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Proteome Sciences plc
Registered number: 02879724
Report and Financial Statements
for the year ended 31 December 2017
249489 Proteome cover.qxp 24/04/2018 15:40 Page IBC1
NOMINATED ADVISERS AND STOCKBROKERS
NOTICE OF MEETING
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Remuneration of directors
The Current Articles state that the aggregate annual remuneration of the directors (other than received
in an executive capacity) is £120,000. The New Articles have increased this amount to £250,000 in order
to provide sufficient headroom for inflationary increases and for further directors to be appointed, should
it be desirable to increase the Board size as part of the growth plans or strategy for the Company.
Retirement by rotation
The Current Articles require that one third of the directors or the number nearest to but not exceeding
one third should retire by rotation at each Annual General Meeting, this can, depending on appointments
and resignations mean that can be in office for more than three years before next being subject to
retirement by rotation. The new Articles provide that directors will need to retire by rotation at every third
Annual General Meeting following the Annual General Meeting when they were last elected or re-elected.
Change of name
Under the 1985 Act, a company could only change its name by the shareholders passing a special
resolution. The 2006 Act permits companies to have in their articles of association an alternative method
to effect a name change. The New Articles enable the directors to change the Company’s name by
passing a Board resolution. Whilst it is recognised that the New Articles enable the directors to change
the Company’s name without seeking shareholder approval, there are currently no plans to rebrand the
Company or change its name. Any decision to do so would only be taken upon the completion of a full
assessment of the Company’s brand and its strategy.
Provision for employees
The 2006 Act enables the directors to make provisions for current and former employees of the company
(or any of its subsidiaries) in connection with the cessation or transfer of the whole or part of the
undertaking of the company or one of its subsidiaries, if they are so authorised by the articles of
association or by the shareholders in general meeting. The New Articles enable the directors to exercise
such a power which reflects best practice, whereas the Current Articles permit the directors to exercise
such a power if the maximum payment to any individual is no higher than 50% of their gross annual
salary, otherwise a special resolution of the shareholders is required to sanction such a payment.
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Proteome Sciences plc IBC1
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CONTENTS
BUSINESS REVIEW
Chief Executive Officer’s Statement
Strategic Report
GOVERNANCE
Board of Directors
Directors’ Report
Independent Auditor’s Report
FINANCIAL STATEMENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated and Company Cash Flow Statements
Notes to the Consolidated Financial Statements
AGM INFORMATION – NOTICE OF MEETING
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CHIEF EXECUTIVE OFFICER’S STATEMENT
our services business and inspired a complete
review of our commercial practices resulting in the
adoption of an agent-based sales model in our
principal operating territories.
With the continuing growth of our TMT® reagents
business, through an exclusive licence with Thermo
Fisher Scientific, the Company is now well placed
to deliver a hybrid model of product and service
provision which is increasingly favoured in the
bioscience community by customers seeking
relationships with organisations capable of broader
engagement.
Like most other sectors in 2017, the life sciences
were affected by uncertainty surrounding Brexit,
the unexpected outcome of the US election and
impending tax reforms. The combination of these
events saw many companies adopt a more
conservative approach than in previous years and
this caution was particularly evident in decision
making around outsourcing and collaboration. As
a small company trying to establish a services
business we were not
the
consequences and had to work hard building new
relationships that could generate future revenues.
Significant volatility
foreign exchanges
in
throughout
the year affected non-sterling
denominated revenues, as well as those costs
associated with our primary facility in Frankfurt, but
the overall effect on EBITDA was neutral.
immune
from
Staff turnover was higher than in previous years, in
part a consequence of the dynamic environment
in which we operate but also of a strategic decision
to reduce our operating costs through natural and
forced attrition. As we begin 2018 our budgeted
headcount of 29 will be approximately 30% lower
than at the start of 2017. This turnover included the
departure in August of our Finance Director, Geoff
Ellis, who had made a significant contribution to
fiscal management and reporting during his three-
year tenure. We are fortunate to have had
established employees, in both Stefan Fuhrmann
and Victoria Birse, who were well qualified to
assume
the roles of Finance Director and
Company Secretary respectively.
After a year of significant change inside the
Company, and profound economic uncertainty
outside, I am pleased to report a solid 12 months
ending 31 December 2017. Revenue increased
23% to £3.38m, including a 79% increase in sales
and royalties attributable to isobaric tandem mass
tag (TMT®) reagents. Total costs reduced by 4.5%
to £5.43m
impact of
consolidating our facilities and operations and
restructuring, which itself generated one-off costs
of £0.14m. Loss before tax was reduced to £2.05m
but remained higher than planned. Cash reserves
at the year-end were £0.91m owing to the payment
of a material R&D tax credit being delayed into
2018.
the early
reflecting
In the first half of the year we implemented some
important elements of the strategy which had
underpinned our fundraise in late 2016, notably
those affecting our physical footprint and internal
capabilities. The decision to integrate all laboratory
equipment and competencies at our existing facility
in Frankfurt was difficult given our UK heritage, and
unfortunately resulted in the redundancy of four
staff members, but it has certainly enabled more
efficient
resource utilisation and clearer
accountabilities. The associated relocation of the
Company headquarters from Cobham to central
London in June has afforded us much greater
connectivity with the UK bioscience community
and is a fundamental requirement for successful
partnership and collaboration. I am pleased that
the combination of these two transformational
events was achieved with only minimal cost and
business disruption.
the critical strategic
importance of
Given
commercialising our proteomic services to the
future success of the Company, I was delighted to
appoint Richard Dennis as our
first Chief
Commercial Officer at the start of April. With a
strong background in sales and marketing, and
extensive technical experience gained at several
quickly
competitor
transformed our commercial identity and ambition
with his focus on face to face selling, account
management, and an established client network
across Europe. His arrival heralded a relaunch of
companies,
Richard
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CHIEF EXECUTIVE OFFICER’S STATEMENT
After providing outstanding service and scientific
insight over 20 years as a Director of the Company,
Prof. William Dawson decided to stand down in the
summer. We thank him for his unique contribution
and are delighted to welcome Dr Ursula Ney to the
Board in his place. Dr Ney’s extensive experience
of the bioscience industry in a range of senior
positions within both large and small companies
make her ideally suited to a role on the Board at this
pivotal stage in the Company’s evolution.
I would like to thank all the staff who worked for
Proteome Sciences during the course of 2017,
including those who have since left the Company,
and trust that we can continue to realise the value
of their collective contributions.
Services
The wholescale repositioning of our proteomic
services business was a basic tenet of the revised
corporate strategy, and much of the year was spent
establishing and communicating
this. Active
participation
the Alzheimer’s Association
International Conference (AAIC), held in London
during July, served as an effective launch platform
for
initiative as well as
demonstrating a more externally focused agenda.
this revised sales
in
A new commercial model was adopted from
August in the critical US market using United
BioChannels (UBC) as our sales agent. UBC
provides us with introductions to prospective new
customers and broad coverage on both US coasts,
replacing direct sales staff in the region. With the
prospect of working primarily on a commission
basis, this model represents a more cost-effective
approach to sales generation, and been replicated
in Europe from the start of 2018 using Cenibra
GmbH to access German speaking countries. We
have also partnered with Science Exchange, a US
rapid, no cost
facilitates
company which
engagement of new customers using pre-
negotiated legal agreements, and Scientist.com, a
web-based sales portal. All market support
activities have been moved outside
the
organisation and will now be purchased as
required in London.
Central to our service provision is the creation of a
quality culture which can reassure prospective
customers and provide a distinctive selling feature.
To that end, we were very pleased to receive Good
Clinical Laboratory Practice (GCLP) accreditation
in October, enabling us to compete effectively for
clinical stage contracts which command routinely
larger budgets. This, combined with our existing
ISO 9001 recertification, makes our Frankfurt
facility uniquely well qualified to provide mass
spectrometric proteomic services to a broad range
of clients; the advantages of this are becoming
unsolicited
increasingly
engagement via our website.
through
evident
Of course, attracting and retaining new business
will only succeed if project execution matches
customer expectations of time and cost as well as
quality. The introduction of a dedicated project
management function was a deliberate action to
integration,
ensure better
management and communication of our contract
service work; a series of project delivery metrics
has been established to reinforce this.
cross-functional
Progress, in terms of explicit revenue generation,
was slow in the first half of the year as might have
been predicted while the new commercial model
was being introduced, but we were encouraged by
the increasing number of active commercial
projects during the second half. Starting from a
very low revenue base we saw quarterly growth
from the second quarter onwards in terms of sales
and orders received. The pipeline certainly looks
stronger in Q1’18 both for new customers,
interested in proof of concept experiments, and for
existing customers wishing to extend current
projects or requesting targeted assay development
in support of forthcoming clinical trials. These
enquiries must now be routinely and quickly
converted into substantive work orders to that we
can draw positive conclusions about the longer-
term commercial potential of our services strategy.
Licences
Our exclusive licence to provide Thermo Scientific
with isobaric tagging reagents (TMT®) continues to
be mutually beneficial. Strong sales and associated
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CHIEF EXECUTIVE OFFICER’S STATEMENT
royalty payments have been essential to our
revenue growth and demand increased throughout
the year as TMT® reinforced its market leadership
position. Cumulative sales have now exceeded
$25m worldwide, a milestone which triggered a
significant additional payment that we received
from Thermo Scientific in the fourth quarter. Scope
remains
further growth as
adoption by key opinion leaders spreads to the
wider research community, and key to this will be
the introduction of ‘higher plexing’ reagents which
enable even more efficient sample analyses. Work
to identify such new tags has been conducted in
close association with our partners at Thermo
Scientific and we hope that these improvements will
start to become available during 2018.
for considerable
between
ischaemic
Data from a prospective trial using the Randox
Rapid Stroke Array were presented at
the
EuroMedLab meeting in Athens in June. The array,
which incorporated some of our biomarkers,
showed excellent performance in identifying stroke
from mimic conditions and healthy controls, and in
differentiating
and
haemorrhagic strokes. These data were sufficient
to trigger an important contractual milestone with
Randox which was announced on 30 June and,
more critically, to suggest the utility of a future
diagnostic including stroke biomarkers covered by
our intellectual property (IP). Given the global
incidence of stroke, and the therapeutic liability
associated with inaccurate clinical diagnosis, the
market opportunity for such a diagnostic is
considerable. However, a clinical validation study
being supported by Randox, and necessary for
(Conformité Européene) marked
their CE
application, will now take longer than originally
communicated owing largely to the speed of
patient recruitment; a timeline has yet to be set but
is expected to extend into 2019.
Research
The focus on service provision has inevitably
constrained our own primary research activities as
we aggressively manage finite resources, but we
remain indisputably a science-based company
with a commitment
through
partnerships and collaboration. We have retained
research
to
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Proteome Sciences plc
interest
in neurodegeneration and
a strong
oncology, continuing our investment in commercial
assay development which is relevant to these
therapeutic areas (e.g. Clusterin Glycoform;
recent
Tryptophan Metabolite) and
customer feedback for services which can be
readily converted into standard GCLP tools for use
in clinical trials.
reflects
Our IP portfolio remains central to the Company’s
valuation but continues to be the subject of review;
deliberate rationalisation has been a goal over the
last 18 months and the number of patent families
and, importantly, the cost of their maintenance is
now more in line with the expectations and
resources of a company our size.
Outlook
With the benefits of a leaner organisation, a new
model for commercial engagement now fully
deployed in both our principal operating territories,
and the reassurance of robust and growing
demand for our TMT® reagents, we have the
platform necessary to realise the full value of our
proteomic capabilities. The recent extension of our
exclusive licence agreement with Thermo Scientific,
to include patents relating to a new class of higher-
plex TMT reagents currently under development,
affords us further optimism.
I am conscious, however, that much remains to be
done and that sentiment towards the Company will
depend on positive news from our services
business in the first half of 2018. As we continue
to expand our range of enabling technologies we
are confident that our long-term commitment to
proteomics, combined with a renewed focus on the
speed, cost and quality of our service delivery, will
enable us to remain competitive in a dynamic
market which increasingly encourages companies
with broader service platforms than our own.
Our goals are heavily focused on service revenue
growth and establishing enduring partnerships and
collaborations. Customer engagement showed
genuine signs of improvement late in 2017, with an
unprecedented number of unsolicited contacts
and this has continued into 2018 with booked
249489 Proteome p01-p25.qxp 24/04/2018 14:17 Page 5
CHIEF EXECUTIVE OFFICER’S STATEMENT
orders in the first quarter worth £0.33m, up 37% on
the same period in 2017.
Quantitative proteomics is essential for translating
knowledge about the genetic basis of disease into
practical, targeted therapeutics. Its place in the
rapidly evolving world of drug discovery and
development is undeniable, and its relevance to
future transformative technologies, such as those
based on artificial intelligence, assured. We remain
committed to that future.
I would like to thank our shareholders for their
to
continued support and
communicating further progress and significant
revenue growth during 2018.
forward
look
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Chief Executive Officer
23 April 2018
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STRATEGIC REPORT
Review of the Business
The principal activities of the Group involve protein
biomarker research and development. As a leader
in applied proteomics we use high sensitivity
proprietary techniques to detect and characterise
differentially expressed proteins in biological
samples for diagnostic, prognostic and therapeutic
invented and
In addition, we
applications.
for TMT®, and
technology
developed
manufacture these small, protein-reactive chemical
reagents under exclusive licence to Thermo
Scientific for multiplex quantitative proteomics.
the
Proteome Sciences is a leading provider of
contract research services for the identification,
validation and application of protein biomarkers.
Our clients are predominantly pharmaceutical
companies but we also perform services for other
sectors including academic research. While we
have several well-established workflows that meet
the needs of many customers, we retain our
science-led business
focus, developing new
analytical methods and data analysis tools to
provide greater flexibility in the types of studies we
can deliver. Our contract service offering remains
centred on mass spectrometry-based proteomics,
and this is becoming more widely implemented in
drug development projects as the pharmaceutical
industry seeks to expand biological knowledge
beyond genomics. These services are fully aligned
with the drug development process, can be used
in support of clinical trials and in vitro diagnostics,
and include proprietary bioinformatics capabilities.
There were significant organisational developments
in 2017 affecting what we do, where we do it and
how we generate commercial contracts, all of
which had positive impacts during the second half
of the year. Closure of the UK research laboratory
simplified project delivery and increased efficiency,
leading to improved delivery times which are
important for our customers. Equally, attainment of
GCLP certification
in October provides an
additional source of business from targeted
proteomics in the context of clinical trial support for
our pharmaceutical clients; this has led to several
new projects initiating in 2018.
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Proteome Sciences plc
The main research focus of the Group continues to
be directed
towards neurodegenerative and
oncological diseases. While the increasing number
of commercial projects inevitably affected the extent
of our internal research, we have made progress in
developing a Clusterin Glycoform Assay, for the
assessment of Alzheimer’s disease status, and a
Tryptophan Metabolite Assay, which has utility in
assessing tumour growth and may serve as an
important tool for monitoring immuno-oncology drug
treatment. We have also implemented a substantially
improved method for blood sample analysis,
providing unparalleled coverage of low abundant
proteins
with
when
TMTcalibrator™, allowed us to quantify over 8,000
blood proteins and identify key disease-related
biomarkers for one of our customers.
combined
which,
The complexity of our commercial projects is
generally increasing, and we are seeing growth in
repeat business from several clients although more
work is clearly required for us to become
established as a preferred supplier. One of the key
drivers for customers in 2017 was our strong
technical competence and the ability to perform
sophisticated, bespoke projects.
Details of the Group’s performance during the year
and expected future developments are contained
in the Chief Executive Officer’s Statement on
pages 2 to 5.
Progress During 2017
Biomarker Services
Revenue from Biomarker Services decreased by
£0.35m to £0.90m in 2017. However, the slow start to
the year, inevitably affected by the reorganisation of
our research and sales organisations, was followed
by sustained quarterly growth which is continuing
into 2018 with booked orders in the first quarter worth
£0.33m. Progress in the sale of targeted assays was
also slower than anticipated due to delays in
the Clusterin Glycoform and
development of
the
Tryptophan Metabolite
development of these assays progresses well, we do
not anticipate their availability within the certified
GCLP laboratory until the second half of 2018.
assays. While
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STRATEGIC REPORT
We completed the Alzheimer’s disease diagnostic
assay validation project
for Genting TauRx
Diagnostics Centre with final results delivered in
December. No further work relating to a companion
diagnostic discovery project has yet been
approved.
of
core
technologies
The majority of projects completed in 2017 utilised
SysQuant®,
our
TMTcalibrator™ and TMT®MS3. However, we also
saw a growing demand for the development of
targeted mass spectrometry assays for use in
clinical trials. This was in part driven by our GCLP
certification, the result of a considerable effort in
2017, and we are one of very few companies now
able to offer this for protein mass spectrometry. This
is a critical development for the Company and
provides access to an additional client base which
currently has few other options.
Building a New Commercial Process
As our market presence is becoming more widely
recognised, we undertook a review of our sales
and marketing processes and introduced a new
commercial strategy in the middle of 2017 following
the appointment of Richard Dennis as Chief
Commercial Officer. The most significant change
has been a switch from internal direct sales
resources to the appointment of locally deployed,
commission-based sales agents which we use as
‘lead finders’ for the Company. Currently we are
using agents in the US and central Europe,
territories which collectively represent around 80%
of the global market for proteomic research
services. Once leads have been identified by these
agents, they are turned over to Proteome Sciences
and we handle the face-to-face (or more often
remote, e-based) meetings, presentations,
webinars and technical discussions.
Our aim is to sell an analytical contract through
which we first work with a client to establish their
research needs, then develop a specific protocol,
and finally perform proteomic studies on a fee for
service basis using samples that they send us.
Internal lines of communication that facilitate the
transition from sales agent to company are now
well established, alongside metrics to ensure this
strategy is working. During 2017 we have worked
on our response times, both to incoming project
enquiries and to the submission of an agreed work
contract back to the client. Overall project delivery
time is also monitored, and we routinely deliver
results on time and within budget. This certainly
makes us a more professional service provider in
the eyes of the client, who is rightly focused on
time, cost and quality, and enables us to support
ongoing clinical trials. Such opportunities demand
reliable project delivery but have the advantage of
predictably higher budgets.
The interface between internal research and the
sales function has also been strengthened to
ensure we are able to respond to changes in
market demand for specific technologies. This is
well illustrated by the timely introduction of a Super
Depletion TMTcalibrator™ workflow (described
below) as the market for blood biomarker discovery
projects is experiencing a renaissance.
In addition to improving our sales process we have
also started to re-engineer our marketing efforts.
Through our US and European sales agents we
have greater opportunity for regular mailshots and
press releases, with a wider distribution network.
We have also revamped our strategy for attending
exhibitions and scientific meetings with a
streamlined stand design and flexible, tailored
literature appropriate to each event. Initial feedback
is positive and has already provided a number of
new projects and requests for proposals.
Such front-line changes have resulted in a
significantly more efficient sales and marketing
capability, better aligned with functional delivery,
and demonstrating quarter by quarter revenue
growth since the middle of 2017.
that
Taking Tissue to the Periphery
Proteomics research involves identifying blood
biomarkers
reflect disease processes
occurring in tissues and demonstrating how
diseased tissue responds to drug treatment.
Historically, these discovery efforts have studied
blood protein expression independent of the
relevant diseased tissue, thereby often failing in
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STRATEGIC REPORT
STRATEGIC REPORT
their primary objective. More recently we have
introduced TMTcalibrator™ where the use of TMT®
10plex reagents allows tissue and blood samples
to be combined, enhancing the detection rate of
disease-related biomarkers.
In 2017 we extended the utility of TMTcalibrator™
by introducing a more powerful method for
removing high and medium abundant blood
proteins prior to analysis. Working with one of our
clients, we applied the combined Super Depletion
TMTcalibrator™ workflow to identify putative blood
biomarkers of disease response to treatment. This
study demonstrated unparalleled coverage of the
plasma proteome and identified several potential
new biomarkers related to the client’s area of
to standard
interest. Compared
therapeutic
methods, Super Depletion alone
increased
coverage from around 1,500 to over 4,000 plasma
proteins. With
the enhanced sensitivity of
TMTcalibrator™ a further two-fold increase was
achieved, with over 8,000 plasma proteins
quantified, including many not previously reported
in plasma proteomics studies. Data from this study
are scheduled for presentation at an international
conference in May 2018.
Intelligent Insights
In addition to substantial gains in protein coverage
obtained through our internal development efforts,
we have further refined our bioinformatics tools to
deliver better biological insights for customers.
During the process of GCLP accreditation we had
to validate our computational methods, affording us
the opportunity to improve the speed and efficiency
result, our modular
of processing. As a
bioinformatics workflow can process mass
spectrometry data and perform detailed analyses
of underlying biological pathways with fewer user
interactions; this provides fast-track access to new
drug targets and biomarkers.
Previously communicated plans to establish a
bioinformatics business unit remain part of our
longer-term strategy but have not yet been realised
in the face of implementing other more immediate
initiatives.
Tandem Mass Tags®
Sales of TMT® continued to show strong growth with
revenues increasing by £1.10m to £2.48m, although
this included a one-time sales milestone of £0.58m.
Growth continues to be driven both by established
users and the adoption of TMT® by new research
groups. There was also an increase in the licensing
of commercial TMT® users and we anticipate this
adding sales value in 2018. In order to meet this
growing demand, we started making an additional
batch of standard TMT® 10plex reagents and this
effort will be completed in the second quarter of
2018. We retain sufficient stocks to meet Thermo
Scientific’s requirements until then.
Development of higher plexing-rate tags continued
in 2017 with promising results obtained from a
prototype set of four tags. We have started synthesis
of the remaining 12 tags required to deliver the full
set of 16plex reagents and expect these to be
available later in 2018. Patents covering these new
reagents have been filed in the key commercial
jurisdictions and we continue to prosecute them to
ensure their earliest issuance.
Internal Research Activities
With an increased focus on commercial projects,
efforts to attain GCLP certification and closure of
the UK research laboratory, we have reduced the
scale of our internal disease biomarker research.
Our programs in Alzheimer’s disease and liver
cancer have reached a level of maturity where
external groups can develop the evidence for utility
of our patented biomarkers.
Our research programs in amyotrophic lateral
sclerosis (ALS) have also been concluded and
results are being prepared for publication. Through
these projects we have gained new insights into
potential disease mechanisms and peripheral
biomarkers that may aid the management of this
disease in the future.
External evaluation of our CK1d inhibitors in a new
therapeutic indication was concluded in 2017 but
the compounds were not found to be suitable. We
continue to explore partners for their use in
Alzheimer’s disease and other neurodegenerative
conditions.
8
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STRATEGIC REPORT
Patent Applications and Proprietary Rights
We continue to manage our portfolio of patents to
maximise its short, medium and longer-term value.
Sixteen patents were granted in 2017 relating to
nine separate families. We also filed 11 new patents
relating to four families covering new panels of
Alzheimer’s disease biomarkers and casein kinase
inhibitors. A further 151 individual cases from
33 families have either expired or been allowed to
lapse as they no longer offered economic value.
Board Changes
On 25 July 2017 the Company announced that
Geoff Ellis had resigned as Finance Director.
On 1 August 2017 the Company announced that
Dr Ursula Ney had been appointed as a
non-executive director, replacing Prof. William
Dawson who was standing down after providing
20 years of valuable service. Dr Ney has more than
30 years’ experience of the biopharmaceutical
industry in a range of senior positions within large
and small companies.
Financial Review
Results and Dividends
The loss after tax for the year was £2.50m (2016:
£2.28m). The directors do not recommend the
payment of a dividend (2016: Nil). The Group
results are stated in the Consolidated Income
Statement on page 26 and are reviewed in the
Chief Executive Officer’s Statement on pages 2 to 5
and the Strategic Report on pages 6 to 11.
Key Performance Indicators (KPI’s)
(i) The directors consider that revenue and loss
before tax are KPI’s in measuring Group
performance; the profile of the Group is
changing as a
licensing
agreements that have already been entered
into and as other commercial agreements and
contracts are concluded. The performance of
the group is set out in the Chief Executive
Officer’s Statement on pages 2 to 5.
result of
the
(ii) In a small business with a high proportion of
well-qualified and experienced staff, the rate of
staff turnover is seen as an important KPI. In
FY2017 three members of staff resigned,
including the Finance Director. The three
resignees were not replaced as a cost
containment measure and their responsibilities
were redistributed within the organisation. In
addition, four members of staff were made
redundant as a consequence of the closure of
the London laboratory, and two long-term
contractors based in the US were not re-
engaged in advance of changes to the
commercialisation model.
(iii) The directors believe that a further important
KPI is the Group’s rate of cash expenditure and
its effect on Group cash resources. Net cash
outflows from operating activities for FY2017
were £1.70m (2016: £1.99m). Further details of
cash flows in 2017 are set out in the Group’s
Consolidated Cash Flow Statement on page 32.
(iv) As a commercially oriented business, service-
based contract revenues should increase in
absolute terms as well as a proportion of total
group revenues; however, this was not the case
in 2017 (£0.90m; 26% vs £1.25m; 46% in 2016)
while a new business model was being
implemented. In these changing circumstances
the average value of our service contracts is
unlikely to provide a reliable measure of
business performance as we had previously
suggested. However, repeat business should
indicate a level of customer satisfaction and in
2017, 50% of our new contracts (42% by value)
were from existing clients compared with 42%
(35% by value) in 2016.
(v) As the company establishes a primary contract
research business a reliance on service-based
metrics will reflect our focus on the time, cost
and predictability of delivery. Response times
for client inquiries and contract submissions, as
well as overall project delivery timelines, are
relevant here. However, given the fundamental
change in our commercialisation model during
2017 these KPI’s have no adequate baseline or
comparator from previous years and will
therefore be a focus for the future.
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STRATEGIC REPORT
Financial Performance
Compared to the previous year our revenues
showed strong growth. Revenue for the 12 month
period ended 31 December 2017 increased 23%
to £3.38m (2016: £2.74m).
(cid:129) Staff costs for the year stayed the same as
2016 due to redundancy payments resulting
from the closure of the UK Laboratory;
consequently, these costs are expected to
reduce in 2018.
(cid:129) Sales and Services revenue rose 28% to
£3.38m (2016: £2.64m). This is comprised of
two revenue streams, TMT® and Biomarker
Services. TMT® revenues increased by 79%
through a mix of increased sales of TMT® tags
and a marked increase in the associated royalty
and milestone payments due from our exclusive
distribution partner
Thermo Scientific.
Biomarker Services revenue declined by 28%,
due
the sales
to
organisation.
restructuring of
the
(cid:129) Grant services were £Nil (2016: £0.11m).
The loss before tax was £2.05m (2016: £2.94m).
As the recoverable assets of the company are
significantly lower than the valuation of non-current
assets due to the reduced market capitalisation, an
impairment charge has been applied for a third
consecutive year.
Owing to the changing nature of our services
business, with a stronger focus on commercial
activities, we have not recognised an R&D tax credit
for 2017, referred to in note 11 (page 44) and
note 15 (iii) (page 48), which marks a change in
accounting practice from previous years.
Costs and Available Cash
The Group maintained a positive cash balance in
2017 and continues to seek improved cash flows
from commercial income streams. Despite the rise
in revenues, our operating costs have largely been
contained.
(cid:129) Administrative expenses in 2017 were £4.01m
(2016: £4.24m). This is a decrease of 5.4%,
representing cost savings
the
relocation of the UK Laboratory. The full benefit
of this consolidation will take effect from 2018
onwards.
following
10 Proteome Sciences plc
(cid:129) Property costs of £0.3m were in line with
previous years.
(cid:129) Other overheads decreased by £0.23m as a
result of cost containment initiatives driven by
a review of patent obligations.
(cid:129)
(cid:129)
Finance costs arise as a result of interest due
to the Non-Executive Chairman, Christopher
Pearce, from his loan to the company. Costs of
£0.25m are in line with the prior year.
Loss after tax for 2017 was £2.50m (2016:
£2.28m). The net cash outflow from operating
activities was £1.70m (2016: £1.99m). Cash at
the year-end was £0.91m (2016: £2.88m).
Principal Risks and Uncertainties
Commercialisation Activities
It is uncertain whether our range of contract
proteomic services will be purchased in sufficient
quantity for the Group ultimately to be successful
in the commercial market. Progress in 2017 was
initially slow after the complete revision of our
service offering, but interest and orders were
increasing by the end of the year.
Management of Risk: The Group has sought to
manage this risk by recruiting a Chief Commercial
Officer with extensive experience of sales and
marketing in the sector, revising the overall
commercialisation strategy in accordance with a
niche contract services business, and utilising
commission-based sales agents in the principal
territories of the US and Europe.
Dependence on Key Personnel
The Group depends on its ability to attract and
limited number of highly qualified
retain a
managerial and
the
competition for whom is intense. While the Group
has entered
into conventional employment
arrangements with key personnel aimed at
scientific personnel,
249489 Proteome p01-p25.qxp 24/04/2018 14:17 Page 11
STRATEGIC REPORT
securing their services for minimum terms, their
retention cannot be guaranteed as evidenced by
three resignations during 2017.
individual, and
Management of Risk: The Group has a policy of
organising its work so that projects are not
dependent on any one
the
appointment of a full time Project Manager is
intended to align the availability of limited functional
resources more
customer
commitments. Staff retention is also sought through
annual, role-based reviews of remuneration
packages, performance related bonus payments,
and the opportunity for share option grants.
directly with
Licensing Arrangements
The Group intends to continue sub-licensing new
discoveries and products to third parties, but there
can be no assurance
licensing
arrangements will be successful.
that such
Management of Risk: The Group manages this risk
by a thorough assessment of the scientific and
commercial
feasibility of proposed research
projects which is conducted by an experienced
management team. Risk has also been reduced by
decreasing the overall number of research projects
and distributing available resources.
Competition and Technology
The international bioscience sector is subject to
rapid and substantial technological change. There
can be no assurance that developments by others
will not render the Group’s service offerings and
research activities obsolete or otherwise
uncompetitive. Proteomics remains a growth area
attracting new companies with increasingly broad
and varied capabilities.
Management of Risk: The Group employs highly
research scientists and senior
experienced
managerial staff who monitor developments in
technology that might affect the viability of its
service business or research capability. This is
achieved through access to scientific publications,
attendance at conferences and collaboration with
other organisations.
The
technologies.
Patent Applications and Proprietary Rights
The Group seeks patent protection for identified
protein biomarkers which may be of diagnostic,
prognostic or therapeutic value, for its protein-
reactive, chemical mass tags, and for its other
proprietary
successful
commercialisation of such biomarkers, chemical
tags and proteomic workflows is likely to depend
on the establishment of such patent protection.
However, there is no assurance that the Group’s
pending applications will result in the grant of
patents, that the scope of protection offered by any
patents will be as intended, or whether any such
patents will ultimately be upheld by a court of
competent jurisdiction as valid in the event of a
legal challenge. If the Group fails to obtain patents
for its technology and is required to rely on
unpatented proprietary technology, no assurance
can be given that the Group can meaningfully
protect its rights.
Management of Risk: The Group has an
experienced patent capability which has
established controls to avoid the release of
patentable material before it has filed patent
applications. Moreover, maintenance of the existing
patent portfolio is subject to biannual review in
order to ensure that its ongoing cost is proportional
to its perceived value.
By Order of the Board
Hamilton House
Mabledon Place
London WC1H 9BB
V Birse
Company Secretary
23 April 2018
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BOARD OF DIRECTORS
for the year ended 31 December 2017
Christopher Pearce
Non-executive Chairman (i) (ii) (iii)
Christopher Pearce has built the Group since
inception and has been responsible for the
implementation of strategy,
formulation and
collaborative and licensing agreements, and
intellectual property. He was co-founder and
Executive Chairman of Fitness First plc.
Prof. William Dawson
(resigned 1 August 2017)
Non-executive Director (i) (ii) (iii)
William Dawson retired from Eli Lilly and Company
in August 1996 after 27 years’ service, 14 as
Research Director in the UK and latterly as Director
of Technology Acquisition, Europe. He is a Director
of Bionet Limited and is a Fellow of the Royal
Pharmaceutical Society and of the Royal Society
of Chemistry.
Roger McDowell
Non-executive Director (i) (ii) (iii)
Roger McDowell has a highly successful career as
a businessman and entrepreneur. He was
Managing Director of Oliver Ashworth for 18 years
before its sale to St. Gobain. He is currently the
Chairman or non-executive director of seven listed
companies, namely Avingtrans plc, Servelec Group
plc, Renovo plc, Alkane Energy plc, Swallowfield
plc, IS Solutions plc and Augean plc. He provides
considerable commercial experience and is a keen
exponent of growing shareholder value.
Martin Diggle
Non-executive Director
Martin Diggle has worked in finance for over 30
years. He was a director and partner of
UBS/Brunswick in Russia until 2003, after which he
joined Vulpes Investment Management where he is
currently a director and partner. He
is an
experienced specialist investor in life sciences and
manages the Vulpes Life Sciences Fund, the
registered holder of 18.71% of Proteome Sciences'
ordinary share capital.
Dr Jeremy Haigh
Chief Executive Officer
in a variety of clinical
Jeremy Haigh has spent 30 years in the bioscience
sector
research,
development, operational and leadership roles,
experiencing both traditional pharmaceutical and
biotechnology environments at Merck Research
Laboratories and at Amgen where most recently he
was the European Chief Operating Officer for
Research & Development. He retains a particular
interest in precision medicine and in neurological
in
diseases
neuropharmacology. He has been a strong advocate
for the biopharmaceutical industry over many years,
with significant involvement in healthcare policy and
government affairs in both the UK and Europe. He
is currently Chairman of Cogent Skills Ltd.
basic training
reflecting
his
Geoff Ellis (resigned 1 August 2017)
Finance Director
Geoff Ellis is a Chartered Accountant with over
30 years’ experience in a range of senior financial,
general management and sales and business
development roles. He spent almost 15 years at
Walt Disney where his roles included Chief
Financial Officer of Disney Channels in Europe, the
Middle East and Africa, a $500m turnover business.
Dr Ian Pike
Chief Scientific Officer
Ian Pike has over 20 years’ experience working in
the diagnostics and biotechnology sectors. Having
gained a PhD in Medical Microbiology, he joined
Wellcome Diagnostics as a research group leader
and spent eight years working on new diagnostic
assays, particularly for hepatitis. In December
1999, he joined the Technology Transfer Office of
the UK Medical Research Council with
responsibility for patents and commercialisation of
a wide portfolio of technologies related to the
biomedical sector. Most recently, Ian worked for
Cancer Research Ventures managing intellectual
property and performing business development
activities in Europe and the US.
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BOARD OF DIRECTORS
for the year ended 31 December 2017
Dr. Ursula Ney
Non-executive Director
(appointed 1 August 2017) (i) (ii) (iii)
Ursula Ney has more than 30 years’ experience in
the pharmaceutical and biotech industry, with
20 years in leadership roles in the biotech sector.
She was Director of Development and on the Board
of Celltech plc, and later COO and Executive
Director of Antisoma plc. More recently she was
CEO of the private company Genkyotex SA and is
currently a Non-executive Director on the board of
Discuva, a Cambridge, UK based start-up. She has
broad experience of drug development across a
range of therapeutic areas and products.
(i) Member of Audit Committee
(ii) Member of Remuneration Committee
(iii) Member of Nomination Committee
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249489 Proteome p01-p25.qxp 24/04/2018 14:17 Page 14
DIRECTOR’S REPORT
for the year ended 31 December 2017
the Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
Website Publication
The directors are responsible for ensuring the
annual report and the financial statements are
made available on a website. Financial statements
are published on the Company’s website in
accordance with legislation in the United Kingdom
governing the preparation and dissemination of
financial statements, which may vary
from
legislation in other jurisdictions. The maintenance
and integrity of the Company’s website is the
responsibility of the directors. The directors’
responsibility also extends to the ongoing integrity
of the financial statements contained herein.
Financial Instruments and Liquidity Risks
Information about the use of financial instruments
by the Company and its subsidiaries and the
Group’s financial risk management policies are
given in note 24 of the financial statements on
page 60.
Directors’ Responsibilities
The directors are responsible for preparing the
annual report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare
financial statements for each financial year. Under
the law the directors have elected to prepare the
group and company financial statements in
accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European
Union and applicable law. Under company law the
directors must not approve the financial statements
unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and
Company and of the profit or loss of the Group for
that period. The directors are also required to
prepare financial statements in accordance with
the rules of the London Stock Exchange for
companies trading securities on the Alternative
Investment Market.
In preparing these financial statements, the
directors are required to:
(cid:129)
select suitable accounting policies and then
apply them consistently;
(cid:129) make judgements and accounting estimates
that are reasonable and prudent
(cid:129)
state whether they have been prepared in
accordance with IFRSs as adopted by the
European Union, subject to any material
departures disclosed and explained in the
financial statements;
(cid:129) prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the company will continue in
business
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the Company and enable them to
ensure that the financial statements comply with the
requirements of the Companies Act 2006. They
are also responsible for safeguarding the assets of
14 Proteome Sciences plc
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DIRECTOR’S REPORT
for the year ended 31 December 2017
Directors and Their Interests
The Directors who served during the year are as shown below:
C.D.J. Pearce Non-Executive Chairman
Dr J. R. M. Haigh Chief Executive Officer
G. Ellis (resigned 1 August 2017) Finance Director
Dr I.H. Pike Chief Scientific Officer
Prof. W. Dawson (resigned 1 August 2017) Non-Executive
R. McDowell Non-Executive
M. Diggle Non-Executive
Dr U. Ney (appointed 1 August 2017) Non-Executive
In accordance with the Company’s articles Christopher Pearce retires by rotation at the next Annual
General Meeting and, being eligible, offers himself for re-election.
The Directors at 31 December 2017 and their interests in the share capital of the Company were as
follows:
a) Beneficial interests in Ordinary Shares:
Name of Director
31 December 2017
Number of
Ordinary Shares
of 1p each
31 December 2016
Number of
Ordinary Shares
of 1p each
C.D.J. Pearce 36,915,059 36,915,059
Dr. J. R. M. Haigh 400,000 400,000
G. Ellis – –
Dr I.H. Pike 165,583 –
Prof. W. Dawson 20,372 20,372
R. McDowell 2,500,000 2,500,000
M. Diggle – –
Dr U. Ney – –
Note
M. Diggle is a director and partner in Vulpes Investment Management and manages the Vulpes Life
Sciences Fund which is the registered holder of 18.71% of Proteome Sciences’ ordinary share capital.
No changes took place in the beneficial interests of the Directors between 31 December 2017 and
23 April 2018.
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DIRECTOR’S REPORT
for the year ended 31 December 2017
b) Directors’ interests in the Long-Term Incentive Plan (“LTIP”):
The maximum number of shares to be allocated to the Directors under the 2004 and 2011 LTIP schemes,
in each case for an aggregate consideration of £1 are as follows:
(i) C.D.J. Pearce
(ii) G. Ellis
(iii) Dr I.H. Pike
(iv) Dr J. R. M. Haigh
Number at
31 December 2017
– (b)
– (b)
3,750,000 (b)
9,000,000 (b)
Number at
31 December 2016
277,704
300,000
165,583
–
(a)
(a)
(a)
(a)
The numbers shown in (iii)(a) and (iv)(a) at 31 December 2017 relate to awards that were made during
2017.
The market price at the date of grant of the above awards numbered (i)(b) and (iii)(b) was 49.75p,
(ii)(b) was 35.75p, (iii)(a) and (iv)(a) was 4.25p.
c) As set out in note 18(b) (i) to (iii) on page 51 of these financial statements, C.D.J. Pearce has made
a loan facility available to the Company which can be converted, at Mr. Pearce’s option, into Ordinary
Shares of the Company at the lower of market price on the date of conversion or the average price
over the lowest consecutive 10 day trading period since 29 June 2006 (the date on which details of
the original loan agreement were disclosed).
d) The market price of the Ordinary Shares at 31 December 2017 was 3.1p and the range during the
year was 5.5p to 3.1p.
Substantial Shareholdings
As at 23 April 2018, the Company had received notification of the following significant interests in the
ordinary share capital of the Company:
Name of Holder
Vulpes Life Science Fund
C.D.J. Pearce
Helium Special Situations Fund
Number of
Ordinary Shares
Percentage of issued
Ordinary Share Capital
55,217,431
36,915,059
19,212,273
18.71
12.53
6.52
Corporate Governance
The Company has formalised the following matters by Board resolution:
– a formal schedule of Board responsibilities;
– the procedure for Directors to take independent professional advice if necessary, at the Company’s
expense;
– the procedure for the nomination and appointment of non-executive Directors, for specified periods
and without automatic re-appointment; and
– establishment of and written terms of reference for audit, nominations and remuneration committees.
16 Proteome Sciences plc
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DIRECTOR’S REPORT
for the year ended 31 December 2017
Internal Control
The Board has overall responsibility for ensuring
that the Group maintains a system of internal
control to provide its members with reasonable
assurance regarding the reliability of financial
information used within the business and for
publication and that assets are safeguarded. There
are inherent limitations in any system of internal
control and accordingly even the most effective
system can provide only reasonable, and not
absolute, assurance with respect to the preparation
of accurate
the
safeguarding of assets.
information and
financial
The key features of the internal control system that
operated throughout the year are described under
the following headings:
(cid:129) Control environment: particularly the definition
of
the
the organisation structure and
appropriate delegation of responsibility to
operational management.
(cid:129)
Identification and evaluation of business risks
and control objectives: particularly through a
formal process of consideration and
documentation of risks and controls which is
periodically undertaken by the Board.
(cid:129) Main control procedures: which include the
setting of annual and longer term budgets and
the monthly reporting of performance against
them, agreed
treasury management and
physical security procedures, formal capital
expenditure and investment appraisal approval
procedures and the definition of authorisation
limits (both financial and otherwise).
(cid:129) Monitoring: particularly through the regular
review of performance against budgets and the
progress of research activities undertaken by
the Board.
The Board reviews the operation and effectiveness
of this framework on a regular basis. The directors
consider that there have been no weaknesses in
internal controls that have resulted in any losses,
contingencies
requiring
uncertainties
or
disclosures in the financial statements.
Going Concern
The Group’s business activities, together with the
factors likely to affect its future development,
performance and position are set out in the Chief
Executive Officer’s Statement on pages 2 to 5 and
Strategic Report on pages 6 to 11. The financial
position of the Group, its cash flows, liquidity
position and borrowing facilities are described in
the notes to the financial statements, in particular
in the consolidated Cash Flow Statement on page
32 and in notes 18 (b) (Financial Liabilities) and 24
(Financial
Instruments) on pages 51 and 60
respectively.
The Group’s financial statements have been
prepared on the going concern basis which
the Group achieving an
remains reliant on
adequate level of sales in order to maintain
sufficient working capital to support its activities.
The directors have reviewed the Group’s going
concern position, taking account of current
business activities, budgeted performance and the
factors likely to affect its future development, as set
out in the Annual Report, and including the Group’s
objectives, policies and processes for managing its
working capital, its financial risk management
objectives and its exposure to credit and liquidity
risks.
The directors have prepared cash-flow forecasts
covering a period of at least 12 months from the
date of approval of the financial statements, which
foresees that the Group will be able to operate
within its existing working capital facilities, however
the timeline required to close sales contracts and
the order value of individual sales continues to vary
to
considerably, which constrain
accurately
performance.
revenue
Furthermore, the Group’s services are still in the
development phase and as such the directors
consider that costs could exceed income in the
short term. The directors intend that the Group will
continue to pursue its sales strategy and focus its
operational plans on the importance of achieving
sustained positive cash-flow generation.
the ability
predict
The Group is also dependent on the unsecured
loan facility provided by the Chairman of the Group
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249489 Proteome p01-p25.qxp 24/04/2018 14:17 Page 18
DIRECTOR’S REPORT
for the year ended 31 December 2017
period relative to the AIM Healthcare Index. No
shares will be released unless the Company’s TSR
performance exceeds that of the Index, in which
case 30% of the award will vest. The full award will
vest only if the Company’s TSR performance
exceeds that of the Index by 10%, with a pro-rata
award between 30% to 100% for each percentage
point of out-performance up to 10%.
Before awards vest the Remuneration Committee
will satisfy itself that the TSR performance is a
genuine reflection of the Company’s underlying
performance over the three-year performance
period.
Auditor
Each of the persons who are Directors of the
Company at the date when this report was
approved confirms that:
(cid:129)
(cid:129)
so far as the Director is aware, there is no
relevant audit information (as defined in the
Companies Act 2006) of which the Company’s
auditor is unaware; and
the Director has taken all steps that they ought
to have taken as a Director to make themselves
aware of any relevant audit information (as
defined in the Companies Act 2006) and to
establish that the Company’s auditor is aware
of that information.
This confirmation
is given and should be
interpreted in accordance with the provisions of
s418 of the Companies Act 2006.
The directors will place a resolution before the
Annual General Meeting to appoint BDO LLP as
auditor for the following year.
which, under the terms of the facility, is repayable
on demand. Further details of this facility are set
out in note 18(b) to the financial statements on
page 51. The directors have received confirmation
from the Chairman that he has no intention of
seeking its repayment, with the facility continuing
to be made available to the Group, on the existing
terms, for at least 12 months from the date of
approval of these financial statements.
Events After the Balance Sheet Date
There have been no significant events which have
occurred subsequent to the reporting date.
Research and Development
Details of the Group’s activities on research and
development during the year are set out in the
Strategic Report on pages 6 – 11 and Chief
Executive Officer’s Statement on pages 2 – 5.
role of
Remuneration committee report
The Remuneration Committee is made up of three
Non-executive Directors, Prof. W. Dawson
(resigned on 1 August 2017), C. Pearce,
R. McDowell and U Ney (appointed 1 August 2017).
The
to make
the Committee
recommendations to the Board, within its agreed
terms of reference, on the Company’s framework
of executive remuneration and its cost and to
determine specific remuneration packages for
each of the Executive Directors. The remuneration
of Non-executive Directors is fixed by the Board as
a whole.
is
The remuneration policy for Executive Directors
and senior employees is to ensure that they are
rewarded competitively and in line with their
individual performance. Full details of
the
remuneration packages of individual Directors and
information on share options and long-term
incentive schemes are set out in note 10 to the
financial statements (page 43) and in the Directors’
Report (pages 14 – 19)..
The release of shares in respect of the awards still
outstanding to participants will depend upon the
growth of Proteome Sciences’ Total Shareholder
Return (“TSR”) over a three year performance
18 Proteome Sciences plc
249489 Proteome p01-p25.qxp 24/04/2018 14:17 Page 19
DIRECTOR’S REPORT
for the year ended 31 December 2017
Liability Insurance for Company Officers
As permitted by section 233 of the Companies Act
2006, the Company has purchased insurance
cover for the directors against liabilities that might
arise in relation to the Group.
By order of the Board
Hamilton House
Mabledon Place
London
WC1H 9BB
V Birse
Company Secretary
23 April 2018
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249489 Proteome p01-p25.qxp 24/04/2018 14:17 Page 20
INDEPENDENT AUDITORS’ REPORT
for the year ended 31 December 2017
Independent auditor’s report to the members of Proteome Sciences plc
Opinion
We have audited the financial statements of Proteome Sciences plc (the ‘parent company’) and its
subsidiaries (the ‘group’) for the year ended 31 December 2017 which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the consolidated and company
balance sheets, the consolidated and company statement of changes in equity, the consolidated and
company cash flow statements, and notes to the financial statements, including a summary of significant
accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
In our opinion:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 December 2017 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in accordance with the provisions of the Companies
Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the
group and the parent company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 3 in the financial statements (pages 34 – 40) which indicates that the group
remains reliant on achieving adequate level of sales in order to maintain sufficient working capital to
20 Proteome Sciences plc
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INDEPENDENT AUDITORS’ REPORT
for the year ended 31 December 2017
support its activities and is reliant on the unsecured loan facility provided by the Chairman not being
called in.
Although the Chairman has confirmed to the directors that he has no intention of calling in the loan, this
is not legally binding. If adequate levels of sales are not met, the group will need additional funding
within the next 12 months. As at the date of approval of these financial statements there are no
agreements in place relating to securing additional funds from existing shareholders or new investors
and therefore there can be no certainty that additional funds will be forthcoming. These events or
conditions, along with the other matters as set forth in note 3, indicate the existence of a material
uncertainty that may cast significant doubt about the parent company and group’s ability to continue as
a going concern. The financial statements do not include the adjustments that would result if the parent
company and group were unable to continue as a going concern. Our opinion is not modified in respect
of this matter.
The calculations supporting the going concern assessment require management to make highly
subjective judgements. We have therefore spent significant audit effort in assessing the appropriateness
of the assumptions involved, and as such this has been identified as a Key Audit Matter.
Our audit procedures included the following:
(cid:129) Review of the group’s cash flow forecast and other projections through to 30 June 2019, including
assessing and challenging assumptions used and performing sensitivity analysis.
(cid:129) Reviewing management’s assessment of going concern and specifically their consideration as to
whether there is the existence of any uncertainties related to going concern.
(cid:129) Reviewing the terms of the group’s financing, including loans from Mr. C.D.J. Pearce (Chairman and
a related party).
(cid:129) Reviewing post-balance sheet events, specifically cash flow.
(cid:129) Reviewing the disclosures in the financial statements.
Use of our report
This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, key audit
matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, 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. This matter was 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 this matter.
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INDEPENDENT AUDITORS’ REPORT
for the year ended 31 December 2017
Matter How we addressed the matter in our audit
the accounting must be
Revenue Recognition
The group has a number of revenue streams for
which
individually
considered. The details of the accounting policies
applied during the period are given in note 3 to the
financial statements.
Management make certain judgements around
revenue recognition, including estimating the
percentage completion of service contracts
completed by the reporting date relative to total
contract values. A cut-off risk arises around the
correct apportionment of revenue to the correct
accounting period.
Our procedures included reviewing the group’s
adopted revenue recognition policy in accordance
with the requirements of IAS 18 – Revenue. We
have reviewed the policy, and confirmed that
consistent application has been adhered to
throughout the year.
Furthermore, we have performed specific
substantive testing over each revenue stream
including the following:
(cid:129) Verifying a sample of contract
revenue
recognised in the year, reconciling to underlying
agreements, cash receipt and appropriate
trigger events for revenue reconciliation.
(cid:129) Verifying sales of TMT kits and royalties
received through to delivery order confirmation
and ultimate cash receipt.
(cid:129) Cut-off procedures for transactions recorded in
December 2017 and January 2018.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. For planning, we consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic decisions of reasonable users that
are taken on the basis of the financial statements. In order to reduce to an appropriately low level the
probability that any misstatements exceed materiality, we use a lower materiality, performance materiality,
to determine the extent of testing needed. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements,
and the particular circumstances of their occurrence, when evaluating their effect on the financial
statements as a whole.
Level of materiality applied and rationale
We determined materiality for the group financial statements as a whole to be £126,000 (2016: £147,000)
which represents 5% of loss before tax (2016: 5% loss before tax).
Materiality for the parent company has been capped at 75% of group materiality, at £94,000
(2016: £110,000).
The individual component materiality was set at 75% group planning materiality, at £80,250
(2016: £116,000).
We used loss before tax as a benchmark as this is the primary KPI used to address the performance of
the business by the board, and is consistently referenced within the RNS announcements released by
the group.
Performance materiality was set at 75% of materiality. In setting the level of performance materiality, we
considered a number of factors including the expected total value of known and likely misstatements
(based on past experience and other factors) and management’s attitude towards proposed adjustments.
22 Proteome Sciences plc
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INDEPENDENT AUDITORS’ REPORT
for the year ended 31 December 2017
Clearly trivial is defined as matters which will be a wholly different order of magnitude than the materiality
thresholds used in the audit and will be matters that are clearly inconsequential, whether taken individually
or in aggregate. We agreed with the Audit Committee that misstatements in excess of £6,300 (2016:
£7,350), which are identified during the audit, would be reported to them, as well as smaller
misstatements that in our view must be reported on qualitative grounds.
An overview of the scope of our audit
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial statements as a whole, taking into account the geographic structure of the group, the
accounting processes and controls, and the industry in which the group operates.
In establishing the overall approach to the group audit, we assessed the audit significance of each
component in the group by reference to both its individual financial significance to the group or other
specific nature or circumstances, is likely to include significant risks of material misstatement, whether
due to fraud or error of the group financial statements.
To this extent:
–
The group audit team performed full scope audits for Proteome Sciences Plc and its subsidiary
Electrophoretics Limited;
– We instructed our network member firm in Germany, as component auditors for Proteome Sciences
R&D GmbH & Co. KG to perform a full scope audit. Detailed instructions were issued and discussed
with the component auditor, and these covered the significant risks (including the group risks of
material misstatement described in the above key audit matters) that should be addressed by the
audit team. The group audit team was actively involved in directing the audit strategy of the German
audit, reviewed in detail the audit work and findings and considered the impact of these upon the
group audit opinion. We visited the German location to ensure we obtained a full understanding of
the operational activities and appropriately scoped risk and agreed responses to those risks.
–
The remaining four components not subject to full scope audit have been reviewed for group reporting
purposes, using analytic procedures to corroborate the conclusions reached that there are no
significant risks of material misstatement of the aggregated financial information of these
components.
We ensured that audit teams both at group and at component level have the appropriate skills and
competences which are needed to perform the audit of a biotechnology research and development
company. Furthermore, we included specialists in the area the Research & Development tax credits in
our team.
The group audit team centrally performed the audit of 100% of the group revenue and 100% of the
intangible assets using the materiality levels set out above.
Based on the above scope we were able to obtain sufficient and appropriate audit evidence about the
group’s financial information as a basis to form our opinion on the group financial statements as a whole.
Classification of components
We identified three individually significant components, which makes up 99.99% of Group expenditure.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon. Our
Proteome Sciences plc 23
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INDEPENDENT AUDITORS’ REPORT
for the year ended 31 December 2017
opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
(cid:129)
(cid:129)
the information given in the Strategic Report and the Directors’ Report (pages 14 – 19) for the financial
year for which the financial statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable
legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its
environment obtained in the course of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
(cid:129)
(cid:129)
adequate accounting records have not been kept by the parent company, or returns adequate for
our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and
returns; or
(cid:129)
certain disclosures of directors’ remuneration specified by law are not made; or
(cid:129) we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 14, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or the parent company or to cease operations, or have no realistic alternative but to do so.
24 Proteome Sciences plc
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INDEPENDENT AUDITORS’ REPORT
for the year ended 31 December 2017
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Iain Henderson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
23 April 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
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249489 Proteome p26-p32.qxp 24/04/2018 14:18 Page 26
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2017
Revenue
Sales of goods and services
Grant services
Revenue – total
Cost of sales
Gross profit
Administrative expenses
Operating loss
Finance income
Finance costs
Loss before taxation
Tax
Loss for the year
Loss per share
Basic and diluted
Notes
5, 6
7(i)
7(ii)
11
2017
£’000
3,378
2
3,380
(1,180)
2,200
(4,008)
(1,808)
1
(246)
(2,053)
(444)
(2,497)
2016
£’000
2,636
108
2,744
(1,196)
1,548
(4,235)
(2,687)
1
(257)
(2,943)
663
(2,280)
12
(0.85p)
(0.96p)
The accompanying notes 1 to 26 are an integral part of the financial statements.
26 Proteome Sciences plc
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 December 2017
Loss for the year
Other comprehensive income for the year
Exchange differences on translation of foreign operations
2017
£’000
2016
£’000
(2,497)
(2,280)
37
84
Loss and total comprehensive income for the year
(2,460)
(2,196)
Attributed to:
Owners of parent
Non-controlling interest
(2,460)
(2,196)
–
–
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The accompanying notes 1 to 26 are an integral part of the financial statements.
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249489 Proteome p26-p32.qxp 24/04/2018 14:18 Page 28
CONSOLIDATED BALANCE SHEET
as at 31 December 2017
Non-current assets
Goodwill
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Net current liabilities
Non-current liabilities
Hire purchase payables
Provisions
Total liabilities
Net liabilities
Equity
Share capital
Share premium account
Share-based payment reserve
Merger reserve
Translation reserve
Retained loss
Non-controlling interests
Total (deficit)
Notes
13
14
16
17(a)
17(b)
18(a)
18(b)
18(a)
19
20
22
2017
£’000
4,218
281
4,499
946
1,124
908
2,978
7,477
(726)
(8,946)
(9,672)
(6,694)
–
(363)
(363)
(10,035)
(2,558)
2,952
51,466
3,503
10,755
(67)
(71,167)
–
(2,558)
2016
£’000
4,218
592
4,810
600
1,406
2,884
4,890
9,700
(662)
(8,700)
(9,362)
(4,472)
(166)
(361)
(527)
(9,889)
(189)
2,943
51,451
3,436
10,755
(104)
(68,670)
–
(189)
The financial statements of Proteome Sciences plc, registered number 02879724, were approved by the
board of directors and authorised for issue on 23 April 2018. They were signed on its behalf by:
J.R.M. Haigh
I.H. Pike
23 April 2018
Director
Director
The accompanying notes 1 to 26 are an integral part of the financial statements.
28 Proteome Sciences plc
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COMPANY BALANCE SHEET
as at 31 December 2017
Non-current assets
Investment in subsidiaries
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Payables from other group entity
Borrowings
Non-current liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share-based payment reserve
Retained loss
Total equity
Notes
15
17(b)
18(a)
18(b)
19
20
2017
£’000
7,941
7,941
58
58
7,999
(316)
(1,502)
(1,818)
–
(1,818)
6,181
2,952
51,466
3,503
(51,740)
6,181
2016
£’000
10,033
10,033
2,152
2,152
12,185
(306)
(1,461)
(1,767)
(5)
(1,772)
10,413
2,943
51,451
3,436
(47,417)
10,413
The company generated a loss for the year ended 31 December 2017 of £4.32m (2016: £20.52m),
mostly resulting from an impairment charge of £4.18m.
The financial statements of Proteome Sciences plc, registered number 02879724, were approved by
the board of directors and authorised for issue on 23 April 2018. They were signed on its behalf by:
J.R.M. Haigh
I.H. Pike
23 April 2018
Director
Director
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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 31 December 2017
Equity
Share- attributable
Share based to owner Non-
Share premium payment Translation Merger Retained of the controlling Total
capital account reserve reserve reserve loss parent interest (deficit)
£’000
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2016 2,280 48,986 3,402 (188) 10,755 (66,390) (1,155) – (1,155)
Loss for the year – – – – – (2,280) (2,280) – (2,280)
Exchange differences
on translation of
foreign operations – – – 84 – – 84 –
Loss and total
comprehensive
income for the year – – – 84 – (2,280) (2,196) – (2,196)
Issue of share capital 663 2,650 – – – – 3,313 – 3,313
Share issue expenses – (185) – – – – (185) –
(185)
Credit to equity for
share-based payment – – 34 – – – 34 –
At 31 December 2016 2,943 51,451 3,436 (104) 10,755 (68,670) (189) –
34
(189)
84
At 1 January 2017 2,943 51,451 3,436 (104) 10,755 (68,670) (189) –
(189)
Loss for the year – – – – – (2,497) (2,497) – (2,497)
Exchange differences
on translation of
foreign operations – – – 37 – – 37 –
Loss and total
comprehensive
income for the year – – – 37 – (2,497) (2,460) – (2,460)
24
Issue of share capital 9 15 – – – – 24 –
Share issue expenses – – – – – – – –
–
Credit to equity for
share-based payment – – 67 – – – 67 –
67
At 31 December 2017 2,952 51,466 3,503 (67) 10,755 (71,167) (2,558) – (2,558)
37
The accompanying notes 1 to 26 are an integral part of the financial statements.
30 Proteome Sciences plc
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COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2017
Company
Share
capital
£’000
Share
premium
account
£’000
Share-
based
Merger
reserve
£’000
payment Retained
loss
£’000
reserve
£’000
Total
equity
£’000
At 1 January 2016
2,280
48,986
1,082
3,402
(27,979)
27,771
Loss and total comprehensive
income for the year
Credit to equity for
share-based payment
Transfer during year
Issue of share capital
Share issue expenses
At 31 December 2016
–
–
–
–
–
(1,082)
–
–
–
663
–
2,650
(185)
2,943
51,451
At 1 January 2017
2,943
51,451
Loss and total comprehensive
income for the year
Credit to equity for
share-based payment
Transfer during year
Issue of share capital
Share issue expenses
At 31 December 2017
–
–
–
9
–
–
–
–
15
–
2,952
51,466
–
–
–
–
–
–
–
–
–
–
–
(20,520)
(20,520)
34
–
–
–
–
1,082
–
–
34
–
3,313
(185)
3,436
(47,417)
10,413
3,436
(47,417)
10,413
–
67
–
–
–
(4,323)
(4,323)
–
–
–
–
67
–
24
–
3,503
(51,740)
6,181
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CONSOLIDATED AND COMPANY
CASH FLOW STATEMENTS
for the year ended 31 December 2017
Group Company
2017
£’000
2017
£’000
Group Company
2016
£’000
2016
£’000
Note
Loss before tax
(2,053)
(4,323)
(2,943)
(20,520)
Adjustments for:
Net finance costs
Depreciation of property, plant and equipment
Impairment of investments in subsidiaries
Share-based payment expense
Operating cash flows before movements in
Working capital
(Increase)/Decrease in inventories
(Increase)/Decrease in receivables
Increase/(Decrease) in payables
Increase/(Decrease) in provisions
Cash used in operations
Tax refunded
Net cash outflow from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Loans advanced to subsidiary undertakings
Interest received
Net cash outflow from investing activities
Financing activities
Proceeds on issue of shares
Share issue costs
Repayment of HP creditors
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
7
14
21
14
7
18
245
332
–
67
(1,409)
(346)
(63)
118
2
(1,698)
–
(1,698)
(23)
–
1
(22)
23
–
(220)
(197)
(1,917)
2,884
(59)
42
–
4,182
–
(99)
–
–
–
(5)
(104)
–
(104)
–
(2,013)
–
(2,013)
23
–
–
23
(2,094)
2,152
–
257
553
–
34
44
–
20,340
–
(2,099)
(309)
(183)
(144)
85
(2,650)
656
(1,994)
(136)
–
–
–
(11)
(147)
–
(147)
(33)
–
1
(32)
–
(1,894)
1
(1,893)
3,313
(185)
(220)
2,908
882
1,808
194
3,313
(185)
–
3,128
1,088
1,064
–
Cash and cash equivalents at end of year
17b
908
58
2,884
2,152
The accompanying notes 1 to 26 are an integral part of the financial statements.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
1 GENERAL INFORMATION
Proteome Sciences plc is a company incorporated in the United Kingdom. These financial statements
are the consolidated financial statements of Proteome Sciences plc and its subsidiaries (“the Group”)
and the company financial statements for Proteome Sciences plc (“the Company”). The financial
statements are presented in pounds sterling because that is the currency of the primary economic
environment in which the Group operates.
2 ADOPTION OF NEW AND REVISED STANDARDS
New standards and amendments to existing standards that have been published and are mandatory
for the first time for the financial year beginning 1 January 2016 have been adopted but had no
significant impact on the Group and Company. New standards, amendments to standards and
interpretations which have been issued but are not yet effective for the financial year beginning
1 January 2018 have not been early adopted in preparing these financial statements. The main
accounting standards which may be relevant to the Group are set out below:
IFRS 9 “Financial Instruments”– (effective for 2018 financial report)
Key changes to accounting requirements under IFRS 9 which may be relevant to Proteome Sciences
plc include the requirement to apply a new impairment model based on expected loss in recognising
impairment of financial assets including current receivables and loans to related parties. The
application of this model is effective from the date of initial application on 1 January 2018. This may
result in the recognition of additional impairment losses against the carrying values of these financial
assets, at a point in time which is earlier than under the current accounting policies.
The implications of the accounting standard on Proteome Sciences are currently being evaluated
and will be reported in the interim results 2018. The value of the provision has not yet been calculated
but historically there have been very low levels of bad debts and therefore the increase in provision
is not expected to be material.
IFRS 15 “Revenue from Contracts with Customers”- (effective for 2018 financial report)
In applying IFRS 15, the company’s initial views on the key changes to accounting requirements
under IFRS 15 which may be relevant to Proteome Sciences plc include:
(a) Sale of goods
Contracts with customers in which sale of TMT® goods (£2.48m) are the only performance obligation
are not expected to result in changes for the Group. The Group expects the revenue recognition to
occur at a point in time when control of the asset is transferred to the customer, generally on delivery
of the goods.
(b) Biomarker services
Contracts with customers in which biomarker services (£0.90m) are provided over a period of time
may result in revenue being recognised later than the treatment under the current accounting policy.
This is because revenue recognition changes to a point in time, often at the end of a project, at which
the customer has received final deliverables and an enforceable right to payment has been
established.
The implications of the accounting standard on Proteome Sciences are currently being evaluated
and will be reported in the interim results 2018. As the majority of service contracts will be completed
within 2017 even when applying IFRS 15 retrospectively to 2017 no material difference to an earlier
application of the standard is expected.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
2 ADOPTION OF NEW AND REVISED STANDARDS continued
IFRS 16 “Leases” – (effective for 2019 financial report)
Adoption of IFRS 16 Leases will result in the Group recognising right of use assets and lease liabilities
for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under
current accounting requirements the Group does not recognise related assets or liabilities, and
instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its
annual financial statements the total commitment. IFRS 16 will require the Group to recognise the
lease on its UK and Frankfurt (Germany) premises as both an asset and a rental commitment in its
consolidated statement of financial position. Adoption of IFRS 16 is not expected to have a material
effect on the Group’s results.
The implications of the accounting standard on Proteome Sciences are expected to be evaluated in
more detail during the financial year 2018.
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a
material impact on the group.
3 SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and Interpretations (collectively IFRSs).
The preparation of financial statements in compliance with adopted IFRS requires the use of certain
critical accounting estimates. It also requires Group management to exercise judgment in applying
the Group’s accounting policies. The areas where significant judgments and estimates have been
made in preparing the financial statements and their effect are disclosed in note 4.
Going concern
These financial statements have been prepared on the going concern basis. The directors have
reviewed the Company’s and the Group’s going concern position taking account its current business
activities, budgeted performance and the factors likely to affect its future development, set out in the
Annual report, and including the Group’s objectives, policies and processes for managing its working
capital, its financial risk management objectives and its exposure to credit and liquidity risks.
As at 31 December 2017, the Group had cash resources of £0.91m (2016: £2.88m), realised a loss
for the year of £2.50m (2016: a loss of £2.28m), had net cash outflows from operating activities of
£1.70m (2016: net cash outflow of £1.99m) and had net current liabilities of £6.69m (2016: £4.47m).
The financial statements have been prepared on a going concern basis, which remains reliant on
the group achieving an adequate level of sales in order to maintain sufficient working capital to
support its activities. If sales are not in line with cash flow forecasts then additional funding will be
required. The directors have prepared cash-flow forecasts covering a period of at least 12 months
from the date of approval of the financial statements, which foresee that the Group will be able to
operate within its existing facilities, however the timeline required to close sales contracts and the
order value of individual sales continues to vary considerably, which constrain the ability to accurately
predict revenue performance. Furthermore, the Group’s services are still in the development phase
and as such, the directors consider that costs could exceed income in the short term.
The Group is also dependent on the unsecured loan facility provided by the Chairman of the Group,
which, under the terms of the facility, is repayable on demand. Further details of this facility are set
out in note 18(b). The directors have received confirmation from the Chairman that he has no intention
of seeking its repayment, with the facility continuing to be made available to the Group, on the existing
terms, for at least 12 months from the date of approval of these financial statements.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
3 SIGNIFICANT ACCOUNTING POLICIES continued
As such, there is a risk that the Group’s working capital may prove insufficient to cover both operating
activities and the repayment of its debt facilities. In such circumstances, the group would be obliged
to seek additional funding through a placement of shares or source other funding.
The directors have concluded that the circumstances set forth above represent a material uncertainty,
which may cast significant doubt about the Company and Group’s ability to continue as going
concerns. However, they believe that taken, as a whole, the factors described above enable the
Company and Group to continue as a going concern for the foreseeable future. The financial
statements do not include the adjustments that would be required if the Company and the Group
were unable to continue as a going concern.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and
entities controlled by the Company (its subsidiaries) made up to 31 December each year. The
company controls an investee if, and only if the company has the following:
(cid:129)
(cid:129)
(cid:129)
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
Exposure of rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated
income statement from the effective date of acquisition or up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the
accounting policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Goodwill
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any
accumulated impairment. For the purpose of impairment testing, goodwill is allocated to each of the
Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-
generating units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of
the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets
of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment is
recognised immediately in the income statement and is not subsequently reversed.
Non-controlling interests
For business combinations, the Group initially recognises any non-controlling interest in the acquiree
at the non-controlling interest’s proportionate share of the acquiree’s net assets.
The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the
parent and to the non-controlling interests in proportion to their relative ownership interests.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
3 SIGNIFICANT ACCOUNTING POLICIES continued
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the
Group and can be reliably measured. Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods and services provided in the
normal course of business, net of discounts, VAT and other sales-related taxes.
Sales and services
Sales of goods including TMT kits are recognised when goods are delivered and title has passed to
the customer. Licence income is recognised when the benefit has been transferred to the licensee
and the group has satisfied performance requirements under the terms of the relevant agreement.
Grants services revenues and biomarker services revenues are recognised based on an estimate of
percentage completion of contracts completed by the reporting date relative to total contract values
for individual projects. The estimate is derived by the application of judgement and tracked progress
of work performed on each project at the reporting date relative to the total value of each project.
Grants released to the income statement are recognised within revenue, taking account of each
grant’s specific performance terms and conditions.
Leasing
Rentals payable under operating leases are charged to income on a straight-line basis over the term
of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease
are also spread on a straight-line basis over the same term.
Foreign currencies
The individual financial statements of each Group company are prepared in the currency of the
primary economic environment in which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial position of each Group company are
expressed in pounds sterling which is the functional currency of the Company and the presentation
currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other
than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the rates prevailing on the balance
sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency
are not retranslated.
Exchange differences arising on the settlement of monetary items, are included in profit or loss for
the period except for differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the
Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the period, unless
exchange rates fluctuate significantly during that period, in which case the exchange rates at the
date of transactions are used. Exchange differences arising, if any, are classified as equity and
transferred to the Group’s translation reserve. Such translation differences are recognised as income
or as expenses in the period in which the operation is disposed of.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
3 SIGNIFICANT ACCOUNTING POLICIES continued
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall
due. Payments made to state-managed retirement benefit schemes are dealt with as payments to
defined contribution schemes where the Group’s obligations under the schemes are equivalent to
those arising in a defined contribution retirement benefit scheme.
As a result of the acquisition of Proteome Sciences R&D Verwaltungs GmbH and Proteome Sciences
R&D GmbH & Co KG during financial year 2002, the Group makes contributions in Germany to a
funded defined contribution plan and to a funded defined benefit plan. These plans are operated in
their entirety by the Pensionskasse der Mitarbeiter der Hoechst-Gruppe VVaG (Hoeschst Group), an
independent German mutual insurance company which is required to comply with German insurance
company regulations.
The schemes’ assets are held in multi-employer funds, and the other employers who contribute to
the schemes are not members of the Group. The Group has not been able to identify its share of the
underlying assets and liabilities of the defined benefit scheme and accordingly it has also been
accounted for as a defined contribution scheme. The Group’s contributions to the schemes are
included within the amount charged to the income statement in respect of pension contributions.
Funding contributions paid by the Group are based on annual contributions determined by Hoechst
Group, the administrator for the pension plans. The Group does not have any information about any
deficit or surplus in the defined benefit plan that may affect the amount of future contributions,
including the basis used to determine that deficit or surplus and the implications, if any for the entity.
The Group also has a direct pension obligation (defined benefit obligation) for its German subsidiary
for which it provides in full at the balance sheet date. This scheme has no separable assets. The
company uses the projected unit credit method to determine the present value of its unfunded
defined benefit obligation.
Taxation
Any tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported
in the income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used
in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects
neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control
the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Proteome Sciences plc
37
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
3 SIGNIFICANT ACCOUNTING POLICIES continued
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised
impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful
lives, using the straight-line method, on the following bases:
Laboratory equipment, fixtures and fittings
Mass spectrometers
20%
33%
Internally-generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Development expenditure, where it meets certain criteria (given below), is capitalised and amortised
on a straight-line basis over its useful life. Asset lives are subject to regular review and an impairment
exercise carried out at least once a year.
Where no internally-generated intangible asset can be recognised, development expenditure is
written-off in the period in which it is incurred.
An asset is recognised only if all of the following conditions are met:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the product is technically feasible and marketable;
the company has adequate resources to complete the development of the product;
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
The directors do not consider that any Research and Development intangible assets have been
created in 2017 or the prior year on the basis that it is uncertain whether the intangible assets will
generate future revenue cash flows.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 (cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised as an expense through profit and loss.
38 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
3 SIGNIFICANT ACCOUNTING POLICIES continued
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials
and, where applicable, direct labour costs and those overheads that have been incurred in bringing
the inventories to their present location and condition. Cost is calculated using the weighted average
method. Net realisable value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing, selling and distribution.
Trade receivables
Trade receivables are measured at initial recognition at fair value, and are subsequently measured
at amortised cost using the effective rate method. Appropriate allowances for estimated irrecoverable
amounts are recognised in the income statement when there is objective evidence that the asset is
impaired. The allowance recognised is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows discounted at the effective rate
computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term
highly liquid investments with an original maturity date of fewer than three months that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in
the assets of the Group after deducting all of its liabilities.
Borrowings
Interest-bearing loans are recorded initially at fair value, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted
for on an accruals basis in profit or loss using the effective interest rate method and are added to
the carrying amount of the instrument to the extent that they are not settled in the period in which
they arise.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised
cost, using the effective interest rate method.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and
it is probable that the Group will be required to settle that obligation. Provisions are measured at the
directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date
and are discounted to present value where the effect is material. Further details of the pension
provision policy are set out in the paragraph above headed ‘Retirement benefit costs.’
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
3 SIGNIFICANT ACCOUNTING POLICIES continued
Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-
based payments are measured at fair value (excluding the effect of non-market vesting conditions)
at the date of grant. The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate
of shares that will eventually vest based on the effect of non-market vesting conditions. Share based
payments are recognised as an additional cost of investment in subsidiary undertakings in the
company where the company issues share options to executives employed by its subsidiaries.
Fair value is measured by use of the Black Scholes model and for the LTIP awards the Monte Carlo
model has been used. The expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability, exercise restrictions, and
behavioural considerations.
4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the
balance sheet date that 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. The Group makes
certain estimates and assumptions regarding the future. Estimates and judgements are continually
evaluated based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. In the future, actual experience may
differ from these estimates and assumptions. The estimates and assumptions that 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.
Internally-generated intangible assets – research and development expenditure
The directors do not consider that any Research and Development intangible assets have been
created in 2017 or the prior year on the basis that it is uncertain whether the intangible assets will
generate future revenue cash flows due to economic feasibility not being established until late in the
process.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the fair value less costs to sell of
the cash-generating units to which goodwill has been allocated. The fair value less costs to sell
calculation requires the entity to estimate the future cash flows expected to arise from the cash-
generating unit. The carrying amount of goodwill at the balance sheet date was £4.2m. Details of
the estimates used in the calculation are set out in note 13.
Investments in subsidiary companies
The carrying cost of the company’s investments in subsidiary companies is reviewed at each
balance sheet date by reference to the income that is projected to arise therefrom. From a review
of these projections the directors have made a provision against their carrying values as shown in
note 15 to the financial statements and the directors therefore believe that the investments concerned
will generate sufficient economic benefits to justify their revised carrying values, despite the
inevitable uncertainties over timing of the receipt of income and the size of the markets from which
income is anticipated.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
5 REVENUE
An analysis of the Group’s revenue is as follows:
Revenue
Sales of goods and services
Grant services
6 SEGMENT INFORMATION
2017
£’000
3,378
2
3,380
2016
£’000
2,636
108
2,744
For executive management purposes, the Group has one reportable segment which is the sale of
goods and biomarker services. All revenue from its operations is reported to this one segment and
the two income streams form the two categories reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. These two categories are TMT revenues
and Biomarker services and other licence income.
In identifying the operating segments, management has considered internal reports about
components of the Group that are used by the Chief Executive, who is the Chief Operating Decision
Maker, to determine allocation of resources and to assess their performance.
Revenues from major products and services
The Group’s revenues from its major products and services were as follows:
TMT® revenues
Biomarker services and other licence income
Revenues from sale of goods and services
2017
£’000
2,483
895
3,378
2016
£’000
1,387
1,249
2,636
Geographical Information
The Group’s revenue from external customers by their geographical location is derived as follows:
US
EU
Other
Grant services income
EU
Revenues and other income from major products and services
2017
£’000
2,789
231
358
3,378
2
3,380
2016
£’000
2,123
257
256
2,636
108
2,744
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
7 (i) FINANCE INCOME
Income arising from bank deposits
(ii) FINANCE COSTS
Interest on loans (note 18)
8 OPERATING LOSS
Operating loss is stated after charging/(crediting):
Depreciation charge
– owned
– on loan
Research and development costs
Operating lease rentals
– other
Auditor’s remuneration (see below)
Foreign exchange losses
(Increase)/decrease in cost of inventories
credited as an expense
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the
audit of the Company’s annual accounts
Fees payable to the Company’s auditor
for other services to the Group
– The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Tax compliance services
Other tax compliance services – VAT, grants,
share schemes, income tax advice
Total non-audit fees
Total fees
2017
£’000
1
2017
£’000
246
2017
£’000
332
–
441
364
84
12
2016
£’000
1
2016
£’000
257
2016
£’000
316
237
1,075
319
80
12
(346)
(309)
2017
£’000
2016
£’000
56
1
57
27
–
27
84
44
11
55
26
(1)
25
80
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
9 STAFF COSTS
The Group average monthly number of employees (including executive directors) was:
2017
Number
2016
Number
Research and development
Administration
25
9
34
Their aggregate remuneration (including that of executive directors) comprised:
Wages and salaries
Social security costs
Other pension costs
2017
£’000
2,055
358
126
2,635
28
8
36
2016
£’000
2,188
320
211
2,719
No staff costs are incurred in the parent company, Proteome Sciences plc.
Social security costs shown above include a credit of £4,664 (2016: £10,000) from the provision for
notional National Insurance contributions payable upon the exercise of vested LTIP options.
10 DIRECTORS’ REMUNERATION AND TRANSACTIONS
The directors’ emoluments in the year ended 31 December 2017, were:
Executive Directors
Dr J.R.M. Haigh
G. Ellis (resigned 1 August 2017)
Dr I. Pike
Non-Executive Directors
C.D.J. Pearce
Prof. W. Dawson (resigned 1 August 2017)
R. McDowell
M. Diggle
Dr U Ney (appointed 1 August 2017)
Basic Benefits
in kind
salary
2017
2017
£’000
£’000
Pension
Costs
2017
£’000
Total
2017
£’000
Total
2016
£’000
247
90
150
120
16
25
–
5
653
3
2
3
6
–
–
–
–
–
–
15
–
–
–
–
–
14
15
250
92
168
126
16
25
–
5
682
146
168
168
149
28
25
–
–
684
(i) The remuneration of the executive directors is decided by the Remuneration Committee.
(ii) Aggregate emoluments disclosed above do not include any amounts for the value of options to
subscribe for Ordinary Shares in the Company granted to or held by the directors.
(iii) Dr I Pike exercised 165,583 options during the year, thereby Dr Pike made a taxable gain of
£4,963.11 (2016: none).
Proteome Sciences plc
43
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
10 DIRECTORS’ REMUNERATION AND TRANSACTIONS continued
(iv) Details of the options in place and of awards under the Company’s Long-Term Incentive Plan
are given in note 20.
(v) The number of directors in pension schemes is as follows:
Defined contribution pension schemes
Pension costs in the year ended 31 December 2017 were as follows:
G. Ellis
Dr I. Pike
2017
2016
1
2
2017
£’000
–
15
15
2016
£’000
4
15
19
Directors’ transactions
(a) Other than as disclosed note 18(b) no director had a material interest in any contract of
significance with the Company in either year.
(b) C.D.J. Pearce has a consultancy agreement with the company at a rate of £70,000 per annum;
this amount is included in the salary of £120,000 noted above.
11 TAX CREDIT ON LOSS BEFORE TAXATION ON ORDINARY ACTIVITIES
The Group is entitled to make claims for UK tax credit income on qualifying R&D expenditure each
year under the Corporation and Taxes Act 2009. As an SME qualifying entity, tax credits are claimed
at the rate of 230% of the tax effect of tax losses generated from qualifying R&D expenditure.
Tax credits income is recognised on an accruals basis through profit or loss within taxation
benefit/expense when there is reasonable assurance that the tax credits will be received from the
UK Tax Authorities. Management expects that the submitted R&D tax credit for 2016 will result in a
substantially lower payment than the claim; management feels a lack of reasonable assurance to
recognise an R&D claim for 2017 and any R&D tax credit claim will therefore be recognised on receipt.
UK Corporation tax – R&D tax credit
Overseas tax charge
Group tax credit for the year
Adjustments re previous years
2017
£’000
–
(99)
(99)
(345)
(444)
2016
£’000
745
(62)
683
(20)
663
The UK Corporation tax credit relates to research and development tax credits claimed under the
Corporation Taxes Act 2009.
At 31 December 2017 there were tax losses available for carry forward of approximately £41.4m
(2016: £42.0m).
The tax credit and trading losses to be carried forward for the year are subject to the agreement of
HM Revenue & Customs.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
11 TAX CREDIT ON LOSS BEFORE TAXATION ON ORDINARY ACTIVITIES continued
Factors affecting the tax credit for the year
R&D tax credit entitlements are significantly smaller than in the previous year, due to the stronger
commercial focus of the company’s research activities. As such the company has not recognised
any tax credit in respect of 2017. The differences are explained below:
Loss before tax
Income tax credit calculated at 19.38% (2016: 20%)
Effects of:
Expenses that are not deductible in determining taxable profit
Fixed asset timing differences
Effect of concessions (Research and Development)
Losses surrendered for R&D tax credit
Unrecognised tax losses carried forward
Effect of overseas tax
R&D tax credit claimed
Other taxable income
Group tax credit for the year
Adjustment re prior year
Unrecognised deferred tax
The following deferred tax assets and liability have not
been recognised at the balance sheet date:
Tax losses – revenue
Depreciation in excess of capital allowances
Provisions
Total
2017
£’000
(2,053)
395
(3)
(68)
–
–
(324)
(99)
–
–
(99)
(345)
(444)
2017
£’000
8,148
(35)
5
8,118
2016
£’000
(2,943)
589
(27)
(111)
782
(1,157)
(27)
(62)
746
(50)
683
(20)
663
2016
£’000
7,141
(85)
6
7,062
The deferred tax assets have not been recognised as the directors are uncertain of their recovery.
The assets will be recovered if the Group makes sufficient taxable profits in the future against which
losses can be utilised.
Changes to tax legislation
The main rate of UK corporation tax was 20% from 1 April 2015. This rate fell to 19% for the year
beginning 1 April 2017, and will fall to 17% for the year beginning 1 April 2020.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
12 LOSS PER ORDINARY SHARE
The calculations of basic and diluted loss per ordinary share are based on the following losses and
numbers of shares.
Loss for the financial year
Basic and Diluted
2016
2017
£’000
£’000
(2,497)
(2,280)
2017
Number of
shares
2016
Number of
shares
Weighted average number of ordinary shares for
the purposes of calculating basic earnings per share:
295,182,056 236,451,654
In 2017 and 2016 the loss attributable to ordinary shareholders and weighted average number of
ordinary shares for the purpose of calculating the diluted earnings per ordinary share are identical
to those used for basic earnings per ordinary share. This is because the exercise of share options
that are out of the money would have the effect of reducing the loss per ordinary share and is
therefore not dilutive.
13 GOODWILL
Cost and carrying amount
1 January 2017 and 31 December 2017
Goodwill
£’000
4,218
The group comprises a single CGU, which comprises the business carried out by Electrophoretics
Limited and Proteome Sciences R&D GmbH & Co KG. For the purpose of testing goodwill, the
recoverable value of the CGU is determined from fair value less estimated costs of disposal. In
assessing the fair value of the CGU, management and the directors have considered and assessed
the following evidence:
As at 31 December 2017, the market capitalisation for the group was £9.2m based on the quoted
share price of the company of 3.1p per ordinary share.
The directors have concluded that based on the above, recoverable value (on a fair value less cost
to sell basis) of the goodwill exceeds the carrying value of the goodwill at 31 December 2017.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
14 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise laboratory equipment, fixtures and fittings and motor vehicles
held by and equipment on loan to the Group. The movement in the year was as follows:
Cost
1 January 2016
Exchange adjustments
Additions during the year
31December 2016
1st January 2017
Exchange adjustments
Additions during the year
Disposals during the year
31 December 2017
Depreciation
1 January 2016
Exchange adjustments
Charge for the year
At 31 December 2016
At 1 January 2017
Exchange adjustments
Charge for the year
Depreciation relating to disposals
At 31 December 2017
Carrying amount
31 December 2016
31 December 2017
Laboratory
equipment,
fixtures and
fittings
£’000
Equipment
on loan
£’000
710
–
–
710
710
–
–
–
710
473
–
237
710
710
–
–
–
710
–
–
4,278
374
33
4,685
4,685
114
23
(1,544)
3,278
3,421
356
316
4,093
4,093
109
332
(1,537)
2,997
592
281
Included in the Property, Plant and Equipment is mass spectrometry equipment with a net book value
of £Nil (2016: £Nil) which was provided to the Group for a period of at least three years, pursuant to
the licence and research collaboration agreement made with Thermo Fisher Scientific in 2013.
The equipment is being depreciated over the three year period of the loan agreement. The Company
owned no fixed assets during either the current or proceeding financial year.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
15 INVESTMENT IN SUBSIDIARIES
Company
At 1 January 2016
Additional investment in the year
Provisions for impairment during the year
At 31 December 2016
At 1 January 2017
Additional investment in the year
Provisions for impairment during the year
At 31 December 2017
Cost of shares
in subsidiary
undertakings
£’000
Loans to
subsidiary
undertakings
£’000
4,411
34
(1,961)
2,484
2,484
67
(2,551)
–
23,993
1,935
(18,379)
7,549
7,549
2,023
(1,631)
7,941
Total
£’000
28,404
1,969
(20,340)
10,033
10,033
2,090
(4,182)
7,941
(i) The increase in the cost of shares in subsidiary undertakings of £67,104 (2016: £34,000)
represents a capital contribution between the Company and certain of its subsidiaries, reflecting
the provision of equity instruments in the Company to subsidiary company employees.
(ii) The increase in loans to subsidiary companies in 2017 arose from the provision of further funds
to the company’s trading subsidiary and German subsidiary company.
(iii) The directors considered the reduced market capitalisation of the business as an indicator of
both the fair value less cost to sell of the company’s equity investments in its subsidiaries and
the value of the recognised and unrecognised assets held by the underlying subsidiaries, which
are counterparties to the underlying loans. As a result of the fall in market capitalisation of the
company in the year, a further provision of £2.6m has been recognised against the carrying value
of the company’s equity investments in its subsidiaries and £1.6m in the carrying value of its
debt instruments.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
15 INVESTMENT IN SUBSIDIARIES continued
Principal Group investments
The Company has investments in the following subsidiary undertakings, which contribute to the net
assets of the Group:
Country of
incorporation
and operation
Germany
Germany
Germany
Principal activity
Administrative
Company
Research
Company
Administrative
Company
Principal subsidiary
undertakings
Proteome Sciences R&D
Verwaltungs GmbH
Proteome Sciences R&D
GmbH & Co. KG
Xzillion GmbH & Co. KG
(30 September 2017
accretion to Proteome
Sciences R&D GmbH
& Co. KG)
Description and proportion
of shares held by the
Company Group
100% Share 100% Share
Capital
Capital
100%
100%
Partnership Partnership
Interest
Interest
100%
100%
Partnership Partnership
Interest
Interest
Proteome Sciences, Inc.
U.S.A.
Research
Company
100%
Common
Stock
Electrophoretics Limited
United
Kingdom
Administrative and
Research Company Ordinary
100%
Veri-Q Inc.
U.S.A.
Research Company
Phenomics Limited
United
Kingdom
Dormant
Shares
76.9%
Common
Stock
100%
Ordinary
Shares
100%
Common
Stock
100%
Ordinary
Shares
76.9%
Common
Stock
100%
Ordinary
Shares
The investments in Proteome Sciences, Inc., Electrophoretics Limited and Phenomics Limited
comprise the entire issued share capital of each subsidiary undertaking and carry 100% of the voting
rights.
The registered offices of the companies above are:
Proteome Sciences R&D Verwaltungs GmbH, Proteome Sciences R&D GmbH & Co. KG, Xzillion
GmbH & Co. KG - Althenhöferallee 3, 60438 Frankfurt am Main, Germany
Electrophoretics Limited and Proteome Sciences plc and Phenomics Limited - Hamilton House,
Mabledon Place, London WC1H 9BB, UK
Proteome Sciences Inc PO Box 2767 Humble, Texas, 77347. USA Veri-Q Inc 2711 Centerville Road,
Suite 400, Wilmington, Delaware 19808-1645, USA.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
16 INVENTORIES
Work-in-progress
Finished goods
17 OTHER CURRENT ASSETS
a) Trade and other receivables
Trade debtors
R&D tax credit recoverable previous year
Other debtors
Prepayments
Group
2017
£’000
333
400
329
62
1,124
Company
2017
£’000
–
–
–
–
–
2017
£’000
498
448
946
Group
2016
£’000
54
745
537
70
1,406
2016
£’000
140
460
600
Company
2016
£’000
–
–
–
–
–
No allowance for doubtful debts was recognised in 2017 or 2016.
b) Cash and cash equivalents
Cash and cash equivalents
Group
2017
£’000
908
Company
2017
£’000
Group
2016
£’000
Company
2016
£’000
58
2,884
2,152
The directors consider that the carrying amount of trade receivables and cash and cash equivalents
approximates to their fair value.
18 FINANCIAL LIABILITIES
(a) Trade and other payables
Due within one year
Trade creditors
Other payables and accruals
Hire purchase payables
Payables due from group entities
Due after one year
Hire purchase payables
Group
2017
£’000
Company
2017
£’000
Group
2016
£’000
Company
2016
£’000
–
560
166
–
726
–
–
–
–
316
316
–
28
414
220
–
662
166
–
–
–
306
306
–
Hire purchase payables have the following maturity profile at 31 December 2017.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
18 FINANCIAL LIABILITIES continued
Due within one year
Due in more than one year but not more than 2 years
Due in more than two years but not more than 3 years
2017
£’000
166
–
–
166
2016
£’000
220
166
–
386
Trade creditors and other payables principally comprise amounts outstanding for trade purchases
and continuing costs. The average credit period taken for trade purchases is between 30 and 45
days. For most suppliers no interest is charged on the trade payables for the first 30 days from the
date of the invoice. The Group has financial risk management policies in place to ensure that all
payables are paid within the credit time frame.
The directors consider that the carrying amount of trade payables approximates to their fair value.
(b) Short term borrowings
Group
2017
£’000
Company
2017
£’000
Group
2016
£’000
Company
2016
£’000
Loan from related party (Director)
8,946
1,502
8,700
1,461
The directors consider that the carrying amount of borrowings approximates to their fair value.
Note:
(i) The loan from related party represents a loan from Mr C D J Pearce, Non-Executive Chairman
and the former the Chief Executive of the Company. The loan is secured by a fixed charge over
the Company’s patent portfolio and a floating charge over the Company’s stock in trade. The loan
bears interest at 2.5% above the base rate of Barclays Bank plc. Loan amounts representing
£5m may be converted into ordinary share capital at the option of Mr Pearce at the lower of
market price on the date of conversion or the average price over the lowest consecutive ten day
trading period since 29 June 2006.
(ii) The loan is repayable on seven days notice, or immediately in the event of:
(a)
A general offer to the shareholders of the Company being announced to acquire its
issued share capital.
(b)
The occurrence of any of the usual events of default attaching to this sort of agreement.
(iii) The amounts shown above as outstanding under short term borrowings include accrued interest.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
18 FINANCIAL LIABILITIES continued
(c) Changes in liabilities arising from financing activities
Group
Note supporting the cash flow statement
1 January
2017
£,000
–
8,700
386
–
–
9,086
Cash
Flow
£,000
–
–
(220)
–
–
(220)
Interest
accruing
in the
Foreign
period exchange
£,000
£,000
–
–
–
247
–
–
–
–
–
–
Fair
value 31 December
2017
£,000
–
8,947
166
–
–
change
£,000
–
–
–
–
–
247
–
–
9,113
Long term borrowings
Short term borrowings
Lease Liabilities*
Assets held to hedge
Long term liabilities
Total
*£166,000 lease liabilities included in ‘Trade and other payables’
Company
Note supporting the cash flow statement
1 January
2017
£,000
–
1,461
–
–
–
1,461
Cash
Flow
£,000
–
–
–
–
–
–
Interest
accruing
in the
Foreign
period exchange
£,000
£,000
–
–
–
41
–
–
–
–
–
–
Fair
value 31 December
2017
£,000
–
1,502
–
–
–
change
£,000
–
–
–
–
–
41
–
–
1,502
Pensions
provisions
£’000
Other
provisions
£’000
356
7
–
363
5
–
(5)
–
2017
Total
£’000
361
7
(5)
363
2017
£’000
5
(5)
–
2016
Total
£’000
276
95
(10)
361
2016
£’000
15
(10)
5
Long term borrowings
Short term borrowings
Lease Liabilities*
Assets held to hedge
Long term liabilities
Total
19 PROVISIONS
Group
At 1 January
Additional provision in the year
Reduction of provision
At 31 December
Company – long term provision
At 1 January
Reduction in provision in the year
At 31 December
52 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
19 PROVISIONS continued
(i) The pension provision relates to pension costs which may become payable in connection with
the group’s Frankfurt employees, under the pension scheme arrangements set out in note 19 (iii).
This provision will be utilised as members of the scheme reach retirement age and draw down
their pensions.
(ii) Long term provisions include £Nil (2016: £5,000) for National Insurance contributions payable
upon the exercise of vested LTIP options.
(iii) Pension arrangements
As a result of the acquisition of Proteome Sciences R&D Verwaltungs GmbH and Proteome Sciences
R&D GmbH & Co KG from Aventis Research & Technologies GmbH & Co KG, the Group makes
contributions in Germany to a funded defined contribution plan and to a funded defined benefit plan.
These plans are operated in their entirety by the Pensionskasse der Mitarbeiter der Hoechst-Gruppe
VVaG (Hoechst Group), an independent German mutual insurance company, which is required to
comply with German insurance company regulations.
The schemes assets are held in multi-employer funds, and the other employers who contribute to the
schemes are not members of the Group. The Group has not been able to identify its share of the
underlying assets and liabilities of the defined benefit scheme and accordingly it has also been
accounted for as defined contribution scheme. The Group’s contributions to the scheme are included
within the amount charged to the income statement in respect of pension contributions.
Funding contributions paid by the Group are based on annual contributions determined by Hoechst
Group, the administrator for the pension plans. For the year ending 31 December 2018, funding
contributions payable by the Group are based on employee contributions at the rate of 1.5%-2.5%
(2017: 1.5%-2.5%) of wages and salaries and employer contributions at the rate of 5 times (2017:
5 times) employee contributions. The company expects pension costs for 2018 in relation to the
defined benefit scheme of £27,435.
The amount charged to the income statement in respect of the contributions to the scheme in 2017
was £54,402 (2016: £115,796).
As at 31 December 2017, an actuarial deficit did not exist for the multi-employer scheme. The Group’s
contributions to the scheme during 2017 represented 0.01% of total contributions to the scheme by
employers and employees (2016: 0.01%). Under the terms of the multi-employer plan, the group’s
obligations are limited to the original promise/commitment that it has given to its own employees. The
group does not have an exposure to liability in relation to other third party employers’ obligations.
The Group does not have any information about how the actuarial status of the plan may affect the
amounts of future contributions to the plan.
The Group also has a direct pension obligation for which it provides in full at the balance sheet date.
This scheme has no separable assets. The company uses the projected unit credit method to
determine the present value of its unfunded defined benefit obligation. Demographic assumptions
are based on Prof. Klaus Heubeck’s mortality table “Richttafeln 2005 G”, the standard German
actuarial table, with full recognition for fluctuations in mortality rates on account of gender and current
age. Pensionable age has been set at 60.
The company has applied a discount rate for the year of 1.75% (2016: 1.5%). The company has
assumed an income increase of 2.5% (2016: 2.75%) and German inflation of 2% (2016: 2%).
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
19 PROVISIONS continued
Provisions for future unfunded pension liabilities at 31st December 2017 amounted to £363,034
(2016: £356,575). Amounts recognised through the consolidated income statement for the year to
31st December 2017 included service costs of £19,961 (2016: £94,987), interest costs of £5,541
(2016: £6,506) and an actuarial loss of £39,085 (2016: actuarial loss of £33,400).
Other pension costs in relation to defined contribution schemes for United Kingdom employees
amounted to £71,526 (2016: £95,652)
20 SHARE CAPITAL
i) Authorised
(2017: 330,000,200) Ordinary Shares of 1p each
49,998 Redeemable Ordinary Shares of £1 each
1,063,822 5% (gross) Redeemable Preference Shares of £1 each (voting)
786,178 5% (gross) Redeemable Preference Shares of £1 each (non-voting)
2017
£’000
3,300
–
–
–
3,300
2016
£’000
3,300
50
1,064
786
5,200
On 25 April 2017 special resolutions were passed at the Annual General Meeting of the company to
remove the concept of authorised share capital and to amend the Articles of Association to remove
references to the Preference shares. Following the passing of these resolutions the only share class
remaining is Ordinary shares of £0.01 each.
Prior to the Annual General Meeting of the Company held on 25 April 2017 the company retained the
concept of authorised share capital. Consequently prior to 25 April 2017 the company had an
authorised share capital of £5,200,000 comprising 786,178 Non-voting Redeemable Preference
Shares of £1.00 each, 49,998 Redeemable shares of £1.00 each, 1,063,822 Redeemable Preference
Shares of £1.00 each and 330,000,200 Ordinary Shares of £0.01 each. None of the non-voting
Redeemable Preference Shares, Redeemable Shares or Redeemable Preference Shares were in
issue and as at 25 April 2017 294,648,723 Ordinary Shares of £0.01 each were in issue.
ii) Allotted and called-up
Ordinary Shares of 1p each
The increase in the number of shares in issue in 2017 arose as follows:
As at 1 January 2017
Issued on exercise of LTIP award in April 2017
Issued in previous share placing
Issue of equity
At 31 December 2017
54 Proteome Sciences plc
2017
£’000
2,952
2016
£’000
2,943
2017
Number
2016
Number
294,324,832 227,966,732
100,000
66,258,100
–
323,891
–
533,333
295,182,056 294,324,832
249489 Proteome p33-p63.qxp 24/04/2018 14:20 Page 55
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
20 SHARE CAPITAL continued
iii) Options
Options under the schemes noted below may be exercised from the date on which any shares in the
Company are first admitted to the Official List of the London Stock Exchange.
(iv) 2004 and 2011 Long-Term Incentive Plan (“LTIP”)
At 31 December 2017, the maximum number of the Company’s Ordinary Shares of 1p each to be
potentially allocated or issued under the LTIP was as follows:
Number at
31 December
2016
600,965
300,000
Awarded
in the
year
Exercised Lapsed
Number at
in the in the 31 December
2017
–
–
year year
(323,891) (277,074)
(300,000)
Latest
Exercise
Date
2 July 2017
–
Vesting
Date
–
2 October
2017
6,160,000
5,000,000
7,000,000
900,965 18,160,000
– (2,160,000)
– –
– –
(323,891) (2,737,074)
4,000,000 1 June 2019 3 April 2027
5,000,000 1 June 2019 3 April 2027
7,000,000 3 April 2020 3 April 2027
16,000,000
At 31 December 2016, the maximum number of the Company’s Ordinary Shares of 1p each to be
potentially allocated or issued under the LTIP was as follows:
Number at
31 December
2015
700,965
300,000
Awarded Exercised
in the in the
year year
– (100,000)
– –
Lapsed
Number at
in the 31 December
2016
600,965
300,000
year
–
–
Latest
Exercise
Date
2 July 2017
–
Vesting
Date
–
2 October
2017
1,000,965
– (100,000)
–
900,965
(v) 2004 Share Option Plan
At 31 December 2017 options had been granted, had fully vested in prior reporting periods and were
still outstanding (exercisable) in respect of the Company’s Ordinary Shares of 1p each under the
Company’s 2004 Share Option Plan as follows:
Number of shares
Amount of Capital
(£)
Exercise Price
(p)
Dates
Exercisable
4,059
52,767
56,826
40.59
527.67
568.26
27.72
27.72
10.04.11 – 10.04.18
10.04.11 – 10.04.18
At 31 December 2016 options had been granted, had fully vested in prior reporting periods and were
still outstanding (exercisable) in respect of the Company’s Ordinary Shares of 1p each under the
Company’s 2004 Share Option Plan as follows:
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
20 SHARE CAPITAL continued
Number of shares
Amount of Capital
(£)
Exercise Price
(p)
Dates
Exercisable
67,650
40,590
8,118
52,767
33,825
202,950
676.50
405.90
81.18
527.67
338.25
2,029.50
36.77
36.77
27.72
27.72
15.52
2.7.10 – 2.7.17
2.7.10 – 2.7.17
10.4.11 – 10.4.18
10.4.11 – 10.4.18
14.7.11 – 14.7.18
(vi) 2011 Share Option Plan
At 31 December 2017 options had been granted and were still outstanding in respect of the
Company’s Ordinary Shares of 1p each under the Company’s 2011 Share Option Plan as follows:
Number of Amount of Capital
shares
103,000
50,000
50,000
25,000
125,000
63,000
416,000
(£)
1,030.00
500.00
500.00
250.00
1,250.00
630.00
4,160.00
Exercise Price
(p)
Vesting Date
Dates
Exercisable
36.50
49.87
33.75
36.25
15.50
16.75
17.2.15
25.6.16
9.6.17
25.6.17
29.2.19
18.3.19
17.2.15 – 17.2.22
25.6.16 – 25.6.26
9.6.17 – 9.6.24
25.6.17 – 25.6.24
25.6.17 – 25.6.24
18.3.19 – 18.3.26
At 31 December 2016 options had been granted and were still outstanding in respect of the
Company’s Ordinary Shares of 1p each under the Company’s 2011 Share Option Plan as follows:
Number of Amount of Capital
shares
(£)
Exercise Price
(p)
Vesting Date
Dates
Exercisable
111,000 1,110.00 36.50 17.2.15 17.2.15 – 17.2.22
70,000 700.00 49.87 25.6.16 25.6.16 – 25.6.26
50,000 500.00 33.75 9.6.17 9.6.17 – 9.6.24
25,000 250.00 36.25 25.6.17 25.6.17 – 25.6.24
125,000 1,250.00 15.50 29.2.19 28.2.19 – 28.2.26
63,000 630.00 16.75 18.3.19 18.3.19 – 18.3.26
444,000 4,440.00
21 SHARE BASED PAYMENTS
The Company issues equity-settled share based payments under the 2004 and 2011 Share Option
Plans. The vesting period is three years. If the options remain unexercised after a period of 10 years
from the date of grant, the options expire. Options are usually forfeited if the employee leaves the
Group before the options vest.
In addition, in 2004 the Company entered into a Long Term Incentive Plan for its directors and some
of its staff. The plan was accounted for as an equity settled scheme and had potential vesting dates
from 2 July 2010 to 31 July 2011 with any award being linked to share performance related targets.
At the 31 December 2017, awards over 284,826 shares (2016: 600,965) had vested and were capable
of exercise.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
21 SHARE BASED PAYMENTS continued
The 2004 LTIP closed during 2009 and no further awards can be made under this scheme. Details
of all the remaining awards that have not yet vested are set out in note 20 (iv) above. Awards are
usually forfeited if the employee leaves the Group before the vesting date.
A new Long Term Incentive Plan was introduced in 2011 A charge to the income statement of £67,041
(2016: £ 34,000) was recognised during the year in respect of all schemes.
The release of shares in respect of the awards still outstanding to participants will depend upon the
growth of Proteome Sciences’ total shareholder return (“TSR”) over a three year performance period
relative to the AIM Healthcare Index. No shares will be released unless the Company’s TSR
performance exceeds that of the Index, in which case 30% of the award will vest. The full award will
vest only if the Company’s TSR performance exceeds that of the Index by 10%, with a pro-rata award
between 30% to 100% for each percentage point of out-performance up to 10%.
Before awards vest the Remuneration Committee will satisfy itself that the TSR performance is a
genuine reflection of the Company’s underlying performance over the three-year performance period.
Outstanding at 1 January, 2016
Exercised in the year
Forfeited in the year
Outstanding at 31 December 2016
Forfeited in 2017
Exercised in the year
Outstanding and exercisable at
31 December 2017
Exercisable at 31 December 2016
Options
231,363
–
(28,413)
202,950
(146,124)
–
56,826
202,950
Outstanding at 1 January 2016
Granted in the year
Forfeited during the year
Outstanding at 31 December 2016
Granted in the year
Forfeited during the year
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Exercisable at 31 December 2016
2004 Share Option Plan
Weighted
2004 LTIP
average Maximum
exercise Number of
price (p)
30.52
–
30.62
30.51
31.60
–
Weighted
average
fair value
Shares per share (p)
31.70
700,965
31.70
(100,000)
–
–
31.70
600,956
31.70
(277,074)
31.70
(323,891)
27.72
30.51
–
600,956
–
31.70
2011 Share Option Plan
Weighted
average
exercise
price (p)
39.8
15.9
40.7
29.6
–
35.0
28.46
40.9
41.7
Options
304,000
188,000
(48,000)
444,000
–
(28,000)
416,000
153,000
181,000
Proteome Sciences plc
57
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
21 SHARE BASED PAYMENTS continued
Outstanding at 1 January 2016
Granted in the year
Lapsing in the year
Outstanding at 31 December, 2016
Granted in the year
Lapsing in the year
Outstanding at 31 December, 2017
Exercisable at 31 December, 2017
Exercisable at 31 December, 2016
2011 LTIP
Maximum
Number of
Weighted
average
fair value
Shares per share (p)
21.7
300,000
–
–
–
–
300,000
18,160,000
(2,460,000)
16,000,000
–
–
21.7
4.25
6.38
4.25
–
–
The options outstanding at 31st December 2017 had a weighted average remaining contractual life
as follows:
2004 Share Option Plan
2011 Share Option Plan
LTIP
The inputs into the Black-Scholes model were:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2017
No. of Months
3.3
78.7
114.4
2016
No of Months
10.7
89.6
35.0
2017
4.9p
4.9p
63.56% - 56.05%
4 years
2016
29.6p
29.6p
60.1% - 56%
4 years
1.13% - 0.15% 1.13% - 0.87%
None
None
Notes
(i) Expected volatility is a measure of the tendency of a security price to fluctuate in a random,
unpredictable manner and is determined by calculating the historical volatility of the Company’s
share price over the previous years.
(ii) The expected life has been adjusted, based on management’s best estimate, for the effects of
non-transferability, exercise restrictions and behavioural considerations.
(iii) The company has used the Monte Carlo model to value the LTIP awards, which simulates a wide
range of possible future share price scenarios and calculates the average net present value of
the option across those scenarios and which captures the effect of the market-based
performance conditions applying to such awards.
58 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
22 RESERVES DESCRIPTION AND PURPOSE
Share premium
Amount subscribed for share capital in excess of nominal value.
Foreign exchange translation reserve
Gains/losses arising on retranslating the net assets of overseas operations into Sterling.
Retained earnings
All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
Other Reserves
The other reserve arose in the year ended 31 December 2002 and represented the premium on the
allotment of shares issued for the acquisition of Xzillion Verwaltungs GmbH (now Proteome Sciences
R&D Verwaltungs GmbH) and Xzillion Proteomics GmbH & Co KG (now Proteome Sciences R&D
GmbH & CO KG).
Share based payment Reserve
The amounts transferred to the Equity Reserve are for charges recognised in respect of the
requirements of IFRS 2 “Share-based payments”.
Merger Reserve
The merger reserve arose in the period to the 11 November 1994 and represented the premium on
the allotment of new ordinary shares issued in a share exchange agreement entered into by the
shareholders of Monoclonetics International Inc, (now Proteome Sciences Inc.). As the carrying value
of the investment was fully impaired at 31 December 2017, a transfer has been recognised to the
company’s Retained loss reserve.
23 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
Operating lease arrangements
The Group leases certain land and buildings on short-term operating leases. The rents payable under
these leases are subject to renegotiation at various intervals specified in the leases. The Group pays
insurance, maintenance and repairs of these properties.
At the balance sheet date, the Group had outstanding commitments for future minimum lease
payments under non-cancellable operating leases, which fall due as follows:
Within 1 year
Within 2-5 years
Group
2017
£’000
Company
2017
£’000
Group
2016
£’000
Company
2016
£’000
282
138
420
45
–
45
228
311
539
–
–
–
Operating lease payments represent rentals payable by the Group for its laboratory and office
properties.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
24 FINANCIAL INSTRUMENTS
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going
concern while maximising the return to stakeholders through the optimisation of the debt and equity
balance. The capital structure of the Group consists of debt, which includes borrowing disclosed in
note 18b, cash and cash equivalents and equity attributable to equity holders of the parent,
comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement
of changes in equity on page 30.
Categories of financial instruments
Financial assets
Cash
Trade receivables
Financial liabilities
Other payables and accruals
Trade and other payables
Short-term borrowings
Loan from other Group entity
Hire purchase payables
Group
2017
£’000
Company
2017
£’000
908
333
(560)
–
58
–
–
–
(8,946)
1,501
(166)
–
–
Group
2016
£’000
2,884
399
(414)
(28)
(8,700)
–
(386)
Company
2016
£’000
2,152
–
–
–
(1,461)
(306)
–
Financial risk management objectives
The Group’s operations expose it to a variety of risks including credit risk, interest risk and liquidity
risk.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency
exchange rates and interest rates (see below).
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to
exchange rate fluctuations arise. The Group’s principal exposure is to movement in the Euro exchange
rate, but it anticipates that a significant proportion of its future income will be received in this currency,
thus helping to reduce its exposure in this area.
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of Germany (the Euro) and to the US dollar currency.
None of the Group’s companies have assets or liabilities that are denominated in a currency other
than the functional currency in which the companies operate. Hence, there is not a material exposure
to foreign exchange risk and therefore a foreign currency sensitivity analysis would not be appropriate.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
24 FINANCIAL INSTRUMENTS continued
Credit risk
Group
Electrophoretics Limited, the main trading company in the group, has a credit policy in place and
the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on
customers as deemed necessary based on the nature of the prospective customer and size of order.
At the reporting date, the largest exposure was represented by the carrying value of other debtors
of £329,000 (2016: £537,000). No provision for impairment was recognised for FY2017 or FY2016
on the basis that the company’s customers are typically large companies and there is a long standing
relationship and history of payment by customers. The Group does not have significant
concentrations of credit risk on its trade receivables.
Company
The company is exposed to credit risk on loans provided to related parties. At the reporting date, the
largest exposure was represented by the carrying value of loans to Proteome Sciences R&D GmbH
of £7.5m. A provision for impairment was recognised in FY2017 of £1.63m (2016: £17.9m) against
the carrying value of loans owed by Electrophoretics Limited. At 31 December 2017, the carrying
value of loans owed by Electrophoretics Limited to the company was £0.4m (2016: Nil).
Interest rate risk management
The Group is exposed to interest rate risk arising from its short-term borrowings, details of which are
set out in note 18(b).
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the
liquidity risk management section of this note.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to floating rate liabilities.
The analysis is prepared assuming the amount of liability outstanding at balance sheet date was
outstanding for the whole year. A 0.5% increase or decrease is used when reporting interest rate risk
internally to key management personnel and represents management’s assessment of the reasonably
possible change in interest rates.
If interest rates had been 0.5% higher and all other variables were held constant, the Group’s loss
for the year ended 31 December 2017 would have increased by £44,825 (2016: £43,000).
The Group’s sensitivity to interest rates has increased slightly during the current year due to the rise
in the amount of its short term borrowings over the year.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built
an appropriate liquidity risk management framework for the management of the Group’s short,
medium and long-term funding and liquidity management requirements. The Group manages liquidity
risk by maintaining adequate reserves and borrowing facilities, by continuously monitoring forecast
and actual cash flows and by matching the maturity profiles of financial assets and liabilities.
Liquidity and interest risk tables
a) The following tables detail the Group and Company’s remaining contractual maturity for its non-
derivative financial liabilities. The tables have been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which the Group and Company can be
required to pay.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
24 FINANCIAL INSTRUMENTS continued
The table includes both interest and principal cash flows.
Weighted
average
effective
interest
Rate
%
2.79
–
10.8
Less than 1 month
Within Within
Within
one year 1-2 years 2-3 years
Group Company
£’000
£’000
1,502
8,946
Group
£’000
-
Group
£’000
-
Group
£’000
-
–
–
–
–
–
166
3.0
8,700
1,461
–
10.8
–
–
220
166
–
–
–
–
–
–
–
2017
Variable interest rate
instruments - Borrowings
Fixed rate instruments
– Hire purchase
2016
Variable interest rate
instruments - Borrowings
Fixed rate instruments
– Hire purchase
25 RELATED PARTY TRANSACTIONS
a) Transactions between the Company and its subsidiaries, which are related parties, have been
eliminated on consolidation and were as follows:
1) Loans advanced to subsidiary undertakings:
Proteome
Sciences R&D
£’000
Electrophoretics
Ltd
£’000
At 1 January 2016
Additional investment in the year
Provision for impairment
At 31 December, 2016
At 1 January 2017
Additional investment in the year
Provision for impairment
At 31 December, 2017
2) Loan from subsidiary undertaking:-
At 1 January, 2016
Exchange adjustment
At 31 December, 2016
At 1 January, 2017
Exchange adjustment
At 31 December, 2017
8,011
–
(462)
7,549
7,549
–
–
7,549
264
42
306
306
12
318
15,982
1,935
(17,917)
–
–
2,023
(1,631)
392
Total
£’000
23,993
1,935
(18,379)
7,549
7,549
2,023
(1,631)
7,941
Further details of the Company’s shares in and loans to its subsidiary undertakings are set out in
note 15.
b) C.D.J. Pearce, a Director of the Company and therefore a related party, has made a loan facility
available to the Company full details of which are set out in note 18(b) on page 51.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2017
25 RELATED PARTY TRANSACTIONS continued
c) Details of the remuneration of the directors is set out in note 10, including details of pension
contributions made by the Company and information in connection with their long-term benefits
is shown in the directors’ report under the heading ‘Directors and their interests’.
d) Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Group. Key management personnel for the year-ended
31 December 2017 and the comparative period were as follows:
Jeremy Haigh (Chief Executive Officer)
Geoff Ellis (Finance Director) (resigned 1 August 2017)
Ian Pike (Chief Scientific Officer)
Stefan Fuhrmann (Finance Director)
Christopher Pearce Chairman (Non-Executive Director)
Roger McDowell (Non-Executive Director)
Willian Dawson (Non-Executive Director) (resigned 1 August 2017)
Martin Diggle (Non-Executive Director)
Ursula Ney (Non-Executive Director) (appointed 1 August 2017)
Key management personnel remuneration was as follows:
Salary
Other long-term benefits
Defined benefit scheme costs
Share based payment expense
Consultancy fee
2017
£’000
2016
£’000
525
15
–
58
70
668
599
19
–
22
41
681
The amounts charged to the income statement relating to Directors in respect of the share-based
payment charge were as follows:
2017
£’000
58
2016
£’000
22
26 EVENTS AFTER THE BALANCE SHEET DATE
There have been no significant events which have occurred subsequent to the reporting date.
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NOTICE OF MEETING
Notice is hereby given that the 24th Annual General Meeting of Proteome Sciences plc will be held at
finnCap, 60 New Broad Street, London, EC2M 1JJ on 30 May 2018 at 12 midday for the purpose of
considering and, if thought fit, passing the following Resolutions of which numbers 1 to 6 will be proposed
as ordinary Resolutions and number 7 to 8 will be proposed as special Resolutions.
ORDINARY BUSINESS
1 To receive the financial statements and the reports of the directors and of the auditors for the year
ended 31 December 2017.
2 To re-appoint Christopher Pearce as a Director.
3 To re-appoint Ursula Ney as a Director.
4 To re-appoint Richard Dennis as a Director.
5 To re-appoint BDO LLP as auditors of the Company in accordance with section 489 of the Companies
Act 2006 until the conclusion of the next general meeting of the Company at which audited accounts
are laid before the members and to authorise the directors to fix their remuneration.
SPECIAL BUSINESS
ORDINARY RESOLUTION
6 THAT the directors of the Company be and are hereby authorised generally and unconditionally
pursuant to and in accordance with section 551 of the Companies Act 2006 to exercise all the powers
of the Company to allot shares or to grant rights to subscribe for or convert any security into shares
in the Company up to an aggregate nominal amount of 983,940.19 until the conclusion of the next
Annual General Meeting of the Company or 30th June 2019, whichever is the earlier, but so that this
authority shall allow the Company to make offers or agreements before the expiry of this authority
which would, or might, require shares to be allotted or rights to subscribe for or to convert securities
into shares to be granted after such expiry.
SPECIAL RESOLUTION
7 THAT subject to, and upon Resolution 6 above, having been passed and becoming effective, the
directors be and are hereby authorised and empowered pursuant to section 570 of the Companies
Act 2006 (the “Act”) to allot equity securities, as defined in section 560 of the Act, as if section 561(1)
of the Act did not apply to any such allotment, provided that this power shall be limited to:
(a) the allotment of equity securities in connection with an offer by way of a rights issue, or any other
pre-emptive offer, to the holders of ordinary shares in proportion (as nearly as may be) to their
respective holdings of ordinary shares on a record date fixed by the directors and to the holders
of other equity securities as required by the rights of those securities or as the directors otherwise
consider necessary but subject to such exclusions or other arrangements as the directors may
deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates,
legal or practical problems in or under the law of any territory or the requirements of any
regulatory body or stock exchange; and
(b) the allotment (otherwise than pursuant to sub- paragraph (a) and (b)) of equity securities which
are or are to be wholly paid up in cash up to an aggregate nominal amount of £590,364.11.
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NOTICE OF MEETING
and provided further that the authority and power conferred by this Resolution shall expire at the
conclusion of the next Annual General Meeting of the Company or on 30th June 2019, whichever is
the earlier, unless such authority is renewed or extended at or prior to such time, save that the
Company may before such expiry make any offer, agreement or other arrangement which would or
might require equity securities to be allotted after the expiry of this authority and the directors may
then allot equity securities in pursuant of such an offer or agreement as if the authority and power
hereby conferred had not expired.
8 The regulations contained in the draft articles of association (a copy of which is available for
inspection – See Note to Resolution 8 overleaf) be adopted as the Company’s articles of association,
in substitution for, and to the exclusion of all existing articles of association.
By order of the Board
Hamilton House
Mabledon Place
London WC1H 9BB
V. Birse
Company Secretary
23 April 2018
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NOTICE OF MEETING
Notes:
1. A member entitled to attend and vote at the meeting is entitled to appoint more than one proxy, to
exercise all or any of his rights to attend, speak and vote in his place on a show of hands or on a poll
provided that each proxy is appointed to a different share or shares. Such proxy need not be a
member of the Company. In accordance with Article 90, any such appointment is valid only if the
instrument of proxy is deposited with the Company’s registrars not less than forty-eight hours before
the time for holding by 12:00 midday on 28 May 2018 or any adjourned meeting. A proxy need not
also be a member of the Company. A form of proxy and return envelope are enclosed; completion
of an instrument of proxy will not prevent members from attending and voting in person should they
wish to do so.
2. Copies of executive directors’ service agreements, and copies of the terms and conditions of
appointment of non-executive directors are available for inspection at the Company’s registered office
during normal business hours from the date of this notice until the close of the Annual General
Meeting (Saturday, Sundays and public holidays excepted) and will be available for inspection at the
place of the Annual General Meeting for at least 15 minutes prior to and during the meeting.
3. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies
that in order to have the right to attend and vote at the meeting (and also for the purpose of calculating
how many votes a person entitled to attend and vote may cast), a person must be entered on the
register of members of the Company by no later than the close of business two days before the date
of the meeting. Changes to entries on the register of members after this time shall be disregarded
in determining the rights of any person to attend or vote at the meeting.
Explanatory notes on the resolutions:
Resolution 1
The directors must present to members the accounts and the reports of the directors and auditors in
respect of each financial year.
Resolution 2
In accordance with Article 118 of the Company’s articles of association at each Annual General Meeting
one third, or the number nearest to but not exceeding one-third of the directors are to retire by rotation
Mr C Pearce is the director retiring by rotation at this meeting.
Resolution 3
Dr U M Ney was appointed as a director of the Company on 1 August 2017. Article 125 of the Articles
of Association requires that any director appointed between Annual General Meetings must retire at the
next following Annual General Meeting.
Biographical details of the directors offering themselves for re-election are included on pages 12 – 13
of the annual report and accounts.
The Board of Directors considers the performance of each of the Directors standing for re-election at
the Annual General Meeting to be fully effective and they each demonstrate the commitment and
behaviours expected of a director of Proteome Sciences plc.
Resolution 4
Mr R Dennis was appointed as a director of the Company on 24 April 2018. Article 125 of the Articles
of Association requires that any director appointed between Annual General Meetings must retire at the
next following Annual General Meeting.
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NOTICE OF MEETING
Biographical details have not been included in the Annual Report due to Mr. Dennis’ very recent appointment.
The Board of Directors considers the performance of each of the Directors standing for re-election at
the Annual General Meeting to be fully effective and they each demonstrate the commitment and
behaviours expected of a director of Proteome Sciences plc.
Resolution 5
BDO LLP are being proposed as the auditors of the Company until the conclusion the next general
meeting at which accounts are presented. The directors are to be given authority to fix their remuneration.
Resolution 6
The Company’s power to issue additional securities is exercised by the directors. The directors must be
authorised by ordinary resolution of the shareholders to exercise that power. The resolution will give the
Directors a general authority to allot shares up to an aggregate nominal value of £983,940.18 being the
equivalent of one-third of the Company’s issued ordinary share capital at the date of this notice.
The Directors are seeking the annual renewal of this authority in accordance with best practice and to
ensure the Company has maximum flexibility in managing its capital resources.
Resolution 7
When shares are to be allotted for cash, Section 561 of the Companies Act 2006 provides that existing
shareholders have pre-emption rights and that any new shares are offered first to such shareholders in
proportion to their existing shareholdings. This resolution is seeking to authorise the Directors to allot
shares of up to an aggregate nominal amount of £590,364.11 otherwise than on a pro-rata basis. This
represents 20% of the Company’s issued share capital at the date of this notice.
The directors are seeking the annual renewal of this authority in line with the authorities granted to dis-
apply the pre-emption provisions in previous years and to ensure the Company has maximum flexibility
in managing its capital resources.
Special Resolution 8 – Adoption of new Articles of Association
The Company’s current Articles of Association (‘Current Articles’) were adopted in July 2008 before the
Companies Act 2006 (the ‘2006 Act’) was fully enacted and although amendments were made at the
2017 Annual General Meeting to remove certain redundant provisions a review of the current Articles
has revealed that it may be more appropriate to adopt fully updated Articles of Association. The Company
proposes to adopt new Articles of Association (‘New Articles’). A copy of the New Articles will be
available for inspection during normal working hours at the Company’s registered office (Hamilton House,
Mabledon Place, London, WC1H), from the date of this notice up until the AGM. A copy may also be
downloaded from the Company’s website (www. proteomics.com). A copy will also be available
15 minutes prior to, and during the AGM.
The principal changes introduced in the New Articles are summarised below. Other changes, which are
of a minor, technical or clarifying nature and remove gender specific references are not dealt with in any
detail.
The Company’s Memorandum of Association
The provisions regulating the operations of the Company are currently set out in the Company’s current
Memorandum and Articles of Association. The Memorandum of Association contains, amongst other
things, an objects clause which sets out the scope of activities that the Company is authorised to
undertake, the Company’s authorised share capital (ie the maximum number of shares that can be in
issue) (this clause was removed at the 2017 Annual General Meeting) and the liability of the members.
Proteome Sciences plc
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NOTICE OF MEETING
However, the 2006 Act significantly reduced the constitutional significance of the Memorandum of
Association and only requires it to record the names of the subscribers on formation and the number of
shares allotted to them at that time. All other provisions that were contained in the Memorandum of
Association, including the objects clause, the authorised share capital and the limited liability of the
shareholders, since 1 October 2009, have been deemed to be contained in the Current Articles.
The 2006 Act permits a company not to have an objects clause enabling it to be unrestricted in its
activities and the number of shares that can be in issue. The Company proposes to take advantage of
this and remove its objects clause and its authorised share capital. Special Resolution 8(a) confirms this
removal, but one effect of this removal is the shareholders’ limited liability clause, which was also
contained in the Company’s Memorandum of Association and will also be removed. However, this clause
has been carried over to the New Articles to maintain the limited liability of the shareholders.
Articles which duplicate and/or were required by statutory provisions
Provisions in the Current Articles, which replicate provisions in the 2006 Act have, in the main, been
omitted in the New Articles.
The 1985 Act required a company to have specific provisions in its articles of association in order to be
able to purchase its own shares, consolidate or sub-divide its shares and to reduce its share capital or
other undistributable reserves, as well as the necessary shareholder authority to take such action. The
2006 Act no longer requires such provisions to be contained in the articles of association, although
shareholder approval is still required to effect such things. The relevant provisions have, therefore, been
omitted in the New Articles.
Share warrants to bearer
Companies can no longer issue share warrants to bearer and therefore the provisions relating to this
have been removed.
Stock
Under the 2006 Act, it is no longer possible for a company to convert its shares into stock. As the
Company has no stock in issue, the provisions as regards stock in the Current Articles have been omitted
in the New Articles.
Closure of the Register of Members
It is no longer possible under the 2006 Act to suspend the registration of share transfers for up to 30 days
in any year. Therefore, this power has been omitted in the New Articles.
Electronic Communications
The New Articles have preserved the ability in the Current Articles for the Company to send electronic
communications (such as notices and other documents) to the shareholders.
Electronic General Meetings
The New Articles reflect the current trend in companies to enable the Company to hold general meetings
by either having a physical meeting or an electronic meeting or a combination of both. The Articles are
being amended to give the directors flexibility to call an electronic general meeting but until such time
as technology makes this simpler it is likely that the Company will continue to hold physical general
meetings.
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NOMINATED ADVISERS AND STOCKBROKERS
NOTICE OF MEETING
ADVISER:
AUDITOR:
SOLICITORS:
BANKERS:
REGISTRARS:
Shareholder Enquiries:
finnCap
60 New Broad Street
London
EC2M 1JJ
BDO LLP
55 Baker Street
London
W1U 7EU
Freeths LLP
1 Vine Street
London
W1J 0AH
Barclays Bank Plc
Pall Mall Corporate Banking Group
50 Pall Mall
London
SW1Y 5AX
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Link Asset Services
+44(0) 871 664 030
Remuneration of directors
The Current Articles state that the aggregate annual remuneration of the directors (other than received
in an executive capacity) is £120,000. The New Articles have increased this amount to £250,000 in order
to provide sufficient headroom for inflationary increases and for further directors to be appointed, should
it be desirable to increase the Board size as part of the growth plans or strategy for the Company.
Retirement by rotation
The Current Articles require that one third of the directors or the number nearest to but not exceeding
one third should retire by rotation at each Annual General Meeting, this can, depending on appointments
and resignations mean that can be in office for more than three years before next being subject to
retirement by rotation. The new Articles provide that directors will need to retire by rotation at every third
Annual General Meeting following the Annual General Meeting when they were last elected or re-elected.
Change of name
Under the 1985 Act, a company could only change its name by the shareholders passing a special
resolution. The 2006 Act permits companies to have in their articles of association an alternative method
to effect a name change. The New Articles enable the directors to change the Company’s name by
passing a Board resolution. Whilst it is recognised that the New Articles enable the directors to change
the Company’s name without seeking shareholder approval, there are currently no plans to rebrand the
Company or change its name. Any decision to do so would only be taken upon the completion of a full
assessment of the Company’s brand and its strategy.
Provision for employees
The 2006 Act enables the directors to make provisions for current and former employees of the company
(or any of its subsidiaries) in connection with the cessation or transfer of the whole or part of the
undertaking of the company or one of its subsidiaries, if they are so authorised by the articles of
association or by the shareholders in general meeting. The New Articles enable the directors to exercise
such a power which reflects best practice, whereas the Current Articles permit the directors to exercise
such a power if the maximum payment to any individual is no higher than 50% of their gross annual
salary, otherwise a special resolution of the shareholders is required to sanction such a payment.
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Proteome Sciences plc
Registered number: 02879724
Report and Financial Statements
for the year ended 31 December 2017