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Proteome Sciences plc
Registered number: 02879724
Report and Financial Statements
for the year ended 31 December 2018
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ADVISERS
Allenby Capital Limited
5 St Helen’s Place
London
EC3A 6AB
BDO LLP
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W1U 7EU
Freeths LLP
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Link Asset Services
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Link Asset Services
+44(0) 871 664 0300
NOMINATED ADVISER
AND BROKER:
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REGISTRAR:
Shareholder Enquiries:
253868 Proteome p01-p33.qxp 01/04/2019 21:56 Page 1
CONTENTS
BUSINESS REVIEW
Chief Executive Officer’s Statement
Strategic Report
GOVERNANCE
Board of Directors
Corporate Governance
Audit Committee Report
Remuneration Committee Report
Directors’ Report
FINANCIAL STATEMENTS
Independent Auditor’s Report
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
for the year ended 31 December 2018
At the end of a year marked by political uncertainty
and economic restraint, both of which adversely
affected the biopharmaceutical sector in the
second half, I can report a steady 12 months
ending 31 December 2018. Revenues for the full
year decreased by 9.8% to £3.05m. Year on year
sales and royalties attributable to isobaric tandem
mass tag (TMT®) reagents grew 10.2% to £2.10m,
excluding contributions from a significant milestone
payment late in 2017 and a research collaboration
during 2018. Proteomics (biomarker) services
decreased 5.5% to £0.75m and were below
expectations as the result of a slow first half to the
year. Total costs of £4.71m were 13.3% lower
reflecting the ongoing impact of restructuring and
cost containment performed in recent years, and
losses after tax were significantly reduced to
£1.31m. Cash reserves at the year-end were
£0.96m, similar to the previous year, benefitting
from the timely resolution of R&D tax credit
payments for both 2016 and 2017, and from
drawing down a share of the £1.00m loan facility
made available by Vulpes Investment Management
in July 2018.
(biomarker)
Services
Our clear focus in 2018 was to build a sustainable
services business.
proteomics
Conscious that much needed to be done to
establish our place as a preferred provider,
particularly in an environment favouring companies
with broader technology platforms than our own,
progress was slower
than we had hoped.
Revenues from a strengthening order book carried
through from 2017 took longer to realise than
first half
anticipated,
performance and negatively affecting our full year
results which were also materially reduced by the
decision of Genting TauRx Diagnostic Centre to
discontinue a potentially valuable biomarker assay
development project in Alzheimer’s disease (AD).
in a weak
resulting
As predicted, the fourth quarter was the strongest
for our proteomics services, during which we
recognised about 40% of the annual service
revenues and generated work orders to the value
of £0.25m. Momentum is certainly developing and,
the
it could not make up
although
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disappointingly slow adoption of our services
platform at the start of the year, we remain
encouraged by recent progress, by the number
and diversity of more than 30 new projects which
we won during 2018, and by the value of 14 work
orders contributing to a positive start in 2019. Just
as importantly, feedback from many of our
customers has endorsed the inherent value that
can be realised from our proprietary proteomics
workflows. Our intention is to convert these projects
into reliable, follow-on business at greater scale,
and to improve our operational efficiency so that
revenues can be generated more quickly from
committed work orders; we continue to reshape
and consolidate the business to achieve this.
A sales agent model was introduced in Europe at
the start of 2018, akin to that initiated in the US
during 2017. Cenibra GmbH signed a contract
covering German speaking countries and quickly
broadened our client base, allowing us to complete
the transition from direct sales staff in our primary
commercial territories and expand our sales
relinquishing cost control.
activities without
Although our original US agent has since been
withdrawn, this was not a reflection of the operating
model which we continue to believe offers the most
efficient approach to commercialising our services
business.
As the proteomics market expands, and with it
interest in using unbiased methods to measure
large numbers of proteins in biological samples,
our mass spectrometric (MS)-based techniques
and workflows continue to attract attention as a
logical precursor to the development of targeted
assays. Extending our service offering, for example
by introducing new workflows such as Super
Depletion, will of course be fundamental to the
future of this business. Good Clinical Laboratory
Practice (GCLP) accreditation has been an
important driver of increasing project interest, and
re-accreditation (now valid for 2 years) was
completed in November without major findings. Our
annual
for
Standardisation) 9001:2015 certificate was also
reissued earlier in the year, confirming our
commitment to quality standards.
(International Organisation
ISO
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CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2018
Promotional activities have increased despite a
limited budget, with attendance at many exhibitions
in our primary markets of the US and Europe as
well as high volumes of customer calls leading to
requests for quotations. Currently, our customer
base is predominantly small and medium sized
enterprises (SMEs) but we have started engaging
larger biopharmaceutical companies in discussion
and expect that this will translate into more
substantial work orders and preferred provider
agreements of the sort recently established with e-
therapeutics plc. Converting such interest into
formal projects, and then efficiently into recognised
revenues, remains our primary objective and we
are employing standard metrics of service delivery
to monitor and improve throughput. Importantly, we
retain the capacity to increase our workload by
increasing our existing MS utilisation rates without
the need
for significant additional capital
investment in our Frankfurt laboratory.
Licences
An amendment to our exclusive License and
Distribution Agreement with Pierce Biotechnology
Inc. (a division of Thermo Fisher Scientific Inc.)
announced in April extended the current licence to
include intellectual property (IP) relating to a new
class of higher-plex TMT® reagents currently in
development and on schedule for launch in 2019.
Such higher-plex technology represents the next
phase in the evolution of isobaric tagging, which
will enable further advances in the efficiency and
utility of MS protein analyses and has been a
long-standing objective for both companies in
response to a clear customer need. Through this
extension of our exclusive relationship we see the
potential to expand further a market in which we
are already dominant, with TMT® the established
standard for multiplex, quantitative proteomic
experiments. In addition to completing synthesis of
these higher-plex tags early in 2019, significant
resources were directed towards restocking our
10-plex supplies which should now provide for
anticipated commercial needs until late 2020.
TMT® sales and royalties remained predictably
strong during the year. There was continued growth
of 20% in Thermo Scientific’s core market; however
this only translated into approximately 10% growth
in our underlying business, in part a consequence
of unfavourable exchange
rates. This was
insufficient to replace fully the substantial milestone
payment we received from Thermo Scientific late
last year resulting in a 11% reduction in our overall
TMT®-associated revenues. While a change in the
ordering pattern for stock reagents to support more
flexible TMT® kit manufacture may have led to
somewhat slower growth in the early months of the
year, there is also some suggestion that orders in
the second half may have been delayed awaiting
the availability of higher-plex tags in 2019.
initiated
The Company is pleased to report that during the
fourth quarter Randox
the clinical
validation study required for CE (Conformité
Européene) marked approval of
its stroke
diagnostic array (based in part on the Company’s
IP) and anticipates good progress in the coming
months. Timelines for this trial have not been
provided by Randox, as sponsor, although
completion should not be expected until 2020. In
addition, I am pleased that a further non-exclusive
licence to the Company’s GST-P stroke biomarker
IP was concluded in January 2019 with Galaxy
CCRO Inc. (“Galaxy”), a recently formed US clinical
contract research organisation, which intends to
develop a point of care test for the diagnosis and
timing of stroke onset in order to guide the use of
specialist thrombolytic treatment. Under the terms
of the licence the Company will receive equity in
Galaxy as an
fee, with subsequent
development milestones and a running royalty on
any product sales. Although the ultimate value of
the
this
performance of Galaxy, this deal demonstrates
again the value that may reside in our IP portfolio
as we continue to seek future collaborators and
partners.
is wholly dependent on
licence
initial
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Research
Research investments were again limited to those
directly relevant to our commercial services. We
chose to focus on productivity improvements to our
principal proteomics workflows, the development of
the clusterin blood test for neurodegeneration and,
particularly, the introduction of high-performance
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CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2018
plasma proteomics. The latter was in partnership
with Pliant Therapeutics, Inc., one of our customers,
with whom we presented data at the American
Thoracic Society meeting in May. This was the first
report of our new Super Depletion method for
abundant plasma proteins combined with
TMTcalibrator™ where we were able to quantify
over 8,000 proteins and identify potential new
biomarkers for idiopathic pulmonary fibrosis (IPF).
Super Depletion has subsequently become an
important and frequently requested element of our
the
service offering, demonstrating again
continuing importance of basic research activities
to ensure that we can refresh and update our range
of services.
Characterisation of the Clusterin Glycoform Assay
has been completed and provides early
assessment of the level of brain damage in
neurodegeneration. We have developed a new
quantitative method to allow its use in assessing
patients prior to their enrolment in, and during,
clinical trials. We will be evaluating its final
performance shortly and aim to launch it as our first
clinical-grade test under the GCLP certification. A
tryptophan metabolite assay is also scheduled for
launch during 2019.
Among our publications in 2018 was the report of
a collaboration with the University of Eastern
Finland, combining our SysQuant® protein and
phosphopeptide analysis with transcriptomics in
order to stage AD pathology. This has the potential
to be a landmark publication and we will maximise
its value for commercial activities.
Operating Environment
The positive environment created by US tax cuts at
the start of the year, encouraging sector-wide
investment in several areas important to us such as
immuno-oncology, precision medicine and digital
health, quickly gave way to pre-Brexit speculation
and general market weakness following a series of
high-profile clinical stage failures. The resulting
risk-averse environment significantly slowed
collaborative activities which, although having little
direct effect on our
forced many
companies to focus internally and retain strong
trading,
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Proteome Sciences plc
cost containment measures. For our part we
continued a policy of cost reduction established in
the previous year by choosing not to replace staff
who left the Company through retirement and
resignation, and recently removing two further roles
from the organisation. These reductions have:
(cid:129) minimised internal resources deployed in
maintaining our IP portfolio, which we continue
to support but have narrowed in line with our
budget;
(cid:129)
(cid:129)
increased cross functional efficiencies by
fundamentally changing our approach
to
project management and leadership; and
enabled us to complete the transition to a sales
agent model in central Europe which is our
preferred route to commercialisation.
Costs were reduced as anticipated, with significant
full year savings from Company restructuring being
partially offset by investment in the development of
our new, higher-plex TMT® tags. These containment
efforts will continue into 2019 in the full expectation
that we can further improve our organisational
efficiency.
Uncertainties surrounding the eligibility of our
commercial projects for R&D tax credits have been
resolved after a prolonged period of discussion
with HMRC and claims for years 2016-17 have now
been settled. As such, and to ensure that
prospective credit claims are positively received,
the Company will take forward its 2018 claim during
2019. We are grateful to Vulpes Investment
Management for showing confidence in our service
proposition to provide a loan facility of £1.00m,
giving us some additional working capital to start
investing in a sustainable services business.
Volatility in foreign exchanges during the year
affected non-sterling denominated revenues as
well as costs associated with the Frankfurt
laboratory, but the overall effect on EBITDA was
neutral.
Like many
organisations,
implementation of the General Data Protection
Regulation (GDPR) 2016/679 in May created a
small
other
253868 Proteome p01-p33.qxp 01/04/2019 21:56 Page 5
CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2018
disproportionate workload but, as a result, our data
protection activities have been fully reviewed both
internally and externally to ensure we remain
compliant. Updated policies for Social Media, Data
Protection and Anti-bribery, released throughout
the
the minimum
requirements for a listed company.
organisation,
address
I was pleased to welcome Richard Dennis, our
Chief Commercial Officer, to the Board in April, and
Allenby Capital as our broker and nomad in
December. I also want to thank our customers for
their valuable business and all the staff who
worked for Proteome Sciences during 2018,
including those who have since left the Company;
our continued development as an organisation is a
individual and
direct consequence of
collective efforts.
their
Outlook
The global proteomics market has been estimated
at more than $35 billion by 2021, driven by factors
such as the increasing importance of companion
diagnostics and precision medicine, advances in
digital health and rising R&D expenditure. Although
only a small proportion of this market is specifically
directed towards MS-based protein analysis, an
opportunity clearly exists in the post-genomic era
to develop a successful services business if the
growing needs of biopharmaceutical customers
can be addressed predictably and efficiently. In
particular, interest in adaptive artificial intelligence
(AI)-driven healthcare solutions could become
fundamental to the value of this proteomics market
as the success of such disruptive approaches will
increasingly rely on the provision and linkage of
new data sets from novel technology platforms and
services such as our own.
that
We continue to broaden our range of services and
are optimistic
these, combined with a
commitment to reliability, cost and quality, will allow
us to develop our presence in this important and
expanding market (particularly as the legitimate
provision of TMT®-based services in association
with GCLP accreditation is rare among our contract
research competitors). Further investment is vital,
however, if we are to compete successfully and win
business, not just for the development of new
assays and workflows, but also for marketing
campaigns, sales
resources and website
development. Financial strength remains an
important feature of any vendor assessment
process and will need to be carefully monitored if
we want to grow our business with larger
companies involved in clinical stage assets. The
demand for our TMT® reagents remains strong,
providing reliable revenues, and we are confident
that the launch of higher-plex tags later in 2019 will
further grow the overall market for MS-based
quantitative proteomics and specifically for isobaric
tags at the expense of label-free methods.
In a year with more recognised unknowns than
previously, it is likely that volatility in the markets,
political instability and weakness in the bioscience
sector carried over from 2018 will continue to
undermine investment. That being said, some high-
profile acquisitions by
large pharmaceutical
companies at the start of this year suggested a
strategic change at corporate level after a quiet
2018 with renewed interest in consolidating
technologies and
integrating services. The
importance of new partnerships and operating
models as a means of accessing external
expertise and technology has never been greater
in bioscience and remains an active area of
interest for us as we look to broaden our service
platform.
I would like to thank our shareholders for their
continuing support and patience, and look forward
to communicating further progress and meaningful
revenue growth during 2019.
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Jeremy Haigh
Chief Executive Officer
1 April 2019
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STRATEGIC REPORT
for the year ended 31 December 2018
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
applications.
invented and
In addition, we
for TMT®, and
technology
developed
manufacture these small, protein-reactive chemical
reagents under exclusive license 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 wherever possible,
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 MS-based
proteomics, and this is becoming more widely
implemented in drug development projects as the
pharmaceutical
to expand
biological knowledge beyond genomics. These
services are
the drug
development process, can be used in support of
clinical trials and in vitro diagnostics, and include
proprietary bioinformatics capabilities.
fully aligned with
industry seeks
Progress During 2018
Building a Competitive Services Business
The prevailing biopharmaceutical sector strategy
to outsource analytical needs rather than purchase
the technology and personnel to perform work in-
house affords us a significant opportunity. In
addition, many smaller, virtual organisations are
being created from the site closures of larger
companies and rely solely on outsourced research
and analysis. As MS can identify many more
proteins and post
translational modifications
(PTMs) than detected with other laboratory-based
technologies (e.g. ELISA), the quest to find protein
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Proteome Sciences plc
biomarkers which are predictive for disease status
or drug activity provides a clear focus for our sales
and marketing effort.
The US and Europe account for up to 80% of the
total available market in the field of proteomics and
our current commercial activities have therefore
been directed towards these territories. The use of
the web, direct marketing programmes,
attendance/presentations at scientific conferences
and, most importantly, sales prospecting have all
generated suitable leads for business follow up and
increased the number of quotes we issued in 2018
to 57, more than a threefold increase on the
previous year. Commission-based agents and
direct sales activity provide valuable face-to-face
connection with potential customers, and this
personalised approach allows us to demonstrate
our high level of technical competence which is
essential in order to win contracts for larger
proteomic studies in both pre-clinical and ongoing
clinical trials.
Our ambition is to sell a high value analytical
contract through which we work with a client to
establish their research needs, develop a specific
protocol to address them, and then process
samples they send us on a fee for service basis.
Collaborations usually start with a pre-clinical
project to identify suitable protein biomarkers
which, in the absence of a suitable antibody-based
assay, drives an MS-based biomarker validation
project leading to the development of a targeted
assay for use in on-going clinical trials. More than
half of our clients initiate a pilot study that leads
into either a larger protein discovery project or a
more valuable protein-based assay validation
before adopting the assay as part of a clinical trial,
potentially involving much larger sample numbers
than in the initial protein discovery phase.
Many smaller service-based companies offer MS
capabilities to this market, but very few retain the
product licence required to support TMT®-based
commercial services. Using our superior
knowledge of TMT®, with a combination of Super
Depletion and our proprietary TMTcalibrator™, has
enabled our services to quantify sample protein
numbers that are unachievable with other methods.
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STRATEGIC REPORT
for the year ended 31 December 2018
For the customer, this increases the chances that a
protein-based biomarker relevant
to disease
progression or drug treatment can be identified.
Such biomarkers are increasingly important in a
clinical programme, or for use as a companion
diagnostic, and we plan to promote this approach
heavily in the future.
The Opportunity of Artificial Intelligence
There can be no doubt that advances in AI, or more
specifically machine learning, have the potential to
the
revolutionise healthcare provision and
efficiency of drug discovery and development.
Fundamental to the creation and validation of
predictive algorithms are the provision of high
quality, well curated data, the establishment of
durable collaborations between digital health
companies and data generators, and
the
availability of data scientists and bioinformaticians
who are equipped to aggregate disparate data
sets and identify patterns which will generate
biological insights. MS proteomics is ideally placed
for this revolution, which therefore offers us a
distinct opportunity to address a new customer
segment with our service platform. Rather than
being seen conventionally as just an extension of
genomics, protein analytics can become part of a
solution through which the growing ranks of AI
companies can prove the utility of their approach.
We believe that the next phase of disruptive
technology in biopharmaceuticals is most likely to
come from AI-driven analysis of high quality, ‘big
data’ proteomics.
The Rebirth of Plasma Proteomics - TMTcalibrator™
and Super Depletion
Blood is one of the most commonly sampled body
fluids, used widely in diagnosing and monitoring
disease. Unfortunately, the presence of a few high-
abundance proteins in large volumes of circulating
fluid makes new biomarker discovery particularly
challenging. We have been working to overcome
these difficulties, and thereby transform plasma
proteomics, by combining extensive protein
depletion, TMT® labelling and tissue triggering.
At the American Thoracic Society in May, we
presented results from a study performed for Pliant
Therapeutics Inc. that was the first to combine our
TMTcalibrator™ workflow with Super Depletion –
the removal of about 70 higher abundant proteins
in plasma. Remarkably, we could quantify a total of
over 8,000 proteins in each sample, with 5,600
being quantified in all 30 patient samples studied.
Previously, we would have expected protein
numbers in the region of 800 – 1,000. Such a
significant increase was further enhanced by new
computational approaches that allowed us to
identify many PTM proteins which had direct
relevance to lung disease. Based on these results,
a panel of 36 proteins that differentiated diseased
patients from healthy controls was identified which
may offer clinicians a better tool for diagnosing lung
disease and monitoring the effects of treatment.
The twin advantages of TMTcalibrator™ and Super
Depletion in increasing the number of disease-
associated proteins detected in body fluids are
being recognised by our clients. We are actively
engaged in a number of these projects, supporting
a range of pre-clinical and clinical studies that
should provide strong revenues in 2019.
Targeting Clusterin
One of our earliest biomarker discoveries was the
changed level of plasma clusterin protein in
patients with AD. While this has become a
promising biomarker candidate, there have been
widely conflicting reports describing clusterin level
changes in AD patients. We set out to explain how
plasma clusterin could be subject to such extreme
differences
extensive
modification of
the protein by glycosylation
(i.e. adding complex sugar structures) as a likely
reason. In particular, we identified one site on the
protein where eight different sugar structures were
being added, with levels that varied in patients with
AD and, importantly, which could distinguish
rapidly progressing AD cases
from slower
progressing disease or mild cognitive impairment
(MCI).
identified
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However, the methods used in our discovery
experiments could not be employed for screening
thousands of individuals so we had to develop a
simpler way to measure these eight different
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STRATEGIC REPORT
for the year ended 31 December 2018
the
clusterin glycoforms. Using well-established
Selection Reaction Monitoring (SRM) MS we have
now developed the first test capable of routinely
measuring
levels of all eight clusterin
glycoforms and are setting up a validation study to
replicate our initial discovery and support the
launch of the Clusterin Glycoform SRM Assay later
this year. In line with the development of other
targeted therapeutics, screening patients for their
clusterin glycoform levels prior to enrolment in
clinical trials is likely to define a better population
for demonstrating drug efficacy.
Expanding the TMT® Product Portfolio
TMT® is now widely recognised as delivering the
best combination of quantitative accuracy and
depth of proteome coverage required by modern
proteomics researchers. In a recent publication
from Harvard University, TMT® experiments were
found to be substantially better than label-free
quantification in detecting regulated proteins and
this benefit was strongest for peptides showing
small changes in expression between samples.
This advantage was mostly explained by the ability
to include many samples in a single TMT®
experiment where overall sensitivity is boosted and
there are fewer missing data points.
Other initiatives, such as our TMTcalibrator™
workflow and Super Depletion (see above), are
transforming the level of sensitivity that can be
achieved, and even being adopted with some
success to analyse samples of just a few cells.
However, the need to use several of the TMT®
channels for the tissue trigger reduces the number
of individual samples that can be studied.
In response to this challenge, we have been
working to increase the number of tags in our TMT®
reagent sets and have now completed the
production of a second-generation product. These
new TMT® reagents have 16 different channels
providing a 60% increase in sample multiplexing
over the current TMT® 10plex reagents (i.e. for
standard workflows, analysis of 90 samples can be
achieved in only six sets of experiments compared
with 10 sets using standard TMT®). For
TMTcalibrator™ studies, the opportunity to analyse
12 individual samples with a four-point calibration
curve or tissue trigger makes population-based
studies of plasma biomarkers viable for the first
time.
Patent Applications and Proprietary Rights
Given ongoing cost containment and the changing
focus of the Company we continue to manage our
portfolio of patents aggressively to maximise its
short, medium and longer-term value. In the fourth
quarter we undertook a strategic review of our
patent portfolio and will focus our investment in
22 families that cover our key licensed technologies
(TMT®, stroke biomarkers) and biomarkers under
development (AD, oncology). Seven patents were
granted in 2018 relating to five separate families.
We filed 16 new patents relating to three families
covering tryptophan metabolite assays and TMT®
tags.
Board Changes
On 24 April 2018 the Company announced that
Mr Richard Dennis, Chief Commercial Officer, had
been appointed as an executive director. Mr Dennis
has over 30 years’ experience in the sector and
prior to joining Proteome Sciences had held
positions of increasing responsibility and diversity
in companies such as Quanterix Corp. and
Bioscale Inc.
Financial Review
Results and Dividends
The loss after tax for the year was £1.31m (2017:
£2.50m). The directors do not recommend the
payment of a dividend (2017: Nil). The Group
results are stated in the Consolidated Income
Statement and reviewed in the Chief Executive
Officer’s Statement.
Key Performance Indicators (KPI’s)
(i) The directors consider that revenue and loss
before/after tax are important in measuring
Group performance. The profile of the Group
has changed as a result of ongoing licensing
agreements and with the adoption/conclusion
of other commercial agreements and service
contracts. The performance of the Group is set
out in the Chief Executive Officer’s Statement.
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STRATEGIC REPORT
for the year ended 31 December 2018
(ii) The directors believe that the Group’s rate of
cash expenditure and its effect on Group cash
resources are important. Net cash outflows
from operating activities for FY2018 were
£0.50m (2017: £1.70m). Further details of cash
flows in 2018 are set out in the Group’s
Consolidated Cash Flow Statement.
(iii) In a small business with a high proportion of
well-qualified and experienced staff, the rate of
staff turnover is vital. In FY2018 two members
of staff resigned, and one retired. These
individuals were not replaced as a cost
containment measure and their responsibilities
were redistributed within the organisation. In
addition, strategic decisions were made to
remove three unique roles from the business
resulting in the redundancy of three members
of staff, two of whom only left in January 2019.
revenues
(iv) As a commercially oriented service-based
from our
business, contract
proteomics
(biomarker) services should
increase in absolute terms and as a proportion
of total Group revenues; this was not the case
in 2018 (£0.75m; 25% vs £0.79m; 23% in 2017)
as it took longer than anticipated to recognise
revenues from new service orders, and total
revenues were also down. Repeat business
always provides an important measure of
customer
in an
expanding company it is arguable whether this
metric should necessarily be increasing: in
2018, 44% of our contracts (56% by value)
were from existing clients compared with 50%
(42% by value) in 2017.
satisfaction, although
(v) As the Company transitions to a primary
contract
research business, conventional
service-based metrics reflect our focus on the
time, cost and predictability of data delivery. We
measure and review customer response times
from initial contact through to generation of a
final report and invoice, comparing these times
with our internal standards and to the delivery
times provided in final client proposals. For
example, in 2018 our ambition was for potential
customers to receive formal statements of work
from us within 5 days of engagement, and our
annual conversion rate into fully executed
projects was 66%.
Financial Performance
For the twelve-month period ending 31 December
2018 revenue decreased 9.8% to £3.05m (2017:
£3.38m).
(cid:129)
Licences, sales and services revenue declined
12.4% to £2.96m (2017: £3.38m). This is
comprised of two revenue streams: TMT®
related revenue and Proteomic (Biomarker)
Services. Although core sales and royalties for
TMT® tags increased by 10.2% to £2.10m, total
TMT® related revenue actually decreased by
11.1% (2017: £2.48m) because a significant
milestone payment in late 2017 from our
exclusive distribution partner Thermo Scientific
could not be fully replaced through market
growth and research collaboration.
(cid:129) Grant income was £0.09m (2017: Nil).
The loss after tax was £1.31m (2017: £2.50m).
Taxation
Owing to the changing nature of our services
business, with a stronger focus on commercial
activities, we have not fully assessed our available
R&D tax credit for 2018, and such amounts are only
recognised when reasonably assured.
Costs and Available Cash
The Group maintained a positive cash balance in
2018 and continues to seek improved cash flows
from commercial income streams. Our operating
costs have been significantly reduced.
(cid:129) Administrative expenses in 2018 were £3.24m
(2017: £4.01m). This is a decrease of 19.2%,
representing full year cost savings following the
relocation of the UK Laboratory in 2017, and
further consolidation and restructuring during
the year.
(cid:129) Staff costs
for
the year were £2.25m
(2017: £2.54m).
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STRATEGIC REPORT
for the year ended 31 December 2018
(cid:129) Property costs of £0.32m were in line with
previous years.
guaranteed as evidenced by two resignations
during 2018.
(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
on loans from two major investors in the
Company. Costs of £0.29m are marginally
higher than the prior year.
Loss after tax for 2018 was £1.31m (2017:
£2.50m). The net cash outflow from operating
activities was £0.50m (2017: £1.70m). Cash at
the year-end was £0.96m (2017: £0.91m).
Principal Risks and Uncertainties
Commercialisation Activities
It is uncertain whether our range of contract
proteomic services will generate sufficient
revenues for the Group ultimately to be successful
in an increasingly competitive commercial market
which
favours companies with a broader
technology platform than our own. Progress in
2018, our first full year using the new service
model, was significantly slower than expected
reflecting delays
revenue
recognition from booked work, but interest and
orders increased quarter on quarter during the
year with 14 contracts carried into 2019.
in adoption and
Management of Risk: The Group has sought to
manage this risk by broadening its proteomic
services offering (e.g. Super Depletion), utilising
commission-based sales agents in our principal
commercial territories and adopting conventional
service-based metrics directed at speed, cost and
quality.
Dependence on Key Personnel
The Group depends on its ability to retain a limited
number of highly qualified scientific and
managerial personnel, the competition for whom is
into
strong. While
conventional employment arrangements with key
personnel, aimed at securing their services for
retention cannot be
minimum
the Group has entered
terms,
their
Management of Risk: The Group has a policy of
organising its work so that projects are not
dependent on any one individual, and the creation
of a Head of Operations in Frankfurt is intended to
ensure stronger managerial oversight and support
for our laboratory-based staff. Retention is also
sought through annual, role-based reviews of
remuneration packages, performance related
bonus payments, and the opportunity for share
option grants.
Cash Limitations
Despite remaining cash positive throughout 2018,
the slow adoption of our services platform has
placed undue reliance on the revenues we receive
from TMT® sales and royalties, and limited the
working capital available to invest in growing the
business.
Management of Risk: In addition to previous cost
reduction and ongoing containment measures
which have significantly changed the cost profile
of the business over the last two years, we have
also received additional loan financing through a
£1.00m facility provided on preferential terms by
Investment
our principal shareholder, Vulpes
Management.
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 often with broader and
more varied capabilities.
Management of Risk: The Group employs highly
experienced
research scientists and senior
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.
10 Proteome Sciences plc
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STRATEGIC REPORT
for the year ended 31 December 2018
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
feasibility of proposed research
commercial
projects which is conducted by an experienced
management team. Risk has also been reduced by
decreasing the overall number of research projects
and re-distributing available resources.
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 retains limited but
experienced patent capability
in house,
supplemented by external advice, which has
established controls to avoid the release of
patentable material before it has filed patent
applications. Maintenance of the existing patent
portfolio is subject to rigorous biannual review
ensuring that its ongoing cost is proportional to its
perceived value.
Brexit
The ongoing debate concerning Britain’s future
membership of the European Union casts a long
the well documented potential
shadow and, depending on the eventual outcome,
has
to be
significantly disruptive for UK businesses in
general, and for healthcare provision in particular.
As a UK-listed company with an established and
integral operating subsidiary in Frankfurt, Germany,
the theoretical risks to us are evident but difficult to
qualify and quantify in the absence of any clear
decision.
Volatile exchange rates have the potential to affect
foreign generated incomes and operating costs in
Frankfurt.
Management of Risk: While it is hard to predict the
consequences of Brexit, whatever the outcome, we
have reviewed our operating procedures and
initiated contingency planning. The direct shipment
of biological samples to our Frankfurt laboratory is
unlikely to be affected; nor is the export of TMT®
tags to our exclusive licensee, Thermo Scientific, in
the US, so the impact on revenue generation
should be limited. Any required changes in
corporate or fiscal governance will be monitored
closely for relevance to the Company.
By Order of the Board
Hamilton House
Mabledon Place
London WC1H 9BB
V Birse
Company Secretary
1 April 2019
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BOARD OF DIRECTORS
for the year ended 31 December 2018
in a variety of clinical
Dr Jeremy Haigh
Chief Executive Officer
Jeremy Haigh has spent 30 years in the bioscience
research,
sector
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
involvement
in healthcare policy and government affairs in both
the UK and Europe. He is currently Chairman of
Cogent Skills Ltd.
his basic training
years, with
significant
reflecting
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.
Richard Dennis
Chief Commercial Officer
Richard Dennis joined the Group in April 2017. He
has a commercial background spanning over
30 years in the global life sciences research sector.
Throughout his career he has held positions based
in both the UK and US managing international
sales teams. Prior to joining Proteome Sciences he
had held positions of increasing responsibility and
diversity in companies such as Quanterix Corp.
and Bioscale Inc.
12 Proteome Sciences plc
Christopher Pearce
Non-executive Chairman
Christopher Pearce has built the Group since
inception and been responsible for the formulation
and implementation of strategy, collaborative and
licensing agreements, and IP. He was co-founder
and Executive Chairman of Fitness First plc.
Roger McDowell
Non-executive Director (i) (ii)
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, D4t4 Solutions plc,
Swallowfield plc and Augean plc, Tribal Group plc,
ThinkSmart plc, Hargreaves Services 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 22% of Proteome Sciences'
ordinary share capital.
Dr Ursula Ney
Non-executive Director (i) (ii)
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
253868 Proteome p01-p33.qxp 01/04/2019 21:56 Page 13
CORPORATE GOVERNANCE
for the year ended 31 December 2018
The Chairman’s Statement on Corporate
Governance
The Company is committed to maintaining high
standards of corporate governance. It is the
responsibility of the Board and mine as Chairman
to ensure that the Company has in place the
structure, strategy and people to deliver value to
shareholders in the medium to long term. The
Board recognises that an effective corporate
governance framework is important to help achieve
this aim and is fundamental to the long term
success of the Company.
As a result of changes to AIM Rule 26 during 2018,
the Company has taken the decision to adopt the
Quoted Companies Alliance Corporate Governance
Code 2018 (QCA Code).
I welcome the adoption of the QCA code and the
Company’s approach in relation to complying with
each of the ten principles of the QCA Code. The
remainder of this statement sets out the Company’s
application of the Code. Further information on the
Company’s compliance is published on our
website (www.proteomics.com/investors).
Compliance with the Quoted Companies Alliance
Corporate Governance code
The Quoted Companies Alliance has published a
corporate governance code
for small and
mid-sized quoted companies, which includes a
standard of minimum best practice for AIM
companies, and recommendations for reporting
corporate governance matters (the “QCA Code”).
The Directors of Proteome Sciences plc comply
with the QCA Code. The QCA Code sets out ten
principles which should be applied. These are
listed below together with a short explanation of
how the Company applies each of the principles.
Where the Company does not fully comply with a
principle an explanation as to why has also been
provided.
1. Establish a strategy and business model which
promote long-term value for shareholders
Proteome Sciences plc is a contract research
organisation specializing in the analysis of proteins
by mass spectrometry, providing both discovery
and targeted proteomics services and proprietary
biomarker assays
to biopharmaceutical and
diagnostic companies engaged in the discovery
and development of precision medicines.
Proteomics is an enabling biotechnology platform
for an increasing number of companies invested in
the identification of targeted therapeutics for the
future provision of healthcare. Offering a service to
such companies, in addition to the synthesis of
specialty chemical tags for mass spectrometry, is
an essential part of the strategy to deliver
shareholder value in the medium to long-term.
2. Seek to understand and meet shareholder
needs and expectations
The Board is committed to maintaining good
communication and having constructive dialogue
with its shareholders on a regular basis.
All shareholders are encouraged to attend the
Company’s Annual General Meeting and any other
General Meetings that are held throughout the year.
Investors also have access to current information
its website,
the Company
on
(https://proteomics.com).
from
institutional and retail shareholders are addressed
directly whenever possible by members of the
executive team.
Requests
through
their
implications
3. Take into account wider stakeholder and social
responsibilities and
for
long-term success
The Board recognises that the long-term success
of the Company is reliant upon the efforts of the
employees of the Company, its subsidiaries,
contractors, suppliers and regulators, and upon
relationships with customers and
licensees.
Feedback from all these stakeholders is shared
with, and reviewed by, the executive team on a
regular basis and, where appropriate, actions are
documented. The executive team, led by the CEO,
is also responsible for identifying the resources and
the
relationships necessary
business, and sharing these needs with the Board.
for developing
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An agreed procedure exists for directors in the
furtherance of their duties to take independent
professional advice. With the prior approval of the
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CORPORATE GOVERNANCE
for the year ended 31 December 2018
Chairman, all directors have the right to seek
independent legal and other professional advice at
the Company’s expense concerning any aspect of
the Company’s operations or undertakings in order
to fulfil their duties and responsibilities as directors.
If the Chairman is unable or unwilling to give
approval, Board approval will be sufficient. Newly
appointed directors are made aware of their
responsibilities through the Company Secretary.
4. Embed effective risk management, considering
both opportunities and threats, throughout the
organisation
Risk management
The Board constantly monitors the operational and
financial aspects of the Company’s activities and
is responsible for the implementation and ongoing
review of business risks that could affect the
Company (see page 17). Duties in relation to risk
management that are conducted by the directors
include, but are not limited to:
(cid:129)
Initiate action to prevent or reduce the adverse
effects of risk
(cid:129) Control further treatment of risks until the level
of risk becomes acceptable
(cid:129)
(cid:129)
Identify and record any problems relating to the
management of risk
Initiate, recommend or provide solutions
through designated channels
(cid:129) Verify the implementation of solutions
(cid:129) Communicate and consult
externally as appropriate
internally and
(cid:129)
Inform investors of material changes to the
Company’s risk profile.
Conflicts of interest
The Board has instituted a process for reporting
and managing any conflicts of interest held by
the Company’s Articles of
directors. Under
Association, the Board has the authority to approve
such conflicts.
Company materiality threshold
The Board acknowledges that assessment on
materiality and subsequent appropriate thresholds
are subjective and open to change. As well as the
applicable laws and recommendations, the Board
has considered quantitative, qualitative and
cumulative factors when determining the materiality
of specific relationships of directors.
5. Maintain the board as a well-functioning,
balanced team led by the chair
The Board recognises that the Company needs to
deliver growth in long-term shareholder value and
that this requires an efficient, effective and dynamic
management
should be
framework. This
accompanied by good communication which helps
to promote confidence and trust.
The Board currently comprises three Executive
Directors:
Dr Jeremy Haigh (Chief Executive Officer)
appointed to the Board on the 1 June 2016
Dr Ian Pike (Chief Scientific Officer) appointed to
the Board on the 30 September 2010
Richard Dennis
appointed to the Board on the 24 April 2018
(Chief Commercial Officer)
and four Non-Executive Directors;
Christopher Pearce (Chairman) appointed to the
Board on the 13 July 1994
Roger McDowell appointed to the Board on the
1 July 2014
Martin Diggle appointed to the Board on the
16 October 2014
Dr Ursula Ney appointed to the Board on the
1 August 2017
Details of the qualifications, background and
responsibilities of each director are described on
page 12 and provided on the Company’s website
(https://proteomics.com/leadership).
The board is supported by Audit and Remuneration
Committees, details of which are summarised
under Principle 9 below.
–
The Board considers Roger McDowell and
Dr Ursula Ney to be independent.
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CORPORATE GOVERNANCE
for the year ended 31 December 2018
– Martin Diggle, a director of Vulpes (the largest
shareholder
is not
remunerated for his role on the Board and is not
a member of any Board sub-committee.
the Company)
in
for
time as
Non-Executive Directors are expected to devote
such
the proper
is necessary
performance of their duties but it is anticipated that
they will spend approximately one day a month on
work for the Company. This will include attendance
of Board meetings (usually 8 per year), see
page 18 for the attendance during the year, the
AGM, committee meetings and sufficient time to
consider relevant meeting papers.
the Board bring
6. Ensure that between them the directors have
the necessary up-to-date experience, skills and
capabilities
All members of
relevant
experience. The Board believes that its blend of
experience, skills, personal qualities and
capabilities is suitable to ensure it successfully
executes its strategy. Following the retirement of a
non-executive director with a pharmaceutical
background, Dr Ursula Ney was appointed in
August 2017 bringing to the board considerable
scientific and management experience in the
biotechnology industry. The existing spectrum of
differing entrepreneurial skills continues to be
together with
represented on
considerable knowledge and expertise
from
the pharmaceutical
scientific
industry. The Board will continue to ensure that
Directors receive appropriate support and training
as required to keep them up to date with current
practices. The Board’s biographies are set out on
page 12.
research and
the Board
covered
include Board
and the terms of reference for the Committees.
Areas
structure,
arrangements, frequency and time, content of
meetings, culture and succession planning. It is
recognised that there continues to be more
regulation about which Directors need to be
informed and aware. The Board will continue to
ensure that Directors receive appropriate support
and training as required to keep them up to date
with current practices.
The Chairman
led an annual performance
assessment of the Board and its Committees at the
end of 2018. The performance effectiveness
process included each Director completing a
performance evaluation questionnaire, the results
and feedback from which were collated into a
summary and discussed by the Board.
The Chairman’s summary of the Board Evaluation
concluded that the Board is well balanced and
performs an excellent function in overseeing
corporate goals and activities. Management is free
to operate within the Board-defined goals and
receives appropriate support, oversight and
challenge where required. The Board agreed that
an appropriate framework should be established
for succession planning.
8. Promote a corporate culture that is based on
ethical values and behaviours
As part of the Board’s commitment to the highest
standard of conduct, the Company adopts a code
of conduct to guide executives, management and
employees in carrying out their duties and
responsibilities. The code of conduct covers such
matters as:
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7. Evaluate board performance based on clear
and relevant objectives, seeking continuous
improvement
The Board considers that it is appropriate to
evaluate the performance of the Board and its
Committees annually. The 2018 evaluation is
detailed below. This is intended to make sure that
the Board remains effective, well-informed and able
to make high quality and timely decisions for the
benefit of all stakeholders in the Company with
regular meetings to discuss the strategic direction
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
responsibilities to shareholders
compliance with laws and regulations
relations with customers and suppliers
ethical responsibilities
employment practices
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community.
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for the year ended 31 December 2018
9. Maintain governance structures and processes
that are fit for purpose and support good decision-
making by the board
Chairman
The current Chairman of
is
Christopher Pearce who has been a director of the
Company since July 1994. The responsibilities of
the Chairman are to:
the Company
(cid:129)
Lead the Board, ensuring its effectiveness on
all aspects of its role
(cid:129) Ensure that the directors receive accurate,
timely and clear information
(cid:129) Ensure
effective
communication with
shareholders
(cid:129)
Facilitate the effective contribution of non-
executive directors
(cid:129) Act on the results of board performance
evaluation
Chief Executive Officer
The current Chief Executive of the Company is
Dr Jeremy Haigh who has been a director of the
Company since June 2016. The responsibilities of
the Chief Executive Officer are to:
(cid:129) Provide
leadership and day
management of
authorities delegated by the Board.
the business within
to day
the
Board meetings
The Board meets on average 8 times a year by way
of both face to face and teleconference meetings.
Decisions concerning the direction and control of
the business are made by the Board, and a formal
schedule of matters specifically reserved for the
Board is in place. Matters reserved for the Board
include:
(cid:129) Approval of overall strategy and strategic
objectives;
(cid:129) Oversight of operations (including accounting,
planning and internal control systems);
16 Proteome Sciences plc
(cid:129) Compliance with
requirements;
legal and
regulatory
(cid:129) Management/operational performance review;
(cid:129) Changes in corporate or capital structure;
(cid:129) Approval of the risk appetite of the Company;
(cid:129) Approval of the half-year and annual report and
accounts;
(cid:129) Declaration of any
interim dividend and
recommendation of a final dividend;
(cid:129) Approval of
shareholders;
formal communications with
(cid:129) Approval of major contracts and investments;
and
(cid:129) Approval of policies on matters such as health
and safety, corporate social responsibility
(CSR) and the environment.
Generally, the powers and obligations of the Board
are governed by the Companies Act 2006, and the
other laws of the jurisdictions in which the
Company operates. The Board is responsible,
inter alia, for setting and monitoring Group strategy,
reviewing trading performance, ensuring adequate
funding, examining major acquisition opportunities,
formulating policy on key issues and reporting to
the shareholders.
Board Committees
There are two board committees:
(cid:129) Audit Committee – members are Roger
McDowell (Chair), and Dr Ursula Ney. This
committee met three times during 2018.
(cid:129) Remuneration Committee – members are
Dr Ursula Ney (Chair) and Roger McDowell.
This committee met twice in 2018.
Audit Committee
The Committee provides a forum for reporting by
the Company’s external auditors. Meetings are held
on average three times a year and are attended, by
invitation, by the Executive Directors.
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CORPORATE GOVERNANCE
for the year ended 31 December 2018
The Audit Committee is responsible for reviewing a
wide range of financial matters including the
annual and half year results, financial statements
and accompanying reports before their submission
to the Board and monitoring the controls which
ensure the integrity of the financial information
reported to the shareholders. Audit Committee
Terms of Reference are provided on
the
Company’s website.
10. Communicate how the Company is governed
and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
Shareholders are regularly advised of any
significant developments in the Company through
announcements via the Regulated News Service
and are encouraged to participate in the Annual
General Meeting and any other General Meetings
that may take place throughout the year.
is
responsible
Remuneration Committee
for making
The Committee
recommendations to the Board, within agreed
terms of reference, on the Company’s framework
of executive remuneration and its cost. The
Remuneration Committee determines the contract
terms, remuneration and other benefits for the
Executive Directors, including performance related
bonus schemes, compensation payments and
option schemes. The Board itself determines the
remuneration of the Non-Executive Directors.
Remuneration Committee Terms of Reference are
provided on the Company’s website.
Nominations Committee and internal audit
The Directors consider that the Company is not
currently of a size
to warrant a separate
Nominations Committee or internal audit function
although the Board has put in place internal
financial control procedures as summarised below.
Internal financial control
The Board is responsible for establishing and
maintaining the Group’s system of internal financial
controls. Internal financial control systems are
designed to meet the particular needs of the
Group and the risk to which it is exposed, and by
their very nature can provide reasonable, but not
absolute, assurance against material misstatement
or loss.
The Directors are conscious of the need to keep
effective internal financial control, particularly in
view of the cash resources of the Group. The
Directors have reviewed the effectiveness of the
procedures presently in place and consider that
they remain appropriate to the nature and scale of
the operations of the Company.
Copies of the annual returns, general meeting
notices and announcements made to the London
Stock Exchange are published on the Company’s
website.
Risk management
The Board has ultimate responsibility for the
Group’s risk management controls. The risk and
control management system framework includes:
(cid:129)
(cid:129)
close management of the day-to-day activities
of the Group by the Executive Directors and the
executive team;
a comprehensive annual budgeting process,
which is approved by the Board;
(cid:129) detailed monthly reporting of performance
against budget; and
(cid:129)
central control over key areas such as capital
expenditure authorisation and banking facilities.
Internal controls
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 financial information and
the safeguarding of assets.
The key features of the internal control system that
operated throughout the year are described under
the following headings:
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CORPORATE GOVERNANCE
for the year ended 31 December 2018
(cid:129) Control environment: particularly the definition of the organisation structure and the 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 or uncertainties requiring disclosures in the financial statements.
Board operation
The Board is responsible for formulating, reviewing and approving the Group’s strategy, budgets and
corporate actions. The principal risks and uncertainties are detailed in the Strategic Report on page 10.
The Board met at least eight times during the financial year. The Board has established two Committees;
the Audit Committee and Remuneration Committee each having written terms of reference. The Board
consider that the Company is not currently of a size to warrant the need for a separate Nominations
Committee or internal audit function. Reports by the Chairpersons of the two Committees are reported
separately on pages 20 for the Audit Committee and 22 for the Remuneration Committee.
Board effectiveness
The Board and Committee meetings are scheduled in advance for each calendar year. Additional
meetings are arranged as necessary. Board and Committee meetings and attendance during the year
ending 31 December 2018 were as follows:
Director
C.D.J. Pearce
R. McDowell
M. Diggle
Dr U. Ney
Dr J.R.M. Haigh
Dr I. Pike
R. Dennis (appointed 24 April 2018)
Board
Meeting
Audit Remuneration
Committee
Committee
8/8
8/8
8/8
8/8
8/8
8/8
4/8
N/A
3/3
N/A
3/3
N/A
N/A
N/A
N/A
2/2
N/A
2/2
N/A
N/A
N/A
18 Proteome Sciences plc
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CORPORATE GOVERNANCE
for the year ended 31 December 2018
The Executive Directors were all employed full-time
by the Company. The Non-Executive Directors have
commitments outside the Company. These are
summarised in the Board biographies on page 12.
All the Non-Executive Directors give sufficient time
to fulfil their responsibilities to the Company.
The Annual General Meeting (AGM)
The Annual General Meeting of the Group will take
place on 30 April 2019. Full details are included in
the Notice of Meeting on page 77 and will be
published on our website (www.proteomics.com).
Christopher Pearce
Chairman
1 April 2019
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AUDIT COMMITTEE REPORT
for the year ended 31 December 2018
I am pleased to present the report on behalf of the
Audit Committee.
financial statements and accompanying
reports;
The Committee is responsible for challenging the
quality of internal and external controls and for
ensuring that the financial performance of the
Group is properly reported and reviewed. The
Board considers that the Company is not currently
of the size to warrant the need for an internal audit
function although the Board has put in place
internal financial procedures to ensure close
internal controls.
Committee Composition
The members of the Audit Committee are myself
Roger McDowell, as Chair and Ursula Ney. We are
both independent Non-Executive Directors. The
Board is of the view that we have recent and
relevant experience. Meetings are held on average
three times a year. Jeremy Haigh the Chief
Executive Officer, Stefan Fuhrmann the Finance
Director and the Group’s auditors attend by
invitation. I report to the Board following an Audit
Committee meeting and minutes are available to
the Board.
Committee Duties
The main duties of the Committee are set out in its
terms of reference, which are available on the
Company’s website. In this period the main items
of business included:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
reviewing and recommending to the Board in
relation to the appointment and removal of the
external auditor;
the
recommending
remuneration and terms of engagement;
external
auditor’s
reviewing the independence of the external
auditors, objectivity and the effectiveness of the
audit process, taking into account relevant
professional and regulatory requirements;
reviewing and monitoring the extent of the non-
audit work undertaken by the Group’s external
auditor;
reviewing a wide range of financial matters
including the annual and half year results,
(cid:129) monitoring the controls which ensure the
integrity of the financial information reported to
the shareholders.
Financial Reporting
The Committee reviews reports provided by the
external auditor on the annual results which
highlight any observation from the work they have
undertaken.
In the financial year commencing 1 January 2018
the Group applied two new accounting standards.
IFRS 9 Financial Instruments
IFRS 9 has replaced IAS 39 Financial Instruments:
Recognition and Measurement, and has had an
effect on the Group in the following areas:
(cid:129)
(cid:129)
The impairment provision on financial assets
measured at amortised cost (such as trade and
other receivables) has been calculated in
accordance with IFRS 9’s expected credit loss
model, which differs from the incurred loss
model previously required by IAS 39.
restate
The Group has chosen not
comparatives on adoption of IFRS 9 and,
therefore, any changes have been processed
at the date of initial application (i.e. 1 January
2018).
to
IFRS 15 Revenue from Contract with Customers
IFRS 15 has replaced IAS 18 Revenue and
(cid:129)
IAS 11 Construction Contracts as well as
various interpretations previously issued by the
IFRS Interpretations Committee.
(a) Sale of goods
Contracts with customers in respect of the
sale of TMT® goods (£2.10m) continue to
be recognised when goods are delivered
to the customer and, as such, control of the
asset is transferred to the customer. IFRS
15 has therefore had no impact on this
revenue stream.
20 Proteome Sciences plc
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AUDIT COMMITTEE REPORT
for the year ended 31 December 2018
External Auditor
BDO was re-appointed as the Group’s auditor at
the Annual General Meeting held on the 30 May
2018. The Committee considers that its relationship
with the auditor is working well and is satisfied with
their effectiveness.
The Committee is responsible for a suitable policy
ensuring that non-audit work undertaken by the
auditor is reviewed to ensure it will not impact their
independence and objectivity. The breakdown of
fees between audit and non-audit services is
provided in note 8 on page 52 of the Group’s
financial statements. The non-audit fees primarily
relate to Group taxation compliance.
As necessary the Committee held private meetings
with the auditor to review key items in its
responsibilities. Taking into account the auditor’s
knowledge of the Group and experience, the
Committee has recommended to the Board that the
auditor is re-appointed for the period ending 31
December 2019.
Roger McDowell
Chair of the Audit Committee
1 April 2019
(b) Biomarker services
Contracts with customers
in which
biomarker services (£0.75m) create an
asset that does not have an alternative use
and the Group has an enforceable right to
be paid for the performance completed to
date including an appropriate profit margin.
This revenue is therefore recognised over
the biomarker services are
time as
performed.
There are a number of standards, amendments to
standards, and interpretations which have been
issued by the IASB that are effective in future
accounting periods that the Group has decided not
to adopt early. The most significant of these is:
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 London (UK) and Frankfurt (Germany)
premises as both an asset and a
rental
commitment in its consolidated statement of
financial position.
It is not anticipated that the implementation of
IFRS 16 in the next financial year will have a
material impact on the Group.
The Group does not expect any other standards
issued by the IASB, but not yet effective, to have a
material impact on the Group.
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2018
I am pleased to present the report on behalf of the Remuneration Committee.
The Committee is responsible for setting the remuneration policy of the Executive Directors and other
senior staff, including terms of employment, salaries, any performance bonuses and share option awards.
Committee Composition
The members of the Remuneration Committee are myself Ursula Ney as Chair and Roger McDowell. We
are both independent Non-Executive Directors.
Committee Duties
The Company has established a formal and transparent procedure for developing policy on executive
remuneration and for fixing the remuneration packages of individual Directors. No Director is involved in
deciding their own remuneration.
Remuneration Policy
The key principles of the Remuneration Policy include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the need to attract, retain and motivate executives who have capability to ensure the Company
achieve its strategic objectives;
the need to ensure that short term benefits and long term incentive plans are aligned with the interests
of shareholders;
the need to take into account the competitive landscape in the UK biotechnology industry and current
best practice in setting appropriate levels of compensation.
the Committee to meet at least once per year.
Director’s Remuneration
The following table summarises the total gross remuneration for the qualifying services of the directors
who served during the year to 31 December 2018.
Directors’ remuneration and transactions
The directors’ emoluments in the year ended 31 December 2018 were:
Basic Benefits Pension
Costs
salary
2018
2018
£’000
£’000
in kind
2018
£’000
Total
2018
£’000
Total
2017
£’000
Executive Directors
Dr J.R.M. Haigh 247
G. Ellis (resigned 1 August 2017)
Dr I. Pike 150
R. Dennis (appointed 24 April 2018) 146
Non-Executive Directors
C.D.J. Pearce 120
Prof. W.Dawson (resigned 1 August 2017)
R. McDowell 25
M. Diggle –
Dr U. Ney 23
711
3
3
–
4
–
–
–
10
–
15
13
–
–
–
–
28
250
168
159
124
25
–
23
749
250
92
168
–
126
16
25
–
5
682
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2018
Directors and their interests
The Directors who served during the year are as shown below:
C.D.J. Pearce
Dr J. R. M. Haigh
Dr I.H. Pike
R. Dennis (appointed 24 April 2018)
R. McDowell
M. Diggle
Dr U. Ney
Non-Executive Chairman
Chief Executive Officer
Chief Scientific Officer
Chief Commercial Officer
Non-Executive
Non-Executive
Non-Executive
In accordance with the Company’s articles M. Diggle and Dr I. Pike retire by rotation at the next Annual
General Meeting and, being eligible, offer themselves for re-election. The directors at 31 December 2018
and their interests in the share capital of the Company were as follows:
a) Beneficial interests in Ordinary Shares:
31 December 2018
Number of Ordinary
Name of Director Shares of 1p each
%
shareholding
C.D.J. Pearce 36,915,059
Dr J. R. M. Haigh 400,000
Dr I.H. Pike 165,583
R. Dennis (appointed 24 April 2018) –
R. McDowell 2,500,000
M. Diggle –
Dr U. Ney –
12.53
0.14
0.05
–
0.85
–
–
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 22% of Proteome Sciences’ ordinary share capital.
No changes took place in the beneficial interests of the directors between 31 December 2018 and 1 April
2019.
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:
Number at
31 December 2018
Number at
31 December 2017
(i) Dr I.H. Pike
(ii) Dr J. R. M .Haigh
(iii) R. Dennis
(a)
(a)
(a)
3,750,000 (b)
9,000,000 (b)
3,250,000 (b)
3,750,000
9,000,000
3,250,000
The numbers shown in (i)(a), (ii)(a) and (iii)(a) at 31 December 2018 relate to awards that were made
during 2017.
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2018
Executive Directors’ Service Contracts
The Executive Directors signed service contracts on their appointment. These contracts are not of fixed
duration. The Chief Executive Officer’s contract is terminable by either party giving six months’ written
notice. All other Executive Directors’ contracts are terminable by either party giving three months’ written
notice.
Non-Executive Directors
The Non-Executive Directors signed letters of appointment with the Group for the provision of Non-
Executive Directors’ services, which may be terminated by either party giving one months’ written notice.
The remuneration of the Non-Executive Directors is determined by the Board as a whole.
The Committee has met twice during the financial year to 31 December 2018.
Ursula Ney
Chair of the Remuneration Committee
1 April 2019
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DIRECTORS’ REPORT
for the year ended 31 December 2018
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 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
from
financial statements, which may vary
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 (page 70).
a) As set out in note 18(b) (i) to (iii) in 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
ten day trading period since 29 June 2006 (the
date on which details of the original loan
agreement were disclosed). Interest accrues at
2.5% per annum above the UK sterling base
rate of Barclays Bank plc.
b) On 2 July 2018, Proteome Sciences plc secured
a loan facility of £1.0m from Vulpes Investment
Management. Interest accrues at 2.5% per
annum above the UK sterling base rate of
Barclays Bank plc and is repayable alongside
the principal loan on 31 December 2019. This
loan is deemed a related party transaction by
nature of a common director being on both the
boards of Proteome Sciences plc and Vulpes
Investment Management.
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DIRECTORS’ REPORT
for the year ended 31 December 2018
c) The market price of the Ordinary Shares at 31 December 2018 was 2.44p and the range during the
year was 4.2p to 2.25p.
Substantial shareholdings
As at 1 April 2019, the Company had received notification of the following significant interests in the
ordinary share capital of the Company:
Name of holder
C.D.J. Pearce
Vulpes Life Science Fund
Helium Special Situations Fund
Number of
Ordinary
Shares
Percentage
of issued
Ordinary
Share Capital
36,915,059
64,946,734
19,212,273
12.53
22.00
6.51
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 page 2 and Strategic
Report on page 6. 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 40 and in notes 18(b) (Financial liabilities) and 24 (Financial instruments).
The Group’s financial statements have been prepared on the 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. 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 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 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 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) to the financial statements. 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.
On 2 July 2018, the Company secured a loan facility of £1.0m from Vulpes Investment Management.
Interest accrues at 2.5% per annum above the UK sterling base rate of Barclays Bank plc and is
26 Proteome Sciences plc
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DIRECTORS’ REPORT
for the year ended 31 December 2018
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
1 April 2019
repayable alongside the principal loan. The
directors have received confirmation from Vulpes
Investment Management they have no intention of
seeking its repayment before May 2020.
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
Chief Executive Officer’s Statement (page 2) and
Strategic Report (page 6).
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.
is given and should be
This confirmation
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.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2018
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 2018 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 2018 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 (page 42) which indicates that the Group remains
reliant on achieving adequate level of sales in order to maintain sufficient working capital to support its
activities and is reliant on the unsecured loan facility provided by the Chairman and a related party not
being called in to enable it to continue as a going concern.
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. 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.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2018
Our audit procedures included the following:
(cid:129) Reviewing management’s assessment of going concern through analysis of the Group’s cash flow
forecast and other projections through to 30 June 2020, including assessing and challenging
assumptions used through discussions with management and comparison against post year-end
results to date and performing sensitivity analysis to consider cash flow changes if the level of
revenue and costs were to remain static.
(cid:129) Reviewing the terms of the Group’s financing, including loans from Mr C.D.J. Pearce (Chairman and
a related party) and a related party including recalculation of amounts due and interest payable and
obtaining confirmation that the loans will not be recalled within a 12 month period following sign-off
of the Annual Report.
(cid:129) Reviewing post-balance sheet events, specifically cash flow position against budgeted performance.
(cid:129) Considering the adequacy of the disclosures in the financial statements against the requirements of
the accounting standards.
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. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Matter
Revenue Recognition and adoption of IFRS 15:
Revenue from Contracts with Customers
The Group has adopted
accounting standard from 1 January 2018.
the new revenue
This standard brings a new and detailed approach
to accounting for revenue, with a more prescriptive
framework and as such, significant emphasis has
been placed on this transition throughout the audit,
resulting in the recognition of this key audit matter.
The Group has a discrete number of revenue
streams for which the accounting must be
individually considered. Due to the fact that there
more than one revenue stream exists, and the fact
that revenue is recognised both point in time and
over a period of time, there is a key risk of material
misstatement arising from both the recognition of
revenue around the year end (cut-off) and the
revenue recognition policy itself, as detailed in
note 3 to these financial statements.
How we addressed the matter in our audit
We assessed whether the revenue recognition
policies adopted by the Group comply with IFRS
as adopted by the European Union and Industry
Standard. The relevant IFRS is International
Financial Reporting Standard 15 Revenue from
Contracts with Customers.
Furthermore, we have performed specific
substantive testing over each revenue stream
including the following:
(cid:129) Verifying a sample of contract revenue
recognised
to
the year,
underlying agreements, cash receipt and
revenue
trigger events
appropriate
recognition in accordance with IFRS 15.
reconciling
for
in
(cid:129) Agreeing sales of TMT kits and royalties
received through to delivery order confirmation
and ultimate cash receipt.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2018
Matter
How we addressed the matter in our audit
(cid:129) Cut-off procedures including testing invoices
raised in December 2018 and January 2019 to
check revenue has been recorded within the
correct period.
(cid:129) Assessment as to whether any material deferred
contract cost asset are required
to be
capitalised in respect of costs incurred to fulfil
contracts.
We have further reviewed the requirements of the
IFRS 15 transition and reviewed the assessment of
expected impacts. There has been no impact to
adopting the new standard to the brought forward
balances. We have reviewed the enhanced financial
statement disclosures to check that they are in
accordance with the requirements of the standard.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. 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 £84,000 (2017: £126,000)
which represents 5% of loss before tax (2017: 5% loss before tax).
Materiality for the parent company has been capped at 75% of group materiality, at £63,000
(2017: £94,500).
The individual component materiality was set at 75% group materiality, at £63,000 (2017: £80,250).
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 referenced within the RNS announcements released by the Group.
Performance materiality was set at 75% of materiality (£63,000, 2017: £80,250). 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.
We agreed with the Audit Committee that misstatements in excess of £4,200 (2017: £6,300), 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.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2018
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. We identified three individually significant
components, which makes up 100% of Group expenditure.
To this extent:
–
The Group audit team performed full scope audits for Proteome Sciences Plc and it’s subsidiary
Electrophoretics Limited;
– We instructed our German member firm 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 component auditors in Germany to carry out a detailed review of their
file and hold a clearance meeting with local management.
–
The remaining four components not subject to full scope audit have been reviewed for group reporting
purposes, by the Group auditor, 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 of 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.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the document titled Report and Financial Statements, other than the financial statements and
our auditor’s report thereon. Our 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.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2018
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 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)
(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
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 25, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the
parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to
do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2018
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.
Iain Henderson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
1 April 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
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CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2018
Revenue
Licences, sales 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
2018
£’000
2,958
91
3,049
(1,180)
1,869
(3,239)
(1,370)
–
(289)
2017
£’000
3,378
2
3,380
(1,180)
2,200
(4,008)
(1,808)
1
(246)
(1,659)
(2,053)
346
(1,313)
(444)
(2,497)
12
(0.44p)
(0.85p)
The accompanying notes 1 to 26 are an integral part of the financial statements.
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 December 2018
Loss for the year
Other comprehensive income for the year
Items that will or may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
2018
£’000
2017
£’000
(1,313)
(2,497)
24
37
Loss and total comprehensive income for the year
(1,289)
(2,460)
Owners of parent
(1,289)
(2,460)
The accompanying notes 1 to 26 are an integral part of the financial statements.
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CONSOLIDATED BALANCE SHEET
as at 31 December 2018
Non-current assets
Goodwill
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Contract assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Borrowings
Net current liabilities
Non-current liabilities
Provisions
Total liabilities
Net liabilities
Equity
Share capital
Share premium
Share-based payment reserve
Merger reserve
Translation reserve
Retained loss
Total (deficit)
Notes
13
14
16
17(a)
5
17(b)
18(a)
5
18(b)
19
20
22
2018
£’000
4,218
56
4,274
1,147
320
328
958
2,753
7,027
(541)
(25)
(9,936)
(10,502)
(7,749)
(343)
(343)
(10,845)
(3,818)
2,952
51,466
3,532
10,755
(43)
(72,480)
(3,818)
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)
The financial statements of Proteome Sciences plc, registered number 02879724, were approved by the
board of directors and authorised for issue on 1 April 2019. They were signed on its behalf by:
J.R.M. Haigh
R. Dennis
1 April 2019
Director
Director
The accompanying notes 1 to 26 are an integral part of the financial statements.
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COMPANY BALANCE SHEET
as at 31 December 2018
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
2018
£’000
8,154
8,154
496
496
8,650
(321)
(2,257)
(2,578)
–
(2,578)
6,072
2,952
51,466
3,532
(51,878)
6,072
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
The Company generated a loss for the year ended 31 December 2018 of £0.14m (2017: £4.32m).
The financial statements of Proteome Sciences plc, registered number 02879724, were approved by
the board of directors and authorised for issue on 1 April 2019. They were signed on its behalf by:
J.R.M. Haigh
R. Dennis
1 April 2019
Director
Director
The accompanying notes 1 to 26 are an integral part of the financial statements.
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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 31 December 2018
Equity
Share- attributable
Share based to owners
Share premium payment Translation Merger Retained of the Total
capital account reserve reserve reserve loss parent (deficit)
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
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 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)
At 1 January 2018 2,952 51,466 3,503 (67) 10,755 (71,167) (2,558) (2,558)
Loss for the year – – – – – (1,313) (1,313) (1,313)
Exchange differences
on translation of
foreign operations – – – 24 – – 24
Loss and total
comprehensive
income for the year – – – 24 – (1,313) (1,289) (1,289)
Issue of share capital
Share issue expenses
Credit to equity for
29
share-based payment – – 29 – – – 29
At 31 December 2018 2,952 51,466 3,532 (43) 10,755 (72,480) (3,818) (3,818)
24
The accompanying notes 1 to 26 are an integral part of the financial statements.
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COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
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 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
At 1 January 2018
2,952
51,466
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 2018
–
–
–
–
–
–
–
–
–
–
2,952
51,466
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,436
(47,417)
10,413
–
67
–
–
–
(4,323)
(4,323)
–
–
–
–
67
24
–
3,503
(51,740)
6,181
3,503
(51,740)
6,181
–
29
–
–
–
(138)
(138)
–
–
–
–
29
–
–
–
3,532
(51,878)
6,072
The accompanying notes 1 to 26 are an integral part of the financial statements.
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CONSOLIDATED AND COMPANY
CASH FLOW STATEMENTS
for the year ended 31 December 2018
Group
2018
£’000
Group Company Company
2017
2018
£’000
£’000
2017
£’000
Note
Loss before tax
(1,659)
(2,053)
(138)
(4,323)
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) in inventories
Increase in receivables
Increase in payables
(Decrease)/Increase 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 borrowings
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
289
229
–
29
(1,112)
(201)
77
6
(20)
(1,250)
746
(504)
(4)
–
–
(4)
700
–
–
(166)
534
26
908
24
245
332
–
67
(1,409)
(346)
(63)
118
2
(1,698)
–
(1,698)
(23)
–
1
(22)
–
23
–
(220)
(197)
(1,917)
2,884
(59)
Cash and cash equivalents at end of year
17b
958
908
55
–
–
–
(83)
–
–
–
–
(83)
–
(83)
42
–
4,182
–
(99)
–
–
–
(5)
(104)
–
(104)
–
(182)
–
(182)
–
(2,013)
–
(2,013)
700
–
–
–
700
435
58
3
496
–
23
–
–
23
(2,094)
2,152
–
58
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 2018
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 CHANGES IN ACCOUNTING POLICIES
Adoption of new and revised standards effective from 1 January 2018
Proteome Sciences Plc has applied the same accounting policies and methods of computation in its
financial statements as in its 2017 annual financial statements, except for those that relate to new
standards and interpretations effective for the first time for periods beginning on (or after) 1 January
2018, which have been adopted in the current year’s financial statements. New standards that have
impacted the Group for the year ended 31 December 2018 are:
(cid:129)
(cid:129)
IFRS 9 Financial Instruments; and
IFRS 15 Revenue from Contracts with Customers
IFRS 9 “Financial Instruments”
IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had an
effect on the Group in the following areas:
(cid:129)
(cid:129)
The impairment provision on financial assets measured at amortised cost (such as trade and
other receivables) has been calculated in accordance with IFRS 9’s expected credit loss model,
which differs from the incurred loss model previously required by IAS 39. This has resulted in
£8,486 provision for expected losses.
Loans to subsidiaries measured at amortised cost have been calculated in accordance with IFRS
9’s expected credit loss model. These loans were considered to be credit-impaired at the date
of initial adoption of the new standard. The directors have considered cash flows that may be
generated from the orderly sale of the underlying business in order to establish the assessment
of lifetime expected credit losses at initial adoption and at year end.
The impact of the standard on opening balances is not material and as such, the Group has chosen
not to restate comparatives on adoption of IFRS 9.
IFRS 15 “Revenue from Contracts with Customers”
IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction Contracts as well as various
Interpretations previously issued by the IFRS Interpretations Committee. The Group adopted IFRS
15 using the cumulative effect method applied to those contracts which were not completed as of
1 January 2018. The impact of the new standard on opening balances was immaterial. It has
impacted the Group in the following ways:
(a) Sale of goods
Contracts with customers in respect of the sale of TMT® goods (£2.10m) continue to be recognised
when goods are delivered to the customer, and as such control of the asset is transferred to the
customer. IFRS 15 has therefore had no impact on this revenue stream.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
2 CHANGES IN ACCOUNTING POLICIES continued
(b) Biomarker services
Contracts with customers in which biomarker services (£0.75m) are provided over a period of time
are reviewed on an individual basis. The nature of the Group’s work is that our biomarker contracts
create an asset with no alternative use and contracts are worded in such a way that the Group has
an enforceable right to be paid for the performance completed to date including an appropriate profit
margin. Revenue is recognised over time as the biomarker services are performed.
New standards, interpretations and amendments not yet effective
There are a number of standards, amendment to standards, and interpretations which have been
issued by the IASB that are effective in future accounting periods that the Group has decided not to
adopt early. The most significant of these is:
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 recognize 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. The Group will only recognize such leases on its
balance sheet as at 1 January 2019. In addition, it will measure right-of-use assets by reference to
the measurement of the lease liability on that date. This will ensure there is no immediate impact to
net assets on that date. At 31 December 2018 operating lease commitments amounted to £1.42m.
Instead of recognizing an operating expense for its operating lease payments, the Group will instead
recognize interest on its lease liabilities and amortization on its right-of-use assets. This will increase
reported EBITDA by the amount of its current operating lease expense.
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), which are
adopted by the EU.
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 2018, the Group had cash resources of £0.96m (2017: £0.91m), realised a loss
for the year of £1.31m (2017: a loss of £2.50m), had net cash outflows from operating activities of
£0.50 m (2017: net cash outflow of £1.70m) and had net current liabilities of £7.75m (2017: £6.69m).
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
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 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.
On 2 July 2018, The Company secured a loan facility of £1.0m, of which £0.7m was drawn at
31 December 2018, from Vulpes Investment Management (‘VIM’). Interest accrues at 2.5% per annum
above the UK sterling base rate of Barclays Bank plc and is repayable alongside the principal loan
on 31 December 2019. The Company has received confirmation from VIM that they will not seek
repayment before May 2020.
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES continued
Revenue recognition
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.
The majority of the Group’s revenue is derived from selling TMT products, end customer sales based
royalties, which are paid on a quarterly retrospective basis and milestone payments for development
work.
TMT® product sales
TMT® revenues are recognised at a point in time when goods are handed over to the hauler company
as with this, the customer gains the right of control over the goods. The standard payment terms for
TMT® product invoices are 45 days from receipt.
TMT® royalties
Royalty revenues are recognised on a quarterly basis at the end of each quarter retrospectively as
soon as the calculation of the royalty amount is available. Royalties are earned when other parties
generate sales that use the Group’s TMT® IP. This variable revenue is subject to the sales/usage
restriction in IFRS 15 and, as such, it is only recognised when that underlying sale of the third party
product is made. The price is a fixed percentage of the underlying sale and payment is due on a
quarterly basis, based on the sales made in that quarter. Royalty payments are received the month
following the quarter end.
Biomarker services
Proteomics (biomarker) services represent a third revenue stream for the Group, with revenue
recognised typically on an over time basis. Performance obligations are described for larger service
orders in form of work packages, which identify individual deliverable services, and each represent
each a value on its own to the customer. The nature of the Group’s work is that our biomarker contracts
create an asset with no alternative use and contracts are worded in such a way that the Group has
an enforceable right to be paid for the performance completed to date including an appropriate profit
margin. Revenue is recognised over time as the biomarker services are performed. On partially
complete biomarker projects, the Group recognises revenue based on stage of completion of the
project which is estimated by reviewing the individual deliverable services stipulated in the work
package. This is considered a faithful depiction of the transfer of services as the contracts are initially
priced on the basis of individual work packages and therefore represent the amount to which the
Group would be entitled based on its performance to date. Smaller service orders are normally
recognised as revenues when completed in total. This policy is consistent with the policy followed in
previous reporting periods. The standard payment terms for Biomarker services invoices are 30 days
from receipt.
Determining the transaction prices and allocation of amounts to performance obligations
Most of the Group’s revenue is derived from fixed price contracts and therefore the amount of revenue
to be earned from each contract is determined by reference to those fixed prices.
For TMT® products sold there is a fixed unit price, which is applied. For the royalties a percentage
charge per product unit sold is fixed and used as the transaction price. Transactions prices for
biomarker services and grant services are determined on the basis of contractual agreements within
the purchase order / contract with fixed prices stipulated in advance.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES continued
For biomarker services revenues the Company does not use any discount or bonus schemes so
revenue is allocated at the transaction price specified for the individual work order. Similarly there
are no guarantees given to the customer, so prices do not need to be split up to allocate a portion to
any guarantee services.
The Group does not operate a returns or refunds policy due to the bespoke nature of its products
and services.
Research grants
Research grant income is received following the Group reporting the number of working hours carried
out on a research project at the allowable rate. Where retention of a grant is dependent on the group
satisfying certain criteria, it is initially recognised as deferred income. When the criteria for retention
have been satisfied, the deferred income balance is released to the consolidated income statement.
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.
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES continued
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.
Research and development tax credit
Companies within the Group may be entitled to claim special tax allowances in relation to qualifying
research and development expenditure (e.g. R&D tax credits). The Group accounts for such
allowances as tax credits, which means that they are recognised when it is probable that the benefit
will flow to the Group and that benefit can be reliably measured. R&D tax credits are measured on a
cash basis due to the uncertainty over the amount and timing of receipt. R&D tax credits reduce
current tax expense and, to the extent the amounts due in respect of them are not settled by the
balance sheet date, reduce current tax payable.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES continued
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 2018 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 or loss.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. Any
impairment is reflected through the consolidated income statement.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES continued
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.
Financial instruments
The Group classifies its financial assets into one of three measurement categories (fair value through
profit or loss, fair value through other comprehensive income or amortised cost) depending on the
purpose for which the asset was acquired and the nature of the contractual cash flows. As all of the
Group’s financial assets are held in order to collect contractual cash flows and the contractual cash
flows are solely payments of principal and interest, all financial assets are measured at amortised cost.
Amortised cost
Financial assets classified under the amortised cost model are Trade and other receivables, Cash
and cash equivalents, Trade and other payables and Loans to subsidiaries.
Impairment provisions for trade receivables are recognised based on the simplified approach within
IFRS 9 using the lifetime expected credit loss. During this process the probability the non-payment
of the trade receivable is assessed and multiplied by expected amount of credit loss resulting from
credit default. The Company has set up a matrix using the time a debtor is overdue as a criteria to
determine the default probability using 5 categories ranging from 0% to 90% probability. Provisions
are recorded in a separate provision account and the movements in the ECL provision are recognised
in profit or loss. On notice of a realised default the gross carrying amount of the asset is written off
against the provision.
The Company’s loans to its subsidiaries are interest free and under terms which would technically
provide the Company to demand immediate repayment. The current financial situation of the
subsidiaries is such that they would be unable to repay the amounts due if demanded and, in
consequence, they are considered to be credit-impaired and lifetime expected credit losses are
recognised. As part of the assessment of the lifetime expected credit losses of these intercompany
loan receivables, the directors have considered the cash flows that may be generated from a number
of different scenarios, including through an orderly sale of the underlying business.
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.
Borrowings
Interest-bearing loans are recorded initially at fair value, net of direct issue costs and subsequently
at amortised 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
3 SIGNIFICANT ACCOUNTING POLICIES continued
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.
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 2018 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
continued
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.
5 REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
Year to 31 December 2018
Other
Biomarker licence
services income
£’000 £’000
Primary Geographic Markets
US 277
UK 103
EU 371
751
Revenue recognised at a
point in time –
Revenue recognised over
a period 751
751
Year to 31 December 2017
Primary Geographic Markets
US 306
UK 39
EU 91
Other 359
795
Revenue recognised at a
point in time –
Revenue recognised over
a period 795
795
–
–
–
–
–
–
–
–
100
–
–
100
100
–
100
TMT
Sales
£’000
1,259
–
–
1,259
1,259
–
1,259
1,770
–
–
–
1,770
1,770
–
1,770
TMT
Royalties
£’000
Grant
income
£’000
948
–
–
948
948
–
948
713
–
–
–
713
713
–
713
–
–
91
91
91
–
91
–
–
2
–
2
2
–
2
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
5 REVENUE FROM CONTRACTS WITH CUSTOMERS continued
Contract Balances
At 1 January/accrued in the period
Transfer in the period from contract assets to trade receivables
Amounts included in contract liabilities that were recognised as
revenue during the period
Excess of revenue recognised over cash (or rights to cash) being
recognised during the period
Cash received in advance of performance and not recognised as
revenue during the period
Contract
Assets
2018
£’000
Contract
Liabilities
2018
£’000
237
(237)
35
328
–
328
(35)
–
–
–
(25)
(25)
Contract assets and liabilities were included in other debtors and other payables in the prior year.
Contract assets and contract liabilities arise from the Group’s biomarker services where contracts
may not be completed at the year end and because payments received from customers at each
balance sheet date do not necessarily equal the amount of revenue recognised on the contracts.
The Group expects to recognise this revenue in 2019.
Remaining performance obligations
The vast majority of the Group’s contracts are for the delivery of goods within the next 12 months for
which the practical expedient of IFRS 15 applies.
In the current and previous year there are no contracts that remained open over the balance sheet
date, so revenue for all contracts started in the year has also been recognised in the year. As such,
there was no impact on the consolidated income statement or balance sheet as a result of the
transition to the new revenue standard.
6 SEGMENT INFORMATION
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 license 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
6 SEGMENT INFORMATION continued
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
Grant income
Total
2018
£’000
2,207
751
91
3,049
2017
£’000
2,483
895
2
3,380
Revenues from one customer totalled £2,207k (2017: £2,483k) representing all revenues from the
TMT® segment.
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
Research and development costs
Operating lease rentals
– other
Auditor’s remuneration for the Audit 2018 (see below)
Foreign exchange losses
Net increase in inventories
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
52 Proteome Sciences plc
2018
£’000
–
2018
£’000
289
2018
£’000
229
441
322
72
3
201
57
–
57
15
–
15
72
2017
£’000
1
2017
£’000
246
2017
£’000
332
441
364
84
12
346
56
1
57
27
–
27
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
9 Staff costs
The Group average monthly number of employees (including executive directors) was:
Research and development
Administration
Their aggregate remuneration (including that of executive directors)
comprised:
Wages and salaries
Social security costs
Other pension costs
2018
Number
2017
Number
21
8
29
£’000
1,838
317
92
2,247
25
9
34
£’000
2,055
358
126
2,539
No staff costs are incurred in the parent company, Proteome Sciences Plc.
Social security costs shown above include a credit of £Nil (2017: £4,664) 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 2018, were:
Executive Directors
Dr J.R.M. Haigh
G. Ellis (resigned 1 August 2017)
Dr I. Pike
R. Dennis (appointed 24 April 2018)
Non-Executive Directors
C.D.J. Pearce
Prof. W. Dawson (resigned 1 August 2017)
R. McDowell
M. Diggle
Dr U. Ney
Basic Benefits Pension
Costs
salary in kind
2018
2018 2018
£’000
£’000 £’000
Total
2018
£’000
Total
2017
£’000
247 3
– –
150 3
146 –
120 4
– –
25 –
– –
23 –
711 10
–
–
15
13
–
–
–
–
–
28
250
–
168
159
124
–
25
–
23
749
250
92
168
–
126
16
25
–
5
682
(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) Details of the options in place and of awards under the Company’s Long-Term Incentive Plan are
given in note 21.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
10 DIRECTORS’ REMUNERATION AND TRANSACTIONS continued
(iv) The number of directors in pension schemes is as follows:
Defined contribution pension schemes
Pension costs in the year ended 31 December 2018 were as follows:
G. Ellis (resigned 1 August 2017)
Dr I. Pike
R. Dennis
2018
2017
2
1
2018
£’000
2017
£’000
–
15
13
28
–
15
–
15
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 can be
claimed in respect of the tax effect of tax losses generated from qualifying R&D expenditure. From
2017 the Group recognised R&D tax claims on a receipt basis.
UK Corporation tax – R&D tax credit
Overseas tax charge
Group tax charge for the year
Adjustments re previous years
R&D tax credit received
Group tax credit/(charge) for the year
2018
£’000
2017
£’000
–
(53)
(53)
–
399
346
–
(99)
(99)
(345)
–
(444)
The UK Corporation tax credit relates to research and development tax credits claimed under the
Corporation Taxes Act 2009.
At 31 December 2018 there were tax losses available for carry forward of approximately £46.6m
(2017: £41.4m).
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 2018
11 TAX 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 2018. The differences are explained below:
Loss before tax
Income tax credit calculated at 19.00% (2017: 19.38%)
Effects of:
Expenses that are not deductible in determining taxable profit
Fixed asset timing differences
Unrecognised tax losses carried forward
Effect of overseas tax
R&D tax credit claimed
Other taxable income
Group tax credit for the year
R&D tax received/(recovered)
Unrecognised deferred tax
The following deferred tax assets and liability have not been recognised
at the balance sheet date:
Tax losses
Depreciation in excess of capital allowances
Provisions
Total
2018
£’000
2017
£’000
(1,686)
(2,053)
320
–
(1)
(11)
(308)
(53)
–
–
(53)
399
346
2018
£’000
7,919
41
31
7,991
395
–
(3)
(68)
(324)
(99)
–
–
(99)
(345)
(444)
2017
£’000
7,669
(35)
5
7,639
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 2018, and will fall to 17% for the year beginning 1 April 2020.
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.
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Loss for the financial year
Basic and Diluted
2017
2018
£’000
£’000
(1,313)
(2,497)
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
12 LOSS PER ORDINARY SHARE continued
2018
Number of
shares
2017
Number of
shares
Weighted average number of ordinary shares for the purposes of
calculating basic earnings per share:
295,182,056 295,182,056
In 2018 and 2017 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 2018 and 31 December 2018
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 2018, the market capitalisation for the Group was £7.2m based on the quoted
share price of the Company of 2.44p 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 2018.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
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 2017
Exchange adjustments
Additions during the year
Disposals during the year
31 December 2017
1st January 2018
Exchange adjustments
Additions during the year
Disposals during the year
31 December 2018
Depreciation
1 January 2017
Exchange adjustments
Charge for the year
Depreciation relating to disposals
At 31 December 2017
At 1 January 2018
Exchange adjustments
Charge for the year
Depreciation relating to disposals
At 31 December 2018
Net book value
At 1 January 2018
31 December 2018
Laboratory
equipment,
fixtures and
fittings
£’000
Equipment
on loan
£’000
710
–
–
–
710
710
–
–
–
710
710
–
–
–
710
710
–
–
–
710
–
–
4,685
114
23
(1,544)
3,278
3,278
20
4
(932)
2,370
4,093
109
332
(1,537)
2,997
2,997
19
229
(931)
2,314
281
56
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
15 INVESTMENT IN SUBSIDIARIES
Company
At 1 January 2017
Additional investment in the year
Provisions for impairment during the year
At 31 December 2017
At 1 January 2018
Additional investment in the year
Provisions for impairment during the year
At 31 December 2018
Loans to
Cost of shares
in subsidiary
subsidiary
undertakings undertakings
£’000
£’000
2,484
67
(2,551)
–
–
29
–
29
7,549
2,023
(1,631)
7,941
7,941
184
–
8,125
Total
£’000
10,033
2,090
(4,182)
7,941
7,941
213
–
8,154
(i)
(ii)
The increase in the cost of shares in subsidiary undertakings of £28,626 (2017: £67,104) 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.
The increase in loans to subsidiary companies in 2018 arose from the provision of further funds to
the company’s trading subsidiary and German subsidiary company.
(iii) The Company’s loans to its subsidiaries are interest free and under terms which would technically
provide the Company to demand immediate repayment. The current financial situation of the
subsidiaries is such that they would be unable to repay the amounts due if demanded and, in
consequence, they are considered to be credit-impaired and lifetime expected credit losses are
recognised. As part of the assessment of the lifetime expected credit losses of these intercompany
loan receivables, the directors have considered the cash flows that may be generated from a number
of different scenarios, including through an orderly sale of the underlying business.
The Company’s loans to subsidiaries were assessed as credit impaired at the date of initial application
of IFS 9, 1 January 2018, and again at the current year-end. Paragraphs (i) and (ii) above provide a
reconciliation of movements in relation to the carrying value of the investments at year-end.
The carrying amount of the Company’s loans to subsidiaries was £8,125k (1 January 2018: £7,941k).
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
15 INVESTMENT IN SUBSIDIARIES continued
Group investments
The Company has investments in the following subsidiary undertakings, which contribute to the net
assets of the Group:
Subsidiary undertakings
Proteome Sciences R&D
Verwaltungs GmbH
Proteome Sciences R&D
GmbH & Co. KG
Country of
incorporation
and operation
Germany
Principal activity
Description and proportion
of shares held by the
Company Group
Administrative
Company
100% Share 100% Share
Capital
Capital
Germany
Research Company
100%
100%
Partnership Partnership
Interest
Interest
Proteome Sciences, Inc.
U.S.A.
Research Company
Electrophoretics Limited
United
Kingdom
Administrative
and Research
Company
Veri-Q Inc.
U.S.A.
Research Company
Phenomics Limited
United
Kingdom
Dormant
100%
Common
Stock
100%
Ordinary
Shares
76.9%
Common
Stock
100%
Ordinary
Shares
100%
Common
Stock
100%
Ordinary
Shares
76.9%
Common
Stock
100%
Ordinary
Shares
(i)
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, -
Althenhöferallee 3, 60438 Frankfurt am Main, Germany
Proteome Sciences plc, Electrophoretics Limited 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 2018
16 INVENTORIES
Work-in-progress
Finished goods
17 OTHER CURRENT ASSETS
a) Trade and other receivables
2018
£’000
287
860
1,147
2017
£’000
498
448
946
Group
2018
£’000
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
Trade receivables
Less: provision for impairment of
trade receivables
Trade receivables – net
Other Debtors
Total financial assets other than cash
and cash equivalents classified as
loans and receivables
Prepayments
Contract assets (Note 5)
R&D tax credit recoverable previous year
Total
186
(8)
179
83
58
328
–
648
–
–
–
–
–
–
–
–
333
–
333
329
62
–
400
1,124
–
–
–
–
–
–
–
–
At 31 December 2018 the lifetime expected loss provision for trade receivables and contract assets
is as follows:
More than More than More than More than
30 days 90 days 270 days 364 days
Current past due past due past due past due
Expected loss rate % 0% 10 % 15% 60% 90%
Gross carrying amount 457 – 57 – –
Loss provision – – (8) – –
Total
£’000
–
514
(8)
As at 31 December 2018 trade receivables of £8,486 (2017:NIL) were past due and fully impaired.
No allowance was recognised in 2017.
The main factors considered by the finance function in determining that the amounts due are impaired
are the length of time outstanding and additionally background information provided by the sales
and production department.
There were no trade debts outstanding by the end of the period 2017, which were ultimately not
recovered; the maturity profile of any due debt is presented below.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
17 OTHER CURRENT ASSETS continued
3 to 9 months
9 to 12 months
> 12 month
b) Cash and cash equivalents
2018
£’000
57
–
–
2017
£’000
–
–
–
Group
2018
£’000
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
Cash and cash equivalents
958
496
908
58
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
Other payables
Accruals
Contract liabilities
Hire purchase payables
Payables due from group entities
Due after one year
Hire purchase payables
Group
2018
£’000
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
372
169
25
–
–
566
–
–
–
–
–
321
321
413
147
–
166
–
726
––
–
Hire purchase payables have the following maturity profile at 31 December 2018.
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
2018
£’000
–
–
–
–
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.
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–
–
–
316
316
2017
£’000
166
–
–
166
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
18 FINANCIAL LIABILITIES continued
(b) Short term borrowings
Group
2018
£’000
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
Loans from related parties
9,936
2,257
8,946
1,502
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 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. The conversion option is immaterial to the financial statements.
The balance owed was £9,227k (FY17: £8,946k).
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, or
(b) The occurrence of any of the usual events of default attaching to this sort of agreement.
(ii) On 2 July 2018, Proteome Sciences plc secured a loan facility of £1.0m from Vulpes Investment
Management. Interest accrues at 2.5% per annum above the UK sterling base rate of Barclays
Bank plc and is repayable alongside the principal loan. The Company has received confirmation
from VIM that they will not seek repayment before May 2020. This loan is deemed a related party
transaction by nature of a common director being on both the boards of Proteome Sciences plc
and Vulpes Investment Management. At 31 December 2018 amounts drawn down were £700k,
and interest of £8k was accrued.
(iii) The amounts shown above as outstanding under short term borrowings include accrued interest.
(c) Changes in liabilities arising from financing activities
Group
Note supporting the cash flow statement
Interest
accruing
in the
Foreign
period exchange
£,000
£,000
–
–
–
289
–
–
–
289
Cash
Flow
£,000
–
700
(166)
534
Fair
value 31 December
2018
£,000
–
9,936
–
9,936
change
£,000
–
–
–
–
1 January
2018
£,000
–
8,947
166
9,113
Long term borrowings
Short term borrowings
Lease Liabilities*
Total
*£166,000 lease liabilities included in ‘Trade and other payables’ 2017.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
18 FINANCIAL LIABILITIES continued
Company
Note supporting the cash flow statement
1 January
2018
£,000
–
1,502
1,502
Cash
Flow
£,000
–
700
700
Long term borrowings
Short term borrowings
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
Interest
accruing
in the
Foreign
period exchange
£,000
£,000
Fair
value 31 December
2018
£,000
change
£,000
–
55
55
–
–
–
Pensions
provisions
£’000
363
–
(20)
343
–
–
–
2018
Total
£’000
363
–
(20)
343
–
2,257
2,257
2017
Total
£’000
361
7
(5)
363
2018
£’000
2017
£’000
–
–
–
5
(5)
–
(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 (2017: £Nil) 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
19 PROVISIONS continued
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 2019 in relation to the
defined benefit scheme of £18,852.
The amount charged to the income statement in respect of the contributions to the scheme in 2018
was £36,679 (2017: £54,402).
As at 31 December 2018, an actuarial deficit did not exist for the multi-employer scheme. The Group’s
contributions to the scheme during 2018 represented 0.01% of total contributions to the scheme by
employers and employees (2017: 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 2.0 % (2017: 1.75%). The Company has
assumed an income increase of 2.5% (2017: 2.5%) and German inflation of 1.75 % (2017: 2%).
Provisions for future unfunded pension liabilities at 31st December 2018 amounted to £343,190
(2017: £363,034). Amounts recognised through the consolidated income statement for the year to
31st December 2018 included service costs of £21,698 (2017: £19,961), interest costs of £6,381
(2017: £5,541) and an actuarial loss of £41,945 (2017: actuarial loss of £39,085).
Other pension costs in relation to defined contribution schemes for United Kingdom employees
amounted to £54,875 (2017: £71,526).
64 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
20 SHARE CAPITAL
(i) Authorised
(2018: 330,000,200) Ordinary Shares of 1p each
(ii) Allotted and called-up
Ordinary Shares of 1p each
The increase in the number of shares in issue in 2018 arose as follows:
2018
£’000
3,300
3,300
2018
£’000
2,952
2017
£’000
3,300
3,300
2017
£’000
2,952
As at 1 January 2018
Issued on exercise of LTIP award in April 2017
Issued in previous share placing
Issue of equity
At 31 December 2018
2018
Number
2017
Number
295,182,056 294,324,832
323,891
–
533,333
–
–
–
295,182,056 295,182,056
21 SHARE OPTIONS AND SHARE BASED PAYMENTS
(i) 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 AIM market of the London Stock Exchange.
(ii) 2004 and 2011 Long-Term Incentive Plan (“LTIP”)
At 31 December 2018, 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 Awarded Exercised Lapsed
Number at
in the in the in the 31 December
2018
year year year
Vesting
Date
Latest
Exercise
Date
31 December
2017
4,000,000
5,000,000
7,000,000
16,000,000
– – –
– – –
– – –
– – –
4,000,000 1 June 2019
5,000,000 1 June 2019
7,000,000 3 April 2020
3 April 2027
3 April 2027
3 April 2027
16,000,000
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 Awarded Exercised Lapsed
Number at
in the in the in the 31 December
2017
year year year
31 December
2016
Vesting
Date
Latest
Exercise
Date
600,965
300,000
– (323,891) (277,074)
– – (300,000)
– 6,160,000 – (2,160,000)
– 5,000,000 – –
– 7,000,000 – –
900,965 18,160,000 (323,891) (2,737,074)
–
–
4,000,000 1 June 2019
5,000,000 1 June 2019
7,000,000 3 April 2020
16,000,000
–
2 July, 2017
– 2 October, 2017
3 April 2027
3 April 2027
3 April 2027
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
(iii) 2004 Share Option Plan
At 31 December 2018 all options of the Company’s 2004 Share Option Plan had lapsed during the
year.
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
(iv) 2011 Share Option Plan
At 31 December 2018 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
48,000
50,000
25,000
75,000
63,000
364,000
(£)
1,030.00
480.00
500.00
250.00
750.00
630.00
3,640.00
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 – 25.6.23
9.6.17 – 9.6.24
25.6.17 – 25.6.24
29.2.19 – 25.6.26
18.3.19 – 18.3.26
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
(£)
Exercise Price
(p)
Vesting Date
Dates
Exercisable
103,000
50,000
50,000
25,000
125,000
63,000
1,030.00
480.00
500.00
250.00
750.00
630.00
416,000 4,160.00
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 – 25.6.23
9.6.17 – 9.6.24
25.6.17 – 25.6.24
29.2.19 – 25.6.26
18.3.19 – 18.3.26
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
The Company issues equity-settled share based payments under the 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 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 2018, awards over Nil shares (2017: 284,826) had vested and were capable of
exercise.
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 21 (iii) 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 £28,626
(2017: £67,041) 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.
2004 Share Option Plan
Weighted
average
exercise
price (p)
Options
2004 LTIP
Maximum
Number of
Weighted
average
fair value
Shares per share (p)
202,950
–
(146,124)
56,826
(56,826)
–
–
–
30.51
–
–
27.72
(27.72)
–
–
–
600,956
(323,892)
(277,074)
31.70
31.70
31.70
–
–
–
–
–
–
–
–
–
Outstanding at 1 January, 2017
Exercised in the year
Forfeited in the year
Outstanding at 31 December 2017
Forfeited in 2018
Exercised in the year
Outstanding and exercisable at
31 December 2018
Exercisable at 31 December 2018
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
Outstanding at 1 January 2017
Granted in the year
Forfeited during the year
Outstanding at 31 December 2017
Granted in the year
Forfeited during the year
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Exercisable at 31 December 2017
Outstanding at 1 January 2017
Granted in the year
Lapsing in the year
Outstanding at 31 December, 2017
Granted in the year
Lapsing in the year
Outstanding at 31 December, 2018
Exercisable at 31 December, 2018
Exercisable at 31 December, 2017
2011 Share Option Plan
Weighted
average
exercise
price (p)
Options
444,000
–
(28,000)
416,000
–
(52,000)
364,000
138,000
153,000
29.6
–
35.0
28.46
–
–
–
–
–
2011 LTIP
Maximum
Number of
Weighted
average
fair value
Shares per share (p)
–
18,160,000
(2,160,000)
16,000,000
–
–
16,000,000
–
–
–
4.25
4.25
4.25
4.25
6.38
4.25
–
–
The options outstanding at 31st December 2018 had a weighted average remaining contractual life
as follows:
2018
No. of
Months
–
64.2
99.0
2017
No. of
Months
3.3
78.7
114.4
2004 Share Option Plan
2011 Share Option Plan
LTIP
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
The inputs into the Black-Scholes model were:
2018
2017
4.9p
Weighted average share price 4.9p
Weighted average exercise price 4.9p
4.9p
Expected volatility 63.56% - 56.05% 63.56% - 56.05%
4 years
Expected life 4 years
1.13% - 0.15%
Risk free rate 1.13% - 0.15%
None
Expected dividends 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.
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.
Translation Reserves
The translation 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 2018, a transfer has been recognised during
the year to the Company’s Retained loss reserve.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
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 31 December 2018, the Company did
not have any operating lease obligations.
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
> 5 years
Group
2018
£’000
299
978
143
1,420
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
55
–
–
55
282
138
–
420
45
–
–
45
Operating lease payments represent rentals payable by the Group for its laboratory and office
properties.
24 FINANCIAL INSTRUMENTS
Capital risk management
The Group monitors “adjusted capital” which comprises all components of equity (i.e. share capital,
share premium, non-controlling interest, retained earnings, and revaluation reserve).
The Group’s objectives when maintaining capital are:
(cid:129)
(cid:129)
to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide
returns for shareholders and benefits for other stakeholders, and
Provide an adequate return to shareholders by pricing products and services commensurately
with the level of risk
The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital
structure and makes adjustments to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group
does not pay dividends to shareholders.
Due to recent market uncertainty the Group’s strategy is to preserve a strong cash base to maintain
a positive cash flow for at least 15 months in advance.
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for
designing and operating processes that ensure the effective implementation of the objectives and
policies to the Group’s finance function. The Board receives monthly management reports from the
Group’s finance function and bi-monthly cash flow calculations through which it reviews the
effectiveness of the processes put in place and the appropriateness of the objectives and policies
it sets.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
24 FINANCIAL INSTRUMENTS continued
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies
are set out below.
The capital structure of the Group consists of the financial instruments listed below which determine
the financial risk and an according risk management.
Financial instruments for the Group comprise:
(cid:129)
Trade receivables
(cid:129) Cash and cash equivalents
(cid:129)
Trade and other payables
(cid:129) Borrowing from major investors of the Company at floating rate
For the Company:
(cid:129) Cash and cash equivalents
(cid:129)
Investment in quoted and unquoted securities
(cid:129) Borrowing from major investors of the Company at floating rate
Categories of financial instruments
Financial assets
Cash and cash equivalents*
Trade and other receivables*
Investment in subsidiaries
Total financial assets
Financial liabilities
Trade and other payables and accruals*
Short-term borrowings*
Hire purchase payables*
Total financial liabilities
Group
2018
£’000
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
958
262
–
1,220
(541)
(9,936)
–
496
–
8,154
8,650
–
(2,257)
–
(10,477)
(2,257)
908
333
–
1,241
(560)
(8,946)
(166)
(9,672)
58
–
7,941
7,999
–
(1,501)
–
(1,501)
The described financial instruments are measured applying the following methodologies:
* measured at amortised costs through the consolidated income statement.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
24 FINANCIAL INSTRUMENTS continued
The Group is exposed to the following financial risks:
(cid:129) Credit risk
(cid:129)
(cid:129)
Fair value or cash flow interest rate risk
Foreign exchange risk
(cid:129) Other market price risk
(cid:129)
Liquidity risk
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.
To minimize any credit risk upfront payment for service orders are requested when orders require
larger pre-financing of consumables needed for order fulfilment. Further for any larger service orders
interim payments are requested based on work order related performance obligations. The overall
structure with only B2B and institutional customers like universities or state funded research
institutions minimizes credit risk as well.
For trade receivables and other receivables further explanation and calculation of ECL (Expected
credit loss) provisions relating to credit risk are presented in note 17.
At the reporting date, the largest exposure was represented by the carrying value of trade receivables
and contract assets of £514,490 (2017: trade receivables and contract assets £333,701). A minor
provision for impairment was recognised for FY 2018 / (FY 2017:NIL) 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 so there is no history of credit defaults. The Group does have significant
concentrations of credit risk on its trade receivables, with the largest debtor/ contracted asset
amounting to £287,158.
Credit risk arising from cash and cash equivalents held with banking institutions is controlled by using
only good rated Institutions as presented in the table.
Group
2018
£’000
Company
2018
£’000
Group
2017
£’000
Company
2017
£’000
857
84
17
958
496
–
–
496
820
73
15
908
58
–
–
58
Barclays plc
Commerzbank AG
Other
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
24 FINANCIAL INSTRUMENTS continued
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
& Co. KG of £8m. At 31 December 2018, the carrying value of loans owed by Electrophoretics Limited
to the Company was £Nil (2017: £0.4m), of loans owed by Proteome Sciences R&D GmbH & Co. KG
to the Company was £8.15m (2017: £7.94m). Refer to Note 15 for further detail.
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).
Fair value and cash flow interest rate risk
The Group is exposed to cash flow interest rate risk from long term borrowings. The level of
borrowings is determined by the capital requirements of the Group as it is operational in a net cash
outflow position. As such usual gearing ratios to assess debt risk levels are not applicable.
Borrowings are managed centrally under direct involvement and supervision of the Board. All
borrowings are in the functional currency of the Group.
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 Group analyses interest sensitivity on a yearly basis. 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 2018 would have increased by £49,670 (2017: £44,825), for a
decrease of 0.5% in interest rate the loss would have reduced by the same amount.
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.
Foreign exchange risk
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
24 FINANCIAL INSTRUMENTS continued
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of Germany (the Euro) and to the US dollar currency.
The Group’s companies hold asset and liabilities denominated in different than their functional
currency. As the nature of these assets is in their majority short term and usually any assets hold in
a foreign currency are used to match liabilities denominated in this currency the overall effect of any
currency fluctuations does not result in a material exposure to foreign exchange risk. Therefore a
foreign currency sensitivity analysis would not be appropriate.
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
The following tables detail the Group and Company’s remaining contractual maturity for its non-
derivative financial liabilities including both interest and principal cash flows and the interest rates
applied. 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.
Up to 3
Months
As at December 2018 £’000
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
Trade and other payables 566
Loans and borrowings 9,936
Total 10,502
–
–
–
–
–
–
–
–
–
Liquidity risk management
Up to 3
Months
As at December 2017 £’000
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
Trade and other payables 726
Loans and borrowings 8,946
Total 9,672
–
–
–
–
–
–
–
–
–
Over
5 years
£’000
–
–
–
Over
5 years
£’000
–
–
–
There are pension provisions existing for the German entity of the Group, which amounted at
31 December 2018 to £0.34m (2017: £0.36m), which do not result in future Cash outflows from the
Group.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
24 FINANCIAL INSTRUMENTS continued
Weighted
average
effective Within Within
interest Less than 1 month one year 1-2 years
Rate Group Company Group Group
% £’000 £’000 £’000 £’000
Within
2-3 years
Group
£’000
2018 3.11 9,936 2,257 – –
Variable interest rate
instruments - Borrowings – – – – –
Fixed rate instruments –
Hire purchase – – – – –
2017
Variable interest rate
instruments - Borrowings 2.79 8,946 1,502 – –
Fixed rate instruments –
Hire purchase 10.8 – – 166 –
–
–
–
–
–
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:
Electrophoretics
Ltd
£’000
–
2,023
(1,631)
392
392
184
–
576
Total
£’000
7,549
2,023
(1,631)
7,941
7,941
184
–
8,125
At 1 January 2017
Additional investment in the year
Provision for impairment
At 31 December, 2017
At 1 January 2018
Additional investment in the year
At 31 December, 2018
2) Loan from subsidiary undertaking:-
At 1 January, 2017
Exchange adjustment
At 31 December, 2017
At 1 January, 2018
Exchange adjustment
At 31 December, 2018
Proteome
Sciences R&D
£’000
7,549
–
–
7,549
7,549
–
–
7,549
306
12
318
318
3
321
Further details of the Company’s shares in and loans to its subsidiary undertakings are set out in
note15.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
25 RELATED PARTY TRANSACTIONS continued
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 on page 62.
c) M Diggle, a Director of the Company, a Director of Vulpes Investment Management (VIM) and is
therefore a related party. VIM has made a loan facility available to the Company full details of
which are set out in note 18 on page 62.
d) 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’.
e) 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 2018 and the comparative period were as follows:
Jeremy Haigh (Chief Executive Officer)
Ian Pike (Chief Scientific Officer)
Richard Dennis (Chief Commercial Officer)
Stefan Fuhrmann (Finance Director)
Christopher Pearce Chairman (Non-Executive Director)
Roger McDowell (Non-Executive Director)
Martin Diggle (Non-Executive Director)
Ursula Ney (Non-Executive Director)
Key management personnel remuneration was as follows:
Salary
Other long-term benefits
Defined benefit scheme costs
Share based payment expense
Consultancy fee
2018
£’000
2017
£’000
634
28
–
–
70
732
525
15
–
58
70
668
The amounts charged to the income statement relating to Directors in respect of the share-based
payment charge were as follows:
2018
£’000
–
2017
£’000
58
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
(Registered in England No: 02879724)
Notice is hereby given that the 25th Annual General Meeting of Proteome Sciences plc will be held at
Allenby Capital Limited, 5 St Helen’s Place, London, EC3A 6SB on Tuesday 30 April 2019 at 2.30 pm for
the purpose of considering and, if thought fit, passing the following Resolutions of which numbers 1 to 4
will be proposed as Ordinary Resolutions and number 5 and 6 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 2018.
2 To re-appoint Dr Ian Pike as a Director.
3 To re-appoint Martin Diggle as a Director.
4 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
5 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 30 June 2020, 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
6 THAT subject to, and upon Resolution 5 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)) 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
(Registered in England No: 02879724)
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 2020, 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.
By order of the Board
Hamilton House
Mabledon Place
London WC1H 9BB
V. Birse
Company Secretary
1 April 2019
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NOTICE OF MEETING
(Registered in England No: 02879724)
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 2.30 p.m. on 26 April 2019 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.
Resolutions 2
Under the provision of Article 109(b) of the Articles of Association of the Company directors are required
to retire at the third Annual General Meeting after they were last elected or re-elected. Accordingly
Dr Ian Pike is due to retire at this Annual General Meeting and offers himself for re-appointment.
Resolution 3
Under the provision of Article 109(b) of the Articles of Association of the Company directors are required
to retire at the third Annual General Meeting after they were last elected or re-elected. Accordingly
Mr Martin Diggle is due to retire at this Annual General Meeting and offers himself for re-appointment.
Resolution 4
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 5
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.
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NOTICE OF MEETING
(Registered in England No: 02879724)
Resolution 6
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.
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Proteome Sciences plc
Registered number: 02879724
Report and Financial Statements
for the year ended 31 December 2018