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ERGO Ergomed Plc

1,346.00
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Share Name Share Symbol Market Type Share ISIN Share Description
Ergomed Plc LSE:ERGO London Ordinary Share GB00BN7ZCY67 ORD 1P
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  0.00 0.00% 1,346.00 0.00 00:00:00
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Ergomed plc Preliminary Results (6888V)

10/04/2019 7:01am

UK Regulatory


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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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