Diaceutics PLC
Annual Report 2019

Plain-text annual report

D i a c e u t i c s A n n u a l R e p o r t 2 0 1 9 Diaceutics Annual Report 2019 Registered Number: NI055207 Diaceutics_AnnualReport_Cover_Final_2.indd 1 Diaceutics_AnnualReport_Cover_Final_2.indd 1 16/04/2020 17:25 16/04/2020 17:25 Diaceutics PLC Directors’ Report and Financial Statements For the year ended 31 December 2019 Registered Number: NI055207 Diaceutics_AnnualReport_Cover_Final_2.indd 2Diaceutics_AnnualReport_Cover_Final_2.indd 216/04/2020 17:2516/04/2020 17:25Diaceutics Annual Report 2019Contents Corporate Information Strategic Reports Highlights Statement of the Chair Chief Executive Review Financial Review Our Market Opportunity Our People Principal Risks and Uncertainties Directors’ and Corporate Governance Report The Board of Directors Corporate Governance Report Directors’ Remuneration Report Directors’ Report Statement of Directors’ Responsibilities in relation to the Financial Statements Group Financial Statements Independent Auditors’ Report to the members of Diaceutics PLC Group Profit and Loss Account Group Statement of Comprehensive Income Group Balance Sheet Group Statement of Changes in Equity Group Statement of Cash Flows Notes to the Group Financial Statements Company Financial Statements Company Balance Sheet Company Statement of Changes in Equity Notes to the Company Financial Statements 3 4 6 7 10 14 19 23 25 28 30 32 40 44 46 48 50 56 56 57 58 60 61 84 87 88 90 1 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Corporate Information Directors Ms J Goonewardene (Appointed 14 March 2019) Mr P Keeling Mr R Keeling Mr P White Mr C Hindson (Appointed 14 March 2019) Mr M Wort (Appointed 14 March 2019) Company Secretary Miss C Mullan (Appointed 13 March 2019) Solicitors Arthur Cox Victoria House 15–17 Gloucester Street BT1 4LS Nominated Advisor and Broker Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS Registered Number NI055207 Registered Office 55–59 Adelaide Street Belfast BT2 8FE Independent Auditor PricewaterhouseCoopers LLP Waterfront Plaza 8 Laganbank Road Belfast BT1 3LR Bankers Silicon Valley Bank Alphabeta 14–18 Finsbury Square London EC2A 1BR 2 3 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Strategic Reports Summary Highlights Statement of the Chair Diaceutics PLC (the “Company” or the “Group”), a diagnostic commercialisation company for precision testing, is pleased to report its audited results for the year ended 31 December 2019. The previous 12 months reflect another formative year for the Group as the leading provider of precision testing data and commercialisation services for the global pharma industry. Financial Highlights Operational Highlights • Revenue up 30% to £13.4m (2018: £10.4m) • Strengthened the balance sheet in March with • Gross profit up 52% to £10.3m (2018: £6.8m) a successful raise of £17m before expenses • Gross margin of 77% (2018: 66%) through a successful initial public offering • PBT £0.5m (2018: £0.9m) • EBITDA £1.0m (2018: £1.3m) • Provided data and services to 53 therapy brands in 41 markets during 2019 – an • Adjusted PBT* improved to £1.8m increased brand engagement of 51% from 2018 (2018: £1.1m) • Added 10 new clients to our customer list – • Adjusted EBITDA* improved to £2.4m now servicing 36 clients (2018: £1.5m) • Strong client repeat business at 87% • Net assets of £20.1m (2018: £2.6m) • Delivered services globally to our pharma • Net cash inflow of £9.7m (2018: outflow of clients in all top 10 primary pharma markets £1.0m) and 31 secondary markets • Elimination of £3.3m of debt • Added 112 million new patient testing records • Strong balance sheet with net cash of £11.7m to our data lake detailing information on 298 (2018: net debt of £1.7m) diseases * Adjusted for exceptional costs implement better diagnostic commercialisation • In keeping with the industry need to solutions we have maintained the pace of the development of Nexus towards a launch in Q4 2020. Nexus is the working title of the SaaS platform • Continued to expand geographic reach, particularly in Asia where we serviced the diagnostic needs of 10 therapy brands (100% increase on 2018) • Growth in the precision medicine market continues to outpace the broader healthcare market Diaceutics is a diagnostic commercialisation company which serves the global pharma industry. We provide support to pharma companies for their companion diagnostic commercialisation strategies upon which their drug brands are dependent. The Company has combined a suite of real-world, data-driven products and laboratory implementation services into a business method. Its data enabled products, method and services are focused on removing the diagnostic testing hurdles for the biomarkers and companion tests required to guide selection of precision medicines. The Company currently provides services to 36 of the largest global pharma companies and their precision therapy brands. This focus on better testing helps precision treatments reach more patients worldwide. Diaceutics’ focus over the past 24 months and in particular the last 12 months has been The Company had a successful listing to ensure that it possesses the necessary on the AIM market of the London Stock infrastructure required to service its global Exchange in March 2019. The listing was pharma companies on an increasing scale as seen, by the group, as essential to the they transform their R&D pipelines towards achievement of three of its major goals. precision medicine, a market anticipated to double from $39bn in 2018 to $80bn in 2026.(1) 1. To provide sufficient capital to grow the business in line with the increasing Successful IPO demands from its pharma clients In March 2019 we completed a successful IPO identified at the time including further on AIM, against the headwinds of Brexit, issuing expansion to key markets in Asia 22.4m new shares at 76p which raised, gross 2. To increase the quantity of patient £17.0m. The IPO has substantially strengthened testing information flowing into its our balance sheet and given us the resources to global real-world evidence datalake service a greater number of therapy brands today 3. To integrate its method, data, laboratory and and ensure significant scalability tomorrow. pharma relationships into our Software as a Service platform with the working title of Nexus 66% of employees owned shares in the Company at IPO and were joined by 37 The Company has had a transformative year institutional investors. We welcome all to the with the successful IPO and further client, register and are grateful for their confidence regional, project and brand growth leading to in our vision and leadership team. a growth in revenue and profitability, excluding exceptional costs. In 2019 we invested further in Financial growth continues three key pillars which will ensure the company Diaceutics continued to deliver profitable growth can continue its mission to become the leading during the period. Revenue increased to £13.4m, provider of diagnostic commercialisation a 30% year on year growth. Gross profit improved services to the pharma industry as it continues over the period, reporting a gross margin of 77% to focus on precision medicine; these include against 66% in 2018. Adjusted EBITDA, excluding deepening our testing datalake, advancing our exceptional costs related to the IPO, improved Nexus platform in anticipation of a launch in Q4 to £2.4m (2018: £1.5m). The Group continued 2020 and targeted regional data and services to deliver more products to more clients in a expansion to the top 15 pharma markets. more efficient way. Further investment in key 6 (1) Pharma Precision Medicine Readiness Report 2019 7 Diaceutics Annual Report 2019Diaceutics Annual Report 2019 hires in the organisation and global expansion Outlook into key client countries further develops our Diaceutics is well placed to provide its pharma client offering and builds future capacity within clients with a global diagnostic commercialisation our delivery model. Operating profit before capability at a time when the marketplace is exceptional items increased 49% to £2.1m (2018: entering a growth phase. In particular 2020 £1.4m). Balance sheet closed strongly with a anticipate the launch of its SaaS Nexus platform cash position at year end £11.7m (2018: £2.1m). which is designed to support multi-year engagements with an increasing number of Our people and culture therapy brands to support their diagnostic needs. Our capabilities in 2019 have been boosted, in particular, by the arrival of 49 new employees The Board would like to thank the Diaceutics who are domain specialists in the precision testing team, alongside our clients, laboratory partners, and healthcare data field. As of 31 December service providers and advisors for their advocacy we had a total of 111 employees, based in 19 towards Diaceutics’ mission across 2019. different countries with a focus on the US and EU5 (five largest pharma markets in the European Union), China and Japan. Our integrated matrix of skills from the pharma, diagnostic, laboratory, big data and clinical worlds is a key differentiator for us and is “right-skilled” for the complex Ms J Goonewardene needs of the precision testing ecosystem. Chair 15 March 2020 Many of our team carry personal stories of how and where the fragmented diagnostic ecosystem has negatively impacted on their friends and relatives giving them a unique first-hand understanding of the importance of the Diaceutics’ mission. Our leadership team continues to develop the structures for scale. At an organisational level there has been a focus on training, onboarding and performance management. At a departmental level there has been an expansion of the laboratory liaison and data analytics teams as well as the introduction in 2019 of a dedicated 8 strong global sales team and 17 strong innovation team. As the business grows, we continue to align the team with appropriate incentives and training to ensure we maintain our leadership position in the precision test commercialisation space. Board and governance At the time of IPO we established the Board and governance structures suitable for a fast growing AIM-quoted company. Our three Executive directors are supported by three experienced Non-Executive directors with a breadth of experience in technology, healthcare and public markets, financial and governance. “Diaceutics has been building its market leading position in the precision testing market for the past 14 years.” “Diaceutics has been building its market leading position in the precision testing market for the past 14 years. 2019 has seen us further penetrate the existing precision testing market in key disease areas and global markets whilst at the same time adding the essential scaling pillars for 2020 and beyond to keep the Group in step with a rapidly increasing marketplace.” Peter Keeling, Chief Executive Officer 8 9 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Chief Executive Review 2019 was another formative year for Diaceutics on its way to provide the pharma industry with a comprehensive and global diagnostic commercialisation capability. Across 2019, 36 pharma companies utilised our services in over 41 different countries. We provided data analytics and implantation services to 53 therapy brands which is essential for patients seeking timely access to precision therapy. In addition to delivering strong growth and profitability in 2019. Diaceutics raised its first external equity through an IPO on AIM in March 2019. Despite the backdrop of Brexit deadlines, we were delighted with the interest and support we received from our investing employees and new institutional investors. Through an oversubscribed share placing we raised a gross £17m which allows us to complete the Nexus product roadmap to market and continue to lead the global diagnostic commercialisation space. Specifically our IPO was seen as essential in achieving three major goals: 1. To provide sufficient capital to grow the business in line with the increasing demands from its pharma clients identified at the time including further expansion to key markets in Asia 2. To increase the quantity of patient testing information flowing into its global real world evidence datalake 3. To integrate its method, data, laboratory and pharma relationships into our Software as a Service platform with the working title of Nexus Prior to IPO in March of 2019, Diaceutics had invested some £20m over the previous 13 years on the foundations for a successful healthcare platform - building the essential datalake, databasing 2,500+ global laboratories, building our laboratory liaison team in all the top launch markets, and becoming a trusted supplier to 26 pharma companies. 10 How did we perform against our IPO goals? Growing the business Our operational planning has been designed to address the long term building blocks required to scale in step with the needs of the highly complex precision diagnostic commercialisation marketplace. Whilst the Diaceutics offering has matured over the previous 14 years, 2019 saw the yield of our investment strengthening specific building blocks which will carry the Company towards a comprehensive global diagnostic commercialisation solution. This is at a time when the regulators are increasing the requirement for diagnostic testing and the marketplace is accelerating the adoption of precision medicine. Specifically, these include: • In 2019 we added new project management and business development teams to support greater scale, brought recruitment in house, developed a 15 strong senior leadership forum from across all the disciplines to ensure seamless operational communication as we grow. In addition, we rolled out a two-week intensive onboarding program to accelerate operational impact and a comprehensive performance management framework to support the development and retention of our people. • Operationally we added the experience of a further 149 projects during 2019, with 95 in data and analytics and 34 in implementation services, working with 53 therapy brands (19% increase in projects over 2018) bringing our track record in precision testing services to Pharma companies utilised our services in over 41 different countries... 41 over 650 projects. We boosted our ranks to 111 passionate professionals to help our clients scale and engineer around the failures of the diagnostic ecosystem. • We expanded our laboratory liaison team who are now working with the leading cancer labs across 30 countries including all 15 of the “first launch” markets for the pharma industry. • Our Asia team has expanded from 1 to 11 now covering China, South Korea, Japan, Singapore and India. Increased the power of our Real World Data-Lake We have continued to expand our real world data and analytics to provide global insights for global therapy brands. Of particular note over the past 12 months has been the further development of some 37 Diagnostic Deductive Pathways TM (DDPs). These are based on clinical best practice and guidelines, from our datalake and provide deep diagnostic disease level insight in key cancers, allowing us to develop future smart data products. As Diaceutics moves towards a comprehensive global diagnostic commercialisation solution for its pharma clients, it will be enabled by the increasing depth and breadth of its real world patient testing data lake. At the end of 2019 Diaceutics had amalgamated over 227 million real world patient records from multiple sources and key precision we provided data and services to 53 therapy brands in the pre and post launch mode... 53 testing markets into the data lake, providing visibility over some 298 different diseases and real world testing trends from 35 countries. From this reservoir of global data our analytics team over the past 12 months had leveraged proprietary algorithms to further develop a series of diagnostic pathways for some 37 of the key cancers. Additionally, the use of machine learning to complete data gaps enables high confidence ratio analyses and algorithm based projections about disease progression at a granular level. Building Nexus as an Integrated Platform In October 2019 we published our sixth Pharmaceutical Readiness Report. This report highlights the increasing dependency that pharma pipelines have on an efficient precision testing market and the need to bring forward better solutions to ensure test and therapy commercialisation remain in step. The report was widely read by our pharma clients, laboratory partners and other diagnostic companies and set out the rationale for an integrated platform to solve the increasingly complex precision testing ecosystem. It is this provision of an integrated platform to bring together key stakeholders to 11 Diaceutics Annual Report 2019Diaceutics Annual Report 2019 improve the precision testing ecosystem which is customer expectations on every engagement. at the heart of our Nexus product development. The Group has recently appointed a Head of Significant progress has been made since IPO Strategic Alliances to ensure a high level of to ensure Nexus stage one launch by Q4 2020. supplier relationship and retention. Underpinning Specifically, a dedicated 17 person software and this activity is the Group’s desire to maintain innovation team are, at year end, solely focused a reputation for high standards and business on the Nexus platform build with 44% of stage conduct as we transact with some of the most one completed as of 31 December 2019. Key demanding clients globally. A key reason for components of the platform deployed internally, IPO was the increased transparency that comes supporting the improved gross margin, were with the public market for our clients and key already introduced in Q4 2019. stakeholders and this is underpinned by the need It is recognised that culture is crucial to the Section 172(1) statement ability of the Group to achieve its corporate The Directors have acted in good faith to promote objectives. Culture is a real emphasis from day the success of the company for the benefit of its one of onboarding and permeates throughout the members as a whole. In doing so, they have given organisation. We have ensured that everybody regard, amongst other matters, to the following is invested in and benefits from the Diaceutics matters set out in section 172(1)(a) to (f) of the vision. Specific ongoing development training is Companies Act 2006: aligned to these cultural behaviours and there (a) The likely consequences of any decision in the are regular initiatives to maintain, reinforce and long term continuously develop the Diaceutics Culture. (b) The interests of the company’s employees (c) The need to foster the company’s business relationships with suppliers, customers and to act fairly between stakeholders of the company. Promising Outlook Once launched, Nexus is expected to enable real time access to the Diagnostic Deductive Building the right team for the mission Pathways™ for our pharma clients to directly mine, From the outset over 14 years ago, Diaceutics interrogate, analyse and project the diagnostic defined success of its mission not by its location pathway placing them in a better position to but by the quality of the globally based precision introduce the right therapy to the right patient at testing skills it could attract from across the the right time. Furthermore, Nexus is expected formative disciplines and stakeholders shaping to interact with our 2500+ global laboratory precision medicine. I am pleased to say that this database and 21 strong laboratory liaison team model has served Diaceutics well. In 2019 we in 15 countries allowing us to service increasing added a further 49 people growing the team to numbers of test roll outs simultaneously delivering 111 as of 31 December. Over 14 years we have the scale demanded by a market reaching its carefully chosen a team of experts from all the tipping point. critical stakeholder groups, including pharma, laboratory, diagnostic technology, data analytics, Delivering Strong Financial Performance health economics and from all the key regions Diaceutics delivered strong financial performance - US, EU, Asia and Brazil - many with advanced during 2019 with year on year growth in revenue science and business degrees and most with and gross profit percentage. Revenue for 2019 deep domain knowledge of their area. Our use of increased 30% to £13.4m (2018: £10.4m). Client a suite of seamless pan company communication engagement increased at a global level and tools (e.g. EAMS 360) helps us unlock the country level to 36 clients (2018: 26) and drug global thinking required to address the complex brand growth increased by 51% to 53 brands precision testing space and mobilise our staff contracted in 2019. As announced on 13 January rapidly in 19 markets and supporting consultants 2020, trading for the year was ahead of market in non-core markets. The virtual nature of the expectations as compared with IPO guidance. The business and use of communication tools limits Group has a strong balance sheet following the the environmental impact of operations and the IPO with net cash of £11.7m as at 31 December core business output is that more patients receive 2019. better testing and treatment pathways. The positive patient impact of what we do resonates In addition, our associated investment in artificial with all employees within our business. intelligence and machine learning, as part of Nexus, has resulted in an increased efficiency in Today Diaceutics can claim a globally based team the use of data, allowing us to delay the phasing of precision medicine domain experts with the of its acquisition and so improving net cash inflow. sole mission of unlocking the power of precision Outsourcing of non-core elements of the Nexus testing to deliver on the promise of personalised build has added to the cash position and as a medicine. We believe that the future success of result the company improved the expected closing the organisation is dependent upon the capability cash position by £3m. of the people working in the Group. Our accredited Client repeat business is an important metric into future leaders. In addition, we provide a for the Group. The Group uses a digital service comprehensive range of benefits for employees, to capture high level customer feedback on such as Private Health Insurance and life client engagements. The data is used to inform Insurance. The Group operates a Share Incentive leadership program seeks to develop managers our continuous improvement programme, Plan for all staff. which is designed to meet and often exceed Diaceutics’ research has identified over 3,000 others Phase 2/3 clinical trials supporting approximately (d) The impact of the company’s operations on the 1,000 drug brands which could include a biomarker community and the environment in their therapy label if they achieve approval. This (e) The desirability of the company maintaining contrasts with only 173 FDA approved precision a reputation for high standards of business medicine drugs on the market as at December conduct 2018 and foretells of a precision medicine tipping (f) The need to act fairly as between members of point sometime in 2021 to 2025 timeframe as the the company FDA approves more therapies dependent upon a biomarker than not. Consequently, all key areas The above matters and how they are considered served by Diaceutics, namely precision medicine, by the Directors, are all addressed in how the oncology, data analytics and laboratory testing are Group applies the ten principles of the QCA code benefitting from a period of substantial growth. as outlined on pages 32 to 39 of this Financial Yet despite this transformation many pharma Report. In addition, where there are significant companies require external expert support for risks associated with any of the above matters, their companion diagnostic commercialisation these are outlined in the Principal risks and strategies upon which their drug brands are uncertainties section of this Financial Report, on dependent. pages 25 to 27, together with an explanation of how these are mitigated against and managed. Whilst Diaceutics fills this gap for an increasing number of pharma companies and therapy brands today, in 2015 we anticipated the tipping point and recognised the challenges and responsibilities which scaling our business model would require. Our successful fund raising has helped us Mr P Keeling accelerate our market preparedness with deeper Director data and implementation capabilities to support 15 March 2020 global therapy brands. Our investments across 2019 to improve our analytics and implementation services are strategically aligned with the development roadmap for the Group’s products. As the patient journey becomes more complicated and the pharma business model transforms to precision medicine, we are positioned to capture significant market share. We look forward to enabling more patients access to the right therapy through better testing in 2020 as well as to introducing Nexus to provide the scale needed for better therapy access for all. 12 13 Diaceutics Annual Report 2019Diaceutics Annual Report 2019 Financial Review This Financial Review covers the main highlights of the Group’s financial performance and position for the year ended 31 December 2019. It is our first Financial Review following our listing on the AIM market of the London Stock Exchange on 21 March 2019. The gross £17.0m raised provided the stepping stone to building the future scale demanded of a group operating in a hypergrowth market. Furthermore, our investments this year have deepened the operational and strategic moat around our business setting us up for continued business growth. A focus has been placed on expanding our key account management and sales teams to manage and support business development over an expanding geographical reach. Furthermore, the raising of finance has resulted in the elimination of the Group’s debt our breadth and depth of product offering resulting in a strong balance sheet at the end of and client reach, engaging 53 drug brands for 2019 with a cash balance of £11.7m. clients and supporting those client deliverables in 41 countries. We also delivered an improved Financial performance operating profit before exceptional items of £2.1m Diaceutics delivered solid financial growth during (2018: £1.4m) and improved PBT via operational 2019 delivering significant year on year growth in efficiencies. Cash management improved due to revenue and gross profit margin. The associated efficient phasing of intangible asset acquisition, investment in artificial intelligence and machine lower capital development and working capital learning, underpinned as part of the investment movements. in Nexus platform, has already had a positive impact on our delivery of products and efficiencies A summary of the key financial indicators for within cost of sales. The continued expansion the financial year ended 31 December 2019 are of our global footprint, through 2019, increased outlined in the table below: Revenue Gross Profit Gross Margin (%) EBITDA Adjusted EBITDA* Profit before Tax 2019 2018 £13,442,121 £10,373,180 £10,310,663 £6,801,955 77% 66% £1,025,280 £1,318,608 £2,372,893 £1,523,608 £497,324 £877,264 Profit before Tax (%) 4% 8% * Adjusted EBITDA is stated before exceptional costs 14 Revenue Exceptional expenses During 2019 we delivered revenue of £13.4m Exceptional IPO related costs of £1.3m (2018: (2018: £10.4m) which represents 30% year on year £0.2m) were reflected in the profit and loss growth. This was underpinned by increasing our account. These costs relate to corporate client base to 36 clients (2018: 26). The increase restructuring, legal and associated broker fees in the breadth of client base in conjunction with for the execution of the IPO. An additional £1.0m revenue growth within key clients represents of IPO costs (2018: £nil) were offset against the an increased spread of client revenue. Only two share premium account in the balance sheet. clients had greater than 10% of revenue (2018: three clients greater than 10% revenue). Tax The consolidated income tax charge for the period Our improved product offering and increase in of £0.1m represents the provision for corporate global operations has resulted in improved drug income taxes due in the Republic of Ireland brand engagement with 53 brands contracted (£0.2m) and the United States of America (£0.1m) in 2019 (2018: 35). Brand engagement is an net of adjustments with respect to prior periods important forward indicator of revenue as more of £0.2m. The corporate income tax charges than 50% of revenue is based on brand revenue are calculated after R&D tax incentives which stickiness over multiple years. are expected to be available in the UK and the Republic of Ireland. Of particular note too was the year on year growth of our revenues in all three core regions, with US The adjustments with respect to prior periods revenue growth of 15%, EU revenue growth of 29% arose due to prudent assumptions relating to the and Asia revenue growth of 105%. deductibility of certain costs being taken in the prior period and the Group finalising calculations Gross margin of R&D tax incentives after the financial Gross margin has increased to 77% from 66% in statements were finalised. 2018. Several key drivers impacted this positive variance. The first was the investment and The Group has a net deferred tax credit of build of the Nexus platform which supported £0.1m which is primarily comprised of a credit advancing efficiencies in our data products which in the UK of £0.4m net of a charge in the US of represented 72% of total revenue for 2019. Further £0.3m. These movements were mostly driven by efficiencies were made through improved data the recognition of tax losses in the UK and the cost as a result of the mix of work permitting utilisation of tax losses in the US. delayed phasing of its acquisition. Staff utilisation increased as a result of a continued focus on staff Deferred tax assets and liabilities have been efficiency and standardisation of product delivery. recognised as they arise with the exception of a Expenses potential asset of £0.1m (2018: £0.1m) which has not been recognised in a subsidiary company. Administration costs comprising operational The Group estimates that tax losses of £3.4m support, sales and marketing and administration will be available for future utilisation in the UK expenses totalled £8.4m (2018: £5.5m), increased and Singapore, resulting in deferred tax asset by 52% and reflects the investment in global of £0.6m. A deferred tax liability of £0.5m arises expansion. We are now delivering for our clients due to the Group capitalising certain R&D costs in 41 countries globally and the expansion costs which remain deductible in the current period for associated with this growth include finance, legal corporate income tax purposes. and regulatory, and employment. In addition, increased investment in expanding our business Finance costs development teams at a global and country level Interest costs of £0.2m (2018: £0.3m) relate continues to build opportunities for future client to a director loan, external loans and banking engagement. facilities, all of which were repaid during the first half of 2019. Included in this is a £0.1m (2018: £Nil) charge related to the early retirement of the Whiterock loan facility. EBITDA and Adjusted EBITDA and PBT Our focus on managing efficiencies at a gross profit level and costs overall has contributed to 15 Diaceutics Annual Report 2019Diaceutics Annual Report 2019“Diaceutics delivered significant year on year growth in both revenue and gross profit margin.” a strong adjusted EBITDA, excluding exceptional Cash flows costs, of £2.4m (2018: £1.5m). Net cash outflow from operations reduced by 34% The PBT for the year was £0.5m (2018: £0.9m); working capital from improved debtor collection whilst the Adjusted PBT, excluding exceptional and receipt. Excluding exceptional costs, net costs, improved to £1.8m (2018: £1.1m). cash from operations for 2019 is positive £0.7m to £0.6m (2018: £1.0m) driven by efficiency of Balance sheet as compared to an outflow of £1.0m for 2018. Investment in intangible assets totalled £2.8m At 31 December 2019, the Group has a strong (2018: £1.0m). balance sheet reflecting net assets of £20.1m (2018: £2.6m). Profit per share Intangible assets pence). To support the development of our DDPs, Nexus platform and new enterprise resource planning Basic adjusted earnings per share is 2.46 pence system, ERP, we invested £2.8m. (2018: 1.86 pence). Basic earnings per share is 0.62 pence (2018: 1.41 Investment of £0.851m in specific biomarker data Dividend in the period supported the data expansion in In line with the statement set out in the Company’s the number of patients in the data lake to 227m IPO Admission Document, no dividend has been patient test records. Global real world data is proposed for the year ended 31 December 2019 becoming a core ingredient in the pharmaceutical (2018: Nil). models as they seek greater ROI within their R&D pipelines. Capital development expenditure incurred in the period £1.7m relates to capitalised development Mr P White hours supporting the build of Nexus and the Director completion of key milestones. The commercial 15 March 2020 launch of Nexus is set for Q4 2020, as planned. Net cash 2019 £m 2018 £m Cash 11.7 2.1 Loans and Bank Facilities – (3.3) Net Debt 11.7 1.2 Loans and banking facilities were extinguished during the year - £1.1m was repaid to Whiterock Capital Partners and £2.1m was repaid to Silicon Valley Bank (SVB). A £2.5m working capital facility from SVB was unused at 31 December 2019. Other financial liabilities, not included above, relate to convertible loan notes and the change in fair value of embedded derivatives. These are not expected to have a cash impact in the future. 16 17 Diaceutics Annual Report 2019Diaceutics Annual Report 2019   “Diaceutics’ services result in more effective patient diagnoses for treatments, which in turn lead to better patient healthcare outcomes.” Our Market Opportunity Diaceutics is a diagnostic commercialisation Diaceutics strategy has focused on collating large company which serves the global pharma industry. amounts of laboratory, patient (on an anonymised It has combined a suite of real world data-driven and aggregated basis), claims and payor data products and laboratory implementation services which it uses to direct and deliver, via a laboratory into a business method. Its data enabled products, liaison team, improved testing with over 2,500 labs method and services are focused on removing the globally on behalf of leading pharma companies. diagnostic testing hurdles for the biomarkers and companion tests required to guide selection of From the pharma company’s perspective, it is precision medicines. essential that from launch, it has optimised the practical process for testing of potential patients Diaceutics’ services result in more effective by labs to ensure the ability to serve the highest patient diagnoses for treatments which in turn levels of patients from the outset. On the pharma lead to better patient healthcare outcomes. company’s side this leads to maximised impact This is manifested through faster testing, better through earlier take-up and reduced time to turnaround times, quicker positive identification and peak adoption. The Directors believe that the higher number of patients treated. addressable market for their specific services today is approximately $0.25 billion overall and It is important to understand how and where the $100m for the sectors which the company is precision testing market is increasing in complexity currently serving.(2) With expected market growth since this highlights the need for pharma to work in the number of test dependent therapies alongside a specialised organisation. Specifically, to be 300 with revenue increasing per brand the broadening use of diagnostic testing and an alongside increased investment by pharma to increase in the variety of precision diagnostic tests remove testing hurdles to seamless treatment, is contributing to an already complex diagnostic Diaceutics forecast the overall market will increase environment of multiple and recurring tests. In to $2.5 billion by 2023. As other therapies enter particular pharma is making increasing use of the precision testing market, we see potential complementary and conduit testing to supplement growth in the subsequent five years growing the traditional companion diagnostic testing. The to a potential $25 billion market opportunity. number of testing events on a typical patient journey is rising significantly. Our research shows What is precision medicine that broader testing in conjunction with multiple Precision medicine is the ability to treat therapy treatments is set to radically increase individual patients with a common disease the number of testing events per patient. This differently, depending on measurable biomarkers increase is expected to be further amplified by which either predicts a patient’s response (or greater testing for resistance and monitoring. As an otherwise) to a drug or their susceptibility to example, the number of testing events per patient treatment limiting side effects. The use of these with non-small-cell lung carcinoma (NSCLC) are set companion diagnostic tests, which can identify to increase exponentially: the right sub-population of patients for the right treatment, economically and early in their disease progression, defines precision medicine. Average number of testing events per NSCLC patient 2010 2014 2018 2022E 2026E Average number of testing events 0.6 0.8 1.2 4.0 17.0 per NSCLC patients Source: Diaceutics estimates 18 19 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Precision medicine also provides an essential delays to patients accessing the precision therapy, means of reconciling the higher costs of treatment pharma usually chooses to outsource core parts reducing costly inefficiencies in medicine including of the diagnostic commercialisation to companies false positives/negatives; unnecessary treatment; more familiar with the complex challenges. over and under medication and costly acute care admissions/readmissions resulting from medication Included in the diagnostic commercialisation errors. However, such precision medicine is not services pharma often outsources, are laboratory widely prevalent: the top 10 highest-grossing education to drive adoption of the new test, drugs in the U.S. are still only effective in only development of new testing standards to ensure 4% to 25% of those patients who take them. patients are receiving the same type of test regardless of where they live and anonymised What disease areas is precision medicine relevant to testing data for to track and monitor physician test Precision therapies and tests are being developed in ordering behaviour and the number of patients multiple diseases, including HIV, Alzheimers, Cystic who test positive or negative with a particular Fibrosis, Irritable Bowel Disease, however it is in biomarker. Historically pharma has typically spent cancer where the greatest penetration of precision £0.5m to £1m per therapy brand to ensure the medicine has occurred to date. Almost all the new patients are tested at the right time to access cancer therapies being launched today will have their therapy. By 2025 we believe this investment the need for a companion diagnostic. It is estimated could increase to £5m to £8m per therapy that 42% of all therapies (73% oncology) in the brand as pharma companies seek to remove pipeline are dependent upon precision testing. (1) test access hurdles to high value therapies. Why is diagnostic commercialisation As the value of precision medicine to pharma important in precision medicine pipelines increases so too does their willingness to Total available market The overall precision medicine market is anticipated Eventually we believe that all patient pathways to double in size from 2018 to 2026 (see table to treatment will benefit from improving the below) driven by key areas of geographic and patient’s diagnostic journey and consequently the technical focus for Diaceutics including Oncology, focus on improving diagnostic commercialisation healthcare data, North America and Asia. will become an integrated part of the pharma marketing model. Global precision medicine market snapshot 2015 US$m 2018 US$m 2026 CAGR US$m 2018–2026 Global Precision Medicine Market 31,707.1 39,658.1 80,777.7 9.43% Largest Market by Technology: 9,334.9 11,771.4 24,505.1 9.73% Big Data Analytics Fastest Growing Market by Technology: 6,384.0 8,070.2 16,909.9 9.82% Companion Diagnostics Largest Market by Application: Oncology 12,776.4 15,903.6 31,980.5 9.26% invest further and faster in eliminating any access Fastest Growing Market by Application: CNS 6,210.0 7,850.8 16,453.8 9.82% When pharma companies launch a new precision barriers caused by a complex diagnostic ecosystem medicine drug, they will require patients to be denying patients treatment. We estimate that for tested first to identify if they carry the specific every dollar pharma invests in removing or lowering genetic characteristics (biomarker) to determine diagnostic barriers to treatment delivers 30 to 60 if they will respond to that therapy. This, test- dollars back in treatment revenues otherwise lost. first-then-treat, interdependency is what is For pharma, the business case for precision broadly known today as precision testing and medicine in cancer is now compelling. Clinical trials precision treatment. As of the end of 2019 the designed with patient selection criteria based FDA listed some 217 therapies where a treatment on pharmacogenomics/pharmacogenetics (PGX) was dependent upon a companion diagnostic. biomarkers are “smaller, quicker, and smarter” and “four times as likely” to yield positive outcomes, Companion diagnostics are typically based on and those using biomarkers in another manner specific biomarkers (genes, proteins etc.) which are “three times as likely.” (3) The combination stratify those patients who will either benefit from of faster clinical trials, higher success rates, a drug or who might otherwise experience adverse and accelerated approvals results in lower drug effects. In some circumstances, certain tests are development costs and superior outcomes, for all mandated by regulatory authorities. For example, stakeholders especially patients. These factors doctors are required to test breast cancer patients have all worked to deliver billion-dollar brands in for over-amplification of the HER-2 biomarker before oncology and rapid growth for companies who are initiating treatment with Herceptin (trastuzumab). increasingly harnessing precision medicine. Taken together, these factors have doubled the overall The need for diagnostic commercialisation services market return, measured in net present value, arises because whilst pharma companies are adept compared with one-size-fits-all therapies. (4) at launching new therapies, they are historically less familiar with the diagnostic commercial ecosystem which operates differently. To avoid (1) Pharma Precision Medicine Readiness Report 2019 (2) Based on market size analysis combining several data sources presented in US$ (3) https://invivo.pharmaintelligence.informa.com/IV005051/One-size-No-Longer-Fits-All-The-Personalized-Medicine-Trial-Landscape (4) https://www.futuremedicine.com/doi/full/10.2217/pme.09.64 Largest Market by End Use: Hospitals 13,643.5 16,931.5 33,773.0 9.15% Fastest Growing Market by End Use: 8,810.4 11,151.7 23,448.1 9.87% Clinical Laboratories Largest Market by Region: North America 13,317.7 16,517.7 32,897.8 9.13% Fastest Growing Market by Region: 7,108.2 9,008.5 19,004.9 9.91% Asia Pacific Source: ARC Analysis, October 2019 Serviceable available market in an FDA New Drug Application (NDA)/Biologics In the short to medium term, 2020 to 2025, our License Applications (BLA), potentially 103 new research on therapy pipelines suggest year on precision drug/test submissions could occur over year increases in the number of test dependent the next 2 years.(1) This would result in up to 50 new treatments receiving approval and arriving onto the precision medicine treatments and associated tests market. could be launched annually during the next 5 years. (1) We estimate that up to 300 precision test/therapy Specifically, more than 500 precision medicine combinations by 2025 annually therefore could trials are currently underway, with approximately require servicing with improved focus on diagnostic 267 and 250 phase III trials expected to finish commercialisation. by the end of 2019 and 2020 respectively.(1) Over 15% of the current phase II/III clinical trials The need for scale include a biomarker, that will be used to stratify With the estimated 50 new drug/test launches patients, and therefore will require a diagnostic anticipated annually during the next five years, test to identify the appropriate patients.(1) If we the need for a solution to streamline diagnostic conservatively assume only 20% of the current diffusion of tests post-launch is clear. To fully 500+ precision medicine phase II/III trials result capture this increasing market opportunity 20 21 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Diaceutics has been building towards the introduction of a SaaS (Software as a Service) based platform (working title Nexus) capable of introducing efficiency into the clinical testing ecosystem by integrating Stakeholders early on and ensuring the testing market is ready on day one of launch. Platform business models are a way of enabling key stakeholders to collaborate more efficiently to address stakeholder needs. It is anticipated that such a platform dedicated to diagnostic commercialisation, will synchronise commercialisation of precision testing and treatment from launch onwards in order to ensure the right patients are given the right test in order to receive the right treatment. The goals of a diagnostic commercialisation platform are to ultimately reduce test access hurdles for patients and accelerate their path to the appropriate precision treatments. The Nexus platform is designed to manage multiple diagnostic commercialisation programmes in parallel, providing Diaceutics with the ability to accelerate patient access and scale in line with the market. “[Nexus] will synchronise commercialisation of precision testing and treatment from launch.” Our People Some of our inspirational people share insights on their roles at Diaceutics, their experience in the precision medicine field, how they identify with our mission and how they see their roles developing in the future. The following is a summary of their experiences in their own words. Scott DeVore Key Account Director, Ryan Tay Senior Director, Sales and Marketing, Team, US Global Laboratory Team, Asia My responsibilities are to ensure our key accounts I have the exciting responsibility of leading the are educated in our services, presented with Global Laboratory Relationship Asia team to build engaging dialogue that translates to project and expand our laboratories network in APAC. initiation, ensure their needs are heard and communicated internally, and ultimately form long Prior to joining Diaceutics, I held several leadership lasting partnerships across brands and programmes. roles across Greater China and APAC, focusing on Business Development and Expansion with I identify with the mission to enhance patient IVD companies in Oncology and Infectious treatment opportunities through delivering Diseases. The latest experience was business better understanding of the testing environment expansion in China and the co-development to our clients. The energy at Diaceutics has of CDx and clinical trial for DxRx in China. been unrivalled from any company I’ve ever worked for and the collaborations we forge Working in the Asia healthcare industry, I have with our commercially focused clients has seen patients being denied a suitable treatment been a unique challenge that I’ve relished. because of accessibility, affordability, etc which are very much aligned to the six barriers identified My vision is to develop our accounts from a pure by Diaceutics. With the motto of “Better Testing, vendor relationship to true partnerships, driving Better Treatment”, I am starting to see the reality increased multi-year engagements with unrivalled that we can push the drugs earlier to the market access into the Diaceutics’ suite of services and with the right companion tests to ensure patients more secure revenue streams for the Company. receive the right treatment with the right diagnosis. 22 23 Diaceutics Annual Report 2019Diaceutics Annual Report 2019 “111 employees, in 19 countries including US, EU, China and Japan.” Frank Policht Domain Expert, Knowledge and Insights, Team, US As a Domain Expert, the primary focus of my role is to serve as a thought leader within precision medicine, ultimately translating knowledge and experience, in combination with Diaceutics’ proprietary Global Diagnostic Index (GDI), into the development and delivery of information and strategic insights to our clients. Prior to joining Diaceutics, I spent nearly 20 years in the field of molecular diagnostics working for a large corporation where most of that time was devoted to companion diagnostics, which are fundamental to precision medicine. My diagnostic experience has spanned product conceptualisation, development and clinical testing into product launch and commercialisation, focusing on diagnostic partnerships with Nital Patel pharma clients to deliver appropriate diagnostic Lead Secondary Research Data, tests for biomarker-associated therapies. Consulting and Analytics, Team, US Diaceutics’ impact on understanding the patient and I have 15 years of experience in Real World the difficult journey they must navigate as they face Data and analytics supporting various phases a life-altering disease, is fundamental to my work, as of product and treatment lifecycle. I have personally lived through the cancer journey, where diagnostic testing was used to determine an I am grateful to be working for a company which is effective treatment. Working at Diaceutics brings dedicated to providing solutions to clients so they can me immense joy in knowing that my contributions ensure the patients are receiving the right therapies. have a direct impact on improving patient lives by Additionally, the people are just awesome to work providing them with opportunities to access novel with. It’s been an enriching experience so far. treatments through better diagnostic testing. With the right set of skills and strategy, I envision Diaceutics to be the client’s number one choice for precision medicine analytics and consulting in the near future. Principal Risks and Uncertainties The risk factors that are considered to be most significant to the Group’s operations, and where applicable an explanation of how these are managed or mitigated, are outlined below. The risks described do not necessarily comprise all those associated with the Group and are not set out in any particular order of priority. Additional risks and uncertainties that are currently not known by the Directors, or that are currently deemed immaterial, may also have an adverse effect on the Group. Operational, commercial and financial risks Risk Mitigation Certainty of contracts and pipeline The Group has visibility over a proportion of its Any cancellations, delays, material amendments revenues through signed up service agreements, and uncertainty around the Group’s Order Book contracted work or high probability tenders. could have an impact on the revenues of the Group. The pipeline of the business is continually reviewed by senior management and the order intake is accessed against conversion rates and tracked to contract execution. Using the CRM system, key account management team and client plans this provides momentum for project closure and creates the ability to assess the products and capacity required going forward. There is significant growth in the testing and commercialisation market for precision drugs. Growth opportunity exists for the Group to support an increasing number of pharma companies and therapy brands in their diagnostic commercialisation strategies. Dependence on key executives and personnel The Executive continues to review the business The Directors believe that the future success of structure to ensure it is appropriate to support the the Group will depend in part upon the expertise business model and strategic growth. Succession and continued service of key executives and and retention planning is in place for senior technical personnel. The loss of the services of management posts. any of the key management personnel or the failure to retain key employees could adversely The Group remains committed to the recruitment, affect the Group’s ability to maintain and/or engagement, retention and reward of experienced improve its operating and financial performance. management plus quality scientific, marketing and sales personnel. Furthermore, it has implemented remuneration schemes to incentivise key personnel. 24 25 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Risk Mitigation Risk Mitigation Loss of a major customer The Group’s customer base is relatively well A small number of customers, with which the diversified, and this has been expanded this year Group has a long term historical relationship, through growth in both the number of clients contribute over 10% of annual revenue. The loss and brands that the Group services. Further of any such major customer would have a direct mitigation is evident in the number of brand impact on the earnings potential of the business. teams engaged within our clients numbered 53 The relationship for a major contract usually takes in 2019. time to establish and the responsibility to deliver a significant project is typically developed over a The Group has a very good working relationship no. of years. with all its major customers. To further develop this, the investments in the year has focused on growing the key account management and sales teams to manage business delivery over an expanding geographical reach and provide customer support. The Group has a significant dependency on its Diaceutics has invested in the essential datalake, ongoing access to patient diagnostic data databasing 2,500+ global laboratories and building Diaceutics acquires data from multiple sources laboratory liaison teams in all the top launch including government, laboratory collaborators, markets. It has amalgamated over 227m real world key bodies and public domain sources. The failure of a significant data supplier may be patient records from multiple sources and key precision testing markets into the data lake. disruptive to the Group’s operations, although is not expected to provide a long-term issue to the The Group has expanded its laboratory liaison Group in relation to the supply of data. team who are now working with the leading cancer labs across 30 countries including all 15 of the ‘first launch’ markets for the pharma industry. The Group’s growth strategy is subject to Patient data is held by the Group on an compliance with information security and data anonymised and aggregated basis. privacy laws and requirements The rules on data protection afforded to patient The Group’s executive and legal counsel reviews data in different countries varies widely and the impact of changes to information security and there can be no assurance that the Group will be data privacy regulations. able to secure such datasets or that the basis of acquisition will be commensurate with the Systems and processes are in place to ensure agreements in place to date. Furthermore, data compliance with these regulations and protect protection laws are highly heterogeneous around against data loss. Strong IT measures have been the world and subject to evolution as privacy implemented and are reviewed regularly to ensure issues come to the fore. adequate protection is in place. Staff are made aware of the potential impact of changing regulations and targeted training is provided. Market risks and economic conditions The Group’s business model includes flexibility The Group may be affected by general market in both service offering and cost structure which trends which are unrelated to the performance of can react to downturns in the market to lessen the the Group itself. immediate effect. Any economic downturn either globally or locally Ongoing engagement with stakeholders, regular in any area in which the Group operates may have dialogue with customers, research and marketing an adverse effect on the demand for the Group’s activities and regular strategic reviews of the revenue, profit, growth and cash flow over a overall business assist in maintaining a sustainable sustained period. business. Events beyond the control of the Group may The overall impact of Brexit on the Group’s have adverse effects on the business business is expected to be low risk. Executive The Group faces risks in relation to the political continues to monitor the situation and a Brexit and economic instability associated with the UK strategy has been implemented, which includes leaving the European Union, as well as potential the ability to attract talent from outside the changes to the legal framework applicable to its UK and the use of the corporate structure to business. hold assets in Ireland as part of the EU regional activity. The possible threat of natural disasters affecting the ability to trade. The Directors have considered the financial impact of the spread of coronavirus globally. Based on current information, we are not getting any indications that clients are changing plans because of coronavirus. A coronavirus strategy has been implemented around client engagement and data ingestion which will continue to be reviewed and developed as additional information is provided. A disaster recovery plan has been developed. Foreign exchange rate fluctuations may A working capital model and cash flow projections adversely affect the Group’s results are used to plan for business transacted into The Group prepares its financial statements in different currencies so that exchange rate risk pounds sterling, but a substantial proportion is minimised. The Group seeks to match foreign of the Group’s income and costs are and will currency costs and flex cash flows to align with continue to be in foreign currencies. To the corresponding foreign currency receivables. extent that the Group’s foreign currency assets and liabilities are not matched or hedged, The Group operates current bank accounts in fluctuations in exchange rates between pounds multiple currencies. It aims to ensure that the sterling and other currencies may result in receipts and payments in a particular currency are realised or unrealised exchange gains and losses made through the bank account in that currency on translation of the underlying currency into to reduce the amount of translation exposure. pounds sterling. In addition, the Group has entered into a revolving credit facility which can be drawn in US dollars, pounds sterling or euro. 26 27 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Directors’ and Corporate Governance Report The Board of Directors Non-Executive Directors Executive Directors Julie Goonewardene (age 61), His early career was with 3i and PwC, and then Non-Executive Chair in HQ and international divisional finance roles Julie has extensive experience in healthcare, with British Gas plc and British Telecom plc information technology, and business. before becoming Finance Director with Eutelsat SA, based in Paris, France. He also serves as a Having graduated from Purdue University, she director of Soter Analytics Limited, an early stage spent the first twenty years of her career in the ergonomics company and as a trustee and chair field of information technology, leading the growth of the audit committee of Trinity College London, and exit of companies in the sector. In 2005, she the international exam board for performing returned to Purdue to create the University’s first arts and English language qualifications. venture fund and to help faculty inventors turn their research projects into commercial enterprises. Julie Mike Wort (age 69), then went on to remake the corporate partnership Non-Executive Director and commercialisation capabilities at the University Having trained as a microbiologist, Mike brings of Kansas and University of Kanas Medical Center. over 40 years’ experience working with life science companies across the healthcare She currently serves as the Senior Advisor to the sector. Initially working with three of the top Chancellor plus Chief Talent and Innovation Officer ten global pharma companies in a variety of at the University of Texas System, which is one sales, marketing and research positions, he of the US’s largest and most respected systems was appointed Investor Relations Manager of of higher education with a focus on healthcare. Wellcome Plc and was actively involved in the global communications programme for the major Her Board experience includes American Medical £2.4 billion secondary offering of Wellcome Plc Association (immediate past public member), shares by the Wellcome Trust, which enabled Diaceutics and the Personalized Medicine Coalition him to develop working relationships with (immediate past member). Additionally, she served key figures in the life sciences industry. as an advisor to the United States Secretary of Commerce as a member of the U.S. Department After leaving Wellcome, Mike was a founding of Commerce’s National Advisory Council on partner in the first specialist communications Innovation and Entrepreneurship (NACIE). agency, in the United Kingdom, for the Charles Hindson (age 60), Non-Executive Director emerging biotechnology industry. Apart from a diversion caused by his involvement as the CEO during the privatisation of the Bulgarian Charles joined the board as a Non-Executive pharma industry his career has been devoted director on IPO and chairs the audit and to working with start-up and growing SMEs remuneration committees. He brings 16 years’ to maximise their potential for growth. experience of FTSE listed company board membership, having served in executive director roles with Filtronic plc, firstly as Group Finance Director and subsequently Chief Executive, and then with e2v technologies plc as Group Finance Director. He is experienced in supporting business leaders develop technology businesses internationally, though organic growth and successful acquisitions, and this has been reflected in creating meaningful shareholder value with these listed companies. 30 Peter Keeling (age 59), Chief Executive Officer Ryan Keeling (age 37), Chief Innovation Officer Peter has over 30 years’ experience as a Ryan is an expert in commercialisation of leader, entrepreneur and strategist in the diagnostics and associated technology, with pharma industry. He has led international over 10 years’ experience in the field. companies and teams with a focus on novel business models, product launches, including Ryan has led the development and commercialisation therapies, diagnostics and FMCG products. of the Group’s technology, including its proprietary data lake. Ryan has played a pivotal role in the Group’s Having commenced his career as Distribution technological and strategic development, previously Manager at American Monitor Corporation, acting as its Chief Operating Officer until June 2018. where he oversaw the distribution of reagents As CIO, Ryan is responsible for driving the Company’s and equipment globally, he subsequently spent product innovation, with a near term focus on the 11 years leading projects in both Operational development of Nexus. Prior to joining Diaceutics, and Strategic roles at the pharma division of the Ryan spent eight years as a software engineer for Wellcome Foundation, including Sales Manager Aepona Limited, providing network infrastructure and for the pharma business in North and West Africa, related services to telecommunications operators. Commercial Director for a joint venture with Wellcome Indonesia (3.5 years), Brand Director Ryan holds a software engineering degree in at a global product level for Wellcome’s antiviral business administration from Queens University franchise. Wellcome was merged into Glaxo in Belfast. Ryan is seen as a thought leader in 2004. Subsequently he founded and was Chief the field of diagnostic commercialisation and Executive Officer of Diagnology Inc, a US/Irish data integration speaking at precision medicine based diagnostics company which specialised and healthcare data conferences globally. in development and commercialisation of tests for sexually transmitted diseases. Peter has Philip White FCA (age 45), driven Diaceutics from its inception in 2005 to Chief Financial Officer become a diagnostic commercialisation leader Philip has over 15 years’ commercial and technical in innovative solutions which currently services experience in leading positions within export 30 of the world’s largest pharma companies. led growth companies and has been Chief Financial Officer of Diaceutics since 2011. Peter holds a degree in business administration from Queens University Belfast, a Masters He is a fellow member of the Institute of Chartered degree in European Marketing from Buckingham Accountants in Ireland having trained in audit and University Business School and spent an academic tax in both UK and Republic of Ireland companies. year as a Visiting Fellow at MIT’s Sloan business Philip gained a degree in Law and Accountancy and school in 1994 where he led a multi-corporation a diploma in accounting from Queens University US think tank designed to look at disruptive Belfast, and has completed the Senior Executive healthcare models for the pharma industry. Peter Programme at the London Business School. has published several peer reviewed papers on Prior to joining Diaceutics, Philip was involved in precision medicine and is a respected speaker developing Asian supply chains, export expansion at precision medicine events around the world. into EU and growth by acquisition, successfully integrating two key corporate acquisitions. Philip has in the past been a long term board member of a UK charity. Philip has responsibility for all financial and risk management operations and works with the executive management team to develop and implement strategies across the organisation. 31 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Corporate Governance Report The Directors recognise the importance of sound in a meaningful way. Through this, Diaceutics’ key corporate governance principles being embedded value to pharma companies is in providing products within and an integral part of the operations of and services that focus on their understanding the Group. Having listed on AIM, the Board has of where, when and how the necessary precision adopted the Quoted Companies Alliance Corporate testing procedures take place. The data generated Governance Code (the ‘QCA Code’). by Diaceutics enables pharma companies to The Board has responsibility for ensuring that allowing the company to reach peak sales for their appropriate corporate governance principles are new therapeutic sooner than would otherwise be identify the patients suitable for their therapeutic, in place and that these requirements are followed possible. and applied across the Group. The corporate governance arrangements are designed, inter- Diaceutics’ services result in more effective alia, to deliver long term value for the Group’s patient diagnoses for treatments which in turn shareholders and to enable shareholders the lead to better patient healthcare outcomes. opportunity to express their views and expectations This is manifested through faster testing, better for the Group in a manner that encourages open turnaround times, quicker positive identification and dialogue with the Board. higher number of patients treated. The QCA Code sets out ten principles which will Diaceutics’ strategy has focused on collating large be applied. These are listed below together with a amounts of real world laboratory, patient (on an short explanation of how the Group applies each of anonymised and aggregated basis), claims and the principles: payor data which it uses to direct and deliver, via its laboratory liaison team, improved testing with over 2500 labs globally on behalf of leading pharma Principle 1 companies. Establish a strategy and business The overall market for Diaceutics specific services model which promote long-term will increase with the expected market growth in value for shareholders Business overview the number of test dependent therapies alongside increased investment by pharma to remove testing hurdles to seamless treatment. Diaceutics is a diagnostic commercialisation Business strategy company which serves the global pharma industry. The Group seeks to have a balanced business It has combined a suite of real world data-driven model with revenues derived from three areas: products and laboratory implementation services into a business method. Its data enabled products, 1. Data provision – applying its extensive method and services are focused on removing dataset and analysis of real world. Evidence the diagnostic testing hurdles for the biomarkers supplemented with proprietary algorithms, to and companion tests required to guide selection provide new insights that fully align precision of precision medicines. The Company currently testing with their precision medicines; provides services to 36 of the largest global 2. Implementation services – providing test pharma companies and their precision therapy commercialisation services centred on the brands. The outcome for patients is that they will ‘Diaceutics Method’ and leveraging its global receive effective treatment quicker. laboratory database and laboratory liaison team to implement rapid improvements to Diaceutics has established a global network of clinical testing with laboratory partners in key testing laboratories that contribute data to the pharma markets; and Group. In addition, the Group has developed a 3. SaaS tools – using transformative technology series of sophisticated and proprietary data mining developed inhouse to provide data and tools tools to make sense of that raw data from testing via a SaaS (Software as a Service) based laboratories and present it to pharma companies platform Nexus which seeks to greatly 32 33 Diaceutics Annual Report 2019Diaceutics Annual Report 2019accelerate the uptake of the Group’s services Group’s ability to provide an end to end outsourced and make Diaceutics the partner of choice to diagnostic commercialisation service to its clients pharma companies seeking access to precision whereby it can be rewarded for the delivery of key testing in the global pharma markets. milestones. The Group has identified multiple growth drivers for the years ahead. In the near term, the Group Principle 2 intends to continue with the organic growth within its core data analytics and implementation services Seek to understand and meet shareholder needs and business by offering end to end projects and selling an ever wider range of services to the same clients. expectations The Group expects to derive growth from the greater number of precision medicines progressing The Board is committed to maintaining good through clinical development as well as expanding communication and having constructive dialogue its addressable market through the following areas: with both its institutional and private investors. • Additional indications: The majority of the The Board actively seeks dialogue with its Group’s operations are presently focussed shareholders via investor roadshows, capital market on oncology, but additional datasets from days, one to one meetings and regular reporting. testing in cardiovascular, central nervous The Board believes that open communication system (CNS), autoimmune and infectious with investors and its analysts is the best way disease would open up companion diagnostic to ensure shareholders understand the Group’s opportunities in these large therapeutic business, strategy and performance and in turn opportunities. • Geographic scope: In 2019 the Group expanded its geographic reach, initially by understand what is expected of the Group in order to allow it to drive its business forward. building out its footprint in China, Japan and Throughout the year the Chief Executive Officer South Korea. The Group has 22 projects with and Chief Financial Officer meet with the an Asian deliverable, which are serviced institutional shareholders who hold the majority through its ‘hub’ office in Singapore. The Asia of the shares. In addition, they regularly present team manages the process of mapping and at conferences attended by many potential and engaging new laboratory network contacts current retail investors and meet with specialist in the region. These developing markets represent key new growth opportunities private client fund managers. The Board is provided with feedback from all meetings for pharma companies which have hereto and communications with shareholders. depended on western markets for the bulk of their business, but now see these regions as The Group communicates with shareholders one of the principal sources of volume growth through the statutory requirements of the Annual going forward. Report and Accounts, full-year and half-year announcements, the Annual General Meeting In the short term, the Directors expect the value (AGM) and the release of news via London Stock of the Group to be driven by the automation of its Exchange Regulatory News Service (RNS). core data analytics and implementation services delivering scale and efficiency. To achieve this Corporate information, including Group the Group is building a client portal, Nexus, which announcements and presentations, are available will provide a SaaS platform which will initially to shareholders, investors and the public on provide access for laboratories to input data the Group’s corporate website www.diaceutics. but will subsequently be extended to provide a com. The Group’s contact details, email and data interface for its pharma clients allowing it to correspondence address are listed on the website increase the scale and capacity of its services. for shareholder use and the website offers a The Group expects the first such pharma client facility to sign up for email alert notifications of engagement to begin Q4 of 2020. Group news and regulatory announcements. In the longer term, the value of the Group is The Group has in place a process for expected to come from pivoting the business model answering communications made to from a fee for service model, to a subscriptions the Board in a timely manner. and value sharing business model driven by the Principle 3 Take into account wider stakeholder and social responsibilities and their The European Cancer Patient Coalition (ECPC), Myeloma Patients Europe and Lungevity to disseminate valuable information about diagnostic testing to patients. The Group has also sponsored charity events, implications for long-term success with individuals participating in events such as the The Group has strong regard for the importance of its shareholders, suppliers, customers, patients and employees (many of whom are also shareholders). The Group recognises that central to its success is the recruitment, retention, development and motivation of its staff, contractors and freelancers. Multiple HR projects have been introduced to attract and retain top talent including the introduction of a global healthcare and benefits programme, a multi-faceted recruitment process incorporating cultural interviews, psychometric testing and case study exercises complementing the traditional technical interview, a residential onboarding programme to integrate new employees and a robust Group-wide Performance Management Framework linking every employee’s daily activity to the overall corporate goals. These initiatives are enhanced through delivery of bespoke developmental opportunities such as our Prudential Ride London – Surrey, a 100 mile bike ride to raise funds for the Friends of the Cancer Centre in Northern Ireland and the Padres Pedal the Cause event, a two day ride in Southern California to raise funds for cancer research as well as The Great North Run Half Marathon in support of the Disability Assistance Dogs charity Support Dogs. A formal partnership with the Union for International Cancer Control (UICC) and sponsorship of World Cancer Day has also provided a significant platform to elevate awareness around early detection and diagnosis of cancer, which is directly related to the Group mantra of driving better testing to deliver better treatment for patients. Principle 4 Embed effective risk management, considering internal mentoring programme and the Diaceutics both opportunities and threats, EFFECTive Leaders programme which was recently accredited. This is in addition to an overall training and development plan that promotes and supports continuous development and learning. The Group strives to achieve a supportive and inclusive work environment which promotes wellbeing and welfare, equality, respect and human rights. It has a range of policies, procedures and practices in place to support and inform staff and these are communicated widely to employees, both during the residential onboarding process and throughout their employment. Policies include equality, diversity and inclusion, whistleblowing and grievance among many others. Managers and staff are updated with regard to the content of these policies and have support from the Human Resources department in their implementation. The Group has demonstrated its commitment to patients by establishing a formal 501(c)(6), non- profit organisation called the Precision Medicine Connective (‘The Connective’). The Connective is on a mission to increase awareness about testing so that every patient is empowered to make the best possible decisions in their treatment journey. The Connective has partnered with international patient advocacy groups such as Inspire to Live, throughout the organisation The Board acknowledges its responsibility for reviewing the effectiveness of the systems that are in place to manage risk and to provide reasonable assurance with regard to the safeguarding of the Group’s assets against misstatement. The Board is responsible for reviewing and approving overall Group strategy and determining the financial structure of the Group including treasury, tax and dividend policies. There are comprehensive procedures for budgeting and planning, for monitoring and reporting to the Board business performance against those budgets and for forecasting expected performance over the remainder of the financial period. These cover profits, cash flows, capital expenditure and the balance sheet. The principal business and financial risks have been identified and control procedures implemented. These are monitored using a structured approach in the format of a Board-Corporate risk register which is colour-coded to prioritise the most significant risks for ongoing Board attention. The risk management approach has been designed 34 35 Diaceutics Annual Report 2019Diaceutics Annual Report 2019to identify the major risks identified within operational activity as well as Group-wide risks and those risks of a corporate nature covering strategy, markets and financial performance. The Audit Committee ensures the maintenance of internal controls. It assists the Board in discharging Principle 5 Maintain the board as a well- functioning, balanced team led by the Chair its duties regarding the financial statements, The Group is controlled by the Board of Directors, accounting policies and the maintenance of proper comprising three Executive Directors – Peter internal business and operational and financial Keeling (Chief Executive Officer), Ryan Keeling controls, including the review of results of work (Chief Innovation Officer) and Philip White (Chief performed by the Group controls function. Financial Officer) – and three Non-Executive Directors, Julie Goonewardene, Mike Wort and Further to the Board, the Company has an Charles Hindson. The Chair, Julie Goonewardene, executive committee (‘Exco’) comprising, Peter is responsible, inter-alia, for the proper functioning Keeling (Chief Executive Officer), Ryan Keeling of the Board and the Chief Executive Officer, Peter (Chief Innovation Officer), Philip White (Chief Keeling, has executive responsibility for running the Financial Officer), Dr Jordan Clark (Chief Technical Group’s business and implementing Group strategy. Officer) and Damian Thornton (Chief Operating The Directors biographies, together with their Officer). From April 2020 Susanne Munksted will respective Board Committees memberships, are set be joining the Exco as Chief Precision Officer. The out on pages 30-31. Exco have a weekly operations call and monthly strategy call to review the financial position The Board considers that the Non-Executive of Group and current risks alongside future Directors bring an independent judgement to bear strategy for the business. A reporting pack is notwithstanding the varying lengths of service. provided in advance of the meetings and is used The Non-Executive Directors have a particular to drive discussions on performance, position, responsibility for bringing objective challenge, cash flow and prospects of the business. judgement and scrutiny to all matters of the Board. They critically challenge proposed strategies and The Company has employed a General current operational performance. Counsel to assist and advise on all legal aspects of the business. The General Counsel The Group holds Board meetings monthly. All provides legal support where necessary, Directors receive regular and timely information reviews all material contracts and takes an the Group’s operational and financial performance active role to ensure that compliance is at with, as a minimum, a monthly reporting pack being the core of all aspects of the business. provided. Relevant information is circulated to the Directors in advance of meetings. There is a formal The effectiveness of the established framework of schedule of matters reserved for the Board, which business and internal financial controls is regularly may only be amended by the Board. reviewed by the Executive Management, the Audit Committee and the Board. Previously this review All Directors are encouraged to debate and use identified that the Group would benefit from a independent judgement, based on their respective new ERP system which has been commissioned knowledge and experience, to challenge all matters with further modules, expected to bring further effecting the business, whether strategic or operational and control benefits to the business operational. in 2020. The Board considers that the internal and services of the Company Secretary and are controls in place are appropriate for the size, able to take independent professional advice in complexity and risk profile of the Group. the furtherance of the duties, if necessary, at the All Directors have direct access to the advice Group’s expense. The Board feels that it has an appropriate balance between independence, knowledge of the Company’s technology, sector experience and professional standing to allow it to discharge its duties and responsibilities; pursue its strategic goals and to address anticipated issues in the All Directors are able to take independent foreseeable future. However, it will continue to professional advice in the furtherance of their consider any potential additions to the Board to duties, if necessary, at the Group’s expense. In further broaden the experience and effectiveness addition, the Directors have direct access to the of the Board as the Group continues to grow. advice and services of the Company Secretary and Chief Financial Officer. The Company has effective procedures in place to monitor and deal with conflicts of interest. The Board The Chair, together with the Company Secretary, is aware of the other commitments and interests of ensures that the Directors’ knowledge is kept up to its Directors, and changes to these commitments date on key issues and developments pertaining to and interests are reported to and, where appropriate, the Group, its operational environment and to the agreed with the rest of the Board. Directors’ responsibilities as members of the Board. All Directors will stand for re-election at the AGM as this was the Company’s maiden AGM. In accordance with the Company’s Articles of Association Directors are required to seek re- election at least once every three years. Principle 6 Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities The biographies of the Board are set out on pages 30-31. The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills, knowledge and experience and time to perform its duties; and is mindful of the need to continuously review the needs of the business to ensure that this remains true. Board members are able to attend such courses or training, as they feel appropriate, to keep up to date. Involvement with a variety of other boards allows the members to witness alternative approaches to similar business issues and to benefit from the advice of more than just the Group’s advisors. Directors receive regular and timely information on the Group’s operational and financial performance with information being circulated to the Directors in advance of meetings. The business reports monthly on its performance against its agreed budget. Principle 7 Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Since IPO the Board has sought to improve the ways in which it interacts and the manner in which information is presented to it. The processes that have been put in place allow for a consistent approach to reporting, thus aiding analysis by the Board of all matters at hand. A formal Board effectiveness review was undertaken following the first year of establishment of the current Board. This review was in the form of a structured questionnaire circulated to all Directors, asking them to rate the Board’s performance in a number of strategically important areas and provide a rationale for their view. Results and outcomes were analysed by the Company Secretary and any key themes were reported and discussed with the Board, with appropriate recommendations arising from this review being implemented by the Board. In addition to the formal appraisal process for Board members, the Chair and Chief Executive Officer regularly discuss the performance of the Board and the information provided by the executive team. Principle 8 Promote a corporate culture that is based on ethical values and Operational skills are maintained through an active behaviours day to day involvement of leading global experts from the laboratory, diagnostic and pharma industries. In addition, the Group harnesses the The Board believes that an organisation is strategic insights of two industry experts on its defined by its people. That is why the Group external advisory board. has established a culture based on the values of 36 37 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Empowerment, Foresight, Fun, Entrepreneurship, Principle 9 Communication and Trust, together known as the Diaceutics EFFECT values and has appointed Maintain governance structures a senior manager to support the Exco team in and processes that are fit for keeping the culture agenda evolving. Every year, the Group hosts a four-day Group meeting to ensure that these pillars remain effective and conducive to a productive and progressive environment. The Board has ensured that everybody is invested in and benefits from the Diaceutics vision. Prior to listing, the majority of purpose and support good decision-making by the Board The Group’s governance structures have been reviewed in light of the QCA Code. The Board believes them to be in accordance with best practice as adapted to best comply with the the company’s equity was held by employees and Group’s circumstances. senior management. The Board has overall responsibility for The Group has established a formal working group, implementing the Group’s strategy and promoting dubbed “The Culture Club”, which has formulated the long-term success of the Group. The Executive the Diaceutics’ “EFFECT” based on six specific corporate values. These values – Empowerment, Foresight, Fun, Entrepreneurial, Communication & Trust – are highlighted regularly in internal Directors have overall responsibility for managing the day to day operational, commercial and financial activities. The Non-Executive Directors are responsible for bringing independent and objective communications, included in the hiring process judgement to Board decisions. for new candidates for employment, and are a formal part of the Performance Management The Board seeks to meet regularly, but in any event Form, which is established by each employee as to hold no fewer than eight board meetings in annual objective to be measured and incentivised. each year. In addition to the scheduled meetings, Following initial introductions, a session on Diaceutics’ culture and the EFFECT values is the first training module delivered in the Diaceutics’ residential onboarding programme for all new starters, giving Culture a real emphasis from day one. Specific ongoing development training is aligned to these cultural behaviours also so that each component is well represented and permeates throughout the organisation. There are regular initiatives across the year, sometimes as a result of ideas developed in ‘The Culture Club’, to maintain, reinforce and continuously develop Diaceutics’ culture. informal discussions with both Executive Directors and senior operational managers of the Company in relation to strategic business development and other topics important to the Company’s progress are held by members of the Board regularly. The Board is supported by the Audit and Remuneration committees. The Audit Committee is chaired by Charles Hindson and the other members of the Committee are Julie Goonewardene and Mike Wort. It meets at least twice a year at appropriate times in the reporting and audit cycle and otherwise as required. The The Board is committed to maintaining appropriate Committee’s responsibilities are set out in its terms standards for all the Company’s business activities of reference and include amongst other things, and ensuring that these standards are set out in written policies. Key examples of such standards include the ‘Equality, diversity and inclusion policy’ and ‘Whistleblowing policy’. Further policies will continue to be implemented to ensure that sound ethical values and behaviours continue to be reviewing the adequacy of the Group’s accounting and operating controls, reviewing the proposed accounts of the Group prior to publication and recommending the appointment of the auditor and review of the scope and results of its audit. It is also responsible for ensuring that an effective system of embedded in the Group. The Board recognise internal control is maintained. that this culture is crucial to the ability of the Group to achieve its corporate objectives, and culture is in The Remuneration Committee is chaired by Charles fact one of the pillars of the Diaceutics business plan. Hindson and the other members of the Committee are Julie Goonewardene and Mike Wort. It meets as required. The Committee’s responsibilities include amongst other things, responsibility for determining the remuneration for the Group’s Executive Directors and senior management and reviewing the design of share incentive plans and sets Corporate information, including Group performance conditions for approval by the Board. announcements, financial reports and The terms of reference of the Audit Committee and investors and the public on the Group’s corporate the Remuneration Committee are set out on the website www.diaceutics.com. presentations, are also available to shareholders, Group’s website. Employees and consultants are regularly updated The Board and its committees are provided with with the development of the Group and its information ahead of meetings to give time for performance. A group intranet system is frequently review and analysis. Each committee has access to updated for news on Group developments and such resources, information and advice as it deems events, industry related press releases, internal necessary, at the cost of the Group, to enable the discussions and a regular update from the CEO. committee to discharge its duties. For each Board An all-company ‘Town Hall’ webinar is held as least meeting an agenda is prepared and approved by twice a year updating staff and consultants on past the Chair and followed. performance and future plans for the Group and employee specific matters. The Group is confident that its governance structures and processes are consistent with its The Group regularly, at least biennially, hosts current size and complexity of the business. The a four-day Group meeting to ensure that these appropriateness of the Company’s governance corporate plans and goals are communicated and structures will be reviewed annually in light of discussed, ultimately ensuring that the whole further developments of accepted best practice team is bought in, thus ensuring an effective and and the development of the Company. conducive environment to achieve these. Mr P White Director 15 March 2020 Principle 10 Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders The Company communicates with shareholders through the Annual Report and Accounts, full-year and half-year announcements, the Annual General Meeting (AGM), release of news via London Stock Exchange channels and by regular one-to-one meetings with large existing or potential new shareholders and by open events with private shareholders. The Group encourages two-way communication with both its institutional and private investors and responds quickly to all queries received. The Chief Executive Officer talks regularly with the Group’s major shareholders and ensures that their views are communicated fully to the Board. Investor roadshows are held following the release of half and full year results; and the Chief Executive Officer and Chief Finance Officer attend a number of investor and sector specific conferences which give smaller investors the opportunity to speak with the executive. 38 39 Diaceutics Annual Report 2019Diaceutics Annual Report 2019  Directors’ Remuneration Report Remuneration committee Basic salary The Committee was chaired by Charles Hindson The basic salary of the Executive Directors is during the year and the other members of the reflective of the sector competitive rates in Committee are Julie Goonewardene and Mike Wort. attracting, rewarding and retaining the necessary Role of the committee precision medicine sector and AIM environment. The Remuneration Committee is responsible for They are reviewed annually, usually at the same making recommendations to the Board on the time as other staff, by the Committee taking into Group’s framework of executive remuneration account changes in roles, responsibilities and level of skills and experience required in the and its cost within agreed terms of reference. specific retention issues. The Committee determines the contract terms, remuneration and other benefits for each of the In reviewing potential increases in the Executive Executive Directors, including performance-related Directors’ basic salary, the Committee is guided schemes (both short and long term) and pension by general increases for employees. Where an rights. It also considers the remuneration of senior inflation based award is granted, this would be management within the Group. In performing its applied to the Directors, if considered appropriate. role, the Committee takes consideration of the Certain Directors may be considered for additional general increases for employees throughout the increases recognising that their experience, remit Group. The Board itself determines the remuneration and responsibilities have substantially increased in of the Chair and Non-Executive Directors. the year and new operational activities undertaken. The Committee appointed Deloitte LLP in June Pension 2019 to provide independent remuneration advice All employees in UK and Ireland can avail of on the strategy for Directors’ compensation and its a company pension scheme within which the benchmarking. They reported to the Committee in employer makes pension contributions of 2% to 5% September 2019. Remuneration policy for employees who avail of this. Enhanced rates are agreed for a number of more senior staff. Diaceutics’ aim in setting a compensation The option to provide pension in other jurisdictions policy is to attract and retain highly skilled and is currently being explored with the aim of being experienced staff and to incentivise and reward rolled out over the next 18 months. for successful short and longer term performance. The remuneration policy seeks to deliver a fair The pension arrangements in place for the and balanced remuneration package for each Executive Directors are that the company of the Executive Directors that is consistent contributes 10% of salary for Peter Keeling and 5% with compensation across the business for their of salary for Philp White and Ryan Keeling. These seniority. The package consists of a number of arrangements were reviewed and considered different components of remuneration, structured within with the range of company pension to be aligned with the business strategy. contribution for other staff, reflecting the individual The policy has been developed during the year and the shorter term elements have been applied Private healthcare Directors’ salary levels. from 1 January 2020, with plans to grant the longer From 1 January 2020, all current employees, term incentives in the second quarter of 2020. The including Executive Directors, are offered private Committee liaised on the proposed strategy with healthcare. The specific requirements for the new selected key external shareholders in November countries that are currently being added will be 2019, and the proposals were supported. considered as these come through. Bonus and equity Prior to IPO, Diaceutics recognised staff contribution and performance with bonus awards, though these were not operated through a formal structure for Executive Directors or staff. While targets were set for senior staff, other staff were awarded bonuses on an ad-hoc basis based on contractual arrangements and/or commission levels. Deloitte have advised the Company with the objective of setting a formalised bonus structure for middle and senior management, operating as both cash and share awards, to recognise and reward both short and longer term performance. Cash awards, aligned to the Group’s operational performance and personal objectives, were applied throughout 2019 and are operational from 1 January 2020. It is intended to introduce long term share incentives after the preliminary announcement of the Group’s results for the year ended 31 December 2019. The first award is anticipated to be granted in the second quarter of 2020 in the form of market value share option awards. Awards in subsequent years are anticipated to be by way of performance share awards where the performance criteria are expected to be determined with criteria linked to both shareholder return and operating performance. 2019 has been a year of transition, where the new structure for senior and middle management for cash bonuses has been applied to financial targets set internally at the beginning of the year and referencing staff’s personal objectives set within the Group’s performance management system. The Remuneration Committee exercised its discretion for Executive Directors that half of their potential bonus would be assessed on having completed the successful IPO and that the other half on company performance, where 67% of the target performance range was achieved. The bonus structure will continually be reviewed by the Remuneration Committee following this first year of formal implementation. 40 41 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Directors’ Remuneration Directors’ Shareholdings The remuneration of the Board of Directors of Diaceutics PLC for the year ended 31 December 2019 The interests of the Directors holding office at 31 December 2019 in the shares of the Company, is set out below: Executive Basic Salary £ Taxable Bonus Benefits Pension £ £ £ 2019 £ 2018 £ Peter Keeling 206,970 57,750 522 18,699 283,941 100,268 Ryan Keeling 175,444 51,473 477 8,419 235,813 78,007 Philip White 199,384 51,473 856 9,451 261,164 154,434 Delia Keeling – – – – £4,049 581,798 160,696 1,855 36,569 780,918 336,758 Non-Executive Julie Goonewardene £41,250 Mike Wort Charles Hindson £22,500 £26,250 £90,000 – – – – – – – – – – – £41,250 £22,500 £26,250 – £90,000 – – – – Total 671,798 160,696 1,855 36,569 870,918 336,758 Taxable benefits consist of life insurance and group income protection. Delia Keeling’s remuneration in 2018 reflects the remuneration paid until her retirement as a Director on 6 September 2018. No share options are held by or were granted to the Directors during the year. including family interests, were: Executive directors Peter Keeling* Philip White** Ryan Keeling Non-Executive directors Julie Goonewardene Mike Wort Charles Hindson Ordinary Shares Percentage of that Class 17,526,049 3,026,330 2,890,643 23,443,022 1,614,127 144,737 43,500 1,802,364 25.2% 4.3% 4.2% 33.7% 2.3% 0.2% 0.1% 2.6% Total directors’ shareholding 25,245,386 36.3% * Includes 8,861,975 shares held by Delia Keeling, Peter’s wife. ** Includes 1,009,800 shares held by the Philip White Tyres Pension Trust 81810. Other transactions that occurred with Directors during the year are detailed in Note 28 to the financial statements under Related Party Transactions. Mr C Hindson Chair of the Remuneration Committee 15 March 2020 42 43 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Directors’ Report The Directors present their annual report and the Directors audited Group financial statements for the year The Directors who served during the year, and ended 31 December 2019. These will be laid before up to the date the financial statements were the shareholders of the Company at the next signed, were: Annual General Meeting (AGM). • Ms J Goonewardene Diaceutics PLC is incorporated in Northern Ireland, • Mr C Hindson registration number NI055207, and its registered • Mr M Wort office is 55–59 Adelaide Street, Belfast, BT2 • Mr P Keeling 8FE. The Company is listed on the Alternative • Mr R Keeling Investment Market of the London Stock Exchange • Mr P White (AIM: DXRX). Principal activity The Directors’ interests in the shares of the The principal activity of the Group during Company are disclosed in the Remuneration Report Directors’ interests and indemnity arrangements the year continued to be data, data analytics on pages 40-43. and implementation services. The Group has established a core suite of products and The Directors and officers of the Group have outsourced advisory services which help its pharma the benefit of a Directors’ and Officers’ liability clients to optimise and deliver their marketing insurance. and implementation strategies for companion diagnostics. Their mission is to design, create and No Director had, during or at the end of the year, implement innovative solutions that enhance speed a material interest in any contract which was to market and increase the effectiveness of all the significant in relation to the Group’s business except stakeholders in the personalised medicine industry. in respect of service agreements and share options The Group engage in research and development and as disclosed in the Directors’ Remuneration activities in the area of drug development science, Report on pages 40-43. testing data and software platform development. Share capital Results and dividends Details of the Company’s issued share capital are The profit for the year, after taxation, amounted to shown in Note 26 to the consolidated financial £397,881 (2018: £632,307). statements. A dividend of £Nil (2018: £300,216) was paid during The share capital of the Company comprises one the year. The Directors do not recommend the class of ordinary shares and these are listed on payment of a dividend. AIM. At 31 December 2019 there were in issue Going concern 69,583,077 fully paid ordinary shares. All shares are freely transferable and rank pari passu for voting The financial statements have been prepared and dividend rights. on the going concern basis which assumes that the Group will be able to continue in operational existence for the foreseeable future and to meet its liabilities as they fall due. In preparing the financial statements, the directors have taken into account the Group’s future trading and cash flows and believe that it is appropriate to prepare the financial statements on the going concern basis. Substantial shareholdings At 31 December 2019, shareholders holding more than 3% of the share capital in Diaceutics PLC were: Peter Keeling* Elizabeth Considine Marlborough UK Micro Cap Growth Fund Baronsmead VCT 3 Berenberg European Micro Cap Philip White** Ryan Keeling SLP Innovations Ltd Ordinary Shares Percentage of that Class 17,526,049 25.2% 5,512,169 4,800,000 4,000,000 3,969,500 3,026,330 2,890,643 2,214,214 7.9% 6.9% 5.7% 5.7% 4.3% 4.2% 3.2% * Includes 8,861,975 shares held by Delia Keeling, Peter’s wife. ** Includes 1,009,800 shares held by the Philip White Tyres Pension Trust 81810. Save as referred to above, the Directors are not aware of any persons as at 31 December 2019 who were interested in 3% or more of the voting rights of the Company or could directly or indirectly, jointly or severally, exercise control over the Company. Political donations Auditors The Group has not made any political donations The auditors, PricewaterhouseCoopers LLP, will during the year (2018: £Nil). be proposed for reappointment in accordance with section 485 of the Companies Act 2006. Disclosure of information to auditors Each of the persons who are Directors at the This report was approved by the board and signed time when this Directors’ Report is approved has on its behalf. confirmed that: • so far as the Director is aware, there is no relevant audit information of which the Group’s auditor is unaware Mr P White • the Director has taken all the steps that ought Director to have been taken as a director in order to be 15 March 2020 aware of any relevant audit information and to establish that the Group’s auditor is aware of that information 44 45 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Statement of Directors’ Responsibilities in relation to the Financial Statements The Directors are responsible for preparing the The Directors are also responsible for safeguarding Annual Report and the financial statements in the assets of the group and company and hence accordance with applicable law and regulation. for taking reasonable steps for the prevention and detection of fraud and other irregularities. Company law requires the directors to prepare financial statements for each financial year. The Directors are responsible for keeping adequate Under that law the Directors have prepared the accounting records that are sufficient to show and group financial statements in accordance with explain the Group and Company’s transactions and International Financial Reporting Standards (IFRSs) disclose with reasonable accuracy at any time the as adopted by the European Union and company financial position of the group and company and financial statements in accordance with United enable them to ensure that the financial statements Kingdom Generally Accepted Accounting Practice comply with the Companies Act 2006. (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and The directors are responsible for the maintenance applicable law). Under company law the Directors and integrity of the Company’s website. Legislation must not approve the financial statements unless in the United Kingdom governing the preparation they are satisfied that they give a true and fair and dissemination of financial statements may view of the state of affairs of the group and differ from legislation in other jurisdictions. company and of the profit or loss of the group and company 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 IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, 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 • 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 responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.” 46 47 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Group Financial Statements Independent Auditors’ Report to the members of Diaceutics PLC Report on the audit of the financial statements Opinion In our opinion: • Diaceutics PLC’s group financial statements and company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2019 and of the Group’s profit and cash flows for the year then ended; the Group and Company Balance Sheets as at 31 December 2019; the Group Profit and Loss Account and Group Statement of Comprehensive Income, the Group Statement of Cash Flows, and the Group and Company Statement of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the • the Group financial statements have been significant accounting policies. properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and • the financial statements have been prepared in accordance with the requirements of the 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. Companies Act 2006. Independence We have audited the financial statements, included within the Directors’ Report and Financial Statements (the “Annual Report”), which comprise: 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 Materiality Audit Scope Key Audit Matters • Overall Group materiality: £92,247 (2018: £36,451), based on 5% of profit before tax and exceptional costs. • Overall Company materiality: £86,865 (2018: £32,806), based on 5% of profit before tax and exceptional costs. • We focused our work over the Group’s reporting packs for the key trading entities. • We performed procedures over four Group companies, including Diaceutics Plc (the parent company of the Group), and the consolidation adjustments. • The components where we performed our audit work, together with procedures over the consolidation adjustments, accounted for 100% of Group revenue and 100% of Group profit before tax and exceptional costs. • Accounting for capitalised development costs (Group and Company) • Revenue recognition including accrued and deferred income (Group and Company) 50 51 Diaceutics Annual Report 2019Diaceutics Annual Report 2019The scope of our audit Key audit matters As part of designing our audit, we determined Key audit matters are those matters that, in materiality and assessed the risks of material the auditors’ professional judgement, were of misstatement in the financial statements. In most significance in the audit of the financial particular, we looked at where the directors made statements of the current period and include subjective judgements, for example in respect the most significant assessed risks of material of significant accounting estimates that involved misstatement (whether or not due to fraud) making assumptions and considering future events identified by the auditors, including those which that are inherently uncertain. As in all of our had the greatest effect on: the overall audit audits we also addressed the risk of management strategy; the allocation of resources in the audit; override of internal controls, including evaluating and directing the efforts of the engagement whether there was evidence of bias by the team. These matters, and any comments we directors that represented a risk of material make on the results of our procedures thereon, misstatement due to fraud. 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. Key audit matter How our audit addressed the key audit matter Accounting for capitalised development costs - To test the capitalised development costs: Group and Company The Group and the Company capitalises costs • We obtained the workings for the capitalisation associated with development of a Software as a of the internal labour costs and tested the inputs Service (SaaS) platform which is being developed to this schedule and tested the mathematical internally. The costs associated with the time accuracy of the workings; spent on this development project are capitalised • We agreed a sample of employees’ base salaries onto the balance sheet at the year end and to the payroll records; represent the hours spent on this project by the • We agreed a sample of the individuals hours dedicated team who work on the data collection charged to the timesheets for those individuals; or the development of the software platform. • We obtained independent confirmations from a sample of employees on the time charged to the On an annual basis, an impairment review of the project as detailed in the schedule provided to costs capitalised is performed. us; • We held a number of discussions with non- finance related employees and project managers who work on the project to corroborate the status of the project outside the finance function; • We obtained the budget for the project and assessed how the project is progressing against this and ensured the necessary resources were in place to complete the project; and • We have also assessed management’s assessment of the economic benefits and ensured the capitalised costs met the criteria of IAS 38. Key audit matter How our audit addressed the key audit matter Accounting for revenue including accrued and To test the revenue recognition we: deferred revenue - Group and Company • We updated our understanding around revenue The Group and the Company recognises project streams and respective recognition policies revenue over time, based on the stage at which a across the group, specifically for those that were particular project is in terms of completion. This live around the year end; is measured by comparing the actual hours to • Our five step approach to testing revenue budget on any given project. recognition involved identifying the substance of the contracts, identifying the performance The Project Manager is responsible for updating obligations included, determining the transaction the budget based on actual hours charged and price of the contract and subsequently comparing this to estimated cost to completion. identifying the allocation of the transactional price against the performance obligation milestones; • We obtained budgets for a sample of projects and assessed the reasonableness of the percentage of completion calculation at the year end based on forecast hours to actual hours recorded on timesheets; • We reviewed completed contracts post year end to confirm that they were delivered within the budgeted hours; and • We traced any adjustments to deferred and accrued revenue to the financial statements, to ensure that this accurately reflected the timing difference How we tailored the audit scope Materiality We tailored the scope of our audit to ensure that The scope of our audit was influenced by we performed enough work to be able to give an our application of materiality. We set certain opinion on the financial statements as a whole, quantitative thresholds for materiality. These, taking into account the structure of the group together with qualitative considerations, helped and the company, the accounting processes and us to determine the scope of our audit and the controls, and the industry in which they operate. 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. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: 52 53 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Group financial statements Company financial statements Overall materiality £92,247 (2018: £36,451) £86,865 (2018: £32,806) How we determined it 5% of profit before tax and 5% of profit before tax and exceptional costs exceptional costs Rationale for Profit before tax and exceptional Profit before tax and exceptional benchmark applied costs is the primary measure used costs is the primary measure used by the Board and the shareholders by the Board and the shareholders in evaluating the performance of in evaluating the performance of the the Group. This measure excludes Company. This measure excludes exceptional costs which are non- exceptional costs which are non- recurring due to their nature. recurring due to their nature. For each component in the scope of our Group Reporting on other information audit, we allocated a materiality that is less The other information comprises all of the than our overall Group materiality. The range of information in the Annual Report other than materiality allocated across components was the financial statements and our auditors’ £6,440 and £86,865. Certain components were report thereon. The directors are responsible audited to a local statutory audit materiality that for the other information. Our opinion on was also less than our overall Group materiality. the financial statements does not cover the other information and, accordingly, we do We agreed with the Audit Committee that we not express an audit opinion or, except to would report to them misstatements identified the extent otherwise explicitly stated in this during our audit above £4,612 (Group audit) report, any form of assurance thereon. (2018: £1,823) and £4,343 (Company audit) (2018: £1,640) as well as misstatements below those In connection with our audit of the financial amounts that, in our view, warranted reporting for statements, our responsibility is to read the qualitative reasons. other information and, in doing so, consider whether the other information is materially Conclusions relating to going concern inconsistent with the financial statements ISAs (UK) require us to report to you when: or our knowledge obtained in the audit, or • the directors’ use of the going concern otherwise appears to be materially misstated. If basis of accounting in the preparation of the we identify an apparent material inconsistency financial statements is not appropriate; or or material misstatement, we are required to • the directors have not disclosed in the perform procedures to conclude whether there financial statements any identified material is a material misstatement of the financial uncertainties that may cast significant doubt statements or a material misstatement of the about the Group’s and Company’s ability to other information. If, based on the work we have continue to adopt the going concern basis performed, we conclude that there is a material of accounting for a period of at least twelve misstatement of this other information, we are months from the date when the financial required to report that fact. We have nothing statements are authorised for issue. to report based on these responsibilities. We have nothing to report in respect With respect to the Strategic Report and of the above matters. Directors’ Report, we also considered whether the disclosures required by the UK However, because not all future events or Companies Act 2006 have been included. conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s Based on the responsibilities described above ability to continue as a going concern. For and our work undertaken in the course of the example, the terms of the United Kingdom’s audit, ISAs (UK) require us also to report certain withdrawal from the European Union are not opinions and matters as described below. clear, and it is difficult to evaluate all of the potential implications on the Group’s trade, customers, suppliers and the wider economy. 54 Strategic Report and Directors’ Report A further description of our responsibilities In our opinion, based on the work undertaken in for the audit of the financial statements is the course of the audit, the information given in located on the FRC’s website at: www.frc.org. the Strategic Report and Directors’ Report for the uk/auditorsresponsibilities. This description year ended 31 December 2019 is consistent with forms part of our auditors’ report. the financial statements and has been prepared in accordance with applicable legal requirements. Use of this report This report, including the opinions, has been In light of the knowledge and understanding of prepared for and only for the company’s the Group and Company and their environment members as a body in accordance with Chapter obtained in the course of the audit, we did 3 of Part 16 of the Companies Act 2006 and not identify any material misstatements in for no other purpose. We do not, in giving the Strategic Report and Directors’ Report. 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 received 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. Kevin MacAllister (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Belfast 15 March 2020 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 set out on page 46, 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 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 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. 55 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Group Profit and Loss Account for the year ended 31 December 2019 Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit before exceptional Iiems Exceptional items Operating profit Finance income Finance costs Profit before tax Income tax expense Notes 2019 2018 4 5 5 10 11 5 12 13 14 £13,442,121 £10,373,180 (£3,131,458) (£3,571,225) £10,310,663 £6,801,955 (£8,388,161) (£5,520,124) £165,532 £124,097 £2,088,034 £1,405,928 (£1,347,613) (£205,000) £740,421 £1,200,928 £2,628 – (£245,725) (£323,664) £497,324 £877,264 (£99,443) (£244,957) Profit for the financial year £397,881 £632,307 All results relate to continuing operations. Group Statement of Comprehensive Income for the year ended 31 December 2019 2019 2018 Profit for the financial year £397,881 £632,307 Items that may be reclassified subsequently to profit or loss: (£159,271) £13,715 Exchange differences on translation of foreign operations Total comprehensive income for the year, net of tax £238,610 £646,022 Earnings per Share for the year ended 31 December 2019 Notes 2019 (Pence) 2018 (Pence) 15 15 15 15 0.62 0.62 2.46 2.45 1.41 1.41 1.86 1.86 Basic Diluted Basic adjusted Diluted adjusted 56 Group Balance Sheet as at 31 December 2019 Assets Non-current assets Intangible assets Property, plant and equipment Deferred tax asset Current assets Notes 2019 2018 17 18 14 £3,760,811 £1,210,613 £133,604 £55,737 £73,994 £62,849 £3,950,152 £1,347,456 Trade and other receivables 20 £6,634,893 £4,389,272 Cash at bank and in hand Income tax receivable Total assets Equity and liabilities Equity share capital Share premium Treasury shares Capital redemption reserve Translation reserve Profit and loss account Total equity Non-current liabilities Trade and other payables Financial liabilities Current liabilities Trade and other payables Financial liabilities Income tax payable Total liabilities £11,720,223 £2,073,661 £65,768 – £18,420,884 £6,462,933 £22,371,036 £7,810,389 25 £139,166 £17,335,407 – – £19,590 £208 £99,994 (3) £108,850 £178,861 £2,637,924 £2,241,551 £20,132,087 £2,629,461 21 22 21 22 – – – £180,862 £1,065,475 £1,246,337 £2,131,449 £1,191,126 £107,500 £2,715,809 – £27,656 £2,238,949 £3,934,591 £2,238,949 £5,180,928 Total equity and liabilities £22,371,036 £7,810,389 The Group financial statements were approved and authorised for issue by the board and were signed on its behalf on 15 March 2020. The notes on pages 61-82 form an integral part of the Group financial statements. Mr P White Director 15 March 2020 57 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Equity share capital Share premium Treasury shares* Capital redemption reserve Translation reserve Profit and loss account Total equity £208 £99,994 (13) £108,850 £165,146 £1,503,550 £1,877,735 Group Statement of Changes in Equity At 1 January 2018 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners, recorded directly in equity Issue of shares from Treasury Share based payments Equity dividends paid Total transactions with owners At 31 December 2018 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners, recorded directly in equity Cancellation of Treasury shares Reorganisation of shares Bonus issue of shares Conversion of loan notes – – – – – – – – – – – – – – £208 £99,994 – – – (3) £2,050 £87,951 £4,223 – – – – (£2,050) (£87,951) £1,225,222 Issue of shares on Placing £44,737 £16,100,192 Share based payment – – Total transactions with owners £138,958 £17,235,413 At 31 December 2019 £139,166 £17,335,407 * Treasury shares are presented separately in order to show the movements on these shares in each year. The balance as at each year end is deducted from retained earnings in calculating distributable profits. – – – 10 – – 10 (3) – – – 3 – – – – – 3 – – – – – – – – £13,715 £13,715 – – – – £632,307 £632,307 – £13,715 £632,307 £646,022 (10) – £405,920 £405,920 (£300,216) (£300,216) £105,694 £105,704 £108,850 £178,861 £2,241,551 £2,629,461 – – – – – – – (£108,850) – (£108,850) – £397,881 £397,881 (£159,271) – (£159,271) (£159,272) £397,881 £238,610 – – – – – – – – – – – – – (£25,902) £1,203,543 – £16,036,079 £24,394 £24,394 (£1,508) £17,264,016 – £19,590 £2,637,924 £20,132,087 58 59 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Group Statement of Cash Flows for the year ended 31 December 2019 Notes to the Group Financial Statements for the year ended 31 December 2019 Operating activities Profit before tax Adjustments to reconcile profit before tax to net cash flows from operating activities Notes 2019 2018 £497,324 £877,264 Net finance costs £243,097 £323,664 Amortisation of intangible assets Depreciation of property, plant and equipment 17 18 £246,426 £38,433 £80,588 £37,092 Research and development tax credits (£157,000) (£122,533) Increase in trade and other receivables (£2,325,622) (£2,557,896) Increase in trade and other payables £825,237 £35,744 Share based payments Cash used in operations Tax paid £24,394 £405,920 (£607,711) (£920,157) (£21,971) (£33,881) Net cash outflow from operating activities (£629,682) (£954,038) Investing activities Interest received £2,628 – Purchase of intangible assets (£2,827,797) (£1,046,420) Purchase of property, plant and equipment (£99,016) (£61,211) Net cash outflow from investing activities (£2,924,185) (£1,107,631) Financing activities Borrowing costs (£248,302) (£301,576) Repayment of borrowings (£3,450,976) (£554,439) Draw down of funds £105,968 £1,751,640 Issuance of convertible loan notes £850,066 £452,568 Equity dividends paid Issue of shares – (£300,216) 16,036,097 10 Net cash inflow from financing activities £13,292,853 £1,047,987 Net increase/(decrease) in cash and cash equivalents £9,738,986 (£1,013,682) Net foreign exchange (losses)/gains (£92,424) £18,460 Cash and cash equivalents at 1 January £2,073,661 £3,068,883 Cash and cash equivalents at 31 December £11,720,223 £2,073,661 1. General information The group also elected to adopt the following The principal activity of Diaceutics PLC (‘the amendments early: Company’) and its subsidiaries (together ‘the Group’) is data, data analytics and implementation • Amendments to IAS 1 and IAS 8 – services. The Group has established a core suite of Definition of Material products and outsourced advisory services which help its pharma clients to optimise and deliver The above amendments did not have any impact their marketing and implementation strategies on the amounts recognised in prior periods. The for companion diagnostics. Their mission is to impact of applying IFRS16 is not material and design, create and implement innovative solutions thus no adjustment has been made. The other that enhance speed to market and increase amendments listed above are not expected to the effectiveness of all the stakeholders in the significantly affect the current or future periods. personalised medicine industry. New accounting standards and interpretations The financial statements are presented in sterling. not yet adopted by the Group Basis of preparation Certain new accounting standards and interpretations have been published that are These consolidated financial statements have not mandatory for 31 December 2019 reporting been prepared on a going concern basis and in periods and have not been early adopted by the accordance with International Financial Reporting group. These standards are not expected to have Standards (‘IFRS’) as adopted by the European a material impact on the entity in the current Union and the Companies Act 2006 applicable to or future reporting periods and on foreseeable companies reporting under IFRS. These financial future transactions. statements have been prepared under the historical cost convention. Revenue recognition Revenue comprises the fair value of the The preparation of financial statements in conformity consideration received or receivable for the with IFRS requires the use of certain critical provision of services in the ordinary course of accounting estimates. It also requires management the Group’s activities. Revenue is shown net to exercise its judgement in the process of applying of value-added tax and after eliminating sales the Group’s accounting policies. Judgements in within the Group. applying accounting policies and key sources of estimates and uncertainty are disclosed in the notes. The Group has two revenue streams, Implementation services and Data. The Group’s The principal accounting policies adopted in performance obligations for both revenue the preparation of these consolidated financial streams are deemed to be the provision of statements are set out below. These policies have specific deliverables to the customer. Revenue been consistently applied to all the years presented, billed to the customer is allocated to the various unless otherwise stated. performance obligations, based on the relative fair value of those obligations, and is then 2. Accounting policies recognised as follows: New and amended accounting standards adopted by the Group • Where a contractual right to receive payment exists, revenue is recognised as over the The Group has applied the following standards period services are provided using the and amendments for the first time for their annual percentage of completion method, based on reporting period commencing 1 January 2019: the input method using time spent • IFRS 16 Leases • Where no contractual right to receive payment exists, revenue is recognised upon • Annual Improvements to IFRS Standards completion of each separate performance 2015–2017 Cycle obligation, which is typically when • Interpretation 23 Uncertainty over Income Tax implementation services are complete or data Treatments has been provided to the customer 60 61 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 Segment reporting account are translated at average exchange The Group currently has one operating segment. rates (unless this average is not a reasonable Government grants approximation of the cumulative effect of the rates prevailing on the transaction dates, Grants, which include research and development in which case income and expenses are tax credits where the recovery of those credits translated at the rate on the dates of the is not restricted, are recognised at their fair transactions) value where there is a reasonable assurance • all resulting currency translation differences that the grant will be received and the Group are recognised in other comprehensive income will comply with all attached conditions. Grants and disclosed as a separate component of relating to costs are deferred and recognised equity in a foreign currency translation reserve in the profit and loss account over the period necessary to match them with the costs that Exceptional items they are intended to compensate. Grants The Group presents as exceptional items those relating to development projects are included material items of income and expense which, in non-current liabilities as deferred income because of the nature and expected infrequency and are credited to the profit and loss account of the events giving rise to them, merit separate on a straight-line basis over the expected presentation on the face of the profit and useful economic lives of the related assets. loss account in order to allow shareholders to Foreign currency translation performance in the year, so as to facilitate (a) Functional and presentation currency comparison with prior periods and to better Items included in the financial statements of each assess trends in the financial performance. understand better the elements of financial of the Group’s entities are measured using the currency of the primary economic environment Employee benefits in which the entity operates (‘the functional The Group operates a defined contribution currency’). The consolidated financial statements pension scheme which is open to employees is presented in Sterling, which is the Group’s and directors. The assets of the scheme are held presentation currency. by investment managers separately from those of the Group. The contributions payable to the (b) Transactions and balances scheme is recorded in the profit and loss account Foreign currency transactions are translated in the accounting period to which they relate. into the functional currency using the exchange rates prevailing at the dates of the transactions. Share based payments Foreign exchange gains and losses resulting from The company has a number of classes of the settlement of such transactions and from shares in issue. Where shares are issued to the translation at year end exchange rates of employees that contain restrictions that mean monetary assets and liabilities denominated in they have obtained those shares by virtue of foreign currencies are recognised in the profit their employment, those shares are accounted and loss account. for as share based payments. When the shares are issued a determination is made, based on the (c) Group companies rights of those shares, as to whether there is a The results and financial position of all the contractual liability for the Company to reacquire Group entities (none of which has the currency the shares at some point (cash settled) or not of a hyperinflationary economy) that have a (equity settled). For equity settled shares, a fair functional currency different from the presentation value of those shares is established at the date currency are translated into the presentation the shares are granted and, if the employee is currency as follows: required to complete a period of service before the shares vest, this fair value is spread over that • assets and liabilities for each balance sheet period (vesting period). presented are translated at the closing rate at the date of that balance sheet Taxation • income and expenses for each profit and loss The tax expense for the year comprises current Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 and deferred tax. Tax is recognised in the income an intention to settle the balances on a net basis. statement, except to the extent that it relates to items recognised in other comprehensive income Intangible assets or directly in equity. In this case the tax is also Research and development recognised in other comprehensive income or Expenditure on research activities and patents is directly in equity respectively. recognised in the profit and loss account as an expense as incurred. The current income tax charge is calculated on the basis of the tax laws enacted or Expenditure on development activities is substantively enacted at the balance sheet date capitalised if the product or process is technically in the countries where the group’s subsidiaries and commercially feasible and the Group intends operate and generate taxable income. and has the technical ability and sufficient Management periodically evaluates positions resources to complete development, future taken in tax returns with respect to situations economic benefits are probable and if the Group in which applicable tax regulation is subject to can measure reliably the expenditure attributable interpretation. It establishes provisions where to the intangible asset during its development. appropriate on the basis of amounts expected to Development activities involve design for, be paid to the tax authorities. construction or testing of the production of new or substantially improved products or processes. Deferred income tax is recognised, using the The expenditure capitalised includes the cost liability method, on temporary differences arising of infrastructure and direct labour including between the tax bases of assets and liabilities employer national insurance. Other development and their carrying amounts in the consolidated expenditure is recognised in the profit and loss financial statements. However, the deferred account as an expense as incurred. Capitalised income tax is not accounted for if it arises from development expenditure is stated at cost until it initial recognition of an asset or liability in a is brought into use. transaction other than a business combination that at the time of the transaction affects neither Other intangible assets accounting nor taxable profit or loss. Deferred Other intangible assets that are acquired by income tax is determined using tax rates and laws the Group are stated at cost less accumulated that have been enacted or substantially enacted amortisation and less accumulated impairment by the balance sheet date and are expected to losses. apply when the related deferred income tax asset is realised or the deferred income tax liability Amortisation is settled. Amortisation is charged to the profit or loss on a straight-line basis over the estimated useful Deferred income tax assets are recognised only lives of intangible assets. Intangible assets are to the extent that it is probable that future taxable amortised from the date they are available for use. profit will be available against which the temporary The estimated useful lives are as follows: differences can be utilised. Deferred income tax is provided on temporary differences arising on • Patents and trademarks, 3 years (33.3% investments in subsidiaries and associates, except straight line) from date of registration where the timing of the reversal of the temporary • Datasets, 2 years (50% straight line) difference is controlled by the group and it is • Software, 5 years (20% straight line) probable that the temporary difference will not reverse in the foreseeable future. The Group reviews the amortisation period and Deferred income tax assets and liabilities are that the useful life may have changed since the method when events and circumstances indicate offset when there is a legally enforceable right last reporting date. to offset current tax assets against current tax liabilities and when the deferred income tax assets Property, plant and equipment and liabilities relate to income taxes levied by Property, plant and equipment is stated at cost the same taxation authority on either the taxable less accumulated depreciation and accumulated entity of different taxable entities where there is impairment losses. 62 63 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 The Group assesses at each reporting date represent solely payments of principal and interest whether there are indicators of impairment. and are held at amortised cost. Any gains or losses Depreciation is charged to the profit and loss arising on derecognition is recognised directly in account on a straight-line basis over the estimated profit or loss. Impairment losses are presented as a useful lives of each part of an item of tangible fixed separate line in the profit and loss account. assets. The estimated useful lives are as follows: (c) Impairment • Office equipment, 5 years (20% straight line) The Group assesses on a forward-looking basis, Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 The share premium reserve represents the date and the amounts reported for income and excess over the nominal value of the fair value of expenditure during the year. However, the nature of consideration received for equity shares, net of estimation means that actual outcomes could differ expenses on the share issue. from those estimates. The Group’s only assets/ The capital redemption reserve records the nominal sources of estimation uncertainty are the Group’s value of shares repurchased by the Company. intangible assets. The assessment of useful life of liabilities that are significantly impacted by key data purchases required estimation over the period the expected credit losses associated with its Distributions to equity holders in which that data will be utilised. Depreciation methods, useful lives and residual debt instruments carried at amortised cost. For values are reviewed if there is an indication of a trade receivables the Group applies the simplified significant change since the last annual reporting approach permitted by IFRS9, which requires date in the pattern by which the Group expects to expected lifetime losses to be recognised from consume an asset’s future economic benefits. the initial recognition of the receivables. For other Lease liabilities Payments associated with short-term leases of receivables the Group applies the three stage model to determine expected credit losses. equipment and vehicles and all leases of low-value Financial liabilities assets are recognised on a straight-line basis as Financial liabilities comprise trade and other an expense in profit or loss. Short-term leases payables and borrowings due within one year and are leases with a lease term of 12 months or less. after one year, which are recognised initially at fair Low-value assets comprise IT equipment and small value and subsequently carried at amortised cost items of office furniture. using the effective interest method. The Group Financial assets (a) Classification does not use derivative financial instruments or hedge account for any transactions. Trade payables represent obligations to pay for goods or services The Group classifies its financial assets in the that have been acquired in the ordinary course following measurement categories: of business from suppliers. Trade payables are Dividends and other distributions to Company’s shareholders are recognised as a liability in the Estimates and judgements are continually financial statements in the period in which the evaluated and are based on historical experience dividends and other distributions are approved by and other factors, including expectations of future the Company’s shareholders. These amounts are events that are believed to be reasonable under the recognised in the statement of changes in equity. circumstances. Related party transactions 4. Revenue The Group discloses transactions with related parties which are not wholly owned within the same (a) Operating segments group. Where appropriate, transactions of a similar The Group currently operates under one reporting nature are aggregated unless, in the opinion of segment but revenue is analysed under two the directors, separate disclosure is necessary to separate revenue streams. understand the effect of the transactions on the Group financial statements. Revenue represents the amounts derived from 3. Judgements in applying accounting policies Group’s ordinary activities, stated net of value and key sources of estimation uncertainty added tax. Revenue is principally generated from The preparation of the financial statements requires implementation services and data. the provision of services which fall within the classified as current liabilities if payment is due management to make judgements, estimates and • Those to be measured at amortised costs within one year. If not, they are presented as non- • Those to be measured subsequently at fair current liabilities. value (either through Other Comprehensive Income of through profit and loss) The Group had issued convertible loan notes to employees, which include a conversion feature on The classification depends on the Group’s business change of control or IPO. This conversion feature is model for managing the financial assets and the treated as an equity settled share based payment contractual terms of the cash flows. The Group that vest immediately as there are no future service reclassifies its financial assets when and only when conditions, with the fair value being assessed on its business model for managing those assets the date the convertible loan notes were issued. changes. The underlying loan proceeds were recognised initially at fair value and subsequently carried at (b) Recognition and measurement amortised cost. At initial recognition, the group measures a financial asset at its fair value plus transaction costs that Cash and cash equivalents are directly attributable to the acquisition of the Cash and cash equivalents includes cash in hand, financial asset. deposits held on call with banks, other short term highly liquid investments with original maturities of Subsequent measurement of financial assets three months or less and bank overdrafts. depends on the Group’s business model for managing those financial assets and the cash flow Equity characteristics of those financial assets. The Group Ordinary shares are classified as equity. only has financial assets classified at amortised Incremental costs directly attributable for the issue cost. These assets are those held for contractual of new shares are shown in equity as a deduction collection of cash flows, where those cash flows from the proceeds. assumptions that affect the amounts reported The following tables present revenue of the Group for assets and liabilities as at the balance sheet for the years ended 31 December 2019 and 2018. (a) Revenue stream Implementation services Data (b) Geographical area USA UK Europe Asia and the Rest of the World 2019 £3,707,157 £9,734,964 2018 £2,312,035 £8,061,145 £13,442,121 £10,373,180 2019 2018 £5,631,503 £4,906,514 £744,157 £5,030,932 £2,035,529 £102,501 £4,373,526 £990,639 £13,442,121 £10,373,180 In 2019 two customers each had sales which In 2018 three customers each had sales which exceeded 10% of total revenue with the largest exceeded 10% of total revenue with the largest customer accounting for £1,594,904 (11.9%) and customer accounting for £1,116,746 (10.8%) of the second accounting for £1,557,006 (11.6%) of revenue; the second accounting for £1,083,603 revenue. (10.4%) of revenue and the third accounting for £1,080,647 (10.4%) of revenue. 64 65 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 5. Operating profit is stated after charging Employee benefit costs Wages and salaries Social security costs Pension costs Benefits Share based payments 2019 2018 £7,907,471 £5,115,514 £743,596 £248,059 £165,438 £24,394 £502,697 £231,420 £75,624 £405,920 Capitalised development costs (£2,160,365) (£590,815) Amortisation of intangible fixed assets Depreciation of tangible fixed assets Subcontractor costs Travel costs Legal and professional Loss/(profit) on foreign exchanges £6,928,593 £5,740,360 £246,426 £38,433 £684,153 £1,157,950 £815,301 £198,148 £80,588 £37,092 £664,967 £588,416 £694,849 (£69,004) Other expenses £1,450,615 £1,564,081 £4,591,026 £3,350,989 Total cost of sales and administrative expenses £11,519,619 £9,091,349 6. Auditor’s remuneration Included within administrative expenses 2019 2018 (legal and professional) Audit of parent and subsidiary financial information Other assurance related services Included within exceptional items Fees in respect of IPO services Fees relating to restructuring services Fees relating to tax services Fees relating to legal services Included within equity: Fees in respect of IPO services £68,100 £9,750 £80,000 £65,000 £68,500 £57,855 £80,000 £25,000 – £80,000 – – – – £429,205 £105,000 for the year ended 31 December 2019 7. Staff numbers The average monthly number of employees, excluding directors, during the year was made up as follows: Administration Technical Business development Finance 8. Directors emoluments Directors Aggregate emoluments Pension contributions Highest paid director Aggregate emoluments Pension contributions Key senior management Aggregate emoluments Pension contributions Share based payments 2019 2018 25 55 6 5 91 24 34 2 5 65 2019 2018 £834,349 £320,223 £36,569 £16,535 £870,918 £336,758 £265,242 £18,699 £141,601 £12,833 £283,941 £154,434 £1,346,260 £629,673 £64,139 £1,064 £43,893 £265,502 £1,411,463 £939,068 66 67 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 9. Share based payments (i) Employee share scheme in shares at the end of three years to the extent that performance criteria are met. Prior to the Admission, the Company had various classes of shares (B, C, D, E, F) in existence that Granted awards under the Company’s ESOP that were held by employees and which were accounted were outstanding at 31 December 2019 had a for as share based payments as the individuals market value of £165,879 based on the prices had received those shares by virtue of their at the date of award to the employee. This price employment. The total numbers of shares held by ranged from £0.85 to £0.88, being on the closing employees in these share classes at 31 December price on the day of grant. The market value of 2018 was B: 6,200, C: 205, D: 2,057, E: 9,960 and the awards will be recognised over the three year F: 5,000. These shares were treated as equity vesting period from 1 July 2019, with £24,394 settled and a fair value was calculated at grant date being charged through the profit and loss account based on the fair value (using an earnings multiple in 2019 (2018: £Nil). It is intended the obligation approach) of the Company’s shares at that date. arising with the above shares will be met within This fair value has been charged to the profit and the existing employee benefit trust. loss account when the shares were granted. As outlined in Note 26 the various classes of shares The option will only be exercisable provided were all converted to ordinary shares as part of the the employee has received no more than two share restructuring prior to admission to the AIM ‘unsatisfactory’ individual performance ratings in Market on the London Stock Exchange. all of their individual performance reviews in the three year period from the date of grant. The total expense recognised in the profit and loss account and credited through the profit and loss 10. Other operating income account reserve, was £Nil (2018: £290,520). (ii) Convertible loan notes On 15 October 2018, the Company issued 2019 2018 Government grants £8,532 £1,564 £453,543 of unsecured convertible loan notes Research and £157,000 £122,533 to the Group’s employees which converted into developments credits Ordinary Shares in the Company immediately prior to Admission. £165,532 £124,097 The conversion price of these loan notes was set at 11. Exceptional items Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 13. Finance costs External loans £179,256 £251,347 Revolving credit facilities £39,712 £27,214 2019 2018 Change in fair value of embedded derivatives (convertible loan notes) Directors’ loans £23,325 £3,432 £22,088 £23,015 £245,725 £323,664 14. Income tax expense (a) Tax on profit Current income tax 2019 2018 UK corporation tax on profits for the year – £149,797 Adjustments in respect of previous years (£160,646) (£5,040) (£160,646) £144,757 Foreign tax ROI corporation tax on profits for the year US corporation tax on profits for the year £234,709 £59,636 £49,259 £1,502 2019 2018 Adjustments in respect of previous years (£41,368) (£14,624) a 25% discount to the placing price on the listing. This conversion feature had been treated as an equity settled share based payment with the fair value being assessed on the date the convertible loan notes were issued based on the fair value (using an earnings multiple approach) of the Company’s shares as at the date of issue. These loan notes issued were deemed to vest immediately as there are no future service conditions to be met. The total fair value, calculated at £Nil (2018: £115,400), has been charged in the profit and loss account and credited through the profit and loss account reserve. IPO related costs £1,347,613 £205,000 The Group incurred costs of £2,596,887 of transaction costs and other IPO related costs as a result of the application made to the London Stock Exchange for all the issued and to be issued Ordinary share capital to be admitted to trading on AIM. £1,347,613 (2018: £205,000) has been included within operating profit and £1,044,274 (2018: £Nil) was offset against the Share Premium account in accordance with IAS 32 ‘Financial Instruments’. (iii) Employee share option plan 12. Finance income The Company currently has an Employee Share Option Plan (‘ESOP’) for employees. In June 2019, 197,400 options were granted to certain employees to satisfy contractual obligations. These options, which have an exercise price of £0.002, are payable 2019 2018 Bank interest received £2,628 – and receivable Total current tax £92,331 £180,894 £252,977 £36,137 Deferred tax Origination and reversal of temporary differences (£60,222) £76,726 Adjustments in respect of previous years Total deferred tax £67,334 (£7,112) (£12,663) £64,063 Total tax charge £99,443 £244,957 68 69 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 (b) Factors affecting the tax charge for the year The tax assessed for the year differs from the effective standard rate of corporation tax in the UK of 19.00% (2018: 19.00%). The differences are reconciled below: Profit before tax Tax using the UK corporation tax rate of 19.00% (2018: 19.00%). Effects of: Tax rates in foreign jurisdictions Non-deductible expenses Share based payments Non-taxable income Impact of change in tax rates Research and development* Deferred tax not recognised Adjustments in respect of previous years Total tax charge 2019 £497,324 £94,491 (£5,490) £140,366 (£11,617) 2018 £877,264 £166,680 (£31,674) £143,741 – – (£6,151) £41,959 (£27,139) £1,553 (£134,680) £99,443 – – £4,688 (£32,327) £244,957 for the year ended 31 December 2019 15. Earnings per share Basic earnings per share are calculated based on Adjusted earnings per share are calculated based the profit for the financial year attributable to equity on the Profit for the financial year adjusted for holders divided by the weighted average number exceptional items as disclosed in Note 11. Diluted of shares in issue during the year. The weighted earnings per share is calculated on the basic average number of shares for all periods presented earnings per share adjusted to allow for the issue of has been adjusted for the above reorganisation ordinary shares on the assumed conversion of the and bonus issue of shares undertaken on 13 March convertible loan notes and employee share options. 2019 prior to the admission of the company to the AIM market of the London Stock Exchange. Profit attributable to shareholders Profit for the financial year Exceptional costs Tax impact of exceptional costs Adjusted profit for the financial year Weighted average number of shares to shareholders 2019 2018 £397,881 £1,347,613 (£171,166) £1,574,328 £632,307 £205,000 – £837,307 Number Number Shares in issue at the end of the year 69,583,077 20,762 Weighted average number of shares in issue 64,069,906 44,898,142 Weighted average number of treasury shares (49) (685) * Relates to research and development tax credits arising in a subsidiary undertaking, which claims Weighted average number of shares for basic and 64,069,857 44,897,457 under the small and medium entity tax legislation in the UK. (c) Deferred tax 2019 2018 earnings per share adjusted earnings per share Effect of dilution of Convertible Loan Notes Effect of dilution of Share Options 1,773 97,650 713 – Weighted average number of shares for diluted 64,169,280 44,898,170 Deferred tax asset Tax losses carried forward Other temporary differences Balance at 1 January Charged to the profit and loss account Balance at 31 December £577,946 (£522,209) £55,737 £62,849 (£7,112) £55,737 £56,346 £6,503 £62,849 £126,912 (£64,063) £62,849 The deferred tax asset includes amounts receivable after more than one year amounting to £Nil (2018: £Nil). Tax losses carried forward amount to £3,399,680 within Diaceutics PLC and Diaceutics Pte Limited (Singapore subsidiary). Due to the uncertainty of the recoverability of the tax losses, within a subsidiary, a potential deferred tax asset of £66,348 (2018: £61,582) has not been recognised. Deferred tax assets and liabilities have otherwise been recognised as they arise. 70 Earnings per share Pence Pence Basic Diluted Adjusted Diluted adjusted 16. Dividends 0.62 0.62 2.46 2.45 1.41 1.41 1.86 1.86 2019 2018 Equity dividends on ordinary shares (per share) Dividends on A shares: £Nil (2018: £8.37) Dividends on F shares: £Nil (2018: £50.00) No dividends were proposed by the directors after the balance sheet date. – – – £100,216 £200,000 £300,216 71 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 17. Intangible assets for the year ended 31 December 2019 18. Property, plant and equipment Patents and Datasets Development Software Total trademarks expenditure Cost At 1 January 2018 £963,348 £278,319 £205,783 Foreign exchange £15,235 – – translation Additions £38,880 £157,962 £606,578 At 31 December 2018 £1,017,463 £436,281 £812,361 Foreign exchange (£51,739) (£950) (£26,295) – – – – – £1,447,450 £15,235 £803,420 £2,266,105 (£78,984) translation Additions £88,871 £850,657 £1,674,841 £209,778 £2,824,147 At 31 December 2019 £1,054,595 £1,285,988 £2,460,907 £209,778 £5,011,268 Amortisation At 1 January 2018 £944,417 £16,095 Foreign exchange £14,392 – translation Charge for the year £16,465 £64,123 At 31 December 2018 £975,274 £80,218 Foreign exchange (£50,986) (£475) – – – – – – – – – – £960,512 £14,392 £80,588 £1,055,492 (£51,461) Charge for the year £52,588 £113,062 £77,765 £3,011 £246,426 At 31 December 2019 £976,876 £192,805 £77,765 £3,011 £1,250,457 Net book value At 31 December 2019 £77,719 £1,093,183 £2,383,142 £206,767 £3,760,811 At 31 December 2018 £42,189 £356,063 £812,361 – £1,210,613 Intangible assets relate to patents, trademarks, software and datasets which are recorded at cost and amortised over their useful economic life which has been assessed as 2 to 5 years. Development expenditure relates to an asset under construction and as such no amortisation has been applied. Amortisation will apply when the asset is commercialised. The recoverable value of intangible assets is measured using discounted cash flow forecasts and the valuation model at 31 December 2019 indicated no impairment on these assets. 72 Cost At I January 2018 Foreign exchange translation Additions At 31 December 2018 Foreign exchange translation Additions At 31 December 2019 Depreciation At 1 January 2018 Foreign exchange translation Charge for the year At 31 December 2018 Foreign exchange translation Charge for the year At 31 December 2019 Net book value At 31 December 2019 At 31 December 2018 Office equipment £99,080 £735 £61,211 £161,026 (£1,983) £99,016 £258,059 £49,690 £250 £37,092 £87,032 (£1,010) £38,433 £124,455 £133,604 £73,994 73 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 19. Investments Group undertakings Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 Included within trade receivables are contract assets of £796,455 (2018: £289,385). The Group’s contracts with customers are typically less than one year in duration and any contract assets as at the balance sheet date would be expected to be invoiced and received in the following year. The following were subsidiaries of the Company at 31 December 2019: The carrying amount of trade and other receivables are denominated in the following currencies: Country of Percentage of incorporation shares held Diaceutics Ireland Limited Republic of Ireland Labceutics Limited Diaceutics Inc Diaceutics Pte Limited Northern Ireland USA Singapore 100% 100% 100% 100% The principal business of all the subsidiary undertakings is data and implementation services. All entities were incorporated before 1 January 2018, with the exception of Diaceutics Pte Limited which was incorporated during the year ended 31 December 2018. UK Sterling Euro US Dollar Swiss Franc 2019 2018 £496,225 £276,931 £475,598 £376,097 £5,306,830 £3,736,244 £356,240 – £6,634,893 £4,389,272 The maximum exposure to credit risk is the carrying value of each class of receivables. The Group does not hold any collateral as security. 20. Trade and other receivables 21. Trade and other payables Trade receivables Other receivables Prepayments 2019 2018 6,134,029 4,082,099 171,205 329,659 221,954 85,219 6,634,893 4,389,272 Trade receivables are non-interest bearing and are generally on 60 day terms and are shown net of a provision for impairment. The amount of the provision netted against the trade receivables balance was £19,666 (2018: £24,537). The default percentage used in the expected credit loss calculation was 0.16% (2018: 0.19%) for debt up to 30 days old; 0.20% (2018:0.21%) for debt between 31 and 60 days old; 0.31% (2018:0.32%) for debt between 61 and 90 days old; 0.84% (2018:0.65%) for debt between 91 and 180 days old and 8.09% (2018: 4.67%) for debt over 180 days old. Bad debts amounting to £Nil (2018: £Nil) were realised. Other receivables are considered to have low credit risk and the loss allowance recognised during the year was therefore limited to 12 months expected credit losses. The amounts were not material. The age profile of the trade receivables are as follows: Total 0–30 days 31–60 days 61–90 days >90 days 6,134,029 4,142,910 1,179,112 613,599 198,408 4,082,099 1,808,893 1,331,938 559,207 382,061 2019 2018 74 Creditors: falling due within one year Trade payables Accruals 2019 2018 £290,764 £223,788 £1,265,567 £688,295 Other tax and social security £187,883 £59,291 Contract liabilities £387,235 £219,752 £2,131,449 £1,191,126 Creditors: falling due after more than one year Deferred income – £180,862 Included with creditors falling due after more than one year is a grant relating to development projects. Contract liabilities of £387,235 (2018: £219,752) which arise in respect of amounts invoiced during the period for which revenue recognition criteria have not been met by the year end. The Group’s contracts with customers are typically less than one year in duration and any contract liabilities would be expected to be recognised as revenue in the following year. 75 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 22. Financial liabilities Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 The following table shows the changes in liabilities arising from financing activities: 2019 2018 2019 2018 Creditors: falling due within one year External loans Fair value of embedded derivatives Directors’ loans Revolving credit facilities – – – – £381,423 £34,093 £86,008 £1,751,640 Convertible loan notes £107,500 £462,645 £107,500 £2,715,809 Creditors: falling due after more than one year External loans Directors’ loans 23. Interest bearing loans and borrowings External loans (a) Director’s loans (b) Revolving credit facilities (c) – – – £806,334 £259,141 £1,065,475 2019 2018 – – – £1,187,757 £345,149 £1,751,640 Convertible loan notes (d) £107,500 £462,645 £107,500 £3,747,191 The fair value of the Group’s loans and borrowings is £107,500 (2018: £3,761,472). The fair value of current borrowings equals their carrying amounts as the impact of discounting is not significant. The 2018 fair values are based on cash flows discounted using a rate, within the level 2 hierarchy, based on the borrowing rate of 8%. Balance at 1 January £3,747,191 £2,086,800 Repayment of borrowings (£3,450,976) (£554,439) Draw down of funds £105,968 £1,751,640 Issuance of convertible loan notes £850,066 £452,568 Conversion of convertible loan notes (£1,225,222) Interest on convertible loan notes Foreign exchange losses (£23,325) £103,798 – £10,077 £545 Balance at 31 December £107,500 £3,747,191 The interest on convertible loan notes and foreign exchange losses are non-cash items. (a) External loans (d) Convertible loan notes In 2018 external loans comprised four facilities all On 15 October 2018, the Company issued denominated in sterling. These loans were fully £453,543 of unsecured convertible loan notes repaid in 2019 from the funds raised from the (‘Loan Notes’) and on 15 February 2019, the Company’s listing on the London Stock Exchange. Company issued a further £850,000 of Loan Notes. (b) Director’s loans £1,203,543 of the Loan Notes were converted into Ordinary Shares in the Company immediately prior At 31 December 2018 there were two director’s to Admission. loans, both of which were unsecured. These loans were fully repaid during the year ended 31 £100,000 of the Loan Notes issued on 15 February December 2019. 2019 remain in place (10% interest rate paid annually from 1 April 2019). These loan notes can (c) Revolving credit facility be converted into Ordinary Shares in the Company In 2018 the Group entered into a revolving credit on or after 31 March 2022. facility with Silicon Valley Bank who provided a credit facility for £2,500,000. This facility is In line with IFRS 9, Financial Instruments, the total available to be drawn in US dollars, Sterling or Euro finance cost of the convertible loan notes is spread and was unused at 31 December 2019. The Group over the maturity period using an effective interest currently has credit approval for £4,000,000 facility rate. Consequently, an interest charge of £23,325 and expects to complete during H1 2020. (2018: £22,088) has been recognised in the profit and loss account using an effective rate of 8.9%. 76 77 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 24. Financial instruments (a) Classification of financial instruments The principal financial instruments used by the Group from which financial instrument risk arises are trade receivables, cash and cash equivalents and trade and other payables, loans, the revolving credit facility and convertible loan notes. The impact of the discounting of financial instruments is not material. The Group’s financial instruments are classified as follows: Measured at amortised cost 2019 2018 Assets Trade receivables Other receivables £6,134,029 £4,082,099 £171,205 £221,954 Cash at bank and in hand £11,720,223 £2,073,661 Other financial liabilities at amortised cost Liabilities Trade payables Accruals External and Director’s loans Revolving credit facilities Convertible loan notes £290,764 £1,265,567 – – £223,788 £688,295 £1,532,906 £1,751,640 £107,500 £462,645 The only financial liabilities held at fair value through profit and loss are the embedded derivatives which have a fair value of £Nil (2018: £34,093). (b) Capital structure and risk management General objectives, policies and processes – risk management Capital management The Group is exposed through its operations to The Group’s objectives when managing capital the following financial instrument risks: credit risk; are to safeguard its ability to continue as a liquidity risk and foreign currency risk. The Board going concern in order to provide returns for reviews each of these risks and agrees policies shareholders and benefits for other stakeholders, for managing them that seek to reduce risk as far to operate within the terms of the Group’s as possible without unduly affecting the Group’s revolving credit facility and to maintain an optimal competitiveness and flexibility. The policy for each capital structure to reduce the cost of capital. of the above risks is described in more detail below.  In order to maintain or adjust the capital structure, Credit risk the company may issue new shares or sell assets Credit risk is the risk that the counterparty to provide working capital. fails to discharge their obligation in respect Consistent with others in the industry at this stage recognised, creditworthy third parties. Receivable of development, the Group has relied on issuing balances are monitored on an on-going basis with new shares and cash generated from operations. the result that exposure to bad debts is normally of the instrument. The Group trades only with not significant. As the Group trades only with Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 recognised third parties there is no requirement If the exchange rate between sterling and the US for collateral. Other financial assets comprise of dollar had been 10% higher/lower at the reporting cash and cash equivalents which are therefore date, the effect on profit would have been subject to minimal credit risk. approximately (£120,000)/£147,000 respectively Liquidity risk (2018: £33,000). If the exchange rate between sterling and euro had been 10% higher/lower Liquidity risk arises from the Group’s at the reporting date the effect on profit would management of working capital and is the risk have been approximately (£195,000)/£239,000 that the Group will encounter difficulty in meeting respectively (2018: £10,000). If the exchange its financial obligations as they fall due. rate between sterling and the US dollar had been 10% higher/lower at the reporting Group policy is that funding is reviewed in line date, the effect on equity would have been with operational cash flow requirements and approximately (£374,000)/£457,000 respectively investment strategy. Repayment terms and (2018: £162,000). If the exchange rate between conditions are approved by the Board in advance sterling and euro had been 10% higher/lower at of acceptance of any facility. At each board the reporting date the effect on equity would meeting, and at the reporting date, the cash have been approximately (£195,000)/£238,000 flow projections are considered by the Board to respectively (2018: £36,000). confirm that the Group has sufficient funds and available funding facilities to meet its obligations Interest rate risk as they fall due. Cash flow interest risk arises from the Group’s external loans and revolving credit facilities, which The Group had a revolving credit facility for up to carry interest based on underlying base rates in £2,500,000. the UK, US and the EU. These loans were fully repaid in 2019 from the funds raised from the Foreign currency risk Company’s listing on the London Stock Exchange. Foreign currency risk is the risk that the fair value The revolving credit facility remains unused at of future cash flows of a financial instrument 31 December 2019. will fluctuate because of changes in foreign exchange rates. The Group seeks to transact the majority of its business in its reporting currency (£Sterling). However, many customers and suppliers are outside the UK and a proportion of these transact with the company in US dollars and euro. For this reason, the Group operates current bank accounts in US dollars and euro as well as in its reporting currency and has a revolving credit facility available which can be drawn in US dollars, pounds sterling or euro. To the maximum extent possible receipts and payments in a particular currency are made through the bank account in that currency to reduce the amount of funds translated to or from the reporting currency. Cash flow projections are used to plan for those occasion when funds will need to be translated into different currencies so that exchange rate risk is minimised. In addition, the Group has entered into a revolving credit facility which can be drawn in US dollars, pounds sterling or euro. 78 79 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 (c) Maturity The Group’s financial liabilities measured as a contractual undiscounted cash flow mature as follows: Less than one year and two years and five years Between one Between two As at 31 December 2019 Trade payables and other payables £1,556,331 As at 31 December 2018 Trade payables and other payables £912,083 £1,556,331 – – – – – – External loans £494,583 £395,249 £495,378 Fair value of embedded derivatives £34,093 – Director’s loans £86,008 £269,507 Revolving credit facilities £1,751,640 – – – – £3,278,407 £664,756 £495,378 At each year end there are no financial liabilities due after five years. 25. Share capital 2019 2018 Allotted, called up and fully paid 69,583,077 Ordinary shares of £0.002 each £139,166 Nil (2018: 6,000; 2016: 6,000) A class ordinary shares of £0.01 each Nil (2018: 5,200; 2016: 5,700) B class ordinary shares of £0.01 each Nil (2018: 205; 2016: 205) C class ordinary shares of £0.01 each Nil (2018: 2,057; 2016: 1,557) D class ordinary shares of £0.01 each Nil (2018 and 2016: 10,000) E class ordinary shares of £0.001 each Nil (2018 and 2016: 5,000) F class ordinary shares of £0.01 each Nil (2018 and 2016: 1,300) treasury shares of £0.01 each – – – – – – – – £60 £62 £2 £21 £10 £50 £3 £139,166 £208 Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 On 13 March 2019: On the listing of the Company on AIM, 22,368,427 new Ordinary shares were allotted and issued • The 300 D shares of £0.01 each and 40 E under a Placing Agreement with the Company’s shares of £0.001 each held in treasury were nomad, Cenkos Securities PLC. The issued share cancelled capital of the Company immediately following • The issued E share capital was consolidated so Admission and at 30 June 2019 was 69,583,077 that the 9,960 E shares of £0.001 each became Ordinary Shares of £0.02. 996 E shares of £0.01 each • 205,050 new A shares of £0.01 each were All Ordinary Shares rank pari passu in all respects allotted and issued to the existing shareholders including voting rights and the right to receive all of the Company at par value dividends and other distributions, if any, declared • All of the issued B shares of £0.01 each, C or made or paid in respect of Ordinary Shares. shares of £0.01 each, D shares of £0.01 each, E shares of £0.01 each and F shares of £0.01 each Reserves were converted into A shares of £0.01 each Share premium account: This reserve records the amount above the nominal value received for Following this consolidation of shares, the shares sold, less transaction costs. Company passed a resolution to re-designate all of the 225,516 issued A shares of £0.01 each as Capital redemption reserve: This reserve records 225,516 issued ordinary shares of £0.01 each. the nominal value of shares repurchased by the Company. The issued ordinary share capital of the Company was then sub-divided so that every 1 ordinary 26. Commitments and contingencies share of £0.01 each become 5 ordinary shares of There are no material capital commitments, £0.002 each (‘Ordinary Shares’). Following the sub- financial commitments or contingent liabilities at division, the Company had an issued share capital the balance sheet date not provided for in these of 1,127,580 Ordinary Shares of £0.002 each. financial statements. The Company then undertook a bonus issue 27. Related parties of Ordinary Shares based on 39 new Ordinary At 31 December 2019 directors were owed £Nil Shares for every one Ordinary Share held, such (2018: £350,149) by the Group. During the year new Ordinary Shares being fully paid out of share interest of £3,432 (2018: £23,015) was charged premium. As a result, 43,975,620 new Ordinary on these loans and repayments of £352,352 Shares were allotted at a price of £0.002 per (2018: £166,160) were made. Ordinary Share. Following the bonus issue, the Company had an issued share capital of During the year the Group was charged £20,800 45,103,200 Ordinary Shares. (2018: £100,000) by Blue Shark Limited, a related party through common directorship, in respect of On 15 March 2019, the Company allotted and IT expertise provided for development projects. issued 175,438 Ordinary Shares to a third party The provision of these services by Blue Shark investor at a price of £0.57 per share. Limited ceased when the Company listed. Immediately prior to the admission to the AIM During the year the Group was charged £9,225 Market on the London Stock Exchange on 21 (2018: £18,450) by PharmScape Limited, a related March 2019, the Company allotted and issued, party through common directorship, in respect of in aggregate, 1,936,012 Ordinary Shares on Consultancy services provided. The provision of conversion of £1,103,543 of the outstanding these services by PharmsScape Limited ceased Convertible Loan Notes. Thus. immediately prior when the Company listed. to admission to AIM, the issued and fully paid share capital of the Company was 47,214,650 Ordinary Shares. 80 81 Diaceutics Annual Report 2019Diaceutics Annual Report 2019During the year dividends amounting to £Nil (2018: £300,216) were paid to A and F shareholders of the Company. These shareholders are also directors or related parties of the Company. 28. Ultimate controlling party The Company is controlled by its shareholders. 29. Subsequent events The Group hosts a four-day Group meeting for all staff at least biennially to ensure that the Group’s corporate plans and goals are communicated and discussed. The next meeting was scheduled to take place in Tenerife at the start of March 2020. However, following the confirmation of the COVID-19 virus in Tenerife and other regions, the meeting was cancelled. Under IAS10, outbreak of COVID-19 is considered a non-adjusting post balance sheet event and so £125,097 is held as a Prepayment in the Group Balance Sheet in relation to non-refundable, committed spend at 31 December 2019. 82 83 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Company Financial Statements Company Balance Sheet as at 31 December 2019 Fixed assets Intangible assets Property, plant and equipment Deferred tax asset Investments Current assets Trade and other receivables Income tax receivable Cash at bank and in hand Total assets Equity and liabilities Equity share capital Share premium account Treasury shares Capital redemption reserve Profit and loss account – including loss for the year of (£1,160,260) (2018: £122,636) Notes 2019 2018 4 5 6 7 8 9 £1,903,125 £623,766 £117,370 £347,165 £57,612 £57,974 – £969 £2,425,272 £682,709 £6,528,309 £3,940,423 £292,893 £21,871 £9,705,586 £870,994 £16,526,788 £4,833,288 £18,952,060 £5,515,997 13 £139,166 £17,335,407 – – £208 £99,994 (3) £108,850 £5,021 £1,140,887 Total equity £17,479,594 £1,349,936 Non-current liabilities Trade and other payables Financial liabilities Current liabilities Trade and other payables Financial liabilities Total liabilities 10 11 10 11 – – – £180,862 £806,334 £987,196 £1,364,966 £1,409,604 £107,500 £1,769,261 £1,472,466 £3,178,865 £1,472,466 £4,166,061 Total equity and liabilities £18,952,060 £5,515,997 The financial statements were approved and authorised for issue by the board and were signed on its behalf on 15 March 2020. The notes on pages 90-101 form an integral part of these financial statements. Mr P White Director 15 March 2020 87 86 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Called up share capital Share premium account Treasury shares* Capital redemption reserve Profit and loss account Total equity £208 £99,994 (13) £108,850 £1,157,829 £1,366,868 Company Statement of Changes in Equity At 1 January 2018 Loss for the year Other comprehensive income Total comprehensive expense for the year Transactions with owners, recorded directly in equity Issue of shares from treasury Share based payments Equity dividends paid Total transactions with owners – – – – – – – – – – – – – – At 31 December 2018 £208 £99,994 Loss for the year Total comprehensive expense for the year Transactions with owners, recorded directly in equity Cancellation of Treasury shares Reorganisation of shares Bonus issue of shares Conversion of loan notes Share based payment – – (3) £2,050 £87,951 £4,223 – – – – (£2,050) (£87,951) £1,225,222 – Issue of shares on Placing £44,737 £16,100,192 Total transactions with owners £138,958 £17,235,413 At 31 December 2019 £139,166 £17,335,407 * Treasury shares are presented separately in order to show the movements on these shares in each year. The balance as at each year end is deducted from retained earnings in calculating distributable profits. – – – 10 – – 10 (3) – – 3 – – – – – 3 – – – – – – – – (£122,636) (£122,636) – – (£122,636) (£122,636) (10) – £405,920 £405,920 (£300,216) (£300,216) £105,694 £105,704 £108,850 £1,140,887 £1,349,936 – – – – – – - (£1,160,260) (£1,160,260) (£1,160,260) (£1,160,260) – – – – £24,394 – – – £1,229,445 (£108,850) – £16,036,079 (£108,850) £24,394 £17,265,524 – £5,021 £17,479,594 88 89 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements for the year ended 31 December 2019 1. General information 2. Accounting policies Diaceutics PLC is incorporated and domiciled in Revenue recognition Northern Ireland. These financial statements were Revenue comprises the fair value of the prepared in accordance with Financial Reporting consideration received or receivable for the Standard 101 Reduced Disclosure Framework provision of services in the ordinary course of the (FRS 101). The Company’s financial statements are Company’s activities. Revenue is shown net of presented in Sterling. value-added tax and after eliminating sales within Parent company profit and loss account the Company. The directors’ have taken advantage of the The Company has two revenue streams, exemption available under Section 408 of the Implementation services and Data. The Company’s Companies Act 2006 and have not presented an performance obligations for both revenue streams income statement for the company alone. are deemed to be the provision of specific The results of Diaceutics PLC are included in the customer is allocated to the various performance consolidated financial statements of Diaceutics obligations, based on the relative fair value of those PLC which are available from 55–59 Adelaide obligations, and is then recognised as follows: deliverables to the customer. Revenue billed to the Street, Belfast. Basis of preparation • Where a contractual right to receive payment exists, revenue is recognised as over the period The accounts are prepared under the historical services are provided using the percentage of cost convention, and in accordance with Financial completion method, based on the input method Reporting Standard 101 Reduced Disclosure using time spent Framework. There were no material amendments • Where no contractual right to receive payment on the adoption of FRS 101. exists, revenue is recognised upon completion Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 are retranslated to the functional currency at the • Patents and trademarks, 3 years (33.3% foreign exchange rate ruling at that date. Non- straight line) from the date of registration monetary assets and liabilities that are measured • Datasets, 2 years (50% straight line) in terms of historical cost in a foreign currency • Software, 5 years (20% straight line) are translated using the exchange rate at the date of the transaction. Foreign exchange differences The Company reviews the amortisation period and arising on translation are recognised in the profit method when events and circumstances indicate and loss account. that the useful life may have changed since the last reporting date. Investments Investments in subsidiaries are held at historical Property, plant and equipment cost less any provisions for impairment in value. Property, plant and equipment is stated at cost The carrying values of investments are reviewed less accumulated depreciation and accumulated for impairment when events or changes in impairment losses. circumstances indicate the carrying value may not be recoverable. Intangible assets The Company assesses at each reporting date whether there are indicators of impairment. Research and development Depreciation is charged to the profit and loss Expenditure on research activities is recognised account on a straight-line basis over the estimated in the profit and loss account as an expense useful lives of each part of an item of tangible as incurred. fixed assets. The estimated useful lives are Expenditure on development activities is capitalised as follows: if the product or process is technically and • Office equipment, 5 years (20% straight line) of each separate performance obligation, commercially feasible and the Company intends and The accounting policies which follow set out those which is typically when implementation policies which apply in preparing the financial services are complete or data has been statements for the year ended 31 December provided to the customer 2019. The Company has taken advantage of the following disclosure exemptions under FRS 101: Government grants Grants, which include research and development • the requirements of paragraphs 45(b) and tax credits where the recovery of those credits 46–52 of IFRS 2 Share Based Payments is not restricted, are recognised at their fair • the requirements of paragraphs 10(d), 10(f), 16, value where there is a reasonable assurance 38(a)–(d), 39(c), 40(a)–(d), 111 and 134–136 of that the grant will be received and the Company IAS 1 Presentation of Financial Statements will comply with all attached conditions. Grants • the requirements of IAS 7 Statement of Cash relating to costs are deferred and recognised Flows in the profit and loss account over the period • the requirements of paragraphs 30 and 31 necessary to match them with the costs that they of IAS 8 Accounting Policies, Changes in are intended to compensate. Grants relating to Accounting Estimates and Errors development projects are included in non-current • the requirements of paragraph 17 of IAS liabilities as deferred income and are credited to 24 Related Party Disclosures; and the the profit and loss account on a straight-line basis requirements in IAS 24 Related Party over the expected useful economic lives of the Disclosures to disclose related party related assets. transactions entered into between two or more members of a group, provided that any Foreign currencies subsidiary which is a party to the transaction is Transactions in foreign currencies are translated to wholly owned by such a member the Company’s functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date has the technical ability and sufficient resources to Depreciation methods, useful lives and residual complete development, future economic benefits values are reviewed if there is an indication of a are probable and if the Company can measure significant change since the last annual reporting reliably the expenditure attributable to the intangible date in the pattern by which the Company expects asset during its development. Development to consume an asset’s future economic benefits. activities involve design for, construction or testing of the production of new or substantially improved Taxation products or processes. The expenditure capitalised The tax expense for the year comprises current includes the cost of materials and direct labour. and deferred tax. Tax is recognised in the income Other development expenditure is recognised in the statement, except to the extent that it relates to profit and loss account as an expense as incurred. items recognised in other comprehensive income Capitalised development expenditure is stated at or directly in equity. In this case the tax is also cost until it is brought into use. recognised in other comprehensive income or Other intangible assets Other intangible assets that are acquired by the The current income tax charge is calculated Company are stated at cost less accumulated on the basis of the tax laws enacted or amortisation and less accumulated impairment substantively enacted at the balance sheet directly in equity respectively. losses. Amortisation date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions Amortisation is charged to the profit or loss on taken in tax returns with respect to situations a straight-line basis over the estimated useful in which applicable tax regulation is subject to lives of intangible assets. Intangible assets are interpretation. It establishes provisions where amortised from the date they are available for use. appropriate on the basis of amounts expected to The estimated useful lives are as follows: be paid to the tax authorities. (continued) 90 91 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 Deferred income tax is recognised, using the are issued a determination is made, based on the liability method, on temporary differences arising rights of those shares, as to whether there is a between the tax bases of assets and liabilities contractual liability for the Company to reacquire and their carrying amounts in the consolidated the shares at some point (cash settled) or not financial statements. However, the deferred (equity settled). For equity settled shares, a fair income tax is not accounted for if it arises from value of those shares is established at the date initial recognition of an asset or liability in a the shares are granted and, if the employee is transaction other than a business combination required to complete a period of service before that at the time of the transaction affects neither the shares vest, this fair value is spread over that accounting nor taxable profit or loss. Deferred period (vesting period). income tax is determined using tax rates and laws that have been enacted or substantially enacted Financial assets by the balance sheet date and are expected to apply when the related deferred income tax asset (a) Classification is realised or the deferred income tax liability The Company classifies its financial assets in the is settled. following measurement categories: Deferred income tax assets are recognised only • Those to be measured at amortised costs to the extent that it is probable that future taxable • Those to be measured subsequently at fair profit will be available against which the temporary value (either through Other Comprehensive differences can be utilised. Deferred income tax Income of through profit and loss) is provided on temporary differences arising on investments in subsidiaries and associates, except The classification depends on the Company’s where the timing of the reversal of the temporary business model for managing the financial assets difference is controlled by the group and it is and the contractual terms of the cash flows. The probable that the temporary difference will not Company reclassifies its financial assets when and reverse in the foreseeable future. only when its business model for managing those Deferred income tax assets and liabilities are assets changes. offset when there is a legally enforceable right (b) Recognition and measurement to offset current tax assets against current tax At initial recognition, the Company measures a liabilities and when the deferred income tax assets financial assets at its fair value plus transaction and liabilities relate to income taxes levied by costs that are directly attributable to the the same taxation authority on either the taxable acquisition of the financial asset. Subsequent entity of different taxable entities where there is measurement of financial assets depends on the an intention to settle the balances on a net basis. Company’s business model for managing those Employee benefits financial assets and the cash flow characteristics of those financial assets. The Company only has The Company operates a defined contribution financial assets classified at amortised cost. These pension scheme which is open to employees and assets are those held for contractual collection directors. The assets of the scheme are held by of cash flows, where those cash flows represent investment managers separately from those of solely payments of principal and interest and are the Company. The contributions payable to the held at amortised cost. Any gains or losses arising scheme is recorded in the profit and loss account on derecognition is recognised directly in profit in the accounting period to which they relate. or loss. Impairment losses are presented as a separate line in the profit and loss account. Share based payments The Company has a number of classes of (c) Impairment shares in issue. Where shares are issued to The Company assesses on a forward-looking employees that contain restrictions that mean basis, the expected credit losses associated with they have obtained those shares by virtue of its debt instruments carried at amortised cost. their employment, those shares are accounted For trade receivables the Company applies the for as share based payments. When the shares simplified approach permitted by IFRS9, which Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 requires expected lifetime losses to be recognised Distributions to equity holders from the initial recognition of the receivables. For Dividends and other distributions to Company’s other receivables the Company applies the three shareholders are recognised as a liability in the stage model to determine expected credit losses. financial statements in the period in which the Financial liabilities dividends and other distributions are approved by the Company’s shareholders. These amounts are Financial liabilities comprise trade and other recognised in the statement of changes in equity. payables and borrowings due within one year end after one year, which are recognised initially at fair 3. Judgements in applying accounting policies value and subsequently carried at amortised cost and key sources of estimation uncertainty using the effective interest method. The Company The preparation of the financial statements does not use derivative financial instruments requires management to make judgements, or hedge account for any transactions. Trade estimates and assumptions that affect the payables represent obligations to pay for goods or amounts reported for assets and liabilities as services that have been acquired in the ordinary at the balance sheet date and the amounts course of business from suppliers. Trade payables reported for income and expenditure during the are classified as current liabilities if payment is due year. However, the nature of estimation means within one year. If not, they are presented as non- that actual outcomes could differ from those current liabilities. estimates. The Company’s only assets/liabilities that are significantly impacted by key sources The Company had issued convertible loan notes of estimation uncertainty are the Company’s to employees, which include a conversion feature intangible assets. The assessment of useful life on change of control or IPO. This conversion of data purchases required estimation over the feature is treated as an equity settled share based period in which that data will be utilised. payment that vest immediately as there are no future service conditions, with the fair value being Estimates and judgements are continually assessed on the date the convertible loan notes evaluated and are based on historical experience are issued. The underlying loan proceeds were and other factors, including expectations of future recognised initially at fair value and subsequently events that are believed to be reasonable under carried at amortised cost. the circumstances. (continued) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held on call with banks, other short term highly liquid investments with original maturities of three months or less and bank overdrafts. Equity Ordinary shares are classified as equity. Incremental costs directly attributable for the issue of new shares are shown in equity as a deduction from the proceeds. The share premium reserve represents the excess over the nominal value of the fair value of consideration received for equity shares, net of expenses on the share issue. The capital redemption reserve records the nominal value of shares repurchased by the Company. 92 93 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 4. Intangible assets 5. Property, plant and equipment Patents and Datasets Development Software Total trademarks expenditure Cost At 1 January 2018 £45,304 £278,319 £205,783 Additions £38,880 £157,962 £12,104 At 31 December 2018 £84,184 £436,281 £217,887 – – – £529,406 £208,946 £738,352 Additions £27,433 £519,842 £731,404 £209,778 £1,488,457 At 31 December 2019 £111,617 £956,123 £949,291 £209,778 £2,226,809 Amortisation At 1 January 2018 £39,596 £16,095 Charge for the year £8,565 £50,330 At 31 December 2018 £48,161 £66,425 – – – – – – £55,691 £58,895 £114,586 Charge for the year £15,261 £113,062 £77,765 £3,010 £209,098 At 31 December 2019 £63,422 £179,487 £77,765 £3,010 £323,684 Net book value At 31 December 2019 £48,195 £776,636 £871,526 £206,768 £1,903,125 At 31 December 2018 £36,023 £369,856 £217,887 – £623,766 Intangible assets relate to patents, trademarks, software and datasets which are recorded at cost and amortised over their useful economic life which has been assessed as 2 to 5 years. Development expenditure relates to an asset under construction and as such no amortisation has been applied. Amortisation will apply when the asset is commercialised. Cost At I January 2018 Additions At 31 December 2018 Additions At 31 December 2019 Depreciation At 1 January 2018 Charge for the year At 31 December 2018 Charge for the year At 31 December 2019 Net book value At 31 December 2019 At 31 December 2018 Office equipment £79,097 £45,501 £124,598 £88,684 £213,282 £39,333 £27,291 £66,624 £29,288 £95,912 £117,370 £57,974 94 95 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 6. Deferred Tax asset 8. Trade and other receivables Tax losses carried forward amount to £3,047,921(2018: £Nil). The deferred tax asset includes amounts receivable after more than one year amounting to £Nil (2018: £Nil). Tax losses carried forward Other temporary differences Balance at 1 January Credited to the profit and loss account Balance at 31 December 7. Investments At 1 January 2018 Additions At 31 December 2018 Additions At 31 December 2019 2019 £518,147 (£170,982) £347,165 – £347,165 £347,165 2018 – – – – – – Investment in subsidiaries £912 £57 £969 £56,643 £57,612 The following were subsidiaries of the Company at 31 December 2019: Registered office incorporation shares held Country of Percentage of Diaceutics Ireland Limited Unit 3, Creative Spark, Republic of Ireland 100% Labceutics Limited Clontygora Ct, Muirhevnamon, Dundalk, County Louth 727 Antrim Road, Belfast, BT15 4EJ Northern Ireland Diaceutics Inc 2001 Route 46 US 100% 100% Waterview Plaza Suite 310, Parsippany, New Jersey, 07054 Diaceutics Pte Limited 6 Temesak Boulevard, Singapore 100% #20–00 Suntec Tower Four, Singapore All entities were incorporated before 1 January 2016, with the exception of Diaceutics Pte Limited which was incorporated during the year ended 31 December 2018. Trade receivables £2,240,683 £2,516,713 Amounts owed by group undertakings £3,819,555 £1,141,626 2019 2018 Other debtors Prepayments £175,041 £253,945 £293,030 £28,139 £6,528,309 £3,940,423 All amounts are due within one year. The default percentage used in the expected credit loss calculation was 0.16% (2018: 0.19%) for debt up to 30 days old; 0.20% (2018:0.21%) for debt between 31 and 60 days old; 0.31% (2018:0.32%) for debt between 61 and 90 days old; 0.84% (2018:0.65%) for debt between 91 and 180 days old and 8.09% (2018: 4.67%) for debt over 180 days old. Other receivables are considered to have low credit risk and the loss allowance recognised during the year was therefore limited to 12 months expected credit losses. Included within trade receivables are contract assets of £416,327 (2018: £289,385). The Company’s contracts with customers are typically less than one year in duration and any contract assets as at the balance sheet date would be expected to be invoiced and received in the following year. 9. Income Tax receivable Balance at 1 January 2019 £21,871 2018 £78,293 Credited/(charged) to the profit and loss account £271,022 (£56,422) Balance at 31 December £292,893 £21,871 The credit/(charge) to the profit and loss account relates to a credit on losses/profits for the year amounting to £114,022 (2018: charge of £178,955) plus credits relating to research and development tax credits amounting to £157,000 (2018: £122,533). 96 97 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 10. Trade and other payables 12. Interest bearing loans and borrowings Creditors: falling due within one year Trade payables £266,568 £117,038 2019 2018 External loans (a) Revolving credit facilities (b) 2019 2018 – – £1,187,757 £891,100 Amounts owed by group undertakings – £602,374 Convertible loan notes (c) £107,500 £462,645 Accruals Contract liabilities Other creditors £799,095 £576,377 £148,008 £38,462 £26,755 – Other tax and social security £124,540 £75,353 £107,500 £2,541,502 (a) External loans £1,103,543 of the Loan Notes were converted into In 2018 external loans comprised four facilities all Ordinary Shares in the Company immediately prior denominated in sterling. These loans were fully to Admission. repaid in 2019 from the funds raised from the £1,364,966 £1,409,604 Company’s listing on the London Stock Exchange. £100,000 of the Loan Notes issued on 15 February Creditors: amounts falling after more than one year Deferred income – £180,862 Contract liabilities of £148,008 (2018: £38,462) which arise in respect of amounts invoiced during the period for which revenue recognition criteria have not been met by the year end. The Company’s contracts with customers are typically less than one year in duration and any contract liabilities would be expected to be recognised as revenue in the following year. 11. Financial liabilities Creditors: falling due within one year External loans Fair value of embedded derivatives Revolving credit facilities 2019 2018 – – – £381,423 £34,093 £891,100 Convertible loan notes £107,500 £462,645 £107,500 £1,769,261 Creditors: falling due after more than one year External loans – £806,334 Refer to Note 12 for further detail. 98 (b) Revolving credit facility paid annually. These loan notes can be converted In 2018 the Company entered into a revolving into Ordinary Shares in the Company on or after 31 2019 remain in place. Interest is charged at 10% and credit facility with Silicon Valley Bank who provided March 2022. a credit facility for £2,500,000. This facility is available to be drawn in US dollars, pounds sterling Under IFRS 9, Financial Instruments, the total or euro. finance cost of the convertible loan notes is required to be spread over the maturity period (c) Convertible loan notes using an effective interest rate. Consequently, an On 15 October 2018, the Company issued interest charge of £23,325 (2018: £10,077) has £453,543 of unsecured convertible loan notes recognised in the profit and loss account using an (‘Loan Notes’) and on 15 February 2019, the effective rate of 8.9%. Company issued a further £750,000 of Loan Notes. 13. Share capital 2019 2018 Allotted, called up and fully paid 69,583,077 Ordinary shares of £0.002 each £139,166 Nil (2018: 6,000; 2016: 6,000) A class ordinary shares of £0.01 each Nil (2018: 5,200; 2016: 5,700) B class ordinary shares of £0.01 each Nil (2018: 205; 2016: 205) C class ordinary shares of £0.01 each Nil (2018: 2,057; 2016: 1,557) D class ordinary shares of £0.01 each Nil (2018 and 2016: 10,000) E class ordinary shares of £0.001 each Nil (2018 and 2016: 5,000) F class ordinary shares of £0.01 each Nil (2018 and 2016: 1,300) treasury shares of £0.01 each – – – – – – – – £60 £62 £2 £21 £10 £50 £3 £139,166 £208 99 Diaceutics Annual Report 2019Diaceutics Annual Report 2019 Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 On 13 March 2019: On the listing of the Company on AIM, 22,368,427 new Ordinary shares were allotted and issued • The 300 D shares of £0.01 each and under a Placing Agreement with the Company’s 40 E shares of £0.001 each held nomad, Cenkos Securities PLC. The issued in treasury were cancelled share capital of the Company immediately • The issued E share capital was consolidated following Admission and at 30 June 2019 so that the 9,960 E shares of £0.001 each was 69,583,077 Ordinary Shares of £0.02. became 996 E shares of £0.01 each • 205,050 new A shares of £0.01 each All Ordinary Shares rank pari passu in all respects were allotted and issued to the existing including voting rights and the right to receive all shareholders of the Company at par value dividends and other distributions, if any, declared • All of the issued B shares of £0.01 each, C or made or paid in respect of Ordinary Shares. shares of £0.01 each, D shares of £0.01 each, E shares of £0.01 each and F shares of £0.01 each Reserves were converted into A shares of £0.01 each Share premium account: This reserve records Notes to the Company Financial Statements (continued) for the year ended 31 December 2019 (ii) Convertible loan notes 14. Commitments and contingencies On 15 October 2018, the Company issued There are no material capital commitments, £453,543 of unsecured convertible loan financial commitments or contingent liabilities notes to the Group’s employees which at the balance sheet date not provided converted into Ordinary Shares in the for in these financial statements. Company immediately prior to Admission. 15. Related party transactions The conversion price of these loan notes was As outlined in note 1 the Company has taken set at a 25% discount to the placing price on advantage of the exemption in IAS 24 ‘Related the listing. This conversion feature has been Party Disclosures’ from disclosing transactions treated as an equity settled share based between two or more members of a group, payment with the fair value being assessed on provided that any subsidiary which is party the date the convertible loan notes are issued to the transaction is wholly owned by such a based on the fair value (using an earnings member. There were no other transactions which multiple approach) of the Company’s shares as fall to be disclosed under the terms of IAS 24. Following this consolidation of shares, the for shares sold, less transaction costs. Company passed a resolution to re-designate all of the 225,516 issued A shares of £0.01 each as Capital redemption reserve: This reserve 225,516 issued ordinary shares of £0.01 each. records the nominal value of shares were deemed to vest immediately as there During the year dividends amounting to £Nil (2018: are no future service conditions to be met. £300,216) were paid to A and F shareholders The total fair value, calculated at £Nil (2018: directors or related parties of the Company. of the Company. These shareholders are also the amount above the nominal value received at the date of issue. These loan notes issued repurchased by the Company. £115,400), has been charged in the profit The issued ordinary share capital of the Company was then sub-divided so that every 1 ordinary Dividends share of £0.01 each become 5 ordinary shares During the year dividends amounting to £Nil (2018: of £0.002 each (‘Ordinary Shares’). Following the £300,216) were paid. No dividends were proposed sub-division, the Company had an issued share by the directors after the balance sheet date. capital of 1,127,580 Ordinary Shares of £0.002 each. Share based payments The Company then undertook a bonus issue (i) Employee share scheme of Ordinary Shares based on 39 new Ordinary Prior to the Admission, the Company had various Shares for every one Ordinary Share held, classes of shares (B, C, D, E, F) in existence that such new Ordinary Shares being fully paid were held by employees and which were accounted out of share premium. As a result, 43,975,620 for as share based payments as the individuals new Ordinary Shares were allotted at a price had received those shares by virtue of their of £0.002 per Ordinary Share. Following the employment. The total numbers of shares held by bonus issue, the Company had an issued employees in these share classes at 31 December share capital of 45,103,200 Ordinary Shares. 2018 was B: 6,200, C: 205, D: 2,057, E: 9,960 and F: 5,000. These shares were treated as equity On 15 March 2019, the Company allotted and settled and a fair value was calculated at grant date issued 175,438 Ordinary Shares to a third based on the fair value (using an earnings multiple party investor at a price of £0.57 per share. approach) of the Company’s shares at that date. This fair value has been charged to the profit and Immediately prior to the admission to the AIM loss account when the shares were granted. As Market on the London Stock Exchange on 21 outlined in Note 11 the various classes of shares March 2019, the Company allotted and issued, were all converted to ordinary shares as part of in aggregate, 1,936,012 Ordinary Shares on the share restructuring prior to admission to the conversion of £1,103,543 of the outstanding AIM Market on the London Stock Exchange. Convertible Loan Notes. Thus, immediately prior to admission to AIM, the issued and The total expense recognised in the profit and fully paid share capital of the Company loss account and credited through the profit and was 47,214,650 Ordinary Shares. loss account reserve, was £Nil (2018: £290,520). and loss account and credited through 16. Subsequent events the profit and loss account reserve. The Company hosts a four-day Company meeting for all staff at least biennially to ensure (iii) Employee share option plan that the Group’s corporate plans and goals are The Company currently has an Employee communicated and discussed. The next meeting Share Option Plan (‘ESOP’) for employees. was scheduled to take place in Tenerife at the At the end of June 2019, 197,400 options start of March 2020. However, following the were granted to certain employees to satisfy confirmation of the COVID-19 virus in Tenerife contractual obligations. These options, which and other regions, the meeting was cancelled. have an exercise price of £0.002, are payable in shares at the end of three years to the Under IAS10, outbreak of COVID-19 is considered extent that performance criteria are met. a non-adjusting post balance sheet event and so £125,097 is held as a Prepayment in the Group Granted awards under the Company’s ESOP Balance Sheet in relation to non-refundable, that were outstanding at 31 December 2019 committed spend at 31 December 2019. had a market value of £165,879 based on the prices at the date of award to the employee. This price ranged from £0.85 to £0.88, being on the closing price on the day of grant. The market value of the awards will be recognised over the three year vesting period from 1 July 2019, with £24,394 being charged in the six months to 31 December 2019. The option will only be exercisable provided the employee has received no more than two ‘unsatisfactory’ individual performance ratings in all of their individual performance reviews in the three year period from the date of grant. 100 101 Diaceutics Annual Report 2019Diaceutics Annual Report 2019Better Testing, Better Treatment D i a c e u t i c s A n n u a l R e p o r t 2 0 1 9 Diaceutics Annual Report 2019 Registered Number: NI055207 Diaceutics_AnnualReport_Cover_Final_2.indd 1 Diaceutics_AnnualReport_Cover_Final_2.indd 1 16/04/2020 17:25 16/04/2020 17:25 

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