OptiBiotix Health Regulatory News (OPTI)

28 June 2022

OptiBiotix Health plc

("OptiBiotix" or the "Company" or the "Group")

Final results and Notice of AGM

OptiBiotix Health plc (AIM: OPTI), a life sciences business developing compounds to tackle obesity, high cholesterol, diabetes and skin care announces its audited results for the 12 months ended 31 December 2021.

Highlights

Financial

· Full year revenue of £2.2m a 45.3% increase on 2020 (£1.5m)

· A 27.7% increase in gross profit from £879K (2020) to £1.1m (2021)

· The Probiotic business increased sales by 34.0% to £1.1m (2020: £0.8m) with underlying year-on-year product sales (excluding a £250K milestone) increasing by 92.6%

· The Prebiotic business increased sales by 59.3% to £1.1m (2020: £0.6m), with underlying sales (excluding milestone fees) growing by 122%

· Both Probiotic and Prebiotic trading businesses profitable at EBITDA level, generating EBITDAs of £179K and £13K respectively

· A substantial increase in the value of the Group's holding in SkinBioTherapeutics plc ('SBTX') from £8.9m (2020) to £13.7m as of 31 December 2021. The increase in the value of this investment resulting in a Group net profit for the year of £6.3m (2020: £5.8m)

· Total cash on the balance sheet at the year-end increased by 122% to £2m (2020: £0.9m) 

Commercial

· René Kamminga appointed as Chief Executive Officer of our prebiotic business as part of a long-planned strategy to appoint experienced industry commercial leaders to run each part of the business

· The signing of an agreement and launch of LeanBiome® in The Hut Groups (THG) Myprotein product range extending our reach in the sports nutrition market

· The signing of agreements with large national partners, Apollo Hospitals in India and Nahdi Medical in Saudi Arabia

· Launch by Arrotex Pharmaceuticals, Australia's largest private pharmaceutical company, of a Very Low Calorie Diet (VLCD) weight management product containing SlimBiome®

· Expansion of Holland & Barrett SlimExpert® own brand range weight management product range containing SlimBiome® from three to eight products

· SlimBiome® winning best weight management product in the USA (Nutrition Industry Executive Award)

Regulatory and Scientific

· Approval of SlimBiome® as a licensed product with health claims for weight management by Health Canada

· The achievement of British Retail Consortium accreditation, confirming our compliance with the Global Food Safety Initiative ('GFSI') benchmark. This certification is one of the leading international food safety standards, accepted by most large retailers and their suppliers

· The Company has made significant progress in 2021 with the manufacture of its SweetBiotix® and microbiome modulators

Post period end

· Publication of a human study in a peer reviewed scientific journal showing LPLDL® can achieve similar reductions in total cholesterol and LDL (bad cholesterol) to statins, without side effects

· Flotation of ProBiotix Health plc on the AQSE Growth Market in March 2022 with a distribution of approximately 0.55 ProBiotix shares for every OptiBiotix ordinary share held at close of business on 25 March 2022

· New key appointments of Zac Sniderman as Business Development & Sales Director in North America, and Shiraz Butt as E-Commerce Director reflecting a focus on the US market and direct to consumer sales

· Appointment of Steen Andersen as CEO of ProBiotix Health plc

Stephen O'Hara, CEO of OptiBiotix, commented: "The Company has achieved a second year of strong sales growth with a 45% increase in revenues, a 27.7% increase in gross profit, both ProBiotic and PreBiotic business's EBITDA profitable, and a Group net profit of £6.3m (including the increase in the Group's investment in SBTX). 

"With our products winning awards in several jurisdictions and an increasing number of large companies like The Hut Group, Holland and Barrett, AlfaSigma, Apollo Hospitals, and Nahdi Medical using our products, we are in strong position for further growth.

"The Company has invested substantially in building its senior commercial team reflecting our focus on commercialising products with larger partners, growing the US market, and developing our direct to consumer business. After a period of senescence due to COVID, we are pleased to report strong progress on our path to manufacture and distribute our second generation SweetBiotix® and Microbiome modulators.

"Post period-end, the Company successfully floated its formerly wholly-owned probiotic subsidiary, ProBiotix Health plc, returning a dividend to OptiBiotix shareholders. OptiBiotix shareholders now have a diversified interest in multiple areas within the microbiome space with the Group looking to accelerate bringing its second-generation technologies to market and acquire and/or develop new technologies to build the product pipeline and subsidiaries of the future. This strategy (RNS July 5 2016) reduces investor risk and offers the potential for significant value uplift through realisation of the Company's assets by trade sale or IPO and the potential for multiple dividend returns for shareholders.

"With no debt, a healthy balance sheet, a growing reputation within the industry, second-generation products close to commercialisation, and growing consumer interest in the microbiome and gut health, the Company is in a strong position for continued growth in this exciting area of healthcare."

This announcement contains information which, prior to its disclosure, was considered inside information for the purposes of the UK Market Abuse Regulation and the Directors of the Company are responsible for the release of this announcement.

For further information, please contact:

Caution regarding forward looking statements

Certain statements in this announcement, are, or may be deemed to be, forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ''believe'', ''could'', "should" ''envisage'', ''estimate'', ''intend'', ''may'', ''plan'', ''potentially'', "expect", ''will'' or the negative of those, variations or comparable expressions, including references to assumptions. These forward looking statements are not based on historical facts but rather on the Directors' current expectations and assumptions regarding the Company's future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward looking statements reflect the Directors' current beliefs and assumptions and are based on information currently available to the Directors.

Chairman's Report

The Group continued to make excellent strategic, commercial, scientific and financial progress during the year, despite the challenging and uncertain trading environment created by the global Covid pandemic. Both the Probiotic and Prebiotic businesses achieved strong turnover growth and improved profits, as they successfully built sales of the first-generation ingredients developed by the Group, secured additional regulatory approvals, and reached new agreements with larger commercial partners to extend their global reach. Since the year-end the Group has successfully floated its formerly wholly-owned probiotic subsidiary, ProBiotix Health plc, as a separate company to maximise its growth potential and deliver increased value to Group shareholders, following the model set by the flotation of SkinBioTherapeutics plc in 2017. The Group's financial strength provides it with an excellent platform to accelerate the commercialisation of first-generation products via partners and increasingly direct sales to consumers, and take to market its second-generation technologies which have the potential for sustained future growth.

Results

Group sales for the 12 months ended 31 December 2021 grew by 45.3% to £2.2m (2020: £1.5m). Administrative expenses (excluding non-cash items such as share-based payments and amortisation) increased by 32.4% to £2.1m (2020: £1.6m), largely due to one-off recruitment and consultancy costs, and investment in strengthening our commercial management team. Gross profit increased by 27.7% to £1.1m (2020: £0.9m). Both the Probiotic and Prebiotic divisions, which first achieved profitability in 2020, delivered substantially increased EBITDA.

The Company received an additional £2.9m (2020: £0.7m) during the year in proceeds from the sale of shares in SkinBioTherapeutics plc (SBTX), which is not included in the Group sales figures. As of 31 December 2021, the Company continued to hold 20.8% of the issued share capital of SBTX, valued at £13.7m (31 December 2020: £8.9m). The increase in the value of the continuing investment in SBTX resulted in a Group net profit for the year of £6.3m (2020: £5.8m).

The Group's financial position remains strong, with total cash on the balance sheet at the year-end increasing by 122% to £2.0m (2020: £0.9m). Once R&D tax credits, recoverable VAT, and debtors and creditors are accounted for the balance is £3.2m (2020: £1.4m).

Strategy

Optibiotix Health is a life sciences business founded on the development of probiotic and prebiotic compounds which modify the microbiome to tackle obesity, high cholesterol, diabetes, and skincare: all markets offering strong growth potential in many parts of the world.

Our proven two-stage growth strategy has been to build the brand presence and early sales of our first-generation products (principally LPLDL® in Probiotics and SlimBiome® in Prebiotics) through deals with multiple partners in multiple territories around the world, while at the same time pursuing the development of our more innovative second-generation products that offer potentially larger future returns. This means that our partners cover the marketing and regulatory costs of entering new markets with new products whilst allowing us to build a brand presence.

This strategy has been designed with two separate legal entities (ProBiotix Health Ltd and OptiBiotix Ltd) focused on commercialising products, while the holding company OptiBiotix Health plc acquires and develops the novel technologies to build the new product pipeline, and provide the necessary scientific and clinical studies, publications and regulatory approvals.

We also have a significant shareholding in a third company, SkinBiotherapeutics plc, which was founded by our group CEO, and has delivered £4.3m of value to our shareholders through share sales since its IPO in 2017, and in which we retain a stake valued at £8.4m as at 1 June 2022.

OptiBiotix Health plc Overview: shareholding and key products

As we have always stated, this structure (see annual report for graph) gives our shareholders exposure to multiple opportunities within the emerging microbiome space, and affords the potential to deliver additional value through separate public listing of the divisions, as we have accomplished since the beginning of the new financial year with the flotation of ProBiotix Health plc. This has allowed ProBiotix Health to raise £2.5m to accelerate the commercial development of its products and has given our shareholders a direct stake in the business through the distribution of shares. The Company retains a substantial shareholding of 44% in its former subsidiary, which will in future be accounted for as an associate.

Business development

Among the many positive developments during the year, which the Chief Executive discusses more fully in his report, I would particularly like to highlight:

· the significant strengthening and professionalisation of our business development and commercial management team, most notably through the appointment of René Kamminga as CEO of our Prebiotic business, OptiBiotix Ltd;

· the conclusion of major new commercial agreements with market-leading partners in both the Probiotic and Prebiotic businesses, moving us towards our goal of having eight to ten large national or international partners for our first-generation products, and two to three partners for each of our second-generation technologies;

· the publication of multiple scientific and clinical studies and industry reports affirming our position as an industry leader in understanding of the microbiome; and

· further regulatory endorsements, including Health Canada approval of our SlimBiome® weight management product.

The Board and senior management

As noted in the last annual report, we significantly strengthened the Board through new appointments in the opening months of the financial year, ensuring that we have the right mix of skills to lead the Group through the next stage of its strategic development.

Christopher Brinsmead CBE joined the Board as a non-executive director on 1 January 2021, bringing to us more than 30 years of experience in the pharmaceutical and healthcare sectors as a senior executive FTSE 350 company director and chairman. Chris was Chairman of AstraZeneca Pharmaceuticals UK and President of AstraZeneca UK and Ireland from 2001-2010, and President of the Association of the British Pharmaceutical Industry (ABPI) from 2008-2010. 

Stephen Hammond MP joined the Board as a non-executive director on 2 March 2021, further complementing our skillset through his experience of a successful career in fund management and investment banking with Dresdner Kleinwort Benson and Commerzbank Securities prior to entering Parliament in 2005, and his subsequent senior roles in government.

René Kamminga joined us on 6 April 2021 as Chief Executive Officer of our wholly owned subsidiary OptiBiotix Ltd. We are already seeing the benefits of his long experience and track record of growing sales of speciality ingredients and products, and his extensive network of industry contacts. 

Since the year-end we have significantly strengthened our senior executive team below the main Board, as the Chief Executive reports below.

Outlook

Following the restructuring of the Group through the successful flotation of ProBiotix Health plc, we are focused on the development of our exciting prebiotic business OptiBiotix Ltd, while retaining a substantial stake in the continuing growth of ProBiotix Health as an associate.

The three commercial agreements we signed at the end of 2021 with well-known national and international brands are indicative of the future direction of the Group as we move to focus on fewer and larger business partners. This long-planned strategic shift creates the potential for extending our global reach, enhancing the reputation of our products and generating substantial volume sales, though it should also be recognised that these larger partners tend to operate on longer timescales than the smaller and quicker-to-market enterprises with which we forged our initial commercial agreements. It also means that we will receive fewer but much larger orders for our products than in the past, so that revenues will accrue less evenly through the year, and our results for future financial periods may reflect such timing differences.

We have invested substantially in building a stronger professional commercial management team that is well qualified and equipped to lead the business in this next phase of its development, as we look to launch more new products and focus increasingly on selling finished products direct to consumers, while continuing to develop sales of our first-generation ingredients to businesses and working to realise the commercial potential of our development pipeline.

British Retail Consortium accreditation, achieved at the beginning of the new financial year, demonstrates our compliance with an internationally recognised food safety standard that will allow us to greatly accelerate the development and sales of finished products to consumers through the retail channel.

Although the war in Ukraine and global inflationary pressures have created an undoubtedly challenging trading environment for many companies including our own, I am confident that we have the right structure, strategy, management skills, technologies and commercial partners to deliver growing value for our shareholders and an exciting long-term future for the Group.

N Davidson

Chairman

27 June 2022

Chief Executive Officer's Report

OptiBiotix offers investors a unique opportunity to participate in the growth potential afforded by one of the most progressive and exciting areas of biotechnological research: the modulation of the human microbiome. This is a market projected to grow at a CAGR of 31% between 2023 and 2029 (Markets and Markets, 2022). The Group develops unique innovative products across multiple areas of the microbiome that are protected by an extensive and growing international portfolio of patents and trademark underpinned by strong science and clinical studies. Products are transferred for commercial exploitation to trading divisions which have the ability to deliver additional shareholder value through the achievement of separate listings or exits. Everything we do is designed to maximise the earning potential of each of our products while maintaining tight cost control and limiting investor risk.

STRATEGIC DEVELOPMENT

We are successfully progressing a two-stage strategy that continues to deliver for our investors as planned. In the first stage of development, our two independent trading businesses have built a strong recurring revenue base and achieved profitability through the development of business-to-business sales of our first-generation functional ingredients: principally LPLDL® in Probiotics and SlimBiome® in Prebiotics. The Group has also benefited substantially from our investment in SkinBioTherapeutics plc (SBTX).

Our business model has been designed to maximise the income potential of each of our products while limiting investment risk and managing costs by securing appropriate business partners in a wide and growing range of territories.

Having established our scientific and brand credibility through an initial focus on smaller partners that were able to bring products quickly to market, we are now able to develop a smaller number of relationships with larger partners that offer the opportunity both to increase volume sales in existing markets, and to extend our geographical reach.

As anticipated, the increasing association of our products with internationally recognised retail and pharmaceutical partners and established brands (e.g. MyProtein, OptiSlim) has created a virtuous circle of further interest from other potential partners and markets. As we engage with an increasing number of larger partners, the Company will have to manage competing interests for product and territory exclusivity. 

Now we have established a strong financial base and brand credibility through our business-to-business sales, we are increasing our efforts on developing higher-margin final product sales, including direct sales to consumers in strategic markets. This direct sales strategy will have a mutually beneficial effect in also driving sales of ingredients included in final products we sell direct to consumers.

Our products continue to gain endorsement from scientific studies, industry awards and regulatory approvals. We were particularly pleased that SlimBiome® won first place in the Weight Maintenance Category of the US Nutrition Industry Executive Awards in 2021 and was approved as a licensed product with strong health claims for weight management by Health Canada, which is renowned as one of the world's most demanding regulators. We believe these are substantive achievements for early-stage products.

Following the separate flotation of our Probiotic business as ProBiotix Health plc in March 2022, we are now strongly placed to focus on the growth potential of our Prebiotic business, OptiBiotix Ltd, through our new CEO, René Kamminga. The conclusion of three new commercial agreements with market-leading partners in the UK, India and Saudi Arabia at the end of the year have delivered an important extension of our geographic reach for SlimBiome® in the main markets of Europe and Asia, while the launch of new lean muscle mass ingredient, LeanBiome® provides us with a point of entry to the lucrative and fast-growing sports nutrition market.

After COVID-19 delayed product development we are making good progress with the commercialisation of our second-generation prebiotic products: the growing SweetBiotix® family of functional fibres that act as low calorie, prebiotic sweeteners; and Microbiome Modulators to target a range of human diseases. These products carry higher development risks than our first-generation products but address much larger market opportunities, affording very substantial potential for future growth in revenues and profits.

FINANCIAL RESULTS

As the Chairman has noted, Group sales for the 12 months ended 31 December 2021 grew by 45.3% to £2.2m (2020: £1.5m), despite difficult global trading conditions. 

The Probiotic business, contained within our wholly owned subsidiary ProBiotix Health Ltd, increased sales by 34.0% to £1.1m (2020: £0.8m). However, income for the prior year included a £250,000 milestone payment for the development of LPLDL® into a pharmaceutical, so that underlying product sales growth year-on-year was 92.6%. The division delivered a 104% increase in EBITDA to £179K (2020: £88K).

The Prebiotic business, within our wholly owned subsidiary OptiBiotix Ltd, increased sales by 59.3% to £1.1m (2020: £0.6m), with underlying sales (excluding licensing fees) growing by 122%, with an EBITDA of £13K (2020: £36k).

Group administrative expenses (excluding non-cash items such as share-based payments and amortisation) increased by 32.4% to £2.1m (2020: £1.6m), largely due to one-off recruitment and consultancy costs, and investment in strengthening our management team.

As the Chairman has noted, the Company received an additional £2.9m (2020: £0.7m) during the year from the sale of shares in SkinBioTherapeutics plc (SBTX), which is not included in the Group sales figures. As of 31 December 2021, the Company continued to hold 20.8% of the issued share capital of SBTX, valued at £13.7m (2020: £8.9m). The increase in the value of the continuing investment in SBTX resulted in a Group net profit for the year of £6.3m (2020: £5.8m).

SBTX continues to make progress commercialising its products. It is worth noting that our initial investment of approximately £700,000 in this business in 2016 has delivered £4.3m of value to OptiBiotix shareholders through share sales to date (a multiple of 6.1 of our initial investment). If OptiBiotix had raised funds via a placing rather than sold SBTX shares this would equate to an additional 9.7m shares (11.1%) and associated shareholder dilution. The Company's continuing interest in SBTX is valued at approximately £8.4m as of 1 June 2022.

PROBIOTICS: ProBiotix Health plc

The cornerstone of our Probiotic business is LPLDL®, a unique probiotic for cardiovascular health, the sales of which, either as an ingredient or final product, grew by 34% during the year, or as direct comparison by 92.6% when excluding the £250K milestone payment received in 2020.

The Group developed the science, carried out human studies to confirm product safety and efficacy, and protected its commercial interests with a broad IP portfolio comprising some 36 patents. In line with our strategy, ProBiotix Health then took responsibility for commercialising the product by building a supply chain of licensed partners to manufacture, formulate, and distribute LPLDL® around the world.

By the end of 2021 we had partners commercialising LPLDL® in over 60 countries including the world's largest probiotic market, the USA, in partnership with Seed Health. Four new commercial agreements were concluded in 2021, of which the most significant was the signing in August of a new agreement with Seed Health expanding its territories from the US to include Europe, Oceania (Australia, New Zealand etc.) and Asia (excluding India) for the supply of LPLDL® in Seed's DS-01 multi-strain synbiotic product.

We reached new agreements with Compson Biotechnology in Taiwan, INSCOBEE Inc in South Korea and Bioscience Marketing in Malaysia, all covering both LPLDL® and our own branded CholBiome® range containing it, designed to build the reputation and brand awareness of our own label products across Asia.

We have developed our own unique range of patented and proprietary food supplements containing LPLDL® under the CholBiome® brand, comprising CholBiomex3 to reduce cholesterol, CholBiomeBP to lower blood pressure and CholBiomeVH to promote vascular health. This gives us a product portfolio which allows us to create different formulations to allow us to enter international markets around the world. This is important as regulatory conditions vary widely across the world. For example, Monacolin K is used extensively across Asia but prohibited in food supplements in North America and has restricted dosage in Europe. Our CholBiome product range has been developed to meet existing and anticipated regulatory requirements in international markets.

Actial Farmaceutica Srl, with which we announced an agreement in July 2020 for the distribution of CholBiome® products, is taking longer to launch products than originally planned due to COVID-19 delays impacting on regulatory approvals. However, ProBiotix Health hopes to announce progress on this in the months ahead.

Whilst ProBiotix Health's focus is on commercialising products into the supplement and over the counter pharma markets there is potential for the further development of LPLDL® in drug biotherapeutics. This is a complex area where regulatory pathways are not fully established, timescales are long and investment costs and development risks are high. As such, this is being progressed with partners with the necessary skills and expertise to take drug products to market who pay milestones and royalties.

As part of our exploration of potential additional applications for the product, we announced in January that we are jointly funding a PhD studentship and clinical study into the role of the microbiome in stress, anxiety and sleep disorders with the Universities of Southampton and Trento. We hope to have some early data at the start of 2023.

LPLDL® has been determined as Generally Recognized As Safe ('GRAS') by the US Food and Drug Administration (FDA) and has pharmaceutical GMP manufacture designation. Post period we began to see the benefits of achieving GRAS with our partner in Uruguay, Grancha Poncha, launching a yoghurt, Yo-Life®, with a cholesterol health claim. This is a significant milestone, as it extends the use of LPLDL® into functional dairy foods with a health claim which may be replicated in other territories and other functional foods on a global scale. The launch follows over two and a half years of product development to ensure the addition of LPLDL® to yoghurt does not change its taste, texture, or shelf life, and provides an active dose in milligram amounts and a cost advantage over stanols or sterols which typically require doses of 2gms.

With the dairy sector accounting for over 85% of the global probiotic market, we believe that this is an area with potential for significant future growth.

PREBIOTICS: OptiBiotix Ltd

Our Prebiotic business continues its focus on growing sales of its first-generation prebiotic weight management ingredient SlimBiome®, and on continuing to progress the commercialisation of more innovative second-generation products including SweetBiotix® and Microbiome Modulators.

SlimBiome®/LeanBiome®

Despite the global slump in the weight-management sales during the COVID-19 pandemic (Nutritional Outlook, 24, 4) sales of SlimBiome® and LeanBiome® as an ingredient or final product grew by 122% during the year, aided by significant new product launches such as THG and range extensions in the UK and Oceania. 

Our established UK partner Holland & Barrett expanded their SlimExpert® own brand range of weight management products containing SlimBiome® from three to eight products in March 2021, with the range now including powdered beverages, shakes and porridge. 

In July 2021, Arrotex Pharmaceuticals, Australia's largest private pharmaceutical company, launched a Very Low Calorie Diet (VLCD) weight management product containing SlimBiome®, Bioslim VLCD, through pharmacies and online across Australia.

Also, in July 2021 our existing customer Optipharm expanded their portfolio of products containing SlimBiome® with the launch of the Optiman brand, sold exclusively through the Chemist Warehouse online pharmacy.

In October 2021 we extended our market reach by entering the sports nutrition market with LeanBiome® a scientifically formulated sports nutrition ingredient which supports athletes seeking to increase lean muscle mass to change their body composition.

In December 2021 we signed a number of significant new commercial agreements with large partners Apollo Hospitals in India and Nahdi Medical in Saudi Arabia which extended the geographic reach of the business and will hopefully lead to important new product launches in 2022.

In January 2022, The Hut Group's Myprotein launched the Impact Diet Lean (IDL) product range containing LeanBiome®, developed to build lean muscle mass faster. IDL shakes were launched into the main markets of Europe and Asia during Q1 and will be followed up by product range extensions throughout the year.

SweetBiotix®

Our second-generation SweetBiotix® family of products is based on the concept of creating a sweet fibre that has a low glycaemic index, which enhances the microbiome. The concept uses recent advances in science, requires new manufacturing processes to be developed, and represents a step change from existing products on the market or to the best of our knowledge and partner discussions, known to be under development. Our aim is to build a broad range of products suitable for a wide range of application areas which can meet the needs of multiple partners, on applications as diverse as dairy, cereals, and hot and cold beverages. Each of these must be assessed in terms of flavour optimisation, stability (typically 12 months with 24 months preferred), dosage, safety, tolerance, health benefits, and the final product cost profile.

We are progressing the commercialisation of SweetBiotix® on a number of fronts. Following the agreement we signed in the second half of 2020, our US manufacturing partner has successfully manufactured SweetBiotix® using an industrial scale process and is now optimising yields and reducing wastage. Our agreement, covering only one part of the SweetBiotix® portfolio, grants an exclusive licence in return for our partner making a significant investment to cover all the manufacturing, marketing and commercialisation costs, while paying annual royalties to OptiBiotix.

Additionally, we are working with one of the world's leading companies specialising in taste and sweetness on jointly developing, scaling up and commercialising another group of SweetBiotix® products. A number of corporates with leading positions in the food and beverages markets have also signed Material Transfer Agreements to develop applications for SweetBiotix®.

Microbiome Modulators

The Company has developed an innovative approach to allow it to precision engineer the microbiome. This is one of the most exciting areas of microbiome therapeutics as it creates the potential for targeted treatment of a range of human diseases. Development work was slowed by COVID-19 reducing access to Universities and Contract Research Organisations in 2020 and early 2021. This work has now progressed and we have achieved the production of Microbiome Modulators using a process suitable for industrial scale-up. Work is ongoing to optimise the process and test whether the functionality has been retained before initiating full scale-up and commercialisation.

This is a really exciting area of development which, if successful, could revolutionise the use of the microbiome therapies in healthcare, potentially allowing the creation of precision prebiotics which can engineer the gut microbiome to prevent, manage and treat human diseases. We will be increasing our investment in Microbiome Modulators to accelerate the development activities currently taking place.

INTELLECTUAL PROPERTY

Our Intellectual Property strategy has been based of building a portfolio of overlapping patents to protect our commercial interests and reduce the risk of any particular patents failing to grant or being opposed by a competitor. This means that we have multiple composition, application, and process patents to protect each area of our business. Whilst this approach is more costly, it reduces our future commercial risk. As patents are granted in key territories (typically the US, Europe, Canada, Japan, Australia, India) the Group has been able to refine its patent portfolio to reduce IP costs whilst continuing to protect its commercial interests.

Our strategy and investment have enabled the Group to build an extensive and valuable intellectual property portfolio of more than 100 patents worldwide: 36 in ProBiotix Health and 73 in OptiBiotix. In addition to these patents, we have registered approximately over 80 trademarks (21 in ProBiotix Health and 62 in Optibiotix) providing 'double IP' - a combination of patents and supporting trademarks which allows the Group to build its trademarked brands supported by its patents. This approach allows the Group to protect its commercial interests and limit competitors from launching similar products and in combination creates a valuable IP portfolio in the microbiome field. We are constantly reviewing and updating our patent and trademark portfolio according to commercial needs.

MANAGEMENT

As the Chairman has reported, we substantially strengthened our Board and senior management team through new non-executive and executive appointments in the early months of the financial year under review. I am pleased to note that a number of these new senior colleagues have demonstrated their commitment to the Group, and their confidence in our future prospects, by making personal investments in the Company's shares. It is also pleasing to note that other members of the Board and senior management team took the opportunity to invest in OptiBiotix during 2021.

Since the beginning of the new financial year, we have made a number of senior appointments below the level of the main Board. Paul Cannings joined us in January 2022 as Head of Operations & Quality, and in March 2022 we announced the appointments of Zac Sniderman as Business Development & Sales Director North America, Shiraz Butt as E-Commerce Director, and Karl Burkitt as Marketing Director. These new additions will ensure that we continue to meet the quality and regulatory requirements of our growing network of commercial partners around the world; maintain our drive to expand ingredient sales, particularly in the large North American market; and develop the sales of final products containing our unique ingredients both to businesses and direct to consumers.

PROSPECTS

We have continued to make good progress since the beginning of the current financial year, despite the challenging global trading environment.

Significant developments in the year to date include:

· The achievement of British Retail Consortium accreditation, confirming our compliance with the Global Food Safety Initiative ('GFSI') benchmark. This certification by one of the leading international food safety standards, accepted by most large retailers and their suppliers worldwide, is an important support to our commercial strategy of increasing our sales of final product solutions to partners in the retail channel.

· Our entry into the sports nutrition market with the launch of LeanBiome®, a scientifically supported dietary fibres and a trace mineral, developed to support athletes increase lean muscle mass and to improve metabolism, gut health and satiety. Our new distribution agreement with leading e-commerce retailer The Hut Group, signed in December 2021, saw LeanBiome® launched in January 2022 in its Impact Diet Lean product as part of its My Protein range in the UK, with territorial expansion across Europe, Asia and the USA planned in the course of the year.

· The reformulation of WellBiome®, our functional fibre and mineral blend, with new ingredients that will allow us to make new health claims for the products. The new WellBiome® will form the basis for a science-based health and wellness platform offering a range of products to improve cognitive, immune, bone, digestive and cardiovascular health to support healthy ageing.

· Publication in January 2022 of a third human volunteer study on the medical efficacy of LPLDL®, demonstrating through a placebo-controlled trial that LPLDL® delivered large and statistically significant reductions in total cholesterol, LDL-C (bad) cholesterol and Apolipoprotein B (widely accepted as the most important causal agent of atherosclerotic cardiovascular disease), with no compliance, tolerance or safety issues. The results of this and other studies suggest efficacy similar to many statins and other treatments more typically associated with pharmaceuticals, suggesting considerable potential in high value pharmaceutical and OTC markets for the use of LPLDL® in individuals who are unwilling or unable to tolerate other treatments.

· Publication in February 2022 of a consumer study undertaken among purchasers from our own e-commerce website of CholBiomex3, our proprietary food supplement containing LPLDL®, which confirmed its effectiveness in reducing cholesterol with no reports of side-effects or any tolerance issues.

· Admission of ProBiotix Health plc to the AQSE Growth Market on 31 March 2022, raising £2.5m for the further development of our former Probiotic subsidiary through a placing and subscription of new shares, while giving our own shareholders a dividend in specie of 0.554673 ProBiotix share for every OptiBiotix share held.

· Good progress in the development of OptiBiotix Health India, the new subsidiary whose formation we announced in November 2021. This gives us much improved access to a huge, rapidly growing and increasingly prosperous market of 1.3bn people. India is expected to account for the majority of the world's middle-class consumers by 2035. With high levels of cardiovascular disease and obesity already prevalent in the country, we see excellent opportunities to improve engagement with our local manufacturing partners and to develop sales of both ingredients and higher-margin final products in the years ahead.

· The appointment of Steen Andersen as Chief Executive Officer of ProBiotix Health plc. This is part of a long-planned strategy to appoint experienced industry business leaders to each part of the business allowing me, as Group CEO to focus on identifying and developing the new technologies that will provide the Group with a pipeline of products to deliver future growth and market value.

As the Group matures, we are moving on from a period when we announced very frequent news reports on our progress in developing the science behind our products and in growing our global network of relatively small business partners. The focus now is on building our sales by extending product ranges and territories, gaining regulatory approvals for health claims, migrating to larger partners, and developing sales of final products direct to consumers. This will lead to us reporting less news, but of a more substantive nature. It also means, as the Chairman has noted, that our future financial results will reflect fewer but much larger sales to a smaller number of big partners and consequently revenues reported less evenly through the year.

The strong growth in revenues and profits in 2021 despite the difficult global environment is testimony to the effectiveness of our strategy. We continue to make good progress against our stated aims of focusing on a smaller number of large partners in key strategic markets and grow our direct-to-consumer sales, the benefits of which we expect to begin realising in the current year. There is an exciting opportunity for growth as we bring the second-generation products to market, while we retain exposure to the growth potential in probiotics and skincare through the Group's shareholdings in ProBiotix Health plc and SkinBioTherapeutics plc.

Our strong financial position has allowed us to invest in expanded sales and marketing capabilities that will help us to increase our sales of final products direct to consumers through retail channels. We hope to see the return on this investment later this year and beyond. It also gives us the capability to in-license or acquire additional technologies that will ensure a continuous pipeline of solutions to deliver diversified growth for the Group and strengthen our position as one of the leading companies in the rapidly growing microbiome space.

Stephen O'Hara

Chief Executive

27 June 2022

Consolidated statement of comprehensive income

All activities relate to continuing operations

Consolidated statement of financial position

These financial statements were approved and authorised for issue by the Board of Directors on 27 June 2022 and were signed on its behalf by:

S P O'Hara

Director

Company Registration no. 05880755

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to consolidated statement of cash flows

1. Reconciliation of loss before income tax to cash outflow from operations

2. Cash and Cash Equivalents

Company statement of financial position

The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company income statement account.

The profit for the parent Company for the year was £5,787,819 (2020: Loss £1,168,767).

These financial statements were approved and authorised for issue by the Board of Directors on 27 June 2021 and were signed on its behalf by:

S P O'Hara

Director

Company Registration no. 05880755

Company statement of changes in equity

Company statement of cash flows

Notes to company statement of cash flows

1. Reconciliation of loss before income tax to cash generated from operations

2. Cash and Cash Equivalents

Notes to the financial statements

1. General Information

OptiBiotix Health plc is a Public Limited Company incorporated and domiciled in England and Wales. Details of the registered office, the officers and advisers to the Company are presented on the company information page at the start of this report. The Company's offices are at Innovation centre, Innovation Way, Heslington, York, YO10 5DG. The Company is listed on the AIM market of the London Stock Exchange (ticker: OPTI).

The principal activity is that of identifying and developing microbial strains, compounds, and formulations for use in food ingredients, supplements and active compounds that can impact on human physiology, deriving potential health benefits. 

2. Accounting Policies

Statement of compliance

The consolidated financial statements of Optibiotix Health Plc have been prepared in accordance with UK adopted international accounting standards (IFRSs), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. These are the first financial statements prepared under UK adopted international accounting standards. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. Optibiotix Health Plc transitioned to UK-adopted International Accounting Standards in its consolidated and parent company financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no change on recognition, measurement or disclosure in the financial year reported as a result of the change in framework.

Basis of preparation

The financial statements have been prepared under the historical cost convention. The functional currency is GBP.

The principal accounting policies are summarised below. They have all been applied consistently throughout the period under review.

Going concern

The financial statements have been prepared on the assumption that the Group is a going concern. When assessing the foreseeable future, the Directors have looked at the budget for the next 12 months from the date of this report, the cash at bank available as at the date of approval of these financial statements and are satisfied that the group should be able to cover its quoted maintenance costs, other administrative expenses and its ongoing research and development expenditure.

Management have considered its forecast of the group's cash requirements reflecting contracted and anticipated future revenue and the resulting net cash outflows. Management have not seen a material disruption to the business as a result of the COVID-19 pandemic, nor the current political crises in Europe. Management will keep events under constant review, and remedial action will be taken if the situation demands it.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the annual report and financial statements.

2. Accounting Policies (continued)

Standards, amendments and interpretations effective and adopted in 2021

Several amendments and interpretations apply for the first time in 2021.

Standards, amendments and interpretations issued and effective in 2021 but not relevant

There are no IFRSs or IFRIC interpretations that are effective and not relevant to the Group.

2. Accounting Policies (continued)

Standards, amendments and interpretations issued but not yet effective in 2021

 There were a number of standards and interpretations which were in issue at 31 December 2021 but not effective for periods commencing 1 January 2021 and have not been adopted for these financial statements. The Directors have assessed the full impact of these accounting changes on the Company. To the extent that they may be applicable, the Directors have concluded that none of these pronouncements will cause material adjustments to the Group's financial statements. They may result in consequential changes to the accounting policies and other note disclosures. The new standards will not be early adopted by the Group and will be incorporated in the preparation of the Group financial statements from the effective dates noted below.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

The Directors anticipate that the adoption of these standard and the interpretations in future period will have no material impact on the financial statements of the company.

2. Accounting Policies (continued)

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the related assets (i.e. reclassified to profit or loss or transferred directly to retained earnings).

The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 "Financial Instruments: Recognition and Measurement" or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity

2. Accounting Policies (continued)

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the group to the former owners of the acquiree and the equity interests issued by the group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

- deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

- liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree's share-based payment transactions with share-based payment transactions of the group are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and

- assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Revenue recognition

Revenue is measured at the fair value of sales of goods and services less returns and sales taxes. The Group has analysed its business activities and applied the five-step model prescribed by IFRS 15 to each material line of business, as outlined below:

Sale of products 

The contract to provide a product is established when the customer places a purchase order. The performance obligation is to provide the product requested by an agreed date, and the transaction price is the value of the product as stated in our order acknowledgement. The performance obligation is typically met when the product is dispatched and so revenue is primarily recognised for each product when dispatching takes place. In some limited situations when the product is complete but the customer is unable to take delivery the performance obligation is met when the customer formally accepts transfer of risk and control even though the product has not been dispatched.

2. Accounting Policies (continued)

License arrangements

Revenue is recognised when the customer obtains control of the rights to use the IP. The performance obligations are considered to be distinct from any ongoing distribution arrangements which are treated in line with sales of products.

Milestone payments

Where the transaction price includes consideration that is contingent upon a future event or circumstance, the contingent amount is allocated entirely to that performance obligation if certain criteria are met. Revenue is recognised at the point of time of the performance obligation being satisfied.

Investments in associates

Associates are those entities in which the Group has significant influence, but not control or joint control over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Investments in associates are accounted for under the equity method and are recognised initially at cost. The cost of the investment includes transaction costs.

The consolidated financial statements include the Group's share of profit or loss and other comprehensive income of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group's share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Investments at fair value

Equity investments are held at fair value at the balance sheet date with any profit or loss for the year being taken to the Income statement. The value of listed investments being calculated at the closing price on the balance sheet date.

Employee Benefits

The Group operates a defined contribution pension scheme. Contributions payable by the Group's pension scheme are charged to the income statement in the period in which they relate.

2. Accounting Policies (continued)

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

(i) Current tax

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules using tax rates enacted or substantially enacted by the statement of financial position date.

Income tax is recognised in the income statement or in equity if it relates to items that are recognised in the same or a different period, directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

(ii) Deferred tax

Deferred tax is provided, using the liability method, on temporary differences at the statement of financial position date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will

be available against which the deductible temporary differenced and the carrying forward or unused tax assets and unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Financial instruments

Financial assets and financial liabilities are recognised when the group becomes a party to the contractual provisions of the instrument.

Loans and receivables are initially measured at fair value and are subsequently measured at amortised cost, plus accrued interest, and are reduced by appropriate provisions for estimated irrecoverable amounts. Such provisions are recognised in the statement of income.

2. Accounting Policies (continued)

Equity investments comprise investments which do have a fixed maturity and are classified as non current assets if they are intended to be held for the medium to long term. They are measured at fair value through profit or loss.

Trade receivables are initially measured at fair value and are subsequently measured at amortised cost less appropriate provisions for estimated irrecoverable amounts. Such provisions are recognised in the statement of income.

Cash and cash equivalents comprise cash in hand and demand deposits and other short-term highly liquid investments with maturities of three months or less at inception that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Trade payables are not interest-bearing and are initially valued at their fair value and are subsequently measured at amortised cost.

Equity instruments are recorded at fair value, being the proceeds received, net of direct issue costs.

Share Capital - Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of taxation, from the proceeds.

Financial instruments require classification of fair value as determined by reference to the source of inputs used to derive the fair value. This classification uses the following three-level hierarchy:

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);

Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Inventory

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2. Accounting Policies (continued)

Impairment of non-financial assets

At each statement of financial position date, the Group reviews the carrying amounts of its investments to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

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 the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Capital management

Capital is made up of stated capital, premium, other reserves and retained earnings. The objective of the Group's capital management is to ensure that it maintains strong credit ratings and capital ratios. This will ensure that the business is correctly supported and shareholder value is maximised.

The Group manages its capital structure through adjustments that are dependent on economic conditions. In order to maintain or adjust the capital structure, the Company may choose to change or amend dividend payments to shareholders or issue new share capital to shareholders. There were no changes to the objectives, policies or processes during the period ended 31 December 2021.

2. Accounting Policies (continued)

Convertible Loans

Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amount.

Convertible debt reserve

The convertible debt reserve is the equity component of the convertible loan notes that have been issued.

Share-based compensation

The fair value of the employee and suppliers services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting year is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of financial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

The fair value of share-based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry.

2. Accounting Policies (continued)

Property, plant and equipment

Property, plant and equipment are stated at historical cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method to write off their cost over their estimated useful lives at the following annual rates:

Computer equipment 30%

Useful lives and depreciation method are reviewed and adjusted if appropriate, at the end of each reporting period.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the relevant asset and is recognised in profit or loss in the year in which the asset is derecognised. 

Intangibles - Patents

Separately acquired patents are shown at historical cost. Patents have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of the patents over their estimated useful life of twenty years once the patents have been granted.

Research and Development

Research expenditure is written off to the statement of comprehensive income in the year in which it is incurred. Development expenditure is written off in the same way unless the Directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the 10 years during which the Company is expected to benefit.

Merger relief reserve

The merger relief reserve arises from the 100% acquisition of OptiBiotix Limited whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve in accordance with section 612 of the Companies Act 2006.

Critical accounting judgments and key sources of estimation uncertainty

The preparation of the financial statements requires management to make estimates and assumptions concerning the future that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

2. Accounting Policies (continued)

The resulting accounting estimates will, by definition, differ from the related actual results.

· Share based payments

The fair value of share based payments recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarked against peer companies in the industry.

· Amortisation

Management have estimated that the useful life of the fair value of the patents acquired on the acquisition to be 20 years. Research and developments that have been capitalised in line with the recognition criteria of IAS38 have been estimated to have a useful economic life of 10 years. These estimates will be reviewed annually and revised if the useful life is deemed to be lower based on the trading business or any changes to patent law.

· Impairment reviews

IFRS requires management to undertake an annual test for impairment of indefinite lived assets and, for finite lived assets to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters.

· Derecognition of an associate

Management have reviewed the existing relationship with Skinbiotherapeutics Plc in light of changes in the Group's power to participate in the financial and operating decisions of the entity, in line with the requirements of IAS28. In the prior year following a significant dilution in shareholding and a change to the board structure of the entity, it was determined that the significant influence had been lost and the associate would be de-recognised. This year it is still considered to be an investment.

3. Segmental Reporting

In the opinion of the directors, the Group has one class of business, in three geographical areas being that of identifying and developing microbial strains, compounds and formulations for use in the nutraceutical industry. The Group sells into three highly interconnected markets, all costs assets and liabilities are derived from the UK location.

Revenue analysed by market

Revenue analysed by geographical market