03:00 Wed 10 Apr 2019
Ergomed plc - Preliminary Results
PRESS RELEASE
Unaudited Preliminary Results for the year ended
· Revenue increase of 15% on comparable basis
o
· Orphan drug development strategy gaining momentum
o 37% of new business won in CRO is for orphan drugs
· Backlog increased 20% to
The Company adopted IFRS 15 with effect from
Selected Financial Highlights
Unaudited Figures in £ millions, unless otherwise stated |
IFRS 15 Full year 2018 |
IAS 18 Full year 2018 |
Restated3 IAS 18 Full year 2017 |
Net Service Fee Revenue1 |
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
"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
Key Financial Highlights
· Revenue of
· Pharmacovigilance total revenue growth of 23% to
· EBITDA (adjusted)2 of
· Unadjusted EBITDA loss of
· 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
· R&D expense of
· Cash and cash equivalents of
· Strong backlog of
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
·
· 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
·
·
Adoption of IFRS 15 on Revenue Recognition
During 2018
The impact of adoption on
Meeting and conference call for analysts:
A briefing for analysts will be held at
Conference call details:
Participant dial-in: 0800 376 7922
International dial-in: +44 (0) 2071 928000
Participant code: 1982927
Enquiries:
|
Tel: +44 (0) 1483 402 975 |
Miroslav Reljanović (Executive Chairman) |
|
|
|
|
|
|
Tel: +44 (0) 20 7260 1000 |
|
|
|
|
|
|
|
Tel: +44 (0) 20 3709 5700 |
|
|
|
|
|
|
MC Services - for Continental European enquiries |
Tel: +49 211 5292 5222 |
|
|
About
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
These forward-looking statements speak only as of the date of this announcement.
Executive Chairman's Statement
Introduction
While
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
EBITDA (adjusted) for the year was
Unaudited |
Full Year 2018 (IFRS 15) |
Full Year 2018 |
Full Year 2017 (IAS 18) |
||||
Figures in £ millions, unless otherwise stated |
CRO |
PV |
CRO |
PV |
CRO |
PV |
|
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
During the year, the Company added specialist pharmacoepidemiology services to
Clinical Research Organisation Services (CRO)
Total revenue from the CRO segment of
During 2018, we consolidated our focus on orphan drug development under the PSR brand, a specialist contract research organisation based in
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
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
The cost reduction programme contributed to the turnaround in 2018 from an adjusted EBITDA of
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
During 2018, Asarina completed a public offering and listing on the First North Exchange.
Haemostatix
We have continued to make certain incremental investments in
We believe that Phase III development and commercialisation of
Board Changes
In October,
With the departure of
The Company was saddened to announce that
Impact of Adoption of IFRS 16 in 2019
With effect from
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
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
Financial review
Key performance indicators
The Directors consider the principal financial performance indicators of the Group to be:
£million (unless stated otherwise)
|
2018 IFRS 15 |
2018 IAS 18 |
2017 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
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
Condensed consolidated statement of comprehensive income
Total revenue for the year ended
Gross profit was
Selling, general & administration expenses, after excluding exceptional items and acquisition related costs was
SG&A expense also includes amortisation of acquired fair valued intangible assets of
Research and development costs expensed in the year were
Exceptional costs for the year ended
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
The principal movements in the Condensed consolidated balance sheet during the year were:
1. A decrease in intangibles and goodwill of
2. An increase in accrued income of
3. An increase in cash and cash equivalents of
4. A decrease in the fair value of contingent consideration relating to the
5. An increase in share premium, arising from the institutional placing in
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
Cash outflows from investing activities were
Cash inflows from financing activities included proceeds of the institutional placing of
Going concern and medium term viability
As at 31 December 2018 the Group had
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
UNAUDITED PRELIMINARY RESULTS
Condensed Consolidated Income Statement
|
Notes |
2018
£000s |
2017 Restated (note 15) £000s |
|
|
|
|
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 £000s |
2017 £000s |
|
|
|
|
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
|
Notes |
2018 £000s |
2017 £000s |
|
|
|
|
Non-current assets |
|
|
|
|
|
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 capital
£000s |
Share Premium account £000s |
Merger reserve
£000s |
Share-based payment reserve £000s |
Translation reserve
£000s |
Retained earnings
£000s |
Total
£000s |
|
|
|
|
|
|
|
|
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 £000s |
2017 £000s |
|
|
|
|
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 |
|
|
|
|
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
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
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,
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:
|
As reported £000s |
Adjustments £000s |
Under IAS 18 £000s |
|
|
|
|
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 £754,000 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 £9,000 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 £7 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 £1.7 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 £9,000 (2017: £214,000). There was no provision against accrued income (2017: £nil).
Impairment of
Under IFRSs, goodwill is reviewed for impairment at least annually. The Group tests goodwill on 31 December each year.
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 £2,143,000 (2017: £nil), which relates to the
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 £544,000. Contingent consideration relates to the acquisitions of
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 CRO |
IAS 18 PV |
IFRS 15 Adjustment |
Consolidated total |
|
|
£000s |
£000s |
£000s |
£000s |
|
|
|
|
|
|
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
|
|
CRO |
PV |
Consolidated total |
|
|
£000s |
£000s |
£000s |
|
|
|
|
|
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 £000s |
PV £000s |
Total £000s |
|
|
|
|
|
5,715 |
6,854 |
12,569 |
|
16,913 |
9,604 |
26,517 |
|
3,715 |
10,735 |
14,450 |
|
237 |
244 |
481 |
|
- |
95 |
95 |
|
|
|
|
|
26,580 |
27,532 |
54,112 |
|
|
|
|
2017 |
Revenue from external customers |
||
|
CRO £000s |
PV £000s |
Total £000s |
|
|
|
|
|
4,535 |
5,923 |
10,458 |
|
13,550 |
9,292 |
22,842 |
|
6,756 |
6,992 |
13,748 |
|
311 |
153 |
464 |
|
- |
112 |
112 |
|
|
|
|
|
25,152 |
22,472 |
47,624 |
|
|
|
|
Segment net assets
|
2018 £000s |
2017 £000s |
|
|
|
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 amortisation |
Additions to non-current assets |
||
|
2018 £000s |
2017 £000s |
2018 £000s |
2017 £000s |
|
|
|
|
|
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 £4,989,000 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.
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.
The Group acquired
As a consequence of this impairment, certain onerous contract costs committed as of 31 December 2018 amounting to £216,000 and the impairment charges of £18,222,000, 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 £400,000.
4. FINANCE COSTS
|
2018 £000s |
2017 £000s |
|
|
|
Finance charge for contingent consideration for acquisitions |
(619) |
(581) |
Other |
(3) |
35 |
|
|
|
|
(622) |
(546) |
|
|
|
5. TAXATION
|
2018 £000s |
2017 £000s |
Current tax |
|
|
|
(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 £000s |
2017 £000s |
|
|
|
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 £000 |
2017 £000 |
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 Number |
2017 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 Number |
2017 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
Deferred consideration represents the provisional fair valuation of the additional consideration payable which could be between £nil and an aggregate maximum undiscounted amount of £500,000, 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
8. ACQUISITION-RELATED CONTINGENT CONSIDERATION
|
2018 £000s |
2017 £000s |
|
|
|
PSR |
- |
1 |
PharmInvent |
972 |
751 |
|
|
|
|
972 |
752 |
|
|
|
The terms of the acquisitions of PSR Group BV and European Pharminvent Services sro (now
9. ACQUISITION COSTS
|
2018 £000s |
2017 £000s |
|
|
|
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 £000s |
2017 £000s |
|
|
|
|
|
|
Establishment of pharmacoepidemiology business |
356 |
- |
Cost reduction programme |
760 |
- |
Business reorganisation |
557 |
- |
Impairment of |
2,143 |
- |
Impairment of |
15,200 |
- |
Impairment of |
834 |
- |
Change in the fair value of |
(11,617) |
- |
Onerous contract provision relating to |
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
In the full year of 2017, these were directly related to the severance costs regarding the former CEO.
11. DEFERRED AND CONTINGENT CONSIDERATION
|
2018 £000s |
2017 £000s |
|
|
|
Due within one year |
|
|
Harefield |
57 |
- |
Pharmacovigilance Services |
62 |
- |
|
- |
1,957 |
|
|
|
|
119 |
1,957 |
Due after one year |
|
|
|
- |
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,
The contingent consideration for
12. RELATED PARTY TRANSACTIONS
Tortuga Energy Services Limited is a company part-owned by
Under the terms of the acquisition of European PharmInvent Services sro (now
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 £000s |
2017 £000s |
|
|
|
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 £000s |
2017 £000s |
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 £834,000 has been presented on a separate line in the income statement.
Restatement of prior year Consolidated Income Statement
|
2017 Previously reported £000s |
Adjustment £000s |
2017
Restated £000s |
|
|
|
|
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:
|
Under IFRS 15 £000s |
Adjustments £000s |
As previously reported £000s |
|
|
|
|
Non-current assets |
|
|
|
|
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 £000s |
Adjustments £000s |
Under IAS 18 £000s |
|
|
|
|
Non-current assets |
|
|
|
|
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 As reported £000s |
Adjustments £000s |
2018 Under IAS 18 £000s |
|
|
|
|
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 As reported £000s |
Adjustments £000s |
2018 Under IAS 18 £000s |
|
|
|
|
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
The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of...
FOR OUR FULL DISCLAIMER CLICK HERE