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ERGO - Ergomed News Story

685p -5.0  -0.7%

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Sector
Healthcare
Size
Small Cap
Market Cap £334.0m
Enterprise Value £325.2m
Revenue £68.3m
Position in Universe 625th / 1807

Ergomed plc - Unaudited Preliminary Results for 2016 - Part 2

Tue 28th March, 2017 7:00am
- Part 2: For the preceding part double click  ID:nRSb6771Aa 

                                                                                
 Revenue                                                                                            
 Third party sales                 25,777    13,456      -                  39,233                  
 Intersegment sales and recharges  670       2           (672)              -                       
                                                                                                    
 Total revenue                     26,447    13,458      (672)              39,233                  
                                                                                                    
 
 
 2016                                                    CRS£000s  DS&MI£000s  Eliminations£000s  Consolidatedtotal£000s  
                                                                                                                          
 Segment result                                          203       3,586       9                  3,798                   
                                                                                                                          
 Research and development                                                                         (1,040)                 
 Amortisation of acquired fair valued intangible assets                                           (771)                   
 Share-based payment charge                                                                       (398)                   
 Deferred consideration for acquisition                                                           (690)                   
 Write back of deferred consideration for acquisition                                             460                     
 Acquisition costs                                                                                (584)                   
 Exceptional items                                                                                (177)                   
                                                                                                                          
 Operating profit                                                                                 598                     
 Investment revenues                                                                              2                       
 Finance costs                                                                                    (274)                   
                                                                                                                          
 Profit before tax                                                                                326                     
 Tax                                                                                              153                     
                                                                                                                          
 Profit after tax                                                                                 479                     
                                                                                                                          
 
 
 2015                              CRS£000s  DS&MI£000s  Eliminations£000s  Consolidatedtotal£000s  
                                                                                                    
 Revenue                                                                                            
 Third party sales                 21,906    8,272       -                  30,178                  
 Intersegment sales and recharges  67        9           (76)               -                       
                                                                                                    
 Total revenue                     21,973    8,281       (76)               30,178                  
                                                                                                    
 
 
 2015                                                    CRS£000s  DS&MI£000s  Eliminations£000s  Consolidatedtotal£000s  
                                                                                                                          
 Segment result                                          1,165     2,102       (2)                3,265                   
                                                                                                                          
 Amortisation of acquired fair valued intangible assets                                           (596)                   
 Share-based payment charge                                                                       (288)                   
 Acquisition costs                                                                                (272)                   
 Exceptional items                                                                                (37)                    
                                                                                                                          
 Operating profit                                                                                 2,072                   
 Investment revenues                                                                              1                       
 Finance costs                                                                                    (1)                     
                                                                                                                          
 Profit before tax                                                                                2,072                   
 Tax                                                                                              (520)                   
                                                                                                                          
 Profit after tax                                                                                 1,552                   
                                                                                                                          
 
 
The accounting policies of the reportable segments are the same as the Group's
accounting policies. Segment profit represents the profit earned by each
segment. This is the measure reported to the Group's Chief Executive Officer
for the purpose of resource allocation and assessment of segment performance. 
 
Segment net assets 
 
                                2016£000s  2015£000s  
                                                      
 CRS                            16,489     5,913      
 DS&MI                          18,119     11,023     
                                                      
 Consolidated total net assets  34,608     16,936     
                                                      
 
 
For the purposes of monitoring segment performance and allocating resources
between segments, the Group's Chief Executive Officer monitors the tangible,
intangible and financial assets attributable to each segment. All assets are
allocated to reportable segments. 
 
Other segment information 
 
        Depreciation andamortisation  Additions tonon-current assets  
        2016£000s                     2015£000s                       2016£000s  2015£000s  
                                                                                            
 CRS    528                           286                             705        238        
 DS&MI  499                           427                             404        317        
                                                                                            
        1,027                         713                             1,109      555        
                                                                                            
 
 
Information about major customers 
 
In 2016, the Group had two customers that contributed 10% or more to the
Group's revenue. Revenues of approximately £5,479,000 and £4,771,000 were
recognised from these customers respectively for clinical research services. 
 
In 2015, the Group had two customers that contributed 10% or more to the
Group's revenue. Revenues of approximately £5,219,000 and £5,181,000 were
recognised from these customers respectively. 
 
3.     FINANCE COSTS 
 
                                                            2016£000s  2015£000s  
                                                                                  
 Interest payable                                           (2)        (1)        
 Finance charge for deferred consideration for acquisition  (272)      -          
                                                                                  
                                                            (274)      (1)        
                                                                                  
 
 
4.         TAXATION 
 
                                                  2016£000s  2015£000s  
 Current tax                                                            
 UK corporation tax (credit)/charge for the year  (181)      349        
 Overseas corporation tax                         180        308        
 Adjustment in respect of prior years             (16)       13         
                                                                        
 Current tax (credit)/charge                      (17)       670        
                                                                        
 Deferred tax                                                           
 Origination and reversal of timing differences   (40)       (143)      
 Effect of changes in tax rates                   (96)       (7)        
                                                                        
 Tax (credit)/charge on profit                    (153)      520        
                                                                        
 
 
The UK corporation tax credit for the year comprises an R&D tax credit. 
 
In addition to the amounts charged to the income statement and other
comprehensive income, the following amounts have been recognised directly in
equity: 
 
                                                                            2016£000s  2015£000s  
                                                                                                  
 Deferred tax                                                                                     
 Change in estimated excess tax deductions related to share-based payments  (118)      (1)        
                                                                                                  
 Total income tax credit recognised directly in equity                      (118)      (1)        
                                                                                                  
 
 
5.     EARNINGS PER SHARE 
 
The calculation of the basic and diluted earnings per share is based on the
following data: 
 
                                                                                                               2016£'000   2015£'000   
 Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company  479         1,552       
 Effect of dilutive potential ordinary shares                                                                  -           -           
                                                                                                                                       
 Earnings for the purposes of diluted earnings per share                                                       479         1,552       
                                                                                                                                       
                                                                                                                                       
                                                                                                               2016No.     2015No.     
 Number of shares                                                                                                                      
 Weighted average number of ordinary shares for the purposes of basic earnings per share                       35,573,733  28,750,000  
 Effect of dilutive potential ordinary shares                                                                                          
 Share options                                                                                                 1,484,600   1,015,223   
                                                                                                                                       
 Weighted average number of ordinary shares for the purposes of diluted earnings per share                     37,058,333  29,765,223  
                                                                                                                                       
 
 
6.     ACQUISITION OF SUBSIDIARY - HAEMOSTATIX 
 
On 24 May 2016, Ergomed Plc acquired 100 per cent of the issued share capital
of Haemostatix, a research and development company based in Nottingham, UK
developing novel products for the surgical bleeding market. The acquisition of
Haemostatix enhances Ergomed's portfolio of development products with the
potential to generate significant shareholder value. The amounts provisionally
recognised in respect of the identifiable assets acquired and liabilities
assumed are as set out in the table below. 
 
                                                   Bookvaluation  Fair value adjustments  Provisionalvaluation  
                                                   £000s          £000s                   £000s                 
                                                                                                                
 Intangible assets                                 -              15,200                  15,200                
 Property, plant and equipment                     4              -                       4                     
 Deferred tax asset                                -              1,015                   1,015                 
                                                                                                                
 Total non-current assets                          4              16,215                  16,219                
                                                                                                                
 Trade and other debtors                           164            -                       164                   
 Clinical trial inventory                          45             -                       45                    
 Cash and equivalents                              63             -                       63                    
                                                                                                                
 Current assets                                    272            -                       272                   
                                                                                                                
 Trade and other creditors                         (1,365)        -                       (1,365)               
 Deferred tax liability                            -              (2,736)                 (2,736)               
                                                                                                                
 Financial liabilities                             (1,365)        (2,736)                 (4,101)               
                                                                                                                
 Total identifiable net assets/(liabilities)       (1,089)        13,479                  12,390                
 Goodwill                                          15,565         (13,479)                2,086                 
                                                                                                                
 Total consideration                               14,476         -                       14,476                
                                                                                                                
 Satisfied by:                                                                                                  
 Cash                                              800            -                       800                   
 Equity                                            6,181          -                       6,181                 
 Deferred consideration                            7,495          -                       7,495                 
                                                                                                                
 Total consideration                               14,476         -                       14,476                
                                                                                                                
 Net cash outflow arising on acquisition                                                                        
 Cash consideration                                800            -                       800                   
 Less: cash and cash equivalent balances acquired  (63)           -                       (63)                  
 Transaction costs (note 8)                        370            -                       370                   
                                                                                                                
                                                   1,107          -                       1,107                 
                                                                                                                
 
 
The provisional fair value of intangible assets relates to the in-process
research and development of PeproStat and ReadyFlow. The provisional fair
value of the financial assets includes receivables with a fair value of
£164,000 and a gross contractual value of £164,000. The best estimate at
acquisition date of the contractual cash flows not to be collected is £nil. 
 
Goodwill is provisionally valued at £2,086,000. None of the goodwill is
expected to be deductible for income tax purposes. Deferred consideration
represents the fair valuation of the additional consideration payable which
could be an aggregate maximum of £20,000,000, subject to the future
performance of the business. 
 
Ergomed plc has a 12 month measurement period from the date of acquisition,
and therefore the measurement period ends on 23 May 2017. 
 
As a research and development company, Haemostatix is investing in its
development portfolio and does not currently generate revenues. If the
acquisition of Haemostatix had been completed on the first day of the
financial year, group revenues for the year ended 31 December 2016 would have
been unchanged and group profit before tax would have been £1,082,000 lower. 
 
7.         ACQUISITION OF SUBSIDIARY - O+P and GASD 
 
On 12 June 2016, Ergomed acquired 100 per cent of the issued share capital of
O+P and GASD. O+P is a long established contract research organisation based
in Cologne, Germany and GASD is a specialist data management and biostatistics
company. The acquisition of O+P and GASD brings, among other things, a
proprietary electronic data capture system and specialist biostatics expertise
which can be deployed across the Ergomed global platform. 
 
O+P and GASD were acquired as a single unit. The amounts provisionally
recognised in relation to both entities in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table below. 
 
                                                   Bookvaluation  Fair value adjustments  Provisionalvaluation  
                                                   £000s          £000s                   £000s                 
                                                                                                                
 Intangible assets                                 -              615                     615                   
 Property, plant and equipment                     23             -                       23                    
                                                                                                                
 Total non-current assets                          23             615                     638                   
                                                                                                                
 Trade and other debtors                           91             -                       91                    
 Accrued income                                    71             -                       71                    
 Corporation Tax receivable                        6              -                       6                     
 Cash and equivalents                              498            -                       498                   
                                                                                                                
 Current assets                                    666            -                       666                   
                                                                                                                
 Trade and other creditors                         (218)          -                       (218)                 
 Tax payable                                       (2)            -                       (2)                   
 Deferred tax                                      -              (164)                   (164)                 
                                                                                                                
 Financial liabilities                             (220)          (164)                   (384)                 
                                                                                                                
 Total identifiable net assets                     469            451                     920                   
 Goodwill                                          938            (451)                   487                   
                                                                                                                
 Total consideration                               1,407          -                       1,407                 
                                                                                                                
 Satisfied by:                                                                                                  
 Cash                                              802            -                       802                   
 Equity                                            190            -                       190                   
 Deferred consideration                            415            -                       415                   
                                                                                                                
 Total consideration                               1,407          -                       1,407                 
                                                                                                                
 Net cash inflow arising on acquisition                                                                         
 Cash consideration                                802            -                       802                   
 Less: cash and cash equivalent balances acquired  (498)          -                       (498)                 
 Transaction expenses (note 8)                     85             -                       85                    
                                                                                                                
                                                   389            -                       389                   
                                                                                                                
 
 
The provisional fair value of the financial assets includes receivables with a
fair value of £91,000 and a gross contractual value of £91,000. The best
estimate at acquisition date of the contractual cash flows not to be collected
is £nil. 
 
Goodwill is provisionally valued at £487,000 and is attributable to the
synergies and the enhanced offering of the Ergomed group following the
acquisition. None of the goodwill is expected to be deductible for income tax
purposes. 
 
Deferred consideration represents the provisional fair valuation of the
additional consideration payable, subject to the future performance of the
business. 
 
Ergomed plc has a 12 month measurement period from the date of acquisition,
and therefore the measurement period ends on 11 June 2017. 
 
If the acquisition of O+P and GASD had been completed on the first day of the
financial year, group revenues for the year ended 31 December 2016 would have
been £381,000 higher and group profit before tax would have been £134,000
lower. 
 
8.         ACQUISITION OF SUBSIDIARY - PHARMINVENT 
 
On 28 November 2016, Ergomed acquired 100 per cent of the issued share capital
of PharmInvent. PharmInvent offers a comprehensive range of pharmacovigilance
and regulatory services to over 100 clients in the global pharmaceutical
industry. Pharmacovigilance services include an outsourced global network of
95 Qualified Persons for Pharmacovigilance (QPPVs) in 50 countries, case
management, risk management, audit, training and consulting services on the
establishment and maintenance of pharmacovigilance systems. Regulatory
services include strategic advice on regulatory strategy, clinical trial and
protocol design and medical writing of regulatory submissions. 
 
The amounts provisionally recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table below. 
 
                                                   Bookvaluation  Fair value adjustments  Provisionalvaluation  
                                                   £000s          £000s                   £000s                 
                                                                                                                
 Intangible assets                                 -              1,291                   1,291                 
 Property, plant and equipment                     161            -                       161                   
                                                                                                                
 Total non-current assets                          161            1,291                   1,452                 
                                                                                                                
 Trade and other debtors                           786            -                       786                   
 Cash and equivalents                              252            -                       252                   
                                                                                                                
 Current assets                                    1,038          -                       1,038                 
                                                                                                                
 Trade and other creditors                         (300)          -                       (300)                 
 Tax payable                                       (45)           -                       (45)                  
 Deferred tax liability                            -              (245)                   (245)                 
                                                                                                                
 Financial liabilities                             (345)          (245)                   (590)                 
                                                                                                                
 Total identifiable net assets                     854            1,046                   1,900                 
 Goodwill                                          3,270          (1,046)                 2,224                 
                                                                                                                
 Total consideration                               4,124          -                       4,124                 
                                                                                                                
 Satisfied by:                                                                                                  
 Cash                                              3,299          -                       3,299                 
 Equity                                            825            -                       825                   
                                                                                                                
 Total consideration                               4,124          -                       4,124                 
                                                                                                                
 Net cash inflow arising on acquisition                                                                         
 Cash consideration                                3,299          -                       3,299                 
 Less: cash and cash equivalent balances acquired  (252)          -                       (252)                 
 Transaction expenses (note 8)                     118            -                       118                   
                                                                                                                
                                                   3,165          -                       3,165                 
                                                                                                                
 
 
The provisional fair value of the financial assets includes receivables with a
fair value of £786,000 and a gross contractual value of £786,000. The best
estimate at acquisition date of the contractual cash flows not to be collected
is £nil. 
 
Goodwill is provisionally valued at £2,224,000 and is attributable to the
enhanced offering of the Ergomed group following the acquisition. None of the
goodwill is expected to be deductible for income tax purposes. 
 
In addition to the consideration identified above, deferred consideration is
payable subject to the achievement of commercial milestones and conditional
upon the continued employment of the vendors by the company. In accordance
with IFRS 3 - Business Combinations, £690,000 has been charged to the profit
and loss account in respect of deferred consideration relating to the year
ended 31 December 2016. 
 
Ergomed plc has a 12 month measurement period from the date of acquisition,
and therefore the measurement period ends on 27 November 2017. 
 
If the acquisition of PharmInvent had been completed on the first day of the
financial year, group revenues for the year ended 31 December 2016 would have
been £3,216,000 higher and group profit before tax would have been £593,000
higher. 
 
9.     ACQUISITION COSTS 
 
                                       2016£000s  2015£000s  
                                                             
 Acquisition of Sound Opinion Limited  7          54         
 Acquisition of Haemostatix (note 5)   370        -          
 Acquisition of O+P and GASD (note 6)  85         -          
 Acquisition of PharmInvent (note 7)   118        -          
 Other M&A activities                  4          218        
                                                             
                                       584        272        
                                                             
 
 
10.  EXCEPTIONAL ITEMS 
 
                                              2016£000s  2015£000s  
                                                                    
 Establishment of Taiwan office               -          37         
 Establishment of PrimeVigilance U.S. office  177        -          
                                                                    
                                              177        37         
                                                                    
 
 
11.  RELATED PARTY TRANSACTIONS 
 
Ergomed d.o.o., a company registered in Croatia, is under the control of Dr.
Miroslav Reljanović, who is a Director and shareholder of the Company. During
the year the Company and its subsidiaries were charged £240,000 (2015:
£160,000) by Ergomed d.o.o. and its subsidiaries in respect of clinical
research costs and other administrative services. At 31 December 2016 a
balance of £37,000 was owed by the Company and its subsidiaries to Ergomed
d.o.o. in respect of these costs (2015: £57,000). In addition, during the
year, the Group sold medical equipment to a subsidiary of Ergomed d.o.o. for
£33,000 (2015: £nil). 
 
Chesyl Pharma Limited is a company owned by Rolf Stahel, who is a Director of
the Company. During the year, the Company was charged consultancy fees of
£52,000 (2015: £54,000) in relation to the services of Rolf Stahel. At 31
December 2016, amounts payable to Chesyl Pharma in relation to such
consultancy services and associated expenses were £12,000 (2015: £5,000). 
 
All transactions with related parties take place on an arm's length basis. 
 
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note. 
 
12.  EBITDA AND EBITDA (adjusted) 
 
                                                                             2016    2015    
                                                                             £'000s  £'000s  
                                                                                             
 Operating profit                                                            598     2,072   
                                                                                             
 Adjust for:                                                                                 
 Depreciation and amortisation charges within Other administrative expenses  256     117     
 Amortisation of acquired fair valued intangible assets                      771     596     
                                                                                             
 EBITDA                                                                      1,625   2,785   
 Share-based payment charge                                                  398     288     
 Deferred consideration for acquisition                                      690     -       
 Write-back of deferred consideration for acquisition                        (460)   -       
 Acquisition costs                                                           584     272     
 Exceptional items                                                           177     37      
                                                                                             
 EBITDA (adjusted)                                                           3,014   3,382   
                                                                                             
 
 
13.  ADJUSTED EARNINGS PER SHARE 
 
                                                                                                               2016£'000  2015£'000  
 Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company  479        1,552      
 Effect of dilutive potential ordinary shares                                                                  -          -          
                                                                                                                                     
 Earnings for the purposes of diluted earnings per share                                                       479        1,552      
                                                                                                                                     
 Adjust for:                                                                                                                         
 Amortisation of acquired fair valued intangible assets                                                        771        596        
 Share-based payment charge                                                                                    398        288        
 Deferred consideration for acquisition                                                                        690        -          
 Write-back of deferred consideration for acquisition                                                          (460)      -          
 Acquisition costs                                                                                             584        272        
 Exceptional items                                                                                             177        37         
                                                                                                                                     
 Adjusted earnings for the purposes of diluted earnings per share                                              2,639      2,745      
                                                                                                                                     
 
 
 ADJUSTED EARNINGS PER SHARE              
 Basic                        7.4p  9.5p  
                                          
 Diluted                      7.1p  9.2p  
                                          
 
 
14.  RESTATEMENT OF PRIOR YEAR BALANCE SHEET 
 
In July 2014, Ergomed plc acquired the entire issued share capital of
PrimeVigilance Limited for consideration comprising £6,000,000 in cash, and
1,875,000 shares of £0.01 each, valued at £1.60 per share. The excess of share
value over the nominal value of those shares was taken to the share premium
account. However, under the Companies Act 2006, these amounts should have been
posted to the merger reserve. An adjustment has been made to the Consolidated
balance sheet as at 31 December 2014 and 31 December 2015. This adjustment has
no impact on the net assets of the Group, the Consolidated income statement or
the Consolidated cash flow statement. The impact on the Consolidated balance
sheet is set out below. 
 
                                2015  Previously reported  Adjustment  2015 Re-stated  
                                £'000s                     £'000s      £'000s          
 Non-current assets                                                                    
 Goodwill                       7,488                      -           7,488           
 Other intangible assets        2,819                      -           2,819           
 Property, plant and equipment  335                        -           335             
 Investments                    183                        -           183             
 Deferred tax asset             365                        -           365             
                                                                                       
                                11,190                     -           11,190          
                                                                                       
 Current assets                                                                        
 Trade and other receivables    9,528                      -           9,528           
 Cash and cash equivalents      3,974                      -           3,974           
                                                                                       
                                13,502                     -           13,502          
                                                                                       
 Total assets                   24,692                     -           24,692          
                                                                                       
 Current liabilities                                                                   
 Borrowings                     (5)                        -           (5)             
 Trade and other payables       (5,955)                    -           (5,955)         
 Deferred revenue               (795)                      -           (795)           
 Current tax liability          (478)                      -           (478)           
                                                                                       
 Total current liabilities      (7,233)                    -           (7,233)         
                                                                                       
 Net current assets             6,269                      -           6,269           
                                                                                       
 Non-current liabilities                                                               
 Borrowings                     (7)                        -           (7)             
 Deferred tax liability         (516)                      -           (516)           
                                                                                       
 Total liabilities              (7,756)                    -           (7,756)         
                                                                                       
 Net assets                     16,936                     -           16,936          
                                                                                       
 Equity                                                                                
 Share capital                  288                        -           288             
 Share premium account          12,342                     (2,981)     9,361           
 Merger reserve                 -                          2,981       2,981           
 Share-based payment reserve    650                        -           650             
 Translation reserve            (537)                      -           (537)           
 Retained earnings              4,193                      -           4,193           
                                                                                       
 Total equity                   16,936                     -           16,936          
                                                                                       
 
 
                                2014Previously reported  Adjustment  2014 Re-stated  
                                £'000s                   £'000s      £'000s          
 Non-current assets                                                                  
 Goodwill                       7,282                    -           7,282           
 Other intangible assets        2,927                    -           2,927           
 Property, plant and equipment  185                      -           185             
 Investments                    39                       -           39              
 Deferred tax asset             323                      -           323             
                                                                                     
                                10,756                   -           10,756          
                                                                                     
 Current assets                                                                      
 Trade and other receivables    6,343                    -           6,343           
 Cash and cash equivalents      4,576                    -           4,576           
                                                                                     
                                10,919                   -           10,919          
                                                                                     
 Total assets                   21,675                   -           21,675          
                                                                                     
 Current liabilities                                                                 
 Borrowings                     (7)                      -           (7)             
 Trade and other payables       (5,010)                  -           (5,010)         
 Deferred revenue               (594)                    -           (594)           
 Current tax liability          (144)                    -           (144)           
                                                                                     
 Total current liabilities      (5,755)                  -           (5,755)         
                                                                                     
 Net current assets             5,164                    -           5,164           
                                                                                     
 Non-current liabilities                                                             
 Borrowings                     (6)                      -           (6)             
 Deferred tax liability         (575)                    -           (575)           
                                                                                     
 Total liabilities              (6,336)                  -           (6,336)         
                                                                                     
 Net assets                     15,339                   -           15,339          
                                                                                     
                                                                                     
 Equity                                                                              
 Share capital                  288                      -           288             
 Share premium account          12,342                   (2,981)     9,361           
 Merger reserve                 -                        2,981       2,981           
 Share-based payment reserve    362                      -           362             
 Translation reserve            (293)                    -           (293)           
 Retained earnings              2,640                    -           2,640           
                                                                                     
 Total equity                   15,339                   -           15,339          
                                                                                     
 
 
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