Notes to the financial statements
at 31 March 2009

Notes 7-12

7 Taxation

The major components of the income tax credit for the years ended 31 March 2009 and 31 March 2008 are as follows:

	2009 £m	2008 £m
Foreign withholding tax charge on royalties	(0.4)	(0.1)
Research and development tax credits	3.3	2.3
Total	2.9	2.2

Research and development tax credits are recorded upon receipt from Her Majesty’s Revenue and Customs (HMRC).

The credit for the year can be reconciled to the loss per the income statement as follows:

	2009 £m	2008 £m
Loss on ordinary activities before tax	(19.6)	(21.4)
Loss on ordinary activities multiplied by standard rate of tax in the UK of 28% (2008/09: 30%)	(5.5)	(6.4)
Effects of:
Permanent differences – expenses not deductible for tax purposes	0.7	0.1
Utilisation of Innovata tax losses	–	(3.7)
Unrecognised tax losses carried forward	4.8	10.0
Foreign withholding taxes	(0.4)	(0.1)
Research and development tax credits relating to prior years	3.3	2.3
Total tax credit for the year	2.9	2.2

Factors that may affect future tax charges:

Cumulative tax losses of approximately £128m (2008: £133m), subject to agreement by HMRC, are available within the Group to carry forward against future taxable profits. There is a deferred tax asset of £37m (2008: £38m), including these tax losses, of which £14.6m are recognised (2008: £17m) and calculated at the standard rate of tax of 28%, as follows:

	2009 £m	2008 £m
On cumulative tax losses – unrecognised	21.2	19.8
On cumulative tax losses – recognised	14.6	17.5
On unclaimed capital allowances	0.9	0.9
On unexercised share options	0.4	0.1
	37.1	38.3

As described above, of the total deferred tax asset, £14.6m has been recognised as a deferred tax asset as at 31 March 2009, which offsets a deferred tax liability in the same amount (see below). The losses and deferred tax assets have no formal expiry date.

Deferred tax asset
On the acquisition of Innovata, that business had accumulated losses of approximately £108m. A deferred tax asset of £14.6m relating to these losses has been recognised as at 31 March 2009. In accordance with IAS 12 – Income Taxes, this deferred tax asset has been offset against the deferred tax liability arising on the intangible assets, as described below.

Deferred tax liability
A deferred tax liability of £14.6m exists at 31 March 2009. This relates to 28% of the intangible asset value at that date. This deferred tax liability will result in no cash tax charge as it is offset by an equal and opposite deferred tax asset, as described above.

8 Loss per ordinary share

The calculation of loss per share is based on the following losses and number of shares:

	2009	2008
Loss for the year (£m)	(16.7)	(19.2)
Weighted average number of ordinary shares (No. 000)	320,566	315,793
Loss per ordinary share	(5.2p)	(6.1p)

The loss per share is based on the weighted average number of shares in issue during the period. IAS 33 – Earnings per Share, requires presentation of diluted earnings per share when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. No adjustment has been made to the basic loss per share, as the exercise of share options would have the effect of reducing the loss per ordinary share, and is therefore not dilutive.

9 Goodwill

Group	2009 £m	2008 £m
Cost:
At 1 April	49.6	49.6
At 31 March	49.6	49.6
Net book value:
At 31 March	49.6	49.6
At 1 April	49.6	49.6

Goodwill is allocated to future cash-generating units, which are tested for impairment on an annual basis, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the future cash-generating units are assessed using a value-in-use model. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to contribution during the period. The model has been based on the most recent cash flow forecasts prepared by management, which consist of detailed product-by-product analyses based on individual forecasts for development timings, royalty and growth rates. The discount rates used in the forecasts range from 13% to 16%.

The carrying value of goodwill is made up of balances arising on acquisition of the following companies:

	2009 £m	2008 £m
Co-ordinated Drug Development Limited (since re-named Vectura Limited)	1.5	1.5
Vectura Delivery Devices Limited	0.5	0.5
Innovata Limited	47.6	47.6
	49.6	49.6

Company		£m
Carrying amount:
At 31 March 2008 and 31 March 2009		2.0

For the purposes of goodwill impairment testing, the Group recognises two distinct cash generating units being the Vectura CGU, which includes Vectura Limited and Vectura Delivery Devices Limited and the Innovata CGU, being the group of companies acquired in January 2007.

The goodwill in the Company arose on the acquisition of the Centre for Drug Formulation Studies, an unincorporated entity, in 1999. Amortisation of £684,000 was applied prior to 1 April 2004. Goodwill in the Company is tested for impairment on the same basis as for the Group.

10 Intangible assets

Group	Patents and trade marks 2009 £m	Licences 2009 £m	Total 2009 £m	Patents and trade marks 2008 £m	Licences 2008 £m	Total 2008 £m
Cost:
At 1 April and at 31 March	3.5	74.6	78.1	3.5	74.6	78.1
Amortisation:
At 1 April	(3.5)	(12.2)	(15.7)	(3.5)	(2.0)	(5.5)
Charge for the year	–	(10.2)	(10.2)	–	(10.2)	(10.2)
At 31 March	(3.5)	(22.4)	(25.9)	(3.5)	(12.2)	(15.7)
Net book value:
At 31 March	–	52.2	52.2	–	62.4	62.4
At 1 April	–	62.4	62.4	–	–	–

Intangible assets are being amortised on a straight-line basis over the expected life of each separate asset. The expected life of these intangible assets is between three and ten years.

11 Property, plant and equipment

Group	Laboratory equipment £m	Office and IT equipment £m	Motor vehicles £m	Total £m
Cost:
At 1 April 2007	9.7	0.7	0.1	10.5
Additions	0.6	0.1	–	0.7
Disposals	(1.3)	–	(0.1)	(1.4)
At 31 March 2008	9.0	0.8	–	9.8
Additions	1.5	0.2	–	1.7
Disposals	(0.1)	–	–	(0.1)
At 31 March 2009	10.4	1.0	–	11.4
Depreciation:
At 1 April 2007	(4.6)	(0.2)	–	(4.8)
Charge for the year	(1.5)	(0.1)	–	(1.6)
Disposals	–	–	–	–
At 31 March 2008	(6.1)	(0.3)	–	(6.4)
Charge for the year	(1.5)	(0.1)	–	(1.6)
Disposals	0.1	–	–	0.1
At 31 March 2009	(7.5)	(0.4)	–	(7.9)
Net book value:
At 31 March 2009	2.9	0.6	–	3.5
At 31 March 2008	2.9	0.5	–	3.4

Company	Laboratory equipment £m	Office and IT equipment £m	Total £m
Cost:
At 1 April 2007	5.7	0.2	5.9
Additions	0.3	0.1	0.4
Disposals	(1.3)	–	(1.3)
At 31 March 2008	4.7	0.3	5.0
Transfer of assets to Vectura Limited	(4.7)	(0.3)	(5.0)
At 31 March 2009	–	–	–
Depreciation:
At 1 April 2007	(2.2)	(0.1)	(2.3)
Charge for the year	(0.8)	(0.1)	(0.9)
At 31 March 2008	(3.0)	(0.2)	(3.2)
Transfer of depreciation to Vectura Limited	3.0	0.2	3.2
At 31 March 2009	–	–	–
Net book value:
At 31 March 2009	–	–	–
At 31 March 2008	1.7	0.1	1.8

12 Investments in subsidiary undertakings

Company	Shares in subsidiary undertakings £m	Loans to subsidiary undertakings £m	Total £m
Cost:
At 1 April 2007	125.7	9.5	135.2
Reduction	–	(1.2)	(1.2)
At 31 March 2008	125.7	8.3	134.0
At 31 March 2009	125.7	8.3	134.0
Amounts written off:
At 1 April 2007, 1 April 2008 and 31 March 2009	(0.1)	–	(0.1)
Net book value:
At 31 March 2009	125.6	8.3	133.9
At 31 March 2008	125.6	8.3	133.9

Details of the Company’s significant subsidiary undertakings are as follows:

Name of undertaking	Country of incorporation	Holding	Proportion held	Nature of business
Vectura Limited	England	Ordinary	100%	Pharmaceuticals
Vectura Delivery Devices Limited	England	Ordinary	100%	Pharmaceuticals
Innovata Limited	England	Ordinary	100%	Pharmaceuticals
Innovata Biomed Limited ⁽¹⁾	Scotland	Ordinary	100%	Pharmaceuticals
Quadrant Technologies Limited ⁽¹⁾	England	Ordinary	100%	Pharmaceuticals
Quadrant Drug Delivery Limited ⁽²⁾	England	Ordinary	100%	Pharmaceuticals
Quadrant Healthcare Limited ⁽³⁾	England	Ordinary	100%	Pharmaceuticals

In addition, the Group has a number of subsidiaries that are dormant or whose residual activities are not material to the Group.

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Notes to the financial statements at 31 March 2009