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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Clinigen Group Plc | LSE:CLIN | London | Ordinary Share | GB00B89J2419 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 925.00 | 924.50 | 925.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCLIN
RNS Number : 8796M
Clinigen Group plc
19 September 2019
19 September 2019
Transformational year - platform taking shape to support higher organic growth
Clinigen Group plc (AIM: CLIN, 'Clinigen' or 'the Group'), the global pharmaceuticals and services group, has today published its full year results for the year ended 30 June 2019.
FINANCIAL SUMMARY
Hot Features
Premium
Year ended 30 June 2019 2018 Growth
----------
Constant
GBPm GBPm Reported currency Organic*
------------------------ ------ ------ --------- ---------- ----------
Revenue 456.9 381.2 20% 20% (4)%
------------------------ ------ ------ --------- ---------- ----------
Adjusted gross profit 182.3 140.1 30% 32% 1%
------------------------ ------ ------ --------- ---------- ----------
Adjusted EBITDA 100.8 76.0 33% 36% 4%
------------------------ ------ ------ --------- ---------- ----------
Reported profit before
tax 12.3 35.9 (66)%
------------------------ ------ ------ --------- ---------- ----------
Adjusted earnings per
share 54.4p 45.4p 20%
------------------------ ------ ------ --------- ---------- ----------
Reported earnings per
share 4.0p 22.9p (83)%
------------------------ ------ ------ --------- ---------- ----------
Dividend per share 6.7p 5.6p 20%
------------------------ ------ ------ --------- ---------- ----------
Operating cash flow 89.8 64.1 40%
------------------------ ------ ------ --------- ---------- ----------
Net debt 252.4 136.5
------------------------ ------ ------ --------- ---------- ----------
FINANCIAL HIGHLIGHTS
-- Adjusted gross profit up 30% (+1% on an organic basis*) to GBP182.3m (2018: GBP140.1m); with adjusted gross profit growth on an organic basis* excl. Foscavir and UK Specials business +7%
-- Adjusted EBITDA up 33% (+4% on an organic basis*) to GBP100.8m (2018: GBP76.0m); with adjusted EBITDA growth on an organic basis* excl. Foscavir and UK Specials business +23%
-- Adjusted EPS up 20% to 54.4p (2018: 45.4p), continuing double digit EPS growth each year since IPO
-- Net debt as at 30 June 2019 of GBP252.4m, representing a strong cash flow performance and pro forma leverage of 1.99x
-- Future organic adjusted gross profit is targeted to grow by at least 5% to 10%, with FY20 expected to be towards the upper end of this guidance
OPERATIONAL HIGHLIGHTS
-- Portfolio strategy working well, reflecting a more balanced and diversified business, minimising key risks and synergies building between operations
-- CSM and iQone largely integrated, providing additional specialist services, diversified global client base and strengthened US and EU infrastructure.
-- Commercial Medicines enhanced by acquisition of global rights to Proleukin(R) and RoW rights to Imukin(R); Melatonin launched in UK, supporting unlicensed-to-licensed (UL2L) strategy
-- Unlicensed Medicines showed good growth in Managed Access and from African and Asia Pacific regions in Global Access
-- Clinical Services - CSM performed ahead of expectations, coupled with a strong recovery in Clinical Trial Services
-- Supply chain and logistics review undertaken to drive incremental cost savings.
Shaun Chilton, Group Chief Executive Officer, said:
"We have continued our run of double digit EPS growth each year and 22% CAGR overall since the IPO. We have grown through a combination of transformative acquisitions and organic growth to create an international platform which is now taking shape and supporting synergistic growth. This year's performance reflects the results of this strategy.
"The high points of the year were the acquisitions of CSM and the US and RoW rights to Proleukin. Both acquisitions have already had a positive financial and operational impact in the short term, exceeding our expectations so far - and are expected to provide continued positive benefit in the longer term.
"We have experienced some headwinds in the year, such as competitive pressure around Foscavir and the UK Specials business; however these were expected. The solid performance of the rest of the business validates our continued strategy of developing a complementary portfolio of products, services and business, enabling us to diversify our profit streams and encourage synergies.
"The opportunities for Clinigen are increasing and our strategy remains unchanged; to be the trusted global leader in access to medicines. Over the medium-term we will continue to deliver on our strategy, further integrate the corporate acquisitions, develop and revitalise Proleukin whilst further establishing and leveraging our US, EU and regional infrastructure."
Note: Group results on an adjusted basis exclude amortisation of acquired intangibles and products, and other non-underlying items relating to acquisitions (see note 3 and 4 of the condensed financial statements). Adjusted EBITDA includes the Group's share of EBITDA from its joint venture. Constant currency growth is derived by applying the prior year's actual exchange rate to this year's result.
*Year on year comparisons referred to as 'organic' are a measure of growth on a constant currency basis, excluding the impact of business and product acquisitions. Business and product acquisitions in the current year are excluded from organic EBITDA, and for the acquisitions completing in the prior year, they are included on a pro forma basis as if they occurred on the first day of the prior year. Organic growth is presented to aid the reader's understanding of the underlying performance of the business.
Operating cash flow is net cash flow from operating activities before income taxes and interest.
- Ends -
An analyst briefing will be held at 9:30am on Thursday, 19 September 2019 at the offices of Instinctif Partners,
65 Gresham Street, London EC2V 7NQ.
An audio replay file will be made available shortly afterwards via the Group's website: www.clinigengroup.com.
Contact details
Clinigen Group plc Tel: +44 (0) 1283 495010 Shaun Chilton, Group Chief Executive Officer Nick Keher, Group Chief Financial Officer Matt Parrish, Head of Investor Relations Numis Securities Limited - Nominated Adviser Tel: +44 (0) 20 7260 1000 & Joint Broker James Black / Freddie Barnfield / Freddie Naylor-Leyland RBC Capital Markets - Joint Broker Tel: +44 (0) 20 7653 4000 Marcus Jackson / Elliot Thomas Instinctif Partners Tel: +44 (0) 20 7457 2020 Adrian Duffield / Melanie Toyne-Sewell / Rozi Morris Email: clinigen@instinctif.com
Notes to editors
About Clinigen Group
Clinigen Group plc (AIM: CLIN) is a global pharmaceutical and services company with a unique combination of businesses focused on providing ethical access to medicines. Its mission is to deliver the right medicine to the right patient at the right time through three areas of global medicine supply; clinical trial, unlicensed and licensed medicines. The Group has sites in North America, Europe, Africa and Asia Pacific.
Clinigen now has over 1,100 employees across five continents in 14 countries, with supply and distribution hubs and operational centres of excellence in key long-term growth regions. The Group works with 22 of the top 25 pharmaceutical companies; interacting with over 15,000 registered users across over 100 countries, shipping approximately 6.4 million units in the year.
For more information on Clinigen, please visit www.clinigengroup.com
Cautionary statement
This announcement contains certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of Clinigen Group plc. These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. Except as required by law, Clinigen undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statement, whether as a result of new information, future events or other circumstances.
OVERVIEW
Clinigen is dedicated to providing healthcare professionals and their patients with greater access to medicines around the world, and in the process increasing the value of a pharmaceutical product across its lifecycle. Clinigen achieves this through operating as a pharmaceutical and pharma services group with a unique combination of businesses; Clinical Services, Unlicensed Medicines and Commercial Medicines - each focused on enabling ethical access to critically important hospital medicines - with each division working synergistically to facilitate access to medicines at key points of a product's lifecycle. The Group's mission is 'Right Medicine, Right Patient, Right Time'.
The Group's strategy is to position itself as the most logical partner for two distinct customer groups:
1) Pharmaceutical and biotech companies aiming to realise the long-term commercial value of their product(s) throughout the product lifecycle; and
2) Enabling healthcare professionals (HCPs), particularly hospital pharmacists, to view Clinigen as the 'go to' source for hard to access medicines.
The Group is also building a portfolio of specialist, hospital medicines to further increase shareholder value by revitalising these products through maximising the insight of its unlicensed supply channel.
Clinigen has grown by double digit EPS each year and 22% CAGR overall since the IPO. This has been achieved through a combination of transformative acquisitions and organic growth to create an international platform which is now taking shape and supporting synergistic growth. Strategically, FY19 has been a transformational year which reflects the results of this strategy.
Four acquisitions were completed and largely integrated with good organic growth from a number of the core businesses which was offset by expected headwinds to Foscavir and the UK Specials business. Demonstrating the progress made and continuing development of the Clinigen platform is the breadth and depth of the Group's relationships with pharmaceutical companies. Four of the top 25 pharmaceutical companies have now worked with all three business operations (five of the top 50) and 16 of the top 25 have worked with two or more business operations (18 of the top 50). Clinigen has also expanded the number of registered users in which it interacts to 15,580 (2018: 11,267) on its digital platform Cliniport and launched Clinigen Direct a new digital service for HCPs to source hard to access medicines.
The Group made two corporate acquisitions, CSM and iQone, and two product acquisitions, Proleukin and Imukin. CSM and iQone provide additional specialist services and international infrastructure in the US and EU. The largest product acquisition, Proleukin, is set to be highly earnings enhancing in the coming financial year with additional long-term revitalisation potential. Integration of these acquisitions is either complete or well underway, and the Group is already seeing the benefits.
Adjusted gross profit increased by 30% (32% on a constant currency basis and 1% on an organic basis*) to GBP182.3m (2018: GBP140.1m), driven primarily by the acquisitions, with each contributing towards the Group's performance. Statutory gross profit increased by 31% to GBP182.3m.
On an organic basis*, there were good performances in Clinical Services from CTS; in Unlicensed Medicines, from Managed Access and from the African and Asia Pacific regions in Global Access; in Commercial Medicines, there was good growth from the developed product portfolio in the UK. These performances offset pressure; both on Foscavir, from an alternative therapy, and on the UK Specials business within Unlicensed Medicines. Excluding these, growth in gross profit on an organic basis* was 7%.
Adjusted EBITDA increased by 33% (36% on a constant currency basis and 4% on an organic basis*) to GBP100.8m (2018: GBP76.0m). Adjusted EBITDA growth on an organic basis* excl. Foscavir and the UK Specials business increased by 23%. Adjusted EPS increased by 20% to 54.4p (2018: 45.4p). Operating cash flow was again strong at GBP89.8m (2018: GBP64.1m) reflecting the highly cash generative nature of the Group.
Current trading and outlook
The Group continues to focus on integrating the corporate and product acquisitions made in the period to leverage its market-leading positions, commercial infrastructure and geographical footprint in order to drive organic growth.
Trading in the current financial year to date has been strong, in-line with the Board's expectations. The Group remains in a good position to drive further growth across all parts of the business in the year ahead. The Board believes the Group is well placed to capitalise on the substantial opportunity in its markets.
The Group's future organic adjusted gross profit is targeted to grow by at least 5% to 10%, with FY20 set to be towards the upper end of this guidance. Organic EBITDA growth is expected to marginally exceed organic gross profit growth in FY20 with operational leverage expected to increase further beyond FY20.
OPERATIONAL REVIEW
Commercial Medicines (encompassing medicines acquired, licensed and developed)
The strategy for Commercial Medicines is threefold in order to build a portfolio that can deliver sustainable growth through:
o Continued revitalisation/growth of current portfolio of niche hospital-only and critical care products, coupled with selective product acquisitions
o Being the licensing partner of choice for pharmaceutical and biotech clients in non-core territories through regional licensing agreements
o Developing a long-term pipeline of medicines and launch licensed products through the UL2L model
Commercial Medicines represents 44% of adjusted Group gross profit. Gross profit on an adjusted basis increased 24%, supported by the acquisitions of Proleukin and Imukin, and a full period's contribution from Quantum. On an organic basis*, gross profit decreased 7% due to competitive pressure primarily on sales of Foscavir(R). Gross margin was 72.0% (2018: 72.7%) with the slight decrease due to the change in mix from the higher margin owned product portfolio towards the lower margin developed product portfolio.
Acquired products
Anti-infective portfolio (Foscavir and Imukin)
Clinigen strengthened the portfolio with the acquisition in July 2018 of the global rights (excluding US, Canada and Japan) to Imukin (recombinant human interferon gamma-1b). Imukin is licensed to reduce the frequency of serious infections in patients with Chronic Granulomatous Disease and for the treatment of Severe Malignant Osteopetrosis. Imukin is one of two biologics in the owned products portfolio which provide greater inherent protection against a generic threat than small molecule products, because of a more complex manufacturing process.
Foscavir, the Group's largest product prior to the acquisition of Proleukin, is an anti-viral used to treat cytomegalovirus ('CMV') viraemia and infection primarily in bone marrow transplant patients. In March 2019, Foscavir received approval for the treatment of HHV-6 encephalitis from the Japanese Ministry of Health, Labour and Welfare. This new indication offers a further barrier to entry against competitive threat for Foscavir and diversifies the revenue streams associated with this medicine.
As previously highlighted, Foscavir faced competitive pressure in two of its main markets, the US and Japan. The business continues to mitigate against this by extending the Foscavir franchise through new presentations of the product and new indications (as indicated above). It is anticipated that the decline seen in FY19 will begin to moderate before stabilising completely in the second half of the current financial year. With the acquisition of Proleukin, Foscavir has ceased to be the biggest product in the portfolio.
Oncology portfolio (Proleukin, Cardioxane, Savene, Totect and Ethyol)
The biggest development in the oncology portfolio was the acquisition of the rest of world rights to Proleukin in July 2018, and the subsequent acquisition of the US rights in April 2019. Together with Imukin, Proleukin changes the whole dynamic of the Group's owned products franchise, particularly in US.
Proleukin is the Group's second biologic and is indicated for use in metastatic renal cell carcinoma, as well as for metastatic melanoma in certain markets. Its acquisition further diversifies the Commercial Medicines product portfolio and is now Clinigen's largest product.
Proleukin has significant potential for revitalisation, especially by extending its lifecycle through partnering with pharmaceutical and biotech companies that use Proleukin in the development of their own innovative assets and also new indications where a low dose variation of Proleukin could be beneficial. Proleukin is currently being used in over 150 active studies across multiple therapeutic areas and indications. This not only creates an opportunity to increase sales into these clinical trials, an area in which the Group has already benefited from since the acquisition was completed, but also provides a mid-term opportunity by increasing the Interleukin-2 (IL-2) market if any of these trials are successful.
The performance of Proleukin since its acquisition has been ahead of management's expectations as a result of normalising pricing differentials that existed in the supply and distribution of the product into clinical trials and increased demand due to the availability of product with a longer shelf life. This outperformance has been driven by Proleukin in the US markets. However the RoW franchise has been impacted by a lower margin on sales, as the cost of goods increased for the product overall post the acquisition of the US rights. Management aim to reverse this impact over the coming years.
The acquisition has also created an ideal platform to expand Clinigen's existing footprint in the higher value US market. The Group appointed Jim Meyer as General Manager in May 2019 to help expand the existing commercial infrastructure in the US and to capitalise on other opportunities across the business.
In May 2019, the Group decided to transition the marketing, promotion and distribution of Ethyol and Totect in the US back from Cumberland. This is a further example of the Group building out its commercial infrastructure in the US. Following the completion of the transition of Ethyol and Totect later this calendar year, the Group will have direct control of all three of its oncology products currently available in the US. As previously guided, the management believes that this will be incrementally positive to profitability, but only in the first full year (FY21) with a limited impact in FY20.
For the dexrazoxane products (Cardioxane, Savene and Totect), the focus is to maximise demand and extend the market opportunity by expanding the clinical understanding and utilising commercial expertise in key markets. In June 2019, the Group announced it had partnered with Accord Healthcare to supply and distribute Cardioxane and Savene in Poland. Clinigen is forming such partnerships to expand the geographical reach and commercial presence of its own products in order to accelerate growth.
In October 2018, the Group acquired iQone, a Swiss-based specialty pharmaceutical business. This acquisition will enhance Clinigen in a number of ways: supporting Clinigen's Commercial Medicines business in key EU markets; extending and enhancing services provided by the Managed Access business within Unlicensed Medicines, by providing EU medical scientific liaison (MSL) support which is increasingly requested by clients; and enhancing the Group's proposition as a commercial licensing and/or divestment partner for pharmaceutical companies.
Collectively these seven acquired products, along with iQone, contributed 65% of Commercial Medicines' adjusted gross profit (2018: 66%). The slight decrease in the relative percentage is due to a full year's contribution from Quantum and demonstrates further breadth of the Group's product portfolio.
Licensed products
The Group continues to make good progress in extending the commercial strategy in converting medicines from UL2L. In the Africa and Asia Pacific region, the Group has 241 (2018: 214) specialist pharmaceutical and medical-technology actively marketed licensed products. The increase is a result of the marketing authorisations (product registration certificates) transferring to Clinigen from the partnership agreement with Bristol-Myers Squibb in South Africa.
In April 2019, Clinigen signed an exclusive licensing agreement with GC Pharma in Japan to commercialise Hunterase (Idursulfase-beta). This is the first Japanese licensing agreement with an international company signed by Clinigen and demonstrates the ability to partner with pharmaceutical companies outside their home geographies to commercialise their products.
Developed products
The Commercial Medicines business also develops, licenses and commercialises medicines that are currently prescribed as unlicensed medicines in the UK. By year end, the business had 14 products in its portfolio. The lead product in the developed product portfolio, Glycopyrronium Bromide Oral Solution 1mg/5ml (Glyco), continues to perform strongly.
In June 2019, the Group was granted marketing authorisations for two Melatonin products by the Medicines and Healthcare products Regulatory Agency (MHRA). The Group expects the products to be a modest contributor of growth to the business. Identifying and developing unlicensed products to offer licensed options is one example of the UL2L strategy in Commercial Medicines and follows the successful launch of previous products in the portfolio.
Pipeline
The Group continues to seek selective product acquisitions that fit within the acquired product portfolio, and in the Africa and Asia Pacific region, looks to further increase the number of regional licensed products. In addition, the business continues to develop its pipeline of UL2L products, as well as complementary larger niche generic products. There are currently 17 products in the developed product pipeline which are due to be launched in the next two to three years (2018: 16).
Unlicensed Medicines (encompassing Managed Access and Global Access)
Clinigen is the international leader in ethically sourcing, managing and supplying unlicensed medicines to hospital pharmacists and physicians for patients with a high unmet medical need. The Group manages Managed Access programs to innovative new medicines and provides Global Access to medicines which remain unlicensed at the point of care.
Its aim is to be the first point of call for HCPs to source hard to access, unlicensed medicines through its strategy of:
o Developing a rich pipeline based on industry trends and innovation
o Providing a world class customer service to HCPs, sourcing hard to access medicines for their patients
o Converting Managed Access Programs (MAPs) to long-term exclusive supply agreements in Global Access
The Unlicensed Medicines operation represents 38% of adjusted Group gross profit. The operation increased its gross profit by 12% to GBP69.7m (2018: GBP62.1m) due to a strong performance in Managed Access, in the African and Asia Pacific regions in Global Access, and a full period's contribution from Quantum. Adjusted gross profit on an organic basis* increased by 3%.
In June 2019, the Group launched Clinigen Direct, a new digital service for HCPs to source hard to access medicines. Clinigen Direct provides a search tool with over 1,400 medicines and customer service support to help HCPs navigate the regulatory hurdle in importing unlicensed medicines. This service is complementary to Cliniport, the Group's customisable, scalable web portal which continues to be an invaluable part of Clinigen's offering for its Managed Access clients and strengthens its interaction with the customer. The community of HCPs on Cliniport continues to build and now has 15,580 registered users (2018: 11,267).
As at 30 June 2019, there were 117 MAPs (2018: 110), of which 93% of products shipped on behalf of the client were provided free of charge to patients. When the product is 'charged for', the revenue is passed through the Group's accounts. A shift in mix towards 'free of charge' products can have a material impact on the revenue generated without affecting gross profit, which is why the Group views gross profit as the best measure of top-line growth.
Following the 11 programs that began in the first half of the financial year, there were a further 13 programs signed in the second half of the financial year. Collectively, the top 10 MAPs contributed to 38% of the Managed Access gross profit (2018: 42%) with six of the top 10 in the oncology therapy area (2018: 10 oncology), demonstrating a more balanced and diverse portfolio of programs.
In Global Access, the Group ethically supplies unlicensed or short supply medicines to patients via their physicians. There are 40 exclusive supply agreements for high demand or niche medicines covering 54 products under management (2018: 52). As well as continuing to seek new agreements to add to the portfolio, the business is also assessing the current portfolio with the aim of rationalising those that it considers to be non-core. On a regional basis, the Africa and Asia Pacific region delivered good growth across all geographies. Growth in Asia was excellent, driven by expanding supply from the hub in Singapore into surrounding territories.
As previously highlighted, the UK Specials business within Unlicensed Medicines is facing modest pricing pressure from products going onto drug tariffs and volume pressure from increased competition. In addition, as a result of launching Melatonin in June 2019, the revenue associated with the product will be recognised in Commercial Medicines where it is expected to be a modest contributor of growth.
Pipeline
The business development teams in Unlicensed Medicines are focused on forming long-term relationships with its clients to realise the full opportunity of following a molecule from an early access setting through to commercial launch. Given the lengthy nature of the product lifecycle, this opportunity is likely to be realised in the medium to long-term.
At the end of the financial year there were 52 programs in the Managed Access pipeline (2018: 40) and 22 partnered products in the Global Access pipeline which the business is looking to partner with on an exclusive basis (2018: 15).
Clinical Services (encompassing CTS and CSM)
Clinical Services aims to be the market leader in servicing clinical trials and supplying quality-assured comparator medicines internationally. Its strategic focus is on:
o Establishing Clinigen with customer compounds earlier in the product lifecycle
o Improving visibility and quality of revenue streams through diversification of customer base, longer term contracts and exclusive supply arrangements
o Presenting product opportunities to Unlicensed Medicines business operation
Clinical Services represents 18% of adjusted Group gross profit. This operation increased gross profit by GBP19.2m to GBP33.2m (2018: GBP14.0m) due to the acquisition of CSM and strong organic growth in CTS. Adjusted gross profit on an organic basis* increased by 23%.
In October 2018, the Group acquired CSM, a specialist provider of packaging, labelling, warehousing and distribution services with infrastructure in the US, Belgium and Germany. The acquisition expands Clinigen's capabilities, diversifies Clinical Services' global client and customer base, adds important continental EU infrastructure, and reinforces the links between the Group's three business operations.
An immediate benefit of the CSM acquisition was the significant expansion of the client base to 427 clients (2018: 100) and the creation of a much expanded, diversified set of value-added clinical services: comparator and ancillary sourcing, on demand specialist packaging, labelling, supply and distribution, and biological sample management.
CSM has been largely integrated into the Clinical Services business, with the business development and strategic sourcing teams working under one leadership and management structure. Further integration steps are expected in due course, from an operational and back-office perspective, alongside further synergies to be realised.
CSM achieved a strong growth performance for the year ending 30 June 2019, growing all major financial metrics, including EBITDA, in excess of 30% year on year. CSM has exceeded management's expectations, mainly as a result of strong new business signings, customers advancing their programs quicker than expected, and the Group is seeing the benefits of both the CTS and CSM divisions working more closely together.
As expected, the CTS business recovered strongly in the year. The focus was on improving service levels amongst the existing client base, becoming more competitive with sourcing and the release of its 'on demand' supply service.
Pipeline
Clinical Services continues to be a trusted partner capable of delivering high quality services across the world with an extensive understanding of the complex regulatory environment. These strengths, combined with overlaying the services offered by CSM, position the operation well to take advantage of the rapidly developing market opportunity.
The book-to-bill ratio in CSM, which is used to indicate the future growth of the business, was excellent at 1.67x for the
12 months ended June 2019. The ratio is expected to remain strong, but it is anticipated to moderate in the coming year.
The CTS pipeline is broadly in line with prior year.
Technology
Work has continued throughout the year with the implementation of the Group Enterprise Resource Planning (ERP) system. The Group has already benefited from the installation of several of the ERP modules with the remainder scheduled to be completed in 2019. This is by far the Group's most extensive capital expenditure project and is a critical feature for leveraging the operational benefit of the enlarged group for the future. The management expects that when implementation completes in 2019, the ERP will drive operational efficiency and allow the Group to better compete on a global scale.
Supply Chain and Logistics review
A review of Clinigen's Supply Chain and Logistics functions was undertaken to ensure the functions were supporting the business effectively and to "future proof" the Group for further integration and growth. Specifically, a strategic warehouse review was conducted to evaluate the capacity and requirements of the Clinigen facilities across all three of the warehouses in the UK. As a result of the review, the Group has closed the Stretton, Burton-on-Trent site. Its closure will result in modest cost savings beginning in the current financial year.
Shaun Chilton
Chief Executive Officer
FINANCIAL REVIEW
Clinigen has achieved another year of solid financial performance. Against the backdrop of both the ongoing Brexit risk and macro-economic uncertainty this performance demonstrates the value of the platform that has been built, the people within and the robustness of the end-markets it operates in.
Investment in product development, people, infrastructure and IT systems to establish the platform that will enable organic growth over a long-term view has continued in the period whilst delivering earnings per share (adjusted EPS) growth of 20%, representing a solid return for shareholders.
In the year, Clinigen made four acquisitions which have been the key drivers of absolute growth, but the underlying performance has also been encouraging. This is especially so when considering the external macro risks and in-light of expected headwinds materialising against the Group's once largest product, Foscavir, and the UK Specials business. Whilst organic adjusted gross profit growth of 1% is below management's medium-term growth expectation it is more robust at +7% when specifically excluding Foscavir competition and the UK Specials business with any further financial impact set to naturally lessen in the following years.
Summary adjusted income statement
Year ended 30 June 2019 2018 Growth
Constant
Adjusted results GBPm GBPm Reported currency Organic*
------------------------------- ------- ------- ---------- ---------- ---------
Revenue 456.9 381.2 20% 20% (4)%
------------------------------- ------- ------- ---------- ---------- ---------
Gross profit 182.3 140.1 30% 32% 1%
------------------------------- ------- ------- ---------- ---------- ---------
Administrative expenses (82.6) (65.2) (27)%
EBITDA from joint venture 1.1 1.1 (5)%
------------------------------- ------- ------- ---------- ---------- ---------
EBITDA 100.8 76.0 33% 36% 4%
------------------------------- ------- ------- ---------- ---------- ---------
Depreciation and amortisation (3.9) (1.7)
------------------------------- ------- ------- ---------- ---------- ---------
EBIT 96.9 74.3 30%
------------------------------- ------- ------- ---------- ---------- ---------
Finance cost (8.6) (5.3)
------------------------------- ------- ------- ---------- ---------- ---------
Profit before tax 88.3 69.0 28%
Basic earnings per share 54.4p 45.4p 20%
------------------------------- ------- ------- ---------- ---------- ---------
Dividend per share 6.7p 5.6p 20%
------------------------------- ------- ------- ---------- ---------- ---------
The summary adjusted income statement presents Group results on an adjusted basis excluding amortisation of acquired intangibles and products, and other non-underlying items relating to acquisitions (see note 3 and 4 of the condensed financial statements). Adjusted EBITDA includes the Group's share of EBITDA from its joint venture. Constant currency growth is derived by applying the prior year's actual exchange rate to this year's result.
*Year on year comparisons referred to as 'organic' are a measure of growth on a constant currency basis, excluding the impact of business and product acquisitions. Business and product acquisitions in the current year are excluded from organic EBITDA, and for the acquisitions completing in the prior year, they are included on a pro forma basis as if they occurred on the first day of the prior year. Organic growth is presented to aid the reader's understanding of the underlying performance of the business.
A number of adjusted measures are used which are considered by the Board in reporting, planning and decision making. Adjusted results reflect the Group's trading performance and exclude amortisation of acquired intangibles and products, and non-underlying costs relating to acquisitions which are explained in note 4 of the condensed financial statements.
Overall, the Group achieved a strong growth in profits with its three key financial metrics; adjusted gross profit up 32% on a constant currency basis, adjusted EBITDA up 36% on a constant currency basis and adjusted EPS up 20%.
Group revenues increased by 20% (20% on a constant currency basis) to GBP456.9m (2018: GBP381.2m). Adjusting for Managed Access pass through costs, revenue grew by 36% (36% on a constant currency basis).
Profitability
Adjusted gross profit Growth
by division 2019 2018
Constant
GBPm GBPm Reported currency Organic*
----------------------- ------ ------ --------- ---------- ---------
Commercial Medicines 79.4 64.0 24% 25% (7)%
----------------------- ------ ------ --------- ---------- ---------
Unlicensed Medicines 69.7 62.1 12% 14% 3%
----------------------- ------ ------ --------- ---------- ---------
Clinical Services 33.2 14.0 >100% >100% 23%
----------------------- ------ ------ --------- ---------- ---------
182.3 140.1 30% 32% 1%
----------------------- ------ ------ --------- ---------- ---------
The growth in adjusted gross profit was driven primarily by the acquisitions, with each contributing towards the Group's performance. On an organic basis*, there were good performances in Clinical Services from CTS; in Unlicensed Medicines, from Managed Access and from the African and Asia Pacific regions in Global Access; in Commercial Medicines, there was good growth from the developed product portfolio in the UK. These performances offset pressure; both on Foscavir, from an alternative therapy, and on the UK Specials business within Unlicensed Medicines. Excluding these two factors, growth in adjusted gross profit on an organic basis* was 7%.
Adjusted EBITDA increased by 33% (36% on a constant currency basis) to GBP100.8m (2018: GBP76.0m). The growth was higher than the growth in adjusted gross profit due to operational leverage and the change in business mix following the acquisitions. Adjusted EBITDA on an organic basis* increased by 4% benefiting from a reduction in underlying overheads excluding the acquisitions, reflecting the continued focus on driving efficiencies across the Group.
The management continue to see further cost saving opportunities from the enlarged platform, from better sourcing of product for its CTS and Global Access businesses, from moving to single source opportunities on key spend lines and on challenging non-drug procurement costs. These cost saving opportunities are set to help fund growth across other areas of the business through targeted reinvestment.
Whilst investment in the cost base on an organic basis is expected to marginally exceed organic gross profit growth in FY20, further investment in the US and EU infrastructure as part of the Proleukin US rights and iQone acquisitions is expected to help support medium to long-term organic growth.
See note 3 of the condensed financial statements for a reconciliation of adjusted EBITDA to the IFRS equivalent comparative.
Finance cost
The adjusted net finance cost was GBP8.6m (2018: GBP5.3m). The increase is due to the Group's higher net debt position following the recent acquisitions. The average interest charge on gross debt, which increases as leverage increases, was 2.8% (2018: 2.2%) during the year. The reported net finance cost was GBP12.8m (2018: GBP6.4m), after taking account of the non-cash GBP4.1m unwind of discount on the contingent consideration relating to the acquisitions (2018: GBP1.1m).
Reconciliation of adjusted profit before tax to reported profit before tax
The table below shows the reconciling items between the adjusted profit before tax of GBP88.3m (2018: GBP69.0m) and the reported profit before tax of GBP12.3m (2018: GBP35.9m).
Year ended 30 June
------ ------
2019 2018
GBPm GBPm
----------------------------------------------------------------------------------- ------ ------
Adjusted profit before tax 88.3 69.0
----------------------------------------------------------------------------------- ------ ------
Amortisation of acquired intangibles and products (37.8) (22.1)
----------------------------------------------------------------------------------- ------ ------
Acquisition costs (5.4) (3.9)
----------------------------------------------------------------------------------- ------ ------
Restructuring costs (6.4) (5.3)
----------------------------------------------------------------------------------- ------ ------
Increase in the fair value of contingent consideration (21.4) -
----------------------------------------------------------------------------------- ------ ------
FX revaluation on deferred consideration (0.4) -
----------------------------------------------------------------------------------- ------ ------
Unwind of discount on contingent consideration and other acquisition finance costs (4.2) (1.1)
----------------------------------------------------------------------------------- ------ ------
Tax on joint venture in South Africa (0.4) (0.3)
----------------------------------------------------------------------------------- ------ ------
Adjustment for fair value of acquired stock sold in the period - (1.4)
----------------------------------------------------------------------------------- ------ ------
NuPharm legal settlement - 1.0
----------------------------------------------------------------------------------- ------ ------
Total adjustments (76.0) (33.1)
----------------------------------------------------------------------------------- ------ ------
Reported profit before tax 12.3 35.9
----------------------------------------------------------------------------------- ------ ------
The adjustments to profit before tax comprise costs relating to amortisation, acquisitions and the Group's share of the tax charge on the joint venture earnings of GBP0.4m (2018: GBP0.3m).
Total amortisation was GBP39.3m (2018: GBP22.6m), of which GBP31.1m (2018: GBP18.4m) related to acquired intangibles, GBP6.7m (2018: GBP3.7m) related to acquired product licences and GBP1.2m (2018: GBP0.4m) related to software.
Acquisition costs amounted to GBP5.4m (2018: GBP3.9m) relating predominantly to the CSM acquisition. The main acquisition costs were professional advisory and due diligence fees of GBP2.5m and GBP2.4m for securing certain funds for the CSM acquisition.
Restructuring costs relating to the acquisitions are GBP6.4m (2018: GBP5.3m), most of which are redundancy costs resulting from streamlining the senior management teams and removing duplicate functions following the acquisitions, and costs for termination of third-party contracts as part of the integration process.
The performance of the CSM acquisition has exceeded management's original expectations and the profit forecast for the earn out period has been increased (this is described in more detail in the cash flow and net debt section).
Taxation
Taxation was GBP7.1m (2018: GBP8.5m), based primarily on the prevailing UK and overseas tax rates. This charge is calculated as GBP17.7m based on the adjusted profit of GBP88.3m, offset by a credit of GBP10.6m in respect of the adjusted items.
The Group's adjusted effective tax rate (ETR) decreased to 20.0% (2018: 21.0%) due to a higher proportion of earnings in the UK and the reduction in the corporation tax rate in the US. Given the increasing proportion of activity from the US, the Group expects the ETR to be broadly 21% for FY20.
Earnings per share
Adjusted basic EPS, calculated excluding amortisation of acquired intangibles and products, and other non-underlying items, increased by 20% to 54.4p (2018: 45.4p). The increase reflects the Group's higher adjusted profit from operations, offset by dilution and higher finance costs following the acquisitions and the related placing and debt refinancing.
Reported basic EPS was 4.0p (2018: 22.9p). The decrease is due to the additional amortisation and exceptional costs arising from the acquisitions.
Dividend
The Directors are proposing to increase the final dividend to 4.75p per share (2018: 3.84p), resulting in a 20% increase in the full year dividend to 6.7p per share (2018: 5.6p).
The final dividend will be paid, subject to shareholder approval, on 29 November 2019 to shareholders on the register on 8 November 2019.
Cash flow and net debt
Cash flow performance continues to be strong, with operating cash flow of GBP89.8m (2018: GBP64.1m). Net working capital increased by GBP6.0m in the year (excluding the effect of acquisitions, non-underlying items, and exchange adjustments) due to the growth in the services business. The low levels of working capital in the business reflect a strong focus on credit control and general working capital management.
Capital expenditure (excluding product acquisitions) was GBP19.0m (2018: GBP12.3m), which includes GBP6.1m related to warehouse, IT and other infrastructure investments, including preparation for the introduction of serialisation in February 2019, GBP4.3m related to the Group ERP system, GBP4.0m on new product development and GBP4.6m related to the development of owned products. Capital expenditure for FY20 is expected to fall slightly versus the prior year as spend on the ERP system and serialisation fall away and are not fully offset by increased costs on Proleukin product development.
The Group made two corporate acquisitions; CSM, acquired on 2 October 2018, and iQone on 9 October 2018. To fund these acquisitions, the Group's bank facility was refinanced (as detailed in the treasury management section) and GBP80m of equity finance was raised through a placing.
For CSM, the Group paid initial consideration of GBP115.5m (US$151.9m) in cash with additional contingent consideration which had a fair value at 30 June 2019 of GBP55.0m (US$69.8m). The contingent consideration is payable in the year ending 30 June 2020 and is contingent on the adjusted EBITDA generated by CSM in the 12 months to 31 December 2019. The business has performed ahead of expectation since its acquisition and the undiscounted fair value of the contingent consideration has been revised upward, resulting in an additional GBP21.4m (US$27.1m) liability which has been recognised in non-underlying administrative expenses. The final payment could be in the range of nil to US$90m and is expected to be paid in March 2020. For iQone, the Group paid initial consideration of GBP6.9m (EUR7.7m) cash and GBP2.2m (EUR2.5m) in Clinigen shares, with additional contingent consideration payable in five years which had a fair value of GBP5.2m (EUR5.8m).
The Group also spent GBP114.3m on two product acquisitions, Proleukin and Imukin, and deferred consideration on Foscavir bags.
The other main cash flows were tax paid of GBP13.6m (2018: GBP12.6m), interest paid of GBP7.9m (2018: GBP3.9m) and dividends paid of GBP7.7m (2018: GBP6.3m).
As a result of the acquisitions, net debt increased during the year by GBP115.9m to GBP252.4m. Net debt is expected to increase marginally in the current financial year as expected strong operational cash flow is offset by deferred consideration payments for CSM and Proleukin alongside capital expenditure and working capital.
Treasury management
The Group's operations are financed by retained earnings and bank borrowings, and on occasion, the issue of shares to finance acquisitions. During the year, the debt facilities have been refinanced as part of the financing arrangements for the acquisition of CSM and the subsequent acquisition of the US rights to Proleukin. The new financing has increased the debt facility from GBP220m to GBP375m, which is composed of an unsecured GBP150m term loan with a single repayment in 2023 and an unsecured revolving credit facility of up to GBP225m.
At the year end, there were two covenants that applied to the bank facility: interest cover of not less than 4.0x and net debt/adjusted EBITDA cover of not more than 3.0x. As at 30 June 2019, interest cover was 14.7x and the net debt/adjusted EBITDA leverage was 1.99x. The leverage ratio in the current financial year is expected to remain broadly constant to the prior year before reducing in-line with cash generation thereafter.
Borrowings are denominated in a mixture of sterling, euros and US dollars, and are managed by the Group's UK-based treasury function, which manages the Group's treasury risk in accordance with policies set by the Board.
Clinigen reduces its exposure to currency fluctuations on translation by typically managing currencies at Group level using bank accounts denominated in foreign currencies. Where there is sufficient visibility of currency requirements, forward contracts are used to hedge exposure to foreign currency fluctuations. The Group's treasury function does not engage in speculative transactions and does not operate as a profit centre. The Group has applied hedge accounting where permissible to match hedges to the transactions to which they relate thereby reducing volatility in the results which may arise from gains and losses on hedging instruments.
Mid-term guidance and proposed future change to reporting structure
The fundamentals of the business remain strong and the Group is well positioned to capture further share from its service focused end-markets whilst revitalising and growing the Product business. With the overall outlook for the markets in which it operates remaining positive, the Group is for the first time, providing formal guidance. Future organic adjusted gross profit is targeted to grow by at least 5% to 10%, with FY20 expected to be towards the upper end of this guidance. In the short term, this view is being driven by the developed assets within Commercial Medicines, plus continued growth of Clinical Services and despite expected continued headwinds to Foscavir and the UK Specials business. Over the medium-term, growth is expected to come more broadly from each division as these known headwinds lessen and as the Group's end-market dynamics remain positive. Management then see the potential for higher organic growth yet again as Proleukin revitalisation takes place.
Management intends to invest in the platform, particularly in its US and EU infrastructure, digital capabilities, the ERP platform and product development to help drive longer-term organic growth. As such, organic EBITDA growth is expected to marginally exceed organic gross profit growth in FY20 with operational leverage expected to increase further beyond FY20.
Alongside the commitment to the medium-term guidance issued today the Group expects to change its reporting structure to a divisional EBITDA profit-level model, akin to industry peers, with the first reporting date set to be by the end of FY20. The management believes this will lead to better internal cost control and P&L accountability whilst allowing for easier interpretation of results by external stakeholders.
Capital allocation
The Group has also formalised its capital allocation framework in order to prioritise the use of cash and maximise shareholder value whilst retaining the flexibility to make value enhancing acquisitions. The four principles within the framework are as follows:
-- Reinvest for organic growth -- Maintain a progressive dividend policy
-- Aim to paydown and maintain net debt within a range of 1.0x to 2.0x EBITDA on an ordinary basis
-- Make acquisitions in line with the Group's strategy with a disciplined approach to valuation
Principal risks facing the business
Clinigen operates an embedded risk management framework, which is monitored and reviewed by the Board. There are a number of potential risks and uncertainties that could have a material impact on the Group's financial performance and position. These include risks relating to the political environment, competitive threat, counterfeit products penetrating the supply chain, compliance, reliance on technology, cyber risk, foreign exchange, people and the identification, strategic rationale and integration of acquisitions. These risks and the Group's mitigating actions are set out in the Annual Report.
Nick Keher
Chief Financial Officer
Condensed consolidated income statement
for the year ended 30 June 2019
2019 2018
---------- -------------- ------- ---------- -------------- -------
Non-underlying Non-underlying
(note (note
(In GBPm) Note Underlying 3) Total Underlying 3) Total
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Revenue 3 456.9 - 456.9 381.2 - 381.2
Cost of sales (274.6) - (274.6) (241.1) (1.4) (242.5)
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Gross profit 3 182.3 - 182.3 140.1 (1.4) 138.7
Administrative expenses (86.5) (71.4) (157.9) (66.9) (30.3) (97.2)
Profit from operations 95.8 (71.4) 24.4 73.2 (31.7) 41.5
Finance income 5 0.1 - 0.1 0.3 - 0.3
Finance expense 5 (8.7) (4.2) (12.9) (5.6) (1.1) (6.7)
Share of profit of
joint venture 0.7 - 0.7 0.8 - 0.8
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Profit before income
tax 87.9 (75.6) 12.3 68.7 (32.8) 35.9
Income tax expense 6 (17.3) 10.2 (7.1) (14.2) 5.7 (8.5)
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Profit attributable
to owners of the Company 70.6 (65.4) 5.2 54.5 (27.1) 27.4
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Earnings per share
(pence)
Basic 7 4.0 22.9
Diluted 7 4.0 22.5
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Condensed consolidated statement of comprehensive income
for the year ended 30 June 2019
2019 2018
---------- -------------- ----- ---------- -------------- -----
Non-underlying Non-underlying
(note (note
(In GBPm) Underlying 3) Total Underlying 3) Total
--------------------------------- ---------- -------------- ----- ---------- -------------- -----
Profit for the year attributable
to owners of the Company 70.6 (65.4) 5.2 54.5 (27.1) 27.4
Other comprehensive income
items that may be reclassified
to profit or loss
Cash flow hedges 0.1 - 0.1 (0.7) - (0.7)
Currency translation
differences 7.4 - 7.4 (2.9) - (2.9)
--------------------------------- ---------- -------------- ----- ---------- -------------- -----
Total other comprehensive
income for the year 7.5 - 7.5 (3.6) - (3.6)
--------------------------------- ---------- -------------- ----- ---------- -------------- -----
Total comprehensive income
attributable to owners
of the Company 78.1 (65.4) 12.7 50.9 (27.1) 23.8
--------------------------------- ---------- -------------- ----- ---------- -------------- -----
All amounts relate to continuing operations.
Condensed consolidated statement of financial position
as at 30 June 2019
2018
(In GBPm) Note 2019 restated
--------------------------------- ---- ------- ---------
Assets
Non-current assets
Intangible assets 9 811.9 497.6
Property, plant and equipment 13.6 6.8
Investment in joint venture 6.5 6.6
Deferred tax assets 2.8 2.6
--------------------------------- ---- ------- ---------
Total non-current assets 834.8 513.6
Current assets
Inventories 35.4 21.3
Trade and other receivables 110.2 95.9
Derivative financial instruments 2.2 -
Cash and cash equivalents 83.5 36.3
--------------------------------- ---- ------- ---------
Total current assets 231.3 153.5
--------------------------------- ---- ------- ---------
Total assets 1,066.1 667.1
--------------------------------- ---- ------- ---------
Liabilities Non-current liabilities Trade and other payables 7.3 - Loans and borrowings 10 335.9 172.8 Deferred tax liabilities 41.1 31.0 --------------------------------- ---- ------- --------- Total non-current liabilities 384.3 203.8 Current liabilities Trade and other payables 235.7 106.5 Corporation tax liabilities 7.3 6.8 Derivative financial instruments 0.4 0.5 Total current liabilities 243.4 113.8 --------------------------------- ---- ------- --------- Total liabilities 627.7 317.6 --------------------------------- ---- ------- --------- Net assets 438.4 349.5 --------------------------------- ---- ------- --------- Equity Share capital 11 0.1 0.1 Share premium account 11 240.2 161.3 Merger reserve 88.2 86.0 Hedging reserve (0.3) (0.4) Foreign exchange reserve 15.0 7.6 Retained earnings 95.2 94.9 --------------------------------- ---- ------- --------- Total shareholders' equity 438.4 349.5 --------------------------------- ---- ------- ---------
The notes on pages 21 to 30 form an integral part of these condensed consolidated financial statements.
Condensed consolidated statement of cash flows
for the year ended 30 June 2019
(In GBPm) Note 2019 2018 ----------------------------------------------- ---- ------- ------- Operating activities Profit for the year before tax 12.3 35.9 Share of profit of joint venture (0.7) (0.8) Net finance costs 5 12.8 6.4 ----------------------------------------------- ---- ------- ------- Profit from operations 24.4 41.5 Adjustments for: Amortisation of intangible fixed assets 39.3 22.6 Depreciation of property, plant and equipment 2.4 1.2 Dividends received from joint venture 0.8 2.9 Movement in fair value of derivatives 0.2 0.8 Release of fair value on acquired inventory 4 - 1.4 Increase in fair value of contingent consideration 21.4 - Currency revaluation on deferred consideration 0.4 - Equity-settled share-based payment expense 3.0 2.1 ----------------------------------------------- ---- ------- ------- Operating cash flows before movements in working capital 91.9 72.5 Increase in trade and other receivables (2.1) (14.6) Increase in inventories (13.4) (1.4) Increase in trade and other payables 13.4 7.6 ----------------------------------------------- ---- ------- ------- Cash generated from operations 89.8 64.1 Income taxes paid (13.6) (12.6) Interest paid (7.9) (3.9) ----------------------------------------------- ---- ------- ------- Net cash flows from operating activities 68.3 47.6 Investing activities Purchase of intangible fixed assets (excluding products) 9 (17.0) (11.1) Purchase of property, plant and equipment (2.0) (1.2) Purchase of specialty pharmaceutical products 9 (114.3) (1.5) Purchase of subsidiaries, net of cash acquired (118.0) (100.8) Settlement of Quantum share awards on acquisition - (8.6) Net cash flows used in investing activities (251.3) (123.2) Financing activities Proceeds from issue of shares 78.9 0.1 Proceeds from increase in loan 179.1 135.6 Loan repayments (20.5) (45.0) Dividends paid 8 (7.7) (6.3) ----------------------------------------------- ---- ------- ------- Net cash flows from financing activities 229.8 84.4 ----------------------------------------------- ---- ------- ------- Net increase in cash and cash equivalents 46.8 8.8 Cash and cash equivalents at beginning of the year 36.3 27.8 Exchange gains/(losses) 0.4 (0.3) ----------------------------------------------- ---- ------- ------- Cash and cash equivalents at end of the year 83.5 36.3 ----------------------------------------------- ---- ------- -------
Condensed consolidated statement of changes in equity
for the year ended 30 June 2019
Share
Share premium
capital account Foreign
(note (note Merger Hedging exchange Retained Total
(In GBPm) 11) 11) reserve reserve reserve earnings equity
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 1 July 2018 0.1 161.3 86.0 (0.4) 7.6 94.9 349.5
Profit for the year - - - - - 5.2 5.2
Currency translation differences - - - - 7.4 - 7.4
Cash flow hedges
- Effective portion of
fair value movements - - - (1.1) - - (1.1)
- Ineffective portion of
fair value movements - - - 0.1 - - 0.1
- Transfers to the income
statement (revenue) - - - 1.1 - - 1.1
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total comprehensive income - - - 0.1 7.4 5.2 12.7
Share-based payment scheme - - - - - 3.0 3.0
Deferred taxation on share-based
payment scheme - - - - - (0.4) (0.4)
Tax credit in respect of
tax losses arising on exercise
of share options - - - - - 0.2 0.2
Issue of new shares - 78.9 2.2 - - - 81.1
Dividend paid (note 8) - - - - - (7.7) (7.7)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total transactions with
owners of the Company,
recognised directly in
equity - 78.9 2.2 - - (4.9) 76.2
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 30 June 2019 0.1 240.2 88.2 (0.3) 15.0 95.2 438.4
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Share
Share premium
capital account Foreign
(note (note Merger Hedging exchange Retained Total
(In GBPm) 11) 11) reserve reserve reserve earnings equity
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 1 July 2017 0.1 161.2 5.4 0.3 10.5 71.6 249.1
Profit for the year - - - - - 27.4 27.4
Currency translation differences - - - - (2.9) - (2.9)
Cash flow hedges
- Effective portion of
fair value movements - - - (0.1) - - (0.1)
- Ineffective portion of
fair value movements - - - (0.4) - - (0.4)
- Transfers to the income
statement (revenue) - - - (0.2) - - (0.2)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total comprehensive income - - - (0.7) (2.9) 27.4 23.8
Share-based payment scheme - - - - - 2.1 2.1
Deferred taxation on share-based
payment scheme - - - - - (0.1) (0.1)
Tax credit in respect of
tax losses arising on exercise
of share options - - - - - 0.2 0.2
Issue of new shares - 0.1 80.6 - - - 80.7
Dividend paid (note 8) - - - - - (6.3) (6.3) --------------------------------- -------- -------- -------- -------- --------- --------- ------- Total transactions with owners of the Company, recognised directly in equity - 0.1 80.6 - - (4.1) 76.6 --------------------------------- -------- -------- -------- -------- --------- --------- ------- At 30 June 2018 0.1 161.3 86.0 (0.4) 7.6 94.9 349.5 --------------------------------- -------- -------- -------- -------- --------- --------- ------- 1. Basis of preparation
The consolidated financial statements of Clinigen Group plc have been prepared in accordance with International Financial Reporting Standards, ('IFRSs') as adopted for use in the European Union and IFRS Interpretations Committee interpretations (together 'adopted IFRSs'), and with those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRSs. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. All financial information presented in pounds sterling has been rounded to the nearest GBP100,000.
The financial information, which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of cash flows, condensed consolidated statement of changes in equity and related notes, is derived from the full Group financial statements for the year ended 30 June 2019 and does not constitute full accounts within the meaning of section 435 (1) and (2) of the Companies Act 2006.
The Group Annual Report and Financial Statements 2019 on which the auditors have given an unqualified report and which does not contain a statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in October 2019.
The preparation of financial statements in conformity with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise its judgement in the process of applying the Group's accounting policies. The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 2 to the Group's statutory consolidated financial statements for the year ended 30 June 2019.
The Group's strategy and forecasts, taking account of sensitivities within the trading projections and possible changes in trading performance, show that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has further funds available in the undrawn proportion of the bank facility, which combined with the Group's cash balance and positive cash generation from each of its operations, provides funding for future acquisitions in line with the Group's acquisition-based growth strategy. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.
2. Changes in accounting policies
(a) New and amended standards, interpretations and amendments adopted by the Group
On 1 July 2018 the Group adopted the following new accounting policies to comply with amendments to IFRS, none of which have had a material impact on the Group's consolidated financial statements.
-- IFRS 9 'Financial Instruments' -- IFRS 15 'Revenue from Contracts with Customers'
IFRS 9 'Financial Instruments'
IFRS 9 is applicable to financial assets and liabilities, and will introduce changes to existing accounting policies concerning classification and measurement, impairment (introducing an expected-loss method), hedge accounting, and on the treatment of gains arising from the impact of own credit risk on the measurement of liabilities held at fair value
Set out below are the key requirements of the new standard as well as the Directors' assessment of the impact on the Group's consolidated financial statements.
Classification and measurement of financial assets and liabilities: All recognised financial assets within the scope of IFRS 9 are initially measured at fair value plus, in the case of financial assets not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Subsequent measurement is at amortised cost or fair value. Receivables and cash which were previously classified as loans and receivables under IAS 39 are now classified as amortised cost under IFRS 9. With regard to the measurement of financial liabilities designated as at fair value through profit or loss ('FVPL'), IFRS 9 requires that the change in the fair value of a financial liability which is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. The Directors have confirmed that there is no impact from the change to IFRS 9 on the classification and measurement of financial assets and liabilities, and they will continue to be measured on the same bases as previously adopted under IAS 39.
Impairment: In respect of the impairment of financial assets, including trade receivables, IFRS 9 requires an expected credit loss ('ECL') model, as opposed to the incurred credit loss model adopted under IAS 39. The expected credit loss model requires an entity to account for expected future credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. The Group has adopted the simplified approach to provide for ECLs, measuring the loss allowance at a probability weighted amount that considers reasonable and supportable information about past events, current conditions and forecasts of future economic conditions of the customers. The ECLs are updated at each reporting date to reflect changes in credit risk since initial recognition. ECLs are calculated for all financial assets in scope, regardless of whether or not they are overdue or not. Due to the nature of the Group's customer base, being mainly comprised of large pharmaceutical companies, wholesalers and government institutions, the ECLs for the majority of the Group's receivables is considered to be immaterial.
Hedge accounting: Under IFRS 9, the general hedge accounting requirements align more closely with risk management practices and establish a more principle-based approach thereby allowing hedge accounting to be applied to a wider variety of hedging instruments and risks. The effectiveness test has been replaced with the requirement for there to be an economic relationship between the hedged item and the hedging instrument, and there is no longer a requirement for the hedge to be 80-125% effective in order to be able to apply hedge accounting. Retrospective assessment of hedge effectiveness is also no longer required. The Directors have determined that all existing hedge relationships continue to qualify as hedge relationships following application of IFRS 9 and there is no impact on the Group's hedging strategy.
Apart from the factors considered specifically above, the Directors have concluded that the application of IFRS 9 has not had any other material impacts on the Group's consolidated financial statements.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede the current revenue recognition guidance including IAS 18 'Revenue', IAS 11 'Construction Contracts' and the related interpretations when it becomes effective.
The standard establishes a 5-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard also specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract as well as requirements covering matters such as licences of intellectual property, warranties, principal versus agent assessment and options to acquire additional goods or services. The Group expects to apply IFRS 15 fully retrospectively, restating the prior year's comparatives as necessary.
It has been determined that there was no material impact on revenue recognition, and therefore no restatement required, on transition to IFRS 15 as the timing of the transfer of risks and rewards coincides with the satisfaction of performance obligations and transfer of control.
There were no other new standards, interpretations or amendments to standards that are effective for the financial year beginning 1 July 2018 that have a material impact on the Group's consolidated financial statements.
(b) New standards, interpretations and amendments not yet adopted
The following standards and amendments have been published, endorsed by the EU, and are available for early adoption, but have not yet been applied by the Group in these financial statements.
-- IFRS 16 'Leases' (effective for the year beginning 1 July 2019)
In addition to the above, amendments to a number of existing standards have been endorsed by the EU but not yet adopted. These amendments are not expected to have a material impact on the Group's consolidated financial statements.
IFRS 16 'Leases'
IFRS 16 requires all leases to be recognised on the balance sheet. Broadly the Group will recognise leases currently treated as operating leases as a lease liability and a right-to-use asset, after adjusting for extension periods that are reasonably certain to be taken and discounting using the rate implicit in the lease or the incremental cost of borrowing.
The total operating lease cost, currently expensed to the consolidated income statement as incurred, will be split into a financing element and an operating element. The financing element will create a front-loaded expense in finance costs. Additional disclosures will be required to support the new accounting requirements.
The Group has concluded a review of its lease contracts and based on the operating leases in place at 30 June 2019 a right to use asset of GBP17.5m and a lease liability of GBP19.7m will be recognised resulting in a net decrease in net assets of GBP2.2m on implementation of the new standard. For the year ended 30 June 2019, EBITDA would increase by GBP3.7m, depreciation increase by GBP3.2m and finance expense increase by GBP0.5m.
3. Segment information
The Group's reportable segments are strategic operating business units that provide different products and service offerings into different market environments. They are managed separately because each operational business requires different expertise to deliver the different product or service offering they provide.
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker during the reporting period. The Chief Operating Decision Maker has been identified as the Executive Directors. The organisation structure of the business has changed to the three reported businesses of Commercial Medicines, Unlicensed Medicines and Clinical Trial Services, and with effect from 1 July 2018 the internal reporting to the Chief Operating Decision Maker was changed to this basis.
Operating segment results
The Group evaluates performance of the operational segments on the basis of gross profit from operations.
2019 2018
-------------------------------------- ---------------- ----------------
Revenue Gross Revenue Gross
(In GBPm) profit profit
-------------------------------------- ------- ------- ------- -------
Commercial Medicines 110.3 79.4 87.9 64.0
Unlicensed Medicines 205.9 69.7 215.6 62.1
Clinical Trial Services 140.7 33.2 77.7 14.0
-------------------------------------- ------- ------- ------- -------
Segmental result 456.9 182.3 381.2 140.1
Adjustment for fair value of acquired
inventory sold in the year - - - (1.4)
Reported results 456.9 182.3 381.2 138.7
-------------------------------------- ------- ------- ------- -------
2019 2018
------------------------------ ----------------------------------- -------------------------- ------
(In GBPm) Underlying Non-underlying Total Underlying Non-underlying Total
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Segmental gross profit 182.3 - 182.3 140.1 (1.4) 138.7
Administrative expenses
excluding amortisation and
depreciation (82.6) (33.6) (116.2) (65.2) (8.2) (73.4)
EBITDA 99.7 (33.6) 66.1 74.9 (9.6) 65.3
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Analysed as:
Adjusted EBITDA including
share of joint venture 100.8 (33.6) 67.2 76.0 (9.6) 66.4
Joint venture EBITDA (1.1) - (1.1) (1.1) - (1.1)
EBITDA excluding share of
joint venture 99.7 (33.6) 66.1 74.9 (9.6) 65.3
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Amortisation (1.5) (37.8) (39.3) (0.5) (22.1) (22.6)
Depreciation (2.4) - (2.4) (1.2) - (1.2)
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Profit from operations 95.8 (71.4) 24.4 73.2 (31.7) 41.5
Finance costs (8.6) (4.2) (12.8) (5.3) (1.1) (6.4)
Share of joint venture profit 0.7 - 0.7 0.8 - 0.8
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Profit before income tax 87.9 (75.6) 12.3 68.7 (32.8) 35.9
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Analysed as:
Adjusted profit before tax
excluding share of joint
venture tax 88.3 (76.0) 12.3 69.0 (33.1) 35.9
Joint venture tax (0.4) 0.4 - (0.3) 0.3 -
Profit before tax including
share of joint venture tax 87.9 (75.6) 12.3 68.7 (32.8) 35.9
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Income tax expense (17.3) 10.2 (7.1) (14.2) 5.7 (8.5)
------------------------------ ---------- -------------- ------- ---------- -------------- ------
Profit after tax 70.6 (65.4) 5.2 54.5 (27.1) 27.4
------------------------------ ---------- -------------- ------- ---------- -------------- ------
(In GBPm) 2019 2018
---------------------------------- ----- -----
Breakdown of revenues by products
and services:
Products 410.7 339.0
Services 38.0 33.3
Royalties 8.2 8.9
456.9 381.2
---------------------------------- ----- -----
(In GBPm) 2019 2018
---------------------------------- ----- -----
Revenue arises from the following
locations:
UK 159.6 97.0
Europe 107.9 87.9
USA 90.7 83.5
South Africa 26.9 24.9
Australia 20.4 19.9
Rest of World 51.4 68.0
456.9 381.2
---------------------------------- ----- -----
4. Non-underlying items
Non-underlying items have been reported separately in order to provide the reader of the financial statements with a better understanding of the operating performance of the Group. These items include amortisation of intangible assets arising on acquisition and acquired products, one-off costs including business acquisition costs, restructuring costs, changes in contingent consideration, and unwind of discount on contingent consideration. The associated tax impact is also reported as non-underlying.
(In GBPm) 2019 2018
-------------------------------------------------------- ------ -----
Cost of sales
a) Adjustment for fair value of acquired inventory
sold in the year - 1.4
Administrative expenses
b) Acquisition costs 5.4 3.9
c) Restructuring costs (relating principally
to acquisitions) 6.4 5.3
d) Increase in the fair value of contingent
consideration 21.4 -
e) Settlement of Quantum's legal claim - (1.0)
f) Foreign exchange revaluation on deferred
and contingent consideration 0.4 -
g) Amortisation of intangible fixed assets acquired
through business combinations and acquired products 37.8 22.1
-------------------------------------------------------- ------ -----
71.4 30.3
Finance costs
h) Unwind of discount on deferred and contingent
consideration 4.1 1.1
b) Acquisition costs 0.1 -
-------------------------------------------------------- ------ -----
4.2 1.1
Taxation
i) Credit in respect of tax on non-underlying
costs (10.2) (5.7)
Total non-underlying items 65.4 27.1
-------------------------------------------------------- ------ -----
a) Under IFRS 3, inventory acquired in a business combination is valued at fair value on acquisition, which includes the profit margin in the inventory's carrying value. The GBP1.4m recognised in the prior year represents the profit margin on the inventory sold in that year which was acquired with the Quantum business.
b) The acquisition costs relate to CSM, iQone and Proleukin (2018: Quantum and IMMC) comprising legal, corporate finance, due diligence advice and cost for securing certain funds for the CSM acquisition.
c) Restructuring costs have been incurred during the year in respect of the integration of acquired businesses and products primarily relating to redundancy and the costs associated with contract terminations.
d) The performance of the CSM acquisition has exceeded management's original expectations and the profit forecast for the earn out period has been increased.
e) Following the acquisition of Quantum in the prior year, a settlement was agreed in Quantum's favour in relation to a legal claim with the vendors of a business acquired by Quantum pre-acquisition.
f) Deferred consideration on Proleukin, Imukin, CSM and iQone is denominated in foreign currency. The revaluation of the liabilities is treated as non-underlying as they relate to one-off items and do not reflect the underlying trading of the Group.
g) The amortisation of intangible assets acquired as part of business combinations (namely brand, trademarks and licences, customer relationships, and contracts) and acquired products, is included in non-underlying as they relate to one-off items and do not reflect the underlying trading of the Group.
h) The non-cash unwind of the discount applied to the deferred and contingent consideration on the acquisitions of Foscavir Bags, Proleukin, Imukin, CSM and iQone (2018: Link).
i) The tax credit in respect of non-underlying items reflects the tax benefit on the costs incurred during the year.
5. Finance income and expense (In GBPm) 2019 2018 ---------------------------------------------- ----- ----- Bank interest 7.6 4.5 Borrowing costs 0.2 0.3 Amortisation of facility issue costs 0.9 0.6 Unwind of discount on deferred consideration - 0.2 ---------------------------------------------- ----- ----- Underlying finance cost 8.7 5.6 Unwind of discount on deferred and contingent consideration on acquisitions 4.1 - Acquisitions finance costs 0.1 1.1 Total finance cost 12.9 6.7 ---------------------------------------------- ----- ----- Bank interest income (0.1) (0.3) ---------------------------------------------- ----- ----- Net finance expense 12.8 6.4 ---------------------------------------------- ----- ----- 6. Income tax (In GBPm) 2019 2018 ------------------------------------- ----- ----- Current tax expense Current tax on profit for the year 15.7 12.0 Adjustment in respect of prior years (1.1) (0.4) ------------------------------------- ----- ----- Total current tax expense 14.6 11.6 Deferred tax expense Decrease in deferred tax assets (0.6) 0.9 Decrease in deferred tax liability (6.9) (4.0) Total deferred tax benefit (7.5) (3.1) ------------------------------------- ----- ----- Income tax expense 7.1 8.5 ------------------------------------- ----- -----
The tax on the Group's profit before income tax differs from the theoretical amount that would arise using the standard rate of corporation tax in the UK applied to profit for the year as follows:
(In GBPm) 2019 2018 ----------------------------------------------- ----- ----- Profit before income tax 12.3 35.9 ----------------------------------------------- ----- ----- Expected tax charge based on corporation tax rate of 19.0% 2.3 6.8 Expenses not deductible for tax purposes other than goodwill amortisation and impairment 4.0 0.9 Adjustments to tax charge in respect of prior years (1.1) (0.5) Higher rates of taxes on overseas earnings 1.9 1.3 Total income tax expense 7.1 8.5 ----------------------------------------------- ----- -----
Amounts recognised directly in equity:
The income tax (charged)/credited directly to equity during the year is as follows:
(In GBPm) 2019 2018
-------------------------------------------- ----- ----
Deferred tax: unexercised share options and
losses recognised directly in equity (0.2) 0.1
-------------------------------------------- ----- ----
7. Earnings per share ('EPS')
(In GBPm) 2019 2018
--------------------------------------------------- ----- -----
Profit after tax used in calculating reported
EPS 5.2 27.4
--------------------------------------------------- ----- -----
Underlying profit after tax used in calculating
adjusted EPS 70.6 54.5
--------------------------------------------------- ----- -----
Number of shares (million)
Weighted average number of shares 129.8 119.9
Dilution effect of share options 2.2 1.9
--------------------------------------------------- ----- -----
Weighted average number of shares used for diluted
EPS 132.0 121.8
--------------------------------------------------- ----- -----
Reported EPS (pence)
Basic 4.0p 22.9p
Diluted 4.0p 22.5p
Adjusted EPS (pence)
Basic 54.4p 45.4p
Diluted 53.5p 44.7p
--------------------------------------------------- ----- -----
EPS is calculated based on the share capital of the Parent Company and the earnings of the combined Group.
Diluted EPS takes account of the weighted average number of outstanding share options being 2,225,514 (2018: 1,939,501).
8. Dividends
(In GBPm) 2019 2018
------------------------------------------------- ---- ----
Final dividend in respect of the year ended
30 June 2018 of 3.84p (2018: 3.4p) per ordinary
share 5.1 4.2
Interim dividend of 1.95p (2018: 1.76p) per
ordinary share paid during the year 2.6 2.1
------------------------------------------------- ---- ----
7.7 6.3
------------------------------------------------- ---- ----
The Board proposes to pay a final dividend of 4.75p per ordinary share, subject to shareholder approval, on 29 November 2019, to shareholders on the register on 8 November.
9. Intangible assets
Customer Trademarks Computer
(In GBPm) Brand Contracts relationships & licences software Goodwill Total
--------------------- ----- --------- -------------- ----------- --------- -------- ------
At 1 July 2018 55.2 10.3 60.0 82.4 11.2 278.5 497.6
Acquisition of
subsidiaries 4.0 - 55.2 - 1.4 102.9 164.5
Additions - - - 176.4 8.4 - 184.8
Amortisation charge (4.3) (2.5) (21.8) (9.5) (1.2) - (39.3)
Exchange differences - (0.1) 0.7 2.1 - 1.6 4.3
At 30 June 2019 54.9 7.7 95.1 251.4 19.8 383.0 811.9
--------------------- ----- --------- -------------- ----------- --------- -------- ------
In July 2018, the Group acquired the global rights outside the US to Proleukin from Novartis and the global rights to Imukin outside the US, Canada, and Japan from Horizon Pharma. In April 2019, the Group acquired the US rights and assignment of the current distribution and promotion agreement of Proleukin from Novartis. Total consideration for the Proleukin US rights is up to US$210 million, comprising initial consideration of US$120 million, deferred consideration of US$60 million over the 12 months following completion and a further US$30 million contingent consideration based on sales milestones. This asset is being amortised over a period of 15 years.
10. Net debt
(In GBPm) 2019 2018 -------------------------- ------ ------ Revolving credit facility 187.5 174.7 Term loan 151.3 - Finance lease liabilities 0.2 - Unamortised issue costs (3.1) (1.9) -------------------------- ------ ------ Gross borrowings 335.9 172.8 Cash (83.5) (36.3) -------------------------- ------ ------ Net debt 252.4 136.5 -------------------------- ------ ------
During the year, the debt facilities were refinanced as part of the financing arrangements for the acquisition of CSM. The new financing increased the debt facility from GBP220m to GBP300m, extending the facility to October 2023. In March 2019, the debt facilities were further increased to finance the acquisition of the US rights to Proleukin. The revised facility has been increased by GBP75m to GBP375m. This comprises an unsecured GBP150m term loan with a single repayment in 2023 and an unsecured revolving credit facility ('RCF') of up to GBP225m.
At the year end, there were two covenants that applied to the bank facility: interest cover of not less than 4.0x and net debt/adjusted EBITDA cover of not more than 3.0x. As at 30 June 2019, interest cover was 14.7x and the net debt/adjusted EBITDA leverage was 1.99x. There were no instances of default, including covenant terms, in either the current or the prior year.
During the year, interest was payable on a tiered scale based on the level of borrowing. The applicable interest rate on amounts drawn down was up to 2.0% plus LIBOR.
11. Called up share capital and share premium account
Number of Called up Share premium
shares share capital account
('000s) (GBPm) (GBPm)
-------------------- --------- -------------- -------------
At 1 July 2017 115,154 0.1 161.2
Issue of new shares 7,132 - 0.1
-------------------- --------- -------------- -------------
At 30 June 2018 122,286 0.1 161.3
Issue of new shares 10,193 - 78.9
-------------------- --------- -------------- -------------
At 30 June 2019 132,479 0.1 240.2
-------------------- --------- -------------- -------------
On 27 September 2018, the Group issued 9,467,456 ordinary shares to institutional investors at a price of 845p per share. On 9 October 2018, 241,744 ordinary shares were issued as consideration for the acquisition of iQone which required the application of merger relief under the Companies Act 2006. As a result, the difference between the nominal value and fair value of shares issued has been recognised in the merger reserve.
The Company does not have a limited amount of authorised share capital.
12. Business combinations
On 2 October 2018, the Group acquired the entire share capital of CSM Parent, Inc., a company registered in the US, and its subsidiaries with a presence in the US, Belgium and Germany. The acquisition expands Clinigen's value added capabilities, diversifies Clinical Services' global client and customer base, adds important continental EU infrastructure, and reinforces the links between the Group's three business operations.
On 9 October 2018, the Group acquired the entire share capital of iQone Healthcare Holding, a company registered in Switzerland, and its subsidiaries with a presence in France, Germany, Switzerland, Italy and Spain. This acquisition supports growth of Clinigen's Commercial Medicines portfolio in the EU, differentiates the Managed Access business from its competitors by providing EU medical scientific liaison ('MSL') capability to support and secure long-term unlicensed agreements, and enhances the Group's proposition as a commercial partner for pharmaceutical companies.
The provisional fair value of assets acquired and liabilities assumed on the acquisitions are as follows:
(In GBPm) CSM iQone Total ------------------------------------ ------ ----- ------ Intangible assets 60.4 1.2 61.6 Property, plant and equipment 7.1 - 7.1 Inventories 0.2 0.1 0.3 Trade and other receivables 10.4 0.7 11.1 Corporation tax recoverable 0.3 - 0.3 Cash and cash equivalents 2.1 2.3 4.4 Trade and other payables (6.9) (1.2) (8.1) Borrowings (1.0) - (1.0) Finance lease liabilities (0.4) - (0.4) Provision for deferred tax (16.7) (0.2) (16.9) ------------------------------------ ------ ----- ------ Net assets acquired 55.5 2.9 58.4 Goodwill arising on acquisition 91.5 11.4 102.9 ------------------------------------ ------ ----- ------ Total consideration 147.0 14.3 161.3 ------------------------------------ ------ ----- ------ Satisfied by: Cash consideration paid 115.5 6.9 122.4 Consideration settled by shares in Clinigen Group plc - 2.2 2.2 Discounted fair value of contingent consideration 31.5 5.2 36.7 ------------------------------------ ------ ----- ------
The total consideration for CSM of GBP147.0m is made up of initial cash consideration of GBP114.0m (US$150.0m), payment for working capital of GBP1.5m (US$1.9m) and the initial estimated contingent consideration of GBP31.5m (US$40.2m).
The contingent consideration is payable in the year ending 30 June 2020 and is contingent on the adjusted EBITDA generated by CSM in the 12 months to 31 December 2019. The undiscounted fair value of the contingent consideration as of the acquisition date was estimated at US$45.7m based on forecasts available to management at the time. Subsequently the business has performed ahead of expectations and the undiscounted fair value of the contingent consideration has been revised upward to US$75.0m resulting in an additional GBP21.4m (US$27.1m) liability which has been recognised in non-underlying administrative expenses (see note 4). The final payment could be in the range of nil to US$90m and is expected to be paid in March 2020.
The total consideration for iQone of GBP14.3m is made up of initial cash consideration of GBP6.9m (EUR7.7m) cash, an issue of 241,744 shares in Clinigen Group plc which had a fair value of GBP2.2m (EUR2.5m), and contingent consideration of GBP5.2m (EUR5.8m).
The contingent consideration is payable in the years ending 30 June 2023 and 2024 which is contingent on the adjusted EBITDA generated by iQone in the 12 months to 31 December 2022 and 2023. The undiscounted fair value of the contingent consideration as of the acquisition date has been estimated at EUR12.3m and could be in the range of nil to EUR50.0m. As all of the contingent consideration is payable in more than 1 year from the balance sheet date, it is included in non-current liabilities. The liability falls within Level 3 of the fair value hierarchy.
The fair value of the acquired identifiable intangible assets in CSM consists of GBP4.0m attributable to brand, GBP55.0m attributable to customer relationships and GBP1.4m attributable to some proprietary software together with a related deferred tax liability of GBP16.7m. In iQone, the only identifiable acquired intangible assets are customer relationships which have been valued at GBP1.2m with an associated GBP0.2m deferred tax liability. These values have been assessed by an independent third-party valuation expert.
Goodwill represents the synergies, assembled workforces and future growth potential of the acquired businesses. The goodwill arising in the period of GBP102.9m is not deductible for tax purposes.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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