemption price have been received, the Depositary shall convert, transfer, and distribute the proceeds (net of applicable (a) fees and charges of, and the expenses incurred by, the Depositary, and (b) taxes), retire ADSs and cancel ADRs, if applicable, upon delivery of such ADSs by Holders thereof and the terms set forth in Sections 4.1 and 6.2. If less than all outstanding Deposited Securities are redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as may be determined by the Depositary. The redemption price per ADS shall be the dollar equivalent of the per share amount received by the Depositary (adjusted to reflect the ADS(s)-to-Share(s) ratio) upon the redemption of the Deposited Securities represented by ADSs (subject to the terms of Section 4.8 and the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes) multiplied by the number of Deposited Securities represented by each ADS redeemed.
Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed redemption provided for in this Section 4.7, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in this Section 4.7, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in this Section 4.7 where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
Section 4.8 Conversion of Foreign Currency. Whenever the Depositary or the Custodian shall receive Foreign Currency, by way of dividends or other distributions or the net proceeds from the sale of Deposited Property, which in the judgment of the Depositary can at such time be converted on a practicable basis, by sale or in any other manner that it may
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determine in accordance with applicable law, into Dollars transferable to the United States and distributable to the Holders entitled thereto, the Depositary shall convert or cause to be converted, by sale or in any other manner that it may reasonably determine, such Foreign Currency into Dollars, and shall distribute such Dollars (net of the fees and charges set forth in the Fee Schedule attached hereto as Exhibit B, and applicable taxes withheld) in accordance with the terms of the applicable sections of the Deposit Agreement. The Depositary and/or its agent (which may be a division, branch or Affiliate of the Depositary) may act as principal for any conversion of Foreign Currency. If the Depositary shall have distributed warrants or other instruments that entitle the holders thereof to such Dollars, the Depositary shall distribute such Dollars to the holders of such warrants and/or instruments upon surrender thereof for cancellation, in either case without liability for interest thereon. Such distribution may be made upon an averaged or other practicable basis without regard to any distinctions among Holders on account of any application of exchange restrictions or otherwise.
If such conversion or distribution generally or with regard to a particular Holder can be effected only with the approval or license of any government or agency thereof, the Depositary shall have authority to file such application for approval or license, if any, as it may deem desirable. In no event, however, shall the Depositary be obligated to make such a filing.
If at any time the Depositary shall determine that in its judgment the conversion of any Foreign Currency and the transfer and distribution of proceeds of such conversion received by the Depositary is not practicable or lawful, or if any approval or license of any governmental authority or agency thereof that is required for such conversion, transfer and distribution is denied or, in the opinion of the Depositary, not obtainable at a reasonable cost or within a reasonable period, the Depositary may, in its reasonable discretion, (i) make such conversion and distribution in Dollars to the Holders for whom such conversion, transfer and distribution is lawful and practicable, (ii) distribute the Foreign Currency (or an appropriate document evidencing the right to receive such Foreign Currency) to Holders for whom this is lawful and practicable, or (iii) hold (or cause the Custodian to hold) such Foreign Currency (without liability for interest thereon) for the respective accounts of the Holders entitled to receive the same.
Section 4.9 Fixing of ADS Record Date. Whenever (a) the Depositary shall receive notice of the fixing of a record date by the Company for the determination of holders of Deposited Securities entitled to receive any distribution (whether in cash, Shares, rights, or other distribution), (b) for any reason the Depositary causes a change in the number of Shares that are represented by each ADS, (c) the Depositary shall receive notice of any meeting of, or solicitation of consents or proxies of, holders of Shares or other Deposited Securities, or (d) the Depositary shall find it necessary or convenient in connection with the giving of any notice, solicitation of any consent or any other matter, the Depositary shall fix the record date (the “ADS Record Date”) for the determination of the Holders of ADS(s) who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, to give or withhold such consent, to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each ADS. The Depositary shall make reasonable efforts to establish the ADS Record Date as closely as practicable to the applicable record date for the Deposited Securities (if any) set by the Company in England and Wales and shall not announce the establishment of any ADS
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Record Date prior to the relevant corporate action having been made public by the Company (if such corporate action affects the Deposited Securities). Subject to applicable law and the provisions of Section 4.1 through 4.8 and to the other terms and conditions of the Deposit Agreement, only the Holders of ADSs at the close of business in New York on such ADS Record Date shall be entitled to receive such distribution, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.
Section 4.10 Voting of Deposited Securities. As soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote, or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or solicitation of consent or proxy in accordance with Section 4.9. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least thirty (30) days prior to the date of such vote or meeting), at the Company’s expense and provided no U.S. legal prohibitions exist, distribute to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy, (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the provisions of the Deposit Agreement, the Articles of Association and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s ADSs, and (c) a brief statement as to the manner in which such voting instructions may be given to the Depositary or in which voting instructions may be deemed to have been given.
Notwithstanding anything contained in the Deposit Agreement or any ADR, with the Company’s prior written consent, the Depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the Depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of Deposited Securities, distribute to the Holders a notice that provides Holders with, or otherwise publicizes to Holders, instructions on how to retrieve such materials or receive such materials upon request (e.g., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).
The Depositary has been advised by the Company that under the Articles of Association as in effect on the date of the Deposit Agreement, voting at any meeting of shareholders of the Company is by show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of the meeting or by those shareholders entitled under the provisions of the Companies Act 2006 to demand a poll. The Depositary will not join in demanding a poll, whether or not requested to do so by Holders of ADSs. Under the Articles of Association as in effect on the date of the Deposit Agreement, a poll may be demanded by (a) the chairman of the meeting, (b) not fewer not fewer than two shareholders present in person or by proxy and having the right to vote on the meeting resolution, (c) any shareholder(s) present in
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person or by proxy and representing not less than 10% of the total voting rights of all the shareholders having the right to vote on the resolution (excluding any shares held in treasury) or (d) any shareholder(s) present in person or by proxy and holding shares in the Company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right (excluding any shares held in treasury).
Voting instructions may be given only in respect of a number of ADSs representing an integral number of Deposited Securities. Upon the timely receipt from a Holder of ADSs as of the ADS Record Date of voting instructions in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement, the Articles of Association and the provisions of the Deposited Securities, to vote, or cause the Custodian to vote, the Deposited Securities (in person or by proxy) represented by such Holder’s ADSs as follows: (a) in the event voting takes place at a shareholders’ meeting by a show of hands, the Depositary will instruct the Custodian to vote all Deposited Securities in accordance with the voting instructions received timely from a majority of Holders of ADSs who provided voting instructions, and (b) in the event voting takes place at a shareholders’ meeting by poll, the Depositary will instruct the Custodian to vote the Deposited Securities in accordance with the voting instructions timely received from the Holders of ADSs. If voting is by poll and the Depositary does not receive voting instructions from a Holder as of the ADS Record Date on or before the date established by the Depositary for such purpose, such Holder shall be deemed, and the Depositary shall deem such Holder, to have instructed the Depositary to give a discretionary proxy to a person designated by the Company to vote the Deposited Securities; provided, however, that no such discretionary proxy shall be given by the Depositary with respect to any matter to be voted upon as to which the Company informs the Depositary that (a) the Company does not wish such proxy to be given, (b) substantial opposition exists, or (c) the rights of holders of Deposited Securities may be adversely affected.
Deposited Securities represented by ADSs for which no timely voting instructions are received by the Depositary from the Holder shall not be voted (except (a) in the case voting is by show of hands, in which case the Depositary will instruct the Custodian to vote all Deposited Securities in accordance with the voting instructions received from a majority of Holders of ADSs who provided timely voting instructions, and (b) as contemplated in this Section 4.10). Neither the Depositary nor the Custodian shall under any circumstances exercise any discretion as to voting and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of, for purposes of establishing a quorum or otherwise, the Deposited Securities represented by ADSs, except pursuant to and in accordance with the voting instructions timely received from Holders or as otherwise contemplated herein. If the Depositary timely receives voting instructions from a Holder which fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs, the Depositary will deem such Holder (unless otherwise specified in the notice distributed to Holders) to have instructed the Depositary to vote in favor of the items set forth in such voting instructions. Notwithstanding anything else contained herein, the Depositary shall, if so requested in writing by the Company, represent all Deposited Securities (whether or not voting instructions have been received in respect of such Deposited Securities from Holders as of the ADS Record Date) for the sole purpose of establishing quorum at a meeting of shareholders.
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Notwithstanding anything else contained in the Deposit Agreement or any ADR, the Depositary shall not have any obligation to take any action with respect to any meeting, or solicitation of consents or proxies, of holders of Deposited Securities if the taking of such action would violate U.S. or English laws. The Company agrees to take any and all actions reasonably necessary and as permitted by the laws of England and Wales to enable Holders and Beneficial Owners to exercise the voting rights accruing to the Deposited Securities and to deliver to the Depositary an opinion of U.S. counsel addressing any actions requested to be taken if so requested by the Depositary.
There can be no assurance that Holders generally or any Holder in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.
Section 4.11 Changes Affecting Deposited Securities. Upon any change in nominal or par value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger, consolidation or sale of assets affecting the Company or to which it is a party, any property which shall be received by the Depositary or the Custodian in exchange for, or in conversion of, or replacement of, or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Property under the Deposit Agreement, and the ADSs shall, subject to the provisions of the Deposit Agreement, any ADR(s) evidencing such ADSs and applicable law, represent the right to receive such additional or replacement Deposited Property. In giving effect to such change, split-up, subdivide, cancellation, consolidation or other reclassification of Deposited Securities, recapitalization, reorganization, merger, consolidation or sale of assets, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary, and (b) taxes) and receipt of an opinion of counsel to the Company satisfactory to the Depositary that such actions are not in violation of any applicable laws or regulations, (i) issue and deliver additional ADSs as in the case of a stock dividend on or bonus issue of the Shares, (ii) amend the Deposit Agreement and the applicable ADRs, (iii) amend the applicable Registration Statement(s) on Form F-6 as filed with the Commission in respect of the ADSs, (iv) call for the surrender of outstanding ADRs to be exchanged for new ADRs, and (v) take such other actions as are appropriate to reflect the transaction with respect to the ADSs. The Company agrees to, jointly with the Depositary, amend the Registration Statement on Form F-6 as filed with the Commission to permit the issuance of such new form of ADRs. Notwithstanding the foregoing, in the event that any Deposited Property so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall, if the Company requests, subject to receipt of an opinion of Company’s counsel satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such Deposited Property at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) for the account of the Holders otherwise entitled to such Deposited Property upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to Section 4.1. The
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Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such Deposited Property available to Holders in general or to any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such Deposited Property.
Section 4.12 Available Information.
The Company is subject to the periodic reporting requirements of the Exchange Act and, accordingly, is required to file or furnish certain reports with the Commission. These reports can be retrieved from the Commission’s website (www.sec.gov) and can be inspected and copied at the public reference facilities maintained by the Commission located (as of the date of the Deposit Agreement) at 100 F Street, N.E., Washington D.C. 20549.
Section 4.13 Reports. The Depositary shall make available for inspection by Holders at its Principal Office, as promptly as practicable after receipt thereof, any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Property and (b) made generally available to the holders of such Deposited Property by the Company. The Depositary shall also provide or make available to Holders copies of such reports when furnished by the Company pursuant to Section 5.6.
Section 4.14 List of Holders. Promptly upon written request by the Company, the Depositary shall furnish to it a list, as of a recent date, of the names, addresses and holdings of ADSs of all Holders.
Section 4.15 Taxation. The Depositary will, and will instruct the Custodian to, forward to the Company or its agents such information from its records as the Company may reasonably request to enable the Company or its agents to file the necessary tax reports with governmental authorities or agencies. The Depositary, the Custodian or the Company and its agents may file such reports as are necessary to reduce or eliminate applicable taxes on dividends and on other distributions in respect of Deposited Property under applicable tax treaties or laws for the Holders and Beneficial Owners. In accordance with instructions from the Company and to the extent practicable, the Depositary or the Custodian will take reasonable administrative actions to obtain tax refunds, reduced withholding of tax at source on dividends and other benefits under applicable tax treaties or laws with respect to dividends and other distributions on the Deposited Property. As a condition to receiving such benefits, Holders and Beneficial Owners of ADSs may be required from time to time, and in a timely manner, to file such proof of taxpayer status, residence and beneficial ownership (as applicable), to execute such certificates and to make such representations and warranties, or to provide any other information or documents, as the Depositary or the Custodian may deem necessary or proper to fulfill the Depositary’s or the Custodian’s obligations under applicable law. The Depositary and the Company shall have no obligation or liability to any person if any Holder or Beneficial Owner
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fails to provide such information or if such information does not reach the relevant tax authorities in time for any Holder or Beneficial Owner to obtain the benefits of any tax treatment. The Holders and Beneficial Owners shall indemnify the Depositary, the Company, the Custodian and any of their respective directors, employees, agents and Affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.
If the Company (or any of its agents) withholds from any distribution any amount on account of taxes or governmental charges, or pays any other tax in respect of such distribution (e.g., stamp duty tax, capital gains or other similar tax), the Company shall (and shall cause such agent to) remit promptly to the Depositary information about such taxes or governmental charges withheld or paid, and, if so requested, the tax receipt (or other proof of payment to the applicable governmental authority) therefor, in each case, in a form satisfactory to the Depositary. The Depositary shall, to the extent required by U.S. law, report to Holders any taxes withheld by it or the Custodian, and, if such information is provided to it by the Company, any taxes withheld by the Company. The Depositary and the Custodian shall not be required to provide the Holders with any evidence of the remittance by the Company (or its agents) of any taxes withheld, or of the payment of taxes by the Company, except to the extent the evidence is provided by the Company to the Depositary or the Custodian, as applicable. Neither the Depositary nor the Custodian shall be liable for the failure by any Holder or Beneficial Owner to obtain the benefits of credits on the basis of non-U.S. tax paid against such Holder’s or Beneficial Owner’s income tax liability.
The Depositary is under no obligation to provide the Holders and Beneficial Owners with any information about the tax status of the Company except to the extent that the Company provides such information to the Depositary, and the Depositary reasonably agrees to distribute to the Holders and Beneficial Owners. The Depositary shall not incur any liability for any tax consequences that may be incurred by Holders and Beneficial Owners on account of their ownership of the ADSs, including without limitation, tax consequences resulting from the Company (or any of its subsidiaries) being treated as a “Passive Foreign Investment Company” (in each case as defined in the U.S. Internal Revenue Code and the regulations issued thereunder) or otherwise.
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ARTICLE V
THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY
Section 5.1 Maintenance of Office and Transfer Books by the Registrar. Until termination of the Deposit Agreement in accordance with its terms, the Registrar shall maintain in the Borough of Manhattan, the City of New York, an office and facilities for the issuance and delivery of ADSs, the acceptance for surrender of ADS(s) for the purpose of withdrawal of Deposited Securities, the registration of issuances, cancellations, transfers, combinations and split-ups of ADS(s) and, if applicable, to countersign ADRs evidencing the ADSs so issued, transferred, combined or split-up, in each case in accordance with the provisions of the Deposit Agreement.
The Registrar shall keep books for the registration of ADSs which at all reasonable times shall be open for inspection by the Company and by the Holders of such ADSs, provided that such inspection shall not be, to the Registrar’s knowledge, for the purpose of communicating with Holders of such ADSs in the interest of a business or object other than the business of the Company or other than a matter related to the Deposit Agreement or the ADSs.
The Registrar may close the transfer books with respect to the ADSs, at any time or from time to time, when deemed necessary or advisable by it in good faith in connection with the performance of its duties hereunder, or at the reasonable written request of the Company subject, in all cases, to Section 7.8(a).
If any ADSs are listed on one or more stock exchanges or automated quotation systems in the United States, the Depositary shall act as Registrar or, with written notice given as promptly as practicable to the Company, appoint a Registrar or one or more co-registrars for registration of issuances, cancellations, transfers, combinations and split-ups of ADSs and, if applicable, to countersign ADRs evidencing the ADSs so issued, transferred, combined or split-up, in accordance with any requirements of such exchanges or systems. Such Registrar or co-registrars may be removed and a substitute or substitutes appointed by the Depositary, upon written notice given as promptly as practicable to the Company.
Section 5.2 Exoneration. Notwithstanding anything contained in the Deposit Agreement or any ADR, neither the Depositary nor the Company shall be obligated to do or perform any act or thing which is inconsistent with the provisions of the Deposit Agreement or incur any liability (to the extent not limited by Section 7.8(b)) (i) if the Depositary, the Custodian, the Company or their respective agents shall be prevented or forbidden from, hindered or delayed in, doing or performing any act or thing required or contemplated by the terms of the Deposit Agreement, by reason of any provision of any present or future law or regulation of the United States, England and Wales or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of potential criminal or civil penalties or restraint, or by reason of any provision, present or future, of the Articles of Association or any provision of or governing any Deposited Securities, or by reason of any act of God or other event or circumstance beyond its control (including, without limitation, fire, flood, earthquake, tornado, hurricane, tsunami, explosion, or other natural
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disaster, nationalization, expropriation, currency restriction, work stoppage, strikes, civil unrest, act of war (whether declared or not) or terrorism, revolution, rebellion, embargo, computer failure, failure of public infrastructure (including communication or utility failure), failure of common carriers, nuclear, cyber or biochemical incident, any pandemic, epidemic or other prevalent disease or illness with an actual or probable threat to human life, any quarantine order or travel restriction imposed by a governmental authority or other competent public health authority, or the failure or unavailability of the United States Federal Reserve Bank (or other central banking system) or DTC (or other clearing system)), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Articles of Association or provisions of or governing Deposited Securities, (iii) for any action or inaction in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of ADSs, (v) for any action or inaction of any clearing or settlement system (and any participant thereof) for the Deposited Property or the ADSs, or (vi) for any consequential or punitive damages (including lost profits) for any breach of the terms of the Deposit Agreement.
The Depositary, its controlling persons, its agents, any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.
Section 5.3 Standard of Care. The Company and the Depositary assume no obligation and shall not be subject to any liability under the Deposit Agreement or any ADRs to any Holder(s) or Beneficial Owner(s), except that the Company and the Depositary agree to perform their respective obligations specifically set forth in the Deposit Agreement or the applicable ADRs without negligence or bad faith.
Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, or agents, shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Property or in respect of the ADSs, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).
The Depositary and its agents shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effect of any vote, provided that any such action or omission is in good faith and without negligence and in accordance with the terms of the Deposit Agreement. The Depositary shall not incur any liability for any failure to accurately determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the
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Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Property, for the validity or worth of the Deposited Property, for the value of any Deposited Property or any distribution thereon, for any interest on Deposited Property, for any tax consequences that may result from the ownership of ADSs, Shares or other Deposited Property, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement, for the failure or timeliness of any notice from the Company, or for any action of or failure to act by, or any information provided or not provided by, DTC or any DTC Participant.
The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be liable for any acts or omissions made by a predecessor depositary whether in connection with an act or omission of the Depositary or in connection with any matter arising wholly prior to the appointment of the Depositary or after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.
Section 5.4 Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary hereunder by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2), or (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided.
The Depositary may at any time be removed by the Company by written notice of such removal, which removal shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2), or (ii) upon the appointment by the Company of a successor depositary and its acceptance of such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed (except as required by applicable law), shall become fully vested with all the rights, powers, duties and obligations of its predecessor (other than as contemplated in Sections 5.8 and 5.9). The predecessor depositary, upon payment of all sums due it and on the written request of the Company, shall, (i) execute and deliver an
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instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in Sections 5.8 and 5.9), (ii) duly assign, transfer and deliver all of the Depositary’s right, title and interest to the Deposited Property to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding ADSs and such other information relating to ADSs and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly provide notice of its appointment to such Holders.
Any entity into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.
Section 5.5 The Custodian. The Depositary has initially appointed Citibank, N.A. (London) as Custodian for the purpose of the Deposit Agreement. The Custodian or its successors in acting hereunder shall be authorized to act as custodian in England and Wales and shall be subject at all times and in all respects to the direction of the Depositary for the Deposited Property for which the Custodian acts as custodian and shall be responsible solely to it. If any Custodian resigns or is discharged from its duties hereunder with respect to any Deposited Property and no other Custodian has previously been appointed hereunder, the Depositary shall promptly appoint a substitute custodian. The Depositary shall require such resigning or discharged Custodian to Deliver, or cause the Delivery of, the Deposited Property held by it, together with all such records maintained by it as Custodian with respect to such Deposited Property as the Depositary may request, to the Custodian designated by the Depositary. Whenever the Depositary determines, in its discretion, that it is appropriate to do so, it may appoint an additional custodian with respect to any Deposited Property, or discharge the Custodian with respect to any Deposited Property and appoint a substitute custodian, which shall thereafter be Custodian hereunder with respect to the Deposited Property. Immediately upon any such change, the Depositary shall give notice thereof in writing to all Holders of ADSs, each other Custodian and the Company.
Citibank may at any time act as Custodian of the Deposited Property pursuant to the Deposit Agreement, in which case any reference to Custodian shall mean Citibank solely in its capacity as Custodian pursuant to the Deposit Agreement. Notwithstanding anything contained in the Deposit Agreement or any ADR to the contrary, the Depositary shall not be obligated to give notice to the Company, any Holders of ADSs or any other Custodian of its acting as Custodian pursuant to the Deposit Agreement.
Upon the appointment of any successor depositary, any Custodian then acting hereunder shall, unless otherwise instructed by the Depositary, continue to be the Custodian of the Deposited Property without any further act or writing, and shall be subject to the direction of the successor depositary. The successor depositary so appointed shall, nevertheless, on the written request of any Custodian, execute and deliver to such Custodian all such instruments as may be proper to give to such Custodian full and complete power and authority to act on the direction of such successor depositary.
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Section 5.6 Notices and Reports. On or before the first date on which the Company gives notice, by publication or otherwise, of any meeting of holders of Shares or other Deposited Securities, or of any adjourned meeting of such holders, or of the taking of any action by such holders other than at a meeting, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of Deposited Securities, the Company shall transmit to the Depositary and the Custodian a copy of the notice thereof in the English language but otherwise in the form given or to be given to holders of Shares or other Deposited Securities. The Company shall also furnish to the Custodian and the Depositary a summary, in English, of any applicable provisions or proposed provisions of the Articles of Association that may be relevant or pertain to such notice of meeting or be the subject of a vote thereat.
The Company will also transmit to the Depositary (a) an English language version of the other notices, reports and communications which are made generally available by the Company to holders of its Shares or other Deposited Securities and (b) the English-language versions of the Company’s annual and semi-annual reports prepared in accordance with the applicable requirements of the Commission. The Depositary shall arrange, at the request of the Company and at the Company’s expense, to provide copies thereof to all Holders or make such notices, reports and other communications available to all Holders on a basis similar to that for holders of Shares or other Deposited Securities or on such other basis as the Company may advise the Depositary or as may be required by any applicable law, regulation or stock exchange requirement. The Company has delivered to the Depositary and the Custodian a copy of the Articles of Association along with the provisions of or governing the Shares and any other Deposited Securities issued by the Company in connection with such Shares, and promptly upon any amendment thereto or change therein, the Company shall deliver to the Depositary and the Custodian a copy of such amendment thereto or change therein. The Depositary may rely upon such copy for all purposes of the Deposit Agreement.
The Depositary will, at the expense of the Company, make available a copy of any such notices, reports or communications issued by the Company and delivered to the Depositary for inspection by the Holders of the ADSs at the Depositary’s Principal Office, at the office of the Custodian and at any other designated transfer office.
Section 5.7 Issuance of Additional Shares, ADSs etc. The Company agrees that in the event it or any of its Affiliates proposes (i) an issuance, sale or distribution of additional Shares, (ii) an offering of rights to subscribe for Shares or other Deposited Securities, (iii) an issuance or assumption of securities convertible into or exchangeable for Shares, (iv) an issuance of rights to subscribe for securities convertible into or exchangeable for Shares, (v) an elective dividend of cash or Shares, (vi) a redemption of Deposited Securities, (vii) a meeting of holders of Deposited Securities, or solicitation of consents or proxies, relating to any reclassification of securities, merger or consolidation or transfer of assets, (viii) any assumption, reclassification, recapitalization, reorganization, merger, consolidation or sale of assets which affects the Deposited Securities, or (ix) a distribution of securities other than Shares, it will obtain U.S. legal advice and take all steps necessary to ensure that the application of the proposed transaction to Holders and Beneficial Owners does not violate the registration provisions of the Securities Act, or any other applicable laws (including, without limitation, the Investment Company Act of 1940, as amended, the Exchange Act and the securities laws of the states of the U.S.). In support
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of the foregoing, the Company will furnish to the Depositary (a) a written opinion of U.S. counsel (reasonably satisfactory to the Depositary) stating whether such transaction (1) requires a registration statement under the Securities Act to be in effect or (2) is exempt from the registration requirements of the Securities Act and (b) an opinion of English counsel stating that (1) making the transaction available to Holders and Beneficial Owners does not violate the laws or regulations of England and Wales and (2) all requisite regulatory consents and approvals have been obtained in England and Wales. If the filing of a registration statement is required, the Depositary shall not have any obligation to proceed with the transaction unless it shall have received evidence reasonably satisfactory to it that such registration statement has been declared effective. If, being advised by counsel, the Company determines that a transaction is required to be registered under the Securities Act, the Company will either (i) register such transaction to the extent necessary, (ii) alter the terms of the transaction to avoid the registration requirements of the Securities Act or (iii) direct the Depositary to take specific measures, in each case as contemplated in the Deposit Agreement, to prevent such transaction from violating the registration requirements of the Securities Act. The Company agrees with the Depositary that neither the Company nor any of its Affiliates will at any time (i) deposit any Shares or other Deposited Securities, either upon original issuance or upon a sale of Shares or other Deposited Securities previously issued and reacquired by the Company or by any such Affiliate, or (ii) issue additional Shares, rights to subscribe for such Shares, securities convertible into or exchangeable for Shares or rights to subscribe for such securities or distribute securities other than Shares, unless such transaction and the securities issuable in such transaction do not violate the registration provisions of the Securities Act, or any other applicable laws (including, without limitation, the Investment Company Act of 1940, as amended, the Exchange Act and the securities laws of the states of the U.S.).
Notwithstanding anything else contained in the Deposit Agreement, nothing in the Deposit Agreement shall be deemed to obligate the Company to file any registration statement in respect of any proposed transaction.
Section 5.8 Indemnification. The Depositary agrees to indemnify the Company and its directors, officers, employees, agents and Affiliates against, and hold each of them harmless from, any direct loss, liability, tax, charge or expense of any kind whatsoever (including, but not limited to, the reasonable fees and expenses of counsel) which may arise out of acts performed or omitted by the Depositary under the terms hereof due to the negligence or bad faith of the Depositary.
The Company agrees to indemnify the Depositary, the Custodian and any of their respective directors, officers, employees, agents and Affiliates against, and hold each of them harmless from, any direct loss, liability, tax, charge or expense of any kind whatsoever (including, but not limited to, the reasonable fees and expenses of counsel) that may arise (a) out of, or in connection with, any offer, issuance, sale, resale, transfer, deposit or withdrawal of ADRs, ADSs, the Shares, or other Deposited Securities, as the case may be, to the extent it is not unlawful for the Company to indemnify such person at such time under English law, (b) out of, or as a result of, any offering documents in respect thereof or (c) out of acts performed or omitted, including, but not limited to, any delivery by the Depositary on behalf of the Company of information regarding the Company, in connection with the Deposit Agreement, any ancillary
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or supplemental agreement entered into between the Company and the Depositary, the ADRs, the ADSs, the Shares, or any Deposited Property, in any such case (i) by the Depositary, the Custodian or any of their respective directors, officers, employees, agents and Affiliates, except to the extent such loss, liability, tax, charge or expense is due to the fraud, negligence or bad faith of any of them, or (ii) by the Company or any of its directors, officers, employees, agents and Affiliates. The Company shall not indemnify the Depositary or the Custodian (for so long as the Custodian is a branch of Citibank, N.A.) or its or their respective directors, officers, employees, agents and Affiliates against any taxes imposed on net income of the Depositary or the Custodian or any liability or expense arising out of information relating to the Depositary or such Custodian, as the case may be, furnished in a signed writing to the Company, executed by the Depositary expressly for use in any registration statement, prospectus or preliminary prospectus relating to any Deposited Securities represented by the ADSs.
The obligations set forth in this Section shall survive the termination of the Deposit Agreement and the succession or substitution of any party hereto.
Any person seeking indemnification hereunder (an “indemnified person”) shall notify the person from whom it is seeking indemnification (the “indemnifying person”) of the commencement of any indemnifiable action or claim promptly after such indemnified person becomes aware of such commencement (provided that the failure to make such notification shall not affect such indemnified person’s rights to seek indemnification except to the extent the indemnifying person is materially prejudiced by such failure) and shall consult in good faith with the indemnifying person as to the conduct of the defense of such action or claim that may give rise to an indemnity hereunder, which defense shall be reasonable in the circumstances. No indemnified person shall compromise or settle any action or claim that may give rise to an indemnity hereunder without the consent of the indemnifying person, which consent shall not be unreasonably withheld.
Section 5.9 ADS Fees and Charges. The Company, the Holders, the Beneficial Owners, persons depositing Shares or withdrawing Deposited Securities in connection with the issuance and cancellation of ADSs, and persons receiving ADSs upon issuance or whose ADSs are being cancelled shall be required to pay to the Depositary the Depositary’s fees and related charges identified as payable by them respectively in the Fee Schedule attached hereto as Exhibit B. All ADS fees and charges so payable may be deducted from distributions or must be remitted to the Depositary, or its designee, and may, at any time and from time to time, be changed by agreement between the Depositary and the Company, but, in the case of ADS fees and charges payable by Holders and Beneficial Owners, any such change (excluding any changes to the waiver by the Depositary of fees and charges contemplated herein) may be made only in the manner contemplated in Section 6.1. The Depositary shall provide, without charge, a copy of its latest ADS fee schedule to anyone upon request.
ADS fees and charges for (i) the issuance of ADSs and (ii) the cancellation of ADSs will be payable by the person for whom the ADSs are so issued by the Depositary (in the case of ADS issuances) and by the person for whom ADSs are being cancelled (in the case of ADS cancellations). In the case of ADSs issued by the Depositary into DTC or presented to the Depositary via DTC, the ADS issuance and cancellation fees and charges will be payable by the
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DTC Participant(s) receiving the ADSs from the Depositary or the DTC Participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the Beneficial Owner(s) and will be charged by the DTC Participant(s) to the account(s) of the applicable Beneficial Owner(s) in accordance with the procedures and practices of the DTC Participant(s) as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are payable by Holders as of the applicable ADS Record Date established by the Depositary. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, the applicable Holders as of the ADS Record Date established by the Depositary will be invoiced for the amount of the ADS fees and charges and such ADS fees may be deducted from distributions made to Holders. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC Participants in accordance with the procedures and practices prescribed by DTC from time to time and the DTC Participants in turn charge the amount of such ADS fees and charges to the Beneficial Owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
The Depositary may reimburse the Company for certain expenses incurred by the Company in respect of the ADR program established pursuant to the Deposit Agreement, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as the Company and the Depositary agree from time to time. The Company shall pay to the Depositary such fees and charges, and reimburse the Depositary for such out-of-pocket expenses, as the Depositary and the Company may agree from time to time. Responsibility for payment of such fees, charges and reimbursements may from time to time be changed by agreement between the Company and the Depositary. Unless otherwise agreed, the Depositary shall present its statement for such fees, charges and reimbursements to the Company once every three months. The charges and expenses of the Custodian are for the sole account of the Depositary.
The obligations of Holders and Beneficial Owners to pay ADS fees and charges shall survive the termination of the Deposit Agreement. As to any Depositary, upon the resignation or removal of such Depositary as described in Section 5.4, the right to collect ADS fees and charges shall extend for those ADS fees and charges incurred prior to the effectiveness of such resignation or removal.
Section 5.10 Restricted Securities Owners. The Company agrees to advise in writing each of the persons or entities who, to the knowledge of the Company, holds Restricted Securities that such Restricted Securities are ineligible for deposit hereunder (except under the circumstances contemplated in Section 2.14) and, to the extent practicable, shall require each of such persons to represent in writing that such person will not deposit Restricted Securities hereunder (except under the circumstances contemplated in Section 2.14).
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ARTICLE VI
AMENDMENT AND TERMINATION
Section 6.1 Amendment/Supplement. Subject to the terms and conditions of this Section 6.1 and applicable law, the ADRs outstanding at any time, the provisions of the Deposit Agreement and the form of ADR attached hereto and to be issued under the terms hereof may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the prior written consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding ADSs until the expiration of thirty (30) days after notice of such amendment or supplement shall have been given to the Holders of outstanding ADSs. Notice of any amendment to the Deposit Agreement or any ADR shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (e.g., upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary). The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act or (b) the ADSs to be settled solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial existing rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such ADSs, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement and the ADR, if applicable, as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such ADS and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require an amendment of, or supplement to, the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and any ADRs at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement and any ADRs in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.
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Section 6.2 Termination. The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. If (i) ninety (90) days shall have expired after the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) ninety (90) days shall have expired after the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and, in either case, a successor depositary shall not have been appointed and accepted its appointment as provided in Section 5.4 of the Deposit Agreement, the Depositary may terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. The date so fixed for termination of the Deposit Agreement in any termination notice so distributed by the Depositary to the Holders of ADSs is referred to as the “Termination Date”. Until the Termination Date, the Depositary shall continue to perform all of its obligations under the Deposit Agreement, and the Holders and Beneficial Owners will be entitled to all of their rights under the Deposit Agreement.
If any ADSs shall remain outstanding after the Termination Date, the Registrar and the Depositary shall not, after the Termination Date, have any obligation to perform any further acts under the Deposit Agreement, except that the Depositary shall, subject, in each case, to the terms and conditions of the Deposit Agreement, continue to (i) collect dividends and other distributions pertaining to Deposited Securities, (ii) sell Deposited Property received in respect of Deposited Securities, (iii) deliver Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any other Deposited Property, in exchange for ADSs surrendered to the Depositary (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (iv) take such actions as may be required under applicable law in connection with its role as Depositary under the Deposit Agreement.
At any time after the Termination Date, the Depositary may sell the Deposited Property then held under the Deposit Agreement and shall after such sale hold un-invested the net proceeds of such sale, together with any other cash then held by it under the Deposit Agreement, in an un-segregated account and without liability for interest, for the pro rata benefit of the Holders whose ADSs have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement except (i) to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (ii) as may be required at law in connection with the termination of the Deposit Agreement. After the Termination Date, the Company shall be discharged from all obligations under the Deposit Agreement, except for its obligations to the Depositary under Sections 5.8, 5.9 and 7.6 of the Deposit Agreement. The obligations under the terms of the Deposit Agreement of Holders and Beneficial Owners of ADSs outstanding as of the Termination Date shall survive the Termination Date and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement (except as specifically provided in the Deposit Agreement).
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ARTICLE VII
MISCELLANEOUS
Section 7.1 Counterparts. The Deposit Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of such counterparts together shall constitute one and the same agreement. Copies of the Deposit Agreement shall be maintained with the Depositary and shall be open to inspection by any Holder during business hours.
Section 7.2 No Third-Party Beneficiaries/Acknowledgments. The Deposit Agreement is for the exclusive benefit of the parties hereto (and their successors) and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person, except to the extent specifically set forth in the Deposit Agreement. Nothing in the Deposit Agreement shall be deemed to give rise to a partnership or joint venture among the parties nor establish a fiduciary or similar relationship among the parties. The parties hereto acknowledge and agree that (i) Citibank and its Affiliates may at any time have multiple banking relationships with the Company, the Holders, the Beneficial Owners, and their respective Affiliates, (ii) Citibank and its Affiliates may own and deal in any class of securities of the Company and its Affiliates and in ADSs, and may be engaged at any time in transactions in which parties adverse to the Company, the Holders, the Beneficial Owners or their respective Affiliates may have interests, (iii) the Depositary and its Affiliates may from time to time have in their possession non-public information about the Company, the Holders, the Beneficial Owners, and their respective Affiliates, (iv) nothing contained in the Deposit Agreement shall (a) preclude Citibank or any of its Affiliates from engaging in such transactions or establishing or maintaining such relationships, or (b) obligate Citibank or any of its Affiliates to disclose such information, transactions or relationships, or to account for any profit made or payment received in such transactions or relationships, (v) the Depositary shall not be deemed to have knowledge of any information any other division of Citibank or any of its Affiliates may have about the Company, the Holders, the Beneficial Owners, or any of their respective Affiliates, and (vi) the Company, the Depositary, the Custodian and their respective agents and controlling persons may be subject to the laws and regulations of jurisdictions other than the U.S., England and Wales, and the authority of courts and regulatory authorities of such other jurisdictions, and, consequently, the requirements and the limitations of such other laws and regulations, and the decisions and orders of such other courts and regulatory authorities, may affect the rights and obligations of the parties to the Deposit Agreement.
Section 7.3 Severability. In case any one or more of the provisions contained in the Deposit Agreement or in the ADRs should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.
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Section 7.4 Holders and Beneficial Owners as Parties; Binding Effect. The Holders and Beneficial Owners from time to time of ADSs issued hereunder shall be parties to the Deposit Agreement and shall be bound by all of the terms and conditions hereof and of any ADR evidencing their ADSs by acceptance thereof or any beneficial interest therein.
Section 7.5 Notices. Any and all notices to be given to the Company shall be deemed to have been duly given if personally delivered or sent by mail, air courier or cable, telex or facsimile transmission, confirmed by letter personally delivered or sent by mail or air courier, addressed to Abcam plc, Discovery Drive, Cambridge Biomedical Campus, Cambridge, CB2 0AX United Kingdom , Attention: Marc Perkins, or to any other address which the Company may specify in writing to the Depositary.
Any and all notices to be given to the Depositary shall be deemed to have been duly given if personally delivered or sent by mail, air courier or cable, telex or facsimile transmission, confirmed by letter personally delivered or sent by mail or air courier, addressed to Citibank, N.A., 388 Greenwich Street, New York, New York 10013, U.S.A., Attention: Depositary Receipts Department, or to any other address which the Depositary may specify in writing to the Company.
Any and all notices to be given to any Holder shall be deemed to have been duly given (a) if personally delivered or sent by mail or cable, telex or facsimile transmission, confirmed by letter, addressed to such Holder at the address of such Holder as it appears on the books of the Depositary or, if such Holder shall have filed with the Depositary a request that notices intended for such Holder be mailed to some other address, at the address specified in such request, or (b) if a Holder shall have designated such means of notification as an acceptable means of notification under the terms of the Deposit Agreement, by means of electronic messaging addressed for delivery to the e-mail address designated by the Holder for such purpose. Notice to Holders shall be deemed to be notice to Beneficial Owners for all purposes of the Deposit Agreement. Failure to notify a Holder or any defect in the notification to a Holder shall not affect the sufficiency of notification to other Holders or to the Beneficial Owners of ADSs held by such other Holders. Any notices given to DTC under the terms of the Deposit Agreement shall (unless otherwise specified by the Depositary) constitute notice to the DTC Participants who hold the ADSs in their DTC accounts and to the Beneficial Owners of such ADSs.
Delivery of a notice sent by mail, air courier or cable, telex or facsimile transmission shall be deemed to be effective at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a cable, telex or facsimile transmission) is deposited, postage prepaid, in a post-office letter box or delivered to an air courier service, without regard for the actual receipt or time of actual receipt thereof by a Holder. The Depositary or the Company may, however, act upon any cable, telex or facsimile transmission received by it from any Holder, the Custodian, the Depositary, or the Company, notwithstanding that such cable, telex or facsimile transmission shall not be subsequently confirmed by letter.
Delivery of a notice by means of electronic messaging shall be deemed to be effective at the time of the initiation of the transmission by the sender (as shown on the sender’s records), notwithstanding that the intended recipient retrieves the message at a later date, fails to retrieve such message, or fails to receive such notice on account of its failure to maintain the designated e-mail address, its failure to designate a substitute e-mail address or for any other reason.
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Section 7.6 Governing Law and Jurisdiction. The Deposit Agreement, the ADRs and the ADSs shall be interpreted in accordance with, and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, the laws of the State of New York without reference to the principles of choice of law thereof. Notwithstanding anything contained in the Deposit Agreement to the contrary, any ADR or any present or future provisions of the laws of the State of New York, the rights of holders of Shares and of any other Deposited Securities and the obligations and duties of the Company in respect of the holders of Shares and other Deposited Securities, as such, shall be governed by the laws of England and Wales (or, if applicable, such other laws as may govern the Deposited Securities).
Except as set forth in the following paragraph of this Section 7.6, the Company and the Depositary agree that the federal or state courts in the City of New York shall have jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between them that may arise out of or in connection with the Deposit Agreement and, for such purposes, each irrevocably submits to the non-exclusive jurisdiction of such courts. The Company hereby irrevocably designates, appoints and empowers Abcam Inc. (the “Agent”) now at 1 Kendall Square, Suite B2304 Cambridge, Massachusetts 02139-1517, United States of America as its authorized agent to receive and accept for and on its behalf, and on behalf of its properties, assets and revenues, service by mail of any and all legal process, summons, notices and documents that may be served in any suit, action or proceeding brought against the Company in any federal or state court as described in the preceding sentence or in the next paragraph of this Section 7.6. If for any reason the Agent shall cease to be available to act as such, the Company agrees to designate a new agent in New York on the terms and for the purposes of this Section 7.6 reasonably satisfactory to the Depositary. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding against the Company, by service by mail of a copy thereof upon the Agent (whether or not the appointment of such Agent shall for any reason prove to be ineffective or such Agent shall fail to accept or acknowledge such service), with a copy mailed to the Company by registered or certified air mail, postage prepaid, to its address provided in Section 7.5. The Company agrees that the failure of the Agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.
Notwithstanding the foregoing, the Depositary and the Company unconditionally agree that in the event of any suit, action or proceeding against (a) the Company, (b) the Depositary in its capacity as Depositary under the Deposit Agreement or (c) against both the Company and the Depositary, in any such case, in any state or federal court of the United States, and the Depositary or the Company have any claim, for indemnification or otherwise, against each other arising out of the subject matter of such suit, action or proceeding, then the Company and the Depositary may pursue such claim against each other in the state or federal court in the United States in which such suit, action, or proceeding is pending and, for such purposes, the Company and the Depositary irrevocably submit to the non-exclusive jurisdiction of such courts. The Company agrees that service of process upon the Agent in the manner set forth in the preceding paragraph shall be effective service upon it for any suit, action or proceeding brought against it as described in this paragraph.
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The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any actions, suits or proceedings brought in any court as provided in this Section 7.6, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, and agrees not to plead or claim, any right of immunity from legal action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, from execution of judgment, or from any other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, and consents to such relief and enforcement against it, its assets and its revenues in any jurisdiction, in each case with respect to any matter arising out of, or in connection with, the Deposit Agreement, any ADR or the Deposited Property.
Holders and Beneficial Owners understand and each irrevocably agrees that, by holding an ADS or an interest therein, any suit, action or proceeding against or involving the Company or the Depositary, arising out of or based upon the Deposit Agreement, ADSs, ADRs or the transactions contemplated hereby or thereby or by virtue of ownership thereof, may only be instituted in a state or federal court in the City of New York, and by holding an ADS or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in, and irrevocably submits to the exclusive jurisdiction of, such courts in any such suit, action or proceeding. Furthermore, the Depositary and the Company have been informed, and hereby inform the Holder and Beneficial Owners that as the date hereof, actions by Holders and Beneficial Owners to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in federal court. Holders and Beneficial Owners agree that the provisions of this paragraph shall survive such Holders’ and Beneficial Owners’ ownership of ADSs or interests therein.
EACH OF THE PARTIES TO THE DEPOSIT AGREEMENT (INCLUDING, WITHOUT LIMITATION, EACH HOLDER AND BENEFICIAL OWNER) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY ARISING OUT OF, OR RELATING TO, THE DEPOSIT AGREEMENT, ANY ADR AND ANY TRANSACTIONS CONTEMPLATED THEREIN (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR OTHERWISE).
The provisions of this Section 7.6 shall survive any termination of the Deposit Agreement, in whole or in part.
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Section 7.7 Assignment. Subject to the provisions of Section 5.4, the Deposit Agreement may not be assigned by either the Company or the Depositary.
Section 7.8 Compliance with, and No Disclaimer under, U.S. Securities Laws.
(a) Notwithstanding anything in the Deposit Agreement to the contrary, the withdrawal or delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Instruction I.A.(1) of the General Instructions to Form F-6 Registration Statement, as amended from time to time, under the Securities Act.
(b) Each of the parties to the Deposit Agreement (including, without limitation, each Holder and Beneficial Owner) acknowledges and agrees that no provision of the Deposit Agreement or any ADR shall, or shall be deemed to, disclaim any liability under the Securities Act or the Exchange Act, in each case to the extent established under applicable U.S. laws.
Section 7.9 English Law References. Any summary of English laws and regulations and of the terms of the Articles of Association set forth in the Deposit Agreement have been provided by the Company solely for the convenience of Holders, Beneficial Owners and the Depositary. While such summaries are believed by the Company to be accurate as of the date of the Deposit Agreement, (i) they are summaries and as such may not include all aspects of the materials summarized applicable to a Holder or Beneficial Owner, and (ii) these laws and regulations and the Articles of Association may change after the date of the Deposit Agreement. Neither the Depositary nor the Company has any obligation under the terms of the Deposit Agreement to update any such summaries.
Section 7.10 Titles and References.
(a) Deposit Agreement. All references in the Deposit Agreement to exhibits, articles, sections, subsections, and other subdivisions refer to the exhibits, articles, sections, subsections and other subdivisions of the Deposit Agreement unless expressly provided otherwise. The words “the Deposit Agreement”, “herein”, “hereof”, “hereby”, “hereunder”, and words of similar import refer to the Deposit Agreement as a whole as in effect at the relevant time between the Company, the Depositary and the Holders and Beneficial Owners of ADSs and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires. Titles to sections of the Deposit Agreement are included for convenience only and shall be disregarded in construing the language contained in the Deposit Agreement. References to “applicable laws and regulations” shall refer to laws and regulations applicable to ADRs, ADSs or Deposited Property as in effect at the relevant time of determination, unless otherwise required by law or regulation.
(b) ADRs. All references in any ADR(s) to paragraphs, exhibits, articles, sections, subsections, and other subdivisions refer to the paragraphs, exhibits, articles, sections, subsections and other subdivisions of the ADR(s) in question unless expressly provided otherwise. The words “the Receipt”, “the ADR”, “herein”, “hereof”, “hereby”, “hereunder”, and
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words of similar import used in any ADR refer to the ADR as a whole and as in effect at the relevant time, and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter gender in any ADR shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa unless the context otherwise requires. Titles to paragraphs of any ADR are included for convenience only and shall be disregarded in construing the language contained in the ADR. References to “applicable laws and regulations” shall refer to laws and regulations applicable to the Company, the Depositary, the Custodian, their agents and controlling persons, the ADRs, the ADSs and the Deposited Property as in effect at the relevant time of determination, unless otherwise required by law or regulation.
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IN WITNESS WHEREOF, ABCAM PLC and CITIBANK, N.A. have duly executed the Deposit Agreement as of the day and year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of ADSs issued in accordance with the terms hereof, or upon acquisition of any beneficial interest therein.
| ABCAM PLC | ||||
| By: | /s/ Michael Baldock | |||
| Name: | Michael Baldock | |||
| Title: | Chief Financial Officer | |||
| CITIBANK, N.A. | ||||
| By: |
| |||
| Name: | ||||
| Title: | ||||
[Signature Page to Abcam plc Deposit Agreement]
IN WITNESS WHEREOF, ABCAM PLC and CITIBANK, N.A. have duly executed the Deposit Agreement as of the day and year first above set forth and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of ADSs issued in accordance with the terms hereof, or upon acquisition of any beneficial interest therein.
| ABCAM PLC | ||
| By: |
| |
| Name: | ||
| Title: | ||
| CITIBANK, N.A. | ||||
| By: | /s/ Leslie DeLuca | |||
| Name: | Leslie DeLuca | |||
| Title: | Attorney-in-Fact | |||
[Signature Page to Abcam plc Deposit Agreement]
EXHIBIT A
[FORM OF ADR]
| Number |
CUSIP NUMBER: | |
| American Depositary Shares (each American Depositary Share representing the right to receive one (1) fully paid ordinary share) | ||
AMERICAN DEPOSITARY RECEIPT
for
AMERICAN DEPOSITARY SHARES
representing
DEPOSITED ORDINARY SHARES
of
ABCAM PLC
(Incorporated under the laws of England and Wales)
CITIBANK, N.A., a national banking association organized and existing under the laws of the United States of America, as depositary (the “Depositary”), hereby certifies that is the owner of American Depositary Shares (hereinafter “ADS”) representing deposited ordinary shares, including evidence of rights to receive such ordinary shares (the “Shares”), of Abcam plc, a public limited company incorporated under the laws of England and Wales (the “Company”). As of the date of issuance of this ADR, each ADS represents the right to receive one (1) Share deposited under the Deposit Agreement (as hereinafter defined) with the Custodian, which at the date of issuance of this ADR is Citibank, N.A. (London) (the “Custodian”). The ADS(s)-to-Share(s) ratio is subject to amendment as provided in Articles IV and VI of the Deposit Agreement. The Depositary’s Principal Office is located at 388 Greenwich Street, New York, New York 10013, U.S.A.
(1) The Deposit Agreement. This American Depositary Receipt is one of an issue of American Depositary Receipts (“ADRs”), all issued and to be issued upon the terms and conditions set forth in the Deposit Agreement, dated as of October 26, 2020 (as amended and supplemented from time to time, the “Deposit Agreement”), by and among the Company, the Depositary, and all Holders and Beneficial Owners from time to time of ADSs issued thereunder.
A-1
The Deposit Agreement sets forth the rights and obligations of Holders and Beneficial Owners of ADSs and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other Deposited Property (as defined in the Deposit Agreement) from time to time received and held on deposit in respect of the ADSs. Copies of the Deposit Agreement are on file at the Principal Office of the Depositary and with the Custodian. Each Holder and each Beneficial Owner, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement, shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and the applicable ADR(s), and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable ADR(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable ADR(s), the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof. The manner in which a Beneficial Owner holds ADSs (e.g., in a brokerage account vs. as registered holder) may affect the rights and obligations of, the manner in which, and the extent to which, services are made available to, Beneficial Owners pursuant to the terms of the Deposit Agreement.
The statements made on the face and reverse of this ADR are summaries of certain provisions of the Deposit Agreement and the Articles of Association (as in effect on the date of the signing of the Deposit Agreement) and are qualified by and subject to the detailed provisions of the Deposit Agreement and the Articles of Association, to which reference is hereby made.
All capitalized terms not defined herein shall have the meanings ascribed thereto in the Deposit Agreement.
The Depositary makes no representation or warranty as to the validity or worth of the Deposited Property. The Depositary has made arrangements for the acceptance of the ADSs into DTC. Each Beneficial Owner of ADSs held through DTC must rely on the procedures of DTC and the DTC Participants to exercise and be entitled to any rights attributable to such ADSs. The Depositary may issue Uncertificated ADSs subject, however, to the terms and conditions of Section 2.13 of the Deposit Agreement.
(2) Surrender of ADSs and Withdrawal of Deposited Securities. The Holder of this ADR (and of the ADSs evidenced hereby) shall be entitled to Delivery (at the Custodian’s designated office) of the Deposited Securities at the time represented by the ADSs evidenced hereby upon satisfaction of each of the following conditions: (i) the Holder (or a duly-authorized attorney of the Holder) has duly Delivered ADSs to the Depositary at its Principal Office the ADSs evidenced hereby (and, if applicable, this ADR evidencing such ADSs) for the purpose of withdrawal of the Deposited Securities represented thereby, (ii) if applicable and so required by the Depositary, this ADR Delivered to the Depositary for such purpose has been properly endorsed in blank or is accompanied by proper instruments of transfer in blank (including signature guarantees in accordance with standard securities industry practice), (iii) if so required by the Depositary, the Holder of the ADSs has executed and delivered to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of the person(s) designated in such order, and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes
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and governmental charges (as are set forth in Section 5.9 of, and Exhibit B to, the Deposit Agreement) have been paid, subject, however, in each case, to the terms and conditions of this ADR evidencing the surrendered ADSs, of the Deposit Agreement, of the Articles of Association and of any applicable laws and the rules of CREST, and to any provisions of or governing the Deposited Securities, in each case as in effect at the time thereof.
Upon satisfaction of each of the conditions specified above, the Depositary (i) shall cancel the ADSs Delivered to it (and, if applicable, this ADR(s) evidencing the ADSs so Delivered), (ii) shall direct the Registrar to record the cancellation of the ADSs so Delivered on the books maintained for such purpose, and (iii) shall direct the Custodian to Deliver, or cause the Delivery of, in each case, without unreasonable delay, the Deposited Securities represented by the ADSs so canceled together with any certificate or other document of title for the Deposited Securities, or evidence of the electronic transfer thereof (if available), as the case may be, to or upon the written order of the person(s) designated in the order delivered to the Depositary for such purpose, subject however, in each case, to the terms and conditions of the Deposit Agreement, of this ADR evidencing the ADS so canceled, of the Articles of Association, of any applicable laws and of the rules of CREST, and to the terms and conditions of or governing the Deposited Securities, in each case as in effect at the time thereof.
The Depositary shall not accept for surrender ADSs representing less than one (1) Share. In the case of Delivery to it of ADSs representing a number other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) return to the person surrendering such ADSs the number of ADSs representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Share represented by the ADSs so surrendered and remit the proceeds of such sale (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes withheld) to the person surrendering the ADSs.
Notwithstanding anything else contained in this ADR or the Deposit Agreement, the Depositary may make delivery at the Principal Office of the Depositary of Deposited Property consisting of (i) any cash dividends or cash distributions, or (ii) any proceeds from the sale of any non-cash distributions, which are at the time held by the Depositary in respect of the Deposited Securities represented by the ADSs surrendered for cancellation and withdrawal. At the request, risk and expense of any Holder so surrendering ADSs represented by this ADR, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any Deposited Property (other than Deposited Securities) held by the Custodian in respect of such ADSs to the Depositary for delivery at the Principal Office of the Depositary. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission.
(3) Transfer, Combination and Split-up of ADRs. The Registrar shall register the transfer of this ADR (and of the ADSs represented hereby) on the books maintained for such purpose and the Depositary shall (x) cancel this ADR and execute new ADRs evidencing the same aggregate number of ADSs as those evidenced by this ADR canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs, and (z) Deliver such new ADRs to or upon the order of the person entitled thereto, if each of the following conditions has been
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satisfied: (i) this ADR has been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a transfer thereof, (ii) this surrendered ADR has been properly endorsed or is accompanied by proper instruments of transfer (including signature guarantees in accordance with standard securities industry practice), (iii) this surrendered ADR has been duly stamped (if required by the laws of the State of New York or of the United States), and (iv) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 of, and Exhibit B to, the Deposit Agreement) have been paid, subject, however, in each case, to the terms and conditions of this ADR, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.
The Registrar shall register the split-up or combination of this ADR (and of the ADSs represented hereby) on the books maintained for such purpose and the Depositary shall (x) cancel this ADR and execute new ADRs for the number of ADSs requested, but in the aggregate not exceeding the number of ADSs evidenced by this ADR canceled by the Depositary, (y) cause the Registrar to countersign such new ADRs, and (z) Deliver such new ADRs to or upon the order of the Holder thereof, if each of the following conditions has been satisfied: (i) this ADR has been duly Delivered by the Holder (or by a duly authorized attorney of the Holder) to the Depositary at its Principal Office for the purpose of effecting a split-up or combination hereof, and (ii) all applicable fees and charges of, and expenses incurred by, the Depositary and all applicable taxes and governmental charges (as are set forth in Section 5.9 of, and Exhibit B to, the Deposit Agreement) have been paid, subject, however, in each case, to the terms and conditions of this ADR, of the Deposit Agreement and of applicable law, in each case as in effect at the time thereof.
(4) Pre-Conditions to Registration, Transfer, Etc. As a condition precedent to the execution and Delivery, the registration of issuance, transfer, split-up, combination or surrender, of any ADS, the delivery of any distribution thereon, or the withdrawal of any Deposited Property, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of ADSs or of this ADR of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in Section 5.9 of, and Exhibit B to, the Deposit Agreement and in this ADR, (ii) the production of proof reasonably satisfactory to it as to the identity and genuineness of any signature or any other matter contemplated by Section 3.1 of the Deposit Agreement, and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of this ADR or ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations as the Depositary and the Company may establish consistent with the provisions of this ADR, if applicable, the Deposit Agreement and applicable law.
The issuance of ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the deposit of particular Shares may be refused, or the registration of transfer of ADSs in particular instances may be refused, or the registration of transfer of ADSs generally may be suspended, during any period when the transfer books of the Company, the Depositary, a Registrar or the Share Registrar are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or
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from time to time because of any requirement of law or regulation, any government or governmental body or commission or any securities exchange on which the ADSs or Shares are listed, or under any provision of the Deposit Agreement or this ADR, if applicable, or under any provision of, or governing, the Deposited Securities, or because of a meeting of shareholders of the Company or for any other reason, subject, in all cases to Section 7.8(a) of the Deposit Agreement and paragraph (25) of this ADR. Notwithstanding any provision of the Deposit Agreement or this ADR to the contrary, Holders are entitled to surrender outstanding ADSs to withdraw the Deposited Securities associated therewith at any time subject only to (i) temporary delays caused by closing the transfer books of the Depositary or the Company or the deposit of Shares in connection with voting at a shareholders’ meeting or the payment of dividends, (ii) the payment of fees, taxes and similar charges, (iii) compliance with any U.S. or foreign laws or governmental regulations relating to the ADSs or to the withdrawal of the Deposited Securities, and (iv) other circumstances specifically contemplated by Instruction I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time).
(5) Compliance with Information Requests. Notwithstanding any other provision of the Deposit Agreement or this ADR, each Holder and Beneficial Owner of the ADSs represented hereby agrees to comply with requests from the Company pursuant to applicable law, the rules and requirements of any stock exchange on which the Shares or ADSs are, or will be, registered, traded or listed, or the Articles of Association, which are made to provide information, inter alia, as to the capacity in which such Holder or Beneficial Owner owns ADSs (and the Shares represented by such ADSs, as the case may be) and regarding the identity of any other person(s) interested in such ADSs (and the Shares represented by such ADSs, as the case may be) and the nature of such interest and various other matters, whether or not they are Holders and/or Beneficial Owners at the time of such request.
(6) Ownership Restrictions. Notwithstanding any other provision contained in this ADR or of the Deposit Agreement to the contrary, the Company may restrict transfers of the Shares where such transfer might result in ownership of Shares exceeding limits imposed by applicable law or the Articles of Association. The Company may also restrict, in such manner as it deems appropriate, transfers of the ADSs where such transfer may result in the total number of Shares represented by the ADSs owned by a single Holder or Beneficial Owner to exceed any such limits. The Company may, in its sole discretion but subject to applicable law, instruct the Depositary to take action with respect to the ownership interest of any Holder or Beneficial Owner in excess of the limits set forth in the preceding sentence, including but not limited to, the imposition of restrictions on the transfer of ADSs, the removal or limitation of voting rights or the mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the Shares represented by the ADSs held by such Holder or Beneficial Owner in excess of such limitations, if and to the extent such disposition is permitted by applicable law and the Articles of Association. Nothing herein or in the Deposit Agreement shall be interpreted as obligating the Depositary or the Company to ensure compliance with the ownership restrictions described herein or in Section 3.5 of the Deposit Agreement.
Notwithstanding any provision of this Deposit Agreement or of any ADR(s) and without limiting the foregoing, by being a Holder of an ADR, each such Holder agrees to provide such information as the Company may request in a disclosure notice (a “Disclosure Notice”) given pursuant to the U.K. Companies Act 2006 (as amended from time to time and including any
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statutory modification or re-enactment thereof, the “Companies Act”) or the Articles of Association. By accepting or holding this ADR, the Holder hereof acknowledges that it understands that failure to comply with a Disclosure Notice may result in the imposition of sanctions against the holder of this ADR in respect of which the non-complying person is or was, or appears to be or has been, interested as provided in the Companies Act and the Articles of Association which currently include, the withdrawal of the voting rights of such ADR and the imposition of restrictions on the rights to receive dividends on and to transfer such ADR.
The Company reserves the right to instruct Holders to deliver their ADSs for cancellation and withdrawal of the Deposited Securities so as to permit the Company to deal directly with the Holder thereof as a holder of Shares and Holders agree to comply with such instructions. The Depositary agrees to cooperate with the Company in its efforts to inform Holders, at the Company’s expense, of the Company’s exercise of its rights under this paragraph and agrees to consult with, and provide reasonable assistance without risk, liability or expense on the part of the Depositary, to the Company on the manner or manners in which it may enforce such rights with respect to any Holder.
(7) Reporting Obligations and Regulatory Approvals. Applicable laws and regulations may require holders and beneficial owners of Shares, including the Holders and Beneficial Owners of ADSs, to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. Holders and Beneficial Owners of ADSs are solely responsible for determining and complying with such reporting requirements and obtaining such approvals. Each Holder and each Beneficial Owner hereby agrees to make such determination, file such reports, and obtain such approvals to the extent and in the form required by applicable laws and regulations as in effect from time to time. Neither the Depositary, the Custodian, the Company or any of their respective agents or affiliates shall be required to take any actions whatsoever on behalf of Holders or Beneficial Owners to determine or satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.
(8) Liability for Taxes and Other Charges. Any tax or other governmental charge payable by the Custodian or by the Depositary with respect to any Deposited Property, ADSs or this ADR shall be payable by the Holders and Beneficial Owners to the Depositary. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Property held on behalf of such Holder and/or Beneficial Owner, and may sell for the account of a Holder and/or Beneficial Owner any or all of such Deposited Property and apply such distributions and sale proceeds in payment of, any taxes (including applicable interest and penalties) or charges that are or may be payable by Holders or Beneficial Owners in respect of the ADSs, Deposited Property and this ADR, the Holder and the Beneficial Owner hereof remaining liable for any deficiency. The Custodian may refuse the deposit of Shares and the Depositary may refuse to issue ADSs, to deliver ADRs, register the transfer of ADSs, register the split-up or combination of ADRs and (subject to paragraph (25) of this ADR and Section 7.8(a) of the Deposit Agreement) the withdrawal of Deposited Property until payment in full of such tax, charge, penalty or interest is received. Every Holder and Beneficial Owner agrees to indemnify the Depositary, the Company, the Custodian, and any of their agents, officers, employees and Affiliates for, and to hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from (i) any ADSs held by such Holder and/or owned by such Beneficial Owner, (ii) the Deposited Property
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represented by the ADSs, and (iii) any transaction entered into by such Holder and/or Beneficial Owner in respect of the ADSs and/or the Deposited Property represented thereby. Notwithstanding anything to the contrary contained in the Deposit Agreement or any ADR, the obligations of Holders and Beneficial Owners under Section 3.2 of the Deposit Agreement shall survive any transfer of ADSs, any cancellation of ADSs and withdrawal of Deposited Securities, and the termination of the Deposit Agreement.
(9) Representations and Warranties on Deposit of Shares. Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and the certificates therefor are duly authorized, validly allotted and issued, fully paid, not subject to any call for the payment of further capital and legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares have been validly waived, disapplied or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, (v) the Shares presented for deposit are not, and the ADSs issuable upon such deposit will not be, Restricted Securities (except as contemplated in Section 2.14 of the Deposit Agreement), and (vi) the Shares presented for deposit have not been stripped of any rights or entitlements. Such representations and warranties shall survive the deposit and withdrawal of Shares, the issuance and cancellation of ADSs in respect thereof and the transfer of such ADSs. If any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof.
(10) Proofs, Certificates and Other Information. Any person presenting Shares for deposit, any Holder and any Beneficial Owner may be required, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary and the Custodian such proof of citizenship or residence, taxpayer status, payment of all applicable taxes or other governmental charges, exchange control approval, legal or beneficial ownership of ADSs and Deposited Property, compliance with applicable laws, the terms of the Deposit Agreement or this ADR evidencing the ADSs and the provisions of, or governing, the Deposited Property, to execute such certifications and to make such representations and warranties, and to provide such other information and documentation (or, in the case of Shares in registered form presented for deposit, such information relating to the registration on the books of the Company or of the Share Registrar) as the Depositary or the Custodian may deem necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement and this ADR. The Depositary and the Registrar, as applicable, may, and at the reasonable request of the Company, shall, withhold the execution or delivery or registration of transfer of any ADR or ADS or the distribution or sale of any dividend or distribution of rights or of the proceeds thereof or, to the extent not limited by paragraph (25) and Section 7.8(a) of the Deposit Agreement, the delivery of any Deposited Property until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s, the Registrar’s and the Company’s satisfaction.
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(11) ADS Fees and Charges. The following ADS fees are payable under the terms of the Deposit Agreement:
| (i) | ADS Issuance Fee: by any person for whom ADSs are issued (e.g., an issuance upon a deposit of Shares, upon a change in the ADS(s)-to- Share(s) ratio, or for any other reason), excluding issuances as a result of distributions described in paragraph (iv) below, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) issued under the terms of the Deposit Agreement; |
| (ii) | ADS Cancellation Fee: by any person for whom ADSs are being cancelled (e.g., a cancellation of ADSs for Delivery of deposited Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) cancelled; |
| (iii) | Cash Distribution Fee: by any Holder of ADSs, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held for the distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements); |
| (iv) | Stock Distribution /Rights Exercise Fee: by any Holder of ADS(s), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held for the distribution of ADSs pursuant to (a) stock dividends or other free stock distributions, or (b) an exercise of rights to purchase additional ADSs; |
| (v) | Other Distribution Fee: by any Holder of ADS(s), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held for the distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., spin-off shares); |
| (vi) | Depositary Services Fee: by any Holder of ADS(s), a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary; |
| (vii) | Registration of ADS Transfer Fee: by any Holder of ADS(s) being transferred or by any person to whom ADSs are transferred, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) transferred (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason); and |
| (viii) | ADS Conversion Fee: by any Holder of ADS(s) being converted or by any person to whom the converted ADSs are delivered, a fee not in excess of U.S. $5.00 per 100 ADSs (or fraction thereof) converted from one ADS series to another ADS series (e.g., upon conversion of Partial Entitlement ADSs for Full Entitlement ADSs, or upon conversion of Restricted ADSs into freely transferrable ADSs, and vice versa). |
The Company, Holders, Beneficial Owners, persons depositing Shares or withdrawing Deposited Securities in connection with ADS issuances and cancellations, and persons for whom ADSs are
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issued or cancelled shall be responsible for the following ADS charges under the terms of the Deposit Agreement:
| (a) | taxes (including applicable interest and penalties) and other governmental charges; |
| (b) | such registration fees as may from time to time be in effect for the registration of Shares or other Deposited Securities on the share register and applicable to transfers of Shares or other Deposited Securities to or from the name of the Custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; |
| (c) | such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing Shares or withdrawing Deposited Property or of the Holders and Beneficial Owners of ADSs; |
| (d) | in connection with the conversion of Foreign Currency, the fees, expenses, spreads, taxes and other charges of the Depositary and/or conversion service providers (which may be a division, branch or Affiliate of the Depositary). Such fees, expenses, spreads, taxes and other charges shall be deducted from the Foreign Currency; |
| (e) | any reasonable and customary out-of-pocket expenses incurred in such conversion and/or on behalf of the Holders and Beneficial Owners in complying with currency exchange control or other governmental requirements; and |
| (f) | the fees, charges, costs and expenses incurred by the Depositary, the Custodian, or any nominee in connection with the ADR program. |
All ADS fees and charges so payable may be deducted from distributions or must be remitted to the Depositary, or its designee, and may, at any time and from time to time, be changed by agreement between the Depositary and Company but, in the case of ADS fees and charges payable by Holders and Beneficial Owners, any such change (excluding any changes to the waiver by the Depositary of fees and charges contemplated in the Deposit Agreement) may be made only in the manner contemplated by paragraph (23) of this ADR and as contemplated in Section 6.1 of the Deposit Agreement. The Depositary shall provide, without charge, a copy of its latest ADS fee schedule to anyone upon request.
ADS fees and charges for (i) the issuance of ADSs and (ii) the cancellation of ADSs will be payable by the person for whom the ADSs are so issued by the Depositary (in the case of ADS issuances) and by the person for whom ADSs are being cancelled (in the case of ADS cancellations). In the case of ADSs issued by the Depositary into DTC or presented to the Depositary via DTC, the ADS issuance and cancellation fees and charges will be payable by the DTC Participant(s) receiving the ADSs from the Depositary or the DTC Participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the Beneficial Owner(s) and will be
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charged by the DTC Participant(s) to the account(s) of the applicable Beneficial Owner(s) in accordance with the procedures and practices of the DTC Participant(s) as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are payable by Holders as of the applicable ADS Record Date established by the Depositary. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, the applicable Holders as of the ADS Record Date established by the Depositary will be invoiced for the amount of the ADS fees and charges and such ADS fees may be deducted from distributions made to Holders. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC Participants in accordance with the procedures and practices prescribed by DTC from time to time and the DTC Participants in turn charge the amount of such ADS fees and charges to the Beneficial Owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
The Depositary may reimburse the Company for certain expenses incurred by the Company in respect of the ADR program established pursuant to the Deposit Agreement, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as the Company and the Depositary agree from time to time. The Company shall pay to the Depositary such fees and charges, and reimburse the Depositary for such out-of-pocket expenses, as the Depositary and the Company may agree from time to time. Responsibility for payment of such fees, charges and reimbursements may from time to time be changed by agreement between the Company and the Depositary. Unless otherwise agreed, the Depositary shall present its statement for such fees, charges and reimbursements to the Company once every three months. The charges and expenses of the Custodian are for the sole account of the Depositary.
The obligations of Holders and Beneficial Owners to pay ADS fees and charges shall survive the termination of the Deposit Agreement. As to any Depositary, upon the resignation or removal of such Depositary as described in Section 5.4 of the Deposit Agreement, the right to collect ADS fees and charges shall extend for those ADS fees and charges incurred prior to the effectiveness of such resignation or removal.
(12) Title to ADRs. Subject to the limitations contained in the Deposit Agreement and in this ADR, it is a condition of this ADR, and every successive Holder of this ADR by accepting or holding the same consents and agrees, that title to this ADR (and to each Certificated ADS evidenced hereby) shall be transferable upon the same terms as a certificated security under the laws of the State of New York, provided that, in the case of Certificated ADSs, this ADR has been properly endorsed or is accompanied by proper instruments of transfer. Notwithstanding any notice to the contrary, the Depositary and the Company may deem and treat the Holder of this ADR (that is, the person in whose name this ADR is registered on the books of the Depositary) as the absolute owner thereof for all purposes. Neither the Depositary nor the Company shall have any obligation nor be subject to any liability under the Deposit
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Agreement or this ADR to any holder of this ADR or any Beneficial Owner unless, in the case of a holder of ADSs, such holder is the Holder of this ADR registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner, or the Beneficial Owner’s representative, is the Holder registered on the books of the Depositary.
(13) Validity of ADR. The Holder(s) of this ADR (and the ADSs represented hereby) shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose against the Depositary or the Company unless this ADR has been (i) dated, (ii) signed by the manual or facsimile signature of a duly-authorized signatory of the Depositary, (iii) countersigned by the manual or facsimile signature of a duly-authorized signatory of the Registrar, and (iv) registered in the books maintained by the Registrar for the registration of issuances and transfers of ADRs. An ADR bearing the facsimile signature of a duly-authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the delivery of such ADR by the Depositary.
(14) Available Information; Reports; Inspection of Transfer Books.
The Company is subject to the periodic reporting requirements of the Exchange Act and, accordingly, is required to file or furnish certain reports with the Commission. These reports can be retrieved from the Commission’s website (www.sec.gov) and can be inspected and copied at the public reference facilities maintained by the Commission located (as of the date of the Deposit Agreement) at 100 F Street, N.E., Washington D.C. 20549. The Depositary shall make available for inspection by Holders at its Principal Office, as promptly as practicable after receipt thereof, any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Property and (b) made generally available to the holders of such Deposited Property by the Company. The Depositary shall also provide or make available to Holders copies of such reports when furnished by the Company pursuant to Section 5.6 of the Deposit Agreement.
The Registrar shall keep books for the registration of ADSs which at all reasonable times shall be open for inspection by the Company and by the Holders of such ADSs, provided that such inspection shall not be, to the Registrar’s knowledge, for the purpose of communicating with Holders of such ADSs in the interest of a business or object other than the business of the Company or other than a matter related to the Deposit Agreement or the ADSs.
The Registrar may close the transfer books with respect to the ADSs, at any time or from time to time, when deemed necessary or advisable by it in good faith in connection with the performance of its duties hereunder, or at the reasonable written request of the Company subject, in all cases, to paragraph (25) and Section 7.8(a) of the Deposit Agreement.
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| CITIBANK, N.A. | CITIBANK, N.A. | |||||||
| Transfer Agent and Registrar | as Depositary | |||||||
| By: |
|
By: |
| |||||
| Authorized Signatory | Authorized Signatory | |||||||
The address of the Principal Office of the Depositary is 388 Greenwich Street, New York,
New York 10013, U.S.A.
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[FORM OF REVERSE OF ADR]
SUMMARY OF CERTAIN ADDITIONAL PROVISIONS
OF THE DEPOSIT AGREEMENT
(15) Dividends and Distributions in Cash, Shares, etc. (a) Cash Distributions: Upon the timely receipt by the Depositary of a notice from the Company that it intends to make a distribution of a cash dividend or other cash distribution, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9 of the Deposit Agreement. Upon confirmation of the receipt of (x) any cash dividend or other cash distribution on any Deposited Securities, or (y) proceeds from the sale of any Deposited Property held in respect of the ADSs under the terms of the Deposit Agreement, the Depositary will (i) if any amounts are received in a Foreign Currency, promptly convert or cause to be converted such cash dividend, distribution or proceeds into Dollars (subject to the terms and conditions of Section 4.8 of the Deposit Agreement), (ii) if applicable and unless previously established, establish the ADS Record Date upon the terms described in Section 4.9 of the Deposit Agreement, and (iii) distribute promptly the amount thus received (net of (a) the applicable fees and charges described in the Fee Schedule attached as Exhibit B to the Deposit Agreement and (b) applicable taxes withheld) to the Holders entitled thereto as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent, and any balance not so distributed shall be held by the Depositary (without liability for interest thereon) and shall be added to and become part of the next sum received by the Depositary for distribution to Holders of ADSs outstanding at the time of the next distribution. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities, or from any cash proceeds from the sales of Deposited Property, an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the ADSs shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority. Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable Holders and Beneficial Owners of ADSs until the distribution can be effected or the funds that the Depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in Section 4.1 of the Deposit Agreement, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.1 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.1 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
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(b) Share Distributions: Upon the timely receipt by the Depositary of a notice from the Company that it intends to make a free distribution of Shares, the Depositary shall establish the ADS Record Date upon the terms described in Section 4.9 of the Deposit Agreement. Upon receipt of confirmation from the Custodian of the receipt of the Shares so distributed by the Company, the Depositary shall either (i) subject to Section 5.9 of the Deposit Agreement, distribute to the Holders as of the ADS Record Date in proportion to the number of ADSs held as of the ADS Record Date, additional ADSs, which represent in the aggregate the number of Shares received as such dividend, or free distribution, subject to the other terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary and (b) taxes), or (ii) if additional ADSs are not so distributed, take all actions necessary so that each ADS issued and outstanding after the ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional integral number of Shares distributed upon the Deposited Securities represented thereby (net of (a) the applicable fees and charges of, and expenses incurred by, the Depositary, and (b) taxes). In lieu of delivering fractional ADSs, the Depositary shall sell the number of Shares or ADSs, as the case may be, represented by the aggregate of such fractions and distribute the net proceeds upon the terms described in Section 4.1 of the Deposit Agreement. In the event that the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, if the Company in the fulfillment of its obligations under Section 5.7 of the Deposit Agreement, has furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of (a) taxes and (b) fees and charges of, and the expenses incurred by, the Depositary) to Holders entitled thereto upon the terms of Section 4.1 of the Deposit Agreement. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the provisions of the Deposit Agreement. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in Section 4.2 of the Deposit Agreement, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.2 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.2 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
(c) Elective Distributions in Cash or Shares: Upon the timely receipt of a notice indicating that the Company wishes an elective distribution in cash or Shares to be made available to Holders of ADSs upon the terms described in the Deposit Agreement, the Company and the Depositary shall determine in accordance with the Deposit Agreement whether such distribution is lawful and reasonably practicable. The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution be made available to Holders, (ii) the Depositary shall have determined that such distribution is
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reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement. If the above conditions are satisfied, the Depositary shall establish an ADS Record Date according to paragraph (17) and Section 4.9 of the Deposit Agreement and establish procedures to enable the Holder hereof to elect to receive the proposed distribution in cash or in additional ADSs. If a Holder elects to receive the proposed distribution (x) in cash, the distribution shall be made upon the terms described in Section 4.1, or (y) in ADSs, then the distribution shall be made upon the terms described in Section 4.2 of the Deposit Agreement. If the Holder hereof elects to receive the distribution in additional ADSs, the distribution shall be made as in the case of a distribution in Shares upon the terms described in the Deposit Agreement. If such elective distribution is not reasonably practicable or if the Depositary did not receive satisfactory documentation set forth in the Deposit Agreement, the Depositary shall establish an ADS Record Date upon the terms of Section 4.9 of the Deposit Agreement and, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in England and Wales in respect of the Shares for which no election is made, either (x) cash, upon the terms described in Section 4.1 of the Deposit Agreement or (y) additional ADSs representing such additional Shares, in each case, upon the terms described in Section 4.2 of the Deposit Agreement. Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holder hereof a method to receive the elective distribution in Shares (rather than ADSs). There can be no assurance that Holders generally or any Holder hereof will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares. Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed distribution provided for in Section 4.3 of the Deposit Agreement, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.3 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.3 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
(d) Distribution of Rights to Purchase Additional ADSs: Upon the timely receipt by the Depositary of a notice indicating that the Company wishes rights to subscribe for additional Shares to be made available to Holders of ADSs, the Depositary upon consultation with the Company, shall determine, whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to any Holders only if (i) the Company shall have timely requested that such rights be made available to Holders, (ii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution of rights is reasonably practicable. If such conditions are not satisfied or if the Company requests that the rights not be made available to Holders of ADSs, the Depositary shall proceed with the sale of rights as described in Section 4.4(b) of the Deposit Agreement. In the event all conditions set forth above are satisfied, the Depositary shall establish the ADS Record Date (upon the terms described in Section 4.9 of the Deposit Agreement) and establish procedures to (x) distribute rights to purchase additional ADSs (by means of warrants or otherwise), (y) enable the Holders to exercise such rights (upon payment of the subscription price and of the applicable
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(a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes), and (z) deliver ADSs upon the valid exercise of such rights. Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holders a method to exercise rights to subscribe for Shares (rather than ADSs). If (i) the Company does not timely request the Depositary to make the rights available to Holders or requests that the rights not be made available to Holders, (ii) the Depositary fails to receive satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement or determines it is not reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, in a riskless principal capacity, at such place and upon such terms (including public and private sale) as it may deem practicable. The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) upon the terms hereof and of Section 4.1 of the Deposit Agreement. If the Depositary is unable to make any rights available to Holders upon the terms described in Section 4.4(a) of the Deposit Agreement or to arrange for the sale of the rights upon the terms described in Section 4.4(b) of the Deposit Agreement, the Depositary shall allow such rights to lapse. The Depositary shall not be liable for (i) any failure to accurately determine whether it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.
Notwithstanding anything herein or in Section 4.4 of the Deposit Agreement to the contrary, if registration (under the Securities Act or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act (or other applicable law) covering such offering is in effect or (ii) unless the Company furnishes the Depositary opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactory to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws.
In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of Deposited Property (including rights) an amount on account of taxes or other governmental charges, the amount distributed to the Holders of ADSs shall be reduced accordingly. In the event that the Depositary determines that any distribution of Deposited Property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such Deposited Property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes or charges.
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There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive or exercise rights on the same terms and conditions as the holders of Shares or be able to exercise such rights. Nothing herein or in the Deposit Agreement shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.
(e) Distributions other than Cash, Shares or Rights to Purchase Shares: Upon receipt of a notice indicating that the Company wishes property other than cash, Shares or rights to purchase additional Shares to be made to Holders of ADSs, the Depositary shall determine whether such distribution to Holders is lawful and reasonably practicable. The Depositary shall not make such distribution unless (i) the Company shall have requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received satisfactory documentation contemplated in Section 5.7 of the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution is reasonably practicable. Upon satisfaction of such conditions, the Depositary shall distribute the property so received to the Holders of record, as of the ADS Record Date, in proportion to the number of ADSs held by them respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of taxes withheld. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.
If the conditions above are not satisfied, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem practicable and shall (i) cause the proceeds of such sale, if any, to be converted into Dollars and (ii) distribute the proceeds of such conversion received by the Depositary (net of applicable (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to the Holders as of the ADS Record Date upon the terms hereof and of Section 4.1 of the Deposit Agreement. If the Depositary is unable to sell such property, the Depositary may dispose of such property for the account of the Holders in any way it deems reasonably practicable under the circumstances.
Neither the Depositary nor the Company shall be responsible for (i) any failure to determine whether it is lawful or practicable to make the property described in Section 4.5 of the Deposit Agreement available to Holders in general or any Holders in particular, nor (ii) any loss incurred in connection with the sale or disposal of such property.
(16) Redemption. Upon timely receipt of notice from the Company that it intends to exercise its right of redemption in respect of any of the Deposited Securities, and satisfactory documentation, and only if, after consultation between the Company and the Depositary, the Depositary shall have determined that such proposed redemption is practicable, the Depositary shall provide to each Holder a notice setting forth the Company’s intention to exercise the redemption rights and any other particulars set forth in the Company’s notice to the Depositary. The Depositary shall instruct the Custodian to present to the Company the Deposited Securities in respect of which redemption rights are being exercised against payment of the applicable
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redemption price. Upon receipt of confirmation from the Custodian that the redemption has taken place and that funds representing the redemption price have been received, the Depositary shall convert, transfer, and distribute the proceeds (net of applicable (a) fees and charges of, and the expenses incurred by, the Depositary, and (b) taxes), retire ADSs and cancel ADRs, if applicable, upon delivery of such ADSs by Holders thereof and the terms set forth in Sections 4.1 and 6.2 of the Deposit Agreement. If less than all outstanding Deposited Securities are redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as may be determined by the Depositary. The redemption price per ADS shall be the dollar equivalent of the per share amount received by the Depositary (adjusted to reflect the ADS(s)-to-Share(s) ratio) upon the redemption of the Deposited Securities represented by ADSs (subject to the terms of Section 4.8 of the Deposit Agreement and the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes) multiplied by the number of Deposited Securities represented by each ADS redeemed.
Notwithstanding anything contained in the Deposit Agreement to the contrary, in the event the Company fails to give the Depositary timely notice of the proposed redemption provided for in Section 4.7 of the Deposit Agreement, the Depositary agrees to use commercially reasonable efforts to perform the actions contemplated in Section 4.7 of the Deposit Agreement, and the Company, the Holders and the Beneficial Owners acknowledge that the Depositary shall have no liability for the Depositary’s failure to perform the actions contemplated in Section 4.7 of the Deposit Agreement where such notice has not been so timely given, other than its failure to use commercially reasonable efforts, as provided herein.
(17) Fixing of ADS Record Date. Whenever (a) the Depositary shall receive notice of the fixing of a record date by the Company for the determination of holders of Deposited Securities entitled to receive any distribution (whether in cash, Shares, rights, or other distribution), (b) for any reason the Depositary causes a change in the number of Shares that are represented by each ADS, (c) the Depositary shall receive notice of any meeting of, or solicitation of consents or proxies of, holders of Shares or other Deposited Securities, or (d) the Depositary shall find it necessary or convenient in connection with the giving of any notice, solicitation of any consent or any other matter, the Depositary shall fix the record date (the “ADS Record Date”) for the determination of the Holders of ADS(s) who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, to give or withhold such consent, to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each ADS. Subject to applicable law, the terms and conditions of this ADR and Sections 4.1 through 4.8 and to the other terms and conditions of the Deposit Agreement, only the Holders of ADSs at the close of business in New York on such ADS Record Date shall be entitled to receive such distribution, to give such voting instructions, to receive such notice or solicitation, or otherwise take action.
(18) Voting of Deposited Securities. As soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote, or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the ADS Record Date in respect of such meeting or solicitation of consent or proxy in accordance with
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Section 4.9 of the Deposit Agreement. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least thirty (30) days prior to the date of such vote or meeting), at the Company’s expense, and provided no U.S. legal prohibitions exist, distribute to Holders as of the ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy, (b) a statement that the Holders at the close of business on the ADS Record Date will be entitled, subject to any applicable law, the provisions of the Deposit Agreement, the Articles of Association and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s ADSs, and (c) a brief statement as to the manner in which such voting instructions may be given to the Depositary or in which voting may be deemed to have been given.
Notwithstanding anything contained in the Deposit Agreement or this ADR, with the Company’s prior written consent, the Depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the Depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of Deposited Securities, distribute to the Holders a notice that provides Holders with, or otherwise publicizes to Holders, instructions on how to retrieve such materials or receive such materials upon request (e.g., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).
The Depositary has been advised by the Company that under the Articles of Association as in effect on the date of the Deposit Agreement, voting at any meeting of shareholders of the Company is by show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of the meeting or by those shareholders entitled under the provisions of the Companies Act 2006 to demand a poll. The Depositary will not join in demanding a poll, whether or not requested to do so by Holders of ADSs. Under the Articles of Association as in effect on the date of the Deposit Agreement, a poll may be demanded by (a) the chairman of the meeting, (b) not fewer than two shareholders present in person or by proxy and having the right to vote on the meeting resolution, (c) any shareholder(s) present in person or by proxy and representing not less than 10% of the total voting rights of all the shareholders having the right to vote on the resolution (excluding any shares held in treasury) or (d) any shareholder(s) present in person or by proxy and holding shares in the Company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right (excluding any shares held in treasury).
Voting instructions may be given only in respect of a number of ADSs representing an integral number of Deposited Securities. Upon the timely receipt from a Holder of ADSs as of the ADS Record Date of voting instructions in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement, the Articles of Association and the provisions of the Deposited Securities, to vote, or cause the Custodian to vote, the Deposited Securities (in person
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or by proxy) represented by such Holder’s ADSs as follows: (a) in the event voting takes place at a shareholders’ meeting by a show of hands, the Depositary will instruct the Custodian to vote all Deposited Securities in accordance with the voting instructions received timely from a majority of Holders of ADSs who provided voting instructions, and (b) in the event voting takes place at a shareholders’ meeting by poll, the Depositary will instruct the Custodian to vote the Deposited Securities in accordance with the voting instructions timely received from the Holders of ADSs. If voting is by poll and the Depositary does not receive voting instructions from a Holder as of the ADS Record Date on or before the date established by the Depositary for such purpose, such Holder shall be deemed, and the Depositary shall deem such Holder, to have instructed the Depositary to give a discretionary proxy to a person designated by the Company to vote the Deposited Securities; provided, however, that no such discretionary proxy shall be given by the Depositary with respect to any matter to be voted upon as to which the Company informs the Depositary that (a) the Company does not wish such proxy to be given, (b) substantial opposition exists, or (c) the rights of holders of Deposited Securities may be adversely affected.
Deposited Securities represented by ADSs for which no timely voting instructions are received by the Depositary from the Holder shall not be voted (except (a) in the case voting is by show of hands, in which case the Depositary will instruct the Custodian to vote all Deposited Securities in accordance with the voting instructions received from a majority of Holders of ADSs who provided timely voting instructions, and (b) as contemplated in Section 4.10 of the Deposit Agreement). Neither the Depositary nor the Custodian shall under any circumstances exercise any discretion as to voting and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of, for purposes of establishing a quorum or otherwise, the Deposited Securities represented by ADSs, except pursuant to and in accordance with the voting instructions timely received from Holders or as otherwise contemplated herein. If the Depositary timely receives voting instructions from a Holder which fail to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs, the Depositary will deem such Holder (unless otherwise specified in the notice distributed to Holders) to have instructed the Depositary to vote in favor of the items set forth in such voting instructions. Notwithstanding anything else contained herein, the Depositary shall, if so requested in writing by the Company, represent all Deposited Securities (whether or not voting instructions have been received in respect of such Deposited Securities from Holders as of the ADS Record Date) for the sole purpose of establishing quorum at a meeting of shareholders.
Notwithstanding anything else contained in the Deposit Agreement or any ADR, the Depositary shall not have any obligation to take any action with respect to any meeting, or solicitation of consents or proxies, of holders of Deposited Securities if the taking of such action would violate U.S. or English laws. The Company agrees to take any and all actions reasonably necessary and as permitted by the laws of England and Wales to enable Holders and Beneficial Owners to exercise the voting rights accruing to the Deposited Securities and to deliver to the Depositary an opinion of U.S. counsel addressing any actions requested to be taken if so requested by the Depositary.
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There can be no assurance that Holders generally or any Holder in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner.
(19) Changes Affecting Deposited Securities. Upon any change in nominal or par value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger, consolidation or sale of assets affecting the Company or to which it is a party, any property which shall be received by the Depositary or the Custodian in exchange for, or in conversion of, or replacement of, or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Property under the Deposit Agreement, and this ADR shall, subject to the provisions of the Deposit Agreement, this ADR evidencing such ADSs and applicable law, represent the right to receive such additional or replacement Deposited Property. In giving effect to such change, split-up, subdivide, cancellation, consolidation or other reclassification of Deposited Securities, recapitalization, reorganization, merger, consolidation or sale of assets, the Depositary may, with the Company’s approval, and shall, if the Company shall so request, subject to the terms of the Deposit Agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the Depositary, and (b) taxes) and receipt of an opinion of counsel to the Company satisfactory to the Depositary that such actions are not in violation of any applicable laws or regulations, (i) issue and deliver additional ADSs as in the case of a stock dividend on or bonus issue of the Shares, (ii) amend the Deposit Agreement and the applicable ADRs, (iii) amend the applicable Registration Statement(s) on Form F-6 as filed with the Commission in respect of the ADSs, (iv) call for the surrender of outstanding ADRs to be exchanged for new ADRs, and (v) take such other actions as are appropriate to reflect the transaction with respect to the ADSs. Notwithstanding the foregoing, in the event that any Deposited Property so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall, if the Company requests, subject to receipt of an opinion of Company’s counsel satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such Deposited Property at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes) for the account of the Holders otherwise entitled to such Deposited Property upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to Section 4.1 of the Deposit Agreement. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such Deposited Property available to Holders in general or to any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such Deposited Property.
(20) Exoneration. Notwithstanding anything contained in the Deposit Agreement or this ADR, neither the Depositary nor the Company shall be obligated to do or perform any act or thing which is inconsistent with the provisions of the Deposit Agreement or incur any liability (to the extent not limited by paragraph (25) hereof and Section 7.8(b) of the Deposit Agreement) (i) if the Depositary, the Custodian, the Company or their respective agents shall be prevented or
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forbidden from, hindered or delayed in, doing or performing any act or thing required or contemplated by the terms of the Deposit Agreement and this ADR, by reason of any provision of any present or future law or regulation of the United States, England and Wales or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of potential criminal or civil penalties or restraint, or by reason of any provision, present or future, of the Articles of Association or any provision of or governing any Deposited Securities, or by reason of any act of God or other event or circumstance beyond its control (including, without limitation, fire, flood, earthquake, tornado, hurricane, tsunami, explosion, or other natural disaster, nationalization, expropriation, currency restriction, work stoppage, strikes, civil unrest, act of war (whether declared or not) or terrorism, revolution, rebellion, embargo, computer failure, failure of public infrastructure (including communication or utility failure), failure of common carriers, nuclear, cyber or biochemical incident, any pandemic, epidemic or other prevalent disease or illness with an actual or probable threat to human life, any quarantine order or travel restriction imposed by a governmental authority or other competent public health authority, or the failure or unavailability of the United States Federal Reserve Bank (or other central banking system) or DTC (or other clearing system)), (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Articles of Association or provisions of or governing Deposited Securities, (iii) for any action or inaction in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, (iv) for the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of ADSs, (v) for any action or inaction of any clearing or settlement system (and any participant thereof) for the Deposited Property or the ADSs, or (vi) for any consequential or punitive damages (including lost profits) for any breach of the terms of the Deposit Agreement. The Depositary, its controlling persons, its agents, any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.
(21) Standard of Care. The Company and the Depositary assume no obligation and shall not be subject to any liability under the Deposit Agreement or this ADR to any Holder(s) or Beneficial Owner(s), except that the Company and the Depositary agree to perform their respective obligations specifically set forth in the Deposit Agreement or this ADR without negligence or bad faith. Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, or agents, shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Property or in respect of the ADSs, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).
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The Depositary and its agents shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast or the effect of any vote, provided that any such action or omission is in good faith and without negligence and in accordance with the terms of the Deposit Agreement. The Depositary shall not incur any liability for any failure to accurately determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Property, for the validity or worth of the Deposited Property, for the value of any Deposited Property or any distribution thereon, for any interest on Deposited Property, for any tax consequences that may result from the ownership of ADSs, Shares or other Deposited Property, for the credit worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement, for the failure or timeliness of any notice from the Company, or for any action of or failure to act by, or any information provided or not provided by, DTC or any DTC Participant.
The Depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the Depositary or in connection with any matter arising wholly after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be liable for any acts or omissions made by a predecessor depositary whether in connection with an act or omission of the Depositary or in connection with any matter arising wholly prior to the appointment of the Depositary or after the removal or resignation of the Depositary, provided that in connection with the issue out of which such potential liability arises the Depositary performed its obligations without negligence or bad faith while it acted as Depositary.
(22) Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2 of the Deposit Agreement), or (ii) the appointment by the Company of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. The Depositary may at any time be removed by the Company by written notice of such removal, which removal shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in Section 6.2 of the Deposit Agreement), or (ii) upon the appointment by the Company of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary, which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment
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hereunder, and thereupon such successor depositary, without any further act or deed (except as required by applicable law), shall become fully vested with all the rights, powers, duties and obligations of its predecessor (other than as contemplated in Sections 5.8 and 5.9 of the Deposit Agreement). The predecessor depositary, upon payment of all sums due it and on the written request of the Company shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in Sections 5.8 and 5.9 of the Deposit Agreement), (ii) duly assign, transfer and deliver all of the Depositary’s right, title and interest to the Deposited Property to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding ADSs and such other information relating to ADSs and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly provide notice of its appointment to such Holders. Any entity into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act.
(23) Amendment/Supplement. Subject to the terms and conditions of this paragraph (23), and Section 6.1 of the Deposit Agreement and applicable law, this ADR and any provisions of the Deposit Agreement may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the prior written consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding ADSs until the expiration of thirty (30) days after notice of such amendment or supplement shall have been given to the Holders of outstanding ADSs. Notice of any amendment to the Deposit Agreement or any ADR shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (e.g., upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary). The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act or (b) the ADSs to be settled solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial existing rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such ADSs, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement and this ADR, if applicable, as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such ADS and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require an amendment of, or supplement to, the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or
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supplement the Deposit Agreement and this ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement and this ADR in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.
(24) Termination. The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. If (i) ninety (90) days shall have expired after the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) ninety (90) days shall have expired after the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and, in either case, a successor depositary shall not have been appointed and accepted its appointment as provided in Section 5.4 of the Deposit Agreement, the Depositary may terminate the Deposit Agreement by distributing notice of such termination to the Holders of all ADSs then outstanding at least thirty (30) days prior to the date fixed in such notice for such termination. The date so fixed for termination of the Deposit Agreement in any termination notice so distributed by the Depositary to the Holders of ADSs is referred to as the “Termination Date”. Until the Termination Date, the Depositary shall continue to perform all of its obligations under the Deposit Agreement, and the Holders and Beneficial Owners will be entitled to all of their rights under the Deposit Agreement. If any ADSs shall remain outstanding after the Termination Date, the Registrar and the Depositary shall not, after the Termination Date, have any obligation to perform any further acts under the Deposit Agreement, except that the Depositary shall, subject, in each case, to the terms and conditions of the Deposit Agreement, continue to (i) collect dividends and other distributions pertaining to Deposited Securities, (ii) sell Deposited Property received in respect of Deposited Securities, (iii) deliver Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any other Deposited Property, in exchange for ADSs surrendered to the Depositary (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (iv) take such actions as may be required under applicable law in connection with its role as Depositary under the Deposit Agreement. At any time after the Termination Date, the Depositary may sell the Deposited Property then held under the Deposit Agreement and shall after such sale hold un-invested the net proceeds of such sale, together with any other cash then held by it under the Deposit Agreement, in an un- segregated account and without liability for interest, for the pro rata benefit of the Holders whose ADSs have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement except (i) to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the fees and charges of, and expenses incurred by, the Depositary, and all applicable taxes or governmental charges for the account of the Holders and Beneficial Owners, in each case upon the terms set forth in Section 5.9 of the Deposit Agreement), and (ii) as may be required at law in connection with the termination of the Deposit Agreement. After the Termination Date, the Company shall be discharged from all obligations under the Deposit Agreement, except for its
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obligations to the Depositary under Sections 5.8, 5.9 and 7.6 of the Deposit Agreement. The obligations under the terms of the Deposit Agreement of Holders and Beneficial Owners of ADSs outstanding as of the Termination Date shall survive the Termination Date and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement (except as specifically provided in the Deposit Agreement).
(25) Compliance with, and No Disclaimer under, U.S. Securities Laws. (a) Notwithstanding any provisions in this ADR or the Deposit Agreement to the contrary, the withdrawal or delivery of Deposited Securities will not be suspended by the Company or the Depositary except as would be permitted by Instruction I.A.(1) of the General Instructions to the Form F-6 Registration Statement, as amended from time to time, under the Securities Act.
(b) Each of the parties to the Deposit Agreement (including, without limitation, each Holder and Beneficial Owner) acknowledges and agrees that no provision of the Deposit Agreement or any ADR shall, or shall be deemed to, disclaim any liability under the Securities Act or the Exchange Act, in each case to the extent established under applicable U.S. laws.
(26) No Third Party Beneficiaries/Acknowledgements. The Deposit Agreement is for the exclusive benefit of the parties hereto (and their successors) and shall not be deemed to give any legal or equitable right, remedy or claim whatsoever to any other person, except to the extent specifically set forth in the Deposit Agreement. Nothing in the Deposit Agreement shall be deemed to give rise to a partnership or joint venture among the parties nor establish a fiduciary or similar relationship among the parties. The parties hereto acknowledge and agree that (i) Citibank and its Affiliates may at any time have multiple banking relationships with the Company, the Holders, the Beneficial Owners, and their respective Affiliates, (ii) Citibank and its Affiliates may own and deal in any class of securities of the Company and its Affiliates and in ADSs, and may be engaged at any time in transactions in which parties adverse to the Company, the Holders, the Beneficial Owners or their respective Affiliates may have interests, (iii) the Depositary and its Affiliates may from time to time have in their possession non-public information about the Company, the Holders, the Beneficial Owners, and their respective Affiliates, (iv) nothing contained in the Deposit Agreement shall (a) preclude Citibank or any of its Affiliates from engaging in such transactions or establishing or maintaining such relationships, or (b) obligate Citibank or any of its Affiliates to disclose such information, transactions or relationships, or to account for any profit made or payment received in such transactions or relationships, (v) the Depositary shall not be deemed to have knowledge of any information any other division of Citibank or any of its Affiliates may have about the Company, the Holders, the Beneficial Owners, or any of their respective Affiliates, and (vi) the Company, the Depositary, the Custodian and their respective agents and controlling persons may be subject to the laws and regulations of jurisdictions other than the U.S., England and Wales, and the authority of courts and regulatory authorities of such other jurisdictions, and, consequently, the requirements and the limitations of such other laws and regulations, and the decisions and orders of such other courts and regulatory authorities, may affect the rights and obligations of the parties to the Deposit Agreement.
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(27) Governing Law / Waiver of Jury Trial. The Deposit Agreement, the ADRs and the ADSs shall be interpreted in accordance with, and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, the laws of the State of New York without reference to the principles of choice of law thereof. Notwithstanding anything contained in the Deposit Agreement to the contrary, any ADR or any present or future provisions of the laws of the State of New York, the rights of holders of Shares and of any other Deposited Securities and the obligations and duties of the Company in respect of the holders of Shares and other Deposited Securities, as such, shall be governed by the laws of England and Wales (or, if applicable, such other laws as may govern the Deposited Securities).
Holders and Beneficial Owners understand and each irrevocably agrees that, by holding an ADS or an interest therein, any suit, action or proceeding against or involving the Company or the Depositary, arising out of or based upon the Deposit Agreement, ADSs, ADRs or the transactions contemplated hereby or thereby or by virtue of ownership thereof, may only be instituted in a state or federal court in the City of New York, and by holding an ADS or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in, and irrevocably submits to the exclusive jurisdiction of, such courts in any such suit, action or proceeding. Furthermore, the Depositary and the Company have been informed, and hereby inform the Holder and Beneficial Owners that as the date hereof, actions by Holders and Beneficial Owners to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in federal court. Holders and Beneficial Owners agree that the provisions of this paragraph shall survive such Holders’ and Beneficial Owners’ ownership of ADSs or interests therein.
EACH OF THE PARTIES TO THE DEPOSIT AGREEMENT (INCLUDING, WITHOUT LIMITATION, EACH HOLDER AND BENEFICIAL OWNER) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING AGAINST THE COMPANY AND/OR THE DEPOSITARY ARISING OUT OF, OR RELATING TO, THE DEPOSIT AGREEMENT, ANY ADR AND ANY TRANSACTIONS CONTEMPLATED THEREIN (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR OTHERWISE).
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(ASSIGNMENT AND TRANSFER SIGNATURE LINES)
FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and transfer(s) unto whose taxpayer identification number is and whose address including postal zip code is , the within ADR and all rights thereunder, hereby irrevocably constituting and appointing attorney-in-fact to transfer said ADR on the books of the Depositary with full power of substitution in the premises.
| Dated: | Name: |
| ||||
| By: | ||||||
| Title: |
| NOTICE: The signature of the Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatsoever. | ||
| If the endorsement be executed by an attorney, executor, administrator, trustee or guardian, the person executing the endorsement must give his/her full title in such capacity and proper evidence of authority to act in such capacity, if not on file with the Depositary, must be forwarded with this ADR. | ||
|
SIGNATURE GUARANTEED |
||
| All endorsements or assignments of ADRs must be guaranteed by a member of a Medallion Signature Program approved by the Securities Transfer Association, Inc. | ||
Legends
[The ADRs issued in respect of Partial Entitlement American Depositary Shares shall bear the following legend on the face of the ADR: “This ADR evidences ADSs representing ‘partial entitlement’ Shares of the Company and as such do not entitle the holders thereof to the same per-share entitlement as other Shares (which are ‘full entitlement’ Shares) issued and outstanding at such time. The ADSs represented by this ADR shall entitle holders to distributions and entitlements identical to other ADSs when the Shares represented by such ADSs become ‘full entitlement’ Shares.”]
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EXHIBIT B
FEE SCHEDULE
ADS FEES AND RELATED CHARGES
All capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Deposit Agreement. Except as otherwise specified herein, any reference to ADSs herein includes Partial Entitlement ADSs, Full Entitlement ADSs, Certificated ADSs, Uncertificated ADSs, and Restricted ADSs.
| I. | ADS Fees |
The following ADS fees are payable under the terms of the Deposit Agreement:
| Service |
Rate |
By Whom Paid | ||
| (1) Issuance of ADSs (e.g., an issuance upon a deposit of Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), excluding issuances as a result of distributions described in paragraph (4) below. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) issued. | Person for whom ADSs are issued. | ||
| (2) Cancellation of ADSs (e.g., a cancellation of ADSs for Delivery of deposited Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) cancelled. | Person for whom ADSs are being cancelled. | ||
| (3) Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom the distribution is made. | ||
| (4) Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) an exercise of rights to purchase additional ADSs. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom the distribution is made. | ||
| (5) Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., spin-off shares). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom the distribution is made. | ||
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| 6) ADS Services. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary. | Person holding ADSs on the applicable record date(s) established by the Depositary. | ||
| 7) Registration of ADS Transfers (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) transferred. | Person for whom or to whom ADSs are transferred. | ||
| 8) Conversion of ADSs of one series for ADSs of another series (e.g., upon conversion of Partial Entitlement ADSs for Full Entitlement ADSs, or upon conversion of Restricted ADSs into freely transferable ADSs, and vice versa). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) converted. | Person for whom ADSs are converted or to whom the converted ADSs are delivered. | ||
| II. | Charges |
The Company, Holders, Beneficial Owners, persons depositing Shares or withdrawing Deposited Securities in connection with ADS issuances and cancellations, and persons for whom ADSs are issued or cancelled shall be responsible for the following ADS charges under the terms of the Deposit Agreement:
| (i) | taxes (including applicable interest and penalties) and other governmental charges; |
| (ii) | such registration fees as may from time to time be in effect for the registration of Shares or other Deposited Securities on the share register and applicable to transfers of Shares or other Deposited Securities to or from the name of the Custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; |
| (iii) | such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the person depositing Shares or withdrawing Deposited Property or of the Holders and Beneficial Owners of ADSs; |
| (iv) | in connection with the conversion of Foreign Currency, the fees, expenses, spreads, taxes and other charges of the Depositary and/or conversion service providers (which may be a division, branch or Affiliate of the Depositary). Such fees, expenses, spreads, taxes, and other charges shall be deducted from the Foreign Currency; |
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| (v) | any reasonable and customary out-of-pocket expenses incurred in such conversion and/or on behalf of the Holders and Beneficial Owners in complying with currency exchange control or other governmental requirements; and |
| (vi) | the fees, charges, costs and expenses incurred by the Depositary, the Custodian, or any nominee in connection with the ADR program. |
The above fees and charges may at any time and from time to time be changed by agreement between the Company and the Depositary.
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Exhibit 2.3
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Abcam plc has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): our ordinary shares, nominal value £0.002 per share. Our American Depositary Shares, or ADSs, are exempt from registration under Section 12(b) of the Exchange Act pursuant to Rule 12a-8 thereunder. References herein to “we,” “us,” “our” and the “Company” refer to Abcam plc and not to any of its subsidiaries.
Description of Share Capital and Articles of Association
The following is a summary of certain provisions of our articles of association (“Articles of Association”). These summaries may not contain all of the information that is important to you and should be read in conjunction with our Articles of Association, which have been publicly filed with the U.S. Securities and Exchange Commission (“SEC”).
Objects
Our objects do not restrict the manner in which we conduct our business as described herein.
Share Rights
Without prejudice to any special rights conferred on shareholders or holders of a class of shares, the Company may, by ordinary resolution, determine that any shares are allotted with special rights, privileges or restrictions.
Voting Rights
Subject to the provisions of the Companies Act 2006 and any restrictions imposed in our Articles of Association and any rights or restrictions attached to any class of shares of our share capital, on a resolution, on a show of hands:
| • | every shareholder present in person shall have one vote; |
| • | each proxy present who has been duly appointed by one or more shareholders entitled to vote on the resolution has one vote unless the proxy has been appointed by more than one shareholder entitled to vote on the resolution in which case: (i) where the proxy has been instructed by one or more of such members to vote for the resolution and by one or more of such members to vote against the resolution the proxy has one vote for and one vote against the resolution; or (ii) where the proxy has been instructed by one or more of such members as to how he should vote on the resolution and all those instructions are to vote the same way, and one or more other members have given the proxy discretion as to how to vote, he may cast one vote “for” or one vote “against” in accordance with those instructions and may cast a second discretionary vote the other way; and |
| • | each person authorized by a corporation to exercise voting powers on behalf of the corporation is entitled to exercise the same voting powers as the corporation would be entitled to unless a corporation authorizes more than one person, in which case: (i) if more than one person authorized by the same corporation purport to exercise the power to vote on a show of hands in respect of the same shares in the Company and exercise the power in the same way as each other, the power is treated as exercised in that way; or (ii) if more than one person authorized by the same corporation purports to exercise the power to vote on a show of hands in respect of the same shares in the Company, and they do not exercise the power in the same way as each other, the power is treated as not exercised. |
Subject to the provisions of the Companies Act 2006 and any restrictions imposed by our Articles of Association and any rights or restrictions attached to any class of shares of our share capital, on a vote on a resolution on a poll, every shareholder present shall have one vote for every ordinary share in our share capital held by him or his appoint, or and if entitled to more than one vote need not, if he votes, use all his votes or cast all his votes in the same way.
At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of show of hands) demanded by the chairman of the meeting or by those shareholders entitled under the provisions of the Companies Act 2006 to demand a poll. Subject to the provisions of the Companies Act 2006, as described below in “Differences in Corporate Law—Voting Rights” below, a poll may be demanded by:
| • | a chairman of the meeting; |
| • | at least five shareholders present in person or by proxy and entitled to vote; |
| • | any shareholder(s) present in person or by proxy and representing in the aggregate not less than 10% of the total voting rights of all shareholders having the right to attend and vote at the meeting (excluding the shares held in treasury); or |
| • | any shareholder(s) present in person or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than 10% of the total sums paid up on all shares conferring that right (excluding the shares held in treasury). |
Restrictions on Voting
Subject to the provisions of the Companies Act 2006, no shareholder is, unless the directors otherwise determine, entitled (save as a proxy for another member) to be present or vote at any general meeting either personally or by proxy or to exercise any other right in relation to meetings of the Company in respect of either the share he holds or (with effect from allotment) of any additional shares allotted in respect of the share which is the subject of a notice under Article 85 of our Articles of Association (including without limitation any share allotted under a rights issue or capitalization issue) if:
| • | any call or other sum presently payable by him to the Company in respect of the shares remained unpaid; |
| • | he or any other person who appears to be interested in the shares has been served, under section 793 of this Companies Act 2006 concerning the disclosure of interests in voting shares, with a notice which: (i) lawfully requires the provision of information regarding the shares to the Company within the period specified in such notice (being not less than 14 days from the date of service of such notice) (ii) contains a warning of the consequences of failing to comply with such notice; and (iii) (whether or not he is aware of the identity of the beneficial owner(s) of the share) he or such other person is in default in complying with such notice; or |
| • | he has been duly served with a notice which: (i) requires him to provide or to procure that there is provided to the Company within the period specified in the notice (being not less than 14 days from the service of notice), a statement in writing authenticated by him or any other person or persons stating that he (if the statement is authenticated by him) or (as the case may be) the other person or persons who has/have authenticated the statement is/are the beneficial owner(s) of the shares and providing any additional information regarding the shares; (ii) contains a warning of the consequences under Article 85 of our Articles of Association of failing to comply with such notice; and (iii) (whether or not he is aware of the identity of the beneficial owner(s) of the share) he is in default in complying with such notice. |
The board may from time to time make calls upon the shareholders in respect of any money unpaid on their shares, and each shareholder shall (subject to at least seven days’ notice specifying the time and place of payment) be liable to pay at the time and place so specified the amount called on his shares.
Dividends
We may, by ordinary resolution of shareholders, declare dividends. No dividend will be payable except out of profits of the Company available for distribution in accordance with the provisions of the Companies Act 2006, or in excess of the amount recommended by the directors. If, in the opinion of the directors, the profit of the Company justifies such payments, the directors may: (i) pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the half-yearly or other dates prescribed for payment; and (ii) pay interim dividends of such amounts and on such dates as they think fit.
Subject to the provisions of the Companies Act 2006 and except as otherwise provided by our Articles of Association or by the rights or privileges attached to any shares carrying a preferential or special rights to dividends, Company profits will be used to pay dividends on shares and all dividends shall be declared and paid according to the amounts paid up on the shares and shall be apportioned and paid pro rata according to the amounts paid up on the shares during any part of the period in respect of which the dividend is paid.
No dividend or other moneys payable by us on or in respect of any share shall bear interest against us. Any dividend unclaimed or retained in accordance with our Articles of Association after a period of 12 years from the date such dividend became due for payment will be forfeited and revert to us.
Dividends may be declared or paid in any currency, and the board may agree with a shareholder that dividends declared or that become due on his shares in one currency will be paid or satisfied in another currency, the basis of conversion to be applied, how and when the amount to be paid in the other currency will be calculated and paid, and whether the Company or any other person will bear the costs of conversion.
With the sanction of an ordinary resolution of the Company, all or any part of the dividend can be paid by the distribution of specific assets and the directors must give effect to such ordinary resolution. With the sanction of an ordinary resolution of the Company, the directors may offer any holders of ordinary shares the right to elect to receive in lieu of a dividend an allotment of ordinary shares credited as fully paid up, instead of or part of a cash dividend, subject to such exclusions or arrangements as the board may deem necessary or expedient.
The directors may deduct from any dividend or other moneys payable to any member on or in respect of a share any money payable by him to the Company on account of calls or otherwise in relation to shares in the Company.
Change of Control
There is no specific provision in our Articles of Association that would have the effect of delaying, deferring or preventing a change of control.
Distributions on Winding Up
If the Company is wound up (whether the liquidation is voluntary, under supervision or by the court) the liquidator may, with the authority of a special resolution, divide among the shareholders whose names are entered on the register of members of the Company at the date of winding up, in specie or kind the whole or any part of the assets of the Company. Whether or not the assets consist of property of one kind or of different kinds the liquidator can set such value as he deems fair upon any one or more class or classes of property and can determine how such division is carried out as between such members or different classes of members. If any such division shall be other than in accordance with the existing rights of such members, every member shall have the same right of dissent and other ancillary rights as if the resolution were a special resolution passed in accordance with section 110 of the Insolvency Act 1986. The liquidator may also, with the authority of a special resolution, vest any part of the assets in trustees upon such trusts for the benefit of such members as the liquidator thinks fit. The liquidation of the Company may then be closed and the Company dissolved, but no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.
Variation of Rights
Subject to the provisions of the Companies Act 2006, whenever the share capital is divided into different classes of shares, all or any of the rights and restrictions attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be modified, varied, extended, abrogated or surrendered either in the manner provided by such rights or (in the absence of such provision) with the written consent of the shareholders of at least three-fourths in nominal value of the issued shares of that class (excluding any shares held as treasury shares) or by special resolution passed at a separate general meeting of the holders of such shares. The Companies Act 2006 provides a right to object to the variation of the share capital by the shareholders who did not vote in favor of the variation. Should an aggregate of 15% of the shareholders of the issued shares in question apply to the court to have the variation cancelled, the variation shall have no effect unless and until it is confirmed by the court.
Alteration to Share Capital
We may, by ordinary resolution of shareholders, consolidate and divide all or any of our share capital into shares of larger nominal value than our existing shares, or sub-divide our shares or any of them into shares of a smaller nominal value. We may, by special resolution of shareholders, confirmed by the court, reduce our share capital or any capital redemption reserve or any share premium account in any manner authorized by the Companies Act 2006. We may redeem or purchase all or any of our shares as described in “—Other U.K. Law Considerations—Purchase of Own Shares.”
Preemption Rights
In certain circumstances, our shareholders may have statutory preemption rights under the Companies Act 2006 in respect of the allotment of new shares as described in “—Preemptive Rights” and “—Differences in Corporate Law—Preemptive Rights.”
Transfer of Shares
Any certificated shareholder may transfer all or any of his shares by an instrument of transfer in writing in any usual or common form or in any other manner approved by the board. Any written instrument of transfer shall be executed by or on behalf of the transferor and (in the case of a partly paid share) the transferee.
All transfers of uncertificated shares shall be made in accordance with and subject to the provisions of the Uncertificated Securities Regulations 2001 and the facilities and requirements of its relevant system. The Uncertificated Securities Regulations 2001 permit shares to be issued and held in uncertificated form and transferred by means of a computer-based system.
The board may decline to register any transfer of any share held in certificated form:
| • | if the Company has a lien on a partly paid share unless to do so would prevent dealings in partly paid shares from taking place on an open and proper basis; |
| • | if a notice has been duly served in respect of a share pursuant to section 793 of the Companies Act 2006 and: (i) the share or shares that were the subject of that notice represented in aggregate at least 0.25 percent of that class of shares (calculated exclusive of any treasury shares of that class); and (ii) the person or persons on whom the notice was served failed to comply with the requirements of the notice within the period for compliance specified in the notice (being not less than 14 days from the date of service of the notice) and remains in default in complying with the notice, unless the transfer in question is to a bona fide unconnected third party such as a sale through a recognized investment exchange or an overseas exchange or as a result of an acceptance of a takeover offer; or |
| • | if the transfer is of a share or shares (whether fully paid or not) in favor of more than 4 persons jointly. |
If the board declines to register a transfer it shall, as soon as practicable and in any event within two months after the date on which a transfer form, a letter of allotment (if applicable) is lodged, send to the transferee notice of the refusal, together with reasons for the refusal.
CREST
To be traded on AIM, securities must be able to be transferred and settled through the CREST system. CREST is a computerized paperless share transfer and settlement system that allows securities to be transferred by electronic means, without the need for a written instrument of transfer. Our Articles of Association are consistent with CREST membership and, among other things, allow for the holding and transfer of shares in uncertificated form.
Shareholder Meetings
Annual General Meetings
In accordance with the Companies Act 2006, we are required in each year to hold an annual general meeting in addition to any other general meetings in that year and to specify the meeting as such in the notice convening it. The annual general meeting shall be convened whenever and wherever the board sees fit, subject to the requirements of the Companies Act 2006, as described below in “—Differences in Corporate Law—Annual General Meeting” and “—Differences in Corporate Law—Notice of General Meetings.”
Notice of General Meetings
The arrangements for the calling of general meetings are described below in “—Differences in Corporate Law—Notice of General Meetings.”
Quorum of General Meetings
No business shall be transacted at any general meeting unless a quorum is present. At least two shareholders present in person or by proxy and entitled to vote shall be a quorum for all purposes. If within 15 minutes from the time appointed for the holding of a general meeting (or such longer time as the chairman of the meeting may decide) a quorum is not present, the meeting, if convened on the requisition of members, shall be dissolved. In any other case it shall be adjourned to a day (at least 10 clear days after the meeting), time and place decided by the chairman. If at an adjourned meeting a quorum is not present within 15 minutes from the time appointed for holding the meeting, the member or members present in person or by proxy or (in the case of a corporation) by a representative and entitled to vote upon the business to be transacted shall be a quorum and shall have power to decide upon all matters that could properly have been disposed of at the meeting from which the adjournment took place.
Class Meetings
The provisions in our Articles of Association relating to general meetings apply to every separate general meeting of the holders of a class of shares except that:
| • | the quorum for such class meeting shall be two holders in person or by proxy representing not less than one-third in nominal value of the issued shares of the class (excluding any shares held in treasury); |
| • | at the class meeting, a holder of shares of the class present in person or by proxy may demand a poll and shall on a poll be entitled to one vote for every share of the class held by him; and |
| • | if at any adjourned meeting of such holders a quorum is not present at the meeting, one holder of shares of the class present in person or by proxy at an adjourned meeting constitutes a quorum. |
Directors
Number of Directors
We may not have less than three and not more than 12 directors on the board of directors.
Appointment of Directors
A single resolution for the appointment of two or more persons as directors is void unless a resolution that it shall be moved has first been agreed to by the meeting without any vote being given against it.
At any general meeting, no person other than a director retiring at the meeting shall, unless recommended by the directors for election, be eligible for appointment as a director unless not less than 28 nor more than 35
days before the date of the meeting: (i) a notice in writing, authenticated by a member (other than the person to be proposed) who is qualified to attend and vote at that meeting, containing his intention to propose the person for election; and (ii) a notice in writing authenticated by the person proposed as a director of his willingness to be elected; have both been left at the registered office or sent to the Company secretary.
Without prejudice to the power to appoint any person to be a director by shareholder resolution, the board has power to appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing board but so that the total number of directors does not exceed the maximum number fixed by or in accordance with our Articles of Association.
Any director appointed by the board shall retire from office at the next annual general meeting. Such a director is eligible for election at that meeting but shall not be taken into account in determining the directors or the number of directors who are to retire by rotation at such meeting.
Rotation of Directors
At each annual general meeting, the following directors will retire from office and be eligible for re-election:
| • | any director who was not elected or re-elected at either of the two preceding annual general meetings and any director who wishes to retire and offer himself for re-election (whether by reason of the U.K. Corporate Governance Code or for any other reason); and |
| • | such number of the directors (excluding any director who is required to retire under our Articles of Association) as would, when added to the number of directors (if any) retiring in accordance with the above bullet point represent one third of the directors. If one third is not a whole number then the number of directors to retire is the number nearest to one third. |
If at any annual general meeting the total number of directors to be considered for retirement by rotation is less than three and the one third calculation above would result in a number which is less than one, then: (i) if the total number is two, one of those directors shall retire; and (ii) if the total number is one, that director shall retire.
The directors to retire on each occasion shall include (so far as necessary to obtain the number required) any director who wishes to retire and not offer himself for re-election. Any further directors to retire shall be those of the other directors who are subject to retirement by rotation for the purposes of the meeting in question and who have at the date of the meeting been longest in office since their last re-election or appointment. In the case of persons who became or were last re-elected directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot.
A director who retires at the annual general meeting shall be eligible for re-election.
The shareholders may, at the meeting at which a director retires, fill the vacated office by electing a person and in default the retiring director shall, if willing to continue to act, be deemed to have been re-elected, unless at such meeting it is expressly resolved not to fill such vacated office or unless a resolution for the re-election of such director shall have been put to the meeting and lost or unless the default is due to the moving of a resolution in contravention of Article 114 of our Articles of Association or unless such director has attained any applicable retiring age.
Directors’ Interests
A director may hold any other office or employment with the Company (other than the office of auditor) in conjunction with his office of director for such period and on such terms as the directors may determine. A director or intending director may enter into any contract, arrangement, transaction or proposal with the Company relating to the tenure of any other office or employment. Any such contract, arrangement, transaction or proposal entered into or authorized by the directors cannot be avoided and the director is not liable to account to the Company for any benefit realized from any such contract, arrangement, transaction or proposal by reason of either holding office as a director or because of the fiduciary relationship established by the office if the director has declared his interest in accordance with the Companies Act 2006. In accordance with the Companies Act 2006, a director who is in any way, whether directly or indirectly, interested in a proposed or existing transaction or arrangement with us shall declare the nature of his interest.
In the case of interests arising where a director is in any way, directly or indirectly, interested in (i) a proposed transaction or arrangement with us or (ii) a transaction or arrangement that has been entered into by us and save as otherwise provided by our Articles of Association, such director shall not vote at a meeting of the board or of a committee of the board on any resolution concerning such matter in which he has any interest that conflicts or may conflict with the interests of the Company as defined in Article 102 of our Articles of Association (otherwise than by virtue of his interest in shares, debentures or other securities of, or otherwise in or through, us) unless his interest or duty arises only because the resolution relates to one or more of the following paragraphs:
| • | the giving of any security, guarantee or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of or for the benefit of the Company or any of its subsidiary undertakings; or |
| • | the giving of any security, guarantee or indemnity in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which the director himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security; or |
| • | the granting of any indemnity or provision of funding pursuant to Article 190 of our Articles of Association unless the terms of such arrangement confer upon such director a benefit not generally available to any other director; or |
| • | an offer of shares or debentures or other securities of or by the Company or any of its subsidiary undertakings for subscription or purchase in which offer he is or is to be or may be entitled to participate as a holder of securities or as an underwriter or sub-underwriter; or |
| • | any matters involving or relating to any other company in which he or any person connected with him has a direct or indirect interest (whether as an officer or shareholder or otherwise), provided that he and any persons connected with him are not to his knowledge the holder (otherwise than as a nominee for the company or any of its subsidiary undertakings) of or beneficially interested in one percent or more of any class of the equity share capital of such company (or of any third company through which his interest is derived) or of the voting rights available to members of the relevant company (any such interest being deemed for the purpose of this paragraph to be a material interest in all circumstances); or |
| • | an arrangement for the benefit of the employees of the Company or any of its subsidiary undertakings that does not award him any privilege or benefit not generally awarded to the employees to whom the arrangement relates; or |
| • | the purchase and/or maintenance of any insurance policy for the benefit of directors or for the benefit of persons including directors. |
A director shall not be counted in the quorum present at a meeting in relation to a resolution on which he is not entitled to vote.
If a question arises at a meeting of the board or of a committee of the board as to the right of a director to vote, and such question is not resolved by his voluntarily agreeing to abstain from voting, the question shall be referred to the Chairman of the meeting, and his ruling in relation to any director other than himself shall be final and conclusive except in a case where the nature or extent of the interest of the director concerned has not been fairly disclosed.
Directors’ Fees and Remuneration
Each director may be paid his traveling, hotel and other expenses properly incurred in and about the business of the Company, including expenses of attending and returning from meetings of the board or committees of the board or general meetings. Any director who performs special or extra services which in the opinion of the board go beyond the ordinary duties of a director may be paid such extra remuneration as the board or a committee appointed by the board may determine.
An executive director shall receive such remuneration as the board or a committee appointed by the board may determine and may (without limitation) be by way of fixed salary, lump sum, commission on dividends or profits of the Company (or of any other company in which the Company is interested) or other participation in any such profits by any combination of them.
A non-executive director may be paid a fee at such rate as may from time to time be determined by the board.
Borrowing Powers
The board may exercise all the powers to borrow money and to mortgage or charge our undertaking, property and assets and uncalled capital or any part thereof and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of us or of any third party.
Indemnity
Every director, alternate director, secretary or other officer (other than any person (whether an officer or not) engaged by the Company as auditor) shall be indemnified by the Company against all costs, charges, expenses, losses and liabilities incurred by him in the execution and discharge of his duties or the exercise of his powers or otherwise in relation to or in connection with his duties, powers or office as a director of the Company for any other member of the Group, including any liability which may attach to him in respect of any negligence, default, breach of duty or breach of trust by him in relation to anything done or omitted to be done or alleged to have been done or omitted to be done by him as a director.
Other U.K. Law Considerations
Notification of Voting Rights
A shareholder in a public company incorporated in the United Kingdom whose shares are admitted to trading on AIM is required pursuant to Rule 5 of the Disclosure Guidance and Transparency Rules of the U.K. Financial Conduct Authority to notify us of the percentage of his voting rights if the percentage of voting rights that he holds as a shareholder or through his direct or indirect holding of financial instruments (or a combination of such holdings) reaches, exceeds or falls below 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10% and each 1% threshold thereafter up to 100% as a result of an acquisition or disposal of shares or financial instruments.
Mandatory Purchases and Acquisitions
Pursuant to Sections 979 to 991 of the Companies Act 2006, where a takeover offer has been made for us and the offeror has acquired or unconditionally contracted to acquire not less than 90% in value of the shares to which the offer relates and not less than 90% of the voting rights carried by those shares, the offeror may give notice to the holder of any shares to which the offer relates which the offeror has not acquired or unconditionally contracted to acquire that he wishes to acquire, and is entitled to so acquire, those shares on the same terms as the general offer. The offeror would do so by sending a notice to the outstanding minority shareholders telling them that it will
compulsorily acquire their shares. Such notice must be sent within three months of the last day on which the offer can be accepted in the prescribed manner. The squeeze-out of the minority shareholders can be completed at the end of six weeks from the date the notice has been given, subject to the minority shareholders failing to successfully lodge an application to the court to prevent such squeeze-out any time prior to the end of those six weeks following which the offeror can execute a transfer of the outstanding shares in its favor and pay the consideration to us, which would hold the consideration on trust for the outstanding minority shareholders. The consideration offered to the outstanding minority shareholders whose shares are compulsorily acquired under the Companies Act 2006 must, in general, be the same as the consideration that was available under the takeover offer.
Sell Out
The Companies Act 2006 also gives our minority shareholders a right to be bought out in certain circumstances by an offeror who has made a takeover offer for all of our shares. The holder of shares to which the offer relates, and who has not otherwise accepted the offer, may require the offeror to acquire his shares if, prior to the expiry of the acceptance period for such offer, (i) the offeror has acquired or unconditionally agreed to acquire not less than 90% in value of the voting shares, and (ii) not less than 90% of the voting rights carried by those shares. The offeror may impose a time limit on the rights of minority shareholders to be bought out that is not less than three months after the end of the acceptance period. If a shareholder exercises his rights to be bought out, the offeror is required to acquire those shares on the terms of this offer or on such other terms as may be agreed.
Disclosure of Interest in Shares
Pursuant to Part 22 of the Companies Act 2006, we are empowered by notice in writing to any person whom we know or have reasonable cause to believe to be interested in our shares, or at any time during the three years immediately preceding the date on which the notice is issued has been so interested, within a reasonable time to disclose to us particulars of that person’s interest and (so far as is within his knowledge) particulars of any other interest that subsists or subsisted in those shares.
Under our Articles of Association, the directors may in their absolute discretion refuse to register or authorize the registration of the transfer of a share held in certificated form if a notice has been served in respect of a share pursuant to section 793 of the Companies Act concerning the disclosure of interests in voting shares and (i) the share or shares which were the subject of that notice represented in aggregate at least 0.25 percent of that class of shares (calculated exclusive of any treasury shares of that class); and (ii) the person or persons on whom the notice was served failed to comply with the requirements of the notice within the period for compliance specified in the notice (being not less than 14 days from the date of service of the notice) and remains in default in complying with the notice, unless the transfer in question is to a bona fide unconnected third party such as a sale through a recognized investment exchange or an overseas exchange or as a result of an acceptance of a takeover offer.
Purchase of Own Shares
Under English law, a limited company may only purchase its own shares out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose of financing the purchase, provided that they are not restricted from doing so by their articles. A limited company may not purchase its own shares if, as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares. Shares must be fully paid in order to be repurchased.
Subject to the above, we may purchase our own shares in the manner prescribed below. We may make a market purchase of our own fully paid shares pursuant to an ordinary resolution of shareholders. The resolution authorizing the purchase must:
| • | specify the maximum number of shares authorized to be acquired; |
| • | determine the maximum and minimum prices that may be paid for the shares; and |
| • | specify a date, not being later than five years after the passing of the resolution, on which the authority to purchase is to expire. |
We may purchase our own fully paid shares other than on a recognized investment exchange pursuant to a purchase contract authorized by resolution of shareholders before the purchase takes place. Any authority will not be effective if any shareholder from whom we propose to purchase shares votes on the resolution and the resolution would not have been passed if he had not done so. The resolution authorizing the purchase must specify a date, not being later than five years after the passing of the resolution, on which the authority to purchase is to expire.
Distributions and Dividends
Under the Companies Act 2006, before a company can lawfully make a distribution or dividend, it must ensure that it has sufficient distributable reserves (on a non-consolidated basis). The basic rule is that a company’s profits available for the purpose of making a distribution are its accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less its accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital duly made. The requirement to have sufficient distributable reserves before a distribution or dividend can be paid applies to us and to each of our subsidiaries that has been incorporated under English law.
It is not sufficient that we, as a public company, have made a distributable profit for the purpose of making a distribution. An additional capital maintenance requirement is imposed on us to ensure that the net worth of the company is at least equal to the amount of its capital. A public company can only make a distribution:
| • | if, at the time that the distribution is made, the amount of its net assets (that is, the total excess of assets over liabilities) is not less than the total of its called up share capital and undistributable reserves; and |
| • | if, and to the extent that, the distribution itself, at the time that it is made, does not reduce the amount of the net assets to less than that total. |
City Code on Takeovers and Mergers
As a public company incorporated in England and Wales with our registered office in England and Wales and that has shares admitted to AIM, we are subject to the U.K. City Code on Takeovers and Mergers (the “City Code”), which is issued and administered by the U.K. Panel on Takeovers and Mergers (the “Panel”). The City Code provides a framework within which takeovers of companies subject to it are conducted. In particular, the City Code contains certain rules in respect of mandatory offers. Under Rule 9 of the City Code, if a person:
| • | acquires an interest in our shares which, when taken together with shares in which he or persons acting in concert with him are interested, carries 30% or more of the voting rights of our shares; |
| • | who, together with persons acting in concert with him, is interested in shares that in the aggregate carry not less than 30% and not more than 50% of the voting rights of our shares, and such persons, or any person acting in concert with him, acquires additional interests in shares that increase the percentage of shares carrying voting rights in which that person is interested; or |
| • | the acquirer and depending on the circumstances, its concert parties, would be required (except with the consent of the Panel) to make an offer for our outstanding shares in cash or be accompanied by a cash alternative at a price not less than the highest price paid for any interests in the shares by the acquirer or its concert parties during the previous 12 months. |
Exchange Controls
There are no governmental laws, decrees, regulations or other legislation in the United Kingdom that may affect the import or export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of dividends, interest or other payments by us to non-resident holders of our ordinary shares or ADSs, other than withholding tax requirements. There is no limitation imposed by English law or in our Articles of Association on the right of non-residents to hold or vote shares.
Differences in Corporate Law
The applicable provisions of the Companies Act 2006 differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain differences between the provisions of the Companies Act 2006 applicable to us and the General Corporation Law of the State of Delaware relating to shareholders’ rights and protections. This summary is not intended to be a complete discussion of the respective rights.
| England & Wales |
Delaware | |||
| Number of Directors | Under the Companies Act 2006, a public limited company must have at least two directors, and the number of directors may be fixed by or in the manner provided in a company’s articles of association, provided that such number does not fall below two directors. | Under Delaware law, a corporation must have at least one director, and the number of directors shall be fixed by or in the manner provided in the bylaws. | ||
| Removal of Directors | Under the Companies Act 2006, shareholders may remove a director without cause by an ordinary resolution (which is passed by a simple majority of those voting in person or by proxy at a general meeting) irrespective of any provisions of any service contract the director has with the company, provided 28 clear days’ notice of the resolution has been given to the company and its shareholders. On receipt of notice of an intended resolution to remove a director, the company must forthwith send a copy of the notice to the director concerned. Certain other procedural requirements under the Companies Act 2006 must also be followed, such as allowing the director to make representations against his or her removal either at the meeting or in writing. | Under Delaware law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except (i) unless the certificate of incorporation provides otherwise, in the case of a corporation whose board of directors is classified, shareholders may effect such removal only for cause, or (ii) in the case of a corporation having cumulative voting, if less than the entire board of directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors, or, if there are classes of directors, at an election of the class of directors of which he is a part. | ||
| Vacancies on the Board of Directors | Under English law, the procedure by which directors, other than a company’s initial directors, are appointed is generally set out in a company’s articles of association, provided that where two or more persons are appointed as directors of a public limited company by resolution of the shareholders, resolutions appointing each director must be voted on individually unless a resolution that a single resolution for the appointment of two or more persons as directors has first been agreed to by the meeting without any vote being given against it. | Under Delaware law, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director unless (i) otherwise provided in the certificate of incorporation or bylaws of the corporation or (ii) the certificate of incorporation directs that a particular class of stock is to elect such director, in which case a majority of the other directors elected by such class, or a sole remaining director elected by such class, will fill such vacancy. | ||
| Annual General Meeting | Under the Companies Act 2006, a public limited company must hold an annual general meeting in each six-month period following the company’s annual accounting reference date. | Under Delaware law, the annual meeting of stockholders shall be held at such place, on such date and at such time as may be designated from time to time by the board of directors or as provided in the certificate of incorporation or by the bylaws. | ||
| General Meeting | Under the Companies Act 2006, a general meeting of the shareholders of a public limited company may be called by the directors.
Shareholders holding at least 5% of the paid-up capital of the company carrying voting rights at general meetings (excluding any paid up capital held as treasury shares) can require the directors to call a general meeting, and, if the directors fail to do so within a certain period, may themselves convene a general meeting. |
Under Delaware law, special meetings of the stockholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws. | ||
| Notice of General Meetings | Under the Companies Act 2006, subject to a company’s articles of association providing for a longer period, 21 clear days’ notice must be given for an annual general meeting and any resolutions to be proposed at the meeting. Subject to a company’s articles of association providing for a longer period, at least 14 clear days’ notice is required for any other general meeting. In addition, certain matters, such as the removal of directors or auditors, require special notice, which is 28 clear days’ notice. The shareholders of a company may in all cases consent to a shorter notice period, the proportion of shareholders’ consent required being 100% of those entitled to attend and vote in the case of an annual general meeting and, in the case of any other general meeting, a majority in number of the members having a right to attend and vote at the meeting, being a majority who together hold not less than 95% in nominal value of the shares giving a right to attend and vote at the meeting. | Under Delaware law, unless otherwise provided in the certificate of incorporation or bylaws, written notice of any meeting of the stockholders must be given to each stockholder entitled to vote at the meeting not less than ten nor more than 60 days before the date of the meeting and shall specify the place, date, hour, and purpose or purposes of the meeting. | ||
| Proxy | Under the Companies Act 2006, at any meeting of shareholders, a shareholder may designate another person to attend, speak and vote at the meeting on their behalf by proxy. | Under Delaware law, at any meeting of stockholders, a stockholder may designate another person to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A director of a Delaware corporation may not issue a proxy representing the director’s voting rights as a director. | ||
| Preemptive Rights | Under the Companies Act 2006, “equity securities,” being (i) shares in the company other than shares that, with respect to dividends and capital, carry a right to participate only up to a specified amount in a distribution (“ordinary shares”) or (ii) rights to subscribe for, or to convert securities into, | Under Delaware law, shareholders have no preemptive rights to subscribe to additional issues of stock or to any security convertible into such stock unless, and except to the extent that, such rights are expressly provided for in the certificate of incorporation. | ||
| ordinary shares, proposed to be allotted for cash must be offered first to the existing equity shareholders in the company in proportion to the respective nominal value of their holdings, unless an exception applies or a special resolution to the contrary has been passed by shareholders in a general meeting or the articles of association provide otherwise, in each case in accordance with the provisions of the Companies Act 2006. | ||||
| Authority to Allot | Under the Companies Act 2006, the directors of a company must not allot shares or grant of rights to subscribe for or to convert any security into shares unless an exception applies or an ordinary resolution to the contrary has been passed by shareholders in a general meeting or the articles of association provide otherwise, in each case in accordance with the provisions of the Companies Act 2006. | Under Delaware law, if the corporation’s charter or certificate of incorporation so provides, the board of directors has the power to authorize the issuance of stock. It may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the corporation or any combination thereof. It may determine the amount of such consideration by approving a formula. In the absence of actual fraud in the transaction, the judgment of the directors as to the value of such consideration is conclusive. | ||
| Liability of Directors and Officers |
Under the Companies Act 2006, any provision, whether contained in a company’s articles of association or any contract or otherwise, that purports to exempt a director of a company, to any extent, from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void.
Any provision by which a company directly or indirectly provides an indemnity, to any extent, for a director of the company or of an associated company against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director is also void except as permitted by the Companies Act 2006, which provides exceptions for the company to (i) purchase and maintain insurance against such liability; (ii) provide a “qualifying third-party indemnity” (being an indemnity against liability incurred by the director to a person other than the company or an associated company and must not provide any indemnity against, amongst others, any liability in defending criminal proceedings in which he is convicted); and (iii) provide a “qualifying pension scheme indemnity” (being an indemnity against liability incurred in connection with the company’s activities as trustee of an occupational pension plan). |
Under Delaware law, a corporation’s certificate of incorporation may include a provision eliminating or limiting the personal liability of a director to the corporation and its stockholders for damages arising from a breach of fiduciary duty as a director. However, no provision can limit the liability of a director for:
• any breach of the director’s duty of loyalty to the corporation or its stockholders;
• acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
• intentional or negligent payment of unlawful dividends or stock purchases or redemptions; or
• any transaction from which the director derives an improper personal benefit. | ||
| Voting Rights | Under English law, unless a poll is demanded by the shareholders of a company or is required by the chairman of the meeting or the company’s articles of association, shareholders shall vote on all resolutions on a show of hands. Under the Companies Act 2006, a poll may be demanded by (i) not fewer than five shareholders having the right to vote on the resolution; (ii) any shareholder(s) representing not less than 10% of the total voting rights of all the shareholders having the right to vote on the resolution (excluding any voting rights attaching to treasury shares); or (iii) any shareholder(s) holding shares in the company conferring a right to vote on the resolution (excluding any voting rights attaching to treasury shares) being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right. A company’s articles of association may provide more extensive rights for shareholders to call a poll. | Delaware law provides that, unless otherwise provided in the certificate of incorporation, each stockholder is entitled to one vote for each share of capital stock held by such stockholder. | ||
| Under English law, an ordinary resolution is passed on a show of hands if it is approved by a simple majority (more than 50%) of the votes cast by shareholders present (in person or by proxy) and entitled to vote. If a poll is demanded, an ordinary resolution is passed if it is approved by holders representing a simple majority of the total voting rights of shareholders present, in person or by proxy or in advance, who, being entitled to vote, vote on the resolution. | ||||
| Special resolutions require the affirmative vote of not less than 75% of the votes cast on a show of hands by shareholders present, in person or by proxy, at the meeting and entitled to vote. If a poll is demanded, a special resolution is passed if it is approved by shareholders representing not less than 75% of the total voting rights of shareholders who, being entitled to vote, vote in person, by proxy or in advance. | ||||
| Shareholder Vote on Certain Transactions | The Companies Act 2006 provides for schemes of arrangement, which are arrangements or compromises between a company and any class of shareholders or creditors and used in certain types of reconstructions, amalgamations, capital reorganizations or takeovers. These arrangements require: | Generally, under Delaware law, unless the certificate of incorporation provides for the vote of a larger portion of the stock, completion of a merger, consolidation, sale, lease or exchange of all or substantially all of a corporation’s assets or dissolution requires: | ||
| • the approval at a shareholders’ or creditors’ meeting convened by order of the court, of a majority in number of shareholders or creditors representing 75% in value of the capital held by, or debt owed to, the class of shareholders or creditors, or class thereof present and voting, either in person or by proxy; and • the approval of the court. |
• the approval of the board of directors; and • approval by the vote of the holders of a majority of the outstanding stock or, if the certificate of incorporation provides for more or less than one vote per share, a majority of the votes of the outstanding stock of a corporation entitled to vote on the matter. | |||
| Standard of Conduct for Directors | Under English law, a director owes various statutory and fiduciary duties to the company, including: • to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole; • to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly conflicts, with the interests of the company; • to act in accordance with the company’s constitution and only exercise his powers for the purposes for which they are conferred; • to exercise independent judgment; • to exercise reasonable care, skill and diligence; • not to accept benefits from a third party conferred by reason of his being a director or doing, or not doing, anything as a director; and • a duty to declare any interest that he has, whether directly or indirectly, in a proposed or existing transaction or arrangement with the company. |
Delaware law does not contain specific provisions setting forth the standard of conduct of a director. The scope of the fiduciary duties of directors is generally determined by the courts of the State of Delaware. In general, directors have a duty to act without self-interest, on a well-informed basis and in a manner they reasonably believe to be in the best interest of the stockholders. Directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and to its stockholders. The duty of care generally requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. In general, but subject to certain exceptions, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Delaware courts have also imposed a heightened standard of conduct upon directors of a Delaware corporation who take any action designed to defeat a threatened change in control of the corporation. In addition, under Delaware law, when the board of directors of a Delaware corporation approves the sale or break-up of a corporation, the board of directors may, in certain circumstances, have a duty to obtain the highest value reasonably available to the stockholders. | ||
| Stockholder Suits | Under English law, generally, the company, rather than its shareholders, is the proper claimant in an action in respect of a wrong done to the company or where there is an irregularity in the company’s internal management. Notwithstanding this general position, the Companies Act 2006 provides that (i) a court may allow a shareholder to bring a derivative claim (that is, an action in respect of and on behalf of the company) in respect of a cause of action arising from a director’s negligence, default, breach of duty or breach of trust and (ii) a shareholder may bring a claim for a court order where the company’s affairs have been or are being conducted in a manner that is unfairly prejudicial to its shareholders generally or of some of its shareholders, or that an actual or proposed act or omission of the company is or would be so prejudicial. | Under Delaware law, a stockholder may initiate a derivative action to enforce a right of a corporation if the corporation fails to enforce the right itself. The complaint must: • state that the plaintiff was a stockholder at the time of the transaction of which the plaintiff complains or that the plaintiff’s shares thereafter devolved on the plaintiff by operation of law; and • allege with particularity the efforts made by the plaintiff to obtain the action the plaintiff desires from the directors and the reasons for the plaintiff’s failure to obtain the action; or • state the reasons for not making the effort. Additionally, the plaintiff must remain a stockholder through the duration of the derivative suit. The action will not be dismissed or compromised without the approval of the Delaware Court of Chancery. |
Transfer agent and registrar
The registrar for our ordinary shares is Equiniti Limited, and its principal office in Lancing, United Kingdom.
Listing
The ADSs, representing our ordinary shares, are listed on Nasdaq Global Select Market under the symbol “ABCM.”
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Shares
Citibank, N.A. (“Citibank”) is our depositary for our American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich Street, New York, New York 10013. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the depositary. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” The depositary typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A. (London), located at Citigroup Centre, Canary Wharf, London, E14 5LB, United Kingdom.
The following is a summary of the material provisions of the deposit agreement. Please remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge ADS holders to review the deposit agreement in its entirety. The portions of this summary description that are italicized describe matters that may be relevant to the ownership of ADSs but that may not be contained in the deposit agreement. For more complete information, all ADS holders should read the entire deposit agreement which has been publicly filed with the SEC and the form of ADR attached thereto.
Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, one ordinary share that are on deposit with the depositary and/or custodian. An ADS also represents the right to receive, and to exercise the beneficial interests in, any other property received by the depositary or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations. We and the depositary may agree to change the ADS-to-Share ratio by amending the deposit agreement. This amendment may give rise to, or change, the depositary fees payable by ADS owners. The custodian, the depositary and their respective nominees will hold all deposited property for the benefit of the holders and beneficial owners of ADSs. The deposited property does not constitute the proprietary assets of the depositary, the custodian or their nominees. Beneficial ownership in the deposited property will under the terms of the deposit agreement be vested in the beneficial owners of the ADSs. The depositary, the custodian and their respective nominees will be the record holders of the deposited property represented by the ADSs for the benefit of the holders and beneficial owners of the corresponding ADSs. A beneficial owner of ADSs may or may not be the holder of ADSs. Beneficial owners of ADSs will be able to receive, and to exercise beneficial ownership interests in, the deposited property only through the registered holders of the ADSs, the registered holders of the ADSs (on behalf of the applicable ADS owners) only through the depositary, and the depositary (on behalf of the owners of the corresponding ADSs) directly, or indirectly, through the custodian or their respective nominees, in each case upon the terms of the deposit agreement.
ADS holders are party to the deposit agreement and are therefore bound to its terms and to the terms of any ADR that represent each ADS holder’s ADSs. The deposit agreement and the ADR specify our rights and obligations as well as each ADS holder’s rights and obligations as owner of ADSs and those of the depositary. ADS holders appoint the depositary to act on their behalf in certain circumstances. The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of ordinary shares will continue to be governed by the laws of England and Wales, which may be different from the laws in the United States.
In addition, applicable laws and regulations may require an ADS holder to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. An ADS holder is solely responsible for complying with such reporting requirements and obtaining such approvals. Neither the depositary, the custodian, us nor any of their or our respective agents or affiliates shall be required to take any actions whatsoever on behalf an ADS holder to satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.
ADS holders are not treated as shareholders, and do not have direct shareholder rights. The depositary holds, on behalf of each ADS holder, the shareholder rights attached to the ordinary shares underlying each ADS holder’s respective ADSs. ADS holders can exercise the shareholders rights for the ordinary shares represented by their respective ADSs through the depositary only to the extent contemplated in the deposit agreement. To exercise any shareholder rights not contemplated in the deposit agreement ADS holders, as ADS owners, need to arrange for the cancellation of their respective ADSs and become a direct shareholder.
The manner in which an ADS holder owns the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated ADSs) may affect an ADS holder’s rights and obligations, and the manner in which, and extent to which, the depositary’s services are made available to an ADS holder. As an owner of ADSs, ADS holders may hold ADSs either by means of an ADR registered in their name , through a brokerage or safekeeping account, or through an account established by the depositary in their name reflecting the registration of uncertificated ADSs directly on the books of the depositary (commonly referred to as the “direct registration system” or “DRS”). The direct registration system reflects the uncertificated (book-entry) registration of ownership of ADSs by the depositary. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary to the holders of the ADSs. The direct registration system includes automated transfers between the depositary and The Depository Trust Company (“DTC”), the central book-entry clearing and settlement system for equity securities in the United States. If ADS holders decide to hold ADSs through a brokerage or safekeeping account, ADS holders must rely on the procedures of their respective broker or bank to assert their rights as ADS owners. Banks and brokers typically hold securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit ADS holders ability to exercise their rights as owners of ADSs. ADS holders should consult their broker or bank if they have any questions concerning these limitations and procedures. All ADSs held through DTC will be registered in the name of a nominee of DTC.
The registration of the ordinary shares in the name of the depositary or the custodian shall, to the maximum extent permitted by applicable law, vest in the depositary or the custodian the record ownership in the applicable ordinary shares with the beneficial ownership rights and interests in such ordinary shares being at all times vested with the beneficial owners of the ADSs representing the ordinary shares. The depositary or the custodian shall at all times be entitled to exercise the beneficial ownership rights in all deposited property, in each case only on behalf of the holders and beneficial owners of the ADSs representing the deposited property.
Dividends and Distributions
ADS holders generally have the right to receive the distributions we make on the securities deposited with the custodian. As an ADS holder, receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders of ADSs will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of the specified record date, after deduction of the applicable fees, taxes and expenses.
Distributions of Cash
Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon receipt of confirmation of the deposit of the requisite funds, the depositary will arrange for the funds received in a currency other than U.S. dollars to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of England and Wales.
The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The depositary will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities on deposit.
The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable holders and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States.
Distributions of Shares
Whenever we make a free distribution of ordinary shares for the securities on deposit with the custodian, we will deposit the applicable number of ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the depositary will either distribute to holders new ADSs representing the ordinary shares deposited or modify the ADS-to-ordinary shares ratio, in which case each ADS held by an ADS holder hold will represent rights and interests in the additional ordinary shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.
The distribution of new ADSs or the modification of the ADS-to-ordinary shares ratio upon a distribution of ordinary shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary may sell all or a portion of the new ordinary shares so distributed.
No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable. If the depositary does not distribute new ADSs as described above, it may sell the ordinary shares received upon the terms described in the deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.
Distributions of Rights
Whenever we intend to distribute rights to subscribe for additional ordinary shares, we will give prior notice to the depositary, and we will assist the depositary in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional ADSs to holders.
The depositary will establish procedures to distribute rights to subscribe for additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). ADS holders may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of their rights. The depositary is not obligated to establish procedures to facilitate the distribution and exercise by holders of rights to subscribe for new ordinary shares other than in the form of ADSs.
The depositary will not distribute the rights to an ADS holder if:
| • | We do not timely request that the rights be distributed to an ADS holder or we request that the rights not be distributed to an ADS holder; |
| • | We fail to deliver satisfactory documents to the depositary; or |
| • | It is not reasonably practicable to distribute the rights. |
The depositary will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary is unable to sell the rights, it will allow the rights to lapse.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary and will indicate whether we wish the elective distribution to be made available to ADS holders. In such case, we will assist the depositary in determining whether such distribution is lawful and reasonably practicable.
The depositary will make the election available to ADS holders only if it is reasonably practicable and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the depositary will establish procedures to enable ADS holders to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.
If the election is not made available to an ADS holder, an ADS holder will receive either cash or additional ADSs, depending on what a shareholder in England and Wales would receive upon failing to make an election, as more fully described in the deposit agreement.
Other Distributions
Whenever we intend to distribute property other than cash, ordinary shares or rights to subscribe for additional ordinary shares, we will notify the depositary in advance and will indicate whether we wish such distribution to be made to an ADS holder. If so, we will assist the depositary in determining whether such distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to an ADS holder and if we provide to the depositary all of the documentation contemplated in the deposit agreement, the depositary will distribute the property to the holders in a manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary may sell all or a portion of the property received.
The depositary will not distribute the property to an ADS holder and will sell the property if:
| • | We do not request that the property be distributed to an ADS holder or if we request that the property not be distributed to an ADS holder; |
| • | We do not deliver satisfactory documents to the depositary; or |
| • | The depositary determines that all or a portion of the distribution to an ADS holder is not reasonably practicable. |
The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.
Redemption
Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary in advance. If it is practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary will provide notice of the redemption to the holders.
The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary will convert into U.S. dollars upon the terms of the deposit agreement the redemption funds received in a currency other than U.S. dollars and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary. ADS holders may have to pay fees, expenses, taxes and other governmental charges upon the redemption of and an ADS holder’s ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary may determine.
Changes Affecting Ordinary Shares
The ordinary shares held on deposit for an ADS holder’s ADSs may change from time to time. For example, there may be a change in nominal or par value, split-up, cancellation, consolidation or any other reclassification of such ordinary shares or a recapitalization, reorganization, merger, consolidation or sale of assets of the Company.
If any such change were to occur, an ADS holder’s ADSs would, to the extent permitted by law and the deposit agreement, represent the right to receive the property received or exchanged in respect of the ordinary shares held on deposit. The depositary may in such circumstances deliver new ADSs to an ADS holder, amend the deposit agreement, the ADRs and the applicable Registration Statement(s) on Form F-6, call for the exchange of an ADS holder’s existing ADSs for new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting the ordinary shares. If the depositary may not lawfully distribute such property to an ADS holder, the depositary may sell such property and distribute the net proceeds to an ADS holder as in the case of a cash distribution.
Issuance of ADSs Upon Deposit of Ordinary Shares
The depositary may create ADSs on behalf of an ADS holder or their broker if either deposit ordinary shares with the custodian. In such a scenario, the depositary will deliver these ADSs to the person indicated by the ADS holder only after the ADS holder pays any applicable issuance fees and any charges and taxes payable for the transfer of the ordinary shares to the custodian. An ADS holder’s ability to deposit ordinary shares and receive ADSs may be limited by U.S. and England and Wales legal considerations applicable at the time of deposit.
The issuance of ADSs may be delayed until the depositary or the custodian receives confirmation that all required approvals have been given and that the ordinary shares have been duly transferred to the custodian. The depositary will only issue ADSs in whole numbers.
When an ADS holder makes a deposit of ordinary shares, the ADS holder is responsible for transferring good and valid title to the depositary. As such, ADS holders are deemed to represent and warrant that:
| • | The ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained. |
| • | All preemptive (and similar) rights, if any, with respect to such ordinary shares have been validly waived or exercised. |
| • | ADS holders are duly authorized to deposit the ordinary shares. |
| • | The ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit agreement). |
| • | The ordinary shares presented for deposit have not been stripped of any rights or entitlements. |
If any of the representations or warranties are incorrect in any way, we and the depositary may, at the cost and expense of the ADS holder, take any and all actions necessary to correct the consequences of the misrepresentations.
Transfer, Combination and Split Up of ADRs
ADS holders are entitled to transfer, combine or split up ADRs and the ADSs evidenced thereby. For transfers of ADRs, ADS holders have to surrender the ADRs to be transferred to the depositary and also must:
| • | ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer; |
| • | provide such proof of identity and genuineness of signatures as the depositary deems appropriate; |
| • | provide any transfer stamps required by the State of New York or the United States; and |
| • | pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs. |
In order for ADS holders to combine or split up ADRs, they must surrender the ADRs in question to the depositary with their request to have them combined or split up, and ADS holders must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split up of ADRs.
Withdrawal of Ordinary Shares Upon Cancellation of ADSs
ADS holders are entitled to present ADSs to the depositary for cancellation and then receive the corresponding number of underlying ordinary shares at the custodian’s offices. An ADS holder’s ability to withdraw the ordinary shares held in respect of the ADSs may be limited by U.S. and England and Wales legal considerations applicable at the time of withdrawal. In order to withdraw the ordinary shares represented by an ADS holder’s ADSs, the ADS holder is required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the ordinary shares. The ADS holder assumes the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.
If ADSs are registered in the name of the ADS holder, the depositary may ask the ADS holder to provide proof of identity and genuineness of any signature and such other documents as the depositary may deem appropriate before it will cancel the ADS holder’s ADSs. The withdrawal of the ordinary shares represented by an ADS holder’s ADSs may be delayed until the depositary receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary will only accept ADSs for cancellation that represent a whole number of securities on deposit.
ADS holders have the right to withdraw the securities represented by their ADSs at any time except for:
| • | Temporary delays that may arise because (i) the transfer books for the ordinary shares or ADSs are closed, or (ii) ordinary shares are immobilized on account of a shareholders’ meeting or a payment of dividends. |
| • | Obligations to pay fees, taxes and similar charges. |
| • | Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit. |
The deposit agreement may not be modified to impair an ADS holder’s rights to withdraw the securities represented by its ADSs except to comply with mandatory provisions of law.
Voting Rights
ADS holders generally have the right under the deposit agreement to instruct the depositary to exercise the voting rights for the ordinary shares represented by their ADSs. The voting rights of holders of ordinary shares are described in “Description of Share Capital and Articles of Association.”
At our request, the depositary will distribute to ADS holders any notice of shareholders’ meeting received from us together with information explaining how to instruct the depositary to exercise the voting rights of the securities represented by ADSs. In lieu of distributing such materials, the depositary may distribute to holders of ADSs instructions on how to retrieve such materials upon request.
If the depositary timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities (in person or by proxy) represented by the holder’s ADSs in accordance with such voting instructions as follows:
| • | In the event of voting by show of hands, the depositary will vote (or cause the custodian to vote) all ordinary shares held on deposit at that time in accordance with the voting instructions received from a majority of holders of ADSs who provide timely voting instructions. |
| • | In the event of voting by poll, the depositary will vote (or cause the custodian to vote) the ordinary shares held on deposit in accordance with the voting instructions received from the holders of ADSs. |
Securities for which no voting instructions have been received will not be voted (except as otherwise contemplated in the deposit agreement). Please note that the ability of the depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure that ADS holders will receive voting materials in time to enable them to return voting instructions to the depositary in a timely manner.
Amendments and Termination
We may agree with the depositary to modify the deposit agreement at any time without the consent of the ADS holder. We undertake to give holders 30 days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be materially prejudicial to an ADS holder’s substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges that an ADS holder is required to pay. In addition, we may not be able to provide an ADS holder with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law.
ADS holders are bound by the modifications to the deposit agreement if ADS holders continue to hold their ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent ADS holders from withdrawing the ordinary shares represented by their ADSs (except as permitted by law).
We have the right to direct the depositary to terminate the deposit agreement. Similarly, the depositary may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary must give notice to the holders at least 30 days before termination. Until termination, an ADS holder’s rights under the deposit agreement will be unaffected.
Termination
After termination, the depositary will continue to collect distributions received (but will not distribute any such property until an ADS holder requests the cancellation of its ADSs) and may sell the securities held on deposit. After the sale, the depositary will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding (after deduction of applicable fees, taxes and expenses).
In connection with any termination of the deposit agreement, the depositary may make available to owners of ADSs a means to withdraw the ordinary shares represented by ADSs and to direct the depositary of such ordinary shares into an unsponsored American depositary share program established by the depositary. The ability to receive unsponsored American depositary shares upon termination of the deposit agreement would be subject to satisfaction of certain U.S. regulatory requirements applicable to the creation of unsponsored American depositary shares and the payment of applicable depositary fees.
Books of Depositary
The depositary will maintain ADS holder records at its depositary office. ADS holders may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.
The depositary will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.
Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositary’s obligations to ADS holders. Please note the following:
| • | We and the depositary are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith. |
| • | The depositary disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement. |
| • | The depositary disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to ADS holders on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in ordinary shares, for the validity or worth of the ordinary shares, for any tax consequences that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice. |
| • | We and the depositary will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement. |
| • | We and the depositary disclaim any liability if we or the depositary are prevented or forbidden from or subject to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any provision of our Articles of Association, or any provision of or governing the securities on deposit, or by reason of any act of God or war or other circumstances beyond our control. |
| • | We and the depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our Articles of Association or in any provisions of or governing the securities on deposit. |
| • | We and the depositary further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting ordinary shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information. |
| • | We and the depositary also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit that is made available to holders of ordinary shares but is not, under the terms of the deposit agreement, made available to an ADS holder. |
| • | We and the depositary may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties. |
| • | We and the depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement. |
| • | No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement. |
| • | Nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the depositary and ADS holders. |
| • | Nothing in the deposit agreement precludes Citibank (or its affiliates) from engaging in transactions in which parties adverse to us or the ADS owners have interests, and nothing in the deposit agreement obligates Citibank to disclose those transactions, or any information obtained in the course of those transactions, to us or to the ADS owners, or to account for any payment received as part of those transactions. |
Governing Law/Waiver of Jury Trial
The deposit agreement, the ADRs and the ADSs will be interpreted in accordance with the laws of the State of New York. The rights of holders of ordinary shares (including ordinary shares represented by ADSs) are governed by the laws of England and Wales.
Owners of ADSs irrevocably agree that any legal action arising out of the Deposit Agreement, the ADSs or the ADRs, involving the Company or the Depositary, may only be instituted in a state or federal court in the city of New York and actions by ADS holders to enforce any duty or liability created by the Exchange Act, the Securities Act or the respective rules and regulations thereunder must be brought in a federal court in the city of New York.
AS A PARTY TO THE DEPOSIT AGREEMENT, ADS HOLDERS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THEIR RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THE DEPOSIT AGREEMENT OR THE ADRs AGAINST US AND/OR THE DEPOSITARY.
The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the Deposit Agreement, including any claim under U.S. federal securities laws. The waiver continues to apply to claims that arise during the period when a holder holds the ADSs, whether the ADS holder purchased the ADSs in this offering or secondary transactions, even if the ADS holder subsequently withdraws the underlying ordinary shares. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law. However, ADS holders are not deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
Exhibit 8.1
Subsidiaries of the Registrant
| Legal Name of Subsidiary |
Jurisdiction of Organization | |
| Abcam (US) Ltd. | United Kingdom | |
| Abcam US Group Holdings Inc. | United States | |
| Abcam Trading (Shanghai) Co. Ltd. | China | |
| BioVision, Inc. | United States | |
| Epitomics Inc. | United States | |
| NKY US Biotech, Inc | United States |
Exhibit 12.1
CERTIFICATION
I, Alan Hirzel, Chief Executive Officer, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Abcam plc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Date: March 14, 2022 | By: | /s/ Alan Hirzel | ||||
| Alan Hirzel | ||||||
| Chief Executive Officer | ||||||
| (Principal Executive Officer) |
Exhibit 12.2
CERTIFICATION
I, Michael Baldock, Chief Financial Officer, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Abcam plc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Date: March 14, 2022 | By: | /s/ Michael Baldock | ||||
| Michael Baldock | ||||||
| Chief Financial Officer | ||||||
| (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Abcam plc (the “Company”) for the year ended December 31, 2021 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, Alan Hirzel, Chief Executive Officer of the Company, certify that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 14, 2022 | By: | /s/ Alan Hirzel | ||||
| Alan Hirzel | ||||||
| Chief Executive Officer | ||||||
| (Principal Executive Officer) |
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Abcam plc (the “Company”) for the year ended December 31, 2021 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
I, Michael Baldock, Chief Financial Officer of the Company, certify that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 14, 2022 | By: | /s/ Michael Baldock | ||||
| Michael Baldock | ||||||
| (Chief Financial Officer and Principal Accounting Officer) |
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-257893 and 333-252514) of Abcam plc of our report dated March 14, 2022 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F.
/s/ PricewaterhouseCoopers LLP
Cambridge, United Kingdom
March 14, 2022