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Advanced Medical Solutions Group plc

advanced woundcare

�wound closure and sealants

�

interim report 2008

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Registered Office:Road Three, Winsford Industrial EstateWinsford, Cheshire, CW7 3PD, UK

Company Number: 2867684

Tel: +44 (0)1606 863500Fax: +44 (0)1606 863600

E-mail: [email protected]: www.admedsol.com

Technology Platforms for Growth

ADVANCED MEDICAL SOLUTIONS GROUP plc

Strengthened financial position:

■ Group revenues up 24% to £9.8 million (H1 2007: £7.9 million)

■ Gross margin further improved to 47% (H1 2007: 43%)

■ Pre-tax profit up 80% to £1.2 million (H1 2007: £0.7 million)

■ EPS up 60% to 0.91p (H1 2007: 0.57p)

■ Net cash inflow from operating activities of £0.5 million

(H1 2007: £1.2 million)

■ Following acquisition of 49.4% of Corpura, net funds of £5.4 million

at 30 June 2008 (30 June 2007: £5.0 million)

Business HighlightsGood progress with future growth drivers:

■ Silver alginate market presence strengthened with additional major

branded marketing and distribution partners signed for US and Europe

■ NHS direct woundcare business continues to build momentum in both

Hospital and Primary Care Trusts with full ActivHeal® product range

included on new framework agreement

■ FDA re-classification of topical tissue adhesives has accelerated the

US regulatory approval process for the LiquiBand® range

■ Corpura Joint Venture strengthens AMS’ position in hydrophilic

polyurethane foams — the largest and fastest growing segment of the

advanced woundcare dressings market

Financial Highlights


INTERIM REPORT 2008 1

CHAIRMAN’S STATEMENT

OverviewI am pleased to report that AMS hascontinued to make excellent progressduring the first half-year, furtherstrengthening its technology portfolio andmarket presence, supported by its strongfinancial position.

Group revenue grew by 24% to £9.8million and pre-tax profit increased 80%to £1.2 million during the period.

The business continues to generate cashand, after the acquisition of 49.4% ofthe Corpura polyurethane foam business,net funds stood at £5.4 million at thehalf-year end compared with £5.0 millionat the previous half-year.

The Corpura joint venture hasstrengthened AMS’s position in thelargest, fastest growing segment of theadvanced woundcare dressings marketand provides an additional materialplatform for the delivery of newtechnologies currently under evaluationwithin R&D.

The reclassification of tissue adhesives bythe FDA announced in May 2008 is ofenormous significance as it facilitatesentry of AMS’s LiquiBand® range into thekey US market following 510(k) regulatoryapproval, the application for which iscurrently under way.

Operating Review

Advanced WoundcareAdvanced woundcare sales of £8.1 millionwere up 29% on the prior half-year, whichis well ahead of the currently estimatedmarket growth rate of around 9%.

Silver alginate continues to be a majorgrowth driver for this business segment.AMS has two silver technologies beingsold by a number of major brandedwoundcare companies into the key globalmarket channels: hospitals, nursinghomes, home health and burn clinics.The Group’s presence in this dynamicmarket, which is estimated to have acurrent value of $300 million and to begrowing at 20%, was further strengthenedby signing new marketing and distributionpartners in the US and Europe andbroadening the product range.

Good progress continues to be made inpenetrating the UK NHS with AMS’s ownbrand ActivHeal®. ActivHeal® is a rangeof woundcare dressings offered directly to

the NHS as a first line therapy for treatingroutine wounds and offers substantialsavings in woundcare budgets. TheActivHeal® range complements the use ofAMS’s new technologies, such as silveralginate, for treating infected or moredifficult to heal wounds, which are soldthrough strategic partners.

In June, the full ActivHeal® range wasincluded on the new framework agreementnegotiated by NHS Supply Chain, part ofDHL Logistics, for the supply of advancedwoundcare products to NHS HospitalTrusts.

This is the first procurement project of itstype in the medical device arena andinvolved a robust supplier selectionprocess including clinical user groups toassess economic and clinical aspects ofcompanies’ products. The evaluationincluded cost, quality, clinical data,innovation, manufacturing capability, usereducation and clinical/technical support.

The ActivHeal® range was rated highly inthe assessment reflecting the quality ofthe comprehensive offering by AMS in thisproduct sector. The product range consistsof alginate, foam, hydrocolloid, hydrogeland the recently introduced AquaFiber®high absorbancy, clear gelling dressing.

Inclusion of the full ActivHeal® range onthe new framework agreement underpinsAMS’s NHS direct woundcare businessover the next two years. In addition to astrong cost management offering, addedvalue features such as the innovationprovided by a UK-based R&D andmanufacturing presence and the clinicaltraining and education provided by the UKclinical nurse team were also recognisedduring the supplier assessment process.

In May, AMS formed a joint venture withRecticel, a Belgian-based global leader inpolyurethane foam, under which itacquired 49.4% of the shares in CorpuraBV, a fully owned subsidiary of Recticel.

Established in 2004, Corpura developsand produces hydrophilic polyurethanefoams for medical applications from astate-of-the-art, dedicated R&D andmanufacturing facility in Etten Leur,Netherlands. Corpura, which is cashgenerative and employs 13 people,reported sales of 2.2 million in 2007.

Corpura supplies AMS with basepolyurethane foam for inclusion intoAMS’s foam products. The shareholding inCorpura has given the Group a strongtechnology position in polyurethane foams— the largest ($900 million) and fastestgrowing (20%) segment of the advancedwoundcare dressings market — andprovides an ideal platform material fordelivery of higher value technologies toprevent infection and help acceleratewound healing.

Wound Closure and SealantsThe wound closure and sealants businessgrew in line with expectations at 8% to£1.8 million in the period (H1 2007:28% to £1.7 million), reflecting Kimberly-Clark Health Care’s launch of InteguSeal®and related stocking and pipeline fill inthe prior period. Reaction from users andinstitutions remains positive as clinicalevidence is being generateddemonstrating the benefits of the productas a means of reducing skin floracontamination of the wound site in a widerange of surgical procedures.

Good progress continues to be made inpenetrating the European market with theLiquiBand® tissue adhesive range, with aparticularly strong presence being built inthe Emergency Room (ER) arena. TheGroup has maintained its marketleadership in the UK and its EducationProgramme for minor wound closure wasaccredited in January by the Royal Collegeof Nursing Accreditation Unit. Containingboth theory and a practical skills sessionthis programme enables UK nursing staffto gain an in-depth knowledge of closingwounds by using tissue adhesives in theemergency room for treating small cutsand trauma wounds, and contributesstudy hours towards their continuingprofessional development.

The Group is continuing to review itsstrategy for penetration of the EuropeanOperating Room (OR) market where itcurrently has limited presence throughspecialist OR distributors. This reviewincludes expanding its direct salespresence, currently limited to the UKEmergency Room arena, together with thedevelopment of a range of OR productswith strong clinical support.

Whilst good progress continues to bemade in growing the European business,the dominant segment of the global


2 INTERIM REPORT 2008

CHAIRMAN’S STATEMENT CONTINUED

topical tissue adhesives market, currentlyestimated to be $200 million and growingat a rate of 15%, is the US. Regulatoryapproval for entering this market isprogressing well.

In May, the FDA completed its reviewof a petition submitted by AMS forreclassification of tissue adhesives fortopical approximation of skin. The FDAconcluded that these devices should bereclassified from Class III into Class II.This means that tissue adhesives will nowbe cleared for commercial distributionvia a Pre-market Notification 510(k)submission rather than the more onerousPre-market Approval application (PMA).

510(k) submissions covering theLiquiBand® tissue adhesive range havebeen prepared and are currently underreview by the FDA with approvalanticipated this year allowing AMS entryinto the US market in 2009 throughmarketing partners.

Research & DevelopmentThe Group has continued to invest in astrategically aligned and focused R&Dprogramme to deliver future profitablegrowth.

Short to medium term developments(2008–2009) are focused on fullyexploiting silver technologies in advancedwoundcare and upgrading the LiquiBand®product range with indication-specificdevices.

Longer term research activities(2010–2011) are focused on newtechnology platforms to access newmarket opportunities or address unmetclinical needs.

In advanced woundcare, a wide rangeof new technologies with the potentialto accelerate wound healing hasbeen assessed and potential licensingopportunities identified. Of particularinterest are technologies that inhibit theformation of bacterial biofilms or thatmodulate excess protease activity as bothfactors are associated with delayedwound healing. These technologieswould be incorporated into AMSwoundcare materials and regulated asmedical devices.

In wound closure and sealants, longerterm R&D efforts are focused on enteringthe $600 million internal adhesives andsealants market. A developmentprogramme is now under way for animplantable adhesive for fixation ofsurgical materials and devices utilisingthe Group’s expertise in cyanoacrylatechemistry and applicator design.

New premisesIn July, AMS announced that it hadagreed a pre-let for the lease of a138,500 sq. ft. bespoke building inWinsford, Cheshire, for development intoa new facility comprising offices, R&Dlaboratories, manufacturing andwarehousing. This facility will be availablefor fit-out in early 2009 and allowrationalisation of AMS’s two existingfacilities in Winsford into the new buildingduring 2009 and 2010.

A 15 year lease, with an option to extendfor a further 10 years, has been agreed forthe new facility, which is sized toaccommodate AMS’s existing operationsand to allow future expansion.

Financial Review

SummaryAfter a further six months of strongoperational performance, the operatingmargin for the Group improved to 10.5%compared with 7.2% for the prior halfyear and profit before taxation increased80% to £1.2 million (2007: £0.7million).

Fully diluted earnings per share increasedto 0.85p (2007: 0.54p).

In May the Group announced that it hadentered a joint venture with RecticelNoord BV to acquire 49.4% of itssubsidiary Corpura BV for £1.3 millionand to provide funding of £0.7 million.

At the end of the period the Group hadnet funds of £5.4 million (2007:£5.0 million).

RevenueRevenue increased 24% to £9.8 millionfor the first six months ended 30 June2008. Advanced woundcare salesincreased 29% to £8.1 million with silveralginate and alginate sales performingwell and with sales of the Activheal®range into the NHS increasing by morethan 50%. Wound closure and sealant

sales grew 8% to £1.8 million with salesof the surgical skin sealant showing goodtraction following the previous year’slaunch.

Revenue growth continues in all keygeographical regions. Sales into the UKincreased 30% with both partner businessand sales to the NHS doing well. Salesinto the US grew 52% despite thecontinuing weak dollar. Approximately70% of these sales are denominated indollars. However, as the dollar has been ata comparable rate in H1 2008 comparedwith H1 2007 there was not a significantimpact on sales. Sales into Europe grew6%, reflecting the ordering patterns of theGroup’s partners. More than 90% of theGroup’s sales into Europe aredenominated in sterling so the Group didnot see a significant benefit from thestrong euro.

Gross margin and profit from operationsGross margin increased to 47% (H12007: 43%) across the Group with bothbusiness segments contributing to theimprovement.

Profit from operations increased to£1.0 million or 10.5% of sales, a 79%improvement compared with the first halflast year. Administration costs haveincreased as investment has been made insales, R&D and administration to supportthe growth of the business. The segmentresult for the advanced woundcarebusiness improved to £1.3 million or 16%of sales (H1 2007: 9%). The segmentresult for the wound closure and sealantsbusiness included around £0.3 million ofR&D costs relating to obtaining approvalto sell LiquiBand® in the USA. Adjustingfor these costs, the segment result wouldhave been 13% of sales compared with9% in the previous year.

Other income resulted from fees paid bypartners for the development of newproducts.

Interest and taxationNet interest was £0.2 million earned onthe cash and investment balances inthe period.

The Group recognised a tax income of£0.1 million, mainly resulting from anincrease in the deferred tax asset.


Earnings per shareThe profit after tax for the period was£1.3 million. Basic earnings per shareincreased 60% to 0.91p and on a fullydiluted basis earnings per share increased57% to 0.85p.

Cash flow and net investmentsCash inflow from operating activities inthe first six months was £0.5 million.There was an increase in working capitalin the period of £1.1 million with tradereceivables increasing by £0.7 million.As reported in the 2007 results, tradereceivables were better than expected atthe end of the year as some customerspaid earlier than expected. Adjusting forthis, the increase in trade receivables is inline with the increased revenue of theGroup and with the increased volume ofbusiness to the USA. Debtor days at theend of June were 55 compared with 52 atthe year end.

Working capital as a percentage of saleswas 16% compared with 12% at the endof the year.

The Group invested £0.4 million inplant and equipment and capitalised£0.1 million of its R&D spend. Around£4 million of capital expenditure has beenidentified for the fit-out of the newfacility, which will start in 2009. Bothcash and financing will be used to fundthis fit-out.

On 30 May 2008 AMS acquired 49.4% ofCorpura BV, a company based in EttenLeur, Netherlands, from Recticel HoldingNoord BV for a cash consideration of £1.3million and has provided £0.7 million offunding towards the joint venture. CorpuraBV develops and produces hydrophilic,polyurethane foams that have medicalapplications.

Details on the joint venture are includedin note 6.

The joint venture has been accounted forunder the equity method.

At the half year the Group’s balance sheetremains strong with net funds of £5.4million.

Principal risksThe principal financial risks affecting thebusiness activities of the Group aredetailed on page 20 of the Annual Reportand Accounts for the year ended31 December 2007. The management

considers the rationalisation of itsadvanced woundcare operations to be akey focus over the next eighteen monthsto ensure minimal disruption to thebusiness.

OutlookAMS operates in a market whosedemographics are extremely favourable,underpinned by an increasing need forproducts to treat chronic and acutewounds.

The Group remains well placed tocontinue to deliver organic growth, drivenby silver alginate sales through multiplepartners, increased penetration into theNHS, access to polyurethane foamtechnology and a strong R&D pipeline.Entry into the US market withLiquiBand®, expected in 2009, offers anear-term step change opportunity for thebusiness.

With trading continuing to be strong atthe start of the second half of the year,the outlook for the business remainsvery positive.

Dr Geoffrey N VernonChairman8 September 2008



INDEPENDENT REVIEW REPORT TOADVANCED MEDICAL SOLUTIONS GROUP plc

IntroductionWe have been engaged by the company toreview the condensed set of financialstatements in the interim financial reportfor the six months ended 30 June 2008which comprises Consolidated IncomeStatement, Consolidated Balance Sheet,Consolidated Statement of Changes inEquity, Consolidated Cash Flow Statementand explanatory notes. We have read theother information contained in the interimfinancial report and considered whether itcontains any apparent misstatements ormaterial inconsistencies with theinformation in the condensed set offinancial statements.

This report, including the conclusion,has been prepared for and only for thecompany for the purpose of meeting therequirements of the AIM Rules forCompanies and for no other purpose.We do not, therefore, in producing thisreport, accept or assume responsibility forany other purpose or to any other personto whom this report is shown or into whosehands it may come save where expresslyagreed by our prior consent in writing.

Directors’ ResponsibilitiesThe interim financial report is theresponsibility of, and has been approvedby, the directors. The directors areresponsible for preparing and presentingthe interim financial report in accordancewith the AIM Rules for Companies.

As disclosed in note 2, the annualfinancial statements of the Group areprepared in accordance with InternationalFinancial Reporting Standards andInternational Financial ReportingInterpretations Committee (“IFRIC”)pronouncements as adopted by theEuropean Union. The condensed set offinancial statements included in thisinterim financial report has been preparedin accordance with the measurement andrecognition criteria of InternationalFinancial Reporting Standards andInternational Financial ReportingInterpretations Committee (“IFRIC”)pronouncements, as adopted by theEuropean Union.

Our ResponsibilityOur responsibility is to express to theCompany a conclusion on the condensedset of financial statements in the interimfinancial report based on our review.

Scope of ReviewWe conducted our review in accordancewith International Standard on ReviewEngagements (UK and Ireland) 2410,“Review of Interim Financial InformationPerformed by the Independent Auditor ofthe Entity” issued by the AuditingPractices Board for use in the UnitedKingdom. A review of interim financialinformation consists of making enquiries,primarily of persons responsible forfinancial and accounting matters, andapplying analytical and other reviewprocedures. A review is substantially lessin scope than an audit conducted inaccordance with International Standardson Auditing (UK and Ireland) andconsequently does not enable us to obtainassurance that we would become aware ofall significant matters that might beidentified in an audit. Accordingly, we donot express an audit opinion.

ConclusionBased on our review, nothing has come toour attention that causes us to believethat the condensed set of financialstatements in the interim financial reportfor the six months ended 30 June 2008 isnot prepared, in all material respects, inaccordance with the measurement andrecognition criteria of InternationalFinancial Reporting Standards andInternational Financial ReportingInterpretations Committee (“IFRIC”)pronouncements as adopted by theEuropean Union, and the AIM Rulesfor Companies.

Baker Tilly UK Audit LLPChartered AccountantsNumber One Old Hall StreetLiverpoolL3 9SX

8 September 2008


CONSOLIDATED INCOME STATEMENTFor the six months ended 30 June 2008

Six months Six monthsended ended Year ended

30 June 2008 30 June 2007 31 December 2007Note £’000 £’000 £’000

Revenue 5 9,844 7,932 16,856Cost of sales (5,239) (4,536) (9,431)

Gross profit 4,605 3,396 7,425Distribution costs (75) (44) (130)Administration costs (3,849) (2,913) (6,158)Profit/(loss) on disposal of property, plant & equipment 10 — 3Other income 339 138 512Share of result of joint venture — — —

Profit from operations 1,030 577 1,652Finance income 181 100 282Finance costs (16) (13) (29)

Profit before taxation 1,195 664 1,905Income tax 111 144 331

Profit for the period attributable to equity holders of the parent 1,306 808 2,236

Earnings per share

Basic 4 0.91p 0.57p 1.57pDiluted 0.85p 0.54p 1.48p



CONSOLIDATED BALANCE SHEETAt 30 June 2008

Six months Six monthsended ended Year ended

30 June 2008 30 June 2007 31 December 2007£’000 £’000 £’000

Assets

Non-current assetsAcquired intellectual property rights 1,482 1,650 1,566Software intangibles 49 25 45Development costs 369 269 342Property, plant and equipment 2,914 3,014 2,910Deferred tax assets 1,849 1,065 1,421Trade and other receivables 200 200 200Investment in joint venture 2,020 — —

8,883 6,223 6,484Current assetsInventories 1,934 1,940 1,726Trade and other receivables 4,650 3,617 3,504Tax receivable — 17 —Investments 4,817 3,864 6,654Cash and cash equivalents 846 1,460 876

12,247 10,898 12,760

Total assets 21,130 17,121 19,244

Liabilities

Current liabilitiesTrade and other payables 3,124 2,634 2,909Other taxes payable 226 100 276Financial liabilities 16 15 15Obligations under finance leases 12 6 5

3,378 2,755 3,205Non-current liabilitiesFinancial liabilities 271 286 279Obligations under finance leases 63 16 14

334 302 293

Total liabilities 3,712 3,057 3,498

Net assets 17,418 14,064 15,746

EquityShare capital 7,166 11,823 7,157Share-based payments reserve 224 116 154Investment in own shares (18) — (13)Share-based payments deferred tax reserve 609 160 320Share premium 20 37,984 17Merger reserve 1,531 1,531 1,531Retained earnings 7,886 (37,550) 6,580

Total equity 17,418 14,064 15,746


Share- Investment Share-basedShare based in own payments Share Merger Retainedcapital payments shares deferred tax premium reserve earnings Total£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

At 1 January 2008 7,157 154 (13) 320 17 1,531 6,580 15,746

Share-based payments — 70 — — — — — 70Share-based payments

— deferred tax — — — 289 — — — 289Issue of share capital 5 — — — — — — 5Share options exercised 4 — — — 3 — — 7Shares purchased by EBT — — (89) — — — — (89)Shares sold by EBT — — 84 — — — — 84Consolidated profit for the

period to 30 June 2008 — — — — — — 1,306 1,306

At 30 June 2008 7,166 224 (18) 609 20 1,531 7,886 17,418

Share- Investment Share-basedShare based in own payments Share Merger Retained

capital payments shares deferred tax premium reserve earnings Total£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

At 1 January 2007 11,782 60 — 67 37,978 1,531 (38,369) 13,049

Share-based payments — 94 — — — — — 94Share-based payments

— deferred tax — — — 253 — — — 253Issue of share capital 34 — — — — — — 34Share options exercised 19 — — — 17 — — 36Cancellation of deferred shares (4,678) — — — — — 4,678 —Cancellation of share premium

account — — — — (37,978) — 37,978 —Shares purchased by EBT — — (34) — — — — (34)Shares sold by EBT — — 21 — — — — 21Surplus on EBT — — — — — — 57 57Consolidated profit for the year

to 31 December 2007 — — — — — — 2,236 2,236

At 31 December 2007 7,157 154 (13) 320 17 1,531 6,580 15,746

CONSOLIDATED STATEMENT OF CHANGESIN EQUITYAttributable to equity holders of the Group



CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2008

Six months Six months Yearended ended ended


Cash flows from operating activitiesProfit from operations 1,030 577 1,652Adjustments for:Depreciation 343 383 686Amortisation — intellectual property rights 84 84 168

— development costs 92 13 16— software intangibles 11 8 19

Profit on sale of non-current assets (10) — (3)Decrease/(increase) in inventories (208) (154) 60Decrease/(increase) in trade and other receivables (1,073) 124 396Increase in trade and other payables 137 86 603Share based payments expense 70 56 94

Net cash inflow from operating activities 476 1,177 3,691

Cash flows from investing activitiesProceeds on disposal of property, plant and equipment 25 — 3Purchase of software (15) (5) (35)Research and development (119) (303) (294)Purchases of property, plant and equipment (362) (228) (502)Taxation — — 9Investment in money market deposits 1,837 86 (2,704)Interest received 108 78 101Investment in joint venture (2,020) — —

Net cash used in investing activities (546) (372) (3,422)

Cash flows from financing activitiesFinance lease 50 15 (8)Repayment of secured loan (1) (7) (15)Issue of equity shares 12 47 70Shares purchased by EBT (89) — (34)Shares sold by EBT 84 — 21Interest paid (16) (13) (29)

Net cash from financing activities 40 42 5

Net (decrease)/increase in cash and cash equivalents (30) 847 274

Cash and cash equivalents at the beginning of the period 876 602 602Foreign exchange rate adjustments — 11 —

Cash and cash equivalents at the end of the period 846 1,460 876


1. Reporting EntityAdvanced Medical Solutions Group plc (“the company”) is a public limited company incorporated and domiciled in England andWales (registration number 2867684). The company’s registered address is Road Three, Winsford Industrial Estate, Winsford,Cheshire, CW7 3PD.

The company’s ordinary shares are traded on the AIM market of the London Stock Exchange plc. The financial statements of thecompany for the twelve months ended 31 December 2007 comprise the company and its subsidiaries (together referred to asthe “Group”).

The Group is primarily involved in the design, development and manufacture of novel high performance polymers (both naturaland synthetic) for use in advanced woundcare dressings and medical adhesives for closing and sealing tissue, for sale into theglobal medical device market.

2. Basis of PreparationThe interim statements have been prepared in accordance with the accounting policies set out in the annual report for the yearended 31 December 2007 and those to be adopted at 31 December 2008. The results for the six months ended 30 June 2007and 30 June 2008 have not been audited and do not constitute statutory accounts within the meaning of section 240 of theCompanies Act 1985.

The results for the year ended 31 December 2007 are extracted from the audited annual financial statements on which theauditor reported without qualification. Full financial statements for that year have been filed with the Registrar of Companies.

The accounting policies set out below have been applied consistently to all periods presented in the financial statements.

The financial statements have been prepared on the historical cost basis of accounting except as disclosed in the accountingpolicies set out below.

The individual financial statements for each Group company are presented in the currency of the primary economic environmentin which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financialposition of each Group company are expressed in pounds sterling, which is the functional currency of the company, and thepresentation currency for the consolidated financial statements.

3. Accounting policies

Basis of consolidationInterests in joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subjectto joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimousconsent of the parties sharing control.

The Group reports its interests in jointly controlled entities using the equity method of accounting where it is considered that theGroup is able to exercise joint control over the operating and financial decisions of the investee.

Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is recognised as part of the investmentand reviewed for impairment when there is objective evidence of impairment.

NOTES FORMING PART OF THECONSOLIDATED FINANCIAL STATEMENTS



NOTES FORMING PART OF THECONSOLIDATED FINANCIAL STATEMENTS continued

4. Earnings per shareSix months Six months Year

ended ended ended30 June 2008 30 June 2007 31 December 2007

£’000 £’000 £’000

Earnings for the purposes of basic and diluted earnings per sharebeing net profit attributable to equity holders of the parent 1,306 808 2,236

Number of shares ’000 ’000 ’000

Weighted average number of ordinary shares for the purposesof basic earnings per share 143,198 142,430 142,535

Effect of dilutive potential ordinary shares:share options, deferred share bonus, LTIPs 10,054 6,668 8,684

Weighted average number of ordinary shares for the purposesof diluted earnings per share 153,252 149,098 151,219


5. Segment informationFor management purposes, the Group is organised into two business units, advanced woundcare and wound closure and sealants.These divisions are the basis on which the Group reports its segment information.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on areasonable basis. Unallocated items comprise mainly investments, and related revenue, corporate assets, head office expensesand income tax assets.

Business segmentsThe principal activities of the advanced woundcare business unit are the research, development, manufacture and distribution ofnovel, high performance polymers for use as wound dressings.

The principal activities of the wound closure and sealants business unit is the research, development, manufacture anddistribution of medical adhesives and products for closing and sealing tissue.

Segment information about these businesses is presented below.

Advanced Wound closurewoundcare & sealants Eliminations Consolidatedsix months six months six months six months

ended ended ended ended30 June 2008 30 June 2008 30 June 2008 30 June 2008

2008 £’000 £’000 £’000 £’000

RevenueExternal sales 8,037 1,807 — 9,844Inter-segment sales 20 — (20) —

Total revenue 8,057 1,807 (20) 9,844

Inter-segment sales are charged at prevailing market prices.

ResultSegment result 1,296 (53) — 1,243

Unallocated expenses — — — (213)

Profit from operations — — — 1,030Finance income — — — 181Finance costs — — — (16)

Profit before tax — — — 1,195Tax — — — 111

Profit for the year 1,306

Note: Included within the advanced woundcare segment result is £Nil in respect of the results of Corpura BV.




5. Segment information continuedAdvanced Wound closurewoundcare & sealants Eliminations Consolidatedsix months six months six months six months


Other information £’000 £’000 £’000 £’000

Capital additions:Software intangibles 11 4 — 15Research & development 97 22 — 119Property, plant and equipment 232 130 — 362Depreciation and amortisation 381 149 — 530

Balance sheet

AssetsSegment assets 12,582 4,344 — 16,926

Unallocated assets 4,204

Consolidated total assets 21,130

LiabilitiesSegment liabilities 2,488 1,003 — 3,491

Unallocated liabilities 221

Consolidated total liabilities 3,712

Note: Included in advanced woundcare segment assets is £2,020K in respect of Corpura BV.

Advanced Wound closurewoundcare & sealants Eliminations Consolidatedsix months six months six months six months


2007 £’000 £’000 £’000 £’000


Total revenue 6,265 1,670 (3) 7,932


ResultSegment result 556 153 — 709

Unallocated expenses (132)

Profit from operations 577Finance income 100Finance costs (13)

Profit before tax 664Tax 144

Profit for the year 808


5. Segment information continuedAdvanced Wound closure

woundcare & sealants Eliminations Consolidatedsix months six months six months six months


Other information £’000 £’000 2007 £’000 £’000

Capital additions;Software intangibles 5 — 5Research & development 226 77 303Property, plant and equipment 105 123 228Depreciation and amortisation 364 116 480

Balance sheet

AssetsSegment assets 8,550 4,132 12,682



LiabilitiesSegment liabilities 1,722 1,109 2,831



Advanced Wound closurewoundcare & sealants Eliminations Consolidatedyear ended year ended year ended year ended

31 December 2007 31 December 2007 31 December 2007 31 December 20072007 £’000 £’000 £’000 £’000


Total revenue 12,827 4,057 (28) 16,856


ResultSegment result 1,363 715 — 2,078

Unallocated expenses (426)

Profit from operations 1,652Finance income 282Finance costs (29)

Profit before tax 1,905Tax 331

Profit for the year 2,236




5. Segment information continuedAdvanced Wound closure

woundcare & sealants Eliminations Consolidatedyear ended year ended year ended year ended

31 December 2007 31 December 2007 31 December 2007 31 December 2007Other information £’000 £’000 £’000 £’000

Capital additions;Software intangibles 33 2 — 35Research & development 187 107 — 294Property, plant and equipment 335 167 — 502Depreciation and amortisation 645 244 — 889

Balance sheet

AssetsSegment assets 7,084 4,377 11,461



LiabilitiesSegment liabilities 2,213 1,061 — 3,274



Geographical segmentsThe advanced woundcare and wound closure and sealants segments operate mainly in the UK, with a sales office located in theUSA. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location ofcustomers. Segment assets are based on the geographical location of the assets.

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of thegoods/services, based upon location of the Group’s customers:

Six months Six months Yearended ended ended


United Kingdom 3,568 2,738 5,731Europe excluding United Kingdom 3,678 3,469 6,686United States of America 2,467 1,620 4,217Rest of World 131 105 222

9,844 7,932 16,856

All assets are classified as under the United Kingdom due to the immateriality of the carrying value of all assets held in theUnited States of America.


6. Investment in joint ventureOn 30 May 2008 the Group and Recticel formed a joint venture relating to Corpura BV, Recticel’s fully owned subsidiary. TheGroup acquired 49.4% of the issued share capital of Corpura BV for £1.3 million and has provided funding of £0.7 million forthe joint venture. Corpura BV develops and produces hydrophilic polyurethane foams in Etten Leur, the Netherlands.

£’000

Fair value of net assets acquired 270Goodwill 1,006

Consideration 1,276

The joint venture has been accounted for under the equity method.


Advanced Medical Solutions is a leadingcompany in the development andmanufacture of products for the$15 billion global woundcare market.

Founded in 1991 and quoted on AIM,Advanced Medical Solutions is focused onthe design, development and manufactureof innovative and technologicallyadvanced woundcare products.

In-house natural and synthetic polymertechnology is used to provide advancedwound dressings based on the moisthealing principle. AMS’s resources ensurea unique position as a vertically integrated“one stop shop” to provide all categoriesof moist wound healing produts. Thecompany has the capability to move aproduct from design and developmentthrough to production and delivery readyfor distribution and sale into customermarkets.

The acquisition of MedLogic in 2002brought AMS products and technology incyanoacrylate-based tissue adhesives thatoffer benefits over sutures and staples forclosing topical wounds sold direct tohospitals or through distributors.

Advanced woundcareThe standard product range contains film,foam, hydrocolloid, hydrogel and alginatematerials which are sold into hospitals,nursing homes and community caremarkets worldwide through brandedpartners, private label distributors anddirect to the NHS in the UK.

AMS supplies a broad range of marketingand distribution partners across the worldwith advanced woundcare products andhas a particularly strong position with itsalginate technology. It is able to provideeither differentiated products to brandedpartners who are looking for newinnovative products, or value ranges toown-label distributors, who are addressingthe increasing pressure on budgets byhealth care providers.

Silver alginateDue to concerns over wound infection by“super-bugs” such as MRSA, there is astrong trend towards the use of anti-microbial dressings, currently utilised inadvanced woundcare with silver thedominant anti-microbial technology andalginate the major dressing. AMS hasexploited this trend and has developed astrong competitive position by developingvarious silver technologies to combinewith its alginate.

AMS’s initial silver alginate product,based on silver fibre technology, was

licensed exclusively to a major brandedpartner in 2004 who has now launched inthe key global markets. In order to provideother selected partners with a silverproduct, AMS has developed a range ofionic silver alginate dressings which wereapproved by the FDA and launched intothe US in 2005 and approved andlaunched by a number of partners inEurope in 2006. In November 2006, theFDA granted 510(k) clearance for an AMSsilver alginate wound dressing for use overa period of up to 21 days. This 21 dayapproval, combined with the inherentabsorbency of the dressing, may reducethe frequency of having to changedressings thus reducing the time andoverall cost of treatment and provide abetter opportunity for healing to progressundisturbed.

ActivHeal®Increasingly, healthcare providers areseeking ways to manage woundcarebudgets whilst being able to afford newinnovative technologies such as silver.Whilst these products may reduce theoverall cost of patient care by preventinginfection and accelerating healing ofdifficult wounds, they put pressure on localbudgets. Hence there is interest in valueproducts that address routine wounds atlower costs, without compromising patientcare. This need is driving the trend toprivate label and has been addressed byAMS in the UK with the introduction of theActivHeal® range as a first line therapy solddirect to NHS Trusts through its UK salesforce, complementing the use of its newtechnologies on more difficult wounds, soldthrough strategic partners. Independenttechnical and clinical evaluations haveshown that the ActivHeal® genericwoundcare range offers equivalentperformance to similar branded productsbut at a substantially reduced cost therebydelivering real and immediate savings.

Data from multi-centre clinical evaluationspresented at the Wounds UK 2006Woundcare Conference held on13–15 November 2006 showed that 98%of ActivHeal® woundcare responses wereequivalent to or better than responsesfrom other dressings. Whilst independentlaboratory tests have previously shownthat the ActivHeal® range has comparablephysical properties to market leaders, thisnew information strongly endorses theclinical effectiveness of AMS’s products.The study data was collated from morethan 150 applications from 9 NHS Trusts,including 5 Hospitals and 4 PrimaryCare Trusts.

A full range of support services areprovided by the AMS clinical nurse teamto ensure effective introduction and usageof the ActivHeal® products. These includetraining, education, launch days andformulary and evaluation support. A basicwoundcare education package has beenprepared and is available free to generalnurses to help facilitate good practice andto achieve the best clinical outcomes forthe patient, nurse and Trust.

Wound closure and sealantsThe LiquiBand® range consists ofcyanoacrylate tissue adhesives coveringthe closure of small cuts and traumawounds through to large surgicalincisions. The products are sold directly tothe NHS in the UK and through partnersin other European countries.

Development activity to extend thecyanoacrylate adhesive technology intonew areas has resulted in an excitingstrategic partnership with Kimberly-Clarkfor a novel surgical skin sealant to helpcontrol the risk of skin flora contaminationthroughout a surgical procedure, a keyfactor in the development of surgical siteinfections. AMS has developed aninnovative film-forming solution thatbonds to the skin sealing off the spaceswhere bacteria can grow. Based uponpatented technology, the productimmobilises endogenous pathogensthereby reducing the risk of skin floracontamination of the surgical site.

Marketing strategyAMS has successfully adopted a three tierroute to market strategy:

■ Branded Partners — The Groupbelieves that the most effective way ofrapidly commercialising newtechnologies/concepts on a globalbasis is through strategic partnershipswith major branded companies.

■ Private Label — AMS also addressesthe increasing trend towards privatelabel in advanced woundcare, drivenby cost constraints by health careproviders, by provision of own labelproducts to distributors. Theseproducts allow savings to be made ontreatment of routine wounds alongsidethe use of the new innovative productsfor more difficult wounds

■ Direct — AMS sells direct to the NHSin its own home market.

ADVANCED MEDICAL SOLUTIONS GROUP plcBACKGROUND TO COMPANY


Strengthened financial position:

■ Group revenues up 24% to £9.8 million (H1 2007: £7.9 million)

■ Gross margin further improved to 47% (H1 2007: 43%)

■ Pre-tax profit up 80% to £1.2 million (H1 2007: £0.7 million)

■ EPS up 60% to 0.91p (H1 2007: 0.57p)

■ Net cash inflow from operating activities of £0.5 million

(H1 2007: £1.2 million)

■ Following acquisition of 49.4% of Corpura, net funds of £5.4 million

at 30 June 2008 (30 June 2007: £5.0 million)

Business HighlightsGood progress with future growth drivers:

■ Silver alginate market presence strengthened with additional major

branded marketing and distribution partners signed for US and Europe

■ NHS direct woundcare business continues to build momentum in both

Hospital and Primary Care Trusts with full ActivHeal® product range

included on new framework agreement

■ FDA re-classification of topical tissue adhesives has accelerated the

US regulatory approval process for the LiquiBand® range

■ Corpura Joint Venture strengthens AMS’ position in hydrophilic

polyurethane foams — the largest and fastest growing segment of the

advanced woundcare dressings market

Financial Highlights



advanced woundcare

�wound closure and sealants

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interim report 2008

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Registered Office:Road Three, Winsford Industrial EstateWinsford, Cheshire, CW7 3PD, UK

Company Number: 2867684

Tel: +44 (0)1606 863500Fax: +44 (0)1606 863600

E-mail: [email protected]: www.admedsol.com

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