FOCUSED ON
DELIVERING GROWTH
Ergomed plc Annual Report and Accounts 2017
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INTRODUCTION
ERGOMED PROVIDES
SPECIALISED SERVICES
TO THE PHARMACEUTICAL
INDUSTRY.
Our offer includes clinical development, trial
management and pharmacovigilance services to
over 200 clients ranging from top 10 pharmaceutical
and generics companies to small and mid-sized
drug development companies.
We have established a portfolio of co-development partnerships
with pharmaceutical and biotech companies, using a shared
risk model, and we wholly own a pipeline of proprietary
development products for the treatment of surgical bleeding.
Net Service Revenue
£22.2m
£17.4m
Clinical Research Services:
£17.4 million, growth of 9% on PY
Drug Safety and Medical Information:
£22.2 million, growth of 68% on PY
Strategic report
1 Highlights
2 At a glance
4 Company overview
10 Chairman’s statement
12 Chief Executive Officer’s review
14 Strategy
16 Strategy in action
18 Financial review
20 Principal risks
Governance
22 Board of directors
24 Corporate governance statement
26 Directors’ remuneration report
(unaudited)
29 Directors’ report
Financial statements
31
Independent auditor’s report
38 Consolidated income statement
39 Consolidated statement of
comprehensive income
40 Consolidated balance sheet
41 Consolidated statement of
changes in equity
42 Consolidated cash flow statement
43 Company balance sheet
44 Company statement of
changes in equity
45 Company cash flow statement
46 Notes to the financial statements
For further information, visit
www.ergomedplc.com
FINANCIAL HIGHLIGHTS
Revenue
Contracted Order Backlog
£47.6m
+21%
£88.0m
+26%
n
o
i
l
l
i
m
£
47.6
7.6
0.4
39.6
50
45
40
35
30
25
20
15
10
5
0
39.2
10.0
29.2
30.2
10.2
20.0
n
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l
i
m
£
88.0
70.0
59.0
90
80
70
60
50
40
30
20
10
0
2015
2016
2017
Net Service Revenue Reimbursement Revenue
Licence Revenue
2015
2016
2017
BUSINESS HIGHLIGHTS
Acquisition of PSR Group BV (PSR), a leading contract research organisation based in The
Netherlands and focused on orphan drug development, for a total consideration of up to €5.7 million
(£5.1 million) (October 2017)
Institutional placing raising gross proceeds of £2.9 million to partially fund the initial consideration for
PSR (September 2017)
PrimeVigilance demonstrated its successful pilot project in robotic automation at an intelligent
automation seminar for the International Society of Pharmacovigilance (ISOP) (December 2017)
Board and management appointments including: Peter George, former CEO of Clinigen Group plc and
Non-Executive Director of Ergomed to Chairman; Dr Miroslav Reljanovic, founder and former CEO to
Executive Vice-Chairman; Stephen Stamp to CEO; and Jan Petracek to COO
An agreement with Allergy Therapeutics plc for a multi-study co-development partnership to support
three of Allergy Therapeutics’ OralVac products (December 2017)
First commercialisation deal for Haemostatix products with Boryung for South Korea (September
2017)
Positive Phase II data from PeproStat, our wholly-owned product and the first to come from the
Haemostatix pipeline (October 2017)
1
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report AT A GLANCE
SPECIALISED SERVICES
PROVIDER
WHAT WE DO
Ergomed offers a comprehensive suite of specialised services to the pharmaceutical
industry. In our Clinical Research Services division, we undertake on behalf of
our clients all facets of clinical trial management from Phase I to IV. In our Drug
Safety and Medical Information division we provide a range of services related to
the collection, aggregation and reporting of safety issues related to drugs on the
market, sometimes called pharmacovigilance.
Clinical Research Services
Over 20 years Ergomed has built
particular expertise in oncology,
neurology, immunology and the
development of orphan drugs. Our
approach is differentiated from other
providers through our innovative
Site Management model and Study
Physician teams, resulting in a closer
and more productive relationship
between Ergomed and investigational
sites involved in clinical trials.
Ergomed Clinical Research Services
operates out of 16 offices across the
Northern Hemisphere from San Antonio,
US to Taipei, Taiwan and is conducting
clinical trials in 55 countries.
Drug Safety and
Medical Information
Through our subsidiary
PrimeVigilance, we offer the full
range of drug safety and medical
information services including adverse
event case processing, aggregate
reporting, risk management
plans, signal detection and audit.
PrimeVigilance, including the
recently re-branded PharmInvent, is
a medically led organisation with a
passion for quality. This is reflected in
our exceptional client retention and
organic growth.
PrimeVigilance operates out of six
offices from Boston, US to Belgrade,
Serbia and is monitoring drugs in over
100 countries for more than 100 clients.
è See pages 6 and 7 for more information
è See pages 4 and 5 for more information
Comprehensive range of services
Services
Clinical Research Services
Drug Safety and
Medical Information
Phases I – III
Phase IV
Drug Safety
Medical
Information
Project management
Patient recruitment
Medical writing
Data management / statistics
Regulatory affairs
Quality assurance
Adverse event case processing
Medical safety review / reports
Consulting / audit
Medical information
QPPV / Qualified person
2
Ergomed plc Annual Report and Accounts 2017
OUR GEOGRAPHICAL REACH
Ergomed Offices
OUR PERFORMANCE
New contracts won
Order backlog
£54m
in 2017
£88m
at year-end
Drug Safety and
Medical Information
Clinical Research Services
£22.2m
Net Service
Revenue
£17.4m
Our growth
+68%
+ 35% organic
Our growth
+9%
+ 3% organic
Global industry growth
Global industry growth
+18%
+7.5%
Employees
700+
Active clients
200+
Patients studied
125,000
Clinical trials in
55
countries
Studies completed
600+
Adverse event cases
processed p.a.
80,000+
3
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report COMPANY OVERVIEW
DRUG SAFETY AND
MEDICAL INFORMATION
Through PrimeVigilance, we provide
integrated drug safety and medical
information services.
PrimeVigilance operates from bases in Guildford, UK; Zagreb,
Croatia; Belgrade, Serbia; Prague, Czech Republic; Boston,
USA and this year has opened up a sixth location in Frankfurt,
Germany. PrimeVigilance is currently providing services across
more than 100 countries to a range of international pharma,
generic and biotech clients.
The services offered by PrimeVigilance cover all the regulatory
and scientific elements of pharmacovigilance required to
obtain and maintain a product licence within Europe and
the US.
OUR KEY DIFFERENTIATORS
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 AG Inquirer database
Net Service Revenue
Customers
£22.2m
100+
Employees
Services marketed in
450+
100+
countries
4
Ergomed plc Annual Report and Accounts 2017
ESSENTIAL PHARMACOVIGILANCE PROCESSES ALL COVERED BY PRIMEVIGILANCE
No action
Data collection
Signal detection
Risk assessment
Decision making
VISION 2020
The Global Leader
in pharmacovigilance.
In order to move from a major independent
pharmacovigilance provider to the world’s
#1 pharmacovigilance provider, we plan to
take the following strategic steps:
1 Increase investment in people, attracting
the best talent worldwide, and fostering
talent/personal growth within our
organisation.
2 Increase investment in technology,
becoming a leader in process automation
and the use of artificial intelligence in our
services.
3 Increase growth, both organically and
through acquisitions, resulting in a larger
presence in major markets, and achieving
further benefits from economies of scale.
Communication
Regulatory action
People
PrimeVigilance’s reputation is built
on the quality of its people. The
senior leadership team includes
leading pharmacovigilance experts
and former senior regulators
with over 300 years of combined
industry experience.
Fundamental to its medic-led
approach, PrimeVigilance
employs 44 physicians and over
300 pharmacists and other
life sciences professionals. Its
network of Qualified Persons in
Pharmacovigilance (QPPV) is the
most extensive in Europe and
includes 16 in-house and over 100
outsourced professionals covering
60 countries.
The CEO of PrimeVigilance, Dr Jan
Petracek, is the former Head of
Risk Management at the European
Medicines Agency and has,
and continues to, contribute to
many national and international
guidelines.
Technology (automation)
PrimeVigilance has long had a
technology driven approach to
pharmacovigilance with speed,
consistency and accuracy being
the goal. Adverse event case
processing can be executed either
in an in-house validated database
or in the client’s own database, as
required. PrimeVigilance is able to
offer case processing in either of
the two leading global databases.
More recently, PrimeVigilance has
been identified as an industry
leader in the deployment of robotic
process automation (RPA) software
in routine pharmacovigilance
processes. In pilots, PrimeVigilance
has been able to demonstrate
very significant improvements in
efficiency through time savings
and in accuracy.
PrimeVigilance’s strategy is to
continue to invest in technology
to drive efficiency, enhance quality
and, as a result, competitiveness.
5
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report COMPANY OVERVIEW
CLINICAL
RESEARCH SERVICES
ERGOMED’s approach is focused on
effective patient recruitment to reduce
time and cost of clinical trials.
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.
CLOSING THE DEVELOPMENT CIRCLE
r e - Approval
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As a mid-sized full-service CRO, Ergomed
differentiates through:
25% of staff with PhD, MD
Site management program specifically built to increase
study performance
Focus on orphan drug development
Presence in MENA region
Therapeutic specialisations:
− Oncology, Respiratory, Neurology
THERAPEUTIC AREA EXPERTISE (NO. OF TRIALS)
37%
31%
12%
9%
11%
Oncology / Haematology
Neurology
Cardiovascular
Allergy / Respiratory
Other
ACQUISITION UPDATE
Reinforcing our
position in orphan
drug development
services.
Acquisition of PSR for up to
€5.7m
6
Ergomed plc Annual Report and Accounts 2017
OUR KEY DIFFERENTIATORS
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.
Focusing on patient recruitment with efficient
management and control of complex trial protocols
Net Service Revenue
£17.4m
Studies completed
600+
Clinical trials in
55
countries
Study Physician Team
Peer-to-peer support
Develops best practice
across treatment centres
Provides expertise for
particular study designs
Site Management
Team
Enhanced recruitment
Increased retention
More evaluable patients
Hospital
Investigator
Nurses/Site Staff
7
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report COMPANY OVERVIEW
HAEMOSTATIX
Patented fibrinogen-binding
peptide technology
PRODUCT PIPELINE
PeproStat™ Liquid
A topical liquid haemostat that is applied to wounds to
control bleeding during surgery. PeproStat has a novel
mode of action that is fast and effective. The peptide-
based coagulant is manufactured from blood-free
components and is formulated as a ready-to-use solution,
to be used with commercially available resorbable
sponges. Current products are typically blood-derived
and often require re-constitution or thawing prior to use.
Positive PeproStat Phase II results
In October 2017, we announced positive Phase II results
of PeproStat in surgical bleeding. The trial met its primary
endpoint and was completed approximately six months
ahead of schedule. PeproStat showed a reduction in time
to haemostasis by 1.6 minutes compared with standard
of care time to haemostasis of 5.8 minutes. It also met
key secondary endpoints and was highly rated by
investigators. No treatment related serious adverse events
or re-bleeding were observed. These results reinforce
PeproStat’s potential as a safe, blood-free, ready-to-use
and cost-effective method of controlling bleeding during
surgery.
HXP12 ReadyFlow™
A flowable gel-based haemostat that is applied with a
syringe and nozzle enabling less accessible wounds to be
treated, as well as wounds with uneven surfaces. HXP12
ReadyFlow is composed of a heat-stable peptide active
substance mixed with a transparent particulate gel and
pre-filled in a ready-to-use syringe. Current products
in this rapidly expanding market segment require eight
preparation steps prior to use, are blood derived, and
opaque, obscuring the wound site. HXP12 ReadyFlow
won first prize in the pan European Emerging Technology
Competition run by the Royal Society of Chemistry.
Haemostatix has developed a new class of
peptide based coagulant, or ‘haemostat’,
for the control of bleeding in surgery.
The Company has pioneered a new approach to haemostasis
that is based on a peptide that binds to the protein fibrinogen,
inducing the rapid and targeted formation of clots. This
innovative technology platform is being used to develop a
pipeline of topical products to treat surgical bleeding with
further applications in tissue repair and regenerative medicine.
Surgical bleeding and its markets
The haemostat market is worth $2.5Bn and is expanding
globally at 6 to 8% per annum. Growth in several market
segments, and emerging economies has exceeded 10%
per annum. The market leader is blood derived thrombin, a
relatively fragile molecule requiring storage in a dry or frozen
form. Haemostatix’s peptide-based coagulants are blood-free,
have greater stability enabling the formulation of ready-to-use
liquids and gels, and have a mode of action that is faster than
thrombin-mediated clotting.
Peak sales potential
PeproStat™
$500m1
1
Internal estimate
Reduced time to
haemostasis by
1.6 minutes versus
standard of care.
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Ergomed plc Annual Report and Accounts 2017
CO-DEVELOPMENT
PARTNERSHIPS
Ergomed has developed an innovative
model for sustainable drug development
and is a source of potential upside.
Ergomed has established a portfolio of co-development
partnerships with pharmaceutical and biotech companies.
By reducing service fees, Ergomed has secured either a
share in future revenues derived from the product or, in the
case of single product companies, an equity stake in the
partner company.
The Ergomed team screen up to 100 co-development
candidates in any given year and may carry out detailed
due diligence on a dozen or less with a view to concluding
one or two deals per annum.
Expansion of the co-development pipeline will not be a
strategic priority for the Company going forward.
CO-DEVELOPMENT MODEL
Reduction in fees
Ergomed investment
30-50%
£1-15m
Allows Ergomed to
focus on Clinical
Partner focuses on
CMC, Pre-Clinical,
Commercialisation
Share of revenue
5-15%
or
Equity share
of company
Our diversified product pipeline
Compound Partner
Pre-clinical
Phase I
Phase II
Phase III
Partnership
Multikine
Cel-Sci
Head & Neck Cancer
Lorediplon
Ferrer
Insomnia
Sevuparin
Modus Therapeutics
Sickle-Cell Disease
Sepranolone Asarina Pharma
Premenstrual Dysphoric Disorder
OralVac
Allergy Therapeutics
HDM, Grass, Trees
9
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report CHAIRMAN’S STATEMENT
FOCUSED
ON STRATEGY
Peter George
Chairman
2017 saw continued very strong performance
for Ergomed in the services business and
particularly in the Drug Safety and Medical
Information business. The Board sees this
area and specialist CRO services such as
orphan drug development as significant
opportunities where Ergomed can take
global leadership positions and continue
to grow.
10
Ergomed plc Annual Report and Accounts 2017
The appointment of Stephen Stamp as CEO and Dr Jan
Petracek as COO was a catalyst for the re-aligned Board to
review Ergomed’s growth opportunities and set strategic
priorities which will see greater focus on the services business
and a targeting of the Company’s resources at those areas.
The co-development pipeline continues to represent a
differentiator for the CRO business and is a source of
potential upside but with increased focus on the services
business, expansion of the pipeline will not be a strategic
priority. Having delivered strong Phase II clinical trial results
for PeproStat, the Company intends to pursue further
development of the Haemostatix assets through partnerships
and collaborations.
The integration of pharmacovigilance services under the
PrimeVigilance brand, which commenced during 2017, was
successfully completed in 2018 and the acquisition of PSR, a
specialist orphan CRO, contribute to a firm foundation for the
Company’s strategic priorities.
I look forward to further progress this year and in the future.
Peter George
Chairman
INVESTMENT CASE
Ergomed’s services
businesses provide
differentiated offerings
in growth markets with
drug development
upside potential.
ACQUISITION
OPPORTUNITIES
We have acquired and successfully
integrated five services acquisitions
since IPO in mid-2014, all of which
have been earnings enhancing.
Strategic acquisitions which add
specialist skills and/or geographic
coverage to our services offering
remain key to our growth strategy.
FAVOURABLE
MARKET DRIVERS
PRODUCT
DEVELOPMENT UPSIDE
The trend to outsource continues
to drive growth in pharmaceutical
services. The contract research
market is expected to reach $59Bn
by 20201 and the pharmacovigilance
market, at around $3Bn, is growing
at 18% pa2. The Contract Research
services market overall is growing at
7.5% pa3.
We have economic interests in five
drug development programmes
through co-development
partnerships together with two lead
products from our wholly-owned
Haemostatix subsidiary. A milestone
event from any one of these interests
could have a material positive impact
on Ergomed.
HIGH GROWTH
DEBT FREE, NET
CASH POSITION
In 2017, our net service revenues
grew at 36% pa, driven by growth of
68% in our Drug Safety and Medical
Information segment. Organic growth
in DS&MI was 35%. With Contract
Research services, our focus will be
on orphan drug development. The
market for orphan drugs is expected
to reach $200Bn by 20224.
Ergomed’s cash at hand at
31 December 2017 was £3.2 million
with zero debt. We retain the
flexibility to access the capital
markets and/or leverage our
balance sheet for strategic
acquisitions, as appropriate.
MARKET LEADERSHIP
PrimeVigilance is a leading provider
of drug safety and medical
information services in Europe. Our
goal is to be the leading global
provider by 2020. Within Contract
Research services, we aim to be
the leading provider in orphan
drug development, building on the
acquisition of PSR Group in
October 2017.
1. Source: Zion Research 2014
2. Source: Global Market Insights 2016
3. Source: Global Data 2016
4. Source: Evaluate Pharma Orphan Drug Report 2017
11
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report CHIEF EXECUTIVE OFFICER’S REVIEW
DELIVERING ON GROWTH
EBITDA (adjusted) for the year was £2.8 million compared
with £2.8 million in 2016. R&D expense, related to the
development of the Haemostatix products, was £2.7 million
in 2017 and £1.2 million in 2016. The EBITDA (adjusted) of our
services businesses (excluding R&D) was £5.5 million in 2017
compared with £4.0 million in 2016.
Drug Safety & Medical Information (DS&MI)
The DS&MI business, which comprises the PrimeVigilance and
PharmInvent companies, performed exceptionally strongly. Net
service revenue from the DS&MI segment, increased 68% to
£22.2 million in 2017 from £13.3 million in 2016. Excluding the
PharmInvent acquisition (completed in November 2016), organic
growth of the DS&MI segment was 35%.
PharmInvent was acquired in November 2016, and
immediately successfully collaborated with PrimeVigilance
to provide a comprehensive pharmacovigilance service
offering to existing and new clients of both companies. The
integration was completed early in 2018, with both companies
now operating under the PrimeVigilance brand led by Dr Jan
Petracek. PrimeVigilance now employs over 450 employees
with hubs in Guildford, UK; Belgrade, Serbia; Prague, Czech
Republic; Boston, USA; and Zagreb, Croatia.
PrimeVigilance, which is already a significant investor in
information technology, has initiated the implementation of
robotic process automation for certain routine pharmacovigilance
processes, resulting in significant improvements in efficiency and
accuracy. PrimeVigilance’s strategy of investing in people and
technology is designed to drive further growth with the aim of
becoming the global leader in pharmacovigilance by 2020. The
global pharmacovigilance market is forecast to grow to more than
$8Bn by 2024 from around $3Bn in 2015, with contract
outsourcing forecast to expand from around 30% of the market
in 2015 to approximately 50% in 2024. (Source: Global Market
Insights 2016.)
Contract Research Services (CRS)
Net service revenue from the CRS segment increased 9% to
£17.4 million in 2017 from £15.9 million in 2016. Excluding the
PSR acquisition (October 2017), organic growth was 3%.
Consistent with our acquisition strategy of adding specialist
skills and/or geographic coverage, PSR was acquired in
October 2017 for a total consideration of up to €5.7 million
(£5.1 million). PSR is a specialist contract research organisation
based in The Netherlands that specialises in the development
of orphan drugs for rare diseases. Orphan drug development
is a growing area, with up to 30 million people worldwide
estimated to suffer from rare diseases (Source: Evaluate
Pharma Orphan Drug Report 2017). The logistical, regulatory
and operational complexities associated with orphan drug
trials require specialised approaches. PSR, combined with
Ergomed’s site management organisation and study physician
groups, is ideally suited for efficient management of these
types of trials.
The Company’s goal is to become the leading global contract
research organisation for orphan drug development and,
overall, to continue to outpace the market for clinical
research services.
Stephen Stamp
Chief Executive Officer
I am pleased to report on another year of
strong growth in our service businesses and
one which has also seen clinical success. We
see significant opportunities to build on the
foundations we have established in high-
growth areas within the pharmaceutical
services market and, specifically, to take
leadership positions in pharmacovigilance
and orphan drug development services. We
believe this will deliver further growth and
shareholder value in the future.
Services
Overall it was a strong year within the services businesses.
New business won in 2017 of £54 million, up 29% on 2016,
helped drive net service revenue growth of 36% to £39.6
million. Total service revenue, including reimbursement
revenue, increased 21% to £47.6 million.
12
Ergomed plc Annual Report and Accounts 2017
Net Service
Revenue
Services EBITDA
(adjusted)
£39.6m
+36%
£5.5m
+£1.5m
New Business
Won
£54m
+29%
Contracted Order
Backlog
£88m
+26%
The Company’s strategy is to pursue further development
of the Haemostatix assets through partnerships and
collaborations. We anticipate further modest investment in
R&D related to Haemostatix during 2018, in line with current
market expectations.
Outlook
A contracted backlog of £88 million underpins Ergomed’s
ability to deliver its targets for 2018. Drug safety and medical
information services make up an increasing proportion of our
overall revenues and owing to their greater predictability and
exceptional growth we benefit from greater visibility than with
clinical research services which, although capable of attractive
margins are lumpy by nature and highly competitive.
More generally during the coming period we expect to
continue to deliver on our strategy of focusing on the growth
and profitability of our services businesses, supplemented by
acquisitions that expand the services offering or geographical
coverage, or both.
Stephen Stamp
Chief Executive Officer
Global demand for quality outsourced drug safety services
and drug development remains strong and Ergomed
continues to benefit from these trends. Ergomed ended 2017
with a total backlog of contracted work with a value to be
invoiced in future years of approximately £88 million
(2016: £70 million).
Product development
Co-development
A new co-development deal with Allergy Therapeutics plc
(LSE: AGY) was announced in December 2017.The multi-
study co-development partnership is aimed at supporting the
commercialisation of Allergy Therapeutics’ OraiVac platform
and could include studies of three OraiVac products.
The Company also announced the following updates during
the year:
Ferrer: In February 2017, Ferrer announced data from the
successful Phase II study of lorediplon in insomnia.
Aeterna Zentaris (NASDAQ: AEZS; TSX: AEZ): In May
2017, Aeterna Zentaris announced termination of their
programme after Zoptrex™ showed no treatment benefit
over doxorubicin control.
CEL-SCI (NYSE: CVM): The FDA lifted the clinical hold for
Multikine® in August 2017 and the Phase III study in head
and neck cancer is continuing as initially planned.
We believe our co-development pipeline continues to offer
potential upside as programmes progress and move towards
commercialisation. However, as we increase our focus on the
opportunities within our service businesses to take leadership
positions in high-growth markets, the Board has concluded
that expanding the co-development pipeline is no longer
a strategic priority for the Company. We do not anticipate
announcing new co-development deals, unless material, but
will continue to benefit from our experience and ability to
engage in co-development selectively as a differentiator for
our CRO offering.
Haemostatix
In October, the Company announced positive Phase II results
of PeproStat in surgical bleeding, the first product to come
from the Haemostatix portfolio. The trial met its primary
endpoint and was completed approximately six months ahead
of schedule. PeproStat showed time to haemostasis of 4.2
minutes, a reduction of 1.6 minutes compared with standard
of care time to haemostasis of 5.8 minutes. It also met key
secondary endpoints and was highly rated by investigators.
No treatment related serious adverse events or re-bleeding
were observed. These results reinforce PeproStat’s potential
as a safe, blood-free, ready-to-use and cost-effective method
of controlling bleeding during surgery.
The second product, HXP12 ReadyFlow™, a flowable gel, is
proceeding with preclinical development and is expected to
be ready for Phase I in 2018.
A license for rights to PeproStat and HXP12 ReadyFlow in
South Korea was signed in October 2017.
13
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report STRATEGY
ACCELERATED
GROWTH
OUR MISSION
Building a profitable services
business targeting global
leadership in pharmacovigilance
services and orphan drug
development by 2020.
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.
The Board is committed to pursuing both
components of the growth strategy in parallel and
maintaining a balance between services income
and development costs.
14
Ergomed plc Annual Report and Accounts 2017
Strategic priorities
GROWTH
ACQUISITIONS
STRATEGIC AND SELECTIVE
PRODUCT DEVELOPMENT
PARTNERSHIPS
Strategic priorities
Strategy
Progress
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.
PrimeVigilance is a leading independent pharmacovigilance
and medical information provider in Europe.
Drug Safety and Medical Information
+68% +18%
Industry
Ergomed
+35% organic
Source: Global Market Insights 2016
Clinical Research Services
+9%
Ergomed
+3% organic
+7.5%
Industry
Source: Zion Research 2014
Services acquisitions are a key component of
Ergomed’s growth strategy with an emphasis on:
Acquired in October 2017
Services and skills which complement our existing
services. 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.
The co-development pipeline continues to represent a
differentiator for the CRO business and is a source of
potential upside but with increased focus on the services
business, expansion of the pipeline will not be a strategic
priority.
The Company’s strategy is to optimise the value of the
Haemostatix assets by pursuing their further development
through partnerships and collaborations.
Optimise value
15
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report
STRATEGY IN ACTION
ORPHAN SPECIALIST
ACQUISITION
Acquisition of PSR Group BV,
a specialist orphan drug CRO.
OUR KEY DIFFERENTIATORS
Overview
The acquisition is consistent with Ergomed’s
strategy to grow its existing, profitable services business
both organically and through bolt on acquisitions. PSR’s
extensive expertise in orphan drug development complements
Ergomed’s services and will further strengthen Ergomed’s
orphan drug development capability in addition to expanding
its current services portfolio.
The acquisition
PSR was acquired in October 2017 for up to €5.7 million,
including initial consideration of €3.2 million. Ergomed’s
strategy is to continue to grow PSR’s global orphan drug
development business under the PSR brand and will remain
focused on its two divisions: (1) PSR Orphan Experts, which is
a leading expert in supporting biotech and pharma companies
with their regulatory and clinical development of orphan
drugs; and (2) PSR Pharma Resource, which complements
PSR Orphan Experts as a niche staffing provider, focused on
orphan drug specialised staff.
Background
PSR, established in 1998, and based in The Netherlands, is
a specialist orphan drug CRO and recognised as a leading
expert in rare diseases. PSR specialises in running complex
orphan drug development programs requiring innovative
regulatory and clinical approaches as well as pricing and
reimbursement strategies. Besides outsourced project
solutions, PSR provides insourced staffing solutions
(orphan drug teams), temporary and permanent staffing,
interim management solutions as well as training/coaching
career programs.
PSR’s dedication to the rare disease landscape is
exemplified by an extensive track record of orphan drug
projects in a wide range of therapeutic areas, its continued
efforts to achieve true patient centricity and its societal
commitments by participation in fundraising activities and
public-private partnerships. For further information, visit:
www.psr-group.com.
Acquisition accelerates Ergomed’s
leadership in orphan drug development
services
PSR’s specialist orphan drug
development brand complements
Ergomed’s existing strong expertise in
this area
PSR will expand Ergomed’s services
portfolio and geographical coverage
Acquisition expected to be immediately
accretive to earnings
AWARDS
Winner ‘Best CRO’ ROAR Awards multiple times
16
Ergomed plc Annual Report and Accounts 2017
DISCOVER OUR ORPHAN ADVANTAGE
Orphan diseases are severe, debilitating or even
life-threatening conditions which affect fewer than 1 in 2000
people (EU definition) or fewer than 200,000 people in the
US (US definition). Although patient numbers in individual
indications are limited, there are a total of 30 million people
worldwide suffering from rare diseases.
Orphan drugs represent approximately 21% of all prescription
drugs with the market growing at 11% pa and expected to
reach $200Bn by 2022 driven, in part, by the trend towards
personalised medicine.
The nature of orphan drug trials requires highly specialised
providers due to the regulatory, logistical and operational
complexities of conducting clinical trials in these indications.
Studies typically are complex and run in small patient cohorts
and Ergomed’s Site Management model and Study Physician
group can be key success factors in recruiting and managing
orphan drug trials.
Our orphan experience distributed across our various services and further split into therapeutic areas
0
2
4
6
8
10
12
14
16
18
20
22
PROJECTS
Oncology
Central Nervous System & Neurology
Cardiovascular & Haematology
Metabolic Disorders
Nephrology
Immunology & Infectious Disease
Pulmonology
Opthalmology
Dermatology
Gastroenterology
Endocrinology
Orphan Drug Designation (EMA, FDA)
Paediatric Investigation Plan
Protocol Assistance / Scientific Advice / (pre) IND / NDA
Clinical Study
Clinical Development Plan
Partnered with a small biotech on 7 individual
retrospective and prospective studies
Studies totalled:
3 Phase I studies
1 Phase I-II
1 Phase III
1 Compassionate use study
Projects where we provided
regulatory consultancy
49
Patients: 759
Sites: 27
Countries: 9
− Austria, Denmark, France, Germany, Israel, Italy, Japan,
Spain, UK
Services included across the program:
− Project Management, Monitoring, Site Management,
Regulatory, Safety, Data Management, Biostatistics,
Medical Writing, QA
Ergomed is working with the Sponsor to continue the
study in North America
17
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report FINANCIAL REVIEW
SOLID RESULTS
UNDER-PINNED BY DS&MI
Key Performance Indicators
The Directors consider the principal financial performance
indicators of the Group to be:
£m
Net service revenue
Gross profit
Research and development
expenditure
EBITDA (adjusted) (note 38)
Cash and cash equivalents
2017
39.6
14.6
2.7
2.8
3.2
2016
29.2
12.0
1.2
2.8
4.4
The Directors have substituted total revenue with net
service revenue as a key financial performance indicator.
In line with industry practice, net service revenue excludes
reimbursement revenue and also excludes licence revenue,
providing a clearer picture of underlying services growth.
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 or acquisition of new and/or the
expansion of existing service offerings.
Non-financial performance indicators are routinely reviewed
by the Directors at Board meetings.
During 2017, the Group was audited multiple times by
customers and regulators, with no critical findings. In
addition, during 2017, the Group expanded its specialist
orphan drug development capabilities through the
acquisition of PSR.
Consolidated income statement
Net service revenue for the year ended 31 December 2017
was £39.6 million (2016: £29.2 million), an increase of
36%, driven by 68% growth in Drug Safety and Medical
Information, complemented by 9% growth from Clinical
Research Services. Excluding the impact of acquisitions, net
service revenue grew at 18%.
Total revenue, including reimbursement revenue and licensing
income for the year ended 31 December 2017 was £47.6
million (2016: £39.2 million), an increase of 21%.
Reimbursement revenues are explained in note 1.
Gross profit from service revenue was £14.3 million and gross
margin was 36% (2016: gross profit £12.0 million and gross
margin 41%). To support future growth, the Company made
substantial investments in its Clinical Research Services business,
particularly in the US. Compared to a traditional clinical research
organisation (CRO) service provider, Ergomed’s gross margin
can fluctuate because of its co-development activities, where
Ergomed undertakes clinical studies at reduced fees in return
for carried interests in the partnered product. In addition, the
Company’s Drug Safety & Medical Information business made
significant investments in headcount, particularly in Serbia, to
support impending new contracts.
18
Ergomed plc Annual Report and Accounts 2017
Administration expenses were £16.0 million (2016 restated: £10.8
million), an increase of £5.2 million. Included in administrative
expenses are increases in amortisation of acquired fair valued
intangible assets of £0.4 million, share-based payment charge
of £0.1 million, deferred consideration for acquisitions relating
to post acquisition remuneration of £0.2 million, revaluation
of deferred consideration of £2.9 million offset by a reduction
in acquisition costs and exceptional items of £0.3 million.The
increase in other administrative expenses of £1.4 million was
driven by an additional £0.9 million of overhead in acquisitions,
£0.1 million additional recruitment costs, £0.2 million increase
in investor relations and public relations activities, £0.2 million
increase in depreciation and foreign exchange losses of £0.5
million (compared to foreign exchange gains of £0.3 million
in 2016), offset by a £0.8 million reduction in provision for
doubtful debts.
Research and development costs expensed in the year
were £2.7 million (2016 restated: £1.2 million) relating to
Haemostatix and included chemistry, manufacturing and
controls (CMC) costs for clinical trial material, the costs of the
Phase II clinical trial of PeproStat and pre-clinical formulation
development costs for ReadyFlow.
Other operating income includes £0.1 million in respect of
an R&D tax credit. In 2016, an R&D credit of £0.2 million was
included in the tax charge.
Cash settled deferred consideration for achieving 2017
financial targets of £0.8 million (2016: £0.6 million) in respect
of Pharmlnvent has been charged to profit and loss in the
year as it is tied to the continued employment of the vendors.
Equity settled deferred consideration is included within the
share-based payment charge for the year.
The Company incurred acquisition costs totalling £0.3 million
(2016: £0.6 million) in the year, primarily in respect of the PSR
acquisition. In addition, £0.1 million in respect of severance
costs in relation to the former CEO were recognised as an
exceptional item.
Included in finance charges is £0.5 million (2016: £0.3
million) relating to the unwinding of the discount applied to
contingent consideration for Haemostatix and £0.1 million
(2016: £nil) relating to the unwinding of the discount applied
to contingent consideration for PSR.
Consolidated balance sheet
As at 31 December 2017 total assets less total liabilities
amounted to £34.8 million (2016 re-stated: £34.4 million see
note 14) including cash and cash equivalents of £3.2 million
(2016: £4.4 million).
The principal movements in the Consolidated balance sheet
during the year were:
Acquisition of PSR in October 2017 and the associated
goodwill of £2.5 million and intangible assets of
£0.7 million.
Increase in trade and other receivables by £4.8 million
reflecting higher trading levels, a reduction in bad debt
provision of £0.8 million and a £0.3 million increase in other
current assets.
An increase in trade and other payables of £3.6 million
reflecting higher trading levels.
An increase in deferred consideration (current and
non-current) of £0.6 million in respect of PSR and
£3.4 million in respect of Haemostatix, comprising
£0.5 million for the unwinding of the discount applied
and an additional £2.9 million revaluation increase.
An increase in share premium, arising from the institutional
placing in October 2017, net of costs.
Revenue
Net Service Revenue
£47.6m
2016: £39.2m
£39.6m
2016: £29.2m
EBITDA (adjusted)
£2.8m
2016: £2.8m
An increase in merger reserve, arising from the acquisition
EBITDA
£(2.3)m
2016: £1.1m
of PSR and contingent share issues in settlement of
deferred consideration in relation to the acquisitions of
Pharmlnvent and PSR.
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 £1.3 million (2016 restated:
£2.5 million). Changes in working capital included a £3.5
million increase in trade and other receivables, a £0.3 million
increase in other current assets and a £2.8 million increase in
trade and other payables.
Cash outflows from investing activities were £3.9 million
(2016: £5.8 million) including £2.0 million related to the
acquisition of PSR and £0.5 million related to a Pharmlnvent
earn-out payment, £0.7 million for the acquisition of tangible
assets and £0.7 million for the acquisition of intangible assets.
Cash inflows from financing activities included proceeds of a
placing of £1.9 million net of expenses to fund the acquisition
of PSR.
The Group also paid taxation of £0.4 million in 2017
(2016: £0.9 million).
Going concern
As at 31 December 2017 the Group had £3.2 million in
cash and cash equivalents and a strong backlog of signed
contracts. The Directors therefore expect Ergomed’s services
business to be cash generative.
19
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report PRINCIPAL RISKS
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.
Strategic priorities
Movement
Mitigation of risk
Ergomed employs an experienced team of business
development executives to generate leads and
close contracts for new business.
Ergomed aims to provide high quality services at
competitive rates, drawing upon its differentiators
in the marketplace, as appropriate.
The terms of Ergomed’s contracts seek to mitigate
the impact of cancellation or delay by structuring
standard study close down procedures with the
customer.
In addition, pharmacovigilance contracts contain
provisions for transition of services.
Ergomed seeks 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.
Ergomed seeks to maintain diversification in
all aspects of its customer base including:
Large pharmaceutical vs biotech vs
generics customers
US vs European based customers
Pre-product approval clinical trials vs
post-approval trials and pharmacovigilance
services
and actively engages with its customers to protect
its existing relationships and build new ones.
Competition
Ergomed’s competitors and potential competitors
include companies which may have substantially
greater resources. 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.
Cancellation or delay of clinical trials
or projects by customers
The customers of Ergomed may cancel or delay
proposed clinical trials or pharmacovigilance
projects 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.
Foreign currency risk
A significant proportion of Ergomed’s business is
carried out outside the UK and in the relevant local
currency. To the extent that there are fluctuations
in exchange rates, this may have a material impact
on Ergomed’s financial position or results of
operations.
Dependency on pharmaceutical industry
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.
increased risk
no change
decreased risk
20
Ergomed plc Annual Report and Accounts 2017
Strategic priorities
Movement
Mitigation of risk
Legislation and regulation
of the pharmaceutical and
biotechnology industries
An element of Ergomed’s competitive advantage
stems from its ability to navigate the regulated
medicinal products approval processes and
pharmacovigilance regulations which are expensive
and complex. 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 the Group’s competitive
advantage.
Licences, approvals and compliance
Ergomed is dependent on certain licences and
regulatory approvals. Non-compliance with those
licences could, in extreme cases, be restricted or
revoked, which could adversely affect Ergomed’s
business and future prospects. More generally,
Ergomed operates in an environment which is
subject to detailed and complex regulation.
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.
The percentage of the Group’s total revenue
generated by the top five clients in the year ended
31 December 2017 was 40% (2016: 51%). The loss
of any client who represent a significant proportion
of Ergomed’s revenue could have a negative
impact on operating results and cash flows.
Approved by the Board of Directors
and signed on behalf of the Board.
Stephen Stamp
Director
Ergomed is a strong advocate of rigorous
Good Clinical Practice (GCP) guidelines and
pharmacovigilance regulation.
Our management team includes former senior
regulators in the European Medicines Agency
and, through industry associations, remain active
promoters of regulation.
Ergomed maintains a highly professional Quality
Assurance team and self-audit programme which
checks on all aspects of compliance on a structured
basis.
In addition, customers audit Ergomed’s compliance
on a weekly basis.
Ergomed has experienced proposal development
and budgeting personnel within each of its clinical
research and pharmacovigilance teams tasked with
preparing bids for new work with target margins.
In addition, Project Managers are tasked with
ensuring that relevant costs are passed through to
customers and all billable tasks are recorded and
appropriately billed.
A significant part of the business development
team’s focus is generation of leads and requests
for proposals from new clients to diversify the
Company’s customer base.
The Company’s organic growth combined with
acquisitions is naturally diluting reliance on
relatively few large clients.
21
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report BOARD OF DIRECTORS
Peter George
Non-Executive Chairman
Peter George joined Ergomed as a
Non-Executive Director in May 2014
and was elected Non-Executive
Chairman in April 2017. 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 2016 and as a non-executive
director in November 2017. 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.
Stephen Stamp
Chief Executive Officer,
Chief Financial Officer
Stephen Stamp joined Ergomed as
Chief Financial Officer in January 2016
and was appointed Chief Executive
Officer in December 2017. 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.
Dr Miroslav Reljanovic
Founder and Executive Vice Chairman
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.
22
Ergomed plc Annual Report and Accounts 2017
Andrew Mackie
Chief Business Officer
Dr Jan Petracek
Chief Operating Officer
Christopher Collins
Non-Executive Director
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.
Dr Jan Petracek was appointed to the
Board as Chief Operating Officer in
December 2017. Jan has been Chief
Executive Officer of PrimeVigilance
since April 2017, having joined the
Ergomed group in November 2016
following the acquisition of European
PharmInvent Services s.r.o. where he
was founder and CEO. Dr Petracek is
the former Head of Risk Management
at the European Medicines Agency and
the former Head of Pharmacovigilance,
Strategy and Development at the State
Institute for Drug Control in the Czech
Republic. He studied Quality and Safety
in Healthcare (MSc) at Imperial College
London and trained as a physician at
Charles University in Prague (MD).
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.
23
Ergomed plcAnnual Report and Accounts 2017Financial statementsStrategic reportGovernance 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 two Non-Executive Directors (including the Chairman) and four 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
are 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 and was succeeded as Chairman by Peter George. Miroslav Reljanovic, Christopher
Collins, and, until 16 April 2017, Neil Clark are the other members of the Nomination Committee. The Remuneration Committee
has Christopher Collins 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. Peter George, Stephen Stamp 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.
24
Ergomed plc Annual Report and Accounts 2017
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
Release TECH 14/14 CFF.
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.
25
Ergomed plcAnnual Report and Accounts 2017Financial statementsStrategic reportGovernance 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 letter of appointment 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.
Neil Clark resigned as a Director with effect from 16 April 2017. He remains a non-executive director of PrimeVigilance Limited,
a subsidiary of Ergomed plc.
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.
Jan Petracek entered into a letter of appointment with Ergomed plc dated 14 December 2017. His appointment is terminable
on three months’ notice by himself and three 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.
Dan Weng entered in to a letter of appointment with Ergomed plc dated 15 June 2017. Dan Weng resigned as a Director with
effect from 14 December 2017.
Non-Executive Directors
The Non-Executive Directors have entered into letters of appointment with the Company, with the Board determining any fees paid.
Peter George’s fees as a Non-Executive Director were increased to £120,000 per annum when he was elected Chairman with
effect from 1 April 2017.
The Non-Executive Directors do not participate in the Group’s pension, bonus or option schemes. The Non-Executive
appointments are terminable on one month’s notice by either party.
Remuneration
The Executive Directors during the year, Miroslav Reljanovic, Neil Clark, Andrew Mackie, Jan Petracek, Stephen Stamp and Dan
Weng were entitled to receive base salary, travel allowance, employer pension contributions, share options and a discretionary
performance-related bonus.
26
Ergomed plc Annual Report and Accounts 2017
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 2016.
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.
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
Peter George1
Stephen Stamp2
Miroslav Reljanovic7
Andrew Mackie2
Jan Petracek3
Dan Weng2,4
Chris Collins
Neil Clark2,5
Rolf Stahel6
Name of Director
Peter George
Stephen Stamp
Miroslav Reljanovic
Andrew Mackie2
Chris Collins
Neil Clark2
Rolf Stahel6
Fees &
salary
£000s
Benefits
£000s
Annual
bonus
£000s
Pension
£000s
Severance
payment
£000s
100
200
240
200
8
126
40
52
25
Fees &
salary
£000s
40
183
242
200
40
200
102
–
5
3
5
–
13
–
–
–
–
–
–
–
–
–
–
–
–
–
20
–
20
–
3
–
3
–
–
–
–
–
–
134
–
–
–
Benefits
£000s
Annual
bonus
£000s
Pension
£000s
Severance
payment
£000s
–
–
–
1
–
4
–
–
–
–
–
–
–
–
–
18
–
20
–
20
–
–
–
–
–
–
–
–
Total
2017
£000s
100
225
243
225
8
276
40
55
25
Total
2016
£000s
40
201
242
221
40
224
102
1. Peter George’s Board fees were increased from £40,000 pa to £120,000 pa upon becoming Chairman with effect from 1 April 2017.
2. Stephen Stamp, Andrew Mackie, Dan Weng and Neil Clark received private medical insurance as a benefit during the year.
3. Jan Petracek was appointed a Director with effect from 14 December 2017.
4. Dan Weng was appointed a Director with effect from 1 July 2017 and resigned as a Director with effect from 14 December 2017.
5. Neil Clark resigned as a Director with effect from 16 April 2017.
6. Rolf Stahel’s remuneration includes consultancy fees of £15,000 paid to Chesyl Pharma Limited (2016: £52,000). Mr Stahel retired as a Director with
effect from 31 March 2017.
7. Miroslav Reljanovic has the occasional use of a Company-owned vehicle.
The amount payable to the highest paid Director in respect of emoluments was £276,000 (2016: £nil), comprising basic salary
of £126,000, healthcare benefits of £13,000, pension contributions of £3,000 and severance payment of £134,000.
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.
27
Ergomed plcAnnual Report and Accounts 2017Financial statementsStrategic reportGovernance DIRECTORS’ REMUNERATION REPORT (UNAUDITED) continued
Options granted as at 31 December 2017
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
Unapproved Share Option
Scheme 2007
Ergomed plc Long Term
Incentive Plan
Ergomed plc Long Term
Incentive Plan
Jan Petracek
12/04/2017
12/04/2017
50,000
25,000
£0.01
£0.01
11/04/2020
01/01/2018
11/04/2027
11/04/2027
Ergomed plc Long Term
Incentive Plan
Stephen Stamp
11/01/2016
400,000
£0.01
10/01/2019
10/01/2026
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
29/11/2026
29/11/2026
N/A
N/A
N/A
N/A
N/A
N/A
The 25,000 options granted to Jan Petracek on 12 April 2017 lapsed on 31 December 2017. No other options held by the
Directors were exercised or lapsed during the year.
This report was approved by the Board of Directors on 14 May 2018 and signed on its behalf by
Christopher I Collins
Director, Chairman of the Remuneration Committee
28
Ergomed plc Annual Report and Accounts 2017
DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2017
The Directors present their report and financial statements for the Company and Group for the year ended 31 December 2017.
Principal activities
Ergomed is a global business focused on providing specialised services to the pharmaceutical industry.
Business review and key performance indicators
The Group’s results are set out in the Consolidated income statement on page 38 and are explained in the Financial review on
pages 18 and 19. A detailed review of the business, its results and future direction is included in the Chief Executive Officer’s
review on pages 12 and 13.
Capital structure
The Group is primarily financed through equity provided by its shareholders and net cash generated from operations.
Dividends
The Directors do not recommend the payment of a dividend (2016: £nil).
Directors
The Directors of the Company who served during the year and to the date of this report unless stated are as follows:
Peter George
Stephen Stamp
Miroslav Reljanovic
Andrew Mackie
Jan Petracek (appointed 14 December 2017)
Dan Weng (appointed 1 July 2017, resigned 14 December 2017)
Christopher Collins
Neil Clark (resigned 16 April 2017)
Rolf Stahel (resigned 31 March 2017)
At 31 December 2017, the Directors had the following beneficial interests in the Company’s shares:
Peter George
Stephen Stamp
Miroslav Reljanovic
Andrew Mackie
Jan Petracek
Christopher Collins
Number of shares
276,250
200,000
17,632,237
–
320,288
31,250
Percentage
of total issued
share capital
0.6%
0.5%
41.3%
–
0.8%
0.1%
Biographical details of the Directors are set out on pages 22 and 23.
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 26 to 28.
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 26 within the Directors’ remuneration report.
Share capital
As at 31 December 2017, the issued share capital of the Company was:
– Number of ordinary shares of £0.01 each (‘Ordinary Shares’) issued and fully paid up – 42,680,813 (2016: 40,504,806).
The closing market price of the Company’s Ordinary Shares at close of business on 29 December 2017, the last trading day of
the year, was 183.5 pence.
The maximum share price during the period from 1 January 2017 through 31 December 2017, was 216.5 pence and the minimum
price was 165.5 pence per share.
29
Ergomed plcAnnual Report and Accounts 2017Financial statementsStrategic reportGovernance DIRECTORS’ REPORT continued
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
Subsequent events are described in note 40.
Directors’ responsibilities statement
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.
Sanja Jurić
Company Secretary
14 May 2018
30
Ergomed plc Annual Report and Accounts 2017
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ERGOMED PLC
Report on the audit of the financial statements
Opinion
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at
31 December 2017 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (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.
We have audited the financial statements of Ergomed plc (the ‘parent company’) and its subsidiaries (the ‘Group’) 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 39.
The financial reporting framework that has been applied in their preparation is applicable law and 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Haemostatix goodwill impairment review
Revenue recognition: CRO service contracts
Acquisition accounting
Haemostatix contingent consideration
Materiality
Scoping
The materiality that we used for the Group financial statements was £595,300 which was
determined on the basis of 1.25% of revenue for the year.
Full scope audit procedures have been performed on four components and represent 89%
of Group revenue. Six components were subject to an audit of specified balances in order
to achieve sufficient coverage of the Group’s absolute profit before tax and net assets. The
remaining Group entities were subject to analytical procedures.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following matters where:
the directors’ use of the going concern basis of accounting in preparation of the
We have nothing to report in respect
of these matters.
financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the Group’s or the parent
company’s ability to continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the financial statements are
authorised for issue.
31
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF ERGOMED PLC
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Haemostatix goodwill impairment review
Key audit matter
description
The Group recognised goodwill of £2,143k and intangible assets of £15,200k from the acquisition of
Haemostatix Ltd in 2016. Given that the clinical trials of Peprostat and ReadyFlow are still ongoing,
significant assumptions, judgements and estimates are required to be made by management in order
to calculate the expected value in use of Haemostatix. Following the profit warning announced on
5 March 2018, there is an increased risk of current year forecasts being inaccurate, also increasing the
risk that indicators of impairment exist.
Under IAS 36 an impairment review is required to be completed annually and/or whenever there is
an indication that the unit, or Group of units, may be impaired. In preparing the cash flow forecasts,
management judgement is involved in the determination of the discount rate, terminal growth rate,
the timing of drugs coming to market, and forecast cash flows for each cash generating unit (‘CGU’).
Further details are included within the critical accounting judgements in note 2 and note 14 to the
financial statements.
How the scope of our
audit responded to
the key audit matter
We have assessed whether the CGU’s identified are appropriately disaggregated and whether the
assets included in the impairment model are complete by reconciling the assets to the consolidation
and considering the disaggregation in line with the requirement of IAS 36. We have further evaluated
the existence and accuracy of the CGU assets by tracing them to supporting evidence.
We have challenged the cash flow forecasts by referencing to historical performance and external
market data, and an assessment of the Group’s future strategy and budgets.
We performed sensitivity analysis around the key variables within the Goodwill impairment model
(such as when development costs are incurred, when Peprostat and ReadyFlow come to market, and
when expected peak sales are reached) to evaluate whether a reasonable change would trigger an
impairment.
Key observations
We are satisfied that there is no impairment required for the goodwill balance allocated to
Haemostatix.
32
Ergomed plc Annual Report and Accounts 2017
Revenue recognition: Open CRO service contracts
Key audit matter
description
There is a risk that revenue from Clinical Research contracts (see note 4 for segmental CRO
revenues) has not been appropriately recognised in line with the percentage completed, as
required by IAS 18: Revenue. The percentage completed is an estimate based on management’s
judgements surrounding the costs incurred to date and the costs left to complete the contract.
The risk is that revenue is recognised on the basis of units completed, which may not be indicative
of the percentage of the contract that is actually complete.
IAS 18, para 20 states that “when the outcome of a transaction involving the rendering of services
can be estimated reliably, revenue associated with the transaction shall be recognised by reference
to the stage of completion of the transaction at the end of the reporting period”.
Further details are included within the critical accounting judgements in note 2 to the financial
statements.
How the scope of our
audit responded to the
key audit matter
We have selected a sample of key revenue generating contracts during the year for testing. For
these contracts we have obtained the relevant project tracker and reconciled the value of services
provided to the value of revenue recognised within the financial statements.
We have traced a sample of services provided in the year within the sampled contracts to
supporting evidence (such as external hospital data and timecards) to evaluate whether the
project tracker accurately reflects the work performed by the Group.
We have enquired of project managers as to the status of the project, any on-going concerns, and
the expected remaining duration of the project.
Considering all of the above we have assessed whether the revenue recognised by the Group is in
line with evidence received and supports the percentage of completion that has occurred to date.
Key observations
We concluded that the Group has recognised revenue on service contracts at an appropriate
percentage completion rate.
Acquisition accounting
Key audit matter
description
Significant judgement is required in respect of the purchase price allocation process on the
acquisition of PSR Group BV (note 34). The acquisition was completed for a total consideration
of €4.1m, with €2.9m paid as initial consideration and the balance as deferred consideration.
Intangible assets valued at €0.7m and goodwill valued at €2.9m were recognised as a result of the
acquisition. The identification of intangible assets, related deferred tax charges, and fair valuation
of the goodwill acquired and related assumptions (such as the weighted average cost of capital
and growth rates used) is a key area of focus due to the judgemental nature of the assumptions
used by management.
Further details are included within the critical accounting judgements in note 2 to the financial
statements.
How the scope of our
audit responded to the
key audit matter
For the acquisition of PSR Group BV we have obtained the share purchase agreement (‘SPA’),
as well as a management valuation paper detailing the purchase price consideration, contingent
consideration, financing, and the allocation of intangible assets and goodwill.
We have further assessed the purchase price allocation of goodwill and acquisition intangible
assets by reviewing acquisition models and forecasts, engaging a Deloitte valuation specialist to
support where appropriate. We also reviewed management’s models for mathematical accuracy,
challenged the reasonableness of the assumptions made, including the appropriateness of the
forecasts, and agreed consideration paid in the year to supporting evidence.
Key observations
Based on work performed we consider the valuation and allocation of goodwill, acquisition
intangibles, purchase price consideration, and contingent consideration to be appropriate for the
acquisition of PSR Group BV in the period.
33
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report
INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF ERGOMED PLC
Haemostatix contingent consideration
Key audit matter
description
Contingent consideration is required to be fair valued at each period end, with the fair value being
calculated based on management’s forecasts. A maximum value of £20m is payable as contingent
consideration as part of the acquisition of Haemostatix and, as such, any inaccuracies in the
forecasts could have a significant impact on the fair value of contingent consideration. Following
the profit warning announced on 5 March 2018, there is an increased risk of current year forecasts
being inaccurate, also increasing the risk that indicators of impairment exist.
Further details are included within the critical accounting judgements in note 2 and note 26 to the
financial statements.
How the scope of our
audit responded to the
key audit matter
We have obtained management’s updated fair value calculation for the Haemostatix contingent
consideration, which include updated forecasts, and challenged the key assumptions and
judgements made (i.e. the discount factor and the timing of when Peprostat and ReadyFlow
come to market). Our internal valuations specialists were engaged to assist in reviewing and re-
performing the fair value calculation.
Further to this, we have also checked the mathematical accuracy of the calculation, agreed
whether the forecasts are consistent with those used within the goodwill impairment assessment,
and agreed whether the accounting adjustments have been appropriately recognised in the
financial statements.
Key observations
Our audit procedures concluded that an updated fair value calculation of the contingent
consideration is appropriate as a result of progress of the clinical trials of Peprostat.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£595,300
£350,300
Group financial statements
Parent company financial statements
Basis for determining
materiality
We determined materiality based on 1.25% of
revenue.
We determined materiality based on 1.40% of
revenue.
Rationale for the
benchmark applied
Revenue is considered the most appropriate
benchmark as it is the key performance metric
for users of the financial statements.
Revenue is considered the most appropriate
benchmark as it is the key performance metric
for users of the financial statements.
Revenue £47.6m
Revenue
Group materiality
Group materiality £595k
Component materiality range £177k to £350k
Audit Committee reporting threshold £30k
34
Ergomed plc Annual Report and Accounts 2017
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £30,000 for the
Group and £18,000 for the parent company, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our audit scope
on the UK, Croatian, and Czech trading entities. As such Ergomed plc, PrimeVigilance Limited, Haemostatix Limited, and
European PharmInvent Services were subject to a full audit. The six additional components for which specified procedures
were performed were chosen in order to provide sufficient coverage over the Group’s key financial statement lines. These
components were selected for being the next most significant to the Group, in terms of financial performance, risk and
geographical location. Our audit work at the entities was executed at levels of materiality applicable to each individual entity
which were lower than Group materiality and ranged between £177k and £350k.
We have engaged Deloitte Czech Republic as component auditors for the year ended 31 December 2017 to report on European
PharmInvent Services s.r.o.
The locations subject to full scope audit procedures represent the principal business units and account for 89% of the Group’s
revenue for the year ended 31 December 2017. They were also selected to provide an appropriate basis for undertaking audit
work to address the risks of material misstatement identified above.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the
remaining components not subject to audit.
The parent company is located in Guildford, UK, but operated out of Zagreb, Croatia during 2017. The parent company has
been audited directly by the Group audit team.
Revenue
Absolute profit before tax
Net assets
3%
8%
5%
12%
5%
9%
89%
83%
86%
Full audit scope
Specified audit procedures
Review at group level
Full audit scope
Specified audit procedures
Review at group level
Full audit scope
Specified audit procedures
Review at group level
35
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF ERGOMED PLC
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
We have nothing to
report in respect of
these matters.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our auditor’s report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
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.
Report on other legal and regulatory requirements
Opinions on other matters 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 Group and or the parent company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
36
Ergomed plc Annual Report and Accounts 2017
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the 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.
We have nothing to report in
respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made.
We have nothing to report in
respect of this matter.
Matthew Hall
For and on behalf of Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
14 May 2018
37
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Net service revenue
Licence revenue
Reimbursement revenue
Revenue
Cost of sales
Reimbursable expenses
Gross profit
Administrative expenses
Administrative expenses comprises:
Other administrative expenses
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Deferred consideration for acquisitions expense
Revaluation of deferred consideration for acquisition
Write-back of deferred consideration for acquisition
Acquisition costs
Exceptional items
Research and development
Other operating income
Operating (loss)/profit
Investment revenues
Finance costs
Loss before taxation
Taxation
Loss for the year
Loss per share
Basic
Diluted
All activities in the current and prior period relate to continuing operations.
The notes on pages 46 to 90 form an integral part of these financial statements.
The re-statement of the income statement for 2016 is explained in note 1.
2017
£000s
39,645
370
7,609
47,624
(25,394)
(7,609)
14,621
(15,954)
(9,725)
(1,167)
(1,033)
(752)
(2,875)
–
(259)
(143)
(2,689)
118
(3,904)
3
(546)
(4,447)
(57)
(4,504)
2016
Re-stated
£000s
29,224
–
10,009
39,233
(17,230)
(10,009)
11,994
(10,822)
(8,323)
(771)
(877)
(550)
–
460
(584)
(177)
(1,250)
127
49
2
(274)
(223)
153
(70)
(11.0)p
(11.0)p
(0.2)p
(0.2)p
Notes
3, 4
16
31
7
8
9
10
11
13
5
14
14
38
Ergomed plc Annual Report and Accounts 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
Loss 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 (loss)/income for the year
2017
£000s
2016
Re-stated
£000s
(4,504)
(70)
619
619
(3,885)
680
680
610
39
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
Notes
2017
£000s
2016
Re-stated
£000s
2015
Re-stated
£000s
7,488
2,819
335
183
365
11,190
9,528
–
3,974
15,269
20,229
1,078
754
1,613
12,285
19,842
717
271
1,448
38,943
34,563
19,250
502
3,218
22,970
61,913
(12)
(10,717)
(1,957)
(976)
(201)
14,958
240
4,424
19,622
13,502
54,185
24,692
(3)
(7,077)
–
(1,393)
(119)
(5)
(5,955)
–
(795)
(478)
(13,863)
(8,592)
(7,233)
9,107
11,030
6,269
(6)
(9,804)
(3,397)
(5)
(7,772)
(3,418)
(7)
–
(516)
(27,070)
(19,787)
(7,756)
34,843
34,898
16,936
428
20,616
11,008
2,674
762
(645)
406
17,957
10,264
1,829
143
3,799
288
9,361
2,981
1,092
(537)
3,751
34,843
34,398
16,936
15
16
17
19
20
21
22
23
24
25
26
24
26
20
27
28
29
30
30
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments
Deferred tax asset
Current assets
Trade and other receivables
Other current assets
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Trade and other payables
Deferred consideration
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 46 to 90 form an integral part of these financial statements.
The re-statement of the balance sheets for 2016 and 2015 are explained in note 1.
Approved by the Board of Directors and authorised for issue on 14 May 2018.
S A Stamp
Director
Company Registration No. 04081094
40
Ergomed plc Annual Report and Accounts 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Balance at 31 December 2015
Prior period adjustment (note 1)
Balance at 31 December 2015 (re-stated)
Loss for the year (re-stated)
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 (re-stated)
Share-based payment charge for the year
(re-stated)
Deferred tax credit taken directly to equity
Balance at 31 December 2016 (re-stated)
Loss 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
premium
account
£000s
9,361
–
9,361
–
–
–
8,596
–
–
–
–
17,957
–
–
–
2,659
–
–
–
–
Share-
based
payment
reserve
£000s
650
442
1,092
–
–
–
–
–
Merger
reserve
£000s
2,981
–
2,981
–
–
–
–
7,144
139
(140)
–
–
10,264
–
–
–
–
555
189
–
–
877
–
1,829
–
–
–
–
–
(188)
1,033
–
Translation
reserve
£000s
Retained
earnings
£000s
(537)
–
(537)
–
680
680
–
–
–
–
–
4,193
(442)
3,751
(70)
–
(70)
–
–
–
–
118
Total
£000s
16,936
–
16,936
(70)
680
610
8,662
7,195
–
877
118
143
–
619
619
3,799
(4,504)
–
34,398
(4,504)
619
(4,504)
(3,885)
–
–
–
–
–
–
–
–
–
60
2,677
558
2
1,033
60
Share
capital
£000s
288
–
288
–
–
–
66
51
1
–
–
406
–
–
–
18
3
1
–
–
Balance at 31 December 2017
428
20,616
11,008
2,674
762
(645)
34,843
41
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Cash flows from operating activities
Loss before taxation
Adjustment for:
Amortisation and depreciation
Gain on disposal of fixed assets
Share-based payment charge
Acquisition of shares for non-cash consideration
Exchange adjustments
Acquisition costs
Revaluation of deferred consideration for acquisition
Write-back of deferred consideration for acquisition
Investment revenues
Finance costs
Operating cash flow before changes in working capital and provisions
Increase in trade and other receivables
Increase in other current assets
Increase/(decrease) in trade and other payables
Cash generated from/(utilised by) operations
Taxation paid
Net cash inflow/(outflow) from operating activities
Investing activities
Investment revenues received
Acquisition of intangible assets
Acquisition of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Acquisition related earn-out paid
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 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
The re-statement of the cash flow statement for 2016 is explained in note 1.
2017
£000s
2016
Re-stated
£000s
Notes
(4,447)
(223)
1,626
(7)
1,033
(462)
(44)
218
2,875
–
(3)
546
1,335
(3,445)
(262)
2,753
381
(355)
1,027
(2)
877
(54)
419
586
–
(415)
(2)
274
2,487
(3,667)
(195)
(58)
(1,433)
(941)
26
(2,374)
3
(704)
(721)
(1,946)
(559)
11
2
(705)
(404)
(4,755)
–
31
(3,916)
(5,831)
2,900
(224)
(2)
20
(10)
2,684
(1,206)
4,424
23
3,218
9,185
(523)
(2)
–
(5)
8,655
450
3,974
4,424
42
Ergomed plc Annual Report and Accounts 2017
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2017
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 consideration
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
2017
£000s
2016
Re-stated
£000s
2015
Re-stated
£000s
16
17
19
20
21
23
25
26
436
96
39,618
678
40,828
15,902
288
16,190
153
24
34,082
457
34,716
11,808
930
12,738
57,018
47,454
4
8
10,557
342
10,911
6,824
1,407
8,231
19,142
(12,074)
(1,957)
(855)
(7,524)
–
(1,260)
(5,945)
–
(773)
(14,886)
(8,784)
(6,718)
1,304
3,954
1,513
26
20
(9,804)
(12)
(7,772)
(5)
–
(2)
(24,702)
(16,561)
(6,720)
32,316
30,893
12,422
27
28
29
30
30
428
20,616
11,008
2,674
3,693
(6,103)
406
17,957
10,264
1,829
2,550
(2,113)
288
9,361
2,981
1,092
(1,046)
(254)
32,316
30,893
12,422
The notes on pages 46 to 90 form an integral part of these financial statements.
The re-statement of the balance sheets for 2015 and 2016 are explained in note 1.
As permitted by Section 408 of the Companies Act 2006 the Income statement and 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 £4,050,000 (2016: £1,977,000).
Approved by the Board of Directors and authorised for issue on 14 May 2018.
S A Stamp
Director
Company Registration No. 04081094
43
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Balance at 31 December 2015
Prior period adjustment (note 1)
Balance at 31 December 2015 (re-stated)
Loss for the year (re-stated)
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 (re-stated)
Share-based payment charge for the year (re-
stated)
Deferred tax credit taken directly to equity
Balance at 31 December 2016 (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
–
–
–
66
51
1
–
–
406
–
–
–
18
3
1
–
–
Share
premium
account
£000s
9,361
–
9,361
–
–
–
8,596
–
–
–
–
17,957
–
–
–
2,659
–
–
–
–
Share-
based
payment
reserve
£000s
650
442
1,092
–
–
–
–
–
Merger
reserve
£000s
2,981
–
2,981
–
–
–
–
7,144
139
(140)
–
–
10,264
–
–
–
–
555
189
–
–
877
–
1,829
–
–
–
–
–
(188)
1,033
–
Translation
reserve
£000s
Retained
earnings
£000s
(1,046)
–
(1,046)
–
3,596
3,596
188
(442)
(254)
(1,977)
–
(1,977)
–
–
–
–
–
–
–
–
–
118
Total
£000s
12,422
–
12,422
(1,977)
3,596
1,619
8,662
7,195
–
877
118
2,550
–
1,143
(2,113)
(4,050)
–
30,893
(4,050)
1,143
1,143
(4,050)
(2,907)
–
–
–
–
–
–
–
–
–
60
2,677
558
2
1,033
60
Balance at 31 December 2017
428
20,616
11,008
2,674
3,693
(6,103)
32,316
44
Ergomed plc Annual Report and Accounts 2017
COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Cash flows from operating activities
Loss before taxation
Adjustment for:
Amortisation and depreciation
Share-based payment (credit)/charge
Exchange adjustments
Acquisition of shares for non-cash consideration
Revaluation of deferred consideration
Write-back of deferred consideration
Acquisition costs
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 generated by/(utilised by) operations
Taxation received
Net cash inflow/(outflow) from operating activities
Investing activities
Investment revenues
Acquisition of intangible assets
Acquisition of property, plant and equipment
Acquisition of subsidiaries
Acquisition related earn-out paid
Net cash outflow from investing activities
Financing activities
Issue of new shares
Expenses of fundraising
Net cash inflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at start of the year
Cash and cash equivalents at end of year
The re-statement of the cash flow statement for 2016 is explained in note 1.
Note
2017
£000s
2016
Re-stated
£000s
(4,183)
(1,920)
33
(106)
(186)
(462)
2,875
–
218
(3)
581
(1,233)
(4,299)
5,608
76
299
375
3
(278)
(100)
(2,759)
(559)
21
877
118
(54)
–
(415)
586
(1)
273
(515)
(4,938)
2,066
(3,387)
–
(3,387)
–
(150)
(34)
(5,568)
–
(3,693)
(5,752)
2,900
(224)
2,676
(642)
930
288
9,185
(523)
8,662
(477)
1,407
930
23
45
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies
Group
Ergomed plc is a public company limited by shares. Its registered address is 26-28 Frederick Sanger Road, Surrey Research
Park, Guildford, Surrey, GU2 7YD, UK. 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, The Netherlands, Czech Republic, 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 14 May 2018.
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.
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.
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.
46
Ergomed plc Annual Report and Accounts 2017
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 2019. 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)
IAS 16 and IAS 41 (amendments)
IAS 27 (amendments)
IFRS 10 and IAS 28 (amendments)
IFRS 10, IFRS 12 and IAS 28 (amendments)
Annual Improvements to IFRSs: 2012–2014 Cycle
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
Agriculture: Bearer Plants
Equity Method in Separate Financial Statements
Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture
Investment Entities: Applying the Consolidation Exemption
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.
Re-statement of prior year income statement, balance sheet and cash flow statement
Certain Directors, former Directors and the Company Secretary hold options over shares held by Dr Miroslav Reljanovic under
agreements between those parties. The grant and vesting of such options was dependent on their continued employment by
the Company. Although these options are not dilutive and the Company is not party to the arrangements, in accordance with
IFRS 2, a share-based payment charge arises. No such charge was shown in the financial statements for the years ended 31
December 2015 and 31 December 2016.
In November 2016, the Company acquired European PharmInvent Services s.r.o. Deferred consideration payable to the vendors
is dependent on their remaining employees of the group. The total amount payable to vendors for the year ended 31 December
2016 was charged to the income statement. However, a proportion of that deferred consideration is payable in equity. In
accordance with IFRS 2, this proportion should be treated as a share-based payment.
In 2016, the raw material and manufacturing costs of clinical trial material to be used in clinical studies were capitalised
and categorised as Clinical Trial Inventory. However, under IFRS, the raw material costs were not eligible for capitalisation.
Therefore, a prior year adjustment has arisen and the remaining capitalised amount is categorised as ‘Other current assets’.
47
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies continued
The impact on the Consolidated income statement, Consolidated balance sheet and Consolidated cash flow statement are set
out below.
Re-statement of prior year Consolidated income statement
Net service revenue
Reimbursement revenue
Revenue
Cost of sales
Reimbursable expenses
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 expense
Write-back of deferred consideration
Acquisition costs
Exceptional items
Research and development
Other operating income
Operating profit
Investment revenues
Finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Earnings/(loss) per share
Basic
Diluted
2016
Previously
reported
£000s
29,224
10,009
39,233
(17,230)
(10,009)
11,994
(10,483)
(8,323)
(771)
(398)
(690)
460
(584)
(177)
(1,040)
127
598
2
(274)
326
153
479
1.3p
1.3p
Adjustment
£000s
–
–
–
–
–
2016
Re-stated
£000s
29,224
10,009
39,233
(17,230)
(10,009)
–
(339)
11,994
(10,822)
–
–
(479)
140
–
–
–
(210)
–
(549)
–
–
(549)
–
(549)
(8,323)
(771)
(877)
(550)
460
(584)
(177)
(1,250)
127
49
2
(274)
(223)
153
(70)
(0.2)p
(0.2)p
48
Ergomed plc Annual Report and Accounts 2017
Re-statement of prior year Consolidated balance sheet
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments
Deferred tax asset
Current assets
Trade and other receivables
Clinical trial inventory
Other current assets
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
2016
Previously
reported
£000s
Adjustment
£000s
2016
Re-stated
£000s
12,285
19,842
717
271
1,448
34,563
14,958
450
–
4,424
19,832
54,395
(3)
(7,077)
(1,393)
(119)
(8,592)
–
–
–
–
–
–
–
(450)
240
–
(210)
(210)
12,285
19,842
717
271
1,448
34,563
14,958
–
240
4,424
19,622
54,185
–
–
–
–
–
(3)
(7,077)
(1,393)
(119)
(8,592)
11,240
(210)
11,030
(5)
(7,772)
(3,418)
(19,787)
–
–
–
–
(5)
(7,772)
(3,418)
(19,787)
34,608
(210)
34,398
406
17,957
10,264
1,048
143
4,790
–
–
–
781
–
(991)
406
17,957
10,264
1,829
143
3,799
34,608
(210)
34,398
49
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies continued
Re-statement of 2015 Consolidated balance sheet
2015
Previously
reported
£000s
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
Adjustment
£000s
2015
Re-stated
£000s
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
442
–
(442)
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
1,092
(537)
3,751
16,936
–
16,936
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
50
Ergomed plc Annual Report and Accounts 2017
Re-statement of prior year Consolidated cash flow statement
Cash flows from operating activities
Profit/(loss) before taxation
Adjustment for:
Amortisation and depreciation
Gain 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
Increase in other current assets
Decrease in trade and other payables
Cash utilised by operations
Taxation paid
Net cash outflow from operating activities
Investing activities
Investment revenues received
Acquisition of intangible assets
Acquisition of property, plant and equipment
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 from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of the year
Cash and cash equivalents at end of year
2016
Previously
reported
£000s
Adjustment
£000s
2016
Re-stated
£000s
326
(549)
(223)
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
4,424
–
–
479
–
–
(140)
–
–
–
(210)
–
405
(195)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,027
(2)
877
(54)
419
586
(415)
(2)
274
2,487
(3,667)
–
(195)
(58)
(1,433)
(941)
(2,374)
2
(705)
(404)
(4,755)
31
(5,831)
9,185
(523)
(2)
–
(5)
8,655
450
3,974
4,424
51
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies continued
Re-statement of prior year Company balance sheet
2016
Previously
reported
£000s
Adjustment
£000s
153
24
34,082
457
34,716
11,808
930
12,738
47,454
(7,524)
(1,260)
(8,784)
3,954
(7,772)
(5)
(16,561)
30,893
406
17,957
10,264
1,048
2,550
(1,332)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
781
–
(781)
2016
Re-stated
£000s
153
24
34,082
457
34,716
11,808
930
12,738
47,454
(7,524)
(1,260)
(8,784)
3,954
(7,772)
(5)
(16,561)
30,893
406
17,957
10,264
1,829
2,550
(2,113)
30,893
–
30,893
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
52
Ergomed plc Annual Report and Accounts 2017
Re-statement of 2015 Company balance sheet
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 tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Share-based payment reserve
Translation reserve
Retained earnings
Total equity
2015
Previously
reported
£000s
2015
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
9,361
2,981
650
(1,046)
188
12,422
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
442
–
(442)
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
1,092
(1,046)
(254)
–
12,422
53
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies continued
Re-statement of prior year Company cash flow statement
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 in cash and cash equivalents
Cash and cash equivalents at start of the year
Cash and cash equivalents at end of year
2016
Previously
reported
£000s
Adjustment
£000s
2016
Re-stated
£000s
(1,581)
(339)
(1,920)
21
398
118
(54)
(415)
726
(1)
273
(515)
(4,938)
2,066
(3,387)
–
(3,387)
(150)
(34)
(5,568)
(5,752)
9,185
(523)
8,662
(477)
1,407
930
–
479
–
–
–
(140)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
877
118
(54)
(415)
586
(1)
273
(515)
(4,938)
2,066
(3,387)
–
(3,387)
(150)
(34)
(5,568)
(5,752)
9,185
(523)
8,662
(477)
1,407
930
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
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.
54
Ergomed plc Annual Report and Accounts 2017
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.
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.
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.
55
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies continued
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 contracts
Customer relationships
Brand
Technology
In-process R&D
20-66.7% straight line
20-50% straight line
12-13.3% 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.
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.
56
Ergomed plc Annual Report and Accounts 2017
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 allowance account are recognised in
profit or loss.
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.
57
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
1. Accounting policies continued
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or
they expire.
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.
Amounts received from customers before the related work is performed are included in the Consolidated balance sheet as
deferred revenue. Amounts billed for work performed but not yet invoiced to the customer are included in the Consolidated
balance sheet under Trade and other receivables as accrued income.
Reimbursement revenue and reimbursable expenses
Reimbursable expenses are reflected in the Consolidated income statement as ‘Reimbursement revenue’ in total revenue and
as ‘Reimbursable expenses’ separately from cost of sales as the Company is the primary obligor for these expenses despite
being reimbursed by its clients. Reimbursable expenses are comprised primarily of payments to physicians (investigators)
who oversee clinical trials and travel expenses for our clinical monitors and other employees. Costs for such activities are
recorded based upon payment requests or invoices that have been received from third parties in the periods presented or
accrued based on patient recruitment. Reimbursed expenses may fluctuate from period-to-period due, in part, to the lifecycle
of contracts that are in progress at a particular point in time. Service revenues or revenues before reimbursements (‘net service
revenues’) include any margin earned on reimbursed expenses. When such an expense is not reimbursed, they are classified as
costs of sales on the Consolidated income statement.
Operating (loss)/profit
Operating (loss)/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.
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.
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Ergomed plc Annual Report and Accounts 2017
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.
The Group has acquired entities under terms which include equity-settled deferred consideration payable to vendors.
Where settlement of such deferred consideration is dependent on the continued employment by the Group of that vendor,
a share-based payment charge arises. The total amount to be expensed is determined by reference to the fair value of the
deferred consideration at the date of the acquisition. The total amount expensed is recognised over the period from date of
acquisition to the date the conditions are met for settlement of the deferred consideration.
Under IFRS 2, where such share options relate to employees of group companies other than the Company, a charge arises.
Where such charge is not reimbursed by the entity, a capital contribution arises.
Exceptional items
Significant non-recurring transactions undertaken by the Group during the year are classified as exceptional items.
Company
The financial statements have been produced in accordance with International Financial Reporting Standards, the Companies
Act 2006 and under the historical cost convention. The principal accounting policies adopted are the same as those for the
Group consolidated financial statements except as noted below.
Investments in subsidiaries are stated at cost less provision for impairment in value.
As permitted by Section 408 of the Companies Act 2006 the Income Statement and 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 £4,050,000 (2016: £1,977,000).
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Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
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.
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
Group
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 2017 was
£214,000 (2016: £1,016,000) (note 21).
Company
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 2017 was
£212,000 (2016: £1,013,000) (note 21).
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 key inputs for estimating the future cash flows of operating businesses are revenue growth over the next five years,
terminal revenue growth, working capital changes and discount rate.
PrimeVigilance, PharmInvent and Sound Opinion have been merged into a single cash generating unit. If revenue growth
rates (including terminal growth) are reduced to zero, there would be no impairment to goodwill.
If revenue growth rates for Ergomed Virtuoso were reduced by 20% (including terminal growth) from -10% to -30%, an
impairment to goodwill would be required.
If revenue growth rates for O+P and GASD were reduced by 3% from 5% to 2% and terminal growth rate from 2% to zero, an
impairment to goodwill would be required.
The key inputs for estimating the cash flows of Haemostatix, a development company, are the probabilities of clinical success,
expected market launch date, the expected royalty rate and the discount rate. The impact on the present value of Haemostatix
projected cash flows is as follows:
If the probability of clinical success at each stage of development is reduced by 14% (from Phase I 50%, Phase III 80%), an
impairment to goodwill would be required.
If the expected market launch date of PeproStat (2021) and ReadyFlow (2023) are each delayed by more than one year, an
impairment to goodwill would be required.
If the expected royalty rate was reduced by 3% from 20%, an impairment to goodwill would be required.
If the discount rate was increased by 3.2% from 19.7%, an impairment to goodwill would be required.
The impairment provision against goodwill as at 31 December 2017 was £nil (2016: £nil). The carrying amount of goodwill and
any impairment loss is disclosed in note 15.
60
Ergomed plc Annual Report and Accounts 2017
Fair value measurements
Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair
value of an asset or a liability, the Group uses market-observable data to the extent it is available, and management estimates
of commercial and development risk where appropriate. Where Level 1 inputs are not available, the Group engages third
party qualified valuers to perform the valuation. The Directors work closely with the qualified external valuers to establish the
appropriate valuation techniques and inputs to the model. This includes fair valued acquired intangible assets with a net value
of £18,217,000 and deferred consideration relating to acquisitions valued at £11,761,000.
Deferred consideration relates to the acquisitions of Haemostatix and PSR (note 26). The deferred consideration for
Haemostatix comprises milestones of up to £4.0 million at start of Phase III (dependent on the Company’s market
capitalisation); plus £16.0 million sales-based milestone payments and an additional sum in the event that the enlarged group is
able to utilise certain existing tax losses that are currently available to Haemostatix. The deferred consideration for Haemostatix
was revalued at the year-end giving rise to an increase in value of £2,875,000 reflecting the successful progress of PeproStat
through the Phase II study.
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
Licence revenue
Provision of drug safety and medical information services
Other operating income
Investment revenues
2017
£000s
24,782
370
22,472
47,624
118
41
47,783
2016
£000s
25,777
–
13,456
39,233
127
2
39,362
The provision of clinical research services includes the revenues of PSR following its acquisition by the Company on 2 October
2017.
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 (‘DS&MI’). All revenues arise from
direct sales to customers. The segment information reported below all relates to continuing operations. The CRS business
segment includes the results of PSR, which was acquired on 2 October 2017.
2017
Net service revenue
Licence revenue
Reimbursement revenue
2016
Net service revenue
Reimbursement revenue
Revenue from external customers
CRS
£000s
17,386
370
7,396
DS&MI
£000s
22,259
–
213
Total
£000s
39,645
370
7,609
25,152
22,472
47,624
Revenue from external customers
CRS
£000s
15,938
9,839
DS&MI
£000s
13,286
170
Total
£000s
29,224
10,009
25,777
13,456
39,233
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Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
4. Operating segments continued
Geographical information
The Group’s revenue from external customers by geographical location is detailed below:
Revenue from external customers
CRS
£000s
4,535
13,550
6,756
311
–
DS&MI
£000s
5,923
9,292
6,992
153
112
Total
£000s
10,458
22,842
13,748
464
112
25,152
22,472
47,624
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
CRS
£000s
25,152
655
DS&MI
£000s
Eliminations
£000s
Consolidated
total
£000s
22,472
19
–
(674)
47,624
–
25,807
22,491
(674)
47,624
CRS
£000s
631
DS&MI
£000s
Eliminations
£000s
4,376
7
Consolidated
total
£000s
5,014
(2,689)
(1,167)
(1,033)
(752)
(2,875)
(259)
(143)
(3,904)
3
(546)
(4,447)
(57)
(4,504)
2017
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
2016
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
2017
Revenue
Third party sales
Intersegment sales and recharges
Total revenue
Segment result
Research and development
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Deferred consideration for acquisitions expense
Revaluation of deferred consideration for acquisition
Acquisition costs
Exceptional items
Operating loss
Investment revenues
Finance costs
Loss before tax
Tax
Loss after tax
62
Ergomed plc Annual Report and Accounts 2017
2016
Revenue
Third party sales
Intersegment sales and recharges
Total revenue
Segment result
Research and development
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Deferred consideration for acquisition expense
Write-back of deferred consideration for acquisition
Acquisition costs
Exceptional items
Operating profit
Investment revenues
Finance costs
Loss before tax
Tax
Loss after tax
CRS
£000s
25,777
670
DS&MI
£000s
Eliminations
£000s
Consolidated
total
£000s
13,456
2
–
(672)
(672)
39,233
–
39,233
26,447
13,458
CRS
£000s
203
DS&MI
£000s
Eliminations
£000s
3,586
9
Consolidated
total
Re-stated
£000s
3,798
(1,250)
(771)
(877)
(550)
460
(584)
(177)
49
2
(274)
(223)
153
(70)
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
2017
£000s
12,703
22,140
2016
Re-stated
£000s
16,279
18,119
34,843
34,398
For the purposes of monitoring segment performance and allocating resources between segments, the Group’s Chief
Executive Officer monitors the net assets attributable to each segment. All assets are allocated to reportable segments.
Goodwill has been allocated to reportable segments as described in note 15.
Other segment information
CRS
DS&MI
Depreciation and
amortisation
Additions to non-current
assets
2017
£000s
727
899
1,626
2016
£000s
528
499
1,027
2017
£000s
603
822
1,425
2016
£000s
380
729
1,109
Information about major customers
In 2017, the Group had one customer that contributed 10% or more to the Group’s revenue. Revenues of approximately
£4,989,000 were recognised from this customer for clinical research services.
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.
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Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
5. Loss for the year
Loss 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 loss/(gain)
Gain on disposals of property, plant and equipment
Bad debt provision (reversed)/made during the year (note 21)
Staff costs (note 12)
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
2017
£000s
423
4
32
459
1,167
526
(7)
(834)
19,581
2016
Re-stated
£000s
231
5
20
256
771
(274)
(2)
855
11,839
2017
£000s
2016
£000s
161
161
33
33
128
128
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. Deferred consideration for acquisitions expense
PSR
PharmInvent
2017
£000s
1
751
752
2016
Re-stated
£000s
–
550
550
The terms of the acquisitions of PSR Group BV and European Pharminvent Services s.r.o. (now PrimeVigilance s.r.o.) included
provisions for deferred consideration payable in cash and in equity. Where that deferred consideration is contingent upon the
continued employment of the vendors, in accordance with IFRS 3, a charge through the income statement arises. The above
amounts relate to the element of deferred consideration that is reimbursable in cash and that is contingent on the continued
employment of the vendors. The element that is repayable in equity and that is contingent on the continued employment of
the vendors is included as part of share-based payments in accordance with IFRS 2 (note 31).
8. Acquisition costs
Acquisition of PSR (note 34)
Acquisition of Haemostatix
Acquisition of O+P and Ergomed CDS
Acquisition of PharmInvent
Acquisition of Sound Opinion
Other M&A activities
64
Ergomed plc Annual Report and Accounts 2017
2017
£000s
218
–
–
–
–
41
259
2016
£000s
–
370
85
118
7
4
584
9. Exceptional items
Severance costs relating to former CEO
Establishment of PrimeVigilance US office
2017
£000s
143
–
143
2016
£000s
–
177
177
In line with the way the Board and chief operating decision maker review the business, large one-off exceptional costs of
severance costs regarding the former CEO and the establishment of the subsidiaries in US are shown as exceptional items.
10. Investment revenues
Bank and other interest
11. Finance costs
Loan and other interest payable
Reversal of finance charges
Finance charge for deferred consideration for acquisitions
2017
£000s
3
2017
£000s
2
(37)
581
546
2016
£000s
2
2016
£000s
2
–
272
274
The finance charge for deferred consideration for acquisitions relates to the unwind of the discount used in the fair valuation of
deferred consideration for Haemostatix and PSR.
12. 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)
2017
Number
2016
Number
78
453
25
4
560
2017
£000s
16,651
2,607
323
19,581
52
296
18
4
370
2016
£000s
9,923
1,734
182
11,839
Disclosures relating to key management personnel are included within the Directors’ remuneration report on pages 26 to 28.
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Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
13. Taxation
Current tax
UK corporation tax credit for the year
Overseas corporation tax
Adjustment in respect of prior years
Current tax charge/(credit) for the year
Deferred tax
Origination and reversal of timing differences
Effect of changes in tax rates
Total tax charge/(credit) for the year
2017
£000s
2016
£000s
–
426
(31)
395
(338)
–
57
(181)
180
(16)
(17)
(40)
(96)
(153)
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:
Deferred tax
Change in estimated excess tax deductions related to share-based payments
Total income tax credit recognised directly in equity
2017
£000s
2016
£000s
(60)
(60)
(118)
(118)
The standard rate of tax for the year, based on the UK standard rate of corporation tax, is 19.25% (2016: 20%). The actual tax
charges for the years differ from the standard rate for the reasons set out in the following reconciliation.
Loss on ordinary activities before taxation
Tax on loss on ordinary activities at blended standard rate of 19.25% (2016: 20%)
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 charge/(credit) for the year
2017
£000s
(4,447)
(856)
1,347
(180)
(339)
–
(31)
(2)
–
109
9
57
2016
Re-stated
£000s
(223)
(45)
517
(449)
(64)
(181)
(13)
(3)
(80)
186
(21)
(153)
The Finance Act 2017, which provides for a reduction in the main rate of corporation tax from 20% to 19% effective from
1 April 2017, and from 19% to 17% effective from 1 April 2020 was substantively enacted on 16 November 2017. These rate
reductions have been reflected in the calculation of deferred tax at the balance sheet date.
14. Loss per share
The calculation of the basic and diluted earnings per share is based on the following data:
Loss for the purposes of basic earnings per share being net profit attributable to owners of the Company
Loss for the purposes of diluted earnings per share
2017
£000s
(4,504)
(4,504)
2016
£000s
(70)
(70)
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Ergomed plc Annual Report and Accounts 2017
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
Equity related earn-out
2017
£000s
2016
£000s
41,086,201
35,573,733
2,056,583
213,033
1,429,257
31,150
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
43,355,817 37,034,140
Loss per share
Basic
Diluted
15. Goodwill
Group
Cost
At 1 January 2016
Arising on acquisition of subsidiary
At 31 December 2016
Adjustments on amounts arising on acquisition of subsidiaries (note 33)
Arising on acquisition of subsidiaries (note 34)
Translation movement
At 31 December 2017
Accumulated impairment losses
At 1 January 2016, 1 January 2017 and 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
(11.0)p
(11.0)p
(0.2)p
(0.2)p
£000s
7,488
4,797
12,285
57
2,535
392
15,269
–
15,269
12,285
The goodwill arising during the year ended 31 December 2017 relates to an adjustment arising on the acquisition of
Haemostatix and to the acquisition of PSR on 2 October 2017.
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
Ergomed CDS
PSR
Drug Safety and Medical Information
2017
£000s
2016
£000s
2015
£000s
506
2,143
568
2,564
5,781
455
2,086
487
–
3,028
455
–
–
–
455
9,488
9,257
7,033
15,269
12,285
7,488
The goodwill associated with the Drug Safety and Medical Information segment has arisen from the acquisitions of
PrimeVigilance, Sound Opinion and PharmInvent. These businesses trade as a single cash generating unit and the associated
goodwill is combined.
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.
67
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
15. Goodwill continued
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 for the next five years, derived from the most recent financial budgets approved by
the Board, and forecasts 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 CRS segment. This rate does not exceed the average long
term growth rate for the relevant markets. The Ergomed Virtuoso Sarl CGU forecasts cash flows over the remaining life of the
Customer Contract using a terminal growth rate of 0%. The Haemostatix Limited CGU forecasts cash flows over the patent life
of the In-process research and development using a terminal growth rate of 0%.
The pre-tax rate used to discount the forecast cash flows from the CGUs of both the CRS and DS&MI segments is 19.7%.
Company
As at 31 December 2017, the Company does not hold any Goodwill.
16. Other intangible assets
Group
Cost
At 1 January 2016
Acquired with subsidiaries
Additions
Assets written-off
Re-allocation to tangible fixed assets
Translation movement
At 31 December 2016
Acquired with subsidiary (see note 34)
Additions
Translation movement
At 31 December 2017
Amortisation
At 1 January 2016
Charge for the year
Amortisation cost of acquired fair valued
intangible assets
Assets written-off
Translation movement
At 31 December 2016
Charge for the year
Amortisation cost of acquired fair valued
intangible assets
Translation movement
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Software
£000s
Customer
contracts
£000s
Customer
relationships
£000s
Brands
£000s
In-Process
R&D
£000s
Technology
£000s
Total
£000s
751
–
705
(18)
(2)
22
1,458
–
704
16
2,178
110
20
–
(18)
17
129
32
–
5
166
2,012
1,329
1,070
–
–
–
–
–
1,070
189
–
19
1,278
481
–
214
–
–
695
–
246
–
941
337
375
1,690
1,487
–
–
–
–
3,177
162
–
122
460
–
–
–
–
–
460
349
–
4
–
15,200
–
–
–
–
15,200
–
–
–
–
419
–
–
–
–
419
–
–
26
3,971
17,106
705
(18)
(2)
22
21,784
700
704
187
3,461
813
15,200
445
23,375
469
–
398
–
–
867
–
681
–
1,548
1,913
2,310
92
–
61
–
–
153
–
72
–
225
588
307
–
–
–
–
–
–
–
–
–
–
15,200
15,200
–
–
98
–
–
98
–
168
–
266
179
321
1,152
20
771
(18)
17
1,942
32
1,167
5
3,146
20,229
19,842
The intangible assets acquired with subsidiaries 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.
The intangible assets acquired with subsidiary during 2017 relate to the acquisition of PSR Group BV on 2 October 2017.
Included within Software is software under development with an asset value of £1,683,000 (2016: £1,125,000). The software is
currently still under construction and so no amortisation has been recognised in the current year.
68
Ergomed plc Annual Report and Accounts 2017
Company
Cost
At 1 January 2016
Translation movement
Additions
At 31 December 2016
Translation movement
Additions
At 31 December 2017
Amortisation
At 1 January 2016
Charge for the year
Translation movement
At 31 December 2016
Charge for the year
Translation movement
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Intangible assets represent software currently in use by the business.
17. Property, plant and equipment
Group
Cost
At 1 January 2016
Additions
Acquired with subsidiaries
Re-allocation from Intangible assets
Disposals
Translation movement
At 31 December 2016
Additions
Acquired with subsidiaries (note 34)
Re-allocations
Disposals
Translation movement
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
Disposals
Translation movement
At 31 December 2016
Charge for the year
Disposals
Translation movement
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Leasehold
improvements
£000s
Fixtures
and fittings
£000s
Motor
vehicles
£000s
Computer
equipment
£000s
Laboratory
equipment
£000s
53
17
–
2
–
8
80
19
–
–
(2)
5
102
30
10
–
4
44
15
(2)
4
61
41
36
81
67
5
–
–
14
167
109
5
(4)
(1)
11
287
35
34
–
6
75
38
–
4
117
170
92
68
9
145
–
(2)
12
232
61
–
14
(10)
22
319
22
25
–
4
51
84
(7)
7
135
184
181
535
269
35
–
(52)
89
876
521
27
(10)
(11)
37
1,440
315
158
(25)
56
504
279
(11)
21
793
647
372
–
42
3
–
–
–
45
11
–
–
–
–
56
–
9
–
–
9
11
–
–
20
36
36
Software
£000s
82
12
150
244
12
278
534
78
1
12
91
3
4
98
436
153
Total
£000s
737
404
188
2
(54)
123
1,400
721
32
–
(24)
75
2,204
402
236
(25)
70
683
427
(20)
36
1,126
1,078
717
69
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
17. Property, plant and equipment continued
Company
Cost
1 January 2016
Additions
Translation movement
At 31 December 2016
Additions
Translation movement
At 31 December 2017
Depreciation
1 January 2016
Charge for the year
Translation movement
At 31 December 2016
Charge for the year
Translation movement
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Included above are assets held under finance leases or hire purchase contracts as follows:
Group
Net book value
At 31 December 2017
At 31 December 2016
Depreciation charge for the year
Year ended 31 December 2017
Year ended 31 December 2016
Fixtures
and fittings
£000s
Computer
equipment
£000s
1
18
1
20
40
2
62
1
12
–
13
10
2
25
37
7
26
16
5
47
60
3
110
18
8
4
30
20
1
51
59
17
Total
£000s
27
34
6
67
100
5
172
19
20
4
43
30
3
76
96
24
Motor
Vehicles
£000s
39
32
6
5
Company
As at 31 December 2017, no assets in the above were held by the Company under finance leases or hire purchase contracts.
70
Ergomed plc Annual Report and Accounts 2017
18. 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.
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
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
Number of wholly owned
subsidiaries
Place of incorporation and
operation
2017
2016
Germany
Poland
Serbia
USA
Croatia
Russia
Bosnia
UAE
Switzerland
Taiwan
Netherlands
United Kingdom
Croatia
Serbia
USA
Czech Republic
United Kingdom
United Kingdom
2
1
1
1
1
1
1
1
1
1
1
2
1
1
1
2
1
1
3
1
1
1
1
1
1
1
1
1
–
2
1
1
1
2
1
1
The registered offices of the Company’s subsidiaries are as follows:
Company
Registered address
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
Ergomed CDS GmbH
PSR Group BV
PrimeVigilance Limited
PrimeVigilance Zagreb d.o.o.
PrimeVigilance d.o.o. Beograd
PrimeVigilance Inc
Sound Opinion Limited
PrimeVigilance s.r.o.
Pharminvent regulatory s.r.o.
Haemostatix Limited
Ergomed Clinical Research Limited
Herriotstraße 1, 60528 Frankfurt am Main, 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
Im Mediapark 2, D-50670 Cologne, Germany
Planetenweg 5 in (2132 HN) Hoofddorp, Netherlands
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
Prague 3 – Vinohrady, Slezska 856/74, 13000, Czech Republic
Prague 3 – Vinohrady, Slezska 856/74, 13000, Czech Republic
BioCity Nottingham, Pennyfoot Street, Nottingham, NG1 1GF, UK
26-28 Frederick Sanger Road, Surrey Research Park, Guildford, Surrey, GU2 7YD, UK
71
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
18. Subsidiaries continued
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.1
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
Ergomed CDS GmbH
PSR Group BV2
Principal activity – drug safety and medical information services
PrimeVigilance Limited
Sound Opinion Limited
PrimeVigilance s.r.o.
Principal activity – research and development
Haemostatix Limited
Principal activity – dormant
Ergomed Clinical Research Limited
Place of incorporation
and operation
Class
Holding
Germany
Poland
Serbia
Ordinary
Ordinary
Ordinary
USA None issued
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Germany None issued
Ordinary
Croatia
Russia
Bosnia
UAE
Switzerland
Taiwan
Netherlands
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Place of incorporation
and operation
Class
Holding
Ordinary
United Kingdom
United Kingdom
Ordinary
Czech Republic 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 The non-controlling interest is not disclosed as it is not material and does not take a benefit from the holding.
2 This company was acquired by the Company on 2 October 2017 (note 34).
There are no significant restrictions on the ability of the Group to access or use assets and settle liabilities.
19. Investments
Group
Cost
At 1 January 2016
Additions
Translation movement
At 31 December 2016
Additions
Translation movement
At 31 December 2017
Provision for impairment
At 31 December 2016 and 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
72
Ergomed plc Annual Report and Accounts 2017
Asarina
Pharma AB
£000s
Modus
Therapeutics
Holding AB
£000s
Ergomed
Saudi
Limited
£000s
–
–
–
–
280
3
283
–
283
–
144
54
30
228
181
17
426
–
426
228
39
–
4
43
–
2
45
–
45
43
Total
£000s
183
54
34
271
461
22
754
–
754
271
Company
Cost
At 1 January 2016
Additions
Translation movement
At 31 December 2016
Additions
Translation movement
At 31 December 2017
Provision for impairment
At 31 December 2016 and 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Capital
contribution
to subsidiary
undertakings
£000s
Shares in
subsidiary
undertakings
£000s
Asarina
Pharma AB
£000s
Modus
Therapeutics
Holding AB
£000s
Ergomed
Saudi
Limited
£000s
–
–
–
–
124
–
124
–
10,374
20,007
3,430
33,811
3,649
1,280
38,740
–
–
–
–
280
3
283
144
54
30
228
181
17
426
–
–
–
124
38,740
–
33,811
283
–
426
228
39
–
4
43
–
2
45
–
45
43
Total
£000s
10,557
20,061
3,464
34,082
4,234
1,302
39,618
–
39,618
34,082
Modus Therapeutics Holding AB
Under the co-development agreement with Modus Therapeutics 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 £181,000 (2016: £54,000)
were issued to the Group.
Asarina Pharma AB
Under the co-development agreement with Asarina Pharma AB, the Group receives shares in Asarina Pharma AB in return for
its contribution to the co-development programme. During the year, shares valued at £280,000 (2016: £nil) 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.
20. 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
1 January 2016
Acquired with subsidiaries
Charge to profit or loss
Credit direct to equity
At 31 December 2016
Fair value adjustment
Credit to profit or loss
Credit direct to equity
At 31 December 2017
Group
Timing
differences
£000s
Tax losses
£000s
3
–
(3)
–
–
–
–
–
–
362
1,015
(47)
118
1,448
(58)
163
60
1,613
Company
Timing
differences
£000s
Tax losses
£000s
3
–
(3)
–
–
–
–
–
–
339
–
–
118
457
–
161
60
678
Total
£000s
365
1,015
(50)
118
1,448
(58)
163
60
1,613
Total
£000s
342
–
(3)
118
457
–
161
60
678
73
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
20. Deferred tax continued
Deferred tax liabilities
1 January 2016
Acquired with subsidiaries
(Charge)/credit to profit or loss
At 31 December 2016
Acquired with subsidiaries
(Charge)/credit to profit or loss
At 31 December 2017
Group
Timing
differences
£000s
(392)
(3,145)
291
(3,246)
(175)
241
ACAs
£000s
(124)
–
(48)
(172)
–
(45)
Total
£000s
(516)
(3,145)
243
(3,418)
(175)
196
Company
Timing
differences
£000s
ACAs
£000s
(2)
–
(3)
(5)
–
(7)
Total
£000s
(2)
–
(3)
(5)
–
(7)
(12)
–
–
–
–
–
–
–
(217)
(3,180)
(3,397)
(12)
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
Deferred tax liabilities
Net deferred tax (liabilities)/assets
Group
Company
2017
£000s
1,613
(3,397)
(1,784)
2016
£000s
1,448
(3,418)
(1,970)
2017
£000s
678
(12)
666
2016
£000s
457
(5)
452
At 31 December 2017, the Group had unused tax losses of £6,615,000 (2016: £5,731,000) available for offset against future
profits. A deferred tax asset has been recognised in respect of £5,324,000 (2016: £5,639,000) of such losses. No deferred tax
asset has been recognised in respect of the remaining £1,291,000 (2016: £nil) as it is not considered probable that there will be
future profits available. These losses may be carried forward indefinitely.
Included in the deferred tax arising on timing differences, £674,000 (2016: £452,000) relates to a deferred tax asset arising on
unexercised share options.
21. Trade and other receivables
Trade receivables
Amounts receivable from Group companies
Other receivables
Prepayments
Accrued income
Corporation tax receivable
Group
Company
2017
£000s
13,390
–
1,702
733
2,443
982
19,250
2016
£000s
9,540
–
1,025
841
2,538
1,014
2017
£000s
6,743
6,714
884
183
1,378
–
2016
£000s
5,117
3,963
527
231
1,671
299
14,958
15,902
11,808
Included in trade receivables are the following amounts that are past due at the reporting date by the following periods.
Group
Company
2017
£000s
3,293
932
403
2,180
6,808
2016
£000s
1,795
1,588
105
221
3,709
2017
£000s
1,252
415
109
1,956
3,732
2016
£000s
964
161
98
138
1,361
Less than 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
More than 90 days overdue
74
Ergomed plc Annual Report and Accounts 2017
The decrease in provision for doubtful debts shown below gives rise to an increase in trade receivables more than 90 days
overdue of £834,000.
Movement in the provision for doubtful debts.
Balance at the beginning of the year
Impairment losses recognised
Acquired with subsidiaries
Provision (reversed)/made during the year
Translation movements
Group
Company
2017
£000s
1,016
–
–
(834)
32
214
2016
£000s
233
(116)
3
855
41
1,016
2017
£000s
1,013
–
–
(833)
32
212
2016
£000s
188
(72)
–
856
41
1,013
The carrying value of trade receivables approximates to their fair value at the balance sheet date.
The carrying values of the Group’s and the Company’s trade and other receivables are uncovered. The Group and the Company
have not pledged as security any of the amounts included in receivables.
22. Other current assets
Clinical trial material
Group
Company
2017
£000s
502
2016
£000s
240
2017
£000s
–
2016
£000s
–
Other current assets relates to the preparation of GMP material for use in the clinical development programmes of Haemostatix
Limited.
23. Cash and cash equivalents
Cash at bank
Group
Company
2017
£000s
3,218
2016
£000s
4,424
2017
£000s
288
2016
£000s
930
The effective interest rate at the balance sheet date on cash at bank was 0.005% (2016: 0.006%).
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
Group
Company
2017
£000s
185
1,890
383
760
3,218
2016
£000s
1,144
1,239
1,078
963
4,424
2017
£000s
67
200
1
20
288
2016
£000s
36
395
472
27
930
75
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
24. Borrowings
Group
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.
Company
As at 31 December 2017, the Company had no borrowings.
2017
2016
Capital
£000s
Interest
£000s
Capital
£000s
Interest
£000s
12
6
–
6
18
1
–
–
–
1
3
3
2
5
8
–
–
–
–
–
25. Trade and other payables
The carrying amount of the Group’s trade and other payables approximates to their fair value at the balance sheet date and
are uncovered.
Trade creditors
Amounts payable to related parties
Amounts payable to Group companies
Social security and other taxes
Other payables
Customer advances
Accruals
Group
Company
2017
£000s
4,942
418
–
1,113
1,186
751
2,307
10,717
2016
£000s
3,037
49
–
632
600
–
2,759
7,077
2017
£000s
2,541
401
7,163
178
417
–
1,374
12,074
2016
£000s
1,754
42
3,502
83
69
–
2,074
7,524
The carrying amount of the Group and Company’s trade and other payables approximates to their fair value at the balance
sheet date and are uncovered.
26. Deferred consideration
Due within one year
Haemostatix
Due after one year
Haemostatix
PSR
Group
Company
2017
£000s
2016
£000s
2017
£000s
2016
£000s
1,957
–
1,957
–
9,168
636
9,804
11,761
7,772
–
7,772
7,772
9,168
636
9,804
11,761
7,772
–
7,772
7,772
This amount relates to the fair value of the deferred consideration in relation to the acquisition of Haemostatix Limited and PSR
Group BV, being the Board’s best estimates based on discounted and risk adjusted forecasts.
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Ergomed plc Annual Report and Accounts 2017
27. Share capital
Allotted, called up and fully paid
Ordinary shares of £0.01 each
Balance at 1 January
Shares issued during the year (net of contingent shares)
Contingent shares for deferred consideration
Group
2017
No.
2016
No.
Company
2017
No.
2016
No.
40,599,424 28,750,000 40,599,424 28,750,000
11,754,806
94,618
11,754,806
94,618
2,081,389
101,163
2,081,389
101,163
Balance at 31 December
42,781,976 40,599,424 42,781,976 40,599,424
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
Group
Company
2017
£000s
2016
£000s
2017
£000s
2016
£000s
406
18
3
1
428
288
66
51
1
406
406
18
3
1
428
288
66
51
1
406
During 2017, a total of 2,176,007 ordinary shares of £0.01 each (‘Ordinary Shares’) were issued, of which 94,618 were shown as
contingent shares for deferred consideration in 2016, 1,757,576 were issued for cash in an institutional placing and 323,813 were
issued as part consideration for PSR Group BV. In addition, a further 100,818 Ordinary Shares will be issued to part satisfy the
second component of deferred consideration for PharmInvent and 345 Ordinary Shares will be issued to part satisfy the first
component of deferred consideration for PSR Group BV.
28. Share premium account
Allotted, called up and fully paid
Balance at 1 January
Shares issued for cash during the year
Expenses of share issue for cash during the year
Balance at 31 December
Group
Company
2017
£000s
2016
£000s
2017
£000s
2016
£000s
17,957
2,882
(223)
9,361
9,120
(524)
17,957
2,882
(223)
9,361
9,120
(524)
20,616
17,957
20,616
17,957
The share premium arising during 2017 related to the issue of 1,757,576 Ordinary Shares at a price of £1.65 per share on
2 October 2017 in connection with an institutional placing. Expenses of £223,000 relating to the issue of shares were deducted
from the Share premium account.
29. Merger reserve
Balance at 1 January
Shares issued for non-cash during the year
Contingent shares for deferred consideration
Balance at 31 December
Group
Company
2017
£000s
10,264
555
189
11,008
2016
£000s
2,981
7,144
139
10,264
2017
£000s
10,264
555
189
11,008
2016
£000s
2,981
7,144
139
10,264
The merger reserve arising during 2017 for non-cash consideration related to the issue of a total of 323,813, Ordinary Shares.
These were issued at £1.72 per share as part consideration for PSR Group BV.
In addition, 100,819 Ordinary Shares will be issued at £1.87 per share to part satisfy the second component of deferred
consideration for PharmInvent.and 346 shares will be issued at £1.72 to satisfy the first component of deferred consideration
for PSR Group BV.
77
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
30. Reserves
The movements in reserves of the Group are shown in the Consolidated statement of changes in equity and the movements in
reserves of the Company 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 31) 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.
31. 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.
In addition, arrangements are in place between Dr Miroslav Reljanovic, a shareholder of the Company, and certain Directors,
former Directors and the Company Secretary.
Under the terms of the acquisitions of PharmInvent in November 2016 and PSR Group BV in October 2017, a proportion of
deferred consideration is payable in equity. Where such deferred consideration is dependent on the relevant vendor remaining
as an employee of the acquired company, a share-based payment charge arises.
Share-based payment charges for the year arose as follows:
Ergomed plc Long Term Incentive Plan
Rolf Stahel Unapproved Executive Share Option Agreement
Non-dilutive share options
Deferred consideration for acquisitions
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
2017
£000s
550
4
175
304
1,033
2016
£000s
331
67
339
140
877
Included in the above share-based payment charges, £253,000 (2016: £474,000) relates to share option awards made to key
management personnel.
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.
At 31 December 2017, the following unexercised share options to acquire Ordinary Shares were outstanding:
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
78
Ergomed plc Annual Report and Accounts 2017
2017
2016
Number of
share
options
Weighted
average
exercise
price
Number of
share
options
2,038,000
257,000
(40,000)
£1.20 1,353,000
£1.407 835,000
£0.616 (150,000)
2,255,000
£1.217 2,038,000
172,357
172,357
26,429
26,429
Weighted
average
exercise
price
£1.64
£0.56
£1.625
£1.20
At 31 December 2017, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2015
2015
2016
2016
2016
2016
2016
2017
2017
2017
Exercise period
Exercise
price
per share
2017
No.
2016
No.
03/06/2018 – 02/06/2025
£1.625 913,000 928,000
03/06/2018 – 23/12/2025
£1.69 275,000 275,000
11/01/2019 – 10/01/2026
£0.01 200,000 200,000
11/01/2019 – 10/01/2026
£0.01 200,000 200,000
02/08/2016 – 02/06/2026
£1.39
185,000
185,000
03/07/2016 – 02/06/2026
£0.01
100,000 100,000
03/01/2017 – 02/12/2026
£1.39 150,000 150,000
24/02/2020 – 23/02/2027
£2.10 155,000
29/04/2017 – 28/03/2027
16/04/2020 – 11/04/2027
£0.01
£0.01
27,000
50,000
–
–
–
The weighted average remaining life was eight years (2016: eight years and ten months).
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
Award date
Fair value per share option
Share price
Exercise price
Volatility
Expected life
Expected dividends
Risk free rate
24 February
2017
29 March
2017
12 April
2017
12 April
2017
£0.3267
£2.09
£2.10
25.38%
3 years
1.0%
0.7%
£1.9410
£1.9016
£1.9404
£1.97
£1.97
£0.01
£0.01
£0.01
£1.39
26.3%
25.4%
25.2%
1 year 0.97 years 3.01 years
1.0%
1.0%
0.18%
0.08%
1.0%
0.12%
11 January
2016
11 January
2016
3 July
2016
3 July
2016
3 December
2016
£1.6327 £0.4300
£1.693
£0.01
27%
£0.1441
£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%
£1.1791
£1.21
£0.01
28%
£0.2493
£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
£0.4468
£1.625
£1.625
28%
5 years
0%
1.52%
£0.4238
£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 £550,000 related to equity-settled share-based payment transactions in the year ended 31 December
2017 (2016: £331,000).
79
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
31. Share-based payments continued
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
2017
2016
Number of
share
options
1,000,000
1,000,000
1,000,000
Weighted
average
exercise
price
£0.01
Number of
share
options
1,000,000
1,000,000
1,000,000
Weighted
average
exercise
price
£0.01
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 2017
(2016: £nil).
At 31 December 2017, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2009
Exercise period
Exercise
price
per share
2017
No.
2016
No.
31/01/2009 – 30/12/2019
£0.01
1,000,000
1,000,000
The weighted average remaining life was two years (2016: three 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
2017
2016
Number of
share
options
1,260,000
–
1,260,000
1,260,000
1,260,000
Weighted
average
exercise
price
£1.60
–
£1.60
Number of
share
options
1,260,000
–
1,260,000
1,120,000
1,120,000
Weighted
average
exercise
price
£1.60
–
£1.60
All of the total amount of options awarded have vested by 31 December 2017, representing 1,260,000 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 2017, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2014
Exercise period
Exercise
price
per share
2017
No.
2016
No.
18/04/2014 – 17/04/2024
£1.60 1,260,000
1,260,000
The weighted average remaining life was six years and four months (2016: seven years and four months).
80
Ergomed plc Annual Report and Accounts 2017
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
£0.4779
£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 £4,000 (2016: £67,000). There are no outstanding liabilities.
Non-dilutive share options
Agreements are in place whereby certain employees and former employees hold options over shares held by Dr Miroslav
Reljanovic. The grant of such options was related to their employment by the Company.
At 31 December 2017, the following unexercised share options to acquire Ordinary Shares were outstanding:
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
2017
2016
Number of
share
options
602,940
–
602,940
552,940
552,940
Weighted
average
exercise
price
£0.01
–
£0.01
Number of
share
options
352,940
250,000
602,940
427,940
427,940
Weighted
average
exercise
price
£0.01
£0.01
£0.01
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
Award date
Fair value per share option
Share price
Exercise price
Volatility
Expected life
Expected dividends
Risk free rate
30 November
2016
30 November
2016
30 November
2016
30 November
2016
£1.3884
£1.40
£0.01
26.5%
0.1 years
1.0%
0.2%
£1.3746
£1.40
£0.01
26.5%
1.1 years
1.0%
0.11%
£1.39
£1.40
£0.01
n/a
0 years
n/a
n/a
20 July
2015
£1.74
£1.75
£0.01
n/a
0 years
n/a
n/a
£1.3761
£1.40
£0.01
26.5%
1 year
1.0%
0.11%
20 July
2015
£1.7226
£1.75
£0.01
23.4%
1 year
1.0%
0.5%
81
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
31. 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 £175,000 related to equity-settled share-based payment transactions in the year ended 31 December 2017
(2016 restated: £339,000).
At 31 December 2017, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2015
2015
2016
2016
2016
2016
Exercise period
20/07/2015 - 19/07/2025
20/07/2016 - 19/07/2025
30/11/2016 - 29/11/2026
30/11/2017 - 29/11/2026
11/01/2017 - 29/11/2026
11/01/2018 – 29/11/2026
Exercise
price
per share
£0.01
£0.01
£0.01
£0.01
£0.01
£0.01
2017
No.
176,470
176,470
75,000
75,000
50,000
50,000
2016
No.
176,470
176,470
75,000
75,000
50,000
50,000
The weighted average remaining life was nine years and one month (2016: eight years and one month).
Deferred consideration for acquisitions
The terms of the acquisitions of PSR Group BV and European Pharminvent Services s.r.o. (now PrimeVigilance s.r.o.) included
provisions for deferred consideration payable in cash and in equity. Where that deferred consideration is contingent upon the
continued employment of the vendors, in accordance with IFRS 3, a charge through the income statement arises. The element
that is repayable in equity and that is contingent on the continued employment of the vendors is included as part of share-based
payments in accordance with IFRS 2. A charge of £304,000 arises in the year ended 31 December 2017 (2016 re-stated: £140,000).
The element that is repayable in cash and that is contingent on the continued employment of the vendors is charged
separately to the income statement and is shown a deferred consideration for acquisitions expense (note 7).
32. 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.
Financial instruments carried at fair value by valuation method
The tables below analyse financial instruments carried at fair value and at contractual amount. The valuation method was
Level 3, being where inputs for the liability that are not based on observable market data (i.e. unobservable inputs).
Group
Due within one year
Deferred consideration
Due after one year
Deferred consideration
2017
2016
Fair value
Level 3
£000s
Contractual
amount
£000s
Fair value
Level 3
£000s
Contractual
amount
£000s
1,957
4,000
–
–
9,804
17,330
11,761
21,330
7,772
7,772
20,453
20,453
82
Ergomed plc Annual Report and Accounts 2017
Company
Due within one year
Deferred consideration
Due after one year
Deferred consideration
Movements in level 3 liabilities were as follows:
Cost
At 1 January 2016
Arising on acquisition
Finance charge
Translation movement
At 31 December 2016
Arising on acquisition
Finance charge
Amounts settled
Revaluation
Translation movement
At 31 December 2017
2017
2016
Fair value
Level 3
£000s
Contractual
amount
£000s
Fair value
Level 3
£000s
Contractual
amount
£000s
1,957
4,000
–
–
9,804
17,330
11,761
21,330
7,772
7,772
20,453
20,453
Group
£000s
Company
£000s
–
7,495
272
5
7,772
1,109
581
(585)
2,875
9
–
7,495
272
5
7,772
1,109
581
(585)
2,875
9
11,761
11,761
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.
Group
31 December 2017
Financial assets
Investments
Trade receivables
Other receivables
Accrued income
Cash and cash equivalents
Financial liabilities
Finance leases
Trade creditors
Amounts payable to related parties
Other payables
Customer advances
Accruals
Deferred consideration
Financial
instruments
at fair value
through
profit and
loss
£000s
Loans and
receivables
£000s
Current
financial
liabilities at
fair value
through
profit and
loss
Non-current
financial
liabilities at
fair value
through
profit and
loss
Non-current
financial
liabilities at
amortised
cost
Current
financial
liabilities at
amortised
cost
£000s
£000s
£000s
£000s
709
–
–
–
–
709
–
13,390
282
1,884
3,218
18,774
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
4,942
418
1,186
751
2,307
–
9,616
–
–
–
–
–
–
–
–
–
–
–
–
–
1,957
1,957
–
–
–
–
–
–
–
–
–
–
–
–
–
9,804
9,804
–
–
–
–
–
–
6
–
–
–
–
–
–
6
Carrying
amount
£000s
Fair value
£000s
709
13,390
282
1,884
3,218
709
13,390
282
1,884
3,218
19,483
19,483
18
4,942
418
1,186
751
2,307
11,761
18
4,942
418
1,186
751
2,307
11,761
21,383
21,383
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Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
Loans and
receivables
£000s
–
9,540
198
2,233
4,424
16,395
–
–
–
–
–
–
–
Loans and
receivables
£000s
–
6,743
6,714
76
831
288
14,652
Non-current
financial
liabilities at
fair value
through
profit and
loss
Current
financial
liabilities at
amortised
cost
Non-current
financial
liabilities at
amortised
cost
£000s
£000s
£000s
–
–
–
–
–
–
3
3,037
49
600
2,759
–
6,448
–
–
–
–
–
–
–
–
–
–
–
7,772
7,772
–
–
–
–
–
–
5
–
–
–
–
–
5
Current
financial
liabilities at
fair value
through
profit and
loss
£000s
Non-current
financial
liabilities at
fair value
through
profit and
loss
£000s
Current
financial
liabilities at
amortised
cost
£000s
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,541
401
7,163
417
1,374
–
11,896
–
–
–
–
–
–
–
–
–
–
–
–
1,957
1,957
–
–
–
–
–
–
–
–
–
–
–
–
9,804
9,804
Carrying
amount
£000s
Fair value
£000s
228
9,540
198
2,233
4,424
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
Carrying
amount
£000s
Fair value
£000s
709
6,743
6,714
76
831
288
709
6,743
6,714
76
831
288
15,361
15,361
2,541
401
7,163
417
1,374
11,761
2,541
401
7,163
417
1,374
11,761
23,657
23,657
32. Financial instruments continued
31 December 2016
Financial assets
Investments
Trade receivables
Other receivables
Accrued income
Cash and cash equivalents
Financial liabilities
Finance leases
Trade creditors
Amounts payable to related parties
Other payables
Accruals
Deferred consideration
Company
31 December 2017
Financial assets
Investments
Trade receivables
Amounts receivable from Group companies
Other receivables
Accrued income
Cash and cash equivalents
Financial liabilities
Trade creditors
Amounts payable to related parties
Amounts payable to Group companies
Other payables
Accruals
Deferred consideration
Financial
instruments
at fair value
through
profit and
loss
£000s
228
–
–
–
–
228
–
–
–
–
–
–
–
Financial
instruments
at fair value
through
profit and
loss
£000s
709
–
–
–
–
–
709
–
–
–
–
–
–
–
84
Ergomed plc Annual Report and Accounts 2017
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 payable to related parties
Amounts payable to Group companies
Other payables
Accruals
Deferred consideration
Financial
instruments
at fair value
through
profit and
loss
£000s
228
–
–
–
–
–
228
–
–
–
–
–
–
–
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
Carrying
amount
£000s
Fair value
£000s
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,754
42
3,502
69
2,074
–
7,441
–
–
–
–
–
–
–
–
–
–
–
–
7,772
7,772
228
5,117
3,963
54
1,366
930
11,658
1,754
42
3,502
69
2,074
7,772
15,213
228
5,117
3,963
54
1,366
930
11,658
1,754
42
3,502
69
2,074
7,772
15,213
The Group’s financial assets held for managing liquidity risk, being loans and receivables, 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. 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
Group
Company
2017
£000s
2,356
8,214
6,914
1,999
2016
£000s
2,487
6,396
5,797
1,943
2017
£000s
3,877
6,771
3,857
762
19,483
16,623
15,267
2016
£000s
2,504
5,997
2,858
299
11,658
Group
Company
2017
£000s
12,288
4,554
2,788
1,753
21,383
2016
£000s
9,026
4,032
170
997
2017
£000s
15,170
8,008
669
731
14,225
24,578
2016
£000s
8,586
6,295
179
153
15,213
85
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
32. Financial instruments continued
Foreign currency sensitivity analysis
The Group is mainly exposed to the GBP currency, Euro currency and the US Dollar currency.
The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling, being the reporting currency,
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 financial 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.
2017
Euro
USD
Other
2016
Euro
USD
Other
Group
Company
Strengthen
+10%
£000s
Weaken
-10%
£000s
Strengthen
+10%
£000s
Weaken
-10%
£000s
(333)
(375)
(22)
(730)
407
459
27
893
112
(289)
(3)
(180)
(137)
354
3
220
Group
Company
Strengthen
+10%
£000s
Weaken
-10%
£000s
Strengthen
+10%
£000s
Weaken
-10%
£000s
(215)
(511)
(86)
(812)
263
625
105
993
27
(243)
(13)
(229)
(33)
298
16
281
Interest rate risk management
The Group and the Company are 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.
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 and 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 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 significant 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.
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Ergomed plc Annual Report and Accounts 2017
Liquidity and interest risk tables
The Group and 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 Group and
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.
33. 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.
Goodwill in relation to the acquisition of Haemostatix was increased by £57,000 during the period, following a re-assessment
of the deferred tax asset arising on the transaction during the measurement period, which ended on 23 May 2017.
The adjustment to the amounts 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 receivables
Other assets
Cash and equivalents
Current assets
Trade and other payables
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
Fair
valuation
£000s
Fair value
adjustments
£000s
15,200
4
1,015
16,219
164
45
63
272
(1,365)
(2,736)
(4,101)
12,390
2,086
14,476
800
6,181
7,495
14,476
800
(63)
370
1,107
–
–
(57)
(57)
–
–
–
–
–
–
–
(57)
57
–
–
–
–
–
–
–
–
–
Final
valuation
£000s
15,200
4
958
16,162
164
45
63
272
(1,365)
(2,736)
(4,101)
12,333
2,143
14,476
800
6,181
7,495
14,476
800
(63)
370
1,107
87
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
34. Acquisition of subsidiary – PSR Group BV
On 2 October 2017, Ergomed plc acquired 100% of the issued share capital of PSR Group BV, a full service specialist orphan
drug CRO, based in Amsterdam, Netherlands. The acquisition of PSR enhances Ergomed’s ability in running complex orphan
drug development programs. The amounts provisionally recognised in respect of the identifiable assets acquired and liabilities
assumed are as set out in the table below.
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 receivables
Cash and equivalents
Current assets
Trade and other payables
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
Payments in to escrow
Transaction expenses
Book values
£000s
Fair value
adjustments
£000s
Final
valuation
£000s
–
32
32
879
812
1,691
(1,060)
(74)
–
(1,134)
589
3,060
3,649
1,982
558
1,109
3,649
1,982
(812)
558
218
1,946
700
–
700
–
–
–
–
–
(175)
(175)
525
(525)
–
–
–
–
–
–
–
–
–
–
700
32
732
879
812
1,691
(1,060)
(74)
(175)
(1,309)
1,114
2,535
3,649
1,982
558
1,109
3,649
1,982
(812)
558
218
1,946
The provisional fair value of intangible assets relates to Customer Relationships of £162,000, Orders Backlog of £189,000
and the Trade Name of £349,000. The provisional fair value of the financial assets includes receivables with a fair value of
£879,000 and a gross contractual value of £879,000. The best estimate at acquisition date of the contractual cash flows not to
be collected is £nil.
Goodwill is provisionally valued at £2,535,000. 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
between £nil and an aggregate maximum undiscounted amount of £2,806,000, 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
1 October 2018.
PSR contributed revenues of £977,000 and profit before tax of £38,000 to the results of the group for the year. If
the acquisition of PSR had been completed on the first day of the financial year, group revenues for the year ended
31 December 2017 would have been £3,302,000 higher and group profit before tax would have been £309,000 higher.
88
Ergomed plc Annual Report and Accounts 2017
35. Financial commitments
At 31 December 2017 the Group was committed to making the following payments under non-cancellable operating leases
which fall due as follows:
Group
Within one year
Between two and five years
Land and buildings
Other
2017
£000s
847
2,105
2,952
2016
£000s
663
459
1,122
2017
£000s
161
266
427
2016
£000s
128
185
313
At 31 December 2017 the Company was committed to making the following payments under non-cancellable operating leases
which fall due as follows:
Company
Within one year
Land and buildings
Other
2017
£000s
54
2016
£000s
35
2017
£000s
–
2016
£000s
4
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 £323,000 (2016: £182,000). Contributions
payable to the schemes at 31 December 2017 were £185,000 (2016: £193,000).
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 £57,000 (2016: £43,000). Contributions
payable to the schemes at 31 December 2017 were £nil (2016: £25,000).
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 £266,000 (2016: £240,000) by Ergomed
d.o.o. and its subsidiaries in respect of clinical research costs and other administrative services. At 31 December 2017 a balance
of £40,000 was owed by the Company and its subsidiaries to Ergomed d.o.o. and its subsidiaries in respect of these costs
(2016: £37,000). In addition, during 2016, the Group sold medical equipment to a subsidiary of Ergomed d.o.o. for £33,000.
There were no such sales in 2017.
Chesyl Pharma Limited is a company owned by Rolf Stahel, who was a Director and shareholder of the Company. During
the year, the Company was charged consultancy fees of £15,000 (2016: £52,000) in relation to the services of Rolf Stahel,
included in the remuneration paid to Rolf Stahel. At 31 December 2017, amounts payable to Chesyl Pharma in relation to such
consultancy services and associated expenses were £nil (2016: £12,000).
Under the terms of the acquisition of European PharmInvent Services s.r.o. (now PrimeVigilance s.r.o.), Dr Jan Petracek,
who was a shareholder of that company and became a Director during the year and is a shareholder of the Company, was
entitled to deferred consideration. During the year £472,000 was charged to the income statement in relation to this deferred
consideration and was payable in cash and equity at 31 December 2017.
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.
89
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2017
38. EBITDA and EBITDA (adjusted)
Operating (loss)/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 acquisitions expense
Revaluation of deferred consideration for acquisition
Write-back of deferred consideration for acquisition
Acquisition costs
Exceptional items
EBITDA (adjusted)
2017
£000s
(3,904)
459
1,167
(2,278)
1,033
752
2,875
–
259
143
2016
Re-stated
£000s
49
256
771
1,076
877
550
–
(460)
584
177
2,784
2,804
The Directors make certain adjustments to EBITDA to derive adjusted EBITDA which they consider more reflective of the
Group’s underlying trading performance and enables comparisons to be made with prior periods. Certain items, such as share-
based payment charge, revaluation of deferred consideration for acquisition and write-back of deferred consideration for
acquisition are non-cash items and reflect adjustments to expected future deferred consideration payments.
Deferred consideration for acquisitions expense relates to the cash component of deferred consideration which is payable
contingent on the continued employment of the vendors (note 7). These costs, together with acquisition costs and exceptional
items, are all cash costs but are not considered trading items and therefore not included in adjusted EBITDA.
39. Adjusted earnings per share
Loss for the purposes of basic earnings per share being net profit attributable to owners of the Company
Loss for the purposes of diluted earnings per share
Adjust for:
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Deferred consideration for acquisitions expense
Revaluation of 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
2017
£000s
(4,504)
(4,504)
1,167
1,033
752
2,875
–
259
143
1,725
4.2p
4.0p
2016
Re-stated
£000s
(70)
(70)
771
877
550
–
(460)
584
177
2,429
6.8p
6.6p
40. Subsequent events
On 1 February 2018, the Company completed a placing whereby 2,029,971 ordinary shares of 1p each were issued at a price of
£1.90 per share.
90
Ergomed plc Annual Report and Accounts 2017
NOTES
91
Ergomed plcAnnual Report and Accounts 2017Financial statementsGovernanceStrategic report NOTES
92
Ergomed plc Annual Report and Accounts 2017
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Ergomed plc
The Surrey Research Park
26 Frederick Sanger Road
Guildford
Surrey
GU2 7YD
www.ergomedplc.com