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GROW
BUILD
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Annual Report & Accounts
2020
Our vision
Global leadership in specialised
pharmaceutical services addressing
unmet medical needs and patient safety
Our purpose
Bringing expertise to deliver medicines
our world can trust
Key reads
Investment case
Read about how Ergomed’s investment
Our business model
See how Ergomed’s business model is
Responsible business
From Environmental to Social to Governance
case is positioned around highly
delivering growth and creating value for
– read how Ergomed keeps these matters at
complementary offerings in already
stakeholders
the heart of being a responsible business
established growth markets
See more details on page 6
See more details on page 16
See more details on page 33
Strategic report
Governance
Financial statements
48 Board of Directors
71 Consolidated income statement
50 Corporate governance at a glance
72 Consolidated statement of
51 Executive Chairman’s governance
statement
54 QCA Corporate Governance Code
56 Audit and Risk Committee report
60 Remuneration Committee report
64 Directors’ report
65 Statement of Directors’ responsibilities
66
Independent auditor’s report
comprehensive income
73 Consolidated balance sheet
74 Consolidated statement
of changes in equity
75 Consolidated cash flow statement
76 Company balance sheet
77 Company statement of changes
in equity
78 Notes to the financial statements
119 Company information
2
4
6
2020 highlights
At a glance
Investment case
8 Our markets
10 Executive Chairman’s statement
13 Responding to COVID-19
16 Our business model
18 Our strategy
20 Strategy in action
20 Grow
22 Build
24 Invest
26 Operational review
30 Financial review
33 Responsible business
44 Risk management
See more online at
www.ergomedplc.com
45 Principal risks and uncertainties
StratEgic rEport
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Financial StatEmEntS
1
Our strategic focus
GROW
BUILD
INVEST
see page 20
see page 22
see page 24
The success of our business is grounded in our culture
The way we think, interact and service our stakeholders.
Ergomed is shaped by culture which focuses on
patients and a determination to deliver the benefits
of new, and safe, medicines and therapies to them.
2
Annual Report and Accounts 2020
2020 highlights
Financial highlights
2020
2019
2018
£86.4m
2020
£39.7m
£68.3m
£54.1m
2019
2018
£29.5m
£19.3m
2020
2019
2018
£2.3m
£19.4m
£12.5m
Revenue
£86.4m
2019: £68.3m
Gross profit
£39.7m
2019: £29.5m
Adjusted EBITDA*
£19.4m
2019: £12.5m
* Adjusted EBITDA and adjusted earnings per share are ‘Alternative Profit Measures’ and are defined on pages 30 and 31.
Operational highlights
Significant US strategic
acquisitions expand presence
in both pharmacovigilance and
clinical research services
Continued strong growth trend
in challenging markets
Strong revenue growth in
strategically significant
North American market
Addition of:
175 professional staff
60 new clients
See more details on
pages 22 to 23
Revenue growth:
26.5%
Adjusted EBITDA growth:
55.2%
See more details on
pages 26 to 29
North American
revenue growth:
82.4%
See more details on
pages 26 to 29
COVID-19 – Demonstrated
resilience and ability to
contribute in COVID-19 crisis
Successful focus on business
development and cross-selling
opportunities
Seamless migration of workforce
to remote working – no
redundancies or furloughed staff
Staff transitioned to
remote working:
95%
See more details on
pages 13 to 15
Order book growth:
55.5%
See more details on
pages 20 to 21
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Financial StatEmEntS
3
2020
2019
2018
£19.0m
2020
£193.0m
£14.3m
£5.2m
2019
2018
£124.1m
£109.2m
Net cash
£19.0m
2019: £14.3m
Contracted order book
£193.0m
2019: £124.1m
2020
2019
2018
1.9p
25.8p
19.9p
Basic adjusted earnings per share*
25.8p
2019: 19.9p
4
Annual Report and Accounts 2020
At a glance
We provide full service pharmacovigilance and specialist clinical
trial solutions to the pharmaceutical and biotechnology industries
Employees
Countries with active
clinical trials
Countries supported by
pharmacovigilance services
Pharmacovigilance patient
cases processed p.a.
1,100+
42
140
275,000+
Global service coverage
North America
World’s largest pharmaceutical
market.
UK & Europe
Second largest pharmaceutical
market globally.
High-growth market for
pharmacovigilance (‘PV’) and
Clinical Research Services
(‘CRO’).
Ergomed has enhanced PV and
CRO operational presence
through the acquisition of
Ashfield PV and MedSource in
the year.
Founded in Europe, Ergomed has
complete coverage of the PV and
CRO markets through its
strategically-placed offices in the
UK, Croatia, the Czech Republic,
Germany, the Netherlands, Poland
and Serbia.
Ergomed provides a
comprehensive network of PV and
CRO specialists with in-depth
knowledge of EU and country
specific regulatory requirements.
Middle East & Africa
Ergomed offers service coverage
supporting trials throughout the
Middle East and Africa.
Ergomed provides access to
patients across the Middle East
and Africa.
Ergomed
North America revenue
£46.7m
Ergomed
UK and EMEA revenue
£35.5m
Asia
Asian region has the fastest
growing PV and CRO markets.
India and China are driving
growth in the region as a result of
large populations and increased
focus on PV regulations.
Ergomed has an established
CRO presence in India and is
looking to expand.
PV offices have recently been
opened in Japan to support
growing client requirements in
the region.
Ergomed
Asia revenue
£4.2m
regional revenue growth
Total revenue
£86.4m
2020
UK
EU/EMEA
N America
Asia
14%
27%
54%
5%
Total revenue up
26.6%
Service fee revenue up
32.2%
North America up
82.4%
from £25.6m to £46.7m
Total revenue
£68.3m
2019
UK
EU/EMEA
N America
Asia
19%
42%
37%
2%
StratEgic rEport
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Financial StatEmEntS
5
Areas of operation
Clinical Research Services (‘CRO’)
managing clinical trials
Pharmacovigilance (‘PV’)
monitoring drug safety
Clinical research is the process of developing
new medical therapies, drugs and knowledge for
safe and effective use in healthcare. CRO is the
outsourced management of this research to
specialist service providers who organise all
aspects of a clinical trial, including the creation
and management of the trial team, recruitment of
medical experts, patient recruitment, regulatory
affairs, medical writing, quality management and
pharmacovigilance.
• Ergomed offers high-quality clinical research
and trial management services across all trial
phases (I to IV) through the Ergomed brand
• Ergomed specialises in managing oncology and
rare disease trials
• Offices are located in the UK, US and
throughout Europe
• Ergomed has innovative site-support services
which focus on enhancing patient recruitment
and engagement
Pharmacovigilance is the science and activities
relating to the detection, understanding and
prevention of adverse effects or other drug-related
problems throughout its lifecycle.
Pharmacovigilance has evolved to include other
drug lifecycle services including medical
information and Qualified Person Responsible for
Pharmacovigilance (‘QPPV’) networks.
• PV services are offered to Ergomed’s clients
through the PrimeVigilance brand and include
case processing, signal and risk management,
pharmacoepidemiology, audits, training,
advisory literature services, medical information
and QPPV
• Offices are located in the UK, US and
throughout Europe
• PrimeVigilance supports pharmaceutical,
biotechnology and genetics companies in
managing the global safety of their products,
all the way from clinical trial to post-marketing
• Ergomed focuses on investing in intelligent
automation to provide faster analysis and
reporting of adverse medical events
CRO 2020 revenue
£31.3m
PV 2020 revenue
£55.1m
6
Annual Report and Accounts 2020
Investment case
complementary cro and pv offerings
in established growth markets
Attractive growth
markets
Well positioned
Complementary
offerings
The CRO and PV operations are
complementary, allowing
Ergomed to assist clients in
managing all their requirements
from drug development through
to post marketing drug safety
monitoring. The complementary
business streams, and combined
CRO and PV marketing and
business development functions,
facilitate enhanced cross-selling
opportunities and client retention.
Ergomed has experienced better
resilience to the financial impact
of COVID-19 compared to CRO
peers as a result of its more
diverse operations.
Pipeline cross-selling
opportunities 2020
year end
£50.0m
The CRO market continues to see
increasing investment in clinical
trials by pharma-biotech
companies and a shift to
outsourcing across the industry.
This growth is supplemented by
the increasing prevalence of
chronic disease trials and the
growing demand for clinical trials
in developing countries. The CRO
market is currently around $42.3
billion and is expected to grow
annually at a Compound Annual
Growth Rate (CAGR) of 6.6% over
the period to 2026. Ergomed
specialises in the rare disease
and oncology subsets of the CRO
market which are expected to
grow at a CAGR above 10% during
the same period.
Driven by an increase in the global
harmonisation of regulations,
greater regulatory focus on drug
safety and a strong outsourcing
trend, particularly in Asia, the PV
market is currently around $5.1
billion and is expected to grow
annually at 15.8% (CAGR) over the
period to 2026.
Ergomed revenue CAGR
last 6 years
20%+
Strong momentum over 2019 and
2020 has resulted in a considerable
order book which will underpin the
anticipated market growth for the
near-term. In addition, Ergomed’s
recent acquisition of MedSource
and Ashfield Pharmacovigilance
has greatly increased operational
coverage in the North American
CRO and PV markets; the biggest
pharmaceutical markets globally.
Ergomed’s CRO business
specialises in rare disease and
oncology. Oncology accounted for
$15.6 billion of the CRO market in
2020 with rare disease making up
an additional $5.6 billion. The
continued rare disease and
oncology market growth is
expected to outstrip the wider CRO
market at 10.8% and 9.2% CAGR
respectively, over the period to
2026. Ergomed is highly exposed to
these high-growth therapeutic
areas with 88% of its new business
wins in rare disease and oncology.
PrimeVigilance has strong brand
recognition within the PV market
and, aided by investment in
intelligent automation, is expected
to continue to surpass the wider PV
market CAGR of 15.8%.
Ergomed order book 2020
year end
£193.0m
StratEgic rEport
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Financial StatEmEntS
7
Strong leadership
Ergomed has strong and
established leadership across
its board and management
team led by Miroslav Reljanovic,
founder and Executive Chairman
of Erogmed plc and co-founder
of PrimeVigilance.
The team has established a
strong track record of delivering
high, organic growth and
successful acquisition integration.
Years of experience as a
leading specialist CRO
20+ years
Consolidation
opportunity
With a high level of consolidation
at the top end of the CRO market,
led by the recent acquisition of
PRA Health Sciences by ICON,
and in the mid-tier CRO market,
notably the acquisition of
Synteract by Syneos Health,
there is a shrinking number of
mid-tier CRO providers, and even
fewer PV specialists. Ergomed is
one of the few mid-tier listed
CRO providers globally and is
well-positioned to consolidate in
a fragmented industry.
Ergomed has successfully
demonstrated its strong position
through several strategic
acquisitions in both CRO and PV
since its IPO in 2014, most recently
of Ashfield Pharmacovigilance
and MedSource.
Acquisitions successfully
integrated since IPO
in 2014
8
Market
statistics
CRO market size 2020
$42.3bn1
Combined oncology and rare
disease market size 2020
$21.2bn1
North America accounted for
51%
of the CRO market in 20201
CRO oncology CAGR of
9.2%
over 6 years to 20261
Rare disease CAGR of
10.8%
over the 6 years to 20261
PV market size 2020
$5.1bn1
PV CAGR of
15.8%
over 6 years to 2026¹
1 Grand View Research,
Clinicaltrials.gov, GM Insights,
Global Genes.
8
Annual Report and Accounts 2020
Our markets
Significant future growth forecast across all
stages of the drug development lifecycle
Global trends and market drivers
The profile of the work performed across all stages
of the drug development lifecycle has come under
greater public interest as a result of the COVID-19
pandemic and the search for novel vaccines continues
at full-steam. The Clinical Research Services (CRO)
market is currently $42.3 billion and is expected to
grow annually at a Compound Annual Growth Rate
(CAGR) of 6.6% to 2026 while the rare disease and
oncology subsets of the CRO market are expected to
grow at a CAGR above 10% during the same period. The
Pharmacovigilance (PV) market is currently $5.1 billion
and is expected to grow annually at 15.8% (CAGR) to 2026.
CRO continues to see increasing global investment in
clinical trials by pharma-biotech companies, partly as a
result of COVID-19 and the drive to quickly and safely
develop and trial innovative therapeutics and vaccines,
but primarily as a result of the increasing number of
drugs under development in key therapy areas such
as oncology and rare disease.
Regional trends and market drivers
The industry is also seeing a continued shift to
outsourcing clinical research to specialist CRO providers
to allow pharma-biotech companies to focus on core
competencies, access greater levels of specialist
expertise and ultimately lower development costs
through shorter trial lengths.
In established PV markets, increasing consumption of
drugs, personalised medicine regimes and rising patient
awareness in adverse drug reactions and drug toxicity is
driving continued market growth. In addition, regions
such as India and China are experiencing above-market
growth as a result of the accepted adoption of
outsourced PV services and a push for regulation
harmonisation with more established PV markets in
North America and Europe.
North America
North America is the largest pharmaceutical development market
globally accounting for 51% of all CRO business in 2020.
Europe
Europe remains the second largest
CRO and PV market and is at the
This dominance is expected to continue into the future with more
forefront of driving safety through
than half of all clinical trials requiring a presence in the US. Phase III
regulation. Like North America, the
studies make up the biggest segment in the CRO market, of which
oncology segment dominates the
Asia
The Asian CRO and PV
markets remain smaller
than North America and
Europe but are emerging
as the fastest growing of
rare disease and oncology have the largest shares.
clinical trials market and accounted for
all three regions; driven
North America has the largest PV market share with around a third
2020. The segment is also anticipated
increasing of outsourcing
of all PV revenue generated in the region, primarily owing to the
to experience a higher CAGR of 9.2%
and regulatory
presence of key pharmaceutical providers there. Of the PV market,
over the period to 2026.
around 75% is made up of post-marketing surveillance.
harmonisation with North
America and Europe.
the largest global revenue share in
by higher populations,
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Financial StatEmEntS
9
GROW
BUILD
INVEST
Complementary CRO and
PV capabilities with
cross-selling
opportunities
Addressing growing
markets through organic
growth and acquisition
Investing in people and
technology
For more details see pages 20 to 21
For more details see pages 22 to 23
For more details see pages 24 to 25
Clinical Research
Service Opportunities
Pharmacovigilance Opportunities
Ergomed is a leading specialist in managing
oncology and rare disease clinical trials with
over 20 years’ experience. Ergomed offers a
differentiated service through a unique site
support model which is focused on patient
advocacy and the continued development of
compassionate use trials in these high-
growth oncology and rare disease markets.
The addition of MS Clinical Services, LLC
(‘MedSource’), a US-based specialist
oncology and rare disease clinical research
organisation, has substantially grown
Ergomed’s operating base in North America,
allowing it to better serve existing clients and
access new clients in the biggest market.
This expansion will supplement the organic
growth facilitated by CRO and PV cross-
selling opportunities and the historic
acquisition of PSR Orphan Experts.
The addition and integration of Ashfield PV
(later rebranded PrimeVigilance USA Inc.) has
added a substantial operating base in the
US to serve existing and new clients in the
biggest market. This presence, along with
targeted organic growth in key development
areas such as Japan and India, and continued
investment in automation and technology will
allow PrimeVigilance to maximise growth in
these markets.
The complementary PV and CRO businesses
will also look for additional growth
opportunities through cross-selling to existing
customers. PrimeVigilance will look to add
strategically beneficial and earnings-accretive
acquisitions to build on the success of
PharmInvent and Ashfield PV in recent years.
10
Annual Report and Accounts 2020
Executive Chairman’s statement
Exceptional delivery in
challenging times
During 2020 Ergomed made
exceptional progress in delivering
its strategy, despite the global
challenge of the COVID-19
pandemic. We achieved strong
organic growth and completed
acquisitions in the key US market
in both our Clinical Research
Services (CRO) and
Pharmacovigilance (PV) businesses.
2020
2019
2018
£2.0m
£19.0m
£14.3m
Net cash
£19.0m
2019: £14.3m
Across the Group we transitioned smoothly to remote
working with the business remaining fully operational
whilst continuing to trade strongly and delivering a
strong uplift in revenues in the second half of the year,
particularly in the CRO business. We improved gross and
net margins and continued to strengthen our balance
sheet, with increased cash balances and financial
resources, as well as a capital reduction approved
unanimously by our shareholders. During an
extraordinary and challenging year, the core strengths of
our business and the hard work and dedication of all our
colleagues have shone through, delivering exceptional
progress towards our strategic vision of global
leadership in specialised pharmaceutical services
addressing unmet medical needs and patient safety.
Excellent financial performance
Following the positive results for the first half of the year
reported in September 2020, Ergomed continued to
deliver strong year on year top-line growth and financial
performance across the business in the second half. For
the year as a whole, Ergomed continued its excellent
financial performance delivering substantial revenue
growth of 26.5% with improved gross margins. Adjusted
EBITDA increased by 55.2% to £19.4 million, substantially
exceeding the market expectations set at the beginning of
the year. After investing £12.0 million on acquisitions,
funded fully out of cash, the Group continued to be
debt-free at the year end with cash and equivalent
balances of £19.0 million (2019: £14.3 million) and
unutilised banking facilities of £30.0 million. We ended
2020 with our order book of future contracted revenue at
£193.0 million, up 55.5% versus the prior year. This
excellent performance in a year that was extremely
challenging for companies across the world,
demonstrates the robustness of Ergomed’s business
model and firmly positions the Group to realise its
ambitious long-term growth plans.
StratEgic rEport
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Financial StatEmEntS
11
Miroslav Reljanović
Executive Chairman
2020
2019
2018
£86.4m
£68.3m
£54.1m
“Ergomed made exceptional progress in
delivering its strategy in 2020, despite the
challenges of the COVID-19 pandemic.”
Revenue growth
26.6%
2019: 26.2%
Executing our strategy
The transition to a fully services-based business model
announced in 2018 was completed on schedule in 2020,
with the business now entirely focused on its core
service businesses in the PV and CRO sectors. 2020 saw
further validation of this strategic focus on services,
evidenced by significantly improved financial and
operational performance with revenue growth of 26.5%
to £86.4 million and strong performances in both PV and
CRO. This continued the trend of a compound annual
revenue growth rate of over 20% since the initial public
offering in 2014.
Building on these foundations, with the successful
execution of our M&A strategy, rapid integration of
acquisitions and alignment of commercial strategies in
our CRO and PV businesses, as well as investment in
business development, we are delivering substantial
increases in cross-selling opportunities and a growing
order book of contracted long-term future revenues.
In 2020, we completed two highly strategic acquisitions
in the key US market for pharmaceutical services. In
January, we acquired Ashfield Pharmacovigilance, a
long-established and highly respected provider of
pharmacovigilance services in the US. This was rapidly
and successfully integrated, providing cross-selling and
growth opportunities within the significantly expanded
PV client base, as evidenced by the Group’s US revenue
growth of 82.4% in 2020. In December, we acquired MS
Clinical Services, LLC. and its subsidiaries (‘MedSource’),
a specialist provider of oncology and rare disease CRO
services, which is expected to provide further growth
and development potential within the key CRO sector in
the USA and globally.
The Board continues to actively consider further
acquisitions that will complement and strengthen the
existing CRO and PV service offerings and give access
to new customers and geographies.
We are also continuing to invest in infrastructure,
technology and digital transformation, with the
development of applications to achieve significant
automation over the coming years. In our PV business
this includes the development of applications for robotic
process automation and the digitisation of simple
adverse event reports, leading to the deployment of
machine learning for full case processing. In the CRO
business, we plan to play a significant role in the global
trend, accelerated by COVID-19, towards digital
transformation of clinical trials, including eConsent,
ePRO and wearable technology for remote and
home-based patient monitoring as well as virtual and
telemedicine as standard of care, risk-based monitoring
and remote data verification. These investments are
expected to build on Ergomed’s leadership position
with service offerings to our international client base,
as well as providing further potential for profitability
improvement.
Strong leadership and employment growth
During the year, Ergomed continued to strengthen its
executive leadership with key appointments in Europe
and in the US where we are expanding rapidly both
organically and through M&A. Our acquisitions of
Ashfield Pharmacovigilance (now PrimeVigilance USA)
and MedSource have included the addition of key new
senior team members. Despite the COVID-19 pandemic,
employment throughout the Group grew from 850
employees to around 1,150 over the course of 2020.
12
Annual Report and Accounts 2020
Executive Chairman’s statement continued
We are delighted to welcome our new colleagues to
the Group. These additions to the Ergomed global
team reflect the growing strength and ambition of
our business, add to our high-quality professional
experience and strength in depth and bolster
Ergomed’s growth potential.
COVID-19
The COVID-19 virus outbreak was a dominant factor for
global businesses during 2020. Ergomed’s response to
the pandemic continues to demonstrate the robustness
and resilience of our services business model which,
together with the hard work and dedication of all our
colleagues, has been highlighted during this
challenging year.
Health and safety
Throughout the pandemic, our priority has remained
the health and safety of our employees and the
maintenance of our service to all the patients and
medical staff involved in our clinical studies and
pharmacovigilance services.
We took stringent hygiene measures across all our sites
and cancelled unnecessary travel. Our established
business continuity plans enabled the Group to transition
to home working and we continued to provide clinical
study and pharmacovigilance monitoring services in
support of all our patients and medical partners. We saw
a temporary reduction in our ability to provide on-site
monitoring services in our CRO business particularly in
H1, but elsewhere there was no impact on our service
levels or productivity metrics, and the quality and scale
of the care provided to our patients and the healthcare
profession continued at normal levels.
Business continuity
Ergomed’s services in both clinical research and
pharmacovigilance are provided under long-term
contracts in order to meet monitoring needs essential
for medical research as well as legally mandated
pharmacovigilance requirements. We have not seen a
material COVID-19 impact on our business or our
performance metrics, nor major delays or cancellations
to studies or contracts. The slowdown in monitoring
experienced in the CRO business in the second quarter
of 2020 was replaced by a return to growth in the
second half of the year, with revenue higher than in the
first half of the year and in the corresponding period in
2019, as remote monitoring was implemented combined
with a limited return to near normal levels of onsite
monitoring in H2. In addition, our development activities
continued in the second half of 2020 providing a strong
sales performance and a significant uplift in our order
book at the end of the year.
Risk mitigation
Ergomed maintained a robust financial position
throughout the year, with strong cash generation and
substantial cash balances. We continue to monitor
closely the rapidly evolving situation and see no
significant immediate risks to the Group’s revenues or
operations, however, plans for financial risk mitigation
are in place if necessary. The Group has a strong
balance sheet and an unutilised £30 million credit
facility and is continuing to prove resilient in the face
of the risks posed by COVID-19.
Our contribution to the global fight against
COVID-19
Ergomed was proud to make an ongoing contribution to
the global effort to overcome the challenges created
by the spread of the COVID-19 virus. We continued to
provide our clinical trial and monitoring services for our
existing and new clients and patients to the highest
professional standards.
At the same time, we provided our clinical research as
well as pharmacovigilance services for new projects
designed to combat the virus. A number of COVID-19
related studies and contracts are continuing, and our
business development pipeline includes significant
further opportunities.
Conclusion
Ergomed’s success in 2020 reflects the resilient business
model and robust position of the business as well as the
hard work and dedication of all our colleagues in a time
of exceptional challenge. I would like to thank everyone
at Ergomed for their contribution during the year, and our
investors for their continued support.
Miroslav Reljanović
Executive Chairman
22 March 2021
StratEgic rEport
govErnancE
Financial StatEmEntS
13
Responding to COVID-19
Demonstrating resilience and the ability
to contribute to a global health crisis
Our priorities and key mitigating actions
Keeping our people safe
Maintaining patient safety
In a short period, our workforce was working remotely
with the best possible technology. Our essential workers
continued to support clients and patients. Our
employees showed resilience in adversity; we did not
have any redundancies or furlough any staff. We
provided equipment and training to enable our staff to
move to a flexible work arrangement and help address
their family needs in these challenging times.
Our priority is always patient safety. Where regulations
allowed, clinical trial management and patient
monitoring activities were moved on to Ergomed’s
remote and centralised clinical trial management
systems and we worked carefully with each study
sponsor to monitor patient safety. All PV staff and
operations were seamlessly moved to remote working
with no impact on patient safety monitoring.
Maintaining client service
Contributing to COVID-19 research
As well as working with study sponsors to enable
remote monitoring and maintain patient safety, we also
ensured that we had regular communication with
sponsors and study-specific COVID-19 risk
management plans established. In the majority of cases
Ergomed was able to continue to progress trials and
meet key milestones.
We were pleased to be selected by our clients to help
contribute towards efforts to overcome the pandemic.
After initially being involved in the successful design
and implementation of the Siltuximab study (see
COVID-19 case study – page 14) we were engaged by
further partners to help with CRO and PV activities.
We were keen to support and be involved with any
efforts to overcome COVID-19.
Resilience of our business model
We have seen that Ergomed’s business model has been
resilient to the impact of COVID-19, with PV revenues
growing and CRO revenues remaining flat.
• Focus on rare disease and oncology – due to the
critical nature of these trials, these were among those
areas least affected.
Restrictions on movements meant that access to patients
for CRO monitoring visits were heavily impacted with
leading listed CROs reporting restricted site access in 50
to 80% of trials at the pandemic peak. We estimate that up
to 42% of Ergomed’s CRO operating activities have been
impacted to some degree by COVID-19 during 2020.
Ergomed’s resilience is partly due to the mitigating actions
detailed above, but is also a result of Ergomed’s business
model:
• Complementary CRO and PV businesses – where
patient access and recruitment in CRO was negatively
impacted, the regulatory, compliance nature of the PV
business meant that it remained consistent.
• Technology – use of remote and centralised clinical
trial management and monitoring activities enabled
continued patient recruitment and monitoring. Patient
profile software provided a holistic view of patients in
an interactive, real-time environment allowing the
progression of early phase studies. Existing IT
systems were already configured for full-company
remote working.
• Long term client contracts – certainty around
revenue and cash flow streams.
• Combined CRO and PV marketing and business
development functions – able to quickly focus our
sales efforts on supporting the industry’s efforts to
find COVID-19 treatments and vaccines.
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Annual Report and Accounts 2020
Responding to COVID-19 continued
Solving the challenges faced by CRO
COVID-19 impact on business
Our approach
Regulatory restrictions & halts
• COVID-19 related studies are prioritised by regulatory bodies
causing delays in all other indications
Regulatory restrictions and bespoke regulatory intelligence tool
ensures agile approach to comply with many regulatory changes
throughout COVID-19 pandemic
Management of centres & logistics
• Hospitals were closed down
• Shipment of logistical equipment was hindered
• All hospitals prioritised COVID-19 patient management
Significant drop in monitoring services
• Travel and hospital restrictions did not allow for site visits
• Up to 40% of CRO revenue derives from monitoring
Unique site management model ensured continuous
communication with the sites and provided much needed support during
the evolving situation in hospitals
Study physician support to Investigators aided in patient
identification and supported in study related procedures, resulting in
constant recruitment on new studies and meeting milestone expectations
Hybrid model (combination of contractors and employees) ensures agile
cost control.
Ergomed leveraged this model to reduce contractor utilisation and
therefore maintain margins throughout
COVID-19 Case study
Ergomed continues to work with
partners on COVID-19 related
clinical studies
One such partner was EUSA Pharma (‘EUSA')
and the study of Siltuximab, an interleukin
(‘IL’)-6 targeted monoclonal antibody, in the
treatment of patients with COVID-19 who have
developed serious respiratory complications.
The study was sponsored by the Papa
Giovanni XXIII Hospital in Bergamo and started
in March 2020, at the peak of the initial
outbreak in northern Italy. Ergomed provided
clinical research services for the study and
was integral to the rapid design and
implementation of the study from a clinical
and operational perspective.
Ergomed was proud to be able to use its
expertise and agility to quickly develop
protocols and patient consent forms, translate
documents and expedite all required
information to receive Compassionate Use
Program (‘CUP') approval by 11 March 2020.
Further work resulted in the study receiving
full approval on 18 March 2020.
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Our colleagues
For us, it is a privilege to lead our employees around
the world who work every day to earn our
customers' trust and help them succeed. We've
long recognised the importance of prioritising our
employees' physical and emotional well-being, and
that of their families. During the COVID-19 crisis, our
focus throughout has been the Group's employees'
safety and well-being. Ergomed was able to rapidly
adapt to the new norms worldwide; in a short
period, our workforce was working remotely with
the best possible technology.
Our essential workers kept supporting clients and
patients. Our employees showed resilience in
adversity; we did not have any redundancies or
furloughs. We provided a flexible work arrangement
for our employees to address their family needs in
these challenging times and we are increasing our
mental health offerings to help staff cope with this
health crisis's ongoing changing conditions.
Ergomed’s COVID-19 taskforce meets bi-weekly to
manage business continuity and to keep the staff
informed.
COVID-19 timeline
Mid March 2020
• Ergomed announces
provision of clinical
research services
for the Siltuximab
Clinical Study.
End of March
2020
Ergomed provides
drug safety services
to assess the effect of
a rheumatoid arthritis
treatment on patients
with severe COVID-19
infection.
June 2020
Due to UK government
COVID-19 measures,
Ergomed’s AGM is held
as a closed meeting.
September 2020
Ergomed’s interim
results demonstrate the
business’s robustness.
December 2020
Due to continued travel
restrictions, Ergomed
completes the due
diligence and acquisition
of MedSource in the
US remotely.
2020
End of March 2020
Ergomed implements
a range of employee
safety measures and
successfully transitions
to a fully remote
working operation
across all countries.
April 2020
Ergomed announces
provision of clinical
research services
for the Namilumab
Clinical Study.
July 2020
Ergomed releases trading
update which is materially
ahead of market
expectations despite
COVID-19 challenges.
November 2020
Ergomed completes a
Capital Reduction using
remote conferencing for
court hearings.
2021
16
Annual Report and Accounts 2020
Our business model
We have a differentiated, sustainable and flexible
business model. It’s the platform for our growth strategy
and generates value for our key stakeholder groups.
We leverage our resources,
relationships and competitive
advantage...
... to deliver our services and
supporting activities...
Global coverage
Ergomed has a comprehensive network of
PV and CRO experts in locations throughout
Europe and has significantly expanded its
North American operations.
Specialist knowledge
and expertise
Ergomed’s management and staff are highly
qualified and knowledgeable in
their specialist fields of expertise.
Long-term client
relationships
Ergomed prides itself on building long-term
and trusted client relationships through all
phases of clinical development, and
post-approval pharmacovigilance.
Technology
Ergomed continues to invest in automation
and digital transformation to provide a more
valuable service to clients across the CRO
and PV businesses.
Recognised brands
The Ergomed group includes PSR Orphan
Experts and MedSource, both of which have
been amalgamated under the Ergomed
Clinical Research brand, and PrimeVigilance.
Ergomed and PrimeVigilance are highly
visible within the mid-tier CRO and
PV markets.
What we do
Ergomed’s complementary full services offering, with
its 20-year track record in specialist clinical research
and strength in pharmacovigilance, provides significant
benefits to clients across the pharmaceutical and
biotechnology industries.
CRO services
• High-quality contract research and clinical trial
management across all phases (I to IV)
• Innovative site-support services
• Plan, manage, monitor and report on the most
complex clinical trials
• Specialism in rare disease and oncology trials
PV services
• Essential – case processing, reporting and statutory
filing, internal audits
• Intermediate – signal management, risk evaluation
and management, qualified person oversight,
external audits/inspections
• Premium – pharmacoepidemiology, risk mitigation
protocols, referral procedures, strategic consultancy
Underpinned by
Strategic acquisitions
We have completed eight acquisitions since IPO in mid-2014,
including two in 2020 in the US, demonstrating our ability to
successfully identify and integrate businesses.
... to deliver our services and
supporting activities...
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... and create value for
our stakeholders
Clients
Partnering with Ergomed gives clients global access
to specialist CRO and PV services across all product
lifecycle phases. Ergomed’s specialist knowledge and
staff expertise, investment in technology and patient
advocacy deliver a value-enhancing and efficient
service to clients.
Colleagues
Through a positive work environment which promotes
diversity and inclusion, we allow our colleagues to meet
their potential and thrive in their chosen profession.
Suppliers
Ergomed believes in building long term supplier
partnerships through shared values of knowledge,
expertise and transparency. These partnerships,
combined with financial stability, allow sustainable
growth for both Ergomed and its suppliers.
Patients and communities
Having been founded by a physician, Ergomed has a
long history of putting patients and their families at
the centre of the work it does. Through a focus on
patient advocacy, Ergomed is increasing patient and
community engagement and improving the discovery,
development, and evaluation of new effective
medicines.
Investors
Organic growth, underpinned by highly qualified
management and staff, strategic acquisitions in
growth markets and investments in technology are
delivering sustainable shareholder value.
See more on our stakeholder engagement on pages 34 to 37
Complementary
capabilities
Ergomed’s comprehensive range of services in
both the PV and CRO sectors are complementary
and allow it to support pharmaceutical and
biotechnology companies through all phases of
clinical development, post-approval
pharmacovigilance and medical information
services.
Experienced
leadership
Governance
See pages 48 to 49
See pages 50 to 53
Patient advocacy
See page 43
18
Annual Report and Accounts 2020
Our strategy
Our strategy is to build a profitable high-growth
business targeting global leadership in specialised
pharmaceutical services
Strategic objectives
• Outpace CRO and PV market growth by leveraging
brand strengths
• One-stop shop for all our customers’ clinical trial
outsourcing and pharmacovigilance requirements
• Continue to realise pharmacovigilance and clinical
research synergies and cross-selling opportunities
• Augment organic growth with strategic and
selective acquisitions
• Integrate recent acquisitions to consolidate US
coverage and growth potential
• Strengthen geographical footprint through
expansion to developing regions
• Increase investment in people, attracting the best
talent worldwide, and foster personal growth within
our business
• Invest in technology and digital transformation to
enhance client and patient service
GROW
BUILD
INVEST
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Miroslav Reljanović
Executive Chairman
“Ergomed’s success in 2020 reflects the resilient business
model and robust position of the business as well as the
hard work and dedication of all our colleagues.”
2020 performance
2021 focus
Revenue CAGR last 6 years
20%+
Adjusted EBITDA growth in 2020
55%
Ashfield acquired order book
$9.8m
MedSource acquired order book
$63.5m
Number of staff recruited or added
during 2020
295
Number of cases processed
275,000+
• Realise pharmacovigilance and clinical
research synergies and cross selling
opportunities available as a result of recent
acquisitions
• Differentiate service through a focus on
quality led by expert professionals
• Build geographical presence in new and
developing regions such as Japan and India
• Integrate MedSource acquisition and
establish a strong US CRO presence
alongside the PrimeVigilance USA brand
(formerly Ashfield Pharmacovigilance)
• Carefully review and consider acquisition
opportunities which are complementary
and accretive
• Continue to realise growth through the
recruitment and training of our people
• Provide a world class service through
investment in automation technology to
enhance client and patient service
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Annual Report and Accounts 2020
Strategy in action
GROW
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Geographical expansion and integration
With revenue CAGR of over 20% since the initial public offering in 2014, Ergomed has established
a strong track record of growth across both its CRO and PV businesses. This growth has been
driven organically through establishing trusted customer relationships, a differentiated service
specialising in oncology and rare disease, our market-leading pharmacovigilance service and
expertise, and our highly experienced and professional staff.
During 2020, Ergomed’s North American business grew 48% organically and this was
supplemented by the acquisition of Ashfield PV in January 2020, resulting in the overall
North American revenue growing 82% to £46.7 million. Future revenue growth is expected to
continue in this key market as a result of Ergomed’s expanded presence and the integration
of MedSource, which was acquired in December 2020.
Ergomed is committed to sustaining future growth through the realisation of synergies, its
investment in people and technology and cross-selling opportunities arising from its established
CRO and PV activities. This will continue to be supported and supplemented through further
strategically aligned acquisitions, complementing and strengthening the existing CRO and PV
service offerings and giving access to new customers and geographies.
Cross-selling opportunities
By offering CRO and PV services Ergomed is able to assist clients in managing clinical
development from ‘first patient’, through to regulatory approval and post-marketing studies.
The complementary business streams and combined CRO and PV marketing and business
development functions have facilitated enhanced cross-selling opportunities and client
retention. In 2020, total cross-selling awards were £8.6 million, with over £50.0 million of
further opportunities in the business development pipeline at the end of the year.
CRO and PrimeVigilance
PrimeVigilance
Sales to
CRO Clients
£20.6m
Current Pipeline
£51.0m
CRO Sales to
PrimeVigilance
Clients
£30.4m
£1.3m
£8.6m
£7.3m
Contracted in 2020
22
Annual Report and Accounts 2020
Strategy in action continued
BUILD
Successful acquisition of
PrimeVigilance USA
and MedSource
In addition to the strong organic
growth across the CRO and PV
sectors, Ergomed is looking to
supplement growth through
selective acquisitions to allow
more rapid expansion in key
high growth markets and
developing regions.
During 2020 Ergomed was pleased
to announce two further
acquisitions, Ashfield
Pharmacovigilance Inc. (‘Ashfield’) in
January 2020 and MS Clinical
Services, LLC (‘MedSource’) in
December 2020. Both Ashfield and
MedSource are based in the US and
offer Ergomed increased PV and
CRO access and operational
coverage in the strategically
important North America market.
Both acquisitions were fully funded
out of operational cash-flows
allowing the group to maintain 100%
of its £30 million credit facility with
its bankers.
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Acquisition of Ashfield
Ashfield is a US pharmacovigilance services provider which Ergomed
acquired on 13 January 2020 for $10 million from UDG Healthcare.
Upon acquisition Ashfield became part of Ergomed’s PrimeVigilance
brand and changed its name to PrimeVigilance USA Inc. (‘PV USA Inc.’).
The acquisition and successful integration of PV USA Inc. during 2020
have significantly bolstered PrimeVigilance’s operational presence in
North America allowing it to more effectively service its customers
and fully access the largest geographical PV market. The combination
of PrimeVigilance and PV USA Inc. has resulted in significant
economies of scale realised through complementary staff expertise
and leveraging existing technology platforms.
At acquisition
• Revenue $11.6m¹
• Adj. EBITDA $0.9m¹
• Order book $9.8m
• 40 new clients
• 67 US-based staff
1 Year ended 30 September 2019
At acquisition
• Revenue $19.3m2
• Adj. EBITDA $0.9m2
• Order book $63.5m
• Over 20 new clients
• 110 US based staff
2 Year ended to 31 December
2020
Acquisition of MedSource
MedSource is a specialist US-based clinical research organisation
which was acquired by Ergomed on 11 December 2020 for an initial
consideration of $16.2 million in cash and $1.8 million in equity with
the potential for further consideration of up to $7.0 million based on
MedSource’s results for the 2021 year.
As part of the ongoing integration of this recent acquisition, in
April 2021 MedSource was rebranded and now forms part of
Ergomed Clinical Research.
The acquisition of MedSource aligns with Ergomed’s strategy to
grow its existing profitable services business both organically and
through acquisition and advances a number of important objectives
for Ergomed, including:
Complementary specialisms
MedSource is highly complementary to Ergomed’s existing
capabilities having participated in over 200 oncology and rare
disease clinical trials over the past 20 years.
Geographical growth
MedSource’s significant North America operations will further
accelerate Ergomed’s growth in this market, with additional offices
in Houston, Raleigh and Boston in the US.
Significantly increases Ergomed’s order book
MedSource joins Ergomed with an existing order book of
$63.5 million as at 31 December 2020 providing high forward-
visibility of contracted future revenue.
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Annual Report and Accounts 2020
Strategy in action continued
INVEST
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Investment in people, recruitment and training
Ergomed recognises that the investment it makes in people is at the forefront of delivering its
vision. Over 40% of our workforce has a PhD, MD, or advanced degree qualification and we
recognise that continued training and personal development is important to staff development,
retention and delivering excellent client service.
During the year Ergomed designed and delivered six key training programmes to operational
staff focusing on leadership, management, technical knowledge and soft skills. These were
attended by 319 attendees who completed almost 800 hours of training. All staff were also
required to participate in data protection and information privacy training.
In addition to this, Ergomed’s team of experts ran eight webinars during 2020 covering a range of
significant subjects across the CRO and PV sectors. These free webinars were open to external
participants, as well as staff, and were attended by over 1,750 participants.
As Ergomed grows, it continues to recruit and retain the best talent. During 2020 Ergomed
welcomed 177 new employees through the acquisition of Ashfield and MedSource but also
recruited an additional 120 staff and promoted over 250 staff.
Investment in technology
Ergomed is continuing to invest in technology and digital transformation to enhance client and patient
service. Investment in automation technology will provide a world class pharmacovigilance service
through allowing faster analysis and reporting of adverse medical events. This will deliver organic
growth more efficiently, with the automation of manual, repetitive processes freeing up valuable hours
for highly trained pharmacovigilance professionals to focus on value-creation and problem solving that
only humans can address.
PrimeVigilance announced a strategic collaboration with Automation Anywhere, a global leader in
Robotic Process Automation (‘RPA'), and DataRobot, the leader in enterprise artificial intelligence (‘AI'), in
May 2020. A proof of concept has been completed, and PrimeVigilance is now in the process of
implementing a cloud-based software solution to automate specific pharmacovigilance processes.
In the CRO business, we plan to play a significant role in the global trend, accelerated by COVID-19,
towards digital transformation of clinical trials. This includes electronic consenting and patient records,
wearable and home-based technologies for remote monitoring, virtual and telemedicine as standard
of care, and risk-based monitoring and remote data verification. These investments are expected to
build on Ergomed’s leadership position with service offerings to our international client base, as well as
providing further potential for profitability improvement.
PV digital transformation
• Development of applications for automated Adverse Event processing
• First phase focused on RPA to digitise simple Adverse Event reports
• Machine learning to be deployed during next phase, for more complex reports,
as precursor to full case processing
• Plan to achieve significant automation within three years
• Drawing on previous experience with digital transformation in banking and insurance
26
Annual Report and Accounts 2020
Operational review
Pharmacovigilance (‘PV’)
Pharmacovigilance (‘PV’)
Regulatory context
The increasing global requirement for pharmacovigilance
services coupled with a perpetual drive to improve drug
safety through regulation continue to facilitate the
transition towards specialist outsourced PV providers and
general market growth.
In Europe, the implementation of Good
Pharmacovigilance Practice (GPvP) in 2012 and
subsequent mandatory compliance has led to an
increased demand for outsourced PV services and been a
consistent driver for Ergomed’s growth. In the US, the
existing stringent PV regulatory regime continues to be
regularly strengthened on an ongoing basis. Similarly, PV
regulation continues to be rolled out in the Middle East,
China and South East Asia, providing further growth
opportunities for Ergomed’s PV business. Ergomed
intends to continue to leverage existing partnerships in
these regions to facilitate growth and meet
client requirements.
The latest regulation to affect Europe is Brexit, as a result
of which the UK will no longer fall under the EU GPvP
jurisdiction. This is expected to add regulatory complexity
and drive further demand for specialist outsourced
PV services.
Financial performance
The addition of PV USA and the strong organic growth of
the PV business saw revenues increase by £19.7 million
from £35.4 million in 2019 to £55.1 million in 2020 (55.6%
increase) of which £9.3 million was due to the addition of
PV USA. Margins continued to be strong for the PV
business increasing from 51.5% in 2019 to 52.0% in 2020.
Sales awards and order book
PV new business in 2020 was primarily driven by North
America which accounted for 90% of repeat business
and 72% of new business. The contracted order book
grew from £54.6 million in 2019 to £79.8 million at the end
of 2020, an increase of 46.2%.
In 2020 there was a strong
operational and financial
performance from both of the
Group’s businesses,
Pharmacovigilance (PV) and Clinical
Research Services (CRO). We
continued to execute our strategy
of delivering world-class PV and
CRO services to our customers,
whilst fostering business
development and cross-selling
opportunities between these two
highly complementary businesses.
Despite the challenges of the COVID-19 pandemic,
Ergomed demonstrated resilience and maintained its
momentum in 2020. The Group has begun 2021 from a
position of strength, with a robust financial platform and
a proven growth strategy, ensuring that we are well
positioned to achieve the longer-term strategic priorities
of the business.
Consistent growth
PV revenue (£m)
Dec 20
Dec 19
Dec 18
Dec 17
Dec 16
Dec 15
Dec 14
Dec 13
Dec 12
Dec 11
Dec 10
Dec 09
0
10
20
30
40
50
60
Exceptional client retention
PV revenue by customer cohort (£m)
2020
2019
2018
2017
2016
2015
2014
2013
& before
2013 & before
2014
2015
2016
2017
2018
2019
2020
0
10
20
30
40
50
60
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Pharmacovigilance Case study
PV revenue
£55.1m
2019: £35.4m
Contracted PV order book
£79.8m
2019: £54.6m
Management and staff
In addition to the acquisition of Ashfield, the business
continued to invest in its employees to support its
geographical expansion, with over 250 employees being
promoted during the year. PrimeVigilance employs
around 50 physicians, over 300 pharmacists and other life
sciences professionals and over 20 in-house EU Qualified
Persons for Pharmacovigilance (‘QPPVs’) covering more
than 60 countries. This constitutes one of the largest
qualified teams of PV specialist professionals in any
independent pharmaceutical services business globally
and it continues to grow. The breadth and depth of staff
and professionals supporting PrimeVigilance is reflected
in the quality of services provided. Testament to this is
PrimeVigilance’s high customer renewal and retention
figures and the fact that PrimeVigilance participated in
over 70 regulatory inspections with no critical findings
relating to its activities.
Technology investment
Investment in technology is at the core of the
PrimeVigilance quality first approach. During the year the
business, in partnership with DataRobot and Automation
Anywhere, commenced the development of a cloud-
based solution to automate certain PV processes, allowing
faster analysis and reporting of adverse medical events.
The technology is expected to bring new levels of speed
and intelligence to a key activity of the business, freeing
up valuable hours for highly trained pharmacovigilance
professionals to focus on value creation and problem
solving that only humans can address, and helping to
deliver a higher quality service more efficiently. The PV
business is also consolidating its safety databases into a
single cloud-based platform, which will drive
further efficiencies.
Constantly evolving regulations, geographic expansion,
investment in technology and people, combined with the
strength of the PrimeVigilance brand, mean that the PV
business is well placed to continue delivering its growth
strategy into 2021 and beyond.
Acquisition of Ashfield
Pharmacovigilance
In January 2020 PrimeVigilance,
Ergomed’s pharmacovigilance
business, welcomed the addition of
Ashfield Pharmacovigilance
(Ashfield PV), an established PV
provider in North America, into the
Group. Ashfield PV was immediately
rebranded as PrimeVigilance USA
Inc. (PV USA) and, through its rapid
integration into the Group,
significantly expanded Ergomed’s
PV offering in North America.
The acquisition immediately saw the addition of
around 70 highly qualified and experienced staff,
40 new clients and around $12 million of annual
revenue from this strategically important market.
Since then, the operational and administrative
functions of PV USA have been fully integrated
into the wider Group and we have already
seen the benefits of the acquisition through
increased economies of scale and cross-selling
opportunities.
The hard work and dedication of all the Ashfield
and PrimeVigilance staff was key to making this
business combination as successful as it has been
to date.
28
Annual Report and Accounts 2020
Operational review continued
Clinical Research Services (‘CRO’)
Ergomed delivers high-quality
clinical research services through a
comprehensive offering of clinical
trial research support services
covering all phases of medical
development via a global network
of research experts and patients.
The CRO market has experienced significant expansion
with high annual growth in oncology and rare disease
research expected to continue over the coming years.
This specific growth in Ergomed’s core focus areas is
underpinned by broader market trends including
increased investment in drug development by pharma-
biotech companies, a shift towards clinical trial
outsourcing and strong growth in the number of trials in
markets such as Asia.
COVID-19
COVID-19 caused significant disruption to the global
CRO market during 2020. Restrictions on movement
meant that access to patients for physical monitoring
visits was limited, with some leading listed CROs
reporting restricted site access in 50% to 80% of trials at
the pandemic peak.
Despite these disruptions, Ergomed’s CRO business
demonstrated robustness and resilience during the
pandemic. While the pandemic peak did impact some of
our clinical studies, clinical trials in rare disease and
oncology, in which Ergomed specialises, are focused on
critical unmet needs and were therefore among the
therapeutic areas least disrupted by COVID-19.
Restrictions on movement and patient access
accelerated the trend towards remote monitoring, an
area which Ergomed was already pioneering. During the
pandemic, Ergomed successfully implemented remote
and risk-based monitoring techniques, allowing clinical
trial activities to continue even when physical access to
sites was not possible.
For early phase studies where frequent and timely
monitoring of safety and tolerability is required, Ergomed
implemented patient profile software that provides a
holistic view of each patient in an interactive and real
time environment. In addition, study physicians
supported trial investigators in patient identification and
procedures resulting in consistent patient recruitment
and milestone achievement.
Financial performance
Overall the CRO business saw total revenues flat at
£31.3 million year on year (2019: £31.2 million after
adjusting for exceptional revenues from change orders
of £1.6 million in 2019). This included an increase in
service fee revenue of £1.0 million to £23.7 million,
offset by a decline of £0.9 million in zero-margin
pass-through revenue to £7.6 million. There was also an
increase in third party full-margin service fee revenue
(excluding co-development) from £18.3 million to £21.5
million, an increase of 17.5%, with almost all co-
development projects having now concluded. As a
result of these positive trends, the service fee gross
margin in the CRO business grew by 3.7ppts from 42.6%
to 46.3%, highlighting the underlying strength of the
CRO business and resilience to the pandemic. It is also
notable that in H2 2020, the CRO business resumed
growth with service fee revenues increasing by 13.5%
compared to the first half of the year.
Acquisition of MS Clinical Services LLC. and
its subsidiaries ('MedSource')
In December 2020, Ergomed was pleased to announce
the acquisition of MedSource, a US-based CRO
business with over 20 years’ experience in delivering
specialist oncology and rare disease clinical trial
services. MedSource further strengthens Ergomed’s
position as a high-quality oncology and rare disease
CRO provider in the strategically important North
American market. With the acquisition of MedSource,
the Group welcomed the addition of 110 highly qualified
staff, primarily based in the US, and 20 new clients. The
work of integrating the business has already started as
the Group looks to expand its offering in North America
and build upon the success in 2020 which saw 65% of
Ergomed’s CRO repeat business wins in this region.
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CRO revenue
£31.3m
2019: £32.8m
Contracted CRO order book
£113.2m
2019: £69.5m
Sales awards and order book
The CRO contract order book grew from £69.5 million in
2019 to £113.2 million in 2020. The combined total order
book gives the Group excellent visibility on the rollout of
revenue during 2021 and confidence in delivering its
strategy of growth.
In addition, greater patient engagement optimises
clinical study design, outcome measures and endpoint
development. Ergomed maintains a Patient Organisation
Advisory Board, comprising of representatives of patient
groups in the field of rare diseases and has a dedicated
Patient Engagement Officer.
Rare disease and oncology focus
Ergomed’s CRO business works across all therapeutic
areas, as a differentiated provider of clinical trial services
with a particular strength in patient recruitment in
oncology and rare disease trials. Oncology trials are
generally very complex, although this varies with the
type of cancer, and studies are often confronted by
challenges including low patient enrolment, changing
regulatory requirements, increased research costs, and
trial protocols with increased study-related procedures.
This explains in part why oncology trials are the biggest
recipients of funding and makes the case for outsourcing
to CROs who are better positioned to address these
challenges. Ergomed’s expertise and focus on oncology
supports its CRO growth strategy and is evidenced by
the fact that 88% (by value) of new business wins in 2020
related to oncology and rare disease, where similarly
specialist expertise is also required.
Business development and
commercial integration
A strong business development performance in 2020
resulted in sales increasing by 41.9% to £117.8 million (2019:
£83.0 million). This included significant levels of new awards
due to effective cross-selling between the CRO and PV
businesses, bolstered by the addition of Ashfield PV in the
USA (now PrimeVigilance USA). In 2020 total cross-selling
awards were £8.6 million, with over £50 million of further
opportunities in the business development pipeline at the
end of the year. Key to new contract wins in both CRO and
PV services was Ergomed’s broader geographic footprint
arising from organic expansion into the USA and Asia, as
well as its ability to offer increased services and broader
geographic coverage to the newly acquired PrimeVigilance
USA client base. As a result, the order book increased to
£193.0 million at the year end, up 55.5% over the course
of 2020.
Patient and clinician focus
Ergomed’s focus on rare and orphan drug development is
one of its core strengths. Drug development for rare and
orphan diseases is challenging for many reasons, including
complex biology, limited knowledge of the history and
progression of the disease and the inherently small patient
population available for clinical trials, who are usually
geographically dispersed. Ergomed’s focus on physician
support teams helps ensure efficient patient recruitment,
patient retention and clinical trial management of complex
studies. Through the PSR Orphan Expert brand and the
recent addition of MedSource, Ergomed distinguishes itself
from peers in the market.
With the addition of MedSource and the continuing focus
on patient needs, the CRO business is well placed to
deliver on its growth strategy in 2021. There is an increasing
need to draw on patient knowledge and experience to
improve the discovery, development and evaluation of
new effective medicines.
Outlook
Ergomed made exceptional progress in delivering its
strategy in 2020, despite the challenges of the COVID-19
pandemic. The resilience and robustness of our global
services business was demonstrated by our continued
strong organic growth whilst completing key strategic
acquisitions in the US in both our pharmacovigilance and
CRO businesses. We have started 2021 in a strong position
focused on our vision to achieve global leadership in
specialised pharmaceutical services addressing unmet
medical needs and patient safety.
For and on behalf of the Board of Directors
Miroslav Reljanović
Executive Chairman
22 March 2021
30
Annual Report and Accounts 2020
Financial review
A strong financial foundation
to support future growth
Ergomed’s financial performance
was strong in 2020 with market
expectations upgraded on a number
of occasions. With the transition to a
fully services-based business model
now largely complete, the Group’s
complementary CRO and PV
divisions continued to trade strongly
despite the impact of the pandemic.
Gross and net margins continued to improve
throughout the year. This was in part due to effective
cost control both at the cost of sales and general and
administration levels, coupled with the successful
integration of recent acquisitions and continuing
investment in technology. Effective management of
working capital and the new £30.0 million credit facility
established in March 2020, which remains undrawn,
also contributed to the overall strong financial position
of the Group. The balance sheet has been further
strengthened by the elimination of exposure to
previous co-development investments. The capital
reduction, approved unanimously by the Group’s
shareholders in October 2020, together with
significantly increased profitability in the past two years,
have increased the Group’s consolidated retained
earnings by over £50 million.
KPIs and APMs
Key Performance Indicators (KPIs)
The table below summarises the KPIs that management
uses to measure the financial performance of the Group.
£ millions (unless otherwise stated)
Total revenue
CRO (Note 1)
PV
Gross profit
Gross margin
EBITDA
Adjusted EBITDA
Basic adjusted earnings per share
Cash generated from operations
Cash and cash equivalents
Order book
2020
86.4
31.3
55.1
39.7
45.9%
18.4
19.4
25.8p
19.0
19.0
193.0
2019
68.3
31.2
35.4
29.5
43.3%
9.2
12.5
19.9p
11.7
14.3
124.1
Note 1: CRO Revenue in 2019 is stated after adjustment for exceptional
revenues of £1.6m.
Alternative performance measures (‘APMs')
In measuring and reporting financial information,
management reviews Alternative Performance
Measures (APMs), such as EBITDA, adjusted EBITDA
and basic adjusted earnings per share, which are not
defined measures under financial reporting standards.
Management believes that these measures, when
considered in conjunction with defined financial
reporting measures, provide management and
stakeholders with a broader understanding of the
performance of the business.
2020
2019
2018
£39.7m
£29.5m
£19.3m
Gross profit
£39.7m
2019: £29.5m
Strategic report
governance
Financial StatementS
31
Richard Barfield
Chief Financial Officer
2020
2019
2018 2.3M
£19.4m
£12.5m
“Ergomed is well placed to trade strongly
into new opportunities for organic growth
and expansion through M&A activity.”
Adjusted EBITDA*
£19.4m
2019: £12.5m
Operating profit is the financial reporting measure
under IFRS most comparable to EBITDA and adjusted
EBITDA. The Directors make certain adjustments to
EBITDA to derive adjusted EBITDA, which they consider
more reflective of the Group’s underlying trading
performance, enabling comparisons to be made with
prior periods. Certain items, such as share-based
payments and change in fair value of contingent
consideration for acquisitions are non-cash items
and reflect adjustments to expected future
consideration payments.
Acquisition-related contingent compensation 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, pay in lieu and non-compete compensation and
exceptional items, are cash costs but are not
considered as normal recurring trading items and
therefore are not included in adjusted EBITDA. RDEC
income in relation to 2017 and grants received are not
considered as normal recurring income items and
therefore are not included in adjusted EBITDA.
Adjusted basic earnings per share is calculated on a
similar basis to basic earnings per share but uses a
profit measure which, like adjusted EBITDA, is adjusted
for non-recurring trading items (see note 15 of the
financial statements).
Management has previously used order book, (referred
to in prior years as contracted order backlog) as an
APM. Order book is the contracted value of customer
revenue relating to in-progress performance
obligations which are expected to be recognised in the
future. The use of order book by management is no
longer considered to be an APM as, from 1 January
2018, it is now a defined financial measure under IFRS
15 and is therefore included in KPIs.
Operating profit is reconciled to EBITDA and adjusted
EBITDA as follows:
2020
£000’s
2019
£000’s
Operating profit
13,534
5,517
Adjusted for:
Depreciation and amortisation
charges within ‘Other selling,
general & administration expenses’
Amortisation of acquired fair valued
intangible assets
EBITDA
Adjusted for:
Share-based payment charge
Acquisition-related contingent
compensation
Change in the fair value of contingent
consideration for acquisitions
RDEC income (2017)
Grants in recognition of employment
creation in Serbia
Acquisition costs
Pay in lieu and non-compete
compensation
Exceptional items
Adjusted EBITDA
3,511
3.041
1,332
671
18,377
9,229
742
870
–
87
–
(527)
(307)
853
(512)
–
–
393
232
–
–
2,427
19,370
12,494
32
Annual Report and Accounts 2020
Financial review continued
2020
2019
2018
1.9p
25.8p
19.9p
2020
2019
2018
£2.0m
£11.7m
£19.0m
2020
£193.0m
2019
2018
£124.1m
£109.2m
Basic adjusted earnings per share
Cash generated from operations
Contracted order book
25.8p
2019: 19.9p
£19.0m
2019: £11.7m
£193.0m
2019: £124.1m
Growth
Ergomed’s CRO and PV businesses both continued to
show positive revenue performance through to year end,
resulting in a strong order book to start 2021.
Revenues for 2020 totalled £86.4 million, an increase of
26.5% over the prior year (2019: £68.3 million). CRO revenues
were flat at £31.3 million (2019: £31.2 million after adjusting
for exceptional revenues of £1.6 million), with the wider CRO
sector experiencing challenges in the wake of the
pandemic. PV revenues increased 55.6% from £35.4 million
to £55.1 million including £9.3 million due to the addition of
PV USA.
The 26.5% revenue growth overall was accompanied by a
34.6% increase in gross profit from £29.5 million in 2019 to
£39.7 million in 2020, with gross margin increasing from
43.3% in 2019 to 45.9% in 2020 as a result of effective cost
controls at the cost of sales level.
The Group also concluded most of its co-development
projects, in line with the strategy to focus on the services-
based model in both PV and CRO. As a result, the Group
has reduced its overall R&D expenditure from £0.5 million in
2019 to £0.2 million in 2020. Having recognised realised
impairment charges and write-offs totalling £2.4 million as
exceptional costs related to this strategic focus in 2019,
there were no exceptional charges in 2020. Ongoing costs
required to exercise prudent stewardship over the
co-development assets are not expected to be material.
In 2020 the significant revenue growth, profitability focus
and effective cost management resulted in an adjusted
EBITDA of £19.4 million, an increase of 55.2% over the prior
year (2019: £12.5 million).
Financial strength
The growth in revenue and profitability achieved during
2020 led to strong cash generation at an operating level.
Cash generated from operations was £19.0 million, an
increase of £7.3 million over the prior year (2019: £11.7
million). The cash generated represented 99.0% of
adjusted EBITDA and demonstrated the strong cash
conversion capabilities of the business.
The Group continues to strengthen its balance sheet, with
cash and cash equivalents increasing by £4.7 million to
£19.0 million at the year end (2019: £14.3 million). This was
after net cash outflows on the acquisitions of Ashfield
Pharmacovigilance in January 2020 of £7.6 million and
MedSource in December 2020 of £4.4 million. In March
2020 as a precautionary measure taken during the initial
phase of the COVID-19 pandemic, £15.0 million cash was
drawn down on the Group’s £30.0 million credit facility
established in March 2020 with the Group’s banking
partner, HSBC UK Bank plc. This cash was held in the
bank and remained unutilised until it was repaid in full in
August 2020.
In October 2020, a capital reduction was unanimously
approved by shareholders, whereby the amounts of £27.6
million standing to the credit of the share premium
account and £11.1 million standing to the credit of the
merger reserve were cancelled and the balances were
transferred to the retained earnings account. As a result of
this and the generation of distributable reserves, the
consolidated retained earnings account of the Group
stood at £45.4 million at the end of 2020.
Ergomed plc has a strong balance sheet with net assets
as of 31 December 2020 of £52.9 million up 43.8% on prior
year (2019: £36.8 million) which includes cash and cash
equivalents of £19.0 million (2019: £14.3 million) within total
assets of £92.3 million (2019: £57.0 million). Consolidated
retained earnings of the Group at the year end were £45.4
million, an increase of £50.9 million over the retained
earnings deficit of £5.5 million reported in 2019.
Outlook
A strong financial foundation is now in place to continue to
support the Group on a steady course beyond the
COVID-19 pandemic. Ergomed is well placed to trade
strongly into new opportunities for organic growth and
expansion through M&A activity.
Richard Barfield
Chief Financial Officer
22 March 2021
StratEgic rEport
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33
Responsible business
Environmental, Social and Governance (‘ESG’)
matters are at the centre of Ergomed’s strategy
Our approach to ESG
Ergomed has planned, managed, monitored and
reported over 600 Phase I-IV 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, photodynamic therapies, and
more recently, COVID-19 vaccines. As part of the
accurate and timely monitoring of drug safety,
Ergomed globally processed over 275,000 patient
cases per annum.
We recognise that Ergomed has a key role in
improving patient health and well-being through
supporting the safe development and monitoring
of medicines. To ensure the long-term fulfilment of
this role, Ergomed must always strive to
improve its governance rigour and keep social
and environmental matters at the heart of any
decisions made.
Our strategy benefiting our stakeholders
Outpace CRO and PV market growth by leveraging brand strengths
Investors
One-stop shop for all our customers’ clinical trial outsourcing and
pharmacovigilance requirements
Clients, Patients & Communities,
Regulatory bodies
Continue to realise pharmacovigilance and clinical research
synergies and cross-selling opportunities
Investors
Augment organic growth with strategic and selective acquisitions
Investors
Integrate recent acquisitions to consolidate US coverage and
growth potential
Colleagues, Clients, Patients &
Communities, Investors
Strengthen geographical footprint through expansion to
developing regions
Clients, Investors
Increase investment in people, attracting the best talent worldwide,
and foster personal growth within our business
Colleagues, Suppliers, Clients
Invest in technology and digital transformation to enhance client
and patient service
Suppliers, Clients, Patients &
Communities, Regulatory bodies
34
Annual Report and Accounts 2020
Responsible business continued
Stakeholder engagement
We believe that, to maximise value and secure our long-term success,
we must listen to and engage with our key stakeholders.
Our main
stakeholders
Clients
Their material issues
How we engage
• Regulatory compliance
• Professional expertise and
service offering
• Open and fair business
agreements
Ergomed has a regulatory group with experienced
leadership who engage with regulatory bodies in all the
relevant countries as well as aligned support from our quality
assurance group to ensure compliance.
Our team is built up of the experienced relevant industry
experts to support our core services of clinical trials and
pharmacovigilance services.
We have a specialised contracts and legal team focused on
meeting regulatory and industry standards.
We use LinkedIn, Facebook and Twitter to encourage
dialogue with all stakeholders, including clients. 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.
Colleagues
• Opportunities for
development, progression
and to make a difference
• Diversity and inclusion
• Positive work environment
and flexible working
patterns
We encourage effective, professional, respectful and open
communication at all levels both written and oral, in our
offices globally. This is done both formally, through
performance reviews and 360 feedback cycles, and
informally through discussion forums and town hall
meetings.
Suppliers
• Long-term partnerships
• Open and fair business
agreements
• Financial stability
We have stable relationships with suppliers for core service
provisions that are based on shared values and financial
stability. We regularly engage with suppliers and ensure that
we pay our suppliers to agreed terms.
Regulatory
and government
bodies
• Compliance
• Openness and transparency
• Proactive engagement with
new regulations
We work in a strictly controlled regulatory environment and
our specialist teams, systems and processes are designed to
meet these requirements.
We work directly with the relevant authorities to ensure all
relevant information is shared in a timely manner.
Our team maintains an ongoing database as well as
specialist information departments collating up to date
regulatory information.
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35
Our main
stakeholders
Patients and
Communities
Their material issues
How we engage
• Safety
• Security and privacy of data
• Engagement and
compassion
Our staff, systems and processes are focused on ensuring
patient safety as our number one priority.
Our legal and operations team are regularly implementing
processes and continually monitoring our compliance with
data privacy.
We are particularly focused on patient engagement in our
clinical trials and appoint a Patient Engagement Officer.
Our individual offices support a variety of local charities, with
a focus on those related to healthcare.
Investors
• Financial performance
• Alignment of
long-term goals
• Regulatory compliance and
good governance
We regularly communicate with our shareholders through a
variety of channels: public announcements and press
releases using the London Stock Exchange’s Regulatory
Information News Service (‘RNS’), analyst briefings,
face-to-face meetings with significant institutional
shareholders, presentations at investor conferences and
press interviews.
We also continually update our website (www.ergomedplc.
com). This is the primary source of information about the
Group, giving an overview of activities and detailing all recent
announcements, significant developments, presentations,
webinars and press interviews and our Annual Reports.
We seek feedback from investors through direct interaction
between the Executive Chairman and Chief Financial Officer
at meetings following our interim and final results, and
certain other ad hoc meetings that take place during the
year. There is also regular dialogue with shareholders via
the Company’s nominated adviser and corporate broker,
Numis Securities.
Rolf Soderstrom, as Senior Independent Director, provides
an alternative route of access for communication with the
Company by its shareholders.
We encourage all our shareholders to attend our Annual
General Meeting, which provides a forum and time for
shareholders to meet the Board and ask questions.
Unfortunately, due to the COVID-19 pandemic, we were
unable to hold a face-to-face Annual General Meeting during
2020. In addition, the Company seeks to stay abreast of
shareholder expectations and reactions through its
dedicated investor email address: ir@ergomedplc.com.
36
Annual Report and Accounts 2020
Responsible business continued
Section 172
Section 172 of the Companies Act 2006 requires a director of a company to act in the way he or
she considers, in good faith, would most likely promote the success of the company for the
benefit of its members as a whole. In doing so, directors are required to have regard to the matters
set out in sections 172(1)(a) to (f) of the Companies Act 2006 (amongst other relevant matters).
A. The likely consequences of any decision
in the long-term
Ergomed’s strategy is focused on achieving success for
the Group and its stakeholders in the long-term. In
taking individual decisions which progress Ergomed’s
strategic aims, Ergomed’s Directors consider the likely
long-term impact of the decision, in the context of the
principal risks facing the business.
During 2020, Ergomed’s Board approved the
acquisitions of PrimeVigilance USA Inc (‘PV USA Inc.’)
and MS Clinical Services LLC and its subsidiaries
(“MedSource”) respectively. Board discussion during the
negotiation stages of these acquisitions focused not
only on the immediate synergies and benefits to clients
and employees which the acquisitions would provide,
but also on planning for the long-term, successful
integration of the acquired businesses. The Board
believes that the acquisitions open up the
strategically-important US market for Ergomed,
in both our PV and CRO businesses, and advance
Ergomed’s long-term vision to achieve global
leadership in specialised pharmaceutical services
addressing unmet medical needs and patient safety.
Another key focus of Board attention during 2020 was
to ensure that the Group maintains a robust platform
from which to develop long-term growth, both
organically and inorganically. As a result, and as
explained under our ‘Invest’ strategic summary on
page 24, investment will be directed towards people
recruitment and training (which are central to
Ergomed’s business as a professional services
provider), and automation technology. The Board
considers and discusses management updates on both
human resources and technology at every scheduled
Board meeting, and a detailed Board strategy session
dedicated to the automation of PV processes took
place during 2020.
B. The interests of the company’s employees
Ergomed’s Board and management teams have been
dedicated to ensuring employee health and safety
during the COVID-19 pandemic, and health and safety
reports were presented at each scheduled Board
meeting in 2020. While many actions and decisions on
employee health and safety were taken at executive
management level, the Board provided management
with a sounding board for these decisions. As the
pandemic has progressed, the Board has been pleased
to support Ergomed’s focus on employee mental
health, with planned initiatives including enhanced
employee assistance programmes for all employees.
The Board’s decision to invest in automation technology
has the interests of Ergomed’s PV employees at its core.
With the automation of repetitive manual processes, our
highly qualified PV professionals will be able to dedicate
more of their expertise to providing value-added client
services. We expect this to enhance their professional
development, problem-solving skills, job satisfaction
and, in turn, retention.
C. The need to foster the company’s
business relationships with suppliers,
customers and others
The Board receives regular reports on the status of key
client relationships and any issues are discussed with
executive management.
During 2020, the Board has continued to support the
development of a combined CRO and PV marketing
and business development function within the Group.
One of the key client benefits of this combined function
has been the ability to cross-sell the Group’s
professional services between our CRO and PV clients
and support them with a ‘one-stop shop’ provision.
The Group’s expansion in the US has enhanced this
cross-selling ability even further. During 2020, the
Board requested regular updates on cross-selling
opportunities from management, and a summary
of the current pipeline for cross-selling, which is based
on the format of our regular Board report, is set out
on page 21.
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37
In this section 172 statement we have set out how Ergomed’s Directors considered these matters
in their decision making during 2020. Please also refer to ‘Our strategy benefiting our
stakeholders’ on page 33 for a summary of how Ergomed’s strategy benefits its employees,
suppliers, customers and community.
The Group’s corporate governance and risk
management processes, which are overseen by the
Board, and reviewed on a regular basis, are set out in
more detail in the Strategic report on pages 44 to 47
and the Governance report on pages 50 to 63. During
2020, the Board, acting via the Audit & Risk Committee,
instigated a review of Ergomed’s existing Anti-Bribery
and Whistleblowing Policies to ensure they remain fit
for purpose as the Group’s geographic footprint
expands, particularly in the US.
F. The need to act fairly as between members
of the company
The Board receives regular updates on investor
relations, including details of investor meetings, press
interviews and investor events. The ways in which
Ergomed communicates with its members, to ensure
that their views can be taken into account in Board
decision-making, are set out on pages 34 to 35
(Stakeholder Engagement).
During 2020, the Board has made additional efforts
to communicate with Ergomed’s retail investor
community, and our Executive Chairman and CFO have
each provided interviews to publications with a retail
investor focus. A selection of these interviews can be
found on the Group’s website at www.ergomedplc.com.
We were pleased to report that Ergomed’s capital
reduction, which became effective in November 2020,
received 100% approval from shareholders.
D. The impact of the company’s operations
on the community and the environment
In this ‘Responsible business’ section of our Strategic
Report, we are pleased to share the ways in which
Environmental, Social and Governance matters are at
the centre of Ergomed’s strategy in a more focused
way than in our previous Annual Reports. We have also,
for the first time, incorporated Streamlined Energy and
Carbon Reporting (“SECR”) in the Strategic Report
(pages 38 to 40). Ergomed’s culture is centred around
our patient community, and during 2020 Ergomed’s
Directors have overseen the adaptation of our
operational processes so that we can continue to
support our patients despite the challenges of
COVID-19. This is particularly relevant to Ergomed’s
CRO business, which has traditionally relied upon
face-to-face patient monitoring visits. Further
information about how Ergomed’s CRO business has
solved the challenges presented by COVID-19 can be
found on page 14.
The Board is proud to support Ergomed’s purpose of
bringing expertise to deliver medicines our world can
trust, and, as part of the global healthcare community,
Ergomed has been part of the frontline efforts to find
medical solutions to the COVID-19 crisis. Please refer
to our COVID-19 case study on page 14 for further
information.
E. The desirability of the company
maintaining a reputation for high
standards of business conduct
It is the Board’s belief that Ergomed can only fulfil its
strategic goals by maintaining the very highest
standards of business conduct. These high standards
are already embedded within Ergomed’s professional
culture as a provider of specialist services to the
pharmaceutical industry. Ergomed’s operations are
carried out in accordance with standard operating
procedures regulated by the Group’s quality
management professionals, with client audits taking
place on an ongoing basis.
38
Annual Report and Accounts 2020
Responsible business continued
Environment
We take our environmental responsibility seriously and consistently try to ensure
optimal use of our resources. By setting goals to reduce environmental impacts
and accelerate our contributions to a resource-efficient, low-carbon, and circular
economy, we build long-term resilience for our business, partners, and customers.
Methodology
Scope and subject matter
The report includes sources of
environmental impacts under
the operational control of
Ergomed plc and includes
the two active UK subsidiary
companies in 2020:
- Haemostatix Ltd.
- PrimeVigilance Ltd.
Ergomed is responsible for the
internal management controls
governing the data-collection
process and any estimations or
extrapolations. It is responsible
for the data aggregation,
greenhouse gas (‘GHG’)
calculations and the emissions
statements. Emissions are
calculated according to the
Greenhouse Gas Protocol
Corporate Greenhouse Gas
Accounting and Reporting
Standard.
GHG sources included in the process:
Scope 1:
• Natural gas, and diesel for
electricity-generation.
Scope 2:
• Purchased electricity
(location-based method
and market-based method
for 2020).
Scope 3:
• Business travel in
employee-owned
or hired vehicles.
Types of GHG included, as
applicable:
• Carbon dioxide (‘CO2’),
Nitrous oxide (‘N2O’),
Methane (‘CH4’),
Hydrofluorocarbons (‘HFCs’),
Perfluorocarbons (‘PFCs’),
Sulfur hexafluoride (‘SF6’),
and
Nitrogen trifluoride (‘NF3’).
The figures are calculated
using DEFRA conversion
factors, expressed as tonnes
of carbon dioxide equivalent
(‘tCO2e’).
Energy efficiency action
taken (in 2020)
Due to the impact of COVID-19,
Ergomed made no direct
energy-efficient actions in 2020.
However, the impact of COVID-19
did drive the following energy
efficiencies:
• A reduction in travel (both
business and commuting), and
• Reduced energy requirements
in Ergomed’s office spaces as
a result of a move to remote
working.
planned (for 2021)
In 2021, Ergomed is planning the
following to enhance energy-
efficiency within
the company:
• As a result of remote working
– reduce office floorspace
where possible,
• Promote remote working for
all staff where practical,
• Begin considerations into
promoting the use of electric
or hybrid vehicles (for
overseas leased vehicles),
• Focus on encouraging low
carbon alternative modes of
transport (eg rail travel) to
reduce business travel in
employee vehicles, which
would lead to a reduction in
fuel consumption.
Intensity ratio (by revenue)
1.13
Intensity ratio (by employees)
0.60
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39
Streamlined Energy and Carbon Reporting (‘SECR’)
Ergomed has reported Scope 1 and 2 (and associated Scope 3) GHG emissions in accordance with
the requirements of Streamlined Energy and Carbon Reporting (SECR). This includes emissions
for the first mandatory reporting year – the 12 months started 1 January 2020 and ending
31 December 2020.
Company SECR 2020 mandatory reporting (in tCO2e), as follows:
SECR
Energy consumption used: (kWh)
Electricity
Gas
Transport fuel
Other energy sources
TOTAL
Emissions (tCO2e)
Scope 1
Emissions from combustion of gas
Emissions from combustion of fuel for transport purposes
Scope 2
Emissions from purchased electricity - location-based*
Emissions from purchased electricity - market-based**
Scope 1 & 2
Total Scope 1 & 2 emissions (location-based method)
Total Scope 1 & 2 emissions (market-based method)
Scope 3
Emissions from business travel in rental cars or employee vehicles
where company is responsible for purchasing the fuel
Emissions from upstream transport and distribution losses and
excavation and transport of fuels - location-based
Emissions from upstream transport and distribution losses and
excavation and transport of fuels - market-based
Total location-based tCO2e
Total market-based tCO2e
Intensity ratios:
Revenue £m (UK companies only)
Intensity ratio: tCO2e from Scope 1, 2 & 3 (fuel for business travel
only) / £m (location-based)
Number of full time employees within financial year (UK FTE)
Intensity ratio: tCO2e from Scope 1, 2 & 3 (fuel for business travel
only) / FTE (location-based)
Methodology
Certification and External Verification
0.60
GHG Protocol Corporate Accounting and
Reporting Standard
Calculated and verified as accurate by
Green Element Limited and Compare
Your Footprint Limited, UK.
*
Location-based electricity (Scope 2) emissions use the average grid fuel mix in the region or country where the electricity was
purchased and consumed. For SECR, location-based is mandatory.
** Market-based electricity (Scope 2) emissions use the actual fuel mix consumed by Ergomed plc.
UK 2020
164,521
222
–
67,442
232,185
0.04
–
38.36
47.60
38.40
47.65
16.72
13.36
15.76
68.48
80.13
60.39
1.13
115
40
Annual Report and Accounts 2020
Responsible business continued
Environment continued
Optional additional Streamlined Energy and Carbon Reporting (‘SECR’)
Although optional, emissions for the 2019 reporting year – from 1 January 2019 to 31 December
2019 – have been included to produce year on year comparisons. This has been presented as an
additional table below.
Energy consumption used: (kWh)
Energy usage – electricity and gas
Transport fuel
Other energy sources
TOTAL
Emissions (tCO2e)
Scope 1 & 2
Total Scope 1 & 2 emissions
(location-based method*)
Scope 3
Emissions from business travel in rental cars or
employee vehicles where company is responsible
for purchasing the fuel
Emissions from upstream transport and distribution
losses and excavation and transport of fuels -
location-based
Total location-based tCO2e
Intensity Ratios:
UK 2019
(optional)
UK 2020
Year-on-Year
Change (%)
213,558
164,743
-22.86%
–
83,377
296,935
–
67,442
232,185
–
-19.11%
-21.81%
54.58
38.40
-29.65%
21.36
16.72
-21.72%
18.35
94.28
13.36
68.48
-27.15%
-27.36%
Revenue £m (UK companies only)
52.32
60.39
15.43%
Intensity ratio: tCO2e from Scope 1, 2 & 3
(fuel for business travel only) / £m (location-based)
Number of full time employees within financial
year (UK FTE)
Intensity ratio: tCO2e from Scope 1, 2 & 3
(fuel for business travel only) / FTE (location-based)
1.80
90
1.05
1.13
115
-37.08%
27.78%
0.60
-43.15%
Methodology
Certification and external verification
GHG Protocol Corporate Accounting and Reporting
Standard
Calculated and verified as accurate by Green Element
Limited and Compare Your Footprint Limited, UK.
*
Location-based electricity (Scope 2) emissions use the average grid fuel mix in the region or country where the electricity
was purchased and consumed.
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41
Social
Gender diversity in
management roles
Women
Men
58%
42%
Workforce with Ph.D., MD,
or advanced degrees
40%
Employees attending internal
training sessions
319
Colleagues
At its core, Ergomed’s strength
lies in its talented people.
Ergomed currently employs
over 1,100 employees and
contractors across 21 offices
worldwide. We have
significantly grown the number
of people employed by the
business over the past few
years and this growth is a
product of organic and
inorganic activities. In 2020 we
successfully acquired Ashfield
and MedSource, strengthening
our offerings in the region and
adding over 175 new people.
Our internal team of human
resources (‘HR’) and talent
acquisition partners are
continually working to ensure
everyone is successfully
onboarded into the business
and we maintain a healthy
pipeline of recruitment to allow
us to continue to quickly
engage high-quality talent and
maintain our growth potential.
We strive to make our
workplace more diverse and
inclusive to enable us to better
serve our customers
worldwide. We pride ourselves
on having a balanced
workforce, with 58% women
and 42% men in management
roles. Our professional staff
portfolio is exceptional, with
over 40% of our workforce
with PhD, MD, or advanced
degrees.
COVID-19 and our colleagues
For us, it is a privilege to lead our employees around
the world who work every day to earn our customers’
trust and help them succeed. We’ve long recognised
the importance of prioritising our employees’
physical and emotional well-being and that of their
families. During the COVID-19 crisis, our focus
throughout has been the Group’s employees’ safety
and well-being. Ergomed rapidly adapted to the new
norms worldwide; in a short period, our workforce
was working remotely with the best possible
technology. Our essential workers kept supporting
our clients and projects.
Our employees showed resilience in adversity;
and we did not have any redundancies or furloughs
or receive any government grants or loans in respect
of redundancies or furloughs. We provided a flexible
work arrangement for our employees to address
their family needs in these challenging times. We are
increasing our mental health offerings to help staff
cope with this health crisis’s ongoing changing
conditions. Ergomed’s COVID-19 taskforce meets
bi-weekly to manage business continuity and to keep
the staff informed.
42
Annual Report and Accounts 2020
Responsible business continued
Social continued
Diversity, inclusion and collaboration are
fundamental to who we are, how we build the best
teams, and how we drive success. A diverse
workplace creates a vibrant culture where everyone
is welcomed, respected, valued, and heard.
Diversity and inclusion are paramount to success,
but our key ingredient is a great sense of belonging.
Our staff know they are part of a fantastic group,
working with extraordinary partners, to improve the
health and well-being of patients. We provide our
employees with a culture that embraces and values
innovation, accountability, respect, adaptability,
resilience, and perseverance. We strive to ensure
that our open, collaborative culture empowers
staff to be their best selves and do their best work.
Employees’ expectations of their experiences at
work are evolving and they want an overall
employee experience that fits more seamlessly
into their lives. At Ergomed, we are continually
looking at ways to listen to the staff, adapt, and
offer an employee experience where employees
are reminded of moments that matter. We
understand that a positive employee experience
improves attraction, retention, engagement, and
productivity. We engage with our staff; we listen,
identify priority areas, and collaborate with the
teams to implement solutions and are proud to
have high participation rates in our surveys. A great
employee experience is when employee needs
and organisational strategy meet.
We firmly believe in investing in continuous
education and development of our talent to achieve
our strategic goals and have recently created a
dedicated Learning and Development function. This
group is leading Ergomed’s digital transformation
by creating a social learning environment where
employees can share their expertise and
experience, and learn peer-to-peer. We delivered
six leadership, management, technical knowledge
and soft skills training programmes during 2020
which were attended by 319 employees, racking
up almost 800 hours of training.
Colleagues case study
We were delighted to have Bojana Mirosavljevic,
Ergomed’s Patient Engagement Officer feature in
the Autumn 2020 edition of Rare Revolution
magazine, a key publication in the rare disease world.
The article focused on Bojana’s inspiring story about
her heart-breaking personal experience with a
rare disease.
Bojana founded Zivoy-Life, an association for
children with rare diseases in Serbia, was founder
and chief editor of the first and only journal published
about rare diseases in the Balkan region, and in 2017,
established the first rare disease database in the
Balkans. She is also known for spearheading the
creation of new legislation in Serbia, named ‘Zoya’s
Law’ after her late daughter, concerning the
prevention and diagnosis of genetic and
rare diseases.
Bojana ensures that the patient’s perspective is
always considered during a clinical trial and we are
delighted that her role at Ergomed helps enable her
to continue the fight by supporting a truly patient-
centric approach to clinical trials and research.
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Patients and Communities
There is an increasing need to draw on patient
knowledge and experience to improve discovery,
development, and evaluation of new effective
medicines. Greater patient engagement offers
many benefits for all parties, including the
identification and understanding of unmet needs,
research priorities, optimisation of clinical study
design and outcome measures and end-point
development.
Having been founded by a physician, Ergomed has
a long history of putting patients and their families
at the centre of the clinical research and improving
medicine research and development by
incorporating patient needs and priorities. Patient
advocacy through engagement is a key priority
and a pillar of the strategy of the business and is
led by a dedicated Patient Engagement Officer.
Ergomed believes that the progress and well-
being of patients and the local community should
go hand-in-hand with the growth of the Group. It
supports this through activities such as the Patient
Organisation Advisory Board, graduate placements
through local universities, helping relevant local
charities and social initiatives, voluntarily
presenting and teaching at clinical research and
PV conferences and symposia, engaging with
relevant professional societies, and other forums.
In addition to this, the Group is proud to support
employee-led initiatives wherever possible.
Ergomed launched a Patient Organisation Advisory
Board to advise on the merits of differentiated trial
processes and technologies on patients,
engagement strategies, emerging treatment and
patient population issues and trends.
Ergomed also provides webinars and educational
lectures covering a range of significant subjects
across the clinical research and PV sectors.
Our team of experts ran eight free webinars during
2020 which were attended by over 1,750
participants. Of note were the following:
• The Rare Disease team presented a patient-
focused webinar: ‘Patient Experience – What is
it Like to Participate in a Clinical Trial?’ After
exploring the landscape of drug development
in the first webinar, further webinars will focus
on what it means to participate in a clinical trial,
emphasising the patient’s perspective. We
believe it is paramount that patients and their
families understand what is involved and are
aware of their rights and obligations if they
choose to participate in a clinical trial.
• The Medical Writing group was pleased to be
involved with organising and running the
first-ever online European Medical Writers
Association (‘EMWA') conference in November
2020, which was attended by over 350 medical
writers from across the globe.
• As the UK moved towards Brexit transition we
prepared and delivered a well-received webinar
entitled: ‘Brexit, Impact on clinical trials being
run in the UK', demonstrating our preparation
and competence in providing uninterrupted
services. Our XEVMPD and EudraVigilance
registration teams helped to successfully
prepare our clients for a smooth transition
post-Brexit and have issued a FAQ to support
sponsors and colleagues to assess the impact
and facilitate fully-compliant safety reporting in
the future.
Over the next year Ergomed will be introducing
a series of forums whereby clients and patients
talk about their experience with Ergomed.
These forums will focus on how clinical trials have
changed their life, and how it has given the patient
hope. These sessions are expected to be
extremely powerful and help all employees
engage more fully in their work by understanding
the impact it has on people’s lives.
44
Annual Report and Accounts 2020
Risk management
Internal control and risk management
The Group identifies principal risks within the business
and documents the existing mitigations to those risks.
Where the level of risk after existing mitigating actions
is still deemed inappropriate, further actions will be
designed and implemented to reduce the risks to an
acceptable level. Internal controls are key procedures
designed and implemented to mitigate and manage the
overall level of risk.
Risk management framework
The Group’s risk management
framework provides the
structure by which the
principal risks are managed
and reported to the Board.
The Board believe this risk
management framework
currently provides adequate
structure to ensure that the
business can assess the
impact of key risks, has
appropriate procedures in
place to identify emerging
and new risks, and can
effectively report these risks
to the Board.
Given the nature and size of
the Group’s operations and
the rapid expansion through
acquisition and organic
growth, the Board will keep
the risk management
framework under review.
Internal control systems
The Board
The Board has overall responsibility for the determination of the
Group’s risk appetite, the settting of objectives and policies,
and has ultimate responsibility for managing risk.
Audit and
Risk
Committee
The Audit and Risk
Committee formally
reviews the
effectiveness of our
risk management
processes and
internal control
systems
bi-annually.
Senior
management
Senior management
are responsible for
reviewing and
monitoring the
Group’s key risks,
and overseeing the
implementation and
operation of the risk
management and
internal control
systems.
Ergomed
teams
Everyone at
Ergomed has a role
to play in
identifying key risks
facing the Group,
and in the
day-to-day
management of risk
through applying
the appropriate
controls, policies
and processes.
Control procedures and
environment
The control procedures and environment are
ID and evaluation
of risks
A detailed register of financial risks is
Financial
information
Financial information and reporting is
designed to reduce risk to a level where the
reviewed and updated regularly. Significant
overseen by the Chief Financial Officer (‘CFO’).
time spent on compliance procedures is not
risks for other administration and operational
The CFO reports the financial results to the
disproportionate to the impact, financial or
departments are maintained and reviewed
senior management team and Board at least
otherwise, of the risk materialising.
every 6 months. A more detailed and
monthly. The financial information is subject
structured process for regular risk
to a high level of scrutiny both internally
documentation and review is being rolled
and externally.
out for the other administration and
operational departments.
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45
Principal risks and uncertainties
The Board has identified the following principal risks and uncertainties that have the potential to impact the
execution of Ergomed’s strategy and short-term results, along with mitigating actions.
A comprehensive review of the impact of COVID-19 and Ergomed’s response are set out on pages 13 to 15 –
Responding to COVID-19.
Trend direction:
Increased risk
No change
Decreased risk
New risk
risks
movement
responses to mitigate the risks
competition
Ergomed’s competitors and potential competitors
include companies which may have greater
resources. The ability of Ergomed to win new or
repeat business from existing customers is a key
driver of the Group’s business plan and strategy and
directly impacts its future financial stability. This
relies upon the business development function
continuing to deliver new, profitable contracts,
through the contracted order book.
cancellation or delay of clinical trials or
projects by customers including as a result
of coviD-19
Customers may cancel or delay proposed clinical trials
or PV projects without notice or at short notice. This may
be exacerbated by the COVID-19 pandemic and the
direct impact it has had on access to patients and the
operational and financial stability of many businesses
within the sector. The cancellation or delay of a clinical
trial from COVID-19 or otherwise may result in Ergomed
having underutilised staff resource and reduced
profitability.
coviD-19 pandemic, natural disaster
or terrorism
The occurrence of a local, national or worldwide
event such as a pandemic, natural disaster or act of
terrorism resulting in significant and prolonged
disruption to operations including staff welfare,
operational site access, IT systems and
infrastructure, commercial contract performance
and senior leadership and Board ability to effectively
communicate and direct the business. During 2020
and into 2021 the Group’s staff and operations have
been impacted by the COVID-19 pandemic – further
details are set out on pages 13 to 15 – Responding to
COVID-19. In addition, our offices in Croatia were
directly impacted by two earthquakes and the
resulting aftershocks. No staff were injured, and the
offices only suffered minor damage.
Simplified strategy to focus on CRO and PV service sectors
and foster cross-development opportunities.
Chief Commercial Officer (‘CCO’) leading the combined
CRO and PV marketing and business development teams.
Drive to provide high-quality services at competitive rates,
drawing upon our differentiators in the marketplace.
The COVID-19 pandemic has affected all parts of
society. Ergomed has managed the primary risks to its
workforce and patient access through remote working
and patient monitoring. Rare disease and oncology
trials have been less impacted by the pandemic as
continued treatment is critical to patient care.
Ergomed’s concentration in these sectors has resulted
in a lower impact on operations.
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. PV
contracts contain provisions for transition of services.
Details on Ergomed’s response to COVID-19 are set out
on pages 13 to 15.
Key mitigating actions taken were:
• Formation of a COVID-19 task force, made up of a
cross-section of management, to review and advise
the Board and senior management,
• Protect staff health through temporary office
closures and moving to remote working.
• No staff were furloughed or made redundant,
no grants or loans received in relation to
redundancies or furloughs,
• Monitored existing IT systems to ensure limited
downtime,
• Remote clinical trial monitoring and PV case processing,
• Temporary draw down of £15 million debt facility
as a precaution,
• Scenario planning in case of worsening business
consequences,
• Partially reopened offices where permitted and
increase site hygiene vigilance,
• Stopped all but essential business travel.
The Group’s business continuity plans apply if access to
office sites is restricted due to pandemic, natural disaster,
or terrorism. In addition, after our offices in Croatia were
affected by earthquakes, all local colleagues were contacted
to check their, and immediate families’, well-being.
46
Annual Report and Accounts 2020
Principal risks and uncertainties continued
Trend direction:
Increased risk
No change
Decreased risk
New risk
risks
movement
responses to mitigate the risks
Dependency on pharmaceutical industry
Ergomed’s current revenue results from expenditure
by pharmaceutical and biotech businesses on
research and development and regulatory
compliance. Ergomed’s business could be
negatively impacted 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; and/or
consolidate through the vertical integration of
their businesses and choose not to engage
Ergomed.
•
•
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 PV
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.
Quality and third party oversight (‘tpo’)
Failure to maintain adequate quality, governance
and oversight of internal and third party operations,
and failure of third parties to meet their contractual,
regulatory, confidentiality or other obligations, could
lead to contractual breaches and/or regulatory
non-compliance resulting in the loss of clients. This
could adversely affect the Group’s growth and
profitability strategy. More generally, Ergomed
operates in an environment which is subject to
detailed and complex regulation.
access to capital
The Group’s ability to pursue its growth strategy and
meet shareholder expectations may be dependent
on its ability to raise capital through debt or equity.
Increases in the global number and complexity of trials,
along with higher levels of regulation and compliance, have
resulted in more services being outsourced to specialist
providers as the pharmaceutical industry focuses on core
expertise and cost savings.
In addition to this, Ergomed actively engages with its
customers to protect its existing relationships, including
through competitive pricing of its services, seeks to
increase the diversification of its customer base through:
• Customer sectors – pharmaceutical, biotech and
generics customers;
• Customer geography – USA and European; and
• Product development stage – pre-product approval
clinical trials, post-approval trials and PV services.
The regulatory environment continues to develop and
become more complex. Although there are signs of the
global harmonisation of regulations, particularly in high-
growth regions such as Asia, regulatory bodies remain
separate and compliance must be upheld in each region
of operation.
Ergomed is a strong advocate of rigorous Good Clinical
Practice (‘GCP’) guidelines and PV regulation.
Our management team includes professionals who are
experts in their respective fields and, through industry
associations, remain active promoters of regulatory
education.
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, Ergomed’s processes are regularly subject to
both client and external compliance audits.
In line with Ergomed’s growth strategy, during the year the
Group was cash-generative and has built up a cash and
equivalents balance of £19.0 million at the year end.
In addition, the Group secured a debt facility of £30 million
in March 2020 which, if required, and subject to its terms,
could be used to fund future growth through acquisitions
or organic means. The facility is available until March 2024.
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47
risks
movement
responses to mitigate the risks
United Kingdom’s withdrawal from the
European Union (‘Brexit’)
The process of the United Kingdom’s (‘UK’)
departure from the European Union (‘EU’) and the
terms of the UK’s future relationship with the EU
have been clarified. The Group’s parent company
and its place of listing are in the UK and its business
in the EU is subject to EU regulation. Existing
regulations or regulatory bodies may change or new
regulations or bodies introduced. 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.
retention of senior and key employees
The Group’s ability to effectively operate and deliver
its strategy is dependent upon the retention of
senior and key employees. Loss of these employees
can significantly disrupt customer relationships and
regulatory compliance. The Group has experienced
high turnover of Executive and Non-Executive Board
members, however this is now stabilising with a
significantly strengthened Board and senior
management team.
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 2020 was 21% (2019: 21%). The loss of
any client which represents a significant proportion
of Ergomed’s revenue could have a negative impact
on operating results and cash flows.
information security (‘iS’) and data privacy
The failure to collect, secure, use and destroy
personal information in accordance with applicable
data privacy laws, including as a result of
unauthorised information disclosure, could result in
consequences which damage the Group’s ability to
effectively provide its contracted services, namely:
regulatory bans, breach of customer contract,
reputational damage, financial penalties and liability
for damages.
The Group’s business is international and it has a strong
presence and established trading subsidiaries both in and
outside the UK. 86% of Group revenue for the 2020
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. Through detailed
preparation work and the thorough review of UK, EU and
international regulatory processes relating to its business
operations, appropriate steps were taken to ensure
business continuity and a smooth transition upon
withdrawal. Well-established procedures were and remain
available under the General Data Protection Regulation
(‘GDPR’) to permit the transfer of personal data outside the
EU which, although requiring certain additional
administrative steps, allow continued transfers of data to
be made to the Group in the UK in compliance with GDPR
requirements. Ergomed appointed an EU GDPR
representative and all entities and affiliates have signed the
Intercompany Personal Data Processing Agreement which
safeguards the transfer of data between different
Ergomed Group entities (worldwide). If the UK
is granted an adequacy decision by the European
Commission, international transfers of personal data to/
from the UK will not be affected by Brexit.
With the support of senior management and HR, the
Remuneration Committee continues to develop its
strategy for identifying, retaining and motivating key and
senior employees. This is done through a mix of short and
longer-term financial and non-financial incentives to
ensure that employees are motivated in line with
shareholder interests, including the use of long-term
incentive plan (‘LTIP’) awards for senior management with
three-year vesting periods designed to improve retention.
A significant part of the business development team’s focus
is the 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 diversifying the client base.
Ergomed has robust internal policies and procedures to
ensure the protection of personal data and to ensure
compliance with data privacy laws and protection from
unauthorised access. All employees undergo regular
training and procedures are tested to ensure that the
safeguards in place are appropriate and robust.
The physical and virtual security of information includes
controls over: access, availability, transfer and input as well
as the separation of data processing for different purposes.
The Group aims to apply industry best practices as part of
our data privacy and IS policies, processes and
technologies and invest in strategies that are
commensurate with the changing nature of the security
threat landscape. This includes appropriate levels of
insurance including cyber-risk.
48
Annual Report and Accounts 2020
Board of Directors
Experience
Miroslav Reljanović
Executive Chairman
Richard Barfield
Chief Financial Officer
Richard joined Ergomed in
June 2019 and has more than
25 years’ experience at Chief
Financial Officer level in the
healthcare, technology and business
services sectors in US multinational
companies as well as in UK-listed
and private equity-backed
businesses. His expertise includes
turnarounds, fundraisings,
acquisitions and disposals, and he
has extensive international
experience.
Miroslav has held several senior
physician appointments in clinical
trials as a consultant neurologist and
served as a consultant to major
international pharmaceutical
companies. He introduced the novel
Study Site Coordination model as
an intrinsic part of the conduct of
clinical studies.
In 1997 he founded Ergomed and in
2008 he cofounded PrimeVigilance.
Miro led Ergomed through a
successful IPO on the London Stock
Exchange AIM in July 2014 and since
then has led the Group through the
subsequent completion of eight
acquisitions and a secondary
offering.
Qualifications
Miroslav is a medical doctor and
a board-certified neurologist.
Richard is a Chartered Accountant
Fellow and holds a bachelor’s degree
in modern languages.
Previous
appointments
Miro was previously a physician in
a large WHO Collaborating Centre
in Zagreb. He has also previously
served as a Director of Asarina
Pharma AB (listed on the Nasdaq
First North Exchange) and Modus
Therapeutics Holding AB.
Richard has proven experience within
the clinical research services sector,
having most recently been Chief
Financial Officer at Chiltern
International Ltd from July 2013 to
March 2018, which was a leading
global mid-tier private CRO. Richard
has also held roles as Chief Executive
Officer, Chairman, and Audit
Committee Chairman at various
UK-listed companies as well as
serving as a Board member of an
NHS Foundation Trust.
Committee
membership
N
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Committee key
A
Audit & Risk
N
Nomination
R
Remuneration
Chair
Rolf Soderstrom
Senior Independent Director
Ian Johnson
Non-Executive Director
Michael Spiteri
Independent Non-Executive Director
Ian has spent his business career in
life science businesses and was the
founder and CEO of Biotrace
International PLC, which was a listed
company until its sale to 3M in
December 2006. In addition to his
Non-Executive role with Ergomed
plc, Ian is also currently Executive
Chairman of Circassia
Pharmaceuticals PLC and
Non-Executive Chairman
of Redcentric PLC.
Michael has held a number of senior
leadership positions in the consulting
and financial services industries over
a 25-year period. He specialises in
helping organisations implement
technology that transforms their
business and operating models and
is currently Global COO for Digital,
Data and Development in HSBC’s
Retail Banking and Wealth
Management business. Michael
brings his extensive experience in
technological innovation to help the
Board develop Ergomed’s business
across digital, automation and
machine learning.
Ian studied at Cardiff University
obtaining a BSc and MSc in
Microbiology. He is a chartered
biologist, and a member of the
Institute of Biology and the Institute
of Directors.
Most recently Ian was Executive
Chairman of Bioquell PLC, which was
acquired by Ecolab Inc. in January
2019. Prior to this Ian was Non-
Executive Chairman of Quantum
Pharma PLC, Cyprotex PLC and Celsis
Group Ltd. He has also served on the
Boards of various other public and
private companies including AIM
listed companies, Evans Analytical
Group, MyCelx Technologies
Corporation and AOI Medical Inc.
Michael has a degree in Mechanical
Engineering.
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.
Rolf has over 30 years’ experience in
finance and a track record of
accelerating the profitable growth of
companies and delivering
shareholder returns. Rolf has
extensive strategic, operational and
international experience including
M&A, fundraisings and disposals.
Rolf is currently External
Independent Director at Sosei Group
Corporation, an international
biopharmaceutical group which is
listed on the Tokyo stock exchange,
and a Non-Executive Director at
BioPharma Credit plc, a closed
ended investment company listed
on the main market of the London
Stock Exchange.
Rolf is a Chartered Accountant and
holds a bachelor’s degree in history
from University College London.
From 2008 to 2018 Rolf was CFO of
BTG plc and helped drive the
successful transformation of the
company into a fully-integrated
global manufacturing and sales
organisation focused on specialist
healthcare. Before BTG Rolf was
Divisional Finance Director at
Cobham Plc from 2004 to 2007
where he was responsible for a
portfolio of companies in Europe and
the United States and prior to that he
was Director of Corporate Finance at
Cable & Wireless Plc. He qualified as
a chartered accountant at
PricewaterhouseCoopers where he
worked initially in audit and then in
the corporate finance function.
A
R
N
A
R
A
N
50
Annual Report and Accounts 2020
Corporate governance at a glance
Board and committee meetings
Name
Notes
Number of scheduled meetings
Executive Directors
Miroslav Reljanović
Richard Barfield
Lewis Cameron
Non-Executive Directors
Rolf Soderstrom
Ian Johnson
Michael Spiteri
James Esinhart
Appointed 20 January 2020,
resigned 21 September 2020
Resigned 14 May 2020
primary responsibilities
Executive
Chairman
Lead and manage the Board and wider business,
ensuring the Board’s effectiveness and delivery of
the Group’s strategy through the senior
management team.
Chief
Financial
Officer
Senior
Independent
Director
Manage the Group’s finance activities, support
the Executive Chairman in delivering the Group’s
strategy and manage investor relations.
In addition to usual Non-Executive Director duties,
to support the Executive Chairman, act as an
intermediary for other Directors and lead the
Non-Executive Directors in the oversight of the
Executive Chairman’s performance.
Non-
Executive
Director
Oversee the development and delivery of the
Group’s strategy, performance of senior leadership
and the adequacy of governance policies and
processes.
Number of meetings
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
4
–
–
–
4/4
4/4
4/4
–
3
–
–
–
3/3
–
3/3
1/1
1
1/1
–
–
1/1
–
1/1
–
Board
4
4/4
4/4
3/3
4/4
4/4
4/4
1/1
Governance focus areas
Key areas of governance focus in the
year, and since the year end:
• Review and focus the Group’s
strategy on the CRO and PV service
business sectors;
• Oversee and monitor the adoption
of key financial standards;
• Committed to the acquisition and
integration of PrimeVigilance USA
and MedSource;
• Approved the sourcing and
securing of £30 million debt
financing facility;
• Ongoing review of Risk,
•
Compliance and Corporate
Governance processes;
Initiated project to implement share
options administration system;
• Review of key corporate policies;
including local HR policies, anti-
bribery and whistleblowing policies;
• Review and oversight of the Capital
•
Reduction process; and
Implementing formal, regular Board
effectiveness evaluations.
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51
Executive Chairman’s governance statement
Miroslav Reljanović
Executive Chairman
“Maintaining the highest standards of
corporate governance, striving at all times
for effective and open communication,
transparency and integrity.”
Introduction
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.
The Board of Directors
The Board is responsible for taking all major strategic
decisions and 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.
As a public company with shares listed on the
Alternative Investment Market (‘AIM’) of the London
Stock Exchange, Ergomed has adopted the 2018
Quoted Companies Alliance’s Corporate Governance
Code (‘QCA Code’). In my capacity as Executive
Chairman, I have assumed responsibility for, and I am
committed to, 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.
In this Corporate Governance Report we aim to explain
how the Board discharges its governance
responsibilities.
Meetings
The Board meets regularly throughout the year to
consider strategy, performance and the framework of
internal controls. Directors are expected to attend all
meetings of the Board and the Committees on which
they sit, and to devote sufficient time to the Group’s
affairs to enable them to fulfil their duties as Directors.
In the event that Directors are unable to attend a
meeting, their comments on the matters to be
considered at the meeting are discussed in advance
with the Chairman so that their contribution can be
included in the wider Board discussion.
The Presidents of the Group’s CRO and PV businesses,
the Chief Commercial Officer and other key
management personnel are invited to attend Board
and Committee meetings as appropriate.
Ergomed’s General Counsel and Company Secretary
attend all Board meetings and assist Directors with any
legal or administrative issues arising.
Scheduled Board meetings take place four times a
year, and it is usual for all Directors to attend.
Scheduled Board meetings are ordinarily face-to-face
but have largely taken place by video conference in
2020, due to the COVID-19 pandemic. In addition, the
Board has telephone/video conferences or
communicates via email on material matters that may
arise throughout the year. The Board also meets for a
strategy meeting at least once a year.
52
Annual Report and Accounts 2020
Executive Chairman’s governance statement continued
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 50
shows the number of scheduled Board and Board
Committee meetings held during the year to 31 December
2020 and the attendance of individual Directors at those
meetings. There were further ad hoc meetings held
when required.
To enable the Board to discharge its duties, the Directors
receive appropriate and timely information, including
monthly management reports. 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 are 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.
Composition and independence
The Board is drawn from an international background,
representing the international nature of the Group, and
many clients’ businesses. The Board recognises that
diversity is an important factor in ensuring stakeholder
representation and promoting long-term shareholder
value and supports an improved gender and cultural
balance as an important goal, whilst acknowledging that
the current composition of the Board does not reflect this.
The Board currently consists of two Executive Directors
and three Non-Executive Directors. Biographical
information for each Director and their contribution to the
business is set out on pages 48 to 49. The Board considers
Rolf Soderstrom and Michael Spiteri to be independent.
Appointment, removal and re-election
Directors are subject to election by shareholders at the first
Annual General Meeting (‘AGM’) following their initial
appointment, and at each AGM one-third of the Directors
shall retire by rotation and put themselves forward for
re-election. All Directors must retire by rotation and put
themselves forward for re-election at least once every
three years.
Lewis Cameron was appointed to the Board as Chief
Operating Officer (“COO”) on 20 January 2020. Mr Cameron
resigned from his position as COO on 21 September 2020
for personal reasons related to the COVID-19 pandemic.
On 14 May 2020 James Esinhart confirmed that he would
not be standing for re-election at the forthcoming AGM
and would step down from the Board as a Non-Executive
Director with immediate effect.
The Board would like to thank Lewis and James for their
service and wish them well in their future endeavours.
Induction and development
Individual Directors attend ad hoc training, seminars and
conferences relevant to their specific skills and roles within
the Board. Executive Directors regularly attend industry
seminars and 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 themselves with
their duties and responsibilities as Directors of an AIM
listed company.
Communication with investors
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 website – www.ergomedplc.com;
• meetings and conversations between the Executive
Chairman, Chief Financial Officer and shareholders,
both on an ad hoc basis, and following publication
of the interim and final results;
• Company announcements via RNS; and
investor conferences and webinars.
•
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 with them. 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.
The COVID-19 pandemic resulted in some disruption to
the usual methods of investor communication, namely the
Group’s ability to hold an ‘in-person’ meetings. The AGM
held on 10 June 2020 and General Meeting in relation to
the capital reduction held on 19 October 2020 were both
held as closed meetings. The Group successfully utilised
virtual presentations for the 2019 year end preliminary
results and 2020 interim results, which were received well.
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53
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. The ‘Investors’ section of the Group
website includes a dedicated ‘Corporate Governance’
section, where our annual Corporate Governance
Statements can be found.
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, to ensure they are aligned to
the execution of Group strategy, and effective risk
management, for the medium to long term.
The Committee does so within its formal terms
of reference and having due regard to the interests
of shareholders.
The Group also utilises social and corporate media
platforms such as 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 presenting
at, company and employee achievements and corporate
social responsibility activities.
Board Committees
The Board delegates certain items of business to its
Committees. At the year-end, these were the Audit and
Risk, Nomination and Remuneration Committees. Each
Committee operates under clear terms of reference.
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, reviewing reports
from the Company’s auditors relating to the Company’s
accounting and internal controls and monitoring the
primary risks and uncertainties and the potential impact
they have on the Group executing its strategy.
The Audit and Risk Committee is also responsible for
ensuring that the Company is complying with the AIM
rules and for reviewing and monitoring the Company’s
risk, compliance and corporate governance practices.
The Audit Committee is composed of three
Non-Executive Directors, the majority of whom are
independent, and is chaired by Rolf Soderstrom.
Michael Spiteri and Ian Johnson are the other members
of the Committee.
The Audit and Risk Committee’s report for the 2020
financial year is set out on pages 56 to 59.
Nomination Committee
The Nomination Committee identifies and nominates
for the approval of the Board, candidates to fill Board
vacancies as and when they arise.
Miroslav Reljanović is the Chair of the Nomination
Committee. Michael Spiteri and Rolf Soderstrom are
the other members of the Committee.
Michael Spiteri was Chair of the Remuneration
Committee during the year and the other member of the
committee was Rolf Soderstrom. James Esinhart was a
member until his resignation as a Director in May 2020.
The Remuneration Committee’s report for the 2020
financial year is set out on pages 60 to 63.
Capital reduction
In light of the Group’s operational and financial progress,
in October 2020 the Board sought shareholder approval
for a capital reduction, whereby the balance on the
Company’s share premium account and other reserves
would be used to eliminate the deficit on the retained
earnings reserve (‘Capital Reduction’).
On 19 October 2020 the Company received 100%
support from shareholders at the General Meeting to
approve the Capital Reduction. The Capital Reduction
became effective on 17 November 2020 following Court
approval and the filing of documentation with the
Registrar of Companies.
The Capital Reduction has provided the Board with the
flexibility to distribute future profits to its shareholders,
should it be considered appropriate to do so. No decision
has been made by the Board on how the distributable
reserves created by the Capital Reduction will be utilised
and any such utilisation will always be subject to the
financial position and prospects of the Company at the
relevant time.
The Board would like to thank shareholders for their
support in completing this process.
AGM
The Board values each AGM as an opportunity to
communicate with private and institutional investors and
welcomes their participation. At the time of writing, it is
not expected that in-person voting and attendance will
be possible at Ergomed’s 2021 AGM, due to ongoing
COVID-19 restrictions. The Board is keen to ensure
that it can engage with shareholders at the 2021 AGM,
despite the challenges of COVID-19, and arrangements
for shareholder participation at the AGM will be
announced via RNS and on the Company’s website
at www.ergomedplc.com.
54
Annual Report and Accounts 2020
QCA Corporate Governance Code
The Company has adopted the Quoted Companies Alliance Corporate Governance Code
(2018 edition) (the “QCA Code”). The QCA Code sets out ten main corporate governance
Compliance with the QCA Corporate
principles and requires the Company to apply these principles and publish certain related
Governance Code
disclosures, which are summarised in the table below.
1
2
3
QCA Governance Principles
Explanation
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.
During 2020, Ergomed continued to implement its strategy to become a global
leader in PV and specialist clinical trials. Please see ‘Strategic Report’ on pages 2 to
47 for further details.
Seek to understand and
meet shareholder needs
and expectations
Ergomed is committed to effective communication with all Ergomed’s shareholders,
both institutional and private. Details of how we communicate with our investors are
set out on pages 52 to 53 (‘Communication with investors’).
Please see ‘Stakeholder engagement’ (pages 34 to 35) for details of how the Group
identifies shareholder needs and engages with them.
Take into account wider
stakeholder and social
responsibilities and their
implications for long-
term success
Please see ‘Stakeholder engagement’ (pages 34 to 35) for details of how the Group
takes wider stakeholder needs into consideration and engages with them.
The Group has 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. Please see ‘Audit Committee report’ (pages 56 to
59) for details of how these policies have been updated during 2020.
Please see ‘Responsible business’ (pages 33 to 43) for details of how the Group
addresses key social responsibilities such as its impact on the environment and
commitment to the wellbeing of patients and colleagues.
4 Embed effective risk
management,
considering both
opportunities and
threats, throughout
the organisation
Please see ‘Risk Management’ (page 44) for details of the Group’s risk management
framework and processes and how these have been enhanced during 2020.
Please see ‘Principal risks and uncertainties’ (pages 45 to 47) for details
of the main risks and uncertainties which the Board considers to be associated with
the Group’s activities.
5
Maintain the Board as
a well-functioning,
balanced team led by
the Chair
The Board is chaired by Miroslav Reljanović as Executive Chairman. Dr Reljanović
founded Ergomed in 1997 and cofounded PrimeVigilance in 2008. He was CEO of the
Company until June 2018, when he became Executive Vice-Chairman, becoming
Executive Chairman in January 2019 and has thorough knowledge and experience of
the Group and the market in which it operates. The Board is also composed of the
CFO, Richard Barfield, a Senior Independent Director, Rolf Soderstrom, and two
Non-Executive Directors, Ian Johnson and Michael Spiteri, who bring significant
Boardroom experience in both executive and non-executive roles. The Board will
continue to appoint additional independent Non-Executive Directors where possible.
The Board recognises that best practice in corporate governance is to ensure a clear
division of responsibilities between the roles of Chair and CEO and continues to
monitor investor feedback with regard to this on an ongoing basis.
The Board considers Rolf Soderstrom and Michael Spiteri to be independent.
The biographies of all current serving Directors can be found on pages
48 to 49.
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55
QCA Governance Principles
Explanation
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.
Please see ‘Board of Directors’ (pages 48 to 49) for a summary of the experience,
skills and capabilities of Ergomed’s Directors.
7
Evaluate Board
performance based on
clear and relevant
objectives, seeking
continuous improvement
During 2020 the Board carried out a formal internal evaluation of its performance,
and will implement the recommendations arising from this evaluation during 2021. It
is the intention that this evaluation process will be repeated annually, and the need
for external evaluation will be kept under review. The Board also considers the tenure
of Board members and considers succession planning on an annual basis.
8 Promote a corporate
culture that is based on
ethical values and
behaviours
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.
Please see ‘Responsible Business’ (pages 33 to 43) for details of our corporate culture.
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.
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 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.
During 2020 we initiated the implementation of revised human resource and
corporate policies which promote best practice behaviours and align policies
throughout the Group.
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 48 to 49 (‘Board of Directors’) and 53 (‘Board Committees’) 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 matters outside
of scheduled meetings.
10 Communicate how the
Company is governed
and is performing by
maintaining a dialogue
with shareholders and
other relevant
stakeholders
Ergomed engages with its shareholders and other relevant stakeholders in a
variety of ways, to ensure they understood how the business is governed and
how it is performing
Please see ‘Stakeholder engagement’ (pages 34 to 35) and ‘Communication with
Investors’ (pages 52 to 53) for details of
how we engage with our shareholders.
56
Annual Report and Accounts 2020
Audit and Risk Committee report
Rolf Soderstrom
Chair of the Audit and Risk Committee
“The Audit and Risk Committee
provides robust oversight of
financial and risk matters.”
The Audit Committee’s role is to assist the Board in its
oversight of the financial stewardship of the Group.
Membership of the Audit and Risk Committee
comprises all of the Non-Executive Directors of the
Company, with myself as Chair, and Ian Johnson and
Michael Spiteri as the other members.
Michael Spiteri and I are considered by the Board to be
independent. During 2020, Ian Johnson was not
considered to be independent, but, given the size of
the Ergomed Board, with its limited number of
Non-Executive Directors, and the relevant experience
and insight which Ian Johnson brings to Committee
proceedings, it was considered that Ian Johnson’s
inclusion as a Committee member would enhance the
robust oversight of financial and risk matters provided
by the Committee.
Details of the qualifications of the Committee members
are set out on page 49.
At the invitation of the Committee, the external auditor,
Executive Chairman and Chief Financial Officer may
attend meetings along with other senior management
as appropriate.
Details of the attendance of Committee members at
Committee meetings are set out on page 50.
The Audit and Risk Committee has four scheduled
meetings each year and may meet at other times
during the year, as required. During the 2020 financial
year there were four meetings of the Committee.
Meetings are conducted in accordance with an annual
agenda, which sets out the agenda items to be covered
at each scheduled meeting, and which takes into
account the recommendations of the QCA Audit
Committee Guide.
Activities during the year
• Reviewed the annual and half-year
financial reports and related
statements
• Discussed the key findings of the
external auditors on the interim
and annual financial statements
• Considered significant accounting
judgments, in particular:
• IFRS 15 – Revenue from contracts
with customers
• Carrying value of goodwill,
intangible assets and
codevelopment contracts
• Review of support of the going
concern assumption
• Continued review and monitoring
of risk, internal controls,
compliance and corporate
governance processes
• Approved the development and
implementation of a formal Treasury
policy and foreign exchange risk
management and control process
• Approved the scope of the external
audit plan and audit fees
• Reviewed the objectivity and
independence of the external
auditor, KPMG, if and when
providing non-audit services
• Recommended the implementation
of a Disclosure Committee to
monitor processes around price-
sensitive and inside information
• Adopted a formal policy on supply
of non-audit services by the
external auditor
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57
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 to provide professional services
to the pharmaceutical industry. Identification and
evaluation of risk is a continuous process, running in
parallel with the significant organic and inorganic
growth of the Group. As a Group, we assess risk on
an ongoing basis, and specifically, when assessing
contracts, projects or directions;
The Audit and Risk Committee’s
main responsibilities include:
• To satisfy itself as to the integrity of the
financial statements and other formal
announcements relating to the Group’s
financial performance, ensuring
compliance with applicable accounting
standards, regulations and rules;
• To review and approve any changes
to accounting policies and significant
reporting matters, estimates and
judgements they contain;
• To monitor and review the
effectiveness of the Group’s internal
financial controls and risk
management policies and systems
and to monitor and review the going
concern status of the Group.
A summary of the principle risks
and mitigations are set out on pages
45 to 47;
• To regularly consider the need for the
requirement of an internal audit
function;
• To consider the Group’s anti-bribery
and whistleblowing procedures to
ensure that employees can raise
concerns, in confidence, about
possible wrongdoing or malpractice;
• To satisfy itself of the independence
and effectiveness of the external
auditor, and to make recommendations
to the Board in relation to the
appointment and remuneration of the
external auditor, and policy relating to
their non-audit services; and
• To ensure that the audit services
contract is put out to tender at least
once every 10 years. The Company’s
current auditor, KPMG, were first
appointed at the Company’s AGM held
on 12 June 2018.
58
Annual Report and Accounts 2020
Audit and Risk Committee report continued
•
•
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 reforecasts 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 and any financial
information transmitted to shareholders 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 provision of reports from various
areas of the business and contained in the Board
papers, and those prepared for its committees. The
Board has the right to seek independent legal and
other professional advice at the Company’s expense
concerning any aspect of the Group’s operations or
undertakings. In addition, the Directors have direct
access to the advice and services of the General
Counsel and Company Secretary.
The Audit and Risk Committee instigated a review of
the Group’s risk, internal controls and corporate
governance processes during 2019 and, as a result,
implemented a new treasury policy during 2020. The
policy has been designed to address key financial risks
through clearly defined roles, responsibilities and
controls around the core treasury activities, namely;
group banking arrangements, cash/liquidity
management, foreign exchange and hedging, interest
rate risk and debt facility compliance.
The Committee continues to review the Group’s risk,
internal controls and corporate governance processes
on an ongoing basis.
Attendees
Rolf Soderstrom – Chair
Ian Johnson
Michael Spiteri
4/4
4/4
4/4
The Executive Chairman and Chief Financial
Officer attend meetings at the invitation of
the Chair.
Audit and Risk Committee
meetings in the year
Meeting
attendance
4
100%
Financial reporting
During the year the Committee reviewed and
recommended the Board approve the financial
statements for the year ended 31 December 2019 and
interim results for the six months ended June 2020, in
addition to reviewing other formal announcements
relating to the Group’s financial performance.
The Committee has reviewed the appropriateness of
accounting policies as well as significant reporting
matters, estimates and judgements contained within
the financial results. During 2020, the Committee
believe the significant reporting matters, estimates and
judgements to be in respect of revenue recognition and
the impact of COVID-19 on the going concern
assumption, financial assets and bad debts. Further
details of these are provided in note 1 of the financial
statements.
The significant growth of the Group, both organically
and through acquisitions, mean that the accounting
policies, significant reporting matters, estimates and
judgements are constantly evolving and are regularly
reviewed for appropriateness by the Committee.
Internal audit requirement
The Group has not had an internal audit function to date
and the committee regularly considers the need for
one. Given the Group’s size and level of complexity, the
Committee does not consider it either necessary or
practical at present for the Group to have its own
internal audit function. However, given the historic
growth of the Group both organically and through
acquisitions, and future plans for further growth, this
requirement will be kept under regular review.
External Auditors
The Group’s current external independent auditor,
KPMG, were first appointed at the Ergomed plc AGM
held on 12 June 2018. KPMG have safeguards in place
to protect the independence and objectivity of the
services they provide and, in accordance with
International Standards on Auditing (UK), formally
confirmed its independence as auditor of the Group.
To ensure the continued independence of KPMG, the
Group has adopted a policy which does not permit the
external auditor to provide non-audit services unless
approved by the Committee. No such non-audit
services were approved or performed during 2020.
The Committee undertakes an annual assessment of
the effectiveness of the external auditors and
concluded that KPMG has met the requirements of the
Board, and that the Board continued to be satisfied with
KPMG’s performance and effectiveness.
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Regulation and governance compliance
After considering advice from legal counsel, and in light
of the growth of the Group in the key US market, the
Committee recommended a review of the Group’s
anti-bribery and whistleblowing policies, and the
revised policies will be rolled out during 2021.
For the first time this year, the Group is within the scope
of the SECR sustainability regulation and has included
the report within the ‘Responsible business’ section of
this report on pages 38 to 40.
The committee continues to monitor new regulatory
and governance standards and, if implementation is not
mandatory, consider the appropriateness of voluntary
adoption.
2021 outlook
As the Group grows in line with its strategy, the
committee will continue to oversee the further
development of the control and risk environments to
ensure that financial risks are managed to an
acceptable level for this increasingly complex business.
Rolf Soderstrom
Chair of the Audit and Risk Committee
22 March 2021
60
Annual Report and Accounts 2020
Remuneration Committee report
Activities during the year
During the year the Committee’s key
activities included:
• Considering and agreeing
the annual salary increase
and bonus award
• Reviewing the composition and
targets for the LTIP
• Agreeing the award of LTIP options
• Considering and approving
remuneration packages for
Directors and senior managers
Initiating a project to implement
a share options administration
system.
•
Attendees
Michael Spiteri – Chair
Rolf Soderstrom
James Esinhart
3/3
3/3
1/1
The Executive Chairman and Chief Financial
Officer attend meetings at the invitation of
the Chair.
Remuneration Committee
meetings in the year
Meeting
attendance
3
100%
Michael Spiteri
Chair of the Remuneration Committee
“The Group’s remuneration policy is designed
to incentivise the achievement of the Group’s
strategy and the delivery of sustainable
long-term performance by the Group.”
The Remuneration Committee’s role is to ensure
remuneration arrangements for the Group’s Executive
Directors and employees are aligned to the execution
of Group strategy, and effective risk management, for
the medium to long term.
The members of the Remuneration Committee are
myself (Chair) and Rolf Soderstrom. James Esinhart was
a member of the Committee until his resignation as a
director in May 2020. The CFO, Executive Chairman and
General Counsel may be invited to attend Committee
meetings as appropriate.
Details of the qualifications of the Committee members
are set out on page 49.
Details of the attendance of Committee members at
Committee meetings are set out on page 50.
The Remuneration Committee meets at least twice a year,
and may meet at other times during the year, as required.
During the 2020 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 report has been split into
the following three sections:
• a summary of the work completed in the year;
•
the remuneration policy overview which sets out the
Group’s approach to Directors’ remuneration; and
the annual report on remuneration.
•
COVID-19
The COVID-19 pandemic has presented challenges on
many fronts, not least the impact it has had on the
Group’s staff. That said, I am pleased to report that no
staff were made redundant or furloughed as a result of
COVID-19 during the year.
In addition, the Group received no government grant or
loans to compensate for redundancies or furloughs of
any sort.
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Remuneration policy overview
The Remuneration Committee has established a policy
which enables the Group to retain and motivate
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,
retain 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 as 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.
During 2021, the Committee plans to evaluate and
benchmark the overall remuneration packages of
Executive Directors against industry and market peers.
The Remuneration Committee’s
primary responsibilities are:
• Reviewing the ongoing
appropriateness and effectiveness
of the remuneration policy
• Determining and recommending to
the Board the remuneration package
of Executive Directors including the
Executive 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
• Reviewing payments made on
termination
Base salary
Base salaries are generally reviewed annually
and are 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, based on a number of factors,
including market rates and benchmarking to
peers, as well as the individual Director’s
experience, responsibilities and performance.
During the year the Committee approved a
Group-wide inflationary pay increase of up to 4%
based on individual performance. This increase
was initially scheduled for April but was
postponed due to uncertainties around
COVID-19. Once the impact of COVID-19 on the
Group had become clearer, the full pay increase
was implemented in July and August and
backdated to April.
62
Annual Report and Accounts 2020
Remuneration Committee report continued
The Group has one active share option arrangement, the
Ergomed plc LTIP. There are historic share option
arrangements with outstanding share options which are
no longer used. These are the Unapproved Executive
Share Option Scheme 2007 and the Stahel Option
Agreement. In addition, certain Executive Directors and
employees hold options over shares held by
Miroslav Reljanović.
Options issued under the LTIP vest based on
performance (TSR) or time-based conditions. During the
year the Committee approved the awards of LTIP share
options to eligible employees and Directors which are
further detailed in note 30 of the financial statements,
and for Directors, in the ‘Directors’ interest in share
options’ table of this report.
Executive Director service agreements
All Executive Directors have service agreements that
terminate on six months’ notice.
Non-Executive Directors
The Non-Executive Directors are each paid fees of
£50,000 annually and fees are designed to attract and
retain individuals who have the expertise, responsibility
and the time commitment to be able to contribute to an
effective Board and deliver long-term sustainable
shareholder value. The Chair of the Remuneration
Committee, Audit and Risk Committee and the Senior
Independent Director receive additional fees of £10,000
each annually in recognition of their additional
responsibility and time commitment. The Group
reimburses Non-Executive Directors for reasonable
expenses incurred such as travel and hotel
accommodation.
The Non-Executive Directors do not participate in the
Group’s pension, bonus or option schemes.
All Non-Executive Directors have letters of engagement
that terminate on three months’ notice.
Michael Spiteri
Chair of the Remuneration Committee
22 March 2021
Performance-related annual bonus
Annual bonuses are awarded against achieving both
corporate and individual performance targets. Typically,
the majority of the bonus will be based on a balanced
scorecard reflecting delivery against key commercial,
technical, operational and financial deliverables. The
Committee will therefore vary the specific measures and
targets each year where required to ensure that they
reflect the key financial and strategic priorities for the
Group in a given year.
The Committee reviewed individual and Company
achievements against targets for the year and determined
that the bonuses to be awarded are 75% of base salary for
the Executive Chairman and 50% of base salary for the
Chief Financial Officer.
Due to the initial uncertainties around the impact of
COVID-19 on the Group in March and April 2020, the
payment of the 2019 annual performance-related
bonuses was postponed until the impact on cash flow had
become clear. 2019 staff-related performance bonuses
were paid in July and August 2020 once the uncertainties
around COVID-19 had become clear, except those of the
Executive Chairman and Chief Financial Officer which
were permanently relinquished by those Directors in light
of the pandemic.
Pension and other benefits
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.
Each jurisdiction gives access to benefits which are
appropriate to secure and retain the best talent available
in the market. Typically, these could include life assurance
and private medical insurance.
Payment for loss of office
Award payments for loss of office of an Executive Director
are made if the terms of the applicable service contract
were upheld and, the payment takes into account specific
circumstances surrounding the termination, including but
not limited to performance, service and health.
Share options
The Company issues share options to Executive
Directors and senior employees to reward performance,
to encourage retention and to align medium and
long-term objectives with those of shareholders, being
Total Shareholder Return (‘TSR’) after three years.
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63
Annual report on remuneration – AUDITED
The Directors received the following remuneration during the year:
£
Salary/fee
Benefits
Annual
bonus
Pension
Other
compensation1
Total
2020
Total
2019
Executive
Miroslav Reljanović
Richard Barfield
Lewis Cameron
Appointed 20 January 2020,
resigned 21 September 2020
Non-Executive
James Esinhart
resigned 14 May 2020
Michael Spiteri
Rolf Soderstrom
Ian Johnson
314,112
265,865
12,701
2,810
–
–
27,082
21,550
–
–
353,895
290,225
214,156
148,584
129,419
7,811
26,780
19,399
60,000
68,077
50,000
–
–
–
–
–
–
–
–
–
–
–
–
–
232,478
396,488
–
–
–
–
–
19,399
60,000
68,077
50,000
37,712
52,884
25,448
18,397
1. Other compensation consists of a payment of £119,643 in lieu of notice and £112,835 for non-compete provisions (a requirement under Spanish law).
Where relevant, amounts are prorated based on the respective Director appointment and termination dates.
See note 35 for all related party transactions with Directors of the Company.
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire Ordinary
Shares in the Company granted to or held by the Directors. These are disclosed in note 30 of the financial
statements.
Amounts payable to the highest paid Director:
Aggregate emoluments
Company contributions to defined contribution pension schemes
Benefits
Compensation for loss of office
Directors’ interest in share options – AUDITED
No Directors exercised share options during the year.
At 1 January
2020
Number
Granted
Number
Exercised
Number
Lapsed/
Surrendered
Number
At
31 December
2020
Number
Exercise
price
£
2020
£000s
388
–
8
–
396
2019
£000s
177
1
2
212
392
Exercise
period
Richard Barfield
Ergomed plc LTIP
Non-dilutive share options
600,000
400,000
1,000,000
–
–
–
–
–
–
–
–
600,000
400,000
£0.01
£0.01
Jun-22 – Jun-29
Jun-22 – Jun-29
– 1,000,000
Directors’ interest in shares
At 31 December 2020, the Directors had the following beneficial interests in the Company’s shares:
Directors’ interests
Miroslav Reljanović
Richard Barfield
Rolf Soderstrom2
Ian Johnson
2.
Includes beneficial interests in the Company’s shares held by Rolf Soderstrom’s spouse.
Number of shares
10,879,297
100,000
10,000
10,000
Percentage of
total issued share
capital
22.3%
0.21%
0.02%
0.02%
64
Annual Report and Accounts 2020
Directors’ report
The Directors present their report and financial
statements for the Company and Group for the year
ended 31 December 2020.
Principal activities
Ergomed provides specialist services to the
pharmaceutical and biotechnology industries spanning all
phases of clinical development, post-approval
pharmacovigilance and medical information.
Business review, key performance indicators
and future developments
The Group’s results are set out in the consolidated income
statement on page 71 and are explained in the Financial
Review on pages 30 to 32. A detailed review of the
business, its results and future direction is included in the
Operational Review on pages 26 to 29.
Streamlined Energy and Carbon Reporting
(‘SECR’)
The Directors have reported their energy and greenhouse
gas emissions in line with the UK Government mandate
SECR within the Strategic Report, since this is of strategic
importance to the Group, and is fully explored within that
report on pages 38 to 40.
Research and development
The expenditure on Research and Development included
in the income statement in the year has reduced from
£545,000 in 2019 to £152,000 in 2020. This is primarily
driven by the reduction in co-development activities
undertaken by the Group, in particular, the wind down of
co-development costs in relation to Haemostatix. The
Group continues to invest in software development which
has given rise to the addition of £542,000 (2019: £604,000)
which has been capitalised as an intangible asset.
Financial instruments
At the year end the Group did not have any complex
financial instruments. The financial instruments it does
have primarily comprise cash and liquid resources and
other various short-term assets and liabilities, such as
trade receivables and trade payables which are used to
manage the Group’s operations. Details of the Group’s
financial instruments can be found in note 31.
Results and dividends
The consolidated results of the Group for the year are set
out in the consolidated income statement on page 71.
The Directors do not recommend the payment of a
dividend (2019: £nil).
Directors
The Directors of the Company who served during the year
and to the date of this report, unless stated, are as follows:
• Miroslav Reljanović (Executive Chairman)
• Richard Barfield (Chief Financial Officer)
• Lewis Cameron (Chief Operating Officer) – appointed
20 January 2020 and resigned 22 September 2020
• James Esinhart (Non-Executive Director) – resigned
10 June 2020
Ian Johnson (Non-Executive Director)
•
• Rolf Soderstrom (Non-Executive Director)
• Michael Spiteri (Non-Executive Director)
The Company maintains liability insurance for its Directors
and Officers as permitted by the Companies Act 2006.
Biographical details of the Directors are set out on pages
48 to 49. The interests of Directors in the shares and share
options of the Company are set out in the Remuneration
Committee Report on page 63.
Substantial shareholders
The Company has been notified of the following holdings
of 3% or more of the 48,746,109 issued ordinary shares of
£0.01 each of the Company as at 28 February 2021:
Investor
Miroslav Reljanović
Aberdeen Standard
Investments
BlackRock
J.P. Morgan Asset Management
Jupiter Asset Management
Slater Investments
Octopus Investments
Number of
£0.01 shares
Percentage
10,879,297
22.32%
5,001,405
4,788,984
4,101,451
2,648,105
2,390,141
1,697,444
10.26%
9.82%
8.41%
5.43%
4.90%
3.48%
Corporate governance
The Directors recognise the importance of good
corporate governance. The principles of how we have
applied the updated 2018 Quoted Companies Alliance
Corporate Governance Code (the ‘2018 QCA Code’) and
other corporate governance guidelines are set out in the
Corporate Governance section of this report, and on the
Company’s website (www.ergomedplc.com).
Auditor
The Directors who held office at the date of approval of
this Directors’ report confirm that, so far as they are each
aware, there is no relevant audit information of which the
Company’s auditor is unaware; and each Director has
taken all the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is
aware of that information. In accordance with Section 489
of the Companies Act 2006, a resolution for the
reappointment of KPMG as auditor of the Company is to
be proposed at the forthcoming Annual General Meeting.
Charitable and political contributions
The Group made charitable donations in the year of £11,000
(2019: £14,000). The Group made no political donations and
incurred no political expenditure during the year (2018: £nil).
By order of the Board
Richard Barfield
Chief Financial Officer
22 March 2021
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Statement of Directors’ responsibilities
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Parent Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the 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 to prevent and detect fraud
and other irregularities.
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 that governs the preparation and dissemination of
Financial Statements may differ from legislation in
other jurisdictions.
The Directors’ Responsibility Statement was approved
by the Board on 22 March 2021.
Richard Barfield
Chief Financial Officer
The Directors are responsible for preparing the Annual
Report, Strategic Report, Directors’ Report and the
Group and Parent Company Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group
and Parent Company Financial Statements for each
financial year. As required by the AIM Rules of the
London Stock Exchange, they are required to prepare
the Group Financial Statements in accordance with
international accounting standards in conformity with
the requirements of the Companies Act 2006. They
have elected to prepare the Parent Company Financial
Statements in accordance with UK Accounting
Standards and applicable law (UK Generally Accepted
Accounting Practice), including FRS 101 Reduced
Disclosure Framework.
Under company law the Directors must not approve the
Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Group and Parent Company and of their profit or loss
for that period.
In preparing each of the Group and Parent Company
Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable
•
•
and prudent;
for the Group Financial Statements, state whether
they have been prepared in accordance with
international accounting standards in conformity
with the requirements of the Companies Act 2006;
for the Parent Company Financial Statements, state
whether UK Accounting Standards have been
followed, subject to any material departures
disclosed and explained in the Financial Statements;
• assess the Group and Parent 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 intend either to liquidate the Group or the
Parent Company or to cease operations, or have no
realistic alternative but to do so.
66
Annual Report and Accounts 2020
Independent auditor’s report
to the members of Ergomed plc
Opinion
We have audited the financial statements of Ergomed plc (“the Company”) and its consolidated undertakings (‘the Group’)
for the year ended 31 December 2020 which comprise the Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of
Changes in Equity, the Consolidated Cash Flow Statement and related notes, including the summary of significant
accounting policies set out in note 1. The financial reporting framework that has been applied in the preparation of the Group
financial statements is UK Law and international accounting standards in conformity with the requirements of the
Companies Act 2006, and, as regards the Company financial statements, UK Law and FRS 101 Reduced Disclosure
Framework.
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at
31 December 2020 and of Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
the Company financial statements have been properly prepared in accordance with FRS 101 Reduced Disclosure
Framework issued by the UK’s Financial Reporting Council; and
the Group and 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 for the audit of the financial
statements 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 sufficient and appropriate to provide a basis for our opinion.
conclusions relating to going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group
or Company or to cease their operations, and as they have concluded that the Group and the Company’s financial position
means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant
doubt over 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”).
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. In our evaluation of the directors' assessment of the entity’s ability
to continue to adopt the going concern basis of accounting, we considered the inherent risks to the Group and the
Company’s business model, including the impact of Covid-19, and analysed how those risks might affect the Group and the
Company’s financial resources or ability to continue operations over the going concern period.
We assessed the assumptions used against our knowledge of the entity and the sector in which it operates as well as
historic trends. We also compared past budgets to actual results to assess the directors' track record of budgeting
accurately.
We considered whether the going concern disclosure in note 1 to the financial statements gives a full and accurate
description of the directors' assessment of going concern, including the identified risks and related sensitivities. We also
assessed the completeness of the going concern disclosure.
Key observations arising with respect to our evaluation included that assumptions used by management were within the
reasonable range and revenue growth rates used in management’s evaluation were reasonable and supportable.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Group or Company’s ability to continue as a going concern
for a period of at least twelve months from the date when the financial statements are authorised for issue.
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.
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Detecting irregularities including fraud
We identified the areas of laws and regulations that could reasonably be expected to have a material effect on the financial
statements and risks of material misstatement due to fraud, using our understanding of the entity's industry, regulatory
environment and other external factors and inquiry with the directors. In addition, our risk assessment procedures included:
Inquiring with the directors and other management as to the Group’s policies and procedures regarding compliance with
laws and regulations, identifying, evaluating and accounting for litigation and claims, as well as whether they have
knowledge of non-compliance or instances of litigation or claims.
Inquiring of directors, the audit and risk committee, other management and inspection of policy documentation as to the
Group’s high-level policies and procedures to prevent and detect fraud, including the Group’s channel for
“whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
Inquiring of directors, the audit and risk committee, regarding their assessment of the risk that the financial statements
may be materially misstated due to irregularities, including fraud.
Inspecting the Group’s regulatory and legal correspondence.
Reading Board, audit and risk committee and remuneration committee meeting minutes.
Considering remuneration incentive schemes and performance targets for management and directors.
Performing planning analytical procedures to identify any usual or unexpected relationships.
We discussed identified laws and regulations, fraud risk factors and the need to remain alert among the audit team. This
included communication from the group to Czech component audit team of relevant laws and regulations and any fraud
risks identified at the Group level and request to Czech component audit team to report to the Group audit team any
instances of fraud that could give rise to a material misstatement at group.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including companies and
financial reporting legislation. We assessed the extent of compliance with these laws and regulations as part of our
procedures on the related financial statement items, including assessing the financial statement disclosures and agreeing
them to supporting documentation when necessary.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have
a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or
litigation. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery,
employment law, environmental law, regulatory capital and liquidity and certain aspects of company legislation recognising
the financial and regulated nature of the Group’s activities and its legal form.
Auditing standards limit the required audit procedures to identify non-compliance with these non-direct laws and
regulations to inquiry of the directors and other management and inspection of regulatory and legal correspondence, if any.
These limited procedures did not identify actual or suspected non-compliance.
We assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to
commit fraud. As required by auditing standards, we performed procedures to address the risk of management override of
controls and the risk of fraudulent revenue recognition. We identified a fraud risk in relation to the Group’s Clinical research
organisation contracts and if it has not been appropriately recognised in line with the percentage completed, as required by
IFRS 15 Revenue from contracts with customers.
Further detail in respect of Clinical research organisation contracts is set out in the key audit matter disclosures in this report.
In response to the fraud risks, we also performed procedures including:
Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and
comparing the identified entries to supporting documentation.
Evaluating the business purpose of significant unusual transactions.
Assessing significant accounting estimates for bias.
Assessing the disclosures in the financial statements.
As the Group is regulated, our assessment of risks involved obtaining an understanding of the legal and regulatory
framework that the Group operates and gaining an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from
the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required
by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of irregularities, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing
non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
C_GEN_PageC_GEN_PageL2C_GEN Section 68
Annual Report and Accounts 2020
Independent auditor’s report continued
to the members of Ergomed plc
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matter, was as follows (unchanged from 2019):
revenue recognition: clinical research organisation (“cro”): £31.3 million (2019 – £32.8 million)
Refer to Note 1 on page 80 (accounting policy) and Note 2 Revenue on pages 82 to 84 (financial disclosures)
the key audit matter
How the matter was addressed in our audit
There is a risk that revenue from Clinical research
organisation 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 and implementation 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 represent 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 estimated total
costs to complete.
The method used in measuring the progress of the contract
over time is the input approach in a cost by cost basis in
calculating the percentage of completion.
The significant assumptions used in the calculation of
estimated costs to complete include; (i) estimated labour
cost to complete and (ii) pass through costs to complete.
For a sample of 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 significant
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, on the status of the project, any ongoing
concerns, and the expected remaining duration of the
project.
We found that the revenue recognition policies are in
accordance with IFRS 15 and were appropriately applied.
We did not identify any material misstatements or disclosure
omissions as a result of our procedures performed.
company key audit matter
The Revenue recognition: Clinical research organisation group key audit matter described above also applies to the audit of
the Company financial statements.
our application of materiality and an overview of the scope of our audit
Materiality – Group financial statements
The materiality for the Group financial statements as a whole was set at £0.6 million (2019: £0.66 million). This was calculated
using a benchmark of Group profit before tax (of which it represents 5 per cent) (2019: 1% of Group total revenue). The
benchmark used has changed to profit before tax from total revenue (2019) due to the upward trend in profitability of the
Group. We consider profit before tax to be the most appropriate benchmark as it continues to grow year on year, the
acquisitive nature of the entity and it is a key consideration for the users of the financial statements.
In applying our judgement in determining the most appropriate benchmark, the factors, which had the most significant
impact were:
the elements of the financial statements (for example, assets, liabilities, equity, revenue, expenses)
the items on which the attention of the users of the particular entity's financial statements tends to be focused (for
example, for the purpose of evaluating financial performance users may tend to focus on profit, revenue and net assets/
equity)
the nature of the entity, where the entity is in its life cycle, and the industry and economic environment in which the entity
operates, and
the entity's ownership structure and the way it is financed.
In applying our judgement in determining the percentage to be applied to the benchmark, the following qualitative factors,
which had the most significant impact, increasing our assessment of materiality were:
the Group is listed,
there is an undrawn down Debt facility available, with no drawn down debt arrangements at year end, and
the entity operates in a stable business environment and has a viable sustainable business.
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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69
We applied Group materiality to assist us determine the overall audit strategy.
We set Group performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group
performance materiality was set at 75% of group materiality (2019: 75%).
In applying our judgement in determining performance materiality, the following factors were considered to have the most
significant impact, increasing our assessment of performance materiality:
the low number and value of misstatements detected in the prior year financial statement audit; and
the stability in the senior management and key financial reporting personnel over the last two years.
We applied Group performance materiality to assist us determine what risks were significant risks for the Group and
determine the audit procedures to be performed.
Materiality – Company financial statements
For the Company financial statements, materiality was set at £0.36 million (2019: £0.4 million). This was calculated using a
benchmark of Company profit before tax (of which it represents 5 per cent) (2019: 1% of Company total revenue) however, the
Company materiality was limited to component materiality being 60% of Group materiality. The benchmark used has
changed to profit before tax from total revenue (2019) due to the upward trend in profitability of the Company. We consider
profit before tax to be the most appropriate benchmark as it continues to grow year on year, the acquisitive nature of the
entity and it is a key consideration for the users of the financial statements.
In applying our judgement in determining the most appropriate benchmark, the factors, which had the most significant
impact were:
the elements of the financial statements (for example, assets, liabilities, equity, revenue, expenses)
the items on which the attention of the users of the particular entity's financial statements tends to be focused
(for example, for the purpose of evaluating financial performance users may tend to focus on profit, revenue and
net assets/equity)
the nature of the entity, where the entity is in its life cycle, and the industry and economic environment in which
the entity operates, and
the entity's ownership structure and the way it is financed.
In applying our judgement in determining the percentage to be applied to the benchmark, the same qualitative factors were
considered as outlined above for the Group.
We applied Company materiality to assist us determine the overall audit strategy.
We set the Company performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. The Company
performance materiality was set at 75% of Company materiality (2019: 75%).
In applying our judgement when determining performance materiality, the same factors were considered as outlines above
for the Group.
We used Company performance materiality to assist us determine what risks were significant risks for the Company and
determine the audit procedures to be performed.
We report to the Audit and Risk Committee all corrected and uncorrected misstatements we identified through our audit
with a value in excess of £0.031 million (2019: £0.033 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, USA, Croatian, and Czech trading entities. As such Ergomed plc, PrimeVigilance Limited,
PrimeVigilance USA Inc, PSR Group BV, and PrimeVigilance s.r.o. were subject to a full audit. The eight 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 2020 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 £0.031 million to £0.36 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 99% of the Group’s
revenue for the year ended 31 December 2020 (2019: 99%). They were also selected to provide an appropriate basis for
undertaking audit work to address the risks of material misstatement identified above.
C_GEN_PageC_GEN_PageL2C_GEN Section 70
Annual Report and Accounts 2020
Independent auditor’s report continued
to the members of Ergomed plc
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.
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 executive chairman’s statement, strategic
report, directors’ report, risk and compliance committee report, audit committee report and remuneration committee report.
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.
opinions on other matters prescribed by the companies act 2006
Based solely on our work on the other information undertaken during the course of the audit:
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 65, 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 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 Company or to cease operations, or have no realistic alternative but to do so.
auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud, other irregularities or error, and to issue an opinion in an auditor’s report. 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, other irregularities 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.
22 March 2021
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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71
Consolidated income statement
For the year ended 31 December 2020
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 expenses
Net impairment losses on trade receivables and contract assets
Other operating income
Operating profit
Finance income
Change in fair value of equity investments
Finance costs
Profit before taxation
Taxation
Profit for the year
All activities in the current and prior period relate to continuing operations.
The notes on pages 78 to 118 form an integral part of these financial statements.
Notes
2, 3
3
4
30
6
31
7
8
9
10
22
11
4
14
2020
£000s
86,391
(38,686)
(8,055)
39,650
(27,518)
(24,591)
(1,332)
(742)
–
–
(853)
–
(152)
(285)
1,839
13,534
8
(511)
(403)
12,628
(2,946)
9,682
2019
£000s
68,255
(29,790)
(8,940)
29,525
(23,514)
(19,578)
(671)
(870)
(87)
512
(393)
(2,427)
(545)
–
51
5,517
28
(286)
(273)
4,986
583
5,569
C_GEN_PageC_GEN_PageL2C_GEN Section 72
Annual Report and Accounts 2020
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Profit for the year
Items that may be classified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Other comprehensive loss for the year net of tax
Total comprehensive profit for the year
Earnings Per Share (EPS)
Basic
Diluted
Unaudited
Notes
15
2020
£000s
9,682
(59)
(59)
9,623
2020
pence
20.0
19.2
2019
£000s
5,569
(208)
(208)
5,361
2019
pence
12.0
11.5
2020
£000’s
2019
£000’s
Adjusted Earnings Before Interest, Tax, Depreciation and Amortisation
(Adjusted EBITDA)
16
19,370
12,494
Adjusted Earnings Per Share (Adjusted EPS)
Basic
Diluted
15
2020
pence
25.8
24.7
2019
pence
19.9
19.1
Profit or loss and each component of other comprehensive income are attributable to the owners of the Company.
The notes on pages 78 to 118 form an integral part of these financial statements.
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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Financial StatEmEntS
73
Consolidated balance sheet
As at 31 December 2020
Notes
17
18
19
20
22
14
23
2
24
20
26
27
2
20
25
14
28
29
29
29
2020
£000s
24,605
9,618
1,742
4,715
–
4,898
45,578
22,224
5,553
18,994
46,771
92,349
(1,978)
(15,702)
(328)
(13,829)
(1,775)
(33,612)
13,159
(3,128)
(317)
(2,426)
(5,871)
(39,483)
52,866
489
3
1,349
5,042
615
45,368
52,866
2019
£000s
13,380
2,755
1,110
5,171
–
2,616
25,032
14,359
3,382
14,259
32,000
57,032
(1,718)
(10,373)
–
(2,957)
(813)
(15,861)
16,139
(3,716)
(341)
(294)
(4,351)
(20,212)
36,820
473
25,790
11,088
4,300
674
(5,505)
36,820
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Equity investments
Deferred tax asset
Current assets
Trade and other receivables
Accrued revenue
Cash and cash equivalents
Total assets
Current liabilities
Lease liabilities
Trade and other payables
Deferred consideration
Deferred revenue
Current tax liability
Net current assets
Non-current liabilities
Lease liabilities
Provisions
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 78 to 118 form an integral part of these financial statements.
Approved by the Board of Directors and authorised for issue on 22 March 2021.
richard Barfield
Chief Financial Officer
Company Registration No. 04081094
C_GEN_PageC_GEN_PageL2C_GEN Section 74
Annual Report and Accounts 2020
Consolidated statement of changes in equity
For the year ended 31 December 2020
Balance at 1 January 2019
Profit for the year
Other comprehensive income for the
year
Total comprehensive income
Transactions with shareholders
Shares issued during the year for cash
Share-based payment charge for
the year
Deferred tax credit taken directly
to equity
Total transactions with
shareholders
Balance at 31 December 2019
Profit for the year
Other comprehensive income for
the year
Total comprehensive income
Transactions with shareholders
Shares issued during the year for cash
Share-based payment charge for the
year
Deferred tax credit taken directly to
equity
Shares issued for non-cash
consideration
Transactions with shareholders –
capital reduction
Capitalisation of Merger reserve to
B Ordinary Shares
Cancellation of B Ordinary Shares
Cancellation of Share Premium
Total transactions with
shareholders
Notes
28
30
14
28
30
14
28
28
28
28
25,790
11,088
4,300
674
(5,505)
36,820
Share
capital
£000s
452
–
–
–
Share
premium
account
£000s
24,384
–
–
–
21
1,406
–
–
21
473
–
–
–
–
–
1,406
–
–
–
14
1,855
–
–
2
–
–
–
Share–
based
payment
reserve
£000s
3,430
–
Merger
reserve
£000s
11,088
–
–
–
–
–
–
–
–
–
–
870
–
870
Translation
reserve
£000s
882
–
(208)
(208)
Retained
earnings
£000s
(11,873)
5,569
Total equity
£000s
28,363
5,569
–
(208)
5,569
5,361
–
–
–
–
–
–
799
1,427
870
799
799
3,096
–
–
–
–
–
–
1,349
–
–
–
–
742
–
–
–
–
–
–
9,682
9,682
(59)
(59)
–
(59)
9,682
9,623
–
–
–
–
–
–
–
–
–
–
1,869
742
2,461
2,461
–
1,351
–
11,088
27,642
–
–
–
41,191
6,423
11,088
(11,088)
–
–
–
(27,642)
(11,088)
–
–
16
(25,787)
(9,739)
742
Balance at 31 December 2020
489
3
1,349
5,042
615
45,368
52,866
The notes on pages 78 to 118 form an integral part of these financial statements.
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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75
Consolidated cash flow statement
For the year ended 31 December 2020
Cash flows from operating activities
Profit before taxation
Adjustment for:
Amortisation and depreciation
Impairment of goodwill, intangibles, equity investments and other assets
Loss on disposal of fixed assets
Share-based payment charge
Change in the fair value of equity investments
Change in the fair value of contingent consideration for acquisition
RDEC income
Finance income
Finance costs
Operating cash inflow before changes in working capital and provisions
(Increase)/decrease in trade, other receivables and accrued revenue
Increase/(decrease) in trade, other payables and deferred revenue
(Decrease)/increase in provisions
Cash generated from operations
Taxation (paid)/received
Net cash inflow from operating activities
Investing activities
Interest received
Acquisition of intangible assets
Acquisition of property, plant and equipment
Receipts from sale of property, plant and equipment
Equity investments received in exchange for services provided
Receipts from the sale of equity investments
Acquisition of subsidiaries, net of cash acquired
Acquisition related earn-out paid
Net cash outflow from investing activities
Financing activities
Issue of new shares
Finance costs paid
Proceeds from borrowings
Repayment of borrowings
Payment of lease liabilities
Net cash outflow from financing activities
Net change in cash and cash equivalents
Effect of foreign currency on cash balances
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
The notes on pages 78 to 118 form an integral part of these financial statements.
Notes
2020
£000s
2019
£000s
12,628
4,986
4
8
4
30
22
31
9
10
11
25
18
19
22
22
32, 33
28
24
24
24
4,843
–
16
742
511
–
(1,188)
(8)
403
17,947
(6,137)
7,182
(18)
18,974
(926)
18,048
8
(542)
(432)
46
–
175
(12,031)
–
(12,776)
1,869
(157)
15,000
(15,000)
(2,189)
(477)
4,795
(60)
14,259
18,994
3,712
2,427
25
870
286
(512)
–
(28)
273
12,039
1,878
(2,380)
126
11,663
124
11,787
7
(604)
(392)
8
(1,904)
1,099
(115)
(930)
(2,831)
1,427
–
–
–
(1,677)
(250)
8,706
364
5,189
14,259
C_GEN_PageC_GEN_PageL2C_GEN Section 76
Annual Report and Accounts 2020
Company balance sheet
As at 31 December 2020
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments in subsidiaries
Equity investments
Deferred tax asset
Current assets
Trade and other receivables
Accrued revenue
Cash and cash equivalents
Total assets
Current liabilities
Lease liabilities
Trade and other payables
Deferred revenue
Net current assets/(liabilities)
Non-current liabilities
Lease liabilities
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Share-based payment reserve
Translation reserve
Retained earnings
Total equity
The notes on pages 78 to 118 form an integral part of these financial statements.
Approved by the Board of Directors and authorised for issue on 22 March 2021.
richard Barfield
Chief Financial Officer
Company Registration No. 04081094
Note
18
19
20
22
22
14
23
24
20
26
20
14
28
29
29
30
29
2020
£000s
639
113
26
23,728
–
4,846
29,352
24,453
3,853
6,151
34,457
63,809
(27)
(14,462)
(5,215)
(19,704)
14,753
–
(100)
(19,804)
44,005
489
3
1,349
5,042
4,270
32,852
44,005
2019
£000s
882
43
113
22,592
–
2,613
26,243
4,204
3,061
4,374
11,639
37,882
(93)
(20,529)
(2,484)
(23,106)
(11,467)
(24)
–
(23,130)
14,752
473
25,790
11,088
4,300
3,447
(30,346)
14,752
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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77
Company statement of changes in equity
For the year ended 31 December 2020
Notes
Balance at 1 January 2019
Loss for the year
Other comprehensive income for
the year
Total comprehensive loss
Transactions with shareholders
Shares issued during the year for cash
Share-based payment charge for the year
Deferred tax credit taken directly to equity
28
30
14
Total transactions with shareholders
Share
capital
£000s
452
–
–
–
21
–
–
21
Share
premium
account
£000s
24,384
–
–
–
1,406
–
–
1,406
Share–
based
payment
reserve
£000s
3,430
–
Merger
reserve
£000s
11,088
–
–
–
–
–
–
–
–
–
–
870
–
870
Translation
reserve
£000s
4,166
–
Retained
earnings
£000s
(27,884)
(3,261)
Total equity
£000s
15,636
(3,261)
(719)
–
(719)
(719)
(3,261)
(3,980)
–
–
–
–
–
–
799
799
1,427
870
799
3,096
Balance at 31 December 2019
473
25,790
11,088
4,300
3,447
(30,346)
14,752
Profit for the year
Other comprehensive income for
the year
Total comprehensive loss
Transactions with shareholders
Shares issued during the year for cash
Share-based payment charge for the year
Deferred tax credit taken directly to equity
Shares issued for non-cash consideration
Transactions with shareholders –
capital reduction
Capitalisation of Merger reserve to
B Ordinary Shares
Cancellation of B Ordinary Shares
Cancellation of Share Premium
28
30
14
28
28
28
28
–
–
–
14
–
–
2
–
–
–
–
–
–
1,855
–
–
–
–
–
–
1,349
11,088
(11,088)
–
–
–
(27,642)
(11,088)
–
–
–
–
–
–
742
–
–
–
–
–
Total transactions with shareholders
16
(25,787)
(9,739)
742
–
22,007
22,007
823
823
–
823
22,007
22,830
–
–
–
–
–
–
–
–
–
–
2,461
–
–
11,088
27,642
41,191
1,869
742
2,461
1,351
–
–
–
6,423
Balance at 31 December 2020
489
3
1,349
5,042
4,270
32,852
44,005
The notes on pages 78 to 118 form an integral part of these financial statements.
C_GEN_PageC_GEN_PageL2C_GEN Section 78
Annual Report and Accounts 2020
Notes to the financial statements
For the year ended 31 December 2020
1. Accounting policies used in the preparation of the financial statements
Ergomed plc (the ‘Company’) is incorporated and domiciled in the United Kingdom and is listed on the London Stock
Exchange Alternative Investment Market (‘AIM’) (LSE:ERGO). The Company’s shares are also traded through the Xetra
exchange in Germany (WKN: A117XM). 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, the Czech Republic, Russia,
Switzerland, Ukraine, Spain and the USA.
The accounting policies applied in the preparation of these financial statements are set out below and at the start of the
respective notes to these financial statements. These policies have been consistently applied to all the years presented,
unless otherwise stated.
Basis of preparation
group financial statements
The consolidated financial statements of the Group have been prepared on the going concern basis in accordance with
international accounting standards in conformity with the requirements of the Companies Act 2006, the IFRS Interpretations
Committee (‘IFRS-IC’) interpretations and those parts of the Companies Act 2006 applicable to companies reporting
under IFRS.
The consolidated financial statements have been prepared on a historical cost basis except that the following assets and
liabilities are stated at their fair value: certain financial assets and financial liabilities measured at fair value, and liabilities for
cash-settled share-based payments.
company financial statements
The separate financial statements of the Company have been prepared on the going concern basis in accordance with the
Financial Reporting Standard 101 Reduced Disclosure Framework.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of
international accounting standards in conformity with the requirements of the Companies Act 2006, but makes amendments
where necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101
disclosure exemptions has been taken.
Under section s408 of the Companies Act 2006 the company is exempt from the requirement to present its own income
statement.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
Cash flow statement and related notes;
Certain disclosures regarding revenue
Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
Disclosures in respect of transactions with wholly owned subsidiaries;
Disclosures in respect of capital management;
The effects of new but not yet effective IFRSs; and
Disclosures in respect of the compensation of Key Management Personnel.
As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions
under FRS 101 available in respect of the following disclosures:
IFRS 2 Share Based Payments in respect of Group settled share-based payments
IFRS 3 Business Combinations in respect of business combinations undertaken by the Company in the current and prior
periods including the comparative period reconciliation for goodwill; and
IFRS 7 Financial Instrument Disclosures.
The Company's financial statements have been prepared on a historical cost basis except that the following assets and
liabilities are stated at their fair value: equity investments (not in subsidiaries).
Basis of consolidation
The consolidated financial statements incorporate the results of the Company and subsidiary entities controlled by the
Group.
The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The
financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
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Where the Group loses control of a subsidiary, the assets and liabilities are derecognised. Any resulting gain or loss is
recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are
eliminated.
Associates and joint ventures are accounted for using the equity method (equity accounted investees) and are initially
recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment
losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity
movements of equity accounted investees, from the date that significant influence or joint control commences until the date
that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity
accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee.
Foreign currency translation
The Company and Group consolidated financial statements are presented in pounds Sterling. The functional currency of the
Company is the Euro.
Transactions denominated in foreign currencies are translated into Sterling at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into
Sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised
in the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value
are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations are translated to the Group’s presentational currency at foreign exchange
rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated on a monthly basis at
average exchange rates where these rates approximate to the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive
income and accumulated in the translation reserve.
Going concern
The financial statements have been prepared on the going concern basis, which assumes that the Group and Company 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
31 December 2023, which is derived from the 2021 Board approved budget and a medium-term cash flow forecast through
to 31 December 2023, which is an extrapolation of the approved budget under multiple scenarios and growth rates. The 2021
budget 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 2021 budget 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.
Accounting standards adopted in the prior period
iFrS 16 – leases
On 1 January 2019 the Group adopted International Financial Reporting Standard 16 (‘IFRS 16’) – Leases – using the modified
retrospective approach.
Disclosures supporting the accounting policies and movement in assets and liabilities in the year can be found in note 20
to the financial statements.
Amendments to IFRS that are not yet effective
The following IFRSs have been issued, have an effective date for annual periods beginning after 31 December 2020 and
have not been applied in these financial statements. Their adoption is not expected to have a material effect on the financial
statements unless otherwise indicated:
IFRS 17 – Insurance Contracts
IAS 1 – Classification of Liabilities as Current or Non-Current
IFRS 3 – Reference to the Conceptual Framework
IAS 16 – Property, Plant and Equipment – Procedures before intended use
IAS 37 – Onerous Contracts – costs of fulfilling a contract
Annual Improvement to IFRS Standards 2018-2020
IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies
IAS 8 – Definition of Accounting Estimates
C_GEN_PageC_GEN_PageL2C_GEN Section
80
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
1. Accounting policies used in the preparation of the financial statements continued
Critical accounting judgements and key sources of estimation uncertainty
In the application of the accounting policies in these financial statements, the Directors are required to make judgements,
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on
management’s best knowledge of the amount, event or actions, actual results may ultimately 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.
Critical judgements in applying the 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 accounting policies and that have the most significant effect on the
amounts recognised in the Group and Company financial statements.
Accounting policy
Description of critical judgements
Revenue from customer
contracts
(Group and Company)
There are significant management judgements and estimates involved in the recognition of
revenue for CRO contracts.
Notes
2
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 percentage of completion for the CRO contracts is measured based on an input
measure being total project costs at each reporting period. Assessment of the percentage of
completion requires an evaluation of labour 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 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.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, 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.
Source of estimation uncertainty
Description
Bad debt provision
(Group and 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 accrued revenue for unbilled work in progress has substantially the same risk
characteristics as the trade receivables and similar expected loss rates have been applied.
The Group had provisions against trade receivables and accrued revenue at the year-end of
£298,000 (2019: £67,000) which resulted in a charge to the Income Statement in the year of
£257,000 (2019: £58,000).
The Company had provisions against trade receivables and accrued revenue at the year-end
of £271,000 (2019: £5,000) which resulted in a charge to the Income Statement in the year of
£257,000 (2019: charge £4,000).
Notes
31
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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Notes
17
Source of estimation uncertainty
Description
Impairment of goodwill
(Group)
Goodwill is reviewed for impairment at least annually at each reporting date. Goodwill is
impaired if the carrying value of the cash-generating unit (‘CGU’) 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 recoverable amounts of the CGUs for the CRO, PV and R&D operating segments 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. 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.
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 three years based on estimated growth rate. 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 management’s estimate of growth for the PV and CRO
business. This did not result in an impairment to goodwill.
A discount rate of 8% (2019: 19%) has been used in the assessment, which reflects market
assessments of the time-value of money and the risks specific to the CGUs. The discount
rate used in the assessment has reduced in the year as a result of a reassessment of the
Group’s Weighted Average Cost of Capital ('WACC'). The reduction in the WACC and
discount rate was primarily a result of the Group’s profitability, forecast future profitability and
the formalisation of the borrowing facility with the Group’s banking partners during
the year.
Fair value assessments
(Group and Company)
The impairment provision against goodwill at the year end was £2,143,000 (2019:
£2,143,000) and related fully against the investment in Haemostatix Limited.
£nil (2019: £nil) was charged to the Income Statement in the period.
Some of the Group and Company financial instruments 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 valuation experts. Management work closely with valuation experts
to establish the appropriate techniques and inputs to the valuation models. This includes
contingent consideration relating to acquisitions valued at £nil (2019: £nil) at the year end.
22, 27, 31,
32, 33
During the year ended 2019, the fair value of equity investments in Modus Therapeutics
Holdings AB was impaired to £nil resulting in a charge to the Income Statement of
£2,427,000. This was the result of Modus announcing the initial results from its Phase II trial
which revealed that the study failed to show a meaningful benefit in the total study
population. Given the results of the trial and the Company’s lack of funding, management
have fully provided against the value of the investment.
During the year the Group acquired Ashfield Pharmacovigilance Inc. ('Ashfield') and MS
Clinical Services, LLC. and its subsidiaries ('MedSource'). At the acquisition date the Group
is required to estimate the fair value of identifiable assets acquired and the liabilities
assumed. Due to the substantial nature of the acquisitions, the Group engaged third-party
qualified valuation experts to establish the appropriate techniques and inputs to complete
this work.
During the year the Company made a capital contribution to Haemostatix Limited, a 100%
subsidiary of the Company, equal to their outstanding loan balance of £8,476,000. The
Company immediately assessed the investment in Haemostatix to be impaired and reduced
the carrying value of the investment to £nil.
C_GEN_PageC_GEN_PageL2C_GEN Section 82
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
2. Revenue
Revenue and direct costs
Revenue comprises the fair value of the consideration received or receivable for the provision of goods and services in
the ordinary course of the Group’s activities. Revenue is shown net of value added tax, other sales taxes and after
eliminating sales within the Group.
The Group primarily earns revenue from Clinical Research Services (‘CRO’) and Pharmacovigilance (‘PV’) services.
Revenue in relation to these services is recognised over time or at a point in time as performance obligations are satisfied
and these are detailed further below.
Clinical Research Services (‘CRO’)
CRO 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. 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 predetermined activities or milestones. Third party costs are
invoiced to customers as they are incurred. Where there is a timing difference between the recognition of revenue and
invoicing under a contract, a contract asset (accrued revenue) or liability (deferred revenue) is recognised. Significant
accrued and deferred revenue can arise for the CRO services as a result of these timing differences.
The Group recognises accrued revenue when the value of satisfied or part satisfied performance obligations is in excess
of the payment due to the Group, and deferred revenue 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 trade 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 liability;
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.
Contract fulfilment costs in respect of CRO service contracts are expensed as incurred.
Pharmacovigilance (‘PV’) services
Pharmacovigilance services comprise contract support services to pharmaceutical, biotechnology and generic
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. 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. The Group has applied the practical expedient which results
in the recognition of revenue on a right to invoice basis as the right to consideration from a customer corresponds directly
with the value of the Group’s performance completed to date in relation to that customer. The performance completed is
primarily driven by the hours performed by contract staff and the value of services provided to date.
Contract assets or liabilities (accrued or deferred revenue) may arise if a contract contains upfront or milestone payments.
Contract fulfilment costs in respect of PV service contracts are expensed as incurred.
Costs to obtain a contract
The Group expenses pre-contract bidding costs which are incurred regardless of whether a contract is awarded.
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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83
The Group’s revenue is disaggregated by geographical market and major service lines:
Geographical market and major service lines
2020
Geographical market by client location
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
2019
Geographical market by client location
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
CRO
£000s
3,589
10,146
15,828
1,753
–
31,316
CRO
£000s
5,096
17,427
9,245
1,064
10
32,842
The receivables, contract assets and liabilities in relation to contracts with customers are as follows:
Contract assets
Trade receivables
Accrued revenue
Contract liabilities
Deferred revenue
Customer advances
Note
23
Major service lines
PV
£000s
8,590
13,183
30,836
2,269
197
55,075
Major service lines
PV
£000s
7,590
10,910
16,337
445
131
35,413
2020
£000s
19,079
5,553
24,632
(13,829)
(408)
(14,237)
Total
£000s
12,179
23,329
46,664
4,022
197
86,391
Total
£000s
12,686
28,337
25,582
1,509
141
68,255
2019
£000s
11,235
3,382
14,617
(2,957)
(537)
(3,494)
Accrued revenue primarily relates to consideration for work completed but not billed at the reporting date. The contract
assets are transferred to trade receivables when the rights become unconditional.
Deferred revenue primarily relates to the advance consideration received from customers. There are no significant financing
components associated with deferred revenue.
Customer advances relate to deposits made by customers as security over future services and third-party costs incurred in
relation to those services.
Revenue recognised that was included in the deferred revenue balance at the beginning of the period was £2,504,000
(2019: £5,651,000).
There were no significant amounts of revenue recognised in the current or prior year arising from performance obligations
satisfied in previous periods.
The carrying value of trade receivables and accrued revenue approximates to their fair value at the reporting date.
Information about the Group’s exposure to credit risks and expected credit losses for trade receivables and accrued revenue
is included in note 31.
C_GEN_PageC_GEN_PageL2C_GEN Section 84
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
Significant changes in the contract assets and the contract liabilities balances during the period are as follows:
2. Revenue continued
2020
Opening asset/(liability):
Revenue recognised that was included in the contract liability balance at the beginning of the period
Increases due to cash received, excluding amounts recognised as revenue during the period
Business combinations
Transfers from contract assets recognised at the beginning of the period to receivables
Increases as a result of changes in the measure of progress
Closing asset/(liability):
2019
Opening asset/(liability):
Revenue recognised that was included in the contract liability balance at the beginning of the period
Increases due to cash received, excluding amounts recognised as revenue during the period
Transfers from contract assets recognised at the beginning of the period to receivables
Increases as a result of changes in the measure of progress
Closing asset/(liability):
Accrued
revenue
£000s
Deferred
revenue
£000s
3,382
–
–
812
(3,382)
4,741
5,553
(2,957)
2,504
(6,848)
(6,528)
–
–
(13,829)
Accrued
revenue
£000s
Deferred
revenue
£000s
3,857
–
–
(3,857)
3,382
3,382
(5,651)
5,651
(2,957)
–
–
(2,957)
Order book
The aggregate amount of the transaction price allocated to CRO and PV service contracts that are partially or fully
unsatisfied as at the year end ('order book') are as follows:
CRO services
PV services
2021
£000s
60,220
43,684
103,904
2022
£000s
37,896
24,523
62,419
2023
£000s
15,093
11,624
26,717
Total
£000s
113,209
79,831
193,040
The order book at the year end includes contracted revenue which is expected to be realised over the period to
31 December 2023 upon the satisfaction of performance obligations. At the year end there is unrecognised order book with
a value of £12,411,000 which is forecast to be realised after 31 December 2023 and before 31 December 2034. Contracted
order book of this longer-term nature can be subject to change, and given the inherent uncertainties of determining
revenues over this period of time, management have decided not to include revenues beyond 31 December 2023 within the
valuation of order book at the year end.
3. Operating segments
Products and services from which reportable segments derive their revenues
Information reported to the Company’s Board, which is the chief operating decision maker (‘CODM’), for the purpose of
resource allocation and assessment of segment performance, is focused on the Group operating as two business segments,
being Clinical Research Services (‘CRO’) and Pharmacovigilance (‘PV’). 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 Ashfield
Pharmacovigilance Inc. ('Ashfield') following its acquisition by the Group in the year. The CRO segment includes the revenues
of MS Clinical Services, LLC. and its subsidiaries ('MedSource') following its acquisition by the Group in the year.
The accounting policies of the reportable segments are the same as the Group’s accounting policies. Segment profit
represents the gross profit earned by each segment. Other amounts, including selling, general and administration expenses
were not allocated to a segment. This was the measure reported to the CODM for the purpose of resource allocation and
assessment of segment performance.
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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85
2020
Segment revenues
Cost of sales
Reimbursable expenses
Segment 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 costs
Exceptional items
Research and development expenses
Net impairment of trade receivables and contract assets
Other operating income
Operating profit
Finance income
Change in fair value of equity investments
Finance costs
Profit before tax
2019
Segment revenues
Cost of sales
Reimbursable expenses
Segment 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 expenses
Other operating income
Operating profit
Finance income
Change in fair value of equity investments
Finance costs
Profit before tax
CRO
£000s
31,316
(12,737)
(7,584)
10,995
PV
£000s
55,075
(25,949)
(471)
28,655
CRO
£000s
32,842
(13,045)
(8,498)
11,299
PV
£000s
35,413
(16,745)
(442)
18,226
Consolidated
total
£000s
86,391
(38,686)
(8,055)
39,650
(27,518)
(24,591)
(1,332)
(742)
(853)
–
(152)
(285)
1,839
13,534
8
(511)
(403)
12,628
Consolidated
total
£000s
68,255
(29,790)
(8,940)
29,525
(23,514)
(19,578)
(671)
(870)
(87)
512
(393)
(2,427)
(545)
51
5,517
28
(286)
(273)
4,986
C_GEN_PageC_GEN_PageL2C_GEN Section 86
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
3. Operating segments continued
Segment net assets
CRO
PV
Consolidated total net assets
2020
£000s
24,156
28,710
52,866
2019
£000s
2,649
34,171
36,820
For the purposes of monitoring segment performance and allocating resources between segments, the CODM 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 17.
Other segment information
CRO
PV
Impairment of goodwill
and intangibles
Depreciation
and amortisation
Additions to
non-current assets
2020
£000s
–
–
–
2019
£000s
–
–
–
2020
£000s
1,174
3,669
4,843
2019
£000s
1,252
2,460
3,712
2020
£000s
13,903
9,307
23,210
2019
£000s
724
685
1,409
Information about major customers
In 2020, the Group had no customers (2019: none) that contributed 10% or more to the Group’s revenue.
4. Profit before taxation
Operating Leases
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and
short-term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-
line basis over the lease term.
Group
Profit for the year is stated after charging:
Depreciation of property, plant and equipment (note 19)
Depreciation of right-of-use assets (note 20)
Amortisation of intangible assets (note 18)
Amortisation of acquired intangible assets (note 18)
Depreciation and amortisation charges within selling, general and administration expenses
Expenses relating to the lease of short-term assets
Expenses relating to the lease of low-value assets (excluding short-term leases included above)
Net foreign exchange loss
Loss on disposals of property, plant and equipment
Increase in bad debt provision (note 31)
2020
£000s
623
1,954
934
1,332
4,843
120
18
1,176
16
257
2019
£000s
545
1,664
832
671
3,712
84
36
929
25
58
Company
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 profit after tax for the
financial year was £22,007,000 (2019: loss of £3,261,000).
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5. Auditor remuneration
Services provided by the Group’s auditor:
Fees payable to the Company’s auditor for the audit of Group, Company and subsidiary financial
statements
Fees payable to the Company’s auditor for other services:
– audit related assurance services – interim financial information
6. Acquisition-related contingent compensation
Harefield Pharmacovigilance
7. Acquisition costs
Acquisition of Ashfield Pharmacovigilance (note 32)
Acquisition of MedSource (note 33)
Other acquisition costs
8. Exceptional items
2020
£000s
241
35
276
2020
£000s
–
2020
£000s
14
825
14
853
2019
£000s
326
34
360
2019
£000s
87
2019
£000s
393
–
–
393
Exceptional items
In line with the way the Board and CODM review the business, large one-off exceptional costs are shown as exceptional
items.
Impairment of equity investment
2020
£000s
–
2019
£000s
2,427
During the year ended 31 December 2019, the fair value equity investment in Modus Therapeutics Holding AB was impaired
to £nil resulting in a charge to exceptional items of £2,427,000 (see note 22).
9. Other operating income
Research and Development Expenditure Credit ('RDEC')
The Group is eligible, within the UK, to claim tax credits against certain R&D expenditure under the Research and
Development Expenditure Credit ('RDEC') scheme. During the year the Group submitted claims in respect of the 2017
and 2018 financial years and recognised the related profit and loss charge within other operating income in the current
financial year.
Foreign grant income
RDEC income
Other income
2020
£000s
574
1,188
77
1,839
2019
£000s
–
–
51
51
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Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
10. Finance income
Interest income
Interest income is recognised in the income statement in the period in which it is earned.
Interest income
11. Finance costs
Loan and other interest payable
Interest on lease liabilities
12. Employees
2020
£000s
8
2020
£000s
158
245
403
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
2020
Number
101
875
30
3
1,009
2019
£000s
28
2019
£000s
13
260
273
2019
Number
89
658
25
3
775
Employment costs
The cost of persons employed by the Group (including Executive Directors and excluding Non-Executive Directors) charged
to the income statement during the year were:
Wages and salaries
Social security costs
Other pension costs (note 13)
Acquisition-related contingent compensation
Share-based payments (note 30)
2020
£000s
32,243
6,622
703
–
742
40,310
2019
£000s
23,709
3,861
624
87
870
29,151
Additional information on the emoluments of the Directors, together with information regarding the share interests and share
options of the Directors, is included in the Remuneration Report on page 63, which forms part of these audited financial
statements.
Employment costs have been charged to the income statement as follows:
Wages and salaries
Social security costs
Other pension costs
Cost of Sales
Selling, general and
administration expenses
2020
£000s
23,611
4,146
483
28,240
2019
£000s
17,136
2,914
411
20,461
2020
£000s
8,632
2,476
220
11,328
2019
£000s
6,573
947
213
7,733
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13. Pension costs
Pensions
The Group operates defined contribution pension plans for employees. The plans are post-employment benefit plans
under which the Group pays fixed contributions into separate entities and will have no legal or constructive obligation to
pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense
in the income statement in the periods during which services are rendered by employees.
The pension cost represents contributions payable by the Group to the plans and amounted to £703,000 (2019: £624,000).
Contributions payable to the plans at 31 December 2020 were £97,000 (2019: £100,000).
One Director (2019: one Director) has retirement benefits accruing under defined contribution pension schemes.
14. Taxation and deferred taxation
Taxation
The tax expense or credit for the year comprises the sum of current and deferred tax. Tax is recognised in the income
statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in
equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred taxation
Deferred taxation is provided on temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases. Deferred tax liabilities are recognised for all temporary
differences and deferred tax assets are recognised to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised. Such assets and liabilities are not recognised for: the
initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit
other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future.
Deferred tax is provided based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates that are enacted or substantively enacted at the reporting date.
Research and Development Expenditure Credit (RDEC)
The Group is eligible, within the UK, to claim tax credits against certain R&D expenditure under the RDEC scheme. During
the year the Group submitted claims in respect of the 2017 and 2018 financial years and recognised the asset and related
profit and loss charge in the 2020 year. Further claims for past years will be completed and submitted in due course and
the respective asset and profit and loss charge recognised when submitted, until such time as the Group has established
sufficient precedent to recognise claims on an accruals basis.
To the extent that the RDEC is payable in cash, the group recognise the value in current assets. The value claimed in
excess of the amount payable in cash can be used to offset future tax liabilities and is recognised as a deferred tax asset.
The credit to the profit and loss is recognised in other income.
Current tax
UK corporation tax charge 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
Adjustment in respect of prior years
Effect of changes in tax rates
Total deferred tax charge/(credit)
Total tax charge/(credit) for the year
2020
£000s
876
1,376
(160)
2,092
377
693
(216)
854
2,946
2019
£000s
174
832
(58)
948
(1,531)
–
–
(1,531)
(583)
C_GEN_PageC_GEN_PageL2C_GEN Section 90
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
14. Taxation and deferred taxation continued
Under IAS 12 Income Taxes, the amount of tax benefit that can be recognised in the income statement is limited by
reference to the IFRS 2 share-based payment charge. The excess amount of tax benefit in respect of share options gives rise
to a credit which has been recognised directly in equity, in addition to the amounts charged to the income statement and
other comprehensive income, as follows:
Deferred tax
Change in estimated excess tax deductions related to share-based payments
Total income tax credit recognised directly in equity
2020
£000s
(2,461)
(2,461)
2019
£000s
(799)
(799)
The standard rate of tax for the year, based on the UK standard rate of corporation tax, is 19% (2019: 19%). The actual tax
charges for the years differ from the standard rate for the reasons set out in the following reconciliation:
Profit before taxation
Tax on profit before tax at standard UK rate of 19% (2019: 19%)
Non-deductible expenses
Additional allowable expenses
Movement in deferred tax
R&D tax credit receivable
Adjustments to previous periods
Effect of different tax rates of subsidiaries operating in other jurisdictions
Utilisation of tax losses
Increase in unrecognised tax losses
Translation effect
Total tax charge/(credit) for the year
2020
£000s
12,628
2,399
900
(853)
854
218
(159)
138
(513)
–
(38)
2,946
2019
£000s
4,986
947
1,054
(954)
(1,531)
–
(58)
43
–
(12)
(72)
(583)
Deferred taxation
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the
current and prior reporting period.
In line with Finance Act 2016, from April 2020, the UK corporate tax rate was to reduce to 17.0%. The Government announced
in the Budget on 11 March 2020, that the rate applicable from 1 April 2020 would remain at 19.0% rather than reduce to 17.0%
and this was enacted on 17 March 2020. This 19% rate has been applied in the deferred tax valuations based on the expected
timing of when such assets and liabilities will be recovered.
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 2019
Credit to profit or loss
Credit direct to equity
At 31 December 2019
Effect of changes in tax rate
Charge to profit or loss
Credit direct to equity
At 31 December 2020
Group
Other
temporary
differences
£000s
581
12
799
1,392
172
(83)
2,461
3,942
Tax
losses
£000s
–
1,224
–
1,224
61
(329)
–
956
Total
£000s
581
1,236
799
2,616
233
(412)
2,461
4,898
Company
Other
temporary
differences
£000s
581
9
799
1,389
171
(131)
2,461
3,890
Tax
losses
£000s
–
1,224
–
1,224
61
(329)
–
956
Total
£000s
581
1,233
799
2,613
232
(460)
2,461
4,846
Included in the deferred tax arising on temporary differences, £3,844,000 (2019: £1,380,000) relates to a deferred tax asset
arising on unexercised share options.
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Deferred tax liabilities
1 January 2019
Credit to profit or loss
At 31 December 2019
Effect of changes in tax rate
Recognised on acquisition
(Charge)/credit to profit or loss
At 31 December 2020
Annual
capital
allowances
£000s
(180)
79
(101)
(17)
–
(197)
(315)
Group
Other
temporary
differences
£000s
(374)
181
(193)
–
(2,239)
321
(2,111)
Company
Annual
capital
allowances
£000s
(12)
12
–
(5)
–
(95)
(100)
Total
£000s
(554)
260
(294)
(17)
(2,239)
124
(2,426)
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
2020
£000s
4,898
(2,426)
2,472
2019
£000s
2,616
(294)
2,322
2020
£000s
4,846
(100)
4,746
2019
£000s
2,613
–
2,613
At 31 December 2020, the Group had unused tax losses of £6,584,000 (2019: £7,196,000) available for offset against future
profits. A deferred tax asset has been recognised in respect of £926,000 (2019: £1,224,000) in respect of these losses.
15. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
Profit for the purposes of earnings per share – net profit attributable to owners of the Company
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
Pay in lieu and non-compete compensation
Change in fair value of equity investments
RDEC income (2017)
Grants in recognition of employment creation in Serbia
Tax effect of adjusting items
2020
£000s
9,682
1,332
742
–
–
853
–
232
511
(527)
(307)
(41)
Adjusted earnings for the purposes of adjusted earnings per share (unaudited)
12,477
2019
£000s
5,569
671
870
87
(512)
393
2,427
–
286
–
–
(509)
9,282
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
Incremental shares in respect of employee share schemes
48,323,814
2,176,170
46,599,917
2,027,154
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
50,499,984
48,627,071
2020
Number
2019
Number
C_GEN_PageC_GEN_PageL2C_GEN Section 92
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
15. Earnings per share continued
Earnings per share (EPS)
Basic
Diluted
Adjusted earnings per share (Adjusted EPS) – Unaudited
Basic
Diluted
16. EBITDA and Adjusted EBITDA
Unaudited
Operating profit
Adjusted for:
Depreciation and amortisation charges within selling, general & administration expenses (note 4)
Amortisation of acquired fair valued intangible assets (note 4)
EBITDA
Adjusted for:
Share-based payment charge (note 30)
Acquisition related contingent compensation (note 6)
Change in fair value of contingent consideration for acquisitions (note 31)
RDEC income (2017)
Grants in recognition of employment creation in Serbia
Acquisition costs (note 7)
Pay in lieu and non-compete compensation
Exceptional items (note 8)
Adjusted EBITDA
17. Goodwill
Business combinations
2020
pence
20.0
19.2
2020
pence
25.8
24.7
2020
£000’s
13,534
3,511
1,332
18,377
742
–
–
(527)
(307)
853
232
–
2019
pence
12.0
11.5
2019
pence
19.9
19.1
2019
£000’s
5,517
3,041
671
9,229
870
87
(512)
–
–
393
–
2,427
19,370
12,494
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.
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, 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.
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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. 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.
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 (‘CGUs’) 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, and is estimated at least
annually at the same time as the impairment review. 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.
Group
Goodwill recognised
At 1 January 2019
Translation movement
At 31 December 2019
Arising on business combinations
Translation movement
At 31 December 2020
Impairment losses recognised
At 1 January 2019 and 2020
At 31 December 2019 and 2020
Net book value
At 31 December 2020
At 31 December 2019
£000s
15,802
(279)
15,523
11,261
(36)
26,748
2,143
2,143
24,605
13,380
The goodwill arising during the year ended 31 December 2020 relates to the acquisitions of Ashfield Pharmacovigilance Inc.
('Ashfield') (note 32) and MS Clinical Services, LLC. ('MedSource') (note 33).
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 has been allocated as follows:
Cash-generating unit
CRO
PV
2020
£000s
10,859
13,746
24,605
2019
£000s
3,535
9,845
13,380
C_GEN_PageC_GEN_PageL2C_GEN Section 94
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
17. Goodwill continued
The goodwill associated with the PV segment has arisen from the acquisitions of Ashfield, PrimeVigilance, Sound Opinion,
PharmInvent, Harefield Pharmacovigilance and Pharmacovigilance Services. The goodwill associated with the CRO segment
has arisen from the acquisitions of MedSource, Ergomed Virtuoso, Haemostatix, Ergomed CDS and PSR.
The goodwill arising on these acquisitions has been allocated to the PV and CRO 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 testing for CGUs
pv and cro
The recoverable amounts of the CGUs for the PV and CRO operating segments 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. 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.
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. 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
management’s estimate of growth for the PV and CRO business. This did not result in an impairment to goodwill.
The discount rate, which reflects market assessments of the time-value of money and the risks specific to the CGUs, has
reduced from 19% in 2019 to 8% in the current financial year. The discount rate used in the impairment assessment has
reduced in the year as a result of a reassessment of the Group’s Weighted Average Cost of Capital ('WACC'). The reduction
in the WACC and discount rate was primarily a result of the Group’s past profitability, forecast future profitability and the
agreement of the borrowing facility with the Group’s bankers during the year.
The key assumptions underlying the impairment testing of CGUs are:
Period on which management approved forecasts are based
Growth rate applied beyond forecast period – PV and CRO
Discount rate
2020
5 years
0%
8%
2019
5 years
0%
19%
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18. Other intangible assets
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
10–33.3% straight line
The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are
acquired separately are carried at cost less accumulated impairment losses.
Costs associated with the development of computer software are initially capitalised at cost which includes the purchase
price (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use.
Direct expenditure, including employee costs, which enhances or extends the performance of computer software beyond
its specifications and which can be reliably measured, is added to the original cost of the software. Costs associated with
maintaining the computer software are recognised as an expense when incurred.
The 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
In-process R&D
Technology
20–100% straight line
6.25–50% straight line
12–20% straight line
Not amortised
40% straight line
Impairment
At each reporting date, the Group reviews the carrying amount of its intangible assets to determine whether there is any
indication that those assets are impaired. 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 (‘CGU’) 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.
C_GEN_PageC_GEN_PageL2C_GEN Section 96
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
18. Other intangible assets continued
Group
Software
£000s
Customer
contracts
£000s
Customer
relationships
£000s
Brands
£000s
In-process
R&D
£000s
Technology
£000s
Total
£000s
Cost
At 1 January 2019
Additions
Translation movement
At 31 December 2019
Acquisitions through business
combinations
Additions
Translation movement
At 31 December 2020
Amortisation
At 1 January 2019
Charge for the year
Impairment charge
Translation movement
At 31 December 2019
Charge for the year
Translation movement
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
2,948
604
(74)
3,478
–
542
120
4,140
869
832
–
(26)
1,675
934
42
2,651
1,489
1,803
1,259
–
(1)
1,258
1,739
–
(23)
3,431
–
(36)
3,395
6,075
–
(149)
818
–
(1)
817
916
–
(11)
15,200
–
–
15,200
–
–
–
419
–
–
419
–
–
–
24,075
604
(112)
24,567
8,730
542
(63)
2,974
9,321
1,722
15,200
419
33,776
1,227
31
–
–
1,258
553
–
1,811
1,163
–
2,290
536
–
–
2,826
675
33
3,534
5,787
569
330
104
–
–
434
104
5
543
1,179
383
15,200
–
–
–
15,200
–
–
15,200
–
–
419
–
–
–
419
–
–
419
–
–
20,335
1,503
–
(26)
21,812
2,266
80
24,158
9,618
2,755
Included within Software is software under development with an asset value of £512,000 (2019: £285,000). The software
is currently still under construction and so no amortisation has been recognised in the current year.
Customer contracts, Customer relationships and Brands are intangible assets which are acquired through business
combinations. The amortisation of acquired fair valued intangible assets is £1,332,000 (2019: £671,000).
Company
Cost
At 1 January 2019
Translation movement
Additions
At 31 December 2019
Translation movement
Additions
At 31 December 2020
Amortisation
At 1 January 2019
Charge for the year
Translation movement
At 31 December 2019
Charge for the year
Translation movement
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Software
£000s
1,087
(67)
401
1,421
84
61
1,566
266
294
(21)
539
351
37
927
639
882
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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Financial StatEmEntS
97
19. Property, plant and equipment
Property, plant and equipment, and depreciation
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
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
10 – 33.3% straight line
11 – 50% straight line
10–33.3% straight line
10 – 33.3% straight line
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Group
Cost
At 1 January 2019
Additions
Disposals
Translation movement
At 31 December 2019
Acquisitions through business combinations
Additions
Disposals
Re-allocation between categories
Translation movement
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
Disposals
Translation movement
At 31 December 2019
Charge for the year
Disposals
Translation movement
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Leasehold
improvements
£000s
Fixtures
and fittings
£000s
Motor
vehicles
£000s
Computer
equipment
£000s
Laboratory
equipment
£000s
246
13
–
(4)
255
42
2
–
–
3
302
39
27
–
(1)
65
24
–
1
90
212
190
472
35
(34)
(22)
451
24
27
(15)
(3)
22
506
159
81
(16)
(8)
216
77
(13)
9
289
217
235
359
48
(59)
(16)
332
–
8
(199)
–
6
147
178
78
(47)
(9)
200
44
(166)
(2)
76
71
132
1,736
296
(61)
(81)
1,890
797
395
(77)
3
51
3,059
1,119
334
(59)
(57)
1,337
478
(48)
50
1,817
1,242
553
57
–
(2)
–
55
–
–
(43)
–
–
12
31
25
(1)
–
55
–
(43)
–
12
–
–
Total
£000s
2,870
392
(156)
(123)
2,983
863
432
(334)
–
82
4,026
1,526
545
(123)
(75)
1,873
623
(270)
58
2,284
1,742
1,110
C_GEN_PageC_GEN_PageL2C_GEN Section
98
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
19. Property, plant and equipment continued
Company
Cost
1 January 2019
Additions
Disposals
Translation movement
At 31 December 2019
Additions
Disposals
Translation movement
At 31 December 2020
Depreciation
1 January 2019
Charge for the year
Disposals
Translation movement
At 31 December 2019
Charge for the year
Disposals
Translation movement
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Fixtures
and fittings
£000s
Computer
equipment
£000s
Total
£000s
64
–
(32)
(2)
30
–
–
2
32
34
6
(14)
(1)
25
2
–
2
29
3
5
135
25
–
(8)
152
87
–
12
251
91
29
–
(6)
114
19
–
8
141
110
38
199
25
(32)
(10)
182
87
–
14
283
125
35
(14)
(7)
139
21
–
10
170
113
43
20. Right-of-use assets and lease liabilities
On 1 January 2019, the Group adopted IFRS 16 using the modified retrospective approach.
At inception of a contract, the Group assess whether the arrangement is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. For lease contracts, the Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of a lease
liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred
and any costs to restore the underlying asset, less any incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the
earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset
is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of future lease payments, discounted using the interest rate
implicit in the lease or, if that rate cannot readily be determined, the Group’s incremental borrowing rate. Generally, the
Group uses its incremental borrowing rate.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a
change in the future lease payments. When the lease liability is remeasured, a corresponding adjustment is made to the
carrying amount of the right-of-use asset or is recorded in the profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
The Group presents the right-of-use assets and the lease liability separately on the balance sheet..
The policy has been applied to contracts entered into or changed on or after 1 January 2019.
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a term of
12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases
as an expense on a straight-line basis over the lease term.
Information about the Group’s lease liability exposure to foreign exchange and liquidity risks are included in note 31.
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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Financial StatEmEntS
99
Right-of-use assets
Cost
1 January 2019
Additions
Translation movement
At 31 December 2019
Acquisitions through business combinations
Additions
Disposals
Modification
Translation movement
At 31 December 2020
Depreciation
1 January 2019
Charge for the year
Translation movement
At 31 December 2019
Charge for the year
Translation movement
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Lease liabilities
2020
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
Total undiscounted lease liabilities at 31 December
Lease liabilities included in the balance sheet at 31 December
Current
Non-current
2019
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
Total undiscounted lease liabilities at 31 December
Lease liabilities included in the balance sheet at 31 December
Current
Non-current
Group
£000s
Company
£000s
6,625
413
(236)
6,802
1,112
270
–
(33)
199
8,350
–
1,664
(33)
1,631
1,954
50
3,635
4,715
5,171
Group
£000s
2,099
3,280
5,379
5,106
1,978
3,128
Group
£000s
1,856
3,846
5,702
5,434
1,718
3,716
140
–
(5)
135
–
–
–
–
12
147
–
22
–
22
93
6
121
26
113
Company
£000s
24
–
24
27
27
–
Company
£000s
95
24
119
117
93
24
C_GEN_PageC_GEN_PageL2C_GEN Section 100
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
21. 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:
Number of wholly
owned subsidiaries
Principal activity
CRO services
CRO services
CRO services
CRO services5
CRO services5
CRO services5
CRO services
CRO services
CRO services4
CRO services
CRO services1
CRO and PV services
CRO services1
CRO services
PV services
PV services
PV services
PV services
PV services
PV services2
PV services
Research and development
Dormant
Place of incorporation
and operation
2020
2019
Germany
Poland
Serbia
USA
United Kingdom
Canada
Croatia
Russia
Spain
Bosnia
UAE
Switzerland
Taiwan
Netherlands
India
United Kingdom
Germany
Croatia
Serbia
USA
Czech Republic
United Kingdom
United Kingdom
2
1
1
2
1
1
1
1
1
1
–
1
–
1
1
3
1
1
1
2
2
1
2
2
1
1
1
–
–
1
1
–
1
1
1
1
1
1
3
1
1
1
1
2
1
2
The registered offices of the Group's subsidiaries are as follows:
Company
Ergomed GmbH
Ergomed Sp. z o.o.
Ergomed d.o.o. Beograd
Ergomed Clinical Research Inc.
MS Clinical Services, LLC
MedSource UK Ltd
MS Clinical Services (Canada) Inc.
Ergomed Istraživanja Zagreb d.o.o.
Ergomed Clinical Research LLC
Ergomed Clinical Research Spain, S.L.4
Ergomed d.o.o. Sarajevo
Ergomed Virtuoso Sarl
Ergomed CDS GmbH
PSR Group BV
Ergomed Clinical Research Private Limited
PrimeVigilance Limited
Harefield Pharmacovigilance Limited4
Pharmacovigilance Services Limited4
PrimeVigilance GmbH
PrimeVigilance Zagreb d.o.o.
PrimeVigilance d.o.o. Beograd
PrimeVigilance Inc.
PrimeVigilance USA Inc.2
PrimeVigilance s.r.o.
PharmInvent regulatory s.r.o.
Haemostatix Limited
Sound Opinion Limited
Ergomed Clinical Research Limited
Registered address
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
16902 El Camino Real, Suite 1A Houston, Texas 77058-2621, USA
1 Exchange Crescent, Conference Square, Edinburgh, EH3 8UL, UK
40 University Avenue, Suite 904, Toronto, Ontario, M5J 1T1, Canada
Oreškovićeva 20a, 10 020 Zagreb, Croatia
125040, Moscow, 17 Skakovaya Street, Building 2, Office 2714,
The Russian Federation
C/ Príncipe de Vergara 112, 4a, 28002, Madrid, Spain
Zmaja od Bosne 7-7a, Sarajevo, Bosnia and Herzegovina
18, Avenue Lois-Casai, 1209 Geneva, Switzerland
Im Mediapark 2, D-50670 Cologne, Germany
Antareslaan 41, 2132 JE Hoofddorp, The Netherlands
Wing A, Level 4, Dynasty Business Park, Andheri-Kurla Road, Andheri (East)
Mumbai – 400059, Maharashtra, India
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, UK
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, UK
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, UK
Herriotstraße 1, 60528 Frankfurt am Main, Germany
Oreškovićeva 20a, 10 020 Zagreb, Croatia
Đorđa Stanojevića 14, Beograd – Novi Beograd, Serbia
Reservoir Place, 1601 Trapelo Road, Waltham, MA 02451, USA
100 Regency Forest Drive, Cary, Wake County, NC 27518, USA
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, UK
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, UK
1 Occam Court, Surrey Research Park, Guildford, GU2 7HJ, UK
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
govErnancE
Financial StatEmEntS
101
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.o3
Ergomed d.o.o. Novi Sad
Ergomed Clinical Research Inc.
Ergomed Istrazivanja Zagreb d.o.o.
Ergomed Clinical Research LLC
Ergomed Clinical Research Spain, S.L.4
Ergomed d.o.o. Sarajevo
Ergomed Virtuoso Sarl
Ergomed CDS GmbH
PSR Group BV
Principal activity – PV services
PrimeVigilance Limited
PrimeVigilance s.r.o.
Ergomed Clinical Research Private Limited
Principal activity – research and development
Haemostatix Limited
Principal activity – dormant
Sound Opinion Limited
Ergomed Clinical Research Limited
Place of
incorporation
and operation
Class
Holding
Germany
Poland
Serbia
Ordinary
Ordinary
Ordinary
USA Not specified
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Croatia
Russia
Spain
Bosnia
Switzerland
Germany
Netherlands
Place of
incorporation
and operation
United Kingdom
Czech Republic
India
Place of
incorporation
and operation
Class
Ordinary
Ordinary
Ordinary
Class
United Kingdom
Ordinary
Place of
incorporation
and operation
United Kingdom
United Kingdom
Class
Ordinary
Ordinary
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Holding
100%
100%
99%
Holding
100%
Holding
100%
100%
1 Ergomed Clinical Research Co. Limited (incorporated in Taiwan) and Ergomed Clinical Research FZ LLC (incorporated in the UAE) were closed
during 2020.
2 PrimeVigilance USA Inc., formerly known as Ashfield Pharmacovigilance Inc., was acquired on 13 January 2020.
3 The non-controlling interest is not disclosed as it is not material and does not take a benefit from the holding.
4 Ergomed Clinical Research Spain, S.L. was incorporated on 26 February 2020.
5 MS Clinical Services, LLC incorporated in the USA and its subsidiaries, MS Clinical Services (Canada) Inc. and MedSource UK Ltd (incorporated in
Canada and the UK respectively), was acquired on 11 December 2020.
There are no significant restrictions on the ability of the Group to access or use assets and settle liabilities.
The accounting year end for all Group subsidiaries is coterminous.
C_GEN_PageC_GEN_PageL2C_GEN Section 102
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
22. Equity investments
The carrying amount of the following equity investments have been designated as fair value through the profit and loss
(‘FVPL’). Further information regarding the measurement and classification of equity investments held by the Group are
included in note 31.
Group and Company
2020
Asarina Pharma AB
Modus Therapeutics Holdings AB
2019
Asarina Pharma AB
Modus Therapeutics Holdings AB
Equity
received in
exchange
for
services
provided
£000s
Change in
fair value
recognised
in the
income
statement
£000s
Carrying
amount at
1 January
2020
£000s
Impairment
of
investments
£000s
Disposals
£000s
Translation
movement
£000s
–
–
–
699
–
699
(511)
–
(511)
–
–
–
(175)
–
(175)
(13)
–
(13)
Carrying
amount at
31
December
2020
£000s
–
–
–
Carrying
amount at
1 January
2019
£000s
Equity
received in
exchange for
services
provided
£000s
Change in
fair value
recognised
in the income
statement
£000s
863
1,202
2,065
567
1,337
1,904
(286)
–
(286)
Impairment
of
investments
£000s
–
(2,427)
(2,427)
Carrying
amount at
31 December
2019
£000s
Translation
movement
£000s
(45)
(112)
(157)
–
–
–
Disposals
£000s
(1,099)
–
(1,099)
Asarina Pharma AB (‘Asarina’)
In 2018, Asarina completed a public offering and listing on the Nasdaq First North Exchange and the investment in equity
was publicly traded. 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 2020, shares valued
at £699,000 (2019: £567,000) were issued to the Group in exchange for services provided. All the shares received were sold
in the year for proceeds of £175,000 (2019: £1,099,000).
Modus Therapeutics Holding AB (‘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 2019, shares valued at £1,337,000 were issued to the
Group in exchange for services provided by the Group.
Modus announced the initial results from its Phase II trial on 13 May 2019. Data from the study failed to show a meaningful
benefit in the total study population. Given the results of the trial and the company’s lack of funding, management have
impaired the value of the investment to £nil as at the year end.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less provision for impairment.
Company
Cost
At 1 January 2019
Capital contribution to subsidiary undertakings
Impairments
Translation movement
At 31 December 2019
Investment in Haemostatix Limited
Capital contribution to subsidiary undertakings
Impairment of investment in Haemostatix Limited
Disposal of investment in subsidiaries
Translation movement
At 31 December 2020
Shares in
subsidiary
undertakings
£000s
23,585
245
–
(1,238)
22,592
8,476
128
(8,476)
(50)
1,058
23,728
C_GEN_PageC_GEN_PageL2C_GEN Section
StratEgic rEport
govErnancE
Financial StatEmEntS
103
During the year the Company capitalised historic loans made to Haemostatix Limited, a 100% subsidiary of the Company,
equal to the outstanding loan balance of £8,476,000. As a result of the Company’s decision in prior years to discontinue its
co-development activities, the Company immediately assessed the investment in Haemostatix Limited to be fully impaired
and reduced the carrying value of the investment to £nil.
During the year Ergomed plc disposed of Ergomed Clinical Research FZ-LLC (UAE) and Ergomed Clinical Research co.
Limited (Taiwan).
23. Trade and other receivables
Trade receivables
Amounts receivable from Group companies
Other receivables
Prepayments
Corporation tax receivable
Group
Company
2020
£000s
19,079
–
1,241
1,482
422
22,224
2019
£000s
11,235
–
1,609
1,144
371
14,359
2020
£000s
4,632
18,920
203
698
–
24,453
2019
£000s
2,896
446
346
516
–
4,204
The carrying value of trade receivables approximates to their fair value at the reporting date. Information about the Group’s
exposure to credit risks and expected credit losses for trade and receivables is included in note 31.
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.
Amounts receivable from Group companies includes an intercompany receivable balance equal to the Company’s cash and
equity funding for the acquisition of MedSource.
24. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits.
Cash at bank
Group
Company
2020
£000s
18,994
2019
£000s
14,259
2020
£000s
6,151
2019
£000s
4,374
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
Group
Company
2020
£000s
1,598
5,732
10,213
1,451
18,994
2019
£000s
1,747
2,666
8,848
998
14,259
2020
£000s
385
2,956
2,802
8
6,151
2019
£000s
314
522
3,538
–
4,374
Information about the Group’s exposure to foreign exchange and interest rate risks are included in note 31.
The Group has a £15 million multi-currency rolling credit facility ('RCF') with an option to increase by a further £15 million. The
RCF was drawn down on 23 March 2020 and was subsequently repaid on 19 August 2020. The RCF expires on 13 March 2024.
25. Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of
a past event that can be reliably measured and it is probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects risks specific to the liability.
Onerous contracts
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the
contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises
any impairment loss on the assets associated with that contract.
C_GEN_PageC_GEN_PageL2C_GEN Section 104
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
25. Provisions continued
Group
At 1 January
Increase in provision
Utilised
Translation
At 31 December
2020
2019
Onerous
contract
£000s
67
–
(48)
–
19
Other
£000s
274
298
(268)
(6)
298
Total
£000s
341
298
(316)
(6)
317
Onerous
contract
£000s
216
–
(149)
–
67
Other
£000s
–
274
–
–
274
Total
£000s
216
274
(149)
–
341
Onerous contract
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 incur incremental expenditure in Haemostatix during 2020 so as
to protect the intellectual property and to maintain readiness for Phase III trials. As a consequence of the change in strategy,
contractual costs committed at the year ended 2018 amounting to £216,000 were provided for as onerous and the charge
included in exceptional items. During 2020, £48,000 (2019: £149,000) of this provision was utilised.
Other
During the year ended 2019, a provision was recognised in respect of Serbian grant income received. In the year ended
2020, this provision was released and an additional provision was recognised in respect of the Serbian grant income
received in 2020 which, depending on future trading conditions, management believe may be repayable in the future.
26. Trade and other payables
Trade payables
Amounts payable to related parties
Amounts payable to Group companies
Social security and other taxes
Other payables
Customer advances
Accruals
Group
Company
2020
£000s
4,197
55
–
1,112
1,295
408
8,635
2019
£000s
2,579
58
–
629
1,086
537
5,484
2020
£000s
612
52
8,076
144
70
–
5,508
15,702
10,373
14,462
2019
£000s
1,126
56
15,379
110
7
–
3,851
20,529
Customer advances relate to deposits made by customers as security over future services and third-party costs incurred in
relation to those services.
Information about the Group’s exposure to foreign exchange and liquidity risks are included in note 31.
27. Contingent and deferred consideration
Contingent and deferred consideration are measured at fair value through the profit and loss. Further details regarding
the measurement and classification of financial instruments measured at fair value are set out in note 31.
Fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Financial liabilities are
subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange
gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
Deferred consideration
Due within one year
MedSource
Group
2020
£000s
328
328
2019
£000s
–
–
Company
2020
£000s
–
–
2019
£000s
–
–
The deferred consideration payable for MS Clinical Services, LLC. and its subsidiaries ('MedSource') of £328,000 is due upon
the verification of the net assets acquired by the Group at the acquisition date and is payable 60 days after that date.
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28. Ordinary share capital
Group and Company
Ordinary shares of £0.01 each
At 1 January
Exercise of share options
Shares to be issued for non-cash consideration
At 31 December
B ordinary shares of £0.23 each
At 1 January
Capitalisation of merger reserve to B ordinary shares
Cancellation of B ordinary shares
At 31 December
2020
2019
Number
£000s
Number
£000s
47,286,289
1,433,237
155,558
48,875,084
473
14
2
489
45,175,248
2,111,041
–
47,286,289
452
21
–
473
2020
2019
Number
£000s
Number
£000s
–
48,717,776
(48,717,776)
–
–
11,088
(11,088)
–
–
–
–
–
–
–
–
–
Options over 1,433,237 (2019: 2,111,041) ordinary shares were exercised for proceeds of £1,869,000 (2019: £1,427,000).
Shares to be issued for non-cash consideration
Ordinary shares to be issued as consideration for acquisitions (non-cash consideration) are included within share capital once the
conditions for issuance have been met. Included within the ordinary share capital at 31 December 2020 are 155,558 ordinary
shares that will be issued as part consideration for the acquisition of MS Clinical Services, LLC. and its subsidiaries and is subject
to the satisfaction of certain representations and warranties. The shares will be issued during the 2021 financial year.
Capital reduction
During the year the Directors determined that they would request shareholder and court approval for a capital reduction for
Ergomed plc, whereby the balance on the Company's share premium account and merger reserves would be used to
eliminate the deficit on the retained earnings reserve.
The Capital Reduction was approved by shareholders at a General Meeting of the Company held on 19 October 2019.
The Capital Reduction was sanctioned by the High Court of England and Wales on 10 November 2020 and was registered
with the Registrar of Companies on 17 November 2020 whereupon it became effective.
The Capital Reduction comprised: (i) the cancellation of the entire amount standing to the credit of the Company’s share
premium account and (ii) the capitalisation of the entire amount standing to the credit of the Company’s merger reserve
by issuing B ordinary shares in the capital of the Company and the subsequent cancellation of such B ordinary shares
(the 'Merger Reserve Reduction').
29. Reserves
Share premium
As a result of the Capital Reduction (see note 28), the entire amount standing to the credit of the Company’s Share premium
(£27,642,000) was cancelled on 17 November 2020.
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 (‘Merger Relief’).
As a result of the Capital Reduction (see note 28), the entire amount standing to the credit of the Company's Merger reserve
(£11,088,000) was capitalised on 9 November 2020 by issuing 48,717,776 B ordinary shares of £0.23 each in the capital of the
Company. The B ordinary shares were subsequently cancelled on 17 November 2020.
On 11 December 2020, 155,558 Ordinary Shares were offered as part consideration for MS Clinical Services LLC, MedSource
UK Ltd and MS Clinical Services (Canada) Inc. ('MedSource') at an agreed market price of £8.76 per share. The excess of the
fair value over the nominal value of £1,349,000 was credited to the merger reserve. The shares are subject to the satisfaction
of certain representations and warranties and will be issued during the 2021 financial year.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements
of foreign operations.
C_GEN_PageC_GEN_PageL2C_GEN Section 106
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
30. Share-based payments
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’) over shares in the Company. The grant-date fair value of the
options is recognised as an expense, with the corresponding increase in equity, over the vesting period of the awards. The
amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-
market performance conditions are expected to be met, such that the amount ultimately recognised is based on the
number of awards that meet the related service and non-market performance conditions at the vesting date. For share-
based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to
reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Where the Company grants options over its own shares to the employees of the Group, a charge arises. Where such
charge is not reimbursed by the entity, they are treated as equity-settled in the consolidated accounts of the Group.
The Group has acquired entities under terms which include equity-settled deferred contingent consideration payable to
vendors. 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 the date of the acquisition to the date the conditions are met for settlement of the contingent consideration.
The Company operates two share option schemes:
the Ergomed plc Long Term Incentive Plan; and
an Unapproved Executive Share Option Agreement made with Rolf Stahel.
In addition, certain employees and former employees hold options over shares held by Miroslav Reljanović, a Director and
shareholder, 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 non-dilutive and the Company is
not party to the arrangements, a share-based payment charge arises.
Share-based payment charges for the year arose as follows:
Ergomed plc Long Term Incentive Plan
Non-dilutive share options
Deferred consideration for acquisitions
2020
£000s
580
162
–
742
2019
£000s
748
94
28
870
Included in the above share-based payment charge is £457,000 (2019: £560,000) which relates to share option awards made
to Directors who served during the year.
Ergomed plc Long Term Incentive Plan ('LTIP')
The Ergomed plc LTIP is an HMRC unapproved plan which allows for the grant of options to executives and 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 LTIP at the discretion of the Company’s Board of Directors or a duly authorised committee
thereof.
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 and non-market based performance conditions assessed over a three-year period.
Movements in the total number of share options outstanding and their relative weighted average exercise price are as
follows:
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2020
2019
Number of
share
options
2,623,442
537,250
(568,237)
(411,445)
2,181,010
654,117
Weighted
average
exercise
price
£0.67
£0.01
£0.85
£0.20
£0.55
£1.69
Number of
share
options
3,445,207
980,000
(1,111,041)
(690,724)
2,623,442
815,079
Weighted
average
exercise
price
£0.96
£0.05
£1.29
£0.25
£0.67
£1.68
C_GEN_PageC_GEN_PageL2C_GEN Section StratEgic rEport
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Weighted average fair value of options granted during the year
Weighted average share price at the date of exercise of options exercised during the year
Weighted average remaining contractual life of options
The range of exercise prices for options outstanding at the end of the year is as follows:
2020
2019
£3.54
£5.57
7.5 years
£1.27
£2.63
8.0 years
Year of grant
Year of expiry
2015
2016
2017
2018
2019
2020
2025
2026
2027
2028
2029
2030
2020
2019
Weighted
average exercise
price per share
£1.63
£1.39
–
£0.81
£0.05
£0.01
Number
235,000
150,000
–
678,762
829,998
287,250
Weighted average
exercise
price per share
£1.63
£1.39
£1.02
£0.76
£0.05
–
Number
365,000
177,142
96,671
1,004,629
980,000
–
Unapproved Executive Share Option Agreement made with Rolf Stahel
On 18 April 2014, an award of unapproved share options was made to Rolf Stahel, the Chairman at the time, 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 of the Group to trading on AIM at an exercise price of £1.60 per share. The option becomes
exercisable in respect of 1/36th of the options one month from the date of the share option agreement and on the same
date in each subsequent calendar month over 1/36th of the options.
Movements in the total number of share options outstanding and their relative weighted average exercise price are as
follows:
2020
2019
Outstanding at 1 January
Exercised
Outstanding at 31 December
Exercisable at 31 December
Number of
share
options
Weighted
average
exercise price
1,260,000
(865,000)
395,000
395,000
£1.60
£1.60
£1.60
£1.60
Weighted average share price at the date of exercise of options exercised during the year
Weighted average remaining contractual life of options
.
The range of exercise prices for options outstanding at the end of the year is as follows:
Number of
share
options
1,260,000
–
1,260,000
1,260,000
Weighted
average
exercise price
£1.60
£1.60
£1.60
£1.60
2020
2019
£4.31
3.3 years
–
4.3 years
Year of grant
2014
Year of expiry
2024
2020
2019
Weighted
average
exercise
price per share
Weighted
average
exercise
price per share
Number
£1.60
1,260,000
£1.60
Number
395,000
Non-dilutive share options
Agreements are in place whereby certain employees and former employees hold options over shares held by Miroslav
Reljanović, Director and shareholder. The grant of such options was related to their employment by the Company.
Movements in the total number of share options outstanding and their relative weighted average exercise price are as
follows:
Outstanding at 1 January
Awarded
Exercised
Outstanding at 31 December
Exercisable at 31 December
2020
2019
Number of
share
options
550,000
–
–
550,000
550,000
Weighted
average
exercise
price
£0.01
–
–
£0.01
£0.01
Number of
share
options
426,470
400,000
(276,470)
550,000
550,000
Weighted
average
exercise
price
£0.01
£0.01
£0.01
£0.01
£0.01
C_GEN_PageC_GEN_PageL2C_GEN Section 108
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
30. Share-based payments continued
Weighted average fair value of options granted during the year
Weighted average share price at the date of exercise of options exercised during the year
Weighted average remaining contractual life of options
2020
2019
n/a
n/a
7.7 years
£1.21
£3.21
8.7 years
The range of exercise prices for options outstanding at the end of the year is as follows:
Year of grant
Year of expiry
2016
2019
2026
2029
2020
2019
Weighted
average
exercise
price
per share
£0.01
£0.01
Number
150,000
400,000
Weighted
average
exercise
price
per share
£0.01
£0.01
Number
150,000
400,000
Acquisition-related share-based payment expense
The terms of the acquisitions of PSR Group BV and 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, 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. A charge of £nil arose for the year
(2019: £28,000).
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 6).
Assumptions
Options with non-market-based performance conditions were valued using a Black-Scholes option pricing model, using the
following range of inputs:
Award date
Share price
Exercise price
Volatility
Expected life
Expected dividends
Risk free rate
21 December 2020
£10.00
£0.01
33.5%
5 years
0%
0.10%
1 November 2018 to
18 June 2019
£1.45 – £2.84
£0.01 – £1.82
25.1% – 25.7%
5 years
0%
0.59% – 0.83%
Options with market-based performance conditions were valued using a Monte Carlo pricing model, using the following range
of inputs:
Award date
Share price
Exercise price
Volatility
Expected life
Expected dividends
Risk free rate
1 January 2020 to
21 December 2020
1 November 2018 to
18 June 2019
£1.80 – £10.00
£0.01
24.6% – 33.5%
3 years
0%
0.10% – 0.87%
£1.45 – £2.84
£0.01
23.9% – 24.8%
3 years
0%
0.53% – 0.72%
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.
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109
31. Financial instruments
Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets
and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the
instrument.
At initial recognition, the Group measures a financial asset or liability at its fair value plus, in the case of an item not at fair
value through profit or loss (‘FVPL’), transaction costs that are directly attributable to its acquisition or issue. Transaction
costs of financial assets and liabilities carried at FVPL are expensed in profit or loss. Trade receivables are initially
measured at the transaction price.
Classification
Financial assets
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.
Trade and other receivables, accrued income (contract assets) and cash and cash equivalents are measured at
amortised cost.
The Group measures all equity investments at fair value and 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 are recognised as FVPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business
model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first
reporting period following the change in the business model.
Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVPL. A financial liability is classified as at FVPL if it is
classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.
Trade and other payables and lease liabilities are measured at amortised cost.
Contingent and deferred consideration is measured at fair value through profit or loss.
Subsequent measurement
Financial assets
Fair value through profit or loss: These assets are subsequently measured at fair value. Net gains and losses, including any
interest or dividend income, are recognised in profit or loss.
Amortised cost: These assets are subsequently measured at amortised cost using the effective interest method. The
amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Financial liabilities
Amortised cost: These liabilities are initially measured at fair value, net of transaction costs. Subsequently they are
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.
Fair value through profit or loss: The deferred and contingent consideration liability is measured at fair value at each
reporting date 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. Net gains and losses, including any interest
expense, are recognised in profit or loss.
Impairment
The Company recognises loss allowances for expected credit losses (‘ECLs’) on financial assets measured at amortised
cost and accrued revenue (contract assets).
C_GEN_PageC_GEN_PageL2C_GEN Section 110
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
31. Financial instruments continued
The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets (accrued revenue). 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 maximum period considered when estimating expected credit losses is the maximum contractual period over which
the Company is exposed to credit risk.
Measurement of ECLs
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract
and the cash flows that the Company expects to receive) at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortised cost are ‘credit-impaired’.
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash
flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic
prospect of recovery.
Fair value measurements
Fair value measurements are categorised as level 1, 2 or 3 within the fair value hierarchy. The fair value hierarchy
categorises 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.
C_GEN_PageC_GEN_PageL2C_GEN Section
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Financial StatEmEntS
111
Categories of financial instruments
The following table shows the carrying amounts and fair values of financial assets and financial liabilities at the reporting
date.
Carrying amount
Fair value
31 December 2020
Financial assets
Equity investments
Trade receivables
Accrued revenue (contract asset)
Other receivables
Cash and cash equivalents
Financial liabilities
Lease liabilities
Trade payables
Amounts payable to related parties
Other payables
Customer advances
Deferred consideration
Accruals
31 December 2019
Financial assets
Equity investments
Trade receivables
Accrued revenue (contract asset)
Other receivables
Cash and cash equivalents
Financial liabilities
Lease liabilities
Trade payables
Amounts payable to related parties
Other payables
Customer advances
Accruals
Financial
assets
at fair value
through
profit and
loss
£000s
Financial
assets at
amortised
cost
£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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,079
5,553
1,241
18,994
44,867
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,106
4,197
55
1,295
408
–
8,635
19,696
–
–
–
–
–
–
–
–
–
–
–
328
–
328
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000s
Total
£000s
–
19,079
5,553
1,241
18,994
–
19,079
5,553
1,241
18,994
44,867
44,867
5,106
4,197
55
1,295
408
328
8,635
5,106
4,197
55
1,295
408
328
8,635
20,024
20,024
Carrying amount
Fair value
Current
financial
liabilities at
fair value
through
profit and
loss
£000s
Non-current
financial
liabilities at
fair value
through
profit and
loss
£000s
Current
financial
liabilities at
amortised
cost
£000s
Financial
assets
at fair value
through
profit and
loss
£000s
–
–
–
–
–
–
–
–
–
–
–
–
–
Financial
assets at
amortised
cost
£000s
–
11,235
3,382
1,309
14,259
30,185
–
–
–
–
–
–
–
–
–
–
–
–
–
5,434
2,579
58
1,086
537
5,484
15,178
Total
£000s
Total
£000s
–
11,235
3,382
1,309
14,259
–
11,235
3,382
1,309
14,259
30,185
30,185
5,434
2,579
58
1,086
537
5,484
5,434
2,579
58
1,086
537
5,484
15,178
15,178
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C_GEN_PageC_GEN_PageL2C_GEN Section 112
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
31. Financial instruments continued
Financial instruments measured at fair value
The financial instruments measured at fair value have been categorised within the fair value hierarchy based on the
valuation technique used to determine fair value at the reporting date.
Deferred and contingent consideration is measured 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 payable in respect of MS Clinical Services, LLC. and
its subsidiaries (‘MedSource’) is categorised as level 3 within the fair value hierarchy and has been assessed at £nil. The
deferred consideration for MedSource of £328,000 is categorised as level 3 within the fair value hierarchy and is due upon
the verification of the net assets acquired by the Group at the acquisition date and is payable 60 days after that date.
Given the nature and term of the deferred consideration balance due at the year end, the sensitivity of the fair value of the level 3
items to possible increases in the significant unobservable inputs for the current year were immaterial. During the prior year, the
fair value of the contingent consideration payable in respect of PSR Group BV, which was categorised as level 3 within the fair
value hierarchy, was reassessed at £nil and a credit of £512,000 recognised through profit and loss. There was no deferred or
contingent consideration outstanding at the 2019 year end.
Financial risk management objectives
The Group’s finance function provides services to the business, and monitors and manages the financial risks relating to the
operations of the Group. These risks include market risk (including currency and interest rate risk), credit risk and liquidity
risk.
i) market risk
Market risk is the risk that changes in market prices will affect the Group’s income or the value of its holdings of financial
instruments.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters,
while optimising the return.
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest
rates.
Foreign currency risk
The Group is exposed to transactional foreign currency risk to the extent that there is a mismatch between the value of
income and expenses denominated in foreign currencies. The functional currencies of the Group Companies are primarily
pounds sterling, euros and US dollars. Where the amounts to be paid and received in a specific currency are expected to
largely offset one another, no further activity is undertaken. Where the amounts to be paid and received in a specific
currency result in a net surplus or exposure, the net surplus or exposure is hedged by selling or buying the foreign currency
and holding 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
Equity investments
Trade receivables
Accrued revenue
(contract asset)
Other receivables
Cash and cash equivalents
Financial liabilities
Lease liabilities
Trade payables
Amounts payable to
related parties
Other payables
Customer advances
Accruals
Deferred consideration
Net financial asset/
(liability)
GBP
£000s
EUR
£000s
2020
USD
£000s
Other
£000s
Total
£000s
GBP
£000s
EUR
£000s
–
2,858
106
497
1,598
1,421
596
–
198
–
5,861
–
–
3,741
–
12,231
–
249
–
19,079
770
131
5,732
4,677
86
10,213
–
527
1,451
5,553
1,241
18,994
2,492
981
–
5
408
1,540
–
1,138
2,030
–
28
–
573
328
55
590
55
1,064
–
661
–
5,106
4,197
55
1,295
408
8,635
328
–
2,754
129
431
1,747
1,926
967
56
–
–
4,567
–
–
3,074
3,118
235
2,666
3,228
1,211
–
7
537
345
–
2019
USD
£000s
–
4,654
119
27
8,848
229
185
–
7
–
133
–
Other
£000s
Total
£000s
–
753
16
616
998
51
216
2
1,072
–
439
–
–
11,235
3,382
1,309
14,259
5,434
2,579
58
1,086
537
5,484
–
(3,017)
4,948
23,110
(198) 24,843
(2,455)
3,765
13,094
603
15,007
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The following table demonstrates the Group’s sensitivity to a 10% strengthening or weakening in Sterling, being the reporting
currency of the Group. 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. This
analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis
is performed on the same basis for the comparative period.
Euro
USD
Other
Profit or (loss)
2020
Profit or (loss)
2019
Strengthen
+10%
£000s
(450)
(2,101)
(38)
Weaken
-10%
£000s
550
2,568
47
Strengthen
+10%
£000s
(342)
(1,190)
(98)
Weaken
-10%
£000s
418
1,455
120
Interest rate risk
The Group is primarily exposed to the interest rate risks associated with its holdings of cash and cash equivalents. Interest rate
risk associated with financial liabilities is minimal and the Group does not have any borrowing facilities at the year end (2019:
£nil).
The Group’s sensitivity to a change of 100 basis points (1%) on the profit or loss at the reporting date would result in an
increase or decrease in investment income of £211,000 (2019: £94,000). This analysis assumes that all other variables, in
particular foreign currency rates, remain constant. The analysis is performed on the same basis for comparative period.
The effective interest rate at the balance sheet date on cash at bank was 0.04% (2019: 0.07%).
Other market risk
The primary goal of the Group’s equity investments is to hold the investments for the long term for strategic purposes.
Equity investments have been designated as FVPL because their performance is actively monitored and they are managed
on a fair value basis.
Equity investments which are publicly quoted are measured based on the quoted market price. Unlisted equity investments
are measured based on the market price of recent share issuances.
ii) credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s trade receivables and contracts with customers.
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.
The credit risk on cash and cash equivalents is limited because the counterparties are banks or sovereign governments with
high credit ratings assigned by international credit rating agencies.
The credit risk on other receivables is limited as it primarily consists of rental deposits and recoverable sale tax.
Trade receivables and accrued revenue (contract assets) 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 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.
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.
C_GEN_PageC_GEN_PageL2C_GEN Section 114
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
31. Financial instruments continued
The concentration of credit risk for trade receivables and accrued revenue (contract assets) at the balance sheet date by
geographic region and service line was:
UK
Rest of Europe, Middle East and Africa
North America
Asia
Australia
Carrying amount
2020
Carrying amount
2019
CRO
£000s
639
2,611
8,253
158
–
PV
£000s
1,890
2,559
8,010
465
47
Total
£000s
2,529
5,170
16,263
623
47
11,661
12,971
24,632
CRO
£000s
859
4,059
1,923
149
–
6,990
PV
£000s
1,843
2,110
3,409
265
–
7,627
Total
£000s
2,702
6,169
5,332
414
–
14,617
Amounts due from Group companies primarily relate to trading balances with no significant financing element. The
simplified approach for assessing credit losses was used for these balances and is immaterial as the probability of default is
insignificant.
Included in trade receivables and accrued revenue (contract assets) are the following amounts after deducting allowance
for losses 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
2020
£000s
2,696
808
231
–
3,735
2019
£000s
2,606
709
555
17
3,887
The allowance for losses as a result of the exposure to credit risk at the reporting date was determined as follows for trade
receivables and accrued revenue (contract assets):
Current
Less than 30 days overdue
31 to 60 days overdue
61 to 90 days overdue
More than 90 days overdue
Expected
credit
losses
0.0%
0.2%
0.5%
18.6%
100.0%
2020
Balance
before
allowance
for losses
£000s
20,599
2,701
812
283
237
24,632
Allowance
for losses
£000s
–
(4)
(4)
(53)
(237)
(298)
Expected
credit
losses
0.0%
0.0%
5.3%
0.5%
58.5%
2019
Balance
before
allowance
for losses
£000s
10,730
2,606
749
558
41
14,684
Allowance
for losses
£000s
–
–
(40)
(3)
(24)
(67)
The allowance for losses includes losses as a result of expected and identified credit losses.
Movements in the allowance for losses in trade receivables and accrued revenue (contract assets) during the year were as
follows:
At 1 January
Impairment losses recognised
Provision for specific credit losses identified
Translation
Change in expected credit loss provision during the year
At 31 December
2020
£000s
67
(37)
26
11
231
298
2019
£000s
9
–
58
–
–
67
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iii) liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to
ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
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 following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
effect of netting agreements at the reporting date:
2020
Contractual cash outflow
2019
Contractual cash outflow
Carrying
amount
£000s
Less than
one year
£000s
Between
one and
five years
£000s
More than
five years
£000s
Total
£000s
Carrying
amount
£000s
Less than
one year
£000s
Between
one and
five years
£000s
More than
five years
£000s
4,197
4,197
–
55
1,295
408
8,635
328
5,106
55
1,295
408
8,635
328
1,978
20,024
16,896
–
–
–
–
–
3,077
3,077
–
–
–
–
–
–
51
51
4,197
2,579
2,579
–
55
1,295
408
8,635
328
5,106
58
1,086
537
5,484
–
5,434
58
1,086
537
5,484
–
1,856
20,024
15,178
11,600
–
–
–
–
–
3,846
3,846
–
–
–
–
–
–
–
–
Total
£000s
2,579
58
1,086
537
5,484
–
5,702
15,446
Trade payables
Amounts payable to
related parties
Other payables
Customer advances
Accruals
Deferred consideration
Lease liability
Capital risk management
The 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 whilst maintaining an optimal capital structure to reduce the
overall cost of capital.
C_GEN_PageC_GEN_PageL2C_GEN Section 116
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
32. Acquisition of subsidiary – PrimeVigilance USA Inc.
On 13 January 2020, the Group acquired all the issued share capital in Ashfield Pharmacovigilance Inc. for $10,000,000,
satisfied in cash. Immediately after acquisition the subsidiary changed its name to PrimeVigilance USA Inc. The company
is a specialist pharmacovigilance provider based in the US. The acquisition expands the geographical coverage of PV, the
pharmacovigilance brand of the Ergomed group, and further develop the Group’s broader combined CRO and PV business
globally.
Intangible assets
Property, plant and equipment
Right-of-use assets
Total non-current assets
Trade and other receivables
Cash and cash equivalents
Current assets
Trade and other payables
Lease liability
Tax payable
Deferred tax liability
Financial liabilities
Total identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash
Cash – working capital advance
Total consideration
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances acquired
Less: working capital adjustment
Transaction expenses
Book
value
£000s
159
779
987
1,925
1,462
727
2,189
(321)
(1,075)
–
(1,945)
(3,341)
773
7,703
8,476
Fair
value
adjustments
£000s
Final
valuation
£000s
2,392
–
–
2,392
(75)
–
(75)
–
–
–
1,282
1,282
3,599
(3,692)
(93)
2,551
779
987
4,317
1,387
727
2,114
(321)
(1,075)
–
(663)
(2,059)
4,372
4,011
8,383
7,613
770
8,383
8,433
(727)
(93)
407
8,020
The fair value of intangible assets relates to customer relationships of £1,998,000 and contracted order book of £553,000.
The Group incurred acquisition related cost of £393,000 related to due diligence and legal activities in the year ended
31 December 2019 and an additional £14,000 in the year to 31 December 2020. These costs have been included in acquisition
costs within selling and administrative expenses in the Group’s consolidated income statement.
The fair value of acquired receivables was £1,250,000. The gross contractual amount receivable is £1,325,000 and,
at the acquisition date, £75,000 of contractual cash flows were not expected to be received.
Ergomed plc has a 12-month measurement period from the date of acquisition, and therefore the measurement period
ended on 13 January 2021.
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33. Acquisition of subsidiary – MedSource
On 11 December 2020, the Group acquired all of the issued share capital in MS Clinical Services, LLC, MedSource UK Ltd and
MS Clinical Services (Canada) Inc. (‘MedSource’) for $16,200,000 in cash, adjusted for net debt, and paid at the closing of the
transaction, with further consideration of $1,800,000 payable in Ergomed plc equity issued at a price based on the average
daily closing price for 30 days preceding the acquisition (155,558 shares at a price of £8.76) upon the satisfaction of certain
representations and warranties. Up to a further $7,000,000 is payable, 90% in cash and 10% in equity, depending on
MedSource’s financial results in the year to 31 December 2021.
MedSource is a full-service CRO with a focus on complex disease and study designs. The acquisition greatly expands the
geographical presence of Ergomed’s CRO service offering in the US whilst complementing the current business specialism
in oncology and rare disease. Eric Lund, founder of MedSource and the primary shareholder, will continue in his current role
as President of MedSource after the acquisition.
Intangible assets
Property, plant and equipment
Right-of-use assets
Total non-current assets
Trade and other receivables
Cash and cash equivalents
Current assets
Trade and other payables
Lease liability
Deferred Revenue
Deferred tax liability
Financial liabilities
Total identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash
Equity
Total consideration
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances acquired
Add: deferred consideration
Transaction expenses
Book
value
£000s
475
89
–
564
3,062
4,346
7,408
(2,348)
–
(6,528)
–
(8,876)
(904)
11,347
10,443
Fair
value
adjustments
£000s
Provisional
valuation
£000s
5,704
–
131
5,835
–
–
–
–
(131)
–
(1,607)
(1,738)
4,097
(4,097)
–
6,179
89
131
6,399
3,062
4,346
7,408
(2,348)
(131)
(6,528)
(1,607)
(10,614)
3,193
7,250
10,443
9,092
1,351
10,443
8,764
(4,346)
328
825
5,571
The fair value of intangible assets relates to customer relationships of £4,077,000, contracted order book of £1,186,000 and
brand of £916,000. The Group incurred acquisition related cost of £825,000 related to due diligence and legal activities in the
year ended 31 December 2020. These costs have been included in acquisition costs within selling and administrative
expenses in the Group’s consolidated income statement. Ergomed plc has a 12-month measurement period from the date of
acquisition, and therefore the measurement period will end on 11 December 2021.
C_GEN_PageC_GEN_PageL2C_GEN Section C_GEN Section
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118
Annual Report and Accounts 2020
Notes to the financial statements continued
For the year ended 31 December 2020
34. Operating leases
As a result of the adoption of IFRS 16, from 1 January 2019, all leases, except those classified as either low-value assets or
short-term, have been recognised on the balance sheet as a right-of-use asset and lease liability and are no longer included
in the non-cancellable operating lease disclosure below.
At the year end, the Group and Company had the following future aggregate minimum lease payments under non-
cancellable operating leases:
Group
No later than one year
Later than one year and no later than five years
Company
No later than one year
Land and buildings
Other
2020
£000s
9
–
9
2019
£000s
31
–
31
2020
£000s
60
40
100
Land and buildings
Other
2020
£000s
3
2019
£000s
–
2020
£000s
–
2019
£000s
52
25
77
2019
£000s
3
35. Related party transactions
Ergomed d.o.o., a company registered in Croatia, is under the control of Miroslav Reljanović, who is a Director and
shareholder of the Company. During the year, the Group was charged £152,000 (2019: £220,000) by Ergomed d.o.o. in respect
of clinical research consultancy and other administration costs. At the year end, a balance of £55,000 was owed by the
Group to Ergomed d.o.o. in respect of these costs (2019: £58,000).
Esinhart LLC, a company registered in the USA and under the control of James Esinhart, a Non-Executive Director of the
Company in the year, provided consultancy services to the Company and its subsidiaries during the year for which they were
charged £10,000 (2019: £47,000). At the year end, there were no outstanding amounts (2019: £nil) owed by the Company and
its subsidiaries to Esinhart LLC in respect of these services.
Asarina Pharma AB., a company registered in Sweden of which Miroslav Reljanović was a Director until his resignation on 5 May
2020, was invoiced £1,484,000 during the year to 31 December 2020 (2019: £1,922,000) in respect of the provision of clinical
research services. At the year end a balance of £402,000 was due from Asarina Pharma AB (2019: amounts owed of £73,000).
Modus Therapeutics Holding AB., a company registered in Sweden of which Miroslav Reljanović was a Director until his
resignation on 5 June 2020, was in-voiced £9,000 during the year to 31 December 2020 (2019: £1,423,000) in respect of provision
of clinical research services. At the year end, there were no out-standing amounts (2019: £130,000) due from Modus
Therapeutics Holding AB.
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.
C_GEN_PageC_GEN_PageL2C_GEN Section C_GEN Section
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Nominated Advisory and Broker (‘NOMAD’)
Numis Securities Ltd
10 Paternoster Sq.
London
EC4M 7LT
Registrar
Share Registrars Ltd
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
Public Relations
Consilium Strategic Communications Ltd
41 Lothbury
London
EC2R 7HG
Ergomed plc
www.ergomedplc.com
info@ergomedplc.com
Company information
Directors
Miroslav Reljanović
Richard Barfield
Rolf Soderstrom
Michael Spiteri
Ian Johnson
Company Secretary
Joanne Bletcher
Registered office
1 Occam Court
Surrey Research Park
Guildford
Surrey
GU2 7HJ
Auditor
KPMG
1 Stokes Place
St Stephen's Green
Dublin 2
Ireland
Lawyer
Covington & Burling LLP
265 Strand
London
WC2R 1BH
Bankers
HSBC UK Bank plc
1 Centenary Square
Birmingham
B1 1HQ
C_GEN_PageC_GEN_PageL2C_GEN Section
120
Annual Report and Accounts 2020
Notes
C_GEN_PageC_GEN_PageL2C_GEN Section E
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Ergomed plc
1 Occam Court
Surrey Research Park
Guildford
Surrey GU2 7HJ
www.ergomedplc.com