REG - Ergomed plc - Interim Results
PRESS RELEASE
FOR IMMEDIATE RELEASE
Unaudited Interim Results for the six months ended 30 June 2018
Net service revenue growth of 12% to £21.8 million
and management actions implemented to secure profitability improvements
London, UK - 19 September 2018: Ergomed plc (AIM: ERGO) ('Ergomed' or the 'Company'), a company focused on providing specialised services to the pharmaceutical industry, today announces its unaudited interim results for the six months ended 30 June 2018.
Certain comparable numbers for the six months ended 30 June 2017 and figures at 31 December 2017 include restatements which are fully reconciled within this document. The restatements are in relation to the treatment of share based payments reported at the 2017 Year End and the reallocation of certain costs based on the implementation of improved cost reporting.
Selected Financial Highlights (Unaudited)
Unaudited
Figures in £ millions, unless otherwise stated
1st Half
2018
Restated
1st Half
2017
Service Fee Revenue 1
21.8
19.5
Total Revenue
25.3
22.9
Gross Profit
8.6
8.8
Gross Margin (%)
34.0%
38.4%
Research & Development
(0.9)
(1.1)
Adjusted EBITDA (after exceptional and other items) 2
(0.4)
1.8
Exceptional Items
(0.4)
0.0
Cash and cash equivalents
7.4
2.4
Backlog
91.4
66.2
Note: EBITDA is defined as net profit for the period plus finance costs, depreciation and amortisation
Stephen Stamp, Chief Executive Officer of Ergomed plc, commented: "The reasons for the disappointing first half were well documented in our Trading Statement at the end of June. Since then, the management team has addressed the Company's cost base by terminating or re-negotiating vendor contracts and reducing headcount, with an emphasis on non-billable headcount. These measures are expected to have a positive net impact for the remainder of 2018 and an annualized benefit of around £4.0 million next year. Our focus on services is beginning to show promise in terms of the scale of pharmacovigilance opportunities and the number of orphan drug development opportunities and we remain confident in our strategy and ability to deliver future growth."
Key Highlights
§ Established pharmacoepidemiology business as part of PV offering and integrated PSR
§ Net service fee revenues up 11.8% to £21.8 million (H1 2017: £19.5 million) with inclusion of PSR
§ Gross margin reduced to 34.0% (H1 2017: 38.4%) reflecting previously announced delay in commencement of some projects
§ Adjusted EBITDA loss of £0.4 million after £0.4 million exceptional items
§ Cash and cash equivalents of £7.4 million as at 30 June 2018 (30 June 2017: £2.4 million)
§ Backlog of £91.4 million contracted revenue as of 30 June 2018 (30 June 2017: £66.2 million)
Recent Developments
§ Cost reduction programme implemented, reducing headcount by approximately 10%
§ Total order intake in July and August amounted to £16.0 million
§ Small acquisition of Harefield Pharmacovigilance Limited completed in September
§ Stuart Jackson was appointed to the Board as Chief Financial Officer
§ Asarina Pharma AB, a co-development partner, completed a public offering ahead of listing on the First North exchange, scheduled for 24 September 2018
Notes:
1 To align with industry practice, Ergomed plc is disclosing reimbursement revenue and reimbursable expenses as part of total revenues and separately from costs of sales respectively. Net service revenues exclude reimbursement revenues.
2 Adjustments are made to EBITDA for share-based payment charge, deferred consideration for acquisition relating to post acquisition remuneration, revaluation of deferred consideration for acquisition, acquisition costs and exceptional items.
Conference call for analysts:
A briefing for analysts will be held at 8.30am BST on 19 September at the offices of Numis Securities Ltd., 10 Paternoster Square, London, EC4M 7LT. There will be a simultaneous live conference call with Q&A.
Conference call details:
Participant dial-in: 08003767922
International dial-in: +44 (0) 2071 928000
Participant code: 6379908
Enquiries:
Ergomed plc
Tel: +44 (0) 1483 503 205
Stephen Stamp (Chief Executive Officer)
Stuart Jackson (Chief Financial Officer)
Numis Securities Limited
Tel: +44 (0) 20 7260 1000
Michael Meade / Freddie Barnfield (Nominated Adviser)
James Black (Joint Broker)
Consilium Communications - for UK Enquiries
Tel: +44 20 3709 5700
Chris Gardner / Mary-Jane Elliott
Matthew Neal / Olivia Manser
MC Services - for Continental Europe Enquiries
Tel: +49 211 5292 5222
Anne Hennecke
About Ergomed plc
Ergomed provides specialist services to the pharmaceutical industry spanning all phases of clinical development, post-approval pharmacovigilance and medical information. Ergomed's fast-growing, profitable services offering encompasses a complete suite of specialist pharmacovigilance solutions, integrated under the PrimeVigilance brand, in addition to a full range of high quality contract research and trial management services (CRS). Leveraging its CRS expertise, Ergomed also has a drug development portfolio of co-development partnerships and wholly-owned programmes. For further information, visit: http://ergomedplc.com.
Forward Looking Statements
Certain statements contained within the announcement are forward looking statements and are based on current expectations, estimates and projections about the potential returns of Ergomed plc ("Ergomed") and industry and markets in which Ergomed operates, the Directors' beliefs and assumptions made by the Directors. Words such as "expects", "anticipates", "should", "intends", "plans", "believes", "seeks", "estimates", "projects", "pipeline" and variations of such words and similar expressions are intended to identify such forward looking statements and expectations. These statements are not guarantees of future performance or the ability to identify and consummate investments and involve certain risks, uncertainties, outcomes of negotiations and due diligence and assumptions that are difficult to predict, qualify or quantify. Therefore, actual outcomes and results may differ materially from what is expressed in such forward looking statements or expectations. Among the factors that could cause actual results to differ materially are: the general economic climate, competition, interest rate levels, loss of key personnel, the result of legal and commercial due diligence, the availability of financing on acceptable terms and changes in the legal or regulatory environment.
These forward-looking statements speak only as of the date of this announcement. Ergomed expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Ergomed's expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority.
INTERIM MANAGEMENT REPORT
OPERATIONAL AND FINANCIAL REVIEW
Introduction
As stated in the trading update of 28 June 2018, the first half of 2018 was impacted by delays to the start of some contracts and reductions in scope by sponsors of others. Since then, a cost reduction programme has been implemented which will result in a one-time charge, but benefit underlying profitability in the second half of 2018, and lead to a more significant improvement in profitability in 2019 and beyond. We believe the markets in which we operate remain attractive and in recent months we have signed new contracts with a value of £16.0 million. The Board remains confident in Ergomed's strategy and the opportunities for growth in key areas of specialist pharmaceutical services.
Results from Operations
Unaudited
Figures in £ millions, unless otherwise stated
1st Half
2018
Restated
1st Half
2017
Net Service Fee Revenue
21.8
19.5
Reimbursement Revenue
3.5
3.4
Total Revenue
25.3
22.9
Cost of Sales
(13.2)
(10.7)
Reimbursable expenses
(3.5)
(3.4)
Gross Profit
8.6
8.8
Gross Margin %
34.0%
38.4%
Net service fee revenue increased 12% to £21.8 million, with the largest element of the increase being the maiden H1 contribution from the PSR acquisition completed in October 2017. With the inclusion of reimbursement revenue, total revenue was up 10% to £25.3 million. Gross profit slightly reduced at £8.6 million despite the inclusion of the PSR acquisition. The delay in commencement of work on certain contracts in the first half of 2018 meant that the business was carrying costs ahead of revenue, thus leading to a reduction in overall margin.
Segmental Analysis
The Ergomed business is managed through two business units covering Clinical Research Services (CRS) and Pharmacovigilance (PV). Additionally, the business has an R&D activity and corporate overheads which are disclosed separately. The CRS and PV business segments constitute the operations of the overall Ergomed business and their performance over the period is set out below:
Segmental Analysis
Unaudited
1st Half 2018
Restated 1st Half 2017
Figures in £ millions, unless otherwise stated
CRS
PV
CRS
PV
Net Service Fee Revenue
9.8
12.0
8.8
10.7
Reimbursement Revenue
3.4
0.1
3.3
0.1
Total Revenue
13.2
12.1
12.1
10.8
Cost of Sales
(6.1)
(7.1)
(5.3)
(5.4)
Reimbursable expenses
(3.4)
(0.1)
(3.3)
(0.1)
Gross Profit
3.7
4.9
3.5
5.3
Gross Margin %
28.0%
40.5%
28.9%
49.1%
Backlog
49.9
41.5
44.5
21.7
The revenue growth in the CRS business reflects the inclusion of the PSR acquisition, which has also contributed positively to profitability for the business unit. The PV business showed slower revenue growth than anticipated as a result of the delay in commencement of some contracts. This impacts gross margin adversely because the costs associated with the delayed commencement were still carried by the business during the period.
Cost Reduction Programme
Since the period end, management have implemented a number of actions to reduce the cost base of the business, increase operating efficiency and improving overall profitability. These actions have included the reduction of headcount by approximately 10% and the renegotiation or cancellation of certain consultancy and other supplier contracts. The majority of the headcount reductions were focused on non-billable personnel and we are confident the slight reduction in billable personnel will not have an impact on project execution.
The cost reduction programme is now substantially complete and the current assessment is that there will be an improvement at an operating profit level of £1.2 million for the remainder of 2018, against which an exceptional charge of £0.6 million will be taken. On a fully annualised basis it is expected that the results of the cost reduction programme will provide approximately £4.0 million improvement in profitability.
Backlog
Unaudited
Figures in £ millions as at:
30 June
2018
30 June
2017
31 December
2017
Service Fee Backlog
74.7
50.5
68.0
Total Backlog
91.4
66.2
86.9
Backlog of £91.4 million at 30 June 2018 reflected an increase of 38% over the year, although this growth had largely been accomplished by year end. Of the £91.4 million backlog, £25.0 million is in relation to work to be executed in the remainder of 2018. In terms of business units, £49.9 million of the backlog is in relation to the CRS business and £41.5 million relates to the PV business.
The market for CRS and PV activities remains buoyant and we maintain a high level of tenders at the late stage of negotiation of which £16.0 million have been signed in the past two months. Whilst the PV business did not grow as quickly as anticipated in the first half of 2018 we still remain very confident in the growth opportunities of this market. We continue to invest in robotics and automation of some PV activities to drive improvements in product delivery.
Haemostatix and Co-Development
Ergomed's continues to believe that the Haemostatix opportunities in PeproStat™ and ReadyFlow™ have a high chance of clinical success. Our strategy, ahead of Phase III trials, is to continue with limited investment whilst pursuing further development through co-investors and/or licensees of the individual products. A number of these opportunities are being pursued.
Asarina Pharma AB, where Ergomed has maintained a co-development partnership in relation to PMDD, completed a public offering ahead of listing on the First North exchange scheduled for 24 September 2018.
Management Change
Stuart Jackson was appointed Chief Financial Officer on 2 July 2018 bringing with him 20 years' experience as a Chief Financial Officer having managed companies on the London, NASDAQ and Oslo Stock Exchanges.
INTERIM MANAGEMENT REPORT
FINANCIAL RESULTS
Restatements and Comparable Figures
At the 2017 year end Ergomed made a restatement of its financial results in respect of the treatment of share based payments and inventory. As a consequence of this, comparative figures for first half 2017 have now been restated. Additionally, following the implementation of new financial systems, the Company has better visibility on costs as they apply to operational activities and overhead activities. As a result of this improved cost analysis certain reallocations of costs for first half 2017 have been made to provide comparable figures. The impact of these adjustments are disclosed fully in the financial statements.
With effect from 1 January 2018 Ergomed is required to recognise revenue in accordance with IFRS 15. Accordingly, in line with the introduction of new financial systems, when reporting full year figures for 2018 these will be stated in accordance with IFRS 15 and prior year figures will be restated to show the effect of IFRS 15 adoption using the cumulative effect method. Ergomed has not complied with IFRS 15 in the figures for first half 2018 reporting as they remain in accordance with IAS 18.
Abbreviated Profit & Loss
Unaudited
Figures in £ millions, unless otherwise stated
1st Half
2018
Restated
1st Half
2017
Total Revenue
25.3
22.9
Cost of Sales
(13.2)
(10.7)
Reimbursable expenses
(3.5)
(3.4)
Gross Profit
8.6
8.8
Administrative and Other Expenses
(10.3)
(7.0)
Research & Development
(0.9)
(1.1)
Operating (Loss) / Profit
(2.5)
0.7
Finance Costs & Other Income
(0.3)
(0.2)
(Loss) / Profit Before Taxation
(2.8)
0.5
Taxation
(0.1)
(0.0)
(Loss) / Profit After Taxation
(2.9)
0.5
Adjusted EBITDA (after exceptional and other items)
(0.4)
1.8
Exceptional Items
(0.4)
0.0
(Loss) / Earnings Per Share (pence) 3
(6.6)p
1.2p
3 Adjustments are made to EPS for amortisation of acquired fair valued intangible assets, share-based payment charge, deferred consideration for acquisitions relating to post acquisition remuneration, acquisition costs and exceptional items.
Administrative expenses increased from £7.0 million to £10.3 million of which £0.4 million related to exceptional items covering the amalgamation of the PV and PharmInvent businesses and the establishment of a pharmacoepidemiology capability and a further £0.2 million in relation to increased amortisation of acquired intangible assets and share based payment charges.
Of the remaining £2.7 million increase in other administrative expenses, £0.4 million related to the general overheads of PSR, acquired in October 2017, and £0.3 million related to the amortisation of software previously in development. The remaining increase in costs related to expansion of the business, including the establishment of a PV presence in the USA and increased headcount and salary increases over the business as a whole.
R&D expenditure was £0.9 million in the period (H1 2017: £1.1 million) after expensing £0.2 million in relation to clinical trial material; costs were incurred in relation to certain preparations for the Phase III study for Peprostat and further progress on the development of ReadyFlow. Ergomed continues to progress discussions with respect to partnering before commencing the Peprostat Phase III study.
A charge of £0.3 million was made in respect of Finance Costs & Other Income relating to the unwinding of the discount applied to the deferred consideration for the Haemostatix and PSR acquisitions.
The number of ordinary shares in issue at 30 June 2018 amounted to 44,873,602 including 2,029,971 shares issued in a Placing in February 2018 and 62,000 shares issued following the exercise of options. With a loss of £2.9 million in the period this equated to a Loss per Share of 6.6 pence.
Abbreviated Cashflow
Unaudited
Figures in £ millions, unless otherwise stated
1st Half
2018
1st Half
2017
Operating (Loss) / Profit
(2.5)
0.7
Add: Depreciation & Amortisation
1.2
0.8
EBITDA
(1.3)
1.5
FX and Other Non Cash items
0.1
(0.1)
(Increase)/Decrease in Working Capital
2.6
(2.0)
Net Cash Inflow / (Outflow) from Operations
1.4
(0.6)
Taxation
0.4
(0.2)
Investing Activities
(1.3)
(1.2)
Financing Activities
3.7
(0.0)
Increase / (Decrease) in Cash
4.2
(2.0)
Closing Cash Balance
7.4
2.4
A net inflow of working capital occurred during the period largely as a result of successful management of the CEL-SCI overdue receivable. At 30 June 2018 £1.7 million remained outstanding (31 December 2017: £2.8 million) of which £0.9 million was overdue compared to £2.0 million at the year end. Of the £0.9 million overdue the majority of this has been cleared post period end.
Investing activities include £0.3 million in tangible assets, primarily being computer equipment and leasehold improvements, 0.3 million in intangible assets, primarily being investment in database and accounting systems, and £0.8 million relating to the payment of earn-out to the vendors of Pharminvent (now PrimeVigilance s.r.o.).
Financing activities included the receipt of £3.7 million in net proceeds from the issue of 2,029,971 shares in February 2018. A further 62,000 shares were issued pursuant to the exercise of options.
Abbreviated Balance Sheet
Figures in £ millions, unless otherwise stated
Unaudited
30 Jun 2018
Restated
Unaudited (*)
30 Jun 2017
Audited
31 Dec 2017
Non-current Assets
38.7
35.3
38.9
Current Assets
22.2
19.7
23.0
Current Liabilities
(11.5)
(8.3)
(13.9)
Non-current Liabilities
(13.3)
(11.3)
(13.2)
Total Net Assets
36.0
35.4
34.8
Total Equity
36.0
35.4
34.8
Non-current assets are broadly unmoved since the year end. The carrying value of Goodwill and In Process R&D in relation to Haemostatix totalled £17.4 million and other co-development projects at 30 June 2018 were £1.2 million. Investments increased by £0.5 million, reflecting the issue of equity by co-development partners.
Current Assets at £22.2 million includes a reduction of £3.5 million in trade and other receivables compared to the year end as a result of improved cash collection on trade receivables and specifically the reduction to an overdue receivable balance as well as receipt of tax receivables from the previous year. In addition, £0.5 million of other receivables was converted to equity following the issue of shares by Modus Therapeutics under the co-development agreement. These shares are shown as investments on the balance sheet. Current Assets also includes cash and cash equivalents of £7.4 million compared to £3.2 million at 31 December 2017 with the increase broadly relating to the placing in February 2017, raising net proceeds of £3.7 million.
Current Liabilities have decreased from £13.9 million at 31 December 2017 to £11.5 million at the period end, primarily as a result of the payment of £0.8 million Earn-out in relation to the performance of PharmInvent in 2017, and a reduction to trade creditors of £1.1 million. There were no material borrowings at the period end.
Deferred consideration included in Non-current Liabilities has increased from £9.8 million at the year end to £10.1 million at 30 June 2018 as a result of unwinding of the discount provision on the deferred consideration in respect of the Haemostatix and PSR acquisitions.
Current Trading and Outlook
While the first half performance was disappointing, the cost reduction programme implemented by management is expected to deliver an improvement of £1.2 million (excluding the one-time cost of implementation) at an operating profit level for the remainder of 2018 and a more significant improvement in profitability in 2019 and beyond. We have a £91.4 million backlog, of which £25.0 million is in relation to work to be executed in the remainder of 2018, and have signed new contracts with an initial value of £16 million in recent months. We continue to believe the markets in which we operate are attractive and the Board remains confident in the strategy to focus on services, and positive on the outlook for the Company.
INTERIM MANAGEMENT REPORT
FINANCIAL STATEMENTS AND NOTES
Consolidated Income Statement
For the six months ended 30 June 2018
Note
Unaudited
Six months
ended
30 June 2018
£000s
Unaudited
Six months
ended
30 June 2017
(re-stated)
£000s
Unaudited
Year
ended
31 December 2017
(re-stated)
£000s
Net service revenue
21,797
19,476
39,645
Licence revenue
-
-
370
Reimbursement revenue
3,541
3,431
7,609
REVENUE
2
25,338
22,907
47,624
Cost of sales
(13,208)
(10,726)
(22,398)
Reimbursable expenses
(3,541)
(3,431)
(7,609)
GROSS PROFIT
8,589
8,750
17,617
Administrative expenses
(10,288)
(6,975)
(18,950)
Administrative expenses comprises:
Other administrative expenses
(8,745)
(6,093)
(12,721)
Amortisation of acquired intangible assets
(677)
(552)
(1,167)
Share-based payment charge
(359)
(278)
(1,033)
Deferred consideration for acquisitions expense
-
-
(752)
Revaluation of deferred consideration
-
-
(2,875)
Acquisition costs
7
(66)
(52)
(259)
Exceptional items
8
(441)
-
(143)
Research and development
(863)
(1,065)
(2,689)
Other operating income
16
12
118
OPERATING (LOSS)/PROFIT
(2,546)
722
(3,904)
Investment revenues
4
3
3
Finance costs
(303)
(247)
(546)
(LOSS)/PROFIT BEFORE TAXATION
(2,845)
478
(4,447)
Taxation
(83)
(4)
(57)
(LOSS)/PROFIT FOR THE PERIOD
(2,928)
474
(4,504)
(LOSS)/EARNINGS PER SHARE
Basic
3
(6.6)p
1.2p
(11.0)p
Diluted
3
(6.6)p
1.1p
(11.0)p
All activities in the current and prior period relate to continuing operations.
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2018
Unaudited
Six months
ended
30 June 2018
£000s
Unaudited
Six months
ended
30 June 2017
£000s
Audited
Year
ended
31 December 2017
£000s
(Loss)/profit for the period
(2,928)
474
(4,504)
Items that may be classified subsequently to profit or loss:
Exchange differences on translation of foreign operations
(3)
138
619
Other comprehensive income for the period net of tax
(3)
138
619
Total comprehensive income for the period
(2,931)
612
(3,885)
FINANCIAL STATEMENTS AND NOTES
Consolidated Balance Sheet
At 30 June 2018
Note
Unaudited
30 June 2018
£000s
Unaudited
30 June 2017
(re-stated)
£000s
Audited
31 December 2017
£000s
Non-current assets
Goodwill
15,223
12,342
15,269
Other intangible assets
19,471
19,662
20,229
Property, plant and equipment
1,161
850
1,078
Investments
1,214
747
754
Deferred tax asset
1,651
1,725
1,613
38,720
35,326
38,943
Current assets
Trade and other receivables
4
14,498
16,758
19,250
Other current assets
5
168
485
502
Current asset investments
90
-
-
Cash and cash equivalents
7,406
2,436
3,218
22,162
19,679
22,970
Total assets
60,882
55,005
61,913
Current liabilities
Borrowings
(11)
(2)
(12)
Trade and other payables
6
(8,085)
(6,619)
(10,717)
Deferred consideration
(1,969)
-
(1,957)
Deferred revenue
(1,232)
(1,597)
(976)
Taxation
(196)
(51)
(201)
Total current liabilities
(11,493)
(8,269)
(13,863)
Net current assets
10,669
11,410
9,107
Non-current liabilities
Borrowings
(1)
(5)
(6)
Deferred consideration
(10,094)
(7,993)
(9,804)
Deferred tax liability
(3,253)
(3,306)
(3,397)
Total liabilities
(24,841)
(19,573)
(27,070)
Net assets
36,041
35,432
34,843
Equity
Share capital
449
406
428
Share premium account
24,326
17,957
20,616
Merger reserve
11,008
10,264
11,008
Share option reserve
3,033
2,107
2,674
Translation reserve
759
281
762
Retained earnings
(3,534)
4,417
(645)
Total equity
36,041
35,432
34,843
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2017
Share
capital
£000s
Share
premium
account
£000s
Merger reserve
£000s
Share
option
reserve
£000s
Translation
reserve
£000s
Retained
earnings
£000s
Total
£000s
Balance at 31 December 2016*
406
17,957
10,264
1,048
143
4,790
34,608
Prior period adjustment*
-
-
-
781
-
(991)
(210)
Balance at 31 December 2016 (re-stated)*
406
17,957
10,264
1,829
143
3,799
34,398
Profit for the six month period**
-
-
-
-
-
474
474
Other comprehensive income for the period**
-
-
-
-
138
-
138
Total comprehensive income for the period**
-
-
-
-
138
474
612
Share-based payment charge for the period**
-
-
-
278
-
-
278
Deferred tax charge taken directly to equity**
-
-
-
-
-
144
144
Balance at 30 June 2017 (re-stated)**
406
17,957
10,264
2,107
281
4,417
35,432
* Audited
** Unaudited
FINANCIAL STATEMENTS AND NOTES
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2018
Share
capital
£000s
Share
premium
account
£000s
Merger
reserve
£000s
Share
option
reserve
£000s
Translation
reserve
£000s
Retained
earnings
£000s
Total
£000s
Balance at 31 December 2016*
406
17,957
10,264
1,048
143
4,790
34,608
Prior period adjustment*
-
-
-
781
-
(991)
(210)
Balance at 31 December 2016 (re-stated)*
406
17,957
10,264
1,829
143
3,799
34,398
Loss for the year*
-
-
-
-
-
(4,504)
(4,504)
Other comprehensive income for the year*
-
-
-
-
619
-
619
Total comprehensive income for the year*
-
-
-
-
619
(4,504)
(3,885)
Share-issue during the period for cash (net of expenses)*
18
2,659
-
-
-
-
2,677
Share-issues during the period for non-cash consideration*
3
-
555
-
-
-
558
Contingent share-issues during the period for non-cash consideration*
1
-
189
(188)
-
-
2
Share-based payment charge for the year*
-
-
-
1,033
-
-
1,033
Deferred tax credit taken directly to equity*
-
-
-
-
-
60
60
Balance at 31 December 2017*
428
20,616
11,008
2,674
762
(645)
34,843
Loss for the six month period**
-
-
-
-
-
(2,928)
(2,928)
Other comprehensive income for the period**
-
-
-
-
(3)
-
(3)
Total comprehensive income for the period**
-
-
-
-
(3)
(2,928)
(2,931)
Share-issue during the period for cash (net of expenses)*
21
3,710
-
-
-
-
3,731
Share-based payment charge for the period**
-
-
-
359
-
-
359
Deferred tax credit taken directly to equity**
-
-
-
-
-
39
39
Balance at 30 June 2018**
449
24,326
11,008
3,033
759
(3,534)
36,041
* Audited
** Unaudited
FINANCIAL STATEMENTS AND NOTES
Consolidated Cash Flow Statement
For the six months ended 30 June 2018
Unaudited
Six months
ended
30 June 2018
£000s
Unaudited
Six months
ended
30 June 2017
(re-stated)
£000s
Audited
Year
ended
31 December 2017
£000s
Cash flows from operating activities
(Loss)/profit before taxation
(2,845)
478
(4,447)
Adjustment for:
Amortisation and depreciation
1,248
764
1,626
Loss/(gain) on disposal of fixed assets
5
-
(7)
Share-based payment charge
359
278
1,033
Acquisition of shares for non-cash consideration
(460)
(463)
(462)
Exchange adjustments
102
70
(44)
Acquisition costs
-
-
218
Revaluation of deferred consideration
-
-
2,875
Investment revenues
(4)
(3)
(3)
Finance costs
303
247
546
Operating cash flow before changes in working capital and provisions
(1,292)
1,371
1,335
Decrease/(increase) in trade and other receivables
3,989
(1,970)
(3,445)
Decrease/(increase) in other current assets
334
(245)
(262)
(Decrease)/increase in trade and other payables
(1,625)
279
2,753
Cash generated from/(utilised in) operations
1,406
(565)
381
Taxation received/(paid)
448
(186)
(355)
Net cash inflow/(outflow) from operating activities
1,854
(751)
26
Investing activities
Investment revenues received
4
3
3
Acquisition of property, plant and equipment
(343)
(308)
(721)
Acquisition of intangible assets
(302)
(375)
(704)
Acquisition of subsidiaries including expenses of acquisition
-
-
(1,946)
Acquisition related earn-out paid
(751)
(559)
(559)
Receipts from sale of property, plant and equipment
3
4
11
Net cash outflow from investing activities
(1,389)
(1,235)
(3,916)
Financing activities
Issue of new shares
3,914
-
2,900
Expenses of fundraising
(183)
-
(224)
Finance costs paid
(2)
-
(2)
Increase in borrowings
-
-
20
Repayment of borrowings
(6)
(2)
(10)
Net cash inflow/(outflow) from financing activities
3,723
(2)
2,684
Net increase/(decrease) in cash and cash equivalents
4,188
(1,988)
(1,206)
Cash and cash equivalents at start of the period
3,218
4,424
4,424
Cash and cash equivalents at end of period
7,406
2,436
3,218
FINANCIAL STATEMENTS AND NOTES
Notes
1. GENERAL INFORMATION
This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.
Other than as described below under "Reimbursement revenue and reimbursable expenses", the interim financial statements have been prepared using accounting policies and method of computation consistent with those used in the audited statutory financial statements for the year ended 31 December 2017 and International Reporting Standards (IFRSs) adopted for use in the European Union. While the financial information included in this interim statement has been compiled in accordance with the recognition and measurement principles of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs and does not comply with IAS 34.
The information for the six month period ended 30 June 2018 is unaudited, but reflects all normal adjustments which are, in the opinion of the Board, necessary to provide a fair statement of results and the Group's financial position for and as at the period presented.
Statutory accounts for the year ended 31 December 2017 were approved by the Board of Directors and have been delivered to the Registrar of Companies. The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
At 30 June 2018 Ergomed had cash resources of £7.4 million (30 June 2017: £2.4 million; 31 December 2017: £3.2 million).
Reimbursement revenue and reimbursable expenses
Reimbursable expenses are reflected in the Company's Consolidated Income Statement as "Reimbursement revenue" in total revenue and as "Reimbursable expenses" separately from cost of sales as the Company is the primary obligor for these expenses despite being reimbursed by its clients. Reimbursable expenses are comprised primarily of payments to physicians (investigators) who oversee clinical trials and travel expenses for our clinical monitors and other employees. Costs for such activities are recorded based upon payment requests or invoices that have been received from third parties in the periods presented or accrued based on patient recruitment. Reimbursed expenses may fluctuate from period-to-period due, in part, to the lifecycle of contracts that are in progress at a particular point in time. Service revenues or revenues before reimbursements ("net service revenues") include any margin earned on reimbursed expenses. When such an expense is not reimbursed, they are classified as costs of sales on the Consolidated Income Statement.
Risks and uncertainties
An outline of the key risks and uncertainties faced by the Group was described in the Company's AIM Admission Document from July 2014 which is located in the Company website (www.ergomedplc.com) in the Investors section. These risks include competition; dependence on a small number of customers; legislation and regulation of the pharmaceutical and biotechnology industries; licensees, approvals and compliance; and the potential for cancellation or delay of clinical studies by customers. It is anticipated that the risk profile will not significantly change for the remainder of the year. Risk is an inherent part of doing business and the profitability and strong cash position of the Group, along with the growth profile of the business, leads the Directors to believe that the Group is well placed to manage business risks successfully.
Going concern
The Directors have considered cash flow forecasts for the group, detailing cash inflows and outflows for the period ending 31 December 2019. Based on their review of these forecasts and consideration of the economic environment in which the group operates, the Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial information for the six months ended 30 June 2018.
Business Combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred on acquisition is the fair value at the date of transaction for assets and liabilities transferred. All acquisition related costs are expensed as incurred.
Goodwill arises as the excess of acquisition cost over the fair value of the assets transferred at the date of transaction. Goodwill is reviewed for impairment annually, and is carried at cost less accumulated impairment losses. Impairment losses are not reversed in subsequent periods.
Goodwill arising on the acquisition of a foreign operation, including any fair value adjustments to the carrying amounts of assets or liabilities on the acquisition, are treated as assets and liabilities of that foreign operation in accordance with IAS 21 and as such are translated at the relevant foreign exchange rate at the statement of financial position date.
2. REVENUE
Clinical research services
Drug safety and medical information services
Total
revenue
£000s
£000s
£000s
Six months ended 30 June 2018
Net service revenue**
9,845
11,952
21,797
Reimbursement revenue**
3,373
168
3,541
Revenue**
13,218
12,120
25,338
Six months ended 30 June 2017
Net service revenue**
8,747
10,729
19,476
Reimbursement revenue**
3,336
95
3,431
Revenue**
12,083
10,824
22,907
* Audited
** Unaudited
3. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
Unaudited
Six months
ended
30 June 2018
£000s
Unaudited
Six months
ended
30 June 2017
£000s
Audited
Year
ended
31 December 2017
£000s
(Loss)/earnings for the purposes of basic earnings
per share being net profit attributable to
owners of the Company
(2,928)
474
(4,504)
Earnings for the purposes of diluted earnings per share
(2,928)
474
(4,504)
No.
No.
No.
Number of shares
Weighted average number of ordinary shares
for the purposes of basic earnings per share
44,399,323
40,534,603
41,086,201
Effect of dilutive potential ordinary shares
Share options
2,289,101
2,058,829
2,056,583
Equity related earn-out
218,551
-
213,033
Weighted average number of ordinary shares for the purposes of diluted earnings per share
46,906,975
42,593,432
43,355,817
4. TRADE AND OTHER RECEIVABLES
Unaudited
30 June 2018
£000s
Unaudited
30 June 2017
£000s
Audited
31 December 2017
£000s
Trade receivables
8,984
11,179
13,390
Other receivables
1,387
1,191
1,702
Prepayments
1,035
792
733
Accrued income
2,782
2,753
2,443
Corporation tax receivable
310
843
982
14,498
16,758
19,250
5. OTHER CURRENT ASSETS
Unaudited
30 June 2018
£000s
Unaudited
30 June 2017
£000s
Audited
31 December 2017
£000s
Clinical trial material
168
485
502
6. TRADE AND OTHER PAYABLES
Unaudited
30 June 2018
£000s
Unaudited
30 June 2017
£000s
Audited
31 December 2017
£000s
Trade creditors
3,855
3,027
4,942
Amounts payable to related parties
89
54
418
Social security and other taxes
564
876
1,113
Other payables
921
785
1,186
Customer advances
579
-
751
Accruals
2,077
1,877
2,307
8,085
6,619
10,717
7. ACQUISITION COSTS
Unaudited
Six months
ended
30 June 2018
Unaudited
Six months
ended
30 June 2017
Audited
Year
ended
31 December 2017
£000s
£000s
£000s
Acquisition of PSR
-
-
218
Other M&A activities
66
52
41
66
52
259
8. EXCEPTIONAL ITEMS
Unaudited
Six months
ended
30 June 2018
Unaudited
Six months
ended
30 June 2017
Audited
Year
ended
31 December 2017
£000s
£000s
£000s
Pharmacoepidemiology business
185
-
-
Business reorganisation
256
-
-
Severance costs relating to former CEO
-
-
143
441
-
143
In line with the way the Board and chief operating decision makers review the business, large one-off exceptional costs are separately identified and shown as exceptional costs. In the period ended 30 June 2018, these related to the establishment of the pharmacoepidemiology business and the reorganisation expenses associated with the combining of the PrimeVigilance and PharmInvent businesses. In the full year of 2017, these were directly related to the severance costs regarding the former CEO.
9. EBITDA and EBITDA (adjusted)
Unaudited
Six months
ended
30 June 2018
Unaudited
Six months
ended
30 June 2017
Audited
Year
ended
31 December 2017
£000s
£000s
£000s
Operating (loss)/profit
(2,546)
722
(3,904)
Adjust for:
Depreciation and amortisation charges within Other administrative expenses
571
212
459
Amortisation of acquired intangible assets
677
552
1,167
EBITDA
(1,298)
1,486
(2,278)
Share-based payment charge
359
278
1,033
Deferred consideration for acquisition
-
-
752
Revaluation of deferred consideration for acquisition
-
-
2,875
Acquisition costs (note 7)
66
52
259
Exceptional items (note 8)
441
-
143
Adjusted EBITDA
(432)
1,816
2,784
RE-STATEMENTS
1. Re-statement of Balance Sheet
As described in the Annual Report for the year ended 31 December 2017, the Balance Sheet as at 31 December 2016 was re-stated. This has a consequential effect on the Balance Sheet as at 30 June 2017, as explained below.
Certain Directors, former Directors and the Company Secretary hold options over shares held by Dr Miroslav Reljanovic under agreements between those parties. The grant and vesting of such options was dependent on their continued employment by the Company. Although these options are not dilutive and the Company is not party to the arrangements, in accordance with IFRS 2, a share-based payment charge arises. No such charge was shown in the financial statements for the years ended 31 December 2016.
In November 2016, the Company acquired European PharmInvent Services s.r.o. (now PrimeVigilance s.r.o.). Deferred consideration payable to the vendors is dependent on their remaining employees of the group. The total amount payable to vendors for the year ended 31 December 2016 was charged to the income statement. However, a proportion of that deferred consideration is payable in equity. In accordance with IFRS 2, this proportion should be treated as a share-based payment.
In 2016, the raw material and manufacturing costs of clinical trial material to be used in clinical studies were capitalised and categorised as Clinical Trial Inventory. However, under IFRS, the raw material costs were not eligible for capitalisation. Therefore, a prior year adjustment has arisen and the remaining capitalised amount is categorised as 'Other current assets'.
The impact of the restatement for share based payments and inventory on the Consolidated Balance Sheet as at 30 June 2017 is set out below.
Re-statement of Consolidated Balance Sheet
At 30 June 2017
Unaudited
30 June 2017
£000s
Adjustment
£000s
Unaudited
30 June 2017
(re-stated)
£000s
Non-current assets
Goodwill
12,342
-
12,342
Other intangible assets
19,662
-
19,662
Property, plant and equipment
850
-
850
Investments
747
-
747
Deferred tax asset
1,725
-
1,725
35,326
-
35,326
Current assets
Trade and other receivables
16,758
-
16,758
Inventory
695
(695)
-
Other current assets
-
485
485
Cash and cash equivalents
2,436
-
2,436
19,889
(210)
19,679
Total assets
55,215
(210)
55,005
Current liabilities
Borrowings
(2)
-
(2)
Trade and other payables
(6,619)
-
(6,619)
Deferred revenue
(1,597)
-
(1,597)
Taxation
(51)
-
(51)
Total current liabilities
(8,269)
-
(8,269)
Net current assets
11,620
(210)
11,410
Non-current liabilities
Borrowings
(5)
-
(5)
Deferred consideration
(7,993)
-
(7,993)
Deferred tax liability
(3,306)
-
(3,306)
Total liabilities
(19,573)
-
(19,573)
Net assets
35,642
(210)
35,432
Equity
Share capital
406
-
406
Share premium account
17,957
-
17,957
Merger reserve
10,264
-
10,264
Share option reserve
1,326
781
2,107
Translation reserve
281
-
281
Retained earnings
5,408
(991)
4,417
Total equity
35,642
(210)
35,432
2. Re-statement of Consolidated Cash Flow Statement
In the first half of 2017, deferred consideration was paid to the vendors of European Pharminvent Services s.r.o. (now PrimeVigilance s.r.o.). Since that deferred consideration was contingent upon the continued employment of the vendors, these amounts were charged to the income statement, in accordance with IFRS 3. In the unaudited results for the period ended 30 June 2017, the payment of these amounts was reflected as a movement in working capital. However, in the audited financial statements for the year-ended 31 December 2017, these payments were separately identified as an investing activity. Thus the cash flow statement for the period ended 30 June 2017 has been re-stated to show these amounts as an investing activity.
Re-statement of Consolidated Cash Flow Statement
For the six months ended 30 June 2017
Unaudited
Six months
ended
30 June 2017
£000s
Adjustment
£000s
Unaudited
Six months
ended
30 June 2017
(re-stated)
£000s
Cash flows from operating activities
Profit before taxation
478
-
478
Adjustment for:
Amortisation and depreciation
764
-
764
Loss/(gain) on disposal of fixed assets
-
-
-
Share-based payment charge
278
-
278
Acquisition of shares for non-cash consideration
(463)
-
(463)
Exchange adjustments
70
-
70
Acquisition costs
-
-
-
Revaluation of deferred consideration
-
-
-
Investment revenues
(3)
-
(3)
Finance costs
247
-
247
Operating cash flow before changes in working capital and provisions
1,371
-
1,371
Decrease/(increase) in trade and other receivables
(1,970)
-
(1,970)
Decrease/(increase) in other current assets
(245)
-
(245)
(Decrease)/increase in trade and other payables
(280)
559
279
Cash (utilised in)/generated from operations
(1,124)
559
(565)
Taxation paid
(186)
-
(186)
Net cash (outflow)/inflow from operating activities
(1,310)
559
(751)
Investing activities
Investment revenues received
3
-
3
Acquisition of property, plant and equipment
(308)
-
(308)
Acquisition of intangible assets
(375)
-
(375)
Acquisition of subsidiaries including expenses of acquisition
-
-
-
Acquisition related earn-out paid
-
(559)
(559)
Receipts from sale of property, plant and equipment
4
-
4
Net cash outflow from investing activities
(676)
(559)
(1,235)
Financing activities
Repayment of borrowings
(2)
-
(2)
Net cash (outflow)/inflow from financing activities
(2)
-
(2)
Net (decrease)/increase in cash and cash equivalents
(1,988)
-
(1,988)
Cash and cash equivalents at start of the period
4,424
-
4,424
Cash and cash equivalents at end of period
2,436
-
2,436
3. Re-statement of Consolidated Income Statement
There has been a re-allocation of costs between Cost of sales and Administrative expenses resulting in a re-statement of the income statements for the year-ended 31 December 2017 and the period ended 30 June 2017. This change in allocation arises as a result of improved systems and visibility on personnel utilisation and associated costs, and is required to enable comparisons between the current and prior periods.
Re-statement of Consolidated Income Statement
For the six months ended 30 June 2017
Unaudited
Six months
ended
30 June 2017
£000s
Adjustment
£000s
Unaudited
Six months
ended
30 June 2017
(re-stated)
£000s
Net service revenue
19,476
-
19,476
Reimbursement revenue
3,431
-
3,431
REVENUE
22,907
-
22,907
Cost of sales
(11,962)
1,236
(10,726)
Reimbursable expenses
(3,431)
-
(3,431)
GROSS PROFIT
7,514
1,236
8,750
Administrative expenses
(5,739)
(1,236)
(6,975)
Administrative expenses comprises:
Other administrative expenses
(4,857)
(1,236)
(6,093)
Amortisation of acquired intangible assets
(552)
-
(552)
Share-based payment charge
(278)
-
(278)
Deferred consideration for acquisitions expense
-
-
-
Revaluation of deferred consideration
-
-
-
Acquisition costs
(52)
-
(52)
Exceptional items
-
-
-
Research and development
(1,065)
-
(1,065)
Other operating income
12
-
12
OPERATING (LOSS)/PROFIT
722
-
722
Investment revenues
3
-
3
Finance costs
(247)
-
(247)
(LOSS)/PROFIT BEFORE TAXATION
478
-
478
Taxation
(4)
-
(4)
(LOSS)/PROFIT FOR THE PERIOD
474
-
474
Re-statement of Consolidated Income Statement
For the year ended 31 December 2017
Audited
Year
ended
31 December 2017
£000s
Adjustment
£000s
Unaudited
Year
ended
31 December 2017
(re-stated)
£000s
Net service revenue
39,645
-
39,645
Licence revenue
370
-
370
Reimbursement revenue
7,609
-
7,609
REVENUE
47,624
-
47,624
Cost of sales
(25,394)
2,996
(22,398)
Reimbursable expenses
(7,609)
-
(7,609)
GROSS PROFIT
14,621
2,996
17,617
Administrative expenses
(15,954)
(2,996)
(18,950)
Administrative expenses comprises:
Other administrative expenses
(9,725)
(2,996)
(12,721)
Amortisation of acquired intangible assets
(1,167)
-
(1,167)
Share-based payment charge
(1,033)
-
(1,033)
Deferred consideration for acquisitions expense
(752)
-
(752)
Revaluation of deferred consideration
(2,875)
-
(2,875)
Acquisition costs
(259)
-
(259)
Exceptional items
(143)
-
(143)
Research and development
(2,689)
-
(2,689)
Other operating income
118
-
118
OPERATING (LOSS)/PROFIT
(3,904)
-
(3,904)
Investment revenues
3
-
3
Finance costs
(546)
-
(546)
(LOSS)/PROFIT BEFORE TAXATION
(4,447)
-
(4,447)
Taxation
(57)
-
(57)
(LOSS)/PROFIT FOR THE PERIOD
(4,504)
-
(4,504)
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