REG - Celadon Pharma. PLC - Final Results
14/05/2024 07:00
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RNS Number : 2557O Celadon Pharmaceuticals PLC 14 May 2024
Celadon Pharmaceuticals Plc
("Celadon", the "Company" or the "Group")
Final Results for the year ended 31 December 2023
London, 14 May 2024 - Celadon Pharmaceuticals Plc (AIM: CEL), a UK-based
pharmaceutical company focused on the development, production and sale of
breakthrough cannabis-based medicines, today announces its audited final
results for the year ended 31 December 2023.
Strategic and operational highlights
· Registration of the Group's Midlands facility with the UK Medicines
and Healthcare products Regulatory Agency ("MHRA") for the Good Manufacturing
Practice ("GMP") manufacturing of its cannabis Active Pharmaceutical
Ingredients (APIs)
· Successful Home Office licence update to allow commercial sale of
the Group's high Δ-9 tetrahydrocannabinol ("THC") product
· Three customer contracts signed:
o The first two, estimated to have an annual value of c.£1.4m, expected to
utilise most of the capacity of Phase 1. Additional letter of intent signed
with the first customer for up to a further £7m of annual revenue
o First supplies on both contracts undertaken in December 2023
o Third customer contract signed with a European pharmaceutical distributor
worth up to £26m over three years, and expected to be delivered from Phase
2
· Receipt of Research Ethics Committee ("REC") approval for the
Group's chronic pain study
· Fit out of Phase 2 underway, with insights gathered from Phase 1
informing heating, ventilation and air conditioning optimisations
Financial highlights
· Revenue of £75k (FY22: £24k)
· Operating loss of £5,931k (FY22: loss of £5,381k)
· Loss before tax of £7,523k (FY22: loss of £18,118k)
· Cash at 31 December 2023 of £1,259k (FY22: £5,061k)
o Cash balance at 10 May 2024 of £0.5m, with £0.7m of VAT and R&D tax
credits due from HMRC
· Committed credit facility for £7.0m signed on 29 May 2023 with an
initial 2-year term, which has since been extended to 30 November 2025
· £5.1m of equity raised from new and existing shareholders, with
£3.0m raised in Q4 FY23 and a further £2.1m raised in May 2024
James Short, CEO of Celadon, commented:
"2023 was another year of strong strategic progress for Celadon. The Group
received its full set of regulatory licences, making it the first UK company
to obtain these approvals since the law changed in 2018. Following the update
of our Home Office licence, we signed sales contracts worth up to £10 million
in annual revenue, and have since begun supplying product to our first two
customers.
"The sales pipeline for our pharmaceutical-grade, high-THC cannabis products
continues to be strong, and we are progressing well with the fit out of Phase
2 of our indoor facility. The significant progress we have made this year, and
the promising early data from our chronic pain study, give me huge confidence
in the potential of our cannabis-based medicines to transform patients' lives.
Finally, I would like to thank our shareholders for their continued support as
we pursue our primary aim of helping patients."
Investor Presentation: 2:00pm BST Thursday 16 May 2024
Management will be hosting a live presentation and Q&A session relating to
the Final Results at 2:00pm BST on Thursday 16 May 2024 via the online
platform Investor Meet Company. Investors can sign up to Investor Meet Company
for free and attend the presentation via the following link:
https://www.investormeetcompany.com/celadon-pharmaceuticals-plc/register-investor
(https://www.investormeetcompany.com/celadon-pharmaceuticals-plc/register-investor)
The presentation is open to all existing and potential shareholders.
Questions can be submitted pre-event via your Investor Meet Company dashboard
up until 15 May 2024, 09:00 BST, or at any time during the live presentation.
A copy of the presentation will be published on the Company's website at
www.celadonpharma.co.uk (http://www.celadonpharma.co.uk)
Investors who already follow Celadon on the Investor Meet Company platform
will automatically be invited.
Enquiries:
Celadon Pharmaceuticals Plc
James Short
Via Powerscourt
Jonathan Turner
Canaccord Genuity Limited (Nominated Adviser and Broker)
Bobbie Hilliam / Andrew
Potts
+44 (0)20 7523 8000
Global Investment Strategy UK Limited (Joint Broker)
Callum Hill +44 (0)20 7048 9400
Powerscourt Group
Sarah MacLeod / Sam Austrums / Nick Johnson +44 (0)20 7250 1446
This announcement contains inside information for the purposes of article 7 of
the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the
Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication
of this announcement, this information is now considered to be in the public
domain.
CELADON PHARMACEUTICALS PLC
Group Strategic Report
For the year ended 31 December 2023
Chairman's Statement
I am pleased to present the full year results of Celadon Pharmaceuticals plc
("Celadon" and with its subsidiaries, the "Group") for the year ended 31
December 2023.
I am proud of the role Celadon plays in striving to improve the quality of
life of patients with chronic pain and other conditions and of its aim to
produce a reliable and safe source of pharmaceutical grade cannabis-based
products.
Significant Milestones
Although it has been over five years since medical cannabis was legalised in
the UK, the regulatory framework for domestic cultivation has taken some time
to develop. Celadon has been working closely with the Home Office and the
Medicines and Healthcare products Regulatory Agency ("MHRA") to create a
workable solution and became the first business to obtain approval to supply
domestically produced high Δ-9-tetrahydrocannabinol ("THC") cannabis products
commercially. The MHRA awarded the Celadon facility in the Midlands its Good
Manufacturing Practices ("GMP") registration in January 2023, with the Home
Office subsequently removing the restrictions from its licence. Following
these events Celadon has been able to sell its products from March 2023.
Celadon swiftly capitalised on these regulatory approvals, signing two sales
contracts with UK customers in May and September 2023. These two contracts
are anticipated to generate approximately £1.4m of annual revenue. A third
contract with a European pharmaceutical distributor, which has potential
annual revenues of £8.7m, was signed in November 2023. These contracts,
signed so soon after receipt of manufacturing certification and approvals, are
evidence of the strong demand for domestically produced, high quality medical
cannabis products.
In addition, in August 2023, the National Health Service's Research Ethics
Committee ("Ethics Committee") approved the feasibility study requested by the
MHRA for patient onboarding for the Group's chronic pain study. This
feasibility study was run in the final three months of 2022 and had been
requested to ensure that Celadon's innovative data collection and product
supply methods were effective and capable of adapting to the 5,000 patients
who could be enrolled on the study.
In March 2024, the Group published an independent Early Economic Analysis of
the preliminary results obtained during the feasibility study. This
analysis, which was prepared by York Health Economics Consortium, shows that
the treatment regime contained in the trial protocol is more cost effective
than the current standard of care for reducing pain scores and improving
health outcomes. In addition, a number of additional potential benefits have
been identified, such as improved sleep and increased incidences of returning
to work, both of which will be examined further when the study recommences.
Additional opportunities
Active Pharmaceutical Ingredient ("API") Manufacturing
The Group has continued the fit out of the second phase of its 100,000 sq ft
production facility in the Midlands, UK, with the capacity anticipated to
become available in 2025.
Development of Therapeutics
Following approval to roll out the Celadon's 5,000 patient chronic pain study
in August 2023, the Group has been in discussions with a number of potential
partners to enable rapid enrolment onto the programme, through being able to
offer subsidised or free treatment for a period of time.
The approval of the trial protocol, and in particular the data capture and
dosage control methodologies, has also led to further exploration of the
potential use of the protocol to treat other conditions. Discussions are
ongoing with a healthcare provider about a novel application for the protocol.
The Board established a Scientific Sub-Committee in late 2023 to help review
Celadon's strategy and achievements against objectives.
Fundraising
Celadon raised £3m of capital through equity issuances in late 2023 to
existing and new shareholders. In May 2024, it raised a further £2.1m
through a further equity issuance.
These funds will allow the Group to continue the fit out of Phase 2 of its
facility to capitalise on the significant market opportunities that are
available.
Our employees
Following full regulatory approval allowing Celadon to sell its products, it
has strengthened the Sales and GMP Manufacturing teams.
The Board is extremely grateful for the commitment, innovation and
perseverance of our employees in their approach to maintaining and growing
the business despite the many challenges faced from an emerging regulatory
landscape. We thank them for embracing new approaches to working and for
adapting quickly to new ways of supporting the Group and its anticipated
patients and customers.
Advancing our sustainability agenda
The Group's transition to a sustainable energy supplier in December 2022 and
its anticipated installation of solar panels capable of generating 1MW of
renewable energy demonstrates its commitment to operating sustainably.
Dividend
Given that Celadon is continuing to invest in growing the business, the Board
does not recommend the payment of a dividend (2022: nil).
Looking ahead
Celadon has made significant progress during 2023 having successfully obtained
the required regulatory licences to allow it to begin the commercial supply of
its cannabis-based products. The subsequent signing of three sales contracts
in 2023, with potential annual sales revenues of more than £10m, demonstrates
the sizeable and growing appetite for Celadon's products.
The recent Early Economic Analysis of the results from the CANPAIN feasibility
study give the Board further confidence that Celadon's cannabis-based
medicinal products have the potential to improve patients' quality of life.
The results also provide valuable initial data to refine the design of future
studies.
Alexander Anton
Chairman
13 May 2024
Chief Executive Officer's Report
Introduction & Overview
I am delighted to report on the significant strategic progress the Group has
made in the last year.
These results are for the Group's first full year as a public company
following its successful readmission to AIM in March 2022, when it became one
of a small number of medical cannabis companies to be admitted to trading on
AIM.
The regulatory landscape for medical cannabis has changed significantly in the
two decades since Canada became the first G7 and G20 nation to legalise
medical cannabis in 2001. Australia legalised cannabis for medical use in
2016 and a number of European nations including Austria (2008), Italy (2013),
Romania (2013), Czech Republic (2013), Germany (2017), Greece (2017),
Luxembourg (2017) and Portugal (2018) had all legalised medical cannabis
before the UK did so in November 2018.
The experiences of the Australian and German cannabis-based medicine markets
are instructive as they have shown significant growth over recent years.
Between 2016 and 2019 just 1,011 prescriptions for medical cannabis were
issued in Australia, but this number grew to 295,515 between 2020 and 2022.
More recently, Australian medical cannabis patient numbers have been estimated
at 400,000. In Germany, it is estimated that there were over 230,000 medical
cannabis patients in 2023.
The fifth anniversary of legalisation in the UK has prompted a number of news
outlets to explore the comparatively low numbers of UK medical cannabis
patients with an estimated 32,000 in the UK in 2023. Celadon is pleased to
have contributed to a number of articles on this subject and our growing
facilities have been filmed by all the major UK broadcast television networks,
with the BBC, ITV and Sky all having visited and reported from our 100,000 sq
ft cultivation facility in the Midlands.
As can been seen from the examples of Australia and Germany, the use of
cannabis-based medicines is expanding rapidly internationally with increasing
volumes of evidence for their efficacy being reported across a number of
conditions. Our aim is to position Celadon as a leader in breakthrough
cannabis-based medicines, building on our early-mover advantage in a highly
regulated market as one of only two UK companies with the licences to
cultivate and manufacture pharmaceutical-grade cannabis in the UK for
commercial sale.
Our strategy to develop the UK market combines domestic production of
pharmaceutical-grade medicinal cannabis, clinical trials to generate the data
to support prescriptions by doctors, and research into future breakthrough
cannabis-based medicines. There is a substantial need for high-quality UK
produced medicinal cannabis to reduce the need for imports from overseas,
which incur higher costs and lengthy delays for patients. The Group completed
a feasibility study for its CANPAIN trial in 2022 and submitted the results to
the Research Ethics Committee in December of that year, with promising early
results for opioid reduction and sleep improvement. There are ongoing
conversations about using the Trial Protocol in different countries or to
treat different conditions.
Looking forward, we believe the opportunities for cannabis-based medicines in
the UK and internationally are only going to increase. This is due to:
· Large addressable market: there are an estimated eight million
people in the UK alone with moderate to severely disabling chronic pain, with
around 50 million in the US. Significant growth in patient numbers in
Australia and Germany demonstrates the pace with which patients can be treated
with medical cannabis.
· Growing evidence of efficacy for a number of conditions: there is
increasing evidence showing that cannabis-based medicines are effective in
treating a number of conditions (e.g. chronic pain, epilepsy and autism).
The early results of the Group's CANPAIN Trial supports the case for
cannabis-based medicines being a cost effective treatment for chronic pain,
with significant improvements in pain scores when compared with the previous
standard of care - opioids - which have been estimated to work for only 5-10%
of patients, and which studies have shown can lead to harmful side effects
when used long term.
Celadon continues to pursue its strategy, with a wholly aligned mission and
set of values which position the Group well for future growth and success.
Fundamentally, our strategy has a patient-first objective and this sits at the
heart of everything we do.
Mission: to improve quality of life for patients most in need through
developing breakthrough cannabis-based medicines
Values:
· Patient-first: putting patients and integrity at the heart of
everything we do
· Collaboration: building close partnerships with doctors,
regulators, innovators and colleagues
· Innovation: developing industry-leading science and medicines for
patients
· Determination: never giving up on our goals despite the
challenges
STRATEGY
Celadon's strategy places it in a strong position to capitalise on the
developing market for cannabis-based medicines, with solid foundations
developed over the last five years across a number of areas of the
cannabis-based medicine supply chain. The regulatory and capital barriers to
entry remain high, and Celadon's successful Good Manufacturing Practice
("GMP") registration and Home Office licence update puts it in a strong
position to increase the amount of pharmaceutical-grade product it supplies to
the market.
Celadon's focus on patient need and domestic supply has three core pillars,
all of which address the emerging market opportunity:
· Grow, extract and sell: create an integrated UK supply chain that
is not reliant on imported and low-quality product utilising Celadon's licence
to cultivate, manufacture and sell to the market for revenue
· Trials: conduct clinical trials to demonstrate the efficacy of
cannabis-based medicines, open up the UK market and support the case for
National Health Service ("NHS") reimbursement, working with teams experienced
in bringing new pharmaceutical products to market.
· Breakthrough R&D: develop advanced cannabinoid medicines with
novel delivery technologies, led by Celadon's in-house R&D team and
de-risked through industry partnerships
OPERATIONAL UPDATE
Throughout 2023 Celadon continued to make progress against its key operational
milestones.
Medicines and Healthcare products Regulatory Agency ("MHRA") and Home Office
Licencing
After years of preparatory work, Celadon was delighted to obtain confirmation
from the MHRA in January 2023 that it had achieved pharmaceutical standard GMP
certification to manufacture its pharmaceutical-grade cannabis product.
Upon receipt of MHRA registration, Celadon requested that the Home Office
update the Group's licence to allow the commercial supply of its cannabis
product, with the Home Office granting the licence extension in March 2023
(and which was renewed in March 2024). As previously noted, the Directors
believe that Celadon was the first company in the UK to be licensed to
cultivate and sell high-THC EU-GMP grade cannabis product from its own
facility following the changes to pharmaceutical cannabis licensing in 2018,
and one of a small number of EU-GMP facilities of its kind globally.
Customer Contracts
The recruitment of a Business Development Director in February 2023 and the
obtaining of final regulatory approval from the Home Office and MHRA in March
2023 allowed the Group to start speaking with potential customers about the
supply of product.
In May and September 2023, the Group entered into commercial supply agreements
with two UK-based pharmaceutical and medical-cannabis companies to supply them
with cannabinoid Active Pharmaceutical Ingredients ("APIs"). These contracts
are anticipated to generate approximately £1.4 million per annum. In
addition, in November 2023, the Group signed a new supply contract with a
European pharmaceutical distributor which could generate annual sales of up to
£8.7 million annually - with sales anticipated to commence in the second half
of 2024.
The Group continues to receive a significant number of enquiries from new
potential customers for its pharmaceutical-grade cannabis products, and is
currently in discussions to convert a number of these into commercial
contracts.
Phase 1 Cultivation Facility
Planned maintenance work, including a number of upgrades, was completed on
Phase 1 in the early part of 2023 while Celadon was waiting for the MHRA to
confirm the certification of the Group's GMP registration for the production
of its cannabinoid APIs.
The Group supplied product to its first two customers in December 2023, with
commercial yields significantly higher than industry averages. These
exceptionally high yields are a testament to the efforts of Celadon's
cultivation team and Research and Development activities over the last four
years which have been fundamental to optimising facility design and
operations.
Phase 2 Facility Fit Out
After completing the build of Phase 2, and certain areas of Phase 3, in 2022,
the fitting out of Phase 2 was slowed slightly to allow the Group to re-design
the area's air-handling units to factor in the lessons learnt from Phase 1 and
to ensure an optimal growing environment. These design works have now been
completed, and the Heating, Ventilation and Air Conditioning ("HVAC") system
is anticipated to be installed in the second half of 2024.
Clinical Trial
CANPAIN Chronic Pain Trial
Following completion of the Feasibility Study demonstrating the on-boarding
experience for a small cohort of patients, the Group's CANPAIN chronic pain
trial, received Research Ethics Committee approval in August 2023. This was
the final requirement needed to obtain approval from the MHRA for the roll-out
of a trial of medical cannabis in patients with non-cancer chronic pain and
allows the enrolment of up to 5,000 patients.
Feedback from patients who received treatment as part of the Feasibility Study
was positive, with improvements in quality of life including pain reduction
and sleep improvement. Significant reductions in other medications were also
reported with some respondents seeing a reduction in their opioid usage, being
reported. In addition, Early Economic Analysis of the Feasibility Study,
undertaken by York Health Economic Consulting, was announced in March 2024 and
showed:
- Patients included in the feasibility study recorded an almost
50% (49.6%) reduction in pain scores in the first month of using
cannabis-based medicines, with this reduction being sustained for the duration
of the three-month study;
- Patients saw a significant improvement in their mean quality of
sleep scores of 1.6 (p=0.01) and a reduction in the use of opioids and
associated medicines;
- When assessed using the economic framework recommended by NICE,
adding cannabis-based medicines to the Standard of Care was found to deliver a
cost-effective solution - with potential cost savings for the NHS; and
- Patients' quality-adjusted life years also increased.
The full trial carries a number of advantages, most notably its fully approved
status but also, and the permission granted to General Practitioners ("GPs")
to refer patients to the trial. Currently, only doctors on the General
Medical Council's Specials Register can prescribe medical cannabis.
Expanding this to include GPs is key to unlocking the UK's medicinal cannabis
market, and it is hoped that the full trial will provide further evidence of
the benefits of allowing GPs to prescribe medical cannabis. The trial's
regulatory approval and GP referral authorisation are expected to
substantially increase the recruitment of patients and sponsoring
organisations.
A number of additional benefits have come from the full approval of the trial
protocol. The Group has been approached by organisations in a number of
different jurisdictions who are interested in launching the approved protocol
to help improve patients' quality of lives, but the use of the protocol to
dispense measured doses of cannabinoids under the control of physicians has
interested specialists looking for an effective treatment for other
conditions.
Breakthrough R&D
Led by Celadon's Chief Scientific Officer and in line with the Group's
strategy, the in-house R&D team commenced work in 2022 to explore
opportunities to broaden Celadon's product range of advanced medicines, using
its proprietary cannabinoid API. This work continued throughout 2023 and
patent applications have been / are in the process of being submitted.
Funding
It is widely recognised that given the current geo-political landscape and
high levels of inflation that it is a difficult time for companies to be
raising funds. As such, it is particularly heartening that new and existing
shareholders have continued to provide funding to the business to allow its
continued expansion, by providing £5.1m of additional equity capital between
October 2023 and May 2024.
ESG
At the heart of Celadon's approach to ESG is a conviction that society will
benefit significantly from addressing the UK's 'silent epidemic' of chronic
pain (and opioid misuse), as well as other unmet patient conditions.
Celadon's mission to improve quality of life for patients most in need through
breakthrough cannabis-based medicines is one way of achieving this positive
societal outcome.
Celadon, which is aiming to develop medicines that will be reimbursed by the
UK's NHS is also working to align with the NHS's requirement that by 2027
suppliers report emissions and publish a carbon reduction plan aligned with
its 2045 net zero targets.
Celadon is taking measures now to reduce the impact that it has on the
environment. The Group has continued to only purchase energy from renewable
sources and anticipates solar panels capable of generating 1MW of power being
installed on its facility during the course of 2024.
Outlook
While the UK market for cannabis-based medicines is still in its infancy,
there are signs that it is beginning to mature. We remain confident of the
medium to long-term sector outlook and the prospects for Celadon within this
market. The Group has started to deliver on its commercial Supply Agreements
and has several additional customer contracts in negotiation demonstrating the
continuing and increasing demand for high-quality UK grown cannabis
products.
The Early Economic Analysis of the CANPAIN trial feasibility study data
supports the Group's view that cannabis-based medicines offer a cost-effective
alternative to opioids for the treatment of chronic pain. The Group is looking
forward to launching the CANPAIN trial at scale, in order to start improving
the lives of patients and collecting the real-world evidence sought by the NHS
and NICE to evaluate the possibility of reimbursement.
The prospect of the CANPAIN protocol being used in other jurisdictions, as
well as for the treatment of other conditions, further demonstrates the vast
potential that cannabis-based medicines offer Celadon, national health
providers, and most importantly, patients.
James Short
CEO
FINANCIAL OVERVIEW
Financial presentation of the Celadon Pharmaceuticals Plc Group results
The year to 31 December 2023 is the first full year for the operations of the
consolidated Celadon Pharmaceuticals Plc group of companies (the "Group").
The Group was formed on 28 March 2022, following the acquisition of Vertigrow
Technology Limited ("Vertigrow") (Vertigrow was renamed as Celadon Property Co
Limited on 3 January 2023) by Celadon Pharmaceuticals plc - given that former
Vertigrow shareholders comprised 86% of the Company's enlarged share capital,
Vertigrow was treated as the accounting acquirer and the legal parent company,
Celadon Pharmaceuticals Plc was treated as the accounting subsidiary.
Accordingly:
- the Consolidated balance sheets at 31 December 2023 and 2022
show the acquisition of Celadon Pharmaceuticals Plc by Vertigrow;
- the income statement and statement of cash flows shows for the
year ended 31 December 2023 are the results of the Group as a whole; and,
- the income statement and cash flow for the year ended 31
December 2022 are the results of Vertigrow with the inclusion of Celadon
Pharmaceuticals Plc from 28 March 2022.
The Reverse Acquisition Accounting is described in more detail in note 5 to
these financial statements.
Revenues - in the year ended 31 December 2023, the Group signed its first
supply contracts to provide cannabis-based products to UK pharmaceutical and
medical cannabis companies. The Group recorded revenues from its first
supplies in December 2023 of £64k (2022: -). Revenues from the conclusion
of the Harley Street (CPC) Limited feasibility study reduced to £11k (2022:
£24k). The Group is currently investigating ways to ensure a rapid uptake
in patient numbers when the clinical trial is formally launched.
Cost of sales - includes all costs for cultivation and finished of
pharmaceutical-grade cannabis and the Harley Street (CPC) Limited study
patients, including initial suitability tests, medical consultation and
onboarding of all patients.
Fair value movement on biological assets and agricultural produce - as the
Group's activities involve the cultivation of pharmaceutical-grade cannabis
UK-adopted International Accounting Standards require the Group to determine
the fair value of the produce being cultivated at each reporting date.
Whilst they are being cultivated the cannabis plants are considered as being
"biological assets". After the plants have been harvested, they become the
raw material for manufacturing processes, such as drying and cannabinoid
extraction. After harvesting the plants are treated as "agricultural
produce". The fair value of the plants at the time of their harvest becomes
the carrying value for the inventory at the inception of these manufacturing
processes.
Movements in the fair value of the biological assets between reporting dates
are required to be disclosed in the Group Income Statement. The net fair
value movement in the year to 31 December 2023 was £74k (2022: - ). This
figure comprised the movement in the fair value of biological assets of £40k
(2022: -) and the fair value of agricultural produce being finished for sale
at the balance sheet date of £34k (2022: - ).
This net movement of £40k in respect of biological assets is the increase in
fair value of £108k (2022: -) due to cultivation activity, reduced by the
transfer of £68k (2022: -) to the carrying value of agricultural produce at
the time of harvest.
The net movement in the fair value of agricultural produce was £34k (2022:
-), being the £68k (2022: -) valuation at the time of harvest, less £34k
(2022: -) which was subsequently transferred to cost of sales for the products
when they were sold.
Gross profit - for the year ended 31 December 2023, the Group reported a gross
margin of £75k (2022: loss of £66k), though this figure includes the effect
of the fair value movements outlined above. Without the fair value
adjustments, the gross margin was £1k (2022: gross margin loss of £66k).
A gross profit of £35k (2022: -) arose on the sale of pharmaceutical-grade
cannabis products, but is reduced by a gross margin loss £34k (2022: gross
margin loss of £74k) on Harley Street (CPC) Limited's Feasibility Study,
which was impacted by the mix of paying and non-paying patients and the lower
patient numbers meaning that expected operational efficiencies were not
available.
Operating costs - include all people costs, property costs (including
utilities, repairs and maintenance), marketing, and legal and professional
costs. These totalled £5.5 million in the year ended 31 December 2023 (2022:
£4.9 million). The increase in operating costs reflects the scale up in the
Group's people, operations and cost base pursuant to our enlarged Group
business plan, and reflects the full year of costs arising from Celadon
Pharmaceuticals Plc compared with just nine months in 2022.
Operating loss - is gross margin less operating costs, depreciation and
amortisation. The operating loss for the year ended 31 December 2023 was £5.9
million (2022: £5.4 million).
Long term incentive plans - the Group has a share based long term incentive
plan for certain directors, advisors and employees. In the year ended 31
December 2023, the Group recognised a £43k charge (2022: £910k) for this
Subsidiary Incentive Scheme. A number of awards were made under a separate
long term incentive plan to key members of the Group's management and an
external advisor in February 2023, a fair value charge of £242k was made in
respect of these awards in the year to 31 December 2023 (2022: -). A further
£146k charge related to the March 2022 grant of warrants to an advisor in
respect of services to be provided between April 2022 and March 2024 (See note
28).
Finance charges on leased assets - Celadon has a Right Of Use lease on its
production facility with almost 21 years remaining. There is also 15 months
remaining on a 3 year Right Of Use lease for a biodigester. The finance charge
on these leased assets is £581k (2022: £531k). The charge has increased on
the prior periods as (a) the lease on the production facility was varied in
February 2022 to extend the initial rent free period.
Loan interest charges - The Group had two loans in the period;
(a) a UK Government backed COVID related Bounce Back loan; and,
(b) a Revolving Credit Facility.
Non Current Assets - decreased by £0.2 million in the year ended 31 December
2023 (2022: an increase of £2.2 million), the spend on limited works fitting
out the Group's facility has been offset by repayments on its facility lease,
meaning that the Right of Use asset (and associated lease liability) reduced
by £0.2 million and amortisation of the Chronic Pain Clinical Trial related
intangible assets of £0.1 million (2022: (£0.1 million)).
Current Assets - were £2,500k (2022: £6,330k). Inventory and biological
assets of £100k (2022: £18k) increased due to commercial cultivation
commencing offset by operating cashflow and by reductions in the amount of VAT
and refundable R&D Tax Credits due following the UK Government's reduction
in the Small and Medium Enterprises R&D relief. Cash balances at 31
December 2023 were £1.3 million (2022: £5.1 million).
Current Liabilities - were £955k (2022: £1,197k). The reduction of £0.2
million was caused by a reduction in trade and other payables of £0.2
million.
Non-current liabilities - were £5,085k (2022: £5,017k). The increase of
£0.1 million was due to the lease liability increased by £0.1 million (2022:
£1.6 million).
Shareholders' Equity - Share Capital including Share Premium and the Merger
Relief Reserve total £91.3 million at 31 December 2023 (2022: £88.3
million); the Reverse Acquisition Reserve of £59.2 million (which is the
consolidation reserve created on the reverse acquisition of combining Celadon
Pharmaceuticals Plc with Vertigrow) remained constant; the Retained losses
(increased to £31.0 million) increased with losses in the year ended 31
December 2023. The Non-controlling Interest reduced to £23k (2022: retained
loss £638k) due to the acquisition of all of the shares of Harley Street
(CPC) Limited that the Group did not own in May 2023.
Cash outflows from operating activities - for the year ended 31 December 2023
were £6.0 million (2022: £6.1 million). The main spend items include people,
advisers and utility costs.
Investing activities - in the year ended 31 December 2023 capex items totalled
£0.3 million (2022: £2.1 million).
Financing activities - in the year ended 31 December 2023, the Group raised
£3.0 million (2022: £7.5 million) of new equity financing (net of allocated
issue costs, which were specifically related to the fundraise process).
Funding line - on 29 May 2023, the Group obtained £7.0m of funding via a
2-year fixed rate Revolving Credit Facility Agreement. Interest accrues at a
rate of 10% on balances drawn under the Facility Agreement. At 31 December
2023, £10k of the Facility had been drawn (2022: -). The Revolving Credit
Facility's termination date was extended to 30 November 2025 in April 2024.
The Revolving Credit Facility Agreement will be repayable in the event that
the Group obtains sufficient alternative funding to allow the Revolving Credit
Facility Agreement to be repaid in full.
Going Concern - now that the Group has commenced products sales and has access
to the £7.0m Revolving Credit Facility and further to the issuance of £5.1m
of equity between October 2023 and May 2024, the Directors consider that the
Group is able to meet its financial liabilities as they fall due for the
period of at least 12 months from the date of this report.
Jonathan Turner
CFO
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
2023 2022
Notes £'000 £'000
Revenue 7 75 24
Cost of sales (74) (90)
Fair value adjustments 8 74 -
Gross Profit 75 (66)
Operating costs (5,472) (4,849)
Depreciation and amortisation 14, 15, 16 (534) (466)
Operating loss (5,931) (5,381)
Share-based payment costs for reverse acquisition - (6,400)
Other acquisition costs (741) (1,465)
Finance costs 11 (566) (23)
Non-cash movements relating to Harley Street (CPC) Limited - (264)
Finance charge on convertible loan note -
- Interest and charges - (43)
- Redemption - (3,406)
Long term incentive plans 30 (285) (1,136)
(1,592) (12,737)
Loss before taxation (7,523) (18,118)
Taxation 12 261 707
Loss for the period, being total comprehensive loss for the period
(7,262) (17,411)
Loss attributable to:
Controlling Interest (7,140) (17,006)
Non controlling interest (122) (405)
(7,262) (17,411)
Basic and diluted loss per share 13 (11.5p) (29.7p)
The Group's activities derive from continuing operations.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2023
2023 2022
Notes £000 £000
Non-current assets
Intangible assets 14 328 428
Property, plant and equipment 15 2,984 2,921
Right of use assets 16 3,191 3,354
Investments 17 218 218
Total non-current assets 6,721 6,921
Current assets
Inventories 19 60 20
Biological assets 20 40 -
Trade and other receivables 21 1,141 1,249
Cash and cash equivalents 22 1,259 5,061
Total current assets 2,500 6,330
Current liabilities
Trade and other payables 23 (856) (1,106)
Loans and borrowings 24 (20) (10)
Lease liabilities 24 (54) (56)
Deferred tax liability 25 (25) (25)
Total current liabilities (955) (1,197)
Non-current liabilities
Loans and borrowings 24 (14) (24)
Lease liabilities 24 (4,629) (4,542)
Provisions 27 (405) (389)
Deferred tax liability 25 (37) (62)
Total non-current liabilities (5,085) (5,017)
Net assets 3,181 7,037
Shareholders' funds
Share capital 28 642 617
Share premium 28 25,504 22,553
Merger Reserve 28 65,082 65,082
Reverse Acquisition Reserve 28 (59,200) (59,200)
Warrant Reserve 28 617 471
Capital Redemption Reserve 28 49 49
Share Based Payment Reserve 30 1,195 910
Retained earnings (30,731) (22,807)
Equity attributable to owners of the Group 3,158 7,675
Non-controlling interest 29 23 (638)
Total Equity 3,181 7,037
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Share Capital Share Premium Merger Reserve Reverse Acquisition Reserve Warrant Reserve Capital Redemption Reserve Share Based Payment Reserve Retained Earnings Equity attributable to owners of the parent Non-controlling interest Total Equity
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 31 December 2021 80 7,367 - (5,835) - 49 - (5,801) (4,140) (256) (4,396)
Recognition of PLC Net Assets at acquisition date - - - 5,751 - - - - 5,751 - 5,751
Issue of shares for acquisition of subsidiary 433 - 65,082 (65,515) - - - - - - -
Subsidiary Incentive Share issue - - - - - - - - - 23 23
Share-based payment charge - - - 6,399 226 - 910 - 7,535 - 7,535
Settlement of convertible loan notes of Vertigrow Technology Ltd 52 7,765 - - - - - - 7,817 - 7,817
Issue of shares for cash 52 8,448 - - - - - - 8,500 - 8,500
Cost of share issue - (1,009) - - - - - - (1,009) - (1,009)
Warrants issued - (18) - - 245 - - - 227 - 227
Loss for the period - - - - - - - (17,006) (17,006) (405) (17,411)
Total movement for the period 537 15,186 65,082 (53,365) 471 - 910 (17,006) 11,815 (382) 11,433
Balance at 31 December 2022 617 22,553 65,082 (59,200) 471 49 910 (22,807) 7,675 (638) 7,037
Share-based payment charge - - - - 146 - 285 - 431 - 431
Acquisition of 42.5% of Harley Street (CPC) Limited - - - - - - - (784) (784) 784 -
Issue of shares for cash 25 2,975 - - - - - - 3,000 - 3,000
Cost of share issue - (24) - - - - - - (24) - (24)
Loss for the period - - - - - - - (7,140) (7,140) (122) (7,262)
Total movement for the period 25 2,951 - - 146 - 285 (7,924) (4,517) 661 (3,856)
Balance at 31 December 2023 642 25,504 65,082 (59,200) 617 49 1,195 (30,731) 3,158 23 3,181
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2023
2023 2022
£'000 £'000
Operating activities
Loss for the Period (7,262) (17,411)
Adjustments for:
Depreciation and amortisation 534 466
Loss on disposal of fixed assets 6 -
Finance charges on leased assets 597 532
Finance charge on convertible loan notes - 43
Final conversion of convertible loan notes - 3,406
Fair value gain/(loss) on derivative liability - (556)
Finance charge on loans - 53
Long term incentive plan 285 910
Warrant costs 146 471
Reverse acquisition share-based payment - 6,400
Non-cash movements in respect of Harley Street (CPC) Limited - 264
Net IAS 41 valuation movement on Biological assets (74) -
Release of deferred tax liability on intangible assets (25) (25)
Other finance cost (net) (31) (5)
Operating cash flow before working capital movements (5,824) (5,452)
Decrease/(Increase) in trade and other receivables 108 (985)
(Decrease)/Increase in trade and other payables (250) 355
(Increase) in inventories - excluding fair value movements disclosed above (6) (18)
Cash (outflow) from operating activities (5,972) (6,100)
Investing activities
Cash received on reverse acquisition - 3,494
Net expenditure on purchase of property, plant and equipment (341) (2,086)
Purchase of investments - (18)
Net cash (outflow)/inflow from investing activities (341) 1,390
Financing activities
Interest received 32 17
Repayment of Lease Liabilities (496) (8)
Supplier loan - interest payment - (41)
Supplier loan - (repayment) - (1,500)
Third party loan received 10 -
Bounce back Loan repayment (11) (11)
Proceeds from issuing share capital, net of issue costs 2,976 7,491
Net cash inflow from financing activities 2,511 5,948
Net (decrease)/increase in cash and cash equivalents (3,802) 1,238
Cash and cash equivalents at beginning of period 5,061 3,823
Cash and cash equivalents at 31 December 1,259 5,061
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2023
1. About Celadon Pharmaceuticals Plc
Celadon Pharmaceuticals Plc (the "Company") and its subsidiaries (together
"the Group") are a UK based pharmaceutical group with a primary focus on
growing indoor hydroponic high-quality cannabis initially for use within the
chronic pain market.
The Company is a public limited company incorporated in England and Wales and
domiciled in the United Kingdom (company number: 11545912). It is a public
company listed on the AIM market of the London Stock Exchange. The registered
address is 32-33 Cowcross Street, London, EC1M 6DF.
On 28 March 2022, the Company completed the acquisition of Vertigrow
Technology Limited (and its subsidiaries Celadon Pharma Limited and Harley
Street (CPC) Limited) and the settlement of the Vertigrow Technology Limited
convertible loan notes via an issuance of new shares. Vertigrow Technology
Limited was renamed Celadon Property Co Limited on 3 January 2023. Further
details on this transaction and the subsequent Group structure is included at
note 5.
2. Basis of preparation
The financial information for the year ended 31 December 2023 has been
extracted from the Group's audited statutory financial statements which were
approved by the Board of Directors on 13 May 2024 which will be delivered to
the Registrar of Companies for England and Wales. The report of the auditor
on these financial statements was unqualified, did not contain a statement
under Section 498(2) or Section 498(3) of the Companies Act 2006. The
information included in this announcement has been prepared on a going concern
basis under the historical cost convention and in accordance with UK-adopted
International Accounting Standards. The information in this announcement has
been extracted from the audited statutory financial statements for the year
ended 31 December 2023 and as such, does not constitute statutory financial
statements within the meaning of section 435 of the Companies Act 2006 as it
does not contain all the information required to be disclosed in the financial
statements prepared in accordance with UK-adopted International Accounting
Standards. This announcement was approved by the board of directors and
authorised for issue via RNS on 14 May 2024.
The financial information is presented in Pound Sterling (£) which is the
functional currency of the Company and the presentation currency of the Group
and all values are rounded to the nearest Pound Sterling thousand (£000s).
a. Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiary
undertakings). Where necessary, adjustments are made to the financial
statements of the subsidiaries to bring their accounting policies in line with
those of the Group. All intra-Group transactions, balances, income and
expenses are eliminated on 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. The financial statements of subsidiaries
are included in the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Non-controlling interests are measured initially at their proportionate share
of the acquiree's identifiable net assets at the date of acquisition.
b. Going concern
These consolidated financial statements have been prepared on a going concern
basis, which assumes that the Group will continue in operational existence for
the foreseeable future.
The Group currently consumes cash resources and will continue to do so as it
completes the fit out and construction of its growing facilities and until
sales revenues are sufficiently high enough to generate net cash inflows.
In assessing whether the going concern assumption is appropriate, the
Directors have taken into account all relevant information about the current
and future position of the Group and including the current level of
resources.
At 31 December 2023 the Group had £1.3 million (2022: £5.1 million) of cash
and net assets of £3.2 million (2022: £7.1 million). In addition on 29 May
2023, the Group entered into a 2 year £7.0m Revolving Credit Facility to
provide additional liquidity for operating and capital expenditure. On 11
April 2024 this Revolving Credit Facility was extended for a further 6
months. On 10 May 2024, the Group announced that it had raised £2.1 million
through the issuance of 2,000,000 ordinary shares of 1p at a subscription
price of £1.05 each.
Having prepared budgets and cash flow forecasts covering the going concern
until June 2025 which have been stress tested, by creating a number of
different scenarios in which a number of the assumptions were adversely
tweaked down - such as to assume: a) a 6 month delay in revenue arising; b)
cost increases of more than 10% and c) a combination of the two, the
Directors believe the Group has sufficient resources to meet its obligations
for a period of at least 12 months from the date of approval of these
financial statements.
Taking these matters into consideration, the Directors consider that the
continued adoption of the going concern basis is appropriate having prepared
cash flow forecasts for the coming 12 months.
3. Accounting policies
Details of significant accounting policies are set out below.
a. Creation of the Celadon Pharmaceuticals Plc group of companies
On 28 March 2022 the Company became the legal parent of Celadon Property Co
Limited.
The results for the year ended, and as at 31 December 2023 are those of
Celadon Property Co Limited group with the inclusion of the Celadon
Pharmaceuticals Plc group.
The comparative results for the year ended, and as at 31 December 2022 are
those of Celadon Property Co Limited group from 1 January 2022 to 31 December
2022 with the inclusion of the Celadon Pharmaceuticals Plc group at the
acquisition date of 28 March 2022 through to 31 December 2022.
This transaction is deemed outside the scope of IFRS 3 Business Combinations
(Revised 2008) ("IFRS 3") and not considered a business combination because
the directors have made a judgement that prior to the transaction, that
Celadon Pharmaceuticals Plc was not a business under the definition of IFRS 3
Appendix A and the application guidance in IFRS 3.B7-B12 due to that company
being a company that had no processes or capability for outputs (IFRS 3.B7).
On this basis, the Directors have developed an accounting policy for this
transaction, applying the principles set out in IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors ("IAS 8") paragraphs 10-12, in that
the policy adopted:
§ Provides more relevant financial information to users of these
statements;
§ Is more representative of the performance, financial position, and cash
flows of the Group;
§ reflects the economic substance of the transaction, not merely the legal
form; and
§ Is free from bias, prudent and complete in all material aspects.
The accounting policy adopted by the Directors applies certain principles of
IFRS 3 in identifying the accounting acquirer (Celadon Property Co Limited)
and the presentation of the consolidated financial statements of the legal
acquirer (Celadon Pharmaceuticals Plc) as a continuation of the accounting
acquirer's financial statements (Celadon Property Co Limited).
This policy reflects the commercial substance of this transaction as:
§ the original shareholders of Celadon Property Co Limited are the most
significant shareholders after the business combination and initial public
offering, owning 86 per cent of the issued share capital; and
§ the executive management team of Celadon Property Co Limited became the
executive management of Celadon Pharmaceuticals Plc.
Accordingly, the following accounting treatment and terminology has been
applied in respect of the reverse acquisition:
§ the assets and liabilities of the legal subsidiary Celadon Property Co
Limited group are recognised and measured in the group financial statements at
the pre-combination carrying amounts, without reinstatement to fair value;
§ the retained earnings and other equity balances recognised in the group
financial statements reflect the retained earnings and other equity balances
of the Celadon Property Co Limited group immediately before the business
combination; and
§ the results of the period from 1 January 2022 to 28 March 2022 are those
of the Celadon Property Co Limited group.
However, in the Group financial statements:
§ the equity structure presented, reflects the equity structure of the
legal parent (Celadon Pharmaceuticals Plc), including the equity instruments
issued under the share-for-share exchange to effect the business combination;
and
§ the cost of the combination has been determined from the perspective of
Celadon Property Co Limited group.
Transaction costs of equity transactions relating to the issue and
re-admission of the Company's shares, are accounted for as a deduction from
equity where they relate to the issue of new shares, and listing costs are
charged to the consolidated statement of comprehensive income. See note 5
for further explanation.
b. Acquisition of controlling shareholding in Harley Street (CPC) Limited
On 14 July 2021, Celadon Property Co Limited acquired a 57.5% shareholding in
Harley Street (CPC) Limited for £2.0 million, of which £500,000 was paid in
cash and £1,500,000 of contingent consideration was to be paid in shares in
December 2022 (subject to certain targets being achieved).
In addition to acquiring the share ownership Celadon Property Co Limited had
the ability to appoint four directors to the board of Harley Street (CPC)
Limited compared with two from the other investor. Celadon also exercised
operational control of the business. Given the degree of control, it is
appropriate to include Harley Street (CPC) Limited as part of the
consolidation and reflect the ownership by third parties as a non-controlling
interest.
The £1,500,000 contingent consideration payment was estimated to have an
acquisition date fair value of £375,000 based upon a 6.2% discount rate and
management's probability estimate of the payment criteria being satisfied.
In June 2022, the Directors reassessed that the targets for the contingent
consideration payment would not be met within the time frame set, and released
the contingent liability of £375,000 back to the consolidated statement of
comprehensive income.
On 31 May 2023, Celadon Property Co Limited acquired the remaining 42.5%
shareholding for £1. An adjustment of £661,000 was made to the retained
reserves to release the non-controlling interest share of the accumulated
losses which is comprised of the non-controlling interest shares of the loss
for the 5 months to 31 May 2023 of £122k and a transfer to retained earnings
of the accumulated non-controlling interest's share of the losses of £783k.
c. Revenue recognition
Revenues relate to the provision of services and products to patients engaged
on the feasibility study in advance of the clinical trial with Harley Street
(CPC) Limited and to the supply of dried cannabis flower and cannabis-based
products.
Patients engaged on this feasibility study are required to pay an initial fee
on joining the trial and a monthly fee thereafter in relation to the
subsequent provision of clinical products.
Revenue is measured based on the completion of the performance obligations
that are identified and satisfied as outlined below:
- for the initial fees paid by patients on joining the study, the
performance obligations are to provide an initial suitability screening test
and to determine if the patient is suitable. Revenue is recognised, at a
point in time, on provision of the screening test kit to the patient, with the
related costs of test kits recognised in cost of sales.
- for the subsequent monthly fees paid by patients on the study,
the performance obligation is to provide monthly supplies of filled cartridges
containing medicinal cannabis. Revenue is recognised on delivery of these
supplies to the patient. The contracts with patients do not include any fixed
term or locked in periods, so monthly fees are only recognised on provision of
the monthly supplies.
Revenue from the supply of cannabis flower and cannabis-based products is
recognised at the point in time when the performance conditions in the
contract with the customer are met, which is when the products have been
shipped or made available to the customer.
d. Financial instruments
Recognition and initial measurement
Financial assets and liabilities are recognised in the statement of financial
position when the Group becomes a party to the contractual provisions of the
instrument. The Group's financial instruments comprise cash, trade and other
receivables, unlisted investments, trade and other payables, convertible loan
notes and embedded derivative, contingent consideration, and long-term
incentive arrangements.
Financial instruments are initially measured at fair value which is deemed to
be the transaction price. Transaction costs arising on the issue of financial
asset or liability are included in the initial measurement if they are
directly attributable to the acquisition of the instrument, and the instrument
is not measured at FVTPL on an ongoing basis. Where the financial asset or
liability is measured at FVTPL, transaction costs are immediately recognised
in profit or loss.
Classification and subsequent measurement
The Group classifies and subsequently measures its financial instruments in
the following measurement categories:
· Amortised cost:
· Fair value through profit or loss ("FVTPL")
· Fair value through other comprehensive income ("FVTOCI")
(financial assets only)
With the exception of the convertible loan note and embedded derivative that
the Group was party to in the prior period, all recognised financial assets
and liabilities are subsequently measured in their entirety at either
amortised cost or fair value, depending on their classification under one of
these categories.
Financial Assets
Trade and other receivables
For purposes of subsequent measurement, trade and other receivables are
classified as financial assets measured at amortised cost.
They are subsequently measured at amortised cost using the effective interest
method. The amortised cost is reduced by impairment losses. Any interest
income, foreign exchange gains and losses and impairment are recognised in
profit or loss. Any gain or loss on derecognition is recognised in profit or
loss.
The Group will write-off financial assets, either in their entirety or a
portion thereof, if there is no reasonable expectation of its recovery. A
write-off constitutes a derecognition of a financial asset.
Cash and cash equivalents
The Group manages short-term liquidity through the holding of cash and highly
liquid interest-bearing deposits. Only deposits that are readily convertible
into cash with maturities of three months or less from inception, with no
penalty of lost interest, are shown as cash and cash equivalents.
Unlisted Investments
The Group recognises unlisted equity investments at transaction cost which
management believes approximates the fair value or measured based on
discounted cashflow models if this is what has been used to determine if there
has been an impairment.
Impairment of financial assets
An impairment loss allowance is recognised for the expected credit losses on
financial assets when there is an increased probability that the counterparty
will be unable to settle an instrument's contractual cash flows on the
contractual due dates, a reduction in the amounts expected to be recovered, or
both. The probability of default and expected amounts recoverable are
assessed using reasonable and supportable past and forward-looking information
that is available without undue cost or effort. This impairment loss
allowance is reassessed at each reporting date.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets
and are recognised when the Group becomes a party to the contractual
provisions of the instrument. All financial liabilities are subsequently
measured at amortised cost using the effective interest method or at FVTPL.
Financial liabilities are classified and measured at FVTPL when (i) the
financial liability is a contingent consideration to which IFRS 3 applies, or
(ii) it is a derivative. Financial liabilities at FVTPL are stated at fair
value with any gains or losses arising on changes in fair value recognised in
profit or loss.
Trade and other payables
Trade and other payables are initially measured at fair value, net of direct
transaction costs and subsequently measured at amortised cost.
Borrowings
Borrowings are classified as current liabilities unless the Group has an
unconditional right and an intention to defer settlement of the liability for
at least 12 months after the reporting date. Borrowings are initially
recognised at fair value, net of transaction costs incurred. They are
subsequently measured at amortised cost using the effective interest method.
Convertible Loan Notes
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Group are recognised at the proceeds received, net
of direct issue costs.
The component parts of compound instruments, such as convertible loan notes,
are classified separately as financial liabilities and equity in accordance
with the substance of the contractual arrangement.
If the conversion feature of a convertible loan note does not meet the
definition of an equity instrument, that portion is classified as an embedded
derivative and measured accordingly. The debt component of the instrument is
determined by deducting the fair value of the conversion option at inception
from the fair value of the consideration received for the instrument as a
whole. The debt component amount is recorded as a financial liability on an
amortised cost basis using the effective interest rate method until
extinguished upon conversion or at the instrument's maturity date.
Where debt instruments issued by the Group are repurchased or cancelled, the
financial liability is derecognised at the point at which cash consideration
is settled. Upon derecognition, the difference between the liability's
carrying amount that has been cancelled and the consideration paid is
recognised as a gain or loss in the Income Statement, net of any direct
transaction costs.
Derivative financial instruments
Embedded derivatives in financial instruments or other host contracts that are
not financial assets are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts and the
host contract are not measured at fair value through the profit or loss
("FVTPL"). Derivatives embedded in financial instruments that are closely
related or other host contracts that are financial assets are not separated,
instead the entire contract is accounted for either at amortised cost or fair
value as appropriate.
Contingent Consideration
The Group is party to consideration arrangements in the form of contingent
consideration. Contingent consideration is consideration that is contingent on
a future event, usually the future performance of the acquired business. It is
measured at its discounted present value and remeasured at each reporting
date. The discount unwind and remeasurement of the liability is recognised in
profit or loss as finance cost.
e. Equity
An equity instrument is any contract that evidences a residual interest in the
assets of the company after deducting all of its liabilities. Equity
instruments issued by the Company are recorded at fair value on initial
recognition net of transaction costs.
Equity comprises the following:
§ Called up share capital represents the nominal value of the equity
shares.
§ Share Premium represents the excess over nominal value of the fair value
of consideration received from the equity shares, net of expenses of the share
issue.
§ Capital Redemption Reserve is a statutory, non-distributable reserve into
which amounts are transferred following the redemption or purchase of a
company's own shares.
§ Merger Relief Reserve is a statutory, non-distributable reserve arising
when conditions set out in section 612 of the Companies Act occur and relate
to the share-premium from shares issued to acquire Celadon Property Co
Limited.
§ Retained Deficit represents accumulated net gains and losses from
incorporation recognised in the Statement of Comprehensive Income.
§ Reverse Acquisition Reserve includes the accumulated losses incurred
prior to the reverse acquisition and the share capital and share premium of
Celadon Pharmaceuticals Plc at acquisition; the value of the shares issued to
acquire all of the share capital of Celadon Property Co Limited; the value of
share capital and share premium of Celadon Property Co Limited at acquisition;
as well as the reverse acquisition share-based payment expense.
§ Warrant Reserve represents the fair value of warrants issued as part of
an equity-based payment.
§ Non-controlling Interest represents the amounts subscribed for the B
Ordinary Shares of Celadon Subco Limited pursuant to the Group's Subsidiary
incentive plan; and until 31 May 2023, the accumulated net gains and losses of
Harley Street (CPC) Limited attributable to the minority shareholder.
f. Right-of-use Assets
Initial Recognition
The Group recognises right-of-use assets at the commencement date of the lease
(i.e. the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. In addition, at the
lease commencement date the right-of-use asset incorporates the unavoidable
costs to return the asset to its original condition, for which a corresponding
amount is recognised in provisions.
Depreciation of right-of-use Assets
The right-of-use asset is depreciated on a straight-line basis over the
shorter of the lease term and the estimated useful lives of the assets as:
§ Leasehold property - over 25 years
§ Leased plant and equipment - over 3 to 5 years.
In addition, the right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements of the lease
liability.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate and amounts expected to be paid under residual
value guarantees.
In calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date. After the
commencement date, the amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments made. The carrying
amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the lease payments (e.g. changes to future
payments resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an option to purchase the
underlying asset.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to profit or loss over the lease period.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for leases of low-value assets and short-term leases (of less than
12 months) including IT equipment. The Group recognises the lease payments
associated with these leases as an expense on a straight-line basis over the
lease term.
Please refer to note 15 for further information on the Group's lease
arrangements.
g. Property, plant and equipment
Recognition and measurement
Property, plant and equipment are measured at cost, which includes capitalised
borrowing costs, less accumulated depreciation and any accumulated impairment
losses. If significant parts of an item of property, plant and equipment have
different useful lives, then they are accounted for as separate items (major
components) of property, plant and equipment.
Assets under construction is stated at cost, net of accumulated impairment
losses, if any. Depreciation of assets under construction will commence from
the date on which the asset becomes available for use. Any gain or loss on
disposal of an item of property, plant and equipment is recognised in profit
or loss.
Depreciation
Depreciation is calculated to write-off the cost of items of property, plant
and equipment less their estimated residual values using the straight-line
method over their estimated useful lives, and is generally recognised in
profit or loss.
The estimated useful lives of property, plant and equipment for current and
comparative periods are as follows:
§ Leasehold improvements - 10 to 25 years
§ Plant and equipment - 3 to 10 years
§ Office equipment and IT - 3 to 5 years
§ Assets under construction - depreciation will commence when assets
brought in to use.
h. Intangible Assets
Goodwill
Goodwill represents the future economic benefits arising from a business
combination that are not individually identified and separately recognised.
Goodwill is carried at cost less accumulated impairment loss.
Cost comprises the difference between the fair value of the consideration
given for the investment and the fair value of the assets and liabilities
acquired as a result of the acquisition, plus the amount of any
non-controlling interests in the acquiree plus, if the business combination is
achieved in stages, the fair value of the existing equity interest in the
acquiree.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated statement of comprehensive income.
Impairment tests on Goodwill are undertaken at least annually at the financial
year end, and more frequently if indicators of impairment exist. Where the
carrying value of goodwill exceeds its recoverable amount an impairment is
recognised and shall not be reversed in later periods.
Other Intangible Assets
Other intangible assets relate to the Intellectual Property associated with
the design of the chronic pain clinical study protocol devised by the Group's
subsidiary Harley Street (CPC) Limited. The valuation of this intangible
asset was based on the estimated replacement cost for the asset at the time of
the acquisition. The amortisation period for this has been determined to be 5
years.
i. Inventory
Production consumables and lab inventory is measured at the lower of cost and
net realisable value. The cost of inventory is based on the first‑in,
first‑out allocation method.
j. Biological Assets and Agricultural Products
The Group cultivates high-THC cannabis in a highly controlled indoor
environment to a Good Agricultural and Collection Practices standard. When
harvested the plants are dried and cannabinoid oils are extracted following
Medicines and Healthcare products Regulatory Agency ("MHRA") approved Good
Manufacturing Processes.
The Group sells the cannabis products to pharmaceutical companies engaged in
research and development and to medicinal cannabis companies. It is
recognised that accounting for biological assets is an area which includes key
sources of estimation uncertainty.
Given the relatively short lifecycle of cannabis plants, with plants growing
from cuttings to mature plants ready for harvesting typically within 14-16
weeks, none of the Group's biological assets is considered to be a non-current
asset. Drying plants and extracting cannabinoid oils are production
processes rather than a biological process.
Until the point of harvest, plants are categorised as Biological Assets, and
are valued on the basis of the cashflows that are expected to arise from the
sale of the finished products less the anticipated cost of getting the plants
to be finished products. After harvest, the plants are categorised as
Agricultural Products.
Plants are therefore transferred to inventory at their fair value at the point
of harvest. This fair value becomes the deemed cost of the inventory under
IAS 2. Inventories are stated at the lower of this deemed cost and net
realisable value.
k. Taxation
Income tax expense comprises current and deferred tax. It is recognised in
profit or loss except to the extent that it relates to a business combination,
or items recognised directly in equity or in Other Comprehensive Income.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable
income or loss for the year and any adjustment to the tax payable or
receivable in respect of previous years. The amount of current tax payable or
receivable is the best estimate of the tax amount expected to be paid or
received that reflects uncertainty related to income taxes, if any. It is
measured using tax rates enacted or substantively enacted at the reporting
date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are
met.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. 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 date of the Statement of Financial Position.
Deferred tax is not recognised for:
§ temporary differences on the initial recognition of assets or liabilities
in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss;
§ temporary differences related to investments in subsidiaries, associates
and joint arrangements to the extent that the Group is able to control the
timing of the reversal of the temporary differences and it is probable that
they will not reverse in the foreseeable future; and
§ taxable temporary differences arising on the initial recognition of
goodwill.
Temporary differences in relation to a right‑of‑use asset and a lease
liability for a specific lease are regarded as a net package (the lease) for
the purpose of recognising deferred tax.
Deferred tax assets are recognised for unused tax losses, unused tax credits
and deductible temporary differences to the extent that it is probable that
future taxable profits will be available against which they can be used.
Future taxable profits are determined based on the reversal of relevant
taxable temporary differences. If the amount of taxable temporary differences
is insufficient to recognise a deferred tax asset in full, then future taxable
profits, adjusted for reversals of existing temporary differences, are
considered, based on the business plans for individual subsidiaries in the
Group. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will
be realised; such reductions are reversed when the probability of future
taxable profits improves.
The measurement of deferred tax reflects the tax consequences that would
follow from the manner in which the Group expects, at the reporting date, to
recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are
met.
l. Provisions
A provision is recognised where there is a present obligation, whether legal
or constructive, as a result of a past event for which it is probable that a
transfer of economic benefits will be required to settle the obligation, and a
reasonable estimate can be made of the amount of the obligation.
The amount recognised as a provision is management's best estimate of the
consideration required to settle the present obligation at the reporting date,
considering the risks and uncertainties surrounding the obligation.
Provisions are determined by discounting the expected future cash flows at a
pre‑tax rate that reflects current market assessments of the time value of
money and the risks specific to the liability. The unwinding of the discount
is recognised as finance cost.
m. New and amended accounting standards
New and amended standards and interpretations applied
The following accounting standards and updates were applicable in the
reporting period but did not have a material impact on the Company:
· IFRS 17: Insurance Contracts (effective 1 January 2023)
· Amendments to IFRS 17: Insurance Contracts (effective 1 January
2023)
· Amendments to IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors (effective 1 January 2023)
· Amendments to IAS 12: Income Taxes (effective 1 January 2023)
· Amendments to IAS 1: Presentation of Financial Statements
(effective 1 January 2023)
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in issue are
applicable to the Company but are not yet effective and therefore, have not
been adopted by the Company:
· Amendments to IAS 1 Classification of Liabilities as Current or
Non Current and Non-current Liabilities with Covenants (effective 1 January
2024)
· Amendment to IFRS 16 Lease Liability in a Sale and Leaseback
(effective 1 January 2024)
· Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements
(effective 1 January 2024)
The Company has considered the IFRS's in issue but not yet effective and do
not consider any to have a material impact on the Company.
4. Use of critical judgements and key accounting estimates
In preparing the financial statements, management has made judgements and
estimates that affect the application of the Group's accounting policies and
the reported amounts of assets, liabilities, income, expenses, shareholders'
equity and reserves. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively. In the process of
applying the Group's accounting policies, management has made the following
judgements and estimates, which have the most significant effect on the
amounts recognised in the financial statements:
Critical Judgements
a. Reverse Acquisition Accounting
The Celadon Pharmaceuticals Plc Group of companies was formed by Celadon
Property Co Limited reverse acquiring Celadon Pharmaceuticals Plc (a "reverse
acquisition") on 28 March 2022. The Board used judgment in applying Reverse
Acquisition Accounting principles and used an estimate as to the average share
price of £1.5125 on 28 March 2022, the first day of trading after the Company
was readmitted to trading on AIM, to value the consideration shares issued by
Celadon Pharmaceuticals Plc to the owners of Celadon Property Co Limited.
Further details are in note 5.
b. Tax Losses
The Group has significant tax losses and has incurred significant capital
expenditure on leasehold improvements and plant and machinery. The
corporation tax treatment of these items and the potential recognition of
deferred tax assets requires management judgement. The Group has decided not
to recognise a deferred tax asset at the balance sheet date, given the
uncertainty of when profits will arise. See note 12.
c. Biological Assets and Agricultural Products
The Group undertakes agricultural activities and is required to recognise the
fair value of its biological assets. Judgement is required in determining
this fair value. In the absence of an appropriate comparator in the market
for the Group's biological assets, the Board has used its judgement in
determining the fair value of the biological assets based on the anticipated
cashflows arising from those biological assets. This judgement requires a
judgement to be exercised of the anticipated yield from the biological assets
being cultivated at the balance sheet date, less the costs that would be
required to get those biological assets to their saleable state.
Key accounting estimates
d. Subsidiary incentive scheme
The Group established a Subsidiary Incentive Scheme in 2018 (in Celadon Subco
Limited) in order to incentivise and retain key employees, directors and
advisers to the Group. The fair value of share-based awards is measured
using the Monte Carlo model which inherently makes use of significant
estimates and assumptions including the share price volatility, an estimate of
exercise date and the number of scheme members that will achieve the vesting
conditions. Further details of the scheme, and the assumptions used in the
Monte Carlo model are given in note 30.
e. Convertible loan notes
Celadon Property Co Limited raised £4.13 million through an issue of
convertible loan notes in February and March 2021. The convertible loan
notes contained an embedded derivative (the right to convert in to shares)
that was fair valued at inception and at each reporting date. The fair value
estimate required assumptions on share price volatility, the expected value of
the shares and conversion date. Further details of the methodology applied
and assumptions made are given in note 24. The convertible loan notes were
converted to equity in March 2022.
f. Leases and right-of-use assets
In 2019, Celadon Property Co Limited signed a 25 year lease on a 100,000
square foot production and head office facility in the UK. The lease was
varied in February of 2022. The fair value accounting for the lease liability
and associated asset value, at inception and the date of variation requires
the estimation of the effective borrowing rate in the lease. Further details
of the assumptions made in calculating the incremental borrowing cost are
provided in note 16.
g. Site Restoration Obligation provision
In October 2019 Celadon Property Co Limited signed a 25 year lease which
included the option for the landlord to require the company (at the end of the
lease in 2044) to repair the leasehold property to its original condition.
The fair value of the site restoration obligation provision requires
estimation and judgement of the potential costs to put the site back in its
original state. See note 27 for further details of the assumptions made.
h. Research & Development Tax Credits
The Group has submitted its first R&D tax credit application to HMRC
totalling £269k relating to 2021 activities. Elements of the R&D claims
required judgement by management. At the date of these financial statements
£269k had been received by the company in respect of the year to 31 December
2021. Using the same methodology, the estimated R&D claim for the year
to 31 December 2023 is £236k (2022: £412k). See note 12.
5. Reverse Acquisition of Celadon Property Co Limited
On 28 March 2022, Celadon Pharmaceuticals Plc (previously Summerway Capital
Plc) acquired through a share-for-share exchange, the entire share capital of
Celadon Property Co Limited and its subsidiary companies Celadon Pharma
Limited and Harley Street (CPC) Limited (together the "Celadon Group"), whose
principal activity is growing highly controlled indoor hydroponic, high THC
cannabis for use within medicinal products used to treat chronic pain.
Although the transaction resulted in the Celadon Group becoming a wholly-owned
subsidiary group of the Company, the substance of the transaction means it
constitutes a reverse acquisition, as the previous shareholders of Celadon
Property Co Limited own a substantial majority of the Ordinary Shares of the
Company and the executive management of Celadon Property Co Limited became the
executive management of Celadon Pharmaceuticals Plc.
Furthermore, as Celadon Pharmaceuticals plc's activities prior to the
acquisition were purely the maintenance of the AIM Listing, acquiring Celadon
Property Co Limited and raising equity finance to provide the required funding
for the operations of the acquisition, it did not meet the definition of a
business in accordance with IFRS 3.
Accordingly, this reverse acquisition does not constitute a business
combination and was accounted for in accordance with IFRS 2 Share-based
Payments ("IFRS 2") and associated IFRIC guidance.
Although, the reverse acquisition is not a business combination, the Company
has become a legal parent and is required to apply IFRS 10 Consolidated
Financial Statements ("IFRS 10") and prepare consolidated financial statements
with Celadon Pharmaceuticals Plc consolidated as a subsidiary. The Directors
have prepared these financial statements using the reverse acquisition
methodology, but rather than recognising goodwill, the difference between the
equity value given up by the shareholders of Celadon Property Co Limited and
the share of the fair value of net assets gained by the shareholders of
Celadon Property Co Limited is charged to the statement of comprehensive
income as a share-based payment on reverse acquisition. In substance, this
represents the cost of acquiring an AIM listing.
In accordance with reverse acquisition accounting principles, these
consolidated financial statements represent a continuation of the consolidated
statements of Celadon Property Co Limited and its subsidiaries and include:
a. the assets and liabilities of Celadon Property Co Limited and its
subsidiaries at their pre-acquisition carrying value amounts and the results
for the periods presented; and
b. the assets and liabilities of the Company (and its wholly owned
subsidiary Celadon Subco Limited (previously Summerway Subco Limited)) as at
28 March 2022 and its results from the date of the reverse acquisition (28
March 2022) to 31 December 2022.
On 28 March 2022, Celadon issued 43,316,201 ordinary shares to acquire the
entire share capital of Celadon Property Co Limited, and issued 5,168,647
ordinary shares to redeem the Celadon Property Co Limited convertible loan
notes. At 28 March 2022, the average share price of Celadon for the day was
£1.5125.
On consolidation and presentation of the Group's financial position,
performance and cash flows, Celadon Property Co Limited, was treated as the
accounting acquirer, and the legal parent company, Celadon, was treated as the
accounting acquiree.
The fair value of the shares deemed to have been issued by Celadon Property Co
Limited was calculated at £12,151k based on an assessment of the purchase
consideration for a 100% holding of Celadon on the reverse acquisition date.
The fair value of the net assets of Celadon plc at acquisition was as follows:
£000
Cash and equivalents 3,494
Other assets 2,285
Accounts payable and other liabilities (28)
Net assets 5,751
The difference between the deemed cost £12,151k and the fair value of the net
assets assumed per above of £5,751k resulted in £6,400k being expensed
within "Reverse Acquisition Expenses" in accordance with IFRS 2, reflecting
the economic cost to the shareholders of Celadon Property Co Limited of
acquiring a quoted entity.
The professional fees in connection with the reverse acquisition in the period
were £- (2022: £2,493k), of which £- (2022: £1,028k) was charged to the
share premium account, and £- (2022: £1,465k) was expensed in the
consolidated statement of comprehensive income.
Reverse Acquisition Reserve
The Reverse Acquisition Reserve which arose from the reverse acquisition is
made up as follows:
Note £000
Pre-acquisition total retained earnings of Celadon Pharmaceuticals Plc 1 (1,746)
Celadon Property Co Limited share capital at acquisition 2 1,662
Investment in Celadon Property Co Limited, net of convertible loan note charge 3 (65,516)
Reverse acquisition expense 4 6,400
(59,200)
1. Recognition of pre-acquisition equity of Celadon Pharmaceuticals
Plc.
2. Celadon Property Co Limited had issued share capital of £1,662k.
As these financial statements present the capital structure of the legal
parent entity, the equity of Celadon Property Co Limited is eliminated.
3. The value of the shares issued by the Company in exchange for the
entire share capital of Celadon Property Co Limited.
4. The reverse acquisition expense represents the difference between
the value of the equity issued by the Company, and the deemed consideration
given by Celadon Property Co Limited to acquire the Company.
6. Operating segments
a. Basis of segmentation
Reportable segment results include items directly attributable to a segment as
well as those which can be allocated on a reasonable basis. The operating
results of each are regularly reviewed by the Chief Operating Decision Maker,
which is deemed to be the Board of Directors. Discrete financial information
is available for each segment and used by the Board of Directors for decisions
on resource allocation and to assess performance.
The Group has the following segments:
Reportable segment Operations
Celadon Build out of the grow facilities, growing and selling of medical grade
cannabis and research in the GMP lab
Harley Street (CPC) A clinical study into the pain relief benefits of medicinal cannabis
Information related to each reportable segment is set out below.
2023 Celadon Harley Street Central Costs Group
£000 £000 £000 £000
External revenue 64 11 - 75
Cost of sales (29) (45) - (74)
Fair value adjustments 74 - - 74
Gross margin 109 (34) - 75
Operating costs (4,933) (27) (512) (5,472)
Depreciation (429) (105) - (534)
Operating (loss) (5,253) (166) (512) (5,931)
Unallocated central costs - - (1,026) (1,026)
Finance costs - - (566) (566)
Group (loss) before tax (7,523)
Segment assets 6,613 256 2,012 8,881
Segment Capital expenditure 340 - - 340
Total Group assets 9,221
Segment liabilities (5,486) (82) (472) (6,040)
Total Group liabilities (6,040)
2022 Celadon Harley Street Central Costs Group
£000 £000 £000 £000
External revenue - 24 - 24
Cost of sales - (90) - (90)
Gross margin - (66) - (66)
Operating costs (4,006) (848) - (4,854)
Depreciation (360) (6) - (366)
Operating (loss) (4,366) (920) - (5,286)
Unallocated central costs - - (12,684) (12,684)
Finance costs - - (23) (23)
Group (loss) before tax (17,993)
Segment assets 4,235 400 6,314 10,949
Segment Capital expenditure 2,300 2 - 2,302
Total Group assets 13,251
Segment liabilities (4,151) (1,610) (453) (6,214)
Total Group liabilities (6,214)
The group operates only in the UK only and has only one geographical area.
7. Revenue
The Group recorded revenue in the year ended 31 December 2023 of £75k (2022:
£24k). £64k (2022: £Nil) from the supply of dried cannabis flower and
trim product, £11k (2022: £24k) from patients on the Group's clinical study
in Harley Street (CPC) Limited.
8. Fair value movements on biological assets and agricultural products
The Group reflected a fair value movement of £74k (2022: -) on the
revaluation of biological assets £40k (2022: -) and the initial recognition
of agricultural products £34k (2022: -)
9. Loss for the year
The loss for the year has been arrived at after charging (crediting):
2023 2022
£'000 £'000
Depreciation of property, plant and equipment 206 156
Depreciation of leasehold improvements 28 45
Depreciation of office equipment 37 27
Depreciation of right-of-use asset 163 138
Amortisation of intangible assets 100 100
Loss on disposal of fixed assets 6 -
Non-cash charge in respect of Harley Street (CPC) Limited - 139
Fair value charge relating to long term incentive plans 285 1,136
Fair value charge relating to Canaccord warrants included in Other acquisition - 227
costs
Other acquisition costs 741 -
Auditor's remuneration 122 130
Non-audit Services (IPO related costs) - 83
Director's remuneration (including share-based payment charge) 777 888
10. Directors and staff costs
The average number of staff (including Directors) during the year was 27
(2022: 24).
Staff costs for the year, including Directors were:
2023 2022
£'000 £'000
Salaries 2,212 1,778
Bonuses - 37
Pension contributions 36 30
Phone allowance 14 11
2,262 1,856
Social security costs 277 227
Share based payments 241 460
2,780 2,543
The Directors have determined that there are no key management personnel other
than the Directors during the year.
Management remuneration paid and other benefits supplied to the Directors
during the period plus the associated social security costs were as follows:
2023 2022
£'000 £'000
Salaries 642 474
Phone allowance 2 1
644 475
Social security costs 81 51
Share based payments 52 362
777 888
In accordance with section 412 Companies Act 2006 the table below shows the
full amount of remuneration paid and other benefits supplied to the Directors
of Celadon Pharmaceuticals plc even if those amounts relate to the period
prior to the Reverse Acquisition of Celadon Property Co Limited.
Director Salary Loss of Benefits in Pension 31 December 2023 Total 31 December 2022 Total
service
kind
£ £ £ £ £ £
Alexander Anton(1) 50,000 - - - 50,000 38,266
Benjamin Shaw(2) - - - - - 4,500
James Short(3) 245,000 - - - 245,000 246,150
David Firth(4) 45,000 - - - 45,000 44,440
Robbie Barr(5) 50,000 - - - 50,000 38,266
Dr Steven Hajioff(6) 35,000 - - - 35,000 34,786
Elizabeth Shanahan(7) 40,000 - - - 40,000 40,000
Kathleen Long(8) - - - - - 56,154
Jonathan Turner(9) 177,410 - - - 177,410 -
642,410 - - - 642,410 502,562
1. Alexander Anton resigned 15 January 2021 and was re-appointed 28
March 2022
2. Benjamin Shaw resigned as Interim Chairman on 28 March 2022
3. James Short was appointed on 28 March 2022 - the figure quoted for
2022 is the combined figure for the services provided to Celadon
Pharmaceuticals plc since March 2022, and Vertigrow from 1 January 2022 to 28
March 2022
4. David Firth was appointed on 17 September 2018 - of the fees quoted
above for 2022, £11,100 relates to the period 1 January - 28 March 2022
5. Robbie Barr was appointed on 28 March 2022
6. Dr Steven Hajioff was appointed on 28 March 2022 - the figure
quoted is the combined figure for services provided to Celadon Pharmaceuticals
plc since March 2022, and Vertigrow from 1 January 2022 to 28 March 2022.
7. Elizabeth Shanahan was appointed on 21 September 2021 - of the fees
quoted above for 2022, £10,000 relate to the period 1 January -28 March 2022
8. Kathleen Long was appointed on 28 March 2022 and resigned on 17
January 2023
9. Jonathan Turner was appointed on 17 January 2023
11. Net finance costs
2023 2022
£'000 £'000
Finance gain on derivative liability associated with convertible loan notes - 556
(note 24)
Finance (charge) on leased assets (note 24) (581) (531)
Finance (charge) on related party loan (note 24) - (53)
Finance (charge) on external loans (note 24) (1) (7)
Unwind of discount on Site Restoration Obligation (16) -
Finance income on bank deposits 32 12
(566) (23)
12. Income tax
The Group has had no taxable profits since incorporation.
Reconciliation of effective tax rate
2023 2022
£000 £000
Loss before tax from operations (7,523) (17,993)
Tax rate 25% 19%
Tax credit at the standard rate of corporation tax (1,881) (3,418)
Items disallowable for corporation tax 212 2,217
Additional deduction for R&D expenditure (-) (303)
Surrendered for R&D purposes 591 539
Capital allowances in excess of depreciation (34) (33)
Impact of unrelieved tax losses carried forward 1,035 998
Tax credit before impact of surrender of R&D expenditure - -
Refundable tax credit for surrender of enhanced R&D expense (at 14.5%):
- current year
- prior year adjustment 236 412
- 270
Release of deferred tax liability on intangible assets 25 25
Tax credit for the year 261 707
The Group has estimated tax losses of £14,894k (2022: £8,811k) which may be
available for relief against future profits from current operations.
For tax years starting on or after 1 April 2023, the rate of corporation tax
in the UK is 25%. As it is anticipated that the tax losses will not be
utilised in the year to December 2023, the deferred tax asset not recognized
has been calculated using the rate in force from 1 April 2023. The deferred
tax asset not provided for in the accounts is £3,724k (2022: £2,203k).
The release of the deferred tax liability on intangible assets reflects the
amortisation of the Clinical Trial related intangible assets.
13. Loss per share
2023 2022
£000 £000
Loss attributable to the owners of the Company (7,140) (17,006)
Weighted average number of ordinary shares in issue 61,893,906 57,295,086
Basic loss per share (11.5p) (29.7p)
Diluted loss per share (11.5p) (29.7p)
Basic earnings per share is calculated by dividing the loss/profit after tax
attributable to the equity holders of the group by the weighted average number
of shares in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average
number of shares outstanding to assume conversion of all potential dilutive
shares.
Under the Subsidiary Incentive Scheme certain directors and employees of, and
advisers to, the Group are able to participate in a share of the growth of the
Group's market capitalisation over predetermined thresholds over a three- to
five- year period. The participants can realise their value from the
Subsidiary Incentive Scheme by exercising a put option to transfer their
Celadon Subco Limited shares to Celadon Pharmaceuticals plc with the
consideration satisfied at the Company's option either in cash or through the
issue of ordinary shares of the Company.
The calculation of earnings per share is based on the following earnings and
number of shares. In calculating the weighted average number of ordinary
shares outstanding (the denominator of the earnings per share calculation)
during the period in which the reverse acquisition occurs:
§ The number of ordinary shares outstanding from the beginning of that
period to the acquisition date shall be computed, on the basis of the weighted
average number of ordinary shares of the legal acquiree (accounting acquirer)
outstanding during the period multiplied by the exchange ratio established in
the merger agreement; and
§ The number of ordinary shares outstanding from the acquisition date to
the end of that period shall be the actual number of ordinary shares of the
legal acquirer (the accounting acquiree) outstanding during that period.
The basic earnings per share for each comparative period before the
acquisition date presented in the consolidated financial statements following
a reverse acquisition shall be calculated by dividing:
§ the profit or loss of the legal acquiree attributable to ordinary
shareholders in each of those periods by
§ the legal acquiree's historical weighted average number of ordinary
shares outstanding multiplied by the exchange ratio established in the
acquisition agreement.
The weighted average number of ordinary shares for the purpose of calculating
the basic and diluted measures is the same. This is because the outstanding
warrants and other instruments would have the effect of reducing the loss per
ordinary share and therefore would be anti-dilutive under the terms of IAS 33.
14. Intangible Assets
Clinical Trial Intangible Asset Goodwill Total
£000 £000 £000
Cost
At 1 January 2022 498 719 1,217
Impairment - (639) (639)
At 31 December 2022 498 80 578
Additions - - -
At 31 December 2023 498 80 578
Amortisation
At 1 January 2022 (50) - (50)
Charge for the period (100) - (100)
At 31 December 2022 (150) - (150)
Charge for the period (100) - (100)
At 31 December 2023 (250) - (250)
Net book value
At 31 December 2022 348 80 428
At 31 December 2023 248 80 328
Celadon Property Co Limited has goodwill arising from two acquisitions: (1)
the purchase of the entire share capital of Celadon Pharma Limited (in 2019);
and (2) an initial 57.5% equity investment in Harley Street (CPC) Limited (in
2021).
Acquisition of Celadon Pharma Limited - 2020
On 1 January 2020, Celadon Property Co Limited acquired 100% of the share
capital for Celadon Pharma Limited for £2, together with the assumed
liabilities generated goodwill of £80k.
Acquisition of Harley Street (CPC) Limited - 2021 and 2023
On 14 July 2021, Celadon Property Co Limited acquired 57.5% of the issued
share capital of Harley Street (CPC) Limited ("HSCPCL"), which is in the
advanced stages of obtaining MHRA and Research Ethics Committee approval for a
UK-based cannabis trial for a maximum consideration of £2,000k.
£500k was paid in cash on completion with a contingent consideration payment
of £1,500k due in ordinary shares of the Company in the event that (a) each
of MHRA and REC authorise the Trial in full; and (b) 5,000 paying patients of
the Company's clinic are accepted onto the Trial and receive their first
prescriptions under the Trial within 18 months of completion of the
acquisition of LVL.
£000
Fair value of initial cash consideration paid 500
Fair value of contingent consideration 375
Total consideration 875
Fair value of net liabilities acquired 238
Non-controlling interest (101)
Fair value of assets acquired 1,012
Fair value of
- Intangible Assets acquired 498
- Deferred tax liability on intangible assets (125)
Goodwill 639
The £1,500k contingent consideration payment was estimated to have an
acquisition date fair value of £375k based upon 6.2% discount rate and
management's probability estimate of the payment criteria being satisfied.
Release of contingent consideration in 2022
In June 2022, the Directors reassessed that the targets for the contingent
consideration payment would not be met within the time frame set, and released
the contingent consideration liability of £375k back to consolidated
statement of comprehensive income.
Impairment test
Goodwill is tested for impairment annually, and whenever there is an
indication that it may be impaired. The annual impairment test is performed as
at 31 December each year. An impairment, if any, that results from that annual
impairment test would be reflected in the 31 December financial statements.
Goodwill is, for the purposes of impairment testing, allocated to cash
generating units ("CGUs") or groups of CGUs expected to benefit from the
business combination associated with that goodwill, where a CGU is the
smallest identifiable group of assets that generate independent cash inflows.
Management reviewed business performance, as of 31 December 2023 based on the
performance of the various operating segments identified in note 6, which are
also the Group's CGUs.
An impairment test of goodwill is performed by comparing the carrying amount
of each division (i.e. CGU or group of CGUs), including the goodwill, with the
recoverable amount of the division. The recoverable amount of a division is
the higher of its fair value less costs of disposal ('FVLCD') and its value in
use ('VIU'), where the VIU of the division is the present value of its future
cash flows.
If the recoverable amount of a division is lower than its carrying amount, an
impairment loss is recognised. The impairment test of the divisions as at 31
December 2022 resulted in an impairment charge to goodwill in respect of the
Harley Street CGU, the table below shows the position after that impairment.
The key data is summarised in the following tables:
Goodwill Carrying Amount Recoverable Amount Headroom
Cash Generating Unit £000 £000 £000 £000
Celadon 80 2,384 158,000 155,616
Harley Street - 191 376 185
Carrying Amount
The 'Carrying amount' column in the above table includes the carrying amounts
of the CGUs. These amounts are determined by adding back external debt and
lease liabilities to the net assets of each division and the Corporate
non-operating division, by allocating the resulting adjusted net assets of the
Head Office non-operating division across the divisions on a pro rata basis to
the resulting adjusted net assets of each division, and by adding these
amounts to the goodwill of the divisions after first grossing that goodwill up
for the non-controlling interest.
Recoverable Amount
The recoverable amount of both CGUs has been determined on a Value-in-Use
basis, being the present value of board approved forecasted future cash flows
of the CGUs together with an allocation of the cash flows of the Head Office
non-operating division, where the cash flows are based on the most recent
five-year forecast.
These forecasts were derived from market information, by overlaying it with
assumptions to reflect areas where growth or income improvement is expected,
and by taking into account the expected results of cost management programmes
to which the Group is committed. The 2029 forecast is extrapolated to
subsequent years using a steady growth rate being the CPI inflation rate of
1.9% per annum, and a terminal value is calculated using the perpetual growth
model. The discount rate of 15.0% that has been applied to the forecasts is a
market participant weighted average cost of capital. Given that the Celadon
CGU only obtained the requisite regulatory licences to allow it to start
selling it product during the year, its calculation of its value in use is
most sensitive to the anticipated increase in revenue. Similarly, the
revenues generated by the Harley Street CGU have been lower than anticipated
due to its Clinical Study being conditionally-approved only. The value in
use for this CGU is also sensitive to the anticipated increase in revenues.
Net impact on income statement
The net impact on income statement of the impairment of the Goodwill relating
to Harley Street and the release of the deferred consideration is a charge of
£Nil (2022: £264k).
15. Property, plant and equipment
Leasehold improvement Plant and machinery Office equipment Assets under construction Total
£000 £000 £000 £000 £000
Cost
At 1 January 2022 465 719 66 - 1,250
Additions - 279 36 1,987 2,302
Disposal (216) - - - (216)
At 31 December 2022 249 998 102 1,987 3,336
Additions 52 230 34 25 341
Disposal - (10) - - (10)
At 31 December 2023 301 1,218 136 2,012 3,667
Depreciation
At 1 January 2022 (37) (177) (15) - (229)
Charge for the period (45) (156) (27) - (228)
Disposals 42 - - - 42
At 31 December 2022 (40) (333) (42) - (415)
Charge for the period (28) (206) (37) - (271)
Disposals - 3 - - 3
At 31 December 2023 (68) (536) (79) - (683)
Net book value
At 31 December 2022 209 665 60 1,987 2,921
At 31 December 2023 233 682 57 2,012 2,984
2022: Leasehold improvements with a cost of £216k were sold for their net
book value of £174k generating no gain or loss on the disposal.
Assets under construction are for Phase 2 works including waste removal,
walls, doors, drainage and flooring.
16. Right-of-Use Assets
Right-of-use Property Lease Right-of-use Equipment Total
£000 £000 £000
Cost
At 1 January 2022 2,511 - 2,511
Additions - 30 30
Increase in Restoration Obligation 389 - 389
Lease variation 553 - 553
At 31 December 2022 3,453 30 3,483
At 31 December 2023 3,453 30 3,483
Amortisation charge
At 1 January 2022 (226) - (226)
Lease variation - interest reset 235 - 235
Amortisation charge (132) (6) (138)
At 31 December 2022 (123) (6) (129)
Amortisation charge (153) (10) (163)
At 31 December 2023 (276) (16) (292)
Net book value
At 31 December 2022 3,330 24 3,354
At 31 December 2023 3,177 14 3,191
Property lease
The Group operates from a 100,000 square foot facility in the UK under a 25
year lease signed in 2019, with rent reviews every 5 years, with the first
review on 1 October 2024. At the inception, management estimated fair value
of the minimum cash flow payments under the lease to establish the
right-of-use inception value. The incremental borrowing cost of 13.35% was
calculated by using the credit spread of CCC rated bonds with duration of
13.75 years for bonds issued on the date the Group entered into the lease.
In February 2022, Celadon Property Co Limited varied the terms of its
long-term property lease by (a) extending the rent-free period by 12 months to
11 March 2023; and (b) increasing the un-discounted cash flow payments over
the existing lease term (to 30 September 2044) by £3.9 million. On a
discounted cash flow basis this increased the right-of-use asset and
corresponding lease liability by £553k on the variation date. There was no
change required to the Incremental borrowing rate used to discount lease
payments resulting from this variation.
Included in the Property Lease Right-of-Use asset is £405k (2022: £389k) for
Site Restoration Obligations (note 27).
17. Unlisted Investments
2023 2022
£'000 £'000
At 1 January 218 200
Investment - 18
At 31 December 218 218
In 2021 Celadon Property Co Limited invested £200k in Kingdom Therapeutics
Limited (for a 17% shareholding) and acquired an additional holding for £18k
in May 2022. At 31 December 2023 Celadon Property Co Limited has a 18.5%
shareholding in Kingdom Therapeutics Limited. The ownership does not
materially impact on the Group's ability to control the activities of Kingdom
Therapeutics Limited and as a result it is not appropriate to consolidate the
entity with the Group.
18. Subsidiaries
The Group has five subsidiaries for the year ended 31 December 2023. All
subsidiary companies are consolidated in the Group's financial statements.
The companies in the Group at 31 December 2023 are:
Name Proportion of Ownership Interest Proportion of Control Profit / (Loss) for the year Capital and Reserves
£000 £000
Celadon Subco Limited * 100% 100% - 65,539 a
Celadon Property Co Limited * 100% 100% 1,808 3,049 b
Celadon Pharma Limited * 100% 100% 758 1,038 c
Celadon Pharmaceuticals (UK) Limited * 100% 100% - - d
Harley Street (CPC) Limited 100% 100% 168 (29) e
All companies are incorporated and operate in the UK. The registered office
of all group companies is 32-33 Cowcross Street, London, EC1M 6DF.
* The financial statements of these subsidiary undertakings have not been
audited for the year ended 31 December 2023 in accordance with Section 479A of
the Companies Act 2006 as the Group has opted to take advantage of a statutory
exemption. Strict criteria must be met for this exemption to be taken and it
must be agreed to by the directors of those subsidiary companies. In order
to facilitate the adoption of this exemption, Celadon Pharmaceuticals plc, the
ultimate parent company of the subsidiaries undertakes to provide a guarantee
under Section 479C of the Companies Act 2006 in respect of those subsidiaries.
The principal activities of the companies are:
a. Celadon Subco Limited - This is an equity incentive company. The company has A Ordinary Shares and B Ordinary Shares.
§ The A Ordinary Shares have full voting rights, full rights to participate
in a dividend and full rights to participate in a distribution of capital.
Celadon Pharmaceuticals plc holds all of the 80,000,801 issued A Ordinary
shares.
§ The B Ordinary Shares have no voting rights, no rights to participate in
any dividend without the consent of Celadon Pharmaceuticals Plc. The B
Ordinary Shares were created to facilitate a Long Term Incentive Scheme. See
note 28 for more details.
b. Celadon Property Co. Limited - This is a property holding company of the Group and holds the 25 year lease on the Group's 100,000 square foot facility, and following a group reorganization holds the assets relating to the CANPAIN Trial previously held by Harley Street (CPC) Limited.
c. Celadon Pharma Limited - This is an operating company growing the medicinal cannabis.
d. Celadon Pharmaceuticals (UK) Limited - Is a dormant company.
e. Harley Street (CPC) Limited - Is operates a CQC registered clinic. The assets relating to the CANPAIN Trial were transferred to Celadon Property Co Limited during the year to 31 December 2022.
19. Inventories
2023 2022
£'000 £'000
Production consumables 26 20
Agricultural Produce 34 -
60 20
The production consumables are utilised in cultivating pharmaceutical-grade
cannabis and the agricultural produce is the fair value of the biological
assets at the time of harvest. £59k (2022: £99k) of production consumables
were utilized during the year.
20. Fair value of biological assets and agricultural products
IAS 41 "Agriculture" requires the carrying value of biological assets to be
shown on the Group Balance Sheet. This carrying value is determined in
accordance with IAS 41's provisions and show the net valuation movement in the
Income Statement.
The fair value of biological assets Is based on the net cash flows anticipated
to be received from selling the cannabis products. A number of assumptions
need to be made when calculating the fair values, including the anticipated
yield of dried plant material, the expected market price for the cannabis
products and the anticipated costs of drying and finishing the produce.
Cuttings are not valued given the limited biological transformation that has
taken place. The Group does not currently recognise a value in respect of the
strains it has access to given the limited revenue generated to date from
these strains.
Given that the Group did not receive all necessary regulatory licences to
allow it to sell its cannabis products until March 2023 it was not cultivating
plants, and there were no biological assets at 1 January 2022 or 31 December
2022.
£'000
Fair value of biological assets
At 1 January 2022 -
Changes in fair value less estimated sale costs -
Decreases attributable to harvest -
At 31 December 2022 -
Changes in fair value less estimated sale costs 108
Decreases attributable to harvest (68)
At 31 December 2023 40
£'000
Changes in fair value of biological assets 108
Inventory transferred to cost of sales at fair value (34)
Biological assets transferred to agricultural products at fair value (34)
Net IAS 41 valuation movement on biological assets 40
21. Trade and other receivables
2023 2022
£'000 £'000
Gross Trade receivables 75 -
Less Expected Credit Allowance - -
Net Trade Receivables 75 -
Prepayments 300 186
VAT receivable 118 381
R&D tax receivable 648 682
1,141 1,249
22. Cash & Cash Equivalents
2023 2022
£'000 £'000
Cash and cash equivalents 1,259 5,061
Cash at bank comprises of balanced held by the Group in current bank accounts.
The carrying amount of these assets approximated to their fair value.
23. Trade and other payables
2023 2022
£'000 £'000
Trade payables 327 539
Accruals 446 476
Other taxes and social security costs 83 91
856 1,106
In the event of payment in line with agreed payment terms, trade payables are
non-interest bearing. Normal payment terms vary between suppliers but are
typically settled in 30-60 days.
24. Loans and borrowings
2023 2022
£'000 £'000
Current liabilities
Bounce back bank loan (10) (10)
Revolving credit facility (10) -
Loans and borrowings (20) (10)
Lease liabilities (54) (56)
(74) (66)
Non-current liabilities
Bounce back bank loan (14) (24)
Lease liabilities (4,629) (4,542)
(4,643) (4,566)
a. Bounce back bank loan
Celadon Pharma Limited has a £50k bounce back loan with Barclays Bank plc.
The loan was taken out on 31 May 2020, has a 6-year term, an interest rate of
2.5% pa and is repayable in monthly instalments of £833 until 31 May 2026.
The loan is unsecured.
b. Revolving credit facility
On 29 May 2023, the Group obtained £7 million of new funding via a 2-year
fixed rate Revolving Credit Facility Agreement. Interest will accrue at a
rate of 10% on balances drawn under the agreement. The Revolving Credit
Facility Agreement will be repayable in the event that the Group obtains
sufficient alternative funding to allow the Revolving Credit Facility
Agreement to be repaid in full. At 31 December 2023, £10k had been drawn.
c. Related party loan
On 28 October 2021 Vertigrow Technology Limited entered a £2,125k loan from
Summerway Capital Plc (renamed Celadon Pharmaceuticals Plc), drawing down this
amount in full. Interest accrued at 10% per annum. This has been eliminated
on consolidation on 28 March 2022 in the reverse acquisition. In the year to
31 December 2023, this loan was eliminated.
d. Convertible loan note and embedded derivative
In February and March 2021, Vertigrow Technology Limited issued £4,130k
convertible loan notes, the notes carried interest at 8% pa and were issued
without a redemption date, but were anticipated to be converted to ordinary
shares on the Company's Initial Public Offering.
The Company estimated the fair value of the equity component of the
convertible loan notes as embedded derivates totalling £1,998,000 (at
inception), and remeasured this fair value at each reporting date, with the
movement recording in the statement of comprehensive income.
The inputs used in the Black Scholes valuation model to calculate those fair
values were:
At Inception 31 December 2021 28 March 2022
Risk free rate -0.03% 0.02% 0.51%
Volatility 54.2% 51.0% 48.0%
Dividend yield 0% 0% 0%
Volatility was estimated using the Summerway Capital Plc share prices for the
periods shown. The balance sheet values of the host liability and embedded
derivative were:
2023 2022
£000 £000
Amount classified as Host Liability - -
Amount classified as Embedded Derivative - -
Net - -
On 28 March 2022, the convertible loan notes balance of £4,412k (comprising:
£2,103k of derivative liability and £2,309k of host liability and accrued
interest) was redeemed through the issuance of 5,168,647 Summerway Capital Plc
shares worth £8,528,268.
e. The amounts charged to the statement of comprehensive income were:
2023 2022
£000 £000
Convertible loan note finance charge - 43
Finance charge on redemption of convertible loan notes - 3,406
- 3,449
f. Lease liabilities
The Group has leases for its premises and also for plant and equipment assets,
and has the following undiscounted minimum lease payment commitments under
right-of-use leases as at 31 December 2023:
Leasehold Property Plant & Equipment Total
£000 £000 £000
Less than 1 year 550 11 561
1 to 2 years 650 11 661
2 to 3 years 650 3 653
3 to 4 years 650 - 650
4 to 5 years 650 - 650
More than 5 years 10,086 - 10,086
Total 13,236 25 13,261
The movement in carrying value in the lease liabilities is summarised as
follows:
2023 2022
£000 £000
Leasehold Property
Start of period 4,575 3,258
Variation (note 15) - 787
Lease payments (485) -
Finance charge - lease discount unwind 580 530
End of period 4,670 4,575
Plant & Machinery
Start of period 23 -
Inception of lease - 30
Lease payments (11) (8)
Finance charge - lease discount unwind 1 1
End of period 13 23
Total 4,683 4,598
Due within 12 months 54 56
Due after 12 months 4,629 4,542
g. Reconciliation of movements on liabilities to cash flows arising from financing activities
Bounce Back Loan Supplier Loan Related Party Loan Convertible Loan Note Embedded Derivatives Share capital / premium Total
Third Party Loan Lease Liabilities
£000 £000 £000 £000 £000 £000 £000 £000 £000
At 1 January 2022 44 - 1,535 2,160 2,266 2,659 3,258 7,447 19,369
Cash Flows (11) - (1,541) - - - 22 8,500 6,970
Non-cash flows:
Charge to income statement 1 - 6 53 43 (556) 531 - 78
Lease variation - - - - - - 787 - 787
Loan offset in consolidation - - - (2,213) - - - - (2,213)
Transaction costs - - - - - - - (1,009) (1,009)
Fair value of Canaccord warrants charged to share premium - - - - - - - (18) (18)
Issued for purchase of Celadon Property Co Limited - - - - - - - 433 433
Redemption of loan notes - - - - (2,309) (2,103) - 7,817 3,406
At 31 December 2022 34 - - - - - 4,598 23,170 27,802
Cash Flows (11) 10 - - - - (496) 2,976 2,479
Non-cash flows:
Charge to income statement 1 - - - - - 581 - 582
At 31 December 2023 24 10 - - - - 4,683 26,146 30,863
25. Deferred tax liability
Current Liability Non-Current liability Total
£000 £000 £000
At 1 January 2022 (Unaudited) (25) (87) (112)
Recognised in the income statement - 25 25
At 31 December 2022 (25) (62) (87)
Recognised in the income statement - 25 25
At 31 December 2023 (25) (37) (62)
26. Financial instrument and risk management
The Group's financial instruments comprise primarily cash and various items
such as trade debtors and trade creditors which arise directly from its
operations. The main purpose of these financial instruments is to provide
working capital for the Group's operations.
The Group does not utilise complex financial instruments or hedging mechanisms
in respect of its non-sterling payments.
A description of each category of financial assets and liabilities and the
related accounting policies can be found in note 3. The carrying amounts of
the Group's financial assets and liabilities in each category are summarised
below. For financial liabilities measured at fair value, the level within
which these are on the IFRS 13 fair value hierarchy, are also presented:
a. Financial assets by category
2023 2022
£000 £000
Financial assets measured at amortised cost
Cash and cash equivalents 1,259 5,061
Trade receivables - -
1,259 5,061
Financial assets measured at FVTOCI
Unlisted Investments 218 218
218 218
All trade receivable amounts are short-term and none are past due.
b. Financial liabilities by category
2023 2022
£000 £000
Financial Liabilities measured at amortised cost
Trade payables 327 539
Accruals 446 476
Bounce back bank loan 24 34
Revolving credit facility 10 -
Lease liabilities 4,683 4,598
5,490 5,647
Fair Value Measurement
The following valuation techniques were used for valuing instruments
categorised in Levels 2 and 3.
Contingent Consideration (Level 3)
Contingent consideration payments are generally contingent on the
post-acquisition performance of the acquired business and achievement of
certain performance thresholds. The fair value of contingent consideration is
determined based on actual and forecast business performance of the acquired
business, discounted using the Group WACC as the discount rate. For further
information please see Note 14.
Long-term incentive Scheme (Level 2)
The current Subsidiary Incentive Scheme participants and their respective
holdings of B Share holdings are described in note 30 below. These shares are
not traded on an active market, but the fair value is determined using
valuation techniques and available market data, by reference to the Celadon
Pharmaceutical plc share price and comparable entities.
Unlisted equity investments (Level 3)
Unlisted investments are categorised within level 3 of the fair value
hierarchy. The valuation technique applied, except where specific market price
information is available, is cost less any provision for impairment.
Fair value of financial instruments measured at amortised cost
The Directors consider the carrying amounts for trade and other receivables,
trade and other payables, and the current portion of financial liabilities
that are not measured at fair value, to approximate their fair values.
Reclassifications between fair value categories
No reclassifications between the three fair value categories took place during
the year.
Credit and Liquidity Risk
Credit risk is managed on a Group basis. Funds are deposited with Barclays
Bank plc in instant access accounts. All financial liabilities (except for
the bounce-back loan, revolving credit facility and lease liabilities) are
payable in the short term (normally between 0 and 3 months) and the Group
maintains adequate liquid bank balances to meet those liabilities as they fall
due.
Capital Management
The Group considers its capital to be equal to the sum of its total equity.
The Group monitors its capital using cash flow projections. The Group's
objective when managing its capital is to ensure it obtains sufficient funding
for continuing as a growing concern.
Interest Rate Risk
The maximum exposure to interest rate risk at the reporting date by class of
financial asset was £766k (2022: £1,063k) of VAT receivables and estimated
R&D tax credit refunds.
2023 2022
£000 £000
Cash and cash equivalents 1,259 5,061
The Group uses liquid resources to meet the cost of future development
activities. Consequently, it seeks to minimize risk in the holding of its bank
deposits. The Group is not financially dependent on the small rate of interest
income earned on these resources and therefore the risk of interest rate
fluctuations is not significant to the business and the Directors have not
performed a detailed sensitivity analysis.
Nonetheless, the Directors take steps when possible and cost effective to
secure rates of interest which generate a return for the Group by depositing
sums which are not required to meet the immediate needs of the Group in
interest-bearing deposits. Other balances are held in interest-bearing,
instant access accounts. All deposits are placed with main clearing banks to
restrict both credit risk and liquidity risk. The deposits are placed for the
short term, between one and three months, to provide flexibility and access to
the funds and to avoid locking into potentially unattractive interest rates.
Market Risk
Market risk arises from changes in interest rates, foreign exchange rates and
equity prices, as well as in their correlations and volatility levels. Market
risk is managed on a Group basis in the ordinary course of the Group's
activities.
Currency Risk
The Group currently operates in the UK market. All revenues are currently in
GBP. The majority of the operating costs and capital expenditure items are
incurred in GBP. The Group does not hedge potential future cashflows.
27. Provisions - Site Restoration Obligation
2023 2022
£000 £000
1 January (389) -
Provision made during the year - (389)
Unwind of discount (16) -
31 December (405) (389)
In 2019 Celadon Property Co Limited signed a 25 year lease which included the
option for the landlord to require the company (at the end of the lease in
2044) to repair the leasehold property to its original condition. The fair
value of the site restoration obligation provision requires estimation and
judgement.
The company estimated the site restoration total costs to be £480,675 at 31
December 2023 after factoring the impact of inflation (2022: £435,000). The
provision has been calculated using a discount rate of 4.04% which is the
risk-free rate in the UK.
The site restoration obligation has been debited to Right of Use assets in the
Group's non-current assets (note 16).
28. Share capital and reserves
a. Ordinary Shares
2023 2022
Number Number
1 January 61,669,773 8,033,409
Issued for cash 2,539,130 5,151,516
Issued for purchase of Vertigrow Technology Limited - 43,316,201
Issued to redeem convertible loan notes in Vertigrow Technology Limited - 5,168,647
31 December 64,208,903 61,669,773
Authorised (at par value per share of £0.01p each) 642,089 616,698
At 31 December 2023, 100,000 of these shares had been unpaid. At the date of
this report, all amounts have been paid up.
Holders of these shares are entitled to dividends as declared from time to
time and are entitled to one vote per share at general meetings of the
Company.
b. Issue of ordinary shares
On 15 January 2021, the company issued 1,903,409 new ordinary shares and
raised gross proceeds of £1.67 million (before fees).
During March 2022 the company issued:
§ 43,316,201 new ordinary shares to acquire the entire share capital of
Vertigrow Technology Limited
§ 5,168,647 new ordinary shares to redeem the Vertigrow Technology Limited
convertible loan notes
§ 5,151,516 new ordinary shares and raised gross proceeds of £8.5 million
(before fees) at £1.65.
During 2023 the Company issued:
· 800,000 new ordinary shares on 18 October 2023 at £1.25 per
share; and,
· 1,739,130 new ordinary shares on 18 December 2023 at £1.15 per
share.
c. Ordinary share capital and share premium account
2023 2023 2022 2022
Share capital Share Premium Share capital Share Premium
£000 £000 £000 £000
1 January 617 22,553 80 7,367
Issued for cash 25 2,975 52 8,448
Share issue expenses - (24) - (1,009)
Warrants issued - - - (18)
Issued for purchase of Vertigrow - - 433 -
Issued to redeem Convertible Loan Notes - - 52 7,765
31 December 642 25,504 617 22,553
d. Merger relief and Reverse acquisition relief reserves
2023 2023 2022 2022
Merger relief reserve Reverse acquisition reserve Merger relief reserve Reverse acquisition reserve
£000 £000 £000 £000
1 January (i) 65,082 (59,200) - (5,835)
PLC net assets at acq'n date (ii) - - - 5,751
Issued for purchase of Vertigrow Technology Limited (iii) - - 65,082 (65,516)
Share based payment charge (iv) - - - 6,400
31 December 65,082 (59,200) 65,082 (59,200)
Reverse Acquisition Reserve
The reserve, arising on consolidation only, includes:
(i) the accumulated losses incurred prior to the reverse
acquisition and the share capital and share premium of Summerway Capital Plc
(renamed Celadon Pharmaceuticals Plc) at acquisition;
(ii) the value of the shares issued to acquire all of the
share capital of Vertigrow Technology Limited;
(iii) the value of share capital and share premium of
Celadon plc at acquisition;
(iv) the reverse acquisition share-based payment expense.
Merger Relief Reserve
Is a statutory, non-distributable reserve arising when conditions set out in
section 612 of the Companies Act occur and relate to the share-premium from
shares issued to acquire Celadon Property Co Limited.
e. Warrant reserve and capital redemption reserve
2023 2023 2022 2022
Warrant reserve Capital Redemption reserve Warrant reserve Capital Redemption reserve
£000 £000 £000 £000
1 January 471 49 - 49
Fair value charge for warrants issued 146 - 471 -
31 December 617 49 471 49
Capital Redemption Reserve
This is a statutory, non-distributable reserve into which amounts are
transferred following the redemption or purchase of a Company's own shares.
The Company was incorporated on 31 August 2018 with 50,000 Ordinary Shares of
£1.
On 12 October 2018, those shares underwent a sub-division to create 50,000
Ordinary Shares of £0.01 and 50,000 Ordinary Shares of £0.99, and the £0.99
Ordinary Shares were re-designated as Deferred Shares.
On 19 October 2018, 6,080,000 Ordinary Shares of £0.01 were issued and the
50,000 Deferred Shares of £0.99 were cancelled.
Warrant Reserve
This reserve represents the fair value charge of warrants issued pursuant to
equity-based payments in the form of warrants. The charge of £146k (2022:
£226k) in respect of warrants issued to an advisor in March 2022 and £Nil
(£2022: £245k) represents the fair value of warrants issued to the Company's
NOMAD Canaccord Genuity Limited for the 2022 IPO listing work.
29. Non-Controlling Interests
The Group has non-controlling interests from:
a. the minority 42.5% holding in Harley Street (CPC) Limited
attributable to the minority shareholder for the period until 31 May 2023 when
this was acquired by Celadon Property Co Limited; and
b. the amounts subscribed for the B Ordinary Shares of Celadon Subco
Limited pursuant to the Group's long term incentive plan.
Harley Street (CPC) Limited
2023 2022
£000 £000
NCI percentage 0% 42.5%
Non-current assets - 21
Current assets - 33
Current liabilities - (1,610)
Non-current liabilities - -
Net assets (liabilities) - (1,556)
Net assets (liabilities) attributed to NCI - (661)
Revenue 8 24
Operating loss (277) (920)
Net loss (288) (953)
Net loss attributable to NCI (122) (405)
Cash flow from operating activities (78)
Cash flow from investment activities (2)
Cash flows from financing activities (1,541)
Net increase (decrease) in cash and cash equivalents (1,621)
Celadon Subco Limited
In the year ended 31 December 2022, there were subscriptions for B Ordinary
Shares totalling £23,300 (2021: £nil). The B Ordinary Shareholders have no
entitlement to vote or any interest in the profits of Celadon Subco Limited.
The B Ordinary Shares of Celadon Subco Limited have been issued as part of the
Subsidiary Incentive Scheme (see note 30). The Subsidiary Incentive Scheme
includes certain performance criteria with respect to the market
capitalisation of the Group. As these performance criteria have not
currently been met the Non-Controlling Interest arising from the B Ordinary
Shares has been valued at the cost to repurchase the B Ordinary Shares.
2023 2022
£000 £000
Non Controlling Interest 23 23
30. Long Term Incentive Plans
Subsidiary Incentive Scheme
On 17 September 2018, the Company established its Subsidiary Incentive Scheme
(using the B Ordinary Shares of Celadon Subco Limited) in order to incentivise
and retain certain key employees and directors of, and advisers to, the
Company. On 11 April 2022, the Company amended its Subsidiary Incentive
Scheme following the acquisition of Celadon Property Co Limited and a number
of directorate and personnel changes to the enlarged Group.
Under the terms of the Subsidiary Incentive Scheme, participants are entitled
to subscribe for Subsidiary B Shares. Subsidiary B Shares provide the holder
with a right to participate in any Shareholder value that is created over a
predetermined level and over a three- to five-year period (or upon a change of
control of the Company or the Subsidiary, whichever occurs first). This is
calculated on a formula basis by reference to the growth in market
capitalisation of the Company, following adjustments for the issue of any new
Ordinary Shares and taking into account dividends and capital returns
("Shareholder Value").
On 11 April 2022, the Subsidiary Incentive Scheme was amended to create three
classes of Subsidiary B Shares in issue under the Subsidiary Incentive Scheme:
§ The 400,000 Subsidiary B Shares held by participants under the current
Subsidiary Incentive Scheme (which commenced on 15 January 2021) were
converted into B1 Shares. These B1 Shares will participate in up to 4 per cent
of Shareholder Value created above a current threshold of £96,305,000 ("B1
Initial Value"), being the initial market cap of the Company, plus the amount
of funds raised on 15 January 2021, plus the total subscription value of the
Consideration Shares and the Placing Shares. The B1 Shares will only
participate in that Shareholder Value, however, if the individual elements of
the B1 Initial Value grow at an annual rate of 7.5 per cent (compounded),
measured over a period of three to five years commencing on 15 January 2021.
§ 650,000 B2 Shares were issued to advisers of Celadon. These B2 Shares
will participate in up to 6.5 per cent of Shareholder Value created above a
current threshold of £81,755,125 ("B2 Initial Value"), being the
pre-Acquisition value of the Company plus a discounted value of the Celadon
Group (to reflect pre-agreed incentive arrangements and the advisers'
contribute to date) plus the total subscription value of the Placing Shares.
The B2 Shares will only participate in that Shareholder Value, however, if the
individual elements of the B2 Initial Value grow at an annual rate of 17.5 per
cent (compounded), measured over a period of three to five years commencing on
28 March 2022.
§ 600,000 B3 Shares were issued to selected management of Celadon, subject
to a Call Option allowing the B3 Shares to be repurchased by the Company for
the shares' nominal value in certain circumstances. The number of B3 Shares
subject to the Call Option is reduced in three equal instalments on the first,
second and third anniversaries of the acquisition of Celadon. These B3 Shares
will participate in up to 6 per cent of Shareholder Value created above a
current threshold of £101,755,125 ("B3 Initial Value"), being the
pre-Acquisition value of the Company plus the total subscription value of the
Consideration Shares and the Placing Shares. The B3 Shares will only
participate in that Shareholder Value, however, if the individual elements of
the B3 Initial Value grow at an annual rate of 17.5 per cent (compounded),
measured over a period of three to five years commencing on 28 March 2022.
The current Subsidiary Incentive Scheme participants and their respective
holdings of B Share holdings are noted below.
Name B1 B2 B3 Total
Alexander Anton (Chairman) 75,000 166,666 - 241,666
Benjamin Shaw (former Director) 75,000 166,667 - 241,667
Mark Farmiloe (former Director) 75,000 166,667 - 241,667
Tony Morris (former Director) 125,000 - - 125,000
Paul Gibson (former Director) 50,000 - - 50,000
James Short (Chief Executive Officer) - - 200,000 200,000
Katie Long (former Chief Financial Officer) - 150,000 - 150,000
Issued to other employees / consultants - - 400,000 400,000
Total 400,000 650,000 600,000 1,650,000
A summary of the B Shares are as follows:
Tranche B1 B2 B3
Shares in issue 400,000 650,000 600,000
Subscription price 1.4p 1.44p 1.39p
Compound Growth 7.5% pa 17.5% pa 17.5% pa
Exercise period 15 January 2024 to 29 March 2025 to 29 March 2025 to
15 January 2026
29 March 2027
29 March 2027
The B Shares are financial instruments and have been fair valued using a Monte
Carlo simulation with inputs of:
Tranche B1 B2 B3
Risk free rate 1.99% 1.89% 1.89%
Volatility 33.0% 33.0% 33.0%
Dividend yield 0% 0% 0%
Market cap at measurement £58.9 million £58.9 million £58.9 million
Volatility was estimated using the Celadon Pharmaceutical Plc share prices.
Due to the limited share price history of the Company, volatility has been
assessed against an international peer group of comparative entities. An
annualised volatility range of 33% - 127% was developed within the peer group.
Management estimated a volatility of 33%, reflecting the low volatility of the
Celadon Pharmaceuticals Plc share price data post the reverse acquisition
transaction.
The Long-Term Incentive Plan charge in the income statement for the year ended
31 December 2023 was £121k (2022: £910k) in respect of the Subsidiary
Incentive Scheme.
Long Term Incentive Plan
A separate Long Term Incentive Plan was agreed at the time of Celadon's
listing. This allows the company to issue key personnel with share
options. The first awards of such options were made in January and February
2023. In total, five awards were made to different individuals, each award
was made with performance conditions based on satisfaction of either personal
objectives or in line with the performance required for the B3 Subsidiary
Incentive Scheme to vest. The total amount charged in the income statement
for the year ended 31 December 2023 was £242k (2022: -).
Advisor Warrants
In March 2022, warrants were issued to one of the Company's advisors over
262,626 ordinary shares, to be issued in equal instalments in March 2023 and
March 2024 as consideration for provision of services over that period.
These warrants are to be issued at the nominal value of £0.01 per share.
The fair value of this award was calculated as £226k.
31. Related Party Transactions
Tessera Investment Management Limited ("Tessera")
Tony Morris (a former Director of Celadon Pharmaceuticals Plc), and Katie Long
(the former Chief Financial Officer of Celadon Pharmaceuticals Plc) are the
directors and shareholders of Tessera.
On 15 January 2021, Summerway Capital Plc entered into an agreement with
Tessera pursuant to which Tessera agreed to provide strategic and general
corporate advice, and M&A and capital raising transaction support
services.
Tessera charged £12,500 per month (plus VAT) payable monthly in arrears from
the date of the agreement. The agreement terminated on readmission of the
Group to AIM on 28 March 2022. In the year ended 31 December 2022, £235,236
of fees were charged to the Company (2021: £165,000). At 31 December 2022
£50,763 was unpaid (2021: £nil). This agreement was terminated on 28
March 2022.
On 3 March 2021, Vertigrow Technology Limited entered into an agreement with
Tessera pursuant to which Tessera agreed to provide strategic and general
corporate advice, and M&A and capital raising transaction support
services. Under the agreement, Tessera was to participate in the Celadon
Subco Limited share incentive scheme to be implemented in the region of 1.5
per cent of additional shareholder value created through such scheme, by way
of an allocation to Katie Long on her appointment as CFO.
This entitlement was replaced by Katie Long's participation in the Subsidiary
Incentive Scheme (note 30) at re-admission on comparable terms.
In the year ended 31 December 2023, £97,890 (2022: £54,783) of advisory fees
were charged to the Company. At 31 December 2023 £nil was unpaid (2022:
£nil).
Subsidiary Incentive Scheme
On the 11 April 2022, and pursuant to the amended Subsidiary Incentive Scheme
detailed in note 30, a number of new B Shares were issued to former and
current Directors of the Company at subscription prices ranging from £0.0139
to £0.0144 per B Share. The current allocation of B shares in issue to
former and current Directors of the Company are set out below.
Name Previous B Shares held Agreed buybacks New B Shares issued pursuant to amended Scheme Current B Shares held
Alexander Anton (Chairman) 75,000 - 166,666 241,666
Benjamin Shaw (former Director) 75,000 - 166,667 241,667
Mark Farmiloe (former Director) 75,000 - 166,667 241,667
Tony Morris (former Director) 175,000 (50,000) - 125,000
Vin Murria (former Director) 1,000,000 (1,000,000) - -
Paul Gibson (former Director) 50,000 - - 50,000
James Short (Chief Executive Officer) - - 200,000 200,000
Katie Long (former Chief Financial Officer) - - 150,000 150,000
Issued to other employees / advisors - - 400,000 400,000
Total 1,450,000 (1,050,000) 1,250,000 1,650,000
Shortly after the issuance of the new B Shares detailed above, in accordance
with the terms of the resignation letters of Vin Murria and Tony Morris, all
of Vin Murria's B Shares and 50,000 of Tony Morris' B Shares were bought back
from the Subsidiary on 11 April 2022 at their original subscription cost of
£14,000 and £700 respectively.
Market purchases
On 10 March 2022, Alexander Anton acquired 10,000 ordinary shares of Celadon
Pharmaceuticals Plc as part of a secondary market transaction, which was
announced on 10 March 2022. Following this and 209,569 ordinary shares held
indirectly as a result of the share consideration paid by the Celadon
Pharmaceuticals Plc to the shareholders of Celadon Property Co Limited,
Alexander Anton's shareholding in the Company increased to 1,319,569 ordinary
shares, representing 2.1 per cent of the Company's share capital.
32. Commitments and Contingencies
Commitments
At 31 December 2023 the Group had committed capital expenditure amounts of
£nil (2022: £nil).
33. Subsequent events
On 8 March 2024, the Group disposed of its investment in Harley Street (CPC)
Limited for a consideration of £500,000 payable over three years. At the
time of the disposal, the only activity conducted by Harley Street (CPC)
Limited was the operation of a CQC registered clinic. The assets relating to
the CANPAIN Trial had been transferred to Celadon Property Co Limited during
2023.
On 11 April 2024, the Group extended the maturity date of its £7.0 m
Revolving Credit Facility to 30 November 2025.
On 10 May 2024, the Group raised £2.1m of additional equity, through the
issuance of 2,000,000 ordinary shares of 1p each at a subscription price of
£1.05 per share.
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