E D E N R E S E A R C H P L C A N N U A L R E P O R T 2 0 1 8 EDEN RESEARCH PLC ANNUAL REPORT 2018 Eden Research plc · Company Overview 2018 EDEN IS THE ONLY UK LISTED COMPANY FOCUSED ON BIOPESTICIDES FOR SUSTAINABLE AGRICULTURE. Globally, Eden is one of few biocontrol companies with proven products and regulatory authorisation in multiple countries. CROP PROTECTION ANIMAL HEALTH CONSUMER PRODUCTS Revenue £2.8m (2017: £1.9m) Upfront and milestone payments £1.2m (2017: £1.1m) Operating loss £0.5m (2017: loss £0.8m) Operating profit* £0.02m (2017: loss £0.6m) * before non-cash share based payment charge, amortisation and royalties refund I Product sales increased 112% £1.6m (2017: £0.8m) WE HAVE INTELLECTUAL PROPERTY AND EXPERTISE IN PLANT-DERIVED SUSTAINABLE CHEMISTRY, MICROENCAPSULATION AND FORMULATION TECHNOLOGIES. For more information see pages VIII to IX CONTENTS Company Overview At a Glance Our Vision Our Markets Our Products Our Business Model Our Strategy Annual Report and Financial Statements Chairman’s Report Chief Executive Officer’s Report Strategic Report Governance Corporate Governance Report Remuneration Report Audit Committee Report Report of the Directors Financial Statements Independent Auditor’s Report Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Company Information See our website for the latest information www.edenresearch.com II IV VI VIII X XII 02 04 10 12 23 26 28 30 34 35 36 37 38 63 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance II AT A GLANCE OUR BUSINESS Eden provides sustainable solutions for crop protection, animal health and consumer products. Eden’s products harness the biocidal efficacy of naturally occurring chemicals produced by plants as a part of their defence systems. These defence molecules are known as ‘terpenes’. Eden’s products are enhanced through the use of Eden’s encapsulation technology, Sustaine™, which can be used with a wide range of natural and synthetic active ingredients, including conventional pesticides, as well as biocides. Sustaine is derived from yeast cells that come from a widely- used industrial production process. Sustaine is used to load high concentrations of active ingredients into stable formulations to deliver the slow release of these ingredients for crop protection, animal health and consumer products. EDEN PROVIDES SUSTAINABLE SOLUTIONS FOR CROP PROTECTION, ANIMAL HEALTH AND CONSUMER PRODUCTS Eden Research plc · Company Overview 2018 III 10 new local distributorships in 2018 29 countries with pending registration applications 110 granted and pending patents 55 countries with IP protection £14m invested in IP & registrations 11 countries have granted product authorisation OUR GEOGRAPHIC FOOTPRINT Products sold in the top 3 wine producing countries Product authorisation granted in 11 countries Trials on-going in 6 continents Where we are now Product sales have commenced in key markets where we have authorisation to market and sell our first product, Mevalone. New partnerships and regulatory activity Eden has regulatory clearance for its first product in multiple countries with approval expected for its second product in 2019. OUR COMMERCIAL PARTNERS For more information See pages XII to XIII For more information See pages 4 to 6 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance IV Eden Research plc · Company Overview 2018 OUR VISION OUR VISION IS TO BE THE LEADER IN SUSTAINABLE BIOACTIVE PRODUCTS ENABLED OR ENHANCED BY OUR NOVEL ENCAPSULATION AND DELIVERY TECHNOLOGIES SIGNIFICANT MARKET POTENTIAL UNIQUE TECHNOLOGY Growing market for biopesticides and an increasingly rigorous regulatory environment that favours sustainable products with proven efficacy whilst large numbers of products based upon conventional chemistry are forced off the market in many countries Ability to compete with synthetic pesticides on performance, ease of use and cost Ownership of the patents behind the Sustaine™ encapsulation technology Significant investment in patent protection Scope to exploit the core technologies beyond existing markets and products Proven efficacy with strong commercial validation by farmers and our partners For more information See pages VI to VII For more information See page VIII V CLEAR COMMERCIAL PROGRESS SKILLED AND EXPERIENCED PROFESSIONALS TRAJECTORY OF FINANCIAL GROWTH Product sales continue to progress well with expansion into new markets Further strengthening of the Board and management team during the year Solid commercial pipeline Regulatory clearance for product sales across multiple countries with further applications pending Commercial and development collaborations with multiple industry leaders Significant investment in commercialisation by key partners Wealth of complementary experience in the agriculture, consumer products and animal health sectors globally Outsourcing of some specialist functions, such as development trials and certain regulatory expertise, maintaining a low overhead base Increased revenue generation from product sales Strategic investment from one of our commercial partners A strong balance sheet following the exercise of options on commercial rights by Sipcam Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance VI Eden Research plc · Company Overview 2018 OUR MARKETS SIGNIFICANT MARKET POTENTIAL BIO-NEMATICIDES ARE A RAPIDLY GROWING SEGMENT OF THE OVERALL NEMATICIDE MARKET WITH AN ESTIMATED SHARE OF 16% The dominant molluscicide approved for use in the EU is metaldehyde. The UK banned metaldehyde in late 2018. AHDB estimates that a lack of slug control products will cost UK agriculture £100m per year! The re-registration of copper-based products as fungicides was approved in the EU but a 33% reduction in use limit was imposed A GROWING GLOBAL MARKET The global biopesticides market is projected to be worth more than The biopesticides market is growing at a CAGR of approximately $8.8bn by 2022 17% per annum Animal health market value estimated to exceed $33bn by 2020 VII SIGNIFICANT MARKET OPPORTUNITIES HIGH DEMAND FOR SUSTAINABLE PRODUCTS THAT CAN COMPETE WITH CONVENTIONAL PRODUCTS ON EASE-OF-USE, EFFICACY, SAFETY, COST AND RELIABILITY • Ongoing pressure on the conventional pesticides market, which is subject to increased scrutiny and regulatory pressures contributing to significant disruption of the crop protection industry • Major product withdrawals across all segments of the conventional crop protection industry are having a significant impact on growers leaving them with lower yields and declining productivity • Increasing time and cost of bringing new conventional chemical products to market: 12 years and around $300 million • Significantly lower costs of bringing biopesticides to market – around $25–50 million • Significant barriers to entry • New EU rules have prohibited any substance identified as an Endocrine Disruptor from being used in plant protection products. The new rules will nonetheless have an impact upon the availability of several important insecticides and fungicides CROP PROTECTION MARKET CONVENTIONAL CROP PROTECTION PRODUCTS FACE MAJOR CHALLENGES SUCH AS: CONSUMER CONCERNS OVER FOOD SAFETY INCREASINGLY CHALLENGING REGULATORY REQUIREMENTS FARMERS SEEKING EFFECTIVE ALTERNATIVES Neonicotinoid insecticides were worth $3.1 billion globally but are now facing withdrawal in Europe and elsewhere Conventional crop protection products formulated with Sustaine and Eden’s active ingredients can help address many of these issues COMPANIES WHOSE PRODUCTS FIT THE ‘NEW REALITY’ AND ENABLE A MORE SUSTAINABLE AGRICULTURE WILL BENEFIT FROM THE DISRUPTION CAUSED BY STRICT REGULATION AND WILL BE THE NEW INDUSTRY LEADERS IN YEARS TO COME Eden’s proven addressable market today Tomorrow, Eden’s addressable market grows to more than The global crop protection market is valued at approx. $1.2bn $4bn not including Sustaine- related opportunities $58bn in 2017 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance VIII OUR PRODUCTS INDUSTRY APPLICATIONS We work globally through multi-national and local partnerships to develop and launch solutions for challenges facing three key industries. CROP PROTECTION ANIMAL HEALTH Foliar disease & insect control Shampoos CONSUMER PRODUCTS Head-lice treatments Open field & greenhouses Conditioners Deodorants Soil pests Skin disease control Odour neutralisers Post harvest shelf-life extension Odour controls Fragrances Flea & tick control Eden’s products serve as sustainable alternatives to conventional chemicals without limitations such as residue limits, disease and pest resistance, pre- harvest intervals, long field re-entry periods or increasing restrictions on use. WE HAVE DEVELOPED A NATURAL FORMULATION TECHNOLOGY, SUSTAINE™ Particles are derived from natural yeast cells. Sustaine encapsulates active ingredients and provides for the sustained release of these ingredients enabling their safe, more efficient use. UNIQUE TECHNOLOGY Active ingredient Encapsulated Payload Stabilised Aqueous Emulsion Payload release on contact with water As particle dries pores close and trap remaining active ingredient USEFUL ACROSS A WIDE RANGE OF ACTIVE INGREDIENTS COST EFFECTIVE VERSATILE AND ROBUST NATURAL AND SUSTAINABLE SIMPLY PROCESSED AND USED WITH STANDARD EQUIPMENT Eden Research plc · Company Overview 2018 IX OUR PRODUCT FOCUS Our focus is on crop protection, developing products based on sustainable chemistries to protect high-value crops from pests and disease, with equal or better performance when compared with conventional pesticides. Critically, our products are exempt from pesticide residue limits and can be used up to the point of harvest giving growers reduced risk, maximum flexibility and security. FUNGICIDES NEMATICIDES INSECTICIDES MOLLUSCICIDES Botrytis, powdery mildew, downy mildew PRODUCTS INCLUDE: Root knot nematodes Mites and white flies Slug and snail control Our products harness the biocidal activity of naturally occurring molecules produced by plants as part of their defence systems. These active ingredients are known as terpenes. Our biopesticides, formulated with Sustaine, add value compared to conventional pesticides by: Residue-free crops command a higher value and have a significant commercial advantage in the valuable export markets. Ownership of the patents behind the Sustaine encapsulation technology Significant investment in patent protection and the registration of new actives Enabling sustained delivery, increasing residual efficacy and reducing use rates Tackling resistance build-up Proven efficacy with strong commercial validation by farmers and our partners Protecting plants from potentially damaging chemicals Scope to exploit the core technologies beyond existing markets and products Allowing solvent-free, stable formulations with high loadings of active ingredients Naturally binding to plant and animal surfaces improving efficacy and retention Providing flexible formulation options Exemption from maximum residue levels Low or no pre-harvest intervals giving growers maximum flexibility, security and control Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance X OUR BUSINESS MODEL WHAT WE DO Eden provides sustainable solutions for crop protection, animal health and consumer products. HOW WE DO IT SECURING PATENT PROTECTION FOR INTELLECTUAL PROPERTY Our Sustaine™ encapsulation technology is patent protected throughout the world. DEVELOPING OUR PRODUCT PIPELINE We have a pipeline of products at differing stages of development targeting specific opportunities across our key markets. These include new fungicides, insecticides and bactericides as well as new solutions for animal health and consumer products. INVESTMENT IN RESEARCH AND DEVELOPMENT We are executing a significant research and development programme which will move forward multiple pipeline products towards commercialisation. GAINING REGULATORY APPROVAL We seek regulatory authorisation for our products on a country-by- country or regional basis, with approvals already granted in a number of European countries and Kenya. We are in the process of extending product registration into new territories. GENERATING REVENUE Revenue is generated through: Product sales Licence-based royalties Up-front or milestone payments from legacy agreements SIGNING COMMERCIAL AGREEMENTS We work with our sector- leading partners to commercialise products through a series of commercial production, marketing and distribution agreements. IDENTIFYING SUITABLE INDUSTRIAL PARTNERS We partner with global and regional industry leaders who have existing distribution channels, local experience and knowledge to maximise sales of our products. We also add value to our partners’ products using Sustaine to extend IP protection, ease regulatory burdens and enhance performance. Eden Research plc · Company Overview 2018 XI THE VALUE THIS CREATES EDEN IS LEVERAGING TWO TECHNOLOGY PLATFORMS IN ORDER TO PROVIDE SUSTAINABLE SOLUTIONS TO CHALLENGES IN CROP PROTECTION, ANIMAL HEALTH AND CONSUMER PRODUCTS. The company has built a strong portfolio of IP rights and know-how as well as a growing register of national product authorisations granting access to key markets globally for its customers and partners. Sustainability drives all that we do in the development of our products, business, partnerships and team. FOR CUSTOMERS We provide customers in the crop protection, animal health and consumer products sectors with sustainable, cost-efficient and effective alternatives to conventional products FOR SHAREHOLDERS We are well funded and positioned to deliver long-term shareholder value through further commercialisation and sales of our products FOR PARTNERS We give our partners market access to sustainable, efficient and effective alternatives to conventional chemical products FOR THE ENVIRONMENT We use natural chemistries to create environmentally friendly products which support sustainable agriculture FOR EMPLOYEES We promote the development of our employees through skills enhancement and training programmes Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance XII OUR STRATEGY STRATEGIC FRAMEWORK Our vision is to be the leader in sustainable products enabled or enhanced by our novel Sustaine encapsulation and delivery technology in crop protection, animal health and consumer products. STABLE FINANCIAL BASE AND REVENUE GROWTH WE WILL ACHIEVE THIS BY Continuing to evolve our business model to focus primarily on product sales Signing further agreements with industry partners to commercialise products Ensuring a well-funded balance sheet KEY ACHIEVEMENTS IN 2018 £2.8m revenue (2017: £1.9m) £1.6m product sales revenue (2017: £0.8m) £1.2 m upfront and milestone payments (2017: £1.1m) Operating profit* of £0.02m (2017: loss £0.6m) PRODUCT DEVELOPMENT GEOGRAPHIC EXPANSION Growing a diverse product development pipeline Further developing the encapsulation technology for new applications Investing in patents for new market opportunities Building our internal technical resources in terms of capability and capacity Targeting new geographies where there is a demand for sustainable solutions Extending registrations for product authorisation into new territories Investing in patent protection for our intellectual property in new territories Identifying suitable industrial partners with access to new geographies and customers Successful positioning of Mevalone as an early-season treatment contributing to product sales growth of 112% Further development of the encapsulation technology (Sustaine) with existing and new partners Regulatory trials supporting label extensions on crops and authorisation in Central Europe Sipcam-Oxon appointed as exclusive distributor for Mevalone in 10 new territories including USA, Brazil, China and Japan Submission of the first applications for the regulatory approval of Mevalone in Australia and the USA with more applications nearing submission * before non-cash share-based payment charge, amortisation and royalties refund Eden Research plc · Company Overview 2018 XIII CLEAR COMMERCIAL PROGRESS PRODUCT SALES CONTINUE TO PROGRESS WELL WITH EXPANSION INTO NEW MARKETS Key crops growing from one to more than ten in the next three years Sales on two continents today – expanding to five in the coming years – a flexible, low overhead base Solid commercial pipeline Regulatory clearance for product sales across multiple countries with applications pending in 29 new countries Commercial and collaborative partnerships Significant investment in commercialisation by key partners including Eastman & Sipcam Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance XIV Eden Research plc · Annual Report and Financial Statements 2018 SKILLED AND EXPERIENCED PROFESSIONALS TRAJECTORY OF FINANCIAL GROWTH STRONG BOARD AND MANAGEMENT TEAM Wealth of experience in the agriculture, consumer products and animal health sectors globally Outsourcing of some functions to maintain a flexible, low overheard base Expansion of the core team in 2019 STRENGTHENING OUR FINANCIAL POSITION Increased revenue generation from product sales Market forecasts met in the last two financial years Significant investment by key partners Robust balance sheet and cash position 01 ANNUAL REPORT AND FINANCIAL STATEMENTS Chairman’s Report Chief Executive Officer’s Report Strategic Report Governance Corporate Governance Report Remuneration Report Audit Committee Report Report of the Directors Financial Statements Independent Auditor’s Report Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Company Information 02 04 10 12 23 26 28 30 34 35 36 37 38 63 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 02 CHAIRMAN’S REPORT For the year ended 31 December 2018 INTRODUCTION I’m pleased to report that 2018 has been a year of further growth for Eden, building on the firm foundations laid by the Company over a number of years. Overall revenue and, importantly, product sales have seen significant growth and, in the background, regulatory activity, which is key to future product sales expansion, has also increased. Whilst the financial results for 2018 are again pleasing, there is a lot of upside potential which the Company aims to realise. There are a number of products, in addition to Mevalone and Cedroz which Eden is in the advanced stages of developing. The new products in the Company’s pipeline aim to address markets which are potentially bigger than those already covered by its existing products and are creating a healthy pipeline of growth opportunities for Eden. There is potential for an even greater opportunity around the use of Eden’s proprietary, natural micro-encapsulation technology, Sustaine™, which is being tested by a number of third parties, including some of the major agchem companies. 2018 HAS BEEN A YEAR OF FURTHER GROWTH FOR EDEN, BUILDING ON THE FIRM FOUNDATIONS LAID BY THE COMPANY OVER A NUMBER OF YEARS. All of these opportunities are being progressed as quickly as possible and are, as a whole, showing promising potential. BOARD COMPOSITION During the year, the Board of Directors comprised: COMMERCIAL During the year some important commercial milestones were achieved by the Company. In June, we announced that the submission for Mevalone, Cedroz and three active ingredients had been made to the Environmental Protection Agency to seek marketing authorisation in the USA. The agchem market in the US is a large part of the global agchem market and, as such, presents a potentially valuable opportunity to Eden for Mevalone and Cedroz, as well as future products. In October, TerpeneTech, Eden’s associate company, received regulatory clearance to sell its head-lice product in the European Economic Area. The commercial launch of this product is expected in 2019 and shows the diversity of Eden’s Sustaine technology. A further significant milestone for Eden was realised in December when it was announced that Sipcam had exercised its option to become the exclusive distributor for Mevalone in ten additional countries, for which it paid a fee of €0.9m. Sipcam has proven itself to be a reliable partner in Spain and Italy and so we are very pleased to see our relationship grow. • Alex Abrey Chief Financial Officer • Robin Cridland Non-executive Director • Sean Smith Chief Executive Officer • Lykele van der Broek Non-executive Chairman OUTLOOK From my time at Bayer CropScience, I know that the development of new chemistries and products takes time. Not only do you have to ensure the formulations are the best they can be, having spent years identifying possible active ingredients, you then have to confirm the expected activity of those formulations through laboratory, greenhouse and then field trials to ensure that the efficacy is satisfactory. If this is so, you can then move onto the regulatory approval process and, finally, the production and commercialisation stage, assuming approval has been granted. This is a simplistic overview of what is, in reality, a very complex, detailed and, at times, challenging process that agchem companies have to go through all of the time. Although the same is true for Eden, I can assure our shareholders that we are a long way down that path with a number of new, competitive bio-pesticide products in a market which is growing considerably, year-on-year. Eden Research plc · Annual Report and Financial Statements 2018 03 Due to the positive safety profiles of the active ingredients we use, with Maximum Residue Level (‘MRL’) exemption status for all three of our active ingredients in the European Union and our natural Sustaine technology, we are able to move relatively quickly to commercialisation based on the significant amount of work that has been done thus far. Expediting the commercialisation of our products and those which will benefit from Sustaine is now our main priority. In line with the current commercial and regulatory status of the business, we aim to ensure the long-term viability and growth of the Company is duly achieved. I personally believe that Eden will continue to grow as a leader in its fields and will become a global success story in the industry. L J van der Broek Chairman 1 April 2019 THERE IS POTENTIAL FOR AN EVEN GREATER OPPORTUNITY AROUND THE USE OF EDEN’S PROPRIETARY, NATURAL MICRO- ENCAPSULATION TECHNOLOGY, SUSTAINE™ Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 04 CHIEF EXECUTIVE OFFICER’S REPORT For the year ended 31 December 2018 In 2019, growth is expected to continue from our existing commercial and regulatory platform. FINANCIAL RESULTS Product sales increased 112% £1.6m (2017: £0.8m) Revenue £2.8m (2017: £1.9m) Revenue for the year was £2.8m compared to £1.9m in 2017 with product sales increasing by 112% to £1.6m from £0.8m in 2017. Overheads were £1.5m, compared to £1.4m in 2017 and Operating Loss was £0.5m compared to a loss of £0.8m in 2017. As a result of a change agreed with our auditors in the amortisation schedule for intellectual property from 6 years to 12 years, loss before tax and operating loss have both been reduced by c.£0.5m from the previously announced figure. OVERVIEW Eden continues to make good progress in both the development of product sales and overall revenue growth. Product sales more than doubled in the period, whilst overall revenue grew by nearly 50%. Product sales growth was driven by increases in market share as well as improvements to product positioning in key countries. This was achieved despite the fact that 2018 was not a year that favoured the use of fungicides across Southern Europe due to the dry weather conditions. In 2018, the Company realised the benefits of a number of collaborations initiated over the past four years, with the highlight being Sipcam’s election to exercise its full rights to Mevalone under the 2017 Evaluation and Option Agreement. Progress with Eden’s second product, Cedroz, which will be marketed by Eastman in nearly 30 countries globally, continues apace, as exemplified by the Company’s recent announcement that this important new product has cleared its first meaningful regulatory hurdle. Eden Research plc · Annual Report and Financial Statements 2018 05 EDEN CONTINUES TO MAKE GOOD PROGRESS IN BOTH THE DEVELOPMENT OF PRODUCT SALES AND OVERALL REVENUE GROWTH. In 2019, growth is expected to continue from our existing commercial and regulatory platform, whilst we anticipate that new territories will be added to the list of countries in which Eden products are authorised for sale and use. Furthermore, we expect the growth of our distributor network and increasing collaboration around the use of Sustaine, Eden’s patented micro- encapsulation system to continue. SALES AND MARKET DEVELOPMENT In 2018, Eden saw strong growth of its first product, Mevalone, across Southern Europe where the product is authorised for marketing and use on grapes and a list of other high value fruits and vegetables. Mevalone was initially developed for use on table and wine grapes for the treatment of botrytis, a fungal disease which can have devastating effects on crop production and quality, and in recent years our partners have been working to broaden the number of crops on which Mevalone can be used. Year-on- year sales growth was strong despite growing conditions during the season not favouring the use of fungicides. This growth, in part, reflected an optimisation of product positioning by our partners in several countries. The early part of the growing season is important in establishing the potential for botrytis to develop during the peak risk period (typically in September) when cooler and wetter weather is prevalent. However, until this year, and since the first launch of Mevalone in late 2016, Mevalone has been positioned mainly as a late season botryticide based upon its favourable risk profile, performance, exemption from maximum residue levels and low pre-harvest intervals. This means that, unless there is an outbreak of this disease late in the season, sales are likely to be modest as growers are reluctant to apply products that they perceive as unnecessary (as would be the case in the absence of disease). However, in conjunction with our partners, we are pleased with our first efforts to position Mevalone in the early part of the season this year as a treatment that is effective in reducing the potential for the later stage development of botrytis. Early season applications act as an insurance policy for growers and provide for more predictable sales for Eden and our partners. This positioning is backed by data which has been developed by our partners working with leading academic experts in the field of plant pathology. This has been translated into strong early season sales in the territories in which this positioning was initiated in 2018. We anticipate a broadening of this product positioning in 2019 and beyond, as we are able to support early season applications with territory specific performance data. Mevalone is also approved for use in Kenya, where it is marketed as ‘Hawk’ for the treatment of botrytis on flowers and a number of additional crops. Market conditions in Kenya remain challenging, but there is an opportunity to improve our market share in the country and to explore how we might grow our business in the region. Furthermore, we believe that there is also the opportunity to commercialise Eden’s nematicide in Kenya, and efforts are underway to realise this potential as quickly as possible. Given the current footprint of approvals for Eden’s products, which is currently limited to the treatment of botrytis on grapes and a variety of additional crops in the EU’s Southern Zone and in Kenya, sales progress has met our expectations during the year. We expect to see an increase in product sales volumes in the years to come as our market share grows and changes in product positioning ensures more frequent treatments using Mevalone. The full extent of this increase will be closely linked to the end-of-season weather patterns and their impact on the emergence of botrytis in the late pre-harvest period. As authorisations in new territories are granted, we expect a further strengthening of Mevalone sales and a reduced dependency upon regional weather patterns and the seasonality associated with sales being limited to the northern hemisphere. Similarly, further sales gains are expected as we expand the ‘label’ for Mevalone to include major new disease and crop targets. Applications for authorisation and use are pending in an increasing number of countries with notable applications submitted in the United States of America and Australia during the course of 2018. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 06 CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED For the year ended 31 December 2018 SIPCAM-OXON In December, the Company’s commercial partner, Sipcam Oxon SpA (‘Sipcam’), exercised its option over the exclusive distribution rights in ten new countries covered under the 2017 Evaluation and Option Agreement, for which a fee of €0.9m (£0.8m) was paid to Eden. As a result, Sipcam will be the exclusive distributor of Eden’s fungicide product, known as Mevalone, in twelve countries including Italy, Spain, USA, China, Brazil and Japan. It is important to note that this means that Sipcam has elected to take up their complete set of rights for the distribution of Mevalone. This adds ten new countries to Eden’s ‘commercial footprint’, including major grape producers such as China, the US, Argentina, Australia, New Zealand and South Africa. BAYER ANIMAL HEALTH As previously announced, the launch of animal health products in the USA by Eden’s partner, Bayer Animal Health (‘Bayer’), has been delayed. This is due to the need for additional formulation work on one of the three initial products Bayer has developed. It is now anticipated that the launch of these products will take place in 2019, subject to successful completion of the additional formulation work. Bayer and Eden are working closely together to expedite matters, and both partners consider the launch of these products to be of high priority. COMMERCIAL PARTNERSHIPS EASTMAN In partnership with Eastman, we have been busy preparing for the commercial launch of our second product, a nematicide for use in open field and greenhouse agriculture across a range of fruit and vegetable crops. This product will be marketed by Eastman as ‘Cedroz™’ in 29 countries, including the US and multiple European countries. As recently announced, Eastman has now received authorisation for Cedroz from the Regulatory Affairs Directorate in Malta. Malta is acting as the zonal rapporteur Member State (‘zRMS’) for the Southern EU agricultural zone and on behalf of a number of additional EU countries for indoor uses. This represents the successful completion of the first stage in the authorisation process in the EU. Following the authorisation by Malta, the concerned Member States (‘cMS’) are allocated time to grant authorisation for the sale and use of Cedroz within their jurisdictions. Once ratified by each cMS, the approvals are expected to cover Spain, Italy, Portugal, and Greece for outdoor uses and, in addition to these Member States, France, Belgium, the Netherlands and the United Kingdom for professional greenhouse uses. In addition to these important new territories for Eden’s products, Malta has authorised the use of Cedroz on a wide range of crops, including cucumbers, courgettes, melons, aubergine, peppers, tomatoes and strawberries. Nematodes are known to cause severe damage to crops globally for both open field and greenhouse growers resulting in yield losses and driving up costs. The market is eagerly awaiting the arrival of Cedroz as a sustainable solution for nematode control. It is now expected that the cMS will grant authorisation for use with no pre-harvest interval and with an exemption from maximum residue levels providing reduced risks for growers and the food chain, alike. TERPENETECH TerpeneTech secured a CE mark for its head-lice treatment product in European Economic Area (‘EEA’) in 2018. This is the first step in the marketing and sales of such products. TerpeneTech has also established its first channel distribution partner who will target the U.K. market. The first product launch in the U.K. is expected to coincide with the back-to- school schedule in the autumn of 2019. Sales will commence in other countries in the EEA once arrangements with additional distribution partners have been finalised. This is expected to take place during 2019. Eden plans to supply a concentrate of encapsulated active ingredients (based upon Eden’s microencapsulation technology) to TerpeneTech who will then formulate the finished product, which will initially be sold by its distribution partner into the discount retail market in the U.K. The development, efficacy testing, and Medical Device regulatory dossier of this head-lice treatment product has been in drafting for approximately three years, and it should be noted that the launch of any consumer product into a regulated market, such as the head-lice treatment products market, is significantly more complicated, time consuming and costly than launching products into unregulated markets. Eden Research plc · Annual Report and Financial Statements 2018 07 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 08 Eden Research plc · Annual Report and Financial Statements 2018 Overall, we are pleased with the sales, market, regulatory and product-related developments of the past year. 09 CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED For the year ended 31 December 2018 INVESTING IN REGULATORY APPROVALS As announced on 14 June 2018, Eden has submitted an application for the authorisation of its three active ingredients and first two products, Mevalone and Cedroz, in the United States. The US Environmental Protection Agency (EPA) has confirmed the initiation of its technical review. Upon approval, these authorisations will give Eden and our partners the ability to sell Mevalone and Cedroz in the US and also ease the way for the approval of future products based upon any of the same three active ingredients. We anticipate that authorisation will be granted in time for the 2020 growing season. However, we caution that the precise timelines for authorisation are controlled by various regulatory agencies and therefore subject to change. We are currently pursuing registrations in a number of additional key territories for Mevalone, and we are supporting Eastman in seeking authorisation in nearly 30 territories for Cedroz. Further announcements on regulatory progress will be made as and when appropriate. OUR RESEARCH AND DEVELOPMENT EFFORTS ARE SHOWING REAL PROMISE FOR THE DEVELOPMENT AND REGISTRATION OF NEW PRODUCT CATEGORIES. BREXIT The impact of Brexit is still largely uncertain for many UK companies, which is the case with Eden. However, the Company understands that the ownership of its EU approvals of Mevalone and its constituent active substances should not be impacted by Brexit as guidance has been published stating that the owner of such approvals can continue to be a UK resident company. However, seeking regulatory approval in the UK for Eden products has become somewhat more challenging, and the Company is now weighing up market opportunities and costs under the various Brexit scenarios. It should be noted that TerpeneTech has taken steps through the establishment of an Irish subsidiary to ensure that it can remain a notified supplier of geraniol in the EU after Brexit, as the guidance for authorisation holders under the Biocidal Products Regulation requires holders to be based in the EU. DIVIDEND There was no dividend paid or proposed in respect of 2018. The Board continues to monitor its dividend policy. OUTLOOK Overall, we are pleased with the sales, market, regulatory and product-related developments over the past year. It is particularly satisfying to see, despite the 2018 growing season’s weather-related challenges, strong sales growth for Mevalone which reflects increases in market share and improved product positioning. With an expanding footprint of regulatory approvals for Mevalone and the anticipated entry of Eden’s second product onto the market, we believe this will drive ongoing sales growth through ongoing market share gains and an expanding list of countries in which we are authorised to sell Eden’s products. Our Research and Development efforts are showing real promise for the development and registration of new product categories. Assuming continued success, we believe we will be in a position to submit applications for regulatory approval for a new class of product in the next few years. Also, Sustaine™, Eden’s patented, natural micro- encapsulation technology, is being evaluated by an increasing number of parties, including Sipcam, on a large and growing number of active ingredients used in crop protection. This technology represents significant medium-term potential for the Company, and we are pleased with the attention it is receiving in the hands of current and new collaborators. Finally, in 2019 we will increase our focus on the growth of in- house capabilities. Eden has long relied upon out-sourced expertise for a variety of functions, and our management team has been stretched and largely focused on nearer-term objectives. In 2019, we aim to add in-house capabilities with a view to accelerating our growth and capitalising upon existing and new opportunities. I look forward to working with the Board, our team and our partners to fully realise our ambitions in 2019 and in the future. S M Smith Chief Executive Officer 1 April 2019 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 10 STRATEGIC REPORT For the year ended 31 December 2018 REVIEW OF BUSINESS The review of this year’s business activities is as set out in the Chairman’s Report and Chief Executive Officer’s Report. The key performance indicators of the business are that of the development and commercialisation of the Company’s products and the management of its cash position. The registration of the Company’s first product, Mevalone, for use as a pesticide in Europe is not only a key milestone in terms of its commercialisation, but also indicative of future products as the three active substances that are registered in the EU are the basis of Eden’s future product portfolio. Thus far, Mevalone has been approved for use in France, Spain, Italy, Greece, Portugal, Cyprus, FYROM, Albania, Bulgaria, Kenya and Malta. Further commercialisation of Eden’s products and Sustaine encapsulation technology through supply, licensing, evaluation and option agreements also serve as a key indicator to the Company’s performance. Successful trial results are also significant in showing the technical and commercial viability of the intellectual property. The Company has capitalised £0.4m (2017: £0.3m) of development expenditure in the year which is a reflection of the continued development of the Company’s products. Cash is safeguarded by close working capital management, including tightly controlling the Company’s creditor position. The progress of the development of the Company’s products is measured against internally set timescales as well as against the regulatory process which will result in the registration of products. The Chief Executive Officer’s Report contains an update regarding this progress. An update on TerpeneTech, Eden’s associate company, is also included in the Chief Executive Officer’s Report. KEY FINANCIAL PERFORMANCE INDICATORS Revenue derived from product sales, licence fees and milestone payments are all considered to be key financial performance indicators. Maintaining a low overhead base and progress towards profitability are also key indicators. Revenue in 2018 consisted of upfront and milestone payments in relation to new and existing agreements, royalties and product sales. Revenue in 2018 was £2.8 million in comparison to £1.9 million in 2017. The operating loss for the year was £0.5 million compared to £0.8 million for the previous year. The loss before tax for 2018 was £0.5 million, slightly down from £0.8 million in the previous year. The loss per share for 2018 was 0.16 pence (2017: 0.33 pence). Administrative expenses for the year were £1.5 million (2017: £1.4 million). Aside from additional costs relating to external consultants, the Company maintains a policy of keeping a low head count in order to maintain a low level of overheads. Intellectual property, including development expenditure, is written off over twelve years in line with the remaining life of the Company’s key patents, taking into account additional protection provided by granted Supplementary Protection Certificates. OTHER KEY NON-FINANCIAL PERFORMANCE INDICATORS The regulatory approval of products and milestones related to such processes are deemed to be key non-financial performance indicators. PRINCIPAL RISKS AND UNCERTAINTIES The Company’s prime risk is the on-going commercialisation of its intellectual property, which involves testing of the Company’s products, obtaining regulatory approval and reaching a commercially beneficial agreement for each product to be taken to market. This is measured by comparing actual results with forecasts that have been agreed by the Company’s Board of Directors. The Company’s credit risk is primarily attributable to its trade receivables. Credit risk is managed by running credit checks on customers and by monitoring payments against contractual agreements. The Company monitors cash flow as part of its day to day control procedures. The Board considers cash flow projections at its meetings and ensures that the Company has sufficient cash resources to meet its on-going cash flow requirements. Due to the nature of the business, there is inherent risk of infringement of Eden’s intellectual property rights by third parties. The risk of infringement is managed by taking the relevant legal advice as and when required. There is also inherent uncertainty surrounding the regulatory approval of products in terms of timing and success. This risk is managed by contracting with expert consultants who are well experienced in this regard. Eden Research plc · Annual Report and Financial Statements 2018 11 EMPLOYEE DIVERSITY AND INCLUSION The Board remains committed to developing further a culture that encourages the inclusion and diversity of all of the Company’s employees through respecting and appreciating their differences and promoting the continuous development of employees through skills enhancement and training programmes. The Company’s employment policies are designed to attract, retain, train and motivate the very best people, recognising that this can be achieved only through offering equal opportunities regardless of gender, race, religion, age, disability, sexual orientation or any other aspect of diversity. Applications from disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. It is the policy of the Company that the training, career development and promotion of disabled persons (including those who become disabled whilst employees of the Company) should, as far as reasonably possible, be identical to that of other employees. INDEMNITY COVER The Company purchases insurance cover for Directors and Officers to protect the Directors from third party claims. ENVIRONMENT The Company has an environment policy and acknowledges that environmental considerations form an integral part of its corporate social responsibility. The Company’s environment committee meets to discuss ways in which the business can contribute more to their local environments by getting involved in local initiatives and also to look at ways of promoting environmental wellbeing amongst the staff. Employees are actively encouraged to ensure conservation of energy and resource through awareness campaigns and positive action. ON BEHALF OF THE BOARD: S M Smith Chief Executive Officer 1 April 2019 The Company has capitalised £0.4m of development expenditure in the year. Revenue in 2018 consisted of upfront and milestone payments in relation to new and existing agreements, royalties and product sales. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 12 CORPORATE GOVERNANCE REPORT For the year ended 31 December 2018 Values and expected behaviours are reinforced through our recruitment, promotion, reward, performance management and policies, processes and practices. Our reward structures produce appropriate incentives to encourage desired behaviours and responsible risk-taking and management consistently communicate values and expected behaviours widely and clearly across the company and ensure that they are understood by the workforce. Management also encourage suppliers to meet the expected standards of behaviour. Values and expected behaviours include: • Honesty • Openness • Transparency • Respect • Adaptability • Reliability • Recognition • Acceptance of challenge • Accountability • A sense of shared purpose The Board is alert to signs of possible cultural problems and recognises that the workforce is a vital source of insight into the culture of the company. The Directors of Eden champion openness and accountability at every level. This involves focusing on how this takes place throughout the company and by those who act on its behalf. The quality of our governance is evident in the way we conduct business and how we treat our workforce, customers and suppliers. The Board sets the framework of values within which the desired corporate culture can evolve and thrive. Ownership of the values is strengthened by a collaborative approach by both the leadership and the workforce being involved in a two-way process to define the company’s values. Clear messages are given through decisions, strategies and conduct. Directors reinforce values through their own behaviour and decisions. To increase the effectiveness executive and non-executive Directors have increased visibility. The Board demonstrates ethical leadership and displays the behaviours they expect from others and communicate what they consider to be acceptable business practice and they consider chosen behaviours when setting strategy and financial targets. The Company seeks to keep its strategy consistent with its purpose and values and its responsibilities for long-term success and to contribute to wider society. Values are embedded at every level of the organisation and the Board seeks assurance from management that it has effectively embedded the Company’s purpose and values in operational policies and practices including aligning incentives, rewards and promotion decisions to values. LETTER FROM THE CHAIRMAN Dear shareholder, The Directors have adopted the principles set out in the Quoted Companies Alliance Corporate Governance Code. The Directors have applied these principles, as far as practicable and appropriate for a relatively small public company, as follows: The Board currently comprises two Executive Directors and two Non- Executive Directors. The Board meets regularly to consider strategy, performance and the framework of internal controls. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of Board meetings. All Directors have access to the advice and services of the Company Secretary and the Chief Financial Officer, who is responsible for ensuring that the Board procedures are followed, and that applicable rules and regulations are complied with. In addition, procedures are in place to enable the Directors to obtain independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense. Eden Research plc · Governance 13 MONITORING OF EFFECTIVENESS Monitoring efforts are focused on existing internal capabilities and information: • Training data • Recruitment, reward and promotion decisions • Use of non-disclosure agreements • Whistleblowing, grievance and ‘speak-up’ data • Board interaction with senior management and workforce • Health and safety data, including near misses • Promptness of payments to suppliers • Attitudes to regulators, internal audit and employees Areas including human resources, audit & risk and compliance offer an integrated approach to aid understanding of how behaviours and culture impact performance and offer analysis and advice the Board. The Board identifies areas of good practice and excellence that are used to drive up standards across the business which reinforces the value that a healthy culture adds. L J van der Broek Chairman 1 April 2019 QCA PRINCIPLE 1 STRATEGY AND BUSINESS MODEL The Company’s business model can be found on the Company’s website www.edenresearch.com and in the Company Overview section, at the front of the Annual Report. KEY CHALLENGES Our vision is to be the leader in sustainable products enabled or enhanced by our novel Sustaine encapsulation and delivery technology in crop protection, animal health and consumer products. Key challenges We will address these by: Stable financial base and revenue growth Product development Growing a diverse product development pipeline Geographic expansion Targeting new geographies where there is a demand for sustainable solutions • Continuing to evolve our business model to focus primarily on product sales • Signing further agreements with industry partners to commercialise products • Ensuring a well-funded balance sheet • Further development of the encapsulation technology for new applications • Investing in patents for new market opportunities • Building our internal technical resources in terms of capability and capacity • Extending registrations for product authorisation into new territories • Investing in patent protection for our intellectual property in new territories • Identifying suitable industrial partners with access to new geographies and customers Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 14 CORPORATE GOVERNANCE REPORT CONTINUED For the year ended 31 December 2018 QCA PRINCIPLE 2 SHAREHOLDER ENGAGEMENT INVESTOR RELATIONS CALENDAR (TYPICAL, ROLLING) Date January March/April March/April May/June September September Calls Type of communication Trading update Location London Preliminary results announcement and presentation London Preliminary results roadshow AGM Interim results announcement and presentation Interim results roadshow Investor calls London London London London Europe INTERACTION WITH SHAREHOLDERS The Board recognises the need for a programme of engagement which offers all shareholders opportunities to receive information directly and enable them to share their views with the Board. Communications with shareholders are considered important by the Directors. The Chief Executive is responsible for maintaining communication with all shareholders who are not Directors. The company maintains a website on which all material news is displayed. Any significant technical and operating information is posted in accordance with AIM regulations. In the 90 days to 28 August 2018, there were over 11,000 visits to individual pages on our website which shows that shareholder engagement has been successful. The company works with its Nominated Advisor and Broker to communicate with institutional and private shareholders via road shows and one-to-one meetings, as appropriate. Contact is maintained with other stockbroker analysts to maximise awareness of the company’s activities amongst the investment community. A comprehensive annual report containing statutory financial information and operating activities is prepared and published after the end of each financial year. The Board takes note of the disclosure guidance provided by the Combined Code in the preparation of the report. The company encourages shareholders to attend the AGM to facilitate the widest possible contact with all members of the Board. QCA PRINCIPLE 3 STAKEHOLDER RESPONSIBILITIES KEY RESOURCES The business plan that Eden updates and approves on an annual basis, and which is based on the business model, includes cash-flow projections and commentary which help the Board to identify the key resources required to execute the plan, as follows: KEY RELATIONSHIPS As a business, Eden is reliant on a number of key relationships: 1. Customers – Licensees, distribution partners 2. Suppliers – Raw materials, operational expenses, toll manufacturers 1. Cash-flow – The cash required for the period 3. Regulatory – Regulatory consultants, legal covered by the plan (usually two years) regulatory advisors 2. Personnel – The number of people needed, with the right skills and expertise 3. Cap Ex – Any capital expenditure required (equipment, premises etc) 4. Intellectual property (‘IP’) – Patent agents, collaboration partners 5. Research and development (‘R & D’) – Third party contractors, research centres 6. Advisors and consultants – Industry specific commercial consultants, lawyers, Nominated Advisor, Broker Eden Research plc · Governance 15 INVESTOR RELATIONS AND CONTACT During the course of the year, our Chief Executive and Financial Officers meet with institutional investors to discuss our strategy and progress and to understand how investors view our business. It is their responsibility to manage and develop the company’s external relationships with shareholders, potential investors and analysts. Shareholder communications take place through a combination of briefings to analysts and institutional investors, individual discussions with shareholders and potential investors, regulatory announcements, press releases and updates on the company’s website. Shareholder and potential shareholder meetings usually take place after we release our interim and preliminary results. Our financial PR company liaises with shareholders on a regular basis and endeavours to answer questions that are raised, where possible. Often, the Company will receive emails directly from shareholders which are either answered directly, where possible, or forwarded to the financial PR company to handle. During the year, our investor relations programme included meetings in the locations set out in our investor relations calendar above, and these focused on the company’s corporate governance arrangements. The meetings were structured to allow for a successful, open dialogue and discussion on the matters of importance to our shareholders including strategy, Board composition and succession. The Board sets time aside during its meetings to discuss feedback from shareholder meetings, including relevant feedback obtained by independent brokers and our advisors. This allows all Directors to successfully understand major shareholders’ views, significant market developments, share price performance and changes in the shareholder base. The Company’s Annual General Meeting is generally well attended and gives the Board an opportunity to communicate with both private and institutional investors, and we welcome their involvement. All of our Board members will be available to answer questions at the AGM on 14 May 2019. POINTS OF CONTACT Eden Research plc Powerscourt (Financial PR) Sean Smith Alex Abrey 01285 359 555 www.edenresearch.com Nick Dibden Jana Tsiligannis 020 7250 1446 The above key relationships are identified through the Risk Management process which is undertaken by the Risk Management Team. In addition, commercial, regulatory, R & D, AIM and IP updates are provided at each Board meeting which form the basis of discussions which help the Board to assess and identify the key relationships on which the business relies. STAKEHOLDER FEEDBACK In order to obtain feedback from stakeholders, the Management regularly meets with them, where possible, in person, or holds conference calls online or by phone. Management travels, as necessary, to ensure that the Company has a good understanding of what, if any, issues its key stakeholders have by meeting with them in person and seeing, first-hand, the work that they are doing for or on behalf of Eden. The Company’s website, email footers and business cards all provide contact information which provide stakeholders with contact details of the relevant person at the Company that they can use, should they need to get in touch. The Company has identified from various stakeholders that ‘nature-identical’, biological products, such as Eden’s, are being increasingly demanded by end- users. To this end, the Company has developed such products to meet this demand. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 16 CORPORATE GOVERNANCE REPORT CONTINUED For the year ended 31 December 2018 QCA PRINCIPLE 4 RISK MANAGEMENT RISK MANAGEMENT TEAM PURPOSE To identify, assess and manage uncertainty and, as a result, improve the ability of Eden to succeed in its business model. PROCESS Summary We manage a process in which all business functions are represented in a Risk Management Team (RMT) which meets on a regular basis to follow a defined, Board approved procedure to identify, assess and prioritise business risks, followed by the implementation of agreed mitigating actions in order to reduce unacceptable risk. Regular RMT meetings will allow for ongoing review, analysis and decision making, with the outputs recorded in a dynamic (i.e. real time) risk register. The process should be cyclical and continual so that changes in risks (as a result of mitigation or otherwise), including the detection of new risks, are monitored and learnings and feedback can be incorporated. Identification – The RMT systematically considers and documents the risks affecting the business. Assessment – Each risk is described, including its cause and effect, and any current mitigating controls and processes are identified. Each risk is scored for: • impact on the business if risk occurs (1 low, 2 medium, 3 high), • probability of risk occurring (1 low, 2 medium, 3 high) The scores for both parameters are multiplied together to give an overall Risk Priority Number (RPN) which allows all identified risks to be ranked for priority to the business. Control – Taking into account the prioritisation, a systematic review is conducted risk by risk in which further mitigating actions over and above existing measures are identified for any portion of that risk that remains unacceptable. Each action is allocated an owner and a target implementation date. On action completion each risk is reassessed to determine if the RPN has reduced to an acceptable level – if so it is recorded that the risk is now considered acceptable, if not further actions are identified and the process repeated. It should be noted that some risks may have a high RPN but be considered acceptable as no mitigating actions can be identified, e.g. an inherent business risk outside of the company’s control. Responsibilities – It is the responsibility of the Board to determine the business’s appetite for the risks facing it and approve the overall management process. It is the responsibility of management (e.g. delegated to the RMT) to execute the approved process and regularly make status reports to the Board. Team – The RMT is: • Sean Smith – CEO • Alex Abrey – CFO • Robin Cridland – Non-executive Director The RMT is responsible for compilation and annual review of an overview risk register, including prioritisation, for Board review, amendment and approval. The prioritisation would then inform a cycle of risk review programmes to be scheduled. An important principle is that appropriate resource is deployed to risk management, considering the inherent riskiness of the business and the resources available, whilst still permitting the execution of Eden Research’s business plan. Risk management is in support of the business plan rather than competing with it for resources. ASSURANCE The review of reports produced by the RMT by both the Board and the Company’s external auditor provides assurance that the risk management and related control systems in place are effective. Eden Research plc · Governance 17 QCA PRINCIPLE 5 BOARD COMPOSITION Directors’ independence and time commitment The Directors of Eden hold the following roles and their independence and length of service are shown in the table below: Director Role Independent Length of service Full (FT) or Part Time (PT) A Abrey R Cridland S Smith Chief Financial Officer Non-Executive Director Chief Executive Officer L van der Broek Chairman No Yes No Yes 11 years 3 years 4 years 1 years FT PT – 10 days/year FT PT – 10 days/year Attendance at Board and Committee meetings Board and Committee meetings are scheduled in advance for each calendar year. Additional meetings are arranged as necessary to review strategic and financial plans. The scheduled Board and Committee meetings and attendance during the year ended 31 December 2018 were as follows: Director Role Board (6 meetings) AIM Compliance (1 meeting) Remuneration & Nominations (10 meetings) Audit (6 meetings) A Abrey R Cridland S Smith Chief Financial Officer Non-Executive Director Chief Executive Officer ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ L van der Broek Chairman ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 18 CORPORATE GOVERNANCE REPORT CONTINUED For the year ended 31 December 2018 QCA PRINCIPLE 6 BOARD EXPERIENCE Board of Directors Lykele van der Broek Non-Executive Chairman Sean Smith Chief Executive Officer Alex Abrey Chief Financial Officer Appointed October 2017 (Board) January 2018 (Chairman) Appointed September 2014 Appointed September 2007 Background and experience Lykele retired as a Member of the Board of Management of Bayer CropScience, a division of Bayer AG, in 2014, being responsible for the commercialisation of innovative agricultural products and services globally. Prior to this, he held senior international roles including the Head of Bayer CropScience’s BioScience division and President of the Bayer HealthCare Animal Health division. Background and experience Sean has a bachelors degree in microbiology and over 25 years of experience in the speciality chemicals and industrial biotechnology industries. He has held senior commercial leadership roles ranging from sales and marketing to business management and intellectual property licensing in blue chip companies such as Ciba (now BASF) and Honeywell. In recent years, Sean has focused on technology commercialization through licensing and company formation working with Intellectual Ventures and several start-ups. Background and experience Alex, a Chartered Certified Accountant, joined the Board in September 2007, having been Chief Accountant to Eden for the previous four years. He has acted as Financial Director to a diverse range of businesses including a financial and management consultancy business based in Oxfordshire, a medical waste management company and an intellectual property licensee involved in plastics manufacturing. Alex has eighteen years’ experience in both practice and industry. Committee membership • AIM Compliance Committee Committee membership None Committee membership • AIM Compliance Committee (Chairman) • Nominations Committee (Chairman) • Remuneration Committee (Chairman) • Audit Committee External appointments Genus plc (Non-Executive Director) External appointments None External appointments Ricewood Ltd (Director) Eden Research plc · Governance 19 Alex Abrey is a Chartered Certified Accountant. As part of his professional development, he attends relevant courses and maintains his qualification through Continuing Professional Development under the Association of Certified Chartered Accountants. Robin Cridland is a Chartered Accountant. As part of his professional development, he attends relevant courses and maintains his qualification through Continuing Professional Development under the Association of Chartered Accountants. Sean Smith is a member of the institute of Directors with access to online tools and courses and attends industry conferences including the Association of Biocontrol Industry Manufacturers. Lykele van der Broek keeps up-to-date by regularly reading economic and management literature, by being briefed by external advisors on matters such as remuneration, corporate governance, and liaising with consultants who inform the Board of changes in legislation, best practice or public perception. Board skill-set Director Product supply chain and management A Abrey R Cridland S Smith L van der Broek ✓ ✓ ✓ ✓ External advisors Intellectual Property Chemicals Industry General Management ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Funding Other public company (Board Level) ✓ ✓ ✓ ✓ ✓ ✓ The Company uses external advisors, where necessary, as follows: Advisor Role Nominated Advisor Provides advice on AIM Compliance Commercial lawyer Provides advice on legal issues such as commercial agreements Auditor Audits the Report and Accounts of the Company Regulatory lawyer Provides advice on regulatory aspects of the business The Board’s Role The Board, under the Chairman’s leadership, is responsible for ensuring our long-term success. It informs and approves our strategy and corporate goals and monitors our performance against them. It determines that we have the necessary resources, systems and controls to achieve our objectives, and assesses the culture and standards of behaviour throughout Eden. The Board is also responsible for other critical decisions, including approving the corporate budget; ensuring we have the right funding; approving material contracts; and reporting to shareholders. The Directors believe that the Board, taken as a whole, has sufficient expertise and a variety of complementary skills for the Company to operate and develop its business satisfactorily for the benefit of the shareholders over the medium to long-term. As the Company grows, the Board will inevitably grow, which will provide an opportunity for the gender imbalance that the Company currently has, to be addressed. Internal advisors The Company Secretary is the only internal advisor that the Company currently has. The Company Secretary is responsible for the efficient administration of Eden, particularly with regard to ensuring compliance with statutory and regulatory requirements and for ensuring that decisions of the Board of Directors are implemented. Robin Cridland Non-Executive Director Appointed May 2015 Background and experience Rob served as Chief Financial Officer and Company Secretary of Itaconix plc until July 2018. He joined Itaconix in September 2008 from Renovo Group plc where he spent seven years as Executive Director of Finance and Business Development. He began his career at Coopers & Lybrand Deloitte, before moving on to senior transactional roles at Enskilda Securities and senior finance and transactional roles at GlaxoWellcome and GlaxoSmithKline. He was also currently a Governor and a Non- Executive Director of Cheadle Hulme School, Cheshire. Committee membership • AIM Compliance Committee • Nominations Committee • Remunerations Committee • Audit Committee (Chairman) External appointments None Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 20 CORPORATE GOVERNANCE REPORT CONTINUED For the year ended 31 December 2018 QCA PRINCIPLE 7 BOARD PERFORMANCE Effectiveness The Nominations Committee understands that the effectiveness of Eden’s Board depends on the appointment of Directors who are able to make a positive contribution and therefore it strives to secure the right skillsets and breadth of perspectives within the Boardroom to ensure that good decisions are made and opportunities are maximised for the Company’s success. The Nominations Committee ensures that Eden attracts non- executive Directors that possess a range of critical skills of value to the Board and relevant to the challenges and opportunities facing Eden. These values and attributes include: • Critical assessment and judgement • Courage • Openness • Honesty • Tact • Ability to listen • Ability to forge relationships • Ability to develop trust • Strength of character Diversity in the Boardroom is an important aspect of the Nomination Committee’s discussions. Developing a more diverse executive pipeline together with Improving diversity at each level of the Company is important to Eden, particularly as the company grows. When recruiting members to the Board, the nominations committee considers the skillset that is required for the Board and its committees, it continually reviews the make-up of the Board as a result of emerging trends and it takes into account the technical skills and knowledge required by the committees. The Nominations Committee ensures that Board appointments are made on merit against objective criteria by evaluating the skills, experience and knowledge on the Board, and the future challenges affecting the business. A description of the role and capabilities required for a particular appointment is then drawn up. Values and expected behaviour play a large part in the recruitment process. When evaluating roles and succession planning Eden considers the existing skillset against those required to execute strategy and meet future challenges. The Nominations Committee ensures that Directors undertake that they will have sufficient time to meet what is expected of them particularly regarding other appointments outside of the Company. The Nominations Committee succession plans cover: • contingency planning – for sudden and unforeseen departures; • medium-term planning – the orderly replacement of current Board members and senior executives (e.g. retirement); and • long-term planning – the relationship between the delivery of the company strategy and objectives to the skills needed on the Board now and in the future. Board performance evaluation This year, Eden intends to adopt a formal process of Board evaluation which will include sending to each Director a standardised questionnaire. This questionnaire will cover aspects of Board performance and help the Nominations Committee and the Board to understand and evaluate the effectiveness of the Board. In addition, the Board will consider the feasibility of using external advisors to assist with evaluating Board effectiveness. Given the size of the Company, this will clearly depend on its viability. In any event, the Board will look to adopt an evaluation cycle which will provide a framework for the on-going evaluation process. Succession Planning The role of the Nominations Committee is fundamental to succession planning at Eden and is responsible for Board recruitment. This Committee conducts a continuous and proactive process of planning and assessment, taking into account Eden’s strategic priorities and the main trends and factors affecting the long-term success and future viability of the company. The Chair’s vision for achieving the optimal Board composition helps the Nominations Committee review the skills required, identify the gaps, develop transparent appointment criteria and inform succession planning. The Nominations Committee assesses periodically whether the desired outcome has been achieved, and proposes changes to the process, as necessary. Eden Research plc · Governance 21 QCA PRINCIPLE 8 HEALTHY CORPORATE CULTURE Please see the Chairman’s Letter on page 12. QCA PRINCIPLE 9 GOVERNANCE STRUCTURE Board roles and responsibilities The Directors of Eden hold the following roles and responsibilities: Director A Abrey Role Responsibilities Chief Financial Officer A Abrey Company Secretary R Cridland Non-Executive Director S Smith Chief Executive Officer L van der Broek Chairman Alex is responsible for supporting the Chief Executive in devising and implementing the strategy and managing the Company’s financial and operational performance. In his role as Company Secretary, Alex is responsible for the efficient administration of Eden, particularly with regard to ensuring compliance with statutory and regulatory requirements and for ensuring that decisions of the Board of Directors are implemented. Rob’s role is to constructively challenge and provide oversight and assistance in the progression of our execution of strategy, management of the Company and management of our governance structures, within the risk and control framework set by the Board. Sean is responsible for devising and implementing our strategy and managing our day-to-day operations. He is accountable to the Board for the Company’s development, in line with its strategy, and taking into account the risks, objectives and policies set out by the Board and its Committees. Sean is also responsible for engagement with shareholders or other stakeholder groups. Lykele’s primary responsibility is to lead the Board and ensure it operates effectively. He achieves this in part through promoting an open culture, which gives people the courage to challenge the status quo, and holding meetings with the NED without the Executives present. ROLES OF THE COMMITTEES AIM Compliance Committee Responsible for ensuring that the Company has in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules for Companies and the AIM Rules for Nominated Advisors. Audit Committee Ensures the integrity of our financial reporting, evaluates our risk management and internal control system, and oversees the internal and external auditor. Nominations Committee Reviews the Board’s structure, size and composition and proposes candidates for appointment to the Board. Remuneration Committee Determines remuneration for our Executive Directors, to support our growth strategy and deliver value for stakeholders. The Terms of Reference for each of the above Committees can be found on the Company’s website www.edenresearch.com. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 22 CORPORATE GOVERNANCE REPORT CONTINUED For the year ended 31 December 2018 QCA PRINCIPLE 10 SHAREHOLDER DIALOGUE Work undertaken by the Company’s Committees during 2018 Audit Committee • Reviewed the Company’s 2017 Nominations Committee • Managed the recruitment Report and Accounts and recommended their approval by the Board • Recommending to the Board the re-appointment of KPMG as auditor process throughout the year • Reviewed the structure, size and composition of the Board and made recommendations to the Board with regard to any changes Voting At the Company’s last Annual General Meeting which was held on 21 June 2018, all resolutions were passed with the following outcomes, based on proxy votes received: • Reviewed the Company’s 2018 • Gave consideration to succession Resolution % in favour Interims and recommended their approval by the Board • Liaised with the Company’s planning for Directors auditors throughout the year for audit planning and finalisation Remuneration Committee • Managed the bonus scheme for Directors • Set remuneration for all Directors • Managed the Long-Term Incentive Plan for executive Directors • Review of rolling Audit Committee agenda AIM Compliance Committee • Liaised with the Company’s Nominated Advisor over any AIM issues • Reviewed updates on AIM Compliance and made recommendations to the Board, as necessary • Reviewed AIM Rule 26 disclosures 1 2 3 4 5 6 99.6 99.6 99.6 99.3 99.6 99.6 For details of each of the above resolutions, please see the 2018 Notice of AGM. Eden Research plc · Governance 23 REMUNERATION REPORT For the year ended 31 December 2018 INTRODUCTION The Remuneration Policy for Eden Research plc includes the three main elements of remuneration; salary, cash bonus and equity incentive. TARGET The Target bonus levels are a percentage of salary. The Target is generally made up of, and released incrementally by, the achievement of: The Policy is based on market facing structures, precedented in other AIM listed companies. The policy has been prepared for the Executive Directors, however it is intended that the principles should apply to all staff. • new commercial partnership deals and other commercial milestones (e.g. regulatory approvals) • the return received on such agreements • contribution and profit earned An important principle is that the elements of remuneration should not overlap (to ensure that an Executive is not rewarded more than once for the same achievement). As the business matures, the balance between deal value, other commercial milestones and contribution / profit is expected to transition in weighting (i.e. from deals through other milestones towards profit). Salary is a reward for the day to day execution of a role (which is documented in a job description). The cash bonus is a reward for the achievement of challenging milestones in a year over and above the day to day role and linked to an increase in the value of the business through the achievement of significant commercial progress. The equity incentive should deliver value to the Executive in the medium to long term, based on a sustainable increase in the share price over the corresponding period of time, and of a magnitude related to the actual increase in share price, in order to align management’s incentive with the interests of shareholders. The Remuneration Committee has absolute discretion in the application of these principles and may make adjustments, where appropriate, and acting reasonably. SALARY A salary review usually occurs in Q4 each year, to take effect from 1 January in the following year, unless a market adjustment is required at a different time. Generally, salaries are benchmarked and comparable to similar positions in similar sized AIM listed companies in similar industry segments. CASH BONUS Bonuses are paid to the extent their payment does not shorten the funded runway of the business to less than eighteen months, based upon an up-to-date forecast using reasonable assumptions, as agreed by the Board. This figure may be adjusted by the Remuneration Committee. Bonus payments are calculated prior to completion of (and included in) the Annual Report and paid out after the Annual Report has been approved by the auditors and the Board. EQUITY INCENTIVE UNAPPROVED SHARE OPTION SCHEME The Company operated an unapproved share option scheme for executive Directors, senior management and certain employees. This scheme was used for any options awarded prior to 28 September 2017. LONG-TERM INCENTIVE PLAN (‘LTIP’) In September 2017, the Company established a LTIP to incentivise the Executives to deliver long-term value creation for shareholders and ensure alignment with shareholder interests. Awards will be made annually and will be subject to continued service and challenging performance conditions over a three year period. The performance conditions are reviewed on an annual basis to ensure they remain appropriate and are currently based on increasing shareholder value. Awards are structured as nil cost options with a seven year life after vesting. Other than in exceptional circumstances, an award would be up to 100% of salary in any one year and would be granted subject to achieving challenging performance conditions set at the date of the grant. A percentage of the award will vest for ‘Threshold’ performance with full vesting taking place for equalling or exceeding the performance ‘Target’. In between the Threshold and Target there may be pro rata vesting. The Remuneration Committee retains the ability to amend the performance conditions for future grants to ensure that such grants achieve the stated purpose. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 24 REMUNERATION REPORT For the year ended 31 December 2018 APPLICATION OF THE POLICY EMOLUMENTS Details of the remuneration of those who served as Directors during the year are set out below. DIRECTORS’ CONTRACTS The Executive Directors have a service contract of indefinite term with a notice period of no more than six months. Base salary 2018 £ Base salary 2017 £ 190,000 143,500 150,000 123,000 – 35,000 40,000 10,000 Non-Executive Directors have Letters of Appointment which are terminable by the Director or the Company with three months’ notice. SHARE OPTION SCHEMES During 2017, the Remuneration Committee approved the award of options over 4,016,680 ordinary shares of 1 pence each in the Company (‘Ordinary Shares’) under a Long-Term Incentive Plan (‘LTIP’). The awards were in respect of management performance in the financial years ending 31 December 2016 and 31 December 2015, the latter being a ‘catch up’ award following the later than planned implementation of the LTIP. Further details of the awards are set out below. Executive Directors S M Smith A J Abrey Non-Executive Directors T Lupton (retired 31 December 2017) L van der Broek (appointed 1 October 2017) R Cridland 35,000 30,000 In respect of 2015: The Company also operates an annual, discretionary cash bonus scheme. For 2018, the target bonus levels and actual bonus achieved for Executive Directors on meeting all of these objectives were: Sean Smith 70% of base salary, achieved 56.7%, (2017: 70% of base salary, achieved 61.67%) Alex Abrey 70% of base salary, achieved 56.7%, (2017: 70% of base salary, achieved 61.67%) The Committee considers that the performance metrics underpinning the annual, discretionary cash bonus scheme are in line with shareholders’ expectations. PENSIONS For the Executive Directors only, the Company makes contributions to a defined contribution pension scheme. The Company contributes a maximum of 4% provided that the Director makes a minimum 4% contribution. Below this, the Company contributes the same percentage as the Director. SHARE-BASED PAYMENTS The share options granted to individual Directors to date are shown below and include grants made in prior years. NON-EXECUTIVE DIRECTORS Non-Executive Directors receive a fee only with no additional benefits, bonuses or option grants. • To the CEO Sean Smith nil cost options over 1,098,680 ordinary shares. • To the CFO Alex Abrey nil cost options over 810,000 ordinary shares. The vesting date of the options is 30 September 2019, and they only become exercisable if the following share price performance conditions are met: 50% of the options become exercisable if the weighted average Ordinary Share price in the 45 day period ending on the vesting date is £0.20 or above. Between weighted average ordinary share prices of £0.20 and £0.30, vesting shall be pro-rata and on a straight-line basis between 50% and 100%. Below £0.20 the options are not exercisable and lapse in full. In respect of 2016: • To the CEO Sean Smith nil cost options over 1,148,000 ordinary shares. • To the CFO Alex Abrey nil cost options over 960,000 ordinary shares. The vesting date of the options is 30 September 2020, and they only become exercisable if the following share price performance conditions are met: 50% of the options become exercisable if the weighted average Ordinary Share price in the 45 day period ending on the vesting date is £0.24 or above. Between weighted average Ordinary Share prices of £0.24 and £0.36, vesting shall be pro-rata and on a straight-line basis between 50% and 100%. Below £0.24 the options are not exercisable and lapse in full. Eden Research plc · Governance 25 At 31 December 2018, the Directors had the following interests in share option schemes: Date from which exercisable A J Abrey Expiry Date 14/08/2014 19/05/2019 08/05/2015 07/05/2018 17/01/2016 16/01/2021 30/09/2019 29/09/2027 30/09/2020 29/09/2027 S M Smith 01/03/2015 01/09/2015 01/09/2016 28/02/2018 31/08/2018 31/08/2019 30/09/2019 29/09/2027 30/09/2020 29/09/2027 Exercise price £ Number at 1 January 2018 Granted in year Exercised in year Lapsed in year Number at 31 December 2018 0.10 0.10 450,000 125,000 0.13 1,050,000 Nil Nil 810,000 960,000 3,395,000 0.08 1,000,000 0.08 500,000 0.16 1,000,000 Nil Nil 1,098,680 1,148,000 4,746,680 – – – – – – – – – – – – – (125,000) – – – – – – – – 450,000 – 1,050,000 810,000 960,000 (125,000) – 3,270,000 – (1,000,000) (500,000) – – – 1,000,000 – – 1,098,680 1,148,000 – – – – – (1,500,000) 3,246,680 Option awards in respect of the years ended 31 December 2017 and 31 December 2018 will be made during 2019. L J van der Broek Remuneration Committee Chairman 1 April 2019 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 26 AUDIT COMMITTEE REPORT For the year ended 31 December 2018 INTRODUCTION On behalf of the Audit Committee, I am pleased to present this report to shareholders. The purpose of the report is to highlight the areas that the Committee has reviewed and how we have discharged our responsibilities effectively during the year. external auditors to attend its meetings. The Committee met with the external auditors at the conclusion of the audit without the Executive Directors being present. The Committee has met once since the end of the financial year to consider the results and the Annual Report for the year ended 31 December 2018. RESPONSIBILITIES The key responsibility of the Committee is to provide effective governance over the Company’s financial reporting to ensure its appropriateness. Under its terms of reference, the Committee is required, amongst other things, to: • monitor the integrity of the financial statements of the Company including the appropriateness of the accounting policies adopted and whether the Annual Report is fair, balanced and understandable; • review, understand and evaluate the effectiveness of the Company’s internal controls and risk management systems, particularly but not exclusively as they pertain to financial matters; • appraise the Board on how the Company’s prospects are assessed; • oversee the relationship with the external auditors, making recommendations to the Board in relation to their appointment, remuneration and terms of engagement; • monitor and review the effectiveness of the external audit including the external auditors’ independence, objectivity and effectiveness and to approve the policy on the engagement of the external auditors to supply non-audit services; and MAIN ACTIVITIES DURING THE YEAR Set out below is a summary of the key areas considered by the Committee during the year and up to the date of this report. FINANCIAL REPORTING During the year, the Audit Committee reviewed reports and information provided by both the Chief Financial Officer and the external auditors in respect of the half year and annual financial report. An important responsibility of the Audit Committee is to review and agree significant estimates and judgements made by management. To satisfy this responsibility, the Committee reviewed a written formal update from the Chief Financial Officer on such issues at the two meetings that reviewed the half year and year end results, as well as reports from the external auditors. The Committee carefully considered the content of these reports in evaluating the significant issues and areas of judgement across the Company. The key areas of review, including those requiring significant judgements to be made, in the year were as follows: • Revenue recognition • Potential impairment of intangible assets including • monitor and review the internal audit activities in intellectual property and investments the Company. The Committee’s terms of reference can be found on the Company’s website www.edenresearch.com. • Management override of controls Other areas reviewed in the year were as follows: • Going concern COMPOSITION OF COMMITTEE AND MEETINGS • Consolidation The Audit Committee comprises the two Non- Executive Directors, Robin Cridland, who is Chairman of the Committee, and Lykele van der Broek. The Chairman of the Committee has recent and relevant financial experience and collectively the members of the Committee have experience of the chemical, agricultural and animal health industries. Details of Committee members’ qualifications can be found on pages 18 and 19. The Audit Committee met five times during the year, and has a rolling agenda linked to the Company’s financial calendar. It invites the Chief Executive Officer, the Chief Financial Officer and the • Share based payments • Accruals and provisions • Related party transactions INTERNAL CONTROL AND RISK MANAGEMENT During the year the Committee continued to review the effectiveness of the Company’s internal control and risk management systems. The Committee reported to the Board that it had reviewed, and was satisfied with, the effectiveness of these systems. Eden Research plc · Governance 27 EXTERNAL AUDIT KPMG LLP has been the external auditor for the Company since 2017. The Audit Committee annually assesses the qualification, expertise and independence of the auditors and the effectiveness of the audit process. KPMG’s current engagement partner is Andrew Campbell-Orde, and he has been in place since being appointed for the Company’s 2017 year end. Following approval by shareholders to re-appoint KPMG at last year’s AGM, the Audit Committee reviewed and approved the terms of engagement and remuneration of the external auditors for the 2018 financial year. AUDIT EFFECTIVENESS The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. KPMG present their detailed audit plan to the Audit Committee each year identifying their assessment of these key risks. Its assessment of the effectiveness and quality of the audit process and addressing these key risks is formed by, amongst other things, the reporting from the auditors. In addition, each year, the Audit Committee assesses its performance and the effectiveness of the external auditor through a questionnaire completed by Audit Committee members and members of the Company’s senior finance team. The output of that review was considered in detail, discussed by the Audit Committee and discussed with the external auditors. The Committee was satisfied with the review process, the performance of the Committee and the effectiveness of the external audit. The external auditor is also required to tell the Company about any significant facts and matters that may reasonably be thought to bear on their independence or on the objectivity of the lead partner and the audit team. The lead partner in the audit team must change every five years. The Audit Committee reviewed and approved the non-audit services policy, the objective of which is to ensure that the provision of such services does not impair, or is not perceived to impair, the external auditors’ independence or objectivity. The policy imposes guidance on the areas of work that the external auditors may be asked to undertake and those assignments where the external auditors should not be involved. There is a further category of services for which a case-by-case decision is necessary. The policy can be viewed on the Company’s website www.edenresearch.com. In order to ensure that the policy is effective and the level of non-audit fees is kept under review, major work to be awarded to the audit firm must be agreed in advance by the Audit Committee Chairman. For the 2018 financial year end, there was no non-audit work undertaken by the Company’s auditors. INTERNAL AUDIT Due to the size of the business, the Company does not have a separate internal audit function. The Company’s Risk Management Team takes this into account when deciding how to mitigate risks associated with not having an internal audit function and manages the situation accordingly. Every year the Audit Committee reviews the appropriateness of this arrangement and specifically whether an internal audit function is necessary. AUDITOR INDEPENDENCE The Company meets its obligations for maintaining an appropriate relationship with the external auditors through the Audit Committee, whose terms of reference include an obligation to consider and keep under review the degree of work undertaken by the external auditor other than the statutory audit, to ensure the auditor’s objectivity and independence is safeguarded. OTHER ACTIVITIES The Committee also reviewed its terms of reference, its effectiveness, the Company’s policies on whistleblowing, business ethics and on the prevention of bribery and modern slavery. As Chairman of the Committee, I will be available at the Annual General Meeting to respond to any shareholder questions that might be raised on the Committee’s activities. In accordance with the Auditing Practices Board Ethical Standards, the Company’s external auditor must implement rules and requirements which include that none of their employees working on our audit can hold any shares in Eden. R J Cridland Audit Committee Chairman 1 April 2019 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 28 REPORT OF THE DIRECTORS For the year ended 31 December 2018 The Directors present their report with the financial statements of the Company for the year ended 31 December 2018. DIVIDENDS The loss for the year after taxation amounted to £334,951 (2017: £639,093). The Directors are unable to recommend any dividend (2017: £nil). RESEARCH AND DEVELOPMENT An indication of research and development activities is included within the Chief Executive Officer’s Report. FUTURE DEVELOPMENTS An indication of future developments is included within the Chief Executive Officer’s Report. DIRECTORS The Directors during the year under review were: A J Abrey R J S Cridland S M Smith L J van der Broek Details of the Directors who had interests in share option schemes can be found in the Remuneration Report. CORPORATE GOVERNANCE The Directors acknowledge the importance of the principles set out in the Corporate Governance Code. Although the Corporate Governance Code is not compulsory for AIM quoted companies, the Directors have applied the principles as far as practicable and appropriate for a relatively small public company as follows: The Board currently comprises two executive Directors and two non-executive Directors. The Board meets regularly to consider strategy, performance and the framework of internal controls. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of Board meetings. All Directors have access to the advice and services of the Company Secretary and the Chief Financial Officer, who is responsible for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with. In addition, procedures are in place to enable the Directors to obtain independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense. The Directors have established Audit, Nominations, Remuneration and AIM Compliance Committees. The Audit Committee has Robin Cridland as Chairman and has primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance of the Company is properly measured and reported on and reviewing reports from the Company’s auditors relating to the Company’s accounting and internal controls, in all cases having due regard to the interests of shareholders. The Audit Committee meets at least twice a year. Lykele van der Broek was the other member of the Audit Committee during the year. The Nominations Committee had Lykele van der Broek as Chairman during the year and identifies and nominates for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Nominations Committee meets at least twice a year. Robin Cridland was the other member of the Nominations Committee during the year. The Remuneration Committee had Lykele van der Broek as Chairman during the year and reviews the performance of the executive Directors and determines their terms and conditions of service, including their remuneration and the grant of options, having due regard to the interests of shareholders. The Remuneration Committee meets at least twice a year. Robin Cridland was the other member of the Remuneration Committee during the year. The AIM Compliance Committee had Lykele van der Broek as Chairman during the year and meets twice a year with the NOMAD to discuss AIM compliance and related issues. The other member of the committee is Robin Cridland. The Directors comply with Rule 21 of the AIM Rules relating to Directors’ dealings and there are procedures in place to ensure compliance by the Company’s applicable employees. The Company has adopted a share dealing code which is appropriate for an AIM quoted company. The shareholdings of the Directors of the Company are as follows: Alex Abrey Sean Smith Robin Cridland Total Holdings % of Share Capital 1,102,824 306,769 47,000 0.53% 0.15% 0.02% The Company has been notified that the following are substantial shareholders of Eden, each holding more than 3% of the Company’s issued share capital, as at 31 December 2018: Eden Research plc · Governance 29 Entity Sipcam SpA Livingbridge VC LLP HSBC Nominees JM Finn & Co Artemis Investment Management Total Holdings % of Share Capital 20,494,330 19,512,195 14,007,734 12,332,961 9.89% 9.42% 6.76% 5.95% 9,645,000 4.66% Hargreaves Lansdown Asset Management 7,816,905 3.77% Barclays Personal Investment Management 7,485,329 Bank of New York (Nominees) 6,972,500 Interactive Investor Services 6,824,382 3.61% 3.37% 3.29% SUPPLIERS The Company agrees terms and conditions for business transactions with its suppliers. Payment is then made on these terms, subject to the terms and conditions being met by the supplier. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, relevant and reliable; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; • assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are 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, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’ Report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS So far as the Directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the company’s auditors are unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. AUDITOR In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting. ON BEHALF OF THE BOARD: S M Smith Director 1 April 2019 6 Priory Court Priory Court Business Park Poulton Cirencester Gloucestershire GL7 5JB Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 30 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EDEN RESEARCH PLC 1. OUR OPINION IS UNMODIFIED We have audited the financial statements of Eden Research plc (‘the Company’) for the year ended 31 December 2018 which comprise the Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, and the related notes, including the accounting policies in note 1. In our opinion the financial statements: • give a true and fair view of the state of Company’s affairs as at 31 December 2018 and of its loss for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Overview Materiality: company financial statements as a whole 0.8% (2017: 0.65%) of total assets Key audit matters Vs 2017 Recurring risks for the Company Intangible assets Revenue New risks for the Company The impact of uncertainties due to the UK exiting the European Union on our audit Going concern 2. KEY AUDIT MATTERS: INCLUDING OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters 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. In arriving at our audit opinion above, the key audit matters, were as follows: THE IMPACT OF UNCERTAINTIES DUE TO THE UK EXITING THE EUROPEAN UNION ON OUR AUDIT Refer to page 9 (Chief Executive Officer’s report) The risk – Unprecedented levels of uncertainty All audits assess and challenge the reasonableness of estimates, in particular as described in ‘Intangible assets’ below, and related disclosures and the appropriateness of the going concern basis of preparation of the financial statements (see below). All of these depend on assessments of the future economic environment and the company’s future prospects and performance. Brexit is one of the most significant economic events for the UK and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. Our response We developed a standardised firm-wide approach to the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our procedures included: • Our Brexit knowledge: We considered the Directors’ assessment of Brexit-related sources of risk for the company’s business and financial resources compared with our own understanding of the risks. We considered the Directors’ plans to take action to mitigate the risks. • Sensitivity analysis: When addressing intangible assets and other areas that depend on forecasts, we compared the Directors’ analysis to our assessment of the full range of reasonably possible scenarios resulting from Brexit uncertainty and, where forecast cash flows are required to be discounted, considered adjustments to discount rates for the level of remaining uncertainty. • Assessing transparency: As well as assessing individual disclosures as part of our procedures on intangible assets we considered all of the Brexit related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit. Eden Research plc · Financial Statements 31 GOING CONCERN Refer to page 26 (Audit Committee report) and page 40 (accounting policy) INTANGIBLE ASSETS (£5,016,508; 2017: £4,933,761) Refer to page 41 (accounting policy) and page 52 (financial disclosures) The risk – Disclosure quality The financial statements explain how the Board has formed a judgement that it is appropriate to adopt the going concern basis of preparation for the Company. That judgement is based on an evaluation of the inherent risks to the Company’s business model and how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over a period of at least a year from the date of approval of the financial statements. The risks most likely to adversely affect the Company’s available financial resources over this period is the impact of Brexit on the Company’s supply chain. There are also less predictable but realistic second order impacts, such as the impact of Brexit on the industry specific regulations underlying the Company’s and its suppliers’ operations which could result in a rapid reduction of available financial resources. The risk for our audit was whether or not those risks were such that they amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. Had they been such, then that fact would have been required to have been disclosed. Our procedures included: • Historical comparisons: We compared previously forecasted cash flows against actual cash flows to assess the historical accuracy of forecasting. • Sensitivity analysis: Considering sensitivities over the level of available financial resources indicated by the Company’s financial forecasts, taking account of reasonably possible (but not unrealistic) adverse effects that could arise if the Company’s forecast future sales do not materialise. • Evaluating Directors’ intent: Evaluating the achievability of the proposed actions the Directors consider they would take to improve the position should the identified risks associated with Brexit materialise. • Assessing transparency: Assessing the completeness and accuracy of the matters covered in the going concern disclosure by comparing it to our knowledge and understanding of the business and the industry in which it operates. The risk – Forecast-based valuation All intangible assets, including development costs, are reviewed annually for indicators of impairment. The assessment of impairment indicators includes forecasting and discounting future cash flows (based on assumptions such as discount rates and rates of growth in revenue), which are inherently highly judgemental. In particular, due to uncertainty over the size of the potential market for the Company’s products, there is a risk that the valuation of intangible assets may not be supported by potential future sales. The effect of these matters is that, as part of our risk assessment, we determined that valuation of the Company’s intangible assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note 8) disclose the sensitivity estimated by the Company. Our procedures included: • Our sector experience: challenging the Company’s selection of discount rates and rates of growth by using our own judgement and experience to determine an appropriate range and comparing the actual rate used to that range; • Assessing forecast: assessing whether the cash flow forecasts are consistent with current business strategies in place; • Comparing valuations: comparing the market capitalisation of the Company to the carrying value of the net assets to assess whether this provides an indicator of possible impairment of the intangible assets; • Historical comparisons: comparing the previously forecast cash flows to actuals to assess the historical accuracy of forecasting; • Sensitivity analysis: performing breakeven analysis to assess the sensitivity of the impairment reviews to changes in the key assumptions noted above; and • Assessing transparency: assessing whether the company’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the intangible valuation. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 32 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EDEN RESEARCH PLC CONTINUED 2. KEY AUDIT MATTERS: INCLUDING OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED REVENUE (£2,774,272; 2017: £1,877,187) Refer to page 4 (Chief Executive Officer’s Report), page 47 (accounting policy) and page 60 (financial disclosures) The risk – Revenue recognition The Company’s agreements with its customers are often bespoke and vary from customer to customer in terms of ongoing performance obligations, timing, quantities and payment profiles. The Directors are required to make judgements about the nature of these agreements to determine the appropriate timing of revenue recognition. The current focus of the Company is on sales growth, and the Directors are incentivised on performance through a share option scheme. This and the lack of segregation of duty gives rise to the risk that revenue recognised in the year may be recognised in the wrong period. In light of this, revenue is susceptible to fraudulent financial reporting. Our procedures included: Test of details: • for a sample of revenue transactions recognised in the period, agreeing the amounts to bank statements and the underlying agreements to determine whether revenue arose and was recognised in the appropriate period; • reviewing a sample of contracts with customers entered into in previous years to determine the appropriateness of the Directors’ assertion that adoption of IFRS 15 Revenue from Contracts with Customers does not give rise to adjustments to revenue recognised since the transition date; • for a sample of revenue transactions in respect of product sales checking that a sale had been made by agreeing the amounts recognised to sales invoices and bank statements; • for a sample of product sales invoices raised either side of the balance sheet date, inspecting the documentation supporting the dispatch of goods to determine whether revenue was recognised in the correct period; and • obtaining 100% of the journals posted in respect of revenue analysed these to identify and investigate any entries which appeared unusual based upon the specific characteristics of the journal, considering in particular whether the non-revenue side of the journal entry was as expected, based on our business understanding. 3. OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT Materiality for the financial statements as a whole was set at £73,000 (2017: £70,000), determined with reference to a benchmark of total assets, of which it represents 0.8% (2017: 0.65%). We consider a benchmark of total assets to be appropriate as the company is in the early stages of development. We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £3,650, in addition to other identified misstatements that warranted reporting on qualitative grounds. Our audit of the Company was undertaken to the materiality level specified above and was all performed at the company’s head office in Cirencester. 4. WE HAVE NOTHING TO REPORT ON GOING CONCERN The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (‘the going concern period’). Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Company will continue in operation. We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to that key audit matter, we are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements. We have nothing to report in these respects. Eden Research plc · Financial Statements 33 5. WE HAVE NOTHING TO REPORT ON THE OTHER INFORMATION IN THE ANNUAL REPORT The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. STRATEGIC REPORT AND DIRECTORS’ REPORT Based solely on our work on the other information: • we have not identified material misstatements in the strategic report and the Directors’ report; • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and • in our opinion those reports have been prepared in accordance with the Companies Act 2006. 6. WE HAVE NOTHING TO REPORT ON THE OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Under the Companies Act 2006, we are required to report to you if, in our opinion: • 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 • the financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. 7. RESPECTIVE RESPONSIBILITIES DIRECTORS’ RESPONSIBILITIES As explained more fully in their statement set out on page 29, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; 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; assessing 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 they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES 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 our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. 8. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Andrew Campbell-Orde (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 66 Queen Square Bristol BS1 4BE 2 April 2019 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 34 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December 2018 Revenue Cost of sales Gross profit Amortisation of intangible assets Other administrative expenses Exceptional Royalties Refund Licence Amendment Fee Share based payments Operating loss Finance costs Finance income Share of profit/(loss) of equity accounted investee, net of tax Loss before income tax Income tax Loss for the year Other comprehensive income Total comprehensive income for the year Earnings per share expressed in pence per share: Basic Diluted Notes 2 12 12 21 4 4 5 6 7 2018 £ 2,774,272 (1,237,151) 1,537,121 (429,871) 2017 £ 1,877,187 (831,499) 1,045,688 (750,210) (1,518,914) (1,431,787) – – (85,372) 570,462 (187,781) (27,210) (497,036) (780,838) (23,581) 1,684 (14,137) (1,239) 25,437 (6,289) (533,070) (762,929) 198,119 123,836 (334,951) (639,093) – – (334,951) (639,093) (0.16) (0.16) (0.33) (0.34) Eden Research plc · Financial Statements STATEMENT OF FINANCIAL POSITION 31 December 2018 Assets Non-current assets Intangible assets Investments in equity-accounted investee Current assets Stock Trade and other receivables Cash and cash equivalents Liabilities Current liabilities Trade and other payables Net current assets Non-current liabilities Trade and other payables Net assets Shareholders’ equity Called up share capital Share premium Merger reserve Warrant reserve Retained loss Total equity 35 Notes 2018 £ 2017 £ 8 9 10 11 12 12 15 16 16 16 16 5,016,508 790,739 5,807,247 14,656 919,526 2,478,740 3,412,922 4,933,761 804,876 5,738,637 206,814 962,044 3,678,383 4,847,241 875,404 2,537,518 2,004,501 2,842,740 67,462 8,277,303 67,462 8,513,915 2,071,893 31,289,915 2,070,643 31,278,196 10,209,673 10,209,673 653,446 592,495 (35,947,624) (35,637,092) 8,277,303 8,513,915 The financial statements were approved by the Board of Directors on 1 April 2019 and were signed on its behalf by: S M Smith Director Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 36 STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Balance at 1 January 2017 Changes in equity Issue of share capital Total comprehensive income Options exercised/lapsed Balance at 31 December 2017 Changes in equity Issue of share capital Total comprehensive income Options exercised/lapsed Balance at 31 December 2018 Balance at 1 January 2017 Changes in equity Issue of share capital Total comprehensive income Options granted Options exercised/lapsed Balance at 31 December 2017 Changes in equity Issue of share capital Total comprehensive income Options granted Options exercised/lapsed Balance at 31 December 2018 Called up share capital £ Retained loss £ Share premium £ 1,846,542 (35,047,427) 29,139,654 224,101 – 2,138,542 – – (639,093) 49,428 – – 2,070,643 (35,637,092) 31,278,196 1,250 – – – 11,719 (334,951) 24,419 – – 2,071,893 (35,947,624) 31,289,915 Merger reserve £ 10,209,673 – – – – 10,209,673 – – – – Warrant reserve £ 614,713 – – 27,210 (49,428) 592,495 – – 60,951 – Total equity £ 6,763,155 2,362,643 (639,093) 27,210 – 8,513,915 12,969 (334,951) 60,951 24,419 10,209,673 653,446 8,277,303 Eden Research plc · Financial Statements STATEMENT OF CASH FLOWS For the year ended 31 December 2018 Cash flows from operating activities Cash (used by)/from operations Finance costs paid Foreign exchange losses Tax credit received Net cash (used by)/from operating activities Cash flows from investing activities Capitalisation of licensing and trademarks Capitalisation of development expenditure and intellectual property costs Capitalisation of patents Finance income Foreign exchange gains Net cash used by investing activities Cash flows from financing activities Issue of equity shares Share issue costs Net cash from financing activities (Decrease)/Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 37 Notes 2018 £ 2017 £ 17 (797,608) 222,950 (551) (23,030) 119,511 (701,678) (1,239) – 8,330 230,041 – – (429,736) (82,882) 1,684 – (324,077) (148,002) 2,526 22,911 (510,934) (446,642) 12,969 2,397,893 – (35,250) 12,969 2,362,643 (1,199,643) 3,678,383 2,478,740 2,146,042 1,532,341 3,678,383 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 38 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2018 1. ACCOUNTING POLICIES GENERAL INFORMATION Eden Research plc is a public company limited by shares registered, incorporated and domiciled in England in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 63. The nature of the Company’s operations and its principal activities are set out in the Chairman’s Report on page 2. The Company is quoted on the AIM Market in London. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates. BASIS OF PREPARATION These financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention. The Company does not have any subsidiary undertakings. Associates Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of the voting power of another entity, or where the Company has a lower interest but the right to appoint a Director. The company acquired 29.9% of TerpeneTech Limited (‘TerpeneTech’) during 2015; TerpeneTech is an associated undertaking. Application of the equity method to associates The investment in TerpeneTech is accounted for using the equity method. The investment was initially recognised at cost. The Company’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses and any separable intangible assets. The financial statements include the Company’s share of the total comprehensive income and equity movements of TerpeneTech, from the date that significant influence commenced. Standards, amendments and interpretations adopted in the current financial year ended 31 December 2018 The adoption of the following mentioned standards, amendments and interpretations in the current year have not had a material impact on the Company’s financial statements. EU effective date: Periods beginning on or after IASB effective date: Periods beginning on or after IAS 40 Investment Property: Amendment in relation to transfers of investment property IFRS 2 Share-based Payment: Amendment in relation to classification and measurement of share-based payment transactions IFRS 4 Insurance Contracts: Amendment in relation to applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts IFRS 9 Financial Instruments 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 1 January 2018 Annual Improvements to IFRSs (2014 – 2016) 1 January 2018 1 January 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018 1 January 2018 Eden Research plc · Financial Statements 39 Standards, amendments and interpretations in issue but not yet effective The adoption of the following mentioned standards, amendments and interpretations in future years are not expected to have a material impact on the Company’s financial statements. The Company is however continuing to assess the full impact that adopting will have on future financial statements, and therefore the full effect is yet to be determined. EU effective date: Periods beginning on or after IASB effective date: Periods beginning on or after Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020†* 1 January 2020 Amendment to IFRS 3 Business Combinations: Definition of a Business 1 January 2020†* 1 January 2020 IAS 19 Employee Benefits: Amendment in relation to plan amendment, curtailment or settlement 1 January 2019†* 1 January 2019 IAS 28 Investments in Associates and Joint Ventures: Amendment in relation to Long-term interests in Associates and Joint Ventures IFRS 9 Financial Instruments: Amendment in relation to Prepayment features with negative compensation 1 January 2019†* 1 January 2019 1 January 2019 1 January 2019 IFRS 16 Leases IFRS 17 Insurance Contracts 1 January 2019 1 January 2019 †** 1 January 2021 Annual Improvements to IFRSs (2015 – 2017) 1 January 2019†* 1 January 2019 Conceptual Framework (Revised) and amendments to related references in IFRS Standards 1 January 2020†*^ 1 January 2020 IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019 1 January 2019 Standards, amendments and interpretations cannot be adopted in the EU until they have been EU-endorsed. † Pending endorsement. * Expected to be endorsed by the IASB effective date. ** Not expected to be endorsed by the IASB effective date. ^ Scope of endorsement limited to related references in IFRS Standards. IFRS 16, the new standard on leases, removes the distinction between operating and finance leases, meaning that the company will have higher lease liabilities, and correspondingly higher assets, on the statement of financial position. The expense relating to arrangements previously classified as operating leases will be a combination of finance costs on the newly recognised asset. The Directors have assessed the impact and noted no material changes to be made. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 40 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. ACCOUNTING POLICIES CONTINUED GOING CONCERN The financial statements have been prepared on a going concern basis which contemplates the realisation of assets and the settlement of liabilities in the ordinary course of business. The Company has reported a loss for the year after taxation of £334,951 (2017: £639,093). Net current assets at that date amounted to £2,537,518 (2017: £2,842,740). The Directors have prepared budgets and projected cash flow forecasts, based in part on forecasts provided by Eden’s commercial partners, for a period of two years from 31 December 2018 and they consider that the Company will be able to operate with the cash resources that are available to it for this period. The ability of the Company to continue as a going concern is ultimately dependent upon the amounts and timing of cash flows from the exploitation of the Company’s intellectual property and the availability of existing and/or additional funding to meet the short term needs of the business until the commercialisation of the Company’s portfolio is reached. The forecasts adopted include only revenue derived from existing contracts and, while there is a risk these payments might be delayed if milestones are not reached, there is potential upside from on-going discussions and negotiations with other parties not yet contracted, as well as other ‘blue sky’ opportunities. In addition, the Company has relatively low fixed running costs and has a demonstrable ability to delay certain other costs, such as Research and Development expenditure, in the event of unforeseen cash constraints. The Directors have also considered a scenario whereby the Company receives no revenue from the date of this Report. On this basis, the Directors believe that the Company has sufficient cash to cover a period of at least 12 months from the date of this Report. The Directors are closely monitoring performance against cash flow projections that have been prepared for the period to 31 December 2019 and beyond, and reasonably believe that the Company will deliver cash flows at least in line with these. Taking all these factors into consideration, the Directors consider it appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustments that would result from a failure by the Company to meet these forecasts. REVENUE RECOGNITION Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be reliably estimated. Revenue represents amounts receivable by the Company in respect of services rendered during the year in accordance with the underlying contract or licence, stated net of value added tax. Sales-based royalty income arising from licences of the Company’s intellectual property is recognised in accordance with the terms of the underlying contract and is based on net sales value of product sold by Eden’s licensees. It is recognised when the subsequent sales occurs. Upfront and annual payments made by customers at commencement and for renewal of distribution and other agreements are recognised in accordance with the terms of the agreement. Where there is no ongoing obligation on the Company under the agreement, the payment is recognised in full in the period in which it is made. Where there is an ongoing obligation on the Company, the separate performance obligations under the agreement are identified and revenue allocated to each performance obligation. Revenue is then recognised when a corresponding performance obligation has been met. Each sale of a licence by the Company is assessed to determine whether the licence is distinct from the sale of other goods and services, and whether the licence granted provides use of the Company’s intellectual property as it exists at that point in time, with no ongoing obligation on the Company, or alternatively provides access to the intellectual property as it develops over time. Where the Company has discharged all of its on-going obligations associated with the licence granted, revenue is recognised on receipt of the licence fee payment. Where there is an ongoing obligation on the Company, revenue is recognised in the periods to which the obligations pertain. Product sales are recorded once product is made available to the partner to collect, or, if the Company is responsible for the shipping, the product has been shipped to the customer, at which point the ownership and related rights and responsibilities pass to the customer. Eden Research plc · Financial Statements 41 INTANGIBLE ASSETS Intellectual property, including development costs, is capitalised and amortised on a straight-line basis over its remaining estimated useful economic life of 12 years in line with the remaining life of the Company’s master patent, which was originally 20 years, with additional Supplementary Protection Certificates having been granted in the majority of the countries in the EU in which Eden is selling Mevalone. The useful economic life of intangible assets is reviewed on an annual basis. IMPAIRMENT OF NON-FINANCIAL ASSETS The Directors regularly review the intangible assets for impairment and provision is made if necessary. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. RESEARCH AND DEVELOPMENT Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible asset arising from the Company’s development activities is recognised only if all the following conditions are met: • the project is technically and commercially feasible; • an asset is created that can be identified; • the Company intends to complete the asset and use or sell it and has the ability to do so; • it is probable that the asset created will generate future economic benefits; • the development cost of the asset can be measured reliably; and • there are sufficient resources available to complete the project. Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. FINANCIAL INSTRUMENTS The Company uses certain financial instruments in its operating and investing activities that are deemed appropriate for its strategy and circumstances. Financial assets and liabilities are recognised in the Statement of Financial Position when the Company has become a party to the contractual provisions of the instrument. Financial instruments recognised in the Statement of Financial Position include cash and cash equivalents, trade receivables, trade payables and borrowings and fixed interest convertible debt. Cash and cash equivalents comprise cash on hand and on demand deposits, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Interest bearing loans and overdrafts are recorded at the fair value received less any transaction costs. Subsequent to initial recognition such instruments are measured at amortised cost, using the effective interest method. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 42 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. ACCOUNTING POLICIES CONTINUED FINANCIAL ASSETS Trade receivables, loans and other receivables that have fixed or determinable payments are classified as ‘Loans and receivables’ and are measured initially at fair value plus transaction costs and subsequently at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. Financial assets are assessed for impairment at each reporting date by considering the recoverable amount of the asset in comparison to its carrying value and any impairment is recognised in the Statement of Profit or Loss and Other Comprehensive Income. Trade receivables are assessed for collectability and where appropriate the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account and changes in the carrying amount of the allowance account are recognised in the Statement of Profit or Loss and Other Comprehensive Income. EQUITY INSTRUMENTS Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. FINANCIAL LIABILITIES Financial liabilities such as trade payables and loans are classified as ‘Other financial liabilities’ and are measured initially at fair value less transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, except for short term payables when the recognition of interest would be immaterial. Non-executory contracts are recognised when all obligations due to the Company under the terms of the contract have been met, but the Company retains a financial liability. This financial liability is measured in accordance with the Company’s accounting policy for the measurement of financial liabilities. STOCK Stock is stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing location and condition. LEASING Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Company. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. FOREIGN CURRENCIES Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange prevailing at the date of transaction. Exchange differences are taken into account in arriving at the operating result. Whilst the majority of the Company’s revenue is in Euros, the Company also incurs a significant level of expenditure in that currency. As such, the Company does not currently use any hedging facilities and instead chooses to keep some of its cash at the bank in Euros. SHARE-BASED PAYMENTS The Company has applied the requirements of IFRS 2 Share-Based Payments. Unapproved share option scheme The Company has operated an unapproved share option scheme for executive Directors, senior management and certain employees. This scheme was used for any options awarded prior to 28 September 2017. Eden Research plc · Financial Statements 43 Long-Term Incentive Plan (‘LTIP’) In 2017, the Company established a LTIP to incentivise the Executives to deliver long-term value creation for shareholders and ensure alignment with shareholder interests. Awards are made annually and are subject to continued service and challenging performance conditions usually over a three year period. The performance conditions are reviewed on an annual basis to ensure they remain appropriate and are currently based on increasing shareholder value. Awards are generally structured as nil cost options with a seven year life after vesting. Other than in exceptional circumstances, an award to an Executive would be up to 100% of salary in any one year and would be granted subject to achieving challenging performance conditions set at the date of the grant. A percentage of the award will vest for ‘Threshold’ performance with full vesting taking place for equalling or exceeding the performance ‘Target’. In between the Threshold and Target there may be pro rata vesting. The Remuneration Committee retains the ability to amend the performance conditions for future grants to ensure that such grants achieve the stated purpose. The LTIP was adopted by the Board of Directors of Eden on 28 September 2017. Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the Statement of Profit or Loss and Other Comprehensive Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that ultimately the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted, as long as other vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in fair value of the options, measured immediately before and after the modification is also charged to the Statement of Profit or Loss and Other Comprehensive Income over the remaining vesting period. DEFINED CONTRIBUTION PLAN A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement in the periods during which services are rendered by employees. FINANCIAL RISK MANAGEMENT The Company’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risks), credit risk and liquidity risk. Risk management focuses on minimising any potential adverse effect on the Company’s financial performance and is carried out under policies approved by the Board of Directors. Further detail is given in note 22 to the financial statements. CURRENT AND DEFERRED INCOME TAX The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Profit or Loss and Other Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively as at the reporting date. The current tax charge includes any research and development tax credits claimed by the Company. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 44 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. ACCOUNTING POLICIES CONTINUED Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interest in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized based on the tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. CRITICAL ACCOUNTING ESTIMATES AND AREAS OF JUDGEMENT The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk to the carrying amounts of assets and liabilities within the next financial year are discussed below: Capitalised development costs and intellectual property The Directors have considered the recoverability of an internally generated intangible asset, being development costs, which has a carrying value of £2.3m (2017: £2.0m) and intellectual property which has a carrying value of £2.7m (2017: £2.9m). The projects relating to these items continue to progress in a satisfactory manner and the Directors are confident that the carrying amount of the asset will be recovered in full. This situation will be closely monitored and adjustments made in future periods if future market activity indicates that such adjustments are appropriate. The key factors which could impact upon whether it remains appropriate to continue to capitalise intangible assets or on the impairment considerations include: • The availability of the necessary financial resources and hence the ability of the Company to continue as a going concern. • The assumptions surrounding the perceived market sizes for the products and the achievable market share for the Company. • The successful conclusion of commercial arrangements, which serves as an indicator as to the likely success of the projects and, as such, any need for potential impairment. • The level of upfront, milestone and royalty receipts, which also serves as a guide as to the net present value of the assets and whether any impairment is required. Impairment of assets The Directors have considered the progress of the business in the current year, including a review of the potential market for its products, the progress the Company has made in registering its products and other key commercial factors to determine whether any indicators of impairment exist. Based upon the review management have carried out they are satisfied that no such factors exist and therefore a full impairment review on the Company’s intangible assets and investments has not been carried out. Further details on impairment review can be found in note 8 and 9 to the accounts. Going concern The Directors have considered the ability of the Company to continue as a going concern and this is considered to be the most significant judgement made by the Directors in preparing the financial statements. The ability of the Company to continue as a going concern is ultimately dependent upon the amount and timing of cash flows arising from the exploitation of the Company’s intellectual property and the availability of existing and/ or additional funding to meet the short term needs of the business until the commercialisation of the Company’s portfolio is reached. The Directors consider it is appropriate for the financial statements to be prepared on a going concern basis based on the estimates they have made. Eden Research plc · Financial Statements 45 2. SEGMENTAL REPORTING AND REVENUE IFRS 8 requires operating segments to be reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for the resource allocation and assessing performance of the operating segments has been identified as the Executive Directors as they are primarily responsible for the allocation of the resources to segments and the assessment of performance of the segments. The Executive Directors monitor and then assess the performance of segments based on product type and geographical area using a measure of adjusted EBITDA. This is the result of the segment after excluding the share based payment charges, other operating income and the amortisation of intangibles. These items, together with interest income and expense are not allocated to a specific segment. The segmental information for the year ended 31 December 2018 is as follows: Licensing Fees £ Milestone Payments £ R&D charges £ Royalties £ Grant Funding £ Product Sales £ Un- allocated £ Human health and biocides Animal health Agrochemicals TOTAL Adjusted EBITDA Amortisation Depreciation Share Based Payments Net Finance Costs Income Tax Share of Associate’s loss Loss for the Year Total Assets Total assets includes: Additions to Non-Current Assets Total Liabilities – – – – – – – – – – – – – – – – – – – – 48,113 – 956,123 112,540 36,193 956,123 112,540 84,306 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total £ 48,113 – 2,726,159 – – – – 2,774,272 18,207 18,207 (429,871) (429,871) – – (85,372) (85,372) (21,897) (21,897) 198,119 198,119 (14,137) (14,137) (334,951) (334,951) – – 1,621,303 1,621,303 – – – – – – – – – 9,220,169 9,220,169 – – – – – 512,618 512,618 (942,866) (942,866) Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 46 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 2. SEGMENTAL REPORTING AND REVENUE CONTINUED The segmental information for the year ended 31 December 2017 is as follows: Licensing Fees £ Milestone Payments £ Evaluation Fees £ Royalties £ Grant Funding £ Product Sales £ Un- allocated £ Total £ Human health and biocides Animal health Agrochemicals 14,750 – – – – 967,686 Total 14,750 967,686 – – – – – – – – – – – Adjusted EBITDA Amortisation Depreciation Share Based Payments Net Finance Costs Income Tax Share of Associate’s loss Loss for the Year Total Assets Total assets includes: Additions to Non-Current Assets Total Liabilities – – – – – – – – – – – GEOGRAPHICAL REPORTING UK Europe – – – – – – – – – – – – – – – 13,274 – 116,405 129,679 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 765,072 765,072 – – – – 28,024 – 1,849,163 1,877,187 – – – – – – – – (3,418) (3,418) (750,210) (750,210) – – (27,210) (27,210) 24,198 24,198 123,836 123,836 (6,289) (6,289) (639,093) (639,093) – 10,585,878 10,585,878 – – 472,079 472,079 (2,071,963) (2,071,963) 2018 £ 160,653 2,613,619 2,774,272 2017 £ 28,024 1,849,163 1,877,187 The revenue derived from Milestone Payments and Licensing Fees relates to agreements which cover a number of countries both in the EU and throughout the rest of the world. All of the non-current assets are in the UK. Eden Research plc · Financial Statements 47 REVENUE Accounting policy The Company’s accounting policy for revenue is detailed in note 1. Nature of goods and services The following is a description of the principal activities from which the Company generates its revenue. 1. Licensing fees The Company receives licensing fees from partners who have taken a licence to use Eden’s intellectual property, usually defined by field of use and territory. When a licence agreement is signed with a partner, the rights conferred are immediately passed on from Eden and an invoice is raised, which is generally payable immediately. 2. Milestone payments The Company receives milestone payments from other commercial arrangements, including any fees it has charged to partners for rights granted in respect of distribution agreements. When such an agreement is signed with a partner, the rights conferred are immediately passed on from Eden and an invoice is raised, which is generally payable immediately. Also, in some cases, there are certain commercial or other milestones which are to be met by a commercial partner which, once met, give rise to a responsibility by that partner to pay a fee to Eden, which is generally payable immediately. 3. R&D charges The Company sometimes charges its partners for R&D costs that it has incurred which usually relate to specific projects and which it has incurred through a third party. Upon agreement with a partner, or if some specific milestone is met, then Eden will raise an invoice which is usually payable between 30 and 120 days. 4. Royalties The Company receives royalties from partners who have entered into a licence arrangement with Eden to use its intellectual property and who have sold products, which then gives rise to an obligation to pay Eden a royalty on those sales. Generally, royalties relate to specific time periods, such as quarterly or annual dates, in which product sales have been made. Once an invoice is raised by Eden, following the period to which the royalties relate, payment is due to the Company in 30 to 60 days. 5. Product sales Generally, where the Company has entered into a distribution agreement with a partner, Eden is responsible for supplying product to that partner once a sales order has been signed. At that point, Eden has the product manufactured through a third-party, toll manufacturer. At the point at which the product is finished and is made available to the partner to collect, or, if the Company is responsible for the shipping, the product has been shipped, the partner is liable for the product and obliged to pay Eden. Normal terms for product sales are 90 to 120 days. Returns are not accepted and refunds are only made when product supplied is notified as defective within 60 days. Contract balances Included within prepayments and accrued income (see note 10) is accrued income of £36,193 (2017: £22,242) arising from contracts with customers. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 48 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 3. EMPLOYEES AND DIRECTORS Wages and salaries Pension costs Social security costs The average monthly number of employees, including Directors, was as follows: Management 2018 £ 631,183 15,618 89,595 2017 £ 511,647 10,804 71,572 736,396 594,023 2018 5 2017 5 Staff costs, including executive Directors’ remuneration, are included within administrative expenditure in the Statement of Profit or Loss and Other Comprehensive Income. The Executive Directors are considered to also be the key management personnel of the Company. Directors’ remuneration Company contributions to defined contribution pension schemes Non-executive Directors’ fees Total Directors’ emoluments Share based payment charge relating to all Directors 2018 £ 532,784 13,600 546,384 75,000 621,384 85,372 During the year the remuneration of the highest paid Director was £353,086 (2017: £258,408). 2018 A Abrey S Smith R Cridland L Van Der Broek 2017 A Abrey T Lupton S Smith R Cridland L Van Der Broek Salary £ 150,000 190,000 – – Bonus £ 85,050 107,734 – – 340,000 192,784 Fees £ – – 35,000 40,000 75,000 Pension £ 6,000 7,600 – – Share based payments £ 37,620 47,752 – – 13,600 85,372 706,756 Salary £ 123,000 – Bonus £ 75,854 Fees £ – Pension £ Share based payments £ 4,920 12,479 – 35,000 – – Total £ 216,253 35,000 147,088 90,705 – 5,884 14,731 258,408 – – – – 30,000 10,000 – – – – 30,000 10,000 270,088 166,559 75,000 10,804 27,210 549,661 2017 £ 436,647 10,804 447,451 75,000 522,451 27,210 Total £ 278,670 353,086 35,000 40,000 Eden Research plc · Financial Statements 4. NET FINANCE COSTS Finance income: Foreign exchange gains Deposit account interest Finance costs: Foreign exchange losses Finance fees 49 2018 £ – 1,684 1,684 23,030 551 23,581 2017 £ 22,911 2,526 25,437 – 1,239 1,239 Net finance costs (21,897) (24,198) 5. LOSS BEFORE INCOME TAX The loss before income tax is stated after charging/(crediting): Licences and trademarks amortisation Development costs amortisation Intellectual property amortisation Auditor’s remuneration: – Audit of these financial statements – All other services Equity share based payment charge Foreign exchange differences 2018 £ 7,099 183,018 239,754 27,000 – 85,372 23,030 2017 £ 20,446 290,276 439,488 22,500 20,779 27,210 (22,911) Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 50 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 6. INCOME TAX ANALYSIS OF TAX INCOME Current tax credit: Current year Adjustments in respect of prior periods Total tax income in statement of profit or loss and other comprehensive income 2018 £ 156,865 41,254 198,119 2017 £ 78,259 45,577 123,836 CORPORATION TAX No tax charge arises on the results for the year (2017: £nil). Tax losses carried forward, for which no deferred tax asset has been recognised, amount to approximately £22,291,281 (2017: £22,247,515). The tax credit represents the research and development tax credit receivable for the year ended 31 December 2018. FACTORS AFFECTING THE TAX CHARGE The UK standard rate of corporation tax is 19% (2017: 19.25%). Current tax assessed for the financial year as a percentage of the loss before taxation is (37.2)% (2017: (16.2)%). The differences are explained below: Standard rate of corporation tax in the UK Loss before tax at standard rate of tax (101,283) 2018 £ Effects of Fixed asset differences Losses carried forward/surrendered Difference in effective tax rate of equity accounted associate Other expenses not deductible for tax purposes Research and development tax relief Adjustment to prior year tax charge Temporary differences not recognised in the computation Adjust closing deferred tax to average rate of 19.00% Deferred tax not recognised to be analysed Total current tax credit and tax rate % Deferred tax Un-provided deferred tax liability Un-provided deferred tax asset Net un-provided deferred tax asset 71,071 48,682 – 19,836 (116,179) (41,254) 69,431 (148,423) – (198,119) (513,138) 3,789,518 3,276,380 % (19.0) 13.3 9.1 – 3.7 (21.8) (7.7) 13.0 (27.8) – (37.2) 2017 £ (146,863) 55,981 – 642 9,413 (86,322) (45,577) – – 88,890 (123,836) (237,330) 3,782,077 3,544,747 % (19.25) 7.4 – 0.1 1.2 (11.3) (6.0) – – 11.7 (16.2) Eden Research plc · Financial Statements 51 The adjustment to the prior year tax charge of £41,254 relates to increased submitted R&D tax credit claims compared to that provided for in the 2017 financial statements. The un-provided for deferred tax asset arises principally in respect of trading losses, together with other minor timing differences at 17% (2017: 17%) and has not been recognised due to the uncertainty of timing of future profits against which it may be realised. Reductions in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company’s future current tax charge accordingly. 7. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. Reconciliations are set out below: Basic EPS Earnings attributable to ordinary shareholders (334,951) 207,115,707 2018 Weighted average number of shares Earnings £ Effect of dilutive securities Diluted EPS Adjusted earnings – 160,422 (334,951) 207,276,129 (0.16) Basic EPS Earnings attributable to ordinary shareholders (639,093) 195,705,733 2017 Weighted average number of shares Earnings £ Effect of dilutive securities Diluted EPS Adjusted earnings – (5,019,101) (639,093) 190,686,632 (0.34) Due to the loss for the year there is no dilution of the loss per share arising from options in existence. Per-share amount pence (0.16) – Per-share amount pence (0.33) – Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 52 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 8. INTANGIBLE ASSETS COST At 1 January 2018 Additions Licences and trademarks £ Development costs £ Intellectual property £ Totals £ 447,351 3,779,353 8,887,745 13,114,449 – 429,736 82,882 512,618 At 31 December 2018 447,351 4,209,089 8,970,627 13,627,067 AMORTISATION At 1 January 2018 Amortisation for year At 31 December 2018 NET BOOK VALUE At 31 December 2018 COST At 1 January 2017 Additions 404,756 1,765,236 6,010,696 8,180,688 7,099 411,855 183,018 239,754 429,871 1,948,254 6,250,450 8,610,559 35,496 2,260,835 2,720,177 5,016,508 Licences and trademarks £ Development costs £ Intellectual property £ Totals £ 447,351 3,455,276 8,739,743 12,642,370 – 324,077 148,002 472,079 At 31 December 2017 447,351 3,779,353 8,887,745 13,114,449 AMORTISATION At 1 January 2017 Amortisation for year At 31 December 2017 NET BOOK VALUE At 31 December 2017 384,310 20,446 404,756 1,474,960 290,276 1,765,236 5,571,208 439,488 6,010,696 7,430,478 750,210 8,180,688 42,595 2,014,117 2,877,049 4,933,761 The amortisation charge is included within administration expenses. Intellectual property represents intellectual property in relation to use of encapsulated terpenes in agrochemicals. The remaining useful economic life of that asset is 12 years. An annual impairment review is undertaken by the Board of Directors. The Directors have considered the progress of the business in the current year, including a review of the potential market for its products, the progress the Company has made in registering its products and other key commercial factors to determine whether any indicators of impairment exist. The Directors have used discounted cash-flow forecasts, based on product sales forecasts including those provided by the Company’s commercial partners, and have taken into account the market potential for Eden’s products and technologies using third party market data that Eden has acquired licences to. The discount rate and the forecast cash-flows are two key assumptions used. The discount rate is estimated using pre-tax rates that reflect current market assessments of the time value of money and the risk specific to the asset. The rate used was 10% (2017: 10%). The forecast cash-flows are derived from discussions with the Company’s commercial partners, as described below. Eden Research plc · Financial Statements 53 Based on the review management has carried out, it is satisfied that the Intangible Assets are not impaired in respect of their carrying value. As set out in the Strategic Report the business is in a critical phase of its development as the research and development of products is transitioned to revenue generation. The value of the intangible assets is supported by management’s forecasts of continued revenue growth of existing products and the successful growth of future product sales. Management has used cash-flow forecasts for the next seven years which include average annual growth of 29% over this period, followed by a further three year period in which no growth is assumed. This is considered to be reasonably prudent based on information from and discussion with strategic partners. However there is a risk that if those forecasts are not achieved then the associated intangible assets could be impaired. Average annual growth in cash-flows would need to fall below 9% for this to be the case. In the event that there were no further growth over and above the revenue achieved in the year to December 2018, there would be an impairment of intangible assets of approximately £2.9m. All revenues have been projected to come from the cash generating units identified in the segmental reporting and Chairman’s Report, namely the key product lines of the Company. 9. INVESTMENTS IN ASSOCIATES Percentage ownership interest and proportion of voting rights Non-current assets Current assets Non-current liabilities Current liabilities Net assets (100%) Company’s share of net assets Separable intangible assets Goodwill Carrying amount of interest in associate Revenue Profit from continuing operations 100% of total post-tax profits 29.9% of total post-tax profits 2018 29.9% £ 647,137 222,572 (44,493) (177,829) 647,387 193,569 184,521 412,649 790,739 308,864 1,441 1,441 431 2017 29.9% £ 584,338 134,034 (44,493) (27,932) 645,947 193,138 199,089 412,649 804,876 225,187 27,687 27,687 8,278 Amortisation of separable intangible assets (14,568) (14,568) Company’s share of profit/(loss) including amortisation of separable intangible assets Other comprehensive income 100% 29.9% Company’s share of other comprehensive income Total comprehensive income (100%) Company’s share of total comprehensive income including amortisation of separable intangible asset Dividends received by the Company (14,137) (6,289) – – – – – – 1,441 27,687 (14,137) (6,289) – – Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 54 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 9. INVESTMENTS IN ASSOCIATES CONTINUED TerpeneTech’s registered office is Kemp House, 152 City Road, London, EC1V 2NX and its principal place of business is 3 rue de Commandant Charcot, 22410, St Quay Portrieux, France. An impairment review of the investment in TerpeneTech was undertaken by the Board of Directors. The Directors have considered the progress of the business in the current year, including a review of the potential market for its products, the progress TerpeneTech has made in registering its products and other key commercial factors to determine whether any indicators of impairment exist. The Directors have used discounted cash-flow forecasts, based on product sales forecasts provided by TerpeneTech, and have taken into account the market potential for those products. The discount rate and the expected growth rate are two key assumptions used. The discount rate is estimated using pre-tax rates that reflect current market assessments of the time value of money and the risk specific to the asset. The rate used was 20% (2017: 20%). The growth rates are derived from discussions with the Company’s commercial partner, TerpeneTech, as described above. Based on the review management has carried out, it is satisfied that the Investment is not impaired in respect of its carrying value. The Directors have also considered whether any reasonable change in assumptions would lead to an impairment and are satisfied that this is not the case. 10. TRADE AND OTHER RECEIVABLES Current: Trade and other receivables Prepayments and accrued income Other debtors Other taxes and social security VAT recoverable 2018 £ 2017 £ 515,279 76,064 – 194,461 133,722 919,526 731,968 42,949 16,992 115,506 54,629 962,044 The Directors consider that the carrying value of trade and other receivables approximates to the fair value. Details of debts past due but not impaired are given in note 22. 11. CASH AND CASH EQUIVALENTS Short term bank deposits 2018 £ 2017 £ 2,478,740 3,678,383 The carrying amount of these short-term bank deposits approximates to their fair value. Eden Research plc · Financial Statements 12. TRADE AND OTHER PAYABLES Current: Trade payables Other payables Other taxes and social security Accruals and deferred income Non-current: Other creditors Aggregate amounts 55 2018 £ 2017 £ 499,186 47,706 15,085 313,427 875,404 1,558,279 66,389 11,836 367,997 2,004,501 2018 £ 2017 £ 67,462 67,462 942,866 2,071,963 The Directors consider that the carrying value of trade and other payables approximates to their fair value. See note 22 for disclosure of the amount of trade payables denominated in foreign currency. See Directors’ Report for disclosure of the average credit period taken. Included in accruals is an amount of £nil (2017: £nil), being minimum royalties due to University of Massachusetts Medical School (‘UMMS’) under the licence agreement Eden signed with UMMS in 2011. In 2017, the Company successfully re-negotiated certain terms of the licence agreement and, as such, the full amount previously accrued was written off. Future royalty amounts will be accrued for as they become payable. The Company paid a licence amendment fee of £187,781 in 2017 to UMMS in respect of the renegotiation which is shown in the Income Statement. The release of the accrual is shown on the Income Statement as an Exceptional Royalties Refund in 2017 of £570,462. 13. LEASING AGREEMENTS Minimum lease payments under non-cancellable operating leases fall due as follows: Between one and five years 14. FINANCIAL ASSETS AND LIABILITIES Financial assets at amortised cost Other receivables Cash and cash equivalents Financial liabilities measured at amortised cost Current: Trade and other payables 2018 £ 53,268 53,268 2017 £ 35,000 35,000 Note 2018 £ 2017 £ 10 11 12 919,526 2,478,740 3,398,266 962,044 3,678,383 4,640,427 499,186 499,186 1,558,279 1,558,279 Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 56 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 15. CALLED UP SHARE CAPITAL Number: 207,189,337 (2017: 207,064,337) Class: Ordinary Nominal value: 2018 £ 2017 £ 0.01 2,071,893 2,070,643 Allotted, issued and fully paid Number: 207,189,337 (2017: 207,064,337) Class: Ordinary Nominal value: 2018 £ 2017 £ 0.01 2,071,893 2,070,643 On 4 May 2018, the Company issued 125,000 ordinary shares at 10.375p each for a total consideration of £12,969. Share issue costs of £nil were incurred and have been charged to the share premium account as detailed in note 16. The number of £0.01 ordinary shares issued in the year totalled 125,000 (2017: 22,410,218). Date 04/05/2018 Number of ordinary shares 125,000 Aggregate nominal value £ 1,250 1,250 Issue Price £ 0.10375 Premium on issue £ 0.09375 16. RESERVES Retained losses £ Share premium £ Merger reserve £ At 1 January 2018 (35,637,092) 31,278,196 10,209,673 Deficit for the year (334,951) Cash share issue Share issue costs Transfer to other reserves Options granted – – – – Options exercised/lapsed 24,419 – 11,719 – – – – – – – – – – Warrant reserve £ 592,495 – – – 60,951 – Total share premium £ 11,719 11,719 Totals £ 6,443,272 (334,951) 11,719 – – 60,951 24,419 At 31 December 2018 (35,947,624) 31,289,915 10,209,673 653,446 6,205,410 The merger reserve arose on the acquisition of a subsidiary undertaking in a prior year for which merger relief was permitted under the Companies Act 2006. The warrant reserve represents the fair value of share options and warrants granted, and not exercised or lapsed, in accordance with the requirements of IFRS 2 Share Based Payments. Eden Research plc · Financial Statements 57 17. RECONCILIATION OF LOSS FOR THE YEAR TO CASH FROM/USED BY OPERATIONS Loss for the year Share of associate’s losses Depreciation charges Share based payment charge Finance costs Finance income Tax credit Increase in trade and other receivables (Decrease)/increase in trade and other payables Decrease/(increase) in stock Cash from/(used by) operations 2018 £ 2017 £ (334,951) (639,093) 14,137 429,871 85,372 23,581 (1,684) (198,119) 18,207 149,114 6,289 750,210 27,210 1,239 (25,437) (123,836) (3,418) (606,033) (1,157,087) 1,039,215 192,158 (797,608) (206,814) 222,950 18. CAPITAL COMMITMENTS The Company had no capital commitments at 31 December 2018 (2017: £nil). 19. CONTINGENT LIABILITY In September 2015, the Company entered into a Collaboration and Licence agreement with Invention Development Management Company LLC (part of Intellectual Ventures, now called Xinova LLC). As part of this agreement, upon successful completion of a number of different tasks, Xinova will be entitled to a payment which is calculated using a percentage of the value of the Company at a future date. This has been accounted for as a cash-settled share-based payment under IFRS 2. An amount of £67,462, being the estimated fair value of the liability due to Xinova, was recognised during 2016 and included as a non-current liability, as disclosed in note 12 to the accounts. It is not believed that the value of the services provided by Xinova can be reliably measured, and so this amount was calculated based on the Company’s market capitalisation at 31 December 2016, adjusted to reflect the percentage of work completed by Xinova at that date based on a pre-determined schedule of tasks. No further charge was made during the year as no services were rendered by Xinova which would give rise to a further payment becoming due. The fair value of the liability has been reviewed at the balance sheet date, given the change in the Company’s market capitalisation, and it is deemed that no adjustment is required. Therefore, the liability of £67,462 continues to be recognised. 20. RELATED PARTY DISCLOSURES Disclosures required in respect of IAS 24 regarding remuneration of key management personnel are covered by the disclosure of Directors’ remuneration included within note 3. Transactions with other related parties are set out below: During the year, Eden invoiced its associate, TerpeneTech, £nil for licence fees (2017: £14,750), £112,540 for R & D charges (2017: £nil) and £48,113 for royalties due (2017: £nil). Also, during the year Eden made net payments to TerpeneTech totalling £11,440 (2017: net receipts of £71,302). At the year end, a net amount of £135,392 was due from TerpeneTech (2017: £36,597 owed to TerpeneTech). This amount is included within Trade Receivables and Other Payables. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 58 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 21. SHARE-BASED PAYMENT TRANSACTIONS SHARE OPTIONS Unapproved option scheme Eden Research plc operates an unapproved option scheme for executive Directors, senior management and certain employees. Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed during the year 2018 2017 Weighted average exercise price (pence) 11 – 10 8 11 Weighted average exercise price (pence) 11 – – – 11 Number 5,025,000 – (125,000) (1,500,000) 3,400,000 Number 5,025,000 – – – 5,025,000 The exercise price of options outstanding at the end of the year ranged between 10p and 16p (2017: 8p and 16p) and their weighted average contractual life was 0.9 years (2017: 1.5 years). None of the options have vesting conditions. The share-based payment charge in respect of the unapproved option scheme for the year was £nil (2017: £nil). The weighted average fair value of each option granted during 2018 was £nil (2017: £nil). Long-Term Incentive Plan (‘LTIP’) Eden Research plc operates an unapproved option scheme for executive Directors, senior management and certain employees under a LTIP which it adopted in the year. During the prior year, the following options were granted under the LTIP: Description 2015 awards 2016 awards Date of grant 28/09/2017 28/09/2017 Number of awards granted 1,908,680 2,108,000 4,016,680 Fair value per award £ 0.0601 0.0461 Total fair value £ 114,712 97,179 211,891 No additional options were granted in the year ended 31 December 2018. The share-based payment charge for the year ended 31 December 2017 and subsequent years is set out as follows: Financial year ended 31 December Share-based payment charge £ 2017 2018 2019 2020 27,210 85,372 75,108 24,201 211,891 Eden Research plc · Financial Statements 59 The following information is relevant in the determination of the fair value of options granted during the year under the unapproved options scheme under the LTIP operated by Eden Research plc. Grant date Number of awards Share price Exercise price Expected dividend yield Expected volatility Risk free rate Vesting period Expected Life (from date of grant) 2015 Award 2016 Award 28/09/17 28/09/17 1,908,680 2,108,000 £0.125 £0.125 £nil –% 73.20% 0.80% 2 years 10 years £nil –% 73.20% 0.80% 3 years 10 years For those options and warrants which were not granted under the Company’s LTIP, fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural conditions. For those options which were granted under the Company’s LTIP, Monte Carlo techniques were used to simulate future share price movements of the Company to assess the likelihood of the performance criteria being met and the fair value of the awards upon vesting. The modelling calculates many scenarios in order to estimate the overall fair value based on the average value where awards vest. WARRANTS Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed during the year 2018 2017 Weighted average exercise price (pence) 14 – – 16 20 Weighted average exercise price (pence) 14 – – – 14 Number 3,350,000 – – (950,000) 2,400,000 Number 5,497,867 – – (2,147,867) 3,350,000 The exercise price of warrants outstanding at the end of the year ranged between 11p and 30p (2017: 11p and 30p) and their weighted average contractual life was 2.6 years (2017: 1.9 years). None of the warrants have vesting conditions. The share based payment charge for the year was £nil (2017: £nil). The weighted average fair value of each warrant granted during the year was £nil (2017: £nil). Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 60 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 22. FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES CREDIT RISK Cash and cash equivalents Trade receivables 2018 £ 2017 £ 2,478,740 3,678,383 515,279 731,968 2,994,019 4,410,351 The average credit period for sales of goods and services is 36 days. No interest is charged on overdue trade receivables. At 31 December 2018 trade receivables of £56,706 (2017: £195,404) were past due. During the year the Company wrote off bad debts in the amount of £47,984 (2017: £nil). Trade receivables of £398,447 (2017: £683,984) at the reporting date are held in Euros and £112,656 (2017: £47,984) were held in USD. The Company’s policy is to provide for doubtful debts based on estimated irrecoverable amounts determined by reference to specific circumstances and past default experience. At the balance sheet date the Directors consider that no provision for doubtful debts is required and that there is no further credit risk. FINANCIAL LIABILITIES Trade payables Other payables Other taxes and social security Accruals and deferred income 2018 £ 2017 £ 499,186 1,558,279 115,168 15,085 313,427 942,866 66,389 11,836 367,997 2,004,501 The carrying amount of trade payables approximates to fair value. The average credit period on purchases of goods is 59 days. No interest is charged on trade payables. The Company has policies in place to ensure that trade payables are paid within the credit timeframe or as otherwise agreed. CREDIT RISK As explained above, the Directors consider that there is no material exposure to credit risk at the reporting date. CURRENCY RISK The Company publishes its financial statements in pounds sterling and conducts some of its business in US Dollars, Australian Dollars and Euros. As a result, it is subject to foreign currency exchange risk due to exchange movements, which will affect the Company’s transaction costs and translation of the results. No financial instruments are utilised to manage risk and currency gains, and losses are charged to the Statement of Profit or Loss and Other Comprehensive Income as incurred. At the year end, the Company had the following net foreign currency balances in liabilities. US Dollars Euros Australian Dollars 2018 £ 85,111 115,807 73,591 2017 £ 448,609 916,887 – 274,509 1,365,496 Eden Research plc · Financial Statements 61 LIQUIDITY RISK The interest rate profile of the Company’s financial liabilities at 31 December 2018 was: Sterling 2018 2017 Euro 2018 2017 US Dollar 2018 2017 Australian Dollar 2018 2017 Fixed rate financial liabilities £ Financial liabilities on which no interest is paid £ – – – – – – – – 668,357 706,467 115,807 916,887 85,111 448,609 73,591 – Total £ 668,357 706,467 115,807 916,887 85,111 448,609 73,591 – All the Euro, Australian Dollar and US Dollar liabilities are held within trade creditors and are non-interest bearing. MATURITY OF FINANCIAL LIABILITIES The maturity profile of the Company’s financial liabilities at 31 December 2018 was as follows: In one year or less, or on demand Over one year 2018 £ 875,404 67,462 942,866 2017 £ 2,004,501 67,462 2,071,963 Liquidity risk is managed by regular monitoring of the Company’s levels of cash and cash equivalents, debtor and creditor management and expected future cash flows. See note 1 for further details on the going concern position of the Company. MARKET PRICE RISK The Company’s exposure to market price risk comprises interest rate and currency risk exposures. It monitors these exposures primarily through a process known as sensitivity analysis. This involves estimating the effect on results before tax over various periods of a range of possible changes in interest rates and exchange rates. The sensitivity analysis model used for this purpose makes no assumptions about any interrelationships between such rates or about the way in which such changes may affect the economies involved. As a consequence, figures derived from the Company’s sensitivity analysis model should be used in conjunction with other information about the Company’s risk profile. The Company’s policy towards currency risk is to eliminate all exposures that will impact on reported results as soon as they arise. This is reflected in the sensitivity analysis, which estimates that five and ten percentage point increases in the value of sterling against all other currencies would have had minimal impact on results before tax. Annual Report and Financial StatementsCompany OverviewFinancial statementsGovernance 62 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 22. FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES CONTINUED On the other hand, the Company’s policy is to accept a degree of interest rate risk as long as the effects of various changes in rates remain within certain prescribed ranges. On the basis of the Company’s analysis, the only financial liabilities held by the Company are loans which are subject to a fixed rate of interest. As such it is considered that any increases in interest rates would not have had an impact on the Company’s loss before tax for the year. CAPITAL RISK MANAGEMENT The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value. The Company seeks to enhance shareholder value by capturing business opportunities as they develop. To achieve this goal, the Company maintains sufficient capital to support its business. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. The Company looks to maintain a reasonable debt position by repaying debt or issuing equity, as and when it is deemed to be required. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2018 and 31 December 2017. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company’s policy is to keep the gearing ratio below 10% (2017: below 10%).The Company includes within net debt, interest bearing loans and borrowings, a loan from a venture partner, trade and other payables, less cash and cash equivalents. 23. DEFINED CONTRIBUTION PLANS The Company operates a defined contribution pension plan. The total expense relating to these plans in the current year was £15,618 (2017: £10,804). Eden Research plc · Financial Statements COMPANY INFORMATION For the year ended 31 December 2018 DIRECTORS A J Abrey R J S Cridland S M Smith L J van der Broek SECRETARY A J Abrey REGISTERED OFFICE 6 Priory Court Priory Court Business Park Poulton Cirencester Gloucestershire GL7 5JB REGISTERED NUMBER 03071324 (England and Wales) INDEPENDENT AUDITOR KPMG LLP 66 Queen Square Bristol BS1 4BE BANKERS The Royal Bank of Scotland Plc Southern Corporate Office P O Box 391 40 Islington High Street London N1 8JX SOLICITORS DAC Beachcroft LLP 100 Fetter Lane London EC4A 1BN NOMAD AND STOCKBROKER Shore Capital Stockbrokers Limited Bond House 14 Clifford Street London WS1 4JU 63 s t n e m e t a t S l i i a c n a n F d n a t r o p e R l a u n n A i w e v r e v O y n a p m o C e c n a n r e v o G s t n e m e t a t s l i a c n a n F i E D E N R E S E A R C H P L C A N N U A L R E P O R T 2 0 1 8 Eden Research plc 6 Priory Court Priory Court Business Park Poulton Cirencester Gloucestershire GL7 5JB www.edenresearch.com