REG - Diaceutics PLC - Final Results
22/03/2022 14:45
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RNS Number : 6452F Diaceutics PLC 22 March 2022
22 March 2022
Diaceutics PLC
("Diaceutics" or "the Company" or "the Group")
Final Results
Diaceutics PLC (the "Company" or the "Group"), the diagnostic
commercialisation company for precision testing, is pleased to report its
audited results for the year-ended 31 December 2021.
Financial Highlights
· Revenue increased 10% to £13.9m (2020: £12.7m) an 18% increase on a
constant currency basis
· Gross profit increased by 13.4% to £10.7m (2020: £9.5m)
· Gross margin of 77% (2020: 75%) benefiting from the shift to
platform revenues
· Adjusted EBITDA* of £2.3m (2020: £0.5m)
· Profit before tax £0.5m (2020: loss before tax £0.7m)
· Strong balance sheet with net cash of £19.7m (2020: £25.3m)
*Adjusted for exceptional costs of £0.4m during 2020 in relation to a
restructuring event
Operational Highlights
· Strong adoption of the DXRX platform in first full year since launch
o 60% of total revenue generated by the platform in the period,
significantly ahead of the 20% target for the period
o significant shift towards platform-based data revenues, (53% of the total
revenues) supporting the transition to a recurring revenue model
· Within the platform development programme we expanded our DDP
pipeline from 49 to 77, with 78% focused on oncology and 22% non-oncology
· Expansion of the management team, including the appointments of a
Vice President of Sales and Marketing, a Chief Growth Officer to support the
expansion of products, and additional business development heads responsible
for delivering growth in the sales pipeline
· Ongoing investment in the DXRX Platform resulting in the growth of
product offering with the launch of four new platform-based products taking
the total platform offering to 16
· Recruited 485 laboratories onto the DXRX platform taking the total to
546 in 33 countries, significantly increasing the DXRX platform global
footprint and customer offering.
· Secured a five-year contract with a leading life sciences company for
direct data feed from the DXRX platform, worth more than US$1m over the
contracted period
· Appointments post period end of Chief Financial Officer and Chief
Operating Officer
Peter Keeling, Chief Executive Officer and founder of Diaceutics, commented:
"We are delighted with the significant progress we have made in 2021.
Alongside a solid financial performance, we have successfully transitioned
Diaceutics to supporting a recurring revenue model and have progressed both
faster and further than we anticipated at the beginning of the year, laying
the foundations for significant revenue growth.
"With the number of new Precision Medicine therapies increasing, the
diagnostic commercialisation market is becoming a key part of the Pharma
business model. Through the timely launch of our DXRX platform, we have
advanced our first mover advantage to service this need, increasing both our
breadth of offering and ability to meet the industry's need at scale.
"We are now focused on expanding our service offering, partner network and
data repository, with the ambition to service our customers' entire diagnostic
commercialisation needs in the key international markets, both within and
outside of oncology. We believe the depth of our insights and the growing need
for our digital solutions will further embed us with our customers and
facilitate the onward growth for Diaceutics and look to the future with
confidence. With the current business momentum, we see improved revenue growth
in 2022. Alongside our investment in platform, product, data innovation and
people we expect continued modest growth in our EBITDA."
Enquiries:
Diaceutics PLC
Nick Roberts, Chief Financial Officer Via Alma PR
Stifel Nicolaus Europe Limited (Nomad & Broker) Tel: +44 (0)20 7710 7600
Ben Maddison
Stewart Wallace
Nick Adams
Alma PR Tel: +44(0)20 3405 0205
Caroline Forde diaceutics@almapr.co.uk
Kieran Breheny
Matthew Young
About Diaceutics
At Diaceutics we believe that every patient should have access to the right
treatment at the right time. We provide the world's leading pharmaceutical
companies with an end-to-end solution for the launch of precision medicine
diagnostics enabled by DXRX - The Diagnostic Network®.
DXRX is the world's first diagnostic commercialisation platform for precision
medicine, integrating multiple pipelines of real-world diagnostic testing data
from a global network of laboratories.
Introduction
I am delighted to reflect on what has been a transformational year for
Diaceutics in which we have delivered robust financial performance, while
exceeding our operational goals set at the end of the previous financial year.
The impact of the COVID-19 pandemic on the timely diagnosis and access to
treatment for patients around the world has brought our purpose, to ensure the
right treatment is provided to patients at the right time, sharply into focus.
I am proud of the passion and drive I see across Diaceutics as we strive to
achieve our vision.
In October 2020, we launched DXRX, our diagnostic commercialisation platform,
bringing together all stakeholders in Precision Medicine to improve efficiency
across the diagnostics market. In 2021, our core strategic aim was to drive
the adoption of our platform alongside increased partner engagement, providing
the foundation for future growth acceleration. The strong adoption in this
regard demonstrates the willingness of the diagnostic market and wider
pharmaceutical industry to embrace a digital platform. We now count over 540
laboratories across multiple geographies signed up to DXRX and ready to
participate in projects, and importantly, 60% of Group revenue in the year was
delivered via the platform, considerably ahead of our initial 20% target. We
also increased the total revenue from our top five Pharma customers from
£5.7m (2020) to £7.4m (2021) and serviced the needs of these same top five
customers in a total of 23 markets, both metrics are indicative of our
increased relevance to our leading customers.
The team has been tireless in its commitment to innovation, as we are still
very much just at the start of the evolution of the platform. As part of
DXRX's second phase launch towards the end of the year, we established four
new service offerings, adding further routes to increase platform revenue
growth.
In the summer of 2021, we were delighted to establish our new company
headquarters at Dataworks at Kings Hall Health and Wellbeing Park in Belfast,
a new green building, with an "A" rated energy certificate. These offices
position us in direct proximity to Belfast's major hospitals, universities,
and innovative medical research facilities, and we are already seeing the
benefits of the location as a thriving data hub enabling data analytics
companies, medical professionals and patient centric groups to collaborate in
this shared space.
Performance
The progress in widening the customer base, increasing our activity levels,
and driving the adoption of the platform can be seen in the successful
financial performance in the year, delivering 18% revenue growth on a constant
currency basis, ahead of market expectations. While we are investing in the
business, the board of directors (the "Board") is cognisant of the need to
carefully manage resources, and we are pleased to have delivered Adjusted
EBITDA of £2.3m and Profit before tax growth to £0.5m.
As the adoption of the platform accelerates, and our service portfolio grows,
we anticipate larger customer contracting values and the continued migration
to a recurring revenue model into 2022 and beyond.
Cash balances remain strong, providing the business with the funds to continue
to execute on its growth strategy.
Our People
The COVID-19 pandemic continued to be the dominant external factor impacting
the business, our staff, and customers, and I am incredibly proud of all of
the team for persevering through another year characterised by such
significant disruption and uncertainty. On behalf of the Board, I would like
to extend my thanks and gratitude to all of the Diaceutics team for their
vital contribution during the year.
Despite the challenges posed by the pandemic, our teams have responded with
fortitude, embracing the transformation taking place at Diaceutics, while
remaining passionate in our purpose. As part of our evolution to a platform
business model, we have undertaken considerable organisational transformation
during the period, which has seen the reorganisation of our executive
committee and the expansion of our sales team to nine Key Account Managers. We
entered 2021 with a well-established remote working culture, and we have
ensured our teams remain supported and as connected as ever, despite social
distancing and lockdown restrictions.
We are a global company with employees operating across 16 countries and, as a
result, we recognise the immense value people from all cultures, religions and
backgrounds can contribute to our success. We remain fully committed to
supporting our colleagues and fostering a diverse and inclusive workplace.
As a responsible employer we communicate and engage with our employees
regularly via Town Halls and monitor and support employees across multiple
areas such as mental health and work life balance. As a result, 96% of
employees surveyed responded that people are treated fairly and with respect,
and 96% of employees surveyed have great confidence in the future of
Diaceutics.
ESG Progress
Diaceutics is committed, through its culture, processes, and business
activities, to ensuring that it has a positive impact on all of its
stakeholders. These include our customers and customer partners, our
shareholders, patients and communities, the environment, our employees and the
wider Diaceutics network. To formalise our approach to these matters, in 2021
we wrote our first Diaceutics Environmental, Social and Governance ("ESG")
Statement, which will be reviewed each year to measure progress and to scope
further objectives and outcomes to improve our performance in these important
areas. You can read more about our commitments, policies and progress within
the ESG section of this report.
Board Changes
Post the year end, in January 2022, we were delighted to announce the
appointment of Nick Roberts as Chief Financial Officer who took over duties
from Philip White on 18 March 2022. Nick's wealth of experience derived from
his time with AIM quoted healthcare and technology companies with global
customer bases, will prove key as we progress to the next stage of our growth.
We welcome Nick to Diaceutics and look forward to working with him.
On behalf of the Board, I would like to wholeheartedly thank Philip for his
vital contribution to Diaceutics in the build-up and throughout the IPO and
our first few years as a listed business and wish him the very best in his
future role.
Outlook
We are seeing diagnostics growing in importance to the pharmaceutical
industry, as an increasing number of precision medicines are brought to
market, and we are confident that Diaceutics is positioned to maximise the
advantage it has as the market-first digital diagnostics commercialisation
platform.
With a blue-chip customer base, compelling and expanding offering, experienced
management team and a clear strategy, the Board is confident in the Group's
long-term prospects.
I would like to thank all our customers, partners, suppliers, investors, and
employees for their ongoing support during the year.
Ms Deborah Davis
Chair
22 March 2022
Chief Executive Officer's Statement
Overview
The year to 31 December 2021 was one of significant positive progress for
Diaceutics. Alongside a solid financial performance, we have successfully
transitioned the Company to supporting a recurring revenue model, underpinned
by repeat annual licence and subscription contracts, and have progressed both
faster and further than we anticipated at the beginning of the year, laying
the foundations for significant revenue growth.
With the number of new Precision Medicine therapies increasing strongly, the
diagnostic commercialisation market segment is becoming a key part of the
Pharma business model. Through the timely launch of our DXRX platform, we have
advanced our first mover advantage to service this need, increasing both our
breadth of offering and ability to meet the industry's needs at scale.
DXRX is a unique diagnostics commercialisation platform tailored for Precision
Medicine, whose technology enabled services and real-world data insights
directly address the issues in the diagnostics ecosystem which result in
patients missing access to treatment, such as the inconsistency of testing by
laboratories or unavailability of diagnostics in certain geographies. DXRX
repositions Diaceutics in the eyes of our customers, showing our ability to
offer the most comprehensive product range available in the market, designed
to service their total diagnostic commercialisation needs and ensure the right
patients are tested at the right time. We are already seeing that this new and
unique platform network is assisting us both in attracting new customers, but
importantly increase our share of our existing customers' budget, supporting a
wider range of their diagnostics commercialisation needs.
The market relevance for our platform is made clear by the activity generated
on the platform from our partners directly feeding weekly, monthly or
quarterly data into the platform.
Our Pharma customer base has been aided by the worldwide vaccine rollout at
the beginning of H2 2021, resulting in pharmaceutical teams re-engaging at
pre-COVID levels, led by North America which represented 61% of revenue in
2021, compared to 48% in 2020. We have engaged at a global level with 39
customers with an increase in number of customer therapy brands serviced to 56
in 2021.
At the end of 2020 and into 2021 we made the key organisational changes
required to prepare the business to migrate to a platform-centric and scalable
diagnostics commercialisation company, and in 2021 we made that transition.
We have delivered above expectations on this strategic transition in 2021 and
these achievements are summarised below:
Strategic transition achievements Impact
Commenced migrating existing and new customer agreements to the platform 60% of customer revenue is generated through the platform (2020: nil)
Increased platform product offerings 4 new products launched taking total to 16
Increased platform collaborations 30 new collaborations on the platform
Migrated laboratory partners onto the platform 546 laboratories migrated to the platform (21.8% of target network)
AS part of DXRX platform investment we have expanded data insights through DDP pipeline expanded from 49 to 77 with 17 now focused outside oncology
Diagnostic Deductive Pathway ('DDP') development
Expanded customer base 3 non-Pharma companies added including a top five diagnostic company
Expanded client engagement outside oncology 15% of revenue now emanated from outside of oncology projects
Reshaped and expanded sales and marketing team Increased the Key account managers from 3 to 9 supported by 4 sales operations
executives and new CRM system.
Reshaped and expanded the leadership team By the end of period added two new executives to the EXCO team and four to the
OPCO team
We are now focused on marketing our suite of products to our core Pharma
customers and new companies investing in diagnostic commercialisation such as
Biotech and Diagnostic companies. We will continue to expand our service
offering, partner network and data repository, with the ambition to service
our customers' entire diagnostic commercialisation needs in the key
international markets, both within and outside oncology.
Financial Performance Demonstrates Transition of Diaceutics
The success of the launch of DXRX can be seen in its contribution to Group
revenues, with 60% of total revenues derived from the platform in the first
operational year.
We increased the total revenue from our top five customers by 31% from £5.7m
to £7.4m in 2021 and serviced the needs of these same top five customers in a
total of 23 markets, both metrics are indicative of our increased relevance to
our leading customers.
Within the platform revenue is the successful conversion of 53% of our
business to platform-based data revenue representing £7.4m of total Group
revenue in 2021 (2020: nil). We anticipate this to be a precursor to further
recurring revenue, improving the quality and visibility of future revenues.
Moving forward, we anticipate an evolution towards larger customer contracting
value, multi technology enabled services proposals and multi brand enterprise
licenses. We have a strong track record in expanding our customer engagements
over time moving to additional therapy teams within each customer alongside
expanding our geographic reach. The DXRX platform allows us to span
geographies with customers in the US, Europe, and Asia Pacific, supporting the
growth of the Company.
Delivering on our Strategy
We have developed a scalable, high margin business with a best-in-class
product offering, tailored for Precision Medicine. This strategy is centred
around the proprietary and market leading DXRX platform and our dedicated and
highly skilled employees and has three distinct and vertically integrated
value blocks, which form divisions within the business. These are:
· the right products to service total diagnostic commercialisation
needs;
· a diverse partner network that spans numerous geographies; and
· an unrivalled depth of data that delivers impactful insights at the
patient level.
Our strategy is focused on enhancing these three aspects of embedded value in
order to increase our customer numbers and average contract size:
The right products to service total diagnostic commercialisation needs
In the post COVID-19 era of virtually augmented drug development and
commercialisation, the DXRX platform provides a digital testing infrastructure
which can meet the market's growing need for efficient patient testing.
Ongoing investment in the platform resulted in the growth of DXRX and the
launch of four new products by the end of the year:
· Patient Journey - DXRX patient journey enables Pharma customers to
complete a longitudinal analysis of biomarker testing journeys of individual
patients which identifies opportunities for earlier testing and treatment;
· Lab Benchmark - DXRX lab benchmarking enables laboratories to gain
competitive edge and compare key criteria to others in the
industry providing metrics such as disease, testing and
methodology, market share, turnaround time and laboratory leadership
in these areas;
· Test Reimbursement - DXRX test reimbursement enables Pharma customers
to rapidly engage with laboratories to fund the introduction of novel
companion diagnostics, reducing the lag time in test adoption; and
· Test Signal - DXRX test signal delivers a real-time alert of a
testing event that allows Pharma customers to identify therapeutically
actionable patients in the previous weeks, as shown in the profile below.
Test Signal in profile
· The launch of our Test Signal product provides a perfect example of
how DXRX is enabling an expansion of our data capabilities. The introduction
of our Test Signal product in the US market now allows us to use the
efficiencies of the DXRX platform network to identify patients who could
benefit immediately from better treatment by zip code.
· Test Signal notifies a Pharma customer when a patient tests positive
for a biomarker linked to the profile of a therapeutic linked to the
pharmaceutical company. This information can now be supplied within days of
the test result being recorded by laboratories linked to this new service.
· Test Signal allows the opportunity for real-time identification of
patients eligible for treatment and follow up by the pharmaceutical company's
marketing organisation. This will allow quicker and better support to
biomarker testing, allowing treatment with the most appropriate drug treatment
sooner.
· Our mantra is ''Better Testing, Better Treatment" and this product
gets us right to the fore of delivering on this as it is used by the
front-line sales teams within the Pharma industry. After only one month on the
market our Test Signal product had identified 1,971 patients who had the
potential to be treated with a Precision Medicine and who may have otherwise
been lost to treatment. This is significant for our customers as some of these
treatments have annual revenue in excess of a billion dollars.
· Signal is one of the five specialist data products developed as a
result of our ongoing investment in DDPs, since it depends upon automation
integration, standardisation and expert labelling of large data sets weekly,
to ensure our customers can act quickly.
Our increased product offering allows us to extend our services to customers
in all of the key geographies, accessing larger budgets from Pharma per
therapy brand. The launch of these products within DXRX has increased Total
Contract Value ("TCV") and total revenue per customer, supporting continued
growth in the future.
We can now offer 16 bespoke products across the spectrum of diagnostic
commercialisation for the first time.
Diverse Partner Network
The DXRX platform vertically integrates a network of laboratory and service
partners relevant to commercialising diagnostics. These best-in-class
laboratory and service partners allow us to service the diversity of our
customer needs including:
· Supporting physicians by ensuring all the key laboratories have the
right test at the right time in step with prescribing demands;
· Supporting those same laboratories to optimise the quality of
testing and identify more patients for treatment; and
· Supplying timely real-world data and insights to help target our
customers' investments and benchmark laboratories in all the leading markets.
Laboratory Partners
The DXRX laboratory universe is a key part of our platform network and active
participants in our customer sponsored collaborations (see below) using the
DXRX platform. In respect of laboratory onboarding, in its first full year we
have moved 21.8% (546 laboratories) of our target network onto the platform,
transitioning from an offline to an online relationship and enabling
automation of data supply and our first technology enabled services.
Service Partners
13 service partners have been announced as joining the platform since DXRX
launch in October 2020. Examples include:
· UKNEQAS ICC & ISH;
· European Society of Pathology (ESP);
· Nordic Immunohistochemical Quality Control (NordiQC);
· European Molecular Genetics Quality Network (EMQN CIC);
· Canadian Pathology Quality Assurance - Assurance Qualité
Canadienne en Pathologie (CPQA-AQCP);
· Targos and HistoCyte Laboratories; and
· LGC SeraCare Partnership
Armed with the platform partners above, our strategy uses expertly customised
sponsored collaborations to integrate the needs of all the platform partners
with the needs of our pharmaceutical and diagnostic customers and deliver
faster change to testing at the front line. During 2021, this platform network
supported 30 collaboration programmes.
Tech Enabled Services Topic Country Disease Number of Participating Labs
Test announcement BRAF Testing in colorectal cancer EU+Canada CRC 22
Test announcement Molecular pathology of breast cancer Germany Breast 15
Test announcement Her2 testing for breast cancer in clinical practice including current need to UK/ EU Breast 77
identify Her2 low tumours
Test Quality Assessment Global gastric cancer testing EQA Study US- EU APAC Gastric Cancer 30
Lab Standardisation Breast cancer proficiency testing US- EU APAC Breast 65
In total, our platform network allows us to leverage the capabilities of our,
data, service partners and laboratories, in turn expanding the
commercialisation products and features offered to our customers. As more
partners join and the platform continues to scale, our strategy will be to
consolidate our position, ultimately enabling an embedded solution for our
customers.
Unrivalled depth of Data that delivers Impactful Insights at the Patient Level
Our investment in the platform has further strengthened our position as the
world's richest repository of real-world diagnostic testing data. We have an
unparalleled depth of data, which combined with our unique data mining tools
and algorithms, provide rich real-world testing data insights at disease
level. This repository unlocks unrivalled access to deep analysis of the
world's richest source of de-identified patient testing with an expansion of
disease specific testing pathways (Diagnostic Deductive Pathways - DDPs),
allowing us to generate recurring data revenue across more cancer and
non-cancer diseases.
With each new platform partner that engages and every collaboration we form,
the wealth of exhaust data grows and the service we deliver becomes more
useful and valuable.
Our Diagnostic Deductive Pathway - DDP Pipeline
DDPs which forms part of our platform development, are a series of AI enabled
algorithms that map the patient journey in a particular disease area. The
DDPs, transform the raw data into product insights in real time via the
platform, thus generating recurring revenue streams and scalability for the
business. As we ended the year, we had expanded our DDP pipeline from 49 to
77, with 78% focused on oncology and 22% non-oncology. The development of each
DDP is complex with the need to integrate and standardise raw data, then
expertly label it to allow machine learning proprietary algorithms to automate
the analysis and insights across patients' diagnostic journeys in a specific
disease. Often the DDP can represent up to eight years of patient level
insight and we slice through each DDP to provide our unique data
insights/products for our customers. Our DDPs support our existing data
products as well as aiding future product development by allowing us insight
for example into previous patients' diagnostics journeys, project likely
future diagnostics issues, identify therapeutically actionable patients and
guide at what point a new drug is best introduced into the diagnostic journey.
As we serve multiple customers and multiple therapies by reusing DDPs across a
number of years, the lifetime revenue of each DDP accumulates. For example,
the accumulated multiyear revenue enabled by our top five DDPs ranges from
US$4.3 - US$16.9m. An example of how DDPs work is represented by the Test
Signal product.
Customer and Disease Area Expansion
In addition to increasing the speed of data delivery to our Pharma customers,
we have expanded our customer base and provided data licenses to three
non-Pharma companies, including a top five diagnostic company. Our goal is the
expansion beyond our traditional Pharma customer leveraging our data insights
which support diagnostic commercialisation regardless of sponsor.
Year on year we are witnessing the expansion of Precision Medicine outside
oncology, where diagnostic commercialisation needs are varied and complex.
Here too we have remained in step with the needs of our Pharma customers and
have worked on diagnostic commercialisation relevant to Inherited Retinopathy
Disease, Alzheimer's, Tuberculosis, COVID-19 and Dengue amongst others across
the year. As we ended the year, 15% of our revenue emanated from projects
outside oncology versus 9% in 2020. This has been enabled by the development
of new non-oncology DDPs, 22% of which are now non-oncology.
Our goal outside oncology will be to remain in step with the needs of our
customers as they develop precision therapies dependent upon unique and
complex patient testing needs.
Market opportunity
Experts forecast that the future Pharma focus will be predominantly Precision
Medicine and Pharma teams launching drugs in more prevalent diseases outside
cancer where a different mix of diagnostic hurdles will be faced as the annual
volumes of patients needing to be tested are in their millions, versus 200k to
500k as they are in cancer.
Despite the increasing importance of effective diagnostic testing across
cancer and other diseases, the testing market itself remains highly fragmented
and the pharmaceutical industry has varied insight into it. Today the current
addressable market for Diaceutics' specific services is approximately US$0.25
billion annually based on our current forecast and visibility of Pharma
pipelines. As the diagnostic interdependency of Precision Medicine becomes
more complex and as other diseases outside cancer follow the success of
precision cancer therapy, we expect this to increase to $0.45billion annually
by 2026.
Our Team
I would like to take this opportunity to personally thank our people across
the Group for their continued hard work, determination, and commitment through
what has been a challenging time for many of them and their families. It is
thanks to them we have been able to continue the growth of the DXRX platform
and make vital steps towards fundamentally changing the diagnostics
marketplace for the better by helping physicians deliver the right medicine to
each individual patient in relation to their own personal pathology.
Our people are essential to our business, and as such, we supported them
through the COVID-19 disruption. The transition to homeworking during the
pandemic was seamless, as 73% worked virtually pre-COVID-19 and our years of
investment in digital communications served to minimise the impact to our
customer work.
During the year we have invested significantly in our people. We have
transformed the skillset within the business so that we are in a better
position to take advantage of the market opportunity and scale the high growth
DXRX platform. In doing so, we delivered almost 6,500 hours of internal
training and reskilling to transition to a platform business model more
efficiently. We started the year with three business development salespeople
and have grown this team to nine full time employees, with three expected to
be added in early 2022, alongside our newly appointed Vice President of Sales
and Marketing. By the end of period, we had expanded the executive committee
(EXCO) team to six executives through the appointment of a new Chief Growth
Officer to support the expansion of products, and since the year end, the
appointment of a new Chief Operating Officer has brought the total EXCO team
to seven. The EXCO team has also been reorganised around our key product
suites of data, tech enabled services and professional services.
On behalf of the Group, I would like to wholeheartedly thank Philip White who
stepped down as Chief Financial Officer on 18 March 2022. Philip has had an
incredible influence on Diaceutics, having led us through a successful IPO and
playing a key role in the first few years as a public company. We would like
to thank him for all his hard work and look forward to continuing to benefit
from his counsel until April 2022.
I am also delighted to welcome Nick Roberts to Diaceutics as Chief Financial
Officer and director of the Board. Nick is a highly experienced senior finance
professional with a background working with high-growth, platform-oriented
businesses across tech and Pharma makes him an excellent fit, and his
experience leading finance functions to accommodate significant year-on-year
revenue growth will serve as a real asset to us. Welcome Nick to the team as
we look to take Diaceutics to its next level of growth and accelerate the
transformation of our business model.
In 2005 when Diaceutics was formed, there were only six drugs on the market
recognised by Pharma as precision drugs, namely drugs which the FDA had
mandated that patients had to be tested in advance of the treatment being
offered. Furthermore, the market which we now call "Precision Testing
commercialisation" was not recognised as a segment and Pharma commercial teams
in particular were highly resistant to being involved in a diagnostic business
model they believed was functioning normally.
In the absence of a clear 'business role model', or qualified business
segment, Diaceutics acted as a category former and developed its business
model through innovative prototyping and fail-fast approaches, ultimately
resulting in the transformation of its business onto the DXRX platform. On the
assumption that patient testing for all therapies will be fully re-integrated
into the Pharma business model in the next five to ten years, the system-level
changes across Pharma's investment in Precision Medicine will require
significant diagnostic commercialisation scale. Diaceutics focused on this
opportunity and with the success of DXRX, now has the scale required to meet
the ongoing evolution of Precision Medicine.
Outlook
Our mission is to ensure that every patient has access to the right treatment
at the right time by leveraging our best-in-class data, global experts,
laboratory relationships, experience and technical excellence to provide
services that reduce barriers to prescribing life changing therapies. With the
current business momentum, we see improved revenue growth in 2022. Alongside
our investment in platform, product, data innovation and people we expect
continued modest growth in our EBITDA.
We are seeing diagnostics growing in importance to the pharmaceutical
industry, as an increasing number of Precision Medicines are brought to
market, and we are confident that Diaceutics is positioned to maximise the
advantage it has in DXRX as the market-first digital diagnostics
commercialisation platform.
I join our Chair and the rest of the EXCO team in thanking all our staff,
platform partners and customers around the world for their support throughout
2021 and we look forward to enabling more patients' access to the right
therapy through better testing in 2022.
Mr Peter Keeling
CEO
22 March 2022
Financial Review
2021 has been a pivotal year and one whereby the business has built solid
foundations to support future growth. At the top line, revenue increased 10%
to £13.9m (18% on a constant currency basis) and profitability grew as the
gross margin improved to 77% (£10.7m) and Adjusted EBITDA increased to
£2.3m.
The performance was driven by solid growth in both the first and second halves
of the year and was particularly pleasing when set against the continued
challenges of the COVID-19 pandemic. The adoption of the DXRX platform post
roll-out exceeded our expectations with 60% of revenue now generated through
the platform, demonstrating the value of the data insights and value-add
service offerings to our customers.
The restructuring effected in late December 2020 removed £1.4m of legacy
operational consulting costs and replaced this cost with operational
expenditure supportive of our platform business model. This has resulted in
added operational leverage to our business and the additional business
development hires have allowed for more focus on developing customer
relationships. The combined business development expansion and successful
launch of four additional products into the platform during Q4 2021 supported
larger total contract values as we combine higher value products together and
transition towards a subscription led revenue model.
We closed the year with a strong balance sheet and a net cash position of
£19.7m, providing the business with sufficient funds to execute on its growth
strategy.
The Group's Key Financial Performance indicators are summarised below:
2021 2020
£000's £000's
Revenue 13,943 12,696
Gross Profit 10,732 9,463
Gross Profit Margin (%) 77% 75%
EBITDA 2,349 151
Adjusted EBITDA* 2,349 539
Profit/(Loss) before tax 462 (682)
Net cash 19,675 25,255
* After exceptional costs of £0.4m relating to a restructuring event during
2020.
Revenue
The table below sets out the revenue stream between the recently launched DXRX
Platform revenue and Professional Services.
2021 2020
£000's £000's
Revenue - DXRX platform 8,298 -
► Data revenue 7,411 -
► Tech Enabled Services 887 -
Revenue - Professional Services 5,645 12,696
Total revenue 13,943 12,696
Group revenue increased by 10% in 2021 to 13.9m (2020: £12.7m) and by 18% on
a constant currency basis. The currency headwind is a direct result of 83% of
revenue being contracted with our customers in US dollars. The growth in
revenue is underpinned by an increase in customer brand engagement to 56
(2020: 53) and an increase in the volume of contracts. The launch of our
additional four products in Q4 2021 and successful uptake of existing products
during the year, resulted in an increase in total contract value secured
during November and December 2021 of 22% compared with November and December
2020.
As noted in our half year results and seen in the table above, we have
continued to see a material shift in revenue from Professional Services to
DXRX platform revenue. DXRX platform revenue now represents £8.3m (60% of
revenue) (2020: Nil) with Professional Services revenue representing £5.6m or
40% of revenue (2020: £12.7m and 100% of revenue).
The transition of customers to the DXRX platform and contract terms supports
the continued introduction of additional products in the future, higher
quality and higher value revenue and represents a 2022 renewal contract
opportunity.
During 2021, we engaged with seven new customers (2020: 7) and, although total
customers engaged remained at 39 (2020: 39), we increased our offering within
our larger customer cohort increasing our revenue by 31% within this group. We
expected and experienced some customer churn within the smaller cohort,
typically smaller Biotechs, which was largely due to acquisitions by large
Pharma and changes in their drug launch timetable.
In spite of this, the number of brands supported increased from 53 to 56,
demonstrating increased engagement with customers, and the proportion of
revenue attributable to repeat business increased to 94% (2020: 92%). During
the year we added three diagnostic Pharma customers, meaning 8% of customers
are classified as non-Pharma, representing a new revenue stream and
addressable market for the Group.
Our sales strategy continues to strive to embed Diaceutics further within our
customers diagnostic commercialisation strategy, and during the first year
since the launch of DXRX, we have secured more than £2.5m of revenue from a
single customer in a year. We supported this customer across 17 countries
integrating their systems with the DXRX platform such that key protocols are
aligned for future engagements. Prior to this the largest annual revenue
secured from a single customer was £1.5m.
While the growth in revenue from this customer increased our customer
concentration to 19% of total revenue for the year, that customer revenue is
diversified through multiple customer brand teams and a recurring reliance on
data. We anticipate customer concentration decreasing in future years as we
continue to increase our customer engagements across wider addressable
markets.
The Group continued to support customers in 26 key global markets (2020: 29).
The largest being North America where regional sales increased by 40% to
£8.5m (2020: £6m). North America remains the largest healthcare market for
both Diaceutics and the pharmaceutical industry globally. Revenues in Europe
(including UK) and Asia and Rest of World decreased 13% and 30% respectively,
however, despite the reduction in revenue in Europe we supported 24 customers
through 2021, highlighting future opportunities in this region which we see
recovering during 2022. We continue to support customer global drug brands in
Asia and the profiling of patient data in that region is something we are
building towards in 2023. We have no client contractual exposure in Russia or
Ukraine.
Gross Margin
As noted in our half year report, gross profit margin improved to 77% (2020:
75%) due to the migration of business to the DXRX platform, which leverages a
more efficient use of labour resources in delivering on customer contracts and
generating revenue. Cost of sales, excluding amortisation, reduced from 19% of
revenue in 2020 to 11% of revenue in 2021, resulting in a gross margin
excluding amortisation of 89% (2020: 81%).
Gross Margin and Gross Margin excluding Amortisation
2021 2020
£000's £000's
Revenue 13,943 12,696
Cost of sales inc. Amortisation (3,211) (3,233)
Gross profit inc. Amortisation 10,732 9,463
Gross margin 77% 75%
Amortisation 1,665 776
Gross profit exc.Amortisation 12,397 10,239
Gross margin exc. Amortisation 89% 81%
Administration Expenses
Administration expenses, which consists of operational support, marketing and
sales expenses and administration expenses including non-platform and
share-based payment charges, totalled £10.4m (2020: £10.0m). As a result of
the COVID-19 pandemic and the resulting rationalisation of the business in
2020, the Group entered 2021 better organised to grow the platform and
business and with a streamlined cost base. Through 2021, progress with the
rollout of DXRX provided us with the confidence to further invest in platform
aligned support costs in the areas of business development, sales operations
and commission structure and legal and professional expertise, with a focus on
UK based talent.
Total cost growth for the year was 3% against revenue growth of 10%, resulting
in an operating profit before exceptional items of £0.55m (2020: loss
£0.3m). The increase in margin reflects the constraints placed on operations
of the business due to the pandemic, but also the additional costs associated
with building operational leverage to support future growth.
Whilst the Group's presentational currency is pounds sterling, the Group
operates in several global territories and, as such, is subject to fluctuation
in foreign exchange. The Group has a policy of hedging downside foreign
exchange risk and, at the year end, reported a gain on foreign exchange of
£0.03m (2020: £0.06m).
Tax
The Group operates over four key regions; US, Europe, UK and Asia, with the
majority of intellectual property registered in UK. Corporate income tax
charges are calculated after R&D tax incentives, which are available, and
have been claimed in the UK and Republic of Ireland.
The Group's corporate income tax credit for the year was £0.4m (2020: £1.1m)
which represents the net provision for corporate income tax credits in the UK
of £0.5m and corporate income tax charges of £0.1m in the Republic of
Ireland and the US.
Minor adjustments in respect of the prior year arose due to prudent
assumptions relating to the deductibility of certain costs being taken and
completing Group calculations of R&D tax credit incentives after the
financial statements were finalised.
Deferred tax assets and liabilities have been recognised as they arise, and
for assets, to the extent at which they can be utilised in the future Deferred
tax has been recognised at the rate at which it is expected to unwind, which,
for the UK, is predominantly expected to be at the enacted rate of 25%.
The Group estimates that tax losses of £6.9m will be available for
utilisation against future taxable profits in the UK and has resulted in a
deferred tax asset of £1.7m (2020: £1.3m). A deferred tax liability of
£0.4m (2020: £0.7m) arises due to the capitalising of certain R&D costs,
and £1.8m (2020: £0.6m) relating to other temporary differences, including
capital allowances on property, plant and equipment which remain deductible in
the current year for corporate income tax purposes.
EBITDA, Adjusted EBITDA & Profit before Tax
The Group generated an EBITDA of £2.3m (2020: £0.2m) and adjusted EBITDA of
£2.3m (2020: £0.5m). There were no exceptional costs in 2021 (2020: £0.4m
in relation to restructuring costs incurred at the end of 2020).
The Group had an EBIT of £0.6m (2020: Loss £0.7m) and the move back into a
profitable position reflected in a 17% EBITDA position and a strong balance
sheet, provides a stable base for continued investment and expansion of the
market growth opportunity.
EBITDA and Adjusted EBITDA
2021 2020
£000's £000's
Operating profit/(loss) 550 (658)
Depreciation & Amortisation 1,799
809
EBITDA 2,349 151
Exceptional Items - 388
Adjusted EBITDA 2,349 539
The Group had a Profit before tax of £462k (2020: Loss £682k).
Balance Sheet
At 31 December 2021, the Group reported a strong net asset position of £40.6m
(2020: £40.2m), with net cash of £19.7m (2020: £25.3m). Some of the key
items have been noted within the sections below.
Intangibles
During the financial year ended 31 December 2021 we invested £5.2m (2020:
£6.4m) in our intangible asset base which includes platform, data, patents
and software.
The Group's investment in the DXRX platform continued through 2021.
Capitalised development costs reduced to £3.2m in total (2020: £4.6m) and
resulted in the launch of four key products in Q4 2021 and development
expenditure in relation to 77 DDPs. Within the total investment of £3.2m,
£3m has moved from development expenditure to commercialisation, triggering
amortisation and £0.2m remains in development.
Data accounted for £2.1m of total intangible investment for the 2021
financial year (2020: £1.5m) as we continued to expand the depth and more
timely receipt of data.
Cash
The cash position as at 31 December 2021 decreased to £19.7m (2020: £25.3m)
due to ongoing investment activities in the year and working capital timing
differences. Other than a convertible loan note of £0.1m (2020: £0.1m) the
Group had no debt as at 31 December 2021.
Cashflow
Operating cash inflows for 31 December 2021 remained broadly in line at £0.6m
(2020: £0.3m) Post year end in January 2022, an R&D tax receipt
relating to the 2020 year of £1.6m was received.
Investment activities amounted to £6m for the year. £5.0m related to
investment in intangible asset, primarily in the development costs relating to
DXRX (2020: £6.2m) and £0.6m of tangible asset spend relating to the fit out
of the new office (2020: £0.1m).
The equity free cash flow for the year (net increase in cash and equivalents
less proceeds from the issue of shares) continue to improve with an outflow of
£5.3m in the year (2020: outflow £6.0m).
Outlook
2021 was a transformative year for Diaceutics, one that saw the business
embrace the transition from an advisory services business to a market-first
digital diagnostics commercialisation platform. I am delighted to be joining
the Company at such an exciting time in its growth journey and would like to
thank Philip White for the significant contribution he has made to Diaceutics
and wish him the best for the future.
Mr Nick Roberts
CFO
22 March 2022
Group Profit and Loss Account for the year ended 31 December 2021
Note 2021 2020
£000's £000's
Revenue 4 13,943 12,696
Cost of sales 5 (3,211) (3,233)
Gross profit 10,732 9,463
Administrative expenses 5 (10,377) (10,015)
Other operating income 10 195 282
Operating profit / (loss) before exceptional items 550 (270)
Exceptional items 11 - (388)
Operating profit / (loss) 5 550 (658)
Finance income 12 - 27
Finance costs 13 (88) (51)
Profit / (loss) before tax 462 (682)
Income tax credit 14 99 945
Profit for the financial year 561 263
Group Statement of Comprehensive Income for the year-ended 31 December 2021
2021 2020
£000's £000's
Profit for the financial year 561 263
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (317) (5)
Total comprehensive income for the year, net of tax 244 258
Earnings per share for the year-ended 31 December 2021
2021 2020
Pence Pence
Basic 15 0.67 0.34
Diluted 15 0.66 0.34
Basic adjusted 15 0.67 0.74
Diluted adjusted 15 0.66 0.74
Group Statement of Financial Position as at 31 December 2021
Note 2021 2020
ASSETS £000's £000's
Non-current assets
Intangible assets 16 12,821 9,361
Property, plant and equipment 17 718 238
Right of use asset 18 1,411 -
Deferred tax asset 14 1 301
14,951 9,900
Current assets
Cash and cash equivalents 19,675 25,255
Trade and other receivables 20 7,615 6,107
Income tax receivable 14 2,772 2,257
30,062 33,619
TOTAL ASSETS 45,013 43,519
EQUITY AND LIABILITIES
Equity share capital 25 168 168
Share premium 36,864 36,864
Treasury Shares 25 (165) -
Translation reserve (302) 15
Profit and loss account 4,084 3,191
TOTAL EQUITY 40,649 40,238
Non-Current liabilities
Deferred tax liability 14 445 366
Leasehold Liability 22 1,285 -
1,730 366
Current liabilities
Trade and other payables 21 2,358 2,346
Leasehold Liability 22 146 -
Financial liabilities 23 130 118
Income tax payable 14 - 451
2,634 2,915
TOTAL LIABILITIES 4,364 3,281
TOTAL EQUITY AND LIABILITIES 45,013 43,519
Group Statement of Changes in Equity for the year ended 31 December 2021
Equity share capital Share premium Treasury shares Translation reserve Profit and loss account Total
equity
£000's £000's £000's £000's £000's £000's
At 1 January 2020 139 17,335 - 20 2,638 20,132
Profit for the year - - - - 263 263
Other comprehensive expense - - - (5) - (5)
Total comprehensive income for the year - - - (5) 263 258
Transactions with owners, recorded directly in equity
Exercise of warrant 1 264 - - - 265
Share based payment - - - - 290 290
Issue of shares on Placing 28 19,265 - - - 19,293
Total transactions with owners 29 19,529 - - 290 19,848
At 31 December 2020 168 36,864 - 15 3,191 40,238
At 1 January 2021 168 36,864 - 15 3,191 40,238
Equity share capital Share premium Treasury shares Translation reserve Profit and loss account Total equity
£000's £000's £000' £000's £000's £000's
Profit for the year - - - - 561 561
Other comprehensive expense - - - (317) - (317)
Total comprehensive income for the year - - - (317) 561 244
Transactions with owners, recorded directly in equity
Share based payment - - - - 332 332
Treasury shares - - (165) - - (165)
Total transactions with owners - - (165) - 332 167
At 31 December 2021 168 36,864 (165) (302) 4,084 40,649
Group Statement of Cash Flows for the year ended 31 December 2021
Note 2021 2020
£000's £000's
Operating activities
Profit / (Loss) before tax 462 (682)
Adjustments to reconcile Profit / (Loss) before tax to net cash flows from
operating activities
Net finance costs 88 24
Amortisation of intangible assets 16 1,665 776
Depreciation of right to use asset 18 49 -
Depreciation of property, plant and equipment 17 85 33
Research and development tax credits (169) (247)
(Increase) / Decrease in trade and other receivables (1,499) 549
Decrease in trade and other payables (159) (63)
Share based payments 373 290
Cash received in operations 895 680
Tax paid (325) (427)
Net cash inflow from operating activities 570 253
Investing activities
Purchase of intangible assets (5,036) (6,157)
Purchase of property, plant and equipment (565) (137)
Net cash outflow from investing activities (5,601) (6,294)
Financing activities
Borrowing Costs (56) -
Leasehold repayments (49) -
Purchase of treasury shares (165) -
Issue of shares - 19,614
Net cash (outflow) / inflow from financing activities (270) 19,614
Net (decrease) / increase in cash and cash equivalents (5,301) 13,573
Net foreign exchange losses (279) (38)
Cash and cash equivalents at 1 January 25,255 11,720
Cash and cash equivalents at 31 December 19,675 25,255
Notes to the Group Financial Statements for the year-ended 31 December 2021
1. General information
Diaceutics PLC (the "Company") is a public company limited by shares,
incorporated, domiciled and registered in Northern Ireland. The Company's
registration number is NI055207, and the registered office is First Floor,
Building Two, Dataworks at King's Hall Life Sciences Park, Belfast, County
Antrim, Northern Ireland, BT9 6GW.
The consolidated financial statements consolidate those of the Company and its
subsidiaries (together referred to as the Group). The Company financial
statements present information about the Company as a separate entity and not
about the Group.
The principal activity of Diaceutics PLC ("the Company") and its subsidiaries
(together "the Group") is data, data analytics and implementation services.
The Group has established a core suite of products and outsourced advisory
services which help its Pharma customers to optimise and deliver their
marketing and implementation strategies for companion diagnostics. Their
mission is to design, create and implement innovative solutions that enhance
speed to market and increase the effectiveness of all the stakeholders in the
personalised medicine industry.
The financial statements are presented in pound sterling.
Basis of accounting
These consolidated financial statements have been prepared on a going concern
basis and in accordance with international accounting standards in conformity
with the Companies Act 2006 applicable to companies reporting under UK adopted
international accounting standards. These financial statements have been
prepared under the historical cost convention unless otherwise specified
within these accounting policies.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. Judgements in applying accounting policies and key sources of
estimates and uncertainty are disclosed in the notes.
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Going concern
The financial performance and balance sheet position at 31 December 2021 along
with a range of scenario plans to 31 December 2023 has been considered,
applying different sensitives to revenue and gross profit margin. Across these
scenarios, including at the lower end of the range, there remains significant
headroom in the minimum cash balance over the period to 31 December 2023.
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operation for at least 12 months
from the date of this report. Accordingly, the Group continues to adopt the
going concern basis in preparing its consolidated financial statements.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. Control is achieved when the Company:
- Has power over the subsidiary;
- Is exposed, or has rights, to return from its involvement with the
subsidiary; and
- Has the ability to use its power to affect its returns.
The Company considers all relevant facts and circumstances in assessing
whether or not it has control over a subsidiary, including the ability to
direct the relevant activities at the time that decisions need to be made.
Intra-group balances and transactions, and any unrealised income and expenses
(except for foreign currency transaction gains or losses) arising from
intra-group transactions, are eliminated.
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.
2. Accounting policies
New and amended IFRS Standards that are effective for the current year
The Group has applied the following standards and amendments for the first
time for their annual reporting year commencing 1 January 2021:
· Interest rate benchmark phase 2 reform (Amendment to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16)
· Impact of the initial application of COVID-19-Related Rent
Concessions beyond 30 June 2021- (Amendment to IFRS 16)
Impact of the initial application of Interest Rate Benchmark Reform amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
There has been no material impact on our financial statements as a result of
these changes.
Impact of the initial application of COVID-19-Related Rent Concessions beyond
30 June 2021-Amendment to IFRS 16
There has been no material impact on our financial statements as a result of
these changes.
New accounting standards and interpretations not yet adopted by the Group
The following new accounting standards, amendments and/or interpretations have
been published but not yet endorsed by the UK and are not mandatory for 31
December 2021 reporting year. They have not been early adopted by the group
and these standards are not expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable future
transactions:
· IFRS 17 insurance contracts
· Classification of liabilities as current or non-current (amendments
to IAS 1)
· Sale or contribution of assets between an investor and its associate
or joint venture (amendments to IFRS 10 and IAS 28)
· Reference to the Conceptual Framework (IFRS 3)
· Proceeds before Intended Use (IAS 16)
· Onerous Contracts (IAS 37)
· Annual Improvements to IFRS Standards 2018-2020 (IFRS1, IFRS9, IFRS16
and IFRS41)
· Amendments to IFRS 4 - extension of the Temporary Exemption from
Applying IFRS 9
· Amendments to IAS 1 and IFRS Practice Statement 2 - disclosure of
accounting policies
· Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities
arising from a Single Transaction
· Amendments to IAS 8 - Definition of accounting estimates
We are still assessing the implications of the new standards and
interpretations however it is not expected to have a material impact on the
Group.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable
for the provision of services in the ordinary course of the Group's
activities. Revenue is shown net of value-added tax and after eliminating
sales within the Group.
The Group has three revenue streams, DXRX platform data revenue, DXRX platform
technology enabled services revenue and Professional services revenue. The
Group's performance obligations for these revenue streams are deemed to either
be the provision of specific deliverables to the customer or a
subscription-based service. Revenue billed to the customer is allocated to the
various performance obligations, based on the relative fair value of those
obligations, and is then recognised when it transfers control of a deliverable
to a customer as follows:
The platform data revenue and the platform technology enabled services revenue
are recognised at a point in time when milestone based or overtime when
subscription based. The professional services revenue is recognised over
time based on the number of input hours. With all other professional services
recognised at a point in time where milestones are specified within client
contract, otherwise input hours recognition applies.
Contract assets arise on contracts with customers that would be expected to be
invoiced and received in the following year. The Group's contracts with
customers are typically less than one year in duration.
Contract liabilities arise in respect of amounts invoiced during the year for
which revenue recognition criteria have not been met by the year-end. The
Group's contracts with customers are typically less than one year in duration
and any contract liabilities would be expected to be recognised as revenue in
the following year.
Segment reporting
The Group currently has one operating segment. This is consistent with the
internal organisational and management structure and the internal reporting
information provided to the Chief Operating Decision Maker, the Board, who is
responsible for allocating resources and assessing performance of the
operating segment.
Government grants
Grants, which include research and development tax credits where the recovery
of those credits is not restricted, are recognised at their fair value where
there is a reasonable assurance that the grant will be received, and the Group
will comply with all attached conditions.
Grants that compensate the Group for expenses incurred are recognised in
profit or loss as other income on a systematic basis in the periods in which
the expenses are recognised, unless the conditions for receiving the grant are
met after the related expenses have been recognised. In this case the grant is
recognised when it becomes receivable.
Grants relating to development projects are included in non-current
liabilities as deferred income and are credited to the profit and loss account
on a straight-line basis over the expected useful economic lives of the
related assets.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The consolidated financial
statements are presented in Sterling, which is the Group's presentation
currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the profit and
loss account.
(c) Group companies
The results and financial position of all the Group entities (none of which
has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
§ assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet;
§ income and expenses for each profit and loss account are translated at
average exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the dates of the
transactions); and
§ all resulting currency translation differences are recognised in other
comprehensive income and disclosed as a separate component of equity in a
foreign currency translation reserve.
Exceptional items
The Group presents as exceptional items those material items of income and
expense which, because of the nature and expected infrequency of the events
giving rise to them, merit separate presentation on the face of the profit and
loss account in order to allow shareholders to understand better the elements
of financial performance in the year, so as to facilitate comparison with
prior periods and to better assess trends in the financial performance.
Employee benefits
The Group operates a defined contribution pension scheme which is open to
employees and directors. The assets of the scheme are held by investment
managers separately from those of the Group. The contributions payable to the
scheme is recorded in the profit and loss account in the accounting period to
which they relate.
The Group also operates a long-term incentive plan (LTIP), an element of which
is the ability for eligible employees to be awarded a discretionary cash bonus
based on Group performance. These short-term employee benefits are expensed as
the related service is provided. A liability is recognised for the amount
expected to be paid if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Share based payments
The company has one class of shares in issue. Where shares are issued to
employees that contain restrictions that mean they have obtained those shares
by virtue of their employment, those shares are accounted for as share based
payments. The company's share based payments are classified as equity settled
share based payments as the employees will receive the shares after the
required service period. For equity settled shares, a fair value of those
shares is established at the date the shares are granted and, if the employee
is required to complete a period of service before the shares vest, this fair
value is spread over that period (vesting period).
Taxation
The tax expense for the year comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in equity. In this
case the tax is also recognised in other comprehensive income or directly in
equity respectively.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the countries
where the group's subsidiaries operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts expected to
be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, the
deferred income tax is not accounted for if it arises from initial recognition
of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates and laws
that have been enacted or substantially enacted by the balance sheet date and
are expected to apply when the related deferred income tax asset is realised,
or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is
probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred income tax is provided on
temporary differences arising on investments in subsidiaries and associates,
except where the timing of the reversal of the temporary difference is
controlled by the group and it is probable that the temporary difference will
not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the taxable entity of
different taxable entities where there is an intention to settle the balances
on a net basis.
Intangible assets
Research and development
Expenditure on research activities and patents is recognised in the profit and
loss account as an expense as incurred.
Expenditure on development activities is capitalised if the product or process
is technically and commercially feasible and the Group intends and has the
technical ability and sufficient resources to complete development, future
economic benefits are probable and if the Group can measure reliably the
expenditure attributable to the intangible asset during its development.
Development activities involve design for, construction or testing of the
production of new or substantially improved products or processes. The
expenditure capitalised includes the cost of infrastructure and direct labour
including employer national insurance. Other development expenditure is
recognised in the profit and loss account as an expense as incurred.
Capitalised development expenditure is stated at cost until it is brought into
use.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation
Amortisation is charged to the profit or loss on a straight-line basis over
the estimated useful lives of intangible assets. Intangible assets are
amortised from the date they are available for use. The estimated useful lives
are as follows:
· Patents and trademarks 3 years (33.3% straight line) from date of registration
· Datasets 4 years (25% straight line)
· Software 5 years (20% straight line)
· Platform 10 years (10% straight line)
· Platform algorithms 6 years (16.7% straight line)
The Group reviews the amortisation period and method when events and
circumstances indicate that the useful life may have changed since the last
reporting date.
Property, plant & equipment
Property, plant & equipment is stated at cost less accumulated
depreciation and accumulated impairment losses.
The Group assesses at each reporting date whether there are indicators of
impairment.
Depreciation is charged to the profit and loss account on a straight-line
basis over the estimated useful lives of each part of an item of property,
plant and equipment. The estimated useful lives are as follows:
§ Office equipment
5 years (20% straight line)
§ Leasehold Improvements
10
years (10% straight line)
Depreciation methods, useful lives and residual values are reviewed if there
is an indication of a significant change since the last annual reporting date
in the pattern by which the Group expects to consume an asset's future
economic benefits.
Leases
During the year, the Group entered into a new lease for its Belfast
Headquarters building at Building two, Dataworks at King's Hall Life Sciences
Park, Belfast, Antrim, BT9 6GW.
The Group assesses whether a contract is or contains a lease, at inception of
the contract. The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short-term leases (defined as leases with a lease term of
12 months or less) and leases of low value assets (such as tablets and
personal computers, small items of office furniture and telephones). Payments
associated with short-term leases of equipment and vehicles and all leases of
low-value assets are recognised on a straight-line basis as an expense in
profit or loss. Short-term leases are leases with a lease term of 12 months or
less. Low-value assets comprise IT equipment and small items of office
furniture.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by the Group
incremental borrowing rate.
Lease payments included in the measurement of the lease liability only consist
of fixed lease payments (including in-substance fixed payments), less any
lease incentives receivable.
The lease liability is presented as a separate line in the consolidated
statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount
to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments
made.
The right-of-use assets comprise the initial measurement of the corresponding
lease liability, lease payments made at or before the commencement day, less
any lease incentives received and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment
losses.
Right-of-use assets are depreciated over the shorter period of lease term and
useful life of the right-of-use asset. If a lease transfers ownership of the
underlying asset or the cost of the right-of-use asset reflects that the Group
expects to exercise a purchase option, the related right-of-use asset is
depreciated over the useful life of the underlying asset. The depreciation
starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated
statement of financial position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired
and accounts for any identified impairment loss as described in the 'Property,
Plant and Equipment' policy.
Financial assets
(a) Classification
The Group classifies its financial assets in the following measurement
categories:
· Those to be measured at amortised cost; and
· Those to be measured subsequently at fair value (either through Other
Comprehensive Income or through profit and loss).
The classification depends on the Group's business model for managing the
financial assets and the contractual terms of the cash flows. The Group
reclassifies its financial assets when and only when its business model for
managing those assets changes.
(b) Recognition and measurement
At initial recognition, the group measures a financial asset at its fair value
plus transaction costs that are directly attributable to the acquisition of
the financial asset. A trade receivable without a significant financing
component is initially measured at the transaction price.
Subsequent measurement of financial assets depends on the Group's business
model for managing those financial assets and the cash flow characteristics of
those financial assets. The Group only has financial assets classified at
amortised cost. These assets are subsequently measured at amortised cost using
the effective interest method. The amortised cost is reduced by expected
credit losses.
Interest income, foreign exchange gains and losses and expected credit losses
are recognised in profit or loss. Any gain or loss on derecognition is
recognised in profit or loss.
(c) Expected Credit Losses
The Group assesses on a forward-looking basis, the expected credit losses
associated with its debt instruments carried at amortised cost. For trade
receivables the Group applies the simplified approach permitted by IFRS9,
which requires expected lifetime losses to be recognised from the initial
recognition of the receivables. For other receivables the Group applies the
three-stage model as prescribed in IFRS 9, to determine expected credit
losses.
Financial liabilities
Financial liabilities comprise trade and other payables and borrowings due
within one year and after one year, which are recognised initially at fair
value and subsequently carried at amortised cost using the effective interest
method. Interest expense and foreign exchange gains and losses are recognised
in profit or loss. Any gain or loss on derecognition is also recognised in
profit or loss.
The Group does sometimes make use of derivative financial instruments or hedge
accounting for foreign currency transactions. Trade payables represent
obligations to pay for goods or services that have been acquired in the
ordinary course of business from suppliers. Trade and Other payables are
classified as current liabilities if payment is due within one year. If not,
they are presented as non-current liabilities.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held on call with
banks, other short term highly liquid investments with original maturities of
three months or less and bank overdrafts.
Equity
Ordinary shares are classified as equity. Incremental costs directly
attributable for the issue of new shares are shown in equity as a deduction
from the proceeds.
The share premium reserve represents the excess over the nominal value of the
fair value of consideration received for equity shares, net of expenses on the
share issue.
The capital redemption reserve records the nominal value of shares repurchased
by the Company.
Distributions to equity holders
Dividends and other distributions to the Company's shareholders are recognised
as a liability in the financial statements in the period in which the
dividends and other distributions are approved by the Company's shareholders.
These amounts are recognised in the statement of changes in equity.
Related party transactions
The Group discloses transactions with related parties which are not wholly
owned within the same group. Where appropriate, transactions of a similar
nature are aggregated unless, in the opinion of the directors, separate
disclosure is necessary to understand the effect of the transactions on the
Group financial statements.
3. Judgements in applying accounting policies and key sources of estimation
uncertainty
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the amounts reported for
assets and liabilities as at the balance sheet date and the amounts reported
for income and expenditure during the year. However, the nature of estimation
means that actual outcomes could differ from those estimates. Such estimates
and judgements are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances and are subject to continual re-evaluation. It should be noted
that the impact of variation in some assumptions and estimates can have a
particularly material impact on the reported results.
The key judgements in applying the accounting policies include:
· The Group capitalises costs associated with the development of the
DXRX platform and data lake. These costs are assessed against IAS 38
Intangible Assets to ensure they meet the criteria for capitalisation.
· In assessing the requirement to recognise a deferred tax asset,
management carried out a forecasting exercise in order to assess whether the
Group will have sufficient future profits on which the deferred tax asset can
be utilised. This forecast required management's judgment as to the future
performance of the Group.
· With respect to revenue recognition, as described in note two
accounting policies, where the input method is used to determine recognition
over time, a key source of estimation will be the total budgeted hours to
completion for comparison with the actual hours spent.
Key sources of estimation uncertainty are as follows:
· The Group's estimation of the useful economic lives of intangible
assets. The assessment of useful life of data purchases and platform require
estimation over the period in which these assets will be utilised and is based
on information on the estimated technical obsolescence of such assets and
latest information on commercial and technical use. Further details on the
estimation uncertainty have been disclosed in note 16.
· Assessment of the recoverable amount, being the higher of value in
use and the fair value less cost to sell, of property plant and equipment,
intangible assets and right-of-use assets in accordance with IAS 36 Impairment
of Assets. The Group carry's out an annual review in respect of indicators of
impairment, and if any such indication exists, the Group is required to
estimate the recoverable amount of the asset. Following this assessment, no
impairment indicators were present at 31 December 2021. Further details are
disclosed in note 16 intangibles.
· With respect to the impairment considerations of an intangible asset,
significant estimates are considered within the value in use calculation.
The most significant estimate would be the revenue growth rate. Refer to
note 16 - Intangible assets for details of the impairment review and
sensitivity analysis.
· Application of IFRS 16 requires the Group to make significant
estimates in assessing the rate used to discount the lease payments in order
to calculate the lease liability. The incremental borrowing rate depends on
the term, currency and start date of the lease and is determined based on a
series of inputs including the Group commercial borrowing rate.
· In the calculation of Share Based Payments and related costs charge
an assessment of expected employee attrition is used based on expected
employee attrition and where possible actual employee turnover from the
inception of the share option plan.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Changes in accounting
estimates may be necessary if there are changes in the circumstances or
experiences on which the estimate was based or as a result of new information.
4. Revenue
Operating Segments
The Group currently operates under one reporting segment, but revenue is
analysed under three separate revenue streams.
Revenue represents the amounts derived from the provision of services which
fall within the Group's ordinary activities, stated net of value added tax.
Revenue is principally generated from DXRX platform data revenue, DXRX
technology enabled services revenue and professional services revenue. Revenue
is disaggregated by primary geographic market and by principal activities and
products. Geography is primary basis on which management reviews the business.
The following tables present revenue of the Group for the years ended 31
December 2021 and 2020.
Revenue stream
2021 2020
£000's £000's
Platform - data -
7,411
Platform - TES 887 -
Professional services 5,645 12,696
Total revenue 13,943 12,696
2021 2020
£000's £000's
Point in time revenue recognition 6,994 -
Over time and input method revenue recognition 6,949 12,696
13,943 12,696
2021 2020
£000's £000's
Geographical Area
North America 8,457 6,035
UK 555 543
Europe 3,623 4,243
Asia and Rest of World 1,308 1,875
13,943 12,696
In 2021 three customers each had sales which exceeded 10% of total revenue
with the largest customer accounting for £2,647,000 (19%) the second
accounting for £1,768,000 (13%) of revenue and the third accounting for
£1,439,000 (10%) of revenue.
In 2020 three customers each had sales which exceeded 10% of total revenue
with the largest customer accounting for £1,398,000 (11%); the second
accounting for £1,395,000 (11%) and the third accounting for £1,332,000
(10.5%) of revenue.
5. Operating profit/(loss)
2021 2020
£000's £000's
Employee benefit costs
- wages and salaries 9,258 9,794
- social security costs 1,167 1,236
- pension costs 362 366
- benefits 136 285
- share based payments and related costs 372 290
- capitalised development costs (2,645) (3,388)
8,650 8,583
Amortisation of intangible fixed assets 1,665 776
Depreciation of tangible fixed assets 85 33
Right of use depreciation 49 -
Subcontractor costs 318 546
Travel costs 80 205
Legal and professional 1,190 1,465
Gain on foreign exchanges (42) (58)
Other expenses 1,593 1,698
4,938 4,665
Total cost of sales and administrative expenses 13,588 13,248
(Excluding exceptional items which are disclosed in note 11)
6. Auditors' remuneration
2021 2020
£000's £000's
Included within administrative expenses (legal and professional):
Audit of parent and subsidiary financial information 136 92
Other assurance related and other services 19 11
Included within exceptional items:
Fees relating to other services - 65
155 168
7. Staff numbers
The average monthly number of employees during the year was as
follows:
2021 2020
Number Number
Administration 30 30
Technical 80 81
Business development 13 9
Finance 10 8
133 128
8. Directors' emoluments
Directors
2021 2020
£000's £000's
Aggregate emoluments 825 802
Pension contributions 41 40
866 842
Pension contributions were made for three Directors during the period
Highest paid director
The highest paid director did not exercise any share options and received the
following emoluments:
2021 2020
£000's £000's
Aggregate emoluments 252 248
Pension contributions 24 25
276 273
Key senior management
Key senior management received total compensation as follows:
2021 2020
£000's £000's
Aggregate emoluments 1,241 1,207
Pension contributions 85 84
Share based payments and related costs 173 102
1,499 1,393
9. Share based payments
The Company currently has an Employee share Option Plans ("ESOP") for
employees, a Long-Term Incentive Plan ("LTIP") for key management and a Share
Incentive Plan ("SIP") open to all employees (apart from those in China).
The ESOP and LTIP plans are designed to provide long term incentives for
senior management and above, and certain employees (including executive
directors) to deliver long-term shareholder returns and promote staff
retention. The SIP plan is designed to encourage employee participation in the
ownership of the Company and as a means to promote staff retention. Under
these schemes, employees are granted options which only vest if certain
performance standards are met. For the ESOP options, that are outstanding as
at 31 December 2021, the only performance obligations attached are continued
employment to date of vesting, with no more than two unsatisfactory
performance reviews. These same conditions apply to the LTIP options issued
in 2020. The 2021 LTIP options are underpinned by a Total Shareholder
Return (TSR) target, with the percentage of shares vesting increasing from nil
at a TSR of less than £1.1885 rising to 100% at a TSR of £1.9105. TSR is
measured by the aggregate of dividends declared and paid, and average share
price over the applicable period. SIP options are issued to employees on a
2-for-1 matching basis for the first year of the plan with the only
performance obligation attached being continued employment to date of vesting.
The total expense recognised in the year in relation to share based payment
charges and related costs is £428,000 (£372,000 share based payments and
£56,000 social security) (2020: £290,000 (£254,000 share based payments and
£36,000 social security)).
Set out below are summaries of options granted under the plans:
ESOP:
2021 2020
Weighted average exercise price per share option Number of options Weighted average exercise price per share option Number of options
As at 1 January £0.002 355,664 £0.002 151,240
Granted during the year £0.002 155,400 £0.002 231,000
Exercised during the year £0.002 8,447 - -
Forfeited during the year £0.002 82,617 £0.002 26,576
As at 31 December £0.002 420,000 £0.002 355,664
LTIP:
2021 2020
Weighted average exercise price per share option Number of options Weighted average exercise price per share option Number of options
As at 1 January £1.265 1,251,674 - -
Granted during the year £0.002 891,969 £1.265 1,430,244
Exercised during the year - - - -
Forfeited during the year £0.735 393,524 £1.265 178,570
As at 31 December £0.741 1,750,119 £1.265 1,251,674
SIP:
2021 2020
Weighted average exercise price per share option Number of options Weighted average exercise price per share option Number of options
As at 1 January - - - -
Granted during the year £0.002 115,392 - -
Exercised during the year £0.002 - - -
Forfeited during the year £0.002 10,120 - -
As at 31 December £0.002 105,272 - -
Share options outstanding at the year-end have the following expiry dates and
exercise prices:
ESOP:
Expiry Date Exercise Price Share options at 31 December 2021 Share options at 31 December 2020
Grant Date
June 2019 June 2022 £0.002 117,600 151,240
June 2020 June 2023 £0.002 163,800 204,424
June 2021 June 2024 £0.002 138,600 -
LTIP:
Expiry Date Exercise Price Share options at 31 December 2021 Share options at 31 December 2020
Grant Date
April 2020 April 2023 £1.265 1,023,433 1,251,674
April 2021 April 2024 £0.002 726,686 -
SIP:
Expiry Date Exercise Price Share options at 31 December 2021 Share options at 31 December 2020
Grant Date
May 2021 May 2024 £0.002 6,848 -
June 2021 June 2024 £0.002 9,148 -
July 2021 July 2024 £0.002 14,808 -
August 2021 August 2024 £0.002 14,554 -
September 2021 September 2024 £0.002 14,518 -
October 2021 October 2024 £0.002 14,488 -
November 2021 November 2024 £0.002 15,172 -
December 2021 December 2024 £0.002 15,736 -
The weighted average remaining contractual life of options outstanding at the
end of the year was 1.73 years (2020: 2.24 years). No options expired during
the year.
Fair value of options granted:
The weighted average fair value at grant date of options granted during the
year-ended 31 December 2021 was £0.776 per option. The fair value at grant
date is independently determined using an adjusted Black-Scholes model for
ESOP and SIP options and a Monte-Carlo model for LTIP options. These models
take into account the exercise price, the term of the option, the impact of
dilution, the share price at grant date and the expected price volatility of
the underlying share, and the risk-free interest rate for the term of the
options.
ESOP LTIP SIP
2021 2020 2021 2020 2021 2020
Ex Price £0.002 £0.002 £0.002 £1.265 £0.002 -
Grant date June June April April May-Dec -
Expiry Date June 2024 June 2023 April 2024 April 2023 May-Dec 2024 -
Share price at Grant date £1.26 £1.52 £1.03 £1.265 £1.26* -
Volatility 97% 58% 70% 58% 97%* -
Risk-free rate 0.51% 0.53% 0.41% 0.53% 0.81%* -
Fair Value £1.26 £1.49 £0.65 £1.25 £1.11* -
*Average share-price, volatility, risk-free rate and fair value for options
issued monthly during 2021.
The expected price volatility is based on the historical volatility and
companies within similar industries.
10. Other operating income
2021 2020
£000's £000's
Government grants 26 35
Research and developments credits 169 247
195 282
11. Exceptional items
2021 2020
£000's £000's
Restructuring - 388
- 388
In December 2020, the Group carried out a restructure with the aim of
reducing operating cost base and re-positioning staff to support the future
operations as a platform business. Exceptional costs of £388,000 were
reflected in the profit & loss account, with an associated provision
recognised within current liabilities on the balance sheet of £360,000
which was utilised by 31 March 2021. The exceptional costs related to
redundancy costs and professional fees which were wholly and exclusively
attributable to the restructure event.
12. Finance income
2021 2020
£000's £000's
Bank interest received and receivable - 27
- 27
13. Finance costs
2021 2020
£000's £000's
Revolving credit facilities 56 41
Interest on convertible loan notes 12 10
Lease interest 20 -
88 51
14. Income tax credit
(a) Tax on profit / (loss)
2021 2020
£000's £000's
Current income tax:
UK corporation tax on profit/(loss) for the year (530) (1,427)
Adjustments in respect of previous years (5) (348)
(535) (1,775)
Foreign tax:
ROI corporation tax on profits for the year 47 330
US corporation tax on profits for the year 78 467
Adjustments in respect of previous years (42) (88)
83 709
Total current tax (452) (1,066)
Deferred tax:
Origination and reversal of temporary differences 342 85
Adjustments in respect of previous years (10) 66
Impact of change in tax rates 21 (30)
Total deferred tax 353 121
Total tax credit (99) (945)
(b) Factors affecting the tax credit for the year
The tax assessed for the year differs from the effective
standard rate of corporation tax in the UK of 19.00% (2020: 19.00%). The
differences are reconciled below:
2021 2020
£000's £000's
Profit / (loss) before tax 462 (682)
Tax using the UK corporation tax rate of 19.00% (2020: 19.00%). 88 (130)
Effects of:
Tax rates in foreign jurisdictions (22) (18)
Non-deductible expenses 92 46
Share based payments 9 47
Foreign tax suffered 1 12
Impact of change in tax rates 21 (30)
Research and development (453) (614)
Research and development rate difference 152 -
Deferred tax not recognised 70 112
Adjustments in respect of previous years (57) (370)
Total tax credit (99) (945)
Non-deductible expenses are made up of various non-deductible expenses
including legal and professional fees, convertible loan note interest expense
and depreciation on non-qualifying asset.
(c) Deferred tax
The deferred tax included in the balance sheet is as follows:
Deferred tax balance
2021 2020
£000's £000's
Tax losses carried forward 1,722 1,270
Other temporary differences 26 (597)
Property, plant and equipment (1,839) -
Transitional Adjustment 1 -
Share based payment 26 -
Research & Development (380) (738)
(444) (65)
The amount of the deferred tax balance expected to be used within one year is
£236,000 (2020: £232,000)
The deferred tax balance consists of a deferred tax asset amounting to £1,000
(2020: £301,000) and a deferred tax liability of £445,000 (2020: £366,000),
netting to a liability of £444,000 (2020: a liability of £65,000). The
deferred tax asset is recognised on the basis that the Group has forecasted
sufficient profits on which the deferred tax asset can be utilised.
Tax losses carried forward amount to £6,888,000 (2020: £6,684,000) within
Diaceutics PLC. In addition, the Group has tax losses arising in subsidiary
undertakings. Due to the uncertainty of the recoverability of the tax losses
within these subsidiaries, a potential deferred tax asset of £288,000 (2020:
£186,000) has not been recognised. Deferred tax assets and liabilities have
otherwise been recognised as they arise.
15. Earnings per share
Basic earnings per share are calculated based on the profit/(loss) for the
financial year attributable to equity holders divided by the weighted average
number of shares in issue during the year. The weighted average number of
shares for all periods presented has been adjusted for the reorganisation and
bonus issue of shares undertaken on 13 March 2019 prior to the admission of
the company to the AIM market of the London Stock Exchange.
Adjusted earnings per share are calculated based on the profit/(loss) for the
financial year adjusted for exceptional items as disclosed in Note 11. Diluted
earnings per share is calculated on the basic earnings per share adjusted to
allow for the issue of ordinary shares on the assumed conversion of the
convertible loan notes and employee share options. In the current year there
are no exceptional items and therefore there is no adjustment required to
basic earnings per share or to diluted earnings per share.
Profit attributable to shareholders
2021 2020
£000's £000's
Profit for the financial year 561 263
Exceptional costs - 388
Tax impact of exceptional costs - (74)
Adjusted profit for the financial year 561 577
Weighted average number of shares to shareholders
2021 2020
Number Number
Shares in issue at the end of the year 84,068,923 84,068,923
Weighted average number of shares in issue 84,068,923 77,532,897
Less treasury shares (133,000) -
Weighted average number of shares for basic 83,935,923 77,532,897
and adjusted earnings per share
Effect of dilution of Convertible Loan Notes 754 754
Effect of dilution of Share Options 1,005,478 297,146
Weighted average number of shares for diluted 84,942,155 77,830,797
earnings per share
Earnings per share 2021 2020
Pence Pence
Basic 0.67 0.34
Diluted 0.66 0.34
Adjusted 0.67 0.74
Diluted adjusted 0.66 0.74
16. Intangible assets
Patents and trademarks Datasets Development expenditure* Total
Software
Platform
£000's £000's £000's £000's £000's £000's
Cost
At 1 January 2020 1,054 1,286 2,461 - 210 5,011
Transfer from - - -
Development -
expenditure to Platform (6,577) 6,577
42 7 (20) - - 29
Foreign exchange translation
Additions 94 1,462 4,558 - 275 6,389
At 31 December 2020 1,190 2,755 422 6,577 485 11,429
Foreign exchange translation (55) (3) (106)
(4) (44) -
Transfer from Development expenditure to Platform - - -
(3,187) 3,187 -
Additions 9 2,097 2,985 7 77 5,175
At 31 December 2021 1,144 4,849 216 9,727 562 16,498
Patents and trademarks Datasets Development expenditure* Platform Software Total
£000's £000's £000's £000's £000's £000's
At 1 January 2020 976 193 78 - 3 1,250
Foreign exchange translation 43 (1) - - - 42
Transfer from Development expenditure to Datasets 78 -
- - -
(78)
Charge for the year 57 605 - 40 74 776
At 31 December 2020 1,076 875 - 40 77 2,068
Foreign exchange (55) (1) - - - (56)
Charge for the year 64 818 - 681 102 1,665
At 31 December 2021 1,085 1,692 - 721 179 3,677
Net book value
At 31 December 2021 59 3,157 216 9,006 383 12,821
At 31 December 2020 114 1,851 422 6,537 408 9,361
*Development expenditure relates to an asset under construction and as such no
amortisation has been charged.
Intangible assets relate to patents, trademarks, software, DXRX platform and
datasets which are recorded at cost and amortised over their useful economic
life which has been assessed as four to ten years.
On 1 December 2020 the Group's platform - DXRX was commissioned and brought
into use. On this date £6,577,000 was transferred out of development
expenditure and into platform. In 2021 an additional £3,187,000 was
transferred to platform intangible asset.
The Group assesses the useful life of all assets on an annual basis.
The Group has determined that the useful life of data and platform is a
significant area of estimation.
The platform has been assessed to have a useful life of 10 years based on
information on the estimated technical obsolescence of such assets. However,
the actual asset useful life may be shorter or longer than 10 years depending
on technical innovations and other external factors. If the useful life were
reduced by 2 years, the carrying amount of the asset at 31 December 2021 would
reduce by £166,000 to £8,840,000. If the useful life of the asset were
increased by 2 years, the carrying amount of the asset at 31 December 2021
would increase by £120,000 to £9,126,000.
On reviewing the useful life of the data sets it was determined that based on
latest information on commercial and technical use, four years represented the
best estimate of the useful life of such assets as this reflects the period
over which this data can provide meaningful insights to support client
projects. However, the actual asset useful life may be shorter or longer than
four years depending on technical innovations and other external factors. If
the useful life were three years, the carrying amount of the asset at 31
December 2021 would reduce by £106,000 to £3,051,000. If the useful life of
the asset were five years, the carrying amount of the asset at 31 December
2021 would increase by £64,000 to £3,221,000.
These are all definite life intangible assets. There were no impairment
indicators identified at 31 December 2021 and therefore no impairment.
The combined recoverable value of intangible assets is determined based on a
value-in-use calculation which incorporates cash flow projections based on
financial budgets approved by management covering a five-year period. Cash
flows beyond the five-year period are extrapolated using an estimated
long-term growth rate.
The key assumptions used in the impairment review are as follows, and were
determined with consideration to past performance and management's
expectations of future development:
· The rate of forecast revenue growth which is on average 25%;
· Average gross margin assumption of c74%;
· Long term growth rate of 2%;
· An applied pre-tax discount rate of 9%;
· No operational cost reduction; and
· Average annual capital expenditure is unchanged.
Management has determined the values assigned to each of the above key
assumptions as follows:
Assumption
Approach to determining values
Revenue Growth Average annual growth rate over the
five-year forecast period; based on pre-Covid performance and management's
expectations of market development.
Gross Margin Based on past performance
and management's expectation for the future.
Long-term growth rate This is the weighted average growth rate used to
extrapolate cash flows beyond the budget period. The rates are consistent
with forecasts included in industry reports.
Pre-tax discount rate Reflects specific risks relating to the Group
and the countries in which we operate.
Operational cost For the purpose of this review, a
reduction in administrative expenses was not considered.
Average capital For the purpose of this review,
a reduction in capital expenditure was not considered.
Our modelling shows that forecast revenue can fall short by approximately 6.5%
in each year before an impairment would be required. Should forecast revenue
drop by 7% in each year an impairment of £7m would be required.
In a separate scenario, our modelling shows that forecast gross margins can
drop by approximately 17% before an impairment would be required. Should
forecast gross margins reduce by 20% an impairment of £15m would be required.
The directors believe that the carrying value of their remaining investments
are supported by their underlying net assets.
Amortisation in respect of Patents and trademarks and Software is expensed to
the Profit and Loss Account as Administrative expenses. Platform and Datasets
amortisation is included within Cost of sales.
17. Property, plant and equipment
Leasehold Improvements Office equipment
Total
£000's £000's £000's
Cost
At 1 January 2020 - 257 257
Foreign exchange translation - 1 1
Additions - 137 137
At 31 December 2020 - 395 395
Reclassification 59 (59) -
Additions 419 146 565
At 31 December 2021 478 482 960
Accumulated Depreciation
At 1 January 2020 - 124 124
Charge for the year - 33 33
At 31 December 2020 - 157 157
Charge for the year 16 69 85
At 31 December 2021 16 226 242
Net book value
At 31 December 2021 462 256 718
At 31 December 2020 - 238 238
18. Right of Use assets
Buildings
£000's
Cost
Additions 1,460
At 31 December 2021 1,460
Accumulated depreciation
Charge for the year 49
At 31 December 2021 49
Buildings
£000's
Carrying amount
At 31 December 2021 1,411
During the year, the group entered into a new lease for its property at
Dataworks, Kings Hall Life Sciences Park, Belfast, BT9 6GW for a term of 10
years. The average lease term is 10 years.
This resulted in additions to right-of-use assets of £1,460K in 2021.
The Group's obligations are secured by the lessors' title to the leased assets
for such leases.
The maturity analysis of lease liabilities is presented in note 22.
2021 2020
Amounts recognised in profit and loss £000's £000's
Depreciation expense on right-of-use assets 49 -
Interest expense on lease liabilities 20 -
19. Investments
Group undertakings
The following were subsidiaries of the Company at 31 December 2021:
Country of incorporation Percentage of shares held
Diaceutics Ireland Limited Republic of Ireland 100%
Labceutics Limited Northern Ireland 100%
Diaceutics Inc USA 100%
Diaceutics Pte Ltd Singapore 100%
Diaceutics Precision Medicine Technology (Guangzhou) Limited* China 100%
The principal business of all the subsidiary undertakings is data and
implementation services. All entities were incorporated before 1 January 2021.
*The holding in Diaceutics Precision Medicine Technology (Guangzhou) Limited
is held indirectly through Diaceutics Pte Ltd.
20. Trade and other receivables
2021 2020
£000's £000's
Trade receivables 5,999 4,078
Contract Assets 1,003 1,265
Other receivables 146 177
Prepayments 430 587
Derivative financial instruments (note 24) 37 -
7,615 6,107
Trade receivables are non-interest bearing, are generally on 90-day terms and
are shown net of a provision for impairment. The amount of the provision
netted against the trade receivables balance was £20,000 (2020: £20,000).
The default percentage used in the expected credit loss calculation was 0.002%
(2020: 0.16%) for debt up to 30 days old; 0.002% (2020:0.20%) for debt between
31 and 60 days old; 0.004% (2020:0.31%) for debt between 61 and 90 days old;
0.01% (2020:0.84%) for debt between 91 and 180 days old and 5.71% (2020:
8.09%) for debt over 180 days old. Bad debts amounting to £Nil (2020: £Nil)
were realised.
Other receivables are considered to have low credit risk and the loss
allowance recognised during the year was therefore limited to 12 months
expected credit losses. Most of our customers are large-Pharma, we do not
foresee any credit difficulties within our customer base and the markets they
operate in are recovering well from the impact of the COVID pandemic. The
age profile of the trade receivables and contract assets are as follows:
Total 0-30 31-60 days 61-90 days >90 days
days
£000's £000's £000's £000's £000's
2021 7,002 3,623 2,278 709 392
2020 5,343 3,116 1,500 449 278
The Group's contracts with customers are typically less than one year in
duration and any contract assets as at the balance sheet date would be
expected to be invoiced and received in the following year.
The following table shows the movement in contract assets:
2021 2020
£000's £000's
Contract assets recognised at start of the year 1,265 796
Revenue recognised in prior year that was invoiced in the current year (1,265) (796)
Amounts recognised in revenue in the current year that will be invoiced in 1,003 1,265
future years
Balance at the end of the year 1,003 1,265
The carrying amount of trade and other receivables are denominated in the
following currencies:
2021 2020
£000's £000's
UK sterling 402 770
Euro 562 625
US dollar 6,622 4,708
Canadian Dollars 12 -
Singapore dollars 17 4
7,615 6,107
The maximum exposure to credit risk is the carrying value of each class of
receivables. The Group does not hold any collateral as security.
21. Trade and other payables
2021 2020
£000's £000's
Creditors: falling due within one year
Trade payables 513 466
Accruals 1,310 1,259
Other tax and social security 327 318
Contract liabilities 208 303
2,358 2,346
Contract liabilities of £208,000 (2020: £303,000) which arise in respect of
amounts invoiced during the year for which revenue recognition criteria have
not been met by the year-end. The Group's contracts with customers are
typically less than one year in duration and any contract liabilities would be
expected to be recognised as revenue in the following year.
The following table shows the movement in contract liabilities:
2021 2020
£000's £000's
Contract liabilities recognised at start of the year 303 387
Amounts invoiced in prior year recognised as revenue in the current year (303) (387)
Amounts invoiced in the current year which will be recognised as revenue in 208 303
the later years
Balance at the end of the year 208 303
The Group and Company's exposure to currency and liquidity risk related to
trade and other payables is disclosed in note 24.
22. Leasehold Liability
2021 2021
Discounted Undiscounted
£000's £000's
Maturity analysis:
Year 1 146 146
Year 2-5 436 585
+5 Year 849 1,040
1,431 1,771
Analysed as:
Non-current 1,285 1,625
Current 146 146
1,431 1,771
23. Financial liabilities
2021 2020
£000's £000's
Creditors: falling due within one year
Convertible loan notes 130 118
130 118
Interest bearing loans and borrowings
2021 2020
£000's £000's
Convertible loan notes (b) 130 118
130 118
The fair value of the Group's loans and borrowings is £130,000 (2020:
£118,000). The fair value of current borrowings equals their carrying amounts
as the impact of discounting is not significant.
The following table shows the changes in liabilities arising from financing
activities:
2021 2020
£000's £000's
Balance at 1 January 118 108
Interest on convertible loan notes 12 10
Balance at 31 December 130 118
The interest on convertible loan notes and foreign exchange losses are
non-cash items, all other items are cash related movements.
The following table shows the net (debt)funds:
Convertible loan notes Leasehold liability Subtotal Cash Total
£000's £000's £000's £000's £000's
Net debt as at 1 January 2020 (108) (108) 11,720 11,612
Cashflows - - - 13,475 13,475
Other changes (10) - (10) 60 50
Net debt as at 31 December 2020 (118) - (118) 25,255 25,137
Cashflows - - (5,438) (5,438)
Other changes (12) (1,431) (1,443) (142) (1,585)
Net funds as at 31 December 2021 (130) (1,431) (1,561) 19,675 18,114
(a) Revolving credit facility
In July 2020 the Group entered into a revolving credit facility with Silicon
Valley Bank who provided a credit facility for £4,000,000. This facility is
available to be drawn in US dollars, Sterling or Euro and was unused at 31
December 2021. The Maturity Date of the facility is 16 July 2023.
(b) Convertible loan notes
£100,000 of the Loan Notes issued on 15 February 2019 remain in place (10%
interest rate payable annually from 1 April 2019). These loan notes can be
converted into Ordinary Shares in the Company on or after 31 March 2022.
In line with IFRS 9, Financial Instruments, the total finance cost of the
convertible loan notes was spread over the maturity period using an effective
interest rate. Consequently, an interest charge of £12,000 (2020: £10,000)
has been recognised in the profit and loss account using an effective rate of
10%.
24. Financial instruments
Classification of financial instruments
The principal financial instruments used by the Group from which financial
instrument risk arises are trade and other receivables (excluding contract
assets which are not yet invoiced), cash and cash equivalents and trade and
other payables, loans, the revolving credit facility and convertible loan
notes. The impact of the discounting of financial instruments is not material.
The Group's financial instruments are classified as follows:
2021 2020
£000's £000's
Assets
Measured at amortised cost
Trade receivables 5,999 4,078
Other receivables 146 177
Cash at bank and in hand 19,675 25,255
Measured at fair value 37
Derivative financial instrument -
2021 2020
£000's £000's
Liabilities
Trade payables 513 466
Accruals 1,310 1,259
Convertible loan notes 130 118
Leasehold liability 1,431 -
Convertible loan notes
£100,000 of the Loan Notes issued on 15 February 2019 remain in place (10%
interest rate payable annually from 1 April 2019). These loan notes can be
converted into Ordinary Shares in the Company on or after 22(st) March 2022
Derivative financial instruments - forward contracts and options
The group has entered into a number of foreign currency derivative contracts
during the year. The nominal value of the Group's forward contracts is
£3,735,525 (2020: £nil) principally to sell US Dollars.
Credit risk
Credit risk is the risk that the counterparty fails to discharge their
obligation in respect of the instrument. The Group trades only with
recognised, creditworthy third parties. Receivable balances are monitored on
an on-going basis with the result that exposure to bad debts is normally not
significant. As the Group trades only with recognised third parties there is
no requirement for collateral.
Other financial assets comprise of cash and cash equivalents which are
therefore subject to minimal credit risk. The Group operates bank accounts
domiciled in the UK, Ireland, Denmark, Turkey, USA, China and Singapore.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and is
the risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
Group policy is that funding is reviewed in line with operational cash flow
requirements and investment strategy. Repayment terms and conditions are
approved by the Board in advance of acceptance of any facility. At each board
meeting, and at the reporting date, the cash flow projections are considered
by the Board to confirm that the Group has sufficient funds and available
funding facilities to meet its obligations as they fall due.
The Group had a revolving credit facility for up to £4,000,000.
Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of
a financial instrument will fluctuate because of changes in foreign exchange
rates.
The Group seeks to transact the majority of its business in its reporting
currency (Sterling). However, many customers and suppliers are outside the
UK and a proportion of these transact with the company in US dollars and euro.
For this reason, the Group operates current bank accounts in US dollars and
euro as well as in its reporting currency and has a revolving credit facility
available which can be drawn in US dollars, pounds sterling or euro.
To the maximum extent possible receipts and payments in a particular currency
are made through the bank account in that currency to reduce the amount of
funds translated to or from the reporting currency.
Cash flow projections are used to plan for those occasion when funds will need
to be translated into different currencies so that exchange rate risk is
minimised.
If the exchange rate between sterling and the US dollar had been 10%
higher/lower at the reporting date, the effect on profit would have been
approximately (£15,000)/£18,000 respectively (2020:(£35,000)/4,000). If the
exchange rate between sterling and euro had been 10% higher/lower at the
reporting date the effect on profit would have been approximately
(£26,000)/£32,000 respectively (2020: (£27,000)/£15,000). If the exchange
rate between sterling and the US dollar had been 10% higher/lower at the
reporting date, the effect on equity would have been approximately
(£235,000)/£288,000 respectively (2020:(£268,000)/£327,000). If the
exchange rate between sterling and euro had been 10% higher/lower at the
reporting date the effect on equity would have been approximately
(£423,000)/£512,000 respectively (2020: (£434,000)/£531,000).
Interest rate risk
Cash flow interest risk arises from the Group's external loans and revolving
credit facilities, which carry interest based on underlying base rates in the
UK, US and the EU. The revolving credit facility remains unused at 31 December
2021.
25. Equity Share capital
2021 2020
£000s £000s
Allotted, called up and fully paid
84,068,923 (2020: 84,068,923) Ordinary shares of £0.002 each 168 168
168 168
Treasury shares
Treasury shares are shares in Diaceutics Plc that are held by the Diaceutics
Employee Share Trust for the purpose of issuing shares under the Diaceutics
Plc SIP scheme (see note 9 for further information). Shares issued to
employees are recognised on a first in, first out basis. There were no
treasury shares in place at 31 December 2020.
Details Number of shares £000's
Acquisition of shares by the Trust 133,000 165
Balance 31 December 2021 133,000 165
All Ordinary Shares rank pari passu in all respects including voting rights
and the right to receive all dividends and other distributions, if any,
declared or made or paid in respect of Ordinary Shares.
Reserves
Share premium account: This reserve records the amount above the nominal value
received for shares sold, less transaction costs.
Capital redemption reserve: This reserve records the nominal value of shares
repurchased by the Company.
26. Commitments and contingencies
There are no material capital commitments, financial commitments or contingent
liabilities at the balance sheet date not provided for in these financial
statements.
27. Related parties
The remuneration of key management and personnel and details of directors'
emoluments are shown in note 8.
During the year the Group entered into a 10-year lease for its new Belfast
offices at a commercial business rate. The lessor is O'Connor & McCann
Ltd, a private limited company in which Peter Keeling is a director and Ryan
Keeling is a shareholder. A £49,000 lease payment was made in the year (2020:
£nil). The balance owed to O'Connor & McCann Ltd at 31 December 2021 is
£24,500 (2020: £nil).
28. Ultimate controlling party
The Company is controlled by its shareholders. There is no one party which is
the ultimate controlling party of the Group and Company.
29. Capital risk management
The group's objectives when managing capital are to safeguard the group's
ability to continue as a going concern in order to provide returns to
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. In order to maintain or
adjust the capital structure, the group may adjust the amount of dividends
paid to shareholders, return capital to shareholders, issue new shares or sell
assets to reduce debt.
The group monitors capital on the basis of the gearing ratio.
Net funds is calculated as total borrowings (current and non-current) as shown
in the group balance sheet less cash and cash equivalents.
The gearing ratio is calculated as total borrowings divided by total equity.
The gearing ratios at 31 December were as follows:
Note 2021 £000's 2020 £000's
Total borrowings 23 1,561 118
Less: cash and cash equivalents (19,675) (25,255)
Net funds (18,114) (25,137)
Total equity 40,649 40,238
Gearing ratio 3.8% 0.3%
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