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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Ergomed Plc | LSE:ERGO | London | Ordinary Share | GB00BN7ZCY67 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 1,346.00 | 0.00 | 00:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMERGO
RNS Number : 6888V
Ergomed plc
10 April 2019
PRESS RELEASE
Unaudited Preliminary Results for the year ended 31 December 2018
-- Revenue increase of 15% on comparable basis
o PrimeVigilance growth of 23%
-- Orphan drug development strategy gaining momentum
o 37% of new business won in CRO is for orphan drugs
-- Backlog increased 20% to GBP109 million underpinning 2019 targets
Guildford, UK - 10 April 2019: Ergomed plc, (LSE: ERGO) ('Ergomed' or the 'Company'), a company focused on providing specialised services to the pharmaceutical industry, today announces its unaudited Preliminary Results for the year ended 31 December 2018.
The Company adopted IFRS 15 with effect from 1 January 2018. Upon adoption, Ergomed elected to use the cumulative effect transition method meaning that the results of prior years are not restated under IFRS 15 methodology. For comparison purposes, therefore, reference is also made to IAS 18 and Note 1 to the unaudited Financial Statements which includes an analysis of adjustments required to reconcile these two accounting methodologies where appropriate in an effort to provide a clear picture of the impact of adoption.
Selected Financial Highlights
Unaudited Restated(3) Figures in GBP millions, unless otherwise IFRS 15 IAS 18 IAS 18 stated Full year Full year Full year 2018 2018 2017 -------------------------------------------- ------------ ------------ ------------ Net Service Fee Revenue(1) N/A 46.9 39.6 Total Revenue 54.1 54.9 47.6 Gross Profit 19.3 20.1 17.6 Gross Margin (%) 36% 37% 37% Research & Development (1.6) (1.6) (2.7) Adjusted EBITDA (after exceptional and other items)(2) 2.3 3.1 2.8 Exceptional Items (net) (8.5) (8.5) (0.1) Cash and Cash Equivalents 5.2 5.2 3.2 Backlog at 31 December 109 106 88 -------------------------------------------- ------------ ------------ ------------
Note: EBITDA is defined as profit before tax for the period plus finance costs, depreciation and amortisation
Commenting on the results, Dr Miroslav Reljanović, Executive Chairman of Ergomed, said: "2018 saw us continue to deliver strong top-line growth and work hard to deliver a significantly improved financial performance in the second half.
"We are fully committed to our services strategy and confident in the opportunities for our pharmacovigilance business and in our orphan drug development emphasis. With our backlog at more than GBP109 million and the full benefits of the 2018 cost reduction programme, we believe we are well positioned to build on these foundations."
Key Financial Highlights
-- Revenue of GBP54.1 million, equivalent to GBP54.9 million under IAS 18, increased by 15% on a comparable basis (2017: GBP47.6 million).
-- Pharmacovigilance total revenue growth of 23% to GBP27.5 million (2017: GBP22.5 million).
-- EBITDA (adjusted)(2) of GBP2.3 million, representing growth of 11% on an IAS 18 comparable basis.
-- Unadjusted EBITDA loss of GBP7.9 million, which is GBP7.1 million on an IAS 18 equivalent (2017: loss of GBP2.3 million) after a GBP6.8 million charge including the full impairment of the Haemostatix business.
-- Unadjusted EPS loss of 20.0p, equivalent to 18.1p under IAS 18 (2017: 11.0p), which includes the effect of impairment charges for the Haemostatix business.
-- R&D expense of GBP1.6 million in 2018 (2017: GBP2.7 million) reflected costs incurred on pre-clinical studies, clinical trial product manufacture and licencing activities.
-- Cash and cash equivalents of GBP5.2 million as at 31 December 2018 (31 December 2017: GBP3.2 million).
-- Strong backlog of GBP109 million contracted revenue as of 31 December 2018 (31 December 2017: GBP90 million after GBP2 million IFRS 15 adoption adjustment).
Notes:
1. Net service fee revenues exclude reimbursement revenues.
2. Adjustments are made to EBITDA for share-based payment charge, deferred consideration for acquisitions relating to post acquisition remuneration, revaluation of contingent consideration for acquisition, acquisition costs and exceptional items.
3. 2017 income statement was restated to amend the classification of certain costs between cost of sales and selling, general and administration expenses (Note 15)
Operational and Other Highlights Including Post Year-End
-- PrimeVigilance established as a leading PV services provider; bolt-on acquisitions support growth opportunity and expansion of offering.
-- CRO orphan development strategy consolidated under PSR brand.
-- Asarina Pharma AB, a co-development partner, completed a public offering and listing on the First North Exchange improving the liquidity of our investment, valued at GBP0.9 million.
-- Dr Miroslav Reljanović elected Executive Chairman. -- Michael Spiteri appointed as an additional Non-Executive Director to help drive the digital transformation and automation strategy.
Adoption of IFRS 15 on Revenue Recognition
During 2018 Ergomed adopted IFRS 15 in relation to revenue recognition. Revenues in 2018 have been presented in accordance with IFRS 15. The comparative information has not been adjusted and therefore continues to be reported under IAS 18 - 'Revenue Recognition'.
The impact of adoption on 1 January 2018 has been to reduce retained earnings by GBP2.2 million as, based on the portfolio of projects at that time, recognition of revenue under a percentage of completion methodology in accordance with IFRS 15 leads to a slower recognition of revenue than has been the case when reported under the previous standard IAS 18. Since revenue will be reported according to percentage of completion after the adoption date there is a corresponding increase in backlog of GBP2.2 million at 1 January 2018. Furthermore, reimbursement revenues are not presented separately under IFRS 15 because the reimbursement revenues and the services fees are accounted for on a combined basis.
Meeting and conference call for analysts:
A briefing for analysts will be held at 8:30am BST on 10(th) April at the offices of Numis Securities Ltd., 10 Paternoster Square, London, EC4M 7LT. Photo ID will be required for entry. There will be a simultaneous live conference call with Q&A.
Conference call details:
Participant dial-in: 0800 376 7922
International dial-in: +44 (0) 2071 928000
Participant code: 1982927
Enquiries:
Ergomed plc Tel: +44 (0) 1483 402 975 Miroslav Reljanović (Executive Chairman) Stuart Jackson (Chief Financial Officer) Numis Securities Limited Tel: +44 (0) 20 7260 1000 Freddie Barnfield / Huw Jeremy (Nominated Adviser) James Black (Broker) Consilium Strategic Communications - for Tel: +44 (0) 20 3709 5700 UK enquiries Chris Gardner / Mary-Jane Elliott ergomed@consilium-comms.com Matthew Neal / Olivia Manser MC Services - for Continental European Tel: +49 211 5292 5222 enquiries Anne Hennecke
About Ergomed plc
Ergomed provides specialist services to the pharmaceutical industry spanning all phases of clinical development, post-approval pharmacovigilance and medical information. Ergomed's fast-growing, profitable services business includes an industry leading suite of specialist pharmacovigilance solutions, integrated under the PrimeVigilance brand, and a full range of high-quality contract research and trial management services under the Ergomed brand (CRO), and an internationally recognised specialist expertise in orphan drug development, under PSR. For further information, visit: http://ergomedplc.com.
Forward Looking Statements
Certain statements contained within the announcement are forward looking statements and are based on current expectations, estimates and projections about the potential returns of Ergomed plc ("Ergomed") and industry and markets in which Ergomed operates, the Directors' beliefs and assumptions made by the Directors. Words such as "expects", "anticipates", "should", "intends", "plans", "believes", "seeks", "estimates", "projects", "pipeline" and variations of such words and similar expressions are intended to identify such forward looking statements and expectations. These statements are not guarantees of future performance or the ability to identify and consummate investments and involve certain risks, uncertainties, outcomes of negotiations and due diligence and assumptions that are difficult to predict, qualify or quantify. Therefore, actual outcomes and results may differ materially from what is expressed in such forward looking statements or expectations. Among the factors that could cause actual results to differ materially are: the general economic climate, competition, interest rate levels, loss of key personnel, the result of legal and commercial due diligence, the availability of financing on acceptable terms and changes in the legal or regulatory environment.
These forward-looking statements speak only as of the date of this announcement. Ergomed expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Ergomed's expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority.
Executive Chairman's Statement
Introduction
While Ergomed saw a number of challenges during 2018, particularly in the first half, the Company delivered continued strong top-line growth and, through the implementation of the cost reduction programme, a strong financial performance in the second half of the year.
Our Pharmacovigilance (PV) business saw another year of strong progress with 23% revenue growth and was strengthened through technology development, senior hires and small bolt-on acquisitions.
In Clinical Research Organisation Services (CRO) we consolidated our focus on orphan drug development utilising the PSR brand and believe our strategy is gaining traction with 37% of the CRO new business won being orphan drug related.
We have worked hard to deliver significantly improved results in the second half of 2018. Based on our contracted backlog and re-aligned cost base, I am optimistic we can deliver our 2019 growth targets. We continue to execute on our strategy of focusing on services, specifically on the opportunities in pharmacovigilance and orphan drug development. I look forward to further progress this year and in the future.
Services Business
Overall it was a strong year within the services businesses. New business won in 2018 of GBP73 million, up 35% on 2017 (2017: GBP54 million), helped drive revenue to GBP54.1 million and growth of 15% on a comparable basis to GBP54.9 million under IAS 18 (2017: GBP47.6 million).
EBITDA (adjusted) for the year was GBP2.3 million (after GBP0.8 million impact of the new revenue standard) and GBP3.1 million on a comparable basis compared with GBP2.8 million in 2017. R&D expense, related to the development of the Haemostatix products, was GBP1.6 million in 2018 and GBP2.7 million in 2017.
Unaudited Full Year 2018 Full Year 2018 Full Year 2017 (IFRS 15) (IAS 18) (IAS 18) Figures in GBP millions, CRO PV CRO PV CRO PV unless otherwise stated --------------------------- ---------- ---------- ----------- ----------- ---------------- -------------- Net service fees N/A N/A 19.7 27.1 17.4 22.3 Reimbursement and license revenue N/A N/A 7.7 0.4 7.8 0.2 ---------- ---------- ----------- ----------- ---------------- -------------- Total Revenue 26.6 27.5 27.4 27.5 25.2 22.5 Cost of Sales (19.9) (14.9) (19.9) (14.9) (18.1) (12.0) ---------- ---------- ----------- ----------- ---------------- -------------- Gross Profit 6.7 12.6 7.5 12.6 7.1 10.5 Gross Margin % 25% 46% 27% 46% 28% 47% Net service fee gross margin % N/A N/A 38% 46% 39% 47% Backlog 61 48 58 48 56 32 --------------------------- ---------- ---------- ----------- ----------- ---------------- --------------
Pharmacovigilance (PV)
The Pharmacovigilance business, under the PrimeVigilance brand, performed strongly. Revenue from the Pharmacovigilance segment increased 23% to GBP27.5 million in 2018 from GBP22.4 million in 2017. Pharmacovigilance revenues are not impacted by IFRS 15.
During the year, the Company added specialist pharmacoepidemiology services to PrimeVigilance's offering. It also completed the acquisition of two bolt-on acquisitions; Harefield Pharmacovigilance Limited and Pharmacovigilance Services Limited. During the year, PrimeVigilance also built out its network of internal and external Qualified Persons in Pharmacovigilance (QPPV) consultants to over 200 covering over 60 countries. Organic growth of the Pharmacovigilance segment was 22%.
PrimeVigilance, which is already a significant investor in information technology, has initiated the implementation of robotic process automation for certain routine pharmacovigilance processes, resulting in improvements in efficiency and accuracy. As more processes are robotized, these improvements are expected to improve efficiency with greater case throughput at lower overall cost.
PrimeVigilance's strategy of appropriately investing in people, premium services and technology is designed to drive further growth with the aim of becoming a global leader in pharmacovigilance. The global pharmacovigilance market is forecast to grow to more than $8 billion by 2024 from around $3 billion in 2015, with contract outsourcing forecast to expand from around 30% of the market in 2015 to approximately 50% in 2024. (Source: Global Market Insights 2017.)
Clinical Research Organisation Services (CRO)
Total revenue from the CRO segment of GBP26.6 million, equivalent to GBP27.4 million under IAS 18, increased 9% in 2018 on a comparable basis from GBP25.2 million in 2017, including a GBP4.1 million contribution from PSR (acquired October 2017).
During 2018, we consolidated our focus on orphan drug development under the PSR brand, a specialist contract research organisation based in The Netherlands focused on the development of orphan drugs for rare diseases. Orphan drug development is a growing area, with up to 30 million people worldwide estimated to suffer from rare diseases and the market for orphan drugs forecast to be $200 billion by 2020 (Source: Evaluate Pharma Orphan Drug Report 2018). The logistical, regulatory and operational complexities associated with orphan drug trials require specialised approaches. PSR, combined with Ergomed's site management organisation and study physician groups, is ideally suited for efficient management of these types of trials.
Our strategy to focus on orphan drug development is gaining traction. This is evidenced by 37% of the CRO new business won in 2018 being orphan drug related. While orphan trials, by the nature of the disease, tend to be smaller than comparable phase non-orphan trials, they also tend to be more complex and require specialist skills in their execution. For these reasons, margins are often higher. Orphan drug development also often requires post market studies; studies supported by Ergomed Late Phase Division and/or pharmacoepidemiology and risk management plans supported by PrimeVigilance. Orphan drug development therefore represents a cross-selling opportunity.
The Company's goal is to become the leading global contract research organisation for orphan drug development and, overall, to continue to outpace the market for clinical research services.
Cost Reduction Programme
During the second half of the year, management implemented a number of actions to reduce the cost base of the business, increase operating efficiency and improve overall profitability. This included reduction of headcount by approximately 10%, a large proportion focused on non-billable personnel, and management of supplier and consultancy contracts. The programme is now complete, delivering benefits of approximately GBP1.2 million in the second half of 2018 at a cost of GBP0.8 million (which has been treated as an exceptional item).
The cost reduction programme contributed to the turnaround in 2018 from an adjusted EBITDA of GBP0.0 million in the first half (GBP(0.4) million IAS 18 equivalent) to a GBP2.3 million adjusted EBITDA profit in the second half (GBP3.5 million IAS 18 equivalent).
Co-Development
We believe that our co-development pipeline continues to offer potential upside as programmes progress but, in line with our focus on services, we have not signed any new co-development partnerships during 2018. In 2019, we expect Modus Therapeutics AB to report Phase II data on sevuparin and Asarina Pharma AB ("Asarina") to report Phase II data on sepranolone. In addition, we expect Cel-Sci to report Phase III data on Multikine.
During 2018, Asarina completed a public offering and listing on the First North Exchange. Ergomed's holding at 31 December 2018 was valued at GBP0.9 million, representing approximately 2.4% of Asarina's issued share capital.
Haemostatix
We have continued to make certain incremental investments in Haemostatix during 2018 including pre-clinical studies, clinical trial product manufacture and intellectual property protection to maintain readiness for Phase III clinical trials of the lead product, PeproStat. The experimental formulation of the follow-on product, ReadyFlow, did not yet produce the desired results and will require further development work.
We believe that Phase III development and commercialisation of Haemostatix products need to be in the control of one party, and in late 2018 we appointed external advisers to find a partner (or partners) to fund Phase III trials, manufacturing scale-up and prepare for commercial launch. Negotiations with interested parties are progressing but management does not consider they are sufficiently advanced, nor providing sufficient certainty to support the carrying value of the assets, including the goodwill arising on acquisition. Consequently, the goodwill, intangible assets and other assets relating to Haemostatix have been impaired to the recoverable amount of nil, resulting in an impairment of goodwill of GBP2.1 million and an impairment of intangibles of GBP15.2 million as of 31 December 2018. The change in the fair value of contingent consideration of GBP11.6 million relating to the acquisition of Haemostatix, which has also been reduced to nil and certain onerous contract costs committed as of 31 December 2018 amounting to GBP0.2 million, have been included in exceptional items in 2018. We expect R&D expenses in 2019 to be not more than GBP0.3million, reflecting the run-down of activities and ongoing protection of intellectual property whilst we manage the licencing process.
Board Changes
In October, Michael Spiteri joined the Board as a Non-Executive Director. Michael is currently Global COO, Digital Data and Development at HSBC and has nearly 30 years' experience in information technology and digital implementation and advises the Board on opportunities presented by automation and machine learning. Andrew Mackie stepped down as Chief Business Officer and Board member following the shift in strategy away from Co-Development and Haemostatix.
With the departure of Stephen Stamp, announced on 23 January 2019, Board roles were realigned with Peter George becoming Non-Executive and Senior Independent Director of the Company and Dr Miroslav Reljanović becoming Executive Chairman to provide executive leadership.
Stuart Jackson subsequently notified the Board of his intention to return to the energy sector and leave the Company in the early Summer of 2019. A search for a new CFO is progressing well and once this appointment is made Ergomed will focus on recruiting for the CEO role.
The Company was saddened to announce that Chris Collins, Non-executive Director, passed away on Friday 8 March 2019 and wishes to acknowledge and express its gratitude for Chris's significant contribution to Ergomed since its IPO in July 2014.
Impact of Adoption of IFRS 16 in 2019
With effect from 1 January 2019 the Company adopted IFRS 16 in relation to leases. IFRS 16 requires that the Company recognises a right of use asset and a corresponding lease liability on the balance sheet at the point of adoption. Leases held by Ergomed predominantly relate to office premises and it is estimated that the right of use asset and associated lease liability will be approximately GBP7 million.
Additionally, under IFRS 16 the lease expense charged to the Income Statement is replaced with depreciation and interest charges relating to the right to use asset and lease liability state on the balance sheet. Whilst the impact on Net Income will be broadly neutral, the charge for depreciation of the right to use asset and the interest expense relating to the lease liability will be excluded from the calculation of EBITDA whilst the lease expense in prior periods would have been included in the calculation of EBITDA. It is anticipated that the adoption of IFRS 16 will, therefore, have a GBP1.7m positive impact on reported EBITDA in 2019.
Outlook
Demand for both PV and CRO segments remains generally buoyant and the Company continues to invest in line with its stated strategy to position itself as a market leader in pharmacovigilance and orphan drug development. These investments include geographical expansion, investment in robotic process automation technology to deliver longer-term operational efficiencies and upgrading of our support capabilities in terms of systems and personnel.
A contracted backlog of GBP109 million, GBP106 million on a comparable basis (2017: GBP88 million) underpins Ergomed's ability to deliver its targets for 2019 and creates a solid foundation for continued growth. During the coming period we expect to continue to deliver on our strategy of focusing on the growth and profitability of our services businesses, and to increasingly benefit from the opportunities for cross-selling to customers across the Group, particularly in pharmacovigilance and orphan drug development.
Dr Miroslav Reljanović
Financial review
Key performance indicators
The Directors consider the principal financial performance indicators of the Group to be:
GBPmillion (unless stated otherwise) 2018 2018 2017 IFRS 15 IAS 18 IAS 18 -------------------------------------- --------- -------- -------- PV service fee growth N/A 23% 68% CRO service fee growth N/A 11% 9% Net service revenue N/A 46.9 39.6 Total Revenue 54.1 54.9 47.6 Gross profit 19.3 20.1 17.6 Gross margin % 36% 37% 37% EBITDA (adjusted) (note 12) 2.3 3.1 2.8 Cash and cash equivalents 5.2 5.2 3.2 -------------------------------------- --------- -------- --------
The Ergomed services businesses are run as discrete business units with clear visibility at a gross margin level. Selling, general & administrative costs have historically not been allocated to the business units. As the group matures it will adopt an allocation of SG&A costs so that it is able to report on business unit EBITDA and therefore provide more appropriate external market comparisons of business unit performance.
The Directors consider the principal non-financial performance indicators of the Group to be:
1. The delivery of high quality services that continue to meet the highest industry standards as evidenced by internal and external quality audits
2. The development or acquisition of new and/or the expansion of existing service offerings
Non-financial performance indicators are routinely reviewed by the Directors at Board meetings.
The Group adopted IFRS 15 with effect from 1 January 2018. Upon adoption, Ergomed elected to use the cumulative effect transition method meaning that prior years are not restated under IFRS 15 methodology. For comparison purposes, therefore, reference is also made to IAS 18 and the financial results provide a bridge between these two accounting methodologies where appropriate in an effort to provide a clear picture of the effects.
Condensed consolidated statement of comprehensive income
Total revenue for the year ended 31 December 2018 was GBP54.1 million, which is equivalent to GBP54.9 million under IAS 18 (2017: GBP47.6 million), an increase of 15%, on a comparable basis, driven by 23% growth in PV revenues, complemented by 9% growth from Clinical Research Organisation Services.
Gross profit was GBP19.3 million and gross margin was 36%. By way of comparison, 2018 gross profit and gross margin were GBP20.1 million and 37% respectively under IAS 18 (2017 restated: gross profit GBP17.6 million and gross margin 37%).
Selling, general & administration expenses, after excluding exceptional items and acquisition related costs was GBP16.7 million (2017 restated: GBP13.6 million). The increase in other SG&A expenses of GBP3.1 million was driven by an additional GBP0.6 million of overhead in acquisitions, GBP0.5 million additional recruitment costs, GBP0.7 million increase in depreciation of internally generated software, GBP0.5 million in increased premises costs across the group and GBP1.4 million increase in support functions, offset by a GBP0.6 million movement in foreign exchange from a GBP0.5 million loss in 2017 to a GBP0.1 million gain in 2018.
SG&A expense also includes amortisation of acquired fair valued intangible assets of GBP1.3 million, share based payment charge of GBP0.8 million, acquisition-related contingent compensation of GBP1.0 million, acquisition costs of GBP0.2 million and exceptional items of GBP8.5 million, offset by a change in the fair value of deferred consideration of GBP0.2 million.
Research and development costs expensed in the year were GBP1.6 million (2017: GBP2.7 million) relating to Haemostatix and included chemistry, manufacturing and controls (CMC) costs for clinical trial material of PeproStat and pre-clinical formulation development costs for ReadyFlow. As noted, at the end of 2018 Ergomed made the decision to fully impair the investment in Haemostatix as insufficient progress had been made with partnering activities and Ergomed will not fund the Phase III trials alone.
Exceptional costs for the year ended 31 December 2018 related to the establishment of the pharmacoepidemiology business of GBP0.4 million, the cost reduction program to increase operating efficiency and improve overall profitability of GBP0.7 million, other business reorganisation costs of GBP0.6 million, the impairment of the Haemostatix business of GBP18.2 million, and onerous contract costs relating to Haemostatix of GBP0.2 million, offset by the revaluation of deferred consideration for Haemostatix of GBP11.6 million.
The Group adopted IFRS 9 in respect of financial instruments and its application to receivables. This had minimal impact on the 2018 results.
Condensed consolidated balance sheet
As at 31 December 2018 total assets less total liabilities amounted to GBP28.4 million (2017: GBP34.8 million) including cash and cash equivalents of GBP5.2 million (2017: GBP3.2 million).
The principal movements in the Condensed consolidated balance sheet during the year were:
1. A decrease in intangibles and goodwill of GBP1.6 million and GBP16.5 million, respectively, and deferred taxes of GBP2.8 million, primarily due to the impairment of the Haemostatix assets.
2. An increase in accrued income of GBP1.4 million and an increase in deferred revenue of GBP4.7 million, including the impact of adopting IFRS 15.
3. An increase in cash and cash equivalents of GBP2.0 million.
4. A decrease in the fair value of contingent consideration relating to the Haemostatix acquisition.
5. An increase in share premium, arising from the institutional placing in February 2018, net of costs.
Condensed consolidated cash flow statement
At present, the Group does not have any borrowings or long term debt.
Cash outflows from operating activities before changes in working capital in the year were GBP1.6 million (2017: inflows of GBP1.4 million). Changes in working capital included a GBP0.2 million increase in trade and other receivables, a GBP0.5 million increase in other current assets and a GBP3.2 million increase in trade and other payables. The Group also paid taxation of GBP0.1 million in 2018 (2017: GBP0.4 million).
Cash outflows from investing activities were GBP2.7 million (2017: GBP3.9 million) including GBP0.4 million related to the acquisition of Harefield Pharmacovigilance and Pharmacovigilance Services, GBP0.7 million related to a PharmInvent earn-out payment, GBP0.8 million for the acquisition of property, plant and equipment and GBP0.8 million for the acquisition of intangible assets.
Cash inflows from financing activities included proceeds of the institutional placing of GBP3.8 million net of expenses in February 2018.
Going concern and medium term viability
As at 31 December 2018 the Group had GBP5.2 million in cash and cash equivalents and a strong backlog of GBP109 million of signed contracts. The Directors expect Ergomed's services business to be cash generative. Taking into account existing cash resources and, after due consideration of cash flow forecasts, the Directors are of the view that Ergomed will continue to have access to adequate resources to allow the Group to continue trading on normal terms of business for no less than 12 months from the date of signing of the financial statements and have therefore prepared the financial statements on a going concern basis.
The board assesses the medium term viability of the business periodically. In this regard, forecasts extending 3 years are considered appropriate because this matches the average contract duration of the PV business and, whilst CRO contracts can extend for longer periods, activity levels become less certain over time. The Directors expect Ergomed's services business to be cash generative over the medium term.
UNAUDITED PRELIMINARY RESULTS
Condensed Consolidated Income Statement
2018 2017 Restated (note 15) Notes GBP000s GBP000s Service revenue 54,112 47,254 Licence revenue - 370 REVENUE 2 54,112 47,624 Cost of sales (26,788) (22,398) Reimbursable expenses (8,070) (7,609) Gross profit 19,254 17,617 Selling, general and administration expenses (28,152) (19,784) ------------------------------------------------ ------- -------- ---------- Selling, general and administrative expenses comprises: Other selling, general and administrative expenses (16,701) (13,555) Amortisation of acquired fair valued intangible assets (1,286) (1,167) Share-based payment charge (758) (1,033) Acquisition-related contingent consideration 8 (972) (752) Changes in the fair value of contingent consideration for acquisition 233 (2,875) Acquisition costs 9 (174) (259) Exceptional items 10 (8,494) (143) ------------------------------------------------ ------- ---------- Research and development (1,578) (2,689) Net impairment losses on financial and contract assets (9) 834 Other operating income 39 118 OPERATING LOSS (10,446) (3,904) Investment income 23 3 Unrealised gains on revaluation of equity investments 277 - Finance costs 4 (622) (546) LOSS BEFORE TAXATION (10,768) (4,447) Taxation 5 1,788 (57) LOSS FOR THE YEAR (8,980) (4,504) LOSS PER SHARE Basic 6 (20.0)p (11.0)p Diluted 6 (20.0)p (11.0)p
All activities in the current and prior period relate to continuing operations.
Condensed Consolidated Statement of Comprehensive Income
2018 2017 GBP000s GBP000s Loss for the year (8,980) (4,504) Items that may be classified subsequently to profit or loss: Exchange differences on translation of foreign operations 120 619 Other comprehensive income for the period net of tax 120 619 Total comprehensive loss for the year (8,860) (3,885)
Condensed Consolidated Balance Sheet
2018 2017 Notes GBP000s GBP000s Non-current assets Goodwill 13,659 15,269 Other intangible assets 3,740 20,229 Property, plant and equipment 1,344 1,078 Equity investments (fair value through profit and loss) 2,065 - Investments - 754 Deferred tax asset 581 1,613 21,389 38,943 Current assets Trade and other receivables 16,429 16,807 Other current assets - 502 Accrued income 3,857 2,443 Cash and cash equivalents 5,189 3,218 25,475 22,970 Total assets 46,864 61,913 Current liabilities Borrowings (6) (12) Trade and other payables (10,989) (10,717) Contingent and deferred consideration 11 (119) (1,957) Deferred revenue (5,651) (976) Current tax liability (422) (201) Total current liabilities (17,187) (13,863) Net current assets 8,288 9,107 Non-current liabilities Borrowings - (6) Provisions (216) - Contingent and deferred consideration 11 (544) (9,804) Deferred tax liability (554) (3,397) Total liabilities (18,501) (27,070) Net assets 28,363 34,843 Equity Share capital 452 428 Share premium account 24,458 20,616 Merger reserve 11,329 11,008 Share-based payment reserve 3,115 2,674 Translation reserve 882 762 Retained earnings (11,873) (645) Total equity 28,363 34,843
--
Consolidated Statement of Changes in Equity
Share Share Merger Share-based Translation Retained Total capital Premium reserve payment reserve earnings account reserve GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s Balance at 31 December 2016 406 17,957 10,264 1,829 143 3,799 34,398 Loss for the year - - - - - (4,504) (4,504) Other comprehensive income for the year - - - - 619 - 619 Total comprehensive income for the year - - - - 619 (4,504) (3,885)
Transactions with shareholders in their capacity as shareholders: Share-issue for cash during the year for cash (net of expenses) 18 2,659 - - - - 2,677 Share-issues during the year for non-cash consideration 3 - 555 - - - 558 Contingent share-issues for non-cash consideration 1 - 189 (188) - - 2 Share-based payment charge for the year - - - 1,033 - - 1,033 Deferred tax credit taken directly to equity - - - - - 60 60 -------- -------- -------- ----------- ----------- --------- -------- Total Transactions with shareholders in their capacity as shareholders 22 2,659 744 845 - 60 4,330 Balance at 31 December 2017 428 20,616 11,008 2,674 762 (645) 34,843 Cumulative effect adjustment for IFRS 15 - - - - - (2,232) (2,232) Balance at 1 January 2018 428 20,616 11,008 2,674 762 (2,877) 32,611 Loss for the year - - - - - (8,980) (8,980) Other comprehensive income for the year - - - - 120 - 120 Total comprehensive income for the year - - - - 120 (8,980) (8,860) Transactions with shareholders in their capacity as shareholders: Shares issue for cash during the year for cash (net of expenses) 21 3,768 - - - - 3,789 Shares issued in exchange for acquired shares 1 74 80 (74) - - 81 Contingent share-issues for non-cash consideration 2 - 241 (243) - - - Share-based payment charge for the year - - - 758 - - 758 Deferred tax debit taken directly to equity - - - - - (16) (16) -------- -------- -------- ----------- ----------- --------- -------- Total Transactions with shareholders in their capacity as shareholders 24 3,842 321 441 - (16) 4,612 Balance at 31 December 2018 452 24,458 11,329 3,115 882 (11,873) 28,363
Condensed Consolidated Cash Flow Statement
2018 2017 GBP000s GBP000s Cash flows from operating activities Loss before taxation (10,768) (4,447) Adjustment for: Amortisation and depreciation 2,534 1,626 Impairment of goodwill, intangibles and other assets 18,222 - Gain on disposal of fixed assets 33 (7) Share-based payment charge 758 1,033 Equity investments received in exchange for services provided (1,054) (462) Acquisition costs - 218 Changes in the fair value of contingent consideration for acquisition (11,617) 2,875 Investment income (300) (3) Finance costs 622 546 Operating cash flow before changes in working capital and provisions (1,570) 1,379 Increase in trade and other receivables (505) (3,445) Increase in other current assets (248) (262) Increase in trade and other payables 3,221 2,753 Cash generated from operations 898 425 Taxation received/(paid) 146 (355) Net cash inflow from operating activities 1,044 70 Investing activities Investment income received 5 3 Acquisition of intangible assets (753) (704) Acquisition of property, plant and equipment (834) (721) Receipts from sale of property, plant and equipment 7 11 Acquisition of subsidiaries, net of cash acquired (410) (1,946) Acquisition related earn-out paid (751) (559) Net cash outflow from investing activities (2,736) (3,916) Financing activities Issue of new shares 3,973 2,900 Expenses of fundraising (183) (224) Finance costs paid (4) (2) Increase in borrowings - 20 Repayment of borrowings (12) (10) Net cash inflow from financing activities 3,774 2,684 Net increase/(decrease) in cash and cash equivalents 2,082 (1,162) Effect of foreign currency on cash balances (111) (44) Cash and cash equivalents at start of the year 3,218 4,424 Cash and cash equivalents at end of year 5,189 3,218
ERGOMED PLC
NOTES TO THE UNAUDITED PRELIMINARY RESULTS
For the year ended 31 December 2017
1. BASIS OF PREPARATION
The unaudited preliminary results for the year ended 31 December 2018 were approved by the Board of Ergomed plc on 9 April 2019. The unaudited preliminary results do not constitute the statutory financial statements within the meaning of section 434 of the Companies Act 2006, but are an extract from the financial statements. They are based on, and are consistent with, those in the Group's statutory accounts for the year ended 31 December 2018 and those financial statements will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Financial statements for the year ended 31 December 2017 have been delivered to the Registrar of Companies, with an unmodified opinion.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards, as adopted by the European Union (EU) (IFRS), this announcement does not in itself contain sufficient information to comply with IFRS.
The audited statutory financial statements for the year ended 31 December 2018 are expected to be distributed to shareholders in May 2019 and will be available at the registered office of the Company, 1 Occam Court, Surrey Research Park, Guildford, Surrey, GU2 7HJ. Details can also be found on the Company's website at: www.ergomedplc.com.
The Consolidated income statement for 2017 has been restated. This is detailed in note 15.
On 1 January 2018, the Group adopted International Financial Reporting Standard ("IFRS") 15, Revenue from Contracts with Customers ("IFRS 15") and IFRS 9, Financial Instruments ("IFRS 9"). The comparative financial information for the year ended 31 December 2017 has not been restated for the effect of this guidance and is prepared in accordance with the previous accounting guidance.
GOING CONCERN
The unaudited preliminary results have been prepared on the going concern basis, which assumes that the Group will have sufficient funds to continue in operational existence for the foreseeable future, being a period of no less than 12 months from the expected date of signing of the financial statements in April 2019. Having regard to the performance of the business, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The Group is financed by funds generated from profitable operations and equity.
The Directors have reviewed a cash flow forecast for the period ending 31 December 2019 through to 31 December 2021, which is derived from the Board approved budget, and a medium term cash flow forecast through to 31 December 2021, which is an extrapolation of the approved budget under multiple scenarios and growth rates. The 2019 and medium term forecast represents the Directors' best estimate of the Group's future performance and necessarily includes a number of assumptions, including the level of revenues. The 2019 and medium term forecast demonstrate that the Directors have a reasonable expectation that the Group will be able to meet its liabilities as they fall due, for a period of at least 12 months from the date of approval of the financial statements.
On the basis of the above factors and, having made appropriate enquiries, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these unaudited preliminary results.
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
The Group adopted IFRS 15 with a date of initial application of 1 January 2018. The revenue recognition accounting policy applied in preparation of the results for the year ended 31 December 2018 therefore reflects the application of IFRS 15. The Group has elected to adopt the standard using the cumulative effect transition method. Under this transition method, the new standard has been applied as at the date of initial application without restatement of comparative amounts. The cumulative effect of initially applying the new standard (to revenue, costs and tax) is recorded as an adjustment to the opening balance of equity at the date of initial application. The comparative information has not been adjusted and therefore continues to be reported under IAS 18, 'Revenue Recognition'.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
The Group primarily earns revenue from Pharmacovigilance (PV) services and Clinical Research Organisation Services (CRO).
Clinical Research Organisation Services
The CRO Services comprise clinical trial management from Phase I to IV on behalf of customers. The contract with the customer defines the nature, quantity and price of the various services to be provided, which includes patient recruitment, data management, regulatory affairs and adverse event case processing. The CRO services provided (included those provided by a third party and reimbursed by the customer) under each contract are a single performance obligation satisfied over time. The Group is the contract principal in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research project. The transaction price is determined by reference to the contract and change orders, including any pass-through or reimbursable expenses, adjusted downward to reflect the amount the Group expects to be entitled to in exchange for transferring promised goods or services to a customer. Revenue is recognised as the single performance obligation is satisfied. The progress towards completion for clinical service contracts is measured based on an input measure being project costs incurred to date as a proportion of total project costs (including third party costs) at each reporting period.
Pharmacovigilance Services
The Pharmacovigilance Services comprise contract support services to pharmaceutical, biotechnology and generics companies in managing the global safety of their products from early clinical trial development to full post-marketing activities. The typical length of a contract is 36 months, and the services include the collection, aggregation and reporting of safety issues related to drugs on the market. Invoicing is based on prices specified in the service agreement with the customer. On evaluation of the five steps in the revenue recognition guidance, the Group has applied the practical expedient which results in recognition of revenue on a right to invoice basis. Application of the practical expedient reflects the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the performance completion to date. This reflects hours performed by contract staff and the value of services provided.
ACCOUNTING STANDARDS ADOPTED IN THE PERIOD
Impact of adopting IFRS 15
The most significant impact of application of IFRS 15 relates to the timing of revenue recognition for CRO services and that reimbursement revenues are not presented separately under IFRS 15 because the reimbursement revenues and the services fees are considered as being a single performance obligation. Prior to application of IFRS 15, the revenue attributable to performance was determined based on both input and output methods of measurement. Under IFRS 15, the progress towards completion for CRO contracts is measured based only on an input measure being total project costs (including third party costs) at each reporting period.
The impact of adopting IFRS 15 on the key financial statement line items within the consolidated income statement for the year ended 31 December 2018 compared to the revenue determined in accordance with IAS 18 is as follows:
Under As reported Adjustments IAS 18 GBP000s GBP000s GBP000s Net service revenue 54,112 (7,261) 46,851 Reimbursement revenue - 8,091 8,091 REVENUE 54,112 830 54,942 GROSS PROFIT 19,254 830 20,084 OPERATING LOSS (10,446) 830 (9,616) LOSS BEFORE TAXATION (10,768) 830 (9,938) Taxation 1,788 26 1,814 LOSS FOR THE YEAR (8,980) 856 (8,124) LOSS PER SHARE Basic (20.0)p - (18.1)p Diluted (20.0)p - (18.1)p
The cumulative effect of initially applying the new standard on the consolidated balance sheet as of 1 January 2018 and 31 December 2018 and on the income statement and consolidated cashflow statement for the year ended 31 December 2018 is fully set out in Note 16.
Impact of adopting IFRS 9, Financial Instruments (IFRS 9)
IFRS 9 replaces the previous guidance relating to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out below. In accordance with the transitional provisions of IFRS 9, comparative figures have not been restated. The adoption of IFRS 9 had no impact on the opening retained losses of the Group.
(i) Classification and measurement
On 1 January 2018 (the date of initial application of IFRS 9), the Group's management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. The primary effects resulting from this reclassification are that the Group's investment in privately held companies of GBP754,000 were previously held at amortised cost due to an exemption available under the previous guidance are now measured at fair value through the profit and loss. This did not have a material impact on the consolidated financial statements.
(ii) Impairment of financial assets
The Group's financial assets are subject to IFRS 9's new expected credit loss model. The Group's financial assets are trade receivables and investments in equity. Applying the expected credit risk model resulted in the recognition of a loss allowance of GBP9,000 as of 31 December 2018.
ACCOUNTING STANDARDS TO BE ADOPTED IN FUTURE PERIODS
IFRS 16, Leases (effective 1 January 2019) (IFRS 16)
IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from the previous guidance.
The Group is currently evaluating the impact of adopting IFRS 16. However, the adoption of IFRS 16 is likely to have a material impact on the consolidated financial statements due to the following:
-- It is anticipated that lease assets of approximately GBP7 million and a corresponding lease liability will be recorded upon adoption.
-- Under current guidance, the costs in respect of operating leases are charged to the income statement on a straight line basis over the lease term as a lease expense. Under IFRS 16, the cost in respect of leases are the depreciation of the right-of-use asset and an imputed interest charge arising on the lease liability. This may result in lease expenses being recognized sooner under IFRS 16 than under previous guidance, however the impact is not anticipated to be material to the consolidated income statement.
-- Under IFRS 16, the lease expense will be replaced by depreciation and interest charges, which will be excluded from our key performance metric, EBITDA. The impact of is anticipated to be an improvement in EBITDA of approximately GBP1.7 million in 2019.
The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained losses at 1 January 2019, with no restatement of comparative information.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements in applying the Group's accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the unaudited preliminary results.
Revenue recognition for 2018 (after the adoption of IFRS 15)
The accounting policy for revenue from contracts with customers (after the adoption of IFRS) is detailed above.
There are significant management judgments and estimates involved in the recognition of revenue for the CRO contracts. Revenue for CRO services is recognised based on the costs incurred on a project as a proportion of total expected costs to determine a percentage of completion that is applied to the estimate of the transaction price. The most significant judgement involved in determining the revenue is the percentage of completed at each reporting period. This involves an evaluation of labour cost and third party costs incurred on the project at the reporting date, which requires an estimate of third party costs incurred but not billed, and an up to date evaluation of the forecast costs to complete in respect of these projects. Given the long-term and complex nature of the clinical trials, the forecast costs to complete is judgemental. The costs to complete are prepared by project managers on a recurring basis during the year, including comparison to previous forecasts and past experience.
Material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management's estimates change on the basis of development of the business or market conditions. To date there have been no material differences arising from these judgments and estimates.
Revenue recognition for 2017 (prior to the adoption of IFRS 15)
The amount of revenue to be recognised is based on, inter alia, management's estimate of the fair value of the consideration received or receivable, the stage of completion and of the point in time at which management considers that it becomes probable that economic benefits will flow to the entity (as the outcome is not always certain at the inception of a contract).
Reimbursement revenue and reimbursable expenses for 2017 (prior to the adoption of IFRS 15)
Reimbursable expenses are reflected in the Company's Condensed Consolidated Income Statement as "Reimbursement revenue" in total revenue and as "Reimbursable expenses" separately from cost of sales as the Company is the primary obligor for these expenses despite being reimbursed by its clients. Reimbursable expenses are comprised primarily of payments to physicians (investigators) who oversee clinical trials and travel expenses for our clinical monitors and other employees. Costs for such activities are recorded based upon payment requests or invoices that have been received from third parties in the periods presented or accrued based on patient recruitment. Reimbursed expenses may fluctuate from period-to-period due, in part, to the lifecycle of contracts that are in progress at a particular point in time. Service revenues or revenues before reimbursements ("net service revenues") include any margin earned on reimbursed expenses. When such an expense is not reimbursed, they are classified as costs of sales on the Condensed Consolidated Income Statement.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Bad debt provision
On 1 January 2018, the Group adopted IFRS 9, Financial Instruments, which requires that the allowance for credit losses for trade receivables and accrued income is based on the expected losses over the life of the receivables. In making this determination, the Directors have considered the receivables aging, the payment history and financial position of debtors. The provision against trade receivables at 31 December 2018 was GBP9,000 (2017: GBP214,000). There was no provision against accrued income (2017: GBPnil).
Impairment of Goodwill
Under IFRSs, goodwill is reviewed for impairment at least annually. The Group tests goodwill on 31 December each year. Goodwill is impaired if the carrying value of the cash-generating unit including the goodwill is in excess of the recoverable amount, which is the higher of the value in use and the fair value less costs to sell for that cash-generating unit. The calculation of the recoverable amount requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to determine whether the recoverable amount is greater than the carrying value.
The key inputs for estimating the future cash flows of operating businesses are revenue growth over the next five years, terminal revenue growth, working capital changes and discount rate. See note 2 for further details.
The impairment provision against goodwill as at 31 December 2018 was GBP2,143,000 (2017: GBPnil), which relates to the Haemostatix goodwill. The carrying amount of goodwill and any impairment loss is disclosed in note 2.
Fair value measurements
Some of the Group's assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available, and management estimates of commercial and development risk where appropriate. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. This includes contingent consideration relating to acquisitions valued at GBP544,000. Contingent consideration relates to the acquisitions of Haemostatix, PSR and PharmInvent (note 11).
Share-based payment charges
The Group incurs share-based payment charges in relation to share options awards made in the current and prior periods. This charge is based on the fair value of such share options for financial reporting purposes. In estimating the fair value of a share-based payment, the Group engages third party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model.
2. OPERATING SEGMENTS
Products and services from which reportable segments derive their revenues
The Directors are of the opinion that the Group operates as two business segments; Clinical Research Organisation Services (CRO) (previously Clinical Research Services) and pharmacovigilance (PV) services (previously Drug Safety and Medical Information). The PV business segment includes the results of Harefield Pharmacovigilance Ltd and Pharmacovigilance Services Ltd following their acquisition by the Group in 2018. The accounting policies of the reportable segments are the same as the Group's accounting policies, with the exception that the information reported to the Executive Chairman, who is the chief operating decision maker, was prior to the effect of adopting IFRS 15.
2018
IAS 18 IAS 18 IFRS 15 Consolidated CRO PV Adjustment total GBP000s GBP000s GBP000s GBP000s Net service revenue 19,713 27,138 7,261 54,112 Reimbursement revenue 7,697 394 (8,091) - SEGMENT REVENUES 27,410 27,532 (830) 54,112 Cost of sales (12,172) (14,616) - (26,788) Reimbursable expenses (7,744) (326) - (8,070) SEGMENT GROSS PROFIT 7,494 12,590 (830) 19,254 Selling, general & administration expenses (28,152) ------------------------------------- -------- -------- ----------- ------------ Selling, general & administration expenses comprises: Other selling, general & administration expenses (16,701) Amortisation of acquired fair valued intangible assets (1,286) Share-based payment charge (758) Acquisition-related contingent compensation (972) Changes in the fair value of contingent consideration for acquisitions 233 Acquisition costs (174) Exceptional items (8,494) ------------------------------------- -------- -------- ----------- ------------ Research and development (1,578) Net impairment of financial and contract assets (9) Other operating income 39 OPERATING LOSS (10,446) Investment income 23 Unrealized gains on equity investments 277 Finance costs (622)
LOSS BEFORE TAXATION (10,768)
2017
Consolidated CRO PV total GBP000s GBP000s GBP000s Net service revenue 17,386 22,259 39,645 Licence revenue 370 - 370 Reimbursement revenue 7,396 213 7,609 SEGMENT REVENUES 25,152 22,472 47,624 Cost of sales (10,616) (11,782) (22,398) Reimbursable expenses (7,396) (213) (7,609) SEGMENT GROSS PROFIT 7,140 10,477 17,617 Selling, general & administration expenses (19,784) --------------------------------------------- -------- -------- ------------ Selling, general & administration expenses comprises: Other selling, general & administration expenses (13,555) Amortisation of acquired fair valued intangible assets (1,167) Share-based payment charge (1,033) Acquisition-related contingent compensation (752) Change in the fair value of contingent consideration for acquisitions (2,875) Acquisition costs (259) Exceptional items (143) --------------------------------------------- -------- -------- ------------ Research and development (2,689) Net impairment of financial and contract assets 834 Other operating income 118 OPERATING LOSS (3,904) Investment income 3 Finance costs (546) LOSS BEFORE TAXATION (4,447)
The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit represents the profit earned by each segment. This is the measure reported to the Group's Executive Chairman for the purpose of resource allocation and assessment of segment performance.
Geographical information
The Group's revenue from external customers by geographical location is detailed below:
2018 Revenue from external customers CRO PV Total GBP000s GBP000s GBP000s UK 5,715 6,854 12,569 Europe, Middle East and Africa 16,913 9,604 26,517 North America 3,715 10,735 14,450 Asia 237 244 481 Australia - 95 95 26,580 27,532 54,112 2017 Revenue from external customers CRO PV Total GBP000s GBP000s GBP000s UK 4,535 5,923 10,458 Europe, Middle East and Africa 13,550 9,292 22,842 North America 6,756 6,992 13,748 Asia 311 153 464 Australia - 112 112 25,152 22,472 47,624
Segment net assets
2018 2017 GBP000s GBP000s CRO 2,450 12,703 PV 25,913 22,140 Consolidated total net assets 28,363 34,843
For the purposes of monitoring segment performance and allocating resources between segments, the Group's Executive Chairman monitors the net assets attributable to each segment. All assets are allocated to reportable segments.
Other segment information
Depreciation and Additions to amortisation non-current assets 2018 2017 2018 2017 GBP000s GBP000s GBP000s GBP000s CRO 1,019 727 780 603 PV 1,515 899 806 822 2,534 1,626 1,586 1,425
Information about major customers
In 2018, the Group had no (2017: one) customers that contributed 10% or more to the Group's revenue. In 2017, revenues of approximately GBP4,989,000 were recognised from this customer for clinical research services.
3. GOODWILL IMPAIRMENT
The Group tests goodwill for impairment annually on December 31, or more frequently, if there are indications that goodwill might be impaired. Goodwill is impaired if the carrying value of the cash-generating unit including the goodwill is in excess of the recoverable amount, which is the higher of the value in use and the fair value less costs to sell for that cash-generating unit.
The recoverable amounts of the CGUs for Ergomed Virtuoso, Ergomed CDS, PSR and the PV operating segment are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding cash flows, discount rates and growth rates.
Value in use assumptions
The Group prepares cash flow forecasts for the next five years for the cash generating units, derived from the most recent financial budgets approved by the Board, and forecasts revenue for the following four years based on estimated growth rate, except for the Ergomed Virtuoso, where revenues are estimated based on contractual amounts. A standard margin based on historical experience is then applied to the revenue. The revenue growth rate does not exceed the average long term growth rate for the relevant markets. If revenue growth rates (including terminal growth) are reduced to zero, there would be no impairment to goodwill.
A discount rate of 19% has been used in the assessment, which reflects current market assessments of the time value of money and the risks specific to the CGUs.
Haemostatix
The Group acquired Haemostatix in 2016 and recognised goodwill of GBP2,143,000 and in process R&D for ReadyFlow and Peprostat of GBP15,200,000. Haemostatix is a separate cash-generating unit for the purposes of goodwill impairment. During 2018, the Group shifted strategy away from co-development arrangements and development of Haemostatix to focus on provision of services. The Group has continued to make incremental investment in Haemostatix during 2018 so as to protect the intellectual property and to maintain readiness for Phase III trials but the Group considers the 'value in use' of the Haemostatix assets to be nil. In parallel, in late 2018 the Company appointed external advisers to find a partner (or partners) to fund Phase III trials and manufacturing scale-up. Negotiations with interested parties are progressing but management does not consider they are sufficiently advanced, nor providing sufficient certainty to support a fair value less costs to sell for the purposes of the goodwill impairment. Consequently, the goodwill and intangible assets within the Haemostatix cash-generating unit have been impaired to the recoverable amount of nil resulting in an impairment of goodwill of GBP2,143,000 and an impairment of intangibles of GBP15,200,000 as of 31 December 2018.
As a consequence of this impairment, certain onerous contract costs committed as of 31 December 2018 amounting to GBP216,000 and the impairment charges of GBP18,222,000, have been included in exceptional items in 2018. R&D expenses associated with the development of Peprostat and ReadyFlow in 2019 are expected to be no more than GBP400,000.
4. FINANCE COSTS 2018 2017 GBP000s GBP000s Finance charge for contingent consideration for acquisitions (619) (581) Other (3) 35 (622) (546) 5. TAXATION 2018 2017 GBP000s GBP000s Current tax UK corporation tax credit for the year (92) - Overseas corporation tax 503 426 Adjustment in respect of prior years (383) (31) Current tax charge 28 395 Deferred tax Origination and reversal of timing differences (2,718) (338) Effect of changes in tax rates 902 - Tax (credit)/charge on loss (1,788) 57
In addition to the amounts charged to the income statement and other comprehensive income, the following amounts have been recognised directly in equity:
2018 2017 GBP000s GBP000s Deferred tax Change in estimated excess tax deductions related to share-based payments 16 (60) Total income tax debit/(credit) recognised directly in equity 16 (60) 6. LOSS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
2018 2017 GBP000 GBP000 Loss for the purposes of basic earnings per share being net profit attributable to owners of the Company (8,980) (4,504) Earnings for the purposes of diluted earnings per share (8,980) (4,504) 2018 2017 Number Number Number of shares Weighted average number of ordinary shares outstanding 44,693,699 41,086,201 Shares to be issued 158,810 101,163 Weighted average number of ordinary shares for the purposes of basic earnings per share 44,852,509 41,187,364 Weighted average number of ordinary shares for the purposes of diluted earnings per share 44,852,509 41,187,364 LOSS PER SHARE Basic (20.0)p (11.0)p Diluted (20.0)p (11.0)p
The following potential outstanding shares have been excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share because they are anti-dilutive:
2018 2017 Number Number Share options 5,397,874 2,056,583 Deferred consideration in shares 67,371 111,870 7. ACQUISITION OF SUBSIDIARY
Harefield Pharmacovigilance Ltd (Harefield Pharmacovigilance)
On 7 September 2018, the Group acquired 100% of the issued share capital of Harefield Pharmacovigilance Ltd, a company providing PV services based in the UK for cash consideration of GBP259,000. The amount provisionally recognised in respect of the identifiable assets acquired and liabilities assumed was GBP221,000 resulting in goodwill of GBP38,000.
Deferred consideration represents the provisional fair valuation of the additional consideration payable which could be between GBPnil and an aggregate maximum undiscounted amount of GBP500,000, subject to the future performance of the business.
Pharmacovigilance Services Ltd (Pharmacovigilance Services)
On 31 October 2018, the Group acquired 100% of the issued share capital of Pharmacovigilance Services Ltd, a company providing PV services based in the UK for total consideration of GBP673,000, comprising cash consideration of GBP593,000 and shares in Ergomed plc of GBP80,000. The amounts provisionally recognised in respect of the identifiable assets acquired and liabilities assumed was GBP273,000 resulting in goodwill of GBP400,000.
8. ACQUISITION-RELATED CONTINGENT CONSIDERATION 2018 2017 GBP000s GBP000s PSR - 1 PharmInvent 972 751 972 752
The terms of the acquisitions of PSR Group BV and European Pharminvent Services sro (now PrimeVigilance sro) included consideration payable in cash and in equity that is contingent upon the continued employment of the vendors and, in accordance with IFRS 3, is charged through the income statement. The above amounts relate to the element of consideration that is reimbursable in cash and contingent on the continued employment of the vendors. The element re-payable in equity that was contingent on the continued employment of the vendors is included as part of share-based payments in accordance with IFRS 2.
9. ACQUISITION COSTS 2018 2017 GBP000s GBP000s Acquisition of PSR - 218 Acquisition of Harefield Pharmacovigilance 3 - Acquisition of Pharmacovigilance Services 7 - Other M&A activities 164 41 174 259
10. EXCEPTIONAL ITEMS
2018 2017 GBP000s GBP000s Establishment of pharmacoepidemiology business 356 - Cost reduction programme 760 - Business reorganisation 557 - Impairment of Haemostatix goodwill 2,143 - Impairment of Haemostatix in process research 15,200 - and development Impairment of Haemostatix other assets 834 - Change in the fair value of Haemostatix contingent - consideration (11,617) Onerous contract provision relating to Haemostatix - activities 216 Impairment of joint venture 45 - Severance costs relating to former CEO - 143 8,494 143
In line with the way the Board and chief operating decision makers review the business, large one-off exceptional costs are separately identified and shown as exceptional costs.
In the year ended 31 December 2018, these related to the establishment of the pharmacoepidemiology business, reorganisation expenses associated with the combining of the PrimeVigilance and PharmInvent businesses, the cost reduction program to increase operating efficiency and improve overall profitability, the impairment of the Haemostatix business and onerous contract costs relating to Haemostatix.
In the full year of 2017, these were directly related to the severance costs regarding the former CEO.
11. DEFERRED AND CONTINGENT CONSIDERATION 2018 2017 GBP000s GBP000s Due within one year Harefield 57 - Pharmacovigilance Services 62 - Haemostatix - 1,957 119 1,957 Due after one year Haemostatix - 9,168 PSR 544 636 544 9,804 663 11,761
The above amounts represent the fair value of consideration payable in respect of the acquisitions of Harefield Pharmacovigilance, Pharmacovigilance Services, Haemostatix and PSR.
The contingent consideration for Haemostatix comprises milestones of up to GBP4.0 million at start of Phase III (provided the Company's market capitalisation exceeds GBP100.0 million); plus GBP16.0 million sales-based milestone payments and an additional sum in the event that the Enlarged Group is able to utilise certain existing tax losses that are currently available to Haemostatix. As of 31 December 2018, the fair value of contingent consideration relating to the acquisition of Haemostatix has been reduced to nil.
12. RELATED PARTY TRANSACTIONS
Ergomed d.o.o., a company registered in Croatia, is under the control of Dr. Miroslav Reljanović, who is a Director and shareholder of the Company. During the year the Company and its subsidiaries were charged GBP64,000 (2017: GBP266,000) by Ergomed d.o.o. and its subsidiaries in respect of clinical research costs and other administrative services. At 31 December 2018 a balance of GBP64,000 was owed by the Company and its subsidiaries to Ergomed d.o.o. and its subsidiaries in respect of these costs (2017: GBP40,000).
Tortuga Energy Services Limited is a company part-owned by Stuart Jackson, who is a Director of the Ergomed plc. During the year, the Company was charged consultancy fees of GBP16,667 (2017: GBPnil) in relation to the services of Stuart Jackson prior to his appointment as a director. At 31 December 2018, amounts payable to Tortuga Energy Services Limited in relation to such consultancy services and associated expenses were GBP16,667 (2017: GBPnil).
Under the terms of the acquisition of European PharmInvent Services sro (now PrimeVigilance sro), Dr Jan Petracek, who was a shareholder of that company and became a Director during the year and is a shareholder of the Company, was entitled to deferred consideration. During the year GBP607,000 (2017: GBP472,000) was charged to the income statement in relation to this deferred consideration and was payable in cash and equity at 31 December 2018.
All transactions with related parties take place on an arm's length basis.
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
13. EBITDA AND EBITDA (adjusted)
2018 2017 GBP000s GBP000s Operating loss (10,446) (3,904) Adjust for: Depreciation and amortisation charges within Other Selling, general & administration expenses 1,248 459 Amortisation of acquired fair valued intangible assets 1,286 1,167 EBITDA (7,912) (2,278) Share-based payment charge 758 1,033 Acquisition-related contingent compensation (note 8) 972 752 Change in the fair value of contingent consideration for acquisitions (233) 2,875 Acquisition costs 174 259 Exceptional items 8,494 143 EBITDA (adjusted) 2,253 2,784
The Directors make certain adjustments to EBITDA to derive adjusted EBITDA, which they consider more reflective of the Group's underlying trading performance and enables comparisons to be made with prior periods. Certain items, such as share-based payment charge, revaluation of deferred consideration for acquisition and write-back of deferred consideration for acquisition are non cash items and reflect adjustments to expected future deferred consideration payments.
Deferred consideration for acquisitions expense relates to the cash component of deferred consideration which is payable contingent on the continued employment of the vendors. These costs, together with acquisition costs and exceptional items, are all cash costs but are not considered trading items and therefore not included in adjusted EBITDA.
14. ADJUSTED EARNINGS PER SHARE
2018 2017 GBP000s GBP000s Loss for the purposes of basic earnings per share being net profit attributable to owners of the Company (8,980) (4,504) Loss for the purposes of diluted loss per share (8,980) (4,504) Adjust for: Amortisation of acquired fair valued intangible assets 1,286 1,167 Share-based payment charge 758 1,033 Acquisition-related contingent compensation (note 8) 972 752 Change in the fair value of contingent consideration for acquisition (11,850) 2,875 Acquisition costs 174 259 Exceptional items 8,494 143 Unrealised gains on equity investments (277) - Tax effect of adjusting items (1,323) - Adjusted earnings for the purposes of basic and diluted adjusted earnings per share 871 1,725 ADJUSTED EARNINGS PER SHARE Basic 1.9p 4.2p Diluted 1.9p 4.0p 15. RESTATEMENT OF PRIOR YEAR INCOME STATEMENT
There has been a re-allocation of costs between Cost of sales and Selling, general and administration expenses resulting in a restatement of the income statements for the year-ended 31 December 2017. This change in allocation arises as a result of improved systems and visibility on personnel utilisation and associated costs, and is required to enable comparisons between the current and prior periods.
Due to the adoption of IFRS 9, the reversal of impairment losses on financial assets (trade receivables) of GBP834,000 has been presented on a separate line in the income statement.
Restatement of prior year Consolidated Income Statement
2017 2017 Previously reported Adjustment Restated GBP000s GBP000s GBP000s Net service revenue 39,645 - 39,645 Licence revenue 370 - 370 Reimbursement revenue 7,609 - 7,609 REVENUE 47,624 - 47,624 Cost of sales (25,394) 2,996 (22,398) Reimbursable expenses (7,609) - (7,609) GROSS PROFIT 14,621 2,996 17,617 Selling, general & administration expenses (15,954) (3,830) (19,784) ------------------------------------------- ----------- ------------ --------- Selling, general & administration expenses comprises: Other selling, general & administration expenses (9,725) (3,830) (13,555) Amortisation of acquired intangible assets (1,167) - (1,167) Share-based payment charge (1,033) - (1,033) Contingent consideration for acquisitions expense (752) - (752) Change in the fair value of contingent consideration (2,875) - (2,875) Acquisition costs (259) - (259) Exceptional items (143) - (143) ------------------------------------------- ----------- ------------ --------- Research and development (2,689) - (2,689) Net impairment losses on financial and contract assets - 834 834 Other operating income 118 - 118 OPERATING LOSS (3,904) - (3,904) Investment revenues 3 - 3 Finance costs (546) - (546) LOSS BEFORE TAXATION (4,447) - (4,447) Taxation (57) - (57) LOSS FOR THE PERIOD (4,504) - (4,504)
16. IMPACT OF IFRS 15
The impact of adopting IFRS 15 on the opening consolidated balance sheet as of 1 January 2018 compared to the revenue determined in accordance with IAS 18, Revenue (IAS 18) is as follows:
As previously Under IFRS Adjustments reported 15 GBP000s GBP000s GBP000s Non-current assets Goodwill 15,269 - 15,269 Other intangible assets 20,229 - 20,229 Property, plant and equipment 1,078 - 1,078 Investments 754 - 754 Deferred tax asset 1,613 - 1,613 38,943 - 38,943 Current assets Trade and other receivables 16,807 - 16,807 Other current assets 502 - 502 Accrued income 2,836 (393) 2,443 Cash and cash equivalents 3,218 - 3,218 23,363 (393) 22,970 Total assets 62,306 (393) 61,913 Current liabilities Borrowings (12) - (12) Trade and other payables (10,717) - (10,717) Deferred and contingent consideration (1,957) - (1,957) Deferred revenue (3,587) 2,611 (976) Current tax liability (201) (201) Total current liabilities (16,474) 2,611 (13,863) Net current assets 6,889 2,218 9,107 Non-current liabilities Borrowings (6) - (6) Deferred and contingent consideration (9,804) - (9,804) Deferred tax liability (3,411) 14 (3,397) Total liabilities (29,695) 2,625 (27,070) Net assets 32,611 2,232 34,843 Equity
Share capital 428 - 428 Share premium account 20,616 - 20,616 Merger reserve 11,008 - 11,008 Share-based payment reserve 2,674 - 2,674 Translation reserve 762 - 762 Retained earnings (2,877) 2,232 (645) Total equity 32,611 2,232 34,843
The impact of adopting IFRS 15 on the consolidated balance sheet for the year ended 31 December 2018 compared to the revenue determined in accordance with IAS 18, Revenue (IAS 18) is as follows:
As Reported Adjustments Under IAS GBP000s GBP000s 18 GBP000s Non-current assets Goodwill 13,659 - 13,659 Other intangible assets 3,740 - 3,740 Property, plant and equipment 1,344 - 1,344 Equity investments (fair value through profit and loss) 2,065 - 2,065 Deferred tax asset 581 - 581 21,389 - 21,389 Current assets Trade and other receivables 16,429 - 16,429 Accrued income 3,857 (651) 3,206 Cash and cash equivalents 5,189 - 5,189 25,475 (651) 24,824 Total assets 46,864 (651) 46,213 Current liabilities Borrowings (6) - (6) Trade and other payables (10,989) - (10,989) Deferred and contingent consideration (119) - (119) Deferred revenue (5,651) 3,746 (1,905) Current tax liability (422) - (422) Total current liabilities (17,187) 3,746 (13,441) Net current assets 8,288 3,095 11,383 Non-current liabilities Provisions (216) - (216) Deferred and contingent consideration (544) - (544) Deferred tax liability (554) 42 (512) Total liabilities (18,501) 3,788 (14,713) Net assets 28,363 3,137 31,500 Equity Share capital 452 - 452 Share premium account 24,458 - 24,458 Merger reserve 11,329 - 11,329 Share-based payment reserve 3,115 - 3,115 Translation reserve 882 49 931 Retained earnings (11,873) 3,088 (8,785) Total equity 28,363 3,137 31,500
The impact of adopting IFRS 15 on the consolidated income statement for the year ended 31 December 2018 compared to the revenue determined in accordance with IAS 18 is as follows:
2018 2018 As reported Adjustments Under IAS GBP000s GBP000s 18 GBP000s Net service revenue 54,112 (7,261) 46,851 Reimbursement revenue - 8,091 8,091 REVENUE 54,112 830 54,942 Cost of sales (26,788) - (26,788) Reimbursable expenses (8,070) - (8,070) Gross profit 19,254 830 20,084 Selling, general & administration expenses (28,152) - (28,152) ------------------------------------------- ------------ ------------- ---------- Selling, general & administration expenses comprises: Other Selling, general & administration expenses (16,701) - (16,701) Amortisation of acquired fair valued intangible assets (1,286) - (1,286) Share-based payment charge (758) - (758) Contingent consideration for acquisitions expense (972) - (972) Change in the fair value of contingent consideration for acquisitions 233 - 233 Acquisition costs (174) - (174) Exceptional items (8,494) - (8,494) ------------------------------------------- ------------ ------------- ---------- Research and development (1,578) - (1,578) Net impairment losses on financial and contract assets (9) - (9) Other operating income 39 - 39 OPERATING LOSS (10,446) - (9,616) Investment income 23 - 23 Unrealized gains on equity investments 277 - 277 Finance costs (622) - (622) LOSS BEFORE TAXATION (10,768) 830 (9,938) Taxation 1,788 26 1,814 LOSS FOR THE YEAR (8,980) 856 (8,124) LOSS PER SHARE Basic (20.0)p - (18.1)p Diluted (20.0)p - (18.1)p
The impact of adopting IFRS 15 on the consolidated income statement for the year ended 31 December 2018 compared to the revenue determined in accordance with IAS 18 is as follows:
2018 2018 As reported Adjustments Under IAS GBP000s GBP000s 18 GBP000s Cash flows from operating activities Loss before taxation (10,768) 830 (9,938) Adjustment for: Amortisation and depreciation 2,534 - 2,534 Impairment of goodwill, intangibles and other assets 18,222 - 18,222 Gain on disposal of fixed assets 33 - 33 Share-based payment charge 758 - 758 Equity investments received in exchange for services provided (1,054) - (1,054) Change in the fair value of contingent consideration for acquisitions (11,617) - (11,616) Investment income (300) - (300) Finance costs 622 - 622 Operating cash flow before changes in working capital and provisions (1,570) 830 (740) Increase in trade and other receivables (505) 266 (239) Increase in other current assets (248) (248) Increase in trade and other payables 3,221 (1,096) 2,125 Cash generated from operations 898 - 898 Taxation paid 146 - 146 Net cash inflow from operating activities 1,044 - 1,044 Investing activities Investment income received 5 - 5 Acquisition of intangible assets (753) - (753) Acquisition of property, plant and equipment (834) - (834) Receipts from sale of property, plant and equipment 7 - 7 Acquisition of subsidiaries, net of cash acquired (410) - (410) Acquisition related earn-out paid (751) - (751) Net cash outflow from investing activities (2,736) - (2,736) Financing activities Issue of new shares 3,973 - 3,973 Expenses of fundraising (183) - (183) Finance costs paid (4) - (4)
Repayment of borrowings (12) - (12) Net cash inflow from financing activities 3,774 - 3,774 Net increase in cash and cash equivalents 2,082 - 2,082 Effect of foreign currency on cash balances (111) (111) Cash and cash equivalents at start of the year 3,218 - 3,218 Cash and cash equivalents at end of year 5,189 - 5,189
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.
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FR UKRARKAASRUR
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