REG - Eden Research plc - Preliminary results
This announcement contains information which, prior to its disclosure, was considered inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR).
Eden Research Plc
("Eden" or "Company")
Preliminary results
Eden Research plc (AIM: EDEN), the AIM listed company that provides breakthrough biopesticides and natural microencapsulation technologies to the global agrochemicals, animal health and consumer products industries, announces its preliminary results for the year ended 31 December 2017.
Financial highlights
· Revenue of £1.9m (2016: £0.4m)
· Operating loss of £0.8m (2016: £1.9m)
· Loss before tax of £0.8m (2016: £1.9m)
· Loss before tax, excluding exceptional royalties refund, of £1.3m (2016: £1.9m)
· Loss per share of 0.33p (2016: 1.03p)
· Net cash of £3.7m (2016: £1.5m)
· Strategic investment of £2.2m by Sipcam and placing of £0.2m (gross) to institutional investors
· Expanding investment in regulatory clearances unlocking commercial potential in new, important territories
Business highlights
Commercial, Regulatory and IP:
· Multiple commercial agreements signed with Sipcam SpA ("Sipcam") including an Evaluation and Option Agreement for which a fee of €0.6m (£0.5m) was paid to Eden, establishing a long-term collaborative partnership
· EU approval of Eden's first agrochemical, fungicide product, Mevalone (formerly 3AEY), gained in France and first commercial sales achieved
· Mevalone now achieving commercial sales in the world's top three wine producing countries
· Further EU approvals for Mevalone received in Cyprus, Albania and Portugal
· Extension of Mevalone patent protection in Spain, Greece and Cyprus and nematicide patent granted in US
· Label extensions received in Kenya now include authorisation for the treatment of roses
· New terms agreed with University of Massachusetts Medical School ("UMMS") for licence to next-generation technology
· Eden's portfolio of granted and pending patents grew to 130 in 2017 from 112 in the previous year
Board changes:
· Lykele van der Broek, former COO of Bayer Crop Science and former Head of the Animal Health division of Bayer Health Care, appointed as a Non-Executive Director and Chairman Designate of the Company from 1 October 2017 and Chairman with effect from 1 January 2018
· Tom Lupton retired as Chairman and Non-Executive Director on 31 December 2017
Lykele van der Broek, Chairman commented: "Significant progress was made in 2017 and it is particularly pleasing that our first fungicide product, Mevalone, is now in the top three wine producing countries in the world. This is a major milestone for the company and sets a good platform from which we can build.
"The strong growth achieved in 2017, driven by new regulatory approvals, is expected to continue in the current year and consequently the Board remains confident that 2018 will be another year of strategic and financial progress."
For further information contact:
Eden Research plc
Sean Smith
Alex Abrey
01285 359 555
Shore Capital (Nomad)
020 7408 4090
Stephane Auton / Patrick Castle
Powerscourt (Financial PR)
020 7250 1446
Nick Dibden
Notes:
Eden Research is a technology development and commercialisation company with intellectual property and expertise in encapsulation, terpenes and environmentally friendly technologies to provide naturally occurring solutions for the global agrochemicals, animal health, and consumer product industries.
Eden's encapsulation technology harnesses the biocidal efficacy of naturally occurring chemicals produced by plants (terpenes) and can also be used with both natural and synthetic compounds to enhance their performance and ease-of-use. The technology uses yeast cells that are a by-product of numerous commercial production processes to deliver a slow release of natural compounds for agricultural and non-agricultural uses. Terpenes are already widely used in the food flavouring, cosmetics and pharmaceutical industries.
Historically, terpenes have had limited commercial use in the agrochemical sector due to their volatility, phytotoxicity and poor solubility. Eden's platform encapsulation technology provides a unique, environmentally friendly solution to these problems and enables terpenes to be used as effective, low-risk agrochemicals.
Eden is developing these technologies through innovative research and a series of commercial production, marketing and distribution partnerships.
The Company has a number of patents and a pipeline of products at differing stages of development targeting specific areas of the global agrochemicals industry. To date, the Company has invested in the region of £12m in developing and protecting its intellectual property and seeking regulatory approval for products that rely upon the Company's technologies. Revenues earned by the Company have been modest whilst the Company has concentrated on securing patent protection for its intellectual property, gaining regulatory approvals, identifying suitable industrial partners, and entering into commercial agreements.
In May 2013, the three actives that comprise Eden's first commercial product, 3AEY, were approved as new ingredients for use in plant protection products. This represented a major milestone in the commercialisation of Eden's technology and is a significant accomplishment for any company. To illustrate this point, one should note that in all of 2013, Eden's approvals represented 3 of only 10 new active ingredients approved by the EC.
3AEY has been authorised for sale in Kenya, Malta, Greece, Bulgaria, Spain, Italy, France, Cyprus, Albania and Portugal.
Eden was admitted to trading on AIM on 11 May 2012 and trades under the symbol EDEN.
For more information about Eden, please visit: www.edenresearch.com.
CHAIRMAN'S REPORT
INTRODUCTION
This is my inaugural report as Chairman of Eden Research plc ("Eden") having joined the Company and the Board in October 2017 and taken over as Chairman on 1 January 2018.
Since joining Eden, I have been struck by the significant opportunities available to the Company as it transitions from being a development to a commercialisation company. Eden has a significant intellectual property portfolio and we will look to build on this over the months and years ahead.
I believe that my years of experience, at both Bayer CropScience and Bayer Animal Health, will enable me to help Eden build on its solid foundations, and become a success story in the large, and increasingly important, industries of crop protection, animal health and personal care.
COMMERCIAL
Recent commercial activity has given me confidence that Eden is at a positive inflexion point.
In June 2017, Sipcam SpA ("Sipcam"), a global agrochemical business with revenues in the region of €0.6bn, invested £2.2m in Eden, through a placing of shares. In addition, Sipcam and Eden entered into a number of commercial agreements including an Evaluation and Option agreement and a Collaboration agreement which cover a number of territories and applications. This set of agreements is clearly significant for Eden and, I believe, gives credibility to Eden's products and technologies as Sipcam is a well-known, well-established and well-respected company in our industry.
The approvals in 2017 of Mevalone (formerly 3AEY), Eden's fungicide product, in France, Portugal, Cyprus and Albania have resulted in Eden and its partners selling product into the grape botrytis treatment market in the top three wine producing countries in the world. The approvals, which now cover most of the Southern European Union ("EU") Zone, are a valuable asset of the Company and provide a firm foundation for future growth.
Steady progress has been made by Eden's partner, Eastman Chemical ("Eastman"), which has the rights to Eden's second plant protection product, a nematicide which Eastman has called CedrozÒ, with the submission of regulatory dossiers for Cedroz in Israel, Europe, and Mexico. First sales of Cedroz are expected towards the end of 2019.
BOARD COMPOSITION
During the year, the Board of Directors comprised:
Alex Abrey - Chief Financial Officer
Robin Cridland - Non-Executive Director
Tom Lupton - Non-Executive Chairman (Retired 31 December 2017)
Sean Smith - Chief Executive Officer
Lykele van der Broek - Non-Executive Director and Chairman-Designate (appointed 1 October 2017)
In addition to my appointment as Non-Executive Director and Chairman-Designate from 1 October 2017 and subsequent appointment as Non-Executive Chairman from 1 January 2018, the Company has added to its wider team through the engagement of consultants in the role of Project Manager and a Business Development Manager.
Our intention is to strengthen the team further during the coming year, though we will continue to maintain a low-overhead base and to outsource certain functions, such as development trials and certain regulatory expertise.
The most significant change in personnel during the year was the retirement of Tom Lupton as Non-Executive Chairman on 31 December 2017. Tom had been a Director of Eden since 2012, before becoming Chairman in 2014.
The Board is very grateful to Tom for his efforts and great strides that Eden made under his careful watch and I know that the executive team would particularly like to thank him for his guidance, support and counsel.
We wish Tom all the best for the future.
OUTLOOK
The Company is well-funded and has the right team, the technology and products, and the opportunity to really grow the business.
In the short-term, we look forward to the ongoing sales growth of Mevalone across the Southern EU Zone countries and Kenya.
In the next twelve months, we expect to see progress being made with Sipcam for Eden's pipeline products as well as a ramp-up in the development of Sustaineä, the Company's microencapsulation technology, with Sipcam and other interested parties.
This year, we plan to execute a significant research and development programme which will move forward a number of additional pipeline products towards commercialisation.
Towards the end of 2019, we expect to see the launch of Cedroz which should have an immediate, positive impact on revenue with a market opportunity which is potentially far greater even than that of Mevalone.
In summary, I believe that the Company has good prospects. The increased adoption of biological products, such as Eden's; the on-going regulatory pressures on traditional chemical solutions; and the increasing issues of disease and pest resistance, all mean that Eden, with its effective, natural solutions, is well-positioned to become a significant player in this space.
L J van der Broek
Chairman
19 March 2018
CHIEF EXECUTIVE OFFICER'S REPORT
OVERVIEW
Eden has made good progress in 2017 which is reflected by a number of notable achievements.
Despite poor weather conditions that not only impacted crop yields but also reduced the demand for fungicides, the on-going adoption of our first product, Mevalone, across Southern Europe has been good. Growers have reported high levels of efficacy and satisfaction with the product, and our local partners continue to promote Mevalone strongly as a natural and sustainable solution for an expanding range of crop and disease targets.
The Company's revenue mix reflects the continued evolution of the business from a licensing company to a company whose revenue is primarily derived from the manufacture and sale of products and this sustainable revenue growth helped to contribute to a significant narrowing of operating losses.
During the year we executed a number of agreements with Italian-head quartered, multi-national, Sipcam SpA. These agreements are important for the Company's future growth and significantly strengthen the Company's financial position through a strategic investment. This strategic partnership provides us with access to new markets, increases the partner-level evaluation and development of new products, and accelerates the development of our microencapsulation system, Sustaine, for use in conventional pesticide formulation improvements.
FINANCIAL RESULTS
The Company has delivered a strong performance for the year with revenue of £1.9m, significantly up from £0.4m in 2016, with a loss before tax of approximately £0.8m favourably comparing with the 2016 loss of £1.9m. Cash at bank at 31 December 2017 was £3.7m (2016: £1.5m). This was a good performance as the 2017 growing season was challenging for fungicidal products in many southern European countries due to hard frosts in April followed by high heat and drought in the summer. These well-documented conditions resulted in the smallest harvests in 60 years in key markets such as France and Italy.
In June we announced that we had signed multiple commercial agreements with Sipcam SpA ("Sipcam") including an Evaluation and Option Agreement, for which a fee of €0.6m (£0.5m) was paid to Eden (see note 1 in Notes to the Financial Statements for the Revenue Recognition accounting policy), and a Collaboration Agreement establishing a long-term collaborative partnership. At this time, we also concluded a placing of new shares with Sipcam and institutional investors, raising £2.4m for the Company. The Company also received a non-binding indication from an existing institutional investor for £300,000 subject to the Company receiving clearance from HMRC that the Company's business would qualify for relevant tax reliefs. This clearance is still outstanding and accordingly there is no further update at this stage. As stated before, even if such clearance is granted, there can be no certainty that this additional placing will proceed. We will provide a further update as appropriate.
As a reflection of the change in the Company's business model, approximately 41% of the Company's revenue was derived from the sale of products, rather than licence-based royalties and up-front or milestone payments. Going forward, this percentage should continue to increase as the percentage of revenue derived from existing partners has almost fully transitioned to supply and/or distribution agreements (rather than licence agreements). It is important to note that the transition of certain legacy agreements (from licensing to product sales) had not been completed with some partners by the end of 2017, but we expect this to be completed in time for the 2018 growing season.
PRODUCT REGULATORY APPROVALS
During the year, regulatory approval was granted for Mevalone, and first commercial sales were achieved in France with further approvals received in Cyprus, Albania and Portugal. Overall, the Company is encouraged by the level of sales of the product and its continued acceptance in the market. Eden now has approval to sell Mevalone in ten countries, and it is anticipated that this list will continue to grow through 2018. Applications for registration are being progressed in a number of key countries including the US and Australia.
As reported on 12 December 2017, Eden's distribution partner, Eastman, announced the submission of the regulatory dossiers for its new nematicide, Cedroz®, which was developed by Eden. Cedroz will be a new tool for farmers to control a wide range of economically important nematodes with the first sales expected in advance of the 2020 growing season. Eastman made significant progress during the year with the submission of applications for the registration of Cedroz across a number of territories and is building a broad platform for the commercialisation of Cedroz as an important solution to the challenges that nematodes create for farmers globally.
COMMERCIAL PROGRESS
i. Agrochemicals
(a) Mevalone (3AEY)
Sales of Mevalone (and the associated, country-dependent tradenames) continued to grow in the established territories of Italy, Spain, Greece and the Balkan states. Additionally, and as described previously, we were pleased to add France and Portugal to the list of countries in which we have authorisation to sell Mevalone. Whilst our French partner, SumiAgro France, was not afforded a full marketing season due to the later-than-anticipated approval, they reported that they were pleased with sales development in the shortened and challenging season and they anticipate that 2018 will be a year of significant sales growth. In Portugal, distribution is being managed by K&N Efthymiadis via its relationship with Certis. Preparations are well-underway for the commercial launch of Mevalone in Portugal for the 2018 growing season.
With a complement of Southern EU-approvals and an active programme pursuing label extensions to include additional crops, we anticipate that sales will continue to increase year-on-year as Mevalone gains market share. Feedback from multiple partners has revealed that Mevalone is an important product for them, and in one case it has taken the position of top fungicide in their catalogue.
(b) Cedroz® - nematode treatment
In December 2016, Eden signed an exclusive commercialisation agreement for its nematicide product, "B2Y", with Taminco BVBA, a subsidiary of Eastman's global crop protection division, following a series of successful field trials and market evaluations conducted by it between 2014 and 2016.
Eastman will be responsible for developing our nematicide formulation, to be marketed as Cedroz®, across multiple territories covering 29 countries worldwide including some of the largest markets for nematicide products globally. Eastman is aiming to launch Cedroz commercially in time for the 2020 growing season with first product sales by Eden to Eastman in advance of that, as regulatory approvals allow. Under the agreement, Eastman paid Eden an upfront fee which was recognised as revenue in 2016 and made their second annual renewal payment in 2017. Eastman has taken on the responsibility for the registration of Cedroz in each territory whilst Eden retains responsibility for the registration of the active ingredients. Furthermore, and consistent with its evolved business model, Eden will supply Eastman with its product requirements globally from its global network of contract manufacturers and raw material suppliers.
ii. Animal health
Eden's partner for animal health applications in North America, Bayer Animal Health ("Bayer"), continues to make steady progress with the four products that it is intending to commercialise: a shampoo, a conditioner, a spray and an otic flush. These products are regarded by Bayer as an important element of their strategy to diversify their product offering and incorporate new, sustainable actives. A significant amount of work, including in vitro and in vivo studies, has been undertaken. It is expected that sales will commence in 2018. Eden remains confident that the products, once commercialised, will command a strong market share in the large North American market for companion animal health products.
iii. Human health and biocides
In 2016, TerpeneTech, which is an associate of Eden through Eden's shareholding of 29.9%, undertook a second successful round of clinical trials. Since then, the company has been preparing its regulatory submissions to both the US and EU authorities for approval of its head lice treatment product. These studies are essential and support product sales, as they are a pre-requisite to approval. The process for regulatory clearances in both the US and the EU should now complete within the first half of 2018 enabling product sales in both regions during the second half of 2018.
In addition to completing the product trials, formulation stability testing and the required regulatory studies, TerpeneTech also concluded a commercial agreement appointing a channel partner for the UK market during the course of 2017. Further commercial agreements are pending in order to provide product distribution in additional key countries.
TerpeneTech is listed as a notified supplier of the active ingredient geraniol under the EU Biocidal Products Regulation. Sales of geraniol to third parties have increased year-on-year, and we are pleased with this progress. Eden derives a royalty payment from all sales of geraniol by TerpeneTech.
Further applications of Eden's technology remain in the development stage. However, TerpeneTech reports good progress with the development of its underarm deodorant product. This product will be marketed as a natural human deodorant product with superior, long-lasting performance derived, in part, from the use of Eden's microencapsulation system. There are currently advanced-stage discussions with potential commercial partners, and, assuming success with these, TerpeneTech anticipates product launches toward the end of 2018.
INTELLECTUAL PROPERTY ("IP")
During the year, Eden entered into a new phase in the development and management of its IP portfolio. During the year, Eden chose not to pursue one patent family relating to certain insecticide formulations due to a lack of fit with known commercial opportunities and some inherent limitations in the claims. Active management of the portfolio is essential in order to ensure that costs are contained and expenditure is limited to IP that supports a commercial objective.
Despite not pursuing the above-mentioned patent family, Eden's IP portfolio was strengthened overall during the course of the year. Highlights include the granting of a new patent covering Eden's nematicide product in the US and gaining two new granted patents in Australia covering bactericidal and preservative uses of our technology.
Eden also pursued the expansion of patents covering the use of our encapsulation technology with conventional chemical pesticides. In total, we are pursuing patents in 27 jurisdictions for this application.
Furthermore, we have filed applications for Supplementary Protection Certificates ('SPCs') covering Mevalone in key countries. SPCs effectively extend the patent protection of products that require regulatory approval before they can be sold in a given jurisdiction. They provide up to an additional seven years of patent protection, depending upon the territory. In total, SPCs have now been awarded in Spain, Greece, Italy and Cyprus, and there are pending applications in France and Portugal.
There are now a total of 130 (2016: 112) granted or pending patents in Eden's "owned" portfolio, not including patents under licence from the University of Massachusetts.
PERSONNEL
In 2017, Eden strengthened its team through the addition of a new Non-Executive Director and Chairman-designate with considerable industry experience in both crop protection and animal health. We were delighted to welcome Lykele van der Broek to the Board, and we are confident that in 2018 his chairmanship of the Company will continue the good work of Tom Lupton, who retired as Non-Executive Chairman at the end of 2017.
Eden also added several new, part-time staff working under consultancy engagements. These individual consultants are assisting with product management, project management, business development and general commercial advisory services. The addition of new full-time employees will commence in 2018 as we look to strengthen our dedicated in-house capabilities. New resources are planned in business development, product and project management and research and development. As always, we are seeking to balance prudent financial management and cost control whilst addressing shortfalls in our internal capacity to support both the current business, as well as future growth.
BREXIT
The impact of Brexit is still an unknown to most UK companies, which is the case with Eden. However, the Company does not believe that the ownership of its EU approvals of Mevalone and its constituent active substances should be impacted by Brexit as guidance has been published stating that the owner of such approvals can continue to be a UK resident company.
OUTLOOK
Eden has worked hard to build a valuable portfolio of intellectual property, product registrations, and commercial partnerships that serve as the core of today's business and the engine of future growth. As the Company's commercial success continues and our products gain more widespread, global adoption, we expect to see a further strengthening of our position in the industry and our ability to pursue new opportunities for our products and technologies in alignment with our focus on sustainable solutions for crop protection and both animal and human health.
We believe that the growth achieved in 2017 will continue in the current year, driven by new regulatory approvals received before the growing season and an expansion of the target crops across multiple territories. Moreover, the growing reputation of our first product, Mevalone, is helping to increase market share across the three largest wine-producing countries globally (Italy, France and Spain) thereby increasing both sales and profitability for Eden and our partners.
In the coming year, we will continue our work with our partners to register existing products in new, important territories, as well as to evaluate new products on expanding disease and crop targets. Furthermore, we are accelerating our collaborative work to fully demonstrate the value of our encapsulation technology in the conventional pesticide industry thereby unlocking numerous high value opportunities in both existing and, critically, new crop targets such as wheat, soybean and cotton.
I am confident that Eden's prospects are bright, and we remain focussed on a programme of prudent financial management coupled with well-informed decision making and timely execution. Over the past few years it has been reported that the Company has "shifted gears", and this is an apt metaphor. Continuing this theme, I am looking forward to building speed and positioning Eden to be amongst the leaders in our industry.
S M Smith
Chief Executive Officer
19 March 2018
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For The Year Ended 31 December 2017
2017
2016
Notes
£
£
CONTINUING OPERATIONS
Revenue
2
1,877,187
391,958
Cost of sales
(831,499)
(28,560)
GROSS PROFIT
1,045,688
363,398
Amortisation of intangible
assets
(750,210)
(680,385)
Other administrative expenses
Exceptional Royalties Refund
Licence Amendment Fee
12
12
(1,431,787)
570,462
(187,781)
(1,439,670)
-
-
Share based payments
(27,210)
(129,707)
OPERATING LOSS
(780,838)
(1,886,364)
Finance costs
4
(1,239)
(15,483)
Finance income
4
25,437
1,278
Share of profit/(loss) of equity
accounted investee, net of tax
(6,289)
(12,418)
LOSS BEFORE INCOME TAX
5
(762,929)
(1,912,987)
Income tax
6
123,836
81,895
LOSS FOR THE YEAR
(639,093)
(1,831,092)
OTHER COMPREHENSIVE INCOME
-
-
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
(639,093)
(1,831,092)
Earnings per share expressed in pence per share:
7
Basic
(0.33)
(1.03)
Diluted
(0.34)
(1.03)
STATEMENT OF FINANCIAL POSITION
31 December 2017
2017
2016
Notes
£
£
ASSETS
NON-CURRENT ASSETS
Intangible assets
8
4,933,761
5,211,892
Investments in equity-
accounted investee
9
804,876
811,165
5,738,637
6,023,057
CURRENT ASSETS
Stock
206,814
-
Trade and other receivables
10
962,044
240,505
Cash and cash equivalents
11
3,678,383
1,532,341
4,847,241
1,772,846
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
12
2,004,501
965,286
NET CURRENT ASSETS
2,842,740
807,560
NON-CURRENT LIABILITIES
Trade and other payables
12
67,462
67,462
NET ASSETS
8,513,195
6,763,155
SHAREHOLDERS' EQUITY
Called up share capital
15
2,070,643
1,846,542
Share premium
16
31,278,196
29,139,654
Merger reserve
16
10,209,673
10,209,673
Warrant reserve
16
592,495
614,713
Retained loss
16
(35,637,092)
(35,047,427)
TOTAL EQUITY
8,513,195
6,763,155
STATEMENT OF CHANGES IN EQUITY
For The Year Ended 31 December 2017
Called up
share
capital
Retained
loss
Share
premium
£
£
£
Balance at 1 January 2016
1,587,583
(33,466,782)
26,860,972
Changes in equity
Issue of share capital
258,959
-
2,278,682
Total comprehensive income
-
(1,831,092)
-
Options exercised/lapsed
-
250,447
-
Balance at 31 December 2016
1,846,542
(35,047,427)
29,139,654
Changes in equity
Issue of share capital
224,101
-
2,138,542
Total comprehensive income
-
(639,093)
-
Options exercised/lapsed
-
49,428
-
Balance at 31 December 2017
2,070,643
(35,449,311)
31,278,196
Merger reserve
Warrant
reserve
Total
Equity
£
£
£
Balance at 1 January 2016
10,209,673
735,453
5,926,899
Changes in equity
Issue of share capital
-
-
2,537,641
Total comprehensive income
-
-
(1,831,092)
Options granted
-
129,707
129,707
Options exercised/lapsed
-
(250,447)
-
Balance at 31 December 2016
10,209,673
614,713
6,763,155
Changes in equity
Issue of share capital
-
-
2,362,643
Total comprehensive income
-
-
(639,093)
Options granted
-
27,210
27,210
Options exercised/lapsed
-
(49,428)
-
Balance at 31 December 2017
10,209,673
592,495
8,513,195
STATEMENT OF CASH FLOWS
For The Year Ended 31 December 2017
2017
2016
£
£
Cash flows from operating activities
Cash from/(used by) operations
17
222,950
(872,201)
Finance costs paid
Foreign exchange losses
(1,239)
-
(484)
14,999
Tax credit received
8,330
81,895
Net cash from/(used by) operating activities
230,041
(805,789)
Cash flows from investing activities
Capitalisation of development expenditure
and intellectual property costs
(324,077)
(349,149)
Capitalisation of patents
(148,002)
-
Finance income
Foreign exchange gains
2,526
22,911
1,278
-
Net cash used by investing activities
(446,642)
(347,871)
Cash flows from financing activities
Issue of equity shares
2,397,893
2,668,541
Share issue costs
(35,250)
(130,900)
Net cash from/(used by) financing activities
2,362,643
2,537,641
Increase/(decrease) in cash and cash equivalents
2,146,042
1,383,981
Cash and cash equivalents at beginning of year
1,532,341
148,360
Cash and cash equivalents at end of year
3,678,383
1,532,341
NOTES TO THE ACCOUNTS
For The Year Ended 31 December 2017
1. ACCOUNTING POLICIES
General information
Eden Research Plc is a public company limited by shares incorporated and domiciled in England in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 1. The nature of the Company's operations and its principal activities are set out in the Chairman's Report on page 2. The Company is quoted on the AIM Market in London.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.
The Company does not have any subsidiary undertakings.
AssociatesAssociates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of the voting power of another entity, or where the Company has a lower interest but the right to appoint a director. The company acquired 29.9% of TerpeneTech Limited ("TerpeneTech") during 2015; TerpeneTech is an associated undertaking.
Application of the equity method to associates
The investment in TerpeneTech is accounted for using the equity method. The investment was initially recognised at cost. The Company's investment includes goodwill identified on acquisition, net of any accumulated impairment losses and any separable intangible assets. The financial statements include the Company's share of the total comprehensive income and equity movements of TerpeneTech, from the date that significant influence commenced.
Adopted IFRS not yet applied
The following Adopted IFRSs have been issued but have not yet been applied in these financial statements:
· IFRS 9 Financial Instruments (effective date 1 January 2018)
· Amendments to IFRS 2 Share-based Payment: Classification and measurement of share-based payment transactions (effective date 1 January 2018)
· IFRS 15 Revenue from Contracts with Customers (effective date 1 January 2018)
· Clarifications to IFRS 15 Revenue from Contracts with Customers (effective date 1 January 2018)
· IFRS 16 Leases (effective date 1 January 2019)
The directors are currently undertaking an exercise to assess the likely impact on the financial statements of the application of the above new standards.
Going Concern
The financial statements have been prepared on a going concern basis which contemplates the realisation of assets and the settlement of liabilities in the ordinary course of business.
The Company has reported a loss for the year after taxation of £639,093 (2016: £1,831,092). Net current assets at that date amounted to £2,842,740 (2016: £807,560).
The directors have prepared budgets and projected cash flow forecasts, based in part on forecasts provided by Eden's commercial partners, for a period of two years from 31 December 2017 and they consider that the Company will be able to operate with the cash resources that are available to it for this period. The ability of the Company to continue as a going concern is ultimately dependent upon the amounts and timing of cash flows from the exploitation of the Company's intellectual property and the availability of additional funding to meet the short term needs of the business until the commercialisation of the Company's portfolio is reached.
The forecasts adopted only include revenue derived from existing contracts and, while there is a risk these payments might be delayed if milestones are not reached, there is the significant potential upside from on-going discussions and negotiations with other parties as well as other "blue sky" opportunities.
In addition, the Company has relatively low fixed running costs and has a demonstrable ability to delay certain other costs, such as the forecast Research and Development expenditure, in the event of unforeseen cash constraints.
The directors have also considered a scenario whereby the Company receives no revenue from the date of this Report. On this basis, the directors believe that the Company has sufficient cash to cover a period of at least 12 months from the date of this Report.
The directors are closely monitoring performance against cash flow projections that have been prepared for the period to 31 December 2018 and beyond and are confident that the Company will be able to generate the necessary cash resources over and above those referred to above.
On this basis, the directors consider it appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustments that would result from a failure by the Company to meet these forecasts.
Revenue recognition
Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be reliably estimated.
Revenue represents amounts receivable by the Company in respect of services rendered during the year in accordance with the underlying contract or licence, stated net of value added tax.
Royalty income is recognised as accrued in accordance with the terms of the underlying contract and is based on net sales value of product sold by Eden's licensees.
Upfront and annual payments made by customers at commencement and for renewal of distribution and other agreements are recognised in accordance with the terms of the agreement. Where there is no ongoing obligation on the Company under the agreement, the payment is recognised in revenue in full in the period in which it is made. Where there is an ongoing obligation on the Company, revenue is recognised over the periods to which the obligation pertains.
Licence fee payments are recognised on receipt if the Company has discharged all of its on-going obligations associated with the licence granted. Where there is an ongoing obligation on the Company, revenue is recognised in the periods to which the obligations pertain.
Product sales are recorded once product has been shipped to the customer, at which point the ownership and related rights and responsibilities pass to the customer.
Intangible assets
Intellectual property, including development costs, is capitalised and amortised on a straight-line basis over its remaining estimated useful economic life of 7 years in line with the remaining life of the Company's master patent, which was originally 20 years. The useful economic life of intangible assets is reviewed on an annual basis.
Impairment of non-financial assets
The directors regularly review the intangible assets for impairment and provision is made if necessary. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the Company's development activities is recognised only if all the following conditions are met:
- the project is technically and commercially feasible;
- an asset is created that can be identified;
- the Company intends to complete the asset and use or sell it and has the ability to do so;
- it is probable that the asset created will generate future economic benefits;
- the development cost of the asset can be measured reliably; and
- there are sufficient resources available to complete the project.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Financial instruments
The Company uses certain financial instruments in its operating and investing activities that are deemed appropriate for its strategy and circumstances.
Financial assets and liabilities are recognised on the Statement of Financial Position when the Company has become a party to the contractual provisions of the instrument.
Financial instruments recognised on the Statement of Financial Position include cash and cash equivalents, trade receivables, trade payables and borrowings and fixed interest convertible debt.
Cash and cash equivalents comprise cash on hand and on demand deposits, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Interest bearing loans and overdrafts are recorded at the fair value received less any transaction costs. Subsequent to initial recognition such instruments are measured at amortised cost, using the effective interest method.
Financial assets
Trade receivables, loans and other receivables that have fixed or determinable payments are classified as "Loans and receivables" and are measured initially at fair value plus transaction costs and subsequently at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial.
Financial assets are assessed for impairment at each reporting date by considering the recoverable amount of the asset in comparison to its carrying value and any impairment recognised in the Statement of Profit or Loss and Other Comprehensive Income. Trade receivables are assessed for collectability and where appropriate the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account and changes in the carrying amount of the allowance account are recognised in the profit or loss in the Statement of Profit or Loss and Other Comprehensive Income.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities such as trade payables and loans are classified as "Other financial liabilities" and are measured initially at fair value less transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, except for short term payables when the recognition of interest would be immaterial.
Non-executory contracts are recognised when all obligations due to the Company under the terms of the contract have been met, but the Company retains a financial liability. This financial liability is measured in accordance with the Company's accounting policy for the measurement of financial liabilities.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Company. All other leases are classified as operating leases.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Foreign currencies
Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of transaction. Exchange differences are taken into account in arriving at the operating result.
Whilst the majority of the Company's revenue is in Euros, the Company also incurs a significant level of expenditure in that currency. As such, the Company does not currently use any hedging facilities and instead choses to keep some of its cash at the bank in Euros.
Share-based payments
The Company has applied the requirements of IFRS2 Share-Based Payments.
Unapproved share option scheme
The Company has operated an unapproved share option scheme for executive directors, senior management and certain employees. This scheme was used for any options awarded prior to 28 September 2017.
Long-Term Incentive Plan ("LTIP")
In 2017, the Company established a LTIP to incentivise the Executives to deliver long-term value creation for shareholders and ensure alignment with shareholder interests. Awards are made annually and are subject to continued service and challenging performance conditions usually over a three year period. The performance conditions are reviewed on an annual basis to ensure they remain appropriate and are currently based on increasing shareholder value. Awards are generally structured as nil cost options with a seven year life after vesting.
Other than in exceptional circumstances, an award to an Executive would be up to 100% of salary in any one year and would be granted subject to achieving challenging performance conditions set at the date of the grant. A percentage of the award will vest for "Threshold" performance with full vesting taking place for equalling or exceeding the performance "Target". In between the Threshold and Target there may be pro rata vesting. The Remuneration Committee retains the ability to amend the performance conditions for future grants to ensure that such grants achieve the stated purpose.
The LTIP was adopted by the board of directors of Eden on 28 September 2017.
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the Statement of Profit or Loss and Other Comprehensive Income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that ultimately the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted, as long as other vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the increase in fair value of the options, measured immediately before and after the modification is also charged to the Statement of Profit or Loss and Other Comprehensive Income over the remaining vesting period.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement in the periods during which services are rendered by employees.
Financial risk management
The Company's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risks), credit risk and liquidity risk. Risk management focuses on minimising any potential adverse effect on the Company's financial performance and is carried out under policies approved by the Board of Directors. Further detail is given in note 22 to the financial statements.
Current and deferred income tax
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Profit or Loss and Other Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. The current tax charge includes any research and development tax credits claimed by the Company.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interest in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized based on the tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Critical accounting estimates and areas of judgement
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Capitalised development costs and intellectual property
The directors have considered the recoverability of an internally generated intangible asset, being development costs, which has a carrying value of £2.0m (2016: £2.0m) and intellectual property which has a carrying value of £2.9m (2016: £3.2m). The projects relating to these items continue to progress in a satisfactory manner and the directors are confident that the carrying amount of the asset will be recovered in full. This situation will be closely monitored and adjustments made in future periods if future market activity indicates that such adjustments are appropriate.
The key factors which could impact upon whether it remains appropriate to continue to capitalise intangible assets or on the impairment considerations include:
- The availability of the necessary finance and hence the ability of the Company to continue as a going concern.
- The assumptions surrounding the perceived market sizes for the products and the achievable market share for the Company.
- The successful conclusion of commercial arrangements will serve as an indicator as to the likely success of the projects and, as such, any need for potential impairment.
- The level of upfront, milestone and royalty receipts will also serve as a guide as to the net present value of the assets and whether any impairment is required.
Impairment of assets
The directors have considered the progress of the business in the current year, including a review of the potential market for its products, the progress the Company has made in registering its products and other key commercial factors to determine whether any indicators of impairment exist. Based upon the review management have carried out they are satisfied that no such factors exist and therefore a full impairment review on the Company's intangible assets and investments has not been carried out.
Further details on impairment review can be found in note 8 and 9 to the accounts.
Going concern
The directors have considered the ability of the Company to continue as a going concern and this is considered to be the most significant judgement made by the directors in preparing the financial statements.
The ability of the Company to continue as a going concern is ultimately dependent upon the amount and timing of cash flows arising from the exploitation of the Company's intellectual property and the availability of additional funding to meet the short term needs of the business until the commercialisation of the Company's portfolio is reached. The directors consider it is appropriate for the financial statements to be prepared on a going concern basis based on the estimates they have made.
2. SEGMENTAL REPORTING
IFRS 8 requires operating segments to be reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for the resource allocation and assessing performance of the operating segments has been identified as the Executive Directors as they are primarily responsible for the allocation of the resources to segments and the assessment of performance of the segments.
The Executive Directors monitor and then assess the performance of segments based on product type and geographical area using a measure of adjusted EBITDA. This is the result of the segment after excluding the share based payment charges, other operating income and the amortisation of intangibles. These items, together with interest income and expense are not allocated to a specific segment.
The segmental information for the year ended 31 December 2017 is as follows:
Licencing Fees
Milestone Payments
Evaluation Fees
Royalties
Grant Funding
Product Sales
Un-allocated
Total
£
£
£
£
£
£
£
£
Human health and biocides
14,750
-
-
13,274
-
-
-
28,024
Animal health
-
-
-
-
-
-
-
-
Agrochemicals
-
967,686
-
116,405
-
765,072
-
1,849,163
TOTAL
14,750
967,686
-
129,679
-
765,072
-
1,877,187
Adjusted EBITDA
-
-
-
-
-
-
(3,418)
(3,418)
Amortisation
-
-
-
-
-
-
(750,210)
(750,210)
Depreciation
-
-
-
-
-
-
-
-
Share Based Payments
-
-
-
-
-
-
(27,210)
(27,210)
Net Finance Costs
-
-
-
-
-
-
24,198
24,198
Income Tax
-
-
-
-
-
-
123,836
123,836
Share of Associate's loss
-
-
-
-
-
-
(6,289)
(6,289)
Loss for the Year
-
-
-
-
-
-
(639,093)
(639,093)
Total Assets
-
-
-
-
-
-
10,585,878
10,585,878
Total assets includes:
Additions to Non-Current Assets
-
-
-
-
-
-
472,079
472,079
Total Liabilities
-
-
-
-
-
-
(2,071,963)
(2,071,963)
The segmental information for the year ended 31 December 2016 is as follows:
Licencing Fees
Milestone Payments
Evaluation Fees
Royalties
Grant Funding
Product Sales
Un-allocated
Total
£
£
£
£
£
£
£
£
Human health and biocides
-
14,368
-
-
-
-
-
14,368
Animal health
-
-
-
-
-
-
-
-
Agrochemicals
128,204
31,008
30,580
122,814
123
64,861
-
377,590
TOTAL
128,204
45,376
30,580
122,814
123
64,861
-
391,958
Adjusted EBITDA
-
-
-
-
-
-
(1,076,308)
(1,076,308)
Amortisation
-
-
-
-
-
-
(680,349)
(680,349)
Depreciation
-
-
-
-
-
-
-
-
Share Based Payments
-
-
-
-
-
-
(129,707)
(129,707)
Net Finance Costs
-
-
-
-
-
-
(14,205)
(14,205)
Income Tax
-
-
-
-
-
-
81,895
81,895
Share of Associate's loss
-
-
-
-
-
-
(12,418)
(12,418)
Loss for the Year
-
-
-
-
-
-
(1,831,092)
(1,831,092)
Total Assets
-
-
-
-
-
-
7,795,503
7,795,503
Total assets includes:
Additions to Non-Current Assets
-
-
-
-
-
-
349,149
349,149
Total Liabilities
-
-
-
-
-
-
(1,032,748)
(1,032,748)
GEOGRAPHICAL REPORTING
2017
2016
£
£
UK
28,024
14,368
Europe
1,849,163
377,590
1,877,187
391,958
The revenue derived from Milestone Payments and Licensing Fees relates to agreements which cover a number of countries both in the EU and throughout the rest of the world.
All of the non-current assets are in the UK.
3. EMPLOYEES AND DIRECTORS
2017
2016
£
£
Wages and salaries
511,647
447,075
Pension costs
10,804
4,218
Social security costs
71,572
32,334
594,023
483,627
The average monthly number of employees, including directors, during the year was as follows:
2017
2016
Management
5
4
Staff costs, including executive directors' remuneration, are included within administrative expenditure in the Statement of Profit or Loss and Other Comprehensive Income. The executive directors are considered to also be the key management personnel of the Company.
2017
2016
£
£
Directors' remuneration
436,647
382,075
Company contributions to defined contribution pension schemes
10,804
4,218
447,451
386,293
Non-executive director's fees
75,000
65,000
Total directors' emoluments
522,451
461,293
Share based payment charge relating to all directors
27,210
129,707
During the year the remuneration of the highest paid director was £258,408 (2016: £266,780).
2017
Share based payments
Salary
Bonus
Fees
Pension
Total
£
£
£
£
£
£
A Abrey
123,000
75,854
-
4,920
12,479
216,253
T Lupton
-
-
35,000
-
-
35,000
S Smith
147,088
90,705
-
5,884
14,731
258,408
R Cridland
-
-
30,000
-
-
30,000
L Van Der Broek
-
-
10,000
-
-
10,000
270,088
166,559
75,000
10,804
27,210
549,661
2016
Share based payments
Salary
Bonus
Fees
Pension
Total
£
£
£
£
£
£
A Abrey
120,000
54,000
-
1,920
73,300
249,220
T Lupton
-
-
35,000
-
-
35,000
S Smith
143,500
64,575
-
2,298
56,407
266,780
R Cridland
-
-
30,000
-
-
30,000
263,500
118,575
65,000
4,218
129,707
581,000
4. NET FINANCE COSTS
2017
2016
£
£
Finance income
22,911
-
Foreign exchange gains
2,526
1,278
Deposit account interest
25,437
1,278
Finance costs:
Foreign exchange losses
-
14,999
Finance fees
1,239
484
1,239
15,483
Net finance costs
(24,198)
14,205
5. LOSS BEFORE INCOME TAX
The loss before income tax is stated after charging:
2017
2016
£
£
Licences and trademarks amortisation
20,446
15,720
Development costs amortisation
290,276
225,141
Intellectual property amortisation
439,488
439,488
Auditors' remuneration:
- Audit of these financial statements
22,500
21,800
- All other services
20,779
-
Equity share based payment charge
27,210
129,707
Foreign exchange differences
(22,911)
14,999
6. INCOME TAX
Analysis of tax income
2017
2016
£
£
Current tax credit:
Current year
123,836
81,895
Total tax income in statement of profit or loss and other comprehensive income
123,836
81,895
Corporation tax
No tax charge arises on the results for the year (2016: £nil). Tax losses carried forward, for which no deferred tax asset has been recognised, amount to approximately £22,247,515 (2016: £23,800,466). The tax credit represents the research and development tax credit receivable for the year ended 31 December 2017.
Factors affecting the tax charge
The UK standard rate of corporation tax is 19.25% (2016: 20.00%). Current tax assessed for the financial year as a percentage of the loss before taxation is (1.3)% (2016: (4.3)%)
The differences are explained below:
2017
2017
2016
2016
£
%
£
%
Standard rate of corporation tax in the UK
(19.25)
(20.00)Loss before tax at standard rate of tax
(146,863)
(382,597)
Effects of Losses carried forward/surrendered
55,981
7.4
335,081
17.5
Difference in effective tax rate of equity accounted associate
642
0.1
(2,484)
(0.1)
Other expenses not deductible for tax purposes
9,413
1.2
50,000
2.6
Research and development tax relief
(86,322)
(11.3)
(81,895)
(4.3)
Adjustment to prior year tax charge
(45,577)
(6.0)
-
-
Deferred tax not recognised
88,890
11.7
-
-
Total current tax credit and tax rate %
(123,836)
(16.2)
(81,895)
(4.3)
Deferred tax
Un-provided deferred tax liability
Un-provided deferred tax asset
(237,330)
3,782,077
-
4,046,079
Un-provided deferred tax asset
3,544,747
4,046,079
The adjustment to the prior year tax charge of £45,577 relates to increased submitted R&D tax credit claims compared to that provided for in the 2016 financial statements.
The un-provided for deferred tax asset arises principally in respect of trading losses, together with other minor timing differences at 17% (2016: 17%) and has not been recognised due to the uncertainty of timing of future profits against which it may be realised.
Reductions in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company's future current tax charge accordingly.
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.
Reconciliations are set out below:
Earnings
£
2017 Weighted average number of shares
Per-share amount pence
Basic EPS
Earnings attributable to ordinary shareholders
(639,093)
195,705,733
(0.33)
Effect of dilutive securities
-
(5,019,101)
-
Diluted EPS
Adjusted earnings
(639,093)
190,686,632
(0.34)
Earnings
£
2016 Weighted average number of shares
Per-share amount pence
Basic EPS
Earnings attributable to ordinary shareholders
(1,831,092)
178,441,431
(1.03)
Effect of dilutive securities
-
-
-
Diluted EPS
Adjusted earnings
(1,831,092)
178,441,431
(1.03)
Due to the loss for the year there is no dilution of the loss per share arising from options in existence.
8. INTANGIBLE ASSETS
Licences and trademarks
Development
costs
Intellectual
property
Totals
£
£
£
£
COST
At 1 January 2017
447,351
3,455,276
8,739,743
12,642,370
Additions
-
324,077
148,002
472,079
At 31 December 2017
447,351
3,779,353
8,887,745
13,114,449
AMORTISATION
At 1 January 2017
384,310
1,474,960
5,571,208
7,430,478
Amortisation for year
20,446
290,276
439,488
750,210
At 31 December 2017
404,756
1,765,236
6,010,696
8,180,688
NET BOOK VALUE
At 31 December 2017
42,595
2,014,117
2,877,049
4,933,761
Licences and trademarks
Development
costs
Intellectual
property
Totals
£
£
£
£
COST
At 1 January 2016
447,351
3,188,498
8,657,372
12,293,221
Additions
-
266,778
82,371
349,149
At 31 December 2016
447,351
3,455,276
8,739,743
12,642,370
AMORTISATION
At 1 January 2016
368,590
1,249,819
5,131,720
6,750,129
Amortisation for year
15,720
225,141
439,488
680,349
At 31 December 2016
384,310
1,474,960
5,571,208
7,430,478
NET BOOK VALUE
At 31 December 2017
63,041
1,980,316
3,168,535
5,211,892
The amortisation charge is included within administration expenses. Intellectual property represents intellectual property in relation to use of encapsulated terpenes in agrochemicals. The remaining useful economic life of that asset is seven years.
An annual impairment review is undertaken by the Board of Directors. The directors have considered the progress of the business in the current year, including a review of the potential market for its products, the progress the Company has made in registering its products and other key commercial factors to determine whether any indicators of impairment exist.
The directors have used discounted cash-flow forecasts, based on product sales forecasts provided by the Company's commercial partners, and have taken into account the market potential for Eden's products and technologies using third party market data that Eden has acquired licences to.
The discount rate and the expected growth rate are two key assumptions used. The discount rate is estimated using pre-tax rates that reflect current market assessments of the time value of money and the risk specific to the asset. The rate used was 10% (2016: 10%).
The growth rates are derived from discussions with the Company's commercial partners, as described above.
Based on the review management has carried out, it is satisfied that the Intangible Assets are not impaired in respect of their carrying value.
As set out in the Strategic Report the business is in a critical phase of its development as the research and development of products is transitioned to revenue generation. The value of the intangible assets is supported by management's forecasts of continued revenue growth of existing products and the successful growth of future product sales over the next 2-5 years. Management has used what it considers to be reasonably prudent assumptions for that growth based on information from and discussion with strategic partners, however there is a risk that if those forecasts are not achieved then the associated tangible assets could be impaired.
All revenues have been projected to come from the cash generating units identified in the segmental reporting and Chairman's Report, namely the key product lines of the Company.
9. INVESTMENTS IN ASSOCIATES
2017
2016
Percentage ownership interest and proportion of voting rights
29.9%
29.9%
£
£
Non-current assets
584,338
632,158
Current assets
134,034
92,343
Non-current liabilities
(44,493)
(78,537)
Current liabilities
(27,932)
(27,705)
Net assets (100%)
645,947
618,259
Company's share of net assets
193,138
184,859
Separable intangible assets
199,089
213,657
Goodwill
412,649
412,649
Carrying amount of interest in associate
804,876
811,165
Revenue
225,187
144,760
Profit/(loss) from continuing operations
27,687
7,193
Post tax profit from discontinued operations
-
-
100% of total post-tax profits
27,687
7,193
29.9% of total post-tax profits
8,278
2,150
Amortisation of separable intangible assets
(14,568)
(14,568)
Company's share of profit/(loss) including amortisation of
separable intangible assets
(6,289)
(12,418)
Other comprehensive income
100%
-
-
29.9%
-
-
Company's share of other comprehensive income
-
-
Total comprehensive income (100%)
27,687
7,193
Company's share of total comprehensive income including
amortisation of separable intangible asset
(6,289)
(12,418)
Dividends received by the Company
-
-
TerpeneTech's registered office is Kemp House, 152 City Road, London, EC1V 2NX and its principal place of business is 3 rue de Commandant Charcot, 22410, St Quay Portrieux, France.
An impairment review of the investment in TerpeneTech was undertaken by the Board of Directors. The directors have considered the progress of the business in the current year, including a review of the potential market for its products, the progress TerpeneTech has made in registering its products and other key commercial factors to determine whether any indicators of impairment exist.
The directors have used discounted cash-flow forecasts, based on product sales forecasts provided by TerpeneTech, and have taken into account the market potential for those products.
The discount rate and the expected growth rate are two key assumptions used. The discount rate is estimated using pre-tax rates that reflect current market assessments of the time value of money and the risk specific to the asset. The rate used was 20% (2016: 20%). The growth rates are derived from discussions with the Company's commercial partner, TerpeneTech, as described above.
Based on the review management has carried out, it is satisfied that the Investment is not impaired in respect of its carrying value.
The directors have also considered whether any reasonable change in assumptions would lead to an impairment and are satisfied that this is not the case.
10. TRADE AND OTHER RECEIVABLES
2017
2016
£
£
Current:
Trade and other receivables
731,968
86,426
Prepayments and accrued income
42,949
14,939
Other debtors
16,992
52,838
Other taxes and social security
115,506
81.895
VAT recoverable
54,629
4,407
962,044
240,505
The directors consider that the carrying value of trade and other receivables approximates to the fair value. Trade debtors are included net of a provision of £nil (2016: £nil). Details of debts past due but not impaired are given in note 22.
11. CASH AND CASH EQUIVALENTS
2017
2016
£
£
Short term bank deposits
3,678,383
1,532,341
The carrying amount of these short-term bank deposits approximates to their fair value.
12. TRADE AND OTHER PAYABLES
2017
2016
£
£
Current:
Trade payables
1,558,279
120,758
Other payables
66,389
40,894
Other taxes and social security
11,836
-
Accruals and deferred income
367,997
803,634
2,004,501
965,286
Included in accruals is an amount of £nil (2016: £570,462), being minimum royalties due to University of Massachusetts Medical School ("UMMS") under the licence agreement Eden signed with UMMS in 2011. In 2017, the Company successfully re-negotiated certain terms of the licence agreement and, as such, the full amount previously accrued was written off. Future royalty amounts will be accrued for as they become payable. The Company paid a licence amendment fee of £187,781 to UMMS in respect of the renegotiation which is shown on the Income Statement as a Licence Amendment Fee. The release of the accrual is shown on the Income Statement as an Exceptional Royalties Refund of £570,462.
2017
2016
£
£
Non-current:
Other creditors
67,462
67,462
Aggregate amounts
2,071,963
1,032,748
The directors consider that the carrying value of trade and other payables approximates to their fair value. See note 22 for disclosure of the amount of trade payables denominated in foreign currency. See Directors' Report for disclosure of the average credit period taken.
13. LEASING AGREEMENTS
Minimum lease payments under non-cancellable operating leases fall due as follows:
2017
2016
£
£
Between one and five years
35,000
-
14. FINANCIAL ASSETS AND LIABILITIES
Note
2017
2016
£
£
Financial assets at amortised cost
Other receivables
10
962,044
240,505
Cash and cash equivalents
11
3,678,383
1,532,341
4,640,427
1,772,846
Financial liabilities measured at amortised cost
Current:
Trade and other payables
12
1,558,279
1,032,748
1,558,279
1,032,748
15. CALLED UP SHARE CAPITAL
Number:
Class:
Nominal
2017
2016
value:
£
£
207,064,337
(2016: 184,654,119)
Ordinary
0.01
2,070,643
1,846,542
Alloted,issued and fully paid
Number:
Class:
Nominal
2017
2016
value:
£
£
207,064,337
(2016: 184,654,119)
Ordinary
0.01
2,070,643
1,846,542
On 30 September 2017, the Company issued 22,410,218 ordinary shares at 10.7p each for a total consideration of £2,397,893. Share issue costs of £35,250 were incurred and have been charged to the share premium account as detailed in note 16.
The number of £0.01 ordinary shares issued in the year totalled 22,410,218 (2016: 25,895,854).
Date
Number of ordinary shares
Aggregate nominal value
Issue Price
Premium on issue
Total share premium
£
£
£
£
30/06/2017
22,410,218
224,101
0.107
0.097
2,173,792
224,101
2,173,792
16. RESERVES
Retained losses
£
Share premium
£
Merger reserve
£
Warrant reserve
£
Totals
£
At 1 January 2017
(35,047,427)
29,139,654
10,209,673
614,713
4,916,613
Deficit for the year
(639,093)
-
-
-
(639,093)
Cash share issue
-
2,173,792
-
-
2,173,792
Share issue costs
-
(35,250)
-
-
(35,250)
Transfer to
other reserves
-
-
-
-
-
Options granted
-
-
-
27,210
27,210
Options exercised/lapsed
49,428
-
-
(49,428)
-
At 31 December 2017
(35,637,092)
31,278,196
10,209,673
592,495
6,443,272
The merger reserve arose on the acquisition of a subsidiary undertaking in a prior year for which merger relief was permitted under the Companies Act 2006. The warrant reserve represents the fair value of share options and warrants granted, and not exercised or lapsed, in accordance with the requirements of IFRS 2 Share Based Payment.
17. RECONCILIATION OF LOSS FOR THE YEAR TO CASH FROM/USED BY OPERATIONS
2017
2016
£
£
Loss for the year
(639,093)
(1,912,987)
Share of associate's losses
6,289
12,418
Depreciation charges
750,210
680,349
Share based payment charge
27,210
129,707
Finance costs
1,239
15,483
Finance income
(25,437)
(1,278)
Tax credit
(123,836)
(81,895)
(3,418)
(1,076,308)
Increase in trade and other receivables
(606,033)
(76,089)
Increase in trade and other payables
1,039,215
280,196
Increase in stock
(206,814)
-
Cash from/(used by) operations
222,950
(872,201)
18. CAPITAL COMMITMENTS
The Company had no capital commitments at 31 December 2017 (2016: £nil).
19. CONTINGENT LIABILITY
In September 2015, the Company entered into a Collaboration and Licence agreement with Invention Development Management Company LLC (part of Intellectual Ventures, now called Xinova LLC). As part of this agreement, upon successful completion of a number of different tasks, Xinova will be entitled to a payment which is calculated using a percentage of the value of the Company at a future date. This has been accounted for as a cash-settled share-based payment under IFRS 2.
An amount of £67,462, being the estimated fair value of the liability due to Xinova, was recognised during 2016 and included as a non-current liability, as disclosed in note 12 to the accounts. It is not believed that the value of the services provided by Xinova can be reliably measured, and so this amount was calculated based on the Company's market capitalisation at 31 December 2016, adjusted to reflect the percentage of work completed by Xinova at that date based on a pre-determined schedule of tasks.
No further charge was made during the year as no services were rendered by Xinova which would give rise to a further payment becoming due.
The fair value of the liability has been reviewed at the balance sheet date, given the change in the Company's market capitalisation, and it is deemed that no adjustment is required. Therefore, the liability of £67,462 continues to be recognised.
20. RELATED PARTY DISCLOSURES
Disclosures required in respect of IAS 24 regarding remuneration of key management personnel are covered by the disclosure of directors' remuneration included within note 3.
Transactions with other related parties are set out below:
During the year, Eden invoiced its associate, TerpeneTech, £14,750 for licence fees (2016: £14,368).
Also during the year, Eden received net amounts on behalf of TerpeneTech totalling £71,302 (2016: made net payments of £13,923).
At the year end, an amount of £36,597 was owed to TerpeneTech (2016: £2,490). This amount is included within Other Payables.
21. SHARE-BASED PAYMENT TRANSACTIONS
Share Options
Unapproved option scheme
Eden Research Plc operates an unapproved option scheme for executive directors, senior management and certain employees.
2017
Weighted average exercise price (pence)
Number
2016
Weighted average exercise price (pence)
Number
Outstanding at the beginning of the year
11
5,025,000
11
6,075,000
Granted during the year
-
-
13
2,050,000
Exercised during the year
-
-
13
(350,000)
Lapsed during the year
-
-
13
(2,750,000)
11
5,025,000
11
5,025,000
The exercise price of options outstanding at the end of the year ranged between 8p and 16p (2016: 8p and 16p) and their weighted average contractual life was 1.5 years (2016: 2.1 years). None of the options have vesting conditions.
The share-based payment charge in respect of the unapproved option scheme for the year was £nil (2016: £129,707). The weighted average fair value of each option granted during 2017 was £nil (2016: 13p).
Long-Term Incentive Plan ("LTIP")
Eden Research Plc operates an unapproved option scheme for executive directors, senior management and certain employees under a LTIP which it adopted in the year.
During the year, the following options were granted under the LTIP:
Description
Date of grant
Number of
awards granted
Fair value per award £
Total fair value £
2015 awards
28/09/2017
1,908,680
0.0601
114,712
2016 awards
28/09/2017
2,108,000
0.0461
97,179
4,016,680
211,891
The share-based payment charge for the year ended 31 December 2017 and subsequent years is set out as follows:
Financial year ended 31 December
Share based payment charge £
2017
27,210
2018
85,372
2019
75,108
2020
24,201
211,891
The following information is relevant in the determination of the fair value of options granted during the year under the unapproved options scheme under the LTIP operated by Eden Research Plc.
2015 Award
2016 Award
Grant date
28/09/17
28/09/17
Number of awards
1,908,680
2,108,000
Share price
£0.125
£0.125
Exercise price
£nil
£nil
Expected dividend yield
-%
-%
Expected volatility
73.20%
73.20%
Risk free rate
0.80%
0.80%
Vesting period
2 years
3 years
Expected Life (from date of grant)
10 years
10 years
For those options and warrants which were not granted under the Company's LTIP, fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural conditions.
For those options which were granted under the Company's LTIP, Monte Carlo techniques were used to simulate future share price movements of the Company to assess the likelihood of the performance criteria being met and the fair value of the awards upon vesting. The modelling calculates many scenarios in order to estimate the overall fair value based on the average value where awards vest.
Warrants
2017
2016
Weighted average exercise price
(pence)
Number
Weighted average exercise price (pence)
Number
Outstanding at the beginning of the year
14
5,497,867
14
5,677,867
Granted during the year
-
-
-
-
Exercised during the year
-
-
13
(180,000)
Lapsed during the
year
-
(2,147,867)
-
-
14
3,350,000
14
5,497,867
The exercise price of warrants outstanding at the end of the year ranged between 11p and 30p (2016: 11p and 30p) and their weighted average contractual life was 1.9 years (2016: 2.6 years). None of the warrants have vesting conditions.
The share based payment charge for the year was £nil (2016: £nil). The weighted average fair value of each warrant granted during the year was £nil (2016: £nil).
22. FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES
Credit risk
2017
2016
£
£
Cash and cash equivalents
3,678,383
1,532,341
Trade receivables
731,968
86,426
4,410,351
1,618,767
The average credit period for sales of goods and services is 145 days. No interest is charged on overdue trade receivables. At 31 December 2017 trade receivables of £195,404 (2016: £74,340) were past due. During the year the Company wrote off bad debts in the amount of £nil (2016: £34,138).
Trade receivables of £683,984 (2016: £40,724) at the reporting date are held in Euros and £47,984 (2016: £47,984) were held in USD.
The Company's policy is to provide for doubtful debts based on estimated irrecoverable amounts determined by reference to specific circumstances and past default experience. At the balance sheet date the directors consider that no provision for doubtful debts is required and that there is no further credit risk.
Financial liabilities
2017
2016
£
£
Trade payables
1,558,279
120,758
Other payables
66,389
40,894
Other taxes and social security
11,836
-
Accruals and deferred income
367,997
871,096
2,004,501
1,032,748
The carrying amount of trade payables approximates to fair value.
The average credit period on purchases of goods is 173 days. No interest is charged on trade payables. The Company has policies in place to ensure that trade payables are paid within the credit timeframe or as otherwise agreed.
Credit risk
As explained above, the directors consider that there is no material exposure to credit risk at the reporting date.
Currency risk
The Company publishes its financial statements in pounds sterling and conducts some of its business in US dollars, Swiss Francs and Euros. As a result, it is subject to foreign currency exchange risk due to exchange movements, which will affect the Company's transaction costs and translation of the results. No financial instruments are utilised to manage risk and currency gains, and losses are charged to the Statement of Profit or Loss and Other Comprehensive Income as incurred. At the year end, the Company had the following net foreign currency balances in liabilities.
2017
2016
£
£
US dollars
448,609
681,054
Euros
916,887
18,660
Swiss Francs
-
1,274
1,365,496
700,988
Liquidity risk
The interest rate profile of the Company's financial liabilities at 31 December 2017 was:-
Total
Fixed rate financial liabilities
Financial liabilities on which no interest is paid
£
£
£
Sterling
2017
706,467
-
706,467
2016
331,760
-
331,760
Euro
2017
916,887
-
916,887
2016
18,660
-
18,660
US Dollar
2017
448,609
-
448,609
2016
681,054
-
681,054
Swiss Franc
2017
-
-
-
2016
1,274
-
1,274
All the Euro, Swiss Franc and US Dollar liabilities are held within trade creditors and are non-interest bearing.
Maturity of financial liabilities
The maturity profile of the Company's financial liabilities at 31 December 2017 was as follows:-
2017
2016
£
£
In one year or less, or on demand
Over one year
2,004,501
67,462
965,286
67,462
2,071,963
1,032,748
Liquidity risk is managed by regular monitoring of the Company's levels of cash and cash equivalents, debtor and creditor management and expected future cash flows. See note 1 for further details on the going concern position of the Company.
Market price risk
The Company's exposure to market price risk comprises interest rate and currency risk exposures. It monitors these exposures primarily through a process known as sensitivity analysis. This involves estimating the effect on results before tax over various periods of a range of possible changes in interest rates and exchange rates. The sensitivity analysis model used for this purpose makes no assumptions about any interrelationships between such rates or about the way in which such changes may affect the economies involved. As a consequence, figures derived from the Company's sensitivity analysis model should be used in conjunction with other information about the Company's risk profile.
The Company's policy towards currency risk is to eliminate all exposures that will impact on reported results as soon as they arise. This is reflected in the sensitivity analysis, which estimates that five and ten percentage point increases in the value of sterling against all other currencies would have had minimal impact on results before tax.
On the other hand, the Company's policy is to accept a degree of interest rate risk as long as the effects of various changes in rates remain within certain prescribed ranges. On the basis of the Company's analysis, the only financial liabilities held by the Company are loans which are subject to a fixed rate of interest. As such it is considered that any increases in interest rates would not have had an impact on the Company's loss before tax for the year.
Capital risk management
The primary objective of the Company's capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value.
The Company seeks to enhance shareholder value by capturing business opportunities as they develop. To achieve this goal, the Company maintains sufficient capital to support its business.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions.
The Company looks to maintain a reasonable debt position by repaying debt or issuing equity, as and when it is deemed to be required.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2017 and 31 December 2016.
The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company's policy is to keep the gearing ratio below 10% (2016: below 10%).The Company includes within net debt, interest bearing loans and borrowings, a loan from a venture partner, trade and other payables, less cash and cash equivalents.
23. DEFINED CONTRIBUTION PLANS
The Company operates a defined contribution pension plan.
The total expense relating to these plans in the current year was £10,804 (2016: £4,218).
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR DDGDXISBBGIC
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