TRANSFORMING DRUG DEVELOPMENT
Annual Report and Accounts 2018
Introduction
ERGOMED PROVIDES
SPECIALISED SERVICES TO THE
PHARMACEUTICAL INDUSTRY
Our offering spans all phases of clinical
development, post-approval pharmacovigilance
and medical information services.
Ergomed’s fast-growing, profitable services business
includes a comprehensive suite of specialist
pharmacovigilance solutions and a full range of
high-quality clinical research and trial management
services, with a focus on orphan drug development.
For further information, visit:
www.ergomedplc.com
In this Annual Report, “Ergomed”, the Group, we, us and our refer to Ergomed
plc and its consolidated subsidiaries. The parent company Ergomed plc, is
referred to as Ergomed plc or the “ Company”.
Financial Statements
34
Independent auditor’s report
39 Consolidated income statement
40 Consolidated statement of
comprehensive income
41 Consolidated balance sheet
42 Consolidated statement of
changes in equity
43 Consolidated cash flow statement
44 Company balance sheet
45 Company statement of
changes in equity
46 Notes to the financial statements
Total Revenue
£27.5m
Strategic Report
01 Highlights
02 At a glance
04 Company overview
09 Executive Chairman’s Review
12 Chief Financial Officer’s Review
14 Strategy
16 Strategy in action
18 Financial Review
20 Principal risks
Governance
22 Board of Directors
24 Corporate Governance Statement
29 Audit and Compliance Committee
report
30 Remuneration Committee report
32 Directors’ report
£26.6m
Pharmacovigilance:
£27.5 million
Clinical Research
Organisation Services:
£26.6 million
Strategic report
Governance
Financial statements
CONTINUED GROWTH
Financial Highlights
As reported
Revenue
£54.1m
+13%
Under IAS 182
Revenue
£54.9m
+15%
EBITDA (adjusted)1
EBITDA (unadjusted)
£2.3m
-£0.5m
£(7.9)m
-£5.6m
EBITDA (adjusted)1
EBITDA (unadjusted)
£3.1m
+£0.3m
£(7.1)m
-£4.8m
Contracted Order
Backlog
£109.2m
+21%
Contracted Order
Backlog
£106.1m
+20%
Revenue of £54.1 million, equivalent to £54.9 million under IAS 18, increased by
15% on a comparable basis (2017: £47.6 million)
Pharmacovigilance revenue growth of 23% to £27.5 million (2017: £22.5 million)
EBITDA (adjusted)1 was £2.3 million (2017: £2.8 million) equivalent to £3.1 million
on a comparable basis, representing growth of 11%
Unadjusted EBITDA loss of £7.9 million, which is £7.1 million on an IAS 18 equivalent
(2017: loss of £2.3 million) after a £6.8 million charge including the full impairment
of the Haemostatix business
Cost reduction programme implemented H2 2018; expected to provide
approximately £4.0 million improvement in profitability on annualised basis
Significant turnaround in profitability in second half with H2 2018 adjusted EBITDA
of £2.7 million vs H1 2018 £(0.4) million
Haemostatix assets fully impaired in line with continued focus on services
businesses
Institutional placing raising gross proceeds of £3.8 million for potential acquisitions, capital
expenditure and working capital (February 2018)
Cash and cash equivalents of £5.2 million as at 31 December 2018 (2017: £3.2 million)
New contracts won in 2018 up 34% with a contract value of £72.5 million
(2017: £54.2 million)
Strong backlog of £109 million contracted revenue as of 1 January 2019
(1 January 2018: £88.2 million)
Operational and other highlights, including post year-end
Orphan drug development strategy gaining momentum – 37% 0f new business
won in our Clinical Research Organisation (CRO) Services business was for orphan drugs
Established pharmacoepidemiology service as part of pharmacovigilance offering,
establishing another premium service
Acquisition of two bolt-on UK pharmacovigilance service providers; Harefield
Pharmacovigilance Limited and Pharmacovigilance Services Limited
Asarina Pharma AB, a co-development partner, completed a public offering and
listing on the Nasdaq First North exchange
Michael Spiteri appointed Non-Executive Director to help drive digitization and
automation strategy
Dr Miroslav Reljanović elected as Executive Chairman
Notes:
1. EBITDA (adjusted) and adjusted EPS are alternative performance measures (see page 19). Adjustments are made
to EBITDA for share-based payment charge, deferred consideration for acquisitions relating to post acquisition
remuneration, revaluation of contingent consideration for acquisition, acquisition costs and exceptional items.
IAS 18 (Revenue Recognition) was the accounting standard applicable to the Group’s revenue recognition policy
prior to the adoption of IFRS 15 (Revenue from Contracts with Customers) Refer to note 1 on page 48.
2
Ergomed plc Annual Report and Accounts 2018
01
At a glance
WE ASSIST OUR CLIENTS
BY PROVIDING FULL-SERVICE SOLUTIONS
What we do
Ergomed offers a comprehensive suite of specialised
services to the pharmaceutical industry. In our Clinical
Research Organisation (CRO) Services division, we
undertake on behalf of our clients all facets of clinical
trial management from Phase I to IV. In our
Pharmacovigilance division we provide a full range of
services related to patient safety, including case
management, signal management, risk management,
pharmacoepidemiology, audits, services of qualified
persons for pharmacovigilance, training, strategic
advisory, literature searches and medical information.
Our geographical reach
180+
active clients
600+
150,000
studies completed
patients studied
53
countries with
active clinical trials
700+
employees
150,000+
adverse event cases
processed p.a.
North American region
European region
MENA region
Global
As a full-service global contract
research organisation (‘CRO'),
Ergomed’s Boston office act as a
base of operations for our North
American staff. Ergomed’s flexible
service model allows for us to
provide complete solutions for the
world’s largest pharmaceutical
market, while also allowing us
to assist North American based
companies complete trials in
their quest to develop therapies
across the globe. As well as
pharmacovigilance management
and commercial staff, PrimeVigilance
has a call centre based in the Boston
office serving North and South
America for medical information
services, thus providing a platform
for intake of adverse event reports
and product complaints.
With deep European roots, Ergomed
has offices strategically located to
maximise relationships with leading
sites and thought leaders. Our
experienced Regulatory Team has an
in-depth knowledge of the country-
specific regulatory requirements
for clinical trials globally. We have
developed a database of country-
specific requirements, allowing
us to forecast start-up timelines
confidently as well as pre-empt
any potential challenges with
study approvals. PrimeVigilance
is headquartered in the UK, with
EU operational hubs in Croatia,
Czech Republic, Germany and
Serbia, providing quality services,
while reducing overheads. We
also employ key opinion leaders
and former regulators with a deep
understanding of pharmacovigilance.
We are also the leading provider of
EU Qualified Persons responsible
for Pharmacovigilance, who
fulfil specific responsibilities
laid down in EU regulation.
We offer our clients access to
patients in the Middle East and
Northern Africa (‘MENA') region.
Ergomed is one of the few CROs that
has dedicated actual resources in
MENA. We established our presence
in the MENA region in Dubai, UAE.
As part of our full-service offering,
we have operational staff in Algeria,
Morocco, Egypt, Iran, Lebanon,
Turkey, Oman, United Arab Emirates
and Saudi Arabia, In addition
we have staff in South Africa.
Asia-Pacific region
The Asia-Pacific region represents
one of the fastest growing
regions in the clinical research
industry. Ergomed is expanding
our full-service offering to serve
this region, which will allow it
to offer our clients complete
solutions for their unique needs.
PrimeVigilance manages a
global pharmacovigilance
system, stretching to more
than 100 countries, including
the provision of Local Contact
Persons for Pharmacovigilance
in over 60 countries, as well as
the management of Safety Data
Exchange Agreements with
our clients’ global Affiliate and
Distribution networks. We are
responsible for submitting safety
reports to all Regulatory Authorities
where our clients distribute their
medicinal products. We are
developing strategic collaborations
globally with existing service
providers and key opinion leaders,
to ensure that we can provide
depth of local expertise as well as
operational solutions for specific
language requirements to further
enable global solutions for clients.
02
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Our areas of operation
Pharmacovigilance
Clinical Research Organisation
(CRO) Services
PrimeVigilance is a dedicated pharmacovigilance, regulatory
and medical information service provider. Through its offices in
the United Kingdom, United States and Europe, PrimeVigilance
supports pharmaceutical, biotechnology and generics
companies in managing the global safety of their products from
early clinical trial development to full post-marketing activities.
With experience in over 600 Phase I–IV trials, Ergomed has
planned, managed, monitored and reported clinical trials with a
range of technologies that include small molecule drugs,
monoclonal antibodies and other targeted agents as well as
cancer vaccines, immunotherapy, radioactive agents and
photodynamic therapies.
Pharmacovigilance sales £million
CRO Services sales £million
2018
2017
2016
13.5
27.5
(IFRS 15) 2018
(IAS 18) 2018
22.5
2017
2016
19.7
17.4
15.9
26.6
7.7
7.4
9.9
Service revenue
Reimbursement revenue
Licensing
Total revenue
£109.2m
+25%
contractual backlog at year-end
Pharmacovigilance
Clinical Research Services
Drug Safety
Medical Information
Phases I–III
Phase IV
£72.5m
+34%
new contracts won in 2018
Comprehensive range of services
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
Ergomed plc Annual Report and Accounts 2018
03
Company overview
PHARMACOVIGILANCE
Overview
PrimeVigilance, our pharmacovigilance business, operates from bases in
Guildford, UK; Zagreb, Croatia; Belgrade, Serbia; Prague, Czech Republic;
Boston, USA; and 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.
PrimeVigilance aims
1
Patient safety through
better and safer
medicines
2
Support clients to comply with
pharmacovigilance requirements
globally
Essential pharmacovigilance processes all covered by PrimeVigilance
No action
Data collection
Signal detection
Risk assessment
Decision making
Communication
Regulatory action
Pharmacovigilance value chain
Essential
Intermediate
Premium
Case processing
Signal management
Pharmacoepidemiology
Aggregate reports
Risk management
Additional risk minimisation
PSMF + SOPs +
business continuity
Internal audits
EU QPPV
Local QPPVs
External audits and
inspections
PV referral procedures
Strategic consultancy
Technology / automation
Expertise / experience
04
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
We have demonstrated exceptional client retention
through our history and are on course to be a global
leader in pharmacovigilance by 2020.
Exceptional client retention
Revenues by customer cohort (£m)
Our key differentiators – PrimeVigilance
Led by industry experts and senior ex-regulators
Global leader in QPPV services
Database diagnostic, helping clients to choose the
best safety database for their needs
Pioneering in intelligent automation in
pharmacovigilance
Premium services support clients trust in
moment of crisis
£27.5m
Revenue
450+
Employees
130+
Customers
100+
Countries services
marketed in
>23%
Growth in sales,
majority new
business won
VISION 2020
27.5
22.5
13.7
8.3
3.9
5.6
2013
2014
2015
2016
2017
2018
New Clients by Year
2013
2014
2015
2016
2017
2018
Consistent growth
Revenues (£m)
27.5
22.5
13.7
8.3
5.6
3.9
0.4
0.8
2.1
2.5
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
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.
Increase investment in technology,
becoming a leader in process
automation and the use of artificial
intelligence in our services.
Increase growth, both organically
and through acquisitions, resulting in
a larger presence in major markets,
and achieving further benefits from
economies of scale.
2
3
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
deep industry experience.
Fundamental to its medic-led approach,
PrimeVigilance employs 47 physicians and
over 300 pharmacists and other life sciences
professionals.
PrimeVigilance has 21 in-house EU Qualified
Persons for Pharmacovigilance (EU QPPV).
The network of Local Qualified Persons is
the most extensive worldwide and includes
200+ outsourced professionals covering
over 60 countries.
We remain focused on growing both of our
service offerings organically and through
strategic acquisitions.
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 at the
International Society of Pharmacovigilance
seminar in the deployment of robotic
process automation (‘RPA’) software in
routine pharmacovigilance processes.
In pilots, PrimeVigilance has been able
to demonstrate promising 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.
Ergomed plc Annual Report and Accounts 2018
05
Company overview continued
CLINICAL RESEARCH SERVICES
Overview
Ergomed’s approach is focused on effective patient recruitment, to reduce the time and cost of clinical trials.
Ergomed offers a full-service clinical research organisation that provides a suite of services specifically
designed and tested to match the needs of the most demanding development programmes. With experience
in over 615 Phase I–IV trials, Ergomed has planned, managed, monitored and reported on clinical trials across
a range of technologies that include small molecule drugs, monoclonal antibodies and other targeted agents
as well as cancer vaccines, immunotherapies, radioactive agents, photodynamic therapies, device studies and
Advanced Therapy Medicinal Program (‘ATMP’) (Gene and Stem Cell therapies).
CRO Service aims
To become the leading global contract research
organisation for orphan drug development.
Service channels
Therapeutic expertise
Orphan drug development
Study experience is at the heart of what
makes a CRO successful. We select
investigative sites to create the best
opportunities to maximise the clinical
programmes and registries success.
As a full-service CRO, we offer complete
solutions in all therapeutic areas, but we
specialise in:
Orphan Drug Development
Oncology/Haematology
Neurology/CNS
Immunology/Respiratory
Orphan drug trials are not just smaller versions of drug
trials, but are focused on rare disease, and have specific
requirements. We focus on the rare disease patient,
and how to make a positive impact on their lives.
Our orphan team is led by PSR Orphan Experts (‘PSR’),
Ergomed’s rare disease subsidiary, acquired in 2017.
PSR is one of the few companies exclusively focused
on orphan disease drug development, and is
recognised as a leading expert in assisting biotech and
pharma companies in the rare disease niche. Through
our site management model and expert study physician
teams support, we find hard-to-locate patients around
the globe and work with the investigative sites to
ensure that the trials support both the patients as
well as providing the highest quality data.
Therapeutic area expertise (number of trials)
PSR key strengths
Effective patient recruitment to
reduce time and cost of clinical trials
23%
Oncology/Haematology
Neurology
Immunology/Respiratory
17%
Metabolic
Other
Cardiology
38%
06
5%
7%
10%
Extensive experience
PSR successfully managed over 200 studies in the period 1997-2019,
of which over 50% were in orphan indications. In addition, PSR has
more than 50 regulatory projects.
True partnership
Creating a true partnership with dedication to rare disease patients
and our clients, in order to make a positive impact on the lives of
people with rare diseases, is what drives PSR and its team.
Dedicated
Both PSR’s input on delivering new treatments for rare disease
patients and our participation in fundraising activities exemplify our
dedication to the rare disease field on a business as well as on a
societal level.
Ergomed plc Annual Report and Accounts 2018
Service channels
Strategic report
Governance
Financial statements
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, we focus on
patient recruitment with efficient
management and control of complex
trial protocols.
Orphan drug development
Orphan drug development is a growing
area. The logistical, regulatory and
operational complexities associated with
orphan drug trials require specialised
approaches. PSR’s internationally
recognised specialist expertise in orphan
drug development, combined with
Ergomed’s site management organisation
and study physician groups, is ideally
suited for the efficient management of
these types of trials.
Digital transformation
Information technology has the potential
to deliver long-term operational
efficiencies and upgrade our support
capabilities. Our Pharmacovigilance
business is already a significant investor in
information technology and our clinical
research business is well-placed to
leverage this expertise and benefit from
opportunities from digitization in clinical
research services.
Clinical expertise: phase I–V
Site support services
Through our 20 years of successful history,
Ergomed has acquired significant experience
in both pre-approval and post-approval trials.
Our proven service offering ensures that
we can provide custom solutions to assist
in recruiting patients on-time and on-
budget. For Late Phase studies we have a
dedicated team to support our real-world
evidence and observational studies.
Our innovative approach to site management ensures
effective patient recruitment, reducing the time and
cost of clinical trials. Being a full-service provider,
Ergomed is able to offer a complete solution for each
studies’ unique needs. The project management and
clinical research associate teams form the core of the
organisation, many of whom are MDs, PhDs or have
other medical-related backgrounds and they assist in
leading the organisation to ensure the success of the
projects that we are involved in.
Phase I–III
Operation
An innovative site management model designed to
maximise site effectiveness and timelines
Study Physician Support to increase communications
and improve compliance at investigative sites
Extensive development expertise through our
dedicated medical teams and expert network
A full-service offering to ensure a unified approach
to trial execution
Real-world evidence and late phase research
Extensive experience in providing a complete solution
for this diverse group of studies
Speed and quality, ensured by :
– Protocol design expertise
– Unique fit-for-purpose operational strategy plans
– Tailored data collection and monitoring solutions
– An approach where we shift the focus to the site
and patient needs, ensuring their positive study
experience and high quality data
Study Physician Team
Site Management Team
Peer-to-peer support
Enhanced recruitment
Develops best practice
Increased retention
across treatment centres
Provides expertise for
particular study designs
More valuable patients
Hospital
Investigator
Nurses/Site Staff
Ergomed plc Annual Report and Accounts 2018
07
Company overview continued
DEVELOPMENTS
AND PARTNERSHIPS
Our developments
Haemostatix is developing a new class of peptide
based coagulant or ‘haemostat’ for the control of
bleeding in surgery.
Haemostatix was acquired in 2016 and had two products in
development, PeproStatTM and ReadyFlowTM.
PeproStat is a ready-to-use liquid formulation applied with
commercially available gelatin sponges, which is ready for
Phase III clinical trials. ReadyFlow is a ready-to-use flowable gel
formulation applied with a syringe and nozzle to less accessible
and/or uneven wound surfaces. ReadyFlow requires additional
formulation development work prior to the initiation of
clinical studies.
Ergomed has continued to make certain incremental
investments in the Haemostatix products during 2018 including
pre-clinical studies, clinical trial product manufacture and
intellectual property protection to maintain readiness for
Phase III clinical trials of the lead product, PeproStat. Ergomed’s
strategy, ahead of Phase III trials, is to continue with minimal
investment whilst pursuing further development through
co-investors and/or licensees of the individual products.
Negotiations with interested parties are progressing but they are
not sufficiently advanced, nor providing sufficient certainty to
support the carrying value of the Haemostatix assets, including
the goodwill arising on acquisition. Consequently, the assets
relating to Haemostatix have been fully impaired in 2018, resulting
in an impairment charge of £18.2 million. The impact of the charge
is partially offset by the write-back of contingent consideration of
£11.6 million relating to the acquisition of Haemostatix.
Our partnerships
Through working with many healthcare companies
over 20 years, Ergomed has gained considerable
understanding of effective and cost-efficient
development strategies.
Ergomed has previously entered into several co-development
arrangements where the risk and expense of development is
shared. Ergomed’s co-development pipeline continues to offer
potential upside as programmes progress but, in line with
Ergomed’s focus on services, We do not anticipate entering into
new co-development arrangements.
Companies we partner with
Asarina Pharma
Cel-Sci
Modus Therapeutics
Sepranolone is the first therapy to target
the underlying cause of PMDD, a severe
and disabling form of premenstrual
syndrome affecting approximately 5% of
menstruating women.
Multikine aims to treat advanced primary
head and neck cancer. Ergomed and
Cel-Sci are also collaborating on a Phase I
study in peri-anal warts in HIV/HPV
co-infected patients.
Focused on innovative treatments for
patients with sickle cell disease.
In 2019, we expect Modus Therapeutics
AB to report Phase II data on sevuparin.
During 2018, Asarina Pharma AB (‘Asarina’)
completed a public offering and listing
on the Nasdaq First North Exchange.
Ergomed’s holding at 31 December 2018
was valued at £0.9 million, representing
approximately 2.4% of Asarina’s issued
share capital.
In 2019, we expect Asarina to report
Phase II data on Sepranolone.
In 2019, we expect Cel-Sci to report
Phase III data on Multikine.
Allergy Therapeutics
In December 2017, Ergomed and
Allergy Therapeutics plc entered into
a multi-study co-development
partnership to support three products
in their OralVac platform.
08
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Executive Chairman's Review
BUILDING ON OUR
SERVICE STRATEGY
“2018 saw us continue to deliver strong top-line
growth and work hard to deliver a significantly
improved financial performance in the second half.
We are fully committed to our services strategy
and confident in the opportunities for our
pharmacovigilance business and in our orphan
drug development emphasis. With our contracted
backlog at more than £109 million and the full
benefits of the 2018 cost reduction programme,
we believe we are well positioned to build on
these foundations.”
Dr Miroslav Reljanović
Executive Chairman
Introduction
While Ergomed saw a number of challenges during 2018,
particularly in the first half, the Company delivered continued
strong top-line growth and, through the implementation of a
cost reduction programme, a strong financial performance in
the second half of the year.
Our Pharmacovigilance (‘PV') business saw another year
of strong progress with 23% revenue growth and was
strengthened through technology development, senior
hires and small bolt-on acquisitions.
In our Clinical Research Organisation (‘CRO') Services business
we consolidated our focus on orphan drug development
utilising the PSR brand and believe our strategy is gaining
traction, with 37% of the CRO new business won being orphan
drug related.
We have worked hard to deliver significantly improved results
in the second half of 2018. Based on our contracted backlog
and re-aligned cost base, I am optimistic we can deliver our
2019 growth targets. We continue to execute our strategy of
focusing on services, specifically on the opportunities in
pharmacovigilance and orphan drug development. I look
forward to further progress this year and in the future.
Strategy for growth
Demand for both pharmacovigilance and CRO segments
remains generally buoyant. The Company continues to invest
in line with its stated strategy to position itself as a market
leader in the pharmacovigilance and orphan drug
development sectors. These investments include
the addition of project personnel across geographies, the
investment in robotic process automation technology to
deliver longer-term operational efficiencies and the upgrading
of our support capabilities in terms of systems and personnel.
Pharmacovigilance (‘PV')
The pharmacovigilance business performed strongly in 2018.
During the year, the Company added specialist
pharmacoepidemiology services to PrimeVigilance’s offering
and completed the acquisition of two bolt-on acquisitions;
Harefield Pharmacovigilance Limited and Pharmacovigilance
Services Limited. PrimeVigilance also built its network of
internal and external Qualified Persons in Pharmacovigilance
(‘QPPV') consultants to over 200, covering over 60 countries.
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. As more processes
are robotised, these improvements are expected to drive
efficiency with greater case throughput at lower cost.
PrimeVigilance’s strategy of investing in people, premium
services and technology is designed to drive further
growth with the aim of becoming the global leader in
pharmacovigilance. The global pharmacovigilance market is
forecast to grow to more than $8 billion by 2024 from around
$3 billion 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 2017.)
Ergomed plc Annual Report and Accounts 2018
09
Executive Chairman's Review continued
Clinical Research Services (‘CRO')
During 2018, we consolidated our focus on orphan drug
development under the PSR brand (acquired in October 2017), a
specialist contract research organisation based in The Netherlands
focused on the development of orphan drugs for rare diseases.
Orphan drug development is a growing area of research, with
up to 30 million people worldwide estimated to suffer from rare
diseases (Source: Evaluate Pharma Orphan Drug Report 2018).
The logistical, regulatory and operational complexities
associated with orphan drug trials require specialised
approaches. PSR’s expertise, combined with Ergomed’s site
management organisation and study physician groups, is ideally
suited for the efficient management of these types of trials.
Our strategy to focus on orphan drug development is gaining
traction. This is evidenced by 37% of the CRO’s new business
won in 2018 being orphan drug related. While orphan trials tend,
by the nature of the disease, to be smaller than comparable
phase non-orphan trials, they also tend to be more complex
and require specialist skills in their execution. For these reasons,
margins are often higher. Orphan drug development represents
a cross-selling opportunity.
The Company’s goal is to become the leading global contract
research organisation for orphan drug development and,
overall, to outpace the market for clinical research services.
Cost reduction programme
During the second half of the year, management implemented
a number of actions to reduce the cost base of the business,
increase operating efficiency and improve overall profitability.
This included reduction of headcount, primarily non-billable
personnel, and management of supplier and consultancy
contracts. The programme is now complete, delivering benefits
of £1.2 million in the second half of 2018 at a cost of £0.8 million
(which has been treated as an exceptional item).
The cost reduction programme contributed to the turnaround
from a £(0.0) million adjusted EBITDA in the first half of 2018 to
a £2.3 million adjusted EBITDA profit in the second half of 2018.
Co-development
We believe that our co-development pipeline continues to offer
potential upside as programmes progress but, in line with our
focus on services, we have not signed any new co-development
partnerships during 2018. In 2019, we expect Modus
Therapeutics, Asarina Pharma AB (‘Asarina’) and Cel-Sci to
report clinical trial results for their respective developments.
During 2018, Asarina completed a public offering and listing on the
Nasdaq First North exchange. Ergomed’s holding at
31 December 2018 was approximately 2.4% of Asarina’s issued
share capital.
Haemostatix
We have continued to make certain incremental investments
in Haemostatix during 2018, including in pre-clinical studies,
clinical trial product manufacture and intellectual property
protection, to maintain readiness for Phase III clinical trials of
the lead product, PeproStat. ReadyFlow requires additional
formulation development work prior to the initiation of clinical
studies.
We believe that Phase III development and commercialisation of
Haemostatix products need to be in the control of one party, and
in late 2018 we appointed external advisers to find a partner (or
partners) to fund Phase III trials, manufacturing scale-up and
prepare for commercial launch.
Negotiations with interested parties are progressing but
management does not consider they are sufficiently advanced,
nor providing sufficient certainty to support the carrying value of
the assets, including the goodwill arising on acquisition.
Consequently, the goodwill, intangible assets and other assets
relating to Haemostatix have been impaired to the recoverable
amount of nil, resulting in an impairment of goodwill of £2.1 million,
intangibles of £15.2 million and other assets of £0.9 million as of 31
December 2018. The change in the fair value of contingent
consideration of £11.6 million relating to the acquisition of
Haemostatix, which has also been reduced to nil, and certain
onerous contract costs committed as of 31 December 2018
amounting to £0.2 million, have been included in exceptional items
in 2018. We expect R&D expenses in 2019 to be not more than £0.3
million, reflecting the run-down of activities and ongoing protection
of intellectual property whilst we manage the licensing process.
Board changes
In October, Michael Spiteri joined the Board as Non-Executive
Director. Michael has nearly 30 years’ experience in information
technology and digital implementation and advises the Board on
opportunities presented by automation and AI. Andrew Mackie
stepped down as Chief Business Officer and Director following
the shift in strategy away from Co-development and
Haemostatix to exclusively focus on services.
With the departure of Stephen Stamp, announced 23 January
2019, Board roles were realigned with Peter George becoming
Non-Executive and Senior Independent Director of the Company
and I have become Executive Chairman to provide executive
leadership.
Stuart Jackson subsequently notified the Board of his intention
to return to the energy sector and leave the Company in the
Summer of 2019.
A search for a new CFO is progressing well and once this
appointment is made Ergomed will focus on recruiting for the
CEO role.
The Company was saddened to announce that Chris Collins,
Non-Executive Director, passed away on 8 March 2019 and
wishes to acknowledge and express its gratitude for Chris’s
significant contribution to Ergomed since its IPO in July 2014.
Outlook
Demand for both PV and CRO segments remains generally
buoyant and the Company continues to invest in line with
its stated strategy to position itself as a market leader in
pharmacovigilance and orphan drug development. These
investments include geographical expansion, investment in
robotic process automation technology to deliver longer-term
operational efficiencies and upgrading of our support
capabilities in terms of systems and personnel.
A contracted backlog of £109 million, £106 million on a comparable
basis (2017: £88 million) underpins Ergomed’s ability to deliver
its targets for 2019 and creates a solid foundation for continued
growth. During the coming period we expect to continue to deliver
on our strategy of focusing on the growth and profitability of
our services businesses, and to increasingly benefit from the
opportunities for cross-selling to customers across the Group,
particularly in pharmacovigilance and orphan drug development.
Dr Miroslav Reljanović
Executive Chairman
10
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Investment case
Ergomed’s services businesses provide differentiated offerings in growth markets
with drug development upside potential.
High growth
In 2018, our revenues grew at 14% pa, driven by growth of
23% in our PV segment. Growth in PV was almost entirely
organic. For clinical research services, our focus will be on
orphan drug development. The market for orphan drugs
is expected to reach $200 billion by 20204.
Acquisition opportunities
We have acquired and successfully integrated eight
services acquisitions since IPO in mid-2014, which have
enhanced the Company’s revenues and earnings, added
specialist skills and/or added geographical coverage.
Strategic acquisitions remain key to our growth strategy.
Debt free, net cash position
Ergomed’s cash at hand at 31 December 2018 was
£5.2 million with zero debt. We retain the flexibility to
access the capital markets and/or leverage our balance
sheet for strategic acquisitions, as appropriate.
Favourable market drivers
The trend to outsource continues to drive growth in
pharmaceutical services. The contract research market
is expected to reach $59 billion by 20201 and the
pharmacovigilance market, at around $8 billion, is
growing at 18% pa2. The contract research services market
overall is growing at 7.5% pa3.
Market leadership
PrimeVigilance is a leading provider of pharmacovigilance
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.
Product development upside
We have economic interests in several 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.
1. Source: Zion Research 2014
2. Source: Global Market Insights 2018
3. Source: Global Data 2018
4. Source: Evaluate Pharma Orphan Drug Report 2018
Ergomed plc Annual Report and Accounts 2018
11
Chief Financial Officer’s Review
STRONG REVENUE GROWTH
AND IMPROVED SECOND HALF PERFORMANCE
“The Company delivered strong revenue growth
driven by both the Pharmacovigilance and
clinical research organisation services
businesses and an improved second half
performance due to operational improvements
and our cost reduction programme.”
Stuart Jackson
Chief Financial Officer
We continue to see opportunities in the
pharmaceutical services market, specifically, with
our focus on pharmacovigilance and orphan drug
development services. 2018 has been a challenging
year but due to the implementation of the cost
reduction programme and an increased backlog,
the Company is well-positioned going into 2019.
IFRS changes
During 2018 we adopted IFRS 15 in relation to revenue
recognition. This moves our revenue recognition for the Clinical
Research Organisation (‘CRO') services business to a percentage
of completion basis measured based on project costs (including
third party costs). At adoption there is a one time adjustment to
retained earnings and during the year we have drawn
comparison to the previous IAS 18 accounting standard so
that comparable performance measures can be provided.
During 2019 we will adopt IFRS 16 in relation to leases. IFRS 16
requires lease assets and liabilities to be recognised on the
balance sheet. Additionally, lease expenses will be replaced by
a combination of depreciation and interest charges, which are
excluded from EBITDA.
Services
Overall it was a strong year within the services businesses. Total
revenue in 2018 was £54.1 million, which is equivalent to £54.9
million under IAS 18 and an increase of 15%, on a comparable
basis from £47.6 million in 2017. Revenue growth was driven by
23% growth in PV revenues, complemented by 9% growth from
CRO Services revenues.
Pharmacovigilance
The pharmacovigilance business continued to perform strongly
with revenues increasing 23% to £27.5 million in 2018 from
£22.4 million in 2017, which was almost entirely organic growth.
During the year, the Company added specialist
pharmacoepidemiology services to PrimeVigilance’s offering.
It also completed the acquisition of two bolt-on acquisitions;
Harefield Pharmacovigilance Limited and Pharmacovigilance
Services Limited.
Clinical Research Organisation ('CRO') services
Total revenue from the CRO segment of £26.6 million, equivalent
to £27.4 million under IAS 18, increased 9% in 2018 on a
comparable basis from £25.2 million in 2017, including a £4.1
million contribution from PSR, which was acquired October 2017.
Haemostatix
We have previously announced that our strategy for
development of the Haemostatix products, ahead of Phase III
trials, is to continue with limited investment whilst pursuing
further development through co-investors and/or licensees of
the individual products. This strategy resulted in reduced R&D
expense in 2018 of £1.6 million, compared to £2.7 million in 2017
and this will reduce further to approximately £0.3 million in 2019.
At the end of 2018, we made the difficult decision to fully impair
the investment in Haemostatix resulting in impairment charges
of £18.2 million as insufficient progress had been made with
partnering activities and we will not fund the Phase III trials
alone. The impact of the impairment charge is partially offset by
the write-back of contingent consideration of £11.6 million
relating to the acquisition of Haemostatix.
12
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
As reported
Under IAS 18
Group Revenue
£54.1m
+14%
EBITDA (adjusted)
£2.3m
-£0.5m
Revenue
£54.9m
+15%
EBITDA (adjusted)
£3.1m
+£0.3m
Contracted Order Backlog
Contracted Order Backlog
£109.2m
+21%
£106.1m
+20%
Profitability
EBITDA (adjusted) for the year was £2.3 million, which is
equivalent to £3.1 million under IAS 18, compared with £2.8
million in 2017. The first half of 2018 was challenging and early
in the second half of 2018, we commenced a cost reduction
programme, which combined with operational improvements,
contributed to the turnaround in 2018 from an adjusted EBITDA
of £nil in the first half (£(0.4) million loss IAS 18 equivalent)
to a £2.3 million adjusted EBITDA profit in the second half
(£3.5 million IAS 18 equivalent).
The impairment charge, cost-reduction programme and other
exceptional items resulted in a net loss in 2018 of £9.0 million
compared to £4.5 million in 2017.
Co-development
During 2018, one of our co-development partners, Asarina,
completed a public offering and listing on the NASDAQ First
North exchange. Our holding at 31 December 2018 was valued at
£0.9 million, representing approximately 2.4% of Asarina’s issued
share capital.
Outlook
Demand for both PV and CRO segments remains buoyant and
the Company continues to invest in line with its stated strategy
to position itself as a market leader in pharmacovigilance and
orphan drug development. These investments include
geographical expansion, investment in robotic process
automation technology to deliver longer-term operational
efficiencies and upgrading of our support capabilities in terms
of systems and personnel.
A contracted backlog of £109 million, £106 million on a
comparable basis (2017: £88 million) underpins our ability to
deliver our targets for 2019 and creates a solid foundation for
continued growth. During the coming period we expect to
continue to deliver on our strategy of focusing on the growth
and profitability of our services businesses, and to increasingly
benefit from the opportunities for cross-selling to customers
across the Group, particularly in pharmacovigilance and orphan
drug development.
Stuart Jackson
Chief Financial Officer
Ergomed plc Annual Report and Accounts 2018
13
Strategy
FOCUSED ON
ACCELERATED GROWTH
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 focused on the growth of the services business.
Ergomed’s co-development pipeline and investment in
Haemostatix continues to offer upside potential as programmes
progress, but is no longer a key component of our strategy.
OUR MISSION
Building a profitable services
business targeting global
leadership in pharmacovigilance
services and orphan drug
development.
Strategic priorities
GROWTH
ACQUISITIONS
STRATEGIC AND SELECTIVE
PRODUCT
DEVELOPMENTS
14
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Strategic priorities
Strategy
Growth in revenue (under IAS 18)
GROWTH
ACQUISITIONS
STRATEGIC AND SELECTIVE
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 outsourced 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.
Additionally we have a clear focus on orphan drug development related
customers and will continue to push our specialism in this key arena. Orphan
drug development is one of the fastest growing areas of clinical research.
The market for outsourced pharmacovigilance and medical information,
while smaller, is less competitive. PrimeVigilance is a leading independent
pharmacovigilance and medical information provider in Europe. Increasingly
we are seeing the overlap of pharmacovigilance services and later phase
clinical research, opening up the opportunity for cross selling services
between our clients.
Ergomed remains focused on organic growth but will continue to look
to acquisition opportunities where they specifically expand our service
offering. In considering opportunities we will place an emphasis on:
● 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; and
● 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.
Pharmacovigilance
+23%
Ergomed
+18%
Industry
Source: Global Market Insights 2018
Clinical Research Services
+9%
Ergomed
+7.5%
Industry
Source: Global data
During the year, Ergomed added specialist
pharmacoepidemiology services to PrimeVigilance’s
offering. It also completed the acquisition of two bolt-on
acquisitions; Harefield Pharmacovigilance Limited and
Pharmacovigilance Services Limited.
PRODUCT
DEVELOPMENTS
Ergomed is now a pure service provider focused on the clinical research
and pharmacovigilance markets. From previous operating strategies,
Ergomed has an interest in certain co-development opportunities and
Haemostatix. Given the pure service provision approach, Ergomed will
not invest in further development opportunities. However, the Group
will continue to manage the existing portfolio of opportunities through
to conclusion and to maximise the value of these investments to
shareholders, without material further investment.
Ergomed has continued to make certain incremental
investments in the Haemostatix products during 2018.
R&D expense in 2018 was £1.6 million (2017: £2.7 million).
No new co-developments’ partnerships were signed
in 2018.
Ergomed plc Annual Report and Accounts 2018
15
Strategy in action
DISCOVER OUR
ORPHAN ADVANTAGE
Rare diseases are severe, debilitating or even life-threatening
conditions which affect fewer than 5 in 10,000 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 $200 billion
by 2020 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.
Ergomed orphan experience
Our orphan experience distributed across therapeutic areas:
0
5
10
Projects
15
20
25
30
Oncology
Cardiovasc &
Haematology
Metabolic
Disease
CNS & Neurology
Urology
Dermatology
Pulmology
Immunology &
Infectious disease
Nephrology
Endocrinology
PSR
Ergomed
16
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Orphan drug
market
Growth
drivers
21%
of all prescription
11%
p.a. growth
$200bn
by 2020
30m
people suffer from
orphan disease
Personalised
medicine
Regulatory
framework
Speed to
market
Exclusivity
Pricing
Ergomed plc Annual Report and Accounts 2018
17
Financial Review
SOLID RESULTS
UNDER-PINNED BY PHARMACOVIGILANCE
Key performance indicators
The Directors consider the principal financial performance
indicators of the Group to be:
£million (unless stated otherwise)
Total revenue
Gross profit
Gross margin %
EBITDA (adjusted)
Cash and cash equivalents
2018
IFRS 15
54.1
19.3
36%
2.3
5.2
2018
IAS 18
54.9
20.1
37%
3.1
5.2
2017
IAS 18
47.6
17.6
37%
2.8
3.2
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.
The Group adopted IFRS 15 with effect from 1 January 2018. Upon
adoption, Ergomed elected to use the cumulative effect transition
method, meaning that prior years are not restated under IFRS 15
methodology. For comparison purposes, therefore, reference is
also made to IAS 18 and the financial results provide a bridge
between these two accounting methodologies where appropriate
in an effort to provide a clear picture of the effects.
Consolidated statement of comprehensive income
Total revenue for the year ended 31 December 2018 was
£54.1 million, which is equivalent to £54.9 million under IAS 18 (2017:
£47.6 million), an increase of 15%, on a comparable basis, driven by
23% growth in PV revenues, complemented by
9% growth from Clinical Research Organisation Services revenues.
Gross profit was £19.3 million and gross margin was 36%.
By way of comparison, 2018 gross profit and gross margin were
£20.1 million and 37% respectively under IAS 18 (2017 restated:
gross profit £17.6 million and gross margin 37%).
Selling, general & administration (‘SG&A') expenses, after
excluding exceptional items and acquisition related costs
were £16.7 million (2017 restated: £13.6 million). The increase in
other SG&A expenses of £3.1 million was driven by an additional
£0.6 million of overhead in acquisitions, £0.5 million additional
recruitment costs, £0.7 million increase in depreciation of
internally generated software, £0.5 million in increased premises
costs across the group and £1.4 million increase in support
functions, offset by a £0.6 million movement in foreign exchange
from a £0.5 million loss in 2017 to a £0.1 million gain in 2018.
SG&A expense also includes amortisation of acquired fair valued
intangible assets of £1.3 million, share-based payment charge
of £0.8 million, acquisition-related contingent compensation of
£1.0 million, acquisition costs of £0.2 million and exceptional
items of £8.5 million, offset by a change in the fair value of
contingent consideration of £0.2 million.
Research and development costs expensed in the year were
£1.6 million (2017: £2.7 million) relating to Haemostatix and
included chemistry, manufacturing and controls (‘CMC') costs for
clinical trial material of PeproStat and pre-clinical formulation
development costs for ReadyFlow. As noted, at the end of 2018
Ergomed made the decision to fully impair the investment in
Haemostatix, as insufficient progress had been made with
partnering activities and Ergomed will not fund the Phase III
trials alone.
Exceptional costs for the year ended 31 December 2018 related
to the establishment of the pharmacoepidemiology business of
£0.4 million, the cost reduction programme to increase operating
efficiency and improve overall profitability of £0.7 million, other
business reorganisation costs of £0.6 million, the impairment of
the Haemostatix business of £18.2 million, and onerous contract
costs relating to Haemostatix of £0.2 million, offset by the
revaluation of deferred consideration for Haemostatix of
£11.6 million.
The Group adopted IFRS 9 in respect of financial instruments
and its application to receivables. This had minimal impact on
the 2018 results.
Consolidated balance sheet
As at 31 December 2018 total assets less total liabilities
amounted to £28.4 million (2017: £34.8 million) including cash
and cash equivalents of £5.2 million (2017: £3.2 million).
The principal movements in the consolidated balance sheet
during the year were:
a decrease in intangibles and goodwill of £16.5 million and
£1.6 million, respectively, and deferred taxes of £2.8 million,
primarily due to the impairment of the Haemostatix assets;
an increase in accrued income of £1.4 million and an increase
in deferred revenue of £4.7 million, including the impact of
adopting IFRS 15;
an increase in cash and cash equivalents of £2.0 million;
a decrease in the fair value of contingent consideration
relating to the Haemostatix acquisition; and
an increase in share premium, arising from the institutional
placing in February 2018, net of costs.
Consolidated cash flow statement
At present, the Group does not have any borrowings or
long-term debt.
Cash outflows from operating activities before changes in
working capital in the year were £1.6 million (2017: inflows of
£1.4 million). Changes in working capital included a £0.5 million
increase in trade and other receivables, a £0.2 million increase
in other current assets and a £3.2 million increase in trade and
other payables. The Group also received taxation of £0.1 million
in 2018 (2017: £0.4 million paid).
18
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
As reported
Revenue
£54.1m
2017: £47.6m
Under IAS 18
Revenue
£54.9m
2017: £47.6m
EBITDA (adjusted)
£2.3m
2017: £2.8m
EBITDA (adjusted)
£3.1m
2017: £2.8m
EBITDA
£(7.9)m
2017: £(2.3)m
EBITDA
£(7.1)m
2017: £(2.3)m
Adjusted EPS is based on adjusted earnings/loss. Net income is
the IFRS measure most comparable to adjusted earnings/loss.
Net income is reconciled to adjusted earnings/loss as follows:
In £000s
2018
2017
Loss for the purposes of basic earnings per
share being net profit attributable to
owners of the Company
Loss for the purposes of diluted loss per
share
Adjust for:
Amortisation of acquired fair valued
intangible assets
Share-based payment charge
Acquisition-related contingent
compensation (note 8)
Change in the fair value of contingent
consideration for acquisition
Acquisition costs
Exceptional items
Unrealised gains on equity investments
Tax effect of adjusting items
Adjusted earnings for the purposes of basic
and diluted adjusted earnings per share
Adjusted earnings per share
Basic
Diluted
(8,980)
(4,504)
(8,980)
(4,504)
1,286
758
1,167
1,033
972
752
(11,850)
174
8,494
(277)
(1,323)
2,875
259
143
—
—
871
1,725
1.9p
1.9p
4.2p
4.0p
Going concern
As at 31 December 2018 the Group had £5.2 million in cash and
cash equivalents and a strong backlog of £109 million of signed
contracts. The Directors expect Ergomed’s services business to
be cash generative. Taking into account existing cash resources
and, after due consideration of cash flow forecasts, the Directors
are of the view that Ergomed will continue to have access to
adequate resources to allow the Group to continue trading on
normal terms of business for no less than 12 months from the
date of signing of the financial statements and have therefore
prepared the financial statements on a going concern basis.
The Board assesses forecasts extending three years, which are
considered appropriate because this matches the average
contract duration of the PV business and, whilst CRO contracts
can extend for longer periods, activity levels become less
certain over time. The Directors expect Ergomed’s services
business to be cash generative over the medium term.
Cash outflows from investing activities were £2.7 million
(2017: £3.9 million) including £0.4 million related to the acquisition
of Harefield Pharmacovigilance and Pharmacovigilance Services,
£0.7 million related to a PharmInvent earn-out payment,
£0.8 million for the acquisition of property, plant and equipment
and £0.8 million for the acquisition of intangible assets.
Cash inflows from financing activities included proceeds of
the institutional placing of £3.8 million net of expenses in
February 2018.
Alternative performance measures
In reporting financial information, the Group presents alternative
performance measures, such as EBITDA, EBITDA (adjusted) and
adjusted EPS, which are not defined or specified under the
requirements of IFRS. The Group believes that these measures
which are not considered to be a substitute for or superior to
IFRS measures, provide stakeholders with additional helpful
information on the performance of the business.
Operating loss is the IFRS measure most comparable to EBITDA
and EBITDA (adjusted). Operating loss is reconciled to EBITDA
and EBITDA (adjusted) as follows:
In £000s
Operating loss
2018
2017
(10,446)
(3,904)
Adjust for:
Depreciation and amortisation charges
within Other selling, general &
administration expenses
Amortisation of acquired fair valued
intangible assets
EBITDA
Share-based payment charge
Acquisition-related contingent
compensation (note 8)
Change in the fair value of contingent
consideration for acquisitions
Acquisition costs
Exceptional items
EBITDA (adjusted)
1,248
459
1,286
1,167
(7,912)
758
(2,278)
1,033
972
752
(233)
174
8,494
2,875
259
143
2,253
2,784
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. 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.
Ergomed plc Annual Report and Accounts 2018
19
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
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.
Brexit and discussions leading up to it may lead to a period of
increased volatility in Sterling exchange rates, which could result
in significant changes in the Group’s revenues or costs when
reported in Sterling.
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.
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.
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; and
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.
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.
20
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Increased risk
No change
Decreased risk
Strategic priorities
Movement Mitigation of risk
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.
United Kingdom’s exit from the European Union (‘Brexit’)
The process of the United Kingdom’s departure from the
European Union (‘EU') and the terms of the UK’s future
relationship with the EU remain uncertain. The Group’s
head office and holding company are located in the United
Kingdom and its business in the EU is subject to EU regulation.
After Brexit, regulatory or other new barriers to trade may be
implemented that may lead to disruption to the Group’s business
processes and make it less convenient for the Group’s
customers to contract with its UK entities. Depending on the
future regulatory arrangements between the EU and the UK,
it may become more difficult for the Group’s clients to transfer
clinical trial and other personal data to the Group for processing
in the UK under the General Data Protection regulation (‘GDPR')
than it is at present. It may become more difficult for the Group
to recruit EU employees into UK entities after Brexit. Many of the
Group’s contracts with EU customers are governed by English
law and subject to the agreed jurisdiction of the English courts,
and it may become more complex to enforce such contracts,
should court enforcement be required.
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 2018 was 28% (2017: 40%). The loss of
any client who represents 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.
Dr. Miroslav Reljanović
Executive Chairman
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.
The Group’s business is international and it has a
strong presence and established trading
subsidiaries both in and outside the UK. 78% of
Group revenue for the 2018 financial year was
derived from markets outside the UK and
approximately 90% of the Group’s employees are
employed outside the UK at the date of this report,
including employees engaged in client work, and
those providing internal support services. The Group
has a thorough understanding of the international
regulatory processes relating to its business,
enabling it to respond rapidly to local changes in
circumstances or events. The Group’s regulatory
experts have analysed the known effects of Brexit
and the Group is preparing for a possible no-deal
Brexit in line with the guidance published by the
Medicines and Healthcare Products Regulatory
Authority (UK regulatory authority) and European
Medicines Agency (EU regulatory authority).
Measures planned by the Group to mitigate the
effect of regulatory changes resulting from Brexit
include the establishment of Qualified Persons for
Pharmacovigilance who reside and operate in the
EU and UK respectively, and the use of Ergomed
plc’s existing Polish subsidiary, Ergomed Sp. z o.o.,
to act as EU legal representative on clinical trials
for CRO clients outside the EU. Well-established
procedures are available under the GDPR to
permit the transfer of personal data outside the
EU which, although they require certain additional
administrative steps, will allow continued transfers
of data to be made to the Group in the UK in
compliance with GDPR requirements.
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.
Ergomed plc Annual Report and Accounts 2018
21
Board of Directors
Dr Miroslav Reljanović
Founder and Executive Chairman
Stuart Jackson
Chief Financial Officer
Dr Jan Petracek
Chief Operating Officer
Dr Miroslav Reljanović 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. Miro founded
Ergomed in 1997 and he introduced the novel
Study Site Coordination model as an intrinsic
part of the conduct of clinical studies.
Miro successfully introduced the first European
co-development business model and he has
completed several partnerships with European
and North American listed biopharmaceutical
companies. Miro co-founded PrimeVigilance in
2008 and it soon became a leading specialist
vendor of contracted pharmacovigilance
services to the pharmaceutical industry.
Miro led Ergomed through a successful IPO on
the AIM market of the London Stock Exchange
in July 2014 and the subsequent completion of
five acquisitions and a secondary offering.
Miro is a Director of Asarina Pharma AB (listed
on the Nasdaq First North Exchange) and
Modus Therapeutics Holding AB, both
Swedish-incorporated companies in which
Ergomed plc has an equity stake through
co-development arrangements.
Miro brings to the Board his in-depth experience
in clinical development and the operational
execution of drug development, as well as a
detailed knowledge of the Group and its
operations.
Miro is Chair of Ergomed’s Nomination
Committee.
Stuart Jackson joined Ergomed as Chief
Financial Officer on 2 July 2018. Stuart has over
20 years’ experience at the Chief Financial
Officer level in companies on the London,
Nasdaq and Oslo Stock Exchanges. He has
significant international experience in early
stage and growth companies as well as
managing significant and complex change
projects. Stuart’s experience has been gained
primarily in the energy and technology/
telecommunications sectors, where consistent
project service delivery across a number
of geographies has been a key feature of
business success.
To expand on some of Stuart’s achievements;
he was CFO at Acergy SA, where he was
responsible for the financial restructuring of the
business and implementation of a new business
strategy which took Acergy from $0.1 billion to
$6.0 billion market capitalisation over a four
year period. Recently he was CFO at CEONA,
where he was responsible for the early stage
set-up and growth of the business. He was also
CFO at Bibby Offshore Holdings Limited, where
he managed strategic development and M&A
activities and oversaw its recapitalisation.
Dr. Jan Petracek was appointed to the Board
as Chief Operating Officer in December 2017
and has been Chief Executive Officer of
PrimeVigilance since April 2017. He 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. Dr Petracek was the
EU Qualified Person responsible for
pharmacovigilance at Vertex Pharmaceuticals,
Biogen and BluePrint Medicines.
Dr Petracek studied Quality and Safety in
Healthcare (MSc) at Imperial College London
and trained as a physician at Charles University
in Prague (MD).
Dr Petracek sits on the Advisory Board of the
International Society of Pharmacovigilance
and is a regular speaker at international
pharmacovigilance conferences and training
seminars.
Stuart’s broad experience of finance and
business equip him to lead the Group’s finance
and accounting function and advise the Board
on these matters.
Dr Petracek keeps his skillset up-to-date by
attending pharmacovigilance conferences and
courses, and attending leadership coaching and
business mentoring sessions.
As the founder of several successful
organisations, Dr Petracek brings
entrepreneurship, business acumen and a track
record of innovation in pharmacovigilance to
the Board. As a senior ex-regulator, he has a
deep understanding of the pharmaceutical
regulatory environment.
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Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
Peter George
Non-Executive and Senior
Independent Director
Michael Spiteri
Non-Executive Director
Michael has held a number of senior leadership
positions in the consulting industry and financial
services industry over a 25 year period. He
specialises in helping organisations implement
technology that transforms their business and
operating models and is currently responsible
for digital and transformation at Santander’s UK
Corporate Bank.
Michael was previously a partner at PwC and
held senior leadership positions at Accenture
and IBM. He was involved in the early stages of
telematics and the development of automation
technology and business models in insurance
and telecoms. Michael has a degree in
Mechanical Engineering and designed real time
computer solutions in the oil and gas industry in
the early part of his career.
Michael brings his extensive experience in
technological innovation to help the Board
develop Ergomed’s business across digital,
automation and machine learning.
Michael is Chair of the Company’s Remuneration
Committee, and is a member of its Audit and
Risk and Nomination Committees.
Peter George joined the Company as a
Non-Executive Director in May 2014. He
became Senior Independent Director in
February 2019, having served as Non-Executive
Chairman from April 2017 to January 2019.
Peter has over 20 years’ experience in the
pharmaceutical services industry, most recently
as Chief Executive Officer of Clinigen Group plc,
the AIM-listed global speciality
pharmaceuticals and pharmaceutical services
business. Peter stepped down as CEO of
Clinigen in November 2016. Prior to Clinigen,
Peter was CEO at Penn Pharma, having led a
£67 million management buy-out of the
company 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 a Director of PharmaPatents
Global.
Peter is currently Chair of Benchmark Holdings
plc and Entrepreneur in Residence at Oxford
Sciences Innovation.
He is also President of Enigma Holdings Ltd
and Chairman of Mitre Group Limited, XPG Ltd,
Marco Polo Events Limited, and Rent Plus Ltd,
companies he owns or has significant
holdings in.
Peter’s technical, commercial and business
expertise in pharmaceutical services and
experience of the AIM market environment
enable him to provide valued guidance to
the Board.
Peter is Chair of the Company’s Audit and Risk
Committee and a member of its Remuneration
Committee and Nomination Committee.
Ergomed plc Annual Report and Accounts 2018
23
Corporate Governance Statement
The Board is committed to maintaining the highest standards of corporate governance, striving at all times for effective and open
communication, transparency and integrity. The Board continuously and diligently works to manage Ergomed in an efficient and
entrepreneurial manner for the benefit of shareholders over the longer term.
As a company with shares traded on AIM, Ergomed plc has adopted the Quoted Companies Alliance’s Corporate Governance Code
(‘QCA Code’). Dr Miroslav Reljanović, in his capacity as Executive Chairman, has assumed responsibility for ensuring that the
Company has appropriate corporate governance standards in place and that these requirements are followed and applied.
The corporate governance arrangements that the Board has adopted are designed to ensure, not only that the Company delivers
long-term value to its shareholders, but also that shareholders have the opportunity to express their views and expectations for the
Company in a manner that encourages open dialogue with the Board.
The Board recognises that its decisions regarding strategy and risk, and the way they are communicated, will affect the corporate
culture of the Group as a whole, the engagement of employees and, inevitably, the performance of the Group. Each Director
therefore places great importance on demonstrating ethical behaviours, both during the decision making process, and in the
implementation and communication of strategic decisions.
The Board currently consists of five Directors, comprising two Non-Executive Directors (including Peter George as Senior
Independent Director), and three Executive Directors (including Dr Miroslav Reljanović as Executive Chairman). The Board considers
Peter George and Michael Spiteri to be independent Directors.
The Board meets regularly throughout the year to consider strategy, performance and the framework of internal controls.
The table below shows the number of Board and Board committee meetings held during the year to 31 December 2018 and the
attendance of individual Directors at those meetings.
Meetings held during the year to 31 December 2018
Number of meetings
Executive Directors
Dr Miroslav Reljanović
Stephen Stamp1
Stuart Jackson2
Andrew Mackie3
Jan Petracek
Non-Executive directors
Peter George
Christopher Collins
Michael Spiteri4
Board
10
10
10
3
7
10
7
9
1
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
3
–
–
–
–
–
2
3
0
3
–
3
–
–
–
2
3
0
2
2
–
–
–
–
2
2
0
1 Stephen Stamp ceased to be a member of the Remuneration Committee on 5 December 2018.
2 Stuart Jackson was appointed as a Director on 2 July 2018.
3 Andrew Mackie ceased to be a Director on 1 October 2018.
4 Michael Spiteri was appointed as a Director on 1 October 2018. He became a member of the Audit and Risk, Remuneration (as Chair) and Nomination
Committees on 5 December 2018.
Board committees
The Board has established Audit and Risk, Nomination and Remuneration Committees, all of which meet at least twice a year.
Audit and Risk Committee
The Audit and Risk Committee 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 Ergomed’s shareholders.
The Audit and Risk Committee is also responsible for ensuring that the Company is complying with the AIM rules and reviewing and
monitoring the Company’s corporate governance practices.
Peter George is Chair of the Audit and Risk Committee and Michael Spiteri is the other member. Chris Collins was the Chair of the
Audit and Risk Committee during the 2018 financial year, and until his death in March 2019.
The Audit and Risk Committee’s report for the 2018 financial year is set out on page ●29 of the 2018 Annual Report.
24
Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
Nomination Committee
The Nomination Committee identifies and nominates for the approval of the Board, candidates to fill Board vacancies as and when
they arise.
Dr Miroslav Reljanović is the Chair of the Nomination Committee and Peter George and (since 5 December 2018) Michael Spiteri
are the other members. Chris Collins was a member of the Nomination Committee during the 2018 financial year, and until his death
in March 2019.
Remuneration Committee
The Remuneration Committee reviews the performance of the Executive Directors and determines their terms and conditions of
service, including their remuneration and the grant of options, having due regard to the interests of shareholders.
Michael Spiteri succeeded Chris Collins as Chair of the Remuneration Committee on 5 December 2018. Peter George is the other
member of the Remuneration Committee. Stephen Stamp was a member of the Remuneration Committee until 5 December 2018,
and Chris Collins was a member of the Remuneration Committee during the 2018 financial year, and until his death in March 2019.
The Remuneration Committee’s report for the 2018 financial year is set out on pages 30 to 31 of the 2018 Annual Report.
Share dealing code
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.
Application of QCA Code
The QCA Code sets out 10 principles which should be applied by companies which have adopted it as their corporate governance
code. These are listed below, together with a short explanation of how the Company applies them.
Principle 1 – Establish a strategy and business model which
promote long-term value for shareholders
The Board is committed to delivering long-term value for
Ergomed’s shareholders.
Ergomed’s strategy and business model have been worked on
extensively by the Board, taking into account investors’ feedback
and expectations. Our strategy is explained fully within the
Strategic Report on pages 1 to 21 of the 2018 Annual Report.
Principle 2 – Seek to understand and meet shareholder needs
and expectations
The Board attaches great importance to communication with all
of Ergomed’s shareholders, both institutional and private. We
encourage all our shareholders to attend our Annual General
Meeting, which provides a forum and time for shareholders’
questions and open discussions.
Furthermore, feedback from investors is obtained through direct
interaction between the Executive Chairman (during the 2018
financial year, the CEO) at meetings following its interim and final
results, and certain other ad-hoc meetings that take place
during the year.
There is also a regular dialogue with shareholders through the
medium of the Company’s nominated adviser and corporate
broker, Numis Securities.
The voting record at the Company’s general meetings is
monitored and we are pleased that all resolutions proposed so
far have been passed by shareholders (with a great majority
being passed by 100% of attending votes).
The Company also seeks to stay abreast of shareholder
expectations and reactions through its dedicated investor email
address: ir@ergomedplc.com.
Principle 3 – Take into account wider stakeholder and social
responsibilities and their implications for long-term success
As a global group of companies, Ergomed has historically placed
great importance on understanding and respecting different
cultural and social values within the international realm in which
it operates. We have adopted policies to encourage an open
and transparent corporate culture, including policies addressing
anti-slavery, anti-bribery and whistleblowing, and a Supplier
Code of Conduct. We continue to adopt new policies and monitor
the implementation of those that we have adopted so far.
We recognise the importance of implementing feedback
mechanisms to solicit, consider and act upon feedback from
stakeholder groups. We intend to consider the implementation
of such systems during the 2019 financial year. This remains
a challenge, considering the global environment in which we
operate, but the Board continues to place this matter high on
the list of Ergomed’s priorities.
We use LinkedIn, Facebook and Twitter to encourage dialogue
with all stakeholders, including clients and employees. We post
on topics such as company news, exhibitions we are attending,
webinars we are involved in, company and employee
achievements and corporate social responsibility activities.
Our individual offices support a variety of local charities,
with a focus on those related to healthcare.
Principle 4 – Embed effective risk management, considering
both opportunities and threats, throughout the organisation
Details of the principal risks and uncertainties which the
Board considers to be associated with the Group’s activities,
together with the mitigation actions which are being pursued
in relation to them, are set out on pages 20 to 21 of the 2018
Annual Report.
Ergomed plc Annual Report and Accounts 2018
25
Corporate Governance Statement continued
Internal control and risk management
The Board acknowledges its responsibility for safeguarding
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.
The Board, through the Audit and Risk Committee, reviews
the effectiveness of the systems of internal control and
management continues 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. As a Group, we assess
risk on a daily basis and specifically when assessing particular
contracts, projects or directions. We consider that there is room
for improvement in the creation and implementation of risk
management policies, and this is on our priority list for 2019;
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; and
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 Company’s
Executive Committee, which comprises Executive Directors
and other senior executives, performs a more detailed review,
taking corrective action if required.
Given the Group’s relatively 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.
Principle 5 – Maintain the Board as a well-functioning,
balanced team led by the Chair
The Board is responsible for taking all major strategic decisions
and also addressing any significant operational matters. In
addition, the Board reviews the risk profile of the group and
ensures that an adequate system of internal control is in place.
A schedule of matters reserved for the Board has been adopted
and is regularly reviewed.
In January 2019, Dr Miroslav Reljanović was elected Executive
Chairman of the Board, following the resignation for health
reasons of the CEO, Stephen Stamp. Dr Reljanović founded the
Company as a CRO in 1997 and co-founded PrimeVigilance in
2008. He was CEO of the Company until June 2017, when he
became Executive Vice-Chairman. With his thorough knowledge
and experience of the Group and the market in which it operates,
the Board decided that it was in the best interests of the
Company for Dr Reljanović to re-assume full executive
responsibility for the Company, pending a search for a new CEO.
Also in January 2019, Peter George stepped down as Chairman
to became the Company’s Senior Independent Director, to act as
a sounding board and intermediary for the Executive Chairman
and other Board members.
The Board considers Peter George and Michael Spiteri to be
independent Directors.
The Board meets face to face at least five times a year, and it
is usual for all Directors to attend. In addition, the Board has
telephone conferences or communicates via email on every
material issue which arises throughout the year. The Board also
meets for Strategic Meetings once to twice a year.
Board meetings typically take half a day with one day of
preparation time per meeting. Non-Executive Directors are
required to spend a minimum of 12 days per year, and such
additional time as is necessary, on Company business (including
attendance at Board meetings), and Executive Directors are
full-time employees. The table on page 24 of the 2018 Annual
Report shows the number of Board and Board committee
meetings held during the year to 31 December 2018 and the
attendance of individual Directors at those meetings.
Ergomed’s General Counsel and Company Secretary attends
all Board meetings and assists Directors with any legal or
administrative issues arising.
Principle 6 – Ensure that between them the Directors have the
necessary up-to-date experience, skills and capabilities
The Directors collectively bring a broad range of business
experience and skills to the Board, resulting in a wide variety
of perspectives being represented in Board discussions.
A summary of the skills and experience of each Board member
is included in their biographies on pages 22 to 23 of the 2018
Annual Report and in their biographies on the ‘Investors’ section
of the Company’s website at www.ergomedplc.com.
26
Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
The Board is drawn from an international background,
representing the international nature of the Group’s, and many of
our clients’, businesses. The Directors are aware that the Board is
not currently balanced in terms of gender representation and,
while they support improved gender balance as an important
goal, their fundamental aim (with reference to the size of the
Group) is to ensure that the right mix of skills, experience and
capabilities is represented on the Board.
The Board regularly reviews and evaluates its skills and capabilities
and, in October 2018, Michael Spiteri was appointed as a Non-
Executive Director in order to focus on helping the Group develop
its business across digital, automation and machine learning.
The Nomination Committee identifies and nominates for the
approval of the Board, candidates to fill Board vacancies as and
when they arise.
All Directors are able to take independent professional advice in
the furtherance of their duties, if necessary, at the Company’s
expense. In addition, the Directors have direct access to the
advice and services of the General Counsel and Company
Secretary and the Chief Financial Officer.
All Directors are required to retire by rotation at every third AGM
at which they hold office, in accordance with the Company’s
Articles of Association.
Individual Directors attend ad-hoc training, seminars and/or
conferences relevant to their specific skills and roles within the
Board. Executive Directors regularly attend industry seminars
and/or conferences in furtherance of their experience, skills and
industry awareness, and in order to consolidate relations with
our stakeholders. New Directors attend induction training to
familiarise them with their duties and responsibilities as Directors
of an AIM listed company.
Principle 7 – Evaluate Board performance based on clear and
relevant objectives, seeking continuous improvement
Evaluation of Board performance has been carried out on an
informal basis to date, and the Board discusses its performance
from time to time. These discussions are open and aimed at
achieving improvement whenever possible. The Board also
considers the tenure of Board members, and considers
succession planning.
The Board recognises that the criteria and processes of these
evaluations should be more formal, and this is one of its
objectives for 2019.
Principle 8 – Promote a corporate culture that is based on
ethical values and behaviours
Ergomed has been international from its very beginning and has
always appreciated and accommodated different cultural
experiences and values. Directors and employees of the Group
are accustomed to collaborating in the interests of our business,
whilst providing space for cultural differences. The Board
promotes the involvement of local managers throughout the
Group to integrate our core values with local cultural
sensitivities.
Each Director places great importance on demonstrating ethical
behaviours, both during the decision-making process, and in the
implementation and communication of strategic decisions.
Senior managers are also encouraged to lead by example in the
promotion of ethical values and behaviours.
Our corporate culture is also based around our need to adhere
to quality standards on our clients’ behalf, and this focus on
quality standards underlies the majority of our business
processes. As a Group, we are subject to numerous external
client and regulatory audits as well as internal audits of our
operations and vendors.
The Chairman’s Corporate Governance Statement dated
28 September 2018 stated that Ergomed intended to adopt a
Code of Conduct by mid-2019. Our Supplier Code of Conduct
was adopted in late 2018, and during the next 12 months we
intend to focus on the implementation of revised human
resources policies which promote best practice behaviours
throughout the Group.
Principle 9 – Maintain governance structures and processes
that are fit for purpose and support good decision-making by
the Board
Further details on our governance structure and the role of our
Board Committees are set out on pages 24–25 of the 2018
Annual Report and in the ‘Investors’ section of our website at
www.ergomedplc.com.
The Board meets regularly throughout the year to consider
strategy, performance and the framework of internal controls.
A scheduled meeting calendar is arranged as far in advance as
possible, and ad-hoc meetings are held in person or by telephone
when it is necessary for the Board to discuss specific issues.
To enable the Board to discharge its duties, the Directors receive
appropriate and timely information. A formal agenda and
briefing papers are distributed to the Directors in advance of
each Board meeting. The Directors have access to the advice
and services of the General Counsel and Company Secretary,
who is responsible for ensuring that the Board procedures are
followed and that applicable rules and regulations are complied
with, and to the Chief Financial Officer. 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 sets direction
for the Company through a formal schedule of matters reserved
for its decision, which is regularly reviewed.
The Board intends to review its governance structures regularly
to ensure they are fit for purpose and will carry out a review of
the terms of the Audit and Risk, Nomination and Remuneration
committees during 2019.
Ergomed plc Annual Report and Accounts 2018
27
Corporate Governance Statement continued
Principle 10 – Communicate how the company is governed and
is performing by maintaining a dialogue with shareholders and
other relevant stakeholders
The Board attaches great importance to communication with
both institutional and private shareholders.
Regular communication is maintained with our shareholders
primarily through:
our Annual General Meeting;
our investors’ dedicated email address: ir@ergomedplc.com;
our websites (www.ergomedplc.com,
www.primevigilance.com and https://psr-group.com);
meetings and conversations between the Executive Chairman
and shareholders, both on an ad-hoc basis, and following
publication of the interim and final results; and
company announcements.
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
give feedback regularly throughout the year. With private
shareholders this is not always practical and the Board uses the
Company’s Annual General Meeting as its main opportunity to
meet private shareholders. A presentation on the activities of
the Group is given at each AGM, and following the presentation
there is an opportunity for shareholders to ask questions of
Directors on a formal and informal basis, and to discuss the
development of the business.
Our Group website (www.ergomedplc.com) sets out details of
the Group and its activities, regulatory announcements and
company press releases, Annual Reports, half-year reports,
notices of general meetings and information required by the AIM
Rules for companies and the QCA Code. From the Company’s
2019 AGM, the Group website will also disclose the outcome of
votes at general meetings. The ‘Investors’ section of the Group
website includes a dedicated ‘Corporate Governance’ section,
where our annual Corporate Governance Statements can be
found. During the next 12 months we intend to enhance the
Corporate Governance section of our website to include clear
signposting to where the disclosures required by the QCA Code
are located (i.e. in our Annual Report or on our website).
We also use LinkedIn, Facebook and Twitter to communicate
with our stakeholders, including clients and employees, on
topics such as company news, exhibitions we are attending,
webinars we are involved in, company and employee
achievements and corporate social responsibility activities.
Dr Miroslav Reljanović
Executive Chairman
7 May 2019
28
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Audit and Risk Committee report
Membership of the Audit and Risk Committee comprises both of
the independent Non-Executive Directors of the Company, with
myself as Chair, and Michael Spiteri as the other member. Chris
Collins was Chair of the Committee during the 2018 financial
year and until his death in March 2019. Chris was an independent
Non-Executive Director with many years of corporate finance
experience and I would like to express my sincere thanks for his
stewardship of the Committee since the Company’s IPO in 2014.
Stephen Stamp, the Company’s Chief Executive Officer during
the 2018 financial year, attended all Committee meetings during
2018. In addition, senior management attended certain meetings
where relevant.
The Audit and Risk Committee meets at least twice each year
and may meet at other times during the year, as required.
During the 2018 financial year there were three meetings of the
Committee. The Company’s external auditors may be required
to attend Committee meetings, and attended all Committee
meetings held in 2018.
The Audit and Risk Committee’s main responsibilities are
as follows:
monitoring the integrity of the financial statements of the
Group and reviewing any significant reporting issues and
judgements they contain;
keeping under review the adequacy and effectiveness of the
internal financial controls and risk management systems;
reviewing, and challenging, where necessary, the clarity of
disclosure in the Company’s financial reports and the context
in which statements are made;
reviewing, and challenging, where necessary, the consistency
of, and any changes to, accounting policies, both on a year on
year basis and across the Company and its group;
considering and making recommendations to the Board in
relation to the appointment, re-appointment and removal of
the Company’s external auditor;
overseeing the relationship with the external auditor,
Activities during the year
In early 2018, as part of a review of the Company’s external audit
service, the Audit and Risk Committee invited certain audit firms
to participate in a formal tender process, following which it
recommended to the Board that KPMG, Dublin be proposed to
shareholders for appointment as the Company’s new auditors.
Shareholders approved the appointment at the Company’s
Annual General Meeting held on 12 June 2018 and KPMG were
appointed as the Company’s auditors with effect from the close
of that meeting. The Audit and Risk Committee has confirmed it
is satisfied with the independence, objectivity and effectiveness
of KPMG and has recommended to the Board that it be
reappointed as the Company’s auditors. There will be a
resolution to this effect at the forthcoming Annual General
Meeting.
In addition, the Audit and Risk Committee reviewed the
recommendations of the finance function and received reports
from the external auditor on their findings. The significant
reporting matters and judgements the Audit and Risk Committee
considered during the year included:
The carrying value of goodwill and other intangible assets
arising on the acquisition of Haemostatix, to determine
whether an impairment had been suffered. The Committee
reviewed the key financial assumptions underpinning the
impairment analysis and was satisfied that an impairment was
required and appropriate disclosure has been made (see the
Financial Review on pages 18 to 19 and Note 15 to the financial
statements on page 69).
The adoption of IFRS 15, Revenue for Contracts with
Customers. The Committee reviewed the accounting policy,
the impact on opening balances and the results for the year
and the disclosures in the financial statements. Key judgments
and estimates were communicated to the Audit and RIsk
Committee (see the Financial Review on pages 18 to 19 and
Note 1 to the financial statements on pages 48 to 52).
assessing their independence and effectiveness and making
recommendations on their remuneration; and
Peter George
Chair of the Audit and Risk Committee
reviewing the findings of the audit with the external auditor.
Ergomed plc Annual Report and Accounts 2018
29
Remuneration Committee report
Remuneration Committee governance
The Remuneration Committee currently consists of myself as Chair and Peter George, being all the Company’s independent
Non-Executive Directors. I became a member and Chair of the Remuneration Committee on 5 December 2018.
Chris Collins was Chair of the Remuneration Committee during the 2018 financial year until 5 December 2018, and remained a member
until his death in March 2019. I would like to take this opportunity to acknowledge and express gratitude for Chris’s significant
contribution to the work of the Remuneration Committee and to Ergomed as a whole. Stephen Stamp, who served as the Company’s
Chief Executive Officer during the 2018 financial year, was a member of the Remuneration Committee until 5 December 2018.
The Remuneration Committee meets at least twice a year, and may meet at other times during the year, as required. During the 2018
financial year there were three meetings of the Remuneration Committee. No Director is involved in any decisions relating to his
own remuneration.
The Remuneration Committee’s main responsibilities are as follows:
reviewing the ongoing appropriateness and effectiveness of the remuneration policy;
determining and recommending to the Board the remuneration package of Executive Directors and the Company’s Chairman;
recommending to the Board and monitoring the level and structure of remuneration for senior management;
approving the design of, and determining targets for, any performance related pay schemes and approving the total annual
payments made under such schemes;
reviewing the design of all share incentive plans and determining each year whether awards will be made; and
reviewing payments made on termination.
Remuneration policy overview
The Remuneration Committee has established a policy which 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.
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; and
total compensation between average and upper quartile.
Salary
Base salaries are generally reviewed annually and effective from the beginning of March or April, depending on the Group company.
The Remuneration Committee seeks to assess the market competitiveness of pay primarily in terms of total remuneration, with less
emphasis on base salary.
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 pays an employer pension contribution of 10% of base salary to personal pension schemes established by the Executive
Directors. Its pension provision for employees varies in accordance with local law and practice. It does not operate any defined
benefit pension schemes.
30
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Share options
The Company issues share options to Executive Directors and employees to reward performance, to encourage loyalty and to
enable valued employees to share in the success of the Company.
the Unapproved Executive Share Option Scheme 2007;
Ergomed has established three share option schemes:
i)
ii) the Stahel Option Agreement; and
iii) the Ergomed plc Long Term Incentive Plan.
In addition, certain Executive Directors and employees hold options over shares held by Dr Miroslav Reljanović.
Directors’ remuneration
The Executive Directors during the year, Dr Miroslav Reljanović, Stuart Jackson, Andrew Mackie, Jan Petracek and Stephen Stamp
were entitled to receive base salary, travel allowance, employer pension contributions, share options and a discretionary
performance-related bonus.
The Non-Executive Directors do not participate in the Group’s pension, bonus or option schemes.
The Directors received the following remuneration during the year:
Name of Director
Peter George
Stephen Stamp1, 2
Dr Miroslav Reljanović3
Andrew Mackie4
Jan Petracek
Chris Collins5
Michael Spiteri6
Stuart Jackson7
Fees &
salary
£000s
111,667
189,583
148,940
150,000
200,000
42,500
12,500
99,462
Benefits
£000s
851
2,551
904
2,823
Annual
bonus
£000s
Pension
£000s
20,000
15,000
910
Severance
payment
£000s
Total
2018
£000s
111,667
210,434
151,491
165,904
203,733
42,500
12,500
99,462
1. Stephen Stamp and Andrew Mackie received private medical insurance as a benefit during the year.
2. Stephen Stamp resigned as a Director with effect from 22 January 2019.
3. Miroslav Reljanović has the occasional use of a Company-owned vehicle.
4. Andrew Mackie resigned as a Director on 1 October 2018.
5. Chris Collins died on 8 March 2019.
6. Michael Spiteri was appointed as a Director on 1 October 2018.
7. Stuart Jackson was appointed as a Director on 2 July 2018.
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.
The amount payable to the highest paid Director in respect of emoluments was £210,000 (2017: £276,000), comprising basic salary
of £189,000, healthcare benefits of £1,000 and pension contributions of £20,000.
Options granted to Directors as at 31 December 2018
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
Andrew Mackie1
24/12/2015
125,000
£1.69 03/06/2018
23/12/2025
Ergomed plc Long Term Incentive Plan
Jan Petracek
12/04/2017
50,000
£0.01
11/04/2020
11/04/2027
Ergomed plc Long Term Incentive Plan
02/07/2018
400,000
£0.01
01/07/2021 01/07/2028
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
Stuart Jackson
02/07/2018
400,000
£0.01
01/07/2021 01/07/2028
Ergomed plc Long Term Incentive Plan
Options over Ergomed shares owned by Dr Miroslav Reljanović:
Andrew Mackie1
Stephen Stamp
20/07/2015
20/07/2015
30/11/2016
30/11/2016
88,235
88,235
50,000
50,000
£0.01
£0.01
£0.01
£0.01
20/07/2015
20/07/2017
19/07/2025
19/07/2025
11/01/2017
11/01/2018
29/11/2026
29/11/2026
1. Disclosure is for period from 1 January 2018 to 1 October 2018.
No other options held by the Directors were exercised or lapsed during the year.
Michael Spiteri
Chair of the Remuneration Committee
Ergomed plc Annual Report and Accounts 2018
N/A
N/A
N/A
N/A
31
Directors’ report
for the year ended 31 December 2018
The Directors present their report and financial statements for
the Company and Group for the year ended 31 December 2018.
Principal activities
Ergomed is a global business focused on providing specialised
services to the pharmaceutical industry.
and its subsidiaries were charged £247,000 (2017: £266,000) by
Ergomed d.o.o. and its subsidiaries in respect of clinical research
costs and other administrative services. At 31 December 2018
a balance of £64,000 was owed by the Company and its
subsidiaries to Ergomed d.o.o. and its subsidiaries in respect
of these costs (2017: £40,000).
Business review and key performance indicators
The Group’s results are set out in the consolidated income
statement on page 39 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 Executive Chairman’s
review on pages 9 and 10.
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
(2017: £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 (Resigned 22 January 2019)
Dr Miroslav Reljanović
Andrew Mackie (Resigned 1 October 2018)
Michael Spiteri (Appointed 1 October 2018)
Stuart Jackson (Appointed 2 July 2018)
Jan Petracek
Christopher Collins (Died 8 March 2019)
At 31 December 2018, the Directors had the following beneficial
interests in the Company’s shares:
Directors’ interests
Peter George
Dr Miroslav Reljanović
Stephen Stamp
Stuart Jackson
Jan Petracek
Christopher Collins
Percentage
of total
issued
share
capital
1.74%
24.51%
0.45%
0.00%
0.94%
0.07%
Number of
shares
776,250
10,955,767
200,000
1,845
418,006
31,250
Biographical details of the Directors are set out on pages
22 and 23.
The interests of Directors in the options of the Company are set
out in the Remuneration Committee Report on pages 30 to 31.
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 38 for all related party transactions.
Tortuga Energy Services Limited is a company part-owned
by Stuart Jackson, who is a Director and shareholder of the
Company. During the year, the Company was charged
consultancy fees of £17,000 (2017: £nil) in relation to the services
of Stuart Jackson prior to his appointment as a director.
At 31 December 2018, amounts payable to Tortuga Energy
Services Limited in relation to such consultancy services and
associated expenses were £17,000 (2017: £nil).
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 contingent consideration. During the year £607,000
(2017: £472,000) was charged to the income statement in relation
to this
contingent consideration and was payable in cash and equity
at 31 December 2018.
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.
Share capital
As at 31 December 2018, the issued share capital of the
Company was 45,016,438 (2017: 42,680,813) issued and fully paid
up ordinary shares of £0.01 each (‘Ordinary Shares’).
The closing market price of the Company’s Ordinary Shares at
close of business on 29 December 2018, the last trading day of
the year, was 157.0 pence (2017: 183.5 pence).
The maximum share price during the period from 1 January 2018
through 31 December 2018, was 248.0 pence (2017: 216.5 pence)
and the minimum price was 145.0 pence (2017: 165.5 pence
per share).
Auditor
Each of the persons who is a Director at the date of approval of
this Annual Report confirms that:
so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
the Director has taken all the steps that he ought to have taken
as a Director to make himself aware of any relevant audit
information and to establish that the Company’s auditor is
aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the Companies
Act 2006.
Related party transactions
Ergomed d.o.o., a company registered in Croatia, is under
the control of Dr Miroslav Reljanović, who is a Director and
shareholder of the Company. During the year the Company
KPMG were appointed as auditors for 2018 in place of Deloitte
LLP, and have expressed their willingness to continue
in office as auditor. A resolution to re-appoint them will be
proposed at the forthcoming Annual General Meeting.
32
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare Group and
Company financial statements for each financial year. Under that
law they have elected to prepare the financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU)
and applicable law.
Under company law the Directors must not approve the Group
and Company financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group
and Company and of the Group’s profit or loss for that period.
In preparing 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, relevant
and reliable;
state whether the Group’s financial statements have been
prepared in accordance adopted with IFRSs as by the EU;
state whether the Company’s financial statements have been
prepared in accordance with FRS 101 Reduced Disclosure
Framework;
assess the Group and Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
use the going concern basis of accounting unless they either
intend to liquidate the Group or Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Group and Parent Company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They are responsible for such internal
control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the Group and Parent Company and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report and a Directors’
report that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Approved by the Board of Directors and signed on behalf of
the Board.
Stuart Jackson
Director
7 May 2019
Ergomed plc Annual Report and Accounts 2018
33
Independent auditor’s report
to the members of Ergomed plc
Our opinion is unmodified
We have audited the financial statements of Ergomed plc (‘the Company’) for the year ended 31 December 2018 which comprise
the Group income statement, the Group statement of comprehensive income, the Group and Parent Company balance sheets, the
Group and Parent Company statement of changes in equity, the Group cashflow statement and the related notes, including the
accounting policies in note 1. The financial reporting framework that has been applied in their preparation is UK Law and
International Financial Reporting Standards (‘IFRS') as adopted by the European Union.
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 2018 and of Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(‘IFRS') as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with FRS 101 Reduced Disclosure
Framework; and
the Group and Parent Company financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities section of our report. We are
independent of the Group and Parent Company in accordance with ethical requirements that are relevant to our audit of financial
statements in the UK, including the Financial Reporting Council (‘FRC')’s Ethical Standard as applied to a listed entity, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows:
Revenue recognition: Clinical research service (‘CRS') contracts
Valuation of Haemostatix goodwill and intangible assets impairment
Valuation of Haemostatix contingent consideration
Revenue recognition: Clinical research service (‘CRS’) contracts: £26.6 million (2017: £24.8 million)
Refer to Note 1 Accounting policies – Revenue recognition – Revenue from contracts with customers (page 58) and Note 3 Revenue
(page 63).
The key audit matter
How the matter was addressed in our audit
There is a risk that revenue from Clinical research service
contracts has not been appropriately recognised in line with the
percentage completed, as required by IFRS 15 Revenue from
contracts with customers.
Our audit procedures included, amongst others, testing the
design of management’s key controls over revenue recognition
including those controls over the estimation of the remaining
costs to complete the study.
Clinical research contracts represents one performance
obligation and revenue is recognised over time based on the
percentage of actual costs incurred divided by the total costs to
complete the contract.
Revenue recognition requires considerable management
estimation and judgement in determining the total costs to
complete.
For a sample of key contracts, we performed tests of detail over
the revenue amount recognised. We recalculated the revenue
amounts, agreed the transaction price to the signed contracts,
validated the reasonableness of key assumptions used by
reference to the terms of the applicable contracts and change
orders, reconciled the actual costs incurred to the general ledger
and agreed the estimated costs to completion to the underlying
data such as the contracts and the Company’s standard rates.
We inquired of project managers, independent of the revenue
team, as the status of the project, any on-going concerns, and the
expected remaining duration of the project.
We found that the revenue recognition policies are in accordance
with IFRS as adopted by the European Union and were
appropriately applied.
34
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Valuation of Haemostatix goodwill and intangible assets £nil (2017: £17.3 million)
Refer to Note 1 Accounting policies – Business combinations (page 54) and Note 15 – Goodwill – Group (page 69) and Note 16 Other
intangible assets – Group (page 71).
The key audit matter
How the matter was addressed in our audit
The Group recognised goodwill of £2.1 million and intangible
assets of £15.2 million from the acquisition of Haemostatix Ltd
in 2016.
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.
The clinical trials of Peprostat and ReadyFlow have been
delayed as the Company seeks partners to fund its
development. Conducting an impairment test to determine if the
carrying amount of goodwill is recoverable is complex,
judgemental and involves significant assumptions in determining
the timing of drugs coming to market, maximum sales of each
product, revenue growth rate, costs to complete and the
discount factor applied within the financial model.
We inquired of Directors about the plan and funding requirement
for the next phase of clinical trials, noting that the Company is
actively marketing the Haemostatix compounds for sale to other
parties. However, no partner or sale is considered probable
based on documents inspected.
Following an internal review of the expenditure required to
progress clinical trial of Peprostat and ReadyFlow and the
funding constraint, management have made the decision not to
fund beyond its current status.
As a result, the Board have made the decision to impair all of the
assets and liabilities relating to Haemostatix including the
goodwill and intangible asset amount of £2.1 million and £15.2
million respectively.
We found the net impairment charge recognised in the income
statement of £2.1 million for goodwill and £15.2 million for
intangible assets to be reasonable.
Valuation of Haemostatix contingent consideration £nil (2017: £11.6 million)
Refer to Note 1 Accounting policies – Business combinations (page 54) and Note 26 – Contingent and deferred consideration (page 79).
The key audit matter
How the matter was addressed in our audit
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 £20 million 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 delays in the development of the Haemostatix
compounds, there is an increased risk that the contingent
consideration will not be payable or that the fair value of the
liability is significantly reduced.
We inquired of management regarding the fair value calculation
of the contingent consideration in light of the delays in
developments and the funding constraint.
As a result of the impairment of the goodwill and intangible asset
relating to Haemostatix discussed earlier, the fair value of the
contingent consideration is deemed to be zero and the full
contingent consideration amount of £11.6 million was released
to the income statement.
We found that the fair value of the contingent consideration
is appropriate.
Parent Company key audit matters
Revenue recognition: Clinical research service (‘CRS') contracts
Refer to Note 1 Accounting policies – Revenue recognition – Revenue from contracts with customers (page 58) and Note 3 Revenue
(page 63).
The key audit matter
How the matter was addressed in our audit
The Company generate revenue from clinical research services.
Similar to the risks at the group level, there is a risk that revenue
from Clinical research service contracts has not been
appropriately recognised in line with the percentage completed,
as required by IFRS 15 Revenue from contracts with customers.
Clinical research contracts represents one performance
obligation and revenue is recognised over time based on the
percentage of actual costs incurred divided by the total costs to
complete the contract.
Revenue recognition requires considerable management
estimation and judgement in determining the total costs to
complete.
Our audit procedures included, amongst others, testing the
design of management’s key controls over revenue recognition
including those controls over the estimation of the remaining
costs to complete the study.
For a sample of key contracts, we performed tests of detail over
the revenue amount recognised. We recalculated the revenue
amounts, agreed the transaction price to the signed contracts,
validated the reasonableness of key assumptions used by
reference to the terms of the applicable contracts and change
orders, reconciled the actual costs incurred to the general
ledger and agreed the estimated costs to completion to the
underlying data such as the contracts and the Company’s
standard rates.
We inquired of project managers, independent of the revenue
team, as the status of the project, any on-going concerns, and
the expected remaining duration of the project.
We found that the revenue recognition policies are in
accordance with IFRS as adopted by the European Union and
were appropriately applied.
Ergomed plc Annual Report and Accounts 2018
35
Independent auditor’s report continued
to the members of Ergomed plc
Valuation of Haemostatix financial fixed asset £nil (2017: £17.2 million)
Refer to Note 1 Accounting policies – Impairment of tangible and intangible assets excluding goodwill (page 55) and Note 18
Subsidiaries (page 73) and Note 19 Investments – Investments in subsidiaries (page 75).
The key audit matter
How the matter was addressed in our audit
The investment in Haemostatix is carried in the balance sheet at
costs less impairment.
Under IAS 36 an impairment review is required to be completed
annually and/or whenever there is an indication that the
Company, may be impaired.
There is a risk that the carrying value of this investment maybe
impaired as a result of the delays in the clinical trials of Peprostat
and ReadyFlow as the Company seeks partners to fund its
development.
Following an internal review of the expenditure required to
progress clinical trial of Peprostat and ReadyFlow and the
funding constraint, management have made the decision not to
fund beyond its current status.
As discussed above, the Board have made the decision to impair
all the assets and liabilities relating to Haemostatix including the
goodwill and intangible asset amount of £2.1 million and £15.2
million respectively at the group level and consequently the
financial fixed asset investment in the Haemostatix has also
been impaired at the Company level.
The impairment charge recognised in the income statement of
£17.2 million is reasonable.
Valuation of Haemostatix contingent consideration £nil (2017: £11.6 million)
Refer to Note 1 Accounting policies - business combinations (page 54) and Note 26 Contingent and deferred consideration (page 79).
The key audit matter
How the matter was addressed in our audit
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 £20 million 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 delays in the development of the Haemostatix
compounds, there is an increased risk that the contingent
consideration will not be payable or that the fair value of the
liability is significantly reduced.
We inquired of management regarding the fair value calculation
of the contingent consideration in light of the delays in
developments and the funding constraint.
As a result of the impairment of the goodwill and intangible
asset relating to Haemostatix discussed earlier, the fair value of
the contingent consideration is deemed to be zero and the full
contingent consideration amount of £11.6 million was released to
the income statement.
We found that the fair value of the contingent consideration is
appropriate.
Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £0.5 million. This was calculated using a benchmark
of Group total revenue (of which it represents 1%). We consider total revenue to be the most appropriate benchmark as
it provides a more stable measure year on year than group profit before tax. For the Parent Company, materiality was set at
£0.4 million.
We report to the Audit and Risk Committee all corrected and uncorrected misstatements we identified through our audit with a
value in excess of £0.026 million, in addition to other audit misstatements below that threshold that we believe warrant reporting on
qualitative grounds.
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, PSR Group BV, Ergomed
Virtuoso Sarl and PrimeVigilance s.r.o. were subject to a full audit. The seven 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.
We have engaged KPMG Czech Republic as component auditors for the year ended 31 December 2018 to report on PrimeVigilance
s.r.o. We, as Group auditor, instructed component auditors as to the significant areas to be covered, including the relevant risks
detailed above and the information to be reported back. The Group audit team approved the materiality for components which
ranged from £0.036 million to £0.443 million, having regard to the mix of size and risk profile of the Group across the components.
The locations subject to total audit procedures represent the principal business units and account for 98% of the Group’s revenue
for the year ended 31 December 2018. They were also selected to provide an appropriate basis for undertaking audit work to
address the risks of material misstatement identified above.
At the Group 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.
36
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Other matter - the impact of uncertainties due to the UK exiting the European Union on our audit
Uncertainties related to the effects of Brexit are relevant to understanding our audit of the financial statements. Some of the
uncertainties arising from Brexit may impact certain of the financial statement captions in the financial statements. The preparation
of the financial statements on a going concern basis and the financial statement caption containing estimates all depend on
assessments of the future economic environment and the group’s future prospects and performance.
Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented
levels of uncertainty of outcomes, with the full range of possible effects unknown. No audit should be expected to predict the
unknowable factors or all possible future implications for a Company and this is particularly the case in relation to Brexit.
We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or
Parent Company or to cease their operations, and as they have concluded that the Group and the Parent Company’s financial
position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial
statements (‘the going concern period’).
We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or
there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year
from the date of approval of the financial statements. We have nothing to report in these respects.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty
in this auditor’s report is not a guarantee that the Group or the Parent Company will continue in operation.
Other information
The Directors are responsible for the other information presented in the Annual Report together with the financial statements. The
other information comprises the information included in the strategic and Directors’ report other than the financial statements and
our auditor’s report thereon. The financial statements and our auditor’s report thereon do not comprise part of the other information.
Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements’ audit work,
the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the other information.
Based solely on our work on the other information:
we have not identified material misstatements in the Directors report or the strategic report;
in our opinion, the information given in the Directors’ report and the strategic report is consistent with the financial statements;
in our opinion, the Directors’ report and the strategic report have been prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception
Under the Companies Act 2006 we are required to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not
visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
Respective responsibilities and restrictions on use
Responsibilities of Directors for the financial statements
As explained more fully in the Directors’ responsibilities statement set out on page 33, the Directors are responsible for: the
preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error; assessing the Group and 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 they either intend to liquidate the Group or Parent
Company or to cease operations, or have no realistic alternative but to do so.
Ergomed plc Annual Report and Accounts 2018
37
Independent auditor’s report continued
to the members of Ergomed plc
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 fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of our audit work and to whom we owe our responsibilities
Our 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.
John Corrigan (Senior Statutory Auditor)
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place,
St. Stephen’s Green,
Dublin 2,
Ireland.
7 May 2019
38
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Consolidated income statement
For the year ended 31 December 2018
Service revenue
Licence revenue
Revenue
Cost of sales
Reimbursable expenses
Gross profit
Selling and general administration expenses
Selling and general administration expenses comprises:
Other selling and general administration expenses
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Acquisition-related contingent compensation
Change in the fair value of contingent consideration for acquisitions
Acquisition costs
Exceptional items
Research and development
Net impairment losses on financial and contract assets
Other operating income
Operating loss
Investment income
Unrealised gains on equity investments
Finance costs
Loss before taxation
Taxation
Loss for the year
Loss per share
Basic
Diluted
2018
£000s
54,112
–
54,112
(26,788)
(8,070)
19,254
(28,152)
(16,701)
(1,286)
(758)
(972)
233
(174)
(8,494)
(1,578)
(9)
39
(10,446)
23
277
(622)
(10,768)
1,788
Restated
2017
£000s
47,254
370
47,624
(22,398)
(7,609)
17,617
(19,784)
(13,555)
(1,167)
(1,033)
(752)
(2,875)
(259)
(143)
(2,689)
834
118
(3,904)
3
–
(546)
(4,447)
(57)
(8,980)
(4,504)
(20.0)p
(20.0)p
(11.0)p
(11.0)p
Notes
3, 4
16
31
7
8
9
10
19
11
13
5
14
14
All activities in the current and prior period relate to continuing operations.
Profit or loss and each component of other comprehensive income are attributable to the owners of the Company.
The notes on pages 47 to 93 form an integral part of these financial statements.
The re-statement of the income statement for 2017 is explained in note 1.
Ergomed plc Annual Report and Accounts 2018
39
Consolidated statement of comprehensive income
For the year ended 31 December 2018
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 for the year
2018
£000s
2017
£000s
(8,980)
(4,504)
120
120
619
619
(8,860)
(3,885)
Profit or loss and each component of other comprehensive income are attributable to the owners of the Company.
40
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Consolidated balance sheet
As at 31 December 2018
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Equity investments at fair value through profit and loss
Investments
Deferred tax asset
Current assets
Trade and other receivables
Other current assets
Accrued income
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Trade and other payables
Contingent and deferred consideration
Deferred revenue
Current tax liability
Total current liabilities
Net current assets
Non-current liabilities
Borrowings
Provisions
Contingent and 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 47 to 93 form an integral part of these financial statements.
Approved by the Board of Directors and authorised for issue on 7 May 2019.
Stuart Jackson
Director
Company Registration No. 04081094
Notes
2018
£000s
2017
£000s
15
16
17
19
19
20
21
22
23
24
25
26
24
26
20
27
28
29
30
30
13,659
3,740
1,344
2,065
–
581
15,269
20,229
1,078
–
754
1,613
21,389
38,943
16,429
–
3,857
5,189
25,475
46,864
(6)
(10,989)
(119)
(5,651)
(422)
16,807
502
2,443
3,218
22,970
61,913
(12)
(10,717)
(1,957)
(976)
(201)
(17,187)
(13,863)
8,288
9,107
–
(216)
(544)
(554)
(6)
–
(9,804)
(3,397)
(18,501)
(27,070)
28,363
34,843
452
24,384
11,088
3,430
882
(11,873)
428
20,616
11,008
2,674
762
(645)
28,363
34,843
Ergomed plc Annual Report and Accounts 2018
41
Consolidated statement of changes in equity
For the year ended 31 December 2018
Balance at 31 December 2016
Loss for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with shareholders in their capacity
as shareholders:
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
Total transactions with shareholders in their capacity
as shareholders
Balance at 31 December 2017
Cumulative effect of adopting IFRS 15 (note 1)
Balance at 1 January 2018
Loss for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with shareholders in their capacity
as shareholders:
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 debit taken directly to equity
Total transactions with shareholders in their capacity
as shareholders
Balance at 31 December 2018
Share
premium
account
£000s
17,957
–
–
–
2,659
–
–
–
–
2,659
20,616
–
20,616
–
–
–
3,768
–
–
–
–
3,768
Share-
based
payment
reserve
£000s
1,829
–
–
–
–
–
(188)
1,033
–
845
2,674
–
2,674
–
–
–
–
–
(2)
758
–
756
Translation
reserve
£000s
143
–
619
619
–
–
–
–
–
–
762
–
762
–
120
120
–
–
–
–
–
–
Merger
reserve
£000s
10,264
–
–
–
–
555
189
–
–
744
11,008
–
11,008
–
–
–
–
80
–
–
–
80
Retained
earnings
£000s
3,799
(4,504)
–
Total
£000s
34,398
(4,504)
619
(4,504)
(3,885)
–
–
–
–
60
60
(645)
(2,232)
(2,877)
(8,980)
–
2,677
558
2
1,033
60
4,330
34,843
(2,232)
32,611
(8,980)
120
(8,980)
(8,860)
–
–
–
–
(16)
3,789
81
–
758
(16)
(16)
4,612
24,384
11,088
3,430
882
(11,873)
28,363
Share
capital
£000s
406
–
–
–
18
3
1
–
–
22
428
–
428
–
–
–
21
1
2
–
–
24
452
42
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Consolidated cash flow statement
For the year ended 31 December 2018
Cash flows from operating activities
Loss before taxation
Adjustment for:
Amortisation and depreciation
Impairment of goodwill, intangibles and other assets
Loss/(gain) on disposal of fixed assets
Share-based payment charge
Equity investments received in exchange for services provided
Acquisition costs
Change in the fair value of contingent consideration for acquisition
Investment income
Finance costs
Operating cash flow before changes in working capital and provisions
Increase in trade and other receivables
Increase in other current assets
Increase in trade and other payables
Cash generated from operations
Taxation received/(paid)
Net cash inflow from operating activities
Investing activities
Investment income received
Acquisition of intangible assets
Acquisition of property, plant and equipment
Receipts from sale of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Acquisition related earn-out paid
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/(decrease) in cash and cash equivalents
Effect of foreign currency on cash balances
Cash and cash equivalents at start of the year
Cash and cash equivalents at end of year
Notes
2018
£000s
2017
£000s
(10,768)
(4,447)
16,17
15,16
17
31
19
9
10,19
11
16
17
17
33,34
26
27,28
27,28
23
2,534
18,222
33
758
(1,054)
–
(11,617)
(300)
622
(1,570)
(505)
(248)
3,221
898
146
1,044
5
(753)
(834)
7
(410)
(751)
(2,736)
3,973
(183)
(4)
–
(12)
3,774
2,082
(111)
3,218
5,189
1,626
(7)
1,033
(462)
218
2,875
(3)
546
1,379
(3,445)
(262)
2,753
425
(355)
70
3
(704)
(721)
11
(1,946)
(559)
(3,916)
2,900
(224)
(2)
20
(10)
2,684
(1,162)
(44)
4,424
3,218
Ergomed plc Annual Report and Accounts 2018
43
Company balance sheet
As at 31 December 2018
Non-current assets
Intangible assets
Property, plant and equipment
Equity investments at fair value through profit and loss
Investments
Investments in subsidiaries
Deferred tax asset
Current assets
Trade and other receivables
Accrued income
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contingent consideration
Deferred revenue
Total current liabilities
Net current (liabilities)/assets
Non-current liabilities
Contingent 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
2018
£000s
2017
£000s
16
17
19
19
19
20
21
23
25
26
26
20
27
28
29
30
30
821
74
2,065
–
23,585
581
436
96
–
754
38,864
678
27,126
40,828
7,949
3,181
1,250
12,380
39,506
14,524
1,378
288
16,190
57,018
(18,365)
–
(4,949)
(12,074)
(1,957)
(855)
(23,314)
(14,886)
(10,934)
1,304
(544)
(12)
(9,804)
(12)
(23,870)
(24,702)
15,636
32,316
452
24,384
11,088
3,430
4,166
(27,884)
428
20,616
11,008
2,674
3,693
(6,103)
15,636
32,316
The notes on pages 47 to 93 form an integral part of these financial statements.
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 £19,829,000 (2017: £4,050,000).
Approved by the Board of Directors and authorised for issue on 7 May 2019.
Stuart Jackson
Director
Company Registration No. 04081094
44
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Company statement of changes in equity
For the year ended 31 December 2018
Balance at 31 December 2017
Loss for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with shareholders in their capacity
as shareholders:
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
Total transactions with shareholders in their capacity
as shareholders
Balance at 31 December 2017
Cumulative effect of adopting IFRS 15 (note 1)
Balance at 1 January 2018
Loss for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with shareholders in their capacity
as shareholders:
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 debit taken directly to equity
Total transactions with shareholders in their capacity
as shareholders
Balance at 31 December 2018
Share
premium
account
£000s
17,957
–
–
–
2,659
–
–
–
–
2,659
20,616
–
20,616
–
–
–
3,768
–
–
–
–
3,768
Share-
based
payment
reserve
£000s
1,829
–
–
–
–
–
(188)
1,033
–
845
2,674
–
2,674
–
–
Translation
reserve
£000s
2,550
–
1,143
1,143
Retained
earnings
£000s
(2,113)
(4,050)
–
Total
£000s
30,893
(4,050)
1,143
(4,050)
(2,907)
–
–
–
–
–
–
–
–
–
–
60
60
3,693
–
3,693
–
473
(6,103)
(1,936)
(8,039)
(19,829)
–
2,677
558
2
1,033
60
4,330
32,316
(1,936)
30,380
(19,829)
473
–
473
(19,829)
(19,356)
–
–
(2)
758
–
756
–
–
–
–
–
–
–
–
–
–
(16)
3,789
81
–
758
(16)
(16)
4,612
Merger
reserve
£000s
10,264
–
–
–
–
555
189
–
–
744
11,008
–
11,008
–
–
–
–
80
–
–
–
80
24,384
11,088
3,430
4,166
(27,884)
15,636
Share
capital
£000s
406
–
–
–
18
3
1
–
–
22
428
–
428
–
–
–
21
1
2
–
–
24
452
Ergomed plc Annual Report and Accounts 2018
45
Notes to the financial statements
For the year ended 31 December 2018
1. Accounting policies
Group
Ergomed plc (the ‘Company’) is a public company limited by shares. Its registered address is 1 Occam Court, Surrey Research Park,
Guildford, Surrey, GU2 7HJ, UK. Ergomed plc and its wholly owned subsidiaries (together the ‘Group’) 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, India, 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 7 May 2019.
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 separate financial statements of the Company are drawn up in accordance with the Companies Act 2006 and the reduced
disclosure framework within Financial Reporting Standard 101 (‘FRS 101'). On publishing the parent company financial statements
here together with the group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act
2006 not to present its individual income statement, cash flow statement and related notes that form a part of these approved
financial statements. The Company has also taken advantage of the disclosure exemptions in FRS 101 relating to share-based
payments, business combinations, financial instruments and fair value measurement.
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 transactions between the members of the
Group are eliminated on consolidation.
46
Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
When the Group loses control of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference
between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All
amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had
directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another
category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at
the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial
Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or
jointly controlled entity.
Going concern
The financial statements have been prepared on the going concern basis, which assumes that the Group will have sufficient funds
to continue in operational existence for the foreseeable future, being a period of no less than 12 months from the date of signing of
the financial statements. The Directors have reviewed a cash flow forecast for the period ending 31 December 2019 through to 31
December 2021, which is derived from the 2019 Board approved budget, and a medium-term cash flow forecast through to 31
December 2021, which is an extrapolation of the approved budget under multiple scenarios and growth rates. The 2019 and
medium-term forecast represents the Directors’ best estimate of the Group’s future performance and necessarily includes a
number of assumptions, including the level of revenues. The 2019 and medium-term forecast demonstrate 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 the 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 16
IFRIC 23
Amendments to IFRS 9
Amendments to IAS 28
Various standards
Leases
Uncertainty over Tax Treatments
Prepayment Features with Negative Compensation
Long-term Interests in Associates and Joint Ventures
Annual Improvements to IFRS Standards 2015-2017 Cycle
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 for IFRS 16.
IFRS 16, Leases (mandatory for years commencing on or after 1 January 2019) (‘IFRS 16’)
IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the
underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor
accounting substantially unchanged from the previous guidance.
The Group is currently evaluating the impact of adopting IFRS 16. However, the adoption of IFRS 16 is likely to have a material impact
on the consolidated financial statements due to the following:
It is anticipated that lease assets of approximately £7 million and a corresponding lease liability will be recorded upon adoption.
Under current guidance, the costs in respect of operating leases are charged to the income statement on a straight line basis over
the lease term as a lease expense. Under IFRS 16, the costs in respect of leases are the depreciation of the right-of-use asset and
an imputed interest charge arising on the lease liability. This may result in lease expenses being recognized sooner under IFRS 16
than under previous guidance, however the impact is not anticipated to be material to the consolidated income statement.
Under IFRS 16, the lease expense will be replaced by depreciation and interest charges, which will be excluded from our key
performance metric, EBITDA. The impact is anticipated to be an improvement in EBITDA of approximately £1,700,000 in 2019.
The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative
effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained losses at 1 January 2019, with no
restatement of comparative information.
Ergomed plc Annual Report and Accounts 2018
47
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
Accounting standards adopted in the period
IFRS 15, Revenue from Contracts with Customers (‘IFRS 15’)
The Group adopted IFRS 15 with a date of initial application of 1 January 2018. The revenue recognition accounting policy applied in
preparation of the results for the year ended 31 December 2018 therefore reflects the application of IFRS 15. The Group has
elected to adopt the standard using the cumulative effect transition method. Under this transition method, the new standard has
been applied as at the date of initial application without restatement of comparative amounts. The cumulative effect of initially
applying the new standard (to revenue, costs and tax) is recorded as an adjustment to the opening balance of equity at the date of
initial application. The comparative information has not been adjusted and therefore continues to be reported under IAS 18,
‘Revenue Recognition’.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the
contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation. The most significant impact of
application of the standard relates to our assessment of performance obligations and percentage of completion in respect of our
clinical trial service revenue. Prior to application of IFRS 15, the revenue attributable to performance was determined based on both
input and output methods of measurement. We have concluded that under the new standard, a clinical trial is a single performance
obligation satisfied over time i.e. the full service obligation in respect of a clinical trial (including those services performed by
investigators and other parties) is considered a single performance obligation. Promises offered to the customer are not distinct
within the context of the contract. We have concluded that the Group is the contract principal in respect of both direct services and
in the use of third parties (principally investigator services) that support the clinical research trial. The transaction price is
determined by reference to the contract or change order value (total service revenue and pass-through/reimbursable expenses)
adjusted to reflect a realisable contract value. Revenue is recognized as the single performance obligation is satisfied. The progress
towards completion for clinical service contracts is measured therefore based on an input measure being project costs incurred to
date as a proportion of total project costs (inclusive of third party costs) at each reporting period.
The reimbursement revenues are also not presented separately from service fee revenue under IFRS 15 because the
reimbursement revenues and the service fees are considered as a single performance obligation.
48
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
The cumulative effect of initially applying the IFRS 15 as of 1 January 2018 is as follows:
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Equity investments at fair value through profit and loss
Deferred tax asset
Current assets
Trade and other receivables
Other current assets
Accrued income
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Trade and other payables
Contingent and deferred consideration
Deferred revenue
Current tax liability
Total current liabilities
Net current assets
Non-current liabilities
Borrowings
Contingent and 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
Under
IFRS 15
£000s
Adjustment
£000s
Under
IAS 18
£000s
15,269
20,229
1,078
754
1,613
38,943
16,807
502
2,836
3,218
23,363
62,306
(12)
(10,717)
(1,957)
(3,587)
(201)
(16,474)
6,889
(6)
(9,804)
(3,411)
(29,695)
32,611
428
20,616
11,008
2,674
762
(2,877)
32,611
–
–
–
–
–
–
–
–
(393)
–
(393)
(393)
–
–
–
2,611
–
2,611
2,218
–
–
14
2,625
2,232
–
–
–
–
–
2,232
2,232
15,269
20,229
1,078
754
1,613
38,943
16,807
502
2,443
3,218
22,970
61,913
(12)
(10,717)
(1,957)
(976)
(201)
(13,863)
9,107
(6)
(9,804)
(3,397)
(27,070)
34,843
428
20,616
11,008
2,674
762
(645)
34,843
Ergomed plc Annual Report and Accounts 2018
49
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
The impact of adopting IFRS 15 on the consolidated balance sheet for the year ended 31 December 2018 compared to the revenue
determined in accordance with IAS 18, Revenue (‘IAS 18') is as follows:
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Equity investments at fair value through profit and loss
Deferred tax asset
Current assets
Trade and other receivables
Accrued income
Cash and cash equivalents
Total assets
Current liabilities
Borrowings
Trade and other payables
Contingent and deferred consideration
Deferred revenue
Current tax liability
Total current liabilities
Net current assets
Non-current liabilities
Provisions
Contingent and 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
As
reported
£000s
Adjustment
£000s
Under
IAS 18
£000s
13,659
3,740
1,344
2,065
581
21,389
16,429
3,857
5,189
25,475
46,864
(6)
(10,989)
(119)
(5,651)
(422)
(17,187)
8,288
(216)
(544)
(554)
(18,501)
28,363
452
24,458
11,088
3,356
882
(11,873)
28,363
–
–
–
–
–
–
–
(651)
–
(651)
(651)
–
–
–
3,746
–
3,746
3,095
–
–
42
3,788
3,137
–
–
–
–
49
3,088
13,659
3,740
1,344
2,065
581
21,389
16,429
3,206
5,189
24,824
46,213
(6)
(10,989)
(119)
(1,905)
(422)
(13,441)
11,383
(216)
(544)
(512)
(14,713)
31,500
452
24,458
11,088
3,356
931
(8,785)
3,137
31,500
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Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
The impact of adopting IFRS 15 on the consolidated income statement for the year ended 31 December 2018 compared to the
revenue determined in accordance with IAS 18 is as follows:
Net service revenue
Reimbursement revenue
Revenue
Cost of sales
Reimbursable expenses
Gross profit
Selling, general and administration expenses
Selling, general and administration expenses comprises:
Other selling, general and administration expenses
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Acquisition-related contingent compensation
Change in the fair value of contingent consideration for acquisitions
Acquisition costs
Exceptional items
Research and development
Net impairment losses on financial and contract assets
Other operating income
Operating loss
Investment income
Unrealised gains on equity investments
Finance costs
Loss before taxation
Taxation
Loss for the year
Loss per share
Basic
Diluted
As
reported
£000s
54,112
–
54,112
(26,767)
(8,091)
19,254
(28,152)
(16,701)
(1,286)
(758)
(972)
233
(174)
(8,494)
(1,578)
(9)
39
(10,446)
23
277
(622)
(10,768)
1,788
(8,980)
Adjustment
£000s
(7,261)
8,091
830
–
–
830
–
–
–
–
–
–
–
–
–
–
–
830
–
–
–
830
26
856
Under
IAS 18
£000s
46,851
8,091
54,942
(26,767)
(8,091)
20,084
(28,152)
(16,701)
(1,286)
(758)
(972)
233
(174)
(8,494)
(1,578)
(9)
39
(9,616)
23
277
(622)
(9,938)
1,814
(8,124)
(20.0)p
(20.0)p
(18.1)p
(18.1)p
Ergomed plc Annual Report and Accounts 2018
51
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
The impact of adopting IFRS 15 on the consolidated cash flow statement for the year ended 31 December 2018 compared to the
revenue determined in accordance with IAS 18 is as follows:
Cash flows from operating activities
Loss before taxation
Adjustment for:
Amortisation and depreciation
Impairment of goodwill and intangibles
Gain on disposal of fixed assets
Share-based payment charge
Equity investments received in exchange for services provided
Change in the fair value of contingent consideration for acquisition
Investment income
Finance costs
Operating cash flow before changes in working capital and provisions
Increase in trade and other receivables
Increase in other current assets
Increase in trade and other payables
Cash generated from operations
Taxation received
Net cash inflow from operating activities
Investing activities
Investment income received
Acquisition of intangible assets
Acquisition of property, plant and equipment
Receipts from sale of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Acquisition related earn-out paid
Net cash outflow from investing activities
Financing activities
Issue of new shares
Expenses of fundraising
Finance costs paid
Repayment of borrowings
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Effect of foreign currency on cash balances
Cash and cash equivalents at start of the year
Cash and cash equivalents at end of year
As
reported
£000s
Adjustment
£000s
Under
IAS 18
£000s
(10,768)
830
(9,938)
2,534
18,222
33
758
(1,054)
(11,617)
(300)
622
(1,570)
(505)
(248)
3,221
898
146
1,044
5
(753)
(834)
7
(410)
(751)
(2,736)
3,973
(183)
(4)
(12)
3,774
2,082
(111)
3,218
5,189
–
–
–
–
–
–
–
–
830
266
–
(1,096)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,534
18,222
33
758
(1,054)
(11,617)
(300)
622
(740)
(239)
(248)
2,125
898
146
1,044
5
(753)
(834)
7
(410)
(751)
(2,736)
3,973
(183)
(4)
(12)
3,774
2,082
(111)
3,218
5,189
IFRS 9, Financial Instruments (‘IFRS 9’)
IFRS 9 replaces the previous guidance relating to the recognition, classification and measurement of financial assets and financial
liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from
1 January 2018 resulted in changes in accounting policies. The new accounting policies are set out below. In accordance with the
transitional provisions of IFRS 9, comparative figures have not been restated. The adoption of IFRS 9 had no impact on the opening
balance sheet or the retained losses of the Group.
(i) Classification and measurement
On 1 January 2018 (the date of initial application of IFRS 9), the Group’s management has assessed which business models apply to
the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. The primary
effects resulting from this reclassification are that the Group’s investments in privately held companies of £754,000, which were
previously held at amortised cost due to an exemption available under the previous guidance, are now measured at fair value
through the profit and loss. This did not have a material impact on the consolidated financial statements.
One of the privately-held investments, Asarina Pharma AB, a co-development partner, completed a public offering and listing on
the Nasdaq First North Exchange in 2018 and subsequently the investment in equity was publicly traded.
52
Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
(ii) Impairment of financial assets
The Group’s financial assets held at amortised cost are subject to IFRS 9’s new expected credit loss model. The Group’s financial
assets held at amortised cost are trade receivables, accrued income and cash and cash equivalents. Applying the expected credit
risk model resulted in the recognition of a loss allowance of £9,000 as at 31 December 2018.
Re-statement of prior year consolidated income statement
There has been a re-allocation of costs between Cost of sales and Selling, general and administration expenses resulting in a
re-statement of the income statement for the year ended 31 December 2017. This change in allocation arises as a result of improved
systems and visibility on personnel utilisation and associated costs and is required to enable comparisons between the current and
prior periods.
The impact on the consolidated income statement is set out below.
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
Acquisition-related contingent compensation
Change in the fair value of contingent consideration for acquisitions
Acquisition costs
Exceptional items
Research and development
Other operating income
Operating loss
Investment revenues
Finance costs
Loss before taxation
Taxation
Loss for the year
2017
Previously
reported
£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)
Adjustment
£000s
–
–
–
–
2,996
–
2,996
(2,996)
(2,996)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
Re-stated
£000s
39,645
370
7,609
47,624
(22,398)
(7,609)
17,617
(18,950)
(12,721)
(1,167)
(1,033)
(752)
(2,875)
(259)
(143)
(2,689)
118
(3,904)
3
(546)
(4,447)
(57)
(4,504)
Loss per share, basic and diluted, consolidated balance sheet and consolidated statement of cash flows have not been restated.
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
Ergomed plc Annual Report and Accounts 2018
53
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
Business combinations
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 and the equity interest issued by the Group in exchange for control of the
acquiree. Contingent consideration in a business combination is measured at fair value, which is calculated as the sum of the
acquisition-date fair values of assets expected to be transferred by the Group to the former owners of the acquiree and the equity
interest to be issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss
as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured
in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition
date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date
amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of
any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the
excess is recognised immediately in profit or loss as a bargain purchase gain.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted
during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained
about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as
of that date.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date).
Goodwill is measured as the excess of the fair value of the sum of the consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the
acquisition-date fair value 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 (prior to the adoption of IFRS 9 on 1 January 2018)
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.
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Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
Costs associated with the development of computer software are initially capitalised at cost which includes the purchase price (net
of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditure,
including employee costs, which enhances or extends the performance of computer software beyond its specifications and which
can be reliably measured, is added to the original cost of the software. Costs associated with maintaining the computer software are
recognised as an expense when incurred.
The computer software under development is currently under construction and so no amortisation has been recognised in the
current year. The asset will subsequently be carried at cost less accumulated amortisation and accumulated impairment losses.
These costs will be amortised to profit or loss using the straight line method over their estimated useful lives of five years, once the
asset is in use.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair
value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately, as follows.
Customer 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 reporting 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 (prior to the adoption of IFRS 9 on 1 January 2018)
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.
Ergomed plc Annual Report and Accounts 2018
55
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
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 instruments (after the adoption of IFRS 9 on 1 January 2018)
On 1 January 2018, the Group adopted new guidance on financial instruments included in IFRS 9.
(i) Classification
From 1 January 2018, the Group classifies its financial assets in the following measurement categories:
those to be measured subsequently at fair value (either through other comprehensive income (‘FVOCI') or through profit or loss
(‘FVPL')); and
those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash
flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. The group reclassifies debt
investments when and only when its business model for managing those assets changes.
(ii) Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to
purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from them have expired or have
been transferred and the Group has transferred substantially all the risks and rewards of ownership.
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(iii) Measurement
At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at FVPL,
transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at
FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining
whether their cash flows are solely payment of principal and interest.
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow
characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:
Amortised cost: Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments
of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance
income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss
and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a
separate line item in the statement of profit or loss.
FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash
flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses,
which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised
in OCI is reclassified from OCI to profit or loss and recognised in other gains/(losses). Interest income from these financial assets
is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other
gains/(losses), and impairment expenses are presented as a separate line item in the statement of profit or loss.
FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment
that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in
which it arises.
Equity instruments
The Group subsequently measures all equity investments at fair value. The Group has elected to present fair value gains and losses
on equity investments in the profit and loss. Changes in the fair value of financial assets at FVPL are recognised in other gains/
(losses) in the statement of profit or loss as applicable.
(iv) Impairment
Trade and other receivables
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract
assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled
work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The
group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates
for the contract assets. The expected loss rates are based on historical credit losses as a percentage of revenues adjusted to reflect
current and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
The loss allowance as at 31 December 2018 was determined as follows for both trade receivables and contract assets:
Current
Less than 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
More than 90 days overdue
Group
Trade
receivables
before
allowance
for losses
£000s
7,343
2,955
699
264
483
11,744
Expected
credit
losses
0.0%
0.0%
0.5%
0.5%
1.0%
Company
Trade
receivables
before
allowance
for losses
£000s
3,140
402
43
82
110
3,777
Allowance
for losses
£000s
–
–
–
–
(1)
(1)
Allowance
for losses
£000s
Expected
credit
losses
0.0%
0.0%
0.5%
0.5%
1.0%
–
–
(3)
(1)
(5)
(9)
Cash and cash equivalents
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, no material impairment loss
was identified.
Ergomed plc Annual Report and Accounts 2018
57
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognised at the value of 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 FVPL’ or ‘other financial liabilities’.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
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.
Fair value measurements
Fair value measurements are categorised as Level 1, 2 or 3 within the fair value hierarchy. The fair value hierarchy categories inputs
to valuation techniques into the following levels, based on their observability:
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities)
is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by
the group is the current bid price. These instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives)
is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on
entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in
level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the end of the reporting period. During
the year ended 31 December 2018, the equity investment in Asarina Pharma AB transferred from level 3 to level 1 of the fair value
hierarchy due to Asarina becoming a publicly traded entity during the period. For transfers into and out of level 3 measurements,
see note 32.
Assets and liabilities that are measured at fair value on a recurring basis, including equity investments and contingent consideration,
are described in note 32. During the year ended 31 December 2018, goodwill and intangible assets were measured at fair value after
initial recognition due to the assets being impaired during the period. The fair value measurement of the assets would be
categorised in level 3 of the fair value hierarchy.
Revenue recognition
Revenue from contracts with customers (after the adoption of IFRS 15 on 1 January 2018)
The Group adopted IFRS 15 with a date of initial application of 1 January 2018. The revenue recognition accounting policy applied in
preparation of the results for the year ended 31 December 2018 therefore reflects the application of IFRS 15. The Group has elected
to adopt the standard using the cumulative effect transition method. Under this transition method, the new standard has been
applied as at the date of initial application without restatement of comparative amounts. The cumulative effect of initially applying
the new standard (to revenue, costs and tax) is recorded as an adjustment to the opening balance of equity at the date of initial
application. The comparative information has not been adjusted and therefore continues to be reported under IAS 18,
‘Revenue Recognition’.
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The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the
contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
The Group primarily earns revenue from clinical research organisation (‘CRO') services and pharmacovigilance (‘PV') services.
Clinical Research Organisation services
The CRO services comprise clinical trial management from Phase I to IV on behalf of customers. The contract with the customer
defines the nature, quantity and price of the various services to be provided, which includes patient recruitment, data management,
regulatory affairs and adverse event case processing. The CRO services provided (included those provided by a third party and
reimbursed by the customer) under each contract are a single performance obligation satisfied over time. The Group is the contract
principal in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical
research project. The transaction price is determined by reference to the contract and change orders, including any pass-through or
reimbursable expenses, adjusted to reflect the amount the Group expects to be entitled to in exchange for transferring promised
goods or services to a customer. Revenue is recognised as the single performance obligation is satisfied. The progress towards
completion for CRO service contracts is measured based on an input measure being project costs incurred to date as a proportion
of total project costs (including third party costs) at each reporting period.
The service fees for CRO services are invoiced based on activities or milestones. Third party costs are invoiced to customers shortly
after they are incurred. Significant accrued income and deferred revenue can arise for the CRO services because the invoicing in
any accounting period may not represent the value of the services provided.
The Group recognizes accrued income, when the value of satisfied (or part satisfied) performance obligations is in excess of the
payment due to the Group, and deferred revenue (contract liability) when the amount of unconditional consideration is in excess of
the value of satisfied (or part satisfied) performance obligations. Once a right to receive consideration is unconditional, that amount
is presented as a receivable.
Changes in contract balances typically arise due to:
adjustments arising from a change in the estimate of the cost to complete the project, which results in a cumulative catch-up
adjustment to revenue that affects the corresponding contract asset or deferred revenue;
a change in the estimate of the transaction price due to changes in the assessment of whether variable consideration is
constrained because it is not considered probable of being received;
the recognition of revenue arising from deferred revenue; and
the reclassification of amounts to receivables when a right to consideration becomes unconditional.
Pharmacovigilance (PV) services
The pharmacovigilance services comprise contract support services to pharmaceutical, biotechnology and generics companies in
managing the global safety of their products from early clinical trial development to full post-marketing activities. The typical length
of a contract is 36 months, and the services include the collection, aggregation and reporting of safety issues related to drugs on
the market. The PV services are typically invoiced when an activity occurs in an amount that corresponds directly with the value to
the customer of the entity’s performance completed to date. Invoicing is based on prices specified in the service agreement with
the client. On evaluation of the five steps in the revenue recognition guidance, the Group has applied the practical expedient which
results in recognition of revenue on a right to invoice basis because the right to consideration from a customer corresponds directly
with the value to the customer of the Group’s performance completed to date. Application of the practical expedient reflects the
right to consideration from the customer in an amount that corresponds directly with the value to the customer of the performance
completion to date. This reflects hours performed by contract staff and the value of services provided.
Accrued income or deferred revenue may arise if a contract contains upfront or milestone payments.
Revenue recognition (prior to the adoption of IFRS 15)
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.
Ergomed plc Annual Report and Accounts 2018
59
Notes to the financial statements continued
For the year ended 31 December 2018
1. Accounting policies continued
Reimbursement revenue and reimbursable expenses (prior to the adoption of IFRS 15)
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 life cycle 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.
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 the functional currency at the
rates of exchange ruling at the reporting date. Transactions in foreign currencies are recorded at the rate ruling at the date of the
transaction. All differences are taken to the income statement.
The results and financial position of all the Group entities that have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
assets and liabilities for each balance sheet presented are translated at the closing rate at the reporting date;
income and expenses for each income statement are translated on a monthly basis at average exchange rates (unless this
average is not a reasonable approximation of the exchange rates at the dates of the transactions, in which case income and
expense items are translated at the exchange rates at the dates of the transactions); and
all resulting exchange differences are recognised directly in other comprehensive income.
Pensions
The pension costs charged in the financial statements represent the contributions payable by the Company during the year in
accordance with lAS 19.
Leasing and hire purchase commitments
Assets obtained under hire purchase contracts and finance leases are capitalised as tangible assets and depreciated over their
useful lives. Obligations under such agreements are included in creditors net of the finance charge allocated to future periods. The
finance element of the rental payment is charged to the income statement so as to produce a constant periodic rate of charge on
the net obligation outstanding in each period.
Rentals payable under operating leases are charged against income on a straight line basis over the lease term.
Share-based payments
The Group operates an equity-settled share-based option scheme under which the Group receives services from employees in
consideration for equity instruments (‘options’) of the Company. The fair value of the employees’ services received in exchange for
the grant of options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of
the options granted, excluding the impact of any non-market service and performance vesting conditions. The total amount
expensed is recognised over the vesting period, which is the period over which all the specified conditions are satisfied. At each
reporting date, the entity revises its estimates of the number of options that are expected to vest based on the non-market
vesting conditions.
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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.
The Group has acquired entities under terms which include equity-settled deferred contingent consideration payable to vendors,
which is equity classified. Where settlement of such deferred contingent 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 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 contingent consideration.
Exceptional items
In line with the way the Board and chief operating decision maker review the business, large one-off exceptional costs are shown 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 £11,866,000 (2017: £4,050,000).
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 from contracts with customers (after the adoption of IFRS 15)
The accounting policy for revenue from contracts with customers (after the adoption of IFRS) is detailed above.
There are significant management judgements and estimates involved in the recognition of revenue for the CRO contracts. Revenue
for CRO services is recognised based on the costs incurred on a project as a proportion of total expected costs to determine a
percentage of completion which is applied to the estimate of the transaction price. The most significant judgement involved in
determining the revenue is the assessment of percentage of completion. The percentage of completion for the CRO contracts is
measured based on an input measure being total project costs (inclusive of third party costs) at each reporting period. Assessment
of the percentage of completion requires an evaluation of labour cost and third party costs incurred on the project at the reporting
date, which requires an estimate of third party costs incurred but not billed, and an up to date evaluation of the forecast costs to
complete in respect of these projects. Given the long-term nature of the clinical trials, and the complex nature of those trials, the
forecast costs to complete is judgemental. The costs to complete are prepared by project managers on a recurring basis during the
year and are subject to internal reviews, including comparison to previous forecasts and past experience.
Material differences in the amount of revenue in any given period may result if these judgements or estimates prove to be incorrect
or if management’s estimates change on the basis of development of the business or market conditions. To date there have been no
material differences arising from these judgements and estimates.
Ergomed plc Annual Report and Accounts 2018
61
Notes to the financial statements continued
For the year ended 31 December 2018
2. Critical accounting judgements and key sources of estimation and uncertainty continued
Revenue recognition (prior to the adoption of IFRS 15)
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 expected credit loss over the lifetime of the
trade receivables. This analysis includes grouping the trade receivables based on shared credit risk characteristics and the days
past due. The expected loss rates are based on historical losses adjusted to reflect current and forward looking information
affecting the customers’ ability to settle the receivable. The accrued income for unbilled work in progress has substantially the
same risk characteristics as the trade receivables and similar expected loss rates have been applied. The provision against trade
receivables and accrued income was £9,000 (2017: £214,000) and £nil (2017: £nil) as at 31 December 2018 (note 21).
Company
In determining the level of provisioning for bad debts, the Directors have considered the expected credit loss over the lifetime of the
trade receivables. This analysis includes grouping the trade receivables based on shared credit risk characteristics and the days
past due. The expected loss rates are based on historical losses adjusted to reflect current and forward looking information
affecting the customers’ ability to settle the receivable. The contract assets for unbilled work in progress has substantially the same
risk characteristics as the trade receivables and similar expected loss rates have been applied. The provision against trade
receivables as at 31 December 2018 was £9,000 (2017: £212,000) (note 21).
During the year ended 31 December 2018, the Company determined that the intercompany receivable due from Haemostatix
Limited a wholly owned subsidiary will not be repaid and an allowance for losses of £7,949,000 against intercompnay trade
receivables has been recognised as at 31 December 2018.
Impairment of goodwill
Under IFRSs, goodwill is reviewed for impairment at least annually. The Group tests goodwill on 31 December each year. Goodwill is
impaired if the carrying value of the cash-generating unit including the goodwill is in excess of the recoverable amount, which is the
higher of the value in use and the fair value less costs to sell for that cash-generating unit. 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. See note 15 for further details.
The impairment provision against goodwill as at 31 December 2018 was £2,143,000 (2017: £nil). The carrying amount of goodwill and
any impairment loss is disclosed in note 15.
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 may engage third party qualified valuers
to perform the valuation. The Directors work closely with qualified external valuers to establish the appropriate valuation techniques
and inputs to the model. This includes contingent consideration relating to acquisitions valued at £544,000.
Contingent consideration relates to the acquisitions of Haemostatix and PSR (note 26). The contingent 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 contingent consideration for Haemostatix was revalued to
£nil at 31 December 2018 giving rise to a decrease in value of £11,617,000 reflecting the change in the Group’s strategy for the
development of Haemostatix.
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 on the date of grant 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.
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3. Revenue
The group derives revenue from the transfer of goods and services over time and at a point in time in the following major product
lines and geographical regions:
CRO services
Licence revenue
PV services
2018
£000s
26,580
–
27,532
54,112
2017
£000s
24,782
370
22,472
47,624
The provision of PV services includes the revenues of Harefield Pharmacovigilance Ltd and Pharmacovigilance Services Ltd
following their acquisition by the Group in 2018.
Geographical information
The Group’s revenue from external customers by geographical location is detailed below:
2018
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
2017
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
The contract assets and liabilities as of 1 January 2018 and 31 December 2018 are as follows:
Accrued income
Allowance for losses
Deferred revenue
Revenue from external customers
CRO
£000s
5,715
16,913
3,715
237
–
26,580
PV
£000s
6,854
9,604
10,735
244
95
27,532
Total
£000s
12,569
26,517
14,450
481
95
54,112
Revenue from external customers
CRO
£000s
4,535
13,550
6,756
311
–
25,152
PV
£000s
5,923
9,292
6,992
153
112
22,472
Total
£000s
10,458
22,842
13,748
464
112
47,624
31 December
2018
£000s
1 January
2018
£000s
3,857
–
3,857
2,836
–
2,836
(5,651)
(3,587)
Revenue recognised that was included in the deferred revenue balance at the beginning of the period was £3,587,000. There were
no significant amounts of revenue recognised in the year ended 31 December 2018 arising from performance obligations satisfied in
previous periods.
The aggregate amount of the transaction price allocated to clinical research service contracts that are partially or fully unsatisfied
as at 31 December 2018 was £68,982,000. Management currently expects that approximately 40% will be recognised as revenue
during the next financial year, approximately 25% in 2020 and the remaining thereafter.
Ergomed plc Annual Report and Accounts 2018
63
Notes to the financial statements continued
For the year ended 31 December 2018
4. Operating segments
Products and services from which reportable segments derive their revenues
Information reported to the Group’s Executive Chairman, 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
CRO (previously named Clinical Research Services) and PV (previously named Drug Safety and Medical Information). All revenues
arise from direct sales to customers. The segment information reported below all relates to continuing operations. The PV segment
includes the revenues of Harefield Pharmacovigilance Ltd and Pharmacovigilance Services Ltd following their acquisition by the
Group in 2018.
2018
For the year ended 31 December 2018, the accounting policies of the reportable segments are the same as the Group’s accounting
policies described in note 1, with the exception that the information reported to the CODM was prior to the effect of adopting IFRS
15. Segment profit represents the gross profit earned by each segment. Other amounts, including selling, general and
administration expenses were not allocated to a segment in 2018. This was the measure reported to the Group’s Executive Chairman
for the purpose of resource allocation and assessment of segment performance.
Net service revenue
Reimbursement revenue
Segment revenues
Cost of sales
Reimbursable expenses
Segment gross profit
Selling, general & administration expenses
Selling, general and administration expenses comprises:
Other selling, general and administration expenses
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Acquisition-related contingent compensation
Change in the fair value of contingent consideration for acquisitions
Acquisition costs
Exceptional items
Research and development
Net impairment of financial and contract assets
Other operating income
Operating loss
Investment income
Unrealised gains on equity investments
Finance costs
Loss before tax
CRO
£000s
19,713
7,697
27,410
(12,172)
(7,744)
PV
£000s
27,138
394
27,532
(14,616)
(326)
7,494
12,590
IFRS 15
adjustments
£000s
Consolidated
total
£000s
7,261
(8,091)
54,112
–
(830)
–
–
(830)
54,112
(26,788)
(8,070)
19,254
(28,152)
(16,701)
(1,286)
(758)
(972)
233
(174)
(8,494)
(1,578)
(9)
39
(10,446)
23
277
(622)
(10,768)
64
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
2017
For the year ended 31 December 2017, 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 was the measure reported to the
Group’s Chief Executive Officer for the purpose of resource allocation and assessment of segment performance.
Net service revenue
Licence fee revenue
Reimbursement revenue
Segment revenues
Cost of sales
Reimbursable expenses
Segment gross profit
Selling, general & administration expenses
Selling, general and administration expenses comprises:
Other selling, general and administration expenses
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Acquisition-related contingent consideration
Change in the fair value of contingent consideration for acquisitions
Acquisition costs
Exceptional items
Research and development
Net impairment of financial and contract assets
Other operating income
Operating loss
Investment income
Finance costs
Loss before tax
Segment net assets
CRO
PV
Consolidated total net assets
CRO
£000s
17,386
370
7,396
25,152
(10,616)
(7,396)
PV
£000s
22,259
–
213
22,472
(11,782)
(213)
7,140
10,477
Consolidated
total
£000s
39,645
370
7,609
47,624
(22,398)
(7,609)
17,617
(19,784)
(13,555)
(1,167)
(1,033)
(752)
(2,875)
(259)
(143)
(2,689)
834
118
(3,904)
3
(546)
(4,447)
2018
£000s
2,450
25,913
2017
£000s
12,703
22,140
28,363
34,843
For the purposes of monitoring segment performance and allocating resources between segments, the Group’s Executive
Chairman 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
CRO
PV
Impairment of goodwill and
intangibles
Depreciation and
amortisation
Additions to non-current
assets
2018
£000s
17,343
–
17,343
2017
£000s
–
–
–
2018
£000s
1,019
1,515
2,534
2017
£000s
727
899
2018
£000s
780
806
2017
£000s
603
822
1,626
1,586
1,425
Information about major customers
In 2018, the Group had no customer (2017: one) that contributed 10% or more to the Group’s revenue. Revenues of approximately
£4,989,000 (2017: £4,989,000) were recognised from this customer for CRO services in the year ended 31 December 2017.
Ergomed plc Annual Report and Accounts 2018
65
Notes to the financial statements continued
For the year ended 31 December 2018
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 selling, general and administration expenses
Amortisation of acquired fair valued intangible assets
Goodwill impairment charge
Intangible impairment charge
Impairment of other assets
Exchange (gain)/loss
Loss/(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
Audit fees
Non-audit fees
– Interim review
– Other
Total non-audit fees
2018
£000s
2017
£000s
541
8
698
1,247
1,286
2,143
15,200
879
(88)
33
9
28,799
423
4
32
459
1,167
–
–
–
526
(7)
(834)
19,581
2018
£000s
2017
£000s
170
161
34
13
47
33
–
33
Fees payable to the auditor for non-audit services to the Company are not required to be disclosed because the consolidated
financial statements are required to disclose such fees on a consolidated basis.
7. Acquisition-related contingent compensation
PSR
PharmInvent
2018
£000s
–
972
972
2017
£000s
1
751
752
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 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 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
Acquisition of Harefield Pharmacovigilance
Acquisition of Pharmacovigilance Services
Other M&A activities
2018
£000s
2017
£000s
–
3
7
164
174
218
–
–
41
259
66
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
9. Exceptional items
Establishment of pharmacoepidemiology business
Cost reduction programme
Business reorganisation
Impairment of Haemostatix goodwill
Impairment of Haemostatix in process research and development
Impairment of Haemostatix other assets
Revaluation of Haemostatix contingent consideration
Onerous contract provision
Impairment of investment
Severance costs relating to former CEO
2018
£000s
356
760
557
2,143
15,200
834
(11,617)
216
45
–
8,494
2017
£000s
–
–
–
–
–
–
–
–
–
143
143
In line with the way the Board and CODM review the business, large one-off exceptional costs are shown as exceptional items.
In the year ended 31 December 2018, these related to the establishment of the pharmacoepidemiology business, reorganisation
expenses associated with the combining of the PrimeVigilance and PharmInvent businesses, the cost reduction programme to
increase operating efficiency and improve overall profitability, the impairment of the Haemostatix business (see note 15 and note 16)
and the change in fair value of the Haemostatix contingent consideration and onerous contract costs relating to Haemostatix.
In the year ended 31 December 2017, the exceptional items were directly related to the severance costs regarding the former CEO.
10. Investment income
Bank and other interest
11. Finance costs
Loan and other interest payable
Reversal of finance charges
Finance charge for contingent consideration for acquisitions
2018
£000s
23
2018
£000s
3
–
619
622
2017
£000s
3
2017
£000s
2
(37)
581
546
The finance charge for contingent consideration for acquisitions relates to the unwind of the discount used in the fair valuation of
contingent 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
2018
Number
2017
Number
95
572
30
5
702
78
453
25
4
560
Ergomed plc Annual Report and Accounts 2018
67
Notes to the financial statements continued
For the year ended 31 December 2018
12. Employees continued
Employment costs
Wages and salaries
Social security costs
Other pension costs (note 37)
Acquisition-related contingent compensation
Severance costs included in exceptional items
Share-based payment expense (note 31)
2018
£000s
23,123
4,297
621
972
1,307
758
2017
£000s
16,651
2,607
323
752
140
1,033
31,078
21,506
Disclosures relating to key management personnel are included within the Directors’ remuneration report on page 31.
13. Taxation
Current tax
UK corporation tax credit for the year
Overseas corporation tax
Adjustment in respect of prior years
Current tax charge for the year
Deferred tax
Origination and reversal of temporary differences
Derecognition of deferred tax asset
Total deferred tax (credit)/charge
Total tax (credit)/charge for the year
2018
£000s
2017
£000s
(92)
503
(383)
28
(2,718)
902
(1,816)
(1,788)
–
426
(31)
395
(338)
–
(338)
57
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 debit/(credit) recognised directly in equity
2018
£000s
2017
£000s
16
16
(60)
(60)
The standard rate of tax for the year, based on the UK standard rate of corporation tax, is 19% (2017: 19%). The actual tax charges for
the years differ from the standard rate for the reasons set out in the following reconciliation.
Loss before taxation
Tax on loss before tax at blended standard rate of 19% (2017: 19.25%)
Non-deductible expenses
Additional allowable expenses
Derecognition of deferred tax asset (see note 20)
R&D tax credit receivable
Adjustments to previous periods
Effect of different tax rates of subsidiaries operating in other jurisdictions
Tax losses surrendered for R&D tax credit relief
Increase in unrecognised tax losses
Translation effect
Tax (credit)/charge for the year
2018
£000s
2017
£000s
(10,768)
(4,447)
(2,046)
654
(1,700)
902
(76)
(383)
(6)
100
767
–
(1,788)
(856)
1,008
(180)
–
–
(31)
(2)
–
109
9
57
The Finance Act 2017, which provides for a reduction in the main rate of corporation tax 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
reporting date.
68
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
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
2018
£000s
(8,980)
(8,980)
2018
£000s
2017
£000s
(4,504)
(4,504)
2017
£000s
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
Shares to be issued in settlement of contingent consideration
44,693,699
158,810
41,086,201
101,163
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
44,852,509
41,187,364
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
44,852,509
41,187,364
Loss per share
Basic
Diluted
(20.0)p
(20.0)p
(11.0)p
(11.0)p
In 2019, 158,810 Ordinary Shares will be issued to part satisfy the third and final component of contingent consideration for
PharmInvent. For the purposes of determining the denominator for basic earnings per share contingent shares are included from
the beginning of the period in which the contingency is met. The contingency relating to these contingent shares was met at 31
December 2018 and therefore they have been included within the denominator for basic earnings per share.
The following potential outstanding shares have been excluded from the weighted average number of ordinary shares for the
purposes of diluted earnings per share because they are anti-dilutive:
Share options
Contingent consideration
2018
Number
2017
Number
5,397,874
2,056,583
67,371
111,870
The contingent shares of 67,371 in 2018 relate to the current estimate of the number of shares to be issued as contingent
consideration for the acquisition of PSR (note 26).
15. Goodwill
Group
Cost
At 1 January 2017
Adjustments on amounts arising on acquisition of subsidiaries (note 33)
Arising on acquisition of subsidiaries (note 34)
Translation movement
At 31 December 2017
Arising on acquisition of subsidiaries (note 34)
Translation movement
At 31 December 2018
Accumulated impairment losses
At 1 January 2017 and 31 December 2017
Impairment of Haemostatix goodwill
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
£000s
12,285
57
2,535
392
15,269
438
95
15,802
–
(2,143)
(2,143)
13,659
15,269
The goodwill arising during the year ended 31 December 2018 relates to the acquisitions of Harefield Pharmacovigilance and
Pharmacovigilance Services.
Ergomed plc Annual Report and Accounts 2018
69
Notes to the financial statements continued
For the year ended 31 December 2018
15. Goodwill continued
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:
CRO
Ergomed Virtuoso
Haemostatix
Ergomed CDS
PSR
PV
2018
£000s
2017
£000s
533
–
577
2,602
3,712
9,947
506
2,143
568
2,564
5,781
9,488
13,659
15,269
The goodwill associated with the PV segment has arisen from the acquisitions of PrimeVigilance, Sound Opinion, PharmInvent,
Harefield Pharmacovigilance and Pharmacovigilance Services. The goodwill arising on these acquisitions has been allocated to the
PV operating segment because the synergies and other benefits associated with the acquisitions will benefit the operating
segment as a whole and the businesses trade as a single cash-generating unit.
Impairment
The Group tests goodwill for impairment annually on 31 December, or more frequently, if there are indications that goodwill might
be impaired. Goodwill is impaired if the carrying value of the cash-generating unit including the goodwill is in excess of the
recoverable amount, which is the higher of the value in use and the fair value less costs to sell for that cash-generating unit.
The recoverable amounts of the CGUs for Ergomed Virtuoso, Ergomed CDS, PSR and the PV operating segment are determined
from value in use calculations. The key assumptions for the value in use calculations are those regarding cash flows, discount rates
and growth rates.
Value in use assumptions
The Group prepares cash flow forecasts for the next five years for the cash-generating units, derived from the most recent financial
budgets approved by the Board, and forecasts revenue for the following four years based on estimated growth rate, except for
Ergomed Virtuoso, where revenues are estimated based on contractual amounts. A standard margin based on historical experience
is then applied to the revenue. The revenue growth rate used in the calculation was zero, which is significantly lower than the
average long-term growth rate for the relevant market and managements estimate of growth for the PV and CRO business. This did
not result in an impairment to goodwill.
A discount rate of 19% has been used in the assessment, which reflects current market assessments of the time value of money and
the risks specific to the CGUs.
Haemostatix
The Group acquired Haemostatix in 2016 and recognised goodwill of £2,143,000 and in process R&D for ReadyFlow and Peprostat of
£15,200,000. Haemostatix is a separate cash-generating unit for the purposes of goodwill impairment. During 2018, the Group
shifted strategy away from co-development arrangements and development of Haemostatix to focus on provision of services. The
Group has continued to make incremental investment in Haemostatix during 2018 so as to protect the intellectual property and to
maintain readiness for Phase III trials but the Group considers the fair value of the Haemostatix assets to be nil. In parallel, in late
2018 the Company appointed external advisers to find a partner (or partners) to fund Phase III trials and manufacturing scale-up.
Negotiations with interested parties are progressing but management does not consider they are sufficiently advanced, nor
providing sufficient certainty to support a fair value less costs to sell for the purposes of the goodwill impairment. Consequently, the
goodwill and intangible assets within the Haemostatix cash-generating unit have been impaired to the recoverable amount of nil
resulting in an impairment of goodwill of £2,143,000 and an impairment of intangibles of £15,200,000 as at 31 December 2018.
As a consequence of this impairment, certain costs committed as at 31 December 2018 amounting to £216,000 and the impairment
charges, have been included in exceptional items in 2018.
70
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
16. Other intangible assets
Group
Cost
At 1 January 2017
Acquired with subsidiary (see note 34)
Additions
Translation movement
At 31 December 2017
Additions
Translation movement
At 31 December 2018
Amortisation
At 1 January 2017
Charge for the year
Translation movement
At 31 December 2017
Charge for the year
Impairment charge
Translation movement
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Software
£000s
Customer
contracts
£000s
Customer
relationships
£000s
Brands
£000s
In-Process
R&D
£000s
Technology
£000s
Total
£000s
1,458
–
704
16
2,178
753
17
2,948
129
32
5
166
698
–
5
869
1,070
189
–
19
1,278
–
(19)
1,259
695
246
–
941
286
–
–
3,177
162
–
122
3,461
–
(30)
3,431
867
681
–
1,548
742
–
–
460
349
–
4
813
–
5
818
153
72
–
225
105
–
–
15,200
–
–
–
15,200
–
–
15,200
–
–
–
–
–
15,200
–
1,227
2,290
330
15,200
2,079
2,012
32
337
1,141
1,913
488
588
–
15,200
419
–
–
26
445
–
(26)
419
98
168
–
266
153
–
–
419
–
179
21,784
700
704
187
23,375
753
(53)
24,075
1,942
1,199
5
3,146
1,984
15,200
5
20,335
3,740
20,229
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 £115,000 (2017: £1,683,000). The software is currently
still under construction and so no amortisation has been recognised in the current year.
In the year ended 31 December 2018, the goodwill, in process R&D for ReadyFlow and Peprostat of £15,200,000 and other assets
were impaired to £nil (see note 15).
Company
Cost
At 1 January 2017
Translation movement
Additions
At 31 December 2017
Translation movement
Additions
At 31 December 2018
Amortisation
At 1 January 2017
Charge for the year
Translation movement
At 31 December 2017
Charge for the year
Translation movement
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Intangible assets represent software currently in use by the business.
Ergomed plc Annual Report and Accounts 2018
Software
£000s
244
12
278
534
15
538
1,087
91
3
4
98
164
4
266
821
436
71
Notes to the financial statements continued
For the year ended 31 December 2018
17. Property, plant and equipment
Group
Cost
At 1 January 2017
Additions
Acquired with subsidiaries (note 34)
Re-allocation from Intangible assets
Disposals
Translation movement
At 31 December 2017
Additions
Acquired with subsidiaries (note 34)
Re-allocations
Disposals
Translation movement
At 31 December 2018
Depreciation
At 1 January 2017
Charge for the year
Disposals
Translation movement
At 31 December 2017
Charge for the year
Disposals
Translation movement
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Company
Cost
1 January 2017
Additions
Translation movement
At 31 December 2017
Additions
Translation movement
At 31 December 2018
Depreciation
1 January 2017
Charge for the year
Translation movement
At 31 December 2017
Charge for the year
Translation movement
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Leasehold
improvements
£000s
Fixtures
and fittings
£000s
Motor
vehicles
£000s
Computer
equipment
£000s
Laboratory
equipment
£000s
80
19
–
–
(2)
5
102
194
–
–
(50)
–
246
44
15
(2)
4
61
23
(45)
–
39
207
41
167
109
5
(4)
(1)
11
287
190
–
2
(14)
7
472
75
38
–
4
117
52
(12)
2
159
313
170
232
61
–
14
(10)
22
319
107
–
–
(72)
5
359
51
84
(7)
7
135
86
(45)
2
178
181
184
876
521
27
(10)
(11)
37
1,440
342
2
(2)
(79)
33
1,736
504
279
(11)
21
793
378
(73)
21
1,119
617
647
45
11
–
–
–
–
56
1
–
–
–
–
57
9
11
–
–
20
11
–
–
31
26
36
Total
£000s
1,400
721
32
–
(24)
75
2,204
834
2
–
(215)
45
2,870
683
427
(20)
36
1,126
550
(175)
25
1,526
1,344
1,078
Fixtures
and fittings
£000s
Computer
equipment
£000s
Total
£000s
20
40
2
62
1
1
64
13
10
2
25
8
1
34
30
37
47
60
3
110
23
2
135
30
20
1
51
39
1
91
44
59
67
100
5
172
24
3
199
43
30
3
76
47
2
125
74
96
72
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Included above are assets held under finance leases or hire purchase contracts as follows:
Group
Net book value
At 31 December 2018
At 31 December 2017
Depreciation charge for the year
Year ended 31 December 2018
Year ended 31 December 2017
Motor
Vehicles
£000s
37
39
8
6
Company
As at 31 December 2018, no assets in the above were held by the Company under finance leases or hire purchase contracts.
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
CRO services
CRO services
CRO services
CRO services
CRO services
CRO services
CRO services
CRO services
CRO and PV services
CRO services
CRO services
CRO services
PV services
PV services
PV services
PV services
PV services
PV services
PV services
Research and development
Dormant
Place of incorporation
and operation
Number of wholly
owned subsidiaries
2018
2017
Germany
Poland
Serbia
USA
Croatia
Russia
Bosnia
UAE
Switzerland
Switzerland
Taiwan
Netherlands
United Kingdom
India
Germany
Croatia
Serbia
USA
Czech Republic
United Kingdom
United Kingdom
2
1
1
1
1
1
1
1
1
–
1
1
4
1
1
1
1
1
2
1
1
2
1
1
1
1
1
1
1
–
1
1
1
2
–
–
1
1
1
2
1
1
Ergomed plc Annual Report and Accounts 2018
73
Notes to the financial statements continued
For the year ended 31 December 2018
18. Subsidiaries continued
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. Beograd
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 Co. Limited Fl. 2, No. 467, Sec.6, Zhongxiao E Rd., Nangang District, Taipei City 115, Taiwan
Ergomed CDS GmbH
Ergomed Clinical Research Private Limited Wing A, Level 4, Dynasty Business Park, Andheri-Kurla Road, Andheri (East)
Herriotstraße 1, 60528 Frankfurt am Main, Germany
Kolowa 8, 30-134 Krakow, Poland
Belgrade Office Park, Djordja Stanojevica 12, 5th Floor, Belgrade – New Belgrade, 11070 Serbia
8207 Callaghan Rd. Suite 150, San Antonio, TX 78230, 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, Block N 03, Office N EO 05, P.O. Box 501708 I Dubai, UAE.
18, Avenue Lois-Casai, 1209 Geneva, Switzerland
Im Mediapark 2, D-50670 Cologne, Germany
PSR Group BV
PrimeVigilance Limited
PrimeVigilance Zagreb d.o.o.
PrimeVigilance d.o.o. Beograd
PrimeVigilance Inc
PrimeVigilance GmbH
Sound Opinion Limited
PrimeVigilance s.r.o.
PharmInvent regulatory s.r.o.
Harefield Pharmacovigilance Limited
Pharmacovigilance Services Limited
Haemostatix Limited
Ergomed Clinical Research Limited
Mumbai – 400059, Maharashtra, INDIA; CIN: U73200MH2013PTC249804
Antareslaan 41, 2132 JE Hoofddorp, The Netherlands
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, United Kingdom
Oreškovićeva 20a, 10 020 Zagreb, Croatia
Đorđa Stanojevića 14, Beograd – Novi Beograd, Serbia
Reservoir Place, 1601 Trapelo Road, Waltham, MA 02451, USA
Herriotstraße 1, 60528 Frankfurt am Main , Germany
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, United Kingdom
Prague 3 – Vinohrady, Slezska 856/74, 13000, Czech Republic
Prague 3 – Vinohrady, Slezska 856/74, 13000, Czech Republic
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, United Kingdom
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, United Kingdom
BioCity Nottingham, Pennyfoot Street, Nottingham, NG1 1GF, United Kingdom
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, United Kingdom
The Company has direct interests in the following subsidiaries which are included in the consolidated financial statements:
Principal activity – CRO 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
Harefield Pharmacovigilance Limited(2)
Pharmacovigilance Services Limited(2)
PSR Group BV
Principal activity – PV services
PrimeVigilance Limited
Sound Opinion Limited
PrimeVigilance s.r.o.
Ergomed Clinical Research Private Limited
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
Ordinary
Ordinary
Ordinary
Ordinary
Croatia
Russia
Bosnia
UAE
Switzerland
Taiwan
Germany
United Kingdom
United Kingdom
Netherlands
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Class
Holding
Place of incorporation
and operation
United Kingdom
United Kingdom
Czech Republic
India
Ordinary
Ordinary
Ordinary
Ordinary
Place of incorporation
and operation
Class
United Kingdom
Ordinary
Place of incorporation
and operation
Class
United Kingdom
Ordinary
100%
100%
100%
99%
Holding
100%
Holding
100%
1 The non-controlling interest is not disclosed as it is not material and does not take a benefit from the holding.
2 These companies were acquired by the Company in 2018 (note 34).
There are no significant restrictions on the ability of the Group to access or use assets and settle liabilities.
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Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
19. Investments
Investments in equity securities measured at fair value (after the adoption of IFRS 9 on 1 January 2018)
Group and Company
The following investments in equity securities have been designated as FVPL.
Asarina Pharma AB
Modus Therapeutics Holdings AB
Ergomed Saudi Limited
Fair value at
1 January
2018
£000s
283
426
45
754
Unrealised gains
recognised
in the income
statement
£000s
277
–
–
277
Additions
£000s
297
757
–
1,054
Impairment of
investments
£000s
Translation
movement
£000s
–
–
(45)
(45)
6
19
–
25
Fair value at
31 December
2018
£000s
863
1,202
2,065
Modus Therapeutics Holding AB (‘Modus’)
At 31 December 2018, the Group held a 5.9% holding in Modus. Under the co-development agreement with Modus, the Group
receives shares in Modus in return for its contribution to the co-development programme. During the year ended 31 December 2018
shares valued at £757,000 (2017: £181,000) were issued to the Group in exchange for services provided by the Group.
Asarina Pharma AB (‘Asarina’)
At 31 December 2018, the Group held a 2.4% holding in Asarina. Under the co-development agreement with Asarina , the Group
receives shares in Asarina in return for services provided to them under the co-development programme. During the year ended 31
December 2018, shares valued at £297,000 (2017: £280,000) were issued to the Group in exchange for services provided by the
Group. In 2018, Asarina also completed a public offering and listing on the Nasdaq First North Exchange and subsequently the
investment in equity was publicly traded.
Ergomed Saudi Limited
At 31 December 2018, the Group held a 50% holding in Ergomed Saudi Limited, which was impaired during the year ended 31
December 2018, reducing carrying value of the investment to £nil (2017: £45,000).
Investments in equity securities (prior to the adoption of IFRS 9)
Group and Company
Cost
At 1 January 2017
Additions
Translation movement
At 31 December 2017
Provision for impairment
At 1 January 2017
Provision for impairment
At 31 December 2017
Net book value
At 31 December 2017
Investments in subsidiaries
Company
Cost
At 1 January 2017
Additions
Capital contribution to subsidiary undertakings
Translation movement
At 31 December 2017
Capital contribution to subsidiary undertakings
Impairments
Translation movement
At 31 December 2018
Ergomed plc Annual Report and Accounts 2018
Asarina
Pharma AB
£000s
Modus
Therapeutics
Holding AB
£000s
Ergomed
Saudi
Limited
£000s
–
280
3
283
–
–
–
228
181
17
426
–
–
–
43
–
2
45
–
–
–
Total
£000s
271
461
22
754
–
–
–
283
426
45
754
Shares in
subsidiary
undertakings
£000s
33,811
3,649
124
1,280
38,864
1,340
(17,194)
575
23,585
75
Notes to the financial statements continued
For the year ended 31 December 2018
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 for financial reporting purposes:
Deferred tax assets
1 January 2017
Acquired with subsidiaries
Credit to profit or loss
Credit direct to equity
At 31 December 2017
Charge to profit or loss
Debit direct to equity
Translation effect
At 31 December 2018
Group
Other
temporary
differences
£000s
546
(58)
163
60
711
(125)
(16)
11
581
Tax
losses
£000s
902
–
–
–
902
(902)
–
–
–
Total
£000s
1,448
(58)
163
60
1,613
(1,027)
(16)
11
581
Company
Other
temporary
differences
£000s
Tax
losses
£000s
–
–
–
–
–
–
–
–
–
457
–
161
60
678
(92)
(16)
11
581
Total
£000s
457
–
161
60
678
(92)
(16)
11
581
Included in the deferred tax arising on temporary differences, £565,000 (2017: £674,000) relates to a deferred tax asset arising on
unexercised share options. In the year ended 31 December 2018, a deferred tax asset of £902,000 was derecognised, which related
to tax losses carried forward in the Haemostatix business.
Deferred tax liabilities
1 January 2017
Acquired with subsidiaries
Charge/(credit) to profit or loss
At 31 December 2017
Charge to profit or loss
At 31 December 2018
Group
Annual
capital
allowances
£000s
Other
temporary
differences
£000s
(172)
–
(45)
(217)
37
(3,246)
(175)
241
(3,180)
2,806
Total
£000s
(3,418)
(175)
196
(3,397)
2,843
(180)
(374)
(554)
Annual
capital
allowances
£000s
Company
Other
temporary
differences
£000s
(5)
–
(7)
(12)
–
(12)
–
–
–
–
–
–
Total
£000s
(5)
–
(7)
(12)
–
(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 assets/(liabilities)
Group
Company
2018
£000s
581
(554)
27
2017
£000s
1,613
(3,397)
(1,784)
2018
£000s
581
(12)
569
2017
£000s
678
(12)
666
At 31 December 2018, the Group had unused tax losses of £9,265,000 (2017: £6,615,000) available for offset against future profits.
A deferred tax asset has been recognised in respect of £nil (2017: £5,324,000) of such losses. No deferred tax asset has been
recognised in respect of losses of £9,265,000 (2017: £1,291,000) as it is not considered probable that there will be future profits
available. These losses arise in the United Kingdom and can be carried forward indefinitely to be offset against future taxable
profits, However this is restricted to an annual £5 million allowance in each standalone company or group and above this allowance,
there will be a 50% restriction in the profits that can be covered by losses brought forward.
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Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
21. Trade and other receivables
Trade receivables
Amounts receivable from Group companies
Other receivables
Prepayments
Corporation tax receivable
Group
Company
2018
£000s
11,735
–
2,437
1,225
1,032
2017
£000s
13,390
–
1,702
733
982
16,429
16,807
2018
£000s
3,776
2,601
895
677
–
7,949
2017
£000s
6,743
6,714
884
183
–
14,524
Included in trade receivables are the following amounts that are past due at the reporting date by the following periods.
Less than 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
More than 90 days overdue
Movements in the allowance for losses for financial and contract assets are as follows:
Balance at the beginning of the year
Impairment losses recognised
Provision (reversed)/made during the year
Translation movements
Group
Company
2018
£000s
2,955
696
263
478
4,392
2017
£000s
3,293
932
403
2,180
6,808
2018
£000s
402
43
82
110
637
Group
Company
2018
£000s
214
(214)
9
–
9
2017
£000s
1,016
–
(834)
32
214
2018
£000s
212
(212)
9
–
9
2017
£000s
1,252
415
109
1,956
3,732
2017
£000s
1,013
–
(833)
32
212
The carrying value of trade receivables approximates to their fair value at the reporting date.
The carrying values of the Group’s and the Company’s trade and other receivables are unsecured. 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
2018
£000s
–
2017
£000s
502
2018
£000s
–
2017
£000s
–
Other current assets relates to the preparation of GMP (Good Manufacturing Practice) material for use in the clinical development
programmes of Haemostatix Limited, which has been impaired in the year ended 31 December 2018.
Ergomed plc Annual Report and Accounts 2018
77
Notes to the financial statements continued
For the year ended 31 December 2018
23. Cash and cash equivalents
Cash at bank
Group
Company
2018
£000s
5,189
2017
£000s
3,218
2018
£000s
1,250
2017
£000s
288
The effective interest rate at the balance sheet date on cash at bank was 0.0011% (2017: 0.005%).
The carrying amount of cash and cash equivalents approximates to their fair value at the reporting date and are denominated in the
following currencies:
GBP
Euro
USD
Other
24. Borrowings
Group
Secured borrowings at amortised cost
Finance leases
Borrowings within one year
Between one and two years
Borrowings greater than one year
Totals
Finance leases are secured on the assets to which they relate.
Company
As at 31 December 2018, the Company had no borrowings.
25. Trade and other payables
Trade creditors
Amounts payable to related parties
Amounts payable to Group companies
Social security and other taxes
Other payables
Customer advances
Accruals
Group
Company
2018
£000s
876
2,126
1,061
1,126
5,189
2017
£000s
185
1,890
383
760
3,218
2018
£000s
164
943
148
15
1,270
2017
£000s
67
200
1
20
288
2018
2017
Capital
£000s
Interest
£000s
Capital
£000s
Interest
£000s
6
–
–
6
–
–
–
–
12
6
6
18
1
–
–
1
Group
Company
2018
£000s
4,379
585
–
724
1,575
734
2,992
2017
£000s
4,935
425
–
1,113
1,186
751
2,307
2018
£000s
2,403
576
13,114
176
524
–
1,572
2017
£000s
2,534
408
7,163
178
417
–
1,374
10,989
10,717
18,365
12,074
78
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
26. Contingent and deferred consideration
Deferred consideration
Due within one year
Harefield Pharmacovigilance
Pharmacovigilance Services
Group
Company
2018
£000s
2017
£000s
2018
£000s
2017
£000s
57
62
119
–
–
–
–
–
–
–
–
–
The deferred consideration above relates to the acquisitions of Harefield Pharmacovigilance and Pharmacovigilance Services.
Contingent consideration
Due within one year
Haemostatix
Due after one year
Haemostatix
PSR
Group
Company
2018
£000s
–
–
–
544
544
544
2017
£000s
1,957
1,957
9,168
636
9,804
11,761
2018
£000s
–
–
–
544
544
544
2017
£000s
1,957
1,957
9,168
636
9,804
11,761
Contingent consideration arises in relation to the acquisition of Haemostatix, PSR and Harefield Pharmacovigilance.
The contingent consideration is measures using a discounted cash flow approach, utilising management’s forecasts to estimate
the likely payout and discounting these using a risk-adjusted weighted average cost of capital.
Haemostatix
The contingent 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. Based on the Group’s current
strategy for the development of Haemostatix, the estimated likely payout is £nil and the fair value of contingent consideration for
Haemostatix at 31 December 2018 was also £nil.
PSR
The contingent consideration payable for PSR could be between £nil and an aggregate maximum undiscounted amount of
£2,806,000, subject to the future performance of the business. The estimate of the amount of the likely payout has been
determined based on management’s forecasts for 2019 and discounted using a risk-adjusted weighted average cost of capital
of 19% resulting in a fair value of £544,000.
Harefield Pharmacovigilance
The contingent consideration payable for the acquisition of Harefield Pharmacovigilance could be between £nil and an aggregate
maximum undiscounted amount of £500,000, subject to the future performance of the business. Based on management’s forecast
the estimated likely payout is not material and no valuation has been performed, hence the fair value of contingent consideration
for Harefield Pharmacovigilance at 31 December 2018 was also £nil.
27. Share capital
Group and Company
Ordinary share capital
The nominal value of ordinary share capital issued is credited to share capital.
Ordinary shares of £0.01 each
Balance at 1 January
Shares issued through an institutional placing
Shares issued in settlement of share options
Shares issued for non-cash consideration
Ergomed plc Annual Report and Accounts 2018
2018
2017
Number
£000s
Number
£000s
42,781,976
2,029,971
102,000
261,301
45,175,248
428
21
1
2
452
40,504,806
2,081,389
–
195,781
42,781,976
406
18
–
4
428
79
Notes to the financial statements continued
For the year ended 31 December 2018
27. Share capital continued
In February 2018, the Company completed an institutional placing of 2,029,971 ordinary shares of £0.01 each (‘Ordinary Shares’)
for 190p per share raising £3,674,000 net of expenses of £183,000. The nominal value of the shares was £20,000.
Options over 102,000 Ordinary Shares were exercised for proceeds of £117,000. 53,101 Ordinary Shares were issued as part
consideration for the acquisition of Pharmacovigilance Services, 49,390 Ordinary Shares were issued to Dr Michael Forstner in
relation to the transfer of his pharmacoepidemiology business and a further 158,810 Ordinary Shares will be issued to part satisfy
the third and final component of contingent consideration for PharmInvent.
Shares to be issued
Ordinary Shares that are issued as contingent consideration for acquisitions are included within share capital once the conditions for
issuance have been met. Included within the ordinary share capital at 31 December 2018 are 158,810 of Ordinary Shares that will be
issued to part satisfy the third and final component of contingent consideration for PharmInvent (now PrimeVigilance s.r.o.). At 31
December 2018, the issue of these Ordinary Shares is no longer contingent.
At 31 December 2017, 100,818 Ordinary Shares in settlement of contingent consideration in relation to the acquisition of PharmInvent
and 345 Ordinary Shares in relation to the acquisition of PSR Group BV were included in share capital because the issuance of
shares was no longer contingent. These shares were issued in 2018.
28. Share premium
Group and Company
Allotted, called up and fully paid
Balance at 1 January
Shares issued through an institutional placing, net of issues expenses
Shares issued in settlement of share options
Balance at 31 December
2018
£000s
2017
£000s
20,616
3,653
115
17,957
2,659
–
24,384
20,616
In February 2018, the Company completed an institutional placing of 2,029,971 Ordinary Shares for 190p per share raising £3,674,000
net of expenses of £183,000. The excess of proceeds over the nominal value of £3,653,000 was credited to share premium.
Options over 102,000 Ordinary Shares were exercised for proceeds of £117,000. The excess of proceeds over the nominal value
of £115,000 was credited to share premium.
29. Merger reserve
When the Company issues shares in consideration for the shares in an acquired entity and on completion of the transaction, the
Company has secured at least a 90% equity holding in the other entity, the excess of the fair value of the shares over the nominal
value is credited to the merger reserve (‘M erger Relief’).
During the year ended 31 December 2018, 53,101 Ordinary Shares were issued as part consideration for the acquisition of
Pharmacovigilance Services at £1.51 per share. The excess of the fair value over the nominal value of £80,000 has been credited
to the merger reserve as the transaction is subject to Merger Relief in the year ended 31 December 2018.
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 the net assets of foreign operations.
80
Ergomed plc Annual Report and Accounts 2018
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Governance
Financial statements
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, certain Directors, former Directors and the Company Secretary hold options over shares held by Dr Miroslav Reljanović
under agreements between those parties (the non-dilutive options). 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.
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
2018
£000s
521
–
–
237
758
2017
£000s
550
4
175
304
1,033
Included in the above share-based payment charges, £254,000 (2017: £253,000) 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. 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.
Unapproved options can be granted to any employee (including an Executive Director) of a Group company.
Generally, the options granted under this plan vest after three years or monthly over a period of up to three years. Certain options
vest based on market-based performance conditions assessed over a three year period.
At 31 December 2018, the following unexercised share options to acquire Ordinary Shares were outstanding:
Outstanding at the beginning of the year
Granted during the year
Exercised 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
2018
2017
Number of
share
options
2,255,000
1,696,900
(102,000)
(404,693)
Weighted
average
exercise
price
Number of
share
options
£1.22
£0.70
£1.14
£1.23
2,038,000
257,000
–
(40,000)
3,445,207
£0.96
2,255,000
Weighted
average
exercise
price
£1.20
£1.407
–
£0.616
£1.217
1,430,723
1,430,723
172,357
172,357
The weighted-average share price at the date of exercise of shares exercised during the year ended 31 December 2018 was £2.01.
Included in the share options granted during the year of 1,696,900, are 545,000 share options with market-based performance
conditions. The performance condition is a target Total Shareholder Return over a three-year period.
Ergomed plc Annual Report and Accounts 2018
81
Notes to the financial statements continued
For the year ended 31 December 2018
31. Share-based payments continued
At 31 December 2018, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2015
2015
2016
2016
2016
2016
2017
2017
2017
2018
2018
2018
2018
Exercise period
Exercise
price
per share
2018
Number
2017
Number
03/06/2018–02/06/2025
£1.63
753,000
913,000
03/06/2018–23/12/2025
£1.69
275,000
275,000
11/01/2019–10/01/2026
£0.01
400,000
400,000
03/08/2016–02/06/2026
03/08/2016–02/06/2026
03/01/2017–02/12/2026
24/02/2020–23/02/2027
29/04/2017–28/03/2027
16/04/2020–11/04/2027
£1.39
£0.01
£1.39
£2.10
£0.01
£0.01
132,142
185,000
–
100,000
150,000
150,000
120,000
155,000
–
27,000
50,000
50,000
16/04/2018–15/04/2028
£1.93
500,065
16/04/2018–15/04/2028
£0.01
215,000
02/07/2018–01/07/2028
£0.01
825,000
11/06/2018–10/06/2028
£0.01
25,000
–
–
–
–
The weighted average remaining life was seven years and five months (2017: eight years).
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
16 April
2018
16 April
2018
11 June
2018
2 July
2018
£0.5036
£1.97
£1.39
25.4%
5 years
0%
1.2%
£1.9606
£1.97
£0.01
25.4%
5 years
0%
1.2%
£2.3505
£2.36
£0.01
25.4%
5 years
0%
1.1%
£1.8205
£1.83
£0.01
25.4%
5 years
0%
1.0%
Options with market-based performance conditions were valued using a Monte Carlo 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
16 April
2018
£0.4976
£1.97
£0.01
26.1%
3 years
0%
0.96%
11 June
2018
2 July
2018
£0.6057
£2.36
£0.01
25.7%
3 years
0%
0.79%
£0.4479
£1.83
£0.01
25.4%
3 years
0%
0.71%
24 February
2017
£0.3267
£2.09
£2.10
25.38%
3 years
1.0%
0.7%
29 March
2017
£1.9404
£0.01
£1.39
26.3%
1 year
1.0%
0.12%
12 April
2017
12 April
2017
£1.9016
£1.97
£0.01
25.2%
0.97 years
1.0%
0.08%
£1.9410
£1.97
£0.01
25.4%
3.01 years
1.0%
0.18%
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 £521,000 related to equity-settled share-based payment transactions in the year ended 31 December 2018
(2017: £550,000).
82
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
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 after which time the options are forfeited. The movement on options in issue under these
schemes is set out below:
2018
2017
Number of
share
options
Weighted
average
exercise
price
Number of
share
options
Weighted
average
exercise
price
Outstanding at the beginning and end of the year
1,000,000
£0.01
1,000,000
£0.01
Vested at the end of the year
Exercisable at the end of the year
1,000,000
1,000,000
1,000,000
1,000,000
Based on the calculation of the total fair value of the options granted, the Company recognised a total charge through the income
statement of £nil related to equity-settled share-based payment transactions in the year ended 31 December 2018 (2017: £nil).
At 31 December 2018, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2009
Exercise period
Exercise
price
per share
2018
No.
2017
No.
31/01/2009–30/12/2019
£0.01
1,000,000
1,000,000
The weighted average remaining life was one year (2017: two 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.
2018
2017
Number of
share
options
Weighted
average
exercise
price
Number of
share
options
Weighted
average
exercise
price
Outstanding at the beginning and end of the year
1,260,000
£1.60
1,260,000
£1.60
Vested at the end of the year
Exercisable at the end of the year
1,260,000
1,260,000
1,260,000
1,260,000
All of the options awarded had 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 2018, the following unexercised share options to acquire Ordinary Shares were outstanding:
Year of grant
2014
Exercise period
Exercise
price
per share
2018
No.
2017
No.
18/04/2014–17/04/2024
£1.60
1,260,000
1,260,000
The weighted average remaining life was five years and four months (2016: six years and four months).
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 £nil (2017: £4,000).
Ergomed plc Annual Report and Accounts 2018
83
Notes to the financial statements continued
For the year ended 31 December 2018
31. Share-based payments continued
Non-dilutive share options
Agreements are in place whereby certain employees and former employees hold options over shares held by Dr Miroslav
Reljanović. The grant of such options was related to their employment by the Company.
At 31 December 2018, the following unexercised share options to acquire Ordinary Shares were outstanding:
Outstanding at the beginning of the year
Exercised during the year
Outstanding at the end of the year
Vested at the end of the year
Exercisable at the end of the year
2018
2017
Weighted
average
exercise
price
£0.01
£0.01
£0.01
Number of
share
options
602,940
(176,470)
426,470
426,470
426,470
Number of
share
options
602,940
–
602,940
552,940
552,940
Weighted
average
exercise
price
£0.01
–
£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 (2017: £175,000).
At 31 December 2018, 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
2018
No.
88,235
88,235
75,000
75,000
50,000
50,000
2017
No.
176,470
176,470
75,000
75,000
50,000
50,000
The weighted average remaining life was seven years and five months (2017: nine years and one month).
Acquisition-related share-based payment expense
The terms of the acquisitions of PSR Group BV and European PharmInvent Services s.r.o. (now PrimeVigilance s.r.o.) included
provisions for contingent consideration payable in cash and in equity. Where that contingent consideration is conditional 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 conditional upon the continued employment of the vendors is included as part of share-based
payments in accordance with IFRS 2. A charge of £163,000 arises in the year ended 31 December 2018 (2017: £304,000).
The element that is repayable in cash and that is conditional upon the continued employment of the vendors is charged separately
to the income statement and is shown as acquisition-related contingent compensation (note 7).
In addition, the terms of the agreement for the transfer of the pharmacoepidemiology business of Michael Forstner included
provisions for contingent consideration payable in cash and in equity that was conditional upon his continued employment. The
element that is repayable in equity is included as part of share-based payments in accordance with IFRS 2. A charge of £74,000
arises in the year ended 31 December 2018 (2017: £nil). The element that is repayable in cash and that is conditional upon his
continued employment is charged separately to the income statement and is shown as establishment of pharmacoepidemiology
business expense in Exceptional items (note 9).
84
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
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 measured at fair value on a recurring basis
Group
The fair value of financial instruments measured at fair value on a recurring basis as at 31 December 2018 are as follows:
Financial assets:
Investments in equity securities (‘FVPL’)
Financial liabilities
Deferred consideration
Contingent consideration
Fair value
Level 1
£000s
Fair value
Level 2
£000s
Fair value
Level 3
£000s
Total
amount
£000s
863
–
1,202
2,065
–
–
(119)
–
–
(544)
(119)
(544)
Investments in equity securities, which are publicly quoted, are measured based on the quoted market price. Unlisted investments
in equity securities are measured based on the market price of recent share issuances.
The contingent consideration is measures using a discounted cash flow approach, utilising management’s forecasts to estimate the
likely payout and discounting these using a risk-adjusted weighted average cost of capital, both of which are significant
unobservable inputs. The contingent consideration relates to the acquisition of Haemostatix, PSR and Harefield Pharmacovigilance
(see note 26).
The changes in level 3 items for the periods ended 31 December 2018 were as follows:
At 31 December 2017
Additions
Gain or loss recognised in the period through unrealised gains on equity instruments
Gain or loss recognised in the period through selling, general and administration expenses
Gain or loss recognised in the period through finance costs
Transfers out of level 3
Translation movement
At 31 December 2018
Contingent
consideration
£000s
Investments in
equity
securities
£000s
11,761
–
–
(11,850)
619
–
14
544
754
1,054
277
(44)
–
(863)
24
1,202
During the year ended 31 December 2018, the equity investment in Asarina was transferred from level 3 of the fair value hierarchy to
level 1 due to Asarina becoming a publicly traded entity in the period.
The changes in level 3 items for the periods ended 31 December 2017 were as follows:
At 1 January 2017
Arising on acquisition
Finance charge
Amounts settled
Revaluation
Translation movement
At 31 December 2017
Group
£000s
7,772
1,109
581
(585)
2,875
9
Company
£000s
7,772
1,109
581
(585)
2,875
9
11,761
11,761
Ergomed plc Annual Report and Accounts 2018
85
Notes to the financial statements continued
For the year ended 31 December 2018
32. Financial instruments continued
Categories of financial instruments
Group
31 December 2018
Financial assets
Equity investments
Trade receivables
Other receivables
Cash and cash equivalents
Financial liabilities
Finance leases
Trade creditors
Amounts payable to related parties
Other payables
Customer advances
Accruals
Contingent and deferred consideration
Financial
instruments
at fair value
through
profit and
loss
£000s
Financial
assets at
amortised
cost
£000s
Current
financial
liabilities at
amortised
cost
£000s
2,065
–
–
–
2,065
–
11,735
2,437
5,189
19,361
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
4,379
585
1,575
734
2,992
–
10,271
Current
financial
liabilities at
fair value
through
profit and
loss
£000s
Non-current
financial
liabilities at
fair value
through
profit and
loss
£000s
Non-current
financial
liabilities at
amortised
cost
£000s
–
–
–
–
–
–
–
–
–
–
–
119
119
–
–
–
–
–
–
–
–
–
–
–
544
544
–
–
–
–
–
–
–
–
–
–
–
–
–
Carrying
amount
£000s
2,065
11,735
2,437
5,189
Fair value
£000s
2,065
11,735
2,437
5,189
21,426
21,426
6
4,379
585
1,575
734
2,992
663
6
4,379
585
1,575
734
2,992
663
10,934
10,934
The Groups’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.
The carrying value less impairment provision of trade receivables and payables approximates to their fair values.
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
Contingent and deferred consideration
Financial
instruments
at amortised
cost
£000s
Loans and
receivables
£000s
Current
financial
liabilities at
amortised
cost
£000s
Current
financial
liabilities at
fair value
through
profit and
loss
£000s
Non-current
financial
liabilities at
fair value
through
profit and
loss
£000s
Non-current
financial
liabilities at
amortised
cost
£000s
709
–
–
–
–
709
–
–
–
–
–
–
–
–
–
13,390
282
1,884
3,218
18,774
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
4,935
425
1,186
751
2,307
–
9,616
–
–
–
–
–
–
–
–
–
–
–
–
1,957
1,957
–
–
–
–
–
–
–
–
–
–
–
–
9,804
9,804
–
–
–
–
–
–
6
–
–
–
–
–
–
6
Carrying
amount
£000s
709
13,390
282
1,884
3,218
19,483
18
4,935
425
1,186
751
2,307
11,761
Fair value
£000s
709
13,390
282
1,884
3,218
19,483
18
4,935
425
1,186
751
2,307
11,761
21,383
21,383
86
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
The tables below analyse financial liabilities as of 31 December 2018 at carrying amount and at contractual amount.
Finance leases
Trade creditors
Amounts payable to related parties
Other payables
Customer advances
Accruals
Deferred consideration
Contingent consideration
Carrying
amount
£000s
Contractual
amount
£000s
6
4,379
585
1,575
734
2,992
119
544
6
4,379
585
1,575
734
2,992
119
690
Due less
than
1 year
£000s
6
4,379
585
1,575
734
2,992
119
–
10,934
11,080
10,390
The contractual amount of contingent consideration is the estimate of the undiscounted payment at 31 December 2018.
The maximum contractual amount is described in note 16.
The tables below analyse financial liabilities as of 31 December 2017 at carrying amount and at contractual amount.
Finance leases
Trade creditors
Amounts payable to related parties
Other payables
Customer advances
Accruals
Contingent consideration
Carrying
amount
£000s
Contractual
amount
£000s
18
4,935
425
1,186
751
2,307
11,761
18
4,935
425
1,186
751
2,307
21,330
21,383
30,952
Due less
than
1 year
£000s
18
4,935
425
1,186
751
2,307
4,000
9,622
Due 2-3
years
£000s
–
–
–
–
–
–
–
690
690
Due 2-3
years
£000s
–
–
–
–
–
–
17,330
17,330
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
Financial assets consists of equity investments, trade and other receivables and cash and cash equivalents.
GBP
Euro
USD
Other
Group
Company
2018
£000s
3,875
7,652
5,200
4,699
2017
£000s
2,356
8,214
6,914
1,999
2018
£000s
506
6,341
1,680
2,081
2017
£000s
3,877
6,771
3,857
762
21,426
19,483
10,608
15,267
Ergomed plc Annual Report and Accounts 2018
87
Notes to the financial statements continued
For the year ended 31 December 2018
32. Financial instruments continued
Financial liabilities
GBP
Euro
USD
Other
Group
Company
2018
£000s
2,160
6,473
564
1,737
2017
£000s
12,288
4,554
2,788
1,753
2018
£000s
1,937
22,197
6,179
1,920
2017
£000s
15,170
8,008
669
731
10,934
21,383
32,233
24,578
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.
2018
Euro
USD
Other
2017
Euro
USD
Other
Group
Company
Strengthen
+10%
£000s
Weaken
-10%
£000s
Strengthen
+10%
£000s
Weaken
-10%
£000s
(156)
(107)
(691)
191
131
844
(954)
1,166
37
234
(306)
(35)
(45)
(286)
373
42
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
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 assess 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 assess its major customers.
88
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
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 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.
Liquidity and interest risk tables
The Group and the Company have no significant long-term financial liabilities.
33. Acquisition of subsidiary – Harefield Pharmacovigilance
On 7 September 2018, the Group acquired 100% of the issued share capital of Harefield Pharmacovigilance Limited, a company
providing PV services based in the UK. The amounts provisionally recognised in respect of the identifiable assets acquired
and liabilities assumed are as set out in the table below.
Net assets acquired and liabilities assumed:
Property, plant and equipment
Trade and other receivables
Cash and equivalents
Current assets
Trade and other payables
Tax payable
Total identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash
Deferred consideration
Contingent consideration
Total consideration
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances acquired
Book
values
£000s
Fair value
adjustments
£000s
Fair
value
£000s
2
212
77
289
(33)
(37)
221
38
259
116
143
–
259
116
(77)
39
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
212
77
289
(33)
(37)
221
38
259
116
143
–
259
116
(77)
39
Goodwill is provisionally valued at £38,000. None of the goodwill is expected to be deductible for income tax purposes.
Contingent consideration represents the provisional fair valuation of the additional consideration payable which could be
between £nil and an aggregate maximum undiscounted amount of £500,000, subject to the future performance of the business.
The total consideration includes deferred consideration of £143,000 relating to working capital. Deferred consideration of £86,000
was paid during the year ended 31 December 2018 and a further £57,000 is due in 2019 (see note 26).
The Group has a 12 month measurement period from the date of acquisition, and therefore the measurement period ends on
6 September 2019.
Harefield Pharmacovigilance contributed revenues of £144,000 and profit before tax of £116,000 to the results of the Group. If the
acquisition had been completed on the first day of the financial year, group revenues for the year ended 31 December 2018 would
have been £300,000 higher and group profit before tax would have been £131,000 higher.
Ergomed plc Annual Report and Accounts 2018
89
Notes to the financial statements continued
For the year ended 31 December 2018
34. Acquisition of subsidiary – Pharmacovigilance Services
On 31 October 2018, the Group acquired 100% of the issued share capital of Pharmacovigilance Services Limited, a company
providing PV services based in the UK. The amounts provisionally recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below.
Net assets acquired and liabilities assumed:
Trade and other receivables
Cash and equivalents
Other creditors
Tax payable
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
Book
values
£000s
Fair value
adjustments
£000s
Fair
value
£000s
62
246
(12)
(23)
273
400
673
320
80
273
673
320
(246)
74
–
–
–
–
–
–
–
–
–
–
–
–
–
–
62
246
(12)
(23)
273
400
673
320
80
273
673
320
(246)
74
Goodwill is provisionally valued at £400,000. None of the goodwill is expected to be deductible for income tax purposes.
The Group has a 12 month measurement period from the date of acquisition, and therefore the measurement period ends on
30 October 2019.
Pharmacovigilance Services contributed revenues of £4,000 and profit before tax of £3,000 to the results of the Group. If the
acquisition had been completed on the first day of the financial year, group revenues for the year ended 31 December 2018
would have been £88,000 higher and group profit before tax would have been £13,000 higher.
The total consideration includes deferred consideration of £273,000 relating to working capital. Deferred consideration of
£212,000 was paid during the year ended 31 December 2018 and a further £61,000 is due in 2019 (see note 26).
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Governance
Financial statements
35. 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 programmes. The final amounts 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
Contingent 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 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 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 valued at £2,535,000. None of the goodwill is expected to be deductible for income tax purposes. Contingent
consideration represents the 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. Subsequent to the acquisition
the liability for contingent consideration is measured at fair value at each reporting date (see note 26).
Ergomed plc has a 12 month measurement period from the date of acquisition, and therefore the measurement period ended
on 1 October 2018. There were no adjustments to the provisional fair values in the year ended 31 December 2018.
Ergomed plc Annual Report and Accounts 2018
91
Notes to the financial statements continued
For the year ended 31 December 2018
36. Financial commitments
At 31 December 2018 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
2018
£000s
1,864
6,667
8,531
2017
£000s
847
2,105
2,952
2018
£000s
117
131
248
2017
£000s
161
266
427
At 31 December 2018 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
2018
£000s
17
2017
£000s
54
2018
£000s
–
2017
£000s
–
37. 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 £621,000 (2017: £323,000). Contributions payable to the
schemes at 31 December 2018 were £58,000 (2017: £185,000).
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 £62,000 (2017: £57,000). Contributions payable
to the schemes at 31 December 2018 were £nil (2017: £nil).
38. Related party transactions
Ergomed d.o.o., a company registered in Croatia, is under the control of Dr Miroslav Reljanović, who is a Director and shareholder of
the Company. During the year the Company and its subsidiaries were charged £247,000 (2017: £266,000) by Ergomed d.o.o. and its
subsidiaries in respect of clinical research costs and other administrative services. At 31 December 2018 a balance of £64,000 was
owed by the Company and its subsidiaries to Ergomed d.o.o. and its subsidiaries in respect of these costs (2017: £40,000).
Tortuga Energy Services Limited is a company part-owned by Stuart Jackson, who is a Director and shareholder of the Company.
During the year, the Company was charged consultancy fees of £17,000 (2017: £nil) in relation to the services of Stuart Jackson prior
to his appointment as a Director. At 31 December 2018, amounts payable to Tortuga Energy Services Limited in relation to such
consultancy services and associated expenses were £17,000 (2017: £nil).
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
contingent consideration. During the year £607,000 (2017: £472,000) was charged to the income statement in relation to this
contingent consideration and was payable in cash and equity at 31 December 2018.
Ergomed Saudi Ltd is a joint venture of which the Company holds 50%. During the year, the Company was charged £43,000
(2017: £51,000) for clinical research support services. At 31 December 2018, amounts payable to Ergomed Saudi Ltd in relation
to such services was £18,000 (2017: £7,000).
All transactions with related parties take place on an arm’s length basis.
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
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Governance
Financial statements
39. Adjusted earnings per share
Loss for the purposes of basic earnings per share being net profit attributable to owners of the Company
(8,980)
(4,504)
2018
£000s
2017
£000s
Loss for the purposes of diluted earnings per share
Adjust for:
Amortisation of acquired fair valued intangible assets
Share-based payment charge
Acquisition-related contingent consideration
Change in fair value of contingent consideration for acquisitions
Acquisition costs
Exceptional items
Unrealised gains on equity investments
Tax effect of adjusting items
Adjusted earnings for the purposes of diluted earnings per share
Adjusted earnings per share
Basic
Diluted
(8,980)
(4,504)
1,286
758
972
(233)
174
8,494
(277)
(1,323)
871
1.9p
1.9p
1,167
1,033
752
2,875
259
143
–
–
1,725
4.2p
4.0p
Ergomed plc Annual Report and Accounts 2018
93
Notes
94
Ergomed plc Annual Report and Accounts 2018
Strategic report
Governance
Financial statements
Ergomed plc Annual Report and Accounts 2018
95
Notes
96
Ergomed plc Annual Report and Accounts 2018
Ergomed plc
1 Occam Court
Surrey Research Park
Guildford
Surrey GU2 7HJ
www.ergomedplc.com