Ergomed
Annual Report 2016

Plain-text annual report

E r g o m e d p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 E r g o m e d p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 TRANSFORMING DRUG DEVELOPMENT Ergomed plc Annual Report and Accounts 2016 FOUNDED IN 1997, ERGOMED PLC IS A UK COMPANY, DEDICATED TO THE PROVISION OF SPECIALISED SERVICES TO THE PHARMACEUTICAL INDUSTRY AND THE DEVELOPMENT OF NEW DRUGS. ERGOMED CURRENTLY OPERATES IN 56 COUNTRIES. Ergomed provides clinical development, trial management and pharmacovigilance services to over 100 clients ranging from top 10 pharmaceutical and generics companies to small and mid-sized drug development companies. Ergomed successfully manages clinical development from Phase I through to late phase post–marketing programmes. Ergomed has wide therapeutic expertise with a particular focus in oncology, neurology and immunology and the development of orphan drugs. Ergomed’s approach to clinical trials is differentiated from that of other providers by its innovative Study Site Management model and the use of Study Physician Teams. This results in a closer relationship between Ergomed and the physicians involved in clinical trials. As well as providing high quality clinical development services, Ergomed is building a portfolio of co-development partnerships with pharmaceutical and biotech companies which share the risks and rewards of drug development. Ergomed leverages its expertise and services in return for carried interest in the drugs under development. Recently, Ergomed acquired a pipeline of proprietary development products for the treatment of surgical bleeding. For further information, visit: www.ergomedplc.com. Strategic report 1 A year in review 2 Ergomed at a glance 8 Chairman’s statement 10 Chief Executive Officer’s review 12 Our strategy for 12 accelerated 12 growth 14 Strategy in action 16 Financial review 18 Principal risks and uncertainties Governance 20 Board of Directors 22 Corporate governance statement 24 Directors’ remuneration report (Unaudited) 27 Directors’ report 29 Independent auditor’s report Financial information 30 Consolidated income statement 31 Consolidated statement of comprehensive income 32 Consolidated balance sheet 33 Consolidated statement of changes in equity 34 Consolidated cash flow statement 35 Notes to the consolidated financial statements 71 Company balance sheet 72 Company statement of changes in equity 73 Company cash flow statement 74 Notes to the Company financial statements 90 Glossary A year in review 2016 Financial highlights Revenue +30% £39.2m (2015: £30.2m) Gross profit +43% £12.0m (2015: £8.4m) – Research and development £1.0 million (2015: £nil) – Cash and cash equivalents of £4.4 million with zero debt (2015: £4.0 million) – EBITDA (adjusted)1 £3.0 million (2015: £3.4 million). EBITDA £1.6 million (2015: £2.8 million), reducing principally due to inclusion of Haemostatix R&D following its acquisition in May 2016 – New services business won with an initial value of £42 million (2015: £28 million) – Backlog of signed contracts at 1 January 2017 £70 million (1 January 2016: £59 million) 2016 Revenue £39.2m £13.4m £25.8m Clinical research services: £25.8 million, growth of 18% on PY Drug safety and medical information: £13.4 million, growth of 63% on PY Corporate milestones Revenue (£m) – An institutional placing raising gross proceeds of £9.2 million (May 2016) – Acquisition of Haemostatix, a company focused on developing innovative products for surgical bleeding based in Nottingham, UK (May 2016) – Acquisition of O+P and GASD, respectively CRO and biostatistics companies, both based in Germany (June 2016) – Acquisition of PharmInvent, a leading pharmacovigilance and regulatory services business based in Czech Republic (November 2016) – An agreement with Asarina AB for the co-development of sepranolone for the treatment of PMDD (November 2016) 40 30 20 10 0 39.2 30.2 21.2 2014 2015 2016 Post period end highlights Services EBITDA (adjusted) (£m) – Announcement of positive Phase II results of lorediplon for insomnia, under our co-development partnership with Ferrer (February 2017) – Enrolment of first patient in Phase IIb study of PeproStat™, our wholly-owned product and first to come from the Haemostatix pipeline (April 2017) Note: 1. Adjustments are made to EBITDA for share-based payment charge, deferred consideration for acquisition, write-back of deferred consideration for acquisition, acquisition costs and exceptional items. 4 3 2 1 0 3.4 4.1 3.0* 2.4 2014 2015 2016 * Post-R&D EBITDA 2016 Research and development 1 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 2 Ergomed at a glance OUR SERVICES Clinical research services Ergomed provides clinical development services to over 60 clients ranging from top 10 pharmaceutical companies to small and mid-sized drug development companies. Ergomed successfully manages clinical development from Phase I through to late phase post- marketing programmes. O+P and GASD were acquired in June 2016. £25.8m +18% Clinical research services revenue Drug safety and medical information Established in 2008 and acquired by Ergomed in July 2014, PrimeVigilance is a pharmacovigilance (‘PV’) and Medical Information services company with an established international footprint and a heritage of excellence and leadership in the field of pharmacovigilance. PharmInvent was acquired in November 2016. £13.4m +63% Drug safety and medical information revenue 2016 Revenue split £39.2m 34.2% 65.8% Clinical research services: £25.8 million, growth of 18% on PY Drug safety and medical information: £13.4 million, growth of 63% on PY 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E £39.2m +30% revenue 3 S t r a t e g i c r e p o r t G o v e r n a n c e Ergomed has 20 years’ experience working across the world in many therapeutic areas, with a particular expertise in oncology, neurology and immunology and the development of orphan drugs. Solutions are tailored to meet the requirements of individual clients and specific projects with an uncompromising commitment to quality standards. Ergomed believes its approach to clinical trials is differentiated from other providers by its innovative Study Site Management model and the use of Study Physician Teams resulting in a closer relationship between Ergomed and the physicians involved in clinical trials. As well as providing high quality clinical development services, Ergomed is building a portfolio of co-development partnerships with pharma and biotech companies which share the risks and rewards of drug development. Ergomed leverages its expertise and services in return for carried interest in the drugs under development. O+P and GASD, a full-service CRO and biostatistics specialist respectively, were acquired in June 2016. These companies expanded Ergomed’s reach in the German speaking markets and brought specialist expertise into the Group. 300+ studies 50,000+ patients studied 56 countries where we conduct clinical trials The pharmacovigilance services offered by PrimeVigilance cover all the regulatory and scientific elements of PV required to obtain and maintain a product licence within Europe: – EU Qualified Person – Risk Management Planning (‘RMP'), – Compliant PV System with consistent Adverse Event data capture – Validated ARISg safety database – Robust Quality Management – Expedited reporting, preparation of PSURs, literature screening, signal detection and evaluation, benefit-risk assessment – Compliance auditing, support during crisis and various ad hoc assignments – Integrated international Medical Information service using AGInquirer database PrimeVigilance operates from bases in Guildford, UK, Zagreb, Croatia, Belgrade, Serbia and this year has opened a fourth location in Boston, USA. PrimeVigilance is currently providing services across more than 100 countries to a range of international pharma, generic and biotech clients. PharmInvent, a leading pharmacovigilance and regulatory services business, was acquired in November 2016. Combining PharmInvent’s proven expertise with PrimeVigilance creates one of the largest international specialist service providers in the highly regulated drug safety sector. The enlarged business will have a broad international client list offering significant opportunities to cross sell, as well as an expanded range of services to attract new customers. 300+ employees 100+ customers 100+ countries covered See our strategy on pages 12 to 15 i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 4 Ergomed at a glance OUR PRODUCTS CO-DEVELOPMENT FIVE partners SIX products Ergomed has created a risk-sharing model whereby we offer to contribute to the cost of clinical trials through significantly reduced fees in return for a carried interest in any future revenues of the product, including out-licensing milestones and sales. Ergomed leverages its experience and expertise in drug development to evaluate new opportunities. The Company has an active portfolio of six co-development programmes with five co-development partners: Our diversified product pipeline Compound Partner Next milestone Pre-clinical Phase I Phase II Phase III Partnership AEZS 108 Aeterna Zentaris 1H 2017 Endometrial cancer Multikine CEL-SCI 2018 Head & neck cancer Lorediplon Ferrer 1H 2017 Insomnia Sevuparin Sepranolone Modus Therapeutics Asarina Pharma Multikine CEL-SCI 1H 2018 Sickle-Cell Disease TBC TBC Premenstrual Dysphoric Disorder Perianal warts 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 5 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Status of Ergomed’s current partnerships Grupo Ferrer Internacional, SA: Ergomed has partnered with Ferrer on lorediplon, a novel, longer acting non-BZD hypnotic drug that modulates the GABAa receptor. We were very pleased to announce that the primary and many of the secondary endpoints for phase II study were met, indicating that lorediplon was both safe and effective in insomnia patients. Ferrer is currently exploring the full data set and will initiate partnering activities. Whilst the product already has an Asian commercial partner, Ferrer will look to bring on board a commercial partner for US marketing and to support the ongoing clinical development. If Ferrer receive a payment at completion of this licensing deal, Ergomed will receive a share, along with a share of all future revenues received by Ferrer for the commercialisation of the product. Aeterna Zentaris Inc. (NASDAQ: AEZS; TSX: AEZ): Ergomed is working with Aeterna Zentaris on the Phase III pivotal study comparing zoptaerlin doxorubicin (‘Zoptrex™’) as second line therapy for locally-advanced, recurrent or metastatic endometrial cancer. In January 2017 Aeterna Zentaris announced completion of the study, with the required number of patient outcomes. We are currently in the process of collecting the final data points and the results of the study are expected to be announced in April 2017. If successful, the next step for this product would be registration. Aeterna Zentaris has entered into five marketing partnerships with Zoptrex for various territories in Asia, Israel, Australia and New Zealand. Ergomed has received a percentage of the upfront payments and will receive its share of further receipts accordingly to our revenue share agreement. CEL-SCI Corporation (NYSE: CVM): Ergomed is working with CEL-SCI on the largest ever Phase III study in head and neck cancer with their lead product Multikine®. Having reached the recruitment target but observed a lower overall death rate, CEL-SCI decided to submit a protocol amendment to include additional patients into the study. During the review of the amendment, the FDA put the study on a partial clinical hold requesting additional information. CEL-SCI is in continuing dialogue with the FDA to try to resolve the questions posed and supply the FDA with supplemental information. Following a Type A meeting, on 8 February 2017, CEL-SCI announced that they were continuing with efforts to have the clinical hold released. CEL-SCI Corporation (NYSE: CVM): Ergomed is also working with CEL-SCI on a Phase I study of Multikine® in peri-anal warts. With the ongoing discussions with the FDA regarding the head and neck cancer trial, CEL-SCI has temporarily suspended patient recruitment in the peri-anal warts study. All other activities, including pre-screening activities to identify potential subjects, are ongoing. Modus Therapeutics AB (formerly Dilaforette AB): Ergomed is working with Modus Therapeutics on the Phase II study of sevuparin in patients with Sickle-Cell Disease (‘SCD') experiencing acute Vaso-Occlusive Crisis (‘VOC'). The first interim analysis was completed in November 2016 demonstrating a good safety profile and the study enrolment was extended to adolescents. With this permission, Modus Therapeutics decided to adjust the statistical assumptions and include 150 patients (up from 77) to give the study the strongest chance to reach a significant readout. It is planned that this recruitment target will be reached by first quarter 2018 with study results released thereafter. Modus Therapeutics is part of the Karolinska Development AB (STO: KDEV, ‘Karolinska Development’) portfolio. Asarina AB: In November 2016, Ergomed announced that it is working with Asarina on the Phase IIb study of sepranolone in Premenstrual Dysphoric Disorder (‘PMDD'), an extremely severe form of pre- menstrual syndrome where women are, on a regular basis, unable to work or live a normal life for several days each menstrual cycle. Sepranolone, is a proprietary, first-in-class, endogenous, small molecule, that acts as a GABA-A modulating steroid antagonist (‘GAMSA') and is the first product developed exclusively for PMDD. The effect of sepranolone has been demonstrated in animal models of the disorder as well as in a validated human pharmaco-dynamic model used to evaluate target engagement of drugs that influence GABA mechanisms in the brain. We are currently preparing the study protocol and expect the first patients to be recruited in the second half of 2017 with the study completing in 2018. The study is expected to enrol 235 patients in 14 sites across five countries. Asarina is also part of the Karolinska Development portfolio. See our strategy on pages 12 to 15 6 Ergomed at a glance OUR PRODUCTS HAEMOSTATIX $2.5bn haemostat market Ergomed acquired Nottingham based Haemostatix in May 2016 to access its proprietary technology and pipeline of two lead products, PeproStat™ and ReadyFlow™, for the surgical bleeding market. The Haemostatix acquisition represents a logical extension of its well established commitment to co-development, with the potential to generate significant shareholder value. Patented fibrinogen-binding peptide technology Linker Fibrinogen-binding peptide (GPRP) Recombinant albumin Winner of the 2015 Emerging Technology competition 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E $500m combined PeproStat™ and ReadyFlow™ peak sales potential 20 patients tested PeproStat™ in a Phase I clinical trial 1Q 2018 PeproStat™ is expected to report Phase IIb proof-of- concept trial Surgical bleeding and its markets The surgical bleeding market is estimated to be worth approximately $2.5 billion and is growing at six per cent. per annum (Source: MedMarket Diligence). It is comprised of a variety of drugs and devices (‘haemostats’), some of which work simply by closing the wound to stop blood flow, thereby giving time for the body’s own clotting system to work. Other products supplement the body’s naturally occurring proteins and enzymes to promote clot formation. To address this broad market, Haemostatix has developed a platform technology which can generate different products to address the various segments, thereby accessing a significant portion of the total ‘haemostat’ market. The current blood clotting products on the market have a number of drawbacks: – Require preparation or reconstitution: they are typically either frozen or in powder form and therefore require preparation prior to use, which, in an acute situation, is an obvious disadvantage. Moreover, prior preparation can lead to wastage as bleeding is often unpredictable. – Slow speed of action: some are relatively ineffective or can take a long time to work. – Derived from blood: they are primarily derived from human donor blood or from animal sources, which have the theoretical risk of infection and a complex supply chain. The Directors believe that the products under development by Haemostatix overcome these disadvantages. In addition, Haemostatix’s products are planned to have a low cost of production, potentially allowing a pricing advantage over some existing products. The Directors estimate the combined market potential for its two lead products to be $0.5 billion. The Haemostatix pipeline PeproStat™ The Directors believe that the lead product, PeproStat™, a liquid haemostat, overcomes the major drawbacks of existing products; namely that the active pharmaceutical ingredient (‘API’) is manufactured from blood-free components, is formulated as a ready-to-use solution (applied with commercially available sponges) and acts rapidly. PeproStat™ has been evaluated in a Phase I clinical trial in 20 patients and showed that during surgery, 95% of bleeding was stopped within three minutes, and on average in 1.4 minutes. This compares with the thrombins that are on the market and claim to stop bleeding in between three to six minutes. A Phase IIb study will repeat the Phase I trial described above in a larger population and in four different surgical indications. The Phase IIb trial, which will begin in early 2017, will be conducted in about 120 patients and is expected to report results in 1Q 2018. ReadyFlow™ Haemostatix’s second product candidate, ReadyFlow™, is a ready-to-use, transparent, haemostatic gel that can be applied to bleeding sites where the surface is not accessible or uneven. ReadyFlow™ gel is pre-mixed with the potent peptide-based active and packaged in a pre-filled syringe. Unlike competing products, ReadyFlow™ is transparent and manufactured from blood-free and animal-free components. ReadyFlow™ is expected to enter Phase I clinical trials in 2018. 7 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 8 Chairman's statement EXECUTING ON STRATEGY Our results and numerous corporate milestones achieved in 2016 demonstrate Ergomed has built on the momentum gained in 2015. The Company is executing on the strategy laid out at IPO. The Board continues to look for opportunities to create significant shareholder value, be it acquisitions of complementary services businesses or expansion of our co-development portfolio. Ergomed is fortunate to have multiple avenues for driving growth and shareholder value. 2016 Milestones January – Stephen Stamp joins Board as Chief Financial Officer May – Acquisition of Haemostatix Limited – Institutional Placing raises £9.2 million (gross) June – Acquisition of O+P and GASD, two September services companies based in Germany – Co-development partner Aeterna Zentaris announces two licensing deals for Zoptrex™ – Ergomed completes recruitment of lorediplon trial October – Co-development partner Aeterna November Zentaris announces fourth licensing deal for Zoptrex™ – Co-development agreement with Asarina for sepranolone in PMDD announced – Acquisition of PharmInvent, a leading pharmacovigilance company based in Czech Republic Having served my term, I shall be stepping down as Chairman and retiring from the Board on 31 March 2017. I would like to thank my colleagues on the Board, Ergomed’s employees and our advisers for their support over the last three years. I know Ergomed is in good hands under the chairmanship of my successor, Peter George and I wish him and Ergomed all the best. Rolf Stahel Chairman 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E “The Company is executing on the strategy laid out at IPO.” 2016 Operational highlights: Solid progress Acquired Haemostatix, raised £9.2 million in institutional placing Acquired O+P and GASD Opened US PrimeVigilance office in Boston, MA Co-development partner Aeterna Zentaris announces two licensing deals Ergomed completes recruitment of Phase IIa trial of lorediplon Contract win validates strategic rationale for German acquisitions Ergomed announces Co-Development agreement with Asarina AB Ergomed and Modus Therapeutics expand Sickle Cell Disease phase 2 clinical study Ergomed strengthens PrimeVigilance through acquisition of PharmInvent 9 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 10 Chief Executive Officer’s review DELIVERING ON MULTIPLE FRONTS I am delighted to report on a transformational year for Ergomed. The Company exceeded its targets in terms of revenue and adjusted EBITDA, raised £9.2 million in an institutional placing, completed four acquisitions, of which O+P and GASD were acquired at the same time, and added another partnership to the co-development portfolio. Services – another year of good growth New business won in 2016 of £42 million, up 50% on 2015, drove overall Services revenue growth of 30%. Services growth was powered by PrimeVigilance revenues which grew at 63%, complemented by 18% growth from clinical research services. Excluding acquisitions, overall revenue growth was 27%. In June 2016, we announced the acquisitions of O+P and GASD based in Cologne and Neuss, Germany respectively. O+P is a full service contract research organisation that has also developed a proprietary FDA compliant Electronic Data Capture (‘EDC') system called OPVERDI, which can be configured for individual trials on a multilingual basis. GASD offers data management, statistical analysis, biometric reporting and statistical consulting services for the pharmaceutical industry. In addition to a scalable EDC system and world-class biostatistics expertise, the acquisitions of O+P and GASD have brought greater access to the German speaking markets and have already resulted in several contract wins. In November 2016, we announced the acquisition of PharmInvent based in Prague, Czech Republic. PharmInvent is led by an experienced, ex-regulatory agency team that offers drug safety and regulatory consultancy expertise. They also have an extensive network of international pharmacovigilance experts that provide advice and support on local product safety and offer integrated global support for pharma and generic Dr Miroslav Reljanović Chief Executive Officer 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E “… a transformational year for Ergomed…” £9.2m funds raised FOUR acquisitions £42m new business won £70m order backlog companies’ products. Combining PharmInvent’s proven expertise with PrimeVigilance creates one of the largest international specialist service providers in the highly regulated drug safety sector. The enlarged business has a broad international client list offering significant opportunities to cross sell, as well as an expanded range of services to attract new customers. Global demand for quality outsourced drug development and drug safety services remains strong and Ergomed continues to benefit from this trend. Ergomed ended 2016 with a total backlog of contracted work with a value to be invoiced in future years of approximately £70 million (2015: £59 million). Products – Haemostatix and one more co-development partnership added Ergomed is also in the distinct position of offering co-development partnerships and is committed to building its portfolio of co-development assets and delivering clinical data, thereby creating significant potential shareholder value in the next few years. As part of our co-development business development activities, we identified what we believe to be a particularly promising opportunity in Haemostatix. With solid pre-clinical and clinical evidence and a low cost yet fast development programme, we believe Haemostatix offers a rare opportunity to capture the full value of the product potential with reasonable risk. We acquired Haemostatix in May 2016, at the same time raising £9.2 million via an institutional placing. Since then, we have been preparing PeproStat™, a liquid haemostat for a Phase IIb study and announced the start of the trial in March 2017. We expect to complete recruitment around the end of the year with topline results available in the first quarter of 2018. At the same time, ReadyFlow™, a flowable gel haemostat, is in formulation development and is expected to be Phase I ready by the first quarter of 2018. With combined annual peak sales potential of up to $500 million, the Board believes the Haemostatix products have the capability to deliver very significant value to Ergomed shareholders not otherwise achievable in traditional co-development deals. In November 2016 we signed a co- development agreement with Asarina AB for the Phase IIb clinical development of sepranolone as a targeted treatment for premenstrual dysphoric disorder (‘PMDD’). The co-development deal with Asarina is Ergomed’s second with a Karolinska Development spin-out company and brings the portfolio of co-development programmes to six in total. Outlook The current backlog of services contracts means Ergomed is well positioned to deliver its revenue targets for 2017, although the market for clinical research out-sourcing remains highly competitive. Ergomed continues to seek focused acquisition opportunities to expand the services business. This expansion of our profitable service businesses remains the core component of Ergomed’s strategy and the Board is prioritising this initiative. We are on track to progress the Haemostatix pipeline in 2017 with the start of the Phase IIb clinical trial of PeproStat™ and the pre-clinical development of ReadyFlow™. Our co-development business continues to gain traction as we seek more partnership opportunities to extend our diverse pipeline of development projects. Ergomed also anticipates further clinical updates from its existing partnership with the next inflexion point being pivotal Phase III data on Zoptrex™ from our co-development partner Aeterna Zentaris in April 2017. Based on our £70 million backlog and the opportunities in front of us I think 2017 will be another exciting year for Ergomed. Newsflow 2017 2018 – Ferrer: Phase II insomnia results – Haemostatix: PeproStat™ Phase IIb start – Aeterna Zentaris: Zoptrex™ Phase III results – Asarina: sepranalone Phase IIb start – Haemostatix: PeproStat™ Phase IIb results – Modus Therapeutics: Sevuparin Phase II top line results – Haemostatix: ReadyFlow™ Phase I ready – Haemostatix: PeproStat™ Phase III ready Co-development deals – target two p.a. Services acquisitions PeproStat™/ReadyFlow™ out-licensing opportunities 11 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 12 Our strategy for ACCELERATED GROWTH G O R o w t r g N I C A h ACQUISITIONS strategic and selective P R D O p E D artn V ers E L U C O hip s P T M E N T Strategic priorities The Board continually looks for opportunities to capitalise on Ergomed’s expertise with the following key components: – augment the organic growth of its services business with selective acquisitions to add complementary services and/or geographical coverage to the Company’s current offering; and – enhance the co-development portfolio by including deals which (a) mirror the existing investment risk profile but (b) in addition include deals which allow the Company to exercise greater control over both the development plan and monetisation of the product with the expectation of a greater share of the upside in return for bearing more of the development costs. The Board is committed to pursuing both components of the growth strategy in parallel and maintaining a balance between services income and development costs. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Strategy Progress Organic growth Organic growth must be the foundation of any healthy company and is the primary focus of the Board. We constantly measure ourselves against prior period performance and against our peers and competitors. The market for out-sourced clinical research is relatively mature and is dominated by mainly large US-based companies. To compete, effectively, we must play to our strengths, including our innovative Study Site Management model, and utilise our Study Physician Group to competitive advantage. The market for out-sourced pharmacovigilance and medical information, while smaller is less competitive. The combination of PrimeVigilance and PharmInvent makes a leading international independent pharmacovigilance and medical information provider. See CEO statement on pages 10 and 11 Acquisitions – strategic and selective Services acquisitions are a key component of Ergomed’s growth strategy with an emphasis on: – Services and skills which complement our existing services offering. We can offer a broader (‘one-stop-shop’) suite of services to customers, reducing reliance on partners and expanding margins. – Geographical expansion. Although we have preferred subcontract providers in some markets, having our own presence in certain key markets ensures quality control, scalability and, again, enhanced margins. See strategy in action on page 14 Product development/ Co-development partnerships Ergomed has created a risk-sharing model whereby we offer to contribute to the cost of clinical trials through significantly reduced fees in return for a carried interest in any future revenues of the product, including out-licensing milestones and sales. Ergomed leverages its experience and expertise in drug development to evaluate new opportunities. The Company has an active portfolio of six co-development programmes with five sponsor partners. See strategy in action on page 15 Clinical research services +18% Ergomed +7.5% Industry Drug safety and medical information +63% Ergomed +17% Industry PharmInvent Acquired in November 2016 O+P & GASD Acquired in June 2016 Co-development due diligence process Reviews 100 products reviewed CDA/Due diligence 50 reviewed against additional criteria Advanced negotiations Comprehensive review of final 12 ASARINA 13 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 14 Strategy in action Revenues +37% growth 5 4 3 2 1 0 €4.1m €3.0m €2.0m 2014 2015 2016 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E €4.1m revenue Consideration of €4.8m plus up to €3.2m deferred Ergomed strengthens PrimeVigilance with acquisition of European pharmacovigilance and regulatory services business, PharmInvent. This acquisition is consistent with Ergomed’s stated strategy to grow its existing, profitable services businesses both organically and through bolt-on acquisitions. The transaction will expand and complement its existing pharmacovigilance division, PrimeVigilance. PharmInvent is led by an experienced ex-regulatory agency team that offers drug safety and regulatory consultancy expertise. PharmInvent also has an extensive network of international pharmacovigilance experts that provide advice and support on both local product safety and offer integrated global support for pharmaceutical and generic companies’ products. Combining PharmInvent’s proven expertise with PrimeVigilance creates one of the largest international specialist service providers in the highly regulated drug safety sector. The enlarged business will have a broad international client list offering significant opportunities to cross sell, as well as an expanded range of services to attract new customers. From this strong position Ergomed’s strategy is to actively expand the pharmacovigilance and regulatory division, especially in the US, thereby underpinning Ergomed’s planned growth of revenues and Group profitability. ACQUISITION PHARMINVENT 15 Strategy in action CO-DEVELOPMENT PARTNERSHIPS ASARINA S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i $500m Potential peak sales Ergomed and Asarina entered into a co-development agreement for the Phase IIb clinical development of sepranolone as a targeted treatment for patients with premenstrual dysphoric disorder (‘PMDD’). Under the terms of the agreement, Ergomed will conduct Asarina’s multicentre, multinational, randomised Phase IIb clinical trial. The study is planned to start in 2017. Ergomed will co-invest into the trial in return for an equity stake in Asarina. PMDD is the most severe form of Premenstrual Syndrome, characterised by cyclic symptoms such as depression, anxiety, irritability, mood lability and loss of emotional control consistently occurring during the luteal part of the menstrual cycle with high impact on personal and professional life. Approximately 5% of all women will experience this disorder during their fertile years from the onset of menstruation till menopause. Asarina’s product candidate, sepranolone, is a proprietary, first-in-class, endogenous, small molecule, that acts as a GABA-A modulating steroid antagonist (‘GAMSA'). Sepranolone is the first product developed exclusively for PMDD. The effect of sepranolone has been demonstrated in animal models of the disorder as well as in a validated human pharmaco-dynamic model used to evaluate target engagement of drugs that influence GABA mechanisms in the brain. l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 16 Financial review A YEAR OF STRONG RESULTS Our mission Building a profitable services business combined with sustainable product development for significant shareholder value. Key performance indicators The Directors consider the principal financial performance indicators of the Group to be: Revenue Gross profit Research and development expenditure EBITDA (adjusted)1 Cash and cash equivalents 2016 £m 39.2 12.0 1.0 3.0 4.4 2015 £m 30.2 8.4 – 3.4 4.0 1 Please refer to note 38, which explains the adjustments to operating profit which result in adjusted EBITDA. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E The Directors consider the principal non-financial performance indicators of the Group to be: – The delivery of high quality services that continue to meet the highest industry standards as evidenced by internal and external quality audits. – The development of new and/or the expansion of existing service offerings. – The expansion of the co-development portfolio with the addition of two new partnerships per year. Condensed consolidated statement of comprehensive income Revenue for the year ended 31 December 2016 was £39.2 million (2015: £30.2 million), an increase of 30%, driven by 63% growth in drug safety and medical information, complemented by 18% growth from clinical research services. Excluding the impact of acquisitions, revenues grew at 27%. Gross profit was £12.0 million and gross margin was 31% (2015: gross profit £8.4 million and gross margin 28%). Ergomed’s gross margin fluctuates compared to a traditional clinical research organisation (‘CRO') service provider as Ergomed operates a hybrid model working with customers on a normal full priced basis as well as working with co-development partners where Ergomed is carrying out clinical studies at reduced fees in return for carried interests in the partnered product. The mix of full service work to co-development work in any given period therefore impacts the gross profit and gross margin in that period. Administration expenses were £10.5 million (2015: £6.4 million), an increase of £4.1 million. Included in administrative expenses are increases in amortisation of acquired fair valued intangible assets of £0.2 million, share-based payment charge of £0.1 million, deferred consideration for acquisition of £0.7 million, acquisition costs of £0.3 million, exceptional items of £0.1 million offset by a write-back of deferred consideration for acquisition of £0.5 million. The increase in other 17 S t r a t e g i c r e p o r t G o v e r n a n c e £39.2m +30% Revenue £12.0m +43% Gross profit administrative expenses of £3.1 million was driven by an additional £1.2 million of overhead in acquisitions, £0.7 million investments in improved corporate infrastructure, £0.3 million additional recruitment costs, £0.2 million increase in investor relations and public relations activities, £0.1 million increase in depreciation and £0.9 million provision for doubtful debts offset by foreign exchange gains of £0.4 million. Research and development costs were £1.0 million (2015: £nil) relating to Haemostatix and included chemistry, manufacturing and controls (‘CMC') costs in preparation for a Phase IIb clinical trial of PeproStat™ and pre-clinical formulation development costs for ReadyFlow™. Deferred consideration for achieving 2016 financial targets of £0.7 million in respect of PharmInvent has been charged to profit and loss in the year because it is tied to the continued employment of the vendors. The Company incurred acquisition costs totalling £0.6 million (2015: £0.3 million) in the year, primarily in respect of the Haemostatix, O+P and GASD and PharmInvent acquisitions. In addition, £0.2 million in respect of start-up costs for PrimeVigilance’s US office was recognised as an exceptional item. Included in finance charges is £0.3 million relating to the unwinding of the discount applied to contingent consideration for Haemostatix. The Group’s tax charge was reduced by an R&D tax credit of £0.2 million in the year. Condensed consolidated balance sheet As at 31 December 2016 total assets less total liabilities amounted to £34.6 million (2015: £16.9 million) including cash and cash equivalents of £4.4 million (2015: £4.0 million). The principal movements in the Condensed consolidated balance sheet during the year were: – Acquisitions of Haemostatix, O+P and GASD and PharmInvent in May 2016, June 2016 and November 2016 respectively and the associated goodwill of £5.5 million and intangible assets of £19.3 million. – Increase in trade and other receivables by £5.4 million reflecting higher trading levels and a £0.5 million increase in clinical trial inventory. – An increase in deferred consideration, after unwinding of discount, of £8.2 million in respect of Haemostatix. Deferred consideration in respect of PharmInvent is recognised as incurred in the profit and loss account since it is tied to the continued employment by the vendors of that business. – An increase in deferred tax liability of £2.5 million, principally related to the acquisitions of Haemostatix, O+P and GASD and PharmInvent. – An increase in share premium, arising from the Institutional Placing, net of costs. – An increase in merger reserve, arising from the acquisitions of Haemostatix, O+P and GASD and PharmInvent. Condensed consolidated cash flow statement At present, the Group does not have any borrowings or long term debt apart from a few immaterial fixed asset finance leases. Cash inflows from operating activities before changes in working capital in the year were £2.7 million (2015: £2.7 million). Changes in working capital included a £3.7 million increase in trade and other receivables, a £0.4 million increase in inventory and a £0.1 million decrease in trade and other payables. Cash outflows from investing activities were £5.8 million including the acquisitions of Haemostatix, O+P and GASD and PharmInvent together with deferred consideration of £0.1 million for Sound Opinion, £0.4 million for the acquisition of tangible assets and £0.7 million for the acquisition of intangible assets. The Group also paid taxation of £0.9 million in 2016 (2015: £0.6 million). Financial outlook Ergomed’s Board has set the objective of remaining profitable and cash generative. This is being achieved by running profitable services businesses alongside a managed portfolio of drug co- development partnerships where Ergomed contributes services at reduced prices in return for a carried interest in the potential commercial returns that may be generated in the future. Ergomed currently had a strong contracted backlog of about £70 million at 1 January 2017. The overall trading environment for full service business is generally strong although still very competitive. Ergomed’s Board believes it can continue to generate further growth and profits from both the Clinical Research and PrimeVigilance/ PharmInvent businesses in 2017 and beyond whilst at the same time expanding the co-development portfolio on a selected basis. Going concern As at 31 December 2016 the Group had £4.4 million in cash or cash equivalents and a strong backlog of signed contracts. The Directors therefore expect Ergomed’s services business to remain both profitable and cash generative. Taking into account existing cash resources and, after due consideration of cash flow forecasts, the Directors are of the view that Ergomed will continue to have access to adequate resources to allow the Group to continue trading on normal terms of business for no less than 12 months from the date of signing of the financial statements and have therefore prepared the financial statements on a going concern basis. i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 18 Principal risks and uncertainties There are number of risks and uncertainties associated with the Group’s activities. The Board believes the following are the principal risks, along with the mitigation actions being pursued. Competition Ergomed’s competitors and potential competitors include companies which may have substantially greater resources than those of Ergomed. The additional financial transparency to which Ergomed is subject, now that it is a public company, may have the effect of increasing the number of competitors. Generally, the ability of Ergomed to win new business or repeat business from existing customers is a key risk and if the business development function fails to deliver new, profitable contracts then Ergomed’s profits and cash flows will suffer. Dependency on pharmaceutical industry A significant proportion of Ergomed’s current revenue results from expenditure by pharmaceutical and biotech businesses on research and development and regulatory compliance. If customers or potential customers in this sector were to: – reduce such expenditure, in particular by reducing the numbers of drugs put into clinical trials; – seek to retain work in-house rather than outsourcing it; and/or – consolidate through the vertical integration of their businesses and choose not to engage Ergomed then Ergomed’s business could be negatively impacted. Legislation and regulation of the pharmaceutical and biotechnology industries An element of Ergomed’s competitive advantage stems from its ability to navigate the strictly regulated medicinal products and clinical trial services approval processes, which are expensive, complex and demanding. If there were to be substantial relaxation of such processes, cross jurisdictional harmonisation or simplification of the legislative or regulatory framework, this could reduce the barriers to entry which prospective competitors face, thereby eroding part of the Group’s competitive advantage. If such a change were to occur, this may have a negative impact on Ergomed’s business opportunities. Conversely, any change to, or increase in the complexity of, legislative or regulatory requirements having the effect of preventing Ergomed operating in a particular country, or compliance with which would require significant expenditure on the part of Ergomed, could have a material adverse effect on Ergomed’s operations, profitability and financial performance. Licences, approvals and compliance Ergomed is dependent to a significant degree on certain licences and regulatory approvals. Non-compliance with those licences is likely to result in a warning from the relevant authority. However, in extreme cases, licences may be restricted or revoked, which could adversely affect Ergomed’s business, results of operations, financial condition and future prospects. More generally, Ergomed operates in an environment which is subject to detailed and complex regulation. This places a significant compliance burden on Ergomed, since any failure to achieve compliance could result in the termination of Ergomed’s contracts and in significant reputational damage as well as regulatory fines. Customers, pricing and payment terms Some of Ergomed’s customers may have substantial purchasing power and negotiating leverage. While Ergomed has historically been able to secure good contractual terms, there can be no assurance that it will continue to be able to do so in the future. In certain cases Ergomed may accept payment terms which impact adversely upon the revenue received by, the margins achieved by, and the cash flow of, Ergomed in any given period. Dependence on a limited number of key clients A significant proportion of the Group’s revenue is derived from a relatively small number of clients, although the identity of the top five clients has varied over the last three financial years. The percentage of the Group’s total invoiced revenue generated by the top five clients in the year ended 31 December 2016 was 51.0%. The loss of any client or clients who represent a significant proportion of Ergomed’s revenue could have a negative impact on Ergomed’s operating results and cash flows. Cancellation or delay of clinical trials by customers The customers of Ergomed may cancel or delay proposed clinical trials either without notice or upon short notice. The cancellation or delay of a clinical trial may result in a risk of Ergomed having to reduce its staff overheads which could in turn have a negative impact on the Group’s profitability, albeit that the terms of Ergomed’s contracts seek to mitigate the impact of any such cancellation or delay by structuring standard study close down procedures with the customer. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Foreign currency risk A significant proportion of Ergomed’s business is carried out, and is intended to be carried out in the future, outside the UK and in the relevant local currency. To the extent that there are fluctuations in exchange rates outside any hedged positions that the Group may contract, this may have a material impact on Ergomed’s financial position or results of operations, as shown in Ergomed’s accounts. Ergomed manages this risk by seeking advice from specialist foreign currency brokers, regularly reviewing the geographical mix of its operational costs and also its currency revenue streams and by the inclusion of exchange rate reviews in its major commercial contracts. Approved by the Board of Directors and signed on behalf of the Board. S A Stamp Director Treasury policy and financial risk The Group maintains a centralised treasury function, which operates under policies and guidelines approved by the Board. These cover funding, management of foreign exchange exposure and interest rate risk. The purpose is to manage the financial risks of the business and to secure the most cost-effective funding. The Group’s principal financial assets are bank balances and long term deposits, which are exposed to varying degrees to the following risks: liquidity risk, credit risk and foreign currency risk. The policy for managing these risks is outlined below: – liquidity risk – the Group maintains good relationships with its banks, financial institutions with high credit ratings, and its working capital requirements are anticipated via the forecasting and budgetary process; and – credit risk – the Group is mainly exposed to credit risk from its trade and other receivables, short term deposits and bank balances, and mitigates the risk by managing any exposure to a single institution. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Management considers the above measures to be sufficient to control the credit risk exposure. 19 S t r a t e g i c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 20 Board of Directors 1 3 5 7 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 2 4 6 1 Rolf Stahel Non-Executive Chairman 2 Dr Miroslav Reljanovic Founder and Chief Executive Officer Rolf Stahel brings over 30 years’ experience in the global pharmaceutical industry. He led Shire Pharmaceuticals Group plc as Chief Executive Officer from 1994 to 2003, building Shire into a FTSE 100 Company. Rolf worked for 27 years with Wellcome plc in Switzerland, Italy, Thailand, Singapore and the UK. Rolf sits on the Advisory Board of Imperial Business School (Imperial College London). He has been non-executive Chairman of several companies including: Newron Pharmaceuticals; Cosmo Pharmaceuticals; PowderMed; and EUSA Pharma. He is currently Non-Executive Chairman of Connexios Life Sciences and Midatech. Rolf, a Swiss national, is a graduate in Business Studies (KSL, CH) and attended 97th AMP (Harvard). Rolf retired as Chairman and Director of Ergomed plc with effect from 31 March 2017. Dr Miroslav Reljanovic is a medical doctor and a board- certified neurologist. Whilst practicing as a physician in a large WHO Collaborating Centre in Zagreb, he was the clinical investigator in numerous Phase II and III studies in the field of neurology and a consultant to various pharmaceutical companies. In 1997 Miro founded Ergomed and he introduced the novel Study Site Coordination model as an intrinsic part of the conduct of clinical studies. Together with co-founder Elliot Brown, MB, MRCGP, FFPM, a well-known international expert in drug safety, Miro started PrimeVigilance in 2008, which soon became a leading specialist vendor of contracted pharmacovigilance services to the pharmaceutical industry. 3 Neil Clark Chief Executive Officer - PrimeVigilance 4 Andrew Mackie Chief Business Officer Neil Clark joined Ergomed as Chief Financial Officer in January 2009 and was promoted to Chief Executive Officer – PrimeVigilance in January 2016. Prior to joining Ergomed, Neil was Chief Executive Officer of CeNeS Pharmaceuticals plc, a UK biotech company listed in London. CeNeS was acquired by the German biotech company Paion in 2008. Neil joined CeNeS in 1997 when it was a venture capital backed private biotech company and later became Chief Financial Officer. CeNeS was listed in 1999 and Neil was appointed Chief Executive Officer in 2001. Prior to joining CeNeS, Neil worked for PWC in Cambridge, UK, for over 10 years on a variety of local, national and international assignments in audit, corporate finance and consultancy. Neil is a qualified chartered accountant (‘FCA’). Neil ceased to be a Director with effect from 16 April 2017. Andrew Mackie joined Ergomed as Chief Business Officer in 2015 having worked with the Company as a consultant since 2004. He has been instrumental in developing the co-development business and negotiating the partnerships signed to date. Prior to joining Ergomed, Andrew worked in the Business Development group at Eli Lilly, having previously been Head of Life Sciences at IP Group and Head of Alliance Management at Antisoma. Prior to that, Andrew held a variety of R&D positions at Novartis, Sanofi and MDS. Andrew holds a BSc in biochemistry from Queen’s University (Canada), an LLB from the University of London and an MBA from the London Business School. 5 Stephen Stamp Chief Financial Officer 6 Peter George Non-Executive Director Peter George joined Ergomed as a Non-Executive Director in May 2014. Peter has over 20 years’ experience in the pharmaceutical services industry, most recently as Chief Executive Officer of Clinigen Group plc (AIM: ‘CLIN’), the global speciality pharmaceuticals and pharmaceutical services business. Peter stepped down as CEO of Clinigen in November 2106 but remains a non-executive director. Prior to Clinigen, he was CEO at Penn Pharma, having led a £67 million management company buy-out in 2007. Before this, Peter was executive Vice President for Wolters Kluwer Health with responsibility for Europe and Asia Pacific regions. Peter has also held roles as the Chief Operating Officer of Unilabs Clinical Trials International Limited, Head of Clinical Pathology in the Oxford region of the NHS and as Director of PharmaPatents Global. Peter became Chairman of Ergomed plc with effect from 1 April 2017. Stephen Stamp joined Ergomed as Chief Financial Officer in January 2016. Prior to joining Ergomed, Stephen worked in the US as Chief Financial Officer of AssureRx Health, Inc. Prior to that he was CFO of EZCORP, Inc and Chief Operating Officer and CFO at Xanodyne Pharmaceuticals, Inc. Before leaving for the US, Stephen was Group Finance Director of Shire plc and Regus Plc. Earlier in his career, Stephen was an investment banker with Lazard in London, advising mainly public companies on cross- border M&A and corporate finance. Prior to Lazard, he worked for KPMG in London where he qualified as a Chartered Accountant. Stephen holds a BA (Econ) from The University of Manchester. 7 Christopher Collins Non-Executive Director Christopher was the CEO and a founding partner of Code Securities, a healthcare-focused advisory and broking firm, which was formed in 2003, acquired by Nomura in 2005 and continued as Nomura Code Securities until late 2013. Chris was previously head of the Life Sciences Group at WestLBPanmure, having founded that firm’s activities in the sector in 1993. He has advised companies at all stages of development on transactions including private financings, IPOs, secondary offerings and mergers and acquisitions. Prior to WestLBPanmure, Chris was Managing Director of Corporate Finance at Panmure Gordon, after eight years as a Director of Corporate Finance at Hoare Govett and nine years in corporate finance at Charterhouse Japhet. He has an MBA and read Biology at Sussex University. 21 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 22 Corporate governance statement Corporate governance The Company is listed on the Alternative Investment Market (‘AIM') and is not required to comply with the provisions of the UK Corporate Governance Code 2010 (2010 Code), as set out in the Financial Services Authority Listing Rules. However, the Directors recognise the importance of sound corporate governance and intend to comply with the Corporate Governance Guidelines, to the extent appropriate for a company of its nature and size. The Corporate Governance Guidelines were devised by the Quoted Company Alliance (‘QCA’), in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies. An alternative code was proposed because the QCA considers the 2010 Code to be inappropriate to many AIM companies. The Corporate Governance Guidelines state that: ‘‘The purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term.’’ The Board comprises a Chairman, four 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, the Directors receive appropriate and timely information. Briefing papers are distributed to the Directors in advance of Board meetings. The 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 Board considers Peter George and Christopher Collins to be independent Directors. Board committees The Company has Audit and Risk, Nomination, AIM Compliance and Remuneration Committees. The Audit and Risk Committee has Christopher Collins 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 and Risk Committee meets at least twice a year. Peter George is the other member of the Audit and Risk Committee. The Nomination Committee identifies and nominates for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Nomination Committee meets at least twice a year. Rolf Stahel was Chairman of the Nomination Committee until 31 March 2017. Miroslav Reljanovic, Peter George, Christopher Collins, and, until 16 April 2017, Neil Clark are the other members of the Nomination Committee. The Remuneration Committee has Peter George as Chairman, and reviews the performance of the Executive Directors and determine 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. Christopher Collins and, until 31 March 2017, Rolf Stahel are the other members of the Remuneration Committee. The Company has established an AIM Compliance Committee to ensure that the Company is complying with the AIM Rules. In addition, the Committee assesses the Company’s Corporate Governance obligations every year. The AIM Compliance Committee is chaired by Christopher Collins and its other member is Peter George. The Directors understand the importance of complying with the AIM Rules relating to Directors’ dealings and have established a share dealing code which is appropriate for an AIM listed company. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Internal control and risk management The Board acknowledges its responsibility for safeguarding the shareholders’ investments and the Group’s assets. In applying this principle, the Board recognises that it has overall responsibility for ensuring that the Group maintains a system of internal control that provides it with reasonable assurance regarding effective and efficient operations, internal financial control and compliance with laws and regulations. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. Through the Audit and Risk Committee, the Directors have reviewed the effectiveness of the internal controls. Since admission to AIM in July 2014, management is continuing to invest significant time in further developing the Group’s internal control environment. The key features of the internal control system are described below: – control procedures and environment – the Group has an organisational structure with clearly drawn lines of accountability and authority. Employees are required to follow well-defined internal procedures and policies appropriate to the business and their position within the business and management promotes the highest levels of professionalism and ethical standards; – identification and evaluation of risks – the Group employs Executive Directors and senior management with the appropriate knowledge and experience required for a medical and scientific research group. Identification and evaluation of risk is a continuous process running in parallel with the significant organic growth of the Group; – risk register – senior management works with the Audit and Risk Committee to identify key risks facing the Group, any mitigating controls and persons responsible for reviewing and managing such risks. The risk register is reviewed periodically and updated and reviewed by the Board no less than annually; – financial information – the Group prepares detailed budgets and working capital forecasts annually. These are based upon the strategy of the Group and are approved by the Board. Detailed management accounts and working capital re-forecasts are reviewed at least quarterly for each Board meeting, with any variances from budget investigated thoroughly and a summary provided to the Board. Annual Reports, Preliminary Statements and Half-year Reports prepared by the Group are reviewed by the Audit and Risk Committee prior to approval by the Board; – monitoring – the Board monitors the activities of the Group through the supply of reports from various areas of the business as contained in the Board papers. The Executive Committee performs a more detailed review, taking corrective action if required; and – financial position and prospects memorandum – senior management works with the Audit and Risk Committee to produce a comprehensive review of risks and internal procedures to control financial reporting in compliance with ICAEW Technical Relate RECH 01/13 CFF. The memorandum is reviewed in detail and approved by the Board annually. The Board, through the Audit and Risk Committee, reviews the effectiveness of the systems of internal control. Given the Group’s relative small size, the Board does not consider it either necessary or practical at present to have its own internal audit function. The Board continues to monitor the requirement to have an internal audit function. Communication with shareholders The Board attaches great importance to communication with both institutional and private shareholders. Regular communication is maintained with all shareholders through Company announcements, the Annual Report and Accounts, Preliminary Statements and Half-year Report. The Directors seek to build on a mutual understanding of objectives between the Company and its shareholders, especially considering the long term nature of the business. Institutional shareholders are in contact with the Directors through presentations and meetings to discuss issues and to give feedback regularly throughout the year. With private shareholders this is not always practical. The Board, therefore, intends to use the Company’s Annual General Meeting as the opportunity to meet private shareholders who are encouraged to attend, after which the Chief Executive Officer will give a presentation on the activities of the Group. Following the presentation there will be an opportunity to ask questions of Directors on a formal and informal basis and to discuss the development of the business. The Company operates a website at www.ergomedplc.com. The website contains details of the Group and its activities, regulatory announcements and Company announcements, Annual Reports and Half-year Reports, and the Terms of Reference of the Audit and Risk Committee and of the Remuneration Committee. Going concern As disclosed in note 1 to the consolidated financial statements, having made relevant and appropriate enquiries, including consideration of the Company and Group current resources and working capital forecasts, the Directors have a reasonable expectation that, at the time of approving the financial statements, the Company has adequate resources to continue in operational existence for at least the next 12 months. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. 23 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 24 Directors’ remuneration report (Unaudited) Ergomed has elected voluntarily to prepare an unaudited Directors’ remuneration report as set out below. Remuneration policy overview The aim of the remuneration policy is to encourage and reward superior performance by the Executive Directors and senior management, with performance being measured by reference to the achievement of corporate goals, strong financial performance and the delivery of value to shareholders. The policy is designed to offer rewards that: – enable the Group to attract and retain the management talent it needs to ensure its success; – incentivise the achievement of the Group’s strategy and the delivery of sustainable long term performance of the Group by the executives; and – have flexibility to accommodate the changing needs of the Group as it grows and its strategy evolves. Remuneration levels are benchmarked against a subset of companies in the UK life sciences and biotechnology sectors with the aim of achieving the following: – Base salary between average and upper quartile. – Performance-based bonus between average and upper quartile. – Share incentives industry average. – Total compensation between average and upper quartile. The Remuneration Committee has established a policy that enables the Group to retain and motivate the Executive Directors and senior management appropriately while still maintaining a strong ‘pay-for-performance’ culture within the Group. The remuneration policy is reviewed by the Remuneration Committee on an annual basis to ensure that it is in line with the Group’s objectives and shareholders’ interests. Executive Directors Miroslav Reljanovic has a service agreement with Ergomed plc dated 14 July 2014, with continuous employment from 28 September 2009. His appointment is terminable on six months’ notice by himself and 12 months by the Company. Neil Clark had a service agreement with Ergomed plc dated 14 July 2014, with continuous employment from January 2009. His appointment is terminable on six months’ notice by himself and 12 months by the Company. Andrew Mackie has a service agreement with Ergomed plc dated 1 July 2015. His appointment is terminable on six months’ notice by himself and 12 months by the Company. Stephen Stamp has a service agreement with Ergomed plc dated 11 January 2016. His appointment is terminable on six months’ notice by himself and six months by the Company. Non-Executive Directors The Non-Executive Directors have entered into letters of appointment with the Company, with the Board determining any fees paid. The Non-Executive Directors do not participate in the Group’s pension, bonus or option schemes. Rolf Stahel’s appointment was terminable on three months’ notice by either party. The other two Non-Executive appointments are terminable on one month’s notice by either party. Remuneration The Executive Directors, Miroslav Reljanovic, Neil Clark, Andrew Mackie and Stephen Stamp are entitled to receive base salary, travel allowance, employer pension contributions, share options and a discretionary performance-related bonus. Salary Base salaries are generally reviewed annually and effective from the beginning of January. The Remuneration Committee seeks to assess the market competitiveness of pay primarily in terms of total remuneration, with less emphasis on base salary. Stephen Stamp’s salary was increased from £175,000 per annum to £200,000 per annum with effect from 1 July 2017. Bonuses The timing and amount of bonuses are decided by the Remuneration Committee with reference to the individual’s performance and contribution to the Group. The maximum bonus that can be earned by an Executive Director is 75% of base salary. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Pensions The Group does not operate a Group pension scheme. The Group pays an employer pension contribution of 10% of base salary to personal pension schemes established by the Executive Directors. Directors’ remuneration The Directors received the following remuneration during the year: Name of Director Rolf Stahel1 Miroslav Reljanovic Neil Clark2 Andrew Mackie2 Stephen Stamp4 Chris Collins Peter George Name of Director Rolf Stahel1 Miroslav Reljanovic Neil Clark2 Andrew Mackie2,3 Chris Collins Peter George Fees & salary £000s 102 242 200 200 183 40 40 Fees & salary £000s 104 232 200 100 40 40 Benefits £000s Annual bonus £000s Pension £000s – – 4 1 – – – – – – – – – – – – 20 20 18 – – Benefits £000s Annual bonus £000s Pension £000s – – 3 1 – – – 69 50 25 – – – – 20 10 – – Total 2016 £000s 100 242 224 221 201 40 40 Total 2015 £000s 104 301 273 136 40 40 1. The remuneration of Rolf Stahel includes consultancy fees of £52,000 paid to Chesyl Pharma Limited (2015: £54,000). 2. Neil Clark and Andrew Mackie receive private medical insurance as a benefit. 3. Andrew Mackie was appointed a Director on 1 July 2015. 4. Stephen Stamp was appointed a Director on 11 January 2016. Share options The Company issues share options to the Directors and employees to reward performance, to encourage loyalty and to enable valued employees to share in the success of the Company. Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire Ordinary Shares in the Company granted to or held by the Directors. Prior to the IPO Ergomed had established an Unapproved Executive Share Option 2007 Scheme and the Rolf Stahel Option Agreement. A new share option scheme, the ‘Ergomed plc Long Term Incentive Plan’, was established immediately following the Company’s IPO in July 2014. Ergomed has established three share option schemes: i) the Unapproved Executive Share Option Scheme 2007; ii) the Stahel Option Agreement; and iii) the Ergomed plc Long Term Incentive Plan. In addition, Neil Clark, Andrew Mackie and Stephen Stamp hold options over shares held by Miroslav Reljanovic. 25 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 26 Directors’ remuneration report (Unaudited) continued Options granted as at 31 December 2016 Name of Director Date of grant Options over new Ergomed shares: Number of Ordinary Shares under option Exercise price per Ordinary Share Exercise period from Exercise period to Name of scheme Rolf Stahel 18/4/2014 1,260,000 £1.60 18/04/2014 17/04/2024 Stahel Option Agreement Neil Clark 31/12/2009 1,000,000 £0.01 31/12/2009 30/12/2019 24/12/2015 150,000 £1.69 03/06/2018 23/12/2025 Andrew Mackie 24/12/2015 125,000 £1.69 03/06/2018 23/12/2025 Stephen Stamp 11/01/2016 400,000 £0.01 10/01/2019 10/01/2026 Unapproved Share Option Scheme 2007 Ergomed plc Long Term Incentive Plan Ergomed plc Long Term Incentive Plan Ergomed plc Long Term Incentive Plan Options over Ergomed shares owned by Miroslav Reljanovic: Neil Clark Andrew Mackie Stephen Stamp 20/07/2015 20/07/2015 20/07/2015 20/07/2015 30/11/2016 30/11/2016 88,235 88,235 88,235 88,235 50,000 50,000 £0.01 £0.01 £0.01 £0.01 £0.01 £0.01 20/07/2015 20/07/2016 19/07/2025 19/07/2025 20/07/2015 20/07/2016 19/07/2025 19/07/2025 11/01/2017 11/01/2018 29/11/2025 29/11/2026 No options held by the Directors were exercised or lapsed during the year. This report was approved by the Board of Directors on 26 April 2017 and signed on its behalf by P George Director, Chairman of the Remuneration Committee N/A N/A N/A N/A N/A N/A 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Directors’ report For the year ended 31 December 2016 The Directors present their report and financial statements for the Company and Group for the year ended 31 December 2016. Principal activities Ergomed is a profitable global business providing drug development and safety services to the pharmaceutical industry and has a growing portfolio of co-development partnerships. It operates in over 56 countries. Business review and key performance indicators The Group’s results are set out in the Consolidated income statement on page 30 and are explained in the Financial review on pages 16 and 17. A detailed review of the business, its results and future direction is included in the Chief Executive Officer’s review on pages 10 and 11. Capital structure The Group is primarily financed through equity provided by its shareholders and cash generated from its profitable operations. Dividends The Directors do not recommend the payment of a dividend (2015: £nil). Directors The Directors of the Company who served during the year are as follows: Rolf Stahel (resigned 31 March 2017) Miroslav Reljanovic Neil Clark (resigned 16 April 2017) Andrew Mackie Stephen Stamp (appointed 11 January 2016) Christopher Collins Peter George At 31 December 2016, the Directors had the following beneficial interests in the Company’s shares: Rolf Stahel Miroslav Reljanovic Neil Clark Andrew Mackie Stephen Stamp Christopher Collins Peter George Number of shares 125,000 17,632,237 91,912 – 200,000 31,250 131,250 Percentage of total issued share capital 0.3% 43.5% 0.2% – 0.5% 0.1% 0.3% Biographical details of the Directors are set out on page 21. Directors’ interests The interests of Directors in the shares and options of the Company are set out above and in the Directors’ remuneration report on pages 24 to 26. None of the Directors had a material interest at any time during the year in any contract of significance with the Group other than a service contract or an arm’s length commercial contract. See note 37 for all related party transactions. Information regarding Directors’ service contracts is given on page 24 within the Directors’ remuneration report. Share capital As at 31 December 2016, the issued share capital of the Company was: Number of ordinary shares of £0.01 each (‘Ordinary Shares’) issued and fully paid up – 40,504,806 (2015: 28,750,000). The closing market price of the Company’s ordinary shares at close of business on 29 December 2016, the last trading day of the year, was 155.85 pence. 27 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 28 Directors’ report continued The maximum share price during the period from 1 January 2016 through 31 December 2016, was 169.5 pence and the minimum price was 117 pence per share. Auditor Each of the persons who is a Director at the date of approval of this Annual Report confirms that: – so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and – the Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Deloitte LLP have expressed their willingness to continue in office as auditor and a resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting. Subsequent events There were no subsequent events. 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 Group and Company financial statements for each financial year. The Directors are required by the AIM Rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union (‘EU') and have elected under company law to prepare the Company financial statements in accordance with IFRSs as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and the Company and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. 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 Group and the Company and of the profit or loss of the Group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: – select suitable accounting policies and then apply them consistently; – make judgements and estimates that are reasonable and prudent; – present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; – state whether they have been prepared in accordance with applicable IFRSs as adopted by the EU; and – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. We confirm that to the best of our knowledge: – the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; – the Strategic report includes a fair view of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and – the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide information necessary for shareholders to assess the Company’s performance, business model and strategy. Approved by the Board of Directors and signed on behalf of the Board. S Jurić Company Secretary 26 April 2017 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Independent auditor’s report To the members of Ergomed plc We have audited the financial statements of Ergomed plc for the year ended 31 December 2016 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and parent company balance sheets, the Consolidated and parent company statements of changes in equity, the Consolidated and parent company cash flow statements and the related notes 1 to 59. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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. Respective responsibilities of Directors and auditor As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: – the financial statements give a true and fair view of the state of the Group’s and the parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended; – the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; – the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and – the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: – the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and – the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic report and the Directors’ report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: – adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or – the parent company 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. Matthew Hall FCA, (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants Statutory Auditor Deloitte House, Station Place, Cambridge CB1 2FP 26 April 2017 29 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c a i l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 30 Consolidated income statement For the year ended 31 December 2016 Revenue Cost of sales Gross profit Administrative expenses Administrative expenses comprises: Other administrative expenses Amortisation of acquired fair valued intangible assets Share-based payment charge Deferred consideration for acquisition Write-back of deferred consideration Acquisition costs Exceptional items Research and development Other operating income Operating profit Investment revenues Finance costs Profit before taxation Taxation Profit for the year Earnings per share Basic Diluted All activities in the current and prior period relate to continuing operations. The notes on pages 35 to 70 form an integral part of these financial statements. Notes 3, 4 2016 £000s 2015 £000s 39,233 (27,239) 30,178 (21,808) 11,994 (10,483) 8,370 (6,379) (8,323) (771) (398) (690) 460 (584) (177) (1,040) 127 598 2 (274) 326 153 479 1.3p 1.3p (5,186) (596) (288) – – (272) (37) – 81 2,072 1 (1) 2,072 (520) 1,552 5.4p 5.2p 15 30 34 33 7 8 9 10 12 5 13 13 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Consolidated statement of comprehensive income For the year ended 31 December 2016 Profit for the year Items that may be classified subsequently to profit or loss: Exchange differences on translation of foreign operations Other comprehensive income for the year net of tax Total comprehensive income for the year 2016 £000s 479 680 680 1,159 2015 £000s 1,552 (244) (244) 1,308 31 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 32 Consolidated balance sheet As at 31 December 2016 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Deferred tax asset Current assets Trade and other receivables Clinical trial inventory Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Deferred revenue Current tax liability Total current liabilities Net current assets Non-current liabilities Borrowings Deferred consideration Deferred tax liability Total liabilities Net assets Equity Share capital Share premium account Merger reserve Share-based payment reserve Translation reserve Retained earnings Total equity The notes on pages 35 to 70 form an integral part of these financial statements. The re-statement of the balance sheets for 2014 and 2015 are explained in note 1. Approved by the Board of Directors and authorised for issue on 26 April 2017. S A Stamp Director Company Registration No. 04081094 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 2016 £000s 2015 Re-stated £000s 2014 Re-stated £000s Notes 14 15 16 18 19 20 21 22 23 24 23 25 19 26 27 28 29 29 12,285 19,842 717 271 1,448 7,488 2,819 335 183 365 7,282 2,927 185 39 323 34,563 11,190 10,756 14,958 450 4,424 19,832 9,528 – 3,974 6,343 – 4,576 13,502 10,919 54,395 24,692 21,675 (3) (7,077) (1,393) (119) (5) (5,955) (795) (478) (7) (5,010) (594) (144) (8,592) (7,233) (5,755) 11,240 6,269 5,164 (5) (7,772) (3,418) (7) – (516) (6) – (575) (19,787) (7,756) (6,336) 34,608 16,936 15,339 406 17,957 10,264 1,048 143 4,790 288 9,361 2,981 650 (537) 4,193 288 9,361 2,981 362 (293) 2,640 34,608 16,936 15,339 Consolidated statement of changes in equity For the year ended 31 December 2016 Balance at 31 December 2014 Correction of accounting treatment (note 1) As re-stated Profit for the year Other comprehensive income for the year Total comprehensive income for the year Share-based payment charge for the year Deferred tax credit taken directly to equity Balance at 31 December 2015 (re-stated) Profit for the year Other comprehensive income for the year Total comprehensive income for the year Share issue during the year for cash (net of expenses) Share issues during the year for non-cash consideration Contingent share issue for non-cash consideration Share-based payment charge for the year Deferred tax credit taken directly to equity Share capital £000s 288 – 288 – – – – – 288 – – – 66 51 1 – – Share premium account £000s 12,342 (2,981) 9,361 – – – – – 9,361 – – – 8,596 – – – – Merger reserve £000s – 2,981 2,981 – – – – – 2,981 – – – – 7,144 139 – – Share- based payment reserve £000s Translation reserve £000s Retained earnings £000s 362 – 362 – – – 288 – 650 – – – – – – 398 – (293) – (293) – (244) (244) – – (537) – 680 680 – – – – – 2,640 – 2,640 1,552 – 1,552 – 1 4,193 479 – 479 – – – – 118 Total £000s 15,339 – 15,339 1,552 (244) 1,308 288 1 16,936 479 680 1,159 8,662 7,195 140 398 118 Balance at 31 December 2016 406 17,957 10,264 1,048 143 4,790 34,608 33 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 34 Consolidated cash flow statement For the year ended 31 December 2016 Cash flows from operating activities Profit before taxation Adjustment for: Amortisation and depreciation (Gain)/loss on disposal of fixed assets Share-based payment charge Acquisition of shares for non-cash consideration Exchange adjustments Acquisition costs and deferred consideration Write-back of deferred consideration Investment revenues Finance costs Operating cash flow before changes in working capital and provisions Increase in trade and other receivables Increase in inventory (Decrease)/increase in trade and other payables Cash (utilised by)/generated from operations Taxation paid Net cash (outflow)/inflow from operating activities Investing activities Investment revenues received Acquisition of intangible assets Acquisition of property, plant and equipment Investment in joint venture and other investments Acquisition of subsidiaries, net of cash acquired Receipts from sale of property, plant and equipment Net cash outflow from investing activities Financing activities Issue of new shares Expenses of fundraising Finance costs paid Increase in borrowings Repayment of borrowings Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at start of the year Cash and cash equivalents at end of year 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes 2016 £000s 2015 £000s 326 2,072 1,027 (2) 398 (54) 419 726 (415) (2) 274 2,697 (3,667) (405) (58) (1,433) (941) (2,374) 2 (705) (404) – (4,755) 31 (5,831) 9,185 (523) (2) – (5) 8,655 450 3,974 22 4,424 713 4 288 (142) (251) 54 – (1) 1 2,738 (2,898) – 1,012 852 (588) 264 1 (285) (270) (1) (312) 2 (865) – – (1) 7 (7) (1) (602) 4,576 3,974 Notes to the consolidated financial statements For the year ended 31 December 2016 1. Accounting policies Ergomed plc and its wholly owned subsidiaries provide a full range of clinical trial planning, management and monitoring, as well as drug safety and medical information services. The Group has a worldwide presence with operations in the UK, Poland, Germany, Bosnia, Croatia, Serbia, Russia, Switzerland, Ukraine, Taiwan, the United Arab Emirates and the USA. Ergomed plc is a company incorporated and domiciled in the UK. The Group financial statements were authorised for issue by the Board of Directors on 26 April 2017. Basis of accounting Consolidated financial statements The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) and the Companies Act 2006. The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis. The principal accounting policies are set out below. Parent company financial statements The Company financial statements have been produced in accordance with International Financial Reporting Standards, the Companies Act 2006 and under the historical cost convention. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company: – has the power over the investee; – is exposed, or has rights, to variable return from its involvement with the investee; and – has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: – the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; – potential voting rights held by the Company, other vote holders or other parties; – rights arising from other contractual arrangements; and – any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the Consolidated income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company. Total comprehensive income of the subsidiaries is attributed to the owners of the Company. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transitions between the members of the Group are eliminated on consolidation. 35 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 1. Accounting policies continued When the Group loses control of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity. Going concern The financial statements have been prepared on the going concern basis, which assumes that the Group will have sufficient funds to continue in operational existence for the foreseeable future, being a period of no less than 12 months from the date of signing of the financial statements. The Directors have reviewed a cash flow forecast (‘the Forecast’) for the period ending 31 December 2018. The Forecast represents the Directors’ best estimate of the Group’s future performance and necessarily includes a number of assumptions, including the level of revenues, which are subject to inherent uncertainties. However, the Forecast demonstrates that the Directors have a reasonable expectation that the Group will be able to meet its liabilities as they fall due, for a period of at least 12 months from the date of approval of these financial statements. On the basis of the above factors and, having made appropriate enquiries, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements. Compliance with accounting standards At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): IFRS 9 IFRS 15 IFRS 16 IFRS 11 (amendments) IAS 1 (amendments) IAS 16 and IAS 38 (amendments) Financial Instruments Revenue from Contracts with Customers Leases Accounting for Acquisitions of Interests in Joint Operations Disclosure Initiative Clarification of Acceptable Methods of Depreciation and Amortisation IAS 16 and IAS 41 (amendments) Agriculture: Bearer Plants IAS 27 (amendments) IFRS 10 and IAS 28 (amendments) Equity Method in Separate Financial Statements Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IFRS 10, IFRS 12 and IAS 28 (amendments) Investment Entities: Applying the Consolidation Exemption Annual Improvements to IFRSs: 2012–2014 Cycle Amendments to: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial instruments. IFRS 15 may have an impact on revenue recognition and related disclosures, and IFRS 16 will have an impact on the measurement and recognition of leases and related disclosures. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of IFRS 9, IFRS 15 and IFRS 16 until a detailed review has been completed. 36 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Re-statement of prior year Consolidated balance sheet In July 2014, Ergomed plc acquired the entire issued share capital of PrimeVigilance Limited for consideration comprising £6,000,000 in cash, and 1,875,000 shares of £0.01 each, valued at £1.60 per share. The excess of share value over the nominal value of those shares was taken to the share premium account. However, under the Companies Act 2006, these amounts should have been posted to the merger reserve. An adjustment has been made to the Consolidated balance sheet as at 31 December 2014 and 31 December 2015. This adjustment has no impact on the net assets of the Group, the Consolidated income statement or the Consolidated cash flow statement. The impact on the Consolidated balance sheet is set out below. 2015 Previously reported £000s Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Deferred revenue Current tax liability Total current liabilities Net current assets Non-current liabilities Borrowings Deferred tax liability Total liabilities Net assets Equity Share capital Share premium account Merger reserve Share-based payment reserve Translation reserve Retained earnings Total equity 7,488 2,819 335 183 365 11,190 9,528 3,974 13,502 24,692 (5) (5,955) (795) (478) (7,233) 6,269 (7) (516) (7,756) 16,936 288 12,342 – 650 (537) 4,193 16,936 Adjustment £000s 2015 Re-stated £000s – – – – – – – – – – – – – – – – – – – – – (2,981) 2,981 – – – 7,488 2,819 335 183 365 11,190 9,528 3,974 13,502 24,692 (5) (5,955) (795) (478) (7,233) 6,269 (7) (516) (7,756) 16,936 288 9,361 2,981 650 (537) 4,193 – 16,936 37 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 1. Accounting policies continued Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Borrowings Trade and other payables Deferred revenue Current tax liability Total current liabilities Net current assets Non-current liabilities Borrowings Deferred tax liability Total liabilities Net assets Equity Share capital Share premium account Merger reserve Share-based payment reserve Translation reserve Retained earnings Total equity 2014 Previously reported £000s Adjustment £000s 2014 Re-stated £000s 7,282 2,927 185 39 323 10,756 6,343 4,576 10,919 21,675 (7) (5,010) (594) (144) (5,755) 5,164 (6) (575) (6,336) 15,339 288 12,342 – 362 (293) 2,640 15,339 – – – – – – – – – – – – – – – – – – – – – (2,981) 2,981 – – – 7,282 2,927 185 39 323 10,756 6,343 4,576 10,919 21,675 (7) (5,010) (594) (144) (5,755) 5,164 (6) (575) (6,336) 15,339 288 9,361 2,981 362 (293) 2,640 – 15,339 Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less depreciation less any provision for impairment. Depreciation is provided on assets at rates calculated to write off the cost, less their estimated residual value, over their expected useful lives on the following bases: Leasehold improvements Motor vehicles Computer equipment Fixtures and fittings Laboratory equipment 2.5% straight line or over the remaining lease term, whichever is shorter 8.33 – 50% straight line 8.33 – 50% straight line 10 – 50% straight line 20% straight line 38 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Business combinations Acquisitions of companies are accounted for in accordance with the principles of IFRS 3, as the Directors consider it reflects the economic substance of transactions. Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Deferred consideration in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets expected to be transferred by the Group to the former owners of the acquiree and the equity interest to be issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: – deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and – assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the fair value of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. An impairment loss recognised for goodwill is not reversed in a subsequent period. The recoverable amount is the higher of the fair value less costs to sell, and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. 39 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 40 Notes to the consolidated financial statements continued For the year ended 31 December 2016 1. Accounting policies continued Investments Investments are stated at cost less provision for impairment in value. Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives as follows: Software 20–30% straight line The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Costs associated with the development of computer software are initially capitalised at cost which includes the purchase price (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditure, including employee costs, which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured, is added to the original cost of the software. Costs associated with maintaining the computer software are recognised as an expense when incurred. The computer software under development is currently under construction and so no amortisation has been recognised in the current year. The asset will subsequently be carried at cost less accumulated amortisation and accumulated impairment losses. These costs will be amortised to profit or loss using the straight line method over their estimated useful lives of five years, once the asset is in use. Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately, as follows. Customer contract Customer relationships Brand Technology In-process R&D 20% straight line 20% straight line 13.3% straight line 40% straight line Not currently amortised Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. The recoverable amount is the higher of the fair value less costs to sell, and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets The Company classifies its financial assets in the following categories: – at fair value through profit or loss (‘FVTPL’) – loans and receivables – available-for-sale financial assets (‘AFS’) – held-to-maturity investments The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if it was acquired principally for the purpose of selling it in the short term or if so designated by management. Financial instruments at fair value through profit and loss comprise of ‘derivative financial instruments’. Assets in this category are classified as current assets, if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables comprise of ‘trade and other receivables’ and ‘cash and cash equivalents’ in the balance sheet. Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment could include: – significant financial difficulty of the issuer or counterparty; or – default or delinquency in interest or principal payments; or – it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the differences between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the 41 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 allowance account are recognised in profit or loss. 1. Accounting policies continued Financial liabilities and equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Clinical trial inventory Clinical trial inventory relates to clinical trial material to be used in the clinical development programmes of the Group. It is stated at cost and comprises direct material costs and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and 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. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and estimated credit notes. Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract based on time spent. Revenue is recognised when it is probable that economic benefits will flow to the Company. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Operating profit Operating profit is stated before investment income, finance costs and tax. Taxation The tax expense represents the sum of tax currently payable and deferred tax. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expenditure that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. 42 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount 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 recognised for all 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 differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are enacted or substantively enacted at the reporting date. Foreign currency translation The functional currency of the Company is the Euro, and the presentational currency is UK Sterling, meeting the requirements of shareholders. Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the income statement. The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: – assets and liabilities for each balance sheet presented are translated at the closing rate at the reporting date; – income and expenses for each income statement are translated on a monthly basis at average exchange rates (unless this average is not a reasonable approximation of the exchange rates at the dates of the transactions, in which case income and expense items are translated at the exchange rates at the dates of the transactions); and – all resulting exchange differences are recognised directly in Other comprehensive income. Pensions The pension costs charged in the financial statements represent the contributions payable by the Company during the year in accordance with lAS 19. Leasing and hire purchase commitments Assets obtained under hire purchase contracts and finance leases are capitalised as tangible assets and depreciated over their useful lives. Obligations under such agreements are included in creditors net of the finance charge allocated to future periods. The finance element of the rental payment is charged to the income statement so as to produce a constant periodic rate of charge on the net obligation outstanding in each period. Rentals payable under operating leases are charged against income on a straight line basis over the lease term. Share-based payments The Group operates an equity-settled share-based option scheme under which the Group receives services from employees in consideration for equity instruments (options) of the Company. The fair value of the employees’ services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions. The total amount expensed is recognised over the vesting period, which is the period over which all the specified conditions are satisfied. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest based on the vesting conditions. Exceptional items Significant non-recurring transactions undertaken by the Group during the year are classified as exceptional items. 2. Critical accounting judgements and key sources of estimation and uncertainty In the application of the Group’s accounting policies, which are described in note 1, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying the Group’s accounting policies The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. 43 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 44 Notes to the consolidated financial statements continued For the year ended 31 December 2016 2. Critical accounting judgements and key sources of estimation and uncertainty continued Revenue recognition The amount of revenue to be recognised is based on, inter alia, management’s estimate of the fair value of the consideration received or receivable, the stage of completion and of the point in time at which management considers that it becomes probable that economic benefits will flow to the entity (as the outcome is not always certain at the inception of a contract). Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Bad debt provision In determining the level of provisioning for bad debts, the Directors have considered the aging of trade receivables, and the payment history and financial position of debtors. The provision against trade receivables as at 31 December 2016 was £1,016,000 (2015: £233,000) (note 20). Impairment of goodwill Under IFRSs, goodwill is reviewed for impairment at least annually. Determining whether goodwill is impaired requires an estimation of the recoverable amount of the cash-generating units to which goodwill has been allocated. The calculation of the recoverable amount requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to determine whether the recoverable amount is greater than the carrying value. The carrying amount of goodwill and any impairment loss is disclosed in note 14. Fair value measurements Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The Group incurs share-based payment charges in relation to share options awards made in the current and prior periods. This charge is based on the fair value of such share options for financial reporting purposes. In estimating the fair value of a share-based payment, the Group engages third party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. 3. Revenue An analysis of the Group’s revenue is as follows: Provision of clinical research services Provision of drug safety and medical information services Other operating income Investment revenues 2016 £000s 25,777 13,456 39,233 127 2 2015 £000s 21,906 8,272 30,178 81 1 39,362 30,260 The provision of clinical research services includes the revenues of O+P and GASD following their acquisition by the Company on 12 June 2016. The provision of drug safety and medical information services includes the revenues of PharmInvent following its acquisition by the Company on 28 November 2016. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 4. Operating segments Products and services from which reportable segments derive their revenues Information reported to the Group’s Chief Executive Officer, who is the chief operating decision maker (‘CODM’), for the purpose of resource allocation and assessment of segment performance is focused on the Group operating as two business segments, being clinical research services (‘CRS’) and drug safety and medical information services (‘DS&MI’). All revenues arise from direct sales to customers. The segment information reported below all relates to continuing operations. Geographical information The Group’s revenue from external customers by geographical location is detailed below: 2016 UK Rest of Europe, Middle East and Africa North America Asia Australia 2015 UK Rest of Europe, Middle East and Africa North America Asia Australia 2016 Revenue Third party sales Intersegment sales and recharges Total revenue Revenue Segment result Research and development Amortisation of acquired fair valued intangible assets Share-based payment charge Deferred consideration for acquisition Write-back of deferred consideration for acquisition Acquisition costs Exceptional items Operating profit Investment revenues Finance costs Finance charge for deferred consideration for acquisition Profit before tax Tax Profit after tax Revenue from external customers CRS £000s 3,330 15,590 6,490 367 – DS&MI £000s 4,746 4,461 4,018 27 204 Total £000s 8,076 20,051 10,508 394 204 25,777 13,456 39,233 Revenue from external customers CRS £000s 2,748 9,407 7,945 1,806 – DS&MI £000s 3,395 2,878 1,874 3 122 Total £000s 6,143 12,285 9,819 1,809 122 21,906 8,272 30,178 CRS £000s 25,777 670 26,447 DS&MI £000s Eliminations £000s 13,456 2 13,458 – (672) (672) CRS £000s 203 DS&MI £000s 3,586 Eliminations £000s 9 Consolidated total £000s 39,233 – 39,233 Consolidated total £000s 3,798 (1,040) (771) (398) (690) 460 (584) (177) 598 2 (2) (272) 326 153 479 45 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 46 Notes to the consolidated financial statements continued For the year ended 31 December 2016 4. Operating segments continued 2015 Revenue Third party sales Intersegment sales and recharges Total revenue Revenue Segment result Amortisation of acquired fair valued intangible assets Share-based payment charge Acquisition costs Exceptional items Operating profit Investment revenues Finance costs Profit before tax Tax Profit after tax CRS £000s 21,906 67 21,973 CRS £000s 1,165 DS&MI £000s 8,272 9 8,281 DS&MI £000s 2,102 Eliminations £000s Consolidated total £000s – (76) (76) 30,178 – 30,178 Eliminations £000s (2) Consolidated total £000s 3,265 (596) (288) (272) (37) 2,072 1 (1) 2,072 (520) 1,552 The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. Segment profit represents the profit earned by each segment. This is the measure reported to the Group’s Chief Executive Officer for the purpose of resource allocation and assessment of segment performance. Segment net assets CRS DS&MI Consolidated total net assets 2016 £000s 16,489 18,119 2015 £000s 5,913 11,023 34,608 16,936 For the purposes of monitoring segment performance and allocating resources between segments, the Group’s Chief Executive Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments. Goodwill has been allocated to reportable segments as described in note 14. Other segment information CRS DS&MI Depreciation and amortisation Additions to non-current assets 2016 £000s 528 499 1,027 2015 £000s 286 427 713 2016 £000s 705 404 1,109 2015 £000s 238 317 555 Information about major customers In 2016, the Group had two customers that contributed 10% or more to the Group’s revenue. Revenues of approximately £5,479,000 and £4,771,000 were recognised from these customers respectively, all relating to the provision of clinical research services. In 2015, the Group had two customers that contributed 10% or more to the Group’s revenue. Revenues of approximately £5,219,000 and £5,181,000 were recognised from these customers respectively for clinical research services. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 5. Profit for the year Profit for the year is stated after charging/(crediting): Depreciation of property, plant and equipment – owned Depreciation of property, plant and equipment – leased Amortisation of intangible assets Depreciation and amortisation charges within Administrative expenses Amortisation of acquired fair valued intangible assets Exchange (gain)/loss (Gain)/loss on disposals of property, plant and equipment Staff costs (note 11) 6. Auditor’s remuneration The analysis of the auditor’s remuneration is as follows: Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts Total audit fees – Interim review Total non-audit fees 2016 £000s 2015 £000s 231 5 20 256 771 (274) (2) 11,839 105 5 7 117 596 115 4 7,546 2016 £000s 2015 £000s 128 128 33 33 93 93 33 33 Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis. 7. Acquisition costs Acquisition of Sound Opinion Acquisition of Haemostatix (note 32) Acquisition of O+P and GASD (note 33) Acquisition of PharmInvent (note 34) Other M&A activities 8. Exceptional items Establishment of Taiwan office Establishment of PrimeVigilance US office 2016 £000s 7 370 85 118 4 584 2016 £000s – 177 177 2015 £000s 54 – – – 218 272 2015 £000s 37 – 37 In line with the way the Board and chief operating decision maker review the business, large one-off exceptional costs related to the establishment of the subsidiaries in Taiwan and the US are shown as exceptional costs. 47 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 48 Notes to the consolidated financial statements continued For the year ended 31 December 2016 9. Investment revenues Bank and other interest 10. Finance costs Loan and other interest payable Finance charge for deferred consideration for acquisition 2016 £000s 2 2016 £000s (2) (272) (274) 2015 £000s 1 2015 £000s (1) – (1) The finance charge for deferred consideration for acquisition relates to the first payment of deferred consideration payable to the vendors of PharmInvent. The payment of deferred consideration for PharmInvent is conditional upon the vendors’ continuing employment by the Group and, in accordance with IFRS 3, is therefore recognised as a finance cost. 11. Employees Number of employees The average monthly number of persons employed by the Group (including Executive Directors and excluding Non- Executive Directors) during the year was: Administration Project staff Management Directors Employment costs Wages and salaries Social security costs Other pension costs (note 36) 2016 Number 2015 Number 52 296 18 4 370 2016 £000s 9,923 1,734 182 11,839 40 216 13 2 271 2015 £000s 6,546 882 118 7,546 Disclosures relating to key management personnel are included within the Directors’ remuneration report on pages 24 to 26. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 12. Taxation Current tax UK corporation tax (credit)/charge for the year Overseas corporation tax Adjustment in respect of prior years Current tax (credit)/charge for the year Deferred tax Origination and reversal of timing differences Effect of changes in tax rates Total tax (credit)/charge for the year 2016 £000s (181) 180 (16) (17) (40) (96) (153) 2015 £000s 349 308 13 670 (143) (7) 520 Under IAS 12 Income Taxes, the amount of tax benefit that can be recognised in the income statement is limited by reference to the IFRS 2 share-based payment charge. The excess amount of tax benefit in respect of share options gives rise to a credit which has been recognised directly in equity, in addition to the amounts charged to the income statement and other comprehensive income, as follows: 2016 £000s 2015 £000s Deferred tax Change in estimated excess tax deductions related to share-based payments Total income tax credit recognised directly in equity (118) (118) (1) (1) The standard rate of tax for the year, based on the UK standard rate of corporation tax, is 20% (2015: 20.25%). The actual tax charges for the years differ from the standard rate for the reasons set out in the following reconciliation. Profit on ordinary activities before taxation Tax on profit on ordinary activities at blended standard rate of 20% (2015: 20.25%) Non-deductible expenses Additional allowable expenses Timing differences arising in the year R&D tax credit receivable Adjustments to previous periods Effect of different tax rates of subsidiaries operating in other jurisdictions Difference due to change in rate of taxation Increase/(utilisation) of tax losses Translation effect Tax (credit)/expense for the year 2016 £000s 326 65 449 (449) (64) (181) (13) (3) (80) 144 (21) (153) 2015 £000s 2,072 419 268 (91) (155) – 13 74 (7) (8) 7 520 The Finance Act 2015, which provides for a reduction in the main rate of corporation tax from 20% to 19% effective from 1 April 2016, and from 19% to 17% effective from 1 April 2017 was substantively enacted on 6 September 2016. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date. 49 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 50 Notes to the consolidated financial statements continued For the year ended 31 December 2016 13. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company Effect of dilutive potential Ordinary Shares Earnings for the purposes of diluted earnings per share 2016 £000s 479 – 479 2016 £000s 2015 £000s 1,552 – 1,552 2015 £000s Number of shares Weighted average number of Ordinary Shares for the purposes of basic earnings per share Effect of dilutive potential Ordinary Shares Share options 35,573,733 28,750,000 1,484,600 1,015,223 Weighted average number of Ordinary Shares for the purposes of diluted earnings per share 37,058,333 29,765,223 14. Goodwill Cost At 1 January 2015 Arising on acquisition of subsidiary At 1 January 2016 Arising on acquisition of subsidiaries (notes 32, 33 and 34) At 31 December 2016 Accumulated impairment losses At 1 January 2015, 1 January 2016 and 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 £000s 7,282 206 7,488 4,797 12,285 – 12,285 7,488 The goodwill arising during the year ended 31 December 2016 relates to the acquisitions of Haemostatix, O+P and GASD and PharmInvent on 24 May 2016, 12 June 2016 and 28 November 2016 respectively. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (‘CGUs’) that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows: Clinical research services Ergomed Virtuoso Haemostatix O+P and GASD Drug safety and medical information services PrimeVigilance Sound Opinion PharmInvent 2016 £000s 2015 £000s 2014 £000s 455 2,086 487 3,028 6,827 206 2,224 9,257 455 – – 455 6,827 206 – 7,033 455 – – 455 6,827 – – 6,827 12,285 7,488 7,282 The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and growth rates. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on management’s estimates based on the Group’s planned organic expansion of its operations and broadened overall offering, and the increased demand for services. Profit margins included in the projections are based on industry standards. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by the Board for the next five years and extrapolates cash flows for the following five years based on a terminal growth rate of 2%, except for the Ergomed Virtuoso Sarl CGU and the Haemostatix Limited CGU, both of the clinical research services (‘CRS’) segment. This rate does not exceed the average long term growth rate for the relevant markets. The Ergomed Virtuoso Sarl CGU extrapolates cash flows over the remaining life of the Customer Contract using a terminal growth rate of 0%. The Haemostatix Limited CGU extrapolates cash flows over the patent life of the In-process research and development using a terminal growth rate of 0%. The post-tax rate used to discount the forecast cash flows from both the clinical research services (‘CRS’) and drug safety and medical information (‘DS&MI’) and research and development segments is 13.4%. 51 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 Software £000s Customer contract £000s Customer relationships £000s Brand £000s In-Process R&D £000s Technology £000s Total £000s 15. Other intangible assets Cost At 1 January 2015 Acquired with subsidiary Additions Translation movement At 31 December 2015 Acquired with subsidiaries (see notes 32, 33 and 34) Additions Assets written-off Re-allocation to tangible fixed assets Translation movement 472 – 285 (6) 751 – 705 (18) (2) 22 1,070 – – – 1,070 – – – – – At 31 December 2016 1,458 1,070 Amortisation At 1 January 2015 Charge for the year Amortisation cost of acquired fair valued intangible assets Translation movement At 31 December 2015 Charge for the year Amortisation cost of acquired fair valued intangible assets Assets written-off Translation movement At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 109 7 – (6) 110 20 – (18) 17 129 1,329 641 267 – 214 – 481 – 214 – – 695 375 589 1,480 210 – – 1,690 1,487 – – – – 3,177 148 – 321 – 469 – 398 – – 867 2,310 1,221 460 – – – 460 – – – – – – – – – – 15,200 – – – – 460 15,200 31 – 61 – 92 – 61 – – 153 307 368 – – – – – – – – – – 15,200 – – – – – – 419 – – – – 419 – – – – – – 98 – – 98 321 – 3,482 210 285 (6) 3,971 17,106 705 (18) (2) 22 21,784 555 7 596 (6) 1,152 20 771 (18) 17 1,942 19,842 2,819 The intangible assets acquired with subsidiary during 2015 relate to the acquisition of Sound Opinion on 26 May 2015. The intangible assets acquired with subsidiary during 2016 relate to the acquisitions of Haemostatix, O+P and GASD and PharmInvent on 24 May 2016, 12 June 2016 and 28 November 2016 respectively. Included within Software is software under development with an asset value of £1,125,000 (2015: £583,000). The software is currently still under construction and so no amortisation has been recognised in the current year. 52 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Leasehold improvements £000s Fixtures and fittings £000s Motor vehicles £000s Computer equipment £000s Laboratory equipment £000s 16. Property, plant and equipment Cost At 1 January 2015 Additions Acquired with subsidiary Re-allocation Disposals Translation movement At 31 December 2015 Additions Acquired with subsidiaries (notes 32, 33 and 34) Re-allocation from Intangible assets Disposals Translation movement At 31 December 2016 Depreciation At 1 January 2015 Charge for the year Re-allocation Disposals Translation movement At 31 December 2015 Charge for the year Disposals Translation movement At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 38 17 – – – (2) 53 17 – 2 – 8 80 26 5 – – (1) 30 10 – 4 44 36 23 51 35 – (2) (1) (2) 81 67 5 – – 14 167 28 10 (2) – (1) 35 34 – 6 75 92 46 68 19 – – (14) (5) 68 9 145 – (2) 12 232 28 5 – (9) (2) 22 25 – 4 51 181 46 346 199 2 2 (3) (11) 535 269 35 – (52) 89 876 236 90 2 (3) (10) 315 158 (25) 56 504 372 220 Included above are assets held under finance leases or hire purchase contracts as follows: Net book value At 31 December 2016 At 31 December 2015 Depreciation charge for the year Year ended 31 December 2016 Year ended 31 December 2015 Total £000s 503 270 2 – (18) (20) 737 404 188 2 (54) 123 – – – – – – – 42 3 – – – 45 1,400 – – – – – – 9 – – 9 36 – 318 110 – (12) (14) 402 236 (25) 70 683 717 335 Motor vehicles £000s 32 33 5 5 53 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 54 Notes to the consolidated financial statements continued For the year ended 31 December 2016 17. Subsidiaries The Ergomed Group consists of a parent company, Ergomed plc, incorporated in the UK, and a number of subsidiaries held directly and indirectly by Ergomed plc which operate and are incorporated around the world. Note 46 to the parent company’s separate financial statements lists details of the material interests in subsidiaries. Information about the composition of the Group at the end of the reporting period is as follows: Principal activity Clinical research services Clinical research services Clinical research services Clinical research services Clinical research services Clinical research services Clinical research services Clinical research services Clinical research services Clinical research services Drug safety and medical information services Drug safety and medical information services Drug safety and medical information services Drug safety and medical information services Drug safety and medical information services Research and development Dormant The registered offices of the Company’s subsidiaries are as follows: Company Registered address Number of wholly owned subsidiaries Place of incorporation and operation 2016 2015 Germany Poland Serbia USA Croatia Russia Bosnia UAE Switzerland Taiwan United Kingdom Croatia Serbia USA Czech Republic United Kingdom United Kingdom 3 1 1 1 1 1 1 1 1 1 2 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 2 1 – – – – 1 Otto-Volger-Str. 9b, 65843 Sulzbach (Taunus), Germany Kolowa 8, 30-134 Krakow, Poland Avgusta Cesarca 18, 21 000 Novi Sad, Serbia 9901 IH-10W, Suite 800, 78230, San Antonio, TX, USA Oreškovićeva 20a, 10 020 Zagreb, Croatia 125040, Moscow, 17 Skakovaya Street, Building 2, Office 2714, The Russian Federation Zmaja od Bosne 7-7a, Sarajevo, Bosnia and Herzegovina Dubai International Academic City, Premises 06, Floor: Ground, Building: 03, Dubai, UAE 18, Avenue Lois-Casai, 1209 Geneva, Switzerland Fl. 2, No. 467, Sec.6, Zhongxiao E Rd., Nangang District, Taipei City 115, Taiwan Venloer Str. 47-53, 50672 Cologne, Germany Am Konvent 8-10, D-41460 Neuss, Germany Ergomed GmbH Ergomed Sp. z o.o. Ergomed d.o.o. Novi Sad Ergomed Clinical Research Inc Ergomed Istraživanja Zagreb d.o.o. Ergomed Clinical Research LLC Ergomed d.o.o. Sarajevo Ergomed Clinical Research FZ-LLC Ergomed Virtuoso Sarl Ergomed Clinical Research Limited Dr Oestreich + Partner GmbH Gesellschaft für angewandte Statistik + Datenanalyse mbH PrimeVigilance Limited PrimeVigilance Zagreb d.o.o. PrimeVigilance d.o.o. Beograd PrimeVigilance Inc Sound Opinion Limited European Pharminvent Services s.r.o. Prague 3 - Vinohrady, Slezska 856/74, 13000, Czech Republic Prague 3 - Vinohrady, Slezska 856/74, 13000, Czech Republic Pharminvent regulatory s.r.o. BioCity Nottingham, Pennyfoot Street, Nottingham, NG1 1GF, UK Haemostatix Limited 26-28 Frederick Sanger Road, Surrey Research Park, Guildford, Surrey, GU2 7YD, UK Ergomed Clinical Research Limited 26-28 Frederick Sanger Road, Surrey Research Park, Guildford, Surrey, GU2 7YD, UK Oreškovićeva 20a, 10 020 Zagreb, Croatia Đorđa Stanojevića 14, Beograd – Novi Beograd, Serbia Reservoir Place, 1601 Trapelo Road, Waltham, MA 02451, USA 26-28 Frederick Sanger Road, Surrey Research Park, Guildford, Surrey, GU2 7YD, UK 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 18. Investments Cost At 1 January 2015 Additions Translation movement At 31 December 2015 Additions Translation movement At 31 December 2016 Provision for impairment At 31 December 2015 and 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Modus Therapeutics Holding AB £000s Ergomed Saudi Limited £000s – 142 2 144 54 30 228 – 228 144 39 – – 39 – 4 43 – 43 39 Total £000s 39 142 2 183 54 34 271 – 271 183 Modus Therapeutics Holding AB (formerly Dilaforette Holding AB) Under the co-development agreement with Modus Therapeutics AB (formerly Dilaforette AB), the Group receives shares in Modus Therapeutics Holding AB in return for its contribution to the co-development programme. During the year, shares valued at £54,000 (2015: £142,000) were issued to the Group. Ergomed Saudi Limited On 22 July 2014, the Group invested £40,000 for a 50% holding in a joint venture in Saudi Arabia – ‘Ergomed Saudi Limited’. The operation is still in the set up phase and the asset is held at cost. 19. Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period. Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Deferred tax assets At 1 January 2015 Credit to profit or loss Credit direct to equity Translation movement At 31 December 2015 Acquired with subsidiaries Charge to profit or loss Credit direct to equity At 31 December 2016 Tax losses £000s Timing differences £000s 323 46 1 (8) 362 1,015 (47) 118 – 3 – – 3 – (3) – – Total £000s 323 49 1 (8) 365 1,015 (50) 118 1,448 1,448 55 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 19. Deferred tax continued Deferred tax liabilities At 1 January 2015 Acquired with subsidiary (Charge)/credit to profit or loss At 31 December 2015 Acquired with subsidiaries (Charge)/credit to profit or loss At 31 December 2016 Deferred tax assets Deferred tax liabilities Net deferred tax liabilities ACAs £000s (78) – (46) (124) – (48) Timing differences £000s (497) (42) 147 (392) (3,145) 291 Total £000s (575) (42) 101 (516) (3,145) 243 (172) (3,246) (3,418) 2016 £000s 1,448 (3,418) (1,970) 2015 £000s 365 (516) (151) At 31 December 2016, the Group had unused tax losses of £5,731,000 (2015: £384,000) available for offset against future profits. A deferred tax asset has been recognised in respect of £5,731,000 (2015: £16,000) of such losses. No deferred tax asset has been recognised in respect of the remaining £nil (2015: £368,000) as it is not considered probable that there will be future profits available. Included in unrecognised tax losses are losses of £nil (2015: £77,000) that will expire in 2026. Other losses may be carried forward indefinitely. 20. Trade and other receivables Trade receivables Other receivables Prepayments Accrued income Corporation tax receivable 2016 £000s 9,540 1,025 841 2,538 1,014 2015 £000s 6,412 381 376 1,989 370 14,958 9,528 Included in trade receivables are the following amounts that are past due at the reporting date by the following periods. Less than 30 days overdue 31 to 60 days overdue 61 to 90 days overdue More than 90 days overdue Movement in the provision for doubtful debts. Balance at the beginning of the year Impairment losses recognised Acquired with subsidiaries Provision made during the year Translation movements Balance at the end of the year 2016 £000s 1,795 1,588 105 221 3,709 2016 £000s 233 (116) 3 855 41 1,016 2015 £000s 1,592 221 24 404 2,241 2015 £000s 200 – – 45 (12) 233 56 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E The carrying value of trade receivables approximates to their fair value at the balance sheet date. The carrying values of the Group’s trade and other receivables are uncovered. The Group has not pledged as security any of the amounts included in receivables. 21. Clinical trial inventory Clinical trial inventory 2016 £000s 450 2015 £000s – Clinical trial inventory relates to GMP material for use in the clinical development programmes of Haemostatix Limited. 22. Cash and cash equivalents Cash at bank 2016 £000s 2015 £000s 4,424 3,974 The effective interest rate at the balance sheet date on cash at bank was 0.006% (2015: 0.021%). The carrying amount of cash and cash equivalents approximates to their fair value at the balance sheet date and are denominated in the following currencies: GBP Euro USD Other 23. Borrowings Secured borrowings at amortised cost Finance leases Borrowings within one year Between one and two years Between two and five years Borrowings greater than one year Totals Finance leases are secured on the assets to which they relate. 24. Trade and other payables Trade creditors Amounts payable to related parties Social security and other taxes Other payables Accruals 2016 £000s 1,144 1,239 1,078 963 2015 £000s 913 348 1,116 1,597 4,424 3,974 2016 2015 Capital £000s Interest £000s Capital £000s Interest £000s 3 3 2 5 8 – – – – – 5 3 4 7 12 1 – – – 1 2016 £000s 3,037 49 632 600 2,759 7,077 2015 £000s 2,381 71 374 381 2,748 5,955 The carrying amount of the Group’s trade and other payables approximates to their fair value at the balance sheet date and are uncovered. 57 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 25. Deferred consideration Deferred consideration 2016 £000s 7,772 2015 £000s – This amount relates to the fair value of the deferred consideration in relation to the acquisition of Haemostatix Limited. The carrying amount of the Company’s trade and other payables approximates to their fair value at the balance sheet date and are uncovered. 26. Share capital Allotted, called up and fully paid Ordinary shares of £0.01 each Balance at 1 January Shares issued during the year Contingent shares for deferred consideration Balance at 31 December Allotted, called up and fully paid Ordinary shares of £0.01 each Balance at 1 January Shares issued for cash during the year Shares issued for non-cash consideration during the year Contingent shares for deferred consideration Balance at 31 December 2016 No. 2015 No. 28,750,000 11,754,806 94,618 40,599,424 28,750,000 – – 28,750,000 2016 £000s 2015 £000s 288 66 51 1 406 288 – – – 288 During 2016, a total of 11,754,806 ordinary shares of £0.01 each (‘Ordinary Shares’) were issued, of which 6,560,850 were issued for cash in an institutional placing, 4,415,051 were issued as part consideration for Haemostatix, 138,329 were issued as part consideration for O+P and GASD and 640,576 were issued as part consideration for PharmInvent. In addition, a further 94,618 Ordinary Shares will be issued to part satisfy the first component of deferred consideration for PharmInvent. 27. Share premium account Balance at 1 January (re-stated) (note 1) Share issue for cash during the year Expenses of share issue for cash during the year Balance at 31 December 2016 £000s 9,361 9,120 (524) 17,957 2015 £000s 9,361 – – 9,361 The share premium arising during 2016 related to the issue of 6,560,850 ordinary shares at a price of £1.40 per share on 24 May 2016 in connection with an institutional placing. Expenses of £524,000 relating to the issue of shares were deducted from the Share premium account. 28. Merger reserve Balance at 1 January (re-stated) (note 1) Shares issued for non-cash consideration during the year Contingent shares for deferred consideration Balance at 31 December 2016 £000s 2,981 7,144 139 10,264 2015 £000s 2,981 – – 2,981 The merger reserve arising during 2016 for non-cash consideration related to the issue of a total of 5,193,956 ordinary 58 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E shares of £0.01 each (‘Ordinary Shares’). Of these, 4,415,051 were issued at £1.40 per share as part consideration for Haemostatix, 138,329 were issued at £1.37 per share as part consideration for O+P and GASD and 640,576 were issued at £1.29 per share as part consideration for PharmInvent. In addition, an additional 94,618 Ordinary Shares will be issued at £1.48 per share to part satisfy the first component of deferred consideration for PharmInvent. 29. Reserves The movements in reserves are shown in the Consolidated statement of changes in equity. Share-based payment reserve The corresponding credit associated with the charge for share options (note 30) is recognised as a credit to the share- based payment reserve. Translation reserve The translation reserve records any exchange differences arising as a result of the translation of foreign currency equity balances and foreign currency non-monetary items. 30. Share-based payments The Company operates three share option schemes: – the Ergomed plc Long Term Incentive Plan; – the Unapproved Executive Share Option Scheme 2007; and – an Unapproved Executive Share Option Agreement made with Rolf Stahel. Ergomed plc Long Term Incentive Plan The Ergomed plc Long Term Incentive Plan allows for the grant of options to both executives and all other Group employees, which may or may not be subject to performance criteria. It further provides for any options granted under its terms to be options that qualify under the Enterprise Management Incentives legislation (‘Qualifying EMI options’), as well as options that do not qualify (‘Unapproved options’). Selected Directors and employees of the Group may be granted options under the Long Term Incentive Plan at the discretion of the Company’s Board of Directors or a duly authorised committee thereof (the ‘Committee’). Employees and Directors will be eligible to participate in the Long Term Incentive Plan as follows: i) Qualifying EMI options can be granted to an employee or Director of the Company (or a Group company) who commits at least 25 hours per week or, if less, at least 75% of his or her working time on the business of the Company (or Group company) and, at the grant date, does not either individually or together with his associates control more than 30% of the ordinary share capital of the Company. ii) Unapproved options can be granted to any employee (including an Executive Director) of a Group company. Outstanding at the beginning of the year Granted during the year Lapsed during the year Outstanding at the end of the year Vested at the end of the year Exercisable at the end of the year 2016 2015 Number of Weighted average Number of Weighted average share options exercise price share options exercise price 1,353,000 835,000 (150,000) 2,038,000 – – 1.64 0.56 1.625 1.20 – 1,368,000 (15,000) 1,353,000 – 1.64 1.625 1.64 – – 59 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 60 Notes to the consolidated financial statements continued For the year ended 31 December 2016 30. Share-based payments continued Options were valued using a Black-Scholes option pricing model, using the following inputs: Award date Fair value per share option Share price Exercise price Volatility Expected life Expected dividends Risk free rate Award date Fair value per share option Share price Exercise price Volatility Expected life Expected dividends Risk free rate 11 January 2016 11 January 2016 3 July 2016 3 July 2016 3 December 2016 1.6327p 0.4226p £1.693 £0.01 27% 0.1441p £1.21 £1.39 27% 3 years 2.9 years 1.0% 0.23% 1.0% 0.7% £1.693 £0.01 27% 3 years 1.0% 0.7% £1.21 £0.01 28% 1.1791p 0.2493p £1.43 £1.39 28% 1.7 years 2.5 years 1.0% 0.21% 1.0% 0.11% 3 June 2015 24 December 2015 44.68p £1.625 £1.625 28% 5 years 0% 1.52% 42.38p £1.660 £1.660 27% 5 years 0% 1.29% Volatility was based upon the historical volatility for a basket of comparable listed companies measured over a period commensurate with the expected life of the grant. Based on the calculation of the total fair value of the options granted, the Company recognised a total charge through the income statement of £331,000 related to equity-settled share-based payment transactions in the year ended 31 December 2016 (2015: £95,000). At 31 December 2016, the following unexercised share options to acquire Ordinary Shares were outstanding: Year of grant 2015 2015 2016 2016 2016 2016 2016 Exercise period Exercise price per share 2016 No. 2015 No. 03/06/2018 – 02/06/2025 1.625 928,000 1,078,000 03/06/2018 – 23/12/2025 11/01/2016 – 10/01/2026 11/01/2016 – 10/01/2026 03/07/2016 – 02/06/2026 03/07/2016 – 02/06/2026 03/12/2016 – 02/12/2026 1.69 0.01 0.01 1.39 0.01 1.39 275,000 275,000 200,000 200,000 185,000 100,000 150,000 – – – – – The weighted average remaining life was eight years and ten months (2015: nine years and six months). Unapproved Executive Share Option Scheme 2007 The Unapproved Executive Share Option Scheme 2007 is an unapproved equity-settled share option scheme for the benefit of employees. Grants are made at the discretion of the Board of Directors, or an authorised committee thereof. Options are forfeited (even if already vested) if the employee ceases employment with the Company and can only be exercised upon a sale, listing or the passing of a resolution for the voluntary winding-up of the Company or making of an order for the compulsory winding up of the Company. The employee retains the options vested at the time of the cessation of the employee’s employment for a six month period. The movement on options in issue under these schemes is set out below: 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Outstanding at the beginning and end of the year Vested at the end of the year Exercisable at the end of the year 2016 2015 Number of share options 1,000,000 1,000,000 1,000,000 Weighted average exercise price Number of share options Weighted average exercise price 0.01 1,000,000 0.01 1,000,000 1,000,000 Based on the calculation of the total fair value of the options granted, the Company recognised a total charge through the income statement of £nil related to equity-settled share-based payment transactions in the year ended 31 December 2016 (2015: £nil). At 31 December 2016, the following unexercised share options to acquire Ordinary Shares were outstanding: Year of grant 2009 Exercise period per share Exercise price 2016 No. 2015 No. 31/01/2009 – 30/12/2019 0.01 1,000,000 1,000,000 The weighted average remaining life was three years (2015: four years). Unapproved Executive Share Option Agreement made with Rolf Stahel On 18 April 2014, an award of share options was made to Rolf Stahel under a separate option agreement. The award comprised options over 1,260,000 Ordinary Shares. The exercise of the options is linked to the timing of the Admission which has given rise to an exercise price of £1.60 per share. The option becomes exercisable in respect of one thirty-sixth of the options one month from the date of the share option agreement and on the same date in each subsequent calendar month over one thirty-sixth of the options. Outstanding at the beginning of the year Granted during the year Outstanding at the end of the year Vested at the end of the year Exercisable at the end of the year 2016 2015 Weighted average exercise price 1.60 – 1.60 Number of share options 1,260,000 – 1,260,000 1,120,000 1,120,000 Number of share options 1,260,000 – 1,260,000 700,000 700,000 Weighted average exercise price 1.60 – 1.60 Thirty-two thirty-sixths of the total amount of options awarded have vested by 31 December 2016, representing 1,120,000 shares at an exercise price of £1.60. All unexercised options carry an exercise price of £1.60. The awards have a 10 year contractual life. At 31 December 2016, the awards therefore had a remaining contractual life of seven years and four months. The options were valued using a Black-Scholes option pricing model, using the following inputs: Award date Fair value per share option Share price Exercise price Volatility Expected life Expected dividends Risk free rate 18 April 2014 47.79p £1.60 £1.60 30% 5 years 0% 1.91% Volatility was based upon the historical volatility for a basket of comparable listed companies measured over a period commensurate with the expected life of the grant. 61 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes to the consolidated financial statements continued For the year ended 31 December 2016 30. Share-based payments continued Based on the calculation of the total fair value of the options granted, the share-based remuneration expense in respect of equity-settled schemes is an amount of £67,000 (2015: £193,000). There are no outstanding liabilities. At 31 December 2016, the following unexercised share options to acquire Ordinary Shares were outstanding: Year of grant 2014 Exercise period Exercise price per share 2016 No. 2015 No. 18/04/2014 – 17/04/2024 1.60 1,260,000 1,260,000 The weighted average remaining life was seven years and four months (2015: eight years and four months). 31. Financial instruments Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Significant accounting policies Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 1. Categories of financial instruments 31 December 2016 Financial assets Investments Trade receivables Other receivables Accrued income Cash and cash equivalents Financial liabilities Finance leases Trade creditors Amounts owed to related parties Other payables Accruals Deferred consideration Financial instruments at fair value through profit and loss £000s Current financial liabilities at amortised cost £000s Non-current financial liabilities at fair value through profit and loss £000s Non-current financial liabilities at amortised cost £000s Loans and receivables £000s – 9,540 198 2,233 4,424 16,395 – – – – – – – – – – – – – 3 3,037 49 600 2,759 – 6,448 228 – – – – 228 – – – – – – – Carrying amount £000s 228 9,540 198 2,233 4,424 Fair value £000s 228 9,540 198 2,233 4,424 16,623 16,623 8 3,037 49 600 2,759 7,772 8 3,037 49 600 2,759 7,772 14,225 14,225 – – – – – – – – – – – 7,772 7,772 – – – – – – 5 – – – – – 5 62 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Categories of financial instruments 31 December 2015 Financial assets Investments Trade receivables Other receivables Accrued income Cash and cash equivalents Financial liabilities Finance leases Trade creditors Amounts owed to related parties Other payables Accruals Financial instruments at fair value through profit and loss £000s Current financial liabilities at amortised cost £000s Non-current financial liabilities at amortised cost £000s Loans and receivables £000s Carrying amount £000s Fair value £000s 144 – – – – 144 – – – – – – – 6,412 141 740 3,974 11,267 – – – – – – – – – – – – 5 2,381 71 381 2,748 5,586 – – – – – – 7 – – – – 7 144 6,412 141 740 3,974 11,411 12 2,381 71 381 2,748 5,593 144 6,412 141 740 3,974 11,411 12 2,381 71 381 2,748 5,593 The Group’s financial assets held for managing liquidity risk, being loans and receivables, which are considered to be readily saleable or are expected to generate cash inflows to meet cash outflows on financial liabilities within six months. Financial risk management objectives The Group’s Finance function provides services to the business, monitors and manages the financial risks relating to the operations of the Group. These risks include market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates (see below). Foreign currency risk management The Group undertakes transactions denominated in foreign currencies; consequently exposures to exchange rate fluctuations arise. Exchange rate exposures are managed by natural hedging in currency accounts, and the functional currency is the Euro. The carrying amounts of the Group’s financial assets and financial liabilities by currency at the reporting date are as follows: Financial assets GBP Euro USD Other Financial liabilities GBP Euro USD Other 2016 £000s 2,487 6,396 5,797 1,943 16,623 2016 £000s 9,026 4,032 170 997 14,225 2015 £000s 2,094 2,145 5,126 2,046 11,411 2015 £000s 886 3,875 249 583 5,593 63 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 64 Notes to the consolidated financial statements continued For the year ended 31 December 2016 31. Financial instruments continued Foreign currency sensitivity analysis The Group is mainly exposed to the Euro currency and the US Dollar currency. However as the Euro is the functional currency their exposure is less sensitive. The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary assets and liabilities and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity and a negative number indicates a decrease in profit and other equity. 2016 Euro USD Other 2015 Euro USD Other Strengthen +10% £000s Weaken -10% £000s (215) (511) (86) (812) 263 625 105 993 Strengthen +10% £000s Weaken -10% £000s 157 (443) (133) (419) (192) 542 162 512 Interest rate risk management The Group is exposed to the interest rate risks associated with its holdings of cash and cash equivalents and short term deposits and finance leases payable. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which regularly monitors the Group’s short, medium and long term funding, and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash and cash equivalents and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The impact on profit and other comprehensive income due to interest rate exposure is not considered significant, and no interest rate sensitivity has been performed. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group assesses the creditworthiness of customers in advance of entering into any contract. During the life of a contract, the customer’s financial status is monitored as well as payment history. The Group does have some larger customer balances representing more than 15% of the trade receivables at a particular time, but these will be large profitable pharmaceutical companies with good credit ratings or smaller biotech companies with supportive shareholders and a history of successful fundraising, and this is not considered indicative of an increased credit risk. Credit information is supplied by independent rating agencies where appropriate and if available. Alternatively the Group uses other publicly available financial information and its own trading records to rate its major customers. Trade receivables consist of a large number of customers, spread across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. There has been no history of bad debts as the majority of its sales are to multinational pharmaceutical companies and as a consequence the Directors do not consider that the Group has a credit risk. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk as no collateral or other credit enhancements are held. Liquidity and interest risk tables The Group has no significant long term financial liabilities. Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of long term trade receivables and payables is estimated by discounting the future contractual cash flows at the current market interest rate for the underlying currency of the transaction. Fair value measurements The financial instruments measured subsequent to initial recognition at fair value comprise investments. The fair value hierarchy of these assets is Level 2. The valuation technique is market value, based on the most recent investment price. The Group did not have any other financial instruments that are measured subsequent to initial recognition at fair value. An analysis of the fair value hierarchy has therefore not been presented. 65 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 66 Notes to the consolidated financial statements continued For the year ended 31 December 2016 32. Acquisition of subsidiary – Haemostatix On 24 May 2016, Ergomed plc acquired 100% of the issued share capital of Haemostatix Limited (‘Haemostatix’), a research and development company based in Nottingham, UK developing novel products for the surgical bleeding market. The acquisition of Haemostatix enhances Ergomed’s portfolio of development products with the potential to generate significant shareholder value. The amounts provisionally recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. Intangible assets Property, plant and equipment Deferred tax asset Total non-current assets Trade and other debtors Clinical trial inventory Cash and equivalents Current assets Trade and other creditors Deferred tax liability Financial liabilities Book values £000s Fair value adjustments £000s Final valuation £000s 15,200 4 1,015 15,200 – 1,015 16,215 16,219 – – – – 164 45 63 272 – 4 – 4 164 45 63 272 (1,365) – – (2,736) (1,365) (2,736) (1,365) (2,736) (4,101) Total identifiable net assets/(liabilities) Goodwill (1,089) 15,565 13,479 (13,479) Total consideration Satisfied by: Cash Equity Deferred consideration Total consideration Net cash outflow arising on acquisition Cash consideration Less: cash and cash equivalent balances acquired Transaction expenses (note 7) 14,476 800 6,181 7,495 14,476 800 (63) 370 1,107 – – – – – – – – – 12,390 2,086 14,476 800 6,181 7,495 14,476 800 (63) 370 1,107 The provisional fair value of intangible assets relates to the in-process research and development of PeproStat™ and ReadyFlow™. The provisional fair value of the financial assets includes receivables with a fair value of £164,000 and a gross contractual value of £164,000. The best estimate at acquisition date of the contractual cash flows not to be collected is £nil. Goodwill is provisionally valued at £2,086,000. None of the goodwill is expected to be deductible for income tax purposes. Deferred consideration represents the fair valuation of the additional consideration payable, which could be an aggregate maximum of £20,000,000, subject to the future performance of the business. Ergomed plc has a 12 month measurement period from the date of acquisition, and therefore the measurement period ends on 23 May 2017. As a research and development company, Haemostatix is investing in its development portfolio and does not currently generate revenues. If the acquisition of Haemostatix had been completed on the first day of the financial year, Group revenues for the year ended 31 December 2016 would have been unchanged and Group profit would have been £1,082,000 lower. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 33. Acquisition of subsidiary – O+P and GASD On 12 June 2016, Ergomed acquired 100% of the issued share capital of Dr Oestreich+ Partner GmbH (‘O+P’) and Gesellschaft für angewandte Statistik + Datenanalyse mbH (‘GASD’). O+P is a long established contract research organisation based in Cologne, Germany and GASD is a specialist data management and biostatistics company. The acquisition of O+P and GASD brings, among other things, a proprietary electronic data capture system and specialist biostatics expertise which can be deployed across the Ergomed global platform. O+P and GASD were acquired as a single unit. The amounts provisionally recognised in relation to both entities in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. Intangible assets Property, plant and equipment Total non-current assets Trade and other debtors Accrued income Corporation tax receivable Cash and equivalents Current assets Trade and other creditors Tax payable Deferred tax liability Financial liabilities Total identifiable net assets Goodwill Total consideration Satisfied by: Cash Equity Deferred consideration Total consideration Net cash outflow arising on acquisition Cash consideration Less: cash and cash equivalent balances acquired Transaction expenses (note 7) Book values £000s Fair value adjustments £000s Final valuation £000s – 23 23 91 71 6 498 666 (218) (2) – (220) 469 938 1,407 802 190 415 1,407 802 (498) 85 389 615 – 615 – – – – – – – (164) (164) 451 (451) – – – – – – – – – 615 23 638 91 71 6 498 666 (218) (2) (164) (384) 920 487 1,407 802 190 415 1,407 802 (498) 85 389 The provisional fair value of the financial assets includes receivables with a fair value of £91,000 and a gross contractual value of £91,000. The best estimate at acquisition date of the contractual cash flows not to be collected is £nil. Goodwill is provisionally valued at £487,000 and is attributable to the synergies and the enhanced offering of the Ergomed Group following the acquisition. None of the goodwill is expected to be deductible for income tax purposes. Deferred consideration represents the provisional fair valuation of the additional consideration payable which could be an aggregate maximum of £951,000, subject to the future performance of the business. This deferred consideration was written back during the year, giving rise to a credit through the profit and loss account of £460,000. Ergomed plc has a 12 month measurement period from the date of acquisition, and therefore the measurement period ends on 11 June 2017. If the acquisition of O+P and GASD had been completed on the first day of the financial year, Group revenues for the year ended 31 December 2016 would have been £381,000 higher and Group profit would have been £134,000 lower. 67 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 68 Notes to the consolidated financial statements continued For the year ended 31 December 2016 34. Acquisition of subsidiary – PharmInvent On 28 November 2016, Ergomed acquired 100% of the issued share capital of European PharmInvent Services s.r.o. (‘PharmInvent’). PharmInvent offers a comprehensive range of pharmacovigilance and regulatory services to over 100 clients in the global pharmaceutical industry. Pharmacovigilance services include an outsourced global network of 95 Qualified Persons for Pharmacovigilance (‘QPPVs’) in 50 countries, case management, risk management, audit, training and consulting services on the establishment and maintenance of pharmacovigilance systems. Regulatory services include strategic advice on regulatory strategy, clinical trial and protocol design and medical writing of regulatory submissions. The amounts provisionally recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. Intangible assets Property, plant and equipment Total non-current assets Trade and other debtors Cash and equivalents Current assets Trade and other creditors Tax payable Deferred tax liability Financial liabilities Total identifiable net assets Goodwill Total consideration Satisfied by: Cash Equity Total consideration Net cash outflow arising on acquisition Cash consideration Less: cash and cash equivalent balances acquired Transaction expenses (note 7) Book values £000s Fair value adjustments £000s Final valuation £000s – 161 161 786 252 1,038 (300) (45) – (345) 854 3,270 4,124 3,299 825 4,124 3,299 (252) 118 3,165 1,291 – 1,291 – – – – – (245) (245) 1,046 (1,046) – – – – – – – – 1,291 161 1,452 786 252 1,038 (300) (45) (245) (590) 1,900 2,224 4,124 3,299 825 4,124 3,299 (252) 118 3,165 The provisional fair value of the financial assets includes receivables with a fair value of £786,000 and a gross contractual value of £786,000. The best estimate at acquisition date of the contractual cash flows not to be collected is £nil. Goodwill is provisionally valued at £2,224,000 and is attributable to the enhanced offering of the Ergomed Group following the acquisition. None of the goodwill is expected to be deductible for income tax purposes. In addition to the consideration identified above, deferred consideration is payable subject to the achievement of commercial milestones and conditional upon the continued employment of the vendors by the Company. In accordance with IFRS 3 – Business Combinations, such payments are charged through the profit and loss account when achieved. £690,000 has been charged through the profit and loss account in respect of milestones relating to the year ended 31 December 2016. Ergomed plc has a 12 month measurement period from the date of acquisition, and therefore the measurement period ends on 27 November 2017. If the acquisition of PharmInvent had been completed on the first day of the financial year, Group revenues for the year ended 31 December 2016 would have been £3,216,000 higher and Group profit would have been £593,000 higher. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 35. Financial commitments At 31 December 2016 the Group was committed to making the following payments under non-cancellable operating leases which fall due as follows: Within one year Between two and five years Land and buildings Other 2016 £000s 663 459 1,122 2015 £000s 284 178 462 2016 £000s 128 185 313 2015 £000s 57 74 131 36. Pension costs The Group makes contributions to defined contribution personal pension schemes of the employees. The pension cost represents contributions payable by the Group to the schemes and amounted to £182,000 (2015: £118,000). Contributions payable to the schemes at 31 December 2016 were £193,000 (2015: £123,000). 37. Related party transactions Ergomed d.o.o., a company registered in Croatia, is under the control of Miroslav Reljanovic, who is a Director and shareholder of the Company. During the year the Company and its subsidiaries were charged £240,000 (2015: £160,000) by Ergomed d.o.o. and its subsidiaries in respect of clinical research costs and other administration. At 31 December 2016 a balance of £37,000 was owed by the Company and its subsidiaries to Ergomed d.o.o. in respect of these costs (2015: £57,000). In addition, during the year, the Group sold medical equipment to a subsidiary of Ergomed d.o.o. for £33,000 (2015: £nil). Chesyl Pharma Limited is a company owned by Rolf Stahel, who was a Director of the Company. During the year, the Company was charged consultancy fees of £52,000 (2015: £54,000) in relation to the services of Rolf Stahel, included in the remuneration paid to Rolf Stahel. At 31 December 2016, amounts payable to Chesyl Pharma in relation to such consultancy services and associated expenses were £12,000 (2015: £5,000). All transactions with related parties take place on an arm’s length basis. Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. 38. EBITDA and EBITDA (adjusted) Operating profit Adjust for: Depreciation and amortisation charges within Other administrative expenses Amortisation of acquired fair valued intangible assets EBITDA Share-based payment charge Deferred consideration for acquisition Write-back of deferred consideration for acquisition Acquisition costs Exceptional items EBITDA (adjusted) 2016 £000s 598 256 771 1,625 398 690 (460) 584 177 3,014 2015 £000s 2,072 117 596 2,785 288 – – 272 37 3,382 The adjustments to EBITDA are made to ensure that 2016 results and 2015 results are presented on a comparable basis. 69 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 70 Notes to the consolidated financial statements continued For the year ended 31 December 2016 39. Adjusted earnings per share Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company Effect of dilutive potential ordinary shares Earnings for the purposes of diluted earnings per share Adjust for: Amortisation of acquired fair valued intangible assets Share-based payment charge Deferred consideration for acquisition Write-back of deferred consideration for acquisition Acquisition costs Exceptional items Adjusted earnings for the purposes of diluted earnings per share Adjusted earnings per share Basic Diluted 40. Subsequent events There were no subsequent events. 2016 £000s 2015 £000s 479 – 479 771 398 690 (460) 584 177 1,552 – 1,552 596 288 – – 272 37 2,639 2,745 7.4p 7.1p 9.5p 9.2p 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Company balance sheet As at 31 December 2016 Non-current assets Intangible assets Property, plant and equipment Investments Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Deferred revenue Total current liabilities Net current assets Non-current liabilities Deferred consideration Deferred tax liability Total liabilities Net assets Equity Share capital Share premium account Merger reserve Share-based payment reserve Translation reserve Retained earnings Total equity Note 44 45 46 47 48 49 2016 £000s 2015 Re-stated £000s 2014 Re-stated £000s 153 24 34,082 457 34,716 11,808 930 12,738 47,454 4 8 10,557 342 – 8 10,569 304 10,911 10,881 6,824 1,407 8,231 19,142 4,886 3,430 8,316 19,197 50 (7,524) (1,260) (5,945) (773) (5,138) (586) (8,784) (6,718) (5,724) 3,954 1,513 2,592 51 47 (7,772) (5) – (2) – (1) (16,561) (6,720) (5,725) 30,893 12,422 13,472 52 53 54 55 55 406 17,957 10,264 1,048 2,550 (1,332) 288 9,361 2,981 650 (1,046) 188 288 9,361 2,981 362 (235) 715 30,893 12,422 13,472 The notes on pages 74 to 89 form an integral part of these financial statements. The re-statement of the balance sheets for 2014 and 2015 are explained in note 41. As permitted by Section 408 of the Companies Act 2006 the Statement of comprehensive income of the parent company is not presented as part of these financial statements. The parent company’s loss after tax for the financial year was £1,638,000 (2015: £528,000). Approved by the Board of Directors and authorised for issue on 26 April 2017. S A Stamp Director Company Registration No. 04081094 71 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 72 Company statement of changes in equity For the year ended 31 December 2016 Balance at 31 December 2014 Correction of accounting treatment (note 41) As re-stated Loss for the year Other comprehensive income for the year Total comprehensive income for the year Share-based payment charge for the year Deferred tax credit taken directly to equity Balance at 31 December 2015 (re-stated) Loss for the year Other comprehensive income for the year Total comprehensive income for the year Share issue for cash (net of expenses) during the year Share issues for non-cash consideration during the year Contingent share issue for non-cash consideration Share-based payment charge for the year Deferred tax credit taken directly to equity Share capital £000s 288 – 288 – – – – – 288 – – – 66 51 1 – – Share premium account £000s 12,342 (2,981) 9,361 – – – – – 9,361 – – – 8,596 – – – – Merger reserve £000s – 2,981 2,981 – – – – – 2,981 – – – – 7,144 139 – – Share- based payment reserve £000s Translation reserve £000s Retained earnings £000s (235) – (235) – (811) (811) – – 715 – 715 (528) – (528) – 1 (1,046) – 3,596 188 (1,638) – Total £000s 13,472 – 13,472 (528) (811) (1,339) 288 1 12,422 (1,638) 3,596 3,596 (1,638) 1,958 – – – – – – – – – 118 8,662 7,195 140 398 118 362 – 362 – – – 288 – 650 – – – – – – 398 – Balance at 31 December 2016 406 17,957 10,264 1,048 2,550 (1,332) 30,893 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Company cash flow statement For the year ended 31 December 2016 Cash flows from operating activities Loss before taxation Adjustment for: Amortisation and depreciation Share-based payment charge Exchange adjustments Acquisition of shares for non-cash consideration Write-back of deferred consideration Acquisition costs and deferred consideration Investment revenues Finance costs Operating cash flow before changes in working capital and provisions Increase in trade and other receivables Increase in trade and other payables Cash utilised by operations Taxation paid Net cash outflow from operating activities Investing activities Acquisition of intangible assets Acquisition of property, plant and equipment Acquisition of subsidiaries Net cash outflow from investing activities Financing activities Issue of new shares Expenses of fundraising Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of the year Cash and cash equivalents at end of year Note 2016 £000s 2015 £000s (1,581) (563) 21 398 118 (54) (415) 726 (1) 273 (515) (4,938) 2,066 (3,387) – 4 288 (198) (142) – 54 – – (557) (1,807) 914 (1,450) (149) (3,387) (1,599) (150) (34) (5,568) (5,752) 9,185 (523) 8,662 (477) 1,407 (4) (5) (415) (424) – – – (2,023) 3,430 49 930 1,407 73 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 74 Notes to the Company financial statements For the year ended 31 December 2016 41. Accounting policies The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) adopted by the European Union. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in note 1 to the consolidated financial statements. Re-statement of prior year Company balance sheet In July 2014, Ergomed plc acquired the entire issued share capital of PrimeVigilance Limited for consideration comprising £6,000,000 in cash, and 1,875,000 shares of £0.01 each, valued at £1.60 per share. The excess of share value over the nominal value of those shares was taken to the share premium account. However, under the Companies Act 2006, these amounts should have been posted to the merger reserve. An adjustment has been made to the Company balance sheet as at 31 December 2014 and 31 December 2015. This adjustment has no impact on the net assets of the Company, the Company income statement or the Company cash flow statement. The impact on the Company balance sheet is set out below. 2015 Previously reported £000s Adjustment £000s 2015 Re-stated £000s 4 8 10,557 342 10,911 6,824 1,407 8,231 19,142 (5,945) (773) (6,718) 1,513 (2) (6,720) 12,422 288 12,342 – 650 (1,046) 188 12,422 – – – – – – – – – – – – – – – – – (2,981) 2,981 – – – 4 8 10,557 342 10,911 6,824 1,407 8,231 19,142 (5,945) (773) (6,718) 1,513 (2) (6,720) 12,422 288 9,361 2,981 650 (1,046) 188 – 12,422 Non-current assets Other intangible assets Property, plant and equipment Investments Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Deferred revenue Total current liabilities Net current assets Non-current liabilities Deferred tax liability Total liabilities Net assets Equity Share capital Share premium account Merger reserve Share-based payment reserve Translation reserve Retained earnings Total equity 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Non-current assets Property, plant and equipment Investments Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Deferred revenue Total current liabilities Net current assets Non-current liabilities Deferred tax liability Total liabilities Net assets Equity Share capital Share premium account Merger reserve Share-based payment reserve Translation reserve Retained earnings Total equity 2014 Previously reported £000s Adjustment £000s 2014 Re-stated £000s 8 10,569 304 10,881 4,886 3,430 8,316 19,197 (5,138) (586) (5,724) 2,592 (1) (5,725) 13,472 288 12,342 – 362 (235) 715 13,472 – – – – – – – – – – – – – – – – (2,981) 2,981 – – – 8 10,569 304 10,881 4,886 3,430 8,316 19,197 (5,138) (586) (5,724) 2,592 (1) (5,725) 13,472 288 9,361 2,981 362 (235) 715 – 13,472 42. Critical accounting judgements and key sources of estimation uncertainty In the application of the Company’s accounting policies, which are described in note 41, the Directors are required to make judgements, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying the Company’s accounting policies The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Revenue recognition The amount of revenue to be recognised is based on, inter alia, management’s estimate of the fair value of the consideration received or receivable, the stage of completion and of the point in time at which management considers that it becomes probable that economic benefits will flow to the entity (as the outcome is not always certain at the inception of a contract). 75 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 76 Notes to the Company financial statements continued For the year ended 31 December 2016 42. Critical accounting judgements and key sources of estimation uncertainty continued Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Bad debt provision In determining the level of provisioning for bad debts, the Directors have considered the aging of trade receivables, and the payment history and financial position of debtors. The provision against trade receivables as at 31 December 2016 was £1,013,000 (2015: £188,000) (note 48). Fair value measurements Some of the Company’s liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of a liability, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company engages third party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The Company incurs share-based payment charges in relation to share options awards made in the current and prior periods. This charge is based on the fair value of such share options for financial reporting purposes. In estimating the fair value of a share-based payment, the Company engages third party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. 43. Loss of the parent company As permitted by Section 408 of the Companies Act 2006 the Statement of comprehensive income of the parent company is not presented as part of these financial statements. The parent company’s loss after tax for the financial year was £1,638,000 (2015: £528,000). 44. Intangible assets Cost At 1 January 2015 Translation movement Additions At 31 December 2015 Translation movement Additions At 31 December 2016 Amortisation At 1 January 2015 Translation movement At 31 December 2015 Charge for the year Translation movement At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Intangible assets represent software currently in use by the business. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Software £000s 88 (10) 4 82 12 150 244 88 (10) 78 1 12 91 153 4 45. Property, plant and equipment Cost At 1 January 2015 Additions Translation movement At 31 December 2015 Additions Translation movement At 31 December 2016 Depreciation At 1 January 2015 Charge for the year Translation movement At 31 December 2015 Charge for the year Translation movement At 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 No assets in the above were held under finance leases or hire purchase contracts. 46. Investments Cost At 1 January 2015 Additions Translation movement At 31 December 2015 Additions Translation movement At 31 December 2016 Provision for impairment At 31 December 2015 and 31 December 2016 Net book value At 31 December 2016 At 31 December 2015 Fixtures and fittings £000s Computer equipment £000s Total £000s 1 – – 1 18 1 20 1 – – 1 12 – 13 7 – 23 4 (1) 26 16 5 47 15 4 (1) 18 8 4 30 17 8 24 4 (1) 27 34 6 67 16 4 (1) 19 20 4 43 24 8 Shares in subsidiary undertakings £000s Modus Therapeutics Holding AB £000s Ergomed Saudi Limited £000s 10,530 441 (597) 10,374 20,007 3,430 33,811 – 142 2 144 54 30 228 – – 33,811 10,374 228 144 39 – – 39 – 4 43 – 43 39 Total £000s 10,569 583 (595) 10,557 20,061 3,464 34,082 – 34,082 10,557 77 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 78 Notes to the Company financial statements continued For the year ended 31 December 2016 46. Investments continued Subsidiary undertakings The Company has direct interests in the following subsidiaries which are included in the consolidated financial statements: Principal activity – clinical research services Ergomed GmbH Ergomed Spolka z o.o. Ergomed d.o.o. Novi Sad Ergomed Clinical Research Inc Ergomed Istrazivanja Zagreb d.o.o. Ergomed Clinical Research LLC Ergomed d.o.o. Sarajevo Ergomed Clinical Research FZ LLC Ergomed Virtuoso Sarl Ergomed Clinical Research Limited Dr Oestreich + Partner GmbH1 Gesellschaft für angewandte Statistik + Datenanalyse mbH1 Principal activity – drug safety and medical information services PrimeVigilance Limited Sound Opinion Limited European Pharminvent Services s.r.o.2 Principal activity – research and development Haemostatix Limited3 Principal activity – dormant Ergomed Clinical Research Limited Place of incorporation and operation Class Holding Germany Poland Serbia USA Croatia Russia Bosnia UAE Switzerland Taiwan Germany Germany Ordinary Ordinary Ordinary None issued Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary None issued None issued 100% 99% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Place of incorporation and operation United Kingdom United Kingdom Czech Republic Class Holding Ordinary Ordinary None issued 100% 100% 100% Place of incorporation and operation Class Holding United Kingdom Ordinary 100% Place of incorporation and operation Class Holding United Kingdom Ordinary 100% 1 These companies were acquired by the Company on 12 June 2016 (note 33). 2 This company was acquired by the Company on 28 November 2016 (note 34). 3 This company was acquired by the Company on 24 May 2016 (note 32). There are no significant restrictions on the ability of the Group to access or use assets and settle liabilities. Modus Therapeutics Holding AB (formerly Dilaforette Holding AB) Under the co-development agreement with Modus Therapeutics AB (formerly Dilaforette AB), the Group receives shares in Modus Therapeutics Holding AB in return for its contribution to the co-development programme. During the year, shares valued at £54,000 (2015: £142,000) were issued to the Company. Ergomed Saudi Limited On 22 July 2014, the Group invested £40,000 for a 50% holding in a joint venture in Saudi Arabia – ‘Ergomed Saudi Limited’. The operation is still in the set up phase and the asset is held at cost. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 47. Deferred tax The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon during the current and prior reporting period. Deferred tax assets At 1 January 2015 Credit to profit or loss Credit direct to equity At 31 December 2015 Credit to profit or loss Credit direct to equity At 31 December 2016 Deferred tax liabilities 1 January 2015 Charge to profit or loss At 31 December 2015 Charge to profit or loss At 31 December 2016 Tax losses £000s Timing differences £000s – 3 – 3 (3) – – 304 34 1 339 – 118 457 Total £000s 304 37 1 342 (3) 118 457 Timing differences £000s (1) (1) (2) (3) (5) Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Deferred tax assets – Timing differences Deferred tax assets – Recognised losses Deferred tax liabilities – ACAs Net deferred tax assets 48. Trade and other receivables Trade receivables Amounts receivable from Group companies Other receivables Prepayments Accrued income Corporation tax receivable 2016 £000s 457 – (5) 452 2015 £000s 339 3 (2) 340 2016 £000s 2015 £000s 5,117 3,963 527 231 1,671 299 11,808 3,820 665 157 98 1,831 253 6,824 Included in trade receivables are the following amounts that are past due at the reporting date by the following periods. Less than 30 days overdue 31 to 60 days overdue 61 to 90 days overdue More than 90 days overdue 2016 £000s 964 161 98 138 1,361 2015 £000s 962 38 31 281 1,312 79 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 80 Notes to the Company financial statements continued For the year ended 31 December 2016 48. Trade and other receivables continued Movement in the provision for doubtful debts. Balance at the beginning of the year Impairment losses recognised Provision made during the year Translation movement Balance at the end of the year 2016 £000s 188 (72) 856 41 1,013 2015 £000s 200 – – (12) 188 The carrying value of the Company’s trade and other receivables are uncovered. The Company has not pledged as security any of the amounts included in receivables. 49. Cash and cash equivalents Cash at bank 2016 £000s 930 2015 £000s 1,407 The carrying amount of cash and cash equivalents approximates to their fair values at the balance sheet date and are denominated in the following currencies: GBP Euro USD Other 50. Trade and other payables Trade creditors Amounts payable to related parties Amounts payable to Group companies Social security and other taxes Other payables Accruals 2016 £000s 36 395 472 27 930 2016 £000s 1,754 42 3,502 83 69 2,074 7,524 2015 £000s 152 270 959 26 1,407 2015 £000s 1,498 29 1,917 22 90 2,389 5,945 The carrying amount of the Company’s trade and other payables approximates to their fair value at the balance sheet date and are uncovered. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 51. Deferred consideration Deferred consideration 2016 £000s 7,772 2015 £000s – This amount relates to the fair value of the deferred consideration in relation to the acquisition of Haemostatix Limited, being the Board’s best estimates based on discounted and risk adjusted forecasts. 52. Share capital Allotted, called up and fully paid Ordinary shares of £0.01 each Balance at 1 January Shares issued during the year Contingent shares for deferred consideration Balance at 31 December Allotted, called up and fully paid Ordinary shares of £0.01 each Balance at 1 January Shares issued for cash during the year Shares issued for non-cash consideration during the year Contingent shares for deferred consideration Balance at 31 December 2016 No. 2015 No. 28,750,000 11,754,806 94,618 40,599,424 28,750,000 – – 28,750,000 2016 £000s 2015 £000s 288 66 51 1 406 288 – – – 288 During 2016, a total of 11,754,806 ordinary shares of £0.01 each (‘Ordinary Shares’) were issued, of which 6,560,850 were issued for cash in an institutional placing, 4,415,051 were issued as part consideration for Haemostatix, 138,329 were issued as part consideration for O+P and GASD and 640,576 were issued as part consideration for PharmInvent. In addition, a further 94,618 Ordinary Shares will be issued to part satisfy the first component of deferred consideration for PharmInvent. 81 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 82 Notes to the Company financial statements continued For the year ended 31 December 2016 53. Share premium account Balance at 1 January (re-stated) (note 41) Share issue for cash during the year Expenses of share issue during the year Balance at 31 December 2016 £000s 9,361 9,120 (524) 17,957 2015 £000s 9,361 – – 9,361 The share premium arising during 2016 related to the issue of 6,560,850 ordinary shares at a price of £1.40 per share on 24 May 2016 in connection with an institutional placing. Expenses of £524,000 relating to the issue of shares were deducted from the share premium account. 54. Merger reserve Balance at 1 January (re-stated) (note 41) Shares issued for non-cash consideration during the year Contingent shares for deferred consideration Balance at 31 December 2016 £000s 2,981 7,144 139 10,264 2015 £000s 2,981 – – 2,981 The merger reserve arising during 2016 for non-cash consideration related to the issue of a total of 5,193,956 ordinary shares of £0.01 each (‘Ordinary Shares’). Of these, 4,415,051 were issued at £1.40 per share as part consideration for Haemostatix, 138,329 were issued at £1.37 per share as part consideration for O+P and GASD and 640,576 were issued at £1.29 per share as part consideration for PharmInvent. In addition, an additional 94,618 Ordinary Shares will be issued at £1.48 per share to part satisfy the first component of deferred consideration for PharmInvent. 55. Reserves The movements in reserves are shown in the Company statement of changes in equity. Share-based payment reserve The corresponding credit associated with the charge for share options (note 56) is recognised as a credit to the share- based payment reserve. Translation reserve The translation reserve records any exchange differences arising as a result of the translation of foreign currency equity balances and foreign currency non-monetary items. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 56. Share-based payments The Company operates three share option schemes: – the Ergomed plc Long Term Incentive Plan; – the Unapproved Executive Share Option Scheme 2007; and – an Unapproved Executive Share Option Agreement made with Rolf Stahel. Ergomed plc Long Term Incentive Plan The Ergomed plc Long Term Incentive Plan allows for the grant of options to both executives and all other Group employees, which may or may not be subject to performance criteria. It further provides for any options granted under its terms to be options that qualify under the Enterprise Management Incentives legislation (‘Qualifying EMI options’), as well as options that do not qualify (‘Unapproved options’). Selected Directors and employees of the Group may be granted options under the Long Term Incentive Plan at the discretion of the Company’s Board of Directors or a duly authorised committee thereof (the ‘Committee’). Employees and Directors will be eligible to participate in the Long Term Incentive Plan as follows: i) Qualifying EMI options can be granted to an employee or Director of the Company (or a Group company) who commits at least 25 hours per week or, if less, at least 75% of his or her working time on the business of the Company (or Group company) and, at the grant date, does not either individually or together with his associates control more than 30% of the ordinary share capital of the Company. ii) Unapproved options can be granted to any employee (including an Executive Director) of a Group company. Ergomed plc Long Term Incentive Plan Outstanding at the beginning of the year Granted during the year Lapsed during the year Outstanding at the end of the year Vested at the end of the year Exercisable at the end of the year 2016 2015 Number of Weighted average Number of Weighted average share options exercise price share options exercise price 1,353,000 835,000 (150,000) 2,038,000 – – 1.64 0.56 1.625 1.20 – 1,368,000 (15,000) 1,353,000 – 1.64 1.625 1.64 – – Options were valued using a Black-Scholes option pricing model, using the following inputs: Award date Fair value per share option Share price Exercise price Volatility Expected life Expected dividends Risk free rate Award date Fair value per share option Share price Exercise price Volatility Expected life Expected dividends Risk free rate 11 January 2016 11 January 2016 3 July 2016 3 July 2016 3 December 2016 1.6327p 1.693 0.01 27% 3 years 1.0% 0.7% 0.4226p 1.693 0.01 27% 3 years 1.0% 0.7% 0.1441p 1.21 1.39 27% 2.9 years 1.0% 0.23% 1.1791p 1.21 0.01 28% 1.7 years 1.0% 0.11% 0.2493p 1.43 1.39 28% 2.5 years 1.0% 0.21% 3 June 2015 24 December 2015 44.68p 1.625 1.625 28% 5 years 0% 1.52% 42.38p 1.660 1.660 27% 5 years 0% 1.29% 83 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 84 Notes to the Company financial statements continued For the year ended 31 December 2016 56. Share-based payments continued Volatility was based upon the historical volatility for a basket of comparable listed companies measured over a period commensurate with the expected life of the grant. Based on the calculation of the total fair value of the options granted, the Company recognised a total charge through the income statement of £331,000 related to equity-settled share-based payment transactions in the year ended 31 December 2016 (2015: £95,000). At 31 December 2016, the following unexercised share options to acquire Ordinary Shares were outstanding: Year of grant 2015 2015 2016 2016 2016 Exercise period Exercise price per share 2016 No. 2015 No. 03/06/2018 – 02/06/2025 1.625 928,000 1,078,000 03/06/2018 – 23/12/2025 11/01/2016 – 10/01/2026 11/01/2016 – 10/01/2026 03/07/2016 – 02/06/2026 1.69 0.01 0.01 1.39 275,000 275,000 200,000 200,000 185,000 – – – The weighted average remaining life was eight years and ten months (2015: nine years and six months). Unapproved Executive Share Option Scheme 2007 The Unapproved Executive Share Option Scheme 2007 is an unapproved equity-settled share option scheme for the benefit of employees. Grants are made at the discretion of the Board of Directors, or an authorised committee thereof. Options are forfeited (even if already vested) if the employee ceases employment with the Company and can only be exercised upon a sale, listing or the passing of a resolution for the voluntary winding-up of the Company or making of an order for the compulsory winding up of the Company. The employee retains the options vested at the time of the cessation of the employee’s employment for a six month period. The movement on options in issue under these schemes is set out below: Outstanding at the beginning and end of the year Vested at the end of the year Exercisable at the end of the year 2016 2015 Number of share options 1,000,000 1,000,000 1,000,000 Weighted average exercise price Number of share options Weighted average exercise price 0.01 1,000,000 0.01 1,000,000 1,000,000 Based on the calculation of the total fair value of the options granted, the Company recognised a total charge through the income statement of £nil related to equity-settled share-based payment transactions in the year ended 31 December 2016 (2015: £nil). At 31 December 2016, the following unexercised share options to acquire Ordinary Shares were outstanding: Year of grant 2009 Exercise period per share Exercise price 2016 No. 2015 No. 31/12/2009 – 30/12/2019 0.01 1,000,000 1,000,000 The weighted average remaining life was three years (2015: four years). 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Unapproved Executive Share Option Agreement made with Rolf Stahel On 18 April 2014, an award of share options was made to Rolf Stahel under a separate option agreement. The award comprised options over 1,260,000 Ordinary Shares. The exercise of the options is linked to the timing of the Admission which has given rise to an exercise price of £1.60 per share. The option becomes exercisable in respect of one thirty-sixth of the options one month from the date of the share option agreement and on the same date in each subsequent calendar month over one thirty-sixth of the options. Outstanding at the beginning of the year Granted during the year Outstanding at the end of the year Vested at the end of the year Exercisable at the end of the year 2016 2015 Weighted average exercise price 1.60 – 1.60 Number of share options 1,260,000 – 1,260,000 1,120,000 1,120,000 Number of share options 1,260,000 – 1,260,000 700,000 700,000 Weighted average exercise price 1.60 – 1.60 Thirty-two thirty-sixths of the total amount of options awarded have vested by 31 December 2016, representing 1,120,000 shares at an exercise price of £1.60. All unexercised options carry an exercise price of £1.60. The awards have a 10 year contractual life. At 31 December 2016, the awards therefore had a remaining contractual life of seven years and four months. The options were valued using a Black-Scholes option pricing model, using the following inputs: Award date Fair value per share option Share price Exercise price Volatility Expected life Expected dividends Risk free rate 18 April 2014 47.79 £1.60 £1.60 30% 5 years 0% 1.91% Volatility was based upon the historical volatility for a basket of comparable listed companies measured over a period commensurate with the expected life of the grant. Based on the calculation of the total fair value of the options granted, the share-based remuneration expense in respect of equity-settled schemes is an amount of £67,000 (2015: £193,000). There are no outstanding liabilities. At 31 December 2016, the following unexercised share options to acquire Ordinary Shares were outstanding: Year of grant 2014 Exercise period Exercise price per share 2016 No. 2015 No. 18/04/2014 – 17/04/2024 1.60 1,260,000 1,260,000 The weighted average remaining life was seven years and four months (2015: eight years and four months). 85 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 86 Notes to the Company financial statements continued For the year ended 31 December 2016 57. Financial instruments Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Significant accounting policies Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 1. Financial instruments at fair value through profit and loss £000s 228 – – – – – 228 – – – – – – – Categories of financial instruments 31 December 2016 Financial assets Investments Trade receivables Amounts receivable from Group companies Other receivables Accrued income Cash and cash equivalents Financial liabilities Trade creditors Amounts owed to related parties Amounts owed to Group companies Other payables Accruals Deferred consideration 31 December 2015 Financial assets Investments Trade receivables Amounts receivable from Group companies Other receivables Accrued income Cash and cash equivalents Financial liabilities Trade creditors Amounts owed to related parties Amounts owed to Group companies Other payables Accruals 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Loans and receivables £000s – 5,117 3,963 54 1,366 930 11,430 Non-current financial liabilities at fair value through profit and loss £000s Current financial liabilities at amortised cost £000s – – – – – – – – – – – – – – 1,754 42 3,502 69 2,074 – 7,441 – – – – – – – – – – – – 7,772 7,772 Financial instruments at fair value through profit and loss £000s Current financial liabilities at amortised cost £000s Loans and receivables £000s 144 – – – – – 144 – – – – – – – 3,820 665 34 582 1,407 6,508 – – – – – – – – – – – – – 1,498 29 1,917 90 2,389 5,923 Carrying amount £000s Fair value £000s 228 5,117 3,963 54 1,366 930 228 5,117 3,963 54 1,366 930 11,658 11,658 1,754 42 3,502 69 2,074 7,772 1,754 42 3,502 69 2,074 7,772 15,213 15,213 Carrying amount £000s Fair value £000s 144 3,820 665 34 582 1,407 6,652 1,498 29 1,917 90 2,389 5,923 144 3,820 665 34 582 1,407 6,652 1,498 29 1,917 90 2,389 5,923 87 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n Categories of financial instruments The Company’s financial assets held for managing liquidity risk, being loans and receivables, which are considered to be readily saleable or are expected to generate cash inflows to meet cash outflows on financial liabilities within six months. Financial risk management objectives The Company’s Finance function provides services to the business, monitors and manages the financial risks relating to the operations of the Company. These risks include market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. Market risk The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates (see below). Foreign currency risk management The Company undertakes transactions denominated in foreign currencies; consequently exposures to exchange rate fluctuations arise. Exchange rate exposures are managed by natural hedging in currency accounts, and the functional currency is the Euro. The carrying amounts of the Company’s financial assets and financial liabilities by currency at the reporting date are as follows: Financial assets GBP Euro USD Other Financial liabilities GBP Euro USD Other 2016 £000s 2,504 5,997 2,858 299 11,658 2016 £000s 8,586 6,295 179 153 15,213 2015 £000s 152 2,264 4,009 227 6,652 2015 £000s 356 5,318 197 52 5,923 Foreign currency sensitivity analysis The Company is mainly exposed to the Euro currency and the US Dollar currency. However as the Euro is the functional currency their exposure is less sensitive. The following table details the Company’s sensitivity to a 10% increase and decrease in Sterling against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary assets and liabilities and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity and a negative number indicates a decrease in profit and other equity. 2016 Euro USD Other 2015 Euro USD Other Strengthen +10% £000s Weaken -10% £000s 27 (243) (13) (229) (33) 298 16 281 Strengthen +10% £000s Weaken -10% £000s 277 (346) (16) (85) (339) 424 19 104 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 88 Notes to the Company financial statements continued For the year ended 31 December 2016 57. Financial instruments continued Interest rate risk management The Company is exposed to the interest rate risks associated with its holdings of cash and cash equivalents and short term deposits. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which regularly monitors the Company’s short, medium and long term funding, and liquidity management requirements. The Company manages liquidity risk by maintaining adequate cash and cash equivalents and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The impact on profit and other comprehensive income due to interest rate exposure is not considered significant, and no interest rate sensitivity has been performed. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties. The Company assesses the creditworthiness of customers in advance of entering into any contract. During the life of a contract, the customer’s financial status is monitored as well as payment history. The Company does have some larger customer balances representing more than 15% of the trade receivables at a particular time, but these will be large profitable pharmaceutical companies with good credit ratings or smaller biotech companies with supportive shareholders and a history of successful fundraising, and this is not considered indicative of an increased credit risk. Credit information is supplied by independent rating agencies where appropriate and if available. Alternatively the Company uses other publicly available financial information and its own trading records to rate its major customers. Trade receivables consist of a large number of customers, spread across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. There has been no history of bad debts as the majority of its sales are to multinational pharmaceutical companies and as a consequence the Directors do not consider that the Company has a credit risk. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Company’s maximum exposure to credit risk as no collateral or other credit enhancements are held. Liquidity and interest risk tables The Company has no significant long term financial liabilities. Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of long term trade receivables and payables is estimated by discounting the future contractual cash flows at the current market interest rate for the underlying currency of the transaction. Fair value measurements The financial instruments measured subsequent to initial recognition at fair value comprise investments. The fair value hierarchy of these assets is Level 2. The valuation technique is market value, based on the most recent investment price. The Company did not have any other financial instruments that are measured subsequent to initial recognition at fair value. An analysis of the fair value hierarchy has therefore not been presented. 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 58. Financial commitments At 31 December 2016 the Company was committed to making the following payments under non-cancellable operating leases which fall due as follows: Within one year Between two and five years Land and buildings Other 2016 £000s 2015 £000s 2016 £000s 2015 £000s 35 – 35 – – – 4 – 4 7 5 12 59. Pension costs The Company makes contributions to defined contribution personal pension schemes of the employees. The pension cost represents contributions payable by the Company to the schemes and amounted to £43,000 (2015: £35,000). Contributions payable to the schemes at 31 December 2016 were £25,000 (2015: £nil). 89 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 90 Glossary Adverse Reaction Information System (‘ARISg’) a web-based adverse event software (developed by ARIS Global) that enables the collection, assessment and reporting of adverse event information to the global regulatory agencies Approved Risk Evaluation and Mitigation Strategies (‘REMS’) the FDA requires a REM strategy from manufacturers to ensure that the benefits of a drug outweigh its risks Backlog work contracted but yet to be completed Clinical Research Organisation (‘CRO’) a person or an organisation (commercial, academic or other) contracted by the Sponsor to perform one or more of a Sponsor’s trial-related duties and functions Food and Drug Administration (‘FDA’) the United States regulatory authority charged with, among other responsibilities, granting new drug approvals Haemostat a drug or device that is used to stop bleeding from surgical or traumatic wounds Medical information services the marketing authorisation holder must establish a scientific service in charge of information about the products being sold Orphan drug Peptide a pharmaceutical product that has been developed to treat a rare medical condition, which itself is known as an orphan disease a molecule composed of amino acids Periodic safety update reports (‘PSURs’) a pharmacovigilance document intended to provide an evaluation of the risk-benefit balance of a medicinal product. It is submitted by marketing authorisation holders at defined time points during the post-authorisation phase Pharmacovigilance (‘PV’) science and activities relating to the detection, assessment, understanding and prevention of adverse effects or any other medicine-related problem Qualified Person Pharmacovigilance (‘QPPV’) as part of the pharmacovigilance system, the marketing authorisation holder shall have permanently and continuously at its disposal an appropriately qualified person responsible for pharmacovigilance in the European Union Risk-Management Plan (‘RMP’) Sponsor Study Site Management (‘SSM’) a RMP includes information on a medicine’s safety profile, how its risks will be prevented or minimised in patients, plans for studies to build knowledge about the safety and efficacy of the drug, risk factors for side effects and measuring the effectiveness of risk-minimisation measures an individual, company, institution or organisation which takes responsibility for the initiation, management and/or financing of a clinical trial the Ergomed model of study site management which provides assistance to investigating physicians and site study co-ordinators with administrative and logistic aspects of the trial in order to maximise utilisation of resources Study Physician Team (‘SPT’) an Ergomed team engaged in feasibility, preparation and consultancy of those clinical studies that require medical consultancy support 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E Notes 91 i S t r a t e g c r e p o r t G o v e r n a n c e i F n a n c i a l i n f o r m a t i o n 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E 92 Notes 6 1 0 2 s t n u o c c A d n a t r o p e R l a u n n A c l p d e m o g r E FSC LOGO TO GO HERE E r g o m e d p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 Ergomed plc The Surrey Research Park 26 Frederick Sanger Road Guildford Surrey GU2 7YD www.ergomedplc.com 

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