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Proteome Sciences plc
Registered number: 02879724
Report and Financial Statements
for the year ended 31 December 2019
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ADVISERS
Allenby Capital Limited
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EC3A 6AB
BDO LLP
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W1U 7EU
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NOMINATED ADVISER
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Shareholder Enquiries:
258511 Proteome p01-p34.qxp 14/04/2020 19:39 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
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CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2019
This has been a year of significant development for
the company with strong growth from licensing and
service revenues including receipt of a significant
milestone payment related to isobaric tandem mass
tag (TMT®) sales that has resulted in a profit for the
year (2018: (£1.31m)). Whilst this is encouraging,
the underlying performance without one-off
milestone payments would have produced a loss
after tax of £0.60m. Revenues for the full year
increased by 53% to £4.7m (2018: £3.05m). Year on
year sales and royalties attributable to TMT®
reagents grew 68% to £3.7m (2018: £2.20m).
Proteomics services increased 24% to £0.93m
(2018: £0.75m) reflecting the growing impact of our
sales efforts in North America. Total costs of
£4.36m were 1.4% lower (2018: £4.42m) reflecting
the final stages of reorganisation. Cash reserves at
the year-end were down marginally at £0.80m
(2018: £0.96m) though no further draw-down from
the Vulpes loan was taken and the cash position has
been strengthened by receipt in March 2020 of
£0.75m in respect of the TMT® sales milestone.
Most significantly, the value of work carried forward
into 2020 is roughly four-fold greater than in the prior
year with £0.70m in signed orders on the books. As
a result of these positive events I am pleased to
report that we achieved a profit after tax of £0.15m
compared with a loss of £1.31m in the preceding
year.
full-service contract
Services
This has been the busiest year for our proteomics
services business with orders for projects received
from 40 clients. This reflects our transition to
become a
research
organisation specialising in mass spectrometry
proteomics which was completed at the end of
2018. We carried forward approximately £150,000
of orders from 2018 giving a solid start to the year,
but this was followed by a slow second quarter as
the signing of orders and delivery of samples was
delayed by our clients. Nevertheless, we increased
H1 revenues by 30% to £0.35m.
Consistent with previous years, the second half of
the year saw much stronger performance with over
60% of full year revenue recognised in this period
with the fourth quarter being particularly strong
with £0.40m of recognised revenue and £0.80m of
new orders signed. In total for 2019 we took orders
worth £1.54m, nearly doubling the previous year
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(£0.87m). As a result, we started 2020 with a very
strong order book in excess of £0.70m with
samples already received for over half of this.
Following the growth in 2018, these results show a
continuing trend towards higher values and repeat
business as our clients in the pharmaceutical and
biotechnology sectors adopt proteomics across
their drug development programmes at all stages.
A significant development was the application of
our proprietary TMTcalibrator™ biomarker
discovery workflow in clinical studies. As an
example, our proteomics analysis of cerebrospinal
fluid (CSF) samples from patients enrolled in
Cognition Therapeutics Phase 1 trial of novel
compound Elayta™, identified multiple potential
biomarkers supporting the positive effect of
treatment. Based on this study, we have now
extended our
relationship with Cognition
Therapeutics and are currently analysing both CSF
and plasma samples from an ongoing Phase 2 trial
of Elayta™.
We also completed our first clinical-grade targeted
assay study under the certified Good Clinical
Laboratory Practice (GCLP) protocol. Our client
required high-sensitivity detection of an
undisclosed biomarker which was not quantifiable
using standard immunoassay methods. We were
able to develop a test with a low pg/ml limit of
quantification
free of any matrix
interference and subsequently used this to analyse
an initial cohort of samples from patients enrolled
in a Phase 1 trial.
that was
We received considerable interest in the Super
Depletion method for the unbiased analysis of
plasma samples at high sensitivity. During the year
we have extended our offering to include different
species commonly used in pre-clinical drug
development studies and combined it with higher-
plexing TMTpro™ and TMTcalibrator™ workflows
for several new and existing customers. We expect
this trend of renewed engagement in blood
biomarker research to continue and we are ideally
placed to exploit our status as exclusive providers
of Super Depletion combined with TMTcalibrator™
and TMTpro™.
In August we expanded our sales team by
recruiting a European Sales Manager reflecting our
confidence in the growth potential for proteomics
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CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2019
services in Europe and with the goal of diversifying
our client base to achieve a greater balance
between the US and EU sales. At the same time,
we terminated the partnership with our European
agents Cenibra.
This year we have continued to expand our
marketing activities in line with growing revenues.
Our strategy is to combine a mix of direct business
development visits to the main pharmaceutical and
biotech hubs in the US and EU alongside attending
trade shows where we typically have a booth in the
exhibition hall. We undertook 4 quarterly trips to the
US visiting each coast on a six-month schedule, all
of which resulted directly in orders for biomarker
services. Over the year we also attended 21 trade
shows and I was invited to speak and chair
sessions at three of these. Through these activities
we detected a marked improvement in the level of
interest in performing proteomics studies across all
stages in drug development, both from our
traditional client base of the small to medium sized
biotechnology companies and most notably within
larger pharmaceutical companies, with all of them
looking to fulfil their requirements mainly through
outsourcing.
Licences
This year was significant for the launch of the
16plex TMTpro™ reagents in the summer. The
positive growth in sales seen in the first half of this
year was bolstered by initial orders for TMTpro™
stocks which continued through the second six
months. The strong market response to TMTpro™
has been supported by several studies showing
the new tags perform as well as the original TMT®
reagents, and the addition of 5 extra channels
means there are fewer missing data points,
allowing more expansive studies to be designed.
Proteome Sciences was the first to publish data on
the new tags and we are aware of several other
publications currently under review for publication,
all of which are likely to drive further demand.
We also introduced TMTpro™ into our proteomics
services and have received a strong response from
our clients. We are the only service provider
currently able to offer TMTpro™ and we are
working with our exclusive licensee Thermo
Scientific
to ensure all Contract Research
Organisations and commercial service providers
offering TMT®-based services are aware of the
appropriate licensing options, that currently do not
include TMTpro™.
The combined TMT® and TMTpro™ sales and
royalties were well ahead of our internal forecasts,
delivering 34% annual growth in the underlying
business. Importantly, we have not seen any
decrease in the level of TMT® reagent ordering
from our licensee Thermo Scientific suggesting that
the launch of TMTpro™ has not materially affected
the existing tag market. In addition to the
underlying growth of the core TMT® and TMTpro™
sales and royalties, we also accrued the second
sales-related milestone of £0.75m in December
which was received in cash in March 2020. This
has only taken 25 months from the first sales
milestone that was attained in November 2017,
demonstrating the rapid acceleration in the use of
isobaric
range of
tagging across a wide
proteomics applications.
There has been further progress from both
licensees of our stroke blood biomarkers. Randox
Laboratories has continued to recruit patients into
its clinical validation study required for CE
(Conformité Européene) marked approval of its
stroke biochip array and Evidence Analyzer
system. Whilst clinical validation studies have been
ongoing, Randox have also validated the Stroke
Biochip for use on the Evidence MultiSTAT device
which is designed for point-of-care testing and this
has featured in their marketing activities at several
trade shows, including the prestigious American
Association of Clinical Chemistry in August. As well
as supporting an early stroke diagnosis, Randox
now state that the test can also differentiate
between ischemic and haemorrhagic stroke and
provide a stronger
for use of
thrombolysis when used in combination with brain
imaging (which is standard of care).
indication
This year we also signed a further non-exclusive
licence to the Company’s stroke biomarker IP with
Galaxy CCRO Inc. (“Galaxy”), a recently formed US
clinical contract research organisation. Galaxy are
initially developing a
for
measurement of GST-P in patients suspected of
having stroke. It is intended that the device can be
utilised both in the emergency response setting by
ambulance crews and paramedics as well as by
nursing staff within a hospital emergency
department or specialised stroke unit. Galaxy have
flow device
lateral
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CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2019
made good progress in developing a prototype
device and expect to initiate clinical validation studies
in Europe and the US in 2020. Under the terms of the
licence the Company will benefit from subsequent
development milestones and a running royalty on any
product sales and we look forward to updating
shareholders at a later date.
Research
The restructuring of our business completed in
2018 has focused exclusively on expanding the
proteomics services revenue and supporting the
launch of TMTpro™. As an inevitable consequence
of these activities, there has been little scope for
new research projects which has delayed the
launch of the two targeted mass spectrometry
assays for clusterin and tryptophan metabolites.
However, we have initiated a new research trial to
evaluate the clusterin assay in both plasma and
cerebrospinal fluid of 30 Alzheimer’s disease
individuals with mild cognitive
patients, 20
impairment and 30 cognitively normal controls. We
expect this study to complete in the first quarter of
2020. Similarly, for the tryptophan metabolite assay,
we have performed further analyses within a
multinational
research project PROMETOV
supported by the EU ERA-NET TRANSCAN-2
programme. We are now reviewing data within the
consortium and expect to be able to update
shareholders on the outcomes later this year.
We published the first scientific paper on TMTpro™
reagents in November (Thompson et al. 2019. Anal.
Chem. 2019, 91, 24, 15941-15950) showing their
equivalent performance to TMT® and providing
details on their optimized methods of use.
Operating Environment
The slowing of pharmaceutical industry spending
on proteomics and other outsourced activities seen
in the mid-part of 2018 showed signs of reversing
in the last quarter as we have previously reported.
This allowed us to start 2019 with a modest order
book and we have seen the growth in outsourcing
continue to improve through the current year. This
reflects a very apparent re-engagement of
pharmaceutical and biotechnology companies in
the creation of multi-omic strategies to better inform
drug development decision making, and the need
to backfill studies with high quality proteomic data.
It has been particularly pleasing that several of the
new clients we have worked with this year
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mentioned our quality and reputation as a major
reason for working with us.
We remain confident that the implementation of the
UK’s decision to leave the European Union on
31 January 2020 will have no short-term impact on
our business as all operational activities are
performed in our German subsidiary Proteome
Sciences R&D GmbH & Co KG. We also expect
that the impact for our clients’ research budgets
and external activities will be unaffected,
supported by the early evidence of our order book
value of £0.70m carried into 2020.
We completed the final stage of company re-
organisation and cost reduction at the start of the
year with the benefit being a further 1.4% reduction
in operating costs compared to 2018. We have now
attained high levels of efficiency across the
different parts of the business and were able to
deliver strong growth
in proteomic service
revenues for the full year.
A significant factor in our growing service revenues
has been an increased presence in our core
markets, particularly in the US. This followed an
evolution of our strategy to build on the positive
effects achieved through working with a contract
sales organisation to taking a more direct approach
to business development activities through site
visits and attending trade shows with an exhibition
booth. Based on this success, we have now
recruited a sales manager for Europe and are
replicating the model that has been successful in
the US. Although only in post since August, they
have already had a positive impact.
In common with previous years we applied for the
R&D tax credit and payment of our 2018 claim was
received in a timely manner. As expected, our move
to more contract research projects led to a
reduction in the size of the R&D tax credit and we
expect future claims to be of similar value.
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 operating profit
was neutral.
I am grateful to the dedication and hard work of all
staff and to our growing client base for their
continued business. Finally, on behalf of all
shareholders, I would like to thank Jeremy Haigh
258511 Proteome p01-p34.qxp 14/04/2020 19:39 Page 5
CHIEF EXECUTIVE OFFICER’S STATEMENT
for the year ended 31 December 2019
the process of appointing a
who left the Company at the end of the year, for his
considerable efforts in leading the business
through this process of change. We are currently
in
full-time
replacement CEO. It has been a year of positive
progress as we have seen the refocusing of our
business start to deliver the expected benefits to
both our cost base and revenue streams. Bolstered
by outstanding revenues from TMT® we have
achieved our first operational profit and the
business is in a strong position to take advantage
of the significant opportunities in the next decade.
Outlook
The last ten years will rightly be seen as the decade
of genomics as next generation sequencing allowed
population-level studies to identify hundreds of new
associations with disease, and virtually every drug
development programme incorporated the analysis
of nucleic acids to deliver personalised medicine.
However, it also saw major progress in proteomics
with rapid gains in speed and sensitivity of mass
spectrometers, the dominance of our isobaric
tagging technologies, TMT® and the recently
introduced TMTpro™, new workflows including
TMTcalibrator™ and plasma Super Depletion for
biomarker discovery, and the wider acceptance of
targeted MS methods for clinical use. We are
perhaps then justified in predicting the coming
decade as being that of proteomics where we will
leverage the optimised business strategy we have
developed in the last 3 years.
Critical to our success will be the continued
delivery of novel biomarker discovery and
development strategies and expansion
into
additional areas of protein characterisation. Our
introduction of plasma Super Depletion in 2018 has
been well received by our pharmaceutical industry
clients. We are already seeing strong growth for
this workflow combined with the higher plexing
rates of TMTpro™ and the sensitivity gains offered
by TMTcalibrator™, both of which are unique to
Proteome Sciences. Following the successful
accreditation of our Frankfurt facility under GCLP
we have moved our technologies nearer to the
clinic and created a significant opportunity in
performing the proteomic analysis of therapeutic
proteins with one client already engaged and
further expansion expected in 2020.
The very positive response to the launch of 16plex
TMTpro™ suggests that there is strong demand for
higher plexing rates, and this had very little effect
on sales of the original TMT® reagents. We are
confident that the overall value of TMT® and
TMTpro™ will continue to grow strongly as exciting
new TMT®-based workflows such as SCoPE-MS
(single-cell proteomics) and CETSA (drug target
profiling) become widely adopted.
This year we have opportunities to consolidate our
position as preferred supplier to a number of
recently acquired clients and build strong new
partnerships as the pharmaceutical industry
continues
integration of
proteomics services through outsourcing. The
strength of our order book and increased capacity
in sales means we are well placed to maintain our
competitive position as a global leader in providing
proteomic services.
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Whilst ongoing events relating to the COVID-19
pandemic have the potential to disrupt our
business, we are currently operating as usual,
processing samples from the orders carried
forward at the end of 2019. We have also received
new orders and our clients have confirmed that
they do not expect any delays to provision of
samples for these studies. We continue to monitor
developments globally and specifically in Germany
with the health and safety of our staff being our
highest priority.
The Board is confident of building on the great
progress made in 2019 as we start with a strong
order book and cash position following receipt of
the TMT® sales milestone and, subject
to
unforeseen events relating to COVID-19, we expect
to sustain and further improve our financial
performance in 2020.
I would like to thank our shareholders and
employees
their continuing support and
patience and look forward to communicating
further progress during 2020.
for
Dr. Ian Pike
Interim Chief Executive Officer
9 April 2020
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STRATEGIC REPORT
for the year ended 31 December 2019
providing competitive tenders. To ensure we can
offer our clients the best service, we continue to
invest significantly in direct sales activities with over
a dozen business development trips involving
face-to-face meetings conducted in the US and
Europe in 2019. In addition, we had a presence at
21 trade shows covering a wide range of disease
areas and core drug-development topics. We have
also moved away from using contract sales agents
as we now have a sufficiently active opportunities
list to support a second sales manager, who was
recruited to cover the European market in August.
The growing
for outsourced
requirement
proteomics services is reflected by a growth in the
number of non-specialist companies offering MS
capabilities to this market, though very few of these
are licensed to use TMT® in contract research and
currently there are no others licensed to use
TMTpro™. This has not impacted our client base
significantly, and we continue to attract business
from clients who have worked with other
proteomics service providers in the past. One of
the major drivers is the increasing recognition of
the quality of our service from the initial sales
approach, through study design to delivery of the
final report.
Industry Trends Increase the Need for Proteomics
Pharmaceutical drug development has a tendency
to follow trends as one Company reporting
progress in a particular area, triggers others to
enter the same research space. Recent trends
include the rapid expansion of activities in immuno-
oncology, fibrotic disorders and inflammatory
diseases. In all three of these areas there is a
growing need for deeper analysis of protein
expression as the diseases are predominantly
characterised by extensive post-translational
modifications affecting how cells and proteins
interact with each other. We have been successful
in aligning our core technologies to serve the
needs of pharmaceutical companies working in
their
this space
experimental medicines are working, and how
diseases may adapt to escape the drug effects.
to better understand how
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
developed the technology for TMT® and TMTpro™,
and manufacture these small, protein-reactive
chemical reagents which are sold for multiplex
quantitative proteomics under exclusive license by
Thermo Scientific.
Proteome Sciences is a leading provider of
contract research services for the identification,
validation and application of protein biomarkers.
Our clients are predominantly pharmaceutical &
biotechnology 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
the drug
services are
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 2019
Growing Our Services Business
The use of outsourcing to specialist service
laboratories within the biopharmaceutical sector
continues to grow in value, particularly in the area
of proteomics. This now extends to the whole
procurement process itself, with most major
third-party
pharmaceutical companies using
outsourcing agencies to handle contracts and
payments. This is simplifying the process of
engaging with new clients and reducing the time to
complete contracts but can increase the burden on
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STRATEGIC REPORT
for the year ended 31 December 2019
leading
Another major growth opportunity is the analysis of
protein degradation. Abnormal expression and
clearance of proteins within cells can have many
negative consequences
to disease.
individual proteins or
Understanding how
complexes involved in a specific cellular function
are being processed may open new opportunities
for therapeutic intervention. Answering these
questions has so far relied on limited approaches
that cannot provide the necessary holistic view. We
have leveraged our proprietary technologies to
design a single workflow
to monitor both
degradation of selected proteins and changes in
the wider biology of treated cells using a
combination of unbiased peptidomics, proteomics
and phosphoproteomics combined with TMTpro™.
targeting beta-amyloid
Light on the Horizon for Alzheimer’s
The high-profile failure of a raft of clinical trials of
drugs
in Alzheimer’s
disease led to a significant withdrawal from the
space by most large pharmaceutical companies.
At the same time, it increased focus on companies
using alternative therapeutic strategies targeting
tau, different brain receptors and inflammatory
processes. It also raised significant questions
about the best biomarkers to use to monitor
treatment and assess outcomes.
and
signalling
In 2019 we started working with Pittsburgh-based
Cognition Therapeutics who are developing
Elayta™, a small molecule inhibitor of beta-amyloid
interaction with synaptic receptors that modifies
downstream
provides
neuroprotective effects. In a first study we applied
TMTcalibrator™ to quantify changes in the levels of
specific proteins and protein phosphorylations in
cerebrospinal fluid (CSF) from 24 individuals
enrolled in a phase 1b/2a clinical trial. We
in
demonstrated drug-mediated
phosphorylation at the majority of sites on tau
protein, a key hallmark of Alzheimer’s disease and
an important biomarker of disease diagnosis and
progression. This was the opposite of what we
have previously reported in untreated Alzheimer’s
disease patients where CSF
tau
phosphorylation are generally increased compared
to controls, suggesting a positive effect of Elayta™.
reductions
levels of
We are currently working with Cognition
Therapeutics to analyse both CSF and plasma
samples from a second Elayta™ trial.
We have also initiated proteomics studies for
targeted assay
biomarker discovery and/or
development for two other companies developing
alternative therapeutic approaches for Alzheimer’s
disease as well as with an academic group
exploring the mechanism of a reported protective
gene mutation.
Reinvigorating the Tandem Mass Tag® Product
Portfolio
We delivered the first supplies of 16pex TMTpro™
tags to our exclusive licensing partner Thermo
Scientific in the early summer. Following a soft
launch at
for Mass
the American Society
Spectrometry meeting in June, the tags were
officially
the Human Proteome
Organisation annual conference in September. With
TMTpro™ we have introduced a completely new
structure that builds in improvements in synthesis
evolved from the original TMT® tags allowing a full
set of tags to be manufactured in around 70% of
the time.
launched at
tags
the original
Prior to launch, we tested the relative performance
to
of TMTpro™ against
demonstrate equivalence. In common with other
beta testers including Thermo Scientific we found
that the total number of peptides and proteins
quantified was essentially the same whilst users
could analyse 45% more samples per experiment.
The initial market response has been very positive
as users see the value in running larger biomarker
individual
discovery
experiments, increasing both the number of
quantified features and reducing the amounts of
missing data.
studies with
fewer
The impact of TMTpro™ on sales of original TMT®
is difficult to predict, though it has clearly driven the
larger part of increased revenues this year. Early
indications are that many of the major users will
switch to the higher-plex tags for all new projects
and use original TMT® for completing legacy
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STRATEGIC REPORT
for the year ended 31 December 2019
research and we therefore expect sales of the
original TMT® tags to remain relatively flat in 2020.
Patent Applications and Proprietary Rights
The review of patents undertaken last year has
produced a substantial saving in external patent
costs and we continue to evaluate the portfolio for
its economic potential. Three patents were granted
in 2019 relating to TMT®, TMTpro™ and our
proprietary clusterin glycoform biomarkers in
Alzheimer’s disease.
Board Changes
On 31 October 2019 the Company announced that
Dr. Jeremy Haigh, Chief Executive Officer, had
resigned and would leave the organisation and
cease to be a Director on 31 December 2019. Dr.
Ian Pike, Chief Scientific Officer, has assumed the
duties of the CEO in an Interim role. The Board has
engaged search consultants and is making good
progress on recruiting a new CEO.
Financial Review
Results and Dividends
The profit after tax for the year was £0.15m (2018:
(£1.31m)). The directors do not recommend the
payment of a dividend (2018: 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)
(cid:129)
The directors consider that revenue and profit
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.
(cid:129)
are
important. Net
The directors believe that the Group’s rate of
cash expenditure and its effect on Group cash
cash
resources
inflows/(outflows) from operating activities for
FY2019 were £0.02m (2018: (£0.50m)). The
cost-containment measures put in place in the
previous two years were consolidated, and we
achieved strong growth in both TMT® and
loan
Biomarker Services revenues. Consequently,
we did not require further draw down from the
arranged
from Vulpes. Cash at
31 December (£ 0.80m) was supplemented by
the £0.75m sales milestone and stronger than
expected Q4 royalties for TMT® that were
received in March 2020.
(cid:129) We have now completed our transition to a
service-based business, contract revenues
from our proteomics (biomarker) services
should increase both in absolute terms and as
a proportion of total Group revenues; in 2019
we increased service income by 24% to
£0.93m relative to 2018, though the share of
total revenue fell slightly due to strong TMT®
sales. We expect growth in revenue from
Biomarker Services to continue in the coming
year, along with the percentage contribution to
total revenues.
(cid:129) We also look to increase the amount of repeat
business as this is an important measure of
customer satisfaction. This year we increased
the number and value of projects from existing
customers, who now account for 75% of sales
value. These same customers are also looking
to place further orders in 2020.
(cid:129) We believe it is essential that we respond to our
customer needs in a timely manner, looking to
minimise the lead time from first contact to
placing of orders. Whilst we have previously
focused primarily on time to deliver requested
quotes, we now consider the rate of conversion
from quote to order as a more relevant metric
of the strength of our product offering and
sales process. In 2019 we provided over 50
detailed statements of work with 55% of these
being converted into orders.
Financial Performance
For the twelve-month period ended 31 December
2019
to £4.66m
revenue
(2018: £3.05m).
increased 53%
(cid:129)
Licences, sales and services
revenue
increased 57% to £4.63m (2018: £2.96m). This
is comprised of two revenue streams: TMT®-
related revenue and Proteomic (Biomarker)
8
Proteome Sciences plc
258511 Proteome p01-p34.qxp 14/04/2020 19:39 Page 9
STRATEGIC REPORT
for the year ended 31 December 2019
Services. Although core sales and royalties for
TMT® tags increased by 68% to £3.70m, this
includes a significant milestone reached in late
2019 from our exclusive distribution partner
Thermo Scientific without which growth of core
TMT® related revenue would have been 34%
(2018: £2.20m)
(cid:129) Grant income was £0.02m (2018: £0.09m).
The profit after tax was £0.15m (2018: (£1.31m)).
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 2019, and such amounts are only
recognised when reasonably assured.
activities was £0.02m (2018: (£0.50m)). Cash at
the year-end was £ 0.80m (2018: £0.96m).
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 generally favours companies with a broader
technology platform than our own. Progress in 2019
was encouraging as both interest and orders
increased quarter on quarter during the year with
14 contracts worth over £0.70m carried into 2020.
This
that
proteomics requires a high level of expertise only
generally available in specialised service providers.
the growing
recognition
reflects
Costs and Available Cash
(cid:129)
The Group maintained a positive cash balance
in 2019 and continues to seek improved cash
flows from commercial income streams. Our
operating costs have been significantly
reduced which enabled positive cash flows
throughout the year. We consider that in order
to maintain a positive cash balance, costs will
need to be kept in line with 2019
Management of Risk: The Group has sought to
manage this risk by broadening its proteomic
services offering (e.g. Super Depletion), investing
in our own sales by employing a dedicated Sales
Manager in Europe, dedicating more staff time to
direct business development activities in our
principal commercial territories and adopting
conventional service-based metrics directed at
speed, cost and quality.
(cid:129) Administrative expenses in 2019 were £2.65m
(2018: £3.24m). This is a decrease of 18%,
representing full year cost savings following
continued cost containment during the year.
(cid:129) Staff costs
for
the year were £2.11m
(2018: £2.25m).
(cid:129) Property costs of £0.30m were in line with
previous years.
(cid:129) Other overheads decreased by £0.23m as a
result of cost containment initiatives driven by
a review of patent obligations.
(cid:129)
Finance costs arose as a result of interest due
on loans from two major investors in the
Company and inclusion of IFRS16 related
interest of £0.01m. Costs of £0.34m are
marginally higher than the prior year.
(cid:129) Profit after tax for 2019 was £0.15m (2018: loss
of £1.31m). The net cash inflow from operating
Dependence on Key Personnel
The Group depends on its ability to retain a limited
number of highly qualified scientific, commercial
and managerial personnel, the competition for
whom is strong. While the Group has entered into
conventional employment arrangements with key
personnel, aimed at securing their services for
minimum
retention cannot be
guaranteed as evidenced by two resignations
during 2019.
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 we have
strong managerial oversight and support for our
laboratory-based staff. Retention is also sought
of
through
remuneration packages, performance related
bonus payments, and the opportunity for share
option grants.
role-based
reviews
annual,
Proteome Sciences plc
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STRATEGIC REPORT
for the year ended 31 December 2019
Cash Limitations
Despite remaining cash positive, making a small
profit and seeing steady growth in our proteomics
services revenues in 2019, we are still reliant on
TMT® sales and royalties for the majority of our
revenues and working capital to invest in growing
the business remains limited.
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 also
actively engage with our major creditors to manage
the Company’s debt.
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
where increasing demand from the pharmaceutical
industry remains ahead of the growth in service
provider capacities.
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.
Licensing Arrangements
The Group intends to continue sub-licensing new
discoveries and products to third parties, but there
can be no assurance
licensing
arrangements will be successful.
that such
Management of Risk: The Group manages this risk
by a thorough assessment of the scientific and
commercial
feasibility of proposed research
projects which is conducted by an experienced
management team. Risk has also been reduced by
decreasing the overall number of research projects
and re-distributing available resources.
Patent Applications and Proprietary Rights
The Group seeks patent protection for identified
protein biomarkers which may be of diagnostic,
10 Proteome Sciences plc
The
technologies.
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.
research
pharmaceutical
Coronavirus (COVID-19) Pandemic
The rapid emergence of the coronavirus pandemic
has caused significant disruption
to many
manufacturing and retail businesses where the
implementation of social distancing measures is
not practical or deemed ineffective. In many
countries
and
development has been protected from more
general restrictions on worker travel and we expect
this to remain to be the case throughout the
pandemic. However, there is a risk that we will be
forced to suspend operations in our laboratory in
Frankfurt, or that our clients cannot source and ship
samples for analysis, leading to delay in completion
of projects. We have also seen a number of
trade shows and
international and national
exhibitions be postponed or move to a virtual
format. As these events are one of the methods
used
to business
introductions there is the potential that there may
be an impact to our business development
activities.
to establish business
258511 Proteome p01-p34.qxp 14/04/2020 19:39 Page 11
STRATEGIC REPORT
for the year ended 31 December 2019
Management of Risk: We have implemented social
distancing and enhanced cleaning measures for
our laboratories and implemented home working
for all UK staff and those capable of doing so in
Frankfurt. We have also cancelled all site visits
other than essential maintenance. Our sales staff
are also working from home and using our
prospect database to engage new business. We
will continue to monitor the ability to deliver client
work and ensure we are able to utilise any central
or regional Government funding available to
support businesses during the pandemic.
Section 172 statement
From 1 January 2019 legislation was introduced
requiring companies
include a statement
to
pursuant to section 172 of the Companies Act 2006.
The Board recognises the importance of the
Group’s wider stakeholders when performing their
duties under Section 172(1) of the Companies Act
and their duties to act in the way they consider, in
good faith, would be most likely to promote the
success of the company for the benefit of its
members as a whole, and in doing so have regard
(amongst other matters) to:
(a) the likely consequences of any decision in the
long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business
relationships with suppliers, customers and
others,
(d) the impact of the company’s operations on the
community and the environment,
(e) the desirability of the company maintaining a
reputation for high standards of business
conduct, and
(f)
the need to act fairly as between members of
the company.
The Board considers that all their decisions are
taken with the long-term in mind, understanding
that these decisions need to regard the interests of
the company’s employees, its relationships with
suppliers, customers, the communities and the
environment in which it operates. It is the view of
the Board that these requirements are addressed
in
the Corporate Governance Statement on
page 13, which can also be found on the
company’s website www.proteomics.com.
For the purpose of this statement detailed
descriptions of the decisions taken are limited to
those of strategic importance. The Board believes
that three decisions taken during the year fall into
this category and were made with full consideration
of both internal and external stakeholders.
(cid:129)
(cid:129)
(cid:129)
The decision to grant Galaxy CCRO a licence
to the Company’s stroke biomarker IP. The
benefit of granting this licence is creating value
from the patent portfolio that the Company has
maintained. The Board considered the views of
both the internal and external stakeholders in
this matter before granting the licence and
concluded that it was in the best interests of all
stakeholders as the Company will benefit from
royalties from any future product sales and
development milestones.
The decision to move away from using contract
sales agents in EU and bringing those functions
in house by appointing a European Sales
Manager. The Board consulted with internal
stakeholders on this matter and considered that
it enabled the Group to provide a better service
to its external stakeholders, primarily being its
customers in that region.
The decision to manufacture and launch
TMTpro™ tags enabled us to meet market
demands for higher plexing rates and maintain
strong revenue growth. The Board engaged
with the internal and external stakeholders to
conclude that investment in the manufacture
and launch of new products would be of
benefit to all stakeholders and shareholders by
meeting a clear market demand and extending
the wider TMT® portfolio.
By Order of the Board
Hamilton House
Mabledon Place
London WC1H 9BB
V Birse
Company Secretary
9 April 2020
Proteome Sciences plc 11
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BOARD OF DIRECTORS
for the year ended 31 December 2019
Dr Jeremy Haigh (resigned 31 December 2019)
Christopher Pearce
in a variety of clinical
Chief Executive Officer
Jeremy Haigh has spent 30 years in the bioscience
sector
research,
development, operational and leadership roles,
experiencing both traditional pharmaceutical and
biotechnology environments at Merck Research
Laboratories and at Amgen where most recently he
was the European Chief Operating Officer for
Research & Development. He retains a particular
interest in precision medicine and in neurological
diseases
in
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
(appointed
Interim Chief Executive Officer
1 January 2020) and 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 Meso Scale
Discovery, Quanterix Corp. and BioScale Inc.
12 Proteome Sciences plc
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 several
listed companies, namely Avingtrans plc, Brand
Architekts Group plc, Augean plc, Tribal Group plc,
ThinkSmart plc, Hargreaves Services plc and
British Smaller Companies VCT II 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 a
non-executive director on the board of Discuva, a
Cambridge, UK based start-up. She is currently
also a non-executive director at Scancell plc and a
Trustee of the University of Portsmouth. 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
258511 Proteome p01-p34.qxp 14/04/2020 19:39 Page 13
CORPORATE GOVERNANCE
for the year ended 31 December 2019
The Chairman’s Statement on Corporate
Governance
I am pleased to present this year’s Corporate
Governance Statement.
The Company is committed to maintaining high
standards of corporate governance. It is the
responsibility of the Board and me 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.
The Company adopted the Quoted Companies
Alliance Corporate Governance Code (QCA Code)
during 2018 and continues to comply with each of
the ten principles of the QCA Code. The remainder
of this statement sets out how the Company applies
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
for small and
corporate governance code
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
to biopharmaceutical and
biomarker assays
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,
on
the Company
from
(https://proteomics.com).
institutional and retail shareholders are addressed
directly whenever possible by members of the
executive team.
Requests
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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
licensees.
relationships with customers and
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
relationships necessary
the
business, and sharing these needs with the Board.
for developing
An agreed procedure exists for directors in the
furtherance of their duties to take independent
professional advice. With the prior approval of the
Chairman, all directors have the right to seek
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CORPORATE GOVERNANCE
for the year ended 31 December 2019
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:
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 two Executive
Directors:
Dr Ian Pike (Interim Chief Executive Officer –
appointed 1 January 2020 and Chief Scientific
Officer)
Richard Dennis (Chief Commercial Officer)
(cid:129)
Initiate action to prevent or reduce the adverse
effects of risk
and four Non-Executive Directors;
Christopher Pearce (Chairman)
(cid:129) Control further treatment of risks until the level
Roger McDowell
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
Martin Diggle
Dr Ursula Ney
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.
(cid:129)
Inform investors of material changes to the
Company’s risk profile.
–
The Board considers Roger McDowell and
Dr Ursula Ney to be independent.
Conflicts of interest
The Board has instituted a process for reporting
and managing any conflicts of interest held by
directors. Under
the Company’s Articles of
Association, the Board has the authority to approve
such conflicts.
– Martin Diggle, a director of Vulpes Investment
Management which manages the Vulpes Life
Sciences Fund (the largest shareholder in the
Company) is not remunerated for his role on the
Board and is not a member of any Board
sub-committee.
Company materiality threshold
The Board acknowledges that assessment on
materiality and subsequent appropriate thresholds
are subjective and open to change. As well as the
14 Proteome Sciences plc
time as
Non-Executive Directors are expected to devote
the proper
is necessary
such
performance of their duties, but it is anticipated that
they will spend approximately one day a month on
for
258511 Proteome p01-p34.qxp 14/04/2020 19:39 Page 15
CORPORATE GOVERNANCE
for the year ended 31 December 2019
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 2018 bringing with her considerable
scientific and management experience in the
biotechnology industry to the Board. The existing
spectrum of differing entrepreneurial skills
continues to be represented on the Board together
with considerable knowledge and expertise from
scientific
the pharmaceutical
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
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 2019 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
and the terms of reference for the Committees.
Areas covered include Board structure, Board
arrangements, frequency and time, content of
Board meetings, Board 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 2019. 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 is
effective 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 again identified that an appropriate
framework for succession planning is needed,
though the challenge of this for a small board was
also recognized.
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:
(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
responsibility to the environment and the
community.
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
the Company
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CORPORATE GOVERNANCE
for the year ended 31 December 2019
Company since July 1994. The responsibilities of
the Chairman are to:
(cid:129) Declaration of any
interim dividend and
recommendation of a final dividend;
(cid:129)
Lead the Board, ensuring its effectiveness on
all aspects of its role
(cid:129) Approval of
shareholders;
formal communications with
(cid:129) Ensure that the directors receive accurate,
(cid:129) Approval of major contracts and investments;
timely and clear information
and
(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 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);
(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;
16 Proteome Sciences plc
(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 twice during 2019.
(cid:129) Remuneration Committee – members are
Dr Ursula Ney (Chair) and Roger McDowell.
This committee met once during 2019.
Audit Committee
The Committee provides a forum for reporting by
the Company’s external auditors. Meetings are held
on average two times a year and are attended, by
invitation, by the Executive Directors.
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.
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CORPORATE GOVERNANCE
for the year ended 31 December 2019
is
responsible
Remuneration Committee
The Committee
for making
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 the need for a
separate Nominations Committee or internal audit
function, although the Board has put in place
internal
as
financial
summarised below.
control procedures
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.
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.
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 of 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
Senior Leadership 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
the
financial
of accurate
safeguarding of assets.
information and
The key features of the internal control system that
operated throughout the year are described under
the following headings:
(cid:129) Control environment: particularly the definition
the
the organisation structure and
of
appropriate delegation of responsibility to
operational management.
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CORPORATE GOVERNANCE
for the year ended 31 December 2019
(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 Board met 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
ended 31 December 2019 were as follows:
Director
C.D.J. Pearce
R. McDowell
M. Diggle
Dr U. Ney
Dr J.R.M Haigh (resigned 31 December 2019)
Dr I. Pike
R. Dennis
Board
Meeting
Audit Remuneration
Committee
Committee
8/8
8/8
8/8
8/8
8/8
8/8
8/8
N/A
2/2
N/A
2/2
N/A
N/A
N/A
N/A
1/1
N/A
1/1
N/A
N/A
N/A
18 Proteome Sciences plc
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CORPORATE GOVERNANCE
for the year ended 31 December 2019
The Executive Directors were all employed 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)
In light of the ongoing and highly dynamic
coronavirus pandemic we have taken the decision
to delay setting the date and venue of the Annual
General Meeting of the Group until such time as
the restrictions on travel and group gatherings are
relaxed. We will continue
the
requirements of an AIM-listed Company and will
provide shareholders with
the prescribed
information within the required notice period by
separate mailing of a Notice of Meeting and
publication on our website (www.proteomics.com).
to monitor
Christopher Pearce
Chairman
9 April 2020
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AUDIT COMMITTEE REPORT
for the year ended 31 December 2019
I am pleased to present the report on behalf of the
Audit Committee.
The Committee is responsible for challenging the
quality of internal 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
financial
in place
procedures to ensure close internal controls.
internal
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
twice a year. 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;
recommending
the
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,
financial statements and accompanying
reports;
(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 2019
the Group applied one new accounting standard.
IFRS 16 Leases
IFRS 16 is effective for periods beginning on or
after 1 January 2019. The Group has elected to
adopt IFRS 16 retrospectively with the cumulative
effect of applying IFRS 16 recognized at the date
of initial application 1 January 2019. Consequently
the comparative period has not been restated.
On transition to IFRS 16 the Group elected to
measure its Frankfurt lease previously classified as
operating under IAS 17 at an amount equal to the
lease liability, adjusted by the amount of any
prepaid or accrued lease payments relating to the
leases recognized in the statement of financial
position immediately before the initial application.
See note 3 for further explanations of how the
Group transitioned to IFRS 16.
The Group does not expect any other standards
issued by the IASB, but not yet effective, to have a
material impact on the Group.
External Auditor
BDO was re-appointed as the Group’s auditor at
the Annual General Meeting held on the 30 April
2019. The Committee considers that its relationship
with the auditor is working well and is satisfied with
their effectiveness.
The Committee is responsible for ensuring there is
a suitable policy for 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
54 of the Group’s financial statements. The non-
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AUDIT COMMITTEE REPORT
for the year ended 31 December 2019
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 2020.
Roger McDowell
Chair of the Audit Committee
9 April 2020
Proteome Sciences plc 21
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2019
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 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 2019.
Directors’ remuneration and transactions
The directors’ emoluments in the year ended 31 December 2019 were:
National
Basic Insurance Benefits Pension
Costs
salary Contributions
2019
2019 2019
£’000
£’000 £’000
in kind
2019
£’000
Total
2019
£’000
Total
2018
£’000
Executive Directors
Dr J.R.M. Haigh 161 21
Dr I. Pike 126 16
R. Dennis 135 17
Non-Executive Directors
C.D.J. Pearce 110 4
R. McDowell 20 2
M. Diggle – –
Dr U. Ney 16 1
568 61
3
3
–
5
–
–
–
11
–
10
13
–
–
–
–
23
185
155
165
119
22
–
17
663
250
168
159
124
25
23
749
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2019
Directors and their interests
The Directors who served during the year are as shown below:
C.D.J. Pearce
Dr J. R. M. Haigh (resigned 31 December 2019)
Dr I.H. Pike
R. Dennis
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 Roger McDowell retires by rotation at the next Annual General
Meeting and, being eligible, offers himself for re-election. The directors at 31 December 2019 and their
interests in the share capital of the Company were as follows:
a) Beneficial interests in Ordinary Shares:
31 December 2019
Number of Ordinary
Name of Director Shares of 1p each
%
shareholding
C.D.J. Pearce 36,915,059
Dr J. R. M. Haigh (resigned 31 December 2019) 400,000
Dr I.H. Pike 165,583
R. Dennis –
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.
On the 28 February 2020 Vulpes Life Sciences Fund purchased 256,424 shares. Following this purchase,
Vulpes Life Sciences Fund has a total direct and indirect interest in 65,203,158 Ordinary Shares, equivalent
to approximately 22% of the issued share capital of the Company.
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 2019
Number at
31 December 2018
(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 2019 relate to awards that were made
during 2017. The options in the table above attributed to Dr Haigh will lapse following his resignation.
Proteome Sciences plc 23
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REMUNERATION COMMITTEE REPORT
for the year ended 31 December 2019
Executive Directors’ service contracts
The Executive Directors signed service contracts on their appointment. These contracts are not of fixed
duration. 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 once during the financial year to 31 December 2019.
Ursula Ney
Chair of the Remuneration Committee
9 April 2020
24 Proteome Sciences plc
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DIRECTORS’ REPORT
for the year ended 31 December 2019
The directors present their annual report and
financial statements
the year ended
31 December 2019. An indication of likely future
developments in the business is set out in the
Strategic Report.
for
(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;
Directors
The directors who held office during the year and
up to the date of signature of the financial
statements were as follows:
(cid:129) prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Company will continue in
business
Richard Dennis
Martin Diggle
Jeremy Haigh (resigned 31 December 2019)
Roger McDowell
Christopher Pearce
Ian Pike
Ursula Ney
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
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
financial statements, which may vary
from
legislation in other jurisdictions. The maintenance
and integrity of the Company’s website is the
responsibility of the directors. The directors’
responsibility also extends to the ongoing integrity
of the financial statements contained herein.
Financial instruments and liquidity risks
Information about the use of financial instruments by
the Company and its subsidiaries and the Group’s
financial risk management policies are given in note
24 of the financial statements (page 73).
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
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DIRECTORS’ REPORT
for the year ended 31 December 2019
average price over the lowest consecutive 10 day trading period since 29 June 2006 (the date on
which details of the original loan agreement were disclosed). 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 (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. The Company has received confirmation from
VIM that they will not seek repayment before May 2021. This loan is deemed a related party transaction
by nature of a common director being on both the boards of Proteome Sciences plc and VIM.
c) The market price of the Ordinary Shares at 31 December 2019 was 2.94p and the range during the
year was 4.4p to 2.2p.
Substantial shareholdings
As at 9 April 2020, 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
Percentage
of issued
Ordinary
Shares Share Capital
36,915,059
65,203,158
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 41 and in notes 18(b) (Financial liabilities) and 24 (Financial instruments).
These 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 Company’s and 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.
In particular, the directors’ have considered the potential impacts of COVID-19 may have on the ability
to achieve adequate level of sales. The rapid emergence of the coronavirus pandemic has caused
significant disruption to many manufacturing and retail businesses where the implementation of social
distancing measures is not practical or deemed ineffective. In many countries pharmaceutical research
and development has been protected from more general restrictions on worker travel and we expect this
to remain to be the case throughout the pandemic. However, there is a risk that we will be forced to
suspend operations in our laboratory in Frankfurt, or that our clients cannot source and ship samples for
analysis, leading to delay in completion of projects. We have also seen a number of international and
26 Proteome Sciences plc
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DIRECTORS’ REPORT
for the year ended 31 December 2019
impact
national trade shows and exhibitions be postponed
or move to a virtual format. As these events are one
of the methods used to establish business to
business introductions there is the potential that
to our business
there may be an
development 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
to
accurately
performance.
revenue
Furthermore, the Group’s services are still in the
development phase and as such, the directors
consider that costs could exceed income in the
short term.
the ability
predict
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.
The Group is also dependent on the loan facility
provided by VIM. Further details of the facility are
set out in note 18 (b).
The directors have received confirmation from VIM
that they will not seek repayment for at least
12 months from the date of approval of these
financial statements.
However, 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.
As such, 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 and therefore that they may be
unable to realise assets and discharge liabilities in
the normal course of business. 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.
Events after the balance sheet date
Coronavirus (COVID-19) Pandemic
The rapid emergence of the coronavirus pandemic
has caused significant disruption
to many
manufacturing and retail businesses. However, the
coronavirus pandemic wasn’t a condition in
existence at the year-end date therefore, it is being
regarded as a non-adjusting subsequent event.
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 4) and
Strategic Report (page 8).
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 he ought to
have taken as a director to make himself aware
of any relevant audit information (as defined in
the Companies Act 2006) and to establish that
the Company’s auditor is aware of that
information.
This confirmation
is given and should be
interpreted in accordance with the provisions of
s418 of the Companies Act 2006.
Proteome Sciences plc 27
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DIRECTORS’ REPORT
for the year ended 31 December 2019
The directors will place a resolution before the
Annual General Meeting to appoint BDO LLP as
auditor for the following year.
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
9 April 2020
28 Proteome Sciences plc
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2019
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 2019 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 2019 and of the Group’s profit 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 relating 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 Non-Executive Chairman and a
related party not being called in to enable it to continue as a going concern.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2019
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 directors’ assessment of going concern involves a number of highly subjective judgements,
therefore, this was accordingly identified as a Key Audit Matter.
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 2021, 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 revenue
forecasts were not achieved.
(cid:129) Reviewing the terms of the Group’s financing, including loans from Mr C.D.J Pearce (Chairman and
a related party) and Vulpes Investment Management (a related party) including recalculation of
amounts due and interest payable and obtaining confirmation that these loans will not be recalled
within a 12 month period following sign-off of the Annual Report.
(cid:129) Reviewing post-balance sheet events, including the cash flow position against budgeted performance
and the group and company’s resilience to the business impacts of the Coronavirus.
Considering the adequacy of the disclosures in the financial statements.
Key audit matters
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.
In addition to the matter described in the Material uncertainty relating to going concern section we have
determined the matters described below to be the key audit matters to be communicated in our report.
Matter
Revenue Recognition under IFRS 15: Revenue
from Contracts with Customers
The Group has a number of discrete revenue
streams for which the accounting differs. Due to
the fact that there is more than one revenue
stream, and the fact that revenue is recognised
both point in time and over a period of time, there
is a significant risk of material misstatement due to
error or fraud arising from both the recognition of
revenue around the year end (cut-off) and the
application of the revenue recognition policy itself,
as detailed in note 3 to these financial statements.
30 Proteome Sciences plc
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 testing
over each revenue stream including the following:
(cid:129) Verifying a sample of contract revenue
to
the year,
recognised
underlying agreements, cash receipt and
appropriate
revenue
trigger events
recognition in accordance with IFRS 15.
reconciling
for
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2019
Matter
How we addressed the matter in our audit
(cid:129) Agreeing a sample of TMT kits sales and
royalties for all four quarters received through
to delivery order confirmation,
royalty
statements and ultimately cash receipt.
(cid:129) All Biomarker services revenue recognised in
December 2019 and January 2020 was
reviewed against the invoices date and the
date
the
customers check revenue has been recorded
within the correct period.
the reports were delivered
to
(cid:129) Assessment of incremental costs of obtaining
contracts and amortisation period to determine
whether any contract cost assets are required
to be capitalised.
(cid:129) Received third party confirmation to verify the
sales milestone was achieved during the year,
reconciling to the underlying agreement and
cash receipt post year end.
Key observations
There were no material issues identified by our
testing of revenue recognition in the year.
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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 £46,565 (2018: £84,000)
which represents 1% of revenue (2018: 5% loss before tax). Materiality for the parent company was set
at 45% of group materiality, at £20,954 (2018: £63,000). Revenue has been determined to be the most
relevant performance measure to the stakeholders of the Group given the directors’ current focus on
revenue growth, particularly in relation to the services platform revenues.
Individual component audits were carried out using component materialities between 70%-85% (2018:
75%) of overall financial statement materiality, this ranged from £32,595 to £39,580 (2018: £63,000).
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2019
Performance materiality was set at 75% of materiality £34,924 (2018: £63,000). 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 £2.328 (2018: £4,200), which are
identified during the audit, would be reported to them, as well as smaller misstatements that in our view
must be reported on qualitative grounds.
An overview of the scope of our audit
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial statements as a whole, taking into account the geographic structure of the Group, the
accounting processes and controls, and the industry in which the Group operates.
In establishing the overall approach to the Group audit, we assessed the audit significance of each
reporting unit in the Group by reference to both its financial significance and other indicators of audit
risk, such as the complexity of operations and the degree of estimation and judgement in the financial
results. We identified three individually significant components.
To this extent:
–
The Group audit team performed full scope audits for Proteome Sciences Plc and its subsidiary
Electrophoretics Limited;
– We instructed the BDO network 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 components are 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.
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 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.
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2019
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
(cid:129)
(cid:129)
the information given in the strategic report and the Directors’ report 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.
Proteome Sciences plc 33
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INDEPENDENT AUDITOR’S REPORT
for the year ended 31 December 2019
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Use of our report
This report is made solely to the 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.
Leighton Thomas (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
9 April 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
34 Proteome Sciences plc
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CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2019
Revenue
Licences, sales and services
Grant services
Revenue – total
Cost of sales
Gross profit
Administrative expenses
Operating profit/loss
Finance income
Finance costs
Profit/Loss before taxation
Tax
Profit /Loss for the year
Profit /Loss per share
Basic and diluted
Notes
5, 6
7(i)
7(ii)
11
2019
£’000
4,634
22
4,656
(1,702)
2,954
(2,655)
299
–
(335)
(36)
185
149
2018
£’000
2,958
91
3,049
(1,180)
1,869
(3,239)
(1,370)
–
(289)
(1,659)
346
(1,313)
12
0.05p
(0.44p)
The accompanying notes 1 to 27 are an integral part of the financial statements.
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 December 2019
Profit/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
Profit/Loss and total comprehensive income for the year
Owners of parent
2019
£’000
2018
£’000
149
(1,313)
(70)
79
79
24
(1,289)
(1,289)
The accompanying notes 1 to 27 are an integral part of the financial statements.
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CONSOLIDATED BALANCE SHEET
as at 31 December 2019
Non-current assets
Goodwill
Property, plant and equipment
Right-of-use asset
Current assets
Inventories
Trade and other receivables
Contract assets
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Borrowings
Lease Liabilities
Net current liabilities
Non-current liabilities
Provisions
Pension 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(a)
14(b)
16
17(a)
5
17(b)
18(a)
5 & 18(a)
18(b)
26
19
20
22
2019
£’000
4,218
75
581
4,874
871
486
1,331
799
3,487
8,361
(738)
(26)
(10,262)
(584)
(11,610)
(8,123)
(403)
(403)
(12,013)
(3,652)
2,952
51,466
3,615
10,755
(109)
(72,331)
(3,652)
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)
The financial statements of Proteome Sciences plc, registered number 02879724, were approved by the
board of directors and authorised for issue on 9 April 2020. They were signed on its behalf by:
Dr I. Pike
R. Dennis
9 April 2020
Director
Director
The accompanying notes 1 to 27 are an integral part of the financial statements.
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COMPANY BALANCE SHEET
as at 31 December 2019
Non-current assets
Investment in subsidiaries
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Payables from other group entity
Borrowings
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)
20
2019
£’000
8,613
8,613
219
219
8,832
(467)
(2,331)
(2,798)
(2,798)
6,034
2,952
51,466
3,615
(51,999)
6,034
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
The Company generated a loss for the year ended 31 December 2019 of £0.12m (2018: £0.14m).
The financial statements of Proteome Sciences plc, registered number 02879724, were approved by
the board of directors and authorised for issue on 9 April 2020. They were signed on its behalf by:
Dr I. Pike
R. Dennis
9 April 2020
Director
Director
The accompanying notes 1 to 27 are an integral part of the financial statements.
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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 31 December 2019
Equity
Share- attributable
Share based to owner
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 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 24
Loss and total
comprehensive
income for the year – – – 24 – (1,313) (1,289) (1,289)
Credit to equity for
share-based payment – – 29 – – – 29
29
At 31 December 2018 2,952 51,466 3,532 (43) 10,755 (72,480) (3,818) (3,818)
At 1 January 2019 2,952 51,466 3,532 (43) 10,755 (72,480) (3,818) (3,818)
Profit/Loss for the year – – – – – 149 149
Exchange differences
on translation of
foreign operations – – – (66) – – (66)
Profit/Loss and total
comprehensive
income for the year – – – (66) – 149 83
Credit to equity for
share-based payment – – 83 – – – 83
83
At 31 December 2019 2,952 51,466 3,615 (109) 10,755 (72,331) (3,652) (3,652)
(66)
149
83
The accompanying notes 1 to 27 are an integral part of the financial statements.
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COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
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 2018
2,952
51,466
Loss and total comprehensive
income for the year
Credit to equity for
share-based payment
At 31 December 2018
–
–
–
–
2,952
51,466
At 1 January 2019
2,952
51,466
Loss and total comprehensive
income for the year
Credit to equity for
share-based payment
At 31 December 2019
–
–
–
–
2,952
51,466
–
–
–
–
–
–
–
–
3,503
(51,740)
6,181
–
29
(138)
(138)
–
29
3,532
(51,878)
6,072
3,532
(51,878)
6,072
–
83
(121)
(121)
–
83
3,615
(51,999)
6,034
The accompanying notes 1 to 27 are an integral part of the financial statements.
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CONSOLIDATED AND COMPANY
CASH FLOW STATEMENTS
for the year ended 31 December 2019
Note
7
14(a)/14(b)
21
Loss before tax
Adjustments for:
Net finance costs
Depreciation of property, plant and
equipment
Share-based payment expense
Operating cash flows before movements in
Working capital
Increase in inventories
Increase in receivables
Increase in payables
Decrease in provisions
Cash used in operations
Net Tax refunded
Net cash inflow/(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
14
7
Financing activities
Lease payments
Proceeds on issue of borrowings
Repayment of HP creditors
Net cash (outflow)/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
18(c)
Cash and cash equivalents at end of year
17b
Group
2019
£’000
Group Company Company
2018
2019
£’000
£’000
2018
£’000
(36)
(1,659)
(121)
(138)
335
89
83
471
276
(1,169)
197
60
(165)
185
20
(58)
–
(58)
(58)
–
–
(58)
(96)
958
(63)
799
289
229
29
(1,112)
(201)
77
6
(20)
(1,250)
746
(504)
(4)
–
–
(4)
–
700
(166)
534
26
908
24
74
–
–
(47)
–
–
165
–
118
–
118
–
(377)
0
(377)
–
–
–
–
(259)
496
(18)
958
219
55
–
–
(83)
–
–
–
–
(83)
–
(83)
–
(182)
–
(182)
–
700
–
700
435
58
3
496
The accompanying notes 1 to 27 are an integral part of the financial statements.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 2019
Proteome Sciences Plc has applied the same accounting policies and methods of computation in its
financial statements as in its 2018 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
2019, which have been adopted in the current year’s financial statements. New standards that have
impacted the Group for the year ended 31 December 2019 are:
IFRS 16 “Leases”
IFRS 16 is effective for periods beginning on or after 1 January 2019. The Group has elected to adopt
IFRS 16 retrospectively with the cumulative effect of applying IFRS 16 recognized at the date of initial
application 1 January 2019. Consequently the comparative period has not been restated.
On transition to IFRS 16 the Group elected to measure its Frankfurt lease previously classified as
operating under IAS 17 at an amount equal to the lease liability, adjusted by the amount of any
prepaid or accrued lease payments relating to the leases recognized in the statement of financial
position immediately before the initial application. See note 3 for further explanations of how the
Group transitioned to IFRS 16.
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 and as applied in accordance with the Companies Act 2006.
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 2019, the Group had cash resources of £0.80 m (2018: £0.96m), realised a profit
for the year of £0.15 m (2018: a loss of £1.31m), had net cash inflows from operating activities of
£0.02m (2018: net cash outflow of £0.50m) and had net current liabilities of £8.12m (2018: £7.75m).
42 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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. The directors have considered the potential impact of COVID-19 may have on
the ability to achieve adequate level of sales. The rapid emergence of the coronavirus pandemic has
caused significant disruption to many manufacturing and retail businesses where the implementation
of social distancing measures is not practical or deemed ineffective. In many countries
pharmaceutical research and development has been protected from more general restrictions on
worker travel and we expect this to remain to be the case throughout the pandemic. However, there
is a risk that we will be forced to suspend operations in our laboratory in Frankfurt, or that our clients
cannot source and ship samples for analysis, leading to delay in completion of projects. We have
also seen a number of international and national trade shows and exhibitions be postponed or move
to a virtual format. As these events are one of the methods used to establish business to business
introductions there is the potential that there may be an impact to our business development 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.
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 2019, 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.
The Company has received confirmation from VIM that they will not seek repayment before 1 May 2021.
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 and therefore that they may be unable realise assets and discharge liabilities in the normal
course of business. 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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.
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
and revenue milestone payments.
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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.
TMT® revenue milestones
Milestone revenues are due on cumulative sales-related revenues. The milestone revenue is
recognised at a point in time when the revenue milestone has been achieved.
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
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.
For biomarker services revenues the Company does not use any discount or bonus schemes, so
revenue is allocated at the transaction price specified in the contract for the specific individual work
orders representing a distinct performance obligation.
The Group does not operate a returns or refunds policy due to the bespoke nature of its products
and services.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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
All leases are accounted for by recognising a right-of-use asset and a lease liability except for the
London office.
The rentals for the London office, which amounts to £26k, and is not considered under IFRS 16
because there is no control over the asset.
In the case of the Group there is only one lease recognised under IFRS 16 for the Frankfurt operation
of the Group, which started in August 2019 and ends after 5 years at the end of July 2024. Its asset
class is land and building as a rental lease. It does not contain variable elements or break out options.
Similarly there are no special restoration clauses attached, there are no restrictions or covenants in
place and it is no sale and lease back transaction.
Renewal of the Frankfurt lease during August 2019 has been accounted under IFRS 16 without
restatement of comparative figures applying the modified retrospective approach. The following
policies apply subsequent to the date of initial application:
Information of the right of asset and its amortisation are represented in note 14b. Information of future
lease payments can be found in note 23 and bout financial commitments and their timing in note 24.
Detail’s of the Group’s leases existing at the balance sheet date can be found in note 26.
Foreign Currencies
The individual financial statements of each Group company are prepared in the currency of their
primary economic environment in which they operate (their functional currency). For the purpose of
the consolidated financial statements, the results and financial position of each Group company are
expressed in pounds sterling.
In preparing the financial statements of the individual companies, transactions in currencies other
than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the rates prevailing on the balance
sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency
are not retranslated.
Exchange differences arising on the settlement of monetary items, are included in profit or loss for
the period except for differences arising on the retranslation of non-monetary items in respect of
which gains, and losses are recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the
Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the period, unless
exchange rates fluctuate significantly during that period, in which case the exchange rates at the
date of transactions are used. Exchange differences arising, if any, are classified as equity and
transferred to the Group’s translation reserve. Such translation differences are recognised as income
or as expenses in the period in which the operation is disposed of.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall
due. Payments made to state-managed retirement benefit schemes are dealt with as payments to
defined contribution schemes where the Group’s obligations under the schemes are equivalent to
those arising in a defined contribution retirement benefit scheme.
As a result of the acquisition of Proteome Sciences R&D Verwaltungs GmbH and Proteome Sciences
R&D GmbH & Co KG during financial year 2002, the Group makes contributions in Germany to a
funded defined contribution plan and to a funded defined benefit plan. These plans are operated in
their entirety by the Pensionskasse der Mitarbeiter der Hoechst-Gruppe VVaG (Hoechst Group), an
independent German mutual insurance company which is required to comply with German insurance
company regulations.
The schemes’ assets are held in multi-employer funds, and the other employers who contribute to
the schemes are not members of the Group. The Group has not been able to identify its share of the
underlying assets and liabilities of the defined benefit scheme and accordingly it has also been
accounted for as 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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.
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 2019 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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.
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.
Contract assets
Contract assets are recognised on the face of the balance sheet and are defined as the right to
consideration in exchange for goods or services that the have been transferred to a customer when
that right is conditional on something other than the passage of time (for example, the entity’s future
performance). Contract assets are considered within the expected loss calculation under IFRS 9, but
usually do not fulfil the recognition criteria.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
3 SIGNIFICANT ACC OUNTING POLICIES continued
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.
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.
COVID-19
The spread of COVID-19 takes large effect on the social and economic situation of both individuals
and companies. Without disputing the COVID-19 has an effect on our business, as for example sales
activity related to trade fairs is very much reduce. Nevertheless, the actual business effect so far is
difficult to evaluate and to quantify. We think that a reduction at a moderate amount to both our service
sales as well as our TMT sales in the range of possibilities and will reflect such reductions in our
forecasts in regards of sales and profit. Nevertheless, we do not think that any impairment or
devaluation of loans between companies at the current stage is appropriate, and hence will not be
reflected in valuations at the 31 December 2019. This does not exclude that an impairment might
result for the financial period of 2020.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 2019 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. As the recoverable amount of goodwill at the balance sheet date exceeded the
goodwill amount as shown in the balance sheet of £4.2m an impairment was not undertaken. Details
of the estimates used in the calculation are set out in note 13.
Investments in subsidiary companies
The carrying cost of the Company’s investments in subsidiary companies is reviewed at each balance
sheet date by reference to the income that is projected to arise therefrom. From a review of these
projections the directors have not 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.
Leases
Leases accounted under IFRS16 require judgement in respect of interest rates applied. The Group
uses the internal borrowing rate equating to the interest rate agreed for the Group’s major loans
granted by the shareholders of the Group and considers this to be the most appropriate discount
rate as the Group does not use other external financing.
Pension
The Group operates for its German employees a defined benefit retirement scheme and treats, where
appropriate, payments to the scheme similar to payments to a defined contribution scheme. Valuation
of the scheme is based on the annual report of an independent actuary. The Group considers this
is sufficient to guarantee appropriate valuation of the scheme and to consider all resulting financial
liabilities.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
5 REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
Other
Biomarker licence TMT TMT Grant
services income Sales Royalties income
Year to 31 December 2019 £’000 £’000 £’000 £’000 £’000
Primary Geographic Markets
US 665 – 1,768 1,936 22
UK 10 – – – –
EU 216 – – – –
Rest of the World 39 – – – –
930 – 1,768 1,936 22
Revenue recognised
at a point in time – – 1,768 1,936 22
Revenue recognised
over a period 930 – – – –
930 1,768 1,936 22
Year to 31 December 2018
Primary Geographic Markets
US 277 – 1, 259 948 –
UK 103 – – – –
EU 371 – – – 91
751 – 1,259 948 91
Revenue recognised
at a point in time – – 1,259 948 91
Revenue recognised
over a period 751 – – – –
751 – 1,259 948 91
Total
£’000
4,391
10
216
39
4,656
3,726
930
4,656
2.484
103
462
3,049
2,298
751
3,049
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
5 REVENUE FROM CONTRACTS WITH CUSTOMERS continued
Contract Balances
Contract
Assets
2019
£’000
Contract
Assets
2018
£’000
Contract
Liabilities
2019
£’000
Contract
Liabilities
2018
£’000
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
328
(328)
–
1,331
–
1,331
237
(237)
–
328
–
328
(25)
25
–
(26)
–
(26)
(35)
–
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.
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 2019
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
2019
£’000
3,704
930
22
4,656
2018
£’000
2,207
751
91
3,049
Revenues from one customer totalled £3,704k (2018: £2,207k) 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 2019 (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
54 Proteome Sciences plc
2019
£’000
–
2019
£’000
335
2019
£’000
89
355
60
80
2
(276)
55
55
25
–
25
80
2018
£’000
–
2018
£’000
289
2018
£’000
229
441
322
72
3
201
57
57
15
–
15
72
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
9 STAFF COSTS
The Group average monthly number of employees (including executive directors) was:
2019
Number
2018
Number
Research and development
Administration
20
5
25
Their aggregate remuneration (including that of executive directors) comprised:
Wages and salaries
Social security costs
Other pension costs
£’000
1,657
269
181
2,107
21
8
29
£’000
1,838
317
92
2,247
No staff costs are incurred in the parent company, Proteome Sciences Plc.
Social security costs shown above include a credit of £Nil (2018: £Nil) 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 2019, were:
National
Basic
Insurance Benefits
salary Contributions in kind
2019 2019
2019
£’000
£’000 £’000
Executive Directors
Dr J.R.M. Haigh 161
Dr I. Pike 126
R. Dennis 135
21 3
16 3
17 –
Non-Executive Directors
C.D.J. Pearce 110
R. McDowell 20
M. Diggle –
Dr U. Ney 16
568
4 5
2 –
– –
1 –
61 11
Pension
Costs
2019
£’000
Total
2019
£’000
Total
2018
£’000
–
10
13
–
–
–
–
23
185
155
165
119
22
–
17
663
250
168
159
124
25
–
23
749
(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 20.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 2019 were as follows:
Dr I. Pike
R. Dennis
2019
2018
2
2
2019
£’000
10
13
23
2018
£’000
15
13
28
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 £110,000 noted above. The balance of the fees relating to the
consultancy agreement at the year end was £251k (2018: £181k). This increase during the year
represents the charge for consultancy during the year.
11 TAX
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
2018 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 for the year
2019
£’000
2018
£’000
–
(54)
(54)
–
239
185
–
(53)
(53)
–
399
346
The UK Corporation tax credit relates to research and development tax credits claimed under the
Corporation Taxes Act 2009.
At 31 December 2019 there were tax losses available for carry forward of approximately £46.5m
(2018: £46.6m)
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 2019
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 2019. The differences are explained below:
Profit/Loss before tax
Income tax credit calculated at 19.0% (2018: 19.00%)
Effects of:
Expenses that are not deductible in determining taxable profit
Fixed asset timing differences
Unrecognised tax losses carried forward
Effect of overseas tax
Other taxable income
Group tax credit for the year
R&D tax received
Tax 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
2019
£’000
(36)
7
(0)
(14)
43
(54)
–
(54)
239
185
2019
£’000
7,894
2
18
7,914
2018
£’000
(1,686)
320
(1)
(11)
(308)
(53)
–
(53)
399
346
2018
£’000
7,919
41
31
7,991
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
A reduction in the UK tax rate from 19% to 17% (effective 1 April 2020) was substantively enacted on
6 September 2016. The March 2020 Budget announced that a rate of 19% would continue to apply
from 1 April 2020, and this change was substantively enacted on 17 March 2020.
12 PROFIT/LOSS PER ORDINARY SHARE
The calculations of basic and diluted loss per ordinary share are based on the following losses and
numbers of shares.
Profit/Loss for the financial year
Basic and Diluted
2018
2019
£’000
£’000
149
(1,313)
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
12 PROFIT/LOSS PER ORDINARY SHARE continued
2019
Number of
shares
2018
Number of
shares
Weighted average number of ordinary shares for the purposes of
calculating basic earnings per share:
Weighted average number of ordinary shares and outstanding
options for the purposes of calculating diluted earnings per share
295,182,056 295,182,056
295,182,056 295,182,056
In 2019 the profit 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 none of the issued share options are in
the money and are therefore not dilutive.
13 GOODWILL
Cost and carrying amount
1 January 2019 and 31 December 2019
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 2019, the market capitalisation for the Group was £8.7m based on the quoted
share price of the Company of 2.94p 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 2019.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
14 PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSET
(a) 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:
Laboratory
equipment,
fixtures and
fittings
£’000
Equipment
On loan
£’000
Cost
1 January 2018
Exchange adjustments
Additions during the year
Disposals during the year
31 December 2018
1st January 2019
Exchange adjustments
Additions during the year
Disposals during the year
31 December 2019
Depreciation
1 January 2018
Exchange adjustments
Charge for the year
Depreciation relating to disposals
At 31 December 2018
At 1 January 2019
Exchange adjustments
Charge for the year
Depreciation relating to disposals
At 31 December 2019
Net book value
At 1 January 2019
31 December 2019
(b) Right-of-use asset
Cost
1 January 2019
Exchange adjustments
Additions during the year
Disposals during the year
31 December 2019
Depreciation
1 January 2019
Exchange adjustments
Charge for the year
Depreciation relating to disposals
At 31 December 2018
Net book value
At 1 January 2019
At 31 December 2019
710
–
–
–
710
710
–
–
–
710
710
–
–
–
710
–
–
–
710
–
–
3,278
20
4
(932)
2,370
2,370
(79)
58
(5)
2,344
2,997
19
229
(931)
2,314
(77)
36
(4)
2,269
56
75
–
–
633
–
633
–
–
52
–
52
0
581
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
14 PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSET continued
The group enrolled in August 2019 in a 5-year lease contract for the Frankfurt operation, which is due
to finish in July 2024. The right relating to this contract amounts to £581k as at 31 December 2019
and amortises evenly until July 2024.
15 INVESTMENT IN SUBSIDIARIES
Company
At 1 January 2018
Additional investment in the year
Provisions for impairment during the year
At 31 December 2018
At 1 January 2019
Additional investment in the year
Provisions for impairment during the year
At 31 December 2019
Loans to
Cost of shares
in subsidiary
subsidiary
undertakings undertakings
£’000
£’000
–
29
–
29
29
83
–
112
7,941
184
–
8,125
8,125
376
–
8,501
Total
£’000
7,941
213
–
8,154
8,154
459
–
8,613
(i)
(ii)
The increase in the cost of shares in subsidiary undertakings of £83,443 (2018: £28,626) 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 2019 of £376k (2018: £184k) 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 IFRS 9, 1 January 2018, and again at the current year-end. As a consequence of the
improved financial situation of the subsidiaries no further impairment in 2018 and 2019 were
undertaken. 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 £8,613k (1 January 2018: £8,125k).
60 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
16 INVENTORIES
Work-in-progress
Finished goods
17 OTHER CURRENT ASSETS
a) Trade and other receivables
2019
£’000
158
713
871
2018
£’000
287
860
1,147
Group
2019
£’000
Company
2019
£’000
Group
2018
£’000
Company
2018
£’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
R&D tax credit recoverable
Total
358
(24)
334
71
81
–
486
–
–
–
–
–
–
–
186
(8)
179
83
58
–
320
–
–
–
–
–
–
–
At 31 December 2019 the lifetime expected loss provision for trade receivables 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 422 42 – – 22
Loss provision – (4) – – (20)
Total
£’000
486
(24)
As at 31 December 2019 trade receivables of £23,882 (2018: £8,486) were past due and partially
impaired.
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
17 OTHER CURRENT ASSETS continued
There were no trade debts outstanding by the end of the period 2018, which were ultimately not
recovered; the maturity profile of any due debt is presented below.
3 to 9 months
9 to 12 months
> 12 months
b) Cash and cash equivalents
2019
£’000
–
–
22
2018
£’000
57
–
–
Group
2019
£’000
Company
2019
£’000
Group
2018
£’000
Company
2018
£’000
Cash and cash equivalents
799
219
958
496
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
Payables due from group entities
Group
2019
£’000
Company
2019
£’000
Group
2018
£’000
Company
2018
£’000
514
224
–
738
–
–
467
467
372
169
–
541
–
–
321
321
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.
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
18 FINANCIAL LIABILITIES continued
The directors consider that the carrying amount of trade payables approximates to their fair value.
(b) Short term borrowings
Group
2019
£’000
Company
2019
£’000
Group
2018
£’000
Company
2018
£’000
Loans from related parties
10,262
2,331
9,936
2,257
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 inventory. 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 £9,532k (FY18: £9,227k)
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 (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. The Company has received
confirmation from VIM that they will not seek repayment before May 2021. 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 2019 amounts drawn down
were £700k, and interest of £30k 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
Fair
1 January
2019
£,000
Cash
Flow
£,000
in the Foreign
period exchange
£,000
£,000
value 31 December
2019
£,000
change
£,000
–
9,936
633
–
10,569
–
–
(49)
(9)
(58)
–
326
–
9
335
–
–
–
–
–
–
–
–
–
–
–
10.262
584
–
10,846
£Nil lease liabilities included in ‘Trade and other payables’ 2019
Lease was entered into on 1 August 2019, for completeness it is shown in the 1 January 2019 column,
to allow reflection of lease related cash outflows during the year
Long term borrowings
Short term borrowings
Lease Liabilities*
Interest on lease
Total
*
**
64 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
18 FINANCIAL LIABILITIES continued
Company
Note supporting the cash flow statement
1 January
2019
£,000
Cash
Flow
£,000
Interest
accruing
in the
Foreign
period exchange
£,000
£,000
Fair
value 31 December
2019
£,000
change
£,000
Long term borrowings
Short term borrowings
Total
–
2,257
2,257
–
–
–
–
74
74
–
–
–
–
–
–
19 PENSION PROVISIONS
Group
At 1 January
Additional provision in the year
Reduction of provision
At 31 December
Pension
Provisions
£’000
343
60
–
403
2019
Total
£’000
343
60
–
403
–
2,331
2,331
2018
Total
£’000
363
–
(20)
343
(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) Pension arrangements
As a result of the acquisition of Proteome Sciences R&D Verwaltungs GmbH and Proteome
Sciences R&D GmbH & Co KG from Aventis Research & Technologies GmbH & Co KG, the Group
makes contributions in Germany to a funded defined contribution plan and to a funded defined
benefit plan. These plans are operated in their entirety by the Pensionskasse der Mitarbeiter der
Hoechst-Gruppe VVaG (Hoechst Group), an independent German mutual insurance company,
which is required to comply with German insurance company regulations.
The schemes assets are held in multi-employer funds and the other employers who contribute to
the schemes are not members of the Group. The Group has not been able to identify its share
of the underlying assets and liabilities of the defined benefit scheme and accordingly it has also
been accounted for as defined contribution scheme. The Group’s contributions to the scheme
are included within the amount charged to the income statement in respect of pension
contributions.
Funding contributions paid by the Group are based on annual contributions determined by
Hoechst Group, the administrator for the pension plans. For the year ending 31 December 2019,
funding contributions payable by the Group are based on employee contributions at the rate of
1.5 % – 2.5. % (2018:1.5% – 2.5%) of wages and salaries and employer contributions at the rate
of 6 times (2018: 5 times) employee contributions. The Company expects pension costs for 2019
in relation to the defined benefit scheme of £59,596.
The amount charged to the income statement in respect of the contributions to the scheme in
2019 was £144,958 (2018: £36,679).
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
19 PENSION PROVISIONS continued
As at 31 December 2019, an actuarial deficit did not exist for the multi-employer scheme. The Group’s
contributions to the scheme during 2019 represented 0.01% of total contributions to the scheme by
employers and employees (2018: 0.01%). Under the terms of the multi-employer plan, the Group’s
obligations are limited to the original promise/commitment that it has given to its own employees. The
Group does not have an exposure to liability in relation to other third-party employers’ obligations.
The Group does not have any information about how the actuarial status of the plan may affect the
amounts of future contributions to the plan.
The Group also has a direct pension obligation for which it provides in full at the balance sheet date.
This scheme has no separable assets. The Company uses the projected unit credit method to
determine the present value of its unfunded defined benefit obligation. Demographic assumptions
are based on Prof. Klaus Heubeck’s mortality table “Richttafeln 2005 G”, the standard German
actuarial table, with full recognition for fluctuations in mortality rates on account of gender and current
age. Pensionable age has been set at 60.
The Company has applied a discount rate for the year of 1.0% (2018: 2.0%). The Company has
assumed an income increase of 2.5% (2018: 2.5%) and German inflation of 1.75 % (2018: 1.75%).
Provisions for future unfunded pension liabilities at 31st December 2019 amounted to £402,914 (2018:
£343,190). Amounts recognised through the consolidated income statement for the year to 31st
December 2019 included service costs of £11,341 (2018: £21,698), interest costs of £6,431 (2018:
£6,381) and an actuarial loss of £63,180 (2018: actuarial loss of £41,945).
Other pension costs in relation to defined contribution schemes for United Kingdom employees
amounted to £35,759 (2018: £54,875).
20 SHARE CAPITAL
i) Allotted and called-up
Ordinary Shares of 1p each
2019
£’000
2018
£’000
2,952
2,952
The increase in the number of shares in issue in 2019 arose as follows:
As at 1 January 2019
Issued on exercise of LTIP award in April 2018
Issued in previous share placing
Issue of equity
At 31 December 2019
2019
Number
2018
Number
295,182,056 295,182,056
–
–
–
–
–
–
295,182,056 295,182,056
66 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 Official List of the London Stock Exchange.
(ii) 2011 Long-Term Incentive Plan (“LTIP”)
At 31 December 2019, 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
2019
year year year
Vesting
Date
Latest
Exercise
Date
31 December
2018
4,000,000
5,000,000
7,000,000
16,000,000
31 December
2018
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
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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
2019
year year year
Vesting
Date
Latest
Exercise
Date
– – –
– – –
– – –
– – –
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
(iii) 2011 Share Option Plan
At 31 December 2019 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
83,000
48,000
25,000
63,000
219,000
(£)
830.00
480.00
250.00
630.00
2,190.00
Exercise Price
(p)
Vesting Date
Dates
Exercisable
36.50
49.87
36.25
16.75
17.2.15
25.6.16
25.6.17
18.3.19
17.2.15 – 17.2.22
25.6.16 – 25.6.23
25.6.17 – 25.6.24
18.3.19 – 18.3.26
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
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
(£)
Exercise Price
(p)
Vesting Date
Dates
Exercisable
103,000
48,000
50,000
25,000
75,000
63,000
1,030.00
480.00
500.00
250.00
750.00
630.00
364,000 3,640.00
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
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 2019, awards over Nil shares (2018: Nil) 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 20 (iv) above. Awards are
usually forfeited if the employee leaves the Group before the vesting date.
A new Long-Term Incentive Plan was introduced in 2011. A charge to the income statement of
£ 83,443 (2018: £28,626) 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 swill 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%.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
Before awards vest the Remuneration Committee will satisfy itself that the TSR performance is a
genuine reflection of the Company’s underlying performance over the three-year performance period.
Outstanding at 1 January 2018
Granted in the year
Forfeited during the year
Outstanding at 31 December 2018
Granted in the year
Lapsing in the year
Outstanding at 31 December 2019
Exercisable at 31 December 2019
Exercisable at 31 December 2018
Outstanding at 1 January 2018
Granted in the year
Lapsing in the year
Outstanding at 31 December, 2018
Granted in the year
Lapsing in the year
Outstanding at 31 December, 2019
Exercisable at 31 December, 2019
Exercisable at 31 December, 2018
2011 Share Option Plan
Weighted
average
exercise
price (p)
Options
28.46
–
416,000
–
(52,000)
364,000
–
145,000
219,000
194,000
138,000
2011 LTIP
Maximum
Number of
Weighted
average
fair value
Shares per share (p)
–
–
16,000,000
–
–
16,000,000
–
–
–
–
4.25
–
–
4.25
–
–
The options outstanding at 31st December 2019 had a weighted average remaining contractual life
as follows:
2011 Share Option Plan
LTIP
2019
No. of
months
46.8
87.0
2018
No. of
months
64.2
99.0
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
21 SHARE OPTIONS AND SHARE BASED PAYMENTS continued
The inputs into the Black-Scholes model were:
2019
2018
4.9p
Weighted average share price 4.9
Weighted average exercise price 4.9
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 2019
23 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
Operating lease arrangement
The Group leases one office space on short-term operating leases. The Group pays insurance,
maintenance and repairs of these properties.
At the balance sheet date, 31 December 2019, 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
2019
£’000
Company
2019
£’000
26
–
–
26
26
–
–
26
Group
2018
£’000
299
978
143
1,420
Company
2018
£’000
55
–
–
55
*The group has one lease contracts, and pays rent for its London office which renews on a six monthly
basis ending in May 2020 and there is no control over the asset. A five-year lease contract for the
Frankfurt facility, starting in August 2019 and terminating in July 2024 is not shown here, but shown
under lease liabilities on the face of the balance sheet after valuation under IFRS16 as described in
note 3 creating a lease liability of £584k. In 2018 lease commitments were significantly higher than
2019 because the lease for the Frankfurt facility was previously classified as an operating lease but
is now shown on the face of the balance sheet.
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 2019
for the year ended 31 December 2017
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
(cid:129)
Leases Liability
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*
Lease liabilities
Total financial liabilities
Group
2019
£’000
Company
2019
£’000
Group
2018
£’000
Company
2018
£’000
799
486
–
1,285
(764)
(10,262)
(584)
219
–
8,613
8,832
958
262
–
1,220
496
–
8,154
8,650
(2,330)
(541)
(9,936)
–
(2,257)
(11,610)
(2,330)
(10,477)
(2,257)
The described financial instruments are measured applying the following methodologies:
* measured at amortised costs through the consolidated income statement
** excludes accruals of £1,331k.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 £1,817k (2018: trade receivables and contract assets £514k). A minor
provision for impairment was recognised for FY 2019/£23,882(FY 2018: 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 £1,143,558.
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. Nevertheless, the economic challenges created
by the COVID-19 pandemic might result in a strain on the liquidity of the individual banking
institutions. As such the company closely the development in the financial markets. As a consequence
a more even allocation of funds between the different banks might be adopted and we will consider
reallocation of funds to better rated institutions in case of larger changes in credit rating by more
than one of the big credit rating agencies (Moody’s, S&P, Fitch). Due to fluctuating cash flows we
inevitably need to hold a larger amount of cash deposits to fund the operational business
requirements and only limited risk mitigation is possible here.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
24 FINANCIAL INSTRUMENTS continued
Barclays plc
Commerzbank AG
Other
Group
2019
£’000
Company
2019
£’000
Group
2018
£’000
Company
2018
£’000
603
181
15
799
219
–
–
219
857
84
17
958
496
–
–
496
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 £8.01m. At 31 December 2019, the carrying value of loans owed by
Electrophoretics Limited to the Company was £0.17m (2018: £Nil), of loans owed by Proteome
Sciences R&D GmbH & Co. KG to the Company was £8.6 m (2018: £8.15m). 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 2019 would have increased by £50,255 (2018: £49,670), 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.
74 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
24 FINANCIAL INSTRUMENTS continued
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.
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. Payments
relating to lease liabilities under IFRS16 are shown under note 26.
Up to 3
months
As at December 2019 £’000
Trade and other payables 764
Loans and borrowings 10,262
Short-term lease 16
Total 11,042
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
Over
5 years
£’000
–
–
10
10
–
–
–
–
–
–
–
–
–
–
–
–
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
24 FINANCIAL INSTRUMENTS continued
Liquidity risk management
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
–
–
–
–
–
–
–
–
–
Over
5 years
£’000
–
–
–
There are pension provisions existing for the German entity of the Group, which amounted at
31 December 2019 to £0.40m (2018: £0.34m), which do not result in future Cash outflows from the
Group.
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
392
184
–
576
576
376
952
Total
£’000
7,941
184
–
8,125
8,125
376
8,501
At 1 January 2018
Additional investment in the year
Provision for impairment
At 31 December, 2018
At 1 January 2019
Additional investment in the year
At 31 December, 2019
2) Loan from subsidiary undertaking:
At 1 January, 2018
Exchange adjustment
At 31 December, 2018
At 1 January, 2019
Bank account reallocation*
Exchange adjustment
At 31 December, 2019
Proteome
Sciences R&D
£’000
7,549
–
–
7,549
7,549
–
7,549
318
3
321
321
165
(19)
467
*
A US$ account has been reallocated from Electrophoretics Limited to Proteome Sciences plc
Further details of the Company’s shares in and loans to its subsidiary undertakings are set out in
note15.
76 Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 65.
c) M Diggle, a Director of the Company, a Director of Vulpes Investment Management (VIM) which
manages the Vulpes Life Science Fund which holds 22% of Proteome Sciences 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 65.
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 2019 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
National Insurance Contributions
Other long-term benefits
Defined benefit scheme costs
Share based payment expense
Consultancy fee
2019
£’000
620
75
83
–
–
70
848
2018
£’000
634
94
28
–
–
70
826
The amounts charged to the income statement relating to Directors in respect of the share-based
payment charge were as follows:
2019
£’000
–
2018
£’000
–
Proteome Sciences plc
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
for the year ended 31 December 2017
26 LEASES
In the case of the Group there is only one lease recognised under IFRS 16 for the period of 2019,
which has been accounted under IFRS 16 without restatement of comparative figures applying the
modified retrospective approach. This comprises the lease for the Frankfurt operation of the Group,
which started in August 2019 and ends after 5 years at the end of July 2024.
The lease liability on the balance sheet at its initial recognition amounted to £633k. Over the lease
term, lease interest of £63k will accrue resulting in a total liability of £696k. As it is a rental lease the
resulting right-of-use asset is classified as land and buildings. It does not contain variable elements
or break out options. Similarly, there are no special restoration clauses attached, there are no
restrictions or covenants in place and it is no sale and lease back transaction.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over
the term of the lease term, with the discount rate determined by reference to the Groups internal rate
of return, as there is no inherent rate to the lease readily determinable. The Groups internal rate of
return (ICR) which is the average Barclays interbank rate for the year + 0.75% (currently 3.25%)
reflects the refinancing rate agreed for the loans made available by its major shareholders, which
are its main source of external finance and reflects the Groups incremental borrowing rate.
Additionally a right-of-use asset is recognised by initially being measured at the amount of the lease
liability, reduced for any leases incentives received, and increased for lease payment made before
or at commencement of the lease, indirect costs incurred or any contractual obligation for restoration
of the leased asset. The right of use asset is depreciated straight line over the lease term and an
interest charge on the outstanding lease liability amount using the ICR is recognised as well and
being both reflected in the EBIDAT for the term of the lease. This results in slightly higher costs at the
beginning of the lease and lower costs at the end of the lease in comparison to the actual lease
payments. Recognition of the amount of the liability neutralises the effect on net assets.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a
constant rate on the balance outstanding and are reduced for lease payments made, Right-of-use
assets are amortised on a straight-line basis over the remaining term of the lease. Interest on lease
liability of £584k considered under IFRS 16 for the period amounted to £9k for the 2019.
The Group discloses amounts in compliance with IFRS 16:53 (a),(b),(g),(h) and (j) in a reconciliation
of both right-of-use assets and lease liabilities rather than as stand-alone amounts in the tables
below. This is considered more appropriate as it facilitates a clearer picture of what has given rise to
changes in the carrying amounts of these items.
Right-of-use asset
At January 2019
Additions
Amortisation
Foreign exchange movements
At 31 December 2019
78 Proteome Sciences plc
Land and
buildings
£’000
–
633
(52)
–
581
Total
£’000
–
633
(52)
–
581
258511 Proteome p62-end.qxp 14/04/2020 19:52 Page 79
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2019
26 LEASES continued
Interest on lease liability considered under IFRS 16 for the period amounted to £9k. This results in
slightly higher costs at the beginning of the lease and lower costs at the end of the lease in
comparison to the actual lease payments.
Lease liability
At January 2019
Addition
Interest accruing for the year
Interest expense
Lease payments
Foreign exchange movements
At 31 December 2019
Land and
buildings
£’000
–
633
9
(9)
(49)
–
584
Total
£’000
–
633
9
(9)
(49)
–
584
Information of the right-of-use asset and its amortisation are represented in note 14b as well.
The lease of the London office, which amounts to a total liability of £26k, is a short-term lease ending
in May 2020 and renews on a 6 month basis is not considered under IFRS 16 and is excluded from
the presentation below.
Maturity analysis of undiscounted lease payments
Up to 3
months
As at December 2019 £’000
Between
3 and 12
months
£’000
Between
1 and 2
years
£’000
Between
2 and 5
years
£’000
Over
5 years
£’000
Lease liabilities 34
105
139
360
-
27 EVENTS AFTER THE BALANCE SHEET DATE
Coronavirus (COVID-19) Pande mic
The rapid emergence of the coronavirus pandemic has caused significant disruption to many
manufacturing and retail businesses where the implementation of social distancing measures is not
practical or deemed ineffective. In many countries pharmaceutical research and development has
been protected from more general restrictions on worker travel and we expect this to remain to be
the case throughout the pandemic. However, there is a risk that we will be forced to suspend
operations in our laboratory in Frankfurt, or that our clients cannot source and ship samples for
analysis, leading to delay in completion of projects. We have also seen a number of international and
national trade shows and exhibitions be postponed or move to a virtual format. This has the potential
to impact our business development activities. The coronavirus pandemic wasn’t a condition in
existence at the year-end date therefore, it is being regarded as a non-adjusting subsequent event.
Proteome Sciences plc
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Proteome Sciences plc
Registered number: 02879724
Report and Financial Statements
for the year ended 31 December 2019