Improving the quality of life
of millions of people suffering
from respiratory disease
Circassia Group plc
(formerly Circassia Pharmaceuticals plc)
Annual Report
& Accounts 2020
The leading provider of point-of-care
FeNO measurement and monitoring
Circassia is a medical device company focused on
respiratory diagnostics and monitoring. Our market leading
NIOX® products are used in clinical settings by physicians
around the world to help improve asthma diagnosis and
management, and by leading research organisations
conducting clinical studies on behalf of pharmaceutical
companies. Customers are able to buy products and
receive customer service via dedicated teams in the
United States, UK, Sweden, Germany and China, on-line
in some regions and via our network of global partners.
For more information please visit:
www.circassia.com
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Contents
Strategic report
Executive Chairman’s statement
Financial highlights
Operational highlights
Business review
Our stakeholders
Strategy and business model
Financial review
Corporate social responsibility
Risks and risk management
Corporate governance
Board of Directors
Corporate governance report
Audit and Risk Committee report
Nomination Committee report
Remuneration Committee report
Directors’ report
Statement of directors’ responsibilities
Independent auditors’ report
Group financial statements
Consolidated statement of comprehensive income
Consolidated statement of financial position
Parent Company statement of financial position
Consolidated and Parent Company statements of cash flows
Consolidated statement of changes in equity
Parent Company statement of changes in equity
Notes to the financial statements
Other information
Reconciliation of alternative performance measures
Advisers and contact details
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135
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
3
Strategic
Report
4
Strategic
Report
Executive Chairman’s statement
Financial highlights
Operational highlights
Business review
Our stakeholders
Strategy and business model
Financial review
Corporate social responsibility
Risks and risk management
6
12
13
14
18
22
24
28
32
5
STRATEGIC REPORT
Executive Chairman’s statement
Circassia emerges as
a simplified business
NIOX VERO® is a non-invasive, simple-to-use,
point-of-care system that provides rapid
standardised FeNO measurements.
6
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 2020 has been a transformational year for the Company,
which was led by the decision to hand back the AstraZeneca
COPD products in May and the decision to focus on the
NIOX® product line. The management team has successfully
completed a major restructuring of the business and
concentrated relentlessly on the optimisation of the cost base.
Circassia emerges as a simplified business with a market
leading product for the diagnosis and management of asthma.
One of the strengths of the business is the high level of recurring
revenues from consumables. In a normal year these are typically
90% of total revenues and, whilst the COVID-19 pandemic
impacted these by restricting patient testing, the recovery by
the end of year, with Q4 2020 revenues being 91% of Q1 2020
revenues, is testimony to the resilience of the business.
The Company is now debt free and has net cash, and whilst
we will still be living with the effects of COVID-19, the Board
believes that the actions taken will deliver greater shareholder
value and that over the medium term the business will be
profitable and cash generative.
Ian Johnson
Executive Chairman
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 STRATEGIC REPORT
Executive Chairman’s statement
A transformational year
During early 2020 the Board conducted a strategic review
of the business, which concluded the COPD business
was unsustainable under all reasonable scenarios due
to the level of continuing operating costs being incurred
by the business. As a result, the Company entered in to
discussions with AstraZeneca and reached agreement to
return the Tudorza® and Duaklir® products in exchange for
the forgiveness of the associated debt of $150 million owed
to AstraZeneca in its entirety.
The transaction with AstraZeneca plc completed on 27 May
2020, leaving the Company in a much stronger position
with a debt-free balance sheet. The COPD business is now
approaching the end of a ten-month run-off period, during
which profits are shared with AstraZeneca, and it has traded
resiliently and profitably during this period.
Management is now focussing on building a profitable business
around its market leading NIOX® products and has a clear
strategy to grow the business. The Company intends to drive
revenues in its core clinical and research markets and is
examining the possibility of launching products for home use.
During the year management restructured the business to
align its commercial resources with its new focus resulting in
a significant reduction in overheads. By pursuing this focused
strategy, the Company looks forward to transforming into a
high-growth, cash-generative and profitable business.
8
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Board changes
The Company’s executive team was joined by new
Chief Financial Officer (CFO) Michael Roller in January
2020 following the previous CFO, Julien Cotta, stepping
down from the role. Michael is a highly experienced
Finance Director and life science company Director and
was previously Group Finance Director of Bioquell PLC
and Corin Group PLC.
In March 2020, the Board was further strengthened
with the addition of Garry Watts as Senior Independent
Director and Non-Executive Director. Garry is an
experienced Chairman and Director, is currently
Non-Executive Chairman of Spire Healthcare Group PLC
and was Chairman of BTG PLC until its sale to Boston
Scientific in 2019.
Subsequently, in November 2020 Nicholas Mills joined
the Board as a Non-Independent Non-Executive
Director, representing a major shareholder.
Company name change
Following the agreement in April 2020 to transfer
Tudorza® and Duaklir® to AstraZeneca, the Company
sought shareholder approval to change its name from
Circassia Pharmaceuticals plc to Circassia Group plc.
This change reflects the transformation in the
Company’s business and its exclusive focus on its world
leading NIOX® products, rather than on pharmaceutical
products. On 30 April 2020, shareholders approved
the relevant resolution and the name change has been
formally adopted by the Company.
Equity financing
On 2 June 2020, the Company announced that it had
concluded an equity financing facility with two of its
principal shareholders to allow it to access up to
£5 million at a price of 24.6p per share. This facility
was taken up in September 2020 and the full £5 million
drawn down. On 24 March 2021, the Company announced
a subscription of new ordinary shares, by three major
shareholders at a price of 25 pence per share, to raise an
additional £5 million to strengthen its balance sheet.
9
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 STRATEGIC REPORT
Executive Chairman’s statement
The continuing NIOX® business
The discontinued COPD business
Revenues for the continuing NIOX® business for the
year ended 31 December 2020 were £23.9 million
(2019: £34.6 million) having been impacted by the
COVID-19 pandemic causing restrictions in routine
FeNO testing. H1 revenues were £11.4 million, with H2
revenues improving to £12.5 million.
The global lockdown which commenced at the start
of the second quarter significantly affected testing
volumes in the Clinical business and delayed studies
for our Research customers. In the final few weeks of
H1, revenues started to recover and have continued an
upward trajectory, such that Q4 revenues were 91% of
Q1 revenues.
At the time of the half year results, we indicated that
management was in the process of undertaking a major
restructuring of the business to focus on NIOX,® which
would lead to significant cost savings, such that we would
expect the Group to be EBITDA profitable on attaining its
2019 level of NIOX® revenues of £34.6 million.
We also indicated that annual overheads excluding head
office costs would be no more than £23 million, down
from £35 million in 2019.
We are now pleased to report that the restructuring
is largely complete and has delivered further savings
resulting in a revised annual cost base for the NIOX®
business (excluding head office costs of around £1.8
million and share option expense of around £1.4 million)
of approximately £21 million.
On current gross margins this means that the EBITDA
breakeven point for the NIOX® business will be lower
than previously indicated at around £30 million of
annualised revenue, or £33 million for the Group.
The key business drivers of the NIOX® business are set
out on pages 15 to 17.
This business has continued to trade resiliently
throughout the COVID-19 pandemic with revenues
in 2020 of £22.1 million (2019: £27.8 million). At the
outset of the transition period, the discontinued COPD
business was extensively restructured and as a result
has traded profitably during the second half of 2020.
Revenues proved very resilient both during the first
lockdown in Q2 2020 and throughout the remainder
of the year.
EBITDA for the year was a loss of £0.6 million
(comprising a loss of £2.9 million in H1 and a profit
of £2.3 million in H2), compared with a loss of £13.8
million in 2019. The transfer of the COPD products
back to AstraZeneca is expected to be completed on
31 March 2021. In the intervening ten-month period,
Circassia continued to sell the products with profits
shared with AstraZeneca.
BeyondAir
In January 2019, Circassia acquired the US and Chinese
commercial rights to LungFit™ PH from BeyondAir Inc.
Under the terms of the companies’ agreement, Circassia
issued BeyondAir a total of $10.5 million in new ordinary
shares by way of initial milestone payments.
At the end of 2019, BeyondAir terminated the
companies’ agreement for material breach which
Circassia strongly disputes and intends to challenge
BeyondAir’s allegations and its purported termination.
The Company has retained counsel and intends to take
steps to enforce its rights under the agreement.
Employees
On behalf of the Board I would like to thank all employees
within the Group for their hard work and commitment
during what has been a difficult year for everyone.
To those employees who continued to attend our offices
and logistics facilities to ensure the continued smooth
operation of the business during periods of lockdown,
I would like to offer particular thanks.
10
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Summary and outlook
The transaction with AstraZeneca leaves Circassia with
a debt-free balance sheet and provides the opportunity
to focus its resources exclusively on growing its market
leading NIOX® business. With a strong commercial
team and distribution partners in nearly 50 further
countries, Circassia is well placed to pursue its goal of
building a cash-generative, profitable business.
This year, the Company intends to build on this
position, expanding its customer base and controlling
underlying costs and corporate expenditure to further
protect its balance sheet.
While it remains challenging to predict short-term
business performance during the COVID-19 pandemic,
we are cautiously optimistic following early signs of
recovery in Q1 2021 trading in our Clinical business.
Our Research business has made a strong start to the
year. Beyond this period of disruption the Company
anticipates a return to strong revenue growth in the
medium to long-term, creating value for customers,
patients, employees and shareholders alike.
With a strong commercial
team and distribution
partners in nearly 50
further countries,
Circassia is well placed to
pursue its goal of building
a cash-generative,
profitable business.
Revenues for year
£23.9m
Revenues for the continuing NIOX® business for the
year ended 31 December 2020 (2019: £34.6 million)
11
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 STRATEGIC REPORT
Financial highlights
Revenues
Clinical revenues
Research revenues
£23.9m
Revenues of £23.9 million were
down 31% (2019: £34.6 million)
31%
Clinical revenues were down 31%
to £21.5 million (2019: £31.0 million)
33%
Research revenues were down 33%
to £2.4 million (2019: £3.6 million)
Operating loss
2019
Cash/ (net debt)
(£82.9m)
Cash at year end £7.4 million
(2019: £82.9 million net debt)
£63.8m
2020
£17.3m
Operating loss reduced to £17.3 million
from £63.8 million in 2019
£7.4m
2019
2020
Audited
Revenue
Gross margin
Total expenditure2
Adjusted EBITDA3
Operating loss
Loss before tax from continuing operations
Loss for the year from discontinued operations
Loss for the financial year
Cash/ (net debt) at year end4
2020
£m
23.9
68%
(27.4)
(11.1)
(17.3)
(18.4)
(6.7)
(33.5)
7.4
20191
£m
34.6
74%
(40.8)
(15.3)
(63.8)
(27.6)
(31.5)
(48.3)
(82.9)
1 Restated to show the results of the COPD business as a discontinued operation.
2 Excludes depreciation, amortisation and impairment
3 Earnings before interest, tax, depreciation, amortisation and impairment. Adjusted EBITDA reconciles to operating loss as shown on page 134.
4 Includes cash and cash equivalents.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Operational highlights
STRATEGIC REPORT
Operational highlights
Transformed Company from pharma
platform to medical device business.
Strategic focus on the
NIOX® product line.
Handed back AstraZeneca COPD
products wiping out $150 million debt.
Significant reduction in cost base
as a result of restructuring.
Secured equity finance
facility of £5 million.
Post-period update
· Further £5 million of equity
raised on 24 March 2021 by way
of a subscription from 3 major
shareholders at 25 pence per share
to strengthen balance sheet.
· Steady start to the year in
Clinical business and strong
start in Research.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
13
STRATEGIC REPORT
Business review
50% of asthma is not
diagnosed or misdiagnosed.
NIOX® is a simple-to-use
point-of-care system used in
clinical settings around the
world to help improve asthma
diagnosis and management.
14
Key strategic drivers of the Group
With the Group now focusing solely on its NIOX®
asthma diagnosis and management products, this
report focuses solely on the NIOX® business.
Asthma affects over 340 million people worldwide with
1,000 deaths every day. 50% of asthma is not diagnosed
or misdiagnosed. NIOX® is a simple-to-use point-of-care
system used in clinical settings around the world to help
improve asthma diagnosis and management.
NIOX® directly measures the nitric oxide exhaled
in patients’ breath (fractional exhaled nitric oxide
or FeNO), which is an important biomarker of the
major underlying cause of asthma, type 2 airway
inflammation. Currently a FeNO test is only offered
to approximately 5% of the eligible population.
Circassia believes that raising awareness and levels of
education regarding the benefits of FeNO testing will
drive future growth in revenues. A recent European
Respiratory Society symposium focused entirely on
FeNO testing and an increasing quantity of highly
credible, evidence based medical guidelines around
the world have recommended the use of FeNO testing
as a routine part of diagnosing and managing asthma.
The guidelines are based on a substantial body of
published clinical trials that demonstrate the benefits
of FeNO testing and NIOX® in particular.
Further impetus is coming from a new class of anti-
inflammatory medicines for the treatment of type 2
inflammatory asthma, known as IL4 blockers. These
medicines have the potential to replace or reduce
the use of inhaled steroids, which have long been the
standard of care for inflammatory asthma. IL4 blockers
are targeted at asthmatics with elevated FeNO.
The acquisition cost of these new medicines is significant.
This means that pharmaceutical companies with IL4
blockers are investing resources to raise the awareness
and usage of FeNO testing in order to identify the
patients that are most likely to respond to treatment
as they seek to establish this new therapeutic class.
Circassia also plans to engage with other respiratory
professionals to promote the use of NIOX® in new and
under-served customer segments such as primary care
settings, pharmacies and potentially home use.
Circassia commercialises NIOX® through the sale of
the core FeNO measurement device, the NIOX VERO,®
which then generates high margin recurring revenues
for sensors and consumables on a per test basis. NIOX®
is registered and reimbursed in all major markets and
available in more than 50 countries via Circassia’s
commercial teams in the United States, China, UK,
Germany and through its international network of
distribution partners.
NIOX® is the market leader in FeNO testing with
revenues achieving a compound annual growth rate
(CAGR) of 14% between 2016 and 2019. Nearly 17,000
devices have been installed to date with nearly 40
million FeNO tests carried out. The performance of the
NIOX® business in non-pandemic conditions indicates
that the business is one which is capable of delivering
very attractive growth rates.
The impact of the COVID-19 pandemic has been to
significantly reduce the routine testing of asthma
patients, although as time passes our sales patterns
indicate that different healthcare systems are
developing strategies to reduce the level of disruption
to routine healthcare services.
People affected by asthma
340m
With 1,000 deaths worldwide every day.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
15
SOURCE OF NIOX® SALES REVENUE
90%
10%
Clinicians for use in the diagnosis
and management of asthma.
Clinical Research Organisations
(CROs) for use in clinical trials.
STRATEGIC REPORT
Business review
Clinical business
NIOX® revenues for clinical diagnosis and management
of asthma were £21.5 million (2019: £31.0 million).
Approximately 90% of these revenues are from
recurring sales of consumables. With the business
being spread across a large number of geographical
markets, differences between the healthcare systems
of different countries as well as differences in
reimbursement levels affect the level of revenues to be
expected from a particular market.
During 2020 a further complicating factor has been
the varying impact of the COVID-19 pandemic in
different markets; those markets where FeNO testing is
carried out in a primary care environment have tended
to perform better than those where it is carried out in
a hospital setting.
In addition to raising awareness of FeNO testing,
management intends to expand distribution of
NIOX® in its clinical business by appointing further
distributors and strategic marketing partners to
deliver revenue growth.
Research business
NIOX® revenues for clinical studies by clinical
research organisations (CROs) were £2.4 million
(2019: £3.6 million).
Approximately 56% of these revenues are from
recurring sales of consumables. Whereas devices are
typically used routinely by clinicians, in the Research
business consumable sales are driven by the length of
the trial and number of patients recruited. The use by
CROs raises the profile of FeNO testing and NIOX® in
particular as the device of choice.
Sales to the Research sector are currently dominated by
a small number of large CROs. Further sales resources
will be added going forward to maintain relationships
with these important customers and to add new
customers to ensure that NIOX® remains the FeNO test
of choice for the clinical trials business as a whole.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 There is no evidence
at this stage to suggest
that any further
amendments to normal
business practices
will have to be made
as a result of Brexit.
Principal challenges
In implementing our strategy, we encounter a number
of challenges, including the international nature of our
markets, conservative customers who may be reluctant
to start FeNO testing and the potential entry into the
FeNO market of larger and better funded competitors.
COVID-19 impact and Brexit
The impact of the COVID-19 pandemic on the NIOX®
business is discussed extensively elsewhere in this
report. As regards Brexit, less than 5% of NIOX® sales
are presently made in the UK, and our international
logistics centres are based in Sweden (inside the EU)
and the US.
The Group made specific arrangements to import a
small amount of additional inventory into the UK, which
typically does not hold any inventory, at the end of 2020
to counter the risk of supply disruption around the end of
December. There is no evidence at this stage to suggest
that any further amendments to normal business
practices will have to be made as a result of Brexit.
Conclusion
The Group has a robust strategy in place to generate high
margin revenues from customers in both its Clinical and
Research businesses, with top line growth and strict cost
control now key to the profitability of the Group.
17
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Circassia believes that the success of the
Company depends on positive engagement with
its stakeholders. Reflecting this importance, the
Board carefully considers the interests of its
various stakeholder groups in its decision making.
Through effective engagement, the Company aims
to understand its stakeholders, allowing the Board
to include issues that are important to each group
in its discussions.
This approach to stakeholder engagement allows
Circassia to continue supplying its important
healthcare products to its patients and partners,
providing high quality employment for colleagues,
working effectively with suppliers, respecting the
environment and local communities, maintaining
high standards of professional conduct and building
a sustainable, high value business for shareholders.
The COVID-19 pandemic has significantly impacted the
business, including how the Board engages with its
major stakeholders. Where possible meetings are held
by telephone, or video conference to comply with the
most up to date government guidelines.
The following tables set out Circassia’s main
stakeholders, the areas of its business relating
to each and the Company’s engagement on the
important issues.
While the table provides a comprehensive overview, a
number of the areas covered and the progress during
the year are explored in more detail in this Annual
Report and accounts, in particular in the Strategic
report and corporate governance sections.
STRATEGIC REPORT
Our stakeholders
Companies Act
2006 section
172(1) statement
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 S
T
A
K
E
H
O
L
D
E
R
S
K
E
Y
F
A
C
T
O
R
S
E
N
G
A
G
E
M
E
N
T
2
0
2
0
P
R
O
G
R
E
S
S
Partners
In markets where Circassia has no
direct presence, its success relies on
partners who provide its products to local
healthcare professionals.
Patients, healthcare
professionals and payors
Circassia provides innovative products to help healthcare
professionals around the world improve patients’ health.
The success of the Company’s business is only possible
by continuing to meet the high standards expected by
these important customers.
∙ Partnership approach
∙ Promotional support
∙ Robust product supply
∙ Effective products
∙ High quality products
∙ Safe products
∙ Provide value
∙ Customer experience and support
Circassia works with an international network
of partners to sell its products.
Circassia’s products meet stringent regulatory
requirements to ensure their safety and efficacy.
Through its dedicated partner team, the
Company provides a range of promotional
materials and commercial support, including
an annual partnership meeting and holds
regular updates to resolve any issues.
The Company has dedicated teams of regulatory and
quality experts supporting its product supply and
provides a customer support service in the markets
where it sells directly.
Circassia prices its products to reflect the value
they provide.
∙ New partners welcomed in
several countries including:
Danhson in Ukraine
Alerkan in Turkey
Reymed in Poland
∙ Regulatory approvals and launches
in several markets including:
Turkey
Ukraine
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
STRATEGIC REPORT
Our stakeholders
Suppliers
Employees
Circassia outsources a number of important
functions to a range of suppliers. In particular,
the Company’s products are manufactured
and distributed by third parties.
Circassia’s worldwide team of employees drives
the Company’s business forward. These colleagues
provide the broad range of expertise required to
build a successful business.
∙ Long-term partnerships
∙ Collaborative approach
Fair terms of business
∙
∙ Opportunity to make a difference
∙ Open communication
∙ Development and progression
∙
Flexible working
∙ Diversity and inclusion
The Company has a number of long-term
collaborations with third parties for the
supply of its products.
Circassia’s employees are crucial to the ongoing
provision of its important healthcare products and the
whole team helps make a difference to patients’ lives.
Circassia’s supply chain team holds regular
meetings with suppliers to ensure close
working and treats its partners with respect
and fairness.
The Company holds regular update meetings across
the organisation and provides ongoing news updates.
Circassia supports ongoing development of employees
with annual plans and individual targets.
The Company operates local flexible working and has a
clear diversity and equality policy ensuring recruitment
and progression is based on merit alone.
∙ Dedicated supply chain team in place
∙ Ongoing meetings with suppliers,
taking place virtually if appropriate
∙ Payments on agreed terms
∙ Series of virtual townhall update meetings
for all employees
∙ Local focus groups for employee feedback
∙ Training on Code of Conduct and related
policies, including diversity and equality
∙ Annual development plans and flexible
working policies implemented
S
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F
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2
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P
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Local communities
and environment
As a responsible business Circassia recognises the
importance of local communities and the global
environment to its success.
Shareholders
The support of the Company’s shareholders
is an important factor in building a strong,
sustainable business. Shareholders also play
a key role in monitoring and safeguarding
Circassia’s corporate governance.
∙ Quality employer
∙
Contribution to science base
∙ Minimal environmental impact
Strategy and business model
Financial progress
Clear communication
∙
∙
∙
Circassia provides high quality, well remunerated
employment in each of its local markets. The Company
adheres to high standards of professional conduct and
enforces a strict code of conduct.
Circassia contributes to science in its area of expertise,
providing healthcare training in a number of countries,
and supporting clinical research through the provision
of its products.
As a business focused on commercialisation, the
Company has a limited environmental impact, which it
endeavours to minimise through a number of initiatives
such as local recycling and home working policies.
Circassia meets with shareholders
throughout the year to outline its strategy
and business plans and provides the market
with regular updates on its commercial and
financial progress, including via its interim
and annual reports.
The Company’s Executive Chairman is
available to meet shareholders and its Annual
General Meeting provides all members with
the opportunity to meet senior management.
∙ Broad range of quality employment
∙ Expansion of Asthma Masterclass training
for health workers
∙ Recycling maintained across organisation
Series of virtual investor meetings
Annual shareholder meeting
Publication of business updates
∙
∙
∙
S
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F
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
STRATEGIC REPORT
Strategy and business model
Strategy and objectives
Circassia is the leading provider of point-of-care
FeNO measurement and monitoring. Our objective
is to improve the quality of life of millions of people
suffering from respiratory disease.
With our leading range of NIOX® products we are
making good progress.
We are dedicated to maintaining our position as the
‘gold standard’ provider of FeNO testing, helping
healthcare professionals offer the best asthma care
worldwide. We continue to pursue our objectives
- our NIOX® products are available in over 50
countries where we offer outstanding customer
support through our dedicated local teams and
our network of partners.
Business model
Circassia’s business model focuses resources
on commercialisation of its NIOX® products.
Consequently, Circassia retains in-house expertise
in marketing, sales, commercial operations, product
support, regulatory, quality, medical affairs, device
development and corporate functions.
The Group outsources other areas of its
business, including product manufacture and
commercialisation in partner markets beyond
its direct sales territories.
NIOX® IS AVAILABLE IN
OVER 50 COUNTRIES
22
NORTH AMERICA
Canada
United States of America
Mexico
SOUTH AMERICA
Brazil
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 EUROPE
Albania
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Italy
Latvia
Liechtenstein
Lithuania
Luxembourg
Malta
Netherlands
Norway
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
Switzerland
Turkey
Ukraine
United Kingdom
AFRICA
Morocco
MIDDLE EAST
Israel
Kuwait
United Arab Emirates
Saudi Arabia
ASIA
China
Hong Kong
Japan
South Korea
Malaysia
Singapore
Taiwan
Thailand
AUSTRALASIA
Australia
New Zealand
23
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
STRATEGIC REPORT
Financial review
This financial year
has been a period of
substantial change
for Circassia.
24
On 27 May 2020, the Group handed back the rights
to its COPD products to AstraZeneca, and as such
the results of the COPD business are classified as a
discontinued operation in the table opposite. The NIOX®
business represents the continuing operations of the
Group. The performance of the NIOX® business has been
affected significantly in the year by the impact of the
COVID-19 pandemic on the level of FeNO testing carried
out by our customers.
Revenue
NIOX® revenues for the year were £23.9 million (2019:
£34.6 million) which include clinical sales of £21.5 million
(2019: £31.0 million) and research sales of £2.4 million
(2019: £3.6 million). NIOX® clinical revenues represent
sales to physicians and hospitals for use in clinical practice
and to the Company’s distributors, while research sales
are those to pharmaceutical companies and contract
research organisations (CROs) for use in clinical studies.
The downturn in NIOX® sales was due almost entirely to
the impact of the COVID-19 pandemic.
Gross profit
Gross profit on NIOX® sales was £16.3 million (2019:
£25.5 million), with a gross margin of 68% (2019: 74%).
The decrease in gross margin was mainly due to a lower
proportion of higher margin direct sales in China, combined
with a repurchase of £0.4 million of obsolete inventory
from a distributor in China required by the terms of the
relevant distribution agreement.
Research and development
Research and development costs decreased slightly to
£6.8 million (2019: £6.9 million). Included in this category
are £1.5 million of Device Development costs, £1.3 million
of Quality costs, £0.6 million of Medical Affairs costs,
£0.5 million of Regulatory costs and £2.9 million of
depreciation, amortisation and impairment. The current
year costs include a £0.9 million (2019: £nil) impairment
charge against internal device development costs due to a
change in the strategic roadmap for product development.
Excluding depreciation, amortisation and impairment,
research and development costs decreased to £3.9 million
(2019: £4.7 million) which is mainly due to lower headcount.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Revenue for period
£23.9m
Decreased (2019: £34.6 million)
Research & development
£6.8m
Decreased (2019: £6.9 million)
Revenue
Cost of sales
Gross profit
Gross margin
Research and development costs
Sales and marketing costs
Administrative expenses
Non-underlying expenditure
Adjusted EBITDA2
Operating loss
Other (losses) and gains - net
Net finance costs
Non-underlying gains
Loss before tax
Taxation
Loss for the financial year from continuing operations
Loss for the financial year from discontinued operations
Loss for the financial year
Cash/ (net debt)3
1 Restated to show the results of the COPD business as discontinued.
2 Earnings before interest, tax, depreciation, amortisation and impairment. Adjusted EBITDA reconciles to operating loss as shown on page 134.
3 Includes cash and cash equivalents.
2020
£m
23.9
(7.6)
16.3
68%
(6.8)
(16.6)
(10.2)
-
(11.1)
(17.3)
(0.9)
(0.2)
-
(18.4)
(8.4)
(26.8)
(6.7)
(33.5)
7.4
20191
£m
34.6
(9.1)
25.5
74%
(6.9)
(24.6)
(12.5)
(45.3)
(15.3)
(63.8)
(3.5)
(0.1)
39.8
(27.6)
10.8
(16.8)
(31.5)
(48.3)
(82.9)
25
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 STRATEGIC REPORT
Financial review
Sales and marketing
Taxation
Sales and marketing costs decreased markedly to
£16.6 million (2019: £24.6 million) which was mainly
due to a reduction in the number of dedicated NIOX®
sales representatives in the US and China.
Taxation for the year was a charge of £8.4 million (2019:
£10.8 million credit) which arose due to a reduction in
the amount of recognised carried-forward tax losses in
the Group generated in Sweden by Circassia AB.
Administrative expenditure
Loss after tax and loss per share
Underlying administrative expenditure, which includes
overheads relating to corporate functions, centrally
managed support functions and corporate costs,
decreased to £10.2 million (2019: £12.5 million).
This was mainly due to lower senior management
remuneration costs, and lower professional fees.
Non-underlying expenditure
Non-underlying expenditure in 2019 includes a
£44.0 million impairment charge relating to the
LungFit™ PH licence and £1.3 million of costs relating
to the reorganisation of the Board and other members
of senior management.
Basic loss per share for the year was 9p (2019: 13p)
reflecting a loss of £33.5 million (2019: £48.3 million),
with the decrease mainly due to an impairment of
COPD intangible assets in the previous financial year.
Loss per share for continuing operations was 7p
(2019: 4p) reflecting a loss for the financial year of
£26.8 million (2019: £16.8 million).
Loss from discontinued operations
Loss from discontinued operations decreased to
£6.7 million (2019: £31.5 million). The main reasons
for this are set out in the table below. The underlying
trading loss decreased to £7.3 million (2019: £27.7
million) as a result of the much-reduced sales and
marketing costs.
Discontinued operations
Underlying trading loss from discontinued operations
Loan write-off
Goodwill and intangible asset impairment
Fair value gain on contingent royalty consideration
Foreign exchange
Discount unwind
Loss from discontinued operations
26
2020
£m
(7.3)
123.1
(114.0)
-
(8.3)
(0.2)
(6.7)
2019
£m
(27.7)
-
(46.2)
53.6
4.1
(15.3)
(31.5)
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Statement of financial position
Cash flow
The Group’s net assets at 31 December 2020 were
£66.1 million (2019: £84.8 million).
The decrease was mainly due to significant restructuring
of the business reducing the operating loss of the Group,
combined with movements in working capital.
Current liabilities at the end of the year were
£26.7 million (31 December 2019: £41.3 million).
The decrease was mainly as a result of lower trade and
other payables due to the settlement of invoices owing to
AstraZeneca, together with lower COPD rebate accruals.
Group cash position
£7.4m
(2019: net debt £82.9 million)
At 31 December 2019, the Group had net debt of
£82.9 million. This comprised cash of £27.0 million
and debt owed to AstraZeneca of £109.9 million.
The debt owed to AstraZeneca was forgiven as a result
of the transaction which completed on 27 May 2020.
The Group’s cash balance at 31 December 2020 was
£7.4 million.
Cash used in operations during the year aggregated
£23.9 million, of which £9.8 million was used in the
COPD discontinued operations.
£5.0 million of equity finance was raised in the year
(2019: £8.0 million), and other non-operating cash
movements aggregated £1.2 million.
Exchange differences on cash and cash equivalents
arose as a result of translation of foreign currency
balances at the beginning and end of the relevant year.
The exchange gain for the year was £0.5 million
(2019: £0.6 million loss).
Michael Roller
Chief Financial Officer
24 March 2021
Cash used in operations in the year by business unit
NIOX®
COPD
(Discontinued)
Adjusted EBITDA
Net working capital movements
Other non-cash movements
£m
(6.8)
(3.4)
0.1
£m
(0.6)
(9.2)
-
Head
office
£m
(4.3)
Group
£m
(11.7)
(1.9)
(14.5)
2.2
2.3
Cash used in operations by business unit
(10.1)
(9.8)
(4.0)
(23.9)
27
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
STRATEGIC REPORT
Corporate social responsibility
The Board has responsibility for all matters
relating to corporate social responsibility.
Employee welfare
and involvement
Employees are regularly provided with information
about the Group, for example through regular ‘open
house’ sessions at which the Executive Chairman
and/or COO and other members of the management
team present on various topics such as strategic and
operational progress and employee-related policies.
Feedback is frequently sought by line managers and
the Executive Leadership Team through team meetings.
Feedback is also provided through an annual employee
engagement survey.
Employment, training,
career development and
promotion of disabled persons
The Board recognises the value of diversity at all levels
of the Group. The Group has an Equal Treatment, Equal
Opportunities and Diversity policy which extends to
the Board. This provides that the Group will employ
and promote employees on the basis of their abilities
and qualifications without regard to age, disability,
gender, marriage and civil partnership, pregnancy
and maternity, race (including colour, nationality and
ethnic or national origins), religion or belief or sexual
orientation. The Group appoints, trains, develops and
promotes on the basis of merit alone.
The directors recognise the importance of corporate
social responsibility and seek to take account of the
interests of all the Group’s stakeholders, including
its investors, customers, suppliers, partners, and
employees when operating the business.
The Board believes that fostering an environment
in which employees act in an ethical and socially
responsible fashion is critical to its long-term success.
The Group strives to be a good corporate citizen and
respects the laws of the countries in which it operates.
People
Attracting, motivating and retaining a highly skilled
workforce is key to the Group’s long-term success.
The policies put in place by the Group accord with
best practice, and stipulate that there should be
equal opportunities and an absence of discrimination
for all employees.
Values
Our values, and the behaviours that underpin them,
describe the culture of our business.
∙ Passion:
Our passion for delivering products to improve
patients’ lives energises us to attain our goals.
∙ Recognition:
We recognise and acknowledge the contribution
of teams and individuals in achieving our goals.
∙ Integrity:
We act with honesty and fairness at all times
and always strive to do the right thing.
∙ Drive:
We set ambitious goals and go for them,
believing this drives extraordinary behaviour.
∙ Effectiveness:
We understand key business drivers and
manage our resources effectively.
28
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
TOTAL EMPLOYEES
Diversity
The importance of diversity within the Group is also
reflected in its policies and procedures.
The Group does not have formal diversity quotas
but recognises that a diverse employee profile is
of significant benefit. The table below shows the
gender profile at different levels of the Group as at
31 December 2020.
Male
50%
Female
50%
Member
Male
Female
Total
% Male
% Female
plc Board including Non-Executive Directors
Employees in other senior executive positions
Directors of subsidiary companies not included in above
Total Senior Managers excluding directors
All other employees
Total
5
4
0
12
60
81
2
2
2
5
70
81
7
6
2
17
130
162
71%
67%
0%
71%
46%
29%
33%
100%
29%
54%
50%
50%
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
29
STRATEGIC REPORT
Corporate social responsibility
Health and safety
Environment
The Group is committed to protecting the health and
safety of its employees and endeavours to maintain an
effective health and safety culture.
The Group provides ongoing training to individuals
who are responsible for health and safety and all staff
are notified of health and safety practices. The Group
continuously monitors its health and safety policy and
practices to ensure they are robust, appropriate, and
reflect changes in best practice.
Ethical and social policies
The Group sells medical devices and accordingly
operates in a highly regulated ethical framework.
It complies fully with these laws and regulations.
The Group has a clear anti-bribery policy which is
monitored by the Compliance department.
Sunshine Act
The Group is committed to promoting transparency
of its relationships with healthcare providers.
It collects, tracks and reports payments to healthcare
professionals and organisations in compliance with the
US Physician Payment Sunshine Act and equivalent
legislation in other countries such as France.
Human rights
The Group supports the UN Universal Declaration of
Human Rights and recognises the obligation to promote
universal respect for and observance of human rights
and fundamental freedoms for all, without distinction.
The Group complies with all applicable human rights laws.
Product development
The Group commissions third-party laboratories to
conduct the minimum necessary pre-clinical product
safety testing in animal models as required by
regulatory authorities before commencing clinical
studies. The Group works according to the 3Rs policy
relating to preclinical testing (Refine, Reduce, Replace).
The Group is committed to minimising the impact of
its activities on the environment.
The materials used to manufacture the NIOX® products
are carefully considered to minimise their environmental
impact whilst maintaining maximum functionality. The
mouth pieces required to be used with the NIOX® VERO®
devices are single-use for hygiene reasons, and although
not currently recyclable, the impact on the environment
from their disposal is considered to be negligible.
The majority of the Group’s employees operate out of
modern office suites, although it also occupies laboratory
space in Oxford and has warehouses in Uppsala, Sweden
and Morrisville, USA.
Accordingly, the Group believes that efficient use of
energy and materials in those premises, and responsible
disposal of hazardous waste, are the most important
means of climate protection currently available to it.
Office-based initiatives to reduce waste have also been
adopted, which include recycling of paper waste, cans,
plastics, batteries and printer toners/ cartridges. The
Group does not possess or make use of corporate jets or
private planes.
Political and charitable donations
The Group does not make political or charitable
donations, although charitable fundraising by
employees is encouraged.
Slavery and human
trafficking statement
The Group is committed to combatting slavery and
human trafficking. As part of its initiative to identify
and mitigate risks it performs due diligence on potential
suppliers and distributors and protects whistleblowers,
who can raise concerns anonymously through an
externally provided reporting service. The Group’s
suppliers and distributors are provided with its Partner
Code of Conduct which makes it clear that the Group
expects them to comply with the requirements of the
Modern Slavery Act.
30
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
SCOPE 2 EMISSIONS
CO2 equivalent emissions - scope 2 (tonnes)
250
117
2019
2020
OFFICE SPACE EMISSIONS
Intensity ratio (kg/m2 of office space)
2019
50
2020
26
Greenhouse gas emissions
Greenhouse gas emissions are reported in line with
the UK Government’s ‘Environmental Reporting
Guidelines: Including streamlined energy and carbon
reporting guidance’ (dated March 2019). In line with
the guidelines, the Group measures greenhouse gas
emissions from its main activities categorised as scope
1, 2 and 3 emissions.
The Group has no scope 1 direct emissions.
Scope 2 comprises indirect emissions associated with
the consumption of gas and electricity in leased offices.
Scope 3 relates to other indirect emissions, which for
the Group mainly relates to business travel. Scope
3 emissions are immaterial to the Group, and the
reporting of such emissions is voluntary and has
therefore been excluded from this report.
The Group considers that its current activities have a
low environmental impact. Nonetheless, it still actively
seeks to make energy savings in a fashion which is
environmentally responsible and cost effective.
GHG emissions are reported in metric tonnes of carbon
dioxide equivalents and calculated using the Defra
conversion factors. In order to express annual emissions
in relation to a quantifiable factor associated with the
Group’s business, an intensity ratio has been calculated
which shows emissions reported per square metre of
the office space occupied by the Group.
Gas and electricity usage information has been
obtained from purchase invoices and verified by
reference to meter readings. Where actual data for all
of the individual periods that make up the financial
year are not available by the reporting date, the Group
applies the use of estimates.
Emissions have decreased in 2020 mainly due to a
reduction in the use of offices due to the COVID-19
pandemic. To the extent that office use increases in
2021, an increase in emissions is likely.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
31
STRATEGIC REPORT
Risks and risk management
The management
of risks is a key
responsibility of the
Board of Directors.
32
The Board ensures that the risks taken by the Group
are understood and are appropriate in the light of its
strategy and objectives, and that internal controls
are in place to effectively identify, assess and manage
important risks.
The Board has determined to focus on its NIOX® business
which is a single product business therefore all risks to
the NIOX® business are risks to the business as a whole.
The risk management strategy adopted by the Group
has a number of facets. A risk register has been created
and is updated on an annual basis by those individuals
in the business who manage risks on a day to day basis.
This identifies each risk, assesses the likelihood of its
occurrence and the level of impact on the business.
This process is coordinated by the Chief Financial Officer.
The register is reviewed by the Executive Leadership
Team and subsequently reviewed by the Audit and Risk
Committee and reported to the Board.
There is a particular emphasis on ensuring that the risk
appetite of the Board is fully understood by the Executive
Leadership Team. The register also sets out activities and
controls which are designed to mitigate the identified risks,
and again the Board and the Executive Leadership Team
analyse these mitigation strategies and ensure that the
approach taken is consistent with the nature and degree of
risks which are considered acceptable by the Board.
Aside from the review, risk owners across the business
are responsible for reporting any significant issues on an
ongoing basis to the Executive Leadership Team and for
ensuring that other members of their teams are aware of
the risk management process.
The risk management system is designed to manage risks,
rather than eliminate them at the expense of achieving
corporate objectives. Accordingly, it can only provide
a reasonable and not an absolute assurance against
material misstatement or loss.
The main risks relevant to the Group have been identified
on the following pages, together with an explanation of
how they are managed and controlled. Some risks are
common across the medical device industry, while others
reflect the Group’s specific strategy. The Group considers
all of these risks relevant to any decision to invest in it.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Commercial success
The Group’s competitors, many of whom have
considerably greater financial and human resources,
may develop safer or more effective products or be able
to compete more effectively in the markets targeted by
the Group. New companies may enter these markets
and novel products and technologies may become
available which are more commercially successful than
those being developed by the Group.
The Group’s NIOX MINO® and NIOX VERO® devices
compete in Europe with products made by Bedfont
Limited, Bosch Healthcare Solutions GmbH (based in
Germany), and Spirosure Inc. (headquartered in the
United States).
In China, a competing product is supplied to the market
by Sunvou Medical. In the United States, Spirosure Inc.’s
product has been approved by the FDA and is, therefore,
a potential competitor to the Group’s NIOX VERO® device.
The Group may not be able to sell its products profitably
if reimbursement from third party payers such as private
health insurers and government health authorities is
restricted or not available. For example, it may prove
difficult to build a strong enough economic case based
on the burden of illness and population impact.
Third party payers are increasingly managing costs
to both their organisations as well as patients, and
as a result, medical products in competitive markets
can be denied or limited in terms of coverage and
reimbursement.
Moreover, even if the products can be sold profitably,
they may not be accepted by patients and the medical
community.
Outside the United States, United Kingdom, China and
Germany the Group relies on distributors to sell its
NIOX® devices and such relationships must be carefully
managed in order to ensure the commercialisation
services provided are of a sufficiently high quality and
an appropriate level of resources is applied by the
distributor to the marketing of the devices.
Other factors that may undermine the Group’s efforts
to commercialise its products include: the inability to
train and retain effective sales and marketing personnel
and higher costs of marketing and promotion than are
anticipated by the Group.
Mitigating activities: The Group continues to apply
significant resources to sales of the NIOX® device and
holds a patent portfolio associated with this product
range. The Group continues to invest in research and
development to maintain its leadership position in
this area. In the United States there is a dedicated
commercial team, including sales representatives,
selling NIOX.®
The products are also sold directly by the Group’s
teams in China, the United Kingdom and Germany who
manage local commercialisation activities. Partner
markets, where products are sold through distributors,
are managed by an experienced Senior Director of
Partner Management.
33
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 STRATEGIC REPORT
Risks and risk management
Compliance with healthcare regulations
Unforeseen side effects
Unforeseen side effects may result from the use of the
Group’s devices. There is a risk that the malfunction
of a medical diagnostic or device may have an adverse
impact on patients.
If any of the Group’s products are found to cause
adverse reactions or unacceptable side effects or risk
of misdiagnosis, then product sales may be adversely
impacted, and, in extreme circumstances, it may prove
necessary to suspend sale and/or withdraw the product
from the market.
Adverse events or unforeseen side effects or device
malfunction may also potentially lead to product
liability claims being raised against the Group as the
seller of the product.
Mitigating activities: The Group’s medical devices are
subject to rigorous testing procedures. A robust device
vigilance plan is in place to ensure any safety issues are
identified and reported. Insurance is in place to cover
product liability claims which may arise during the sale
of the Group’s NIOX MINO® and NIOX VERO® products.
The Group must comply with complex regulations
in relation to the marketing of its devices. These
regulations are strictly enforced. Failure by the Group
(or its commercial partners) to comply with relevant
legislation and regulations, including the US Physician
Payment Sunshine Act (and equivalent legislation in
other countries), US False Claims Act, Anti-Kickback
Statute and the US Foreign and Corrupt Practices Act
and regulations relating to data privacy (amongst others)
and similar legislation in countries outside the United
States, such as China, may result in criminal and civil
proceedings against the Group.
Mitigating activities: The Group has an internal
Compliance function, which is managed by the Chief
Compliance Officer together with dedicated Compliance
resources in the United States.
The Chief Compliance Officer has a direct reporting line
to the Chair of the Audit and Risk Committee. Activities
in this area are reviewed by the Executive Leadership
Team on a quarterly basis.
The Compliance function works with a network of
external advisers in the relevant territories to ensure
local regulations are understood. Robust processes are
in place to ensure that sales compliance requirements
are met, and any failures or allegations of failure are
swiftly investigated. This includes training of employees,
ride-alongs with sales representatives, due diligence on
distributors and suppliers prior to contracting with them,
compliance oversight of sampling activities, and audits of
distributors and suppliers.
34
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Regulatory approvals
The Group may not obtain regulatory approval for its
products that are in development. Even where products
are approved, subsequent regulatory difficulties may
arise, or the conditions relating to the approval may be
more onerous or restrictive than the Group expects, or
existing approvals might be withdrawn.
The medical device industry is highly regulated.
Regulatory authorities across the world enforce a
range of laws and regulations which govern the testing,
approval, manufacturing, labelling and marketing of such
products. Stringent standards are imposed which relate
to the quality, safety and efficacy of these products.
These requirements are a major determinant of whether
it is commercially feasible to develop a medical device
given the time, expertise, and expense which must be
invested, and whether it is possible to commercialise
products effectively or at all. Moreover, approval in one
territory offers no guarantee that regulatory approval
will be obtained in any other territory.
The Group already holds regulatory approvals for its
NIOX MINO® and NIOX VERO® devices in certain key
countries such as the United States, Japan, China, the
United Kingdom and Germany but approvals are still
pending for the VERO® in a number of other countries.
Delays or complications in any of these regulatory
applications could adversely affect the Group’s business.
The Group relies on partners, such as third party sub-
contractors and service providers for the execution of
most aspects of development programmes.
Failure of these third parties to provide services of a
suitable quality within acceptable timeframes – for
example due to technical reasons or bankruptcy of
the provider – may cause the failure or delay of these
development programmes.
Even where approval is obtained, regulatory authorities
may still impose significant restrictions on the indicated
uses or marketing of a product or impose costly, ongoing
requirements for post-marketing surveillance or post-
approval studies or may even withdraw the approval if
new concerns over safety and efficacy arise.
Mitigating activities: The Group manages its regulatory
risk by employing highly experienced professionals who,
where appropriate, will commission advice from external
advisers and consult with the regulatory authorities on
the design of any pre-clinical and clinical programmes
that may be required.
These in-house experts would ensure that high quality
protocols and other documentation are submitted during
the regulatory process, and that well-reputed contract
research organisations with global capabilities are
retained to manage the trials.
The Group manages its regulatory risk by
employing highly experienced professionals
35
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
STRATEGIC REPORT
Risks and risk management
Supply chain
The Group relies on third parties for the supply of key
materials, finished products and services, including
shipping. Problems at these contractors, such as
technical issues, contamination, and regulatory actions
may lead to delays or even loss of supply or inadequate
supply of these materials, products and services during
commercialisation.
Some materials may only be available from one
source, as is currently the case for the NIOX® devices
and the sensors contained in those devices, and
regulatory requirements may make substitution
costly and time-consuming.
During the COVID-19 pandemic, the supply chain proved
fully resilient.
Mitigating activities: Audits of contractors are
routinely conducted according to procedures set out in
the Group’s quality system. Dual sourcing is investigated
where this is practicable. Manufacturing sites are well
established FDA-approved facilities.
Research and development risks
The Group relies upon its collaborations with PHC
Corporation for the development of the NIOX® device
and upon IT Dr. Gambert GmbH for the development of
the sensors contained in the NIOX® devices.
Mitigating activities: The development collaboration
with PHC Corporation is managed by steering committees
which include representatives from the Group.
Audits of contractors are routinely
conducted according to procedures
set out in the Group’s quality system
36
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Financial operations
The Group has incurred significant losses since
the inception of its various businesses. However, it
anticipates that it should become profit making in the
near future once the effects of COVID-19 on the short
term trading of the NIOX® business have ceased.
Foreign exchange fluctuations may adversely affect
the Group’s results and financial condition. The Group
records its transactions and prepares its financial
statements in British pound sterling, but a significant
proportion of its income and expenditure is in United
States dollar, Swedish krona, euro and Chinese yuan.
Mitigating activities: At the end of each year, the Board
reviews and approves a budget for the following year
and reviews the 5 year plan. As part of the review the
Board considers the robustness of the Group taking
into account its current position, potential future
developments, the principal risks facing it, and the
effectiveness of mitigation plans and controls.
The review also encompasses the potential impact of
significant credible scenarios on the business model and
future performance of the business.
Forward purchases of foreign currencies may be made
when it is considered necessary to do so in order to
mitigate specific foreign exchange risks.
37
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Mitigating activities: Important products are covered
by a range of different patents or patent families and
attacks on patents are defended using expert external
patent attorneys and lawyers. A robust system is in
place which ensures patents are renewed on time.
Third party patent filings are monitored to ensure
the Group continues to have freedom to operate and
oppositions are filed where this is considered expedient.
Confidential information (both belonging to the Group
and to third parties) is protected through use of
confidential disclosure agreements with third parties,
and suitable provisions relating to confidentiality and
intellectual property exist in the Group’s employment
contracts. Licences are monitored for compliance with
their terms.
STRATEGIC REPORT
Risks and risk management
Intellectual property,
knowhow, and trade secrets
The Group may be subject to challenges relating to the
validity of its patents or third-party patents to which it
has rights. If these challenges are successful then the
Group may be exposed to generic competition.
The Group could also be sued for infringement of third
party patent rights. If these actions are successful
then it would have to pay substantial damages and
potentially remove its products from the market. Such
litigation, particularly in the United States, involves
significant costs and uncertainties.
It is possible that the Group will not be able to
secure intellectual property protection, or sufficient
protection, in relation to products which are acquired
or in development. Similarly, a failure by the Group
to maintain or renew key patents would lead to the
loss of such protection. In both cases the potential
of the Group to earn revenue from its products could
be compromised as it would be less difficult for third
parties to copy the products.
The Group may rely upon knowhow and trade secrets
to protect its products and maintain a competitive
advantage. This may be especially important where
patent protection is limited or lacking. Conversely, the
Group may be subject to claims that its employees or
agents have wrongfully used or disclosed the confidential
information of third parties which could lead to damages
or injunctions which affect particular products.
The Group licenses certain intellectual property rights
from third parties. If the Group fails to comply with
its obligations under these licence agreements it may
enable the other party to terminate the agreement.
Important products are covered by a range of different patents
or patent families and attacks on patents are defended using
expert external patent attorneys and lawyers
38
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Organisational capabilities
and capacity
The Group may be unable to successfully implement
its plans for growth if it does not attract and retain
employees with the requisite capabilities and
experience, in appropriate numbers. The Group depends
on the skills and experience of its current management
team and employees, and is generally subject to
competition for, and may fail to retain, skilled personnel.
Existing employees, investigators, consultants and
commercial partners may engage in misconduct or
improper activities, including non-compliance with
regulatory standards and laws.
Where the Group acquires complementary technologies,
products, or businesses it may not be able to integrate
those acquisitions effectively or realise their expected
benefits. The Group may be vulnerable to disruption and
damage as a result of failures of its computer systems.
Mitigating activities: Remuneration packages for
employees are competitive, and incentive plans based
on the contingent award of shares are in place to
attract, motivate and retain staff. Disciplinary and
whistleblowing policies exist to address misconduct by
employees and officers.
To address IT and cyber risks, a disaster recovery plan
has been developed. Data is backed up daily on off-
site servers and the Group operates from a number
of physically separate sites. In addition, the Group
maintains up to date anti-virus, anti-malware and
anti-spyware software. In addition, a cybersecurity
policy has been created to inform all users of company
systems of their obligations to protect the systems from
unauthorized access, theft and destruction.
Brexit
There continue to be political and economic uncertainties
following the United Kingdom leaving the European
Union (EU) on 31 January 2020. The Group continues to
face a range of risks associated with this decision. For
example, the vote to leave the EU may lead to changes
in the regulatory system by which medical devices are
approved for use. The Group’s NIOX® product is currently
CE marked in accordance with European regulations.
Now that the United Kingdom has left the EU, there is a
plan in place to change this registration in line with the
MHRA published timelines to permit sales of the device
to continue in the United Kingdom.
Brexit may also result in restrictions on the movement of
people which may make it harder for the Group to attract
the talent it needs to support the business. The general
economic uncertainty created by the process may also
make it harder to enter into strategic partnerships with
European companies. The uncertainties surrounding
Brexit also caused a significant depreciation in the
value of sterling and continue to result in further
foreign exchange volatility. This may affect the Group as
indicated in the more general risk relating to financial
operations set out on page 37.
Mitigating activities: The Group continues to monitor
developments relating to Brexit and receives updates
from its legal and regulatory advisers on a frequent
basis. The Group already has established subsidiaries
in Germany (Circassia AG) and Sweden (Circassia AB),
where the Group’s NIOX® inventory for the EU and
other markets outside the United States is held, so the
Group will still have a presence in the EU. In the event of
extreme disruption, product could be shipped to the UK
from the US warehouse to mitigate EU-UK border issues.
39
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Corporate
Governance
40
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Corporate
Governance
Board of Directors
Corporate governance report
Audit and Risk Committee report
Nomination Committee report
Remuneration Committee report
Directors’ report
Statement of directors’ responsibilities
Independent auditors’ report
42
46
52
58
60
70
72
74
41
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Board of Directors
Ian Johnson
Executive Chairman
Michael Roller
Chief Financial Officer
Ian joined Circassia as Executive Chairman
on 5 December 2019.
Michael Roller joined Circassia as Chief Financial
Officer on 9 January 2020.
Michael is a highly experienced Finance Director
and life sciences company Director. He was
previously a Non-Executive Director of Filtronic
PLC and Group Finance Director of Bioquell PLC,
Corin Group PLC and Genus PLC. In addition,
Michael has held a number of senior finance roles
in a broad range of public and private companies.
Michael completed his training at KPMG and is a
Chartered Accountant and member of the ICAEW.
He graduated from Merton College, Oxford with a
BA in History.
Ian has spent his business career in life science
and was founder and CEO of Biotrace International
PLC, which was a listed company until its sale to
3M in December 2006. In addition to his current
role with Circassia, Ian is a Non-Executive Director
of Ergomed PLC and Non-Executive Chairman of
Redcentric PLC. Prior to these appointments Ian
was Executive Chairman of Bioquell PLC from
2016 until acquired by Ecolab Inc. in January 2019,
Non-Executive Chairman of Quantum Pharma PLC,
Cyprotex PLC and Celsis Group Ltd. He has also
served on the boards of various other public and
private companies including AIM listed companies;
Evans Analytical Group and AOI Medical Inc.
Ian studied at Cardiff University obtaining a B.Sc.
and M.Sc. in Microbiology. He is a Chartered
Biologist, a Fellow of the Royal Society of Biology
and a member of the Institute of Directors.
42
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Jonathan Emms
Chief Operating Officer
Garry Watts
Senior Independent Director
and Non-Executive Director
Garry Watts joined Circassia as a Non-Executive
Director and Senior Independent Director on
2 March 2020.
Garry brings to the Company extensive Board-
level experience gained in the healthcare sector.
He is currently Non-Executive Chairman of Spire
Healthcare Group plc and a Non-Executive Director
of Coca Cola European Partners plc. He was
previously Non-Executive Chairman of BTG plc,
Chairman of Foxtons plc, CEO of SSL International
plc, Finance Director at Medeva plc and a Director
of Celltech Group plc. In addition to his executive
roles, Garry was a Non-Executive Director at
Protherics plc and a Non-Executive member of
the Board of the UK Medicines and Healthcare
Regulatory Products Agency for over 15 years.
Garry is a Chartered Accountant and former
partner at KPMG and is a member of the ICAEW.
Jonathan Emms joined Circassia as Chief
Operating Officer on 2 September 2019.
Jonathan brings significant senior-level experience
of the global pharmaceutical industry to Circassia.
Prior to joining the Company, he was Chief
Commercial Officer for Pfizer’s Internal Medicines
organisation, where he led commercial activities
across the company’s global operations.
Previously, he held a number of senior positions at
Pfizer, including Head of Marketing for its Global
Established Pharmaceutical Business and Head of
Marketing for Specialty Care, Europe, and oversaw
the UK launch of Spiriva® under the company’s
co-promotion agreement with Boehringer Ingelheim.
He was also Country Manager in the UK, Pfizer’s
largest affiliate outside the United States, where
he had responsibility for manufacturing, research
and commercial operations and during his tenure
was elected President of the Association of the
British Pharmaceutical Industry (ABPI).
Prior to his time at Pfizer, Jonathan held several roles
of increasing responsibility at GSK, where he gained
significant respiratory experience, including leading
the UK launch of Serevent® in COPD. He holds a BSc
in Materials Technology from Coventry University, UK.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Board of Directors
Jo LeCouilliard
Non-Executive Director
Sharon Curran
Non-Executive Director
Jo LeCouilliard was appointed to the Board
as an Independent Non-Executive Director
on 8 February 2018.
Sharon Curran was appointed to the Board
as an Independent Non-Executive Director
on 8 February 2018.
She has 25 years’ healthcare management
experience gained in Europe, the US and Asia.
Much of her career has been in pharmaceuticals
at GlaxoSmithKline where, amongst other roles,
she headed the US vaccines business and Asia
Pacific Pharmaceuticals business and led a
program to modernise the commercial model. She
was previously Chief Operating Officer at the BMI
group of private hospitals in the UK.
She was a Non-Executive Director at Frimley Park
NHS Foundation Trust in the UK, Cello Health PLC
and at the Duke NUS Medical School in Singapore.
Jo is currently a Non-Executive Director at the UK
listed company, Alliance Pharma plc, and at the
Italian listed pharmaceutical company, Recordati
S.p.a. She is a graduate of Cambridge University
and a Chartered Accountant.
Sharon brings to the Company extensive commercial
and launch experience in pharmaceuticals and devices
across Europe, US, Asia and emerging markets. Sharon
has held numerous senior operational and strategic
roles at Eli Lilly, Abbott and most recently as VP Global
Marketing and Commercial Operations at AbbVie (US)
leading their global specialty franchise and development
of global commercial and launch capabilities.
She is also currently a Non-Executive Director with
biopharmaceutical plc MorphoSys AG and with a
global specialty pharmaceutical private company
Noden Pharma DAC.
Sharon holds an Executive MSc in Business
Administration from Trinity College Dublin, BSc
in Biotechnology from Dublin City University and
a Diploma in Company Management from Institute
of Directors.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Nicholas Mills
Non-Executive Director
Nicholas Mills was appointed to the Board
as a Non-Independent Non-Executive Director
on 13 November 2020.
Nicholas joined Harwood Capital LLP in 2019 after
spending 5 years at Gabelli Asset Management in
New York and currently acts as a fund manager.
At Gabelli, he acted primarily as a Research Analyst
covering the multi-industrial space and also gained
experience in Merger Arbitrage strategies and
marketing Closed End Funds.
He has a Bachelor of Science Degree from Boston
College’s Carroll School of Management.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Corporate governance report
Dear shareholders,
On behalf of the Board, I am pleased to present Circassia’s Corporate
governance report for the year ended 31 December 2020.
High standards of corporate governance are fundamental to our business
and are implemented and supported through appropriate internal policies
and procedures. During the year there have been no key governance related
matters, or any changes in governance arrangements, with the exception of
those impacted by the COVID-19 pandemic.
The responsibility for ensuring this framework is effective lies with the
Board, and we are constantly striving to improve standards while building a
successful company.
As Chair, it is my role to oversee the adoption, delivery and communication
of the Company’s corporate governance model.
Maintaining good communication with our shareholders is extremely
important to us. During the year the Executive Directors have held a number
of meetings with investors and current shareholders, many of which have
been held via video or teleconference due to the COVID-19 pandemic.
Ian Johnson
Executive Chairman
24 March 2021
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Corporate Governance Statement
Statement of Compliance with the
Quoted Companies Alliance (QCA)
Corporate Governance Code (the ‘Code’)
Circassia Group plc adopts compliance with the QCA
Corporate Governance Code and confirms that the
Group is fully compliant. This report follows the
structure of these guidelines and explains how we have
applied the guidance.
1) Establish a strategy and business
model which promotes long-term value for
shareholders
The Group’s values are stated within the Corporate
social responsibility report on page 28 and the Group’s
strategy and business model are explained in detail in
the Strategic report on page 22.
2) Seek to understand and meet
shareholder needs and expectations
The Executive Chairman is responsible for ensuring
regular and effective communication with shareholders,
brokers and analysts.
Circassia engages with its shareholders through regular
reporting on the London Stock Exchange, regulatory
announcements on its website and by direct contact
with its major shareholders. Meetings between material
shareholders and the Executive Directors take place
throughout the year. The Executive Chairman and
other directors are available to meet with major
shareholders on request. The Executive Chairman and
the Chief Financial Officer give annual and bi-annual
presentations to institutional investors and analysts.
These presentations are available on the website.
The Annual General Meeting (AGM) provides an
excellent opportunity for all shareholders to meet Board
members and ask about the proposed resolutions and
the business in general.
3) Take into account wider stakeholder and
social responsibilities and their implications
for long-term success
The Group is aware of its corporate social responsibilities
and the need to maintain effective working relationships
across a range of stakeholder groups. These include the
Group’s employees, partners, suppliers and regulatory
authorities. The Group’s Corporate social responsibility
report can be found on page 28.
The Group’s operations and working methodologies
take account of the need to balance the needs of all
stakeholder groups while maintaining focus on the
Board’s primary responsibility to promote the success
of the Group for the benefit of its members as a whole.
The Group endeavours to take account of feedback
received from stakeholders, making amendments to
working arrangements and operational plans where
appropriate and where such amendments are consistent
with the Group’s longer-term strategy.
The Group takes due account of any impact that its
activities may have on the environment and seeks to
minimise this impact wherever possible. Through the
various procedures and systems it operates, the Group
ensures full compliance with health and safety and
environmental legislation relevant to its activities.
4) Embed effective risk management,
considering both opportunities and threats,
throughout the organisation
A description of the risk management system and
the Group’s principal risks is outlined in the Strategic
report on page 32. The system is designed to manage
risks, not to eliminate them completely, and can only
provide a reasonable degree of assurance against
material misstatement or loss. Inherent in the concept
of reasonable assurance is the recognition that the cost
of a control procedure should not exceed its anticipated
benefits. The Audit and Risk Committee reviews the
Group’s risks and mitigating actions on an annual
basis and makes recommendations to the Board where
improvements are required.
The efficacy of control systems is reviewed by the full
Board as required by the Code. The Board confirms
that it has conducted a review of the Group’s risk
management and internal controls systems, including
financial, operational and compliance controls and has
found them to be effective.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Corporate governance report
5) Maintain the board as a well-functioning,
balanced team led by the chair
The role of the Board
The Board is responsible for the leadership and
long-term success of the business. It has a schedule
of matters which are reserved for its review. These
include the review and approval of strategic plans,
financial statements and budgets, financing,
acquisitions and disposals, major capital expenditure,
dividend policy, making key risk decisions, monitoring
risks and compliance, monitoring health, safety
and environmental performance, and executive
remuneration and appointments.
Roles and responsibilities
The Board currently comprises the Executive Chairman,
two Executive Directors, the Senior Independent
Director, and two Independent Non-Executive Directors.
A third Non-Executive Director, Nicholas Mills, is the
representative of a major shareholder and is not
considered to be independent. The biographies of the
current members of the Board are set out on pages
42 to 45 of this report.
The Executive Directors have direct responsibility
for the business operations of the Group. The
Non-Executive Directors, by virtue of their wide
range of industry experience and skills, bring an
informed view to the decision-making process.
The Non-Executive Directors are expected to devote
such time as is necessary for the proper performance
of their duties. The Executive Directors are full time
employees of the Company.
The Board is supported by three committees (the Audit
and Risk Committee; the Nomination Committee; and
the Remuneration Committee) that have the necessary
skills and knowledge to discharge their duties and
responsibilities effectively.
Executive Chairman
The Executive Chairman is responsible for the day to
day management of the Group, for implementing the
strategy which has been reviewed and approved by
the Board and for the leadership of the Board and its
effectiveness by ensuring that:
·
the agenda for meetings is appropriate, and the
Board is provided with the information it needs for
high quality decision making in a timely fashion;
·
·
·
·
·
·
the Board plays a full and constructive role
in shaping the strategy of the Group;
the Board environment is productive and utilises the
skills and experience of all members;
the Board complies with the appropriate standards
of corporate governance;
the Committees are properly structured and
resourced;
the performance of the Board, its Committees, and
individual directors is evaluated each year; and
there is effective communication with shareholders,
brokers, and analysts.
Non-Executive Directors
The role of the Non-Executive Directors, and of the
Committees of which they are members, is to scrutinise
the performance of management, satisfy themselves that
the financial and risk control mechanisms are robust, and
determine appropriate levels of executive pay.
They have wide ranging experience of industry and bring
their judgement to bear in the decision-making process
of the Board. Their seniority and range of skills ensure
that no one individual can dominate this process.
Independence
The Board considers itself to be sufficiently
independent. The Code suggests that a board should
have at least two independent Non-Executive Directors.
As at the date of signing this report, there are four Non-
Executive Directors (including the Senior Independent
Director), three of whom are deemed to be independent.
Board meetings
The Board aims to meet at least six times during the
year, with monthly conference calls taking place in
the intervening period. Additional meetings may be
arranged where urgent matters arise. Board meetings
may be held by video conference, telephone, or in
person as appropriate.
The table opposite sets out the attendance of the
directors, while they were Board members, at scheduled
meetings which occurred during the year to 31
December 2020.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Committee
Memberships
Independent
Status
Board
Nomination
Committee
Audit & Risk
Committee
Remuneration
Committee
Executive Directors
Ian Johnson
Michael Roller2
Jonathan Emms
n/a
n/a
n/a
Non-Executive Directors
n/a
n/a
n/a
12 (12)
12 (12)
12 (12)
-
-
-
4 (4)1
4 (4)1
4 (4)3
4 (4)1
-
4 (4)1
Garry Watts4
N5, N(Chair)6, A7, R8
Yes
11 (11)
4 (4)
Jo LeCouilliard
N(Chair)9, N, A(Chair), R
Yes
12 (12)
4 (4)
Sharon Curran
N, A, R(Chair)
Nicholas Mills10
n/a
Yes
No
N = Nomination Committee
R = Remuneration Committee
A = Audit and Risk Committee
Figures in brackets represent the total number of meetings occurring
during the year to 31 December 2020 when the director was in office.
12 (12)
4 (4)
1 (1)
-
1 By invitation.
4 (4)
4 (4)
4 (4)
-
3 (3)
4 (4)
4 (4)
-
2 From 9 January 2020, when he was appointed as Chief Financial Officer.
3 In the capacity of Secretary to the Committee.
4 From 2 March 2020, when he was appointed as Non-Executive Director
and Senior Independent Director.
5 From 2 March 2020, when he was appointed as a member of the Nomination Committee
to 17 June 2020 when he succeeded Jo LeCouilliard as Chair of the Nomination Committee.
6 From 17 June 2020, when he succeeded Jo LeCouilliard as Chair of the
Nomination Committee.
7 From 2 March 2020, when he was appointed as a member of the Audit and
Risk Committee.
8 From 2 March 2020, when he was appointed as a member of the Remuneration Committee.
9 Until 17 June 2020, when she stepped down as Chair of the Nomination Committee
and became a member of the Nomination Committee.
10 From 13 November 2020, when he was appointed as a Non-Executive Director.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Corporate governance report
6) Ensure that between them the directors
have the necessary up-to-date experience,
skills and capabilities
The directors believe that the Board, taken as a whole,
has sufficient expertise and variety of complementary
skills for the Company to operate and develop its
business satisfactorily. The current Board, although
holders of suitably sufficient skill level in the areas
of the business, are always looking to improve and
further their knowledge of the industry so as to gain
a competitive advantage over an expectedly crowded
market. All directors receive regular and timely
information on the Group’s operational and financial
performance. Relevant information is circulated to
the directors in advance of meetings by the Company
Secretary.
7) Evaluate board performance based on clear
and relevant objectives, seeking continuous
improvement
Formal Board evaluations are carried out once a
year, and informal evaluations are carried out on a
continuing basis throughout the year. The formal
evaluation commences with the circulation of a written
questionnaire which is prepared by the Company
Secretary. This invites directors to rate and comment
on the performance of the Board in a number of areas,
including the conduct of Board meetings; the standard
and timeliness of information; the balance of skills of
the members of the Board; the roles and responsibilities
of individual directors; and compliance with good
corporate governance practices. A detailed, anonymised
analysis of these responses is then prepared by the
Company Secretary and reviewed and discussed by the
Board which then debates the responses and agrees
upon the actions required.
The most recent Board evaluation concluded that the
Board was operating effectively. The survey identified
a bias in Non-Executive Director experience to
pharmaceuticals rather than diagnostic devices. The
Board agreed that this would inform future decisions as
Non-Executive Directors retire from the Board.
8) Promote a corporate culture that is based
on ethical values and behaviours
The Board is committed to promoting a strong ethical
and values driven culture throughout the Company.
The Board aims to lead by example and do what is
in the best interests of the Group, its stakeholders
and shareholders. The Executive Directors strive to
act in a manner which is professional and ethical and
has published its ethical policies for all employees to
observe and comply with.
9) Maintain governance structures and
processes that are fit for purpose and support
good decision-making by the Board
Board programme
The Board sets direction for the Company through a
formal schedule of matters reserved for its decision.
The Board and its Committees receive appropriate
and timely information prior to each meeting; a formal
agenda is produced for each meeting and Board and
Committee papers are distributed by the Company
Secretary several days before the meetings take place.
Any director may challenge Company proposals and
decisions are taken after full discussion. Any director
who feels that any concern remains unresolved after
discussion may ask for that concern to be noted in
the minutes of the meeting, which are then circulated
to all directors. Any specific actions arising from
such meetings are agreed by the Board or relevant
Committee and then followed up by the Company’s
management.
Board Committees
The Board has three Committees to which it delegates
specific responsibilities; the Audit and Risk Committee;
the Nomination Committee; and the Remuneration
Committee. The reports of these Committees and
details of their composition form part of the Corporate
governance report. Each Committee has full terms of
reference which have been approved by the Board and
also appear on the website at www.circassia.com. These
terms of reference are reviewed annually. The Board
provides the Committees with sufficient resources,
including access to external advisers, as may be
required in order to fulfil their roles.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
10) Communicate how the Company is
governed and is performing by maintaining a
dialogue with shareholders and other relevant
stakeholders
The Executive Chairman and Chief Financial
Officer regularly meet with investors after results
announcements have been made and at other
shareholder participant events. They also meet
regularly with the Group’s Nominated Adviser/broker
and discuss any shareholder feedback – the Board is
briefed accordingly.
Although the COVID-19 pandemic had an effect in
2020, it is company policy that all directors attend the
AGM and engage both formally and informally with
shareholders during and after the meeting. The results
of voting at the AGM are communicated to shareholders
via RNS and on the Group’s website.
The Executive Chairman and the Chief Financial Officer
make presentations to institutional shareholders and
analysts each year immediately following the release
of interim and full year results. The slides used for
such presentations are made available on the Group’s
website under the financial reports section.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Audit and Risk Committee report
Dear shareholders,
On behalf of the Board I am pleased to present
Circassia’s Audit and Risk Committee report for
the year ended 31 December 2020.
This report sets out how the Committee has
discharged its responsibilities under the Quoted
Companies Alliance Code (the “Code”).
Jo LeCouilliard
Chair of the Audit and Risk Committee
24 March 2021
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Responsibilities
Membership
The Audit and Risk Committee’s terms of reference
include the following responsibilities:
· Monitoring the integrity of the Company’s financial
statements and any other formal announcements
relating to the Company’s financial performance;
· Annually considering the need for an internal
audit function;
· Reviewing and monitoring the external auditors’
independence and objectivity and the effectiveness
of the audit process, taking into consideration the
relevant UK professional and regulatory requirements
and the relationship with the auditors as a whole,
including the provision of any non-audit services;
· Making recommendations to the Board in relation
to the appointment, reappointment and removal of
the external auditors and approving the remuneration
and terms of engagement of the external auditors;
· Reviewing the adequacy and effectiveness of the
Company’s internal financial controls and the Group’s
internal control and risk management systems;
·
Ensuring that the Company has arrangements
in place for the investigation and follow-up of any
concerns raised confidentially by staff in relation to
the propriety of financial reporting or other matters.
If necessary, the Committee may appoint external
accounting and legal advisers to assist it with its work.
The Committee reviews its terms of reference and its
effectiveness annually and recommends to the Board any
changes required as a result of the review. The terms of
reference are available on the Company website.
The Company Secretary acts as the Secretary to the
Committee. The Executive Chairman, Chief Financial
Officer and Chief Operating Officer may attend
meetings by invitation.
The Committee meets with the external auditors at
least once a year in the absence of management.
The Board considers that the members of the
Committee are independent and collectively have the
skills and experience required to discharge their duties
effectively.
Ms Jo LeCouilliard, Chair of the Audit and Risk
Committee, is a Chartered Accountant and a member
of the ICAEW. She has recent and relevant experience
which enables her to understand the risks facing
the business, be able to challenge the financial
position and performance of the Company and make
recommendations to the Board.
As such, the Board considers that the Chair of the
Committee has recent and relevant financial experience.
Member
Date
appointed
Meetings
attended (held)
J LeCouilliard
(Chair of the Committee)1
30 May 2018
4 (4)
S Curran
30 May 2018
4 (4)
G Watts
2 March 2020
4 (4)
1 Ms Jo LeCouilliard became Chair of the Committee on 4 February 2019.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Audit and Risk Committee report
Matters considered
A summary of the matters considered by the
Committee since the last financial statements is
shown in the table below and explained in further
detail in the subsequent text:
Area of review
Activities undertaken
Financial reporting
External auditors
· Review of the interim and full year results.
· Consideration of whether the Annual Report and accounts is fair,
balanced and understandable.
· Review of the external auditors’ report for the full year results.
· Review of significant accounting judgements and estimates (see overleaf).
· Review of anticipated changes in accounting standards and their impact.
· Review of the going concern basis of preparation of the financial statements.
· Review of the external auditors’ independence.
· Review of the external auditors’ compliance with ethical and professional
guidance on audit partner rotation.
· Assessment of the effectiveness of the audit process.
· Recommendation regarding reappointment of the external auditors.
Risk management
and internal control
· Review of risk, risk management systems, internal controls and the
whistleblowing policy. The Group’s principal risks are outlined on page 32 to 39.
· Review of compliance activities.
Governance
· Review of the Committee’s terms of reference.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Significant accounting matters
The following key areas of risk and critical accounting
estimates have been identified and considered by the
Audit and Risk Committee in relation to the business
activities and financial statements of the Group:
· Measurement of Tudorza® revenue deductions.
· Recognition of deferred tax asset for
carried-forward tax losses.
· Assessment of the possible impairment of goodwill
and intangible assets.
· Assessment of the possible impairment of
investments in subsidiaries and intercompany
receivables.
· Going concern and cash flow.
Measurement of Tudorza® revenue deductions
Circassia must estimate the rebates and chargebacks
that are expected to be paid on sales of Tudorza® and
also a refund liability for the amount of consideration
received for which the entity does not expect to
be entitled. The liability relating to these revenue
deductions is re-estimated at the end of each period.
The value of the rebate accrual is calculated by taking
into account specific contract provisions, coupled with
expected performance.
A deduction to revenue of £33.0 million was recognised
in the income statement for the year ended 31
December 2020, and a liability of £14.1 million was
recognised on the statement of financial position as at
31 December 2020.
Recognition of deferred tax asset
for carried-forward tax losses
A deferred tax asset has been recognised relating to the
carried-forward tax losses of Circassia AB (previously
known as Aerocrine AB). These losses were generated
before the company was acquired by Circassia Group
plc. The Group has concluded that the deferred
assets will be recoverable using the estimated future
taxable income based on the approved business plans
and budgets for the subsidiary. The subsidiary has
generated taxable income from the year ended 2017
and is expected to continue generating taxable income
from 2021 onwards. A deferred tax asset of £12.0 million
(2019: £18.9 million) was recognised on the statement of
financial position as at 31 December 2020.
Assessment of the possible impairment of
goodwill and intangible assets
In line with IAS 36 Impairment of Assets, the carrying
value of each cash generating unit (CGU) including
the allocated goodwill was tested for impairment.
Impairment assessments were performed at the NIOX®
CGU level and at an individual intangible asset level.
During 2020, the performance of the NIOX® business
was significantly impacted by the COVID-19 pandemic.
The speed of recovery from the pandemic will have a
significant impact on the carrying value of the CGU.
If the Group’s sales are lower than forecast due to a
slower recovery, or the pre-tax discount rate applied to
the cash flow projections is higher than management’s
estimates, this could result in an impairment of the
related goodwill and intangible assets.
Management performed detailed impairment
assessments and concluded that no impairment was
required to the NIOX® CGU as the carrying value of
the CGU was greater than the value of the assets held.
See notes 16 and 17 for further details.
Assessment of the possible impairment
of investments in subsidiaries and
intercompany receivables
In line with IAS 36 Impairment of Assets, the carrying
value of each investment held by Circassia Group plc in
its subsidiaries was tested for impairment.
At the beginning of the year, an intercompany balance
of £121.4 million owed by Circassia Pharmaceuticals Inc
was reclassified as an investment. This intercompany
balance had a provision of £95.1 million against it.
As such, this provision was reclassified as a provision
against investments. Management concluded that a
further provision was required to the investment in
Circassia Limited, Circassia Pharmaceuticals Inc and
Circassia (Beijing) Medical Device Co. Limited.
This resulted in an additional provision of £30.0 million
being recognised. See note 18 for further details.
In line with IFRS 9, the carrying value of intercompany
receivable balances owed to Circassia Group plc by
its subsidiaries was assessed measuring expected
credit losses by using a range of probability weighted
scenarios for the recoverability of the balances.
Due to the aforementioned reclassification, provisions
against intercompany receivables decreased by
£95.1 million at the beginning of the year.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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Audit and Risk Committee report
Management concluded that a further provision was
required to the intercompany receivable balance with
Circassia Limited, Circassia Pharmaceuticals Inc and
Circassia (Beijing) Medical Device Co. Limited. This
resulted in an additional provision of £18.1 million being
recognised. See notes 2 and 20 for further details.
Going concern and cash flow
In assessing the appropriateness of the going concern
assumption, the Board has considered the availability
of funding alongside the possible cash requirements
of the Group and Company, taking into account the
unprecedented circumstances caused by the COVID-19
pandemic. The Board has prepared cash flow forecasts
for a period of 18 months from the date of approval
of these financial statements. This base case scenario
includes the benefits of actions already taken by
management to mitigate the trading downsides brought
about by COVID-19, for example, restrictions on travel,
limiting new hires and reducing discretionary spend as
well as agreeing a further equity facility with significant
shareholders. This base case assumes that sales of NIOX®
will gradually build back towards pre-COVID-19 levels
by the middle of 2022 and then grow at a slower rate
than previous periods. Under this base case scenario,
the Group is expected to continue to have sufficient
resources beyond 12 months from the approval of the
financial statements.
The most extreme downside scenario modelled the
impact of sales gradually building to pre-COVID-19 levels
by the end of 2022. These reductions in revenue versus
the base case forecast of 11% in 2021 and 8% in 2022
would be offset by significant mitigating cost reductions
and cash protection actions, within the control of the
Board, commencing in April 2021 (for example significant
salary cuts for Board members, non-payment of
discretionary bonuses and a reduction in discretionary
marketing expenditure without further impacting NIOX®
growth rates). In this scenario the Group remains cash
positive beyond 12 months from the approval of the
financial statements. After due consideration, the Board
has concluded that there is a reasonable expectation
that the Group has adequate resources to continue
in operational existence for at least 12 months from
the date of this report. The directors also considered
it appropriate to prepare the financial statements on
the going concern basis, as explained in the ‘Basis of
preparation’ paragraph in note 1 to the accounts.
Risk management and internal control
The Board has overall responsibility for the review
of the Group’s risk management framework and the
level of risk which is acceptable in order to achieve its
strategic objectives.
The Committee, on behalf of the Board, undertakes
the detailed monitoring of the risk management
framework and system of internal controls and reports
to the Board on their suitability and efficacy annually.
In order to discharge its duties in this respect, the
Committee receives and reviews reports from the
Group’s management team. The Committee continues
to assess what is an acceptable level of risk in key areas
and the best strategy for mitigating those risks given
the cost and time constraints which exist.
During the year, as is required by the Code, the Committee
performed a detailed assessment of the principal risks
faced by the Group and how these are managed and
mitigated. An annual review of the effectiveness of the
Group’s monitoring and review systems was carried out at
the December Committee meeting.
Whistleblowing
A confidential whistleblowing procedure exists to
enable employees to raise concerns regarding possible
improprieties in relation to financial or other matters.
This procedure has been communicated to all staff.
Reports can be made through an online tool or a
telephone helpline operated by a third-party provider.
The Committee has reviewed these arrangements
and is satisfied that the current procedure allows for
proportionate and independent investigation of such
disclosures and for appropriate follow up actions
to be taken. In accordance with the current policy,
concerned employees may raise matters directly with the
Compliance team or directly with the Chair of the Audit
and Risk Committee.
Anti-corruption and anti-bribery
The Group has an anti-corruption and anti-bribery
policy which has been communicated to all staff.
This policy ensures full compliance with the UK Bribery
Act 2010, the US Foreign Corrupt Practices Act and
other major anti-corruption legislation. The policy
extends to carrying out due diligence on new key
business partners who are judged to be acting on behalf
of the Group in high risk areas.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Internal audit
This year, the Committee considered again whether
there is a need for an internal audit function and
concluded that, given the scale of operations at this
time, it is not currently necessary. Internal assurance
is received through thorough review of monthly
management accounts, combined with periodic reviews
of overseas accounting functions.
This does not affect the work of the external auditors.
The Board accepted this recommendation. This decision
will be kept under review.
External auditors
Effectiveness
The effectiveness of the external audit process is
reviewed annually by the Committee. This review
encompasses an examination of the independence,
qualifications, capabilities and remuneration of the
auditors. If issues are identified which may affect
the effectiveness of the process, then actions will be
agreed. No such issues were identified in the year to
31 December 2020 or up to the date of this report.
At the end of the audit for the year ended 31 December
2019, the Committee formally evaluated the performance
of PricewaterhouseCoopers LLP (PwC) who had been
reappointed as auditors following a tender carried
out in 2016 for the audit of the 2017 financial year. To
conduct this evaluation, the Committee completed a
questionnaire to assess the robustness of the audit
process, quality of its delivery, quality of reporting and
quality of the individuals and service.
Moreover, the Committee takes into account the quality
of its interactions with the auditors in forming a view on
their effectiveness.
Independence
The Group’s external auditors, PwC are engaged to
express its opinion on the Group’s and the Company’s
financial statements. The Committee is responsible
for reviewing the independence and objectivity of the
external auditors.
Each year the external auditors confirms its policies for
ensuring its independence and provides the Committee
with written confirmation that they continue to be
independent. The Committee pays careful regard to
whether non-audit work is carried out by the auditor
to ensure that the provision of such additional services
does not impair its independence or objectivity.
A formal process exists for approving the use of the
auditors for non-audit work. The auditors should not be
appointed to provide non-audit services which might
put the auditors in the position of auditing its own work
or create a mutual interest between the Group and the
auditors or result in the auditors acting as an advocate,
manager, or employee of the Group.
The total fees paid to the auditors are shown in note 9
of the financial statements. During the year, the Group
did not make any payments to PwC in respect of non-
audit services.
In summary, the Committee confirms that the Group
has received an independent audit service in the year to
31 December 2020 and up to the date of this report.
Audit partner rotation
PwC adheres to a rotation policy which complies with
the ethical standards of the Audit Practices Board (the
“APB”) and the audit partner is rotated every five years.
Miles Saunders, the current audit partner, was
appointed for the year ending 31 December 2019 and
is not due for rotation until after the completion of the
audit for the year ending 31 December 2023.
Tendering
PwC have been the Company’s auditors since the year
ended 31 December 2007. The Committee is actively
monitoring developments arising from the EU audit
reform framework and the Competition and Markets
Authority. In view of those developments, the Committee
conducted an audit tender process during the course
of 2016 and recommended PwC for re-appointment by
shareholders.
Committee evaluation
An internal review of the effectiveness of the Committee
was carried out in December 2020 as part of the process
of evaluating Board effectiveness. The findings of the
evaluation were debated by the Board and a list of
actions agreed.
Jo LeCouilliard
Chair of the Audit and Risk Committee
24 March 2021
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Nomination Committee report
Dear shareholders,
On behalf of the Board, I am pleased to present the Nomination Committee report for the year
ended 31 December 2020.
The key objective of the Committee is to ensure the Board is made up of a range of individuals
who together have the appropriate mixture of skills and experience to lead the Group. During
the year, the composition of the Board has evolved. In January 2020, Julien Cotta stepped down
from his role of CFO and Executive Director and was succeeded by Michael Roller. Subsequently,
the Nomination Committee, chaired by Jo LeCouilliard, recommended my appointment as Senior
Independent Director.
I joined the Board in March 2020 and became a member of the Nomination Committee and
replaced Jo LeCouilliard as Chair of the Nomination Committee with effect from 17 June 2020.
Subsequently, Nicholas Mills was recommended to the Board as a Non-Independent Non-Executive
Director representing a major shareholder. Nicholas joined the Board on 13 November 2020.
A summary of the activities of the Committee is set out below.
Garry Watts
Chair of the Nomination Committee
24 March 2021
Responsibilities
The Committee is responsible for considering the
composition and efficacy of the Board as a whole and
for making recommendations as appropriate to ensure
that the Group has the ability to perform effectively
now and in the future. The Committee also plans
for the orderly succession of directors to the Board
and recommends to the Board the membership and
chairmanship of the Audit and Risk and Remuneration
Committees.
The full terms of reference of the Committee can be
found on the website.
Membership
The names of the members of the Nomination
Committee, their dates of appointment and the number
of meetings attended during the year are set out in the
table opposite:
Member
G Watts
(Chair of the Committee)1
Date
appointed
Meetings
attended (held)
2 March 2020
4 (4)
J LeCouilliard1
30 May 2018
4 (4)
S Curran
5 December 2019
4 (4)
1 Mr Garry Watts replaced Jo LeCouilliard as Chair of the Committee on 17 June 2020.
The Company Secretary acts as Secretary to the
Committee. The Executive Chairman, Chief Financial
Officer and Senior Vice President of Global Human
Resources may be invited to attend meetings where this
may assist the Committee in fulfilling its responsibilities.
The Committee is empowered to obtain external
professional advice to assist in the performance of its
duties. However, during the year the Committee did not
require any external services.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Primary responsibilities
In accordance with its terms of reference,
the Nomination Committee’s primary
responsibilities include:
·
·
·
·
·
leading the process for Board appointments
and making recommendations to the Board;
regularly reviewing the Board structure, size
and composition (including skills, knowledge,
independence, experience and diversity) and making
recommendations for further recruitment to the
Board or proposing changes to the existing Board;
considering plans for orderly succession for
appointments to the Board and to senior
management to maintain an appropriate balance
of skills and experience within the Company and
to ensure progressive refreshing of the Board;
keeping under review the leadership needs of the
Group, both executive and non-executive, to
ensure the organisation competes efficiently in
the marketplace; and
being responsible for identifying and nominating,
for the approval of the Board, candidates to fill
Board vacancies as and when they arise.
Committee activities during the year
The principal activities during the year were:
· Chief Financial Officer appointment:
The Nomination Committee carried out a
recruitment process to identify suitable
candidates to succeed Mr Julien Cotta as Chief
Financial Officer based on criteria agreed by the
Nomination Committee. All directors met with the
final candidate. Following its deliberations, the
Nomination Committee recommended to the Board
to appoint Mr Michael Roller as Chief Financial
Officer commencing 9 January 2020.
· Company Secretary appointment:
Following feedback from the previous year’s Board
performance evaluation that the Company Secretary
role should be undertaken by someone other than
an Executive Director, the Nomination Committee
recommended to the Board to appoint Ms Sarah
Duncan as Company Secretary to replace Michael
Roller with effect from 1 November 2020.
· Reviewing Board composition:
The Nomination Committee met during the period
to discuss the Board’s size and composition in
relation to the various Board appointments noted
above. Following its deliberations, the Nomination
Committee recommended to the Board to appoint
Mr Garry Watts as Senior Independent Director and
Non-Executive Director, and Mr Nicholas Mills as a
Non-Independent Non-Executive Director. Mr Watts
joined the Board in March 2020 and Mr Mills joined
the Board in November 2020.
·
Performance evaluation:
The Committee’s effectiveness was reviewed as part
of the Board’s performance evaluation process which
was carried out during the final quarter of the year
under review. This evaluation concluded that the
Committee was continuing to function effectively.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Remuneration Committee report
Dear shareholders,
On behalf of the Board, I am pleased to present Circassia’s Remuneration Committee
report for the year ended 31 December 2020. This report complies with the regime set
out in the Quoted Company Alliance Code (‘the Code’).
The Committee has a duty to establish a remuneration policy which will enable it to attract
and retain individuals of the highest calibre to run the Group. Its policy is to ensure that the
executive remuneration packages of Executive Directors are appropriate given performance,
scale of responsibility and experience. Packages are structured to motivate executives to
achieve the highest level of performance in line with the best interests of shareholders.
The Company, being quoted on AIM, is not required to produce a comprehensive Directors’
remuneration report or to submit a remuneration policy to a binding vote. The directors’
remuneration policy, which is required to be disclosed every three years, was included in the
previous Annual Report.
There have been no substantial changes to the remuneration policy and there have been
no major decisions taken by the Remuneration Committee this year. The Board does wish
to maintain transparency and demonstrate good governance standards and a simple
remuneration structure and so it provides the following annual report on remuneration.
We have engaged with and consulted our principal shareholders, in particular with regards
to the resolutions that were passed at the Extraordinary General Meeting (EGM) on 30 April
2020. I am grateful to those with whom we have engaged for their support, and for their
constructive responses to our remuneration policy and the actions taken by the Committee.
The Committee will continue its shareholder engagement programme and will consult with
our principal shareholders on future material changes in policy.
Sharon Curran
Chair of the Remuneration Committee
24 March 2021
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Annual report on remuneration
Members of the Remuneration Committee
This section describes the remuneration outcomes
for the Executive Directors for the year ended 31
December 2020 in accordance with the remuneration
policy applicable to that year.
The names of the members of the Remuneration
Committee, their dates of appointment, and the
number of meetings attended during the year are
set out in the table below:
Member
Date
appointed
Meetings
attended (held)
S Curran
(Chair of the Committee)1
30 May 2018
4 (4)
J LeCouilliard
30 May 2018
4 (4)
G Watts
2 March 2020
4 (4)
1 Ms Sharon Curran became Chair of the Committee on 4 February 2019.
All members are considered to be independent
and therefore the Committee complied with the
requirements of the QCA Code that all members of
the Remuneration Committee are to be Independent
Non-Executive Directors.
No director participates in discussions about his or
her own remuneration.
No external advisors have been used by the
Remuneration Committee to materially assist the
Committee with their decisions.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Remuneration Committee report
Single total figure of remuneration for each director
The table below shows the remuneration for each person who has served as
a director of Circassia Group plc at any time during the year:
The reasoning for salary changes between 2019 and 2020, including roles
relating to different committees, is explained through the rest of this report.
For the year ended
31 December 2020
Executive Directors
Ian Johnson2
Michael Roller
Jonathan Emms
Non-Executive Directors
Jo LeCouilliard3
Sharon Curran4
Garry Watts
Nicholas Mills
Total
Salary and fees1
£’000
Pension
£’000
Benefits
£’000
Total
£’000
312
218
300
71
75
61
6
-
-
30
-
-
-
-
1,043
30
-
-
2
-
-
-
-
2
312
218
332
71
75
61
6
1,075
1 Includes £10,000 per annum expenses allowance for Ian Johnson and Michael Roller, which was waived from 1 April 2020
2 Includes £9,000 in respect of the 2019 financial year
3 Includes £1,000 underpayment from the previous year
4 Includes £5,000 underpayment from the previous year
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
For the year ended
31 December 2019
Executive Directors
Ian Johnson
Steven Harris
Julien Cotta
Rod Hafner3
Jonathan Emms
Non-Executive Directors
Francesco Granata
Russell Cummings
Lota Zoth
Jo LeCouilliard
Sharon Curran
Heribert Staudinger
Salary
and fees
Pension
Benefits
Annual
bonus
LTIP/
PSP1
Payments
for loss
of office2
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
12
420
281
167
103
138
26
6
70
58
4
-
49
22
23
5
-
-
-
-
-
-
-
2
2
1
1
-
-
-
-
-
-
6
-
105
69
73
-
-
-
-
-
-
-
-
15
8
8
-
-
-
-
-
-
-
-
432
392
96
-
37
-
-
-
-
-
12
1,032
774
368
109
175
26
6
70
58
4
247
31
957
2,625
Total
1,285
99
1 The amount shown relates to the gain, being the market value on the vesting date less the exercise price in respect of awards which vested during the relevant year
2 Payments for loss of office is the total amount of compensation for loss of office paid to or receivable by the person,
and any other payments paid to or receivable by the person in connection with the termination of qualifying services
3 Remuneration has been pro-rated to 2 September 2019, being the date he stepped down from the Board
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Remuneration Committee report
Annual bonus for the year
to 31 December 2020
Mr Ian Johnson and Mr Michael Roller are not eligible
to participate in the annual bonus scheme for any
financial year. As a result of the COVID-19 pandemic,
Mr Jonathan Emms has volunteered to waive his
rights to a bonus in relation to the financial year
ended 31 December 2020.
Scheme interests awarded to directors
during the financial year
Following approval at the EGM, on 1 May 2020 Messrs
Roller and Johnson were granted 4,000,000 and
1,677,233 options respectively over new ordinary shares
in the Company under the Performance Share Plan
(“PSP”). This grant required shareholder approval
as the market value of the options was in excess of
the annual limit on individual participation set out in
Circassia’s remuneration policy.
Mr Emms was also granted 1,128,966 options on the
same date; however, shareholder approval was not
required as this grant was in line with the previously
approved remuneration policy. The options will vest
on the third anniversary of the date of grant and
are exercisable until the tenth anniversary of the
date of grant. Vesting is subject to either the price
of an ordinary share reaching 62.4p for at least 30
consecutive dealing days or a liquidity event occurring
above this level.
On 14 August 2020, Mr Emms was granted a further
2,479,339 options over new ordinary shares in the
Company under the Performance Share Plan (“PSP”).
The options will vest on the third anniversary of the
date of grant and are exercisable until the tenth
anniversary of the date of grant.
Vesting is subject to either the price of an ordinary
share reaching a specific price for at least 30
consecutive dealing days or a liquidity event occurring
above the specified level. 33% vesting will occur at
a level of 40p, 66% vesting at a level of 50p and full
vesting at a level of 60p.
Mr Emms has, at the same time, forfeited his interest
in 1,630,435 nominal cost options granted to him in
2019. These options had vesting criteria which were
in part associated with the Company’s structure
prior to the completion of the transaction to transfer
Executive
Director
Plan
Type of
award
Share price
at date of
grant
Number of
shares over
which award
was granted
% of shares
granted that
vest at threshold
performance
Face value of shares
over which award originally
granted
£’000
I Johnson
PSP
Nil cost option
£0.28
1,677,233
I Johnson
SAYE
Fixed cost option
£0.31
81,781
M Roller
PSP
Nil cost option
£0.28
4,000,000
M Roller
SAYE
Fixed cost option
£0.31
81,781
J Emms
PSP
Nominal cost option
£0.28
1,128,966
J Emms
PSP
Nominal cost option
£0.31
2,479,339
J Emms
SAYE
Fixed cost option
£0.31
81,781
0.00%
0.00%
0.00%
0.00%
0.00%
33.00%
0.00%
£470
£25
£1,120
£25
£316
£769
£25
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 the U.S. commercial rights to Tudorza® and Duaklir® to
AstraZeneca, and their cancellation and replacement
permits Mr Emms’ equity incentive to be more closely
aligned with that of the other members of the executive
management team.
Awards made to Mr Emms under the PSP scheme have
an additional holding period of two years, other than
for the sale of shares to satisfy any tax liability created
on exercise.
Also approved by shareholders at the EGM, the Save As
You Earn (“SAYE”) scheme was introduced in August
2020 which was open to UK based employees of the
Group. The options will vest on the third anniversary
of the date of grant and entitle the option holder to
purchase ordinary shares in Circassia Group plc at a price
of 22.01 pence per share. Following the publication of the
Group results in March 2021, this scheme will be extended
to US employees of the Group. US and UK employees
combined represent 56% of Group employees.
Gain on exercise of share options
No directors exercised share options in the financial
years ended 31 December 2020 and 2019.
Payments to past directors
There were no payments during the financial year to
past directors, except those payments for loss of office
disclosed below.
Payments for loss of office
There were no payments for loss of office in respect of
the current financial year. Payments for loss of office
were made to Steve Harris, Julien Cotta and Rod Hafner
in respect of the prior financial year in line with the
2019 Annual Report.
Statement of directors’ shareholding
and share interests
The following table shows the number of shares
beneficially owned by the directors who served
during the financial year which are not subject to any
restrictions on transfer or to forfeiture.
The value of the shareholding is calculated using the
higher of the share price on 31 December 2020 (28p) and
the acquisition price of the shares.
The Executive Directors are required to hold shares
worth at least 200% of salary.
Shares beneficially owned as at
31 December 2020
Value of owned shares
as a % of salary
Requirement met?
Executive Directors
I Johnson
M Roller
J Emms
Non-Executive Directors
G Watts
N Mills
200,000
200,000
600,000
477,340
130,000
19%
26%
56%
n/a
n/a
No
No
No
n/a
n/a
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
65
65
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
-
-
-
-
-
-
-
-
-
-
-
-
4,322,767
1,677,233
81,781
6,081,781
4,000,000
81,781
4,081,781
-
1,128,966
2,479,339
81,781
3,690,086
(p)
nil
nil
22.01
nil
22.01
0.08
0.08
0.08
22.01
19-Dec-22
19-Dec-22
21-Aug-23
01-May-23
21-Aug-23
17-Oct-22
01-May-23
13-Aug-23
21-Aug-23
19-Dec-29
19-Dec-29
21-Feb-24
01-May-30
21-Feb-24
17-Oct-29
01-May-30
13-Aug-30
21-Feb-24
CORPORATE GOVERNANCE
Remuneration Committee report
Name
Plan
Date
of grant
Awards granted and
options held as at
1 January 2020
Awards and options granted,
exercised, lapsed, or cancelled
during year
Awards and options held at
31 December 2020 and at the
date of this report
Vested as at
year end
Unvested as
at year end
Exercise price
Date from which first
exercisable
Expiry date
2019 PSP
19-Dec-19
4,322,767
I Johnson
2019 PSP
01-May-20
2020 SAYE
21-Aug-20
-
-
Total
4,322,767
2019 PSP
01-May-20
M Roller
2020 SAYE
21-Aug-20
Total
-
-
-
2019 PSP
17-Oct-19
1,630,435
2019 PSP
01-May-20
J Emms
2020 PSP
13-Aug-20
2020 SAYE
21-Aug-20
-
-
-
Total
1,630,435
-
1,677,233
81,781
1,759,014
4,000,000
81,781
4,081,781
(1,630,435)
1,128,966
2,479,339
81,781
2,059,651
4,322,767
1,677,233
81,781
6,081,781
4,000,000
81,781
4,081,781
-
1,128,966
2,479,339
81,781
3,690,086
Total Shareholder Return
Circassia
FTSE AIM 100
Performance graph
The performance of the Company’s
ordinary shares compared with the
FTSE AIM 100 (the “Index”) for the
period from its IPO on 18 March 2014
up to 31 December 2020 is shown in
the following graph:
180
135
90
45
0
03/2014
11/2014
07/2015
03/2016
11/2016
66
66
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Name
Plan
of grant
1 January 2020
during year
date of this report
Awards granted and
Awards and options granted,
Awards and options held at
Date
options held as at
exercised, lapsed, or cancelled
31 December 2020 and at the
Vested as at
year end
Unvested as
at year end
Exercise price
(p)
Date from which first
exercisable
Expiry date
2019 PSP
19-Dec-19
4,322,767
I Johnson
2019 PSP
01-May-20
2020 SAYE
21-Aug-20
2019 PSP
01-May-20
M Roller
2020 SAYE
21-Aug-20
Total
Total
2019 PSP
01-May-20
J Emms
2020 PSP
13-Aug-20
2020 SAYE
21-Aug-20
4,322,767
-
-
-
-
-
-
-
-
2019 PSP
17-Oct-19
1,630,435
Total
1,630,435
-
1,677,233
81,781
1,759,014
4,000,000
81,781
4,081,781
(1,630,435)
1,128,966
2,479,339
81,781
2,059,651
4,322,767
1,677,233
81,781
6,081,781
4,000,000
81,781
4,081,781
-
1,128,966
2,479,339
81,781
3,690,086
Total Shareholder Return
-
-
-
-
-
-
-
-
-
-
-
-
4,322,767
1,677,233
81,781
6,081,781
4,000,000
81,781
4,081,781
-
1,128,966
2,479,339
81,781
3,690,086
nil
nil
22.01
nil
22.01
0.08
0.08
0.08
22.01
19-Dec-22
19-Dec-22
21-Aug-23
01-May-23
21-Aug-23
17-Oct-22
01-May-23
13-Aug-23
21-Aug-23
19-Dec-29
19-Dec-29
21-Feb-24
01-May-30
21-Feb-24
17-Oct-29
01-May-30
13-Aug-30
21-Feb-24
180
135
90
45
0
11/2016
07/2017
03/2018
11/2018
07/2019
03/2020
11/2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
67
67
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Remuneration Committee report
Relative importance of spend on pay
Statement of voting at general meeting
The table below shows the expenditure by the Company
on remuneration paid to all employees of the Group and
distributions to shareholders for the financial year.
The remuneration report was approved by shareholders
at the AGM with the following votes cast for and against:
Overall expenditure on pay
Dividend plus share buyback
2020
£m
2019
£m
25.1
Nil
37.9
Nil
Voting results at AGM
For
(%)
Against
(%)
Withheld
(votes)
2020 AGM on 23 July 2020
99.66
0.34
2019 AGM on 7 June 2019
99.99
0.01
2,013
2,100
Chief Executive Officer’s remuneration
The table below shows the total remuneration of the
director undertaking the role of the Chief Executive
Officer during the financial years in which the Company
has been constituted as a public company.
The total remuneration figure includes the annual bonus
and LTIP awards which vested based on performance
during those years and excludes payments for loss of
office. The annual bonus and PSP percentages show the
amount paid out for each year as a percentage of the
maximum. Ian Johnson joined the Board as Executive
Chairman on 5 December 2019. Steve Harris stepped
down from the Board as Chief Executive Officer on
31 December 2019.
The Executive Chairman’s salary did not increase
between 31 December 2019 and 31 December 2020. The
average percentage increase in respect of employees of
the Group was nil.
2020
2019
2018
2017
2016
2015
2014
I Johnson
S Harris
Total remuneration
Percentage change in total
remuneration from the preceding
financial year
Bonus awarded
LTIP vesting
(£’000)
(£’000)
(£’000)
310
-
310
(%)
(%)
(%)
(53%)
n/a
n/a
12
649
661
(1%)
25%
38%
-
669
669
-
825
825
-
458
458
-
831
831
(19%)
80%
(45%)
40%
20%
75%
21%
Nil
n/a
(46%)
100%
n/a
-
1,528
1,528
-
93%
100%
68
68
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Directors’ remuneration
The remuneration packages for Messrs Johnson and
Roller were negotiated last year and determined by the
Remuneration Committee in consultation with and with
support from the principal shareholders in the Company
As shown below, each package includes a base salary
(which are significantly lower than the salaries of their
predecessors) and participation in the Company’s
equity, in the form of share options.
The share options granted are for a number of ordinary
shares with a market value in excess of the annual
limit on individual participation set out in Circassia’s
remuneration policy, and as such, the grant was
approved by shareholders at the EGM on 30 April 2020.
Copies of the service contracts and letters of
appointment are available for inspection at the
registered office.
Details of the service contracts currently in place for
directors are as follows:
Statement of implementation of remuneration
policy in the following financial year
The Committee considered the base salaries for
Executive Directors and agreed there will be no change.
Details of the specific financial targets for the bonuses
are not provided as these are commercially sensitive.
The achievement against these targets will be disclosed
in next financial year’s Annual Report.
Shareholder approval
The annual report on remuneration will be the subject
of an advisory vote at the AGM on 21 May 2021.
Approval
This report was approved by the Board on
24 March 2021 and signed on its behalf by:
Sharon Curran
Chair of the Remuneration Committee
Name
Role
Executive service agreement
appointment date
Key
current terms
Notice
period
Ian Johnson
Executive Chairman
5 December 2019
£300,000 base salary
Six months
£10,000 expenses allowance
Michael Roller
Chief Financial Officer
9 January 2020
£220,000 base salary
Six months
£10,000 expenses allowance
Jonathan Emms
Chief Operating Officer
2 September 2019
£300,000 base salary
Six months
Name
Board
Jo LeCouilliard
NED
Sharon Curran
NED
Garry Watts
SID
Nicholas Mills
NED
Roles
Nomination
Committee
Remuneration
Committee
Audit and Risk
Committee
Non-Executive terms
of appointment date
Fee
Notice period
M
M
C
M
C
M
C
M
M
8 February 2018
£69,685
Three months
8 February 2018
£69,685
Three months
2 March 2020
£74,165
Three months
13 November 2020
£47,225
Three months
(NED = Non-Executive Director, SID = Senior Independent Director, C = Chair of Committee, M = Member of Committee)
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
69
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Directors report
Directors’ report
The directors present their report and the audited consolidated
financial statements for the year ended 31 December 2020.
Change of name
With effect from 1 May 2020, the name of the Company was changed
from Circassia Pharmaceuticals plc to Circassia Group plc.
Information included elsewhere
The table below sets out the location of information required to be
disclosed in the directors’ report which can be found in other sections
of this Annual Report and is incorporated by reference:
Subject matter
Future developments
Employee involvement
Streamlined energy and carbon reporting
General information (note 1)
Financial risk management (note 2)
Post balance sheet events (note 36)
Page reference
15 to 17
28
31
94
103
133
70
70
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Corporate governance
Going concern
The Company’s statement on corporate governance can
be found in the corporate governance report on pages
46 to 51. The corporate governance report forms part
of this directors’ report and is incorporated into it by
cross-reference.
Dividends
The directors do not recommend the payment of a
dividend for the year ended 31 December 2020
(2019: £nil).
Directors and directors’ interests
Details of the directors who held office during the
financial year ended 31 December 2020 and as at the
date of this report can be found on pages 42 to 45.
The beneficial interests of the directors and their
connected persons in the ordinary share capital of the
Company, together with the interests of the Executive
Directors in share options and awards of shares as at
31 December 2020, and as at the date of this report are
disclosed in the remuneration report on pages 65 to 67.
Directors’ third-party indemnity provisions
The Company has maintained insurance cover for its
directors and officers under a Directors’ and Officers’
Liability Policy. Qualifying third-party indemnity was
in force during the financial year and at the date this
report was approved.
The directors may exercise their powers pursuant to
the Articles of Association, the Companies Act 2006
and related legislation, and any resolution of the
shareholders. The Articles are available for review at the
registered office.
Treasury shares
Details of employee share schemes are set out in
note 26 to the financial statements. The Circassia
Pharmaceuticals plc Employee Benefit Trust (the
“Trust”) abstains from voting on the shares held by it.
No shares were acquired by the Trust during the year
(2019: nil), 412,706 shares were allotted to the Trust
during the year (2019: nil), 578,050 were transferred
out (2019: 6,738) and the balance of shares held at 31
December 2020 was therefore 561,794 (2019: 727,138).
The accounts have been prepared on a going concern
basis. The budget and five-year plan are prepared on a
bottom up basis and presented to the Board each year
for review and approval. The directors have reviewed the
current and projected financial position of the Company
considering existing cash balances and available financial
facilities. As further discussed on page 94, the directors
have not identified any material uncertainties to the
Group’s ability to continue to adopt the going concern
basis of accounting for a period of at least 12 months
from the date of approval of the financial statements.
Employment and environment
The Company’s policies on health and safety, the
environment, and employee-related matters are
disclosed in the report on corporate social responsibility.
Political and charitable donations
There were no charitable or political donations in the
year to 31 December 2020 (2019: none).
Disclosure of information to auditors
The auditors, PricewaterhouseCoopers LLP, have
indicated their willingness to continue in office, and a
resolution that they be re-appointed will be proposed
at the AGM. The directors who held office at the date
of approval of this report confirm that, so far as they
are each aware, there is no relevant audit information
of which the Company’s auditors are unaware, and
each director has taken all the steps a director ought to
have taken to make themselves aware of relevant audit
information and to establish that the auditors are aware
of that information.
Annual General Meeting
The AGM will be held at the offices of Circassia Group
plc on 21 May 2021 at 10:00 a.m. Details of the business
to be transacted at the forthcoming AGM will be given in
a separate circular to shareholders.
By order of the Board
Sarah Duncan
Company Secretary
24 March 2021
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
71
71
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Statement of directors’ responsibilities
Statement of directors’
responsibilities
The directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the directors to prepare
financial statements for each financial year.
Under that law the directors have prepared
the Group financial statements in accordance
with international accounting standards in
conformity with the requirements of the
Companies Act 2006 and company financial
statements in accordance with international
accounting standards in conformity with the
requirements of the Companies Act 2006.
72
72
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Under company law, directors must not approve the
financial statements unless they are satisfied that
they give a true and fair view of the state of affairs
of the Group and Company and of the profit or loss of
the Group for that period. In preparing the financial
statements, the directors are required to:
·
·
select suitable accounting policies and then apply
them consistently;
state whether applicable international accounting
standards in conformity with the requirements of
the Companies Act 2006 have been followed for
the group financial statements and international
accounting standards in conformity with the
requirements of the Companies Act 2006 have
been followed for the company financial statements,
subject to any material departures disclosed and
explained in the financial statements;
· make judgements and accounting estimates that are
reasonable and prudent; and
·
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and Company will continue in business.
The directors are also responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and Company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the Group and Company and enable
them to ensure that the financial statements comply
with the Companies Act 2006.
The directors are responsible for the maintenance
and integrity of the company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
In the case of each director in office at the date the
directors’ report is approved:
·
·
so far as the director is aware, there is no relevant
audit information of which the Group’s and
Company’s auditors are unaware; and
they have taken all the steps that they ought to have
taken as a director in order to make themselves
aware of any relevant audit information and to
establish that the Group’s and Company’s auditors
are aware of that information.
By order of the Board
Sarah Duncan
Company Secretary
24 March 2021
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
73
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Independent auditors report
Independent auditors’
report to the members
of Circassia Group plc
Report on the audit of
the financial statements
Opinion
In our opinion, Circassia Group plc’s Group financial
statements and Parent Company financial statements
(the “financial statements”):
· Give a true and fair view of the state of the Group’s
and of the Parent Company’s affairs as at 31
December 2020 and of the Group’s loss and the
Group’s and Parent Company’s cash flows for the year
then ended;
· Have been properly prepared in accordance with
international accounting standards in conformity with
the requirements of the Companies Act 2006; and
· Have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements, included within
the Annual Report, which comprise: the Consolidated
and Parent Company statements of financial position
as at 31 December 2020; the Consolidated statement
of comprehensive income, the Consolidated and Parent
Company statements of cash flows, and the Consolidated
and Parent Company statements of changes in equity
for the year then ended; and the notes to the financial
statements, which include a description of the significant
accounting policies.
74
74
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 · Reporting units where audit procedures were
performed accounted for 96% of Group revenue and
99% of Group total losses before tax from continuing
operations. Our audit scope provided sufficient
appropriate audit evidence as a basis for our opinion
on the Group financial statements as a whole.
Key audit matters
· Accuracy of revenue recognition and completeness of
gross-to-net adjustments for Tudorza (Group).
·
·
Impairment of goodwill and intangible assets (Group).
Impairment of investment in subsidiaries and
intercompany balances (Parent Company).
· Recoverability of Swedish deferred tax assets (Group).
· COVID-19 (Group and Parent Company).
Materiality
· Overall Group materiality: £2,329,000
(2019: £3,200,000) based on 5% of average loss
before tax from continuing operations for the three
years FY18 - FY20.
· Overall Parent Company materiality: £2,212,000
(2019: £2,900,000) based on 1% of total assets
restricted so as not to exceed 95% of Group
materiality.
·
Performance materiality: £1,746,000 (Group)
and £1,659,000 (Parent Company).
The scope of our audit
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the financial statements.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities for the audit of
the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance
with the ethical requirements that are relevant to
our audit of the financial statements in the UK, which
includes the FRC’s Ethical Standard, as applicable to
listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Overview
Audit scope
· Overall Group materiality:
£2,239,000 (2019: £3,200,000).
· Circassia Group plc is a public
limited company incorporated under
the laws of England and Wales
and is listed on the Alternative
Investment Market.
·
The Group’s headquarters are in the United Kingdom,
which is where Group management resides.
· We identified 4 reporting units which, in our view,
required a full scope audit based on their size
and risk. In addition, we determined that audit
procedures over certain accounts or balances were
required over one further reporting unit to provide
sufficient overall Group coverage of particular
financial statement line items.
· We used component teams in 3 countries to perform
full scope audit procedures, with the Group team
performing the remainder. Group financial statement
disclosures and a number of complex areas were
audited by the UK Group engagement team.
These included goodwill, other intangible assets,
investments, intercompany, current and deferred
taxes, going concern and central adjustments
recorded as part of the consolidation process.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
75
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CORPORATE GOVERNANCE
Independent auditors report
Capability of the audit in detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined in
the Auditors’ responsibilities for the audit of the financial
statements section, to detect material misstatements
in respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry,
we identified that the principal risks of non-compliance
with laws and regulations related to patent protection,
data privacy, product safety and regulatory compliance,
and we considered the extent to which non-compliance
might have a material effect on the financial statements.
We also considered those laws and regulations that
have a direct impact on the preparation of the financial
statements such as the Companies Act 2006.
We evaluated management’s incentives and
opportunities for fraudulent manipulation of the
financial statements (including the risk of override
of controls), and determined that the principal risks
were related to posting inappropriate journal entries
to manipulate financial results, misappropriation of
cash and potential management bias in accounting
estimates. The Group engagement team shared this risk
assessment with the component auditors so that they
could include appropriate audit procedures in response
to such risks in their work.
Audit procedures performed by the Group engagement
team and/or component auditors included:
· Discussions with management and internal legal
counsel including consideration of known or
suspected instances of non-compliance with laws and
regulations and fraud.
· Review of minutes of meeting with the Board of
Directors.
·
Identifying and testing journal entries, in particular
any journal entries posted with unusual account
combinations and journals posted by senior
management.
· Challenging assumptions made by management in
their significant accounting estimates, in particular
in relation to the calculation of the rebate accruals,
deferred tax asset and impairment reviews relating
to the recoverability of goodwill, intangible assets,
investments in subsidiaries and intercompany
receivables.
There are inherent limitations in the audit procedures
described above. We are less likely to become aware of
instances of non-compliance with laws and regulations
that are not closely related to events and transactions
reflected in the financial statements. Also, the risk of
not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations,
or through collusion.
Key audit matters
Key audit matters are those matters that, in the
auditors’ professional judgement, were of most
significance in the audit of the financial statements
of the current period and include the most significant
assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including
those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These
matters, and any comments we make on the results of
our procedures thereon, were addressed in the context
of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identified by
our audit.
Recoverability of Swedish deferred tax asset is a new
key audit matter this year. Misstatement of Duaklir®
royalty consideration, which was a key audit matter
last year, is no longer included because of the quantum
of the balance no longer being material to the Group.
Otherwise, the following key audit matters are
consistent with last year.
76
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Key audit matter
How our audit addressed the key audit matter
Accuracy of revenue recognition and
completeness of gross-to-net adjustments
for Tudorza® (Group)
(Completeness and accuracy assertions)
Circassia must estimate the rebates and chargebacks
that are expected to be paid on sales of Tudorza® and
also a refund liability for the amount of consideration
received for which the entity does not expect to
be entitled. The liability relating to these revenue
deductions is re-estimated at the end of each period.
The value of the rebate accrual is calculated by taking
into account specific contract provisions, coupled with
expected performance. The value of the refund liability
is calculated based on historical information.
A deduction to revenue of £33.0 million was recognised
in the income statement for the year ended 31
December 2020, and a liability of £14.1 million was
recognised on the statement of financial position as at
31 December 2020.
Refer to page 55 (Audit and Risk Committee Report)
and page 95 (Critical accounting estimates and
judgements).
Our US component audit team have performed the
following audit procedures:
·
·
·
·
Evaluated methodology applied by management in
estimating the accrual against industry practice;
Substantively tested a sample of actual
rebate claims received and paid to supporting
documentation;
Tested a sample of estimated rebate percentages to
contract or government invoice;
Tested a sample of estimated utilisation rates to
third-party information;
· Recalculated the accrual recognised using
management’s assumptions;
· Compared the accrual recognised by management
as at 31 December 2019 to the actual costs through
the year to 31 December 2020;
·
Traced a sample of management’s estimate of sales
by channel to independent third-party sales data
obtained by management; and
· Developed an expectation of the accrual balance
for each of the key channels, based on historical
claims received adjusted to reflect market changes
in the period including an assessment of the time
lag between the initial point of sale and the claim
receipt. We then used this expectation to consider the
appropriateness of management’s year end accrual
position.
· We have supported and directed as appropriate
the work performed by our component audit team,
including reviewing their working papers and by
attending key meetings.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
77
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Independent auditors report
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill and intangible assets
(Group) (Valuation assertion)
In line with IAS 36 Impairment of Assets, the carrying
value of each cash generating unit (CGU), including
the allocated goodwill, was tested for impairment.
Impairment assessments were performed at the NIOX®
CGU level and at an individual intangible asset level.
During 2020, the performance of the NIOX® business
was significantly impacted by the COVID-19 Pandemic.
The speed of recovery from the pandemic will have a
significant impact on the carrying value of the CGU. If
the Group’s NIOX sales are lower than forecast due to a
slower recovery, or the pre-tax discount rate applied to
the cash flow projections is higher than managements’
estimates, this could result in an impairment of the
related goodwill and intangible assets.
Management performed detailed impairment
assessments and concluded that no impairment was
required to the NIOX® CGU as the carrying value of the
CGU was greater than the value of the assets held.
Refer to page 55 (Audit and Risk Committee Report),
page 95 (Critical accounting estimates and judgements),
and pages 115 to 116 in the notes.
We assessed the level at which impairment testing was
performed. Based on our knowledge of the business,
including the use of assets and internal reporting, we
agreed with management’s judgement that, for the
assessment of the impairment of goodwill and intangible
assets, the Group only had one active cash generating unit
(CGU) being the NIOX® business. The impact of COVID-19
on the performance of the NIOX® business is considered
to be a potential impairment trigger. We obtained
management’s impairment analysis, which applies a value
in use methodology to calculate the CGU’s and individual
assets’ recoverable amount, and gained an understanding
of the key assumptions and judgements underlying
the assessment. We assessed the appropriateness of
the methodology applied and tested the mathematical
accuracy of the models, with no exceptions identified.
We assessed the key assumptions, including:
·
·
Future revenue streams: We tested historical forecasting
accuracy prior to the impact of COVID-19 and assessed
the appropriateness of growth assumptions as the
business recovers from the impact of the COVID-19
pandemic in both the short (2021 and 2022) and medium
(2023 - 2025) term. We compared the forecast level
of sales and margin against pre-COVID levels, and also
against historic growth rates achieved by the business.
Expenses and overheads: We tested historical
forecasting accuracy and assessed the appropriateness
of assumptions. We tested the level of forecast cost
levels against historic levels and current run rates
and corroborated any differences to appropriate
explanations and support.
· Discount rate: We used our experts to calculate an
acceptable range of discount rates based on rates for
companies of a similar nature. Based upon our review
of their work we concluded that management’s rate is
within the expected range.
· We obtained management’s sensitivity analysis and
performed our own sensitivities reflecting what we
believed to be a range of reasonably individually possible
alternative outcomes over the forecast cash flows and
discount rate included by management.
We read the related disclosures and consider them
appropriate.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Key audit matter
How our audit addressed the key audit matter
The Parent Company’s investment in subsidiaries and
intercompany receivables balances are expected to be
repaid from future trading cashflows. The impact of
COVID-19 on the performance of the NIOX® business is
considered to be a potential impairment trigger.
Management have performed an assessment over the
recoverability of the asset balances.
We assessed the appropriateness of the methodology
applied and tested the mathematical accuracy of the
models, with no exceptions identified.
We have leveraged our testing (as set out in the
key audit matter titled “Impairment of goodwill and
intangible assets”) of the analysis and understanding
of key assumptions and judgements in the value in
use models used for testing for potential impairment
of goodwill and intangible assets in the consolidated
financial statements on a subsidiary-by-subsidiary basis.
In assessing the carrying value of investments in
subsidiaries and intercompany receivables balances, we
compared the carrying value of these balances with the
cash flows expected to be generated from the value in
use models for each cash generating unit.
We concluded that the impairment of £30.0 million to
investments in subsidiaries and the provision £18.1 million
against intercompany receivables recorded by
management are appropriate.
Impairment of investment in subsidiaries and
intercompany balances (Parent Company)
(Valuation assertion)
In line with IAS 36 Impairment of Assets, the carrying
value of each investment held by Circassia Group plc in
its subsidiaries was tested for impairment.
At the beginning of the year, an intercompany balance
of £121.4 million owed by Circassia Pharmaceuticals Inc
was reclassified as an investment. This intercompany
balance had a provision of £95.1 million against it.
As such, this provision was reclassified as a provision
against investments.
Management concluded that a further provision
was required to the investment in Circassia Limited,
Circassia Pharmaceuticals Inc and Circassia (Beijing)
Medical Device Co. Limited. This resulted in an
additional provision of £30.0 million being recognised.
In line with IFRS 9, the carrying value of intercompany
receivable balances owed to Circassia Group plc by
its subsidiaries was assessed, measuring expected
credit losses by using a range of probability weighted
scenarios for the recoverability of the balances. Due to
the aforementioned reclassification, provisions against
intercompany receivables decreased by £95.1 million at
the beginning of the year.
Management concluded that a further provision was
required to the intercompany receivable balance with
Circassia Limited, Circassia Pharmaceuticals Inc and
Circassia (Beijing) Medical Device Co. Limited. This
resulted in an additional provision of £18.1 million
being recognised.
Refer to pages 55 to 56 (Audit and Risk Committee
Report), pages 95 to 96 (Critical accounting estimates
and judgements), and page 119 in the notes.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Independent auditors report
Key audit matter
How our audit addressed the key audit matter
Recoverability of Swedish deferred tax assets
(Group) (Valuation assertion)
A deferred tax asset has been recognised relating to the
carried-forward tax losses of Circassia AB (previously
known as Aerocrine AB). These losses were generated
before the company was acquired by Circassia Group plc.
Management have concluded that the deferred assets
will be recoverable using the estimated future taxable
income based on the Board approved business plans and
budgets for the subsidiary.
The subsidiary has generated taxable income from
the year ended 2017 and is expected to continue
generating taxable income from 2021 onwards.
A deferred tax asset of £12.0 million (2019: £18.9
million) was recognised on the statement of financial
position as at 31 December 2020.
Refer to page 55 (Audit and Risk Committee Report) and
page 95 (Critical accounting estimates and judgements).
The deferred tax asset is based on unused Swedish tax
losses that are expected to be utilised against profits
from future trading in the Swedish entity.
We assessed the appropriateness of the methodology
applied and tested the mathematical accuracy of the
model, with no exceptions identified.
We have leveraged our testing (as set out in the
key audit matter titled “Impairment of goodwill and
intangible assets” above) of the underlying forecasts
used for testing for potential impairment of goodwill
and intangible assets and ensured that the cashflows
included in management’s assessment of deferred
tax recoverability agreed to these, with no exceptions
identified.
We tested the accuracy of the tax rates and the
availability of the losses utilised in the model with no
exceptions noted.
We concluded that the deferred tax asset of £12.0 million
recognised by management is appropriate.
80
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Key audit matter
How our audit addressed the key audit matter
COVID-19 (Group and Parent Company)
(All assertions)
We have performed the following procedures to
address this key audit matter:
The directors have considered the risks associated
with COVID-19 in the Strategic report. As noted in
the Company’s press release dated 12 January 2021,
COVID-19 has had an impact on the Group’s trading in
2020 by causing restrictions in routine FeNO testing.
The Group has considered the continuing potential
impacts on its cash flow and liquidity position by
performing various sensitivities and modelling
scenarios to ensure that it has sufficient liquidity to
continue as a going concern.
The Group has also considered the potential impacts on
the valuation of and it’s required disclosures in relation
to impairment testing of intangible assets, goodwill,
deferred tax assets and for the parent investments and
intercompany receivables.
Refer to page 56 (Audit and Risk Committee Report)
and page 94 (Accounting policies and significant
judgements).
· Held discussions with management to understand,
in qualitative terms, the impact of COVID-19 on
business operations;
·
Evaluated management’s sensitivities/modelling and
challenged the key assumptions contained within
the cash flow forecasts;
· Assessed the reasonableness/achievability of
management’s mitigating actions; and
· Read management’s disclosures in the financial
statements.
From the procedures performed, we agree that it is
appropriate that the Group prepares the accounts on
a going concern basis and consider that the related
disclosures within the financial statements are
appropriate.
In addition, we have considered the impact of COVID-19
on the valuation of intangible assets, goodwill, deferred
tax assets and Parent Company investments and
intercompany receivables as set out in the relevant key
audit matters above.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Independent auditors report
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion
on the financial statements as a whole, taking into
account the structure of the group and the company,
the accounting processes and controls, and the industry
in which they operate.
The Group’s accounting process is structured around
local finance functions in each of the Group’s reporting
entities. These functions maintain their own accounting
records and controls (although transactional processing
and certain controls for some reporting units are
performed by the head office finance team) and report
to the head office finance team through an integrated
consolidation system.
In establishing the overall Group audit strategy and
plan, we determined the type of work that needed
to be performed at the reporting units by the Group
engagement team and by component auditors from
other PwC network firms. Where the work was
performed by component auditors, we determined
the level of involvement we needed to have in the
audit work at those reporting units so as to be able
to conclude whether sufficient appropriate audit
evidence had been obtained as a basis for our opinion
on the Group financial statements as a whole. For each
reporting entity we determined whether we required
an audit of their reported financial information (“full
scope”). The 4 reporting entities where a full scope audit
was required included Circassia Inc (incorporated in the
USA), Circassia AB (incorporated in Sweden), Circassia
(Beijing) Medical Devices Co. Ltd (incorporated in
China) and Circassia Limited (incorporated in the UK)
were determined as individually financially significant
because all four individually contribute more than
15% of the Group’s loss before tax. We maintained
regular communication with the local teams, before,
during and after their audits. We directed the work of
the component teams, reviewed their approach and
findings and participated in the closing meetings of the
significant components.
We also undertook the statutory audit of one further
reporting unit incorporated in the UK, Circassia Group
plc, which is not a financially significant component of
the Group.
In addition to the work performed at the in-scope
reporting entities, there is work performed at head
office by the Group audit engagement team. The Group
consolidation, financial statement disclosures and a
number of complex items, prepared by the head office
finance function, were audited by the Group engagement
team. These included goodwill, other intangible assets,
investments, intercompany, current and deferred taxes,
going concern and central adjustments recorded as part
of the consolidation process.
Reporting units where audit procedures were
performed accounted for 96% of Group revenue and
99% of Group total losses before tax from continuing
operations. As a result of its structure and size, the
Group also has a number of small reporting entities
that make up the remaining portion of the key coverage
metrics. These small reporting units are covered by
the work performed by the Group audit engagement
team, where we perform analytical review procedures.
Those not subject to analytical review procedures were
individually, and in aggregate, immaterial. This gave us
the evidence we needed for our opinion on the financial
statements as a whole.
The Parent Company’s accounting process is performed
by the head office finance team, who maintain the
Parent Company’s own accounting records and controls.
All of the work is performed at the head office by the
Group engagement team. This includes the financial
statement disclosures and complex items, prepared by
the head office finance function such as investments
and intercompany.
Materiality
The scope of our audit was influenced by our
application of materiality. We set certain quantitative
thresholds for materiality. These, together with
qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial
statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
82
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Financial statements - Group
Financial statements – Parent Company
Overall
materiality
£2,329,000 (2019: £3,200,000).
£2,212,000 (2019: £2,900,000).
How we
determined it
5% of average loss before tax from continuing
operations for the three years FY18 - FY20.
1% of total assets restricted so as not to
exceed 95% of Group materiality.
Rationale for
benchmark
applied
The business continues to pursue revenue
generating activities. The significant variability
in losses due to one off factors in recent years
is continued in FY20 with the overall results of
the business impacted by COVID-19. Otherwise,
we would have expected the business to
recover and therefore we considered to
maintain the same benchmark this year as
for FY19 that takes into account the average
trading performance of the Group’s continuing
operations over the past three years.
We believe that total assets is
the primary measure used by the
shareholders in assessing the
performance and position of the entity
and reflects the Parent Company’s
principal activity as a holding company.
For each component in the scope of our Group audit,
we allocated a materiality that is less than our overall
Group materiality. The range of materiality allocated
across components was between £0.9 million and £2.2
million. Certain components were audited to a local
statutory audit materiality that was also less than our
overall Group materiality.
We use performance materiality to reduce to
an appropriately low level the probability that
the aggregate of uncorrected and undetected
misstatements exceeds overall materiality.
Specifically, we use performance materiality in
determining the scope of our audit and the nature
and extent of our testing of account balances, classes
of transactions and disclosures, for example in
determining sample sizes.
Our performance materiality was 75% of overall
materiality, amounting to £1,746,000 for the Group
financial statements and £1,659,000 for the Parent
Company financial statements. In determining the
performance materiality, we considered a number of
factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls -
and concluded that an amount at the upper end of our
normal range was appropriate.
We agreed with those charged with governance that we
would report to them misstatements identified during
our audit above £116,400 (Group audit) (2019: £157,600)
and £110,600 (Parent Company audit) (2019: £157,600)
as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
83
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 CORPORATE GOVERNANCE
Independent auditors report
Conclusions relating to going concern
Reporting on other information
Our evaluation of the directors’ assessment of the
Group’s and the Parent Company’s ability to continue to
adopt the going concern basis of accounting included:
· We obtained managements base case and downside
and mitigated downside cashflow models, which
we tested for mathematical accuracy with no
exceptions noted, and considered the level of
liquidity headroom within the models;
· We agreed the equity subscription to signed third-
party agreements and considered the ability of the
third parties to pay for the subscription;
· We evaluated management’s model and challenged
the key assumptions contained within the cash flow
forecasts, including potential disruption caused by
the impact of COVID-19; and
· We obtained management’s mitigating actions and
assessed their reasonableness/achievability
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group’s and the Company’s
ability to continue as a going concern for a period of at
least twelve months from when the financial statements
are authorised for issue.
In auditing the financial statements, we have concluded
that the directors’ use of the going concern basis
of accounting in the preparation of the financial
statements is appropriate.
However, because not all future events or conditions
can be predicted, this conclusion is not a guarantee
as to the Group’s and the Parent Company’s ability to
continue as a going concern.
Our responsibilities and the responsibilities of the
directors with respect to going concern are described in
the relevant sections of this report.
The other information comprises all of the information
in the Annual Report other than the financial statements
and our auditors’ report thereon. The directors are
responsible for the other information. Our opinion
on the financial statements does not cover the other
information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements
or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify
an apparent material inconsistency or material
misstatement, we are required to perform procedures
to conclude whether there is a material misstatement
of the financial statements or a material misstatement
of the other information. If, based on the work we
have performed, we conclude that there is a material
misstatement of this other information, we are required
to report that fact. We have nothing to report based on
these responsibilities.
With respect to the Strategic report and Directors’ report,
we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the
audit, the Companies Act 2006 requires us also to
report certain opinions and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the
course of the audit, the information given in the
Strategic report and Directors’ Report for the year
ended 31 December 2020 is consistent with the financial
statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the
Group and Parent Company and their environment
obtained in the course of the audit, we did not identify
any material misstatements in the Strategic report and
Directors’ report.
84
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
A further description of our responsibilities for the
audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared
for and only for the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this
report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to
report to you if, in our opinion:
· We have not obtained all the information and
explanations we require for our audit; or
· Adequate accounting records have not been kept by
the company, or returns adequate for our audit have
not been received from branches not visited by us; or
· Certain disclosures of directors’ remuneration
specified by law are not made; or
·
The company financial statements are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Miles Saunders
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
24 March 2021
Responsibilities for the financial
statements and the audit
Responsibilities of the directors
for the financial statements
As explained more fully in the Statement of directors’
responsibilities, the directors are responsible for the
preparation of the financial statements in accordance
with the applicable framework and for being satisfied
that they give a true and fair view.
The directors are also responsible for such internal
control as they determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the Group’s and the
Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related
to going concern and using the going concern basis
of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
Our audit testing might include testing complete
populations of certain transactions and balances,
possibly using data auditing techniques. However, it
typically involves selecting a limited number of items for
testing, rather than testing complete populations. We will
often seek to target particular items for testing based
on their size or risk characteristics. In other cases, we
will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
85
Group
Financial
Statements
86
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 Group
Financial
Statements
Consolidated statement of comprehensive income
88
Consolidated statement of financial position
Parent Company statement of financial position
Consolidated and Parent Company statements of cash flows
Consolidated statement of changes in equity
Parent Company statement of changes in equity
Notes to the financial statements
89
90
91
92
93
94
87
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020 GROUP FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
for the year ended 31 December 2020
2020
2019 Restated1
Underlying
operations
Non-underlying
items
Total
Underlying
operations
Non-underlying
items
Total
Notes
£m
£m
£m
£m
£m
£m
Continuing operations
Revenue from contracts with customers
4
Cost of sales
Gross profit
Research and development costs
Sales and marketing costs
Administrative expenses
Operating loss
Other (losses) and gains - net
Finance costs
Finance income
Loss before tax
Taxation
Loss from continuing operations
Loss from discontinued operations
(attributable to equity holders of Circassia Group plc)
Loss for the year
Other comprehensive income/(expense)
Items that may be subsequently
reclassified to profit or loss
Exchange differences on translation
of foreign operations
Other comprehensive income/(expense)
for the year, net of tax
Total comprehensive expense for the year
6
7
8
8
12
-
10
30
23.9
(7.6)
16.3
(6.8)
(16.6)
(10.2)
(17.3)
(0.9)
(0.3)
0.1
(18.4)
(8.4)
(26.8)
(6.7)
(33.5)
7.8
7.8
(25.7)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23.9
(7.6)
16.3
(6.8)
(16.6)
(10.2)
(17.3)
(0.9)
(0.3)
0.1
(18.4)
(8.4)
(26.8)
34.6
(9.1)
25.5
(6.9)
(24.6)
(12.5)
(18.5)
(3.5)
(0.3)
0.2
(22.1)
10.8
(11.3)
-
-
-
34.6
(9.1)
25.5
(44.2)
(51.1)
-
(24.6)
(1.1)
(13.6)
(45.3)
(63.8)
39.8
-
-
36.3
(0.3)
0.2
(5.5)
(27.6)
-
10.8
(5.5)
(16.8)
(6.7)
-
(31.5)
(31.5)
(33.5)
(11.3)
(37.0)
(48.3)
7.8
7.8
(25.7)
(1.6)
(1.6)
(12.9)
-
-
(1.6)
(1.6)
(37.0)
(49.9)
Loss per share attributable to owners of the parent during the year
(expressed in £ per share)
2020
Basic and diluted loss per share
Loss per share from continuing operations
Total loss per share
13
13
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
£
(0.07)
(0.09)
2019 Restated1
£
(0.04)
(0.13)
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent
Company profit and loss account.
The notes on pages 94 to 133 are an integral part of these financial statements.
88
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
GROUP FINANCIAL STATEMENTS
Consolidated statement of financial position
as at 31 December 2020
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Other reserves
Accumulated losses
Total equity
Liabilities
Non-current liabilities
Borrowings
Lease liabilities
Deferred tax liabilities
Current liabilities
Trade and other payables
Lease liabilities
Contingent consideration
Total liabilities
Total equity and liabilities
Notes
14
15
16
17
25
19
20
12
21
27
28
30
29
24
15
25
22
15
23
2020
£m
0.1
1.3
5.3
45.1
21.6
73.4
4.0
18.3
-
7.4
29.7
103.1
0.3
635.4
24.5
(594.1)
66.1
-
0.8
9.5
10.3
25.6
0.8
0.3
26.7
37.0
103.1
2019
£m
0.5
1.9
4.8
163.0
28.3
198.5
6.5
14.6
0.2
27.0
48.3
246.8
0.3
630.4
14.7
(560.6)
84.8
109.9
1.5
9.3
120.7
39.6
0.6
1.1
41.3
162.0
246.8
The notes on pages 94 to 133 are an integral part of these financial statements.
The financial statements on pages 88 to 133 were authorised for issue by the Board of Directors on 24 March 2021
and were signed on its behalf by
Ian Johnson
Executive Chairman,
Circassia Group plc
Registered number: 05822706
Michael Roller
Chief Financial Officer,
Circassia Group plc
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
89
GROUP FINANCIAL STATEMENTS
Parent Company statement of financial position
as at 31 December 2020
Assets
Non-current assets
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity attributable to the owners of the Company
Share capital
Share premium
Accumulated losses
Other reserves
Total equity
Liabilities
Current liabilities
Trade and other payables
Total equity and liabilities
Notes
18
20
21
27
28
29
30
22
2020
£m
54.8
54.8
0.2
0.1
0.3
55.1
0.3
635.4
(608.2)
13.8
41.3
13.8
13.8
55.1
The loss for the Parent Company for the year was £49.5 million (2019: £268.8 million).
The notes on pages 94 to 133 are an integral part of these financial statements.
The financial statements on pages 88 to 133 were authorised for issue by the
Board of Directors on 24 March 2021 and were signed on its behalf by
Ian Johnson
Executive Chairman,
Circassia Group plc
Registered number: 05822706
Michael Roller
Chief Financial Officer,
Circassia Group plc
90
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2019
£m
56.5
56.5
35.1
0.1
35.2
91.7
0.3
630.4
(558.7)
11.8
83.8
7.9
7.9
91.7
GROUP FINANCIAL STATEMENTS
Consolidated and Parent Company statements of cash flows
for the year ended 31 December 2020
Cash flows from operating activities
Cash used in operations
Interest paid
Tax credit received
Net cash used in operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Interest received
Dividends from joint venture
Grant of loans to subsidiary undertakings
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share issue transaction costs
Proceeds from borrowings
Principal elements of lease payments
Net cash generated from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 31 December
Notes
31
8
12
14
17
8
28
28
15
21
21
2020
£m
(23.9)
(0.2)
0.2
(23.9)
(0.1)
(0.4)
-
-
-
(0.5)
5.0
-
-
(0.7)
4.3
(20.1)
27.0
0.5
7.4
GROUP
2019
£m
(28.9)
(0.1)
3.9
(25.1)
(0.3)
(10.0)
0.3
0.1
-
(9.9)
8.0
(0.1)
14.9
(0.9)
21.9
(13.1)
40.7
(0.6)
27.0
COMPANY
2019
£m
(6.7)
-
-
(6.7)
-
-
-
-
(1.2)
(1.2)
8.0
(0.1)
-
-
7.9
-
0.1
-
0.1
2020
£m
(3.3)
(0.1)
-
(3.4)
-
-
-
-
(1.6)
(1.6)
5.0
-
-
-
5.0
-
0.1
-
0.1
The notes on pages 94 to 133 are an integral part of these financial statements.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
91
GROUP FINANCIAL STATEMENTS
Consolidated statement of changes in equity
for the year ended 31 December 2020
At 31 December 2018
Change in accounting policy
Restated at 1 January 2019
Loss for the year
Exchange differences on translation of foreign operations
Total comprehensive expense
Transactions with owners:
Issue of new shares
Acquisition of shares by EBT
Employee share scheme issues
At 31 December 2019
At 1 January 2020
Loss for the year
Exchange differences on translation of foreign operations
Total comprehensive income/(expense)
Transactions with owners:
Issue of new shares
Employee share scheme issues
At 31 December 2020
Notes
29
30
27,28
26
29
30
27,28
26
Share
capital
Share
premium
Other
reserves1
Accumulated
losses
Total
equity
£m
0.3
-
0.3
-
-
-
-
-
-
£m
622.5
-
622.5
-
-
-
7.9
-
-
0.3
0.3
630.4
630.4
-
-
-
-
-
-
-
-
5.0
-
£m
15.1
-
15.1
-
(1.6)
(1.6)
-
(0.2)
1.4
14.7
14.7
-
7.8
7.8
-
2.0
£m
(512.0)
(0.3)
(512.3)
(48.3)
-
(48.3)
-
-
-
(560.6)
(560.6)
(33.5)
-
£m
125.9
(0.3)
125.6
(48.3)
(1.6)
(49.9)
7.9
(0.2)
1.4
84.8
84.8
(33.5)
7.8
(33.5)
(25.7)
-
-
5.0
2.0
0.3
635.4
24.5
(594.1)
66.1
1 Other reserves include share option reserve, translation reserve, treasury shares reserve, and transactions with NCI reserve.
The notes on pages 94 to 133 are an integral part of these financial statements.
92
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
GROUP FINANCIAL STATEMENTS
Parent Company statement of changes in equity
for the year ended 31 December 2020
Share
capital
Share
premium
Other
reserves1
Accumulated
losses
Total
equity
At 1 January 2019
Loss and total comprehensive expense
Transactions with owners:
Issue of new shares
Acquisition of shares by EBT
Employee share scheme issues
At 31 December 2019
At 1 January 2020
Loss and total comprehensive expense
Transactions with owners:
Issue of new shares
Employee share scheme issues
Notes
29
27,28
30
26
28
27,28
26
£m
0.3
-
-
-
-
0.3
0.3
-
-
-
£m
622.5
-
7.9
-
-
630.4
£m
11.3
-
-
(0.9)
1.4
11.8
£m
£m
(289.9)
344.2
(268.8)
(268.8)
-
-
-
(558.7)
7.9
(0.9)
1.4
83.8
83.8
630.4
11.8
(558.7)
-
5.0
-
-
-
2.0
(49.5)
(49.5)
-
-
5.0
2.0
At 31 December 2020
0.3
635.4
13.8
(608.2)
41.3
1 Other reserves include share option reserve and own shares reserve.
The notes on pages 94 to 133 are an integral part of these financial statements.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
93
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
1. Accounting policies and significant judgements
General information
The Group is a leading medical device business focused
on respiratory diagnostics and monitoring. Circassia
Group plc is a public company limited by shares which
is listed on the Alternative Investment Market (AIM) and
incorporated and domiciled in the United Kingdom. The
Company is resident in England and the registered office
is Northbrook House, Robert Robinson Avenue, Oxford
Science Park, Oxford, England, OX4 4GA.
The principal accounting policies adopted in the
preparation of this financial information are set out
below. These policies have been consistently applied to
all the financial years presented, unless otherwise stated.
Basis of preparation
With effect from 1 May 2020, the name of the Company
was changed from Circassia Pharmaceuticals plc
to Circassia Group plc. The consolidated financial
statements of Circassia Group plc have been prepared
in accordance with international accounting standards
in conformity with the requirements of the Companies
Act 2006. The financial statements have been prepared
using the historical cost convention modified by the
revaluation of certain items, as stated in the accounting
policies, and on a going concern basis.
Going concern
In assessing the appropriateness of the going concern
assumption, the Board has considered the availability
of funding alongside the possible cash requirements
of the Group and Company, taking into account the
unprecedented circumstances caused by the
COVID-19 pandemic.
The Board has prepared cash flow forecasts for a period
of 18 months from the date of approval of these financial
statements. This base case scenario includes the benefits
of actions already taken by management to mitigate
the trading downsides brought about by COVID-19, for
example, restrictions on travel, limiting new hires and
reducing discretionary spend as well as agreeing a
further equity facility with significant shareholders.
This base case assumes that sales of NIOX® will
gradually build back towards pre-COVID-19 levels by
the middle of 2022 and then grow at a slower rate than
previous periods.
Under this base case scenario, the Group is expected to
continue to have sufficient resources beyond 12 months
from the approval of the financial statements.
The most extreme downside scenario modelled the
impact of sales gradually building to pre-COVID-19 levels
by the end of 2022. These reductions in revenue versus
the base case forecast of 11% in 2021 and 8% in 2022
would be offset by significant mitigating cost reductions
and cash protection actions, within the control of the
Board, commencing in April 2021 (for example significant
salary cuts for Board members, non-payment of
discretionary bonuses and a reduction in discretionary
marketing expenditure without further impacting
NIOX® growth rates). In this scenario the Group remains
cash positive beyond 12 months from the approval of
the financial statements. After due consideration, the
directors have concluded that there is a reasonable
expectation that the Group has adequate resources to
continue in operational existence for at least 12 months
from the date of this report.
New and amended standards
adopted by the Group
The Group has applied the following standards
and amendments for the first time for their annual
reporting period commencing 1 January 2020:
· Definition of Material – amendments to IAS 1 and IAS 8
· Revised Conceptual Framework for Financial Reporting
The amendments listed above did not have any impact
on the amounts recognised in prior periods and are
not expected to significantly affect the current or
future periods.
New standards and interpretations
not yet adopted
Certain new accounting standards and interpretations
have been published that are not mandatory for 31
December 2020 reporting periods and have not been
early adopted by the Group. These standards are not
expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable
future transactions.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Critical accounting estimates and judgements
The preparation of financial statements requires the use
of accounting estimates which, by definition, will seldom
equal the actual results. Management also needs to
exercise judgement in applying the Group’s accounting
policies. This note provides an overview of the areas that
involved a higher degree of judgement or complexity,
and of items which are more likely to be materially
adjusted due to estimates and assumptions turning out
to be wrong.
The areas involving significant
estimates or judgements are:
Rebate accruals (estimate)
When invoicing Tudorza® sales, Circassia must estimate
the rebates and chargebacks that are expected to be paid.
These rebates typically arise from sales contracts with
third-party managed care organisations, hospitals, long-
term care facilities, group purchasing organisations and
various federal or state programmes (Medicaid contracts,
supplemental rebates, etc). Accrual assumptions are
calculated on a sales channel basis, taking into account
specific contract provisions coupled with expected
performance, and are then aggregated into a weighted
average rebate accrual rate. Accrual rates are reviewed
and adjusted on an as needed basis. There may be further
adjustments when actual rebates are invoiced based on
utilisation information submitted to us (in the case of
contractual rebates) and claims/invoices are received (in
the case of regulatory rebates and chargebacks).
The most significant estimate in determining the accrual
is considered to be the percentage of volumes which
fall inside or outside the coverage gap for Medicare.
A deduction to revenue of £33.0 million (2019: £49.6
million) was recognised in the income statement for the
year ended 31 December 2020, and as at 31 December
2020, the rebates and chargebacks accrual was £14.1
million (2019: £12.9 million).
In the current financial year, it is estimated that 18% of
sales are made inside the Medicare coverage gap and 17%
of sales are made outside the Medicare coverage gap. If
the percentage of sales inside the Medicare coverage gap
were to decrease by 10% from management’s estimates
to 8%, the rebate and chargebacks accrual and the
associated deduction to revenue would be an estimated
£1.0 million lower.
Recognition of deferred tax asset for
carried-forward tax losses (estimate)
The deferred tax asset includes an amount of £12.0
million (2019: £18.9 million) which relates to carried-
forward tax losses of Circassia AB (previously known as
Aerocrine AB). These losses were generated before the
company was acquired by Circassia Group plc. The Group
has concluded that the deferred assets will be recoverable
using the estimated future taxable income based on the
approved business plans and budgets for the subsidiary.
The subsidiary has generated taxable income from the
year ended 2017 and is expected to continue generating
taxable income from 2021 onwards. The losses can be
carried forward indefinitely and have no expiry date.
The estimate is how profitable the entity will be in future
and therefore how much of the asset can be recognised.
If the future profits of Circassia AB were to differ by 10%
from management’s estimates, the deferred tax asset
would be an estimated £1.2 million (2019: £1.9 million)
higher or lower.
Goodwill and other intangible assets (estimate)
Goodwill and other intangible assets impairment
reviews are undertaken annually or more frequently if
events or changes in circumstances indicate a potential
impairment. Judgements and estimates are made in
respect of the carrying value of the cash generating
units (CGUs) containing the goodwill taking into account
key assumptions (see note 16) about the NIOX® products.
If the Group’s sales are lower than forecast due to a slower
recovery post the COVID-19 pandemic, or the pre-tax
discount rate applied to the cash flow projections is higher
than management’s estimates, this could result in an
impairment of the related goodwill and intangible assets.
Investments (estimate)
Circassia Group plc holds a number of investment
balances in subsidiary companies. Investment
impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate
a potential impairment.
Judgements and estimates are made in respect of the
carrying value of the CGU containing the investment. If
there is a significant change to a subsidiary’s value in
use, this could result in an impairment of the investment.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
95
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
Recoverable amount of intercompany
receivables (estimate)
Circassia Group plc has significant intercompany
receivables due from subsidiary companies. In line
with IFRS 9, the carrying value of these receivables is
assessed using the simplified approach to measuring
expected credit losses, which uses a lifetime expected
loss allowance for all trade receivables.
Estimates are made in respect of the recoverable
amount of each subsidiary. If the recoverable amount
of a subsidiary is below the carrying value of Circassia
Group plc’s intercompany receivable, this could result in
an impairment of the receivable.
Estimates and judgements are continually evaluated.
They are based on historical experience and other
factors, including expectations of future events that
may have a financial impact on the entity and that are
believed to be reasonable under the circumstances.
Consolidation
Subsidiaries are all entities (including structured
entities) over which the Group has control. The Group
controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with
the entity and has the ability to affect those returns
through its power over the entity.
Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised
gains and losses on transactions between Group
companies are eliminated.
Accounting policies of subsidiaries are consistent with
the policies adopted by the Group. Acquisition-related
costs are expensed as incurred.
Segmental reporting
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief
operating decision maker.
The chief operating decision maker, who is responsible
for allocating resources, assessing performance and
making strategic decisions, has been identified as the
Executive Chairman.
Discontinued operations
A discontinued operation is a component of the Group’s
business that represents a separate major line of
business or geographical area of operations that will not
be progressed in the future. Discontinued operations
are presented on the income statement as a separate
line and are shown net of tax. Cash flows relating to
discontinued operations are disclosed in the notes. The
decision to treat the COPD business as discontinued
was made on 9 April 2020 when it was announced that
the development and commercialisation agreement
between Circassia and AstraZeneca was terminating.
Revenue from contracts with customers
Revenue is accounted for under IFRS 15. Revenue
comprises the fair value of consideration received or
receivable for the sale of goods and services in the
ordinary course of the Group’s activities.
Revenue is shown net of value added tax and trade
discounts and after elimination of intra-Group sales.
Revenue represents net invoice value including fixed and
variable consideration. Variable consideration arises on
the sale of goods as a result of discounts and allowances
given and accruals for estimated future returns and
rebates. Revenue is not recognised until it is highly
probable that a significant reversal in the amount of
cumulative revenue recognised will not occur.
Income is reported as follows:
Sale of NIOX®
The Group sells medical technology equipment that
enables inflammation of the airways to be measured as
well as consumable items and spare parts.
Revenue is recognised when a contractual promise to
a customer (performance obligation) has been fulfilled
by transferring control of the product to the customer,
substantially all of which is on confirmation of delivery
to the customer.
Sale of Tudorza® and Duaklir®
The Group markets and sells Tudorza® and Duaklir®
in the United States, where it is indicated for the
maintenance treatment of patients with COPD.
Revenue is recognised when the goods are delivered
to the wholesaler and represents net invoice value less
estimated rebates, returns and chargebacks, which are
considered to be key estimates.
Delivery occurs when the products have been shipped
to the specific location, the risks of obsolescence and
96
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
loss have been transferred to the wholesaler and the
wholesaler has accepted the products. When invoicing
Tudorza® and Duaklir® sales, customers have a right to
return a product within a given period and therefore
the Group recognises a refund liability for the amount
of consideration received for which the entity does not
expect to be entitled.
Share based payments
The Group operates a number of equity-settled, share
based compensation plans, under which the entity
receives services from employees as consideration for
options over ordinary shares in Circassia Group plc.
The fair value of the employee services received in
exchange for the grant of the options is recognised as
an expense with a corresponding increase in equity.
The total amount to be expensed is determined by
reference to the fair value of the options granted:
·
including the effect of any market performance
conditions (such as the entity’s share price);
· excluding the impact of any service and
non-market performance vesting conditions
(for example, profitability, sales growth targets
and remaining an employee of the entity over
a specified time period); and
· including the impact of any non-vesting conditions
(for example, the requirement for employees to
save or hold shares for a specific period of time).
Equity settled share based payments are measured at
fair value at the date of grant. The fair value is measured
using either the Finnerty model (an at-market put option
variant of the Black-Scholes model), the Black-Scholes
model or the Monte Carlo Simulation.
This is dependent on the conditions attached to each
of the issued options. Where conditions are non-market
based the Black Scholes or the Finnerty model is used.
Where market-based conditions are attached to options,
the fair value is determined using the Monte Carlo
Simulation.
The total expense is recognised over the vesting period,
which is the period over which all of the specified vesting
conditions are to be satisfied. At the end of each period,
the entity revises its estimates of the number of options
that are expected to vest based on the non-market
vesting and service conditions. It recognises the impact
of the revision to original estimates, if any, in profit or
loss, with a corresponding adjustment to equity.
Cost of sales
Cost of sales are recognised as the associated revenue
is recognised. Cost of sales include purchase costs,
royalties payable on revenues recognised, movements in
provisions for inventories and inventory write-offs.
During the run-off period, Circassia must pay a run-off
fee to AstraZeneca which is equal to 50% of the monthly
profit of the COPD business. This is recognised as a cost
of fulfilling the contract with AstraZeneca and therefore
recognised as a cost of sale. The practical expedient
has been exercised and all costs to date have been
recognised in the income statement on the basis that the
period of the contract is less than one year.
Employee benefits
The Group makes contributions to defined contribution
personal pension schemes for certain directors and
employees. The pension cost charge recognised in
the year represents amounts payable by the Group
to the funds. The Group has no further payment
obligations once the contributions have been paid.
The contributions are recognised as employee benefit
expense when they are due.
Foreign currency translation
Items included in the financial statements of each of
the Group’s entities are measured using the currency of
the primary economic environment in which the entity
operates (‘the functional currency’).
The consolidated financial statements are presented
in British pound sterling, which is Circassia Group plc’s
functional and presentation currency.
Monetary assets and liabilities in foreign currencies are
translated into Sterling at the rates of exchange ruling
at the end of the financial year. Transactions in foreign
currencies are translated into Sterling at the rates of
exchange ruling at the date of the transaction.
Foreign exchange differences are taken to the
income statement in the year in which they arise
and presented within ‘Other gains and (losses) - net’.
Foreign exchange differences on translation of foreign
operations into the Group presentational currency,
are recognised as a separate element of other
comprehensive income. Cumulative exchange differences
are presented in a separate component of equity entitled
‘Translation reserve’.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
97
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
Taxation including deferred tax
Basic and diluted loss per share
Basic and diluted loss per share is calculated by dividing
the loss attributable to owners of the Company by
the weighted average number of ordinary shares
outstanding during the financial year. As net losses are
recorded in both presented financial years, the dilutive
potential shares are non-dilutive and therefore excluded
from the earnings per share calculation.
Financial instruments
The Group’s financial instruments comprise cash and
cash equivalents, receivables and payables arising
directly from operations, and derivatives. The main risks
associated with the Group’s financial instruments relate
to interest rate risk and foreign currency risk (note 2).
Where derivatives exist in the financial year, they are
initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-
measured at their fair value at each reporting date,
with any resulting gain or loss recognised through the
income statement.
The charge for income tax is based on the results for
the year, adjusted for items which are non-assessable
or disallowed. It is calculated using tax rates that have
been enacted or substantively enacted at the end of
each reporting period.
The Group is entitled to claim tax credits in the United
Kingdom for certain research and development
expenditure. The amount included in the financial
statements at the year end represents the credit
receivable by the Group for the year and adjustments to
prior years.
Deferred tax is accounted for using the liability method
in respect of temporary differences arising from
differences between the carrying amount of assets
and liabilities in the financial information and the
corresponding tax bases used in the computation of
taxable profit. In principle, deferred tax liabilities are
recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
Deferred tax is calculated at the average tax rates that
are expected to apply to the period when the asset
is realised, or the liability is settled. Deferred tax is
charged or credited in the statement of comprehensive
income, except when it relates to items credited or
charged directly to equity, in which case the deferred
tax is also dealt with in equity.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Property, plant and equipment
Leases
Property, plant and equipment is stated at historical
cost less depreciation. Historical cost includes
expenditure that is directly attributable to the
acquisition of the items.
Subsequent costs are included in the asset’s
carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future
economic benefits associated with the item will flow to
the Group and the cost of the item can be measured
reliably. The carrying amount of replaced parts is
derecognised. All other repairs and maintenance are
charged to the income statement during the financial
year in which they are incurred.
Depreciation is calculated using the straight-line
method to allocate the cost of assets over their
estimated useful lives, as follows:
Property, plant and equipment
Depreciation rate
Leasehold improvements
Over the life of the unbreakable
portion of the lease
Fixtures and fittings
20%
Plant and equipment
10% - 33%
Individually significant tangible assets that are intended
to be held by the Group for use in the supply of goods
and services or for administrative purposes and that
are expected to provide economic benefit for more than
one year are capitalised.
All other assets of insignificant value are charged to the
income statement in the year of acquisition.
Costs incurred relating to an asset that is not yet
complete are capitalised and held as ‘Assets under
construction’ until they are brought into use.
The asset is then transferred to the appropriate asset
class and depreciated in line with the policy above.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased
asset is available for use by the Group.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities
include the net present value of the fixed and variable
lease payments, less any lease incentives receivable.
The lease payments are discounted using the Group’s
incremental borrowing rate, being the rate that the
Group would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use
asset in a similar economic environment with similar
terms, security and conditions.
To determine the incremental borrowing rate the
Group where possible uses interest rates of recent
third-party financing received, adjusted to reflect
changes in financing conditions since third party
financing was received.
Lease payments are allocated between principal and
finance cost. The finance cost is charged to profit or
loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the
liability for each period.
Right-of-use assets are measured at cost comprising
the amount of the initial measurement of lease
liability, plus any lease payments made at or before the
commencement date less any lease incentives received.
These assets are generally depreciated over the shorter
of the asset’s useful life and the lease term on a straight-
line basis.
Payments associated with short-term leases of
equipment and vehicles and all leases of low-value assets
are recognised on a straight-line basis as an expense in
profit or loss.
Short-term leases are leases with a lease term of 12
months or less. Low-value assets comprise IT equipment
and small items of office furniture.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
99
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
Goodwill and Intangible assets
Intangible fixed assets, relating to goodwill, customer
relationships, technology, intellectual property rights
and currently marketed products acquired through
licensing or assigning patents and knowhow are carried
at historical cost, less accumulated amortisation,
where the useful economic life of the asset is finite,
and the asset will probably generate economic benefits
exceeding costs.
Amortisation is calculated using the straight-line
method to allocate the cost of intangible assets over
their estimated useful lives, as follows:
Intangible asset
Estimated useful lives
Other
CMP
IPR&D
Customer Relationships
Technology
5 years
13 years
5 - 17 years
18 years
15 – 20 years
Goodwill arising on the acquisition of subsidiaries
represents the excess of the consideration transferred,
the amount of any non-controlling interests in the
acquiree and the acquisition date fair value of any
previous equity interest in the acquiree over the fair
value of the identifiable net assets acquired.
For the purpose of impairment testing, goodwill acquired
in a business combination is allocated to each of the
CGUs, or groups of CGUs, that are expected to benefit
from the synergies of the combination.
Each unit or group of units to which the goodwill
is allocated represents the lowest level within the
entity at which the goodwill is monitored for internal
management purposes. Goodwill is monitored at the
operating segment level. Goodwill impairment reviews
are undertaken annually or more frequently if events
or changes in circumstances indicate a potential
impairment. The carrying value of the CGU containing the
goodwill is compared to the recoverable amount, which
is the higher of value in use and the fair value less costs
of disposal. Any impairment is recognised immediately as
an expense and is not subsequently reversed.
Expenditure on product development is capitalised as an
intangible asset and amortised over the expected useful
economic life of the product concerned.
Capitalisation commences from the point at which
technical feasibility and commercial viability of the
product can be demonstrated and the Group is satisfied
that it is probable that future economic benefits will
result from the product once completed. Capitalisation
ceases when the product receives regulatory approval
for launch. Expenditure on research and development
activities that do not meet the above criteria, including
ongoing costs associated with acquired intellectual
property rights and intellectual property rights
generated internally by the Group, is charged to the
income statement as incurred.
Intellectual property and in-process research and
development from acquisitions are recognised as
intangible assets at fair value. Any residual excess of
consideration over the fair value of net assets in an
acquisition is recognised as goodwill in the financial
statements.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example
goodwill or intangible assets not ready for use, are not
subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its
recoverable amount.
The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use. For the purposes
of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable
cash flows (cash-generating units). Non-financial assets
other than goodwill that suffered an impairment are
reviewed for possible reversal of the impairment at each
reporting date. Charges or credits for impairment are
passed through the income statement.
Investments
Investments in subsidiary companies are recognised and
carried at cost less any identified impairment losses at the
end of each reporting period. Investments are impaired
where there is objective evidence that the estimated
future cash flows of the investment have been affected.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Inventories
Share capital
Inventories are valued at the lower of the acquisition
cost and net realisable value. The FIFO (first in, first out)
principle is used to calculate the value of inventories.
Inventories mainly comprise products for sale and
stocks of components for the service activities in
Sweden, China and the US.
The acquisition value comprises all expenses for
purchases. The net realisable value is the expected sale
price less expected costs for preparation and selling.
Management utilise sales forecasts to calculate the level
of inventory required and compare this to current levels
of inventory held to assess net realisable value.
Write-downs of inventory generally occur in the
ordinary course of business and are recognised in
cost of sales. Inventory purchased as sample stock is
recognised immediately as a sales and marketing cost.
Trade and other receivables
Trade receivables are amounts due from customers for
goods sold or services performed in the ordinary course
of business. They are generally due for settlement within
30 days and therefore are all classified as current.
Trade receivables are recognised initially at fair value
and subsequently measured at amortised cost using the
effective interest method, less credit loss allowance.
The Group applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables.
Trade receivables are written off when there is no
reasonable expectation of recovery.
Other receivables are recognised initially at fair value
and subsequently measured at amortised cost, using the
effective interest method, less provision for impairment.
Cash and cash equivalents
For the purpose of presentation in the statement of
cash flows, cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions,
other short-term, highly liquid investments with original
maturities of three months or less that are readily
convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value, and
bank overdrafts.
Ordinary shares are classified as equity and have a
nominal value of £0.0008. They entitle the holder to
participate in dividends, and to share in the proceeds of
winding up the company in proportion to the number
of and amounts paid on the shares held. Incremental
costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax,
from the proceeds.
Other reserves
Share option reserve
The share option reserve is used to recognise:
·
·
·
·
the grant date fair value of options issued to
employees but not exercised;
the grant date fair value of shares issued to employees;
the grant date fair value of deferred shares granted
to employees but not yet vested; and
the issue of shares held by the Circassia
Pharmaceuticals plc Employee Benefit Trust
(the “Trust”) to employees.
Translation reserve
Exchange differences arising on translation of the foreign
controlled entity are recognised in other comprehensive
income and accumulated in a separate reserve within
equity. The cumulative amount is reclassified to profit or
loss when the net investment is disposed of.
Transactions with non-controlling interests
This reserve is used to record the differences which
arise as a result of transactions with non-controlling
interests that do not result in a loss of control.
Treasury shares reserve/own shares reserve
This reserve arose when the Parent Company purchased
its own shares through the Trust to satisfy the issue of
shares to employees under the Deferred Bonus Share
Plan (DBSP) and the Performance Share Plan (PSP) in
relation to 2014.
Trade and other payables
Trade payables are obligations to pay for goods or
services that have been acquired in the ordinary course
of business from suppliers. They are initially recognised
at fair value and subsequently held at amortised cost.
Accounts payable are classified as current liabilities if
payment is due within one year or less. If not, they are
presented as non-current liabilities.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
101
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
2. Financial and capital risk management
Capital risk management
The Group’s objectives when managing capital are to
safeguard its ability to continue as a going concern
and ensure that sufficient capital is in place to fund the
Group’s activities.
The Group’s capital is comprised of share capital and
share premium, which are disclosed in notes 27 and 28
respectively.
The Group’s principal method of adjusting the capital
available has been through issuing new shares. During
2020, the Company issued 20,325,202 ordinary
shares with a value of £5.0 million to two of its major
institutional shareholders, North Atlantic Small
Companies Investment Trust plc (“NASCIT”) and
Richard Griffiths.
The Group monitors the availability of capital through
forecasting future expenditure on an ongoing basis.
Monitoring of financial risk is part of the Board’s
ongoing risk management, the effectiveness of which
is reviewed annually.
Foreign exchange risk
Foreign exchange fluctuations may adversely affect the
Group’s results and financial condition.
The Group prepares its financial statements in British
pound sterling, but a significant proportion of its
expenditure and subsidiary results are in various
currencies including United States dollar, Swedish krona,
euro and Chinese yuan.
Foreign exchange risk arises from future commercial
transactions and recognised assets and liabilities.
Financial risk management
Notional amount
Instruments used by the Group
The Group’s policy is to hedge 75% of the forecast
British pound sterling, Swedish krona and euro
cash flows up to six months in advance.
The Group uses foreign currency forward exchange
contracts to hedge its exposure to foreign currency risk.
These foreign currency contracts are accounted for as
financial assets at fair value.
The initial fair value of these assets is £nil as no money
has changed hands and therefore no value can be
attributed to the contract.
These are subsequently remeasured at each year end
at the spot rate, with gains and losses recognised in
profit or loss.
2020
£m
3.5
2019
£m
-
-
Maturity date
January 2021 – June 2021
The carrying amount of the financial asset, and the
net fair value gain as at 31 December 2020 is £nil
(2019: £nil).
Sensitivity
The change in foreign exchange rates that is assessed
to be reasonably likely for each currency in 2020 is
10% (2019: 10%).
At 31 December 2020, if the euro had weakened/
strengthened by 10% against sterling with all other
variables held constant, the post tax loss for the year
would have been £0.3 million (2019: £0.3 million)
lower/higher.
Similarly, if the US dollar had weakened/strengthened
by 10%, the post tax loss for the year would have been
£0.3 million (2019: £11.0 million) lower/higher.
This is as a result of net foreign exchange gains/losses
on translation of euro and US dollar denominated
payables, receivables and bank balances.
The impact on post tax loss and equity is immaterial for
the remaining currencies.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Interest rate risk
The Group’s policy in relation to interest rate risk is
to monitor short and medium term interest rates and
to place cash on deposit for periods that optimise the
amount of interest earned while maintaining access to
sufficient funds to meet day to day cash requirements.
The Group’s main interest expense arises from long-term
borrowings with variable rates, which exposes the Group
to cash flow interest rate risk.
During 2020 and 2019, the Group’s borrowings at
variable rates were denominated in United States dollar.
Following the forgiveness of the loan from AstraZeneca
in May 2020, the Group is debt free and its interest rate
risk is minimal.
Profit or loss is sensitive to higher/lower interest expense
from cash and cash equivalents as a result of changes in
interest rates.
If variable interest rates had been 10 basis points higher/
lower the impact on net loss and accumulated losses
in 2020 would have been an increase/decrease of £0.3
million (2019: £0.2 million) due to changes in the amount
of interest receivable and interest payable.
Credit risk
Credit risk arises from cash and cash equivalents,
contractual cash flows of debt instruments carried
at amortised cost, deposits with banks and financial
institutions, as well as credit exposures to customers,
including outstanding receivables.
i) Risk management
The Group’s policy generally is to place funds with
financial institutions which have a minimum credit
rating with Fitch IBCA of A- long-term/F1 short-term.
During 2020 the Group placed funds on deposit with
7 banks (2019: 8 banks).
The Group does not allocate a quota to individual
institutions but seeks to diversify its investments,
where this is consistent with achieving competitive
rates of return.
It is the Group’s policy to place not more than £5 million
(or the equivalent in other currencies) with any one
counterparty.
The value of financial instruments held represents the
maximum exposure that the Group has to them. There
is no collateral held for this type of credit risk.
No credit limits were exceeded during any of the periods
reported, and management does not expect any material
losses from non-performance by these counterparties.
ii) Impairment of financial assets
The Group only has one type of financial asset that is
subject to the expected credit loss model being trade
receivables. While cash and cash equivalents are also
subject to the impairment requirements of IFRS 9, the
identified impairment loss was immaterial.
The Group applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables.
To measure the expected credit losses, trade receivables
have been grouped based on the days past due.
The expected loss rates are based on the payment
profiles of sales over a period of 36 months before 31
December 2020 and the corresponding historical credit
losses experienced within this period.
The historical loss rates are adjusted to reflect current
and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle
the receivables.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
103
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
On that basis, the loss allowance as at 31 December 2020 and 2019 was determined as follows:
GROUP
31 December 2020
Expected loss rate
Gross trade receivables carrying amount
Loss allowance
31 December 2019
Current
More than 30
days past due
More than 60
days past due
More than 90
days past due
£m
0.2%
15.8
(0.1)
£m
£m
£m
53.2%
52.2%
18.2%
0.1
-
0.1
-
0.2
-
Expected loss rate
0.5%
31.9%
20.5%
7.5%
Gross trade receivables carrying amount
Loss allowance
COMPANY
31 December 2020
Expected loss rate
Gross receivables from subsidiary
undertakings carrying amount
Loss allowance
31 December 2019
11.9
(0.1)
0.1
-
0.1
-
0.4
-
Current
More than 30
days past due
More than 60
days past due
More than 90
days past due
£m
98%
270.9
(270.8)
£m
0%
-
-
£m
0%
-
-
£m
0%
-
-
Total
£m
1.0%
16.2
(0.1)
1.2%
12.5
(0.1)
Total
£m
98%
270.9
(270.8)
Expected loss rate
91%
0%
0%
0%
91%
Gross receivables from subsidiary
undertakings carrying amount
Loss allowance
382.9
(347.8)
-
-
-
-
-
-
382.9
(347.8)
104
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
The closing loss allowance for trade receivables reconciles to the opening loss allowance as follows:
Opening loss allowance as at 1 January
Increase in loss allowances recognised in profit or loss during the year
Reallocation against investments
Group
Company
2019
£m
(0.1)
-
-
2020
£m
(347.8)
2019
£m
(91.4)
(18.1)
(256.4)
95.1
-
2020
£m
(0.1)
-
-
At 31 December
(0.1)
(0.1)
(270.8)
(347.8)
Trade receivables are written off where there is no reasonable expectation of recovery.
Indicators that there is no reasonable expectation of recovery include, amongst others,
the failure of a debtor to engage in a repayment plan with the Group, and a failure to make
contractual payments for a period of greater than 120 days past due.
Impairment losses on trade receivables are presented within operating expenditure.
Subsequent recoveries of amounts previously written off are credited against the same line item.
Cash flow and liquidity risk
Liquidity risk is managed through maintaining sufficient cash and the availability of funding to
meet obligations when due.
Management monitors rolling forecasts of the Group’s cash on the basis of expected cash flows.
The directors do not consider that there is presently a material cash flow or liquidity risk.
The table below analyses the Group’s financial liabilities into relevant maturity groupings based
on the remaining period at the balance sheet date to the contractual maturity date.
Less than 1 year
Over 1 year
Less than 1 year
Over 1 year
At 31 December
Borrowings
Lease liabilities
Contingent consideration
Trade and other payables
Total
2020
£m
-
0.8
0.3
25.6
26.7
2020
£m
-
0.8
-
-
0.8
2019
£m
-
0.6
1.1
39.6
41.3
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2019
£m
109.9
1.5
-
-
111.4
105
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
3. Operating segments
The chief operating decision-maker, the Executive Chairman, examines the Group’s performance from a
product perspective, and has identified two reportable segments of the business:
· NIOX® relates to the portfolio of products used to improve asthma diagnosis and management by
measuring fractional exhaled nitric oxide (FeNO); and
· COPD relates to the Tudorza® and Duaklir® Pressair® products marketed in the United States,
where they are indicated for the maintenance treatment of patients with COPD.
The COPD business has been classified as a discontinued operation. Information about the results of
this segment is provided in note 10; information regarding its assets is presented below.
The table below presents operating loss information regarding the Group’s operating segments for
the years ended 31 December 2020 and 2019.
Only the results for the Group’s underlying continuing activities are included in order to aid comparison.
Segment operating loss
Year ended 31 December 2020
Revenue (from external customers by country,
based on the destination of the customer)
US
UK
EU
Asia Pacific
Rest of world
Total segment revenue
Cost of sales
Research and development costs
Sales and marketing costs
Administrative expenses
Operating loss from continuing operations
NIOX®
£m
Head office
£m
6.5
1.3
6.9
8.9
0.3
23.9
(7.6)
(6.8)
(16.6)
(5.9)
(13.0)
-
-
-
-
-
-
-
-
-
(4.3)
(4.3)
Total
£m
6.5
1.3
6.9
8.9
0.3
23.9
(7.6)
(6.8)
(16.6)
(10.2)
(17.3)
Depreciation, amortisation and impairment included above
(6.2)
-
(6.2)
106
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Year ended 31 December 2019
Restated1
Revenue (from external customers by country,
based on the destination of the customer)
US
UK
EU
Asia Pacific
Rest of world
Total segment revenue
Cost of sales
Research and development costs
Sales and marketing costs
Administrative expenses
Operating loss from continuing operations
Depreciation, amortisation and impairment included above
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
Assets by segment
As at 31 December 2020
Cash and cash equivalents
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets
Deferred tax assets
Inventories
Trade and other receivables
Total assets
As at 31 December 2019
Restated1
Cash and cash equivalents
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets
Deferred tax assets
Inventories
Trade and other receivables
Current tax assets
Total assets
NIOX®
£m
10.4
2.0
7.4
14.5
0.3
34.6
(9.1)
(6.9)
(24.6)
(6.5)
(12.5)
(3.7)
Head office
£m
-
-
-
-
-
-
-
-
-
(6.0)
(6.0)
-
Total
£m
10.4
2.0
7.4
14.5
0.3
34.6
(9.1)
(6.9)
(24.6)
(12.5)
(18.5)
(3.7)
NIOX®
COPD (Discontinued)
Total
£m
7.4
0.1
1.3
5.3
45.1
21.6
3.0
6.4
90.2
£m
-
-
-
-
-
-
1.0
11.9
12.9
NIOX®
COPD (Discontinued)
£m
11.7
-
1.3
4.8
45.3
18.9
3.5
6.8
0.2
92.5
£m
15.3
0.5
0.6
-
117.7
9.4
3.0
7.8
-
£m
7.4
0.1
1.3
5.3
45.1
21.6
4.0
18.3
103.1
Total
£m
27.0
0.5
1.9
4.8
163.0
28.3
6.5
14.6
0.2
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
107
154.3
246.8
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
4. Revenue from contracts with customers
The Group derives the following types of revenue:
Sale of goods
Licence and milestone revenue
Total revenue from contracts with customers
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
5. Employees and directors
Monthly average number of people
(including Executive and Non-Executive Directors) employed:
Office and management
Sales and marketing
Research and development
Total average headcount
2020
£m
23.9
-
23.9
2019 Restated1
£m
34.5
0.1
34.6
2020
Number
38
184
25
247
Group
2019
Number
46
244
32
322
2020
Number
Company
2019
Number
6
-
-
6
6
-
-
6
Average headcount includes 44 (2019: 109) sales and marketing and 4 (2019: 5)
research and development people employed solely for the discontinued operation.
The Group’s total headcount at 31 December 2020 was 156 (31 December 2019: 291)
Employee benefit costs
Group
Company
Wages and salaries
Social security costs
Other pension costs
Share options expense
Total employee benefit costs
2020
2019 Restated1
2020
£m
14.5
1.5
0.8
2.0
18.8
£m
19.4
2.6
0.9
1.4
24.3
£m
1.1
0.1
-
-
1.2
2019
£m
2.2
0.3
-
-
2.5
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
The Group contributes to defined contribution pension schemes for its Executive
Directors and employees. Contributions of £0.1 million (included in other payables)
were payable to the funds at the year end (2019: £0.1 million).
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Key management personnel
Key management personnel during the year included directors (Executive and Non-Executive),
Regional VP APAC, Regional VP Americas, VP Product Development, VP Supply Chain, Regional
VP EMEA, VP Global Accounts, VP Global Marketing and Senior VP Global Human Resources.
Key management personnel in the prior year also included the Chief Compliance Officer.
The compensation paid or payable to key management is set out below.
Short-term employee benefits (including bonus)
Post-employment benefits
Share based payment
Total
Other remuneration information
2020
£m
2.9
0.1
0.3
3.3
2019
£m
3.2
1.2
0.6
5.0
The table below sets out the location of information required to be disclosed in the notes to the
financial statements which can be found in the Remuneration report and is incorporated by reference:
Subject matter
Single total figure of remuneration for each director (including remuneration for the highest-paid director)
Scheme interests awarded to directors during the financial year
Page reference
62 to 63
66 to 67
Gain on exercise of share options
Payments to past directors
Payments for loss of office
Statement of directors’ shareholding and share interests
6. Breakdown of expenses by nature
Employee benefit expenses
Marketing costs
Legal and professional fees including patent costs
Depreciation charge of property, plant and equipment
Depreciation charge of right-of-use assets
Amortisation charge of intangible assets
Impairment of intangible assets
Impairment of property, plant and equipment
Loss on disposal of property, plant and equipment
65
65
65
65
2020
£m
18.8
3.8
2.5
0.3
0.8
4.2
0.8
0.1
0.1
Notes
5
14
15
17
17
14
14
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2019 Restated1
£m
24.3
3.4
6.3
0.3
0.5
3.7
44.0
-
-
109
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
7. Other (losses) and gains - net
2020
2019 Restated1
Net foreign exchange losses
Sub-lease rental income
Change in fair value of contingent LungFit™ PH royalty consideration
Change in fair value of LungFit™ PH contingent consideration
Total other (losses) and gains - net
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
£m
(1.1)
0.2
-
-
(0.9)
£m
(3.5)
-
23.9
15.9
36.3
Following an announcement made by BeyondAir in December 2019 that they are terminating the agreement for
the commercial licence of LungFit™ PH, Circassia remeasured the fair value of the royalty consideration and the
contingent consideration resulting in a £23.9 million and a £15.9 million credit respectively to other gains.
8. Finance costs and income
Finance costs:
Bank charges
Interest charges for lease liabilities
Total finance costs
Finance income:
Bank interest receivable
Total finance income
2020
£m
(0.2)
(0.1)
(0.3)
0.1
0.1
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
9. Auditors’ remuneration
During the year, the Group paid £nil (2019: £1,356) to the Group’s auditors in respect of non-audit services
for an accounting research tool subscription. During the year, the Group (including its overseas subsidiaries)
obtained the following services from the Group’s auditors and its associates:
Fees payable to the Group’s auditors and its associates for the audit of the Parent Company and consolidated financial statements
Fees payable to the Group’s auditors and its associates for other services:
- Audit of the financial statements of the Company’s subsidiaries
Total
110
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2020
£m
0.2
0.1
0.3
2019 Restated1
£m
(0.2)
(0.1)
(0.3)
0.2
0.2
2019
£m
0.2
0.2
0.4
10. Discontinued operations
On 27 May 2020, Circassia signed an agreement to hand back the Tudorza® and
Duaklir® licences to AstraZeneca and as such, the results of the COPD operating
segment are reported as a discontinued operation. There were no assets or
liabilities classified as held for sale in relation to the discontinued operation.
Loss for the year
Revenue
Cost of sales
Gross profit
Expenditure
Goodwill and intangible asset impairment
Operating loss
Other gains and (losses) - net
Finance costs
Loss from discontinued operations
Cash flow
Net cash outflow from operating activities
Net cash inflow from financing activities
Net cash used in discontinued operations
2020
£m
22.1
(6.4)
15.7
(20.0)
(114.0)
(118.3)
114.8
(3.2)
(6.7)
2020
£m
(9.8)
-
(9.8)
2019 Restated1
£m
27.8
(7.1)
20.7
(45.2)
(46.2)
(70.7)
57.7
(18.5)
(31.5)
2019 Restated1
£m
(22.7)
14.9
(7.8)
1 Restated to show the results of the COPD business as a discontinued operation.
Other gains and losses include a £123.1 million gain (2019: £nil) relating to the
forgiveness of the AstraZeneca loan and accrued interest, £8.3 million loss (2019: £4.1
million gain) on foreign exchange, and £nil (2019: £53.6 million) gain on the change in
fair value of the contingent royalty consideration.
Finance costs include £3.0 million (2019: £3.2 million) of interest charged on the loan
from AstraZeneca, and £0.2 million (2019: £15.3 million) relating to the unwinding of
discounts on amounts payable to AstraZeneca.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
111
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
11. Non-underlying items
Management primarily manage the business and measure performance based
on the results of “underlying operations.” Significant irregularly occurring and
exceptional items are excluded from the underlying measures.
The following non-underlying items have been recognised in the income
statement for the comparative period:
Charged to research and development costs
Impairment
Restructuring costs
Charged to administrative expenses
Restructuring costs
Credited to other gains and losses
Change in fair value of contingent LungFit™ PH royalty consideration
Change in fair value of LungFit™ PH contingent consideration
Loss from continuing operations
Loss from discontinued operations
Total loss
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
Impairment: On 19 December 2019, an announcement
was made by BeyondAir that they were terminating the
agreement for the commercial licence of LungFit™ PH
and as such management concluded that impairment
was required to the LungFit™ PH CGU. This resulted in an
impairment of £44.0 million to intangible assets.
Restructuring costs: Restructuring costs comprise cost
optimisation initiatives including severance payments,
compensation for loss of office, property and other
contract termination costs. Restructuring in 2019 relates
mainly to the restructuring of the Board and other
members of senior management.
Change in fair value of contingent LungFit™ PH
royalty consideration: Contingent royalty consideration
relates to the amount of royalties payable to BeyondAir
on the future sales of LungFit™ PH. The liability was
remeasured to fair value at the year end with the
resulting £nil (2019: £23.9 million) credit recorded in
other gains and losses in the income statement.
Notes
2020
£m
2019 Restated1
£m
-
-
-
-
-
-
-
-
-
-
-
7
7
10
(44.0)
(0.2)
(44.2)
(1.1)
(1.1)
23.9
15.9
39.8
(5.5)
(31.5)
(37.0)
Change in fair value of LungFit™ PH contingent
consideration: In addition to the £8.0 million upfront
payments and £19.9 million of contingent royalty
payments, Circassia owed BeyondAir further consideration
of £16.1 million based on certain triggering events. As
such, on this date Circassia recognised a contingent
liability, and an offsetting intangible asset. As the liability
is denominated in United States dollars, this was revalued
to £15.9 million. Following an announcement made by
BeyondAir in December 2019 that they were terminating
the agreement for the commercial licence of LungFit™ PH,
Circassia derecognised the contingent liability resulting in
a £nil (2019: £15.9 million) credit to other gains.
Loss from discontinued operations: In the prior year,
the costs relating to the discontinued COPD business
were deemed to be an exceptional item to be excluded
from the underlying operations. In the current year, the
residual run-off period is considered to be a trading part
of the business, and therefore presented in underlying
operations. See note 10 for further details.
112
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
12. Taxation
The Group is entitled to claim tax credits in the United Kingdom for certain research and development
expenditure. The amount included in the financial statements for the years ended 31 December 2020
and 2019 represents the credit receivable by the Group for the year and adjustments to prior years.
The 2020 amounts have not yet been agreed with the relevant tax authorities.
Current tax
United Kingdom corporation tax research and development credit
Total current tax credit
Deferred tax
Decrease/(increase) in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Total deferred tax charge/(credit)
Total tax charge/(credit)
Tax is attributable to:
Loss on continuing operations
Loss on discontinued operations
The tax charge (2019: credit) for the year is higher (2019: lower) than the standard rate of
corporation tax in the UK of 19.00% (2019: 19.00%). The differences are explained below:
Loss from continuing operations before tax
Loss from discontinued operations before tax
Loss before tax
Loss on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 19.00% (2019: 19.00%)
Expenses not deductible for tax purposes (permanent differences):
Research and development relief uplift
Temporary timing differences on employee share options
Tax losses for which no deferred income tax asset was recognised
Tax charge/(credit) for the year
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
2020
£m
-
-
8.2
0.2
8.4
8.4
8.4
-
8.4
2020
£m
(18.4)
(6.7)
(25.1)
(4.8)
-
-
0.4
12.8
8.4
2019
£m
(0.1)
(0.1)
(9.1)
(1.6)
(10.7)
(10.8)
(10.8)
-
(10.8)
2019 Restated1
£m
(27.6)
(31.5)
(59.1)
(11.2)
0.6
(0.2)
-
-
(10.8)
At 31 December 2020, the Group has tax losses to be carried forward of approximately £513.7 million (2019:
£526.3 million). These can be utilised against future taxable profits. At 31 December 2020, Circassia Group plc
and Circassia Limited had tax losses to be carried forward of approximately £162.6 million (2019: £158.9 million).
The utilisation of these losses will be restricted to 50% of profits generated in the United Kingdom.
At 31 December 2020, the Group has tax assets arising from tax credits in the United Kingdom for certain
research and development expenditure of £nil (2019: £0.2 million).
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
113
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
13. Loss per share
Basic and diluted loss per share
From continuing operations
From discontinued operations
Total basic and diluted loss per share attributable to the ordinary equity holders of the Company
2020
£
(0.07)
(0.02)
(0.09)
2020
2019 Restated1
£
(0.04)
(0.09)
(0.13)
2019
Weighted average number of shares
381,859,840
373,703,488
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
14. Property, plant and equipment
Leasehold
improvements
Fixtures
and fittings
Plant and
Total property, plant
equipment
and equipment
At 1 January 2019
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 31 December 2019
Opening net book amount
Additions
Depreciation charge
Closing net book amount
At 31 December 2019
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 31 December 2020
Opening net book amount
Additions
Depreciation charge
Disposals
Impairment
Closing net book amount
At 31 December 2020
Cost
Accumulated depreciation and impairment
Net book amount
£m
0.8
(0.6)
0.2
0.2
0.1
(0.1)
0.2
0.9
(0.7)
0.2
0.2
-
(0.2)
-
-
-
0.9
(0.9)
-
£m
0.6
(0.3)
0.3
0.3
0.2
(0.2)
0.3
0.8
(0.5)
0.3
0.3
-
(0.1)
(0.1)
-
0.3
0.7
(0.6)
0.1
£m
1.7
(1.7)
-
-
-
-
-
1.7
(1.7)
-
-
0.1
-
-
(0.1)
-
1.8
(1.8)
-
£m
3.1
(2.6)
0.5
0.5
0.3
(0.3)
0.5
3.4
(2.9)
0.5
0.5
0.1
(0.3)
(0.1)
(0.1)
0.1
3.4
(3.3)
0.1
114
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
15. Leases
The balance sheet shows the following amounts relating to leases:
Right-of-use assets
Leasehold improvements
Plant and equipment
Lease liabilities
Current
Non-current
2020
£m
1.2
0.1
1.3
(0.8)
(0.8)
(1.6)
Additions to the right-of-use assets during the financial year were £0.2 million (2019: £2.4 million).
The income statement shows the following amounts relating to leases:
Depreciation charge of right-of-use assets
Interest expense (included in finance cost)
Expense relating to leases of low-value assets that are not shown above as
short-term leases (included in administrative expenses)
Notes
6
8
2020
£m
(0.8)
(0.1)
-
(0.9)
The total cash outflow for leases was £0.7 million (2019: £0.9 million).
For information regarding the Group’s low-value leases and leases for which it is a lessee, see note 33.
16. Goodwill
At 1 January
Cost
Accumulated impairment
Net book amount
Year ended 31 December
Opening net book amount
Impairment
Exchange differences
Closing net book amount
At 31 December
Cost
Accumulated impairment
Net book amount
2020
£m
87.8
(83.0)
4.8
4.8
-
0.5
5.3
88.3
(83.0)
5.3
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2019
£m
1.8
0.1
1.9
(0.6)
(1.5)
(2.1)
2019
£m
(0.5)
(0.1)
(0.2)
(0.8)
2019
£m
88.2
(78.9)
9.3
9.3
(4.1)
(0.4)
4.8
87.8
(83.0)
4.8
115
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
In 2019, a £4.1 million impairment charge to goodwill was recognised due to the sales performance of Tudorza®
and Duaklir® being well below internal forecasts. The carrying value of goodwill is allocated to the NIOX® CGU.
The recoverable amount of a CGU is assessed using a value in use model.
The value in use for the NIOX® CGU was calculated over a five-year period using a discount factor of 11.5%
(being a weighted average cost of capital rate for the CGU). The calculations use post-tax cash flow projections.
Cash flows over five years have been considered appropriate based on the product lifecycle.
Cash flows beyond the five-year period were extrapolated using the estimated terminal growth rate stated below.
The growth rate does not exceed the long-term average growth rate for the business.
The discount rate used is post-tax and reflects specific risks relating to the Group and uncertainties surrounding
the cash flow projections. The value in use calculations include expected revenue growth from historic levels.
The key assumptions used for the valuation of the NIOX® CGU are as follows:
Assumption
Valuation basis
Sales
Operating costs
Approach used to determine values
Value in use
Based on past performance and management’s expectations of market development.
Sales in 2022 are expected to return to pre-pandemic levels.
The growth rate for 2023-2025 reflects a more cautious growth level than historic CAGR
Management forecasts these costs based on the current structure of the business,
adjusting for inflationary increases but not reflecting any future restructurings or cost-saving measures
Profit margins
Based on past performance and management’s expectations for the future
Period of specified projected cash flows
2020 - 5 years
2019 – 10 years
Long-term growth rate
2020 – 1%
2019 – 1%
Terminal growth rates based on management’s estimate of future long-term average growth rate
Discount rate
2020 – 11.5%
2019 – 11.5%
Reflects specific risks relating to the relevant segments and the countries in which they operate
Impact of possible changes in key assumptions - NIOX® CGU
If the budgeted NIOX® sales in the value in use calculation had been 13% lower than management’s
estimates at 31 December 2020, the Group would have had to recognise an impairment against
the carrying amount of goodwill and intangible assets of £3.3 million. The reasonably possible
reduction in budgeted sales represents a slower recovery post the COVID-19 pandemic.
If the pre-tax discount rate applied to the cash flow projections of this CGU had been 3% higher
than management’s estimates (14.5% instead of 11.5%), the Group would have had to recognise an
impairment against the carrying amount of goodwill and intangible assets of £1.2 million.
116
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
17. Intangible assets
Group
At 1 January 2019
Cost
Accumulated amortisation and impairment
IPR&D
£m
161.9
(88.8)
CMP
£m
97.4
-
Net book amount
73.1
97.4
Year ended 31 December 2019:
Opening net book amount
Acquisition of business
Amortisation charge
Transfers
Impairment charge
Exchange differences
Closing net book amount
At 31 December 2019
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 31 December 2020:
Opening net book amount
Additions
Amortisation charge
Impairment
Disposal
Exchange differences
Closing net book amount
At 31 December 2020
Cost
Accumulated amortisation and impairment
Net book amount
73.1
-
(2.1)
(71.0)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
97.4
-
(8.6)
71.0
(42.1)
-
117.7
259.3
(141.6)
117.7
117.7
-
(3.7)
-
(114.0)
-
-
259.3
(259.3)
-
Customer
Technology
Intellectual
Other
Total intangible
relationships
property
£m
£m
£m
£m
34.6
(7.4)
27.2
50.3
(26.9)
23.4
27.2
-
(1.8)
-
-
(2.1)
23.3
34.6
(11.3)
23.3
23.3
-
(1.8)
-
-
2.5
24.0
34.4
(10.4)
24.0
23.4
-
(1.9)
-
-
(1.8)
19.7
50.3
(30.6)
19.7
19.7
-
(2.0)
-
-
2.0
19.7
31.2
(11.5)
19.7
-
-
-
-
44.0
-
-
(44.0)
-
-
44.0
(44.0)
-
-
-
-
-
-
-
-
44.0
(44.0)
-
1.9
(1.6)
0.3
0.3
2.0
-
-
-
-
2.3
3.9
(1.6)
2.3
2.3
0.4
(0.4)
(0.8)
-
(0.1)
1.4
4.3
(2.9)
1.4
assets
£m
346.1
(124.7)
221.4
221.4
46.0
(14.4)
-
(86.1)
(3.9)
163.0
392.1
(229.1)
163.0
163.0
0.4
(7.9)
(0.8)
(114.0)
4.4
45.1
373.2
(328.1)
45.1
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
117
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
The Group tests annually whether goodwill and intangible
assets have suffered any impairment and tests more
frequently when events or circumstances indicate that
the current carrying value may not be recoverable.
An impairment test is based on the value in use of the
intangible assets.
Key assumptions and sensitivities used in the impairment
review at a CGU level are disclosed in note 16.
In-Process Research & Development (IPR&D): IPR&D
comprised the Duaklir® licence asset until October 2019,
when the product launched, and the related assets were
transferred from IPR&D and into CMP.
Currently Marketed Product (CMP): CMP comprises
the Tudorza® product, and since its launch in October
2019, the Duaklir® product. The CMP asset was partially
impaired in 2019 following an underperformance in
sales of Tudorza® and Duaklir.® Subsequently, the asset
was fully disposed of in the 2020 financial year as the
licences were handed back to AstraZeneca on 27 May
2020. AstraZeneca granted Circassia an extension of the
licences during the run-off period, however the licences
obtained were solely limited to distribute the products
on behalf of AstraZeneca and Circassia could not use
the underlying intellectual property to manufacture the
products on its own. As such, the extension of the licences
was not considered to be distinct and no intangible asset
was recognised.
Customer relationships: Customer relationships
represent the existing customers as at the date of
acquisition that are expected to continue to support
the NIOX® business. A remaining useful life of 18 years
was determined at acquisition. Amortisation has been
calculated on a straight-line basis over this period from
the date of acquisition.
18. Investments in subsidiaries
Company
Investments in subsidiaries at 1 January
Equity settled instruments granted to employees of subsidiaries
Additional investment in Circassia Pharmaceuticals Inc
Provision against investments
Investments in subsidiaries at 31 December
Technology: Aerocrine developed its technology to
measure fractional exhaled nitric oxide (“FeNO”) in the
mid-1990s. The company was the first to develop an
instrument for the measurement of FeNO as a valuable
tool in the management of airway inflammation. This
technology is used by the Group in its NIOX® devices.
The valuation of the Technology was based on a pre-
determined hypothetical royalty rate attributable to the
use of the Technology. The estimated remaining useful
life of the Technology was determined as 15 years at
acquisition. Amortisation has been calculated on a straight
line basis over this period from the date of acquisition.
Intellectual property: Intellectual property comprises
the LungFit™ PH licence which was acquired from
BeyondAir in 2019. The asset was initially valued at
£44.0 million, being the fair value of consideration.
This includes £8.0 million paid upfront in the form of
shares and contingent milestone and royalty payments
valued at £36.0 million. The intellectual property was
fully impaired following an announcement made by
BeyondAir in December 2019 purporting to terminate
the agreement for the commercial licence of LungFit™
PH. The Company is challenging this termination.
Other: Other intangible assets relate to software and
internally generated capitalised device development costs.
Current year additions mainly relate to the development
costs of the new ERP software. Amortisation on the
ERP software has been calculated on a straight-line
basis over the period from which the software was fully
developed and operational. An impairment loss of £0.8
million has been recognised against the capitalised device
development costs following a change in the strategic
roadmap for product development.
2020
£m
56.5
2.0
121.4
(125.1)
54.8
2019
£m
67.6
1.4
-
(12.5)
56.5
118
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Investments in subsidiaries are recorded at cost, which
is the fair value of the consideration paid. The Group
tests annually whether investments in subsidiaries have
suffered any impairment and tests more frequently
when events or circumstances indicate that the current
carrying value may not be recoverable. An impairment
test is based on the value in use of the subsidiaries. Key
assumptions and sensitivities used in the impairment
review are disclosed in note 16.
A credit loss provision of £95.1 million (2019: £12.5
million) has been recognised due to the reclassification
of the intercompany loan provided to Circassia
Pharmaceuticals Inc as a net investment in the foreign
operation. Management concluded that a further
provision was required to the investment in Circassia
Limited, Circassia Pharmaceuticals Inc and Circassia
(Beijing) Medical Device Co. Limited. This resulted in
an additional provision of £30.0 million being recognised.
Changes in the value in use of the subsidiaries might
result in a significantly higher or lower fair value of
investments. 10% higher or lower value in use would
result in no change (2019: £22.3 million) to the fair value
of investments.
The capital contribution relating to share based
payments relates to options granted by the Company
to employees of subsidiary undertakings in the Group.
Further details on the Group’s share option schemes
can be found in note 26.
The Group’s subsidiaries at 31 December 2020 are set
out below. Unless otherwise stated, they have share
capital consisting solely of ordinary shares, and the
proportion of ownership interests held equals the voting
rights held by the Group. The country of incorporation or
registration is also their principal place of business.
Name
of entity
Address of the
registered office
Country of
Principal
incorporation
activities
Ownership
Ownership
interest held by
interest held
Circassia Group plc
by the Group
Circassia Limited
Northbrook House,
Robert Robinson Avenue,
Oxford Science Park, Oxford, OX4 4GA, UK
UK
Sale of devices for
management of asthma
100%
100%
Circassia
Pharmaceuticals Inc
5151 McCrimmon Parkway, Suite 260,
Morrisville, North Carolina 27560, USA
United States
Circassia AB
Circassia AG
Hansellisgatan 13, 754 50,
Uppsala, Sweden
Louisenstraße 21, 61348,
Bad Homburg, Germany
Sweden
Germany
Sale of asthma
management devices
and respiratory
products
Development and
sale of devices for
management of asthma
100%
100%
100%
100%
Sale of devices for
management of asthma
-
Circassia (Beijing)
Medical Device Co.
Limited
Room 1109 Jing Guang Center Office Building,
No 1 Chao Yang Men Wai Avenue, Hu Jia Lou,
Chao Yang District, Beijing, 100020, P.R. China
China
Sale of devices for
management of asthma
100%
Circassia srl
(in liquidation)
Viale Andrea Doria 7, 20124 Milano, Italia
Italy
Sale of devices for
management of asthma
-
On 5 October 2020, the dormant entities Circassia Pharma Limited and Prosonix Limited were
struck-off the register of companies, with both entities being dissolved on 13 October 2020.
All subsidiary undertakings are included in the consolidation.
100%
100%
100%
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
119
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
19. Inventories
Finished goods
2020
£m
4.0
2019
£m
6.5
Inventories recognised as an expense during the year ended 31 December 2020 amounted to £6.3 million
(2019: £13.9 million). These were included in cost of sales.
Write-downs of inventories to net realisable value amounted to £1.0 million (2019: £2.3 million), of which
£0.5 million (2019: £2.3 million) were included in discontinued operations. These were recognised as an
expense during the year and included in cost of sales. There has been no reversal of any write down in the
year ended 31 December 2020.
20. Trade and other receivables
Trade receivables
Prepayments and accrued income
Other receivables
Receivables from subsidiary undertakings
Total trade and other receivables
2020
£m
16.1
2.0
0.2
-
18.3
Group
Company
2019
£m
12.4
1.9
0.3
-
14.6
2020
£m
-
0.1
-
0.1
0.2
2019
£m
-
-
-
35.1
35.1
Due to the short-term nature of trade and other receivables, their carrying amount is considered to be the
same as their fair value. Included within trade receivables is £0.4 million (2019: £0.6 million) of invoices that
were more than 30 days past due at the end of the reporting year, but which have not been impaired.
Receivables from subsidiary undertakings are amounts provided by the Company to its subsidiaries in order
to undertake commercial operations. The receivables are unsecured and have no fixed date of repayment.
Recoverability of the amounts is dependent on the future profitability of subsidiary undertakings.
As at 31 December 2020, an expected credit loss of £270.8 million (2019: £347.8 million) was recognised
against receivables from subsidiary undertakings.
The carrying amounts of the Group and Company receivables, excluding prepayments
and recoverable taxes, are denominated in the following currencies:
British pound sterling
United States dollar
Swedish krona
Euro
Chinese yuan
2020
£m
0.2
13.1
-
1.4
2.1
16.8
Group
2019
£m
0.3
9.7
0.1
1.6
1.4
13.1
2020
£m
0.1
-
-
-
-
0.1
Company
2019
£m
-
35.1
-
-
-
35.1
120
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
21. Cash and cash equivalents
The Group and Company cash and cash equivalents are held
with institutions with the following Fitch IBCA long-term rating:
AA
AA-
A+
A
BBB
The Group and Company cash and cash equivalents are held
in the following currencies at 31 December:
British pound sterling
United States dollar
Euro
Swedish krona
Chinese yuan
22. Trade and other payables
Trade payables
Social security and other taxes
Accruals
Other payables
Payables to subsidiary undertakings
Total trade and other payables
2020
£m
-
2.5
4.2
-
0.7
7.4
2020
£m
0.7
4.0
1.8
0.2
0.7
7.4
2020
£m
5.2
0.5
18.9
1.0
-
25.6
Trade payables are unsecured and are usually paid within 30 days of recognition.
The carrying amounts of trade and other payables are considered to be the same
as their fair values, due to their short-term nature.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Group
2019
£m
0.6
14.4
11.7
-
0.3
27.0
2020
£m
-
0.1
-
-
-
0.1
Company
2019
£m
-
0.1
-
-
-
0.1
Group
Company
2019
£m
1.8
22.9
1.8
0.2
0.3
27.0
2020
£m
0.1
-
-
-
-
0.1
2019
£m
0.1
-
-
-
-
0.1
Group
Company
2019
£m
9.1
0.3
29.3
0.9
-
39.6
2020
£m
-
-
0.3
-
13.5
13.8
2019
£m
0.1
-
0.2
-
7.6
7.9
121
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
23. Financial assets and financial liabilities
The Group holds the following financial instruments at 31 December each year:
Financial assets
Financial assets at amortised cost
Trade and other receivables (excluding prepayments and recoverable taxes)
Cash and cash equivalents
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Borrowings
Financial liabilities at fair value through profit or loss
Contingent consideration
Lease liabilities
The Company had the following financial instruments at 31 December each year:
Financial assets
Financial assets at amortised cost
Cash and cash equivalents
Receivables from subsidiary undertakings
Liabilities
Financial liabilities at amortised cost
Trade and other payables
Payables to subsidiary undertakings
The Group’s exposure to various risks associated with the financial instruments is
discussed in note 2. The maximum exposure to credit risk at the end of the reporting
period is the carrying amount of each class of financial assets mentioned above.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2020
£m
16.8
7.4
24.2
2020
£m
25.6
-
0.3
1.6
27.5
2020
£m
0.1
0.1
0.2
2020
£m
-
13.5
13.5
2019
£m
14.6
27.0
41.6
2019
£m
39.6
109.9
1.1
2.1
152.7
2019
£m
0.1
35.1
35.2
2019
£m
0.1
7.6
7.7
Financial liabilities at fair value through profit or loss
The Group designates contingent consideration payable as fair value through profit or loss
The movement in the year is as follows:
Contingent consideration
At 1 January
Additional consideration payable on acquisition of LungFit™ PH
Unwinding of discount
Change in fair value
Settlement of consideration
Foreign exchange movement
At 31 December
2020
£m
1.1
-
0.2
(0.9)
-
(0.1)
0.3
The contingent consideration held at both 31 December 2020 and 2019 relates to royalties
payable to AstraZeneca on sales of Tudorza.®
Fair value
The directors consider that the fair values of the Group’s financial instruments do not differ
significantly from their book values except as described below.
Contingent consideration is remeasured to fair value, calculated using a discounted cash
flow approach. The valuation methodology uses significant inputs which are not based on
observable market data (unobservable inputs), therefore this valuation technique is classified
as level 3 in the fair value hierarchy.
24. Borrowings
In June 2019, the Group entered into a loan facility with AstraZeneca to finance consideration
payable under the collaboration agreement. On 27 May 2020, the Tudorza® and Duaklir®
licences were handed back to AstraZeneca and the loan was forgiven.
The table below analyses the Group’s borrowings into relevant maturity groupings based on
the remaining period at the balance sheet date to the contractual maturity date.
As at 31 December, the contractual maturities of the Group’s non-derivative financial
liabilities were as follows:
2020
Current
Non-current
£m
-
£m
-
2019
Current
Non-current
£m
-
£m
109.9
Total
£m
-
Loans
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2019
£m
61.6
36.8
11.6
(93.4)
(15.8)
0.3
1.1
Total
£m
109.9
123
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
25. Deferred taxation
As at 1 January 2019
Credit to the income statement
As at 31 December 2019
At 1 January 2020
Charge to the income statement
Credit to other comprehensive income
As at 31 December 2020
Deferred tax liabilities
Deferred tax assets
Total deferred tax position
Intangibles
Tax losses
Net deferred tax
(asset)/ liability
£m
10.9
(1.6)
9.3
9.3
0.2
-
9.5
£m
(19.1)
(9.2)
(28.3)
(28.3)
8.2
(1.5)
(21.6)
2020
£m
9.5
(21.6)
(12.1)
2020
£m
76.0
76.0
£m
(8.2)
(10.8)
(19.0)
(19.0)
8.4
(1.5)
(12.1)
2019
£m
9.3
(28.3)
(19.0)
2019
£m
61.0
61.0
The Group has the following unrecognised potential deferred tax assets as at 31 December:
Losses
Total unrecognised deferred tax asset
Swedish deferred tax assets and liabilities are recognised at a rate of 20.6% (2019: 20.6%).
UK deferred tax assets and liabilities are recognised at a rate of 19% (2019: 17%).
In the Spring Budget 2021, the Government announced that from 1 April 2023 the UK corporation tax rate will
increase to 25%. This new law will be substantively enacted later in 2021. As the increase of the rate to 25%
had not been substantively enacted at the balance sheet date, its effects are not included in these financial
statements. However, it is likely that the overall effect of the change, had it been substantively enacted by the
balance sheet date, would be to increase the unrecognised potential deferred tax asset by £9.8 million.
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
26. Share based payments
Share options have been awarded under the Circassia Save As You Earn Scheme
(the “SAYE Scheme”), the Circassia PSP Share Option Scheme (the “PSP Scheme”)
and the Circassia Unapproved Share Option Scheme (the “Unapproved Scheme”).
The SAYE Scheme was introduced in 2020. Under the SAYE Scheme eligible employees
can save up to £500 per month over a three year period and use the savings to purchase
shares in Circassia Group plc at 22.01p.
The share options outstanding can be summarised as follows:
SAYE Scheme1
PSP Scheme 2
Unapproved Scheme 3
2020
2019
Number of ordinary shares
(‘000)
Number of ordinary shares
(‘000)
1,269
26,760
149
28,178
-
19,849
187
20,036
The contractual life of the options granted under the PSP Scheme and the Unapproved
Scheme is 10 years. The contractual life of the options granted under the SAYE Scheme is 3.5
years. Options cannot normally be exercised before the third anniversary of the date of grant.
All schemes are equity settled.
1 Options granted under the SAYE Scheme have a fixed exercise price based on a discounted market price at the date of grant and are not subject to additional
vesting performance conditions.
2 Options granted under the PSP Scheme have a fixed exercise price and are subject to additional vesting performance conditions. The exercise price of options
granted under the 2014 PSP scheme is £nil and all subsequent PSP scheme awards have an exercise price of £0.0008. Exercise of options under this scheme
are subject to continued employment and achievement of both market and non-market performance targets. Options typically vest over a period of 3 years.
3 Options granted under the Unapproved Scheme also have a fixed exercise price based on the market price at the date of grant.
The movement in share options outstanding is summarised in the following table:
2020
2020
2019
2019
Number of
Weighted average exercise
Number
Weighted average exercise
options
price per share option
of options
price per share option
Outstanding at 1 January
Granted
Forfeited/lapsed
Cancelled
Exercised
Outstanding at 31 December
Vested and exercisable at 31 December
‘000
20,036
15,829
(3,387)
(3,629)
(671)
28,178
1,212
£
0.02
0.0193
0.0334
0.0008
0.0007
‘000
10,858
13,721
(4,374)
-
(169)
0.02
20,036
0.02
553
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
£
0.04
0.0005
0.0008
n/a
0.0008
0.02
0.02
125
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Scheme
PSP 2014
PSP 2015
PSP 2016
PSP 2017
PSP 2018
PSP 2019
PSP 2020
SAYE 2020
Unapproved
Total
Grant year
Expiry year
Exercise price
Share options
Share options
2014
2015
2016
2017
2018
2019
2020
2020
2024
2025
2026
2027
2028
2029
2030
2023
2013 - 2014
2023 – 2024
£
0
0.0008
0.0008
0.0008
0.0008
0.0008
0.0008
0.2201
2.4160
2020
‘000
89
77
204
693
3,231
2019
‘000
150
119
284
2,614
3,894
15,291
12,788
7,175
1,269
149
-
-
187
28,178
20,036
The weighted average remaining contractual life of share options outstanding at the end of the year was
8.9 years (2019: 9.0 years). Options exercised in 2020 resulted in 670,959 (2019: 169,418) shares being
issued at a weighted average price of £0.0007 (2019: £0.0008) each.
Valuation models
The fair value of PSP and SAYE share options granted during the year was determined using the Monte
Carlo Simulation model, the Black Scholes Model and the Finnerty Model dependent on the vesting period.
Monte Carlo Simulation:
The Monte Carlo Simulation model has been used to value the portion of the awards which have
a market performance vesting condition. The model incorporates a discount factor reflecting this
performance condition into the fair value of this portion of the award.
The model inputs for options granted during the year ended 31 December 2020 and 2019 included:
Exercise price
Share price
Expected volatility
2020
2019
£0.0008
£0.0008
£0.31
64%
£0.32
36%
Expected life
3 years
3 years
Expected dividends
Risk free interest rate
0%
0.00%
0%
0.74%
The expected price volatility is based on the
historical volatility (based on the remaining life of
the options), adjusted for any expected changes to
future volatility due to publicly available information.
The weighted average fair value of options granted
during the year determined using the Monte Carlo
Simulation model at the grant date was £0.19 per
option (2019: £0.24).
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CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
The Finnerty Model:
For LTIP awards that are subject to an additional two-year post-vesting holding period,
the Finnerty model (an at-market put option variant of the Black-Scholes model)
has been used to determine a discount for the lack of marketability.
The model inputs for options granted during the year ended 31 December 2020 and 2019 included:
Exercise price
Share price
Expected volatility
Expected life
Expected dividends
Risk free interest rate
2020
2019
£0.3090
£0.0008
£0.31
74%
5 years
0%
0.00%
£0.19
45%
5 years
0%
0.38%
This discount has only been applied to the
shares that are subject to the sales restriction
(i.e. post any permitted sales for tax/legal
purposes and any lapses from failing to meet
performance conditions).
The weighted average fair value of options
granted during the year determined using the
Finnerty Model at the grant date was £0.15 per
option (2019: £0.18).
The Black Scholes Model:
The Black Scholes model has been used to value the SAYE scheme options as they are not
subject to market-based performance conditions and have a fixed term.
The model inputs for options granted during the year ended 31 December 2020 included:
2020
2019
£0.2201
£0.31
60%
3.36 years
0%
0.00%
n/a
n/a
n/a
n/a
n/a
n/a
The expected price volatility is based on the
historical volatility (based on the remaining life of
the options), adjusted for any expected changes to
future volatility due to publicly available information.
The weighted average fair value of options granted
during the year determined using the Black Scholes
model at the grant date was £0.16 per option.
Exercise price
Share price
Expected volatility
Expected life
Expected dividends
Risk free interest rate
Deferred shares
The Group did not award any deferred shares to Executive Directors as part of a deferred
bonus for the previous financial year (2019: 412,706). Deferred shares are held by the Circassia
Pharmaceuticals plc Employee Benefit Trust (the “Trust”) until the third anniversary of the grant
date when they will transfer to the Executive Directors so long as they are still an officer or
employee of the Group. The Group awarded 809,307 deferred shares to employees of the Group as
part of a deferred bonus for the previous financial year (2019: nil). The shares will be issued to the
employees a year following the date of grant.
Income statement
See note 5 for the total expense recognised in the income statement in respect of the above equity
settled instruments granted to directors and employees.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
127
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
27. Share capital
Authorised, called up and fully paid
397,563,228 (2019: 375,199,334) ordinary shares of 0.08p each
Movements in ordinary shares
As at 1 January 2020
Share issue to NASCIT
Share issue to Richard Griffiths
Share issue to EBT
Employee share scheme issues
As at 31 December 2020
28. Share premium
Group and Company
At 1 January
Issue of new shares
Transaction costs arising on share issues
At 31 December
29. Accumulated losses
At 1 January
Change in accounting policy
Restated at 1 January
Loss for the year
At 31 December
2020
£m
(560.6)
-
(560.6)
(33.5)
(594.1)
128
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2020
£m
0.3
Number
of shares
375,199,334
14,939,024
6,402,438
412,706
609,726
2019
£m
0.3
Par value
£m
0.3
-
-
-
-
397,563,228
0.3
2020
£m
630.4
5.0
-
635.4
2019
£m
622.5
8.0
(0.1)
630.4
Company
2019
£m
2020
£m
(558.7)
(289.9)
Group
2019
£m
(512.0)
(0.3)
(512.3)
(48.3)
-
(558.7)
(49.5)
-
(289.9)
(268.8)
(558.7)
(560.6)
(608.2)
30. Other reserves
Group
At 1 January 2019
Employee share option scheme
Reclassification of treasury shares
Exchange differences on translation of foreign operations
At 31 December 2019
Employee share option scheme
Exchange differences on translation of foreign operations
At 31 December 2020
Company
At 1 January 2019
Employee share option scheme
Reclassification of treasury shares
At 31 December 2019
Employee share option scheme
At 31 December
Treasury shares
Share option
reserve
£m
Translation
reserve
£m
Treasury shares
reserve
£m
Transactions with
non-controlling interests
£m
Total other
reserves
£m
11.6
1.4
-
-
13.0
2.0
-
15.0
10.3
-
-
(1.6)
8.7
-
7.8
16.5
(0.7)
-
(0.2)
-
(0.9)
-
-
(6.1)
-
-
-
(6.1)
-
-
15.1
1.4
(0.2)
(1.6)
14.7
2.0
7.8
(0.9)
(6.1)
24.5
Share option reserve
£m
Treasury shares reserve
£m
Total other reserves
£m
11.3
1.4
-
12.7
2.0
14.7
-
-
(0.9)
(0.9)
-
(0.9)
11.3
1.4
(0.9)
11.8
2.0
13.8
Treasury shares are shares in Circassia Group plc that are held by the Circassia Pharmaceuticals plc
Employee Benefit Trust for the purpose of issuing shares under the various employee share schemes.
Shares issued to employees are recognised on a first in, first out basis.
The number of shares acquired by the Trust is as follows:
Number of shares
Nominal value of shares
£m
Amount of consideration paid
£m
Scheme
DSBP 2014
DSBP 2015
DSBP 2017
DSBP 2018
110,845
156,036
251,377
412,706
0.0008
0.0008
0.0008
0.0008
0.0008
Total as at 31 December 2019 and 31 December 2020
930,964
The shares to satisfy the DSBP 2018 scheme were allotted as new ordinary shares in Circassia
Group plc, rather than being purchased by the Trust.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
0.3
0.4
0.2
-
0.9
129
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
31. Cash used in operations
Reconciliation of loss before tax to net cash used in operations:
Notes
Group
2020
£m
2019 Restated1
£m
2020
£m
Company
2019
£m
10
8
8
14
6
17
16
17
14
17
18
7
7
5
Loss from continuing operations before tax
Loss from discontinued operations before tax
Loss before tax
Adjustments for:
Finance income
Finance costs
Depreciation charge of property, plant and equipment
Depreciation charge of right-of-use assets
Amortisation charge of intangible assets
Impairment of goodwill
Impairment of intangible assets
Impairment of property, plant and equipment
Loss on disposal of intangible assets
Gain on loan write off
Impairment of investments
Fair value gain on contingent royalty consideration
Fair value gain on LungFit™PH contingent liability
Share based payment charge
Foreign exchange on non-operating cash flows
Changes in working capital:
Increase in trade and other receivables
Increase in credit loss provision
Decrease/(increase) in inventories
(Decrease)/increase in trade and other payables
Cash used in operations
(18.4)
(6.7)
(25.1)
(0.1)
3.5
0.3
0.8
7.9
-
0.8
0.1
114.0
(123.0)
-
-
-
2.0
8.7
(3.9)
-
2.9
(12.8)
(23.9)
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
130
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
(27.6)
(31.5)
(59.1)
(0.2)
18.8
0.3
0.5
14.4
4.1
86.1
-
-
-
-
(77.5)
(15.9)
1.4
(0.5)
(7.1)
-
(2.7)
8.5
(49.5)
(268.8)
-
-
(49.5)
(268.8)
(2.0)
0.2
-
-
-
-
-
-
-
-
(6.5)
-
-
-
-
-
-
-
-
-
30.0
12.5
-
-
-
-
(0.1)
18.1
-
-
-
-
-
-
-
256.4
-
(0.3)
(6.7)
(28.9)
(3.3)
32. Contingent liabilities and assets
At the end of 2019, BeyondAir issued a notice stating that it had terminated its Licensing Agreement
for LungFit™PH with Circassia for material breach.
Circassia strongly refutes BeyondAir’s allegations and believes there are no grounds for termination.
Circassia intends to assert claims in accord with the dispute resolution provisions of the License
Agreement to recover its economic losses as a result of BeyondAir’s actions, including amounts paid
to BeyondAir under the Agreement and loss of future economic benefits that would have accrued to
Circassia but for BeyondAir’s actions.
There were no contingent liabilities at 31 December 2020 or at 31 December 2019.
33. Operating lease commitments
From 1 January 2019, the Group has recognised right-of-use assets for these leases, except
for short-term and low-value leases which are classified as operating leases. See note 15.
The lease commitments for short-term and low-value leases that are recognised as an
expense on a straight-line basis are immaterial for both financial years ended 31 December
2020 and 31 December 2019.
The total of future minimum sublease payments expected to be received for the Chicago
property no longer utilised by the Group is £0.8 million (2019: £1.0 million).
34. Commitments
There were no capital commitments as at 31 December 2020 or at 31 December 2019.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
131
GROUP FINANCIAL STATEMENTS
Notes to the financial statements
35. Related party transactions
Group
There is no ultimate controlling party of the Group as ownership is split between the Company’s shareholders.
The most significant shareholders as at 31 December 2020 and 2019 are as follows:
Name
Griffiths R I
Harwood Capital LLP
AstraZeneca PLC
Schroders Plc
2020
28.15%
17.62%
17.88%
6.12%
There were no transactions with related parties during the years ended 31 December 2020 and 2019.
Company
The following transactions with subsidiaries occurred in the year:
Sale of management services to Circassia Limited1
Net transfer of funds (to)/from subsidiaries
2020
£m
1.0
(119.9)
(118.9)
1 Remuneration costs (excluding share option charges) relating to the Executive Directors of Circassia Group plc in respect of services rendered to Circassia Limited.
The following balances are outstanding at the end of the reporting
period in relation to transactions with related parties:
Balances due from subsidiary companies
As at 1 January
Loans (repaid)/advanced
Interest received
Loss allowance
As at 31 December
Balances due to subsidiary companies
As at 1 January
Loans advanced
Interest charged
As at 31 December
132
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
2020
£m
35.1
(114.2)
0.2
79.0
0.1
2020
£m
(7.6)
(5.5)
(0.4)
(13.5)
2019
27.30%
8.00%
18.94%
0.00%
2019
£m
1.2
6.1
7.3
2019
£m
281.7
3.3
6.5
(256.4)
35.1
2019
£m
(5.5)
(2.1)
-
(7.6)
The amounts due are unsecured and have no fixed date of repayment.
Interest is charged at a rate of LIBOR + 4%.
Employee benefit trust
In 2014 the Company set up an employee benefit trust for the purposes of buying
and selling shares on the employees’ behalf. Nothing was paid into the Trust by
the Company during the year ended 31 December 2020 (2019: £198,293).
No shares were purchased by the Trust (2019: 251,377) and 412,706 shares were
allotted to the Trust (2019: nil) during the year ended 31 December 2020.
36. Events occurring after the reporting date
On 24 March 2021, Circassia Group plc allotted and issued 20,000,000 new
ordinary shares in the Company at 25 pence per share. This comprised
10,000,000, 6,000,000 and 4,000,000 shares issued to Lombard Odier Asset
Management (Europe) Limited, Richard Griffiths and North Atlantic Smaller
Companies Investment Trust plc respectively.
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
133
OTHER INFORMATION
Reconciliation of alternative performance measures / Advisors and contact details
Reconciliation of alternative performance measures
Adjusted EBITDA
Adjusted EBITDA excludes items of income and
expenditure which might have an impact on the quality
of earnings, such as impairment charges.
Adjusted EBITDA is an alternative performance
measure, and reconciles to operating loss as below:
2020
£m
(11.1)
(1.1)
(4.2)
(0.9)
(17.3)
2019 Restated1
£m
(15.3)
(0.8)
(3.7)
(44.0)
(63.8)
Shareview Portfolio
Shareview Portfolio is an online portfolio management
tool which enables you to view and manage all the
shareholdings you have, where Equiniti is the Registrar,
in one place.
It is free to use and provides access to a wide range of
market information and investment services.
Please visit www.shareview.co.uk
This is not a recommendation to buy or sell shares.
The price of shares can go down as well as up, and you
are not guaranteed to get back the amount that you
originally invested.
Adjusted EBITDA
Depreciation
Amortisation
Impairment
Operating loss
1 Restated to show the results of the COPD business as a discontinued operation. See note 10.
Advisers and contact details
Financial calendar
· Annual General Meeting: 21 May 2021
Interim results for the six months
·
ending 30 June 2021: Q3 2021
Registrars
All administrative enquiries relating to shareholdings
and requests to receive corporate documents by email
should, in the first instance, be directed to Equiniti.
Shareview is Equiniti’s shareholder portal offering
access to services and information to help manage
your shareholdings and inform your important
investment decisions.
134
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Addresses for correspondence
Head office
Circassia Group plc
Northbrook House
Robert Robinson Avenue
The Oxford Science Park
Oxford
OX4 4GA
United Kingdom
Tel: +44 (0)1865 405560
Fax: +44 (0)7092 987560
General enquiries:
info@circassia.com
Investors: IR@circassia.com
Website: www.circassia.com
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
United Kingdom
Shareholder Support:
0371 384 2030
Lines are open
8:30am to 5:30pm
Monday to Friday
Bankers
HSBC Bank plc
Apex Plaza
Reading
RG1 1AX
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
and Statutory Auditors
1 Embankment Place
London
WC2N 6RH
Forward-looking statements
This Annual Report contains certain projections and
other forward-looking statements with respect to the
financial condition, results of operations, businesses
and prospects of Circassia. The use of terms such
as “may”, “will”, “should”, “expect”, “anticipate”,
“project”, “estimate”, “intend”, “continue”, “target”
or “believe” and similar expressions (or the negatives
thereof) are generally intended to identify forward-
looking statements.
These statements are based on current expectations
and involve risk and uncertainty because they relate
to events and depend upon circumstances that
may or may not occur in the future. There are a
number of factors that could cause actual results or
developments to differ materially from those
expressed or implied by these forward-looking
statements. Any of the assumptions underlying
these forward-looking statements could prove
inaccurate or incorrect and therefore any results
contemplated in the forward-looking statements
may not actually be achieved.
Nothing contained in this press release should be
construed as a profit forecast or profit estimate.
Investors or other recipients are cautioned not
to place undue reliance on any forward-looking
statements contained herein. Circassia undertakes
no obligation to update or revise (publicly or
otherwise) any forward-looking statement, whether
as a result of new information, future events or
other circumstances.
This report has been printed on recycled, carbon offset material, accredited by the FSC® and the World Land Trust. The entire print process
is CarbonNeutral,® certified to Environmental Management System ISO 14001 and registered to EMAS, the Eco Management and Audit Scheme.
Annual Report designed and supplied by: www.pinupdesign.co.uk
135
CIRCASSIA GROUP PLC | ANNUAL REPORT AND ACCOUNTS 2020
Annual Report and Accounts 2020
www.circassia.com