Tissue Regenix Group plc Annual Report and Financials for year ended 31 December 2018Annual Report and Accounts for year ended 31 December 2018Stock Code: TRXTissue Regenix AR 2018.indd 331/05/2019 17:37:11 Who we are
TISSUE REGENIX GROUP is a pioneering,
international medical technology
company, focusing on the development of
regenerative products utilising our two
platform technologies, dCELL®, addressing
soft tissue needs, and BioRinse™, providing
inductive bone allografts.
We are helping to transform the treatment
of patients in three key areas: BioSurgery,
Orthopaedics (sports medicine/ spine)
and Dental, with an active development
programme in the Cardiac field.
OUR VISION
To establish Tissue Regenix Group as a leader in the science and innovation of
regenerative medicine. Transforming patient care and delivering favourable health
economic outcomes.
INVESTMENT CASE
OUR VALUES
Two novel regenerative medicine
platforms for the treatment of soft
tissues and bone
Dedication to Patients
International manufacturing capabilities
Expansive distribution opportunities
Passion for Innovation
Multiple commercialisation
opportunities – innovative product
portfolio and pipeline
Driving for Excellence
Tissue processing science and
development expertise
Uncompromising Integrity
Differentiated clinical outcomes
Read more about our Sustainability
on pages 28 and 29
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26460 31 May 2019 5:35 pm Proof 6Group sales increased to £11.6m (2017: £5.2m) +47% pro forma, driven by; –DermaPure® sales grew by 75% on a reported basis, to £3.4m (2017: £1.9m) –CellRight contribution of £6.4m via Orthopaedics & Dental, +31% on a pro forma basis –Increased sales from GBM-V by 62% to £1.8m (2017: £1.1m)Significantly reduced Group LBIT for the period £8.7m (2017: £10.8m)Strategic partnerships signed –Arthrex BioRinse OEM US distribution agreement –Arthrex EU distribution agreement –ARMS medical DermaPure distribution agreement –A number of further strategic opportunities identifiedHTA Licence –Granted for the import of BioRinse™ products into the UK, and over time, as a gateway to EuropeIntegration activities –In-house manufacturing of DermaPure® commenced ahead of schedule –Global employee engagement programme launched – “Verto”DermaPure® positioning –GPO agreements signed- Premier three year extension –Premier Supplier Horizon Award –Commercial “Accelerator” programme established – “Narrow & Deep”Clinical data programmes –OrthoPure XT two year clinical data submitted to the regulatory body for CE mark approval –DermaPure® clinical trial for urogynaecology in partnership with ARMS medical –Protocol for 100 patient prospective observational clinical trial for DermaPure® in orthopaedic traumaR&D, Product pipeline –Ongoing discussions with significant R&D partners, initial projects chartered –SurgiPure XD commercial manufacturing commenced at Leeds facility –Launch pathway for OrthoPure XT establishedGovernance –QCA Corporate Governance Code implemented –FDA audit Q1 2019 completed –American Association of Tissue Banks audit Q1 2019OverviewWho we are IFCDirectors and Officers IBCHighlights 01Chairman’s statement 02Global operations infrastructure 03At a glance 04Q&A with CEO 06Strategic reportOur markets 08Our divisions 09Business model 10Our strategic growth drivers 12Future milestones: strategy in action 14Case Studies 15Key performance indicators 16Business review 18Financial overview 23Risk 25Sustainability 28GovernanceProfile of the current Directors 30Governance Framework 32Directors’ Remuneration Report 36Directors’ Report 39Statement of Directors’ Responsibilities 41FinancialsIndependent Auditor’s Report 42Consolidated Statement of Comprehensive Income 46Consolidated Statement of Financial Position 47Consolidated Statement of Changes in Equity 48Consolidated Statement of Cash Flows 49Notes to the Financial Statements 50Company Statement of Changes in Equity 66Company Statement of Financial Position 67Company Statement of Cash Flows 68Notes to the Company Financial Statements 69Notice of Annual General Meeting 73Annual Report and Accounts for the year ended 31 December 201801OVERVIEWHighlightsTissue Regenix AR 2018.indd 131/05/2019 17:37:14 26460 31 May 2019 5:35 pm Proof 6JOHN SAMUEL Chairman“ We remain focused on delivering positive, sustainable growth across all divisions of the business. Our strategic realignment has been successful and having integrated CellRight Technologies into the Group, we have achieved considerable commercial and operational progress. We are well positioned to capitalise on these achievements, as well as bring new products to the market throughout the year.”INTRODUCTION2018 was a successful and transformative year. Following the repositioning of the DermaPure® product range we are starting to generate real commercial traction with our dCELL® technology as the market recognises the benefits these products can offer both patients and the wider healthcare sector. Following the acquisition of CellRight Technologies Inc in late 2017 our strategic approach has enabled us to integrate this business effectively and realise the synergistic benefits the BioRinse™ Technology can offer. Our StrategyFollowing the successful integration of the businesses throughout 2018 we saw benefits materialise through commercial catalysts such as the Arthrex US, and laterally the UK distribution agreements, the ARMS medical distribution agreement and further GPO approvals. This year we expect that these milestones will act as the foundations for us to drive momentum and deliver top line revenue growth. Read more about our strategy on pages 12-13. Financial PerformanceWe finished the year in line with Board expectations, posting sales that have grown by 47% pro forma year-on-year across the three operating divisions. We achieved a strong cash position of £7.8m, due to efficient management of working capital provisions and an improved LBIT of £8.7m. The BoardIn December we announced that Steve Couldwell, CEO would be taking a leave of absence during Q1 for health reasons. I would like to thank Gareth Jones who joined the Company in Q4 and has stepped into the COO role on an interim basis. Steve continues to be central to our activities and I expect a full return shortly. Read more about our Board on pages 30-31.Corporate GovernanceThere were many changes implemented throughout 2018 with regard to the Corporate Governance framework, most notably, in September 2018, the changes to the AIM Rules for Companies. The Board have implemented the Quoted Companies Alliance Corporate Governance Code. Read more about our Corporate Governance within the Governance report on pages 32-41.Our People Through the continued hard work and commitment of our employees we have delivered a transformational year of growth and progress and I would like to extend my thanks to all involved. Jesus Hernandez, CEO of CellRight Technologies retired as planned in April 2019. He played a fundamental role in guiding the businesses through the integration process and we wish him well in his future endeavoursWe have appointed Daniel Lee who has nearly 30 years of experience within the industry to the position of President of US Operations, and since joining in Q1 2019 has already implemented operational efficiencies within the San Antonio facility. I would also like to take this opportunity to acknowledge the achievements that have been made since Steve Couldwell was appointed CEO. Steve has led the refinement of the commercial strategy, as well as alignment of the businesses following the acquisition, and the internal employee engagement initiatives.TISSUE REGENIX GROUP PLC 02Chairman’s statementTissue Regenix AR 2018.indd 231/05/2019 17:37:17 26460 31 May 2019 5:35 pm Proof 62018 Key Milestones February 2018 – TRX BioSurgery rebrand, launched and exclusive distribution agreement with ARMS medical for DermaPure®March 2018 – Delivered US Arthrex agreement for BioRinse™ Products under on brand ‘Allosync’April 2018 – DermaPure® manufacturing transferred into CellRight facility ahead of scheduleMay 2018 – TRX BioSurgery awarded GPO agreement with Premier, Inc.June 2018 – Awarded supplier horizon award by GPO, Vizient, Inc. for TRX BioSurgeryJune 2018 – Human Tissue Authority license granted for the importation of human tissue products from the US to the UK facilityJune 2018 – Employee engagement programme ‘Verto’ launchedSeptember 2018 – Interim Results announced +61% pro forma top line growthOctober 2018 – Gareth Jones commences position as Chief Financial OfficerNovember 2018 – Pan European distribution agreement signed with Arthrex, Inc. for the BioRinse™ portfolioDecember 2018 – DermaPure® clinical case series results publishedGLOBAL OPERATIONS INFRASTRUCTUREPlatform for international expansionCELLRIGHT TECHNOLOGIES SAN ANTONIO, TEXASHuman Tissue USTransition dCELL® production to CellRight, TexasGBM-V ROSTOCK, GERMANY Human Tissue EUManufactured at GBM-V in Rostock, GermanyTISSUE REGENIX LEEDS, UK Porcine TissueManufactured in-house in Leeds, UKHis experience and hard-work has been invaluable and plays a fundamental part in the results that we can now report. As a Board, we also understand that this progress would not be possible without the dedication and motivation of our employees and the responsibility that we hold to ensure that their development and training allows us, as a business, to stay at the forefront of regenerative medicine developments. Alongside this, we seek to establish a supportive and innovative working environment allowing for professional development. It is our responsibility to ensure that the Company is supported by the correct calibre of people and talent to secure its ongoing success. Post balance sheet event On 3 June 2019, the Group entered into a new loan facility providing a total of $20m. $10.5m is available for immediate drawdown with the remaining $9.5m available subject to the satisfaction of certain conditions at a later date. We believe that this provides the funding required to continue the growth and expansion of the business in line with expectations. It will provide the opportunity to expand our manufacturing capacity in order to sustain future business growth, build our clinical and health economic real world data to support brand differentiation, as well as supporting the continued working capital expenditure as we move towards self-sustainability in the near future. OutlookWe have successfully delivered a strong financial performance while building solid commercial foundations. With opportunities in additional geographic territories, and additional product launches in the pipeline, we believe that we can deliver continued growth in 2019 and beyond. We have grown the business in line with our expectations and projections and the Board and I remain confident that, with a revised focus on the development of strategic partnerships, we can achieve sustainable profitability and enhance shareholder returns. The Board remains confident in the performance of the business and the commercial expectations for 2019.John SamuelChairman Read more about our Sustainability on pages 28 and 29.OVERVIEW03Annual Report and Accounts for the year ended 31 December 2018Tissue Regenix AR 2018.indd 331/05/2019 17:37:21 26460 31 May 2019 5:35 pm Proof 619982018Signed distribution agreement with Arthrex, Inc.Research begins into dCELL® technology at the University of LeedsMedicare ‘Q’ Code granted for outpatient reimbursement2015Tissue Regenix Wound Care, Inc established in San Antonio, TX20122018Transfer of DermaPure manufacturing inhouse2018Arthrex EU distribution announcement2018DermaPure breaks through $1m sales mark2016Commercial launch of Dermapure in the US20141998Spun out of the University of LeedsExchange200620102017Acquisition ofCellRightTechnologiesListed on the London Stock ExchangeDermaPure available under the FSS and Premier andVizient GPOs 2017Signed distribution agreement with ARMS Medical for DermaPureLaunch of DentalFix20182018HTA licence approval2018INNOVATIVE PLATFORM TECHNOLOGIESAddressing clinical needs through complementary soft tissue and bone platformsBioRinse™ Technology - Natural bone filler solutions verified to be osteoinductive to stimulate and regenerate native bone growth. Differentiated Characteristics: –Maintaining the five key natural bone growth factors and Bone Morphogenic Proteins that promote active regeneration –Contains 100% allograft bone, proven to produce better clinical outcomes –Verified to be osteoinductive –Ability to deliver malleable bone collagen scaffolds in various physical forms to meet clinical needs.dCELL® Technology - Gentle soft tissue decellularisation process, removes DNA and cellular material to reduce risk of rejection.Differentiated Characteristics: –Maintaining the natural acellular scaffold of the tissue structure to allow for cellular proliferation –Supports regeneration of native tissue –Can be applied to both human or animal tissue sources –Favourable health economic benefits due to reduced operation time, reduction in rehab activities, no anti coagulant drugs and stored at room temperature. Through our platform technologies, Tissue Regenix are focused on the development of regenerative medicine products, in three key clinical areas; BioSurgery, Orthopaedics and Dental with an active development programme in the Cardiac field.TISSUE REGENIX GROUP PLC 04At a glanceTissue Regenix AR 2018.indd 431/05/2019 17:37:32 26460 31 May 2019 5:35 pm Proof 619982018Signed distribution agreement with Arthrex, Inc.Research begins into dCELL® technology at the University of LeedsMedicare ‘Q’ Code granted for outpatient reimbursement2015Tissue Regenix Wound Care, Inc established in San Antonio, TX20122018Transfer of DermaPure manufacturing inhouse2018Arthrex EU distribution announcement2018DermaPure breaks through $1m sales mark2016Commercial launch of Dermapure in the US20141998Spun out of the University of LeedsExchange200620102017Acquisition ofCellRightTechnologiesListed on the London Stock ExchangeDermaPure available under the FSS and Premier andVizient GPOs 2017Signed distribution agreement with ARMS Medical for DermaPureLaunch of DentalFix20182018HTA licence approval2018Two Innovative technology platformsThree Key clinical focus areasFour strategic growth driversAccelerate US market penetrationBroaden strategic partnershipsExploit global market potentialStrengthen portfolio Read more about our Strategic Objectives pages 12-13.TISSUE REGENIX GROUPFocused on four strategic drivers of growthAnnual Report and Accounts for the year ended 31 December 201805OVERVIEWTissue Regenix AR 2018.indd 531/05/2019 17:37:33 26460 31 May 2019 5:35 pm Proof 6This completes your first full year as CEO of the Company. What were your first impressions and what do you see as the greatest achievements throughout this time?When I became CEO I came from a unique position of having been a Non- Executive Director for five years. This meant that I had a good understanding of the business, the commercial opportunities and the potential of the technology platforms.My first impressions of the business were very positive. We have a committed and hardworking team of people, differentiated technology platforms and vast market potential.Throughout the last year all divisions of the business have achieved solid progression. We set ourselves a number of commercial and operational milestones in Q1 2018 and were successful in hitting all as we progressed through the year. For me, the significant inflection points were the announcement of the Arthrex US distribution agreement, where three of the BioRinse™ products were taken under Arthrex’s own brand “AlloSync”, a significant third-party validation of the technology. The HTA licence granted to the UK facility in June allows us to import our BioRinse™ portfolio into the UK and Continental Europe. This development also led to a further agreement with Arthrex for the distribution of products in the European markets. In addition, we repositioned DermaPure® for use in surgical indications and have achieved significant penetration in this area, both with the exclusive distribution agreement with ARMS medical for use in uro-gynaecology procedures and conversion of use in many of the large hospital groups such as the Cleveland Clinic, Mount Sinai and the Mayo Clinic; all of which provide strong foundations from which to grow. How would you describe the Group’s financial performance? I believe that 2018 has been the most commercially progressive year for the Company; it is also the first full year of the Group encompassing the CellRight business. Delivering top line revenue of £11.6m shows the demand for the product portfolio, and the stability of the Group, delivering year-on-year growth of 47% pro forma, while also undertaking the integration activities.Of particular note I feel, is the performance of DermaPure® realising an increase of 75% to £3.4m on a reported basis, testament to the repositioning of the product into surgical indications. Outside of this, the strategic partnerships signed have aided 31% growth in the Orthopaedics & Dental areas, where the BioRinse™ portfolio is utilised. GBM-V, our joint venture in Germany, has increased their output of corneal products which has led to revenue growing to £1.8m, also bringing them closer to a self-sufficient position.In addition to increasing revenues we have implemented several initiatives to reduce our working capital expenditure and end the year with a strong cash position of £7.8m. We exited 2018 with a positive momentum and in 2019 we expect to deliver a year of further significant growth, moving towards our goal of achieving cash break-even and delivering sustainable profitability in the years to come. The trading for 2019 remains inline with Board expectations. What do you view as the Company’s key strengths? We have many strengths as a growing company. We listed on AIM as a development company in 2010 and have now launched products as we begin our commercial journey. We are well positioned with a strong portfolio of differentiated products, which offer many operational, clinical and commercial synergies. With manufacturing facilities in the US, UK and Germany, we are well placed geographically to target these key markets and have a good understanding of the regulatory framework required for each.As with any company, our main strengths lie with the calibre and commitment of our people. We are fortunate to have a blend of respected academic advisers and experienced commercial and operational staff across our organisation. In June 2018 we commenced a Company-wide vision and culture programme, ‘Verto’ which engaged with every employee across the Group and aligned our vision, mission and values, updated our internal communications infrastructure and developed an engagement platform for employees to utilise in order for them to influence the working culture of the business moving forward. STEVE COULDWELL Chief Executive OfficerTISSUE REGENIX GROUP PLC 06Q&A with CEO Steve CouldwellTissue Regenix AR 2018.indd 631/05/2019 17:37:36 26460 31 May 2019 5:35 pm Proof 6What are the greatest market opportunities and challenges for the Group?The market opportunity is vast, that said, in a diverse industry we need to retain our focus on key markets and clinical application areas identified in order to deliver growth in line with our expectations. We believe our greatest opportunity lies within the osteobiologics market where we believe we have the potential to build a $200m business with our current IP, product portfolio and commercial strategy in conjunction with our strategic partners such as Arthrex. In the near term, a part of this will be within the sports medicine market with the imminent launch of OrthoPure XT in the EU. This will offer physicians an alternative to the current gold standard care, harvesting an autograft from the patient’s own muscles or tendons, therefore reducing operation time and potentially leading to enhanced rehabilitation. You have spoken about an “evolution of strategy”. Could you explain a little more about what this entails? Yes, as the organisation develops we will refine our market opportunity, product positioning and physician conversion. With DermaPure® we were initially focused on chronic and acute wound care, allowing us to build a roster of clinical case studies in the outpatient setting, and establish 100% Medicare coverage. This in turn supported the clinical validation of the product as it evolved to uses in the surgical suite, with both Vizient and Premier, the two largest GPOs in the US granting DermaPure® innovative technology status. This success led us to migrate our commercial focus towards hospital-based “in theatre surgical applications”. As the clinical benefits of the product were showcased, further clinical opportunities were presented such as uro-gynaecology applications. With a small direct sales force, the importance of partnerships, such as the agreement with ARMS medical for DermaPure® distribution into the urogyn market, becomes more apparent in order to build scale. This allows our direct sales force to remain focused on hospital conversions and adopting a “narrow and deep” philosophy with the aim to convert each relevant physician to the use of DermaPure® within our targeted institutions. Historically, CellRight had pursued a distributor-focused model however, with the OEM Arthrex agreement in the US and subsequent distribution agreement for the BioRinse™ portfolio in the UK, the importance of strategic partnerships is apparent. From a commercial perspective this significantly enhances our sales efforts in current markets due to the increased sales representative footprint, but also allows for the expansion into new geographic territories. With our experience in product R&D we can also look to further these partnerships by pursuing joint IP and development opportunities to leverage each party’s expertise to increase our competitive advantage. To this end we realigned our strategic focus and identified four key pillars to our success: to accelerate our US market penetration, exploit the global market potential, broaden our strategic partnerships and strengthen our portfolio. Read more about our strategic growth drivers on page 12.. What do you see as the main inflection points for the year ahead?2018 was an excellent year for us in terms of establishing a strong commercial, operational and financial foundation. We now need to “kick on” in 2019 and capitalise on the opportunities we have identified and established.We look forward to the launch of OrthoPure XT into the European market. As with any medical device launch, we expect surgeon conversion to be a gradual process with the real top line revenues from this product becoming apparent in FY2020. This year’s focus will be to establish “adopters” of the product who will help us drive usage and develop clinical case studies with which we can further expand clinical acceptance. In November 2018 we announced an extension to our Arthrex partnership to distribute the BioRinse™ portfolio into the EU market. This a significant milestone in our strategy of building our strategic partnerships and entering new territories, and we expect to see an uptick from this agreement in our top line towards the end of 2019. With additional market opportunities for product line extensions I would expect to see developments in this area, which should be relatively quick to bring to market and expand our opportunities into new clinical settings. Looking into the future, having transferred the manufacturing of DermaPure® in to the CellRight facility we are careful to ensure that manufacturing capacity does not become a constraint on our commercialisation programme and plans are underway to scope out the requirements for additional manufacturing facilities. How do you view success? Success for me comes in many forms. Clearly, there is the need and expectation to deliver financially and create a value adding investment for our supportive shareholders. However, in order to do so, we need to establish and maintain the appropriate commercial foundations and have an engaged and committed workforce. Therefore, outside of our financial achievements I feel it necessary to track ourselves against a number of non-financial KPIs in order to establish a sustainable and integrated business. We must also keep at the forefront of our minds the patients that we serve, and the positive impact our products can have on their standard of life. The ultimate success to me will be delivering this positive impact to patients on a global scale. . Read more about our KPIs on page 16.Annual Report and Accounts for the year ended 31 December 201807OVERVIEWTissue Regenix AR 2018.indd 731/05/2019 17:37:38 Our markets
Regenerative medicine
Regenerative medicine is an innovative and expanding field, researching the potential
of tissue engineering to offer a natural recovery by triggering a response through the
body’s own cells, and enable the natural regeneration of the patient’s own tissues.
With the demand for less invasive, longer lasting treatment modalities,
regenerative medicine is an increasingly important approach as it
removes the need for synthetic (plastic or metal) replacements, and
reduces the risk of rejection, while offering the potential for less time-
consuming and more cost-effective treatments, that can ultimately
deliver superior clinical outcomes.
Tissue Regenix patented dCELL® Technology and proprietary
BioRinse™ technology platforms are ideally suited to meet the ever
growing unmet clinical need as a result of the opportunities presented
by increasing demographic demands and health economic pressures
for regenerative solutions.
What is regenerative medicine?
Regenerative medicine is an interdisciplinary field which focuses on
providing safe and reliable ways to repair, restore, or replace damaged
tissues or organs. The two main components of regenerative medicine
are stem cell therapy and tissue engineering.
The benefits of regenerative medicine
With the average age of the world’s population drastically increasing,
there are pressures on the healthcare system to support patients’
desire to be active for longer. This puts a huge economic strain
on healthcare providers who, due to the lifespan of many current
treatments, are having to perform operations and procedures multiple
times on patients in order to give them the mobility they seek.
Regenerative medicine has the ability to alleviate some of this
economic pressure as it can provide patients with longer lasting
solutions, reducing the need for immunosuppressant drugs,
examinations and multiple operations.
The physical and psychological benefits to patients are significant.
With the potential to return to the desired standard of life with a reduction
in physical pain and the need to continue to live with repeated follow up
appointments, which can lead to stress, anxiety and a lack of confidence
in physical ability.
These innovations in regenerative medicine can also benefit wider
society with the potential to address a variety of incurable diseases,
address the problem of organ shortage and ease economic pressures
by reducing treatment costs.
What does the future of regenerative
medicine look like?
According to Sharlini Sankaran, PhD, executive director of Duke’s
Regeneration Next Initiative, “One day, patients will have access to
regenerative medicine treatments that will circumvent the complications
of organ donation. We will be able to use our bodies’ own innate repair
mechanisms to eliminate the wait time, cost, and limited supply of
organ transplantation. Instead of transplanting organs, we will know
how to repair our own.” And this is just one of the exciting possibilities
that could come out of developments in regenerative medicine.
“ We’re entering a new era. More and more
we are going to see regenerative medicine
use cellular and molecular tools to treat
devastating diseases with no current therapy.”
– Dr Michael Rudnicki, Director, Regenerative
Medicine Program and Sprott Centre for Stem Cell
Research at The Ottawa Hospital Foundation
(https://ohfoundation.ca/regenerative-medicine-and-stem-cell-research/)
Market Opportunities
SECTOR
SIZE $
GROWTH %
COMPETITION
“ The global regenerative
medicine market was
valued at $5.444Bn in
2016, and is estimated
to reach $39.325Bn
by 2023, registering a
CAGR of 32.2% from
2017 to 2023.”
(https://www.alliedmarketresearch.com/
regenerative-medicines-market)
1. iDATA Research Inc – US Market Report Suite
for Soft Tissue Reinforcement and Regeneration,
Page 181
2. iDATA Research Inc – US Market Report Suite
for Soft Tissue Reinforcement and Regeneration,
Page 181
3. Orthoworld Annual Report 2017
4. Orthoworld Annual Report 2017
5. iDATA – Awaiting source
6. iDATA – Awaiting source
08
Soft Tissue
3bn1
^7.7%2
Orthopaedics
5.1bn3
^3.1%4
Dental
0.4bn5
^10+6
Integra,
LifeNet,
LifeCell
DePuy,
Precision,
Medtronic, RTI
Geistlich,
BioHorizons,
Zimmer Biomet
TISSUE REGENIX GROUP PLC
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26460 31 May 2019 5:35 pm Proof 675%62%BIOSURGERYRepair and replacement of soft tissue - dCELL®Route to market |Direct sales representatives |Local distributors |Partners – ARMS Medical |Scientific positioning with clinical affairs representatives |“Narrow and Deep” – sales philosophy, engage an ‘internal disciple’ in key institutions with a focus on orthopaedic trauma surgeons. Growth drivers |Focus on large volume accounts |2018 growth +75% on a reported basis |Expand partners for specific fields of use and OEM opportunities in; wound clinics, hernia, plastics |New product development related to market opportunities |Expand Group Purchasing Organisation coverage and distributor network. ORTHOPAEDICS & DENTAL Repair and augmentation of bone and soft tissue – BioRinse™ & dCELL® Route to market |Strategic Partners – Arthrex, Inc. |Brand and OEM label opportunities – supplier for the Arthrex brand “AlloSync” |Local distributors Growth drivers |Organic growth potential |Launch of OrthoPure XT in the EU |Expand commercial scale – three additional Regional Sales Directors appointed 1.1.19 |New distribution partners |Expand portfolio penetration in existing accounts, with additional product potential; AmnioWorks, DermaPure® and SurgiPure XD.GBM-V & CARDIACMulti-tissue bank facility, working on pulmonary and aortic heart valve regulatory approvalsRoute to market |Currently distributing corneas directly to dedicated, targeted hospitals through a network of pioneering Key Opinion Leaders.Growth drivers |Future regulatory clearance and launch of CardioPure products in Germany |Potential decellularisation of additional tissues; vessels; tendons; amnion.The Group comprises of key operating divisions allowing each to have the optimal strategy, management and access to relevant Key Opinion Leaders. This also allows us to internally monitor return on investments, and report against each division financially. 75%increase year on year sales£6.4m2018revenue62%increase year on year sales Annual Report and Accounts for the year ended 31 December 201809STRATEGIC REPORTOur divisionsTissue Regenix AR 2018.indd 931/05/2019 17:37:51 26460 31 May 2019 5:35 pm Proof 6OUR KEY RESOURCESOUR OFFERINGNatural bone filler solutions guaranteed to be osteoinductive to stimulate and regenerate native bone growth.This process could provide better patient outcomes as it contains 100% allograft bone, maintaining the five key natural bone growth factors and is able to deliver these properties through malleable bone collagen in various physical forms.BioRinse™ TechnologyGentle soft tissue decellularisation process, removing DNA and cellular material to reduce risk of rejection.The dCELL® process involves the creation of biological scaffolds which are essentially inert. By removing DNA and cellular material from biological tissues, the patient’s cells can repopulate and colonise, creating new, like-for-like tissue, which is recognised and accepted by the body, significantly reducing the risk of rejection, and stimulating a natural healing process.dCELL® Technology PeopleOur people are key to our continued growth due to their experience, qualifications and commitment.IPProvides protection for the technologies at the heart of our business, a fundamental resource for our growth.Working capital Supports the product development pipeline and enables us to make investments that support our future growth.Manufacturing capabilitiesFundamental in ensuring the production and development of our products on a global scale.Strategic partnershipsAllowing faster market penetration, physician conversion and delivering revenue growth.Licensing and distribution agreementsEnsuring we can serve the market potential.In order to continue to create value for our stakeholders, we invest in the Group’s operations. For example, we develop our people and our IP, as well as furthering our manufacturing capabilities.In order to continue to create value for our stakeholders, we invest in the Group’s key resources. For example, we develop our people and our IP, as well as furthering our manufacturing capabilities.Our business model ensures that our growing portfolio of soft tissue and bone products are delivered to healthcare professionals and patients through a hybrid sales model of both direct sales reps and through selected distribution partners.TISSUE REGENIX GROUP PLC 10Business modelTissue Regenix AR 2018.indd 1031/05/2019 17:37:56 26460 31 May 2019 5:35 pm Proof 6 Read more about our Stakeholders on pages 28 and 29OUR KEY ACTIVITIESOUR COMPETITIVE ADVANTAGEWE CREATE VALUE FOR OUR STAKEHOLDERSCommercialisationCurrently a portfolio of 12 product lines on the market which we intend to expand into further territories and have a plan for new product line developments.01R&DEnsure that we have an innovative product pipeline, maintain product differentiation, optimise our margins and have a competitive market offering.02Distribution and licensingBuilding a network of key distributors and evaluating licensing opportunities for new geographic territories.03Distributor Network We are able to leverage cross-selling opportunities through our expansive distributor network and industry relationships.Team Our experienced management team, well qualified and trained employees, and knowledgeable Board ensure we have the capabilities to deliver future growth.R&D We have an innovative product pipeline with multiple opportunities to develop the commercialisation of our platform technologies.Products Performance of our products in the clinical environment provides us with a competitive advantage over competitors. Manufacturing We have international manufacturing capabilities and an expanded geographic presence due to the CellRight acquisition.EmployeesWe provide training and development opportunities, promote a positive professional culture, and support a healthy lifestyle balance.ShareholdersInvestment in a Group with growth opportunities which is focused on creating sustainable value for both shareholders and addressing wider socio-economic issues.Physicians and Healthcare ProvidersProducts with ease of use which will benefit their patients and provide economic benefits to the healthcare system.PatientsProviding a return to a better quality of life, differentiated clinical outcomes and optimised care costs.PartnersStrong strategic partnerships with growing business and continued growth opportunities in the long term.Annual Report and Accounts for the year ended 31 December 201811STRATEGIC REPORTTissue Regenix AR 2018.indd 1131/05/2019 17:38:04 Our strategic
growth drivers
Strategic Objective Description
2018 Performance
Focus and Goals for 2019
Link to KPIs
Link to Risks
The US is the largest healthcare market
in the world and where we see the
greatest opportunity.
We intend to leverage our platform
technologies dCELL® and BioRinse™ to further
our market penetration through a hybrid
sales model, a combination of direct sales,
distribution and OEM agreements.
– Significant OEM agreement signed with Arthrex
for the BioRinse™ portfolio in the US market;
– Extension to the Premier, Inc. GPO Agreement;
– “Supplier Horizon Award” achievement from
GPO, Vizient, Inc;
– Uptake by prestigious US establishments such
as the Cleveland Clinic.
Our current commercialisation efforts are
focused on the US markets; however, there is
the opportunity and market demand for us to
enter new territories.
– Extension of the Arthrex partnership to bring
the BioRinse™ portfolio into the UK and EU;
– Distribution agreement signed for the spine
market in the UK.
Accelerate
US market
penetration
Exploit global
market potential
At the beginning of 2018 we revised our
commercial strategy with a focus on
establishing and building strategic
partnerships to further our market
access and penetration.
Broaden strategic
partnerships
This also allows for the potential to increase
OEM agreements and initiate discussions
around joint IP collaborations.
Strengthen
portfolio
Our success is reliant upon the ability to
commercialise our current portfolio and
the potential for augmenting this with line
extensions and new innovative products.
We therefore look to establish a database of
compelling real world clinical data to validate
our technology platforms and further our
physician conversion rates.
These clinical data portfolios are also
imperative when we seek new strategic
partnership opportunities and when navigating
regulatory clearance in new territories.
– Distribution agreement signed with ARMS
Medical for the use of DermaPure® in
urogynaecology procedures;
– Distribution agreement signed with Pennine
Healthcare for the UK distribution of BioRinse™
products into the spine market;
– Arthrex extension into other EU markets for
sports medicine applications.
– Two-year clinical data collection for OrthoPure XT;
– CE mark application for OrthoPure XT submitted;
– New product development “stage and gate”
process implemented;
– DermaPure® post marketing study protocol
for the collection of real world clinical data
developed.
Scale:
– Focus on higher volume accounts;
– SurgiPure XD US launch;
– Expand partners for specific fields of use and OEM;
– New Product Development related to market opportunities;
– Expand Group Purchasing Organisation coverage;
– Expand commercial scale;
– Expand portfolio penetration in existing accounts.
– Extend Human Tissue portfolio opportunities via
Arthrex EU Agreement;
– Launch OrthoPure XT (Porcine Tendon).
Europe
China
– Ongoing discussion for licensing and distribution opportunities.
Latin America
– Working towards distribution agreements in several
countries for BioRinse™ products.
Group sales growth
– Clinical
IP collaboration and
exploitation
– Commercial
– Operational
– HR
Increase number of
– Clinical
strategic partnerships and
distribution opportunities
– Commercial
– Operational
Continue to refocus:
– Tissue Regenix Group will work in conjunction with partners’ R&D teams;
– Additional regions identified to broaden geographic reach;
– Development programmes underway with key industry players.
IP collaboration and
– Clinical
exploitation
Group Sales growth
– Commercial
– Operational
Data: drive decision makers through empirical data
IP collaboration and
– Operational
– Commencement of DermaPure® post marketing trial;
– Prospective clinical and health economic studies;
– Two year clinical data collected for OrthoPure XT, will continue
to five years;
– Product line extension potential to augment product portfolio
and an expedited route to market;
– Increase speed at which products are brought to market;
– Strengthen R&D capabilities.
exploitation
Clinical data collection
Group sales growth
– Clinical
– Commercial
– HR
12
TISSUE REGENIX GROUP PLC
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31/05/2019 17:38:05
Our vision is to establish TRG as a leader in the science
and innovation of regenerative medicine. We are building
towards a $200m Global Orthobiologics business.
STRATEGIC REPORT
Strategic Objective Description
2018 Performance
Focus and Goals for 2019
Link to KPIs
Link to Risks
Scale:
– Focus on higher volume accounts;
– SurgiPure XD US launch;
– Expand partners for specific fields of use and OEM;
– New Product Development related to market opportunities;
– Expand Group Purchasing Organisation coverage;
– Expand commercial scale;
– Expand portfolio penetration in existing accounts.
Europe
– Extend Human Tissue portfolio opportunities via
Arthrex EU Agreement;
– Launch OrthoPure XT (Porcine Tendon).
China
– Ongoing discussion for licensing and distribution opportunities.
Latin America
– Working towards distribution agreements in several
countries for BioRinse™ products.
At the beginning of 2018 we revised our
– Distribution agreement signed with ARMS
Continue to refocus:
– Tissue Regenix Group will work in conjunction with partners’ R&D teams;
– Additional regions identified to broaden geographic reach;
– Development programmes underway with key industry players.
Group sales growth
– Clinical
IP collaboration and
exploitation
– Commercial
– Operational
– HR
Increase number of
strategic partnerships and
distribution opportunities
– Clinical
– Commercial
– Operational
IP collaboration and
exploitation
Group Sales growth
– Clinical
– Commercial
– Operational
Data: drive decision makers through empirical data
– Commencement of DermaPure® post marketing trial;
– Prospective clinical and health economic studies;
– Two year clinical data collected for OrthoPure XT, will continue
to five years;
– Product line extension potential to augment product portfolio
and an expedited route to market;
– Increase speed at which products are brought to market;
– Strengthen R&D capabilities.
IP collaboration and
exploitation
Clinical data collection
Group sales growth
– Operational
– Clinical
– Commercial
– HR
Annual Report and Accounts for the year ended 31 December 2018
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13
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Read more about our
KPIs on pages 16 and 17
Read more about our
Risks on pages 25 to 27
The US is the largest healthcare market
– Significant OEM agreement signed with Arthrex
in the world and where we see the
for the BioRinse™ portfolio in the US market;
greatest opportunity.
We intend to leverage our platform
technologies dCELL® and BioRinse™ to further
GPO, Vizient, Inc;
our market penetration through a hybrid
– Uptake by prestigious US establishments such
sales model, a combination of direct sales,
as the Cleveland Clinic.
– Extension to the Premier, Inc. GPO Agreement;
– “Supplier Horizon Award” achievement from
distribution and OEM agreements.
Our current commercialisation efforts are
– Extension of the Arthrex partnership to bring
focused on the US markets; however, there is
the BioRinse™ portfolio into the UK and EU;
the opportunity and market demand for us to
enter new territories.
– Distribution agreement signed for the spine
market in the UK.
Accelerate
US market
penetration
Exploit global
market potential
commercial strategy with a focus on
establishing and building strategic
partnerships to further our market
access and penetration.
Medical for the use of DermaPure® in
urogynaecology procedures;
– Distribution agreement signed with Pennine
Healthcare for the UK distribution of BioRinse™
products into the spine market;
– Arthrex extension into other EU markets for
sports medicine applications.
Broaden strategic
partnerships
This also allows for the potential to increase
OEM agreements and initiate discussions
around joint IP collaborations.
Our success is reliant upon the ability to
commercialise our current portfolio and
the potential for augmenting this with line
extensions and new innovative products.
– Two-year clinical data collection for OrthoPure XT;
– CE mark application for OrthoPure XT submitted;
– New product development “stage and gate”
process implemented;
We therefore look to establish a database of
– DermaPure® post marketing study protocol
compelling real world clinical data to validate
for the collection of real world clinical data
our technology platforms and further our
developed.
physician conversion rates.
Strengthen
portfolio
These clinical data portfolios are also
imperative when we seek new strategic
partnership opportunities and when navigating
regulatory clearance in new territories.
26460 31 May 2019 5:35 pm Proof 6UK & EU BioRinse™ distributionPursue Licencing and partnership opportunities Focus on business development for geographic expansionGEOGRAPHIC EXPANSION6–12 MONTHS12–18 MONTHS18–24 MONTHSFurther GPO approvalsIncrease operational capacityIncrease manufacturing capacityCollection and publication of real world clinical dataCollaboration with strategic partners for future product development – collaborations requiring dedicated R&D resourceUS MARKET PENETRATIONSurgiPure XD US distributor OrthoPure XT CE MarkProduct portfolio line extensionsCardioPure manufacturing licenseCollaboration with strategic partners for future product development – collaborations requiring dedicated R&D resourceSTRENGTHEN PORTFOLIORamp up demand through strategic partnershipsIncrease licensing and strategic partnershipsPursue further joint IP opportunitiesSTRATEGIC PARTNERSHIPS201820192020COMMERCIALISATIONIntended geographic footprint expansion through a network of distributors and potential strategic partnerships and licencing agreements.TISSUE REGENIX GROUP PLC 14Future milestones: strategy in actionTissue Regenix AR 2018.indd 1431/05/2019 17:38:07 26460 31 May 2019 5:35 pm Proof 6Case study 2Utilization of a Next Generation Decellularized Dermal Allograft to Augment the Repair of a Massive Rotator Cuff Tear Involving the Supraspinatus and Infraspinatus Tendons. Robert F. Hines, MDOklahoma City, OKBoard Certified, American Board of Orthopaedic SurgeonsCLINICAL PRESENTATION: |44 year-old male, healthy police/SWAT officer who slipped and fell on his elbow, dislocating his shoulder. Shoulder was reduced, and patient underwent rehab for six weeks, but made no progress. |MRI revealed 4 – 5 cm tears (figures 1 and 2) in the supraspinatus and infraspinatus tendons, no muscle atrophy and no labral tears. SURGEON PERSPECTIVE: |“DermaPure® added augmentation to this massive rotator cuff repair. At 3 months post-op, this patient continues with the 10 pound lifting restriction and remains pain free. All of the patients in which I have utilized DermaPure® for augmentation of the rotator cuff repair, no longer required narcotics for pain management by post-op day 4 – 7.”POST-OPERATIVE NOTE: |By post op day 4, the patient no longer required narcotics for pain management. |Patient is being followed routinely to assess clinical outcomes.Case study 1Utilization of a Next Generation Decellularized Dermal Allograft to Augment the Repair of a Partial Right Maxillectomy and Tooth Extraction after Metastatic Prostate Cancer and Osteoradionecrosis of the Jaw. Brian Smith, DMD, MDCamden, NJBoard Certified, American Board of Oral and Maxillofacial SurgeryCLINICAL PRESENTATION: |71 year-old male with history of metastatic Castrate-Resistant Prostate Cancer (CRPC) with bone metastasis. Treated previously with multiple chemotherapeutic regimens. |Diagnosed with probable medication-related osteonecrosis of the jaw (MRONJ); Surgery scheduled.SURGEON PERSPECTIVE: |“With the total loss of sinus mucosa and structural integrity of the maxilla, there was a high risk of surgical site dehiscence and oral-antral fistula. The use of the internal membrane closure with DermaPure® avoided wound dehiscence, promoted healing, and helped maintain structural integrity of the maxillary nasal complex.”POST-OPERATIVE NOTE: |Full healing of wound in 3 weeks (Figure 4). |Able to eat without difficulty.Case studiesFig 1 – After tooth extraction and debridementFig 1 – Tendon tearsFig 3 – After flap closureFig 3 – DermaPure® ImplantationFig 2 – After implantation of DermaPure® graftFig 2 – Tendon tearsFig 4 – Complete healing after 3 weeksSince repositioning into the hospital space we have had the opportunity to move DermaPure® into orthopaedic applications and leveraged our relationships in the dental market to initiate use in this area. Below are two case studies highlighting the outcomes in these applications.Annual Report and Accounts for the year ended 31 December 201815STRATEGIC REPORTTissue Regenix AR 2018.indd 1531/05/2019 17:38:14 Key performance indicators
KPI
FINANCIAL
Definition
Why this is important
Commentary
Link to Strategy
Group sales growth
An increase in the top line revenue delivered
across all commercialised divisions.
Cash position
Maintaining sufficient cash resources that enables
the business to develop is critical to the evolution
of the Group.
In order to reach sustainable profitability,
Group revenues must increase in order to
become a self-sustaining and profitable
company able to make returns to
shareholders and invest in development
accordingly.
As with any development stage business
maintaining sufficient cash resources and
the effective deployment thereof is critical
to the long-term success of the business.
We have successfully grown our sales year-on-year, with a 47% pro forma increase in
FY2018 even while integrating the Companies.
We must maintain and accelerate this momentum having laid the key foundations
for successful business growth: manufacturing capabilities, clinical advocacy, strategic
partnerships and distribution opportunities.
A blend of all four strategic growth
drivers is required to facilitate
successful Group sales growth.
At December 2018 cash resources were reported at £7.8m, better than expected
due to effective management of working capital.
A blend of all 4 strategic
growth drivers.
CLINICAL
IP collaboration and exploitation
Clinical data collection
Intellectual property is at the heart of our business
with both the dCELL® and BioRinse™ portfolios.
Collaborations allow us to expand the potential of
these IP platforms as we explore licensing deals
and future R&D opportunities.
Our business is built around two platform
technologies and our ability to successfully
protect, commercialise and differentiate
our products. IP collaborations allow us to
leverage our R&D capabilities and utilise
the larger marketing arms of partners.
We have successfully defended our patents against infringement and have opened
Objective 2
conversations with third parties around further licensing opportunities, both geographically
– Broaden strategic partnerships
and for new product developments.
During 2019 we would expect a number of these discussions to come to fruition.
The regulatory pathways for our porcine products
is dependent upon the ability to produce, run, and
monitor a successful clinical trial.
Real world clinical data is collected in post
marketing studies to continue to demonstrate our
differentiating factors and health economic and
clinical arguments.
Collecting real world clinical data is
imperative for us in order to increase the
advocacy of our products, prove our
differentiating factors and drive physician
adoption and patient outcomes.
We have several ongoing clinical programmes both for regulatory clearance and to further
our clinical and health economic arguments. These include two year clinical data collected
for OrthoPure XT, prospective observational study for DermaPure®, a urogyn clinical study in
collaboration with ARMS Medical and scoping for a BioRinse™ observational study in dental.
We continue to work closely with out KOL and clinical advisory groups in order to collect
the most relevant real world clinical data and expect that we will publish additional case
series reports throughout the year.
Objective 3
– Strengthen portfolio.
Objective 3
– Strengthen portfolio.
COMMERCIAL
Increase number of strategic
partnerships and distribution
opportunities
Strategic partnerships are key to our new
commercialisation strategy allowing us to access
partner’s distribution networks, potential licencing
deals and R&D work.
These partnerships allow us to accelerate
our market penetration by accessing larger
distribution and sales networks.
HR
Staff retention and development
ENVIRONMENTAL SUSTAINABILITY
Responsible energy consumption
The retention and development of employees is
key as we invest in relevant training, qualifications
and development whilst also ensuring that
succession plans are in place.
Our industry is highly skilled and reliant
upon employees with the correct
qualifications, training and experience.
Therefore, staff retention is key and the
ability to attract and maintain the best
talent in the industry provides us with a
competitive edge.
As our processes require specialised equipment
and specific storage conditions we must ensure
that we take all available options to reduce
our energy consumption and increase our
environmental sustainability.
With increasing focus on businesses
environmental footprints it is imperative
that we take all available measures to
reduce our energy consumption and
operate in a sustainable and responsible
manner.
During 2018 we made significant progress signing partnerships with Arthrex, Inc. for the US
Objective 2
distribution of select BioRinse™ products and ARMS Medical for the use of DermaPure® in
– Broaden strategic partnerships.
urogynaecology procedures.
Objective 4
We have initiated preliminary conversations with a number of other potential partners, in terms
– Exploit global market potential.
of both geographic distribution opportunities and R&D projects. We expect that during 2019
select conversations will progress to the point of announcement.
In 2018 we launched an employee engagement programme across the whole global Group
called “Verto”. This aimed to address employee concerns and provide a platform from which
they can engage and shape the future of their working environment. More information can be
found on page 28.
During 2019 we expect to bring this foundation work to a close and implement an internal
infrastructure that will allow consistent and easily accessible cross company communications
allowing us to benefit from the sharing of knowledge, experience and key relationships across
all facets of the business.
During 2018 we implemented several changes in order to reduce our energy consumption.
These included the installation of more efficient air con and heating units in each office or
meeting room and motion sensor activated lighting in communal areas to ensure that there is
not waste in terms of electricity.
Moving forward, during 2019 we intend to update our waste management system to ensure
that we recycle as much as possible as well as implementing an improved waste collection
timetable to reduce the emissions associated with this activity.
A blend of all 4 strategic
growth drivers.
A blend of all 4 strategic
growth drivers.
16
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STRATEGIC REPORT
Definition
Why this is important
Commentary
Link to Strategy
Group sales growth
An increase in the top line revenue delivered
In order to reach sustainable profitability,
across all commercialised divisions.
We have successfully grown our sales year-on-year, with a 47% pro forma increase in
FY2018 even while integrating the Companies.
We must maintain and accelerate this momentum having laid the key foundations
for successful business growth: manufacturing capabilities, clinical advocacy, strategic
partnerships and distribution opportunities.
Group revenues must increase in order to
become a self-sustaining and profitable
company able to make returns to
shareholders and invest in development
accordingly.
A blend of all four strategic growth
drivers is required to facilitate
successful Group sales growth.
Cash position
Maintaining sufficient cash resources that enables
As with any development stage business
the business to develop is critical to the evolution
maintaining sufficient cash resources and
At December 2018 cash resources were reported at £7.8m, better than expected
due to effective management of working capital.
A blend of all 4 strategic
growth drivers.
of the Group.
the effective deployment thereof is critical
to the long-term success of the business.
KPI
FINANCIAL
CLINICAL
We have successfully defended our patents against infringement and have opened
conversations with third parties around further licensing opportunities, both geographically
and for new product developments.
During 2019 we would expect a number of these discussions to come to fruition.
Objective 2
– Broaden strategic partnerships
Objective 3
– Strengthen portfolio.
monitor a successful clinical trial.
Real world clinical data is collected in post
marketing studies to continue to demonstrate our
differentiating factors and health economic and
clinical arguments.
advocacy of our products, prove our
differentiating factors and drive physician
adoption and patient outcomes.
We have several ongoing clinical programmes both for regulatory clearance and to further
our clinical and health economic arguments. These include two year clinical data collected
for OrthoPure XT, prospective observational study for DermaPure®, a urogyn clinical study in
collaboration with ARMS Medical and scoping for a BioRinse™ observational study in dental.
We continue to work closely with out KOL and clinical advisory groups in order to collect
the most relevant real world clinical data and expect that we will publish additional case
series reports throughout the year.
Objective 3
– Strengthen portfolio.
Strategic partnerships are key to our new
These partnerships allow us to accelerate
commercialisation strategy allowing us to access
our market penetration by accessing larger
partner’s distribution networks, potential licencing
distribution and sales networks.
During 2018 we made significant progress signing partnerships with Arthrex, Inc. for the US
distribution of select BioRinse™ products and ARMS Medical for the use of DermaPure® in
urogynaecology procedures.
We have initiated preliminary conversations with a number of other potential partners, in terms
of both geographic distribution opportunities and R&D projects. We expect that during 2019
select conversations will progress to the point of announcement.
In 2018 we launched an employee engagement programme across the whole global Group
called “Verto”. This aimed to address employee concerns and provide a platform from which
they can engage and shape the future of their working environment. More information can be
found on page 28.
During 2019 we expect to bring this foundation work to a close and implement an internal
infrastructure that will allow consistent and easily accessible cross company communications
allowing us to benefit from the sharing of knowledge, experience and key relationships across
all facets of the business.
During 2018 we implemented several changes in order to reduce our energy consumption.
These included the installation of more efficient air con and heating units in each office or
meeting room and motion sensor activated lighting in communal areas to ensure that there is
not waste in terms of electricity.
Moving forward, during 2019 we intend to update our waste management system to ensure
that we recycle as much as possible as well as implementing an improved waste collection
timetable to reduce the emissions associated with this activity.
Objective 2
– Broaden strategic partnerships.
Objective 4
– Exploit global market potential.
A blend of all 4 strategic
growth drivers.
A blend of all 4 strategic
growth drivers.
Read more about our
Sustainability on pages 28 and 29
Annual Report and Accounts for the year ended 31 December 2018
Tissue Regenix AR 2018.indd 17
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17
31/05/2019 17:38:15
IP collaboration and exploitation
Intellectual property is at the heart of our business
Our business is built around two platform
with both the dCELL® and BioRinse™ portfolios.
technologies and our ability to successfully
Collaborations allow us to expand the potential of
these IP platforms as we explore licensing deals
and future R&D opportunities.
protect, commercialise and differentiate
our products. IP collaborations allow us to
leverage our R&D capabilities and utilise
the larger marketing arms of partners.
Clinical data collection
The regulatory pathways for our porcine products
Collecting real world clinical data is
is dependent upon the ability to produce, run, and
imperative for us in order to increase the
COMMERCIAL
Increase number of strategic
partnerships and distribution
opportunities
deals and R&D work.
HR
Staff retention and development
ENVIRONMENTAL SUSTAINABILITY
Responsible energy consumption
The retention and development of employees is
Our industry is highly skilled and reliant
key as we invest in relevant training, qualifications
upon employees with the correct
and development whilst also ensuring that
qualifications, training and experience.
succession plans are in place.
Therefore, staff retention is key and the
ability to attract and maintain the best
talent in the industry provides us with a
competitive edge.
As our processes require specialised equipment
With increasing focus on businesses
and specific storage conditions we must ensure
environmental footprints it is imperative
that we take all available options to reduce
our energy consumption and increase our
environmental sustainability.
that we take all available measures to
reduce our energy consumption and
operate in a sustainable and responsible
manner.
26460 31 May 2019 5:35 pm Proof 6TISSUE REGENIX GROUP PLC 18OUR MANAGEMENT TEAMBusiness reviewWe have an experienced and motivated top level management team. With specialists leading each area we ensure that we can execute against the deliverable strategy outlined for each division. Alongside this, we have Executive Directors who have extensive experience in the healthcare industry and the capital markets, and an experienced and well balanced Board of Directors.Steve Couldwell, CEO,Tissue Regenix Group Full biography available on page 30.Gareth Jones CFO, Tissue Regenix Group Full biography available on page 30.Daniel Lee President, US Operations Daniel R. Lee has nearly 30 years experience in the medical device and biologics industry ranging from product innovation to commercialization to corporate management. He joined CellRight Technologies® as President of U.S. Operations in January 2019. Prior to joining CellRight, Danny was the Chief Executive Officer for Scaffold Biologics and Aperion Biologics. His previous senior management roles included global marketing for OsteoBiologics (acquired by Smith & Nephew Endoscopy in 1996) and marketing activities for Regeneration Technologies (now RTI Surgical), a leading allograft tissue processor. Danny spent the first ten years of his career in R&D with the U.S. Surgical Corporation (now Medtronic). Danny received his B.E.S. degree in Materials Science and Engineering from the Johns Hopkins University and his M.S. in Biomedical Engineering from the University of Alabama at Birmingham. He has thirteen patents on implants and instruments used in orthopaedic and general surgery.Mike Izon R&D Director Mike Izon joined as Head of QA/RA and Clinical at Tissue Regenix in November 2014. With a background in pharmaceutical products and medical devices, Mike has worked over the last 10 years as a consultant, trainer and assessor for the certification and registration of medical devices. Having worked extensively with early stage medical device development companies, Mike has also worked with household names such as Procter & Gamble, Clairol and Sanofi Aventis to achieve worldwide market clearance for a range of products and technologies.Tissue Regenix AR 2018.indd 1831/05/2019 17:38:19 26460 31 May 2019 5:35 pm Proof 6Annual Report and Accounts for the year ended 31 December 201819STRATEGIC REPORT60,000 people die from pressure ulcers started in hospitals in the US per year 1Drew Distin President, TRX Orthopaedics Drew Distin joined TRX Orthopaedics when the new division was launched in March 2016. Drew oversees all aspects of operations for the orthopaedic division, and works in close cooperation with the corporate headquarters and product development team in the UK.Drew has over 20 years’ experience in the orthopaedic industry, having held senior management roles in sales, marketing and product development in companies such as CryoLife, RTI Biologics and Osiris Therapeutics. His main focus over the last several years has been in the specialties of tissue regeneration, orthobiologics and cartilage restoration.Joel Pickering President, TRX BioSurgery Joel Pickering joined Tissue Regenix Wound Care Inc. in October 2015 to assume the leadership of the US marketing organization. Joel moved into the position of President in January 2017 and now guides the commercial marketing strategy for DermaPure® and SurgiPure® in the United States.Joel brings a wealth of wound care marketing experience dating back to 1996 with such companies as J&J Medical, Lifecell, Convatec and KCI. Prior to joining Tissue Regenix, Joel served as VP of Marketing and Communications for Novation with responsibility for driving Novation growth in the US.Through his time in the wound care category, Joel has launched several new brands and driven many established brands to category leading shares through a combination of vision, communication and team leadership.Andrea RauschCommercial Director, CardiacAndrea Rausch was appointed as Business Development Manager in the Tissue Regenix Cardiac team in August 2012. Andrea joined Tissue Regenix from Sorin Group, a global medical device company and a leader in the development of medical technologies for cardiac surgery and for the treatment of cardiac rhythm disorders.For two years, she was Global Marketing Manager at Sorin for the Perceval Programme, a new treatment option for aortic valve disease, having been Business Line Leader and Strategic Sales and Marketing Manager of the Heart Valves team in Germany for five years before this.1. * Greenwald L. Medicare Deadline Spurs Hospitals to Prevent Pressure Ulcers. E-Zine. 2007. http://ezinearticles.com/?Medicare-Deadline-Spurs-Hospitals-to-Prevent-Pressure-Ulcers&id=846302Tissue Regenix AR 2018.indd 1931/05/2019 17:38:24 Business review
continued
Our business is
split into individual
operating divisions
to address different
clinical application
areas. This allows us
to ensure that we
appoint the most
relevant management
team and sales force
in order to drive
market penetration,
product advocacy
and communicate
the clinical benefits
for each. Below is
an overview of each
divisions achievements
throughout the year.
BIOSURGERY
2018 has been an exceptional year for
the BioSurgery division, growing revenue
by 79% on a constant currency basis,
highlighting the increasing market demand
for DermaPure® and the advantages of our
refined strategic focus.
This verifies the benefits of our ‘narrow
& deep’ sales philosophy which we have
implemented in targeted key institutions,
resulting in greater conversion of applicable
physicians and has also expanded our
network of Key Opinion Leaders (KOLs)
who are driving the advocacy of the product
throughout their peer groups.
Expanded GPO coverage and
Strategic Partnerships
We have continued to expand our Group
Purchasing Organization (GPO) approvals
and now have coverage in institutions
accounting for 95% of the total spend
under these agreements. This has opened
up opportunities for us in the hospital
arena, where we have seen the utilisation of
DermaPure® move into new indications within
the surgical suite, augmenting our historic
woundcare applications.
This was expedited by the ARMS medical
agreement which was announced in February
2018 moving DermaPure® into women’s
health and particularly urogynecology
applications. With an increasing focus on
the safety of alternative solutions, such as a
mesh treatments, where historically between
150,000-200,000 procedures per year in
the US result in serious complications1,
around 5% of the total number performed,
DermaPure® offers advantages due to its
natural regenerative properties. The uptake
that we have seen has driven the advocacy of
the product within this application area with
over 300 patients treated by mid-July and the
demand in this area has led to the ongoing
development of a DermaPure® product
tailored specifically for this application, which
we hope to bring to market during 2019.
Improved DermaPure®
Positioning
Orthopaedic trauma is another area in which
we have seen significant clinician interest,
with DermaPure® being used in tendon
wrapping for the achilles tendon through
to rotator cuff repair in the shoulder. As we
drive clinician conversion in this area we are
undertaking several case studies in order to
strengthen our clinical data. You can read a
case study on page 15.
Surgeons are becoming increasingly aware
of the benefits that DermaPure® can offer
to both the patient and healthcare provider.
This was highlighted by the world-renowned
Cleveland Clinic which began using
DermaPure® in 2018, with a case series being
shown at the prestigious VEITH Symposium.
SurgiPure XD
SurgiPure XD, a porcine dermis for use in
hernia repair was previously granted 510(K)
approval for the US and underwent a soft
launch at the end of 2018. SurgiPure XD will
be manufactured at our facility in Leeds and
is the first commercial dCELL® product to be
manufactured there. We expect to engage
multiple relevant distributors for this product
during 2019.
Outlook
2018 was a successful year for TRX
BioSurgery having repositioned DermaPure®
in the hospital arena, forged key distribution
partnerships, increased the clinical application
areas and grown our clinician advocacy and
clinical case studies. With these foundations
now in place we expect 2019 to deliver
strong returns as we look to augment our
product portfolio with additional sizes of
DermaPure®, launch SurgiPure XD with
distribution partners and increase our GPO
coverage accessing a new pool of physicians
and patients. In order to meet our projected
level of sales we have augmented our
in-house manufacturing of DermaPure by
renewing our agreement with Community
Tissue Services as a third-party manufacturer,
allowing us the capacity required to meet our
customers’ expectations during 2019 and
beyond.
1. Shlomo Raz, professor of urology and pelvic reconstruction at UCLA school of medicine https://www.washingtonpost.com/national/health-science/vaginal-mesh-
has-caused-health-problems-in-many-women-even-as-some-surgeons-vouch-for-its-safety-and-efficacy/2019/01/18/1c4a2332-ff0f-11e8-ad40-cdfd0e0dd65a_
story.html?utm_term=.004a67e3ab2b
2.
iData Research 2016
3. Ortho World Annual Report 2017
4.
iData Research 2016
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STRATEGIC REPORT
The projected US market for
dental bone graft substitutes
in FY2019 is $233.3m2
ORTHOPAEDICS
AND DENTAL
The year to 31 December 2018 was again
positive for the orthopaedics and dental
division, with a 31% pro forma increase in
revenue, primarily consisting of the BioRinse™
portfolio, and was the first year in which we
benefited from the CellRight acquisition for
a full fiscal year. In addition to the BioRinse™
portfolio there is the potential for dCELL®
products to also be utilized in this space, with
orthopaedic trauma, sports medicine and
foot and ankle applications for DermaPure®
the opportunity for collaboration between
the operating divisions offers opportunities
to further our market penetration.
Strategic Partnerships
In March 2018 we announced the first of
several notable strategic partnerships with
Arthrex, Inc. who took three of the BioRinse™
portfolio under their own brand ‘AlloSync’
for distribution in the US. Arthrex are one of
the largest sports medicine company’s in the
world having over 2,700 sales reps globally.
The US distribution agreement offers third-
party validation of the differentiation of the
BioRinse™ technology and strong advocacy
to leverage when securing new customers.
We expanded the Arthrex relationship in
November 2018 , by entering a branded
distribution agreement in the EU, following
the approval of the Human Tissue Authority
(HTA) license which allows for the importation
of our human tissue products from the US
into the UK. Initially our focus will be on the
UK market before expanding into additional
European countries; the first training for the
Arthrex European sales reps was undertaken
at the facility in Leeds in Q1 2019, and we
expect this agreement to gain traction over the
next 12-18 months as we continue with the
education process and physician conversion.
To accommodate the increasing demand
for our products and the scale of these new
partnerships we expanded our BioRinse™
manufacturing capacity through the
commencement of a second shift within the
San Antonio facility in Q1 2019.
dCELL® Technology
OrthoPure XT, continues to progress through
the regulatory approval process for a CE
mark. We have collated the 2 year clinical
data which has been submitted to our notified
body and continues to show clinical evidence
as a suitable choice for ACL reconstruction,
with biomechanical testing equivalent to
current graft choices, including allograft
or autograft. During 2018 we commenced
discussions with the FDA around a pre-
clinical trial for OrthoPure XT in the US. After
scoping this out the strategic decision was
made to keep our resources focussed on the
E.U market launch. Likewise, with increasing
demand on our dCELL manufacturing
capacity the launch of pathfinder product
OrthoPure HT has been paused.
We remain confident in the clinical outcome
and health economic benefits provided by
the product and are poised to commercialise
as soon as the approval is granted. Our
launch timeline has been delayed by the
ongoing implementation of the Medical
Device Regulations across Europe and the
additional strain that this has placed on the
notified bodies. Our initial focus will be the UK
market where we have several Key Opinion
Leaders ready to utilise the product, before
further expanding into Europe, as we gain
country registrations, through a network of
distributors.
Dental
In dental, we see huge potential for the use
of both the dCELL® and BioRinse™ portfolios.
Throughout 2019 we will concentrate on
further penetration of the US market which
accounts for half of the total global market.
With a favourable reimbursement framework,
consisting primarily of cash payments dental
is an area which we believe has a vast market
opportunity that we will be able to penetrate
quickly with both product portfolios. We
see use across the dental market, including
general dentists and maxilliofacial specialists
for routine and complex or corrective cases.
The BioRinse™ portfolio is being utilised in
procedures such as ridge augmentation
whilst DermaPure® provides a soft tissue
covering following extraction or in cases of
receding gumlines.
A case study can be viewed on page 15.
The US orthobiologics
market was worth
an estimated $3.4bn
in 20173
Outlook
During 2018 we achieved several important
commercial milestones that allowed the
orthopaedics and dental division to accelerate
its growth trajectory. The agreement with
Arthrex offers third party validation of the
differentiation of the products and shows the
level of external confidence in our BioRinse™
products. With the further expansion of this
partnership into Europe offering potential
access to new markets by leveraging their
commercial experience and infrastructure and
we are confident that this growth will continue
throughout 2019.
To maintain these important relationships,
in Q1 2019 we appointed a number of
commercial heads including a VP of strategic
partnerships, and two additional regional
sales directors to support our expected
growth in this division.
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Business review
continued
Overall market value
for dental biologics
in the United States
$426.2m4
CARDIAC & GBM-V
Our cardiac division continues to develop
a strong clinical data portfolio from the
collaborative work with Dr Francisco da Costa
in Brazil, with the data from a multicentre
paediatric trial being presented at the Heart
Valve Society meeting in Sitges in April 2019.
We are excited to share this data which
further highlights the advantages of our
CardioPure products specifically in younger
patients who typically experience a higher
instance of re-operation or rejection.
The work with our colleagues at GBM-V
continues to develop and we are confident
that after navigating the regulatory pathway
we will be able to launch the CardioPure
product in Germany in 2020 as planned.
In addition, GBM-V have established new
supply agreements with additional tissue
banks ensuring that the supply of donor
materials is consistent to allow the cornea
business to continue to grow, evidenced in
the top line revenue figures which increased
by 62%. This also allows a greater deal of
cash self-sufficiency, an important aspect
of the Group reducing its overall cash
dependency and cash burn.
The main focus of GBM-V continues to be
the regulatory clearance and launch for the
CardioPure product line.
COMMERCIAL
Invested in Operations
and Management
In June 2018 we were awarded a Human
Tissue Authority (HTA) license for our facility
in Leeds. This allows us to import the
BioRinse™ portfolio from the US into the UK
for distribution primarily under the Arthrex
agreement. The UK facility will be used as a
hub to allow for further European distribution
as individual Country registrations are granted.
In the US, we transferred the processing of
DermaPure® in-house, allowing for end to end
control of the manufacturing process, product
quality and product mix. As demand for the
products increased we sourced additional
capacity and reduced our manufacturing risk
by engaging with Community Tissue Services
to assist with processing efficiency, donor
yield and supplementary supply.
22
Additionally, we commenced a second shift
within the San Antonio facility to increase the
output of BioRinse™ products. This will allow
us to meet the increased demand driven by
the throughput of our partnership agreements
in the short term whilst we explore options to
increase manufacturing capacity.
Clinical
In order to strengthen our product positioning
and differentiation we are enhancing the
clinical data package to highlight both the
clinical and health economic advantages
that DermaPure® can offer. We increased our
Key Opinion Leaders and have undertaken a
number of case studies in order to highlight
its use in the various procedures. During
2018 we established a protocol for a multi-
centre prospective observational study which
we intend to commence in the first half of
2019. In addition, we augmented our clinical
team adding an additional three clinical affairs
managers to ensure that commercial reps
and distributors have the required clinical
support.
Alongside this, we are also running a number
of case series for both the dCELL® and
BioRinse™ portfolios to enable peer to peer
discussions and the collection of real life,
practical examples.
Delivering new Product
Development and I.P.
As we build relationships with strategic
partners we also look to align ourselves
with their product development and R&D
functions. The Group has vast experience of
bringing products from concept to completion
and has the agility to undertake these tasks
quickly. This allows us to identify opportunities
and quickly create a prototype for testing.
Moving forward we look to develop these
skills further and deepen the relationships
allowing us to be positioned as an R&D
partner to larger industry players.
We continue to protect and monitor our
intellectual property by maintaining several
patents worldwide for the dCELL® portfolio
encompassing both the core dCELL®
Technology and individual product processes.
The BioRinse™ portfolio remains protected
by know-how and we continue to register
trademarks for all relevant logos and
trade names.
As we look to expand the opportunities
for each product portfolio and exploit the
Global market potential, we also look to
create efficiencies in the processing and
manufacturing to allow for a reduction in both
the associated time and financial cost while
maintaining the integrity of the product to
allow for superior clinical outcomes.
Management
In November 2018 Gareth Jones joined as
Group CFO and later stepped into the interim
role of COO whilst CEO Steve Couldwell took
a period of leave for health reasons.
Outlook
We focus ourselves around two platform
technologies, in three key clinical application
areas with four strategic growth drivers.
As we look to expand our commercial
presence across the globe, the opportunity
for us to license our technology platforms to
potential strategic partners in new territories
offers a route to market, market expertise
and access to scalability. This also allows our
direct sales and management team to remain
focused on key markets, in which we are
seeing increasing market penetration and a
growth trajectory.
Our strategy around establishing
strategic partnerships to help scale our
commercialisation efforts has proven fruitful
throughout 2018 and we expect this to
continue as we pursue further partnership
opportunities.
Outside of establishing these partnerships we
have identified several commercial synergies
to leverage across our portfolio, for example
the use of DermaPure® in orthopaedic
trauma and dental procedures. This has also
led to specific product specifications being
sought that we can bring to market quickly to
address these procedures.
The Group has made significant commercial
progress throughout the last year and we
have positioned ourselves to continue to
develop and grow this momentum. Focusing
on our identified strategic drivers of growth
we expect to continue to build strong
commercial foundations which will drive our
success far into in the future.
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26460 31 May 2019 5:35 pm Proof 6Annual Report and Accounts for the year ended 31 December 201823Financial overview47% top line revenue growth on a proforma, constant currency basis, increasing to £11.6m.Revenue In the year ended 31 December 2018 revenue increased by 122% to £11,619K (2017: £5,233K). Revenue from the legacy Tissue Regenix dCELL® product DermaPure® increased 75% to £3,381K (2017: £1,932k) driven by increased GPO penetration, a strategic partnership with ARMS Medical and a move into the Orthopaedic trauma space. With these initiatives in their infancy, we expect this growth to continue during 2019. CellRight Technologies, reported under the Orthopaedics and Dental division, grew revenue 31% year on year to £6.4m (2017: £4.9m) on a pro forma basis. In March 2018 we announced a strategic partnership with Athrex, one of the world’s leading orthopaedic and sports medicine companies, and later successfully expanded this agreement. They initially took 3 BioRinse products under their own brand ‘AlloSync’. Following the approval of a Human Tissue Authority License for the UK facility, we extended this partnership to cover the EU and received our first orders in Q1 2019. This is a partnership we expect to continue to grow substantially during FY 2019. The remaining top line revenue growth was derived from GBM-v, our controlled joint venture in Germany. GBM-v was able to significantly increase the volume of corneas processed during the year resulting in revenue growing by 62% to £1,842K (2017: £1,135K) Cost of sales and gross profitThe revenue growth and full year effect of CellRight has resulted in a commensurate increase in gross profit by 127% to £5,917K (2017: £2,606K).Gross margin percentage increased marginally from 50% to 51% due to a combination of favourable product mix and realised production efficiencies. As the business continues to deliver products in greater quantities it has been possible to realise synergies along with our in-house manufacturing capabilities and the established nature of the CellRight business. Included in cost of sales is, cost of product of £4,723K (2017: £2,039K) and third party commissions of £979K (2017: £588K). Administrative ExpensesAdministrative expenses increased by £1,184K from £13,422K to £14,606K. This included £423K (2017 £1,098K) of exceptional costs. Admin expenses before exceptional items increased by £1,859K (mainly attributable to a full year effect of CellRight being in the Group). Overheads included staff costs (53%), sales and marketing (8%), research and development (12%), establishment and administration costs (30%). Operating loss was narrowed to £8,689K (2017: £10,816K).Exceptional itemsCost relating to the settlement of a LifeNet litigation case are accounted in the exceptional items, covering a final legal payment and insurance upfront excess. There are no other costs to be incurred relating to this case. Finance income / chargesFinance income of £72K (2017: £47K) represents interest earned on cash deposits. Finance charges of £262K (2017 – nil) relate to the discounting of earnout consideration on the CellRight acquisition in line with IFRS (discount rate of 10% applied).TaxationThe Group submits enhanced research and development tax claims and elects to exchange tax losses for a cash refund. The refund receivable for the year ended 31 December 2018 is £790K (2017: £1,348K). This fall was due to a reduction in tax credits claimed as the Group commercialises additional products moving them out of the R&D phase.Corporation Tax payable in the US amounted to £72K (2017: £nil) due to the profits of CellRight. Gross tax losses carried forward in the UK were £43,352K (2017: £35,819K). The Group does not currently pay tax in the UK. A deferred tax asset has not been recognised as the timing and recoverable value of the tax losses is uncertain.Loss for the yearLoss for the year was £8,259K (2017: Loss £9,421K). The number of shares in issue at the reporting date was 1,171,730,823 (2017:1,170,990,924) resulting in a basic loss per share of (0.70p) (2017: loss (1.00p)). Tissue Regenix AR 2018.indd 2331/05/2019 17:38:28 Financial overview
continued
Balance sheet
Dividend
Cautionary Statement
The Strategic report, containing the Strategic
and Financial reports of the Group contain
forward looking statements that are subject
to risk factors associated with, amongst
other things, economic and business
circumstances occurring from time to time
within the markets in which the Group
operates. The expectations expressed
within these statements are believed to be
reasonable but could be affected by a wide
variety of variables out-with the Group’s
control. These variables could cause the
results to differ materially from current
expectations. The forward-looking statements
reflect the knowledge and information
available at the time of preparation.
Significant
commercial
milestones achieved
At 31 December 2018 the Group had net
assets of £32,570K (2017: £39,522K) of
which cash in hand totalled £7,816K (2017:
£16,423K) which was ahead of expectations.
Intangible assets increased to £19,938k
(2017: £19,305k) as foreign exchange
revaluation exceeded amortisation. A further
£116,000 of development costs were
capitalised.
Net working capital increased slightly to
£3,054k (2017: £2,596k) which reflect the
continued growth of the business. The
balance sheet includes corporations tax
receivable of £1,200k (2017: £1,665k) in
respect of UK research and development
tax credits.
Cash absorbed by operations was £6,838K
(2017: £9,786K) as we continue to move
towards breakeven and subsequent
profitability.
Year end cash position
ahead of expectation
at £7,816K
Following the acquisition of CellRight, the
business successfully achieved the revenue
performance criteria necessary for the
payment of the first milestone. This was due
following the completion of revenue criteria
in the first twelve months post acquisition.
This payment amounted to £1,564K and,
at this stage, it is currently expected that the
second milestone, of equivalent value, will be
paid in full in September 2019.
No dividend has been proposed for the
year to 31 December 2018 (2017:Nil)
Accounting policies
The Group’s consolidated financial
information has been prepared in accordance
with International Financial Reporting
Standards as adopted in the EU. The Group’s
significant accounting policies which have
been applied consistently throughout the year
are set out on pages 50 to 54.
Going Concern
As at 31 December 2018, the Group had
£7,816k of cash and cash equivalents
available to it. The Directors have considered
their obligation, in relation to the assessment
of the going concern of the Group and each
statutory entity within it and have reviewed
the current budget cash forecasts and
assumptions as well as the main risk factors
facing the Group as set out on pages 25 to 27.
As separately reported, the Group has
successfully raised a debt facility totalling
$20m, of which $10.5m became available
immediately to the Group to drawdown
at completion. The Directors are therefore
confident the Group has adequate financial
resources to fund its activities for the
forthcoming period.
Principal risks
and uncertainties
The principal risks and uncertainties facing
the Group are set out on pages 25 to 27.
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Risks
STRATEGIC REPORT
OUR RISK MANAGEMENT FRAMEWORK
Accountability for reviewing and monitoring
The Board
Audit Committee
Operational
The Board is responsible for maintaining
a sound system of internal control.
The Board’s measures are designed to
manage, not eliminate risk, and such
a system provides reasonable but not
absolute assurance against material
misstatement or loss. The Board confirms
that it has established the procedures
necessary to implement the guidance
“Internal Control Guidance for Directors
on the Combined Code” (The Turnbull
Report).
In accordance with our governance
practices, the Audit committee supports
the Board of Directors in monitoring the
Group’s risks.
At an operational level, we monitor monthly
performance against objectives and
COG’s allowing us to track performance
management, and identify and potential
improvements to our structure and
operational efficiencies.
Responsibility for implementation
The Board reviews and updates risks on a regular basis, maintain a risk register and addressing each potential
risk in terms of likelihood and impact on the business.
We have identified six areas of potential risk: product development; operational; clinical and regulatory;
finance and IT; HR; and commercial. The Board believes the following risks are the most significant for the
Company, however, they may not necessarily comprise all the associated or potential risks attached to
the Company. Alongside risks associated with changes in the market or economic conditions, the political
landscape, legal, regulatory or tax implications there may also be risks that the Directors are currently
unaware of but that could have a significant effect on the Company’s ability to carry out its business.
A list of the principal risks and mitigating factors facing the Group at this time are listed below, in no
particular order.
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Risks
continued
Risk
Potential Impact
Mitigating Factors
Trend
Product Development
Risk that products fail to perform
as expected.
The business is dependent upon its ability to bring its
novel regenerative solutions to market and provide
patients and physicians with an optimal clinical outcome
and health economic advantages. Should the products
fail to perform there would be a detrimental effect on
the Company’s reputation, financial position and R&D
capabilities.
The Group continues to collect clinical data
on the products brought to market, head-to-
head comparisons with competitor products
are undertaken, benchmarking along with data
already produced to help ensure that products
are developed with a competitive edge.
Operational
Risk that as the business looks
to expand there is a risk that
demand will outstrip supply.
Risk of facility shutdown due
to loss of licence via inspection
or other investigation e.g. FDA,
or damage to a manufacturing
facility due to fire, arson, floods
or other adverse events.
Risk of overdependence
on single supplier.
Our commercial strategy is built around the
establishment of successful strategic and distribution
partnerships which increase the demand on our
production and manufacturing capabilities. This
could result in the loss of business through customer
dissatisfaction and reputational damage.
Additional short-term capacity is being secured
via outsourcing and a second shift. Longer term
a programme is underway to secure additional
manufacturing capacity.
As the Group manufacture most products in-house,
the loss of a manufacturing facility would clearly have
a detrimental effect on the ability to meet customer
demand. Should an adverse event happen there would
be a loss of stock and raw materials which would have
financial implications on the Company.
The Group has a track record of positive
feedback following inspections, including the
FDA Audit in Q1 2019, and established control
environments. Facility insurance is in place in
case of adverse event, and second source
manufacturing options are identified.
With the novel technology processes requiring specific
raw materials, the loss of a supplier could have a
detrimental effect on the ability to produce the media
required for the process. As the products are based
around animal or human tissues, failure to source good
quality, ethically-handled tissues would result in the
inability to produce products in line with specifications
and therefore incur reputational damage, customer
dissatisfaction and potential regulatory breaches.
Business interruption insurance is in place,
alternative suppliers are being sought where
appropriate to ensure that there is always a
secondary source for both raw goods, and if
needed, secondary manufacturing capacity. All
suppliers undergo a stringent audit to ensure that
they meet the Company’s internal standards and
those imposed by third party moderators.
Clinical and Regulatory
Risk of loss of licence or
restrictions due to regulatory
failings.
As the Company operates in a highly regulated
environment, the loss of a licence to manufacture or sell
products within a territory would result in reputational
and financial damage to the Company.
Risk that products fail and cause
death or injury on implantation
into patients.
Should a product fail upon implantation or incur an
adverse reaction due to the product properties, the
Company would be at risk of legal action, potential loss
of earning through product retraction from the market
and reputational damage.
The business has a track record of positive
feedback following inspections and established
control environments. the Company employs
regulatory experts for each territory in which
manufacturing takes place or where the Company
looks to navigate a regulatory clearance for
a product.
Before commercialisation a series of safety checks
is run dependent on the nature of the product.
For porcine products this will initially be within an
animal model. Once this is shown to have safely
passed a regulated clinical trial addressing specific
protocol to judge the performance and safety of
the product is commenced. An external regulatory
body review is undertaken and comprehensive
training for sales reps and surgeons prior to the
utilisation of the product is provided. For human
tissue products the necessary clinical performance
trials are commenced prior to commercialisation
and all products are issued with a detailed
instructions for use.
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The Board carefully considers the risks facing
the Group and endeavours to minimise their
impact through the necessary mitigating actions.
STRATEGIC REPORT
Risk
Potential Impact
Mitigating Factors
Trend
Finance and IT
Risk that there are insufficient
funds to deliver products to
market.
HR
Risk of potential loss of key
staff resulting in a loss of key
information, contacts and
processes.
Commercial
Risk that competitor products
reach the market first and/or
products outperform Tissue
Regenix products and the
business fails to keep up with
developments and new products
coming onto the market.
Risk of price erosion through
inability to offer a competitive
product.
Our success is dependent on our ability to successfully
exploit our platform technologies and commercialise
our products; this takes investment in the production,
marketing and infrastructure to do so. As we produce
our products in-house we also need to ensure that we
have the capacity for growth in order to meet customer
demands. Insufficient cash would result in a decline in
these activities and the future R&D potential.
The Board has oversight of all significant cash
spends and a process is in place for efficient
cash management with a monitored return on
investment.
A well established control environment is in
place to assess the funding requirements of
the business, which includes strategic reviews,
forecasts and monthly reporting.
The dCELL® process is patent protected, however the
BioRinse™ process is based on “know-how” and the
Company has a number of trade secrets which it looks
to maintain. There is also the potential that agreements
are based around an individual and not through a
relationship with the Group which could result in a loss
of business.
The Remuneration Committee is in place to
benchmark salaries and incentive schemes.
Addition of more management level staff has
allowed knowledge to be spread across teams
and is less centred on individuals. We have also
implemented an employee engagement initiative
to keep staff engaged and ensure a healthy work/
life balance. Contracts of employment are drafted
to include the necessary confidentiality clauses.
Should there be a competitor that outperforms one
of the products there is the potential that we will lose
customers and contracts. Should a competitor release
a product before us they could potentially have an
advantage in gaining significant market share.
Due to the reimbursement framework in the industry and
the territories in which the Company has commercialised,
it is paramount to offer a competitively priced product
and therefore need to ensure that cost of goods remain
at a level from which a superior, yet affordable option can
be produced.
We continually review competitors and the
commercial landscape and look to stay ahead of
the trend with innovative product development,
and line extensions. The Company seeks market
opportunities and tailors product development to
address this, as well as continuing to collect post
marketing clinical data to ensure that the product
offering remains differentiated.
The Company maintains a high focus on potential
margin reduction with specific programmes
implemented to ensure that this remains on track.
Political and economic landscape
Risk of significant changes in the
political or economic landscape
With both the UK and the US undergoing periods of
political uncertainty there is the potential that this could
affect our ability to commercialise and import/export
our products. With regards to Brexit it is currently
unclear how the decision to leave the EU could affect
the Company. For example, there may be changes
implemented to the regulatory system under which our
products are approved, import / export regulations could
be affected and economic volatility and uncertainty may
be possible.
The Group continues to monitor developments
relating to Brexit and receives relevant updates
from advisers to ensure any potential risks are
understood and mitigating actions implemented if
needed. With the establishment of a controlled joint
venture in Germany, the Company holds a corporate
position within the EU and would therefore maintain
a presence in both the UK and EU following the
final decision. The necessary actions have been
undertaken to ensure that any regulatory clearance
application would be registered across both the UK
and wider EU to allow for country registrations and
commercialisation.
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26460 31 May 2019 5:35 pm Proof 6CORPORATETissue Regenix recognises that it holds a corporate responsibility to its employees, customers, partners, suppliers and shareholders. To this end, the Group ensures to set and maintain the highest working, ethical and management standards.The Group employs a strict corporate governance code and relies on its experienced management team to ensure that all regulatory requirements across all business functions are met.ETHICALOperating in an industry based upon the processing of human and animal derived tissues demands the highest ethical standards. The Group aspires to maintain the highest ethical standards across all business functions and relations. The Group undertakes regular audit checks to ensure that partners, suppliers and employees comply with the ethical standards and operate to meet our expectations. Furthermore, the nature of the industry means that as a business we are held to the highest standards and regularly receive inspections and audits from external organisations including the FDA and American Association of Tissue Banks. EMPLOYEESRegenerative medicine is a skilled and technical industry. We must ensure to retain a workforce with the necessary skills and knowledge, and balance of academic and commercial experience to maintain a competitive position among our peers.Our people are our biggest asset and will ultimately drive the success of our business. We therefore look to maintain an equal, open and supportive work environment within which they can excel to their fullest potential.SUPPORTING DEVELOPMENTWe encourage our employees to continue their professional and personal development through both further academic qualifications and practical training. Each employee is expected to identify further development opportunities, both to stay compliant with industry standards but also to develop and deepen their own understanding and further future opportunities.With strong higher education links we often undertake student placements to develop their experience and practical understanding of the business.Tissue Regenix’s vision to become a leader in regenerative medicine is underpinned by its core values to maintain a sustainable, ethical and responsible Company. Fundamental to this are our people and our approach to social, environmental and political issues which could affect our ability to deliver our novel products and improve patient care and clinical outcomes.HEALTH AND SAFETYWorking in a highly regulated and on occasion hazardous environment, we take our Health and Safety management very seriously and the Board supports a strong infrastructure to identify, control and manage risks through a series of proactive policies and procedures. With an appointed Health and Safety officer and committee, we ensure to undertake proactive actions to identify any potential hazards and monitor any outstanding actions resulting from non-compliance or near miss incidents identified. There are monthly meetings which all employees are invited to attend and a written report provided to the Board. We see the development and maintenance of a robust health and safety culture as a necessary responsibility to protect our employees, customers, suppliers and all external stakeholders.EQUAL OPPORTUNITIESWe see ourselves as an equal opportunities employer and do not discriminate on the basis of age, gender, ethnicity, religion, disability, sexual orientation or marital status. All employees are expected to conduct themselves in an appropriate manner adhering to our discrimination policy.In all aspects of the business we look to conduct ourselves in ways which are compliant with laws and regulations, providing our employees with a work environment which is professional, ethical and fair.67%33%FemaleMaleGender diversity28TISSUE REGENIX GROUP PLC SustainabilityTissue Regenix AR 2018.indd 2831/05/2019 17:38:43 26460 31 May 2019 5:35 pm Proof 6IMPROVED PATIENT CARE AND HEALTH ECONOMICSTissue Regenix regenerative platforms and products can enable the bettering of patient care, allowing a return to their required standard of living, transforming their lives. On top of this, it allows for economic advantages in the cost of care by reducing hospital stays and time for healing and rehabilitation, recurring operations and in some cases a reduction in pain. OUR VALUES AND BEHAVIOURSOur values and behaviours align with our Company vision and mission, driving a culture that will enable the Group to achieve the strategic objectives and vision.The Strategic Report on pages 8 to 29 was approved by the Board on 3 June 2019.Steve Couldwell CEO,Tissue Regenix GroupDedication to Patients Passion for Innovation Driving for Excellence Uncompromising IntegrityGLOBAL VISION AND CULTURE PROGRAMME, “VERTO”With the increasing importance and focus on employee engagement and happiness at work, in June 2018 we commenced an employee engagement initiative: “Verto”. The initial objective was to ensure that there was consistency and clarity across the Company following the acquisition of CellRight Technologies in 2017 and embrace the different cultures that a global organisation has. Verto allowed us a platform from which to engage and inspire our employees. We conducted interviews with every employee across the Group to identify their main concerns and action points to address. This resulted in the creation of six workstreams led by members of the Global Leadership Team with participants split across each business location, division and level. These workstreams address: Branding and External Perception; Communications and Engagement; Leadership; Vision, Mission and Strategy; Values and Behaviours and People and Development. The workstreams ensure that all employees have an infrastructure that they can utilise to access all relevant information, contact peers and ensure alignment and input into the new vision, mission and strategy. To date, we have received superb engagement from our employees across the Group and fully intend to maintain this programme, with ongoing plans for further initiative implementation. OUR VISIONTo establish TRG as a leader in the science and innovation of regenerative medicine.Transforming patient care and delivering favourable health economic outcomes.REWARDING AND RETAINING TALENTAll employees are offered a comprehensive benefits package encompassing both lifestyle and financial rewards. Every employee is offered the opportunity to participate in the Company health insurance scheme for both themselves and members of their family. There is also an active pension scheme and life insurance policy and to ensure a supportive family environment, flexible working where possible to accommodate childcare needs, a comprehensive parental leave policy and the option to receive childcare vouchers.We encourage participation in the Company’s success and invite employees to undertake the SAYE share option scheme opened every year. This allows the employees to invest and benefit from the future success of the Company.QUALIFICATIONSOur people are well trained and qualified, thereby enabling the Group to achieve strategic success. We actively encourage further education and ensure that our workforce is continuously trained and developed. Across the business over 54% of employees hold a bachelor’s degree, with a further 16% holding a master’s or doctorate, highlighting the calibre of our people. We believe that we have created a supportive and educational working environment.High School DiplomaSome CollegeAssociatesBachelorsMastersMedical Degree/Doctor of Chiropractic Doctor of Physical Therapy7.0%17.5%5.3%54.4%8.8%5.3%1.8%Annual Report and Accounts for the year ended 31 December 201829STRATEGIC REPORTTissue Regenix AR 2018.indd 2931/05/2019 17:38:45 26460 31 May 2019 5:35 pm Proof 6KEYCommittees Audit Committee Chair of Audit Committee Remuneration Committee Chair of Remuneration CommitteeJoined the Group: March 2008 Joined the Group: June 2013 Joined the Group: October 2018 Skills Industry Accounting Commercial ClinicalJOHN SAMUELNon - Executive ChairmanSkills: External Appointments: Chairman, Vernacare Group LtdBio:John Samuel joined Tissue Regenix in March 2008. John qualified as a Chartered Accountant with Price Waterhouse and has held a number of senior finance positions in industry, including as Financial Director of Whessoe plc and Ellis & Everard plc. He was formerly the CEO of the Molnlycke Health Care Group, a global provider of single use surgical and wound care products to the healthcare sector. Until January 2010 he was a Partner with Apax Partners LLP. John is also Chairman of Vernacare Group Ltd, and previously Xeros Technology, stepping down in H1 2019.STEVE COULDWELLChief Executive OfficerSkills: External Appointments: Non-Executive Director of Zilico LtdBio:Steve has over 25 years’ experience in the pharmaceutical and medical device industry. He was formerly Chief Operating Officer and Head of Global Biosurgery division at Sanofi, which has revenues of approximately $750m. With a proven international track record in driving revenues and profit growth in the pharmaceutical, medical device and CRO industries, Steve was formerly Vice President and General Manager of Covance Laboratories Europe and worked for Smith & Nephew for almost 20 years in a number of roles including President Orthopaedics (Europe) and Senior VP Sales and Marketing for Smith & Nephew’s Advanced Wound Management business.GARETH JONESChief Financial OfficerSkills: External Appointments: N/ABio:Gareth has 27 years’ experience in finance having qualified as a Chartered Accountant in 1993 with PwC. In recent years he has worked as Chief Financial Officer for LSE listed Applied Graphene Material. Prior to this he was at Emco Wheaton Division of private equity owned Gardner Denver Inc., the global provider of industrial equipment, technologies and services, where he joined as Finance Director in 2013. Prior to this he spent seven years as Finance Director of private equity backed start-up, Vireol Bio-Industries plc, which was seeking funding to design, construct and operate a bioethanol process facility. Between 1995 and 2006 Gareth was employed by Syltone plc. After its acquisition by Gardner Denver Inc. in 2004, Gareth became European Finance Director and then Divisional Finance Director of the Blower Division. In this capacity he was responsible for the day-to-day financial operations of the Group’s largest division, operating across four continents, with revenues of circa. $480m. He graduated from the University of Nottingham in 1989 with a BEng.TISSUE REGENIX GROUP PLC 30Profile of the current DirectorsTissue Regenix AR 2018.indd 3031/05/2019 17:38:47 26460 31 May 2019 5:35 pm Proof 6Joined the Group: March 2008 ALAN MILLERNon-Executive Director Skills: Committees: External Appointments: N/ABio:Alan Miller is the Chief Investment Officer and a Founding Partner of SCM Direct, an online wealth management company. He was formerly the Chief Investment Officer and founding shareholder of New Star Asset Management from early 2001 until early 2007. Prior to that, Alan was a Director at Jupiter Asset Management, in charge of their specialist high performance division between 1994 and 2000. He is also a qualified accountant and alumni of the London Business School.Joined the Group: June 2013 RANDEEP SINGH GREWALNon-Executive DirectorSkills: Committees: External Appointments: NED at BB Healthcare Bio:Randeep Grewal is a fund manager at Trium Capital LLP. He has 17 years of experience in institutional investing having worked at F&C Asset Management, ICAP Equities and Tudor Capital, where he spent ten years covering and investing in healthcare companies. He is also a non-executive director of BB Healthcare Investment Trust, listed on the London Stock Exchange, since Dec 2016. Randeep has been involved in a number of startup and early stage companies both personally and as an investor. He read medicine at the University of Cambridge.Joined the Group: January 2016 JONATHAN GLENNNon-Executive DirectorSkills: Committees: External Appointments: CEO Consort Medical plcBio:Jonathan was Group Finance Director of Consort Medical plc from September 2006 to December 2007 until he took up the position of Chief Executive Officer in December 2007. Prior to joining Consort Medical plc, Jonathan was global Head of Finance at Celltech Group plc and later Chief Financial Officer of Akubio Ltd, a Cambridge-based developer of instrumentation for the life sciences industry. Jonathan is a member of the Institute of Chartered Accountants in England and Wales.Joined the Group: June 2016 SHERVANTHI HOMER-VANNIASINKAMNon-Executive DirectorSkills: External Appointments: N/ABio:Shervanthi Homer-Vanniasinkam graduated from Mysore University in India in 1981. She later became a Fellow of the Royal College of Surgeons of Edinburgh in 1989, and a Fellow of the Royal College of Surgeons of England in 1998. She was appointed Consultant Vascular Surgeon at Leeds General Infirmary in 1995, a post she continues to hold. She also holds a number of appointments with various higher education and health trusts around the country including: Consultant Vascular Surgeon, The General Infirmary at Leeds, Clinical Sub-Dean, University of Leeds Medical School, Professor of Surgery (Founding), University of Warwick Medical School and University Hospitals Coventry and Warwickshire NHS Trust, Professor of Engineering and Surgery, University College London.Annual Report and Accounts for the year ended 31 December 201831GOVERNANCETissue Regenix AR 2018.indd 3131/05/2019 17:38:51 Corporate governance
BOARD OF
DIRECTORS
& COMMITTEES
RISK &
PERFORMANCE
MANAGEMENT
LEGAL
&
REGULATORY
COMMUNICATION
CODE OF
CONDUCT &
ETHICS
The Company deploys several levels of Corporate
Governance Management in order to minimise risk and
ensure compliance and strategic alignment throughout
all members of the Group and its subsidiary companies.
INTRODUCTION
The Board of Tissue Regenix Group plc recognises the importance
of strong corporate governance and business ethics. During
2018 the Company adopted the latest Quoted Company Alliance
Corporate Governance Code, which came into effect in September
2018. More details of how we have implemented the code are
available on the Company website www.tissueregenix.com
CULTURE AND BUSINESS ETHICS
As a company that operates in a highly regulated and sensitive
environment, we ensure that we operate with a vigorous code
of conduct and ethics. We also monitor any existing and potential
partners to ensure that they align with our Company values.
We look to always operate with the highest standards and
integrity in any activity we undertake as a business and expect
our employees to embrace this culture and values of the Company.
We believe that we can only truly be successful if we are engaged
with each individual employee.
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GOVERNANCE
The Board of Directors and Committees
Our Communication Channels
The Board is ultimately responsible for business strategy and the
financial robustness of the Group, monitoring the internal control
system, reviewing accounting information, potential business
risks, employee policies and market communications. The Board
also operates two subcommittees, the Audit and Remuneration
Committees, to ensure compliance with market regulations.
Audit
Committee:
Remuneration
Committee:
Alan
Miller
Randeep
Grewal
Stakeholder Why
How
Shareholders
– Financial position
– Investor relations
and results
activities
– Corporate strategy
and milestones
– Annual Report
& Accounts
– Corporate Governance
– Analyst notes
Employees
– Inclusion
– Webcasts,
presentations
and interviews
– Email updates
– Development
– Town halls
Randeep
Grewal
Jonathan
Glenn
Alan
Miller
Jonathan
Glenn
Customers
– Health and Safety
and HR
– Customer retention
– Customer identification
– Understanding
their needs
– Product education
– Team training
– Employee surveys
– One-to-one
meetings
– Practical training
sessions
– Conference
attendance
– Technical literature
– Regular business
planning meetings
– Supplier audits
– Expected Code
of Conduct
Suppliers
– Supply chain
management
Corporate Governance
The Directors recognise the importance of sound corporate
governance and in September 2018 applied the Quoted Company
Alliance Corporate Governance Code for small-mid size quoted
Companies.
The Board
The Board of Directors currently comprises two Executive Directors,
a Non-Executive Chairman, and four Non-Executive Directors
(NEDs). The Board considers that its size and composition, balance
of skills and experience is currently in line with the requirements of
the business. There is a clear division of responsibilities between
the Chairman and the CEO. The Chairman is primarily responsible
for leading the Board and makes himself available to meet with
shareholders. The CEO is responsible for the execution of the
Group’s agreed strategy and the day-to-day running of the Company.
Training is made available to each of the NEDs to ensure that they are
completely aware of their regulatory responsibilities and requirements.
The Board aims to meet a minimum of ten times a year and Directors
are encouraged to attend all meetings with allowances being made
for the attendance via Skype if physical attendance is not possible.
Legal and Regulatory
We employ several legal and regulatory advisers, for both our stock
exchange listing and also validation of our products and clinical trial
pathways.
Risk and Performance Management
As a company we are aware of, and continually monitor, the primary
risks to our business, and any external developments that occur
that could have a detrimental effect on the performance of the
Company. The Board maintains the responsibility for identifying the
main business risks faced by the Group and the necessary mitigating
actions to be taken to manage these proactively. Internally, we report
our monthly performance against a number of objectives and cost of
goods allowing us to track performance management and identify any
potential improvements to our structure and operational efficiencies.
These risks are categorised into seven types being; Operational;
Clinical and Regulatory; Commercial; Product Development; Finance
& IT; HR; and Political and Economic landscape. More about the
principal risks for the Company can be found on pages 25 to 27.
Communications
The Board recognises the importance of maintaining good
communication with all stakeholders and Shareholders. We look
to communicate in the timeliest manner possible through a variety
of different mediums. The Board reviews all relevant information to
ensure that the correct information is adequately explained to offer
transparency and be a true reflection of the Company. Executive
Directors and the Chairman are available to meet with institutional
investors and analysts following the interim and annual results
and at any other appropriate time during the year. The Interim and
Annual Reports are sent to all shareholders, who are encouraged to
attend the Company’s Annual General Meeting. These reports can
also be found on the Company website, along with any regulatory
news releases, analyst notes, presentations and webcasts. Internal
and cross-company communications are equally as valued, and
we have a number of staff engagement initiatives in order to keep
knowledge and alignment with the corporate positioning, values
and progress high.
Annual Report and Accounts for the year ended 31 December 2018
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26460 31 May 2019 5:35 pm Proof 6THE ROLES OF THE BOARDJohn Samuel - Chairman |Provides a sounding board for the CEO on key business decisions |Ensure effective communications with shareholders and stakeholders |Facilitates discussions of the Board and ensures contributions from all Executive and Non-Executive Directors are considered |Ensures the effectiveness of the Board in all decision-making Steve Couldwell – CEO |Develops and implements the Group’s strategy with input for the rest of the Board, management team and its advisors |Responsible for the overall operational activity of the Group |Manages the day-to-day business of the Group and leads the strategic direction |Promotes the Company Vision, Mission, Values and Culture throughout the Group Gareth Jones – CFO and Company Secretary |Responsible to the Board and for ensuring its compliance with procedures and regulations |Responsible for advising the Board on all governance matters |Responsible under the Chairman for ensuring that the Board receives timely and accurate information.Non-Executive Directors |Constructively challenge the Executive Directors on matters affecting the Group |Bring complementary skills and experience to the Board |Help develop strategy and bring an independent outlook |Chair the Audit Committee (Alan Miller) |Chair the Remuneration Committee (Randeep Grewal) Leadership & EffectivenessThe Board has extensive operational, commercial and industry experience, augmented by clinical specialists. As a team the Board also benefits from significant financial, public company and transactional experience. Board meetings are encouraged to be open for discussion and constructive allowing all members to express their views and overall it is determined that the Board operates in an effective manner where all members are considered to have made a valuable contribution to the leadership of the Company. Furthermore, the Board recognizes its regulatory responsibilities and requirements and it is felt that the appropriate processes are in place for setting the strategic direction of the Group, whilst maintaining the highest standards always. Audit CommitteeThe Audit Committee’s primary responsibilities are to monitor the integrity of the financial affairs and statements of the Company, to ensure that the financial performance of the Company and any subsidiary of the Company is properly measured and reported on, to review reports from the Company’s Auditor relating to the accounting and internal controls. The Audit Committee recommends to the Board the appointment and re-appointment of external auditors. During the year the Audit committee undertook an audit tender process which resulted in RSM UK Audit LLP replacing KPMG LLP as the Group’s auditors. The Audit committee considers the scope and results of the external audit and its cost effectiveness. It also reviews the fees, independence and objectivity of the external auditors by discussing with the auditors their annual assessment regarding their independence, policies and procedures and analysing the fees for audit and non-audit work. The Group’s external auditors have unrestricted access to the Audit Committee and attend the Audit Committee meetings throughout the year. The Executive Directors attend Audit Committee meetings by invitation only. The Audit Committee comprises Alan Miller, who acts as chairman of the committee, Jonathan Glenn and Randeep Grewal.Remuneration Committee The Remuneration Committee report is set out on pages 36 to 39. Internal ControlThe Board is responsible for maintaining a sound system of internal control. The Board’s measures are designed to manage rather than eliminate risk, and such a system provides reasonable but not absolute assurance against material misstatement or loss. The Board confirms that it has established the procedures necessary to implement the guidance in the “Internal Control Guidance for Directors on the Combined Code” (The Turnbull Report). Some key features of the internal control system are: i. Management accounts information, budgets, forecasts and business risk issues are regularly reviewed by the Board which meets at least ten times per year; ii. The Company has operational, accounting and employment policies in place;iii. The Board actively identifies and evaluates the risks inherent in the business and ensures that appropriate controls and procedures are in place to manage these risks; iv. There is a clearly defined organisational structure; and v. There are well-established financial reporting and control systems.TISSUE REGENIX GROUP PLC 34Corporate governancecontinuedTissue Regenix AR 2018.indd 3431/05/2019 17:38:52 26460 31 May 2019 5:35 pm Proof 6Going ConcernAs at 31 December 2018, the Group had £7,816k of cash and cash equivalents available to it and on 3 June 2019 the group entered into a new debt facility providing total funds of $20m of which $10.5m is available immediately, $5m is available from 2020 subject to further equity funding, and $2.5m is available from 2021 on achievement of sales targets, with a further $2m available to draw down at any time. The new debt facility comprises a term loan of $15m, repayable over four years from 2020 to 2024 and a revolving credit facility of $5m.The Directors have considered their obligation, in relation to the assessment of the going concern of the Group and each statutory entity within it and have reviewed the current budget cash forecasts and assumptions through to 31 December 2020 as well as the main risk factors facing the Group as set out on pages 26–27. The Directors have also considered the mitigating actions that could be taken in the event that the conditional elements of the new debt facility do not become available.After due enquiry and consideration, and taking account of the currently available elements of the new debt facility, the Directors consider that the Group has adequate financial resource to continue in operational existence for at least 12 months from the date of approval of these financial statements. Accordingly, they have adopted the going concern basis in preparing the financial statements.Annual Report and Accounts for the year ended 31 December 201835GOVERNANCETissue Regenix AR 2018.indd 3531/05/2019 17:38:52 Directors’ remuneration report
Remuneration Policy
The Group’s remuneration policy is to provide Executive Directors with
a competitive market-based package in order to reward individual and
Group performance and deliver outstanding shareholder returns.
The Remuneration Committee is committed to ensuring that the
Company’s key executive team is incentivized to drive sustainable
earnings growth and returns to shareholders, thereby creating
a genuinely strong alignment of interests between management
and investors.
It is the Company’s policy that Executive Directors should have
contracts with an indefinite term providing for a maximum of six
months’ notice. In the event of early termination, the Executive
Directors’ contracts provide for compensation up to a maximum of
basic salary for the notice period.
Non-Executive Directors are employed on letters of appointment
which may be terminated on not less than three months’ notice.
Companies with securities listed on AIM do not need to comply
with the UKLA Listing Rules. The Remuneration Committee is however
committed to maintaining high standards of corporate governance
and disclosure and has applied the guidelines as far as practical
given the current size and development of the Company.
Remuneration Committee
The Remuneration Committee’s primary responsibilities are to review
the performance of the Executive Directors of the Company and to
determine the broad policy and framework for their remuneration
and the terms and conditions of their service and that of senior
management (including the remuneration of and grant of options to
such persons under any share scheme adopted by the Company).
The Remuneration Committee comprises Randeep Grewal as Chair of
the Committee, Alan Miller and Jonathan Glenn. The committee meets
no less than twice in each financial year.
The main elements of the remuneration packages for Executive
Directors and senior management are:
Basic Annual Salary
The base salary is reviewed annually at the beginning of each year.
The review process is undertaken by the Remuneration Committee
taking into account several factors, including the current position and
development of the Group, individual contribution and market salaries
for comparable organisations.
Discretionary Annual Bonus
All Executive Directors and senior managers are eligible for a
discretionary annual bonus which is paid in accordance with a bonus
scheme developed by the Remuneration Committee. This takes into
account individual contribution, business performance and commercial
progress, in accordance with the Group’s strategy along with financial
results.
On 24 April 2014 the Remuneration Committee approved the
implementation of a deferred annual bonus plan to commence from
the financial year ended 31 January 2014 (the “Deferred Annual
Bonus Plan”). Under the terms of the Deferred Annual Bonus Plan,
Directors and senior managers may waive up to 50% of their annual
cash bonus and in return receive a share option over ordinary shares
in the Company (the “Deferred Allocation”). The number of ordinary
shares comprising the Deferred Allocation (i.e. subject to the option)
will be calculated by dividing the amount of the cash bonus waived
by the closing market value of the ordinary shares of the Company on
the dealing day immediately prior to the date of deferral of the bonus.
The Deferred Allocation option is not capable of exercise until the
vesting date has been reached which is three years from the date of
grant of the award. By participating in the Deferred Annual Bonus Plan
Directors and senior managers will be entitled to receive a matching
award at no additional cost (the “Matching Allocation”). The Matching
Award will be an option over ordinary shares in the Company.
The number of ordinary shares comprising the Matching Allocation
will be equivalent to three times the number of ordinary shares
received in the Deferred Allocation. Participants will not be entitled
to receive the Matching Allocation until the vesting date is reached
which is three years from the date of grant of the award.
Additionally, participants will not be entitled to receive the Matching
Award unless shares price growth performance targets have been
achieved and those price targets sustained for 30 consecutive days.
Share Incentive Schemes
The Group operates a share option plan, under which certain
Executive Directors and senior management have been granted
options to subscribe for ordinary shares. All options are equity settled.
The options are subject to service and performance conditions,
have an exercise price of between 0.5 pence and 22.5 pence and
the vesting period is generally 1– 3 years. If the options remain
unexercised after a period of 10 years from the date of grant, the
options expire. The Group has no legal or constructive obligation to
repurchase or settle the options in cash.
In addition, certain Executive Directors are eligible to acquire interests
in ordinary shares in the Company to be owned jointly with the trustee
of the Tissue Regenix Group Employee Share Trust (EBT) and under
which, subject to meeting performance criteria conditions, most of any
future increase in the value of the shares will accrue to the employees.
Remuneration Policy
for Non-Executive Directors
Remuneration for Non-Executive Directors is set by the Chairman
and the Executive Members of the Board. Non-Executives do not
participate in bonus schemes.
36
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GOVERNANCE
Directors’ Remuneration
The remuneration of the main Board Directors of Tissue Regenix who served in the year to 31 December 2018 was:
John Samuel
Steven Couldwell
Gareth Jones (appointed 29 October 2018)
Randeep Grewal
Jonathan Glenn
Alan Miller
Shervanthi Homer-Vanniasinkam
Antony Odell (resigned 1 November 2017)
Paul Devlin (resigned 31 January 2018)
Total
Salary & fees
£000
111
225
31
35
30
35
30
–
15
512
Total up to
December
2018
£000
111
356
33
35
30
35
30
–
15
645
Total up to
December
2017
£000
110
63
–
28
30
33
30
343
185
822
Benefits
£000
–
11
2
–
–
–
–
–
–
13
Bonus
£000
–
120
–
–
–
–
–
–
–
120
* Included within this salary is £50,000 for exiting the business, and £85,000 in lieu of notice
Within the 2017 total the bonus was nil and the benefits were £29K split Antony Odell £20K, Paul Devlin £8K, Steven Couldwell £1K.
Directors’ Shareholdings
Directors’ interests in the shares of the Company, including family interests at 31 December 2018 were:
John Samuel (note 2)
Alan Miller
Steven Couldwell
Jonathan Glenn
Shervanthi Homer-Vanniasinkam
Note 2. Includes shares held jointly by the Director and EBT as set out overleaf.
31
December
2018
Number
26,276,928
22,886,988
300,000
600,000
250,000
31
December
2018
%
2.22%
1.97%
0.03%
0.06%
0.02%
31
December
2017
Number
26,276,928
22,886,988
300,000
600,000
250,000
31
December
2017
%
2.22%
1.97%
0.03%
0.06%
0.02%
Annual Report and Accounts for the year ended 31 December 2018
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Directors’ remuneration report
continued
Directors’ Interests in Jointly Owned EBT Shares and Share Options
Directors’ interests in shares owned jointly with the Trustees of the Tissue Regenix Group Employee Benefit Trust (EBT) and in share options to
acquire ordinary shares of 0.5 pence each in the Company at 31 December 2018 were:
Approved EMI scheme options
John Samuel (Note 1)
John Samuel (Note 2)
Paul Devlin (Note 4)
Unapproved scheme options
John Samuel (Note 3)
Steven Couldwell (Note 5)
EBT scheme shares (Note 6)
John Samuel
At 1 January
2018
Exercised
during year
Lapsed
during year
Granted
during year
At 31
December
2018
Exercise
price
2,400,000
577,777
2,272,727
88,890
–
10,740,000
–
–
–
–
–
–
–
–
2,272,727
–
–
–
2,400,000
577,777
–
5.00 pence
22.50 pence
11.00 pence
–
–
–
–
10,000,000
88,890
10,000,000
22.50 pence
0.08 pence
–
10,740,000
5.00 pence
Note 1. There were employment period and performance conditions in relation
to the 2,400,000 options granted on 29 June 2010 which allowed for vesting in
three equal proportions on or after the three consecutive annual anniversaries
from the date of grant, subject to the Company’s share price reaching 10 pence
per share, 15 pence per share and 20 pence per share by the respective three
vesting dates. As at 31 December 2018 all the performance conditions had
been met and the options were eligible for exercise.
Note 5. There were employment period and performance conditions in relation
to the 10,000,000 options granted on 02 January 2018 which allowed for
vesting in three equal proportions on or after the three consecutive annual
anniversaries from the date of grant, subject to the Company’s share price
reaching 8 pence per share, 10 pence per share and 12 pence per share
by the respective three vesting dates. As at 31 December 2018 none of the
performance conditions had been met.
Note 2. There were employment period and performance conditions in relation
to the 577,777 options granted on 4 February 2014 which allowed for vesting
in three equal proportions on or after the three consecutive annual anniversaries
from the date of grant, subject to the Company’s share price reaching 30 pence
per share, 40 pence per share and 50 pence per share by the respective three
vesting dates. As at 31 December 2018 none of the performance conditions had
been met and no options were eligible for exercise.
Note 3. There were employment period and performance conditions in relation
to the 88,890 options granted on 4 February 2014 which allowed for vesting in
three equal proportions on or after the three consecutive annual anniversaries
from the date of grant, subject to the Company’s share price reaching 30 pence
per share, 40 pence per share and 50 pence per share by the respective three
vesting dates. As at 31 December 2018 none of the performance conditions had
been met and no options were eligible for exercise.
Note 4. There were employment period and performance conditions in relation
to the 2,272,727 options granted on 21 July 2017 which allowed for vesting in
three equal proportions on or after the three consecutive annual anniversaries
from the date of grant, subject to the Company’s share price reaching 15 pence
per share, 20 pence per share and 30 pence per share by the respective three
vesting dates. As at 31 December 2018 none of the performance conditions had
been met and the options lapsed,
Note 6. The Tissue Regenix Group Employee Benefit Trust (“the EBT”) was
established with Osiris Management Services Limited appointed as trustee
(“the Trustee”) to enable the Trust to acquire ordinary shares in the Company
and to make interests in those shares available for the benefit of current and
future employees of the Company and its subsidiaries. Antony Odell and John
Samuel have interests in ordinary shares in the Company which were acquired
jointly with the Trustee in the market on 29 June 2010 at a price of 5 pence per
share. Ian Jefferson has an interest in ordinary shares in the Company which
were acquired jointly with the Trustee in the market on 25 July 2012 at a price of
14.25 pence. The shares were all acquired pursuant to certain conditions set out
in Joint Owned Equity agreements (“JOEs”). Subject to meeting the performance
criteria conditions set out in the JOEs, most of any future increase in the value
of the shares will accrue to the employees provided that they have not ceased
employment with the Group on or before the date that these conditions are met.
The employees are also under certain circumstances able to benefit from an
increase in the value of the shares on a takeover, change of control, scheme of
arrangement or a voluntary winding-up of the Company. Where the performance
conditions are not met, the Trustee has an option to acquire the interests of the
employees in the shares at a price equal to the original purchase cost they paid
so that none of any increase in the value of the shares will accrue to them. The
market price of the shares at 31 December 2018 was 6.50 pence per share, the
highest and lowest prices during the year were 11.50 pence and 6.50 pence
respectively. Further details of all share options and jointly owned shares held by
the Trustee are set out in note 19 to the financial statements.
On behalf of the Board
Randeep Grewal
Chairman of the Remuneration Committee
4 June 2019
38
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Directors’ report
GOVERNANCE
The Directors present their report and consolidated financial statements for
the Tissue Regenix Group plc, and its subsidiary undertakings for the year ended
31 December 2018.
Principal Activity
The principal activity of the Group is the exploitation of innovative platform technologies in the field of tissue engineering and regenerative
medicine. The Company is incorporated and domiciled in the UK and is listed on the London Stock Exchange Alternative Invest Market.
The subsidiary undertakings principally affecting the Group are listed in note C5 of the Company’s financial statements.
Business Model
A description of the Company’s business model is included on pages 10 to 11. Explanations of activities and how it seeks to add value are
included in the Chairman’s Statement on page 02 and Chief Executive’s Q&A and Operational Review report on pages 06 to 07 and 18 to 24.
Business Review and Results
A review of the Group’s performance and future prospects is included in the Chairman’s Statement on page 02 and Chief Executive’s Q&A and
Operational Report on pages 06 to 07 and 18 to 24, as well as the future milestones and KPIs set out on pages 14 to 16. The loss for the 12
months attributable to equity holders of the parent was (£8,186K) (2017: £9,221). The Directors do not recommend the payment of a dividend
(2017: nil).
Share Capital and Funding
Full details of the Group and Company’s share capital movements during the year are given in note 17 to the financial statements.
Directors and Their Interests
The following Directors held office in the year:
John Samuel
Steve Couldwell
Gareth Jones (appointed 29 October 2019)
Jonathan Glenn
Shervanthi Homer-Vanniasinkam
Alan Miller
Randeep Singh Grewal
Directors’ interests in the shares of the Company, including family interests, are included in the Remuneration Report on pages 36 to 38.
Directors’ Indemnity Insurance
The Group has maintained insurance throughout the year for its Directors and officers against the consequences of actions brought against
them in relation to their duties for the Group.
Corporate Governance
The Corporate Governance report is set out on pages 32 to 35.
Annual Report and Accounts for the year ended 31 December 2018
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Directors’ report continued
Substantial Shareholders
As at 31 December 2018, shareholders holding more than 3% of the share capital of Tissue Regenix Group plc were:
Name of shareholder
Invesco Limited
Woodford Investment Management Ltd
IP Group
Baillie Gifford & Co Ltd
Jupiter Asset Management
Director and Related Holdings(s)
% of
Number of
voting rights
shares
28.98
336,709,939
26.23
307,163,872
13.74
160,837,567
6.04
70,764,595
69,740,965
5.96
50,313,916* 4.33
* Includes 10,740,000 shares held jointly by the Director and the Tissue Regenix Employee Share Trust.
Employment Policies
The Group is committed to keeping employees as fully informed as possible regarding the Group’s performance and prospects and seeks their views,
wherever possible, on matters which affect them as employees. More information can be found in our Sustainability report on pages 28 to 29.
Statement as to Disclosure of Information to the Auditor
The Directors who were in office on the date of approval of these financial statements have confirmed, that as far as they are aware, there is no
relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought
to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated
to the Auditor.
Financial Instruments
Further details of financial risk management objectives and policies are set out on pages 25 to 27 and in note 14 of the financial statements.
Auditor
On 14 November 2018 KMPG resigned as Auditor and subsequently RSM UK Audit LLP (RSM) were appointed. RSM have indicated willingness
to continue in office, in accordance with the recommendation of the Audit Committee and section 489 of the Companies Act 2006. A resolution
to reappoint RSM as the Company’s Auditor will be proposed at the forthcoming Annual General Meeting.
Strategic Report
The Group has chosen in accordance with Companies Act 206 s414C (11) to set out in the Group’s strategic report information required by
Large and Medium -sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch 7 to be contained in the directors’ report in
relation to research and development and future developments.
The Directors Report was approved by the Board on 3 June 2019.
On behalf of the Board
Steve Couldwell
Chief Executive Officer
40
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Statement of
directors’ responsibilities
In respect of the Annual Report and the financial statements
FINANCIALS
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group’s and the
company’s transactions and disclose with reasonable accuracy at
any time the financial position of the group and the company and
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the group and the company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Tissue Regenix
Group website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
The directors are responsible for preparing the Strategic Report and
the Directors’ Report, and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare group and company
financial statements for each financial year. They are required by the
AIM Rules of the London Stock Exchange to prepare group financial
statements in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union (“EU”) and
have elected under Company law to prepare the company financial
statements in accordance with IFRS as adopted by the EU.
The group financial statements are required by law and IFRS adopted
by the EU to present fairly the financial position and performance
of the group; the Companies Act 2006 provides in relation to such
financial statements that references in the relevant part of that Act to
financial statements giving a true and fair view are references to their
achieving a fair presentation.
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 the company and of the profit or
loss of the group for that period.
In preparing each of the group and company financial statements, the
directors are required to:
a. select suitable accounting policies and then apply them
consistently;
b. make judgements and accounting estimates that are reasonable
and prudent;
c. state whether they have been prepared in accordance with IFRS as
adopted by the EU;
d. prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the group and the company will
continue in business.
Annual Report and Accounts for the year ended 31 December 2018
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Independent auditor’s report
To the members of Tissue Regenix Group PLC
OPINION
We have audited the financial statements of Tissue Regenix Group
Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the
year ended 31 December 2018 which comprise the consolidated
statement of comprehensive income, the consolidated and parent
company statements of changes in equity, the consolidated and
parent company statements of financial position, the consolidated
and parent company statements of cash flows and notes to the
financial statements, including a summary of significant accounting
policies. The financial reporting framework that has been applied in
their preparation 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:
| the financial statements give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 December
2018 and of the group’s loss for the year then ended;
| the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
| the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the 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 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 SME 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.
CONCLUSIONS RELATING
TO GOING CONCERN
We have nothing to report in respect of the following matters in relation
to which the ISAs (UK) require us to report to you where:
| the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate; or
| the directors have not disclosed in the financial statements any
identified material uncertainties that may cast significant doubt
about the group’s or the parent company’s ability to continue to
adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are
authorised for issue.
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FINANCIALS
We obtained management’s calculation of expected credit losses
and the underlying calculations prepared to support the carrying
value of these receivable balances. In addition, we reviewed and
challenged the assumptions utilised in the model, consulted with a
valuation specialist and considered the adequacy of the disclosures
set out in notes C2 and C7 regarding the key judgements made by
management in their ECL provision calculation.
Potential impairment of investment in subsidiary undertakings
The parent company has a significant investment in its subsidiary
undertaking (Tissue Regenix Limited) and that entity and the other
indirectly held subsidiary undertakings of the group are currently loss
making. One of the most significant matters in the current year audit of
the parent company is therefore that this investment balance may be
impaired and require an impairment provision. As disclosed in note C5,
the carrying value of this investment at 31 December 2018 was £18.6m.
We discussed with management whether the carrying value of the
investment was supportable taking into account the strategic plans
established by the board in respect of the group and we obtained
management’s assessment of recoverable amount. We challenged
management to consider both fair value less costs of disposal
and value in use using forecasts consistent with those adopted for
management’s going concern assessment. We consulted with a
valuation specialist regarding management’s assessment of fair value
less costs of disposal with reference to share price performance and
assessed the reasonableness of disclosures set out in note C2.
OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy, we set certain thresholds
which help us to determine the nature, timing and extent of our audit
procedures. When evaluating whether the effects of misstatements,
both individually and on the financial statements as a whole, could
reasonably influence the economic decisions of the users we take
into account the qualitative nature and the size of the misstatements.
During planning materiality for the group financial statements as
a whole was calculated as £271,000, which was not significantly
changed during the course of our audit. Materiality for the parent
company financial statements as a whole was calculated as
£215,000, which was not significantly changed during the course of
our audit. We agreed with the Audit Committee that we would report
to them all unadjusted differences in excess of £5,000, as well as
differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
AN OVERVIEW OF THE
SCOPE OF OUR AUDIT
Our group audit scope included the full scope audit of all components
requiring a statutory audit and any other financially significant
components being those with revenue, profit before tax or net assets
individually in excess of 20% of the relevant group metric. These were
performed at a materiality level determined by reference to the scale
of the business concerned. Our full scope audit work covered 100%
of group revenue, 100% of group loss before taxation, and 100%
of group net assets.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the group and parent
company 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 group and parent
company financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters
Group key audit matters
Impairment testing on CellRight Technologies LLC (“CellRight”) cash
generating unit
As disclosed in note 11, the CellRight cash generating unit (CGU)
includes goodwill of £15.3m. CellRight was acquired in 2017 and the
presence of goodwill requires an impairment test to be performed
at least annually. Any recorded impairment charge would most likely
have a material impact on the financial statements and we therefore
considered this matter to be one of the matters of most significance
in the current year audit.
Impairment testing requires management to compare the carrying
amount of the CGU's attributable assets and liabilities with the higher
of fair value less costs of disposal and value in use (“recoverable
amount”). Where the carrying amount is higher than recoverable
amount then an impairment charge arises. Impairment testing
involves a significant degree of judgement because management’s
determination of value in use is based on a number of assumptions
including an assessment of future performance and the selection of an
appropriate discount rate.
Management provided us with an impairment model for the CellRight
CGU as detailed in note 11 that showed no impairment provision was
necessary. We performed audit work on this model by:
| Assessing the appropriateness and application of the model
used including consideration of the assumptions made about the
discount rate and the expected future trading performance,
| Reviewing historic performance and accuracy of forecasting and
considering sensitivities reflecting changes in growth rates and the
discount rate.
We discussed the forecasts, discount rate and sensitivity analysis with
management and challenged key assumptions, requesting evidence
where available to support management’s conclusions.
Parent company key audit matters
Recoverability of intragroup receivables
The parent company has receivable balances from subsidiary
undertakings that are currently loss making. These balances are
interest free and repayable on demand and at the balance sheet
date the subsidiary undertakings do not have sufficient liquid assets
to make repayment should the parent company call in the loans.
One of the most significant matters in the current year audit of the
parent company is therefore that these receivable balances may be
impaired and an Expected Credit Loss (“ECL”) provision required
following the introduction of IFRS9 Financial Instruments. At the
31 December 2018, the carrying value of amounts due from group
undertakings amounted to £64.4m after recording an ECL provision
of £1.3m (see note C7).
Annual Report and Accounts for the year ended 31 December 2018
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Independent auditor’s report continued
To the members of Tissue Regenix Group PLC
OTHER INFORMATION
The directors are responsible for the other information. The other
information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement
in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
OPINIONS ON OTHER MATTERS
PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion, based on the work undertaken in the course of
the audit:
| 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 their 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:
| 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
| we have not received all the information and explanations we
require for our audit.
44
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FINANCIALS
USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
MICHAEL THORNTON
(SENIOR STATUTORY AUDITOR)
For and on behalf of RSM UK AUDIT LLP, Statutory Auditor
Chartered Accountants
Central Square
5th Floor
29 Wellington Street
Leeds
LS1 4DL
3 June 2019
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set
out on page 41, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group’s and the parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or
to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES
FOR THE AUDIT OF THE FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion.
Reasonable assurance is a high level of assurance but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Annual Report and Accounts for the year ended 31 December 2018
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Consolidated statement of comprehensive income
For the year ended 31 December 2018
REVENUE
Cost of sales
GROSS PROFIT
Administrative expenses before exceptional items
Exceptional items
Total administrative expenses
OPERATING LOSS
Finance income
Finance charges
LOSS BEFORE TAXATION
Tax
LOSS FOR YEAR
ATTRIBUTABLE TO:
Equity holders of the parent
Non-controlling interests
OTHER COMPREHENSIVE INCOME:
Foreign currency translation differences – foreign operations
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR
ATTRIBUTABLE TO:
Equity holders of the parent
Non-controlling interests
LOSS PER SHARE
Basic and diluted loss attributable to equity holders of parent
The loss for the period arises from the Group’s continuing operations.
The accompanying notes form an integral part of the financial statements.
Notes
3
3
4
4
6
7
8
9
Year to
31 December
2018
£000
11,619
(5,702)
5,917
(14,183)
(423)
(14,606)
(8,689)
72
(262)
(8,879)
620
(8,259)
Year to
31 December
2017
£000
5,233
(2,627)
2,606
(12,324)
(1,098)
(13,422)
(10,816)
47
–
(10,769)
1,348
(9,421)
(8,186)
(73)
(8,259)
(9,221)
(200)
(9,421)
1,360
(6,899)
(614)
(10,035)
(6,826)
(73)
(6,899)
(9,835)
(200)
(10,035)
9
(0.70)p
(1.00)p
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Consolidated statement of comprehensive income
For the year ended 31 December 2018
Consolidated statement of financial position
At 31 December 2018
FINANCIALS
31 December
2018
£000
31 December
2017
£000
Notes
10
11
12
13
13
14
2,828
19,938
22,766
2,330
3,551
1,200
7,816
14,897
37,663
2,994
19,305
22,299
2,872
2,503
1,665
16,423
23,463
45,762
15
16
–
(791)
(791)
(635)
(824)
(1,459)
15
17
17
17
17
19
20
(4,302)
(4,302)
(5,093)
32,570
5,859
86,398
10,884
(7,148)
(831)
1,129
(63,239)
33,052
(482)
32,570
(4,781)
(4,781)
(6,240)
39,522
5,855
86,398
10,884
(7,148)
(831)
1,186
(56,413)
39,931
(409)
39,522
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
TOTAL NON-CURRENT ASSETS
Current assets
Inventory
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
Non-current liabilities
Other payables
Deferred Tax
TOTAL NON-CURRENT LIABILITIES
Current liabilities
Trade and other payables
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Share premium
Merger reserve
Reverse acquisition reserve
Reserve for own shares
Share based payment reserve
Retained earnings deficit
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF PARENT
Non-controlling interests
TOTAL EQUITY
Approved by the Board of Directors and authorised for issue on 3 June 2019.
Steven Couldwell
Chief Executive Officer
Company number: 5969271
Annual Report and Accounts for the year ended 31 December 2018
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Consolidated statement of changes in equity
For the year ended 31 December 2018
Attributable to equity holders of parent
Share
capital
£000
3,801
–
–
Share
premium
£000
50,461
–
–
Merger
reserve
£000
10,884
–
–
Reverse
acquisition
reserve
£000
(7,148)
–
–
Reserve
for own
shares
£000
(831)
–
–
Share
based
payment
reserve
£000
1,156
–
–
–
2,000
–
54
–
5,855
–
–
–
4
–
5,859
–
38,000
(2,318)
255
–
86,398
–
–
–
–
–
86,398
–
–
–
–
–
10,884
–
–
–
–
–
10,884
–
–
–
–
–
(7,148)
–
–
–
–
–
(7,148)
–
–
–
–
–
(831)
–
–
–
–
–
(831)
Retained
earnings
deficit
£000
(46,578)
(9,221)
(614)
(9,835)
–
–
–
–
(56,413)
(8,186)
1,360
–
–
–
–
30
1,186
–
–
–
–
(57)
1,129
(6,826)
–
–
(63,239)
Non-
controlling
interests
£000
(209)
(200)
–
(200)
–
–
–
–
(409)
(73)
–
(73)
–
–
(482)
Total
£000
11,745
(9,221)
(614)
(9,835)
40,000
(2,318)
309
30
39,931
(8,186)
1,360
(6,826)
4
(57)
33,052
Total
equity
£000
11,536
(9,421)
(614)
(10,035)
40,000
(2,318)
309
30
39,522
(8,259)
1,360
(6,899)
4
(57)
32,570
At 31 December 2016
Loss for the period
Other comprehensive expense
Loss and total comprehensive
expense for the period
Issue of shares
Cost of issue of new equity
Exercise of share options
Share based payment expense
At 31 December 2017
Loss for the period
Other comprehensive expense
Loss and total comprehensive
expense for the period
Exercise of share options
Share based payment credit
At 31 December 2018
48
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Consolidated statement of cash flows
For the year ended 31 December 2018
FINANCIALS
OPERATING ACTIVITIES
Loss before taxation
Adjustment for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share based payments
Interest receivable
Interest payable
Operating cash outflow before working capital movements
Decrease/(Increase) in inventory
(Increase) in trade and other receivables
(Decrease)/Increase in trade and other payables
Cash outflows from operations
Research & Development tax credit received
Net cash outflow from operations
INVESTING ACTIVITIES
Interest received
Purchases of property, plant and equipment
Capitalised development expenditure
Acquisition of subsidiary (including contingent consideration)
Net cash (outflow) from investing activities
FINANCING ACTIVITIES
Proceeds from issue of share capital
Proceeds from exercised share options
Net cash inflow from financing activities
(Decrease)/Increase in cash and cash equivalents
Foreign exchange translation movement
Cash and cash equivalents at start of period
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Year to
31 December
2018
£000
Year to
31 December
2017
£000
Notes
(8,879)
(10,769)
10
11
19
6
7
12
6
10
11
17
598
575
(57)
(72)
262
(7,573)
542
(1,188)
156
(8,063)
1,225
(6,838)
72
(290)
(116)
(1,564)
(1,898)
–
4
4
(8,732)
125
16,423
7,816
482
225
30
(47)
–
(10,079)
(503)
(783)
38
(11,327)
1,541
(9,786)
47
(130)
(93)
(19,945)
(20,121)
37,682
309
37,991
8,084
166
8,173
16,423
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements
For the year ended 31 December 2018
1) BASIS OF PREPARATION
The financial statements of Tissue Regenix Group plc are audited consolidated financial statements for the year ended 31 December 2018.
These include audited comparatives for the year ended 31 December 2017.
The Company is incorporated and domiciled in the United Kingdom and its registered number is 5969271. The address of the registered office
is Unit 1 and 2 Astley Way, Astley Industrial Estate, Swillington LS26 8XT. The Company was incorporated on 17 October 2006. The principle
activity of Tissue Regenix Group is develop, manufacture and commercialise biological medical devices.
The Group financial statements consolidate the financial statements of Tissue Regenix Group plc and the entities it controls, being its
subsidiaries and its joint venture interest.
Going Concern
As at 31 December 2018, the Group had £7,816k of cash and cash equivalents available to it and on 3 June 2019 the group entered into a new
debt facility providing total funds of $20m of which $10.5m is available immediately, $5m is available from 2020 subject to further equity funding,
and $2.5m is available from 2021 on achievement of sales targets, with a further $2m available to draw down at any time. The new debt facility
comprises a term loan of $15m, repayable over four years from 2020 to 2024 and a revolving credit facility of $5m.
The Directors have considered their obligation, in relation to the assessment of the going concern of the Group and each statutory entity within it
and have reviewed the current budget cash forecasts and assumptions through to 31 December 2020 as well as the main risk factors facing the
Group as set out on pages 26–27. The Directors have also considered the mitigating actions that could be taken in the event that the conditional
elements of the new debt facility do not become available.
After due enquiry and consideration, and taking account of the currently available elements of the new debt facility, the Directors consider that
the Group has adequate financial resource to continue in operational existence for at least 12 months from the date of approval of these financial
statements. Accordingly, they have adopted the going concern basis in preparing the financial statements.
2) SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared under the historical cost convention in accordance with International Financial
Reporting Standards as adopted by the European Union.
The principal accounting policies applied are set out below.
Basis of Consolidation
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements
of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-
controlling interests to have a deficit balance.
Controlled Joint Venture
Tissue Regenix Group entered a joint venture in January 2016 establishing GBM-V GmbH a company in Germany.
The results for this entity are consolidated within these accounts because the Group controls the majority of the voting rights.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated.
Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s
interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence
of impairment.
Goodwill
Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration payable and the fair
value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is tested annually for impairment as described below.
Revenue
Revenue is measured as the fair value of the consideration received or receivable in the normal course of business, net of discounts, VAT and
other sales related taxes and is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow
in to the Company, which usually coincides with the despatch of goods.
Bill and hold sales
The Group has some bill-and-hold arrangements with customers, and this revenue is recognised when the company considers that performance
obligations have been met and they meet the below requirements:
| The reason for the bill-and-hold arrangement must be substantive (for example, the arrangement might be requested by the customer) to
facilitate their shipping arrangements;
| The product must be identified separately as belonging to the customer (that is, it cannot be used by the supplier to satisfy other orders);
| The product must currently be ready for physical transfer to the customer;
| The vendor cannot have the ability to use the product, or to direct it to another customer
50
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FINANCIALS
Foreign Currencies
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity
operates (its functional currency). For the purposes of the consolidated financial statements, the results and the financial position of each Group
entity are expressed in Pounds Sterling, which are the functional currency of the Company and the presentational currency for the consolidated
financial statements.
Exchange differences arising on transaction and monetary items in the financial statements of individual entities are recorded as a profit or loss
within the income statement.
The assets and liabilities of foreign operations are translated into sterling using exchange rates at the balance sheet date. The components of
shareholders’ equity are stated at historical value. An average exchange rate for the period is used to translate the results and cash flows of
foreign operations.
Exchange differences arising on translating the results and net assets of foreign operation are recorded in other comprehensive income and
taken to the translation reserve in equity until the disposal of the investment.
Research and Development
Research costs are charged to profit and loss as they are incurred. An intangible asset arising from development expenditure on an individual
project is recognised only when all of the following criteria can be demonstrated:
| it is technically feasible to complete the product and the management is satisfied that appropriate regulatory hurdles have been,
or will be achieved;
| management intends to complete the product and use or sell it;
| there is an ability to use or sell the product;
| it can be demonstrated how the product will generate probable future economic benefits;
| adequate technical, financial and other resources are available to complete the development, use or sell the product; and
| expenditure attributable to the product can be reliably measured.
Such intangible assets are amortised on a straight-line basis, from the point at which the assets are ready for use over the period of the
expected benefit, and are reviewed for an indication of impairment at each reporting date. Other development costs are charged against profit
or loss as incurred since the criteria for capitalisation are not met.
The costs of an internally generated intangible asset comprise all directly attributable costs necessary to create, produce and prepare the asset
to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on technical
development, testing and certification, materials consumed and any relevant third party cost. The costs of internally generated developments
are recognised as intangible assets and are subsequently measured in the same way as externally acquired intangible assets. However, until
completion of the development project, the assets are subject to impairment testing only.
Exceptional Items
Items which are significant by virtue of their size or nature and/or which are considered non-recurring are classified as an exceptional operating
item. Such items, which include for example costs relating to acquisitions, litigation charges etc, are included within the appropriate consolidated
income statement category but are highlighted separately. Exceptional operating items are excluded from the profit measures used by the
Directors to monitor underlying performance.
Leases
Rentals payable under operating leases, which are leases where the lessor retains a significant proportion of the risks and benefits of the asset,
are charged in the statement of comprehensive income on a straight-line basis over the expected lease term.
Inventories
Inventories are recognised at the lower of cost and net realisable value. Cost is determined using the first in, first out method. Appropriate
provisions for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the assets are
impaired.
Property, Plant and Equipment
Property, plant and equipment assets are stated at historical cost.
Depreciation is provided on all property, plant and equipment assets at rates calculated to write each asset down to its estimated residual value
evenly over its expected useful life, as follows:
Buildings
Laboratory equipment
Computer equipment
Fixtures and fittings
Land is not depreciated.
over 39 years
over 5–7 years
over 3 years
over 5 years
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements continued
For the year ended 31 December 2018
2) SIGNIFICANT ACCOUNTING POLICIES continued
Intangible Assets
Intangible assets are stated at fair value at acquisition. Subsequently held at cost and amortisation is provided on all intangibles over its
expected useful life.
Trademarks
Customer relationships
Process & IT technology
Supplier agreements
over 5 years
over 10 years
over 10 years
over 5 years
Impairment of Property, Plant and Equipment and Intangible Assets
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment 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).
Discounted cash flow valuation techniques are generally applied for assessing recoverable amounts using 5-year forward-looking cash flow
projections and terminal value estimates, together with discount rates appropriate to the risk of the related cash generating units.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is recognised as an expense immediately.
Share Based Payments
Share options
Equity settled share-based payment transactions are measured with reference to the fair value at the date of grant, recognised on a straight-line
basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. Fair value is measured using a binomial
valuation model.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and
management’s best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately
vest. The movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with a
corresponding entry in equity.
Jointly held shares
Where an employee acquires an interest in shares in the Company jointly with the Tissue Regenix Employee Share Trust, the fair value benefit
at the purchase date is recognised as an expense, with a corresponding increase to equity share based payment reserve on a straight-line basis,
over the vesting period.
The fair value benefit is measured using a binomial valuation model, taking into account the terms and conditions upon which the jointly owned
shares were purchased.
The expected life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability,
sale restrictions, and behavioural considerations
Financial Assets and Liabilities
Trade and other receivables
Trade and other receivables do not carry any interest and are initially recognised at fair value. They are subsequently measured at amortised
cost using the effective interest rate method, less any provision for impairment.
IFRS 9 introduces a new impairment model. Under IAS 39, an entity only considers those impairments that arise as a result of incurred loss
events. The effects of possible future loss events cannot be considered, even when they are expected.
IFRS 9 introduces a new expected credit loss (‘ECL’) model which broadens the information that an entity is required to consider when
determining its expectations of impairment. Under this new model, expectations of future events must be taken into account and this will result
in the earlier recognition of larger impairments.
Impairment provisions are recognised for the group as follows, representing the probability of default over the contracted life of these balances.
Not overdue
0 to 3 months overdue
3 to 4 months overdue
4 to 5 months overdue
Over 5 months overdue
0% of aged receivables
0% of aged receivables
25% of aged receivables
50% of aged receivables
100% of aged receivables
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FINANCIALS
Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value except contingent consideration which is recognised
initially and subsequently at fair value. They are subsequently measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and deposits on a term of not greater than 6 months.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity
as a deduction.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except to the extent
that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial
recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating
to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided
is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
Critical Accounting Estimates and Areas of Judgement
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates
and assumptions that have the most significant effects on the carrying amounts of the assets and liabilities in the financial information are
discussed below:
Estimates
Equity settled share based payments
The estimation of share based payment costs requires the selection of an appropriate valuation method, consideration as to the inputs
necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest. Inputs subject to judgement relate
to the future volatility of the share price of comparable companies, the Group’s expected dividend yields, risk free interest rates and expected
lives of the options. The Directors draw on a variety of sources to aid in the determination of the appropriate data to use in such calculations.
The share based payment charge for the period was a credit of £57,000 (2017 charge: £30,000).
Judgements
Deferred tax
The actual tax on the Company’s profits is determined according to complex laws and regulations. Where the effect of these laws and
regulations is unclear, estimates are used in determining the liability for the tax to be paid on profits which are recognised in the financial
statements. The Company considers the estimates, assumptions and judgements to be reasonable, but this can involve complex issues which
may take a number of years to resolve. The final determination of tax liabilities could be different from the estimates reflected in the financial
statements. Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular,
judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and
level of future taxable income. In the current year, given that the group is still loss making, the Directors judgement is not to recognise a deferred
tax asset in respect of tax losses. Deferred tax not recognised for 2018 is £7,370k (2017: £6,089).
Capitalisation of development costs
The point at which development costs meet the criteria for capitalisation is a key judgement. During the year we capitalised development
costs of £116,000 in respect of a product which we received US regulatory clearance to sell the product (510K approval). We deem this to be
the point at which it becomes probable that future economic benefits will be received from the product and hence the criteria for capitalisation
are met.
Impairment testing of non-current assets
The point of whether to impair non-current assets is a key judgment. During the year management reviewed all non-current assets and using
current business forecasts decided that all non-current assets did not require impairment. See Note 11 for more detail.
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements continued
For the year ended 31 December 2018
2) SIGNIFICANT ACCOUNTING POLICIES continued
Accounting Standards and Interpretations Not Applied
At the date of authorisation of these financial statements, the following standards and interpretations relevant to the Group that have not been
applied in these financial statements were in issue but not yet effective:
IFRS 16
Amendments to IAS 28
Annual Improvements to IFRS Standards
2015–2017 cycle
Leases
Long-term Interests in Associates and Joint Ventures
–
Effective date
1 January 2019
1 January 2019
1 January 2019
New standards and amendments to standards adopted in the year
During the year, the Group adopted the following standards effective from the 1st January 2018. The Group has applied these standards
in the preparation of the financial statements, and has not adopted any new or amended standards early.
IFRS 15 – Revenue from contracts with customers
IFRS 15 is effective for periods beginning on of after 1st January 2018. IFRS 15 introduces a five step approach to the timing of revenue
recognition based on performance obligations in customer contracts. It replaces existing revenue recognition guidance, including IAS 18
Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer loyalty Programmes.
On 1 January 2018, the Group adopted IFRS 15 Revenue from contracts with customers using the modified retrospective method for
contracts which were not completed as of that date. The Group applied the practical expedients in relation to contracts with variable
consideration and contracts that were completed at the beginning of the earliest period presented and/or modified before the beginning
of the earliest period presented.
Under IFRS 15, revenue is recognised as the performance obligations to deliver products or services are satisfied and revenue is recorded
based on the amount of consideration expected to be received in exchange for satisfying the performance obligations. The Group undertook a
detailed impact assessment applying IFRS 15 to all the existing ways in which the Group delivers products or services to customers to identify
divergence with previous accounting practice governed by IAS 18 Revenue and concluded that IFRS 15 does not have a significant impact on
the timing and recognition of revenue. Accordingly, there was no adjustment required on transition to IFRS 15.
IFRS – 9 Financial instruments
IFRS 9 ‘Financial instruments’ replaces IAS 39 ‘Financial instruments: Recognition and Measurement’. The standard is effective for accounting
periods beginning on or after 1 January 2018. The standard covers three elements:
| Classification and measurement: Changes to a more principle based approach to classify financial assets as either held at amortised cost,
fair value through other comprehensive income (FVOCI) or fair value through profit or loss, dependent on the business model and cash flow
characteristics of the financial asset;
| Impairment: Moves to an impairment model based on expected credit losses based on a three-stage approach; and
| Hedge accounting: The IFRS 9 hedge accounting requirements are designed to allow hedge accounting to be more closely aligned with
the Group’s underlying risk management.
The Group does not hold complex financial instruments and therefore the majority of changes to the standard do not change the existing
accounting for assets or liabilities held. All financial assets and liabilities will continue to be measured at amortised cost with the exception
of contingent consideration which is held at fair value. The Group has applied the simplified method of the expected credit loss model when
calculating impairment losses on its financial assets measured at amortised cost, such as trade receivables. This resulted in greater judgement
due to the need to factor in forward looking information when estimating the appropriate amount of provisions.
In applying IFRS 9 the Group considered the probability of a default occurring over the contractual life of its trade receivables balances on initial
recognition of those assets.
The Group has chosen not to restate comparatives on adoption of IFRS 9 given the immaterial nature of the transitional impacts and, therefore,
these changes have been processed in the current year.
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FINANCIALS
New standards to be adopted in future years
IFRS 16 Leases
IFRS 16 introduces a single lease accounting model. This standard requires lessees to account for all leases under a single on balance sheet
model. Under the new standard, a lessee is required to recognise all lease assets and liabilities on the balance sheet; recognise amortisation of
leased assets and interest on lease liabilities over the lease term; and separately present the principal amount of cash paid and interest in the
cash flow statement. The requirements of IFRS 16 extend to certain service contracts, leased property and leased vehicles which may impact
the Group. Accordingly, management has initiated an impact assessment in respect of IFRS 16 and while it is expected that on adoption the
impact will be immaterial, further work is required before this can be quantified.
3) SEGMENTAL REPORTING
The following table provides disclosure of the Group’s revenue by geographical market based on location of the customer:
USA
Rest of world
Year
to
31 December
2018
£000
9,434
2,185
11,619
Year
to
31 December
2017
£000
4,098
1,135
5,233
Analysis of revenue by customer
During the year ending 31 December 2018 the Group had no customers who individually exceeded 10% of revenue (2017:13% and 11%).
Operating segments
The Group is organised into BioSurgery, Orthopaedics & Dental, Cardiac and Other divisions for internal management, reporting and decision-
making, based on the nature of the products of the Group’s businesses. Managers have been appointed within these divisions, who report
to the Chief Executive Officer. These are the reportable operating segments in accordance with IFRS8 “Operating Segments”. The Directors
recognise that the operations of the Group are dynamic and therefore this position will be monitored as the Group develops.
In accordance with IFRS8, the Group has derived the information for its operating segments using the information used by the Chief Operating
Decision Maker. The Group has identified the Chief Executive Officer as the Chief Operating Decision Maker as he is responsible for the
allocation of resources to the operating segments and assessing their performance.
Central overheads, which primarily relate to operations of the Group function, are not allocated to the business unit.
BioSurgery
Orthopaedics &
Dental
Cardiac
Other
Central
Total
Year to
31 Dec
2018
£000
3,381
(1,769)
1,612
Year to
31 Dec
2017
£000
1,932
(916)
1,016
Year to
31 Dec
2018
£000
6,396
(2,676)
3,720
Year to
31 Dec
2017
£000
2,166
(829)
1,337
Year to
31 Dec
2018
£000
–
–
–
Year to
31 Dec
2017
£000
–
–
–
Year to
31 Dec
2018
£000
1,842
(1,257)
585
Year to
31 Dec
2017
£000
1,135
(882)
253
Year to
31 Dec
2018
£000
–
–
–
Year to
31 Dec
2017
£000
–
–
–
Year to
31 Dec
2018
£000
11,619
(5,702)
5,917
Year to
31 Dec
2017
£000
5,233
(2,627)
2,606
(4,169)
–
(2,557)
(4,737)
–
(3,721)
(4,992)
–
(1,272)
(3,297)
–
(1,960)
(428)
–
(428)
(481)
–
(481)
(551)
–
34
(484)
–
(231)
(4,043)
(423)
(4,466)
(3,325)
(1,098)
(4,423)
(14,183)
(423)
(8,689)
(12,324)
(1,098)
(10,816)
–
–
–
3
–
–
(2,557)
73
(2,484)
(3,721)
372
(3,349)
(1,272)
543
(729)
(1,957)
722
(1,235)
(428)
102
(326)
(481)
254
(227)
–
34
–
34
–
(190)
44
(190)
47
(231)
–
(231)
(4,656)
(98)
(4,754)
(4,379)
–
(4,379)
(8,879)
620
(8,259)
(10,769)
1,348
(9,421)
Revenue
Cost of sales
Gross Profit
Administrative
costs
Exceptional costs
Operating loss
Finance income/
(expense)
Loss before
taxation
Taxation
Loss for the year
Revenue from all operating segments derives from the sale of biologic medical devices.
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements continued
For the year ended 31 December 2018
3) SEGMENTAL REPORTING continued
Administrative costs are broken down as follows:
BioSurgery
Orthopaedics &
Dental
Cardiac
Other
Central
Total
Year to
31 Dec
2018
£000
(2,936)
Year to
31 Dec
2017
£000
(3,343)
Year to
31 Dec
2018
£000
(2,639)
Year to
31 Dec
2017
£000
(1,837)
Year to
31 Dec
2018
£000
(222)
Year to
31 Dec
2017
£000
(281)
Year to
31 Dec
2018
£000
(297)
Year to
31 Dec
2017
£000
(181)
Year to
31 Dec
2018
£000
(1,365)
Year to
31 Dec
2017
£000
(1,135)
Year to
31 Dec
2018
£000
(7,459)
Year to
31 Dec
2017
£000
(6,777)
(901)
(64)
(125)
(17)
(25)
(4)
(20)
(164)
(277)
(1,307)
(894)
(164)
(147)
(20)
(25)
(279)
(97)
–
–
–
(7)
(21)
(32)
–
–
–
–
(1,071)
(106)
(1,635)
(1,350)
(25)
(867)
(560)
(1,173)
(707)
(148)
(1,028)
(642)
(452)
(17)
(49)
(227)
(225)
(1,811)
(1,630)
(2,845)
(3,384)
(4,169)
(4,737)
(4,992)
(3,297)
(428)
(481)
(551)
(484)
(4,043)
(3,325)
(14,183)
(12,324)
Staff costs
Sales and
marketing costs
Research and
development
Depreciation and
amortisation
Establishment
and administration
costs
Administrative
costs
Balance Sheet
BioSurgery
2018
£000
2017
£000
Orthopaedics/
Dental
Cardiac
Other
Central
Total
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
Non-current
assets
Intangible Assets
Property, Plant &
Equipment
Additions
Total non-current
assets
Current assets
Inventory
Trade & other
receivables
Cash & cash
equivalents
Total current
assets
Total assets
Current liabilities
Trade & other
payables
Total liabilities
Net Assets
759
643
4,649
4,373
20
6
2
38
2,153
204
2,290
–
785
683
7,006
6,663
222
648
1,957
2,123
–
–
–
–
–
–
–
–
–
–
–
–
14,530
14,289
19,938
19,305
101
54
69
40
264
26
503
52
2,538
290
2,864
130
155
109
14,820
14,844
22,766
22,299
74
15
77
86
2,330
2,872
939
780
2,856
2,138
200
221
121
348
635
681
4,751
4,168
170
254
409
89
2
6
35
47
7,200
16,027
7,816
16,423
1,331
2,116
1,682
2,365
5,222
12,228
4,350
11,013
202
202
(553)
(553)
1,563
(697)
(697)
1,668
(2,474)
(2,474)
9,754
(1,998)
(1,998)
9,015
(42)
(42)
160
227
227
(22)
(22)
205
230
385
410
519
7,912
22,732
16,794
31,638
14,897
37,663
23,463
45,762
(102)
(102)
283
(271)
(271)
248
(1,922)
(1,922)
20,810
(3,252)
(3,252)
28,386
(5,093)
(5,093)
32,570
(6,240)
(6,240)
39,522
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4) LOSS FROM OPERATIONS
Loss from operations is stated after charging:
Depreciation of plant and equipment (see note 10)
Amortisation
Operating lease rentals – land and buildings
Expensed inventory
Staff costs (see note 5)
Foreign exchange losses
Research and development (exclusive of research and development staff costs)
Sales and marketing costs (exclusive of sales and marketing staff costs and commissions)
Exceptional items:
Costs of acquisition of subsidiary
Litigation costs
Auditor remuneration:
– fees payable to Company’s Auditor for the audit of the parent Company and consolidated financial
statements
– auditing the accounts of subsidiaries pursuant to legislation
Other services:
– fees in relation to corporation tax
– fees in relation to other services
Total auditors’ remuneration
5) STAFF COSTS
The average monthly number of persons (including Directors) employed by the Group during the period was:
Directors
Laboratory and administration staff
The aggregate remuneration, including Directors, comprised:
Wages and salaries
Share based expense (see note 19)
Social security, pension & healthcare costs
Directors’ remuneration included above comprised:
Emoluments for qualifying services
FINANCIALS
Year to
31 December
2018
£000
Year to
31 December
2017
£000
598
575
85
4,723
7,459
55
1,635
1,071
–
423
20
56
24
–
100
482
225
85
2,039
6,777
264
1,350
105
996
102
20
60
32
161
273
Year to
31 December
2018
Number
Year to
31 December
2017
Number
7
79
86
7
72
79
£000
£000
6,405
(57)
1,111
7,459
645
6,035
30
712
6,777
822
Social security, pension and healthcare costs include pension contributions of £91k (2017: £95k)
Directors’ emoluments disclosed above include £356,000 paid to the highest paid Director (2017: £343,000). The share based payments charge
for Directors was £71,000 (2017: nil).
6) FINANCE INCOME
Bank interest receivable
Year to
31 December
2018
£000
72
Year to
31 December
2017
£000
47
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements continued
For the year ended 31 December 2018
7) FINANCE CHARGES
Imputed interest on deferred consideration
8) TAXATION
Tax on loss on ordinary activities
Current tax:
UK corporation tax credit on losses of period
US corporation tax payable
Deferred tax:
Origination and reversal of temporary timing differences
Tax credit on loss on ordinary activities
Factors affecting the current tax charges
The tax assessed for the year varies from the main rate of corporation tax as explained below:
The tax assessed for the period varies from the small company rate of corporation tax as explained below:
Loss on ordinary activities before tax
Tax at the standard rate of corporation tax 19% (2017: 19.25%)
Effects of:
Research and development tax credits received
Surrender of research and development relief for repayable tax credit
Research and development enhancement
Prior period adjustment
Other
Unutilised tax losses
Tax credit for the period
Deferred Tax
Tax losses
Losses available to carry forward against future trading profits
Deferred tax asset – unrecognised*
*The Group has not recognised a deferred tax asset relating to these losses as their recoverability is uncertain.
31 December
2018
£000
(262)
31 December
2017
£000
–
Year to
31 December
2018
£000
Year to
31 December
2017
£000
(790)
72
718
98
(620)
(1,348)
–
(1,348)
–
(1,348)
Year to
31 December
2018
£000
Year to
31 December
2017
£000
(8,879)
(1,687)
(10,769)
(2,074)
(583)
792
(448)
(141)
170
1,277
(620)
(799)
1,098
(621)
(549)
–
1,597
(1,348)
Year to
31 December
2018
£000
Year to
31 December
2017
£000
43,254
7,353
35,819
6,089
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FINANCIALS
9) LOSS PER SHARE (BASIC AND DILUTED)
Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary
shares in issue during the period excluding own shares held jointly by the Tissue Regenix Employee Share Trust and certain employees.
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume conversion
of all dilutive potential ordinary shares.
Total loss attributable to the equity holders of the parent
Weighted average number of ordinary shares in issue during the year
Loss per share
Basic and diluted loss for the year
Year to
31 December
2018
£000
(8,186)
Year to
31 December
2017
£000
(9,221)
No.
1,171,633,442
No.
920,506,514
(0.70)p
(1.00)p
The Company has issued employee options over 53,577,615 (2017: 53,119,254) ordinary shares and there are 16,112,800 jointly owned shares
which are potentially dilutive. There is, however, no dilutive effect of these issued options as there is a loss for each of the periods concerned.
10) PROPERTY, PLANT AND EQUIPMENT
Building &
land
£000
Laboratory
equipment
£000
Fixtures &
fittings
£000
Computer
equipment
£000
Cost
At 31 December 2016
Additions
Additions from Acquisition
At 31 December 2017
Exchange Adjustment
Additions
Transfers
At 31 December 2018
Depreciation
At 31 December 2016
Charge for the period
At 31 December 2017
Exchange Adjustment
Charge for the period
Transfers
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 31 December 2016
–
–
849
849
93
–
1,059
2,001
–
5
5
2
60
11
78
1,923
844
–
1,098
88
1,361
2,547
70
200
(1,091)
1,726
638
241
879
34
289
(13)
1,189
537
1,668
460
534
20
49
603
13
32
32
680
186
110
296
5
124
2
427
253
307
348
494
22
–
516
16
58
-
590
215
126
341
9
125
–
475
115
175
279
Total
£000
2,126
130
2,259
4,515
192
290
–
4,997
1,039
482
1,521
50
598
–
2,169
2,828
2,994
1,087
Transfers from Laboratory Equipment to Building & Land include £1.1m for a clean room buildout for which there was no change to the depreciation
charged up to the point of transfer.
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements continued
For the year ended 31 December 2018
11) INTANGIBLE ASSETS
Development
costs
£000
Goodwill
£000
Customer
relation-
ships
£000
Trademarks
£000
Process Tech
£000
Supplier
agree-
ments
£000
Cost
At 31 December 2016
Additions
At 31 December 2017
Additions
Exchange adjustment
At 31 December 2018
Amortisation
At 31 December 2016
Charge for the period
At 31 December 2017
Charge for the period
Exchange adjustment
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 31 December 2016
550
93
643
116
–
759
–
–
–
–
–
–
759
643
550
–
14,504
14,504
–
829
15,333
–
–
–
–
–
–
15,333
14,504
–
–
2,234
2,234
–
130
2,364
–
92
92
236
1
329
2,035
2,142
–
–
592
592
–
38
630
–
49
49
126
1
176
454
543
–
–
1,112
1,112
–
70
1,182
–
46
46
118
1
165
1,017
1,066
–
–
445
445
–
28
473
–
38
38
95
–
133
340
407
–
Total
£000
550
18,980
19,530
116
1,095
20,741
–
225
225
575
3
803
19,938
19,305
550
Remaining amortisation periods are: Customer relationships: 3.8 years, Trade marks: 8.8 years, Process Tech: 8.8 years, Supplier agreements:
3.8 years.
Impairment of Non-Financial Assets
Goodwill is monitored by management at the Cash Generating Unit (“CGU”) level. A CGU is considered to be an individual company. The group
tests goodwill for impairment on at least an annual basis by comparing the carrying amount of the CGU with its value in use. Value in use is
estimated based on future cash flow discounted to present value using a pre-tax discount rate that reflects current market assessments of the
time value of money. An impairment charge arises where the carrying value exceeds the value in use.
The carrying amount of the CellRight Technologies CGU has been tested for impairment using a discounted cash flow model based on the
following assumptions:
− Most recent Board approved budgets /forecasts for the next 5 years
− Expected future cash flows based on EBITDA adjusted for expected Capex and working capital movements
− A terminal year perpetuity based on the final year forecast and a terminal growth rate of 2%
− Sales growth based on forecasts and prior-year performance in the region of 30% CAGR for the five year period
(consistent with industry average)
− Gross margins projected based on those achieved historically
− Discount rate (pre-tax weighted average cost of capital “WACC”) of 19%
The Directors considered a sensitivity to the forecasts where revenues were 5% lower than forecast. In this instance the financial model showed
no impairment.
On the above basis, the Directors have concluded that there is no material impairment for the CGU and they consider that there are no other
reasonably possible changes to a key assumption which would give rise to an impairment charge.
12) INVENTORY
Raw materials and consumables
Work in progress
Finished goods including goods for resale
Total
Inventory for Finished goods are shown net of provision £176,000 (2017:nil)
At 31
December
2018
£000
871
939
520
2,330
At
31 December
2017
£000
1,130
941
801
2,872
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13) TRADE AND OTHER RECEIVABLES
Trade debtors
Tax debtors
Other receivables
Prepayments and accrued income
The Directors consider that the carrying amounts of trade and other receivables approximate to their fair values.
Trade debtors are shown net of provisions of £245,000 (2017: £24,000)
Trade receivables
Less: Allowance for expected credit losses (2017: Provision for impairment of receivables)
FINANCIALS
At
31 December
2018
£000
2,465
1,200
530
556
4,751
At
31 December
2017
£000
1,466
1,665
529
508
4,168
2018
£000
2,710
(245)
2,465
2017
£000
1,490
(24)
1,466
Allowance for expected credit losses
The Group has recognised a loss of £245,000 in profit or loss in respect of the expected credit losses for the year ended 31 December 2018.
The aging of the receivables and allowance for expected credit losses provided for above are as follows:
Consolidated
not overdue
0 to 3 months overdue
3 to 4 months overdue
4 to 5 months overdue
over 5 months overdue
Average Credit terms with customers is 31 days (2017: 30 days)
Trade receivables, are analysed by the currencies of settlement below:
US Dollars
Euros
Sterling
Trade debtors
Carrying
amount
Expected
2018
credit loss
rate
£000
0% 1,668
0% 678
25% 90
50% 102
100% 172
2,710
Allowance
for expected
credit losses
2018
£000
-
-
22
51
172
245
At
31 December
2018
£000
2,345
119
1
2,465
At
31 December
2017
£000
1,112
354
–
1,466
14) RISK MANAGEMENT OF FINANCIAL ASSETS AND LIABILITIES
The Group’s activities expose it to a variety of financial risks: market risk, specifically interest rate risk, credit risk and liquidity risk. The Group’s
overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on
the Group’s financial performance.
The management of these risks is vested in the Board of Directors. The policies for managing each of these risks are summarised below:
Management of market risk
Interest rate risk
As the Group has no significant borrowings the risk is limited to the potential reduction in interest received on cash surpluses held. Interest rate
risk is managed in accordance with the liquidity requirement of the Group, with a minimal amount of its cash surpluses held within short-term
accounts, which have variable interest rates attributable to them, to ensure that sufficient funds are available to cover the working capital
requirements of the Group.
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the financial statements continued
For the year ended 31 December 2018
14) RISK MANAGEMENT OF FINANCIAL ASSETS AND LIABILITIES continued
Interest rate sensitivity
The principal impact to the Company is the result of interest-bearing cash and cash equivalent balances held as set out below:
Cash and cash equivalents
Cash and cash equivalents
Fixed rate
£000
6,043
December 2018
Floating rate
£000
1,773
Fixed rate
£000
15,007
December 2017
Floating rate
£000
1,416
Total
£000
7,816
Total
£000
16,423
Due to the high proportion of funds held on a fixed deposit, the impact of a 5% increase/decrease in interest rates would have an immaterial
impact on the loss in each period.
Management of credit risk
The Group is exposed to credit risk from its operating activities; it principally arises from short term bank deposits and trade debtors. The Group
seeks to minimise this risk by only depositing funds with banks with a high credit rating.
The maximum exposure to credit risk on the Group’s financial assets is represented by their carrying amounts as outlined in the categorisation
of financial instruments table below.
The Group does not consider that any changes in fair value of financial assets or liabilities in the year are attributable to credit risk.
Management of liquidity risk
The Group seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely
and profitably.
No maturity analysis for financial liabilities is presented, as the Directors consider that liquidity risk is not material.
The Group had cash and cash equivalents at each reporting date is set out below.
Cash and cash equivalents
AA-
A+
A
BBB+
Year to
31 December
2018
£000
Year to
31 December
2017
£000
35
1,404
6,377
–
7,816
–
5,092
10,248
1,083
16,423
The above has been split by the Fitch rating system and gives an analysis of the credit rating of the financial institutions where cash balances are held.
Capital risk management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to stakeholders.
The Group’s overall strategy is to minimise costs and liquidity risk.
The capital structure of the Group consists of equity attributable to the owners of the Group, comprising issued capital, reserves and retained
earnings as disclosed in note 17 and 18 and in the Statement of Changes in Equity.
Foreign currency risk management
The group’s exposure to currency exchange rates arises principally from sales and purchases in the Group’s overseas subsidiaries which are
denominated and settled in local currency. While this provides a element of natural hedging, there is an element of residual risk that can impact
the performance of the results of the Group over the course of each financial reporting period. Foreign currency transactions are principally
denominated in Dollars and Euros, and the associated foreign currency denominated financial assets and liabilities are set out below:
Financial assets
Financial liabilities
Short-term exposure
2018
$000
2,345
(1,717)
628
2017
$000
1,112
(2,899)
(1,787)
2018
€000
119
(37)
82
2017
€000
354
(294)
60
The Group has exposure to the movements in the exchange rates in the Dollar and Euro at 31 December 2018. An analysis of the effect of a
reasonable possible movement in exchange rates shows that a movement of 10% in the exchange rate could result in net foreign currency gains of
£80k (2017: £241K against the Dollar and gain £7K (2017: £5K) against the Euro.
62
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Categorisation of financial instrument
Financial assets/(liabilities)
At 31 December 2018
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Financial assets/(liabilities)
At 31 December 2017
Trade and other receivables
Cash and cash equivalents
Trade and other payables
15) TRADE AND OTHER PAYABLES
Trade payables
Taxes and social security
Accruals
Contingent consideration
FINANCIALS
Loans and
receivables
at amortised
cost
£000
Financial
liabilities at
amortised
cost
£000
Financial
liabilities
held at fair
value
£000
2,995
7,816
–
10,811
–
–
(2,751)
(2,751)
–
–
(1,475)
(1,475)
Loans and
receivables
at amortised
cost
£000
Financial
liabilities at
amortised
cost
£000
Financial
liabilities
held at fair
value
£000
1,995
16,423
–
18,418
–
–
(2,627)
(2,627)
–
–
(2,637)
(2,637)
Total
£000
2,995
7,816
(4,226)
6,585
Total
£000
1,995
16,423
(5,264)
13,154
At
31 December
2018
£000
855
76
1,896
1,475
4,302
At
31 December
2017
£000
1,519
152
1,108
2,637
5,416
Contingent consideration
The Group has agreed to pay the contingent consideration on the CellRight Technologies LLC acquisition if Gross Revenue during the first year
after acquisition equalled or exceeds seven million dollars ($7,000,000), in an amount equal to $2,036,201.46. This milestone was achieved
and paid in 2018. The Group has agreed to pay a second milestone if Gross Revenue during the second annual period equals or exceeds
twelve million five hundred thousand dollars ($12,500,000) an amount equal to $2,036,201.46. This is carried in the accounts at fair value,
was discounted (see note 7) and translated at closing rate.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Trade payables are analysed by the
currencies of settlement below:
Sterling
US Dollars
Euros
Trade payables
16) DEFERRED TAX LIABILITIES
As at December 2017
Amortisation charge
Exchange adjustment
As at December 2018
The deferred tax liability relates wholly to non-current assets recognised on acquisition of CellRight Technologies LLC.
Annual Report and Accounts for the year ended 31 December 2018
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At
31 December
2018
£000
242
576
37
855
At
31 December
2017
£000
262
963
294
1,519
Totals
£000
824
(98)
65
791
63
Notes to the financial statements continued
For the year ended 31 December 2018
17) SHARE CAPITAL AND RESERVES
Number
Share capital
£000
Share
premium
£000
Merger
reserve
£000
Reverse
acquisition
reserve
£000
Total Ordinary shares of 0.5 p each as at
31 December 2016
Issue of shares
Share options exercised
Total Ordinary shares of 0.5p each as at
31 December 2017
Share options exercised
Total Ordinary shares of 0.5p each as at
31 December 2018
760,124,264
400,000,000
10,866,660
1,170,990,924
739,899
3,801
2,000
54
5,855
4
50,461
35,682
255
86,398
–
10,884
–
–
10,884
–
(7,148)
–
–
(7,148)
–
1,171,730,823
5,859
86,398
10,884
(7,148)
95,993
Total
£000
57,998
37,682
309
95,989
4
As permitted by the provisions of the Companies Act 2006, the Company does not have an upper limit to its authorised share capital. All shares
are ordinary shares which are fully paid and entitle the holder to full voting rights, to full participation or distribution of dividends.
18) COMMITMENTS
Operating lease commitments
The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease and service charge
payments under non-cancellable operating leases are as follows:
Land and buildings:
Amounts due within one year
Amounts due between 1–5 years
Total
As at
31 December
2018
£000
As at
31 December
2017
£000
61
–
61
85
61
146
19) SHARE BASED PAYMENTS
Share options and shares held in employee benefit trust (“EBT”)
The Company operates a share option plan, under which certain employees have been granted options to subscribe for ordinary shares.
All options are equity settled. The options have an exercise price of between 0.5p to 22.5p and a vesting period between 1 and 3 years. If
the options remain unexercised after a period of 10 years from the date of grant, the options expire. The Group has no legal or constructive
obligation to repurchase or settle the options in cash.
The Group also operates a jointly-owned EBT share scheme for senior management under which the trustee of the Group sponsored EBT has
acquired shares in the Group jointly with a number of employees. The shares were acquired pursuant to certain conditions, set out in Jointly
Owned Equity agreements (“JOEs”). Subject to meeting the performance criteria conditions set out in the JOEs, the employees are able to
benefit from most of any future increase in the value of the jointly owned EBT shares. The fair value benefit is measured using the Binomial
model, taking into account the terms and conditions upon which the jointly owned shares were purchased.
The number and weighted average exercise prices of share options and EBT shares are as follows:
At 31 December 2016
Exercised in the period
Lapsed during year
Issued in the year
At 31 December 2017
Exercised in the period
Lapsed during year
Issued in the year
At 31 December 2018
Number of share interests
EMI options
16,927,372
(9,180,335)
(1,408,719)
4,863,634
11,201,952
–
(5,934,236)
–
5,267,716
Unapproved
options
11,118,692
(1,809,494)
(3,113,324)
33,790,347
39,986,221
(739,899)
(3,631,300)
11,227,008
46,842,030
EBT shares
16,940,386
(827,586)
–
–
16,112,800
–
–
–
16,112,800
SAYE
options
1,510,557
–
(1,419,331)
1,838,855
1,930,081
–
(928,503)
476,291
1,477,869
Total
46,497,007
(11,817,415)
(5,941,374)
40,492,836
69,231,054
(739,899)
(10,494,039)
11,703,299
69,700,415
Weighted
average
exercise
price per
share (£)
0.0650
0.0473
0.0913
0.2740
0.0934
0.005
0.1098
0.0714
0.0882
There were 4,361,603 share options outstanding at 31 December 2018 (2017: 7,499,918) eligible to be exercised. The remaining options were
not eligible to be exercised as these are subject to employment period and market based vesting conditions, some of which had not been met
at 31 December 2018.
64
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FINANCIALS
The performance conditions in relation to these options allows for vesting in three equal proportions on or after the three consecutive annual
anniversaries from the date of grant subject to the Company’s share price reaching certain hurdle values by the respective vesting dates.
There were 16,112,800 of the jointly held EBT shares which were eligible to vest as at 31 December 2018.
The fair value benefit received on share options granted is measured using the Binomial model taking in to account the effects of the vesting
and performance conditions, expected exercise price and the payment of the dividends by the Company. The fair value benefits received on
EBT shares are measured using the Binomial model, taking into account the terms and conditions upon which the jointly owned shares were
purchased. The following table lists the inputs to the models used:
Dividend yield
Expected volatility (%)
Risk free interest rate (%)
Expected vesting life of EBT shares and options (years)
Weighted average share price (£)
Options
Granted
year to
31 December
2018
–
42
1.0
3
0.0822
EBT shares
Granted
year to
31 December
2018
–
–
–
–
–
Options
Granted
year to
31 December
2017
–
46
1.0
4
0.0934
EBT shares
Granted
year to
31 December
2017
–
–
–
–
–
Share options issues under the Deferred Annual Bonus scheme which are not exercised within 4 years from the date of grant will expire. Any
other share options and employee interests in jointly owned EBT shares which are not exercised within 10 years from the date of grant will
expire. The weighted average remaining contractual life of options outstanding at the end of the financial year was 6.8 years (2017: 6.6 years).
A charge has been recognised in the statement of comprehensive income for each year as follows:
At 31 December 2016
Charge in the period
At 31 December 2017
Charge in the period
At 31 December 2018
20) NON-CONTROLLING INTEREST
As at 31 December 2017
Attributable loss for the period
As at 31 December 2018
Share based
payment reserves
£000
1,156
30
1,186
(57)
1,129
2018
£000
(409)
(73)
(482)
2017
£000
(209)
(200)
(409)
The non-controlling interest has 50% (2017: 50%) equity holding. GBM-V GmbH contributed revenue of £1,842k (2017: £1,135k) and profit/
loss before tax of £34k (2017: £(231k)) for the year.
21) RELATED PARTY TRANSACTIONS
Transactions with key management personnel
The Company’s key management personnel comprise of only the Directors of the Group. During the year the Group entered into the following
transactions in which the Directors had an interest:
Directors’ remuneration:
Remuneration received by the Directors (including Employers NI) from the Group is set out below:
Short-term employment benefits
Year to
31 December
2018
£000
709
Year to
31 December
2017
£000
822
During the year ended 31 December 2018, the Company entered into numerous transactions with its subsidiary companies which net off on
consolidation – these have not been shown above.
22) ULTIMATE CONTROLLING PARTY
The Directors believe that there is no ultimate controlling party.
23) POST BALANCE SHEET EVENTS
On 3 June 2019, the Group entered into a new loan facility providing a total facility of $20m. $10.5m is available for immediate drawdown.
The remaining $9.5m will become available subject to the satisfaction of certain conditions.
Annual Report and Accounts for the year ended 31 December 2018
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Company statement of changes in equity
For the year ended 31 December 2018
Attributable to the equity holders of the Company
At 31 December 2016
Total expense and other comprehensive loss
for the period
Issue of shares
Cost of issue of new equity
Share options exercised
Share based payment expense
At 31 December 2017
Total expense and other comprehensive loss
for the period
Share options exercised
Share based payment credit
At 31 December 2018
Share capital
£000
3,801
Share
premium
£000
50,461
Merger
reserve
£000
10,884
Share based
payment
reserve
£000
1,083
Retained
earnings
reserve
£000
(9,330)
–
2,000
–
54
–
5,855
–
4
–
5,859
–
38,000
(2,318)
255
–
86,398
–
–
–
86,398
–
–
–
–
–
10,884
–
–
–
10,884
–
–
–
–
30
1,113
–
–
(57)
1,056
(1,793)
–
–
–
–
(11,123)
(2,342)
–
–
(13,465)
Total
£000
56,899
(1,793)
40,000
(2,318)
309
30
93,127
(2,342)
4
(57)
90,732
66
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Company statement of financial position
At 31 December 2018
FINANCIALS
ASSETS
Non-current assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Intercompany loan balance
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Share premium
Merger reserve
Share based payment reserve
Retained earnings deficit
TOTAL EQUITY
At
31 December
2018
£000
At
31 December
2017
£000
Notes
C5
C6
C7
C9
C8
17
17
17
19
18,594
18,594
253
65,196
7,162
72,611
91,205
(473)
(473)
90,732
5,859
86,398
10,884
1,056
(13,465)
90,732
12,922
12,922
250
64,390
15,949
80,589
93,511
(384)
(384)
93,127
5,855
86,398
10,884
1,113
(11,123)
93,127
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company’s statement
of comprehensive income. The parent Company’s result for the period ended 31 December 2018 was a loss of £2,342,000 (2017: £1,793,000).
Approved by the Board of Directors and authorised for issue on 3 June 2019.
Steve Couldwell
Chief Executive Officer
Annual Report and Accounts for the year ended 31 December 2018
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Company statement of cash flows
For the year ended 31 December 2018
Company number: 5969271
Operating activities
Loss before interest and tax
Adjustment for non-cash items:
Share based payments
Impairments
Operating cash outflow
(Increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
Net cash absorbed by operations
INVESTING ACTIVITIES
Interest received
Loan to subsidiary undertaking
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from issue of share capital
Proceeds from exercise of share options
Net cash generated from financing activities
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of period
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Year to
31 December
2018
£000
Year to
31 December
2017
£000
Notes
(3,152)
(1,837)
19
C10
17
17
(57)
1,310
(1,899)
(3)
89
(1,813)
810
(7,788)
(6,978)
–
4
4
(8,787)
15,949
7,162
30
–
(1,807)
(187)
(52)
(2,046)
44
(27,859)
(27,815)
37,682
309
37,991
8,130
7,819
15,949
68
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Notes to the company financial statements
For the year ended 31 December 2018
FINANCIALS
C1. PRINCIPAL ACCOUNTING POLICIES
The separate financial statements of the Company are presented as required by the Companies Act 2006 and in accordance with International
Financial Reporting Standards as adopted by the EU.
The principal accounting policies adopted are the same as for those set out in the Group’s financial statements.
Adoption of new and revised standards
The Company has applied IFRS 9 ‘Financial Instruments’ for the first time in the year ended 31 December 2018. As a result of the adoption of IFRS 9 the
Company has adopted consequential changes to IAS 1 Presentation of financial statements. In addition, the Company has applied the consequential
amendments to IFRS 7 Financial Instruments: Disclosure to the current period only. Comparatives have not been restated as the cumulative catch-up
approach has been applied. Any adjustments arising on transition to IFRS 9 are recognised in opening equity. Therefore, information presented for 2017
does not reflect the requirements of IFRS 9 and is not comparable with the information presented for the year ended 31 December 2018.
All the Company’s financial assets were previously classified as loans and receivables under IAS 39 and are classified as assets at amortised
cost under IFRS 9. The only change in measurement of financial assets on application of IFRS 9 arises from impairment of financial assets. IFRS
9 requires impairments of financial assets to be assessed using an ‘expected loss’ model. While there is no change from the ‘incurred loss’
model previously applied under IAS 39 at 1 January 2018, the reduction in the Company’s share price at the end of the year has given rise to an
impairment loss of £1,310,000 recognised at 31 December 2018 (note C7).
Investments
Fixed asset investments, including investments in subsidiaries, are stated at cost and reviewed for impairment if there are any indications that the
carrying value may not be recoverable.
C2. CRITICAL ACCOUNTING ESTIMATES
Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that we believe
to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates that have the most significant effects
on the carrying amounts of the assets and liabilities in the parent Company financial statements are described below:
Critical judgements:
Recoverability of receivables from subsidiaries and impairment of financial assets
Receivables from subsidiaries represent loans and interest free amounts advanced to group companies that are repayable on demand. In
accordance with IFRS 9 ‘Financial Instruments’, where the counterparty would not be able to repay the loan if demanded at the reporting
date, the company has made an assessment of expected credit losses. Having considered multiple scenarios on the manner, timing, quantum
and probability of recovery on the receivables, no lifetime expected credit loss was recognised on adoption of IFRS 9 ‘Financial Instruments’,
and so no adjustment to opening retained earnings has been made. Following a reduction in the Company’s share price during the course
of the year, which in turn has adversely affected the likely outcome of the downside scenarios considered by management in relation to the
recovery of receivables from subsidiaries, the assessment of lifetime expected credit loss was revised to £1,310,000 as at 31 December 2018.
The calculation of the allowance for lifetime expected credit losses requires a significant degree of estimation and judgement, in particular
determining the probability weighted likely outcome for each scenario considered and in using a range of market capitalisations to determine the
amount recovered in each scenario. Whilst the Directors considered future cash flows over time, the ECL calculation was based on a sale of the
business in the event that repayment of the loans was demanded.
Potential impairment of investments
As the market capitalisation of the Company was less than the carrying value of the Company’s net assets at 31 December 2018, an impairment
review was carried out in respect of the carrying value of the investment in subsidiaries of £18,594,000. In accordance with IAS36 and as
detailed in the group’s accounting policy, this required management to make an estimate of the recoverable amount of the investment balance.
Having regard to the group’s market capitalisation for 2018 as a whole, and other factors relevant to the group’s share price performance,
the Directors have concluded that no impairment provision is necessary. Whilst the Directors considered future cash flows over time, the ECL
calculation was based on a sale of the business in the event that repayment of the loans was demanded.
C3. COMPANY RESULTS
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company’s statement
of comprehensive income. The parent Company’s result for the period ended 31 December 2018 was a loss of £2,342,000 (2017: £1,793,000).
The audit fee for the Company is set out in note 4 of the Group’s financial statements.
C4. STAFF COSTS
The average monthly number of persons (including Directors) employed by the Group during the period was:
Directors
Administration staff
The aggregate remuneration, including Directors, comprised:
Wages and salaries
Social security, pension & healthcare costs
Social security, pension and healthcare casts include pension contributions £23k (2017: £27k).
Annual Report and Accounts for the year ended 31 December 2018
Year to
31 December
2018
Number
Year to
31 December
2017
Number
7
1
8
£000
692
114
806
7
1
8
£000
813
124
937
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Notes to the company financial statements continued
For the year ended 31 December 2018
C5. INVESTMENT IN SUBSIDIARY COMPANIES
All other companies except Tissue Regenix Limited are held through Tissue Regenix Limited
Cost
Additions
Transfer
Impairment
Carrying value at 31 December 2017
31 December
2018
£000
14,707
6,500
(828)
(1,785)
18,594
31 December
2017
£000
14,707
–
–
(1,785)
12,922
Additions during the year have been settled through the conversion of loans historically advanced to subsidiary undertakings into equity.
At 31 December 2018, the Company held the following investments in subsidiaries:
Undertaking
Tissue Regenix Limited
TRx Wound Care Limited
TRx Orthopaedics Limited
TRx Cardiac Limited
TRx Vascular Limited
Tissue Regenix Wound Care Inc*
Tissue Regenix Orthopedics Inc^
Tissue Regenix Holdings Limited
Tissue Regenix Holdings Inc**
CellRight Technologies LLC†
GBM-V GmbH
Sector
Regenerative medicine
Regenerative medicine
Regenerative medicine
Regenerative medicine
Regenerative medicine
Regenerative medicine
Regenerative medicine
Holding company
Holding company
Regenerative medicine
Regenerative medicine
Share of issued capital
and voting rights
2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
2017
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
* Held through TRX Wound Care Limited ^Held through TRX Orthopaedics Limited **Held through Tissue Regenix Holdings Limited
†Held through Tissue Regenix Holdings Inc All others are held through Tissue Regenix Limited.
Registered Addresses:
Tissue Regenix Limited, TRX Wound Care Limited, TRX Orthopaedics Limited, TRX Cardiac Limited, TRX Vascular Limited:
Unit 1&2, Astley Way, Astley Lane Industrial Estate, Swillington, Leeds LS26 8XT.
Tissue Regenix Wound Care Inc, TRX Orthopedics Inc, CellRight Technologies LLC:
1808 Universal City Boulevard, Universal City Texas, 78148.
GBM-V Gmbh: Schillingallee 68, 18057, Rostock, Germany
C6. TRADE AND OTHER RECEIVABLES
Prepayments & accrued income
Other debtors
C7. CURRENT ASSETS
Intercompany loans
31 December
2018
£000
38
215
253
31 December
2017
£000
42
208
250
At
31 December
2018
£000
65,196
At
31 December
2017
£000
64,390
Intercompany loans includes £828,000 due from group's EBT (see note C10). No interest was payable on loans to subsidiary undertakings and the loans
are repayable on demand.
In accordance with IFRS 9 ‘Financial Instruments’, where the counterparty would not be able to repay the loan if demanded when due at the
reporting date, the Company has made an assessment of expected credit losses with reference to an appropriate method of recovery.
Having considered multiple scenarios on the manner, timing, quantum and probability of recovery on the receivables, no lifetime expected credit
loss was recognised on adoption of IFRS 9 ‘Financial Instruments’, and so no adjustment to opening retained earnings has been made. Following
a reduction in the Company’s share price during the course of the year, which in turn has adversely affected the likely outcome of the multiple
scenarios considered by management in relation to the recovery of receivables from subsidiaries, the assessment of lifetime expected credit loss
was revised to £1,310,000 as at 31 December 2018.
70
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FINANCIALS
The opening provision for expected credit losses was £nil. The expected credit loss provision charged to the income statement in the period was
£1,310,000, resulting in a closing provision for expected credit losses of £1,310,000.
C8. TRADE AND OTHER PAYABLES
Trade creditors
Taxes & social security
Accruals
At
31 December
2018
£000
82
34
357
473
At
31 December
2017
£000
91
108
185
384
C9. RISK MANAGEMENT OF FINANCIAL ASSETS AND LIABILITIES
The Company activities expose it to a variety of financial risks: market risk, specifically interest rate risk, credit risk and liquidity risk. The
Company overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the Company financial performance.
The management of these risks is vested in the Board of Directors. The policies for managing each of these risks are summarised below:
Management of market risk
Interest rate risk
As the Company has no significant borrowings the risk is limited to the potential reduction in interest received on cash surpluses held. Interest
rate risk is managed in accordance with the liquidity requirement of the Company, with a minimal amount of its cash surpluses held within short-
term accounts, which have variable interest rates attributable to them, to ensure that sufficient funds are available to cover the working capital
requirements of the Company.
Interest rate sensitivity
The principal impact to the Company is the result of interest-bearing cash and cash equivalent balances held as set out below:
Cash and cash equivalents
Cash and cash equivalents
Fixed rate
£000
6,057
December 2018
Floating rate
£000
1,105
Fixed rate
£000
15,007
December 2017
Floating rate
£000
942
Total
£000
7,162
Total
£000
15,949
Due to the high proportion of funds held on a fixed deposit, the impact of a 5% increase/decrease in interest rates would have an immaterial
impact on the loss in each period.
Management of credit risk
The Company is exposed to credit risk from its operating activities; it principally arises from short term bank deposits. The Company seeks to
minimise this risk by only depositing funds with banks with a high credit rating.
The maximum exposure to credit risk on the Company financial assets is represented by their carrying amounts as outlined in the categorisation
of financial instruments table below.
The Company does not consider that any changes in fair value of financial assets or liabilities in the year are attributable to credit risk.
Management of liquidity risk
The Company seeks to manage liquidity risk to ensure that sufficient liquidity is available to meet foreseeable needs and to invest cash assets
safely and profitably.
No maturity analysis for financial liabilities is presented, as the Directors consider that liquidity risk is not material.
The Company had cash and cash equivalents at each reporting date is set out below.
Cash and cash equivalents
A+
A
BBB+
Year to
31 December
2018
£000
Year to
31 December
2017
£000
1,000
6,162
-
5,007
10,000
942
The above has been split by the Fitch rating system and gives an analysis of the credit rating of the financial institutions where cash balances are held.
Annual Report and Accounts for the year ended 31 December 2018
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Notes to the company financial statements continued
For the year ended 31 December 2018
C9 RISK MANAGEMENT OF FINANCIAL ASSETS AND LIABILITIES
continued
Capital risk management
The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximising the return to
stakeholders. The Company’s overall strategy is to minimise costs and liquidity risk.
The capital structure of the Company consists of equity attributable to the owners of the Company, comprising issued capital, reserves and
retained earnings as disclosed in note 17 and in the Statement of Changes in Equity.
Categorisation of financial instrument
Financial assets/(liabilities)
Financial assets/(liabilities)
At 31 December 2018
Trade and other receivables
Cash and cash equivalents
Intercompany loans
Trade and other payables
At 31 December 2017
Trade and other receivables
Cash and cash equivalents
Intercompany loans
Trade and other payables
Loans and
receivables
at amortised
cost
£000
Financial
liabilities at
amortised
cost
£000
215
7,162
65,196
–
72,573
–
–
–
(439)
(439)
Loans and
receivables
at amortised
cost
£000
Financial
liabilities at
amortised
cost
£000
208
15,949
64,390
–
80,547
–
–
–
(276)
(276)
Total
£000
215
7,162
65,196
(439)
72,134
Total
£000
208
15,949
64,390
(276)
80,271
C10. RELATED PARTY TRANSACTIONS
Transactions with key management personnel
The Company’s key management personnel comprise only the Directors of the Group.During the year the Group entered into the following
transactions in which the Directors had an interest:
Directors’ remuneration:
Remuneration received by the Directors (including Employers NI) from the Group is set out below:
Short-term employment benefits
Year to
31 December
2018
£000
709
Year to
31 December
2017
£000
822
Intercompany loans during and at the end of the year (before provisions for expected credit losses of £1,310k (2017: nil) were as follows:
At 31 December 2017
(Repayment)/Advance in the year
Equity conversion
At 31 December 2018
Tissue
Regenix
Limited
45,001
5,379
(6,500)
43,880
TRx
Cardiac
Limited
109
38
–
147
TRx
Orthopedics
Limited
3,488
257
–
3,745
TRx
Wound Care
Limited
15,792
2,114
–
17,906
Total
64,390
7,788
(6,500)
65,678
The Company has entered into a number of unsecured related party transactions with its subsidiary undertakings. The most significant
transactions carried out between the Company and its subsidiary undertakings are mainly for short and long-term financing. Amounts
owed from these entities are interest free and repayable on demand. The company also has a loan with the Employee Benefit Trust of £828,000.
This is included as a debtor as there is a contractual loan agreement between the Company and the Trust.
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Notice of annual general meeting
FINANCIALS
Notice is given that the 2019 annual general meeting of Tissue Regenix Group plc (“Company”) will be held at DLA Piper UK LLP, Princes
Exchange, Princes Square, Leeds LS1 4BY on 27 June 2019 at 10 a.m. for the following purposes:
To consider and, if thought fit, to pass the following resolutions as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
To receive the Company’s annual accounts, strategic report and directors’ and auditors’ reports for the year ended 31 December 2018.
To appoint Gareth Jones as a director of the Company.
To reappoint Steven Couldwell who retires by rotation, as a director of the Company.
To reappoint Randeep Grewal who retires by rotation, as a director of the Company.
To appoint RSM UK Audit LLP as auditors of the Company.
T o authorise the directors to determine the remuneration of the auditors.
That, pursuant to section 551 of the Companies Act 2006 (“Act”), the directors be generally and unconditionally authorised to allot
Relevant Securities:
7.1
up to an aggregate nominal amount of £1,952,884; and
7.2
comprising equity securities (as defined in section 560(1) of the Act) up to a further aggregate nominal amount of £1,952,884 in
connection with an offer by way of a rights issue:
7.2.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of
ordinary shares held by them; and
7.2.2 to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such
rights, as the directors otherwise consider necessary,
but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares,
fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory
body or stock exchange,
provided that these authorities shall expire at the conclusion of the next annual general meeting of the Company after the passing of this
resolution or on 27 September 2020 (whichever is the earlier), save that, in each case, the Company may make an offer or agreement
before the authority expires which would or might require Relevant Securities to be allotted after the authority expires and the directors
may allot Relevant Securities pursuant to any such offer or agreement as if the authority had not expired.
In this resolution, “Relevant Securities” means shares in the Company or rights to subscribe for or to convert any security into shares
in the Company; a reference to the allotment of Relevant Securities includes the grant of such a right; and a reference to the nominal
amount of a Relevant Security which is a right to subscribe for or to convert any security into shares in the Company is to the nominal
amount of the shares which may be allotted pursuant to that right.
These authorities are in substitution for all existing authorities under section 551 of the Act (which, to the extent unused at the date of this
resolution, are revoked with immediate effect).
To consider and, if thought fit, to pass the following resolutions as special resolutions:
8.
8.1
That, subject to the passing of resolution 7 and pursuant to section 570 of the Act, the directors be and are generally empowered to allot
equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority granted by resolution 7 as if section
561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities:
in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise, but, in the case of an allotment
pursuant to the authority granted by paragraph 7.2 of resolution 7, such power shall be limited to the allotment of equity securities in
connection with an offer by way of a rights issue):
8.1.1 to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary
shares held by them; and
8.1.2 to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights,
as the directors otherwise consider necessary,
but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares,
fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory
body or stock exchange; and
8.2
otherwise than pursuant to paragraph 8.1 of this resolution up to an aggregate nominal amount of £585,865,
and this power shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or on
27 September 2020 (whichever is the earlier), save that the Company may make an offer or agreement before this power expires which
would or might require equity securities to be allotted for cash after this power expires and the directors may allot equity securities for
cash pursuant to any such offer or agreement as if this power had not expired.
This power is in substitution for all existing powers under section 570 of the Act (which, to the extent unused at the date of this resolution,
are revoked with immediate effect).
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Notice of annual general meeting continued
9.
That, pursuant to section 701 of the Act, the Company be and is generally and unconditionally authorised to make market purchases
(within the meaning of section 693(4) of the Act) of ordinary shares of 0.5p each in the capital of the Company (“Shares”), provided that:
9.1
the maximum aggregate number of Shares which may be purchased is 117,173,082;
9.2
the minimum price (excluding expenses) which may be paid for a Share is 0.5p;
9.3
the maximum price (excluding expenses) which may be paid for a Share is an amount equal to 105 per cent of the average of the
middle market quotations for a Share as derived from the Daily Official List of the London Stock Exchange plc for the five business days
immediately preceding the day on which the purchase is made;
and (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next annual general meeting of the
Company after the passing of this resolution or on 27 September 2020 (whichever is the earlier), save that the Company may enter into
a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or
partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired.
By order of the board
Gareth Jones
Secretary
2019
Registered office
Units 1 & 2, Astley Way
Astley Way Industrial Estate
Swillington
Leeds
LS26 8XT
Registered in England and Wales No. 05969271
74
TISSUE REGENIX GROUP PLC
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FINANCIALS
Notes
Entitlement to attend and vote
1.
The right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register
of members of the Company as at the close of business on 25 June 2019 (or, if the meeting is adjourned, close of business on the date
which is two working days before the date of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the
number of shares registered in their name at that time. Changes to entries in the register of members after that time shall be disregarded
in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting.
Proxies
2.
A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend and to speak and
vote at the meeting. A proxy need not be a shareholder of the Company.
A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights
attached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy appointment relates to
or specifying a number which when taken together with the numbers of shares set out in the other proxy appointments is in excess of the
number of shares held by the shareholder may result in the proxy appointment being invalid.
A proxy may only be appointed in accordance with the procedures set out in notes 3 and 4 below and the notes to the proxy form.
The appointment of a proxy will not preclude a shareholder from attending and voting in person at the meeting.
3.
A form of proxy is enclosed. When appointing more than one proxy, complete a separate proxy form in relation to each appointment.
Additional proxy forms may be obtained by contacting the Company’s registrar on 0871 664 0300 (Calls cost 12p per minute plus your
phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international rate. The Company’s
registrar is open between 09:00a.m. – 17:30p.m., Monday to Friday excluding public holidays in England and Wales) or the proxy form
may be photocopied. State clearly on each proxy form the number of shares in relation to which the proxy is appointed.
To be valid, a proxy form must be received by post or (during normal business hours only) by hand at the offices of the Company’s
registrar, Link Asset Services PXS 1, 34 Beckenham Road, Beckenham BR3 4TU, no later than 10 a.m. on 25 June 2019 (or, if the
meeting is adjourned, no later than 48 hours before the time of any adjourned meeting).
4.
CREST members who wish to appoint a proxy or proxies for the meeting (or any adjournment of it) through the CREST electronic proxy
appointment service may do so by using the procedures described in the CREST Manual. CREST personal members or other CREST
sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor
or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST
Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain
the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes
the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be
transmitted so as to be received by Link Asset Services (ID RA10) no later than 10 a.m. on 25 June 2019 (or, if the meeting is adjourned,
no later than 48 hours before the time of any adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST Applications Host) from which Link Asset Services is able to retrieve
the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed
through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if
the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his
or her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by
means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or
voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
The Company may treat a CREST Proxy Instruction as invalid in the circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
Annual Report and Accounts for the year ended 31 December 2018
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Notice of annual general meeting continued
Corporate representatives
5.
A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such
representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual
shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not
do so in relation to the same shares.
Documents available for inspection
6.
The following documents will be available for inspection during normal business hours at the registered office of the Company from the
date of this notice until the time of the meeting. They will also be available for inspection at the place of the meeting from at least 15
minutes before the meeting until it ends.
6.1 Copies of the service contracts of the executive directors.
6.2 Copies of the letters of appointment of the non executive directors.
Biographical details of directors
7.
Biographical details of all those directors who are offering themselves for reappointment at the meeting are set out on pages 30 and 31 of
the enclosed annual report and accounts.
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Directors and Officers
DIRECTORS
John Samuel
Steven Couldwell
Gareth Jones
Jonathan Glenn
Alan Miller
Randeep Singh Grewal
Shervanthi Homer-Vanniasinkam
(Chairman)
(Chief Executive Officer)
(Chief Financial Officer)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
COMPANY SECRETARY
Gareth Jones
COMPANY WEBSITE
www.tissueregenix.com
COMPANY NUMBER
05969271 (England & Wales)
REGISTERED OFFICE REGISTRAR
Unit 1 & 2
Astley Way
Astley Lane Industrial Estate
Leeds
West Yorkshire
LS26 8XT
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
AUDITOR
RSM UK Audit LLP
Central Square
29 Wellington Street
Leeds
LS1 4DL
LEGAL ADVISER
DLA Piper UK LLP
Princes Exchange
Princes Square
Leeds
LS1 4BY
NOMINATED ADVISER AND BROKER
Stifel Nicolaus Europe Ltd
150 Cheapside
London
EC2V 6ET
Dedication to Patients
Passion for Innovation
Driving for Excellence
Uncompromising Integrity
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26460 31 May 2019 5:35 pm Proof 6Tissue Regenix Group plc Annual Report and Financials for year ended 31 December 2018Tissue Regenix Group plc Unit 1 and 2 Astley Way Astley Lane Industrial Estate Swillington Leeds LS26 8XTwww.tissueregenix.comTissue Regenix AR 2018.indd 131/05/2019 17:36:22