REG - Ergomed plc - Audited Full Year Results
23/03/2021 07:00
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RNS Number : 1024T Ergomed plc 23 March 2021
PRESS RELEASE
Audited Full Year Results for the year ended 31 December 2020
· Adjusted EBITDA £19.4 million (up 55.2%)
· Revenue £86.4 million (up 26.5%)
· Strategic acquisitions in CRO and pharmacovigilance in the US
strengthen global specialist leadership
· Forward visibility underpinned by strong order book of £193 million
(up 55.5%)
· Year-end net cash balance of £19.0 million with unutilised credit
facilities of £30 million
Guildford, UK - 23 March 2021: Ergomed plc (LSE: ERGO) ('Ergomed' or the
'Company' or the 'Group'), a company focused on providing specialised services
to the pharmaceutical industry, today announces its audited Full Year Results
for the year ended 31 December 2020.
Selected Financial Highlights
Full Full % change
Year 2020 Year
2019
Figures in £ millions, unless otherwise stated
Total Revenue 86.4 68.3 26.5
Service Fee Revenue 78.4 59.2 32.4
Like-for-like Service Fee Revenue (Note 1) 68.6 57.6 19.1
Gross Profit 39.7 29.5 34.6
Gross Margin (%) 45.9% 43.3% +2.6ppts
Adjusted EBITDA (Note 2) 19.4 12.5 55.2
Net cash at 31 December 19.0 14.3 32.9
Order book at 31 December 193.0 124.1 55.5
Basic adjusted earnings per share (pence) (Note 3) 25.8p 19.9p 29.6
Notes:
(1) Like-for-like Service Fee revenue excludes 2020 revenues of £9.2 million
in PrimeVigilance USA Inc acquired on 10 January 2020 and £0.6 million in MS
Clinical Services, LLC. and its subsidiaries ('MedSource') acquired on 11
December 2020, as well as exceptional 2019 revenues of £1.6 million.
(2) Adjusted EBITDA is defined as operating profit for the period plus
depreciation and amortisation, share-based payment charge, acquisition related
consideration and costs and exceptional items, less one-off receipts in the
period comprising a prior year R&D tax credit and Serbian employment
growth grants (Note 9 to the financial statements).
(3) Basic adjusted earnings per share is defined as earnings per share after
adjustment for items referred to in Note 8 to the financial statements.
Dr Miroslav Reljanović, Executive Chairman of Ergomed, said: "Ergomed made
exceptional progress in delivering its strategy in 2020, despite the
challenges of the COVID-19 pandemic. The resilience and robustness of our
global services business was demonstrated by our continued strong organic
growth whilst completing key strategic acquisitions in the US in both our
pharmacovigilance and CRO businesses. We have started 2021 in a strong
position, focused on our vision to achieve global leadership in specialised
pharmaceutical services addressing unmet medical needs and patient safety."
Key Financial Highlights
· Revenue of £86.4 million increased by 26.5% (2019: £68.3
million)
‒ Revenue growth in pharmacovigilance (PV) up 55.6% to £55.1
million (2019: £35.4 million) and up 30.0% to £46.0 million on a
like-for-like basis excluding the acquisition of Ashfield Pharmacovigilance
‒ Revenue in Clinical Research Services (CRO) flat at £31.3
million (2019: £31.2 million excluding exceptional revenue) despite COVID-19,
with service fee revenue returning to growth in H2 up 13.5% over H1
· Gross profit up 34.6% to £39.7 million (2019: £29.5 million)
· Adjusted EBITDA(2) up 55.2% to £19.4 million (2019: £12.5
million)
· Basic adjusted EPS up 29.6% to 25.8p (2019: 19.9p)
· Cash and cash equivalents up 32.9% to £19.0 million at 31
December 2020 (31 December 2019: £14.3 million) with operating cash flow of
£19.0m
· Order book of £193.0 million future contracted revenue up 55.5%
at 31 December 2020 (31 December 2019: £124.1 million)
Key Operational Highlights
· Continued strong growth trend in challenging markets
· Demonstrated resilience and ability to contribute in COVID-19
crisis
· Completed two strategic acquisitions in USA to significantly
expand our presence in both pharmacovigilance and CRO
- Ashfield Pharmacovigilance (now PrimeVigilance USA), acquired in
January 2020, rapidly and successfully integrated
- MS Clinical Services, LLC. and its subsidiaries ('MedSource'),
acquired December 2020, in process of integration
· US revenue growth 82.4% over prior year
· Successful focus on business development and cross-selling
opportunities
COVID-19 Update
The Group continues to monitor closely developments relating to the
unprecedented global healthcare challenge of the COVID-19 pandemic. We have
been able to adapt our business model to the challenge and are proud to play a
role in helping to combat the disease. We are confident that we will continue
to be able to bring our expertise and proven capabilities to bear in advancing
drug development in the field and improving outcomes for patients.
Conference call for analysts:
A conference call for analysts will be held at 9.00am GMT on 23 March 2021.
Conference call details:
Participant dial-in: 080 0279 6619
International dial-in: +44 (0) 2071 928338
Participant code: 6293710
Webcast link: https://edge.media-server.com/mmc/p/mvia3sy8
Enquiries:
Ergomed plc Tel: +44 (0) 1483 402 975
Miroslav Reljanović (Executive Chairman)
Richard Barfield (Chief Financial Officer)
Numis Securities Limited Tel: +44 (0) 20 7260 1000
Freddie Barnfield / Matthew O'Dowd (Nominated Adviser)
James Black (Broker)
Consilium Strategic Communications Tel: +44 (0) 20 3709 5700
Chris Gardner / Angela Gray ergomed@consilium-comms.com
Matthew Neal / Olivia Manser
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 services business includes an
industry-leading suite of specialist pharmacovigilance (PV) solutions,
integrated under the PrimeVigilance brand, a full range of high-quality
clinical research and trial management services under the Ergomed brand (CRO),
and an internationally recognised specialist expertise in orphan drug
development, under PSR. For further information, visit: http://ergomedplc.com
(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 the 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.
Chairman's Statement
EXCEPTIONAL DELIVERY IN CHALLENGING TIMES
During 2020 Ergomed made exceptional progress in delivering its strategy,
despite the global challenge of the COVID-19 pandemic. We achieved strong
organic growth and completed acquisitions in the key US market in both our
Clinical Research Services (CRO) and Pharmacovigilance (PV) businesses. Across
the Group we transitioned smoothly to remote working with the business
remaining fully operational whilst continuing to trade strongly and delivering
a strong uplift in revenues in the second half of the year, particularly in
the CRO business. We improved gross and net margins and continued to
strengthen our balance sheet, with increased cash balances and financial
resources, as well as a capital reduction approved unanimously by our
shareholders. During an extraordinary and challenging year, the core strengths
of our business and the hard work and dedication of all our colleagues have
shone through, delivering exceptional progress towards our strategic vision of
global leadership in specialised pharmaceutical services addressing unmet
medical needs and patient safety.
Excellent Financial Performance
Following the positive results for the first half of the year reported in
September 2020, Ergomed continued to deliver strong year on year top-line
growth and financial performance across the business in the second half. For
the year as a whole, Ergomed continued its excellent financial performance
delivering substantial revenue growth of 26.5% with improved gross margins.
Adjusted EBITDA increased by 55.2% to £19.4 million, substantially exceeding
the market expectations set at the beginning of the year. After investing
£12.0m on acquisitions, funded fully out of cash, the Group continued to be
debt-free at the year end with cash and equivalent balances of £19.0 million
(2019: £14.3 million) and unutilised banking facilities of £30.0 million. We
ended 2020 with our order book of future contracted revenue at £193.0
million, up 55.5% versus the prior year. This excellent performance in a year
that was extremely challenging for companies across the world, demonstrates
the robustness of Ergomed's business model and firmly positions the Group to
realise its ambitious long-term growth plans.
Executing our Strategy
The transition to a fully services-based business model announced in 2018 was
completed on schedule in 2020, with the business now entirely focused on its
core service businesses in the PV and CRO sectors. 2020 saw further validation
of this strategic focus on services, evidenced by significantly improved
financial and operational performance with revenue growth of 26.5% to £86.4
million and strong performances in both PV and CRO. This continued the trend
of a compound annual revenue growth rate of over 20% since the initial public
offering in 2014.
Building on these foundations, with the successful execution of our M&A
strategy, rapid integration of acquisitions and alignment of commercial
strategies in our CRO and PV businesses, as well as investment in business
development, we are delivering substantial increases in cross-selling
opportunities and a growing order book of contracted long-term future
revenues.
In 2020, we completed two highly strategic acquisitions in the key US market
for pharmaceutical services. In January, we acquired Ashfield
Pharmacovigilance, a long-established and highly respected provider of
pharmacovigilance services in the US. This was rapidly and successfully
integrated, providing cross-selling and growth opportunities within the
significantly expanded PV client base, as evidenced by the Group's US revenue
growth of 82.4% in 2020. In December, we acquired MS Clinical Services, LLC.
and its subsidiaries ('MedSource'), a specialist provider of oncology and rare
disease CRO services, which is expected to provide further growth and
development potential within the key CRO sector in the USA and globally.
The Board continues to actively consider further acquisitions that will
complement and strengthen the existing CRO and PV service offerings and give
access to new customers and geographies.
We are also continuing to invest in infrastructure, technology and digital
transformation, with the development of applications to achieve significant
automation over the coming years. In our PV business this includes the
development of applications for robotic process automation and the
digitisation of simple adverse event reports, leading to the deployment of
machine learning for full case processing. In the CRO business, we plan to
play a significant role in the global trend, accelerated by COVID-19, towards
digital transformation of clinical trials, including eConsent, ePRO and
wearable technology for remote and home-based patient monitoring as well as
virtual and telemedicine as standard of care, risk-based monitoring and remote
data verification. These investments are expected to build on Ergomed's
leadership position with service offerings to our international client base,
as well as providing further potential for profitability improvement.
Strong Leadership and Employment Growth
During the year, Ergomed continued to strengthen its executive leadership with
key appointments in Europe and in the US where we are expanding rapidly both
organically and through M&A. Our acquisitions of Ashfield
Pharmacovigilance (now PrimeVigilance USA) and MedSource have included the
addition of key new senior team members. Despite the COVID-19 pandemic,
employment throughout the Group grew from 850 employees to around 1,150 over
the course of 2020.
We are delighted to welcome our new colleagues to the Group. These additions
to the Ergomed global team reflect the growing strength and ambition of our
business, add to our high-quality professional experience and strength in
depth and bolster Ergomed's growth potential.
COVID-19
The COVID-19 virus outbreak was a dominant factor for global businesses during
2020. Ergomed's response to the pandemic continues to demonstrate the
robustness and resilience of our services business model, which, together with
the hard work and dedication of all our colleagues, has been highlighted
during this challenging year.
Health and Safety
Throughout the pandemic, our priority has remained the health and safety of
our employees and the maintenance of our service to all the patients and
medical staff involved in our clinical studies and pharmacovigilance services.
We took stringent hygiene measures across all our sites and cancelled
unnecessary travel. Our established business continuity plans enabled the
Group to transition to home working and we continued to provide clinical study
and pharmacovigilance monitoring services in support of all our patients and
medical partners. We saw a temporary reduction in our ability to provide
on-site monitoring services in our CRO business particularly in H1, but
elsewhere there was no impact on our service levels or productivity metrics,
and the quality and scale of the care provided to our patients and the
healthcare profession continued at normal levels.
Business Continuity
Ergomed's services in both clinical research and pharmacovigilance are
provided under long-term contracts in order to meet monitoring needs essential
for medical research as well as legally mandated pharmacovigilance
requirements. We have not seen a material COVID-19 impact on our business or
our performance metrics, nor major delays or cancellations to studies or
contracts. The slowdown in monitoring experienced in the CRO business in the
second quarter of 2020 was replaced by a return to growth in the second half
of the year, with revenue higher than in the first half of the year and in the
corresponding period in 2019, as remote monitoring was implemented combined
with a limited return to near normal levels of onsite monitoring in H2. In
addition, our development activities continued in the second half of 2020
providing a strong sales performance and a significant uplift in our order
book at the end of the year.
Risk Mitigation
Ergomed maintained a robust financial position throughout the year, with
strong cash generation and substantial cash balances. We continue to monitor
closely the rapidly evolving situation and see no significant immediate risks
to the Group's revenues or operations, however, plans for financial risk
mitigation are in place if necessary. The Group has a strong balance sheet and
an unutilized £30 million credit facility and is continuing to prove
resilient in the face of the risks posed by COVID-19.
Our Contribution to the Global Fight Against COVID-19
Ergomed was proud to make an ongoing contribution to the global effort to
overcome the challenges created by the spread of the COVID-19 virus. We
continued to provide our clinical trial and monitoring services for our
existing and new clients and patients to the highest professional standards.
At the same time, we provided our clinical research as well as
pharmacovigilance services for new projects designed to combat the virus. A
number of COVID-19 related studies and contracts are continuing, and our
business development pipeline includes significant further opportunities.
Conclusion
Ergomed's success in 2020 reflects the resilient business model and robust
position of the business as well as the hard work and dedication of all our
colleagues in a time of exceptional challenge. I would like to thank everyone
at Ergomed for their contribution during the year, and our investors for their
continued support.
Miroslav Reljanović
Executive Chairman
Operational review
INTRODUCTION
In 2020 there was a strong operational and financial performance from both of
the Group's businesses, Pharmacovigilance (PV) and Clinical Research Services
(CRO). We continued to execute our strategy of delivering world-class PV and
CRO services to our customers, whilst fostering business development and
cross-selling opportunities between these two highly complementary businesses.
Despite the challenges of the COVID-19 pandemic, Ergomed demonstrated
resilience and maintained its momentum in 2020. The Group has begun 2021 from
a position of strength, with a robust financial platform and a proven growth
strategy, ensuring that we are well positioned to achieve the longer-term
strategic priorities of the business.
PHARMACOVIGILANCE
Regulatory context
The increasing global requirement for pharmacovigilance services coupled with
a perpetual drive to improve drug safety through regulation continue to
facilitate the transition towards specialist outsourced PV providers and
general market growth.
In Europe, the implementation of Good Pharmacovigilance Practice ('GPvP') in
2012 and subsequent mandatory compliance has led to an increased demand for
outsourced PV services and been a consistent driver for Ergomed's growth. In
the US, the existing stringent PV regulatory regime continues to be regularly
strengthened on an ongoing basis. Similarly, PV regulation continues to be
rolled out in the Middle East, China and South East Asia, providing further
growth opportunities for Ergomed's PV business. Ergomed intends to continue to
leverage existing partnerships in these regions to facilitate growth and meet
client requirements.
The latest regulation to affect Europe is Brexit, as a result of which the UK
will no longer fall under the EU GPvP jurisdiction. This is expected to add
regulatory complexity and drive further demand for specialist outsourced PV
services.
Acquisition of Ashfield Pharmacovigilance
In January 2020 PrimeVigilance, Ergomed's pharmacovigilance business, welcomed
the addition of Ashfield Pharmacovigilance ('Ashfield PV'), an established PV
provider in North America, into the Group. Ashfield PV was immediately
rebranded as PrimeVigilance USA Inc. ('PV USA') and, through its rapid
integration into the Group, significantly expanded Ergomed's PV offering in
North America.
The acquisition immediately saw the addition of around 70 highly qualified and
experienced staff, 40 new clients and around $12 million of annual revenue
from this strategically important market. Since then, the operational and
administrative functions of PV USA have been fully integrated into the wider
Group and we have already seen the benefits of the acquisition through
increased economies of scale and cross-selling opportunities. The hard work
and dedication of all the Ashfield and PrimeVigilance staff was key to making
this business combination as successful as it has been to date.
Financial Performance
The addition of PV USA and the strong organic growth of the PV business saw
revenues increase by £19.7 million from £35.4 million in 2019 to £55.1
million in 2020 (55.6% increase) of which £9.3 million was due to the
addition of PV USA. Margins continued to be strong for the PV business
increasing from 51.5% in 2019 to 52.0% in 2020.
Sales Awards and Order Book
PV new business in 2020 was primarily driven by North America which accounted
for 90% of repeat business and 72% of new business. The contracted order book
grew from £54.6 million in 2019 to £79.8 million at the end of 2020, an
increase of 46.2%.
Management and Staff
In addition to the acquisition of Ashfield, the business continued to invest
in its employees to support its geographical expansion, with over 250
employees being promoted during the year. PrimeVigilance employs around 50
physicians, over 300 pharmacists and other life sciences professionals and
over 20 in-house EU Qualified Persons for Pharmacovigilance ('QPPVs') covering
more than 60 countries. This constitutes one of the largest qualified teams of
PV specialist professionals in any independent pharmaceutical services
business globally and it continues to grow. The breadth and depth of staff and
professionals supporting PrimeVigilance is reflected in the quality of
services provided. Testament to this is PrimeVigilance's high customer renewal
and retention figures and the fact that PrimeVigilance participated in over 70
regulatory inspections with no critical findings relating to its activities.
Technology Investment
Investment in technology is at the core of the PrimeVigilance quality first
approach. During the year the business, in partnership with DataRobot and
Automation Anywhere, commenced the development of a cloud-based solution to
automate certain PV processes, allowing faster analysis and reporting of
adverse medical events.
The technology is expected to bring new levels of speed and intelligence to a
key activity of the business, freeing up valuable hours for highly trained
pharmacovigilance professionals to focus on value creation and problem solving
that only humans can address, and helping to deliver a higher quality service
more efficiently. The PV business is also consolidating its safety databases
into a single cloud-based platform, which will drive further efficiencies.
Constantly evolving regulations, geographic expansion, investment in
technology and people, combined with the strength of the PrimeVigilance brand,
mean that the PV business is well placed to continue delivering its growth
strategy into 2021 and beyond.
CLINICAL RESEARCH SERVICES
Ergomed delivers high-quality clinical research services through a
comprehensive offering of clinical trial research support services covering
all phases of medical development via a global network of research experts and
patients.
The CRO market has experienced significant expansion with high annual growth
in oncology and rare disease research expected to continue over the coming
years. This specific growth in Ergomed's core focus areas is underpinned by
broader market trends including increased investment in drug development by
pharma-biotech companies, a shift towards clinical trial outsourcing and
strong growth in the number of trials in markets such as Asia.
COVID-19
COVID-19 caused significant disruption to the global CRO market during 2020.
Restrictions on movement meant that access to patients for physical monitoring
visits was limited, with some leading listed CROs reporting restricted site
access in 50% to 80% of trials at the pandemic peak.
Despite these disruptions, Ergomed's CRO business demonstrated robustness and
resilience during the pandemic. While the pandemic peak did impact some of our
clinical studies, clinical trials in rare disease and oncology, in which
Ergomed specialises, are focused on critical unmet needs and were therefore
among the therapeutic areas least disrupted by COVID-19. Restrictions on
movement and patient access accelerated the trend towards remote monitoring,
an area which Ergomed was already pioneering. During the pandemic, Ergomed
successfully implemented remote and risk-based monitoring techniques, allowing
clinical trial activities to continue even when physical access to sites was
not possible. For early phase studies where frequent and timely monitoring of
safety and tolerability is required, Ergomed implemented patient profile
software that provides a holistic view of each patient in an interactive and
real time environment. In addition, study physicians supported trial
investigators in patient identification and procedures resulting in consistent
patient recruitment and milestone achievement.
Financial Performance
Overall the CRO business saw total revenues flat at £31.3 million year on
year (2019: £31.2 million after adjusting for exceptional revenues of £1.6
million in 2019). This included an increase in service fee revenue of £1.0
million to £23.7 million, offset by a decline of £0.9 million in zero-margin
pass-through revenue to £7.6 million. There was also an increase in third
party full-margin service fee revenue (excluding co-development) from £18.3
million to £21.5 million, an increase of 17.5%, with almost all
co-development projects having now concluded. As a result of these positive
trends, the service fee gross margin in the CRO business grew by 3.7ppts from
42.6% to 46.3%, highlighting the underlying strength of the CRO business and
resilience to the pandemic. It is also notable that in H2 2020, the CRO
business resumed growth with service fee revenues increasing by 13.5% compared
to the first half of the year.
Acquisition of MS Clinical Services LLC. and its subsidiaries ('MedSource')
In December 2020, Ergomed was pleased to announce the acquisition of
MedSource, a US-based CRO business with over 20 years' experience in
delivering specialist oncology and rare disease clinical trial services.
MedSource further strengthens Ergomed's position as a high-quality oncology
and rare disease CRO provider in the strategically important North American
market. With the acquisition of MedSource, the Group welcomed the addition of
110 highly qualified staff, primarily based in the US, and 20 new clients. The
work of integrating the business has already started as the Group looks to
expand its offering in North America and build upon the success in 2020 which
saw 65% of Ergomed's CRO repeat business wins in this region.
Sales Awards and Order Book
The CRO contract order book grew from £69.5 million in 2019 to £113.2m
million in 2020. The combined total order book gives the Group excellent
visibility on the rollout of revenue during 2021 and confidence in delivering
its strategy of growth.
Rare Disease and Oncology Focus
Ergomed's CRO business works across all therapeutic areas, as a differentiated
provider of clinical trial services with a particular strength in patient
recruitment in oncology and rare disease trials. Oncology trials are generally
very complex, although this varies with the type of cancer, and studies are
often confronted by challenges including low patient enrolment, changing
regulatory requirements, increased research costs, and trial protocols with
increased study-related procedures. This explains in part why oncology trials
are the biggest recipients of funding and makes the case for outsourcing to
CROs who are better positioned to address these challenges. Ergomed's
expertise and focus on oncology supports its CRO growth strategy and is
evidenced by the fact that 88% (by value) of new business wins in 2020 related
to oncology and rare disease, where similarly specialist expertise is also
required.
Patient and Clinician Focus
Ergomed's focus on rare and orphan drug development is one of its core
strengths. Drug development for rare and orphan diseases is challenging for
many reasons, including complex biology, limited knowledge of the history and
progression of the disease and the inherently small patient population
available for clinical trials, who are usually geographically dispersed.
Ergomed's focus on physician support teams helps ensure efficient patient
recruitment, patient retention and clinical trial management of complex
studies. Through the PSR Orphan Expert brand and the recent addition of
MedSource, Ergomed distinguishes itself from peers in the market.
With the addition of MedSource and the continuing focus on patient needs, the
CRO business is well placed to deliver on its growth strategy in 2021. There
is an increasing need to draw on patient knowledge and experience to improve
the discovery, development and evaluation of new effective medicines. In
addition, greater patient engagement optimises clinical study design, outcome
measures and endpoint development. Ergomed maintains a Patient Organisation
Advisory Board, comprising of representatives of patient groups in the field
of rare diseases and has a dedicated Patient Engagement Officer.
BUSINESS DEVELOPMENT AND COMMERCIAL INTEGRATION
A strong business development performance in 2020 resulted in sales increasing
by 41.9% to £117.8 million (2019: £83.0 million). This included significant
levels of new awards due to effective cross-selling between the CRO and PV
businesses, bolstered by the addition of Ashfield PV in the USA (now
PrimeVigilance USA). In 2020 total cross-selling awards were £8.6 million,
with over £50 million of further opportunities in the business development
pipeline at the end of the year. Key to new contract wins in both CRO and PV
services was Ergomed's broader geographic footprint arising from organic
expansion into the USA and Asia, as well as its ability to offer increased
services and broader geographic coverage to the newly acquired PrimeVigilance
USA client base. As a result, the order book increased to £193.0 million at
the year end, up 55.5% over the course of 2020.
OUTLOOK
Ergomed made exceptional progress in delivering its strategy in 2020, despite
the challenges of the COVID-19 pandemic. The resilience and robustness of our
global services business was demonstrated by our continued strong organic
growth whilst completing key strategic acquisitions in the US in both our
pharmacovigilance and CRO businesses. We have started 2021 in a strong
position focused on our vision to achieve global leadership in specialised
pharmaceutical services addressing unmet medical needs and patient safety.
For and on behalf of the Board of Directors
Miroslav Reljanović
Executive Chairman
Financial Review
Introduction
Ergomed's financial performance was strong in 2020 with market expectations
upgraded on a number of occasions. With the transition to a fully
services-based business model now largely complete, the Group's complementary
CRO and PV divisions continued to trade strongly despite the impact of the
pandemic. Gross and net margins continued to improve throughout the year. This
was in part due to effective cost control both at the cost of sales and
general and administration levels, coupled with the successful integration of
recent acquisitions and continuing investment in technology. Effective
management of working capital and the new £30.0 million credit facility
established in March 2020, which remains undrawn, also contributed to the
overall strong financial position of the Group. The balance sheet has been
further strengthened by the elimination of exposure to previous co-development
investments. The capital reduction, approved unanimously by the Group's
shareholders in October 2020, together with significantly increased
profitability in the past two years, have increased the Group's consolidated
retained earnings by over £50 million.
KPIs and APMs
Key Performance Indicators (KPIs)
The table below summarizes the KPIs that management uses to measure the
financial performance of the Group.
£ millions (unless otherwise stated) 2020 2019
Total Revenue 86.4 68.3
CRO (Note 1) 31.3 31.2
PV 55.1 35.4
Gross profit 39.7 29.5
Gross margin 45.9% 43.3%
EBITDA 18.4 9.2
Adjusted EBITDA 19.4 12.5
Basic adjusted earnings per share 25.8p 19.9p
Cash generated from operations 19.0 11.7
Cash and cash equivalents 19.0 14.3
Order book 193.0 124.1
Note 1: CRO Revenue in 2019 is stated after adjustment for exceptional
revenues of £1.6 million.
Alternative performance measures (APMs)
In measuring and reporting financial information, management reviews
Alternative Performance Measures (APMs), such as EBITDA, adjusted EBITDA and
basic adjusted earnings per share, which are not defined measures under
financial reporting standards. Management believes that these measures, when
considered in conjunction with defined financial reporting measures, provide
management and stakeholders with a broader understanding of the performance of
the business.
Operating profit is the financial reporting measure under IFRS most comparable
to EBITDA and adjusted EBITDA. The Directors make certain adjustments to
EBITDA to derive adjusted EBITDA, which they consider more reflective of the
Group's underlying trading performance, enabling comparisons to be made with
prior periods. Certain items, such as share-based payments and change in fair
value of contingent consideration for acquisitions are non-cash items and
reflect adjustments to expected future consideration payments.
Operating profit is reconciled to EBITDA and adjusted EBITDA as follows:
2020 2019
£000's £000's
Operating profit 13,534 5,517
Adjusted for:
Depreciation and amortisation charges within Other selling, general & 3,511 3,041
administration expenses
Amortisation of acquired fair valued intangible assets 1,332 671
EBITDA 18,377 9,229
Adjusted for:
Share-based payment charge 742 870
Acquisition related contingent compensation - 87
Change in fair value of contingent consideration for acquisitions - (512)
RDEC income (2017) (527) -
Grants in recognition of employment creation in Serbia (307) -
Acquisition costs 853 393
Pay in lieu and non-compete compensation 232 -
Exceptional items - 2,427
Adjusted EBITDA 19,370 12,494
Acquisition-related contingent compensation relates to the cash component of
deferred consideration which is payable contingent on the continued employment
of the vendors. These costs, together with acquisition costs, pay in lieu and
non-compete compensation and exceptional items, are cash costs but are not
considered as normal recurring trading items and therefore are not included in
adjusted EBITDA. RDEC income in relation to 2017 and grants received are not
considered as normal recurring trading items and therefore are not included in
adjusted EBITDA.
Adjusted basic earnings per share is calculated on a similar basis to basic
earnings per share but uses a profit measure which, like adjusted EBITDA, is
adjusted for non-recurring income items (see note 8 of the financial
statements).
Management has previously used order book, (referred to in prior years as
contracted order backlog) as an APM. Order book is the contracted value of
customer revenue relating to in-progress performance obligations which are
expected to be recognised in the future. The use of order book by management
is no longer considered to be an APM as, from 1 January 2018, it is now a
defined financial measure under IFRS 15 and is therefore included in KPIs.
Growth
Ergomed's CRO and PV businesses both continued to show positive revenue
performance through to year-end, resulting in a strong order book to start
2021.
Revenues for 2020 totalled £86.4 million, an increase of 26.5% over the prior
year (2019: £68.3 million). CRO revenues were flat at £31.3 million (2019:
£31.2 million after adjusting for exceptional revenues of £1.6 million),
with the wider CRO sector experiencing challenges in the wake of the pandemic.
PV revenues increased 55.6% from £35.4 million to £55.1 million including
£9.3 million due to the addition of PV USA.
The 26.5% revenue growth overall was accompanied by a 34.6% increase in gross
profit from £29.5 million in 2019 to £39.7 million in 2020, with gross
margin increasing from 43.3% in 2019 to 45.9% in 2020 as a result of effective
cost controls at the cost of sales level.
The Group also concluded most of its co-development projects, in line with the
strategy to focus on the services-based model in both PV and CRO. As a result,
the Group has reduced its overall R&D expenditure from £0.5 million in
2019 to £0.2 million in 2020. Having recognised realised impairment charges
and write-offs totalling £2.4 million as exceptional costs related to this
strategic focus in 2019, there were no exceptional charges in 2020. Ongoing
costs required to exercise prudent stewardship over the co-development assets
are not expected to be material.
In 2020 the significant revenue growth, profitability focus and effective cost
management resulted in an adjusted EBITDA of £19.4 million, an increase of
55.2% over the prior year (2019: £12.5 million).
Financial strength
The growth in revenue and profitability achieved during 2020 led to strong
cash generation at an operating level. Cash generated from operations was
£19.0 million, an increase of £7.3 million over the prior year (2019: £11.7
million). The cash generated represented 99.0% of adjusted EBITDA and
demonstrated the strong cash conversion capabilities of the business.
The Group continues to strengthen its balance sheet, with cash and cash
equivalents increasing by £4.7 million to £19.0 million at the year-end
(2019: £14.3 million). This was after net cash outflows on the acquisitions
of Ashfield Pharmacovigilance in January 2020 of £7.6 million and MedSource
in December 2020 of £4.4 million. In March 2020 as a precautionary measure
taken during the initial phase of the COVID-19 pandemic, £15.0 million cash
was drawn down on the Group's £30.0 million credit facility established in
March 2020 with the Group's banking partner, HSBC UK Bank plc. This cash was
held in the bank and remained unutilised until it was repaid in full in August
2020.
In October 2020, a capital reduction was unanimously approved by shareholders,
whereby the amounts of £27.6 million standing to the credit of the share
premium account and £11.1 million standing to the credit of the merger
reserve were cancelled and the balances were transferred to the retained
earnings account. As a result of this and the generation of distributable
reserves, the consolidated retained earnings account of the Group stood at
£45.4 million at the end of 2020.
Ergomed plc has a strong balance sheet with net assets as of 31 December 2020
of £52.9 million up 43.8% on prior year (2019: £36.8 million) which includes
cash and cash equivalents of £19.0 million (2019: £14.3 million) within
total assets of £92.3 million (2019: £57.0 million). Consolidated retained
earnings of the Group at the year-end were £45.4 million, an increase of
£50.9 million over the retained earnings deficit of £5.5 million reported in
2019.
Outlook
A strong financial foundation is now in place to continue to support the Group
on a steady course beyond the COVID-19 pandemic. Ergomed is well placed to
trade strongly into new opportunities for organic growth and expansion through
M&A activity.
Richard Barfield
Chief Financial Officer
Consolidated income statement
For the year ended 31 December 2020
Notes 2020 2019
£000s £000s
Revenue 2, 3 86,391 68,255
Cost of sales (38,686) (29,790)
Reimbursable expenses (8,055) (8,940)
Gross profit 3 39,650 29,525
Selling, general and administration expenses (27,518) (23,514)
Selling, general and administration expenses comprises:
Other selling, general and administration expenses (24,591) (19,578)
Amortisation of acquired fair valued intangible assets (1,332) (671)
Share-based payment charge (742) (870)
Acquisition-related contingent compensation - (87)
Change in the fair value of contingent consideration for acquisitions - 512
Acquisition costs 4 (853) (393)
Exceptional items 5 - (2,427)
Research and development expenses (152) (545)
Net impairment losses on trade receivables and contract assets (285) -
Other operating income 6 1,839 51
Operating profit 13,534 5,517
Finance income 8 28
Change in fair value of equity investments 12 (511) (286)
Finance costs 7 (403) (273)
Profit before taxation 12,628 4,986
Taxation (2,946) 583
Profit for the year 9,682 5,569
All activities in the current and prior period relate to continuing
operations.
The accompanying notes form an integral part of these financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
£000s £000s
Profit for the year 9,682 5,569
Items that may be classified subsequently to profit or loss:
Exchange differences on translation of foreign operations (59) (208)
Other comprehensive (loss) for the year net of tax (59) (208)
Total comprehensive profit for the year 9,623 5,361
Profit or loss and each component of other comprehensive income are
attributable to the owners of the Company.
Earnings Per Share (EPS) 8 2020 2019
pence pence
Basic 20.0 12.0
Diluted 19.2 11.5
Unaudited
Adjusted Earnings Before Interest, Tax, Depreciation and Amortisation 2020 2019
(Adjusted EBITDA) £000s £000s
Adjusted EBITDA 9 19,370 12,494
Unaudited
Adjusted Earnings Per Share (Adjusted EPS) 8 2020 2019
pence pence
Basic 25.8 19.9
Diluted 24.7 19.1
The accompanying notes form an integral part of these financial statements.
Consolidated balance sheet
As at 31 December 2020
Notes 2020 2019
£000s £000s
Non-current assets
Goodwill 10 24,605 13,380
Other intangible assets 11 9,618 2,755
Property, plant and equipment 1,742 1,110
Right-of-use assets 4,715 5,171
Equity investments 12 - -
Deferred tax asset 4,898 2,616
45,578 25,032
Current assets
Trade and other receivables 13 22,224 14,359
Accrued revenue 5,553 3,382
Cash and cash equivalents 14 18,994 14,259
46,771 32,000
Total assets 92,349 57,032
Current liabilities
Lease liabilities (1,978) (1,718)
Trade and other payables 15 (15,702) (10,373)
Deferred consideration (328) -
Deferred revenue (13,829) (2,957)
Current tax liability (1,775) (813)
(33,612) (15,861)
Net current assets 13,159 16,139
Non-current liabilities
Lease liabilities (3,128) (3,716)
Provisions (317) (341)
Deferred tax liability (2,426) (294)
(5,871) (4,351)
Total liabilities (39.483) (20,212)
Net assets 52,866 36,820
Equity
Share capital 16 489 473
Share premium account 16 3 25,790
Merger reserve 16 1,349 11,088
Share-based payment reserve 5,042 4,300
Translation reserve 615 674
Retained earnings 45,368 (5,505)
Total equity 52,866 36,820
The accompanying notes form an integral part of these financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2020
Notes Share Share Merger Share- Translation Retained Total equity
capital premium reserve based reserve earnings £000s
£000s account £000s payment £000s £000s
£000s reserve
£000s
Balance at 1 January 2019 452 24,384 11,088 3,430 882 (11,873) 28,363
Profit for the year - - - - - 5,569 5,569
Other comprehensive income for the year - - - - (208) - (208)
Total comprehensive income - - - - (208) 5,569 5,361
Transactions with shareholders
Shares issued during the year for cash 16 21 1,406 - - - - 1,427
Share-based payment charge for the year - - - 870 - - 870
Deferred tax credit taken directly to equity - - - - - 799 799
Total transactions with shareholders 21 1,406 - 870 - 799 3,096
Balance at 31 December 2019 473 25,790 11,088 4,300 674 (5,505) 36,820
Profit for the year - - - - - 9,682 9,682
Other comprehensive income for the year - - - - (59) - (59)
Total comprehensive income - - - - (59) 9,682 9,623
Transactions with shareholders
Shares issued during the year for cash 16 14 1,855 - - - - 1,869
Share-based payment charge for the year - - - 742 - - 742
Deferred tax credit taken directly to equity - - - - - 2,461 2,461
Shares issued for non-cash consideration 16 2 - 1,349 - - - 1,351
Transactions with shareholders - Capital Reduction 16
Capitalisation of Merger reserve to 'B' Ordinary Shares 16 11,088 - (11,088) - - - -
Cancellation of 'B' Ordinary Shares 16 (11,088) - - - - 11,088 -
Cancellation of Share Premium 16 - (27,642) - - - 27,642 -
Total transactions with shareholders 16 (25,787) (9,739) 742 - 41,191 6,423
Balance at 31 December 2020 489 3 1,349 5,042 615 45,368 52,866
The accompanying notes form an integral part of these financial statements.
Consolidated cash flow statement
For the year ended 31 December 2020
Notes 2020 2019
£000s £000s
Cash flows from operating activities
Profit before taxation 12,628 4,986
Adjustment for:
Amortisation and depreciation 4,843 3,712
Impairment of goodwill, intangibles, equity investments and other assets 5 - 2,427
Loss on disposal of fixed assets 16 25
Share-based payment charge 742 870
Change in the fair value of equity investments 12 511 286
Change in the fair value of contingent consideration for acquisition - (512)
RDEC income 6 (1,188) -
Finance income (8) (28)
Finance costs 7 403 273
Operating cash inflow before changes in working capital and provisions 17,947 12,039
(Increase)/decrease in trade, other receivables and accrued revenue (6,137) 1,878
Increase/(decrease) in trade, other payables and deferred revenue 7,182 (2,380)
(Decrease)/increase in provisions (18) 126
Cash generated from operations 18,974 11,663
Taxation (paid)/received (926) 124
Net cash inflow from operating activities 18,048 11,787
Investing activities
Interest received 8 7
Acquisition of intangible assets 11 (542) (604)
Acquisition of property, plant and equipment (432) (392)
Receipts from sale of property, plant and equipment 46 8
Equity investments received in exchange for services provided 12 - (1,904)
Receipts from the sale of equity investments 12 175 1,099
Acquisition of subsidiaries, net of cash acquired 17,18 (12,031) (115)
Acquisition related earn-out paid - (930)
Net cash outflow from investing activities (12,776) (2,831)
Financing activities
Issue of new shares 16 1,869 1,427
Finance costs paid (157) -
Proceeds from borrowings 14 15,000 -
Repayment of borrowings 14 (15,000) -
Payment of lease liabilities (2,189) (1,677)
Net cash outflow from financing activities (477) (250)
Net change in cash and cash equivalents 4,795 8,706
Effect of foreign currency on cash balances (60) 364
Cash and cash equivalents at start of year 14,259 5,189
Cash and cash equivalents at end of year 14 18,994 14,259
The accompanying notes form an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2020
1. Basis of preparation
The consolidated financial statements of the Group have been prepared on the
going concern basis in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, the IFRS
Interpretations Committee ('IFRS-IC') interpretations and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on a historical cost
basis except that the following assets and liabilities are stated at their
fair value: certain financial assets and financial liabilities measured at
fair value, and liabilities for cash-settled share‑based payments.
The same accounting policies, presentation and methods of computation have
been followed in these condensed financial statements as were applied in the
preparation of the Group's financial statements for the year ended 31 December
2020.
The financial statements for 2019 have been delivered to the Registrar of
Companies and the 2020 financial statements will be delivered after the Annual
General Meeting on 10 June 2021.
The Auditor has reported on both sets of accounts without qualification, did
not draw attention to any matters by way of emphasis without qualifying their
report, and did not issue a statement under Section 498(2) or 498(3) of the
Companies Act 2006.
Except as described below, the accounting policies adopted are consistent with
those of the financial statements for the year ended 31 December 2019, as
described in those financial statements.
Going concern
The financial statements have been prepared on the going concern basis, which
assumes that the Group and Company will have sufficient funds to continue in
operational existence for the foreseeable future, being a period of no less
than 12 months from the date of signing of the financial statements. The
Directors have reviewed a cash flow forecast for the period 31 December 2023,
which is derived from the 2021 Board approved budget and a medium-term cash
flow forecast through to 31 December 2023, which is an extrapolation of the
approved budget under multiple scenarios and growth rates. The 2021 budget and
medium‑term forecast represents the Directors' best estimate of the Group's
future performance and necessarily includes a number of assumptions, including
the level of revenues. The 2021 budget and medium-term forecast demonstrate
that the Directors have a reasonable expectation that the Group will be able
to meet its liabilities as they fall due for a period of at least 12 months
from the date of approval of the financial statements.
On the basis of the above factors and, having made appropriate enquiries, the
Directors have a reasonable expectation that the Company and Group have
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing these financial statements.
2. Revenue
The Group's revenue is disaggregated by geographical market and major service
lines:
Geographical market and major service lines
2020
Major service lines
CRO PV Total
£000s £000s £000s
Geographical market by client location
UK 3,589 8,590 12,179
Rest of Europe, Middle East and Africa 10,146 13,183 23,329
North America 15,828 30,836 46,664
Asia 1,753 2,269 4,022
Australia - 197 197
31,316 55,075 86,391
2019
Major service lines
CRO PV Total
£000s £000s £000s
Geographical market by client location
UK 5,096 7,590 12,686
Rest of Europe, Middle East and Africa 17,427 10,910 28,337
North America 9,245 16,337 25,582
Asia 1,064 445 1,509
Australia 10 131 141
32,842 35,413 68,255
3. Operating segments
Products and services from which reportable segments derive their revenues
Information reported to the Company's Board, which is the chief operating
decision maker ('CODM'), for the purpose of resource allocation and assessment
of segment performance, is focused on the Group operating as two business
segments, being Clinical Research Services ('CRO') and Pharmacovigilance
('PV'). All revenues arise from direct sales to customers. The segment
information reported below all relates to continuing operations. The PV
segment includes the revenues of Ashfield Pharmacovigilance Inc. ('Ashfield')
following its acquisition by the Group in the year. The CRO segment includes
the revenues of MS Clinical Services, LLC. and its subsidiaries ('MedSource')
following its acquisition by the Group in the year.
The accounting policies of the reportable segments are the same as the Group's
accounting policies. Segment profit represents the gross profit earned by each
segment. Other amounts, including selling, general and administration expenses
were not allocated to a segment. This was the measure reported to the CODM for
the purpose of resource allocation and assessment of segment performance.
2020
CRO PV Consolidated
£000s £000s total
£000s
Segment revenues 31,316 55,075 86,391
Cost of sales (12,737) (25,949) (38,686)
Reimbursable expenses (7,584) (471) (8,055)
Segment gross profit 10,995 28,655 39,650
Selling, general and administration expenses (27,518)
Selling, general and administration expenses comprises:
Other selling, general and administration expenses (24,591)
Amortisation of acquired fair valued intangible assets (1,332)
Share-based payment charge (742)
Acquisition costs (853)
Research and development expenses (152)
Net impairment of trade receivables and contract assets (285)
Other operating income 1,839
Operating profit 13,534
Finance income 8
Change in fair value of equity investments (511)
Finance costs (403)
Profit before tax 12,628
2019
CRO PV Consolidated
£000s £000s total
£000s
Segment revenues 32,842 35,413 68,255
Cost of sales (13,045) (16,745) (29,790)
Reimbursable expenses (8,498) (442) (8,940)
Segment gross profit 11,299 18,226 29,525
Selling, general and administration expenses (23,514)
Selling, general and administration expenses comprises:
Other selling, general and administration expenses (19,578)
Amortisation of acquired fair valued intangible assets (671)
Share-based payment charge (870)
Acquisition-related contingent compensation (87)
Change in the fair value of contingent consideration for acquisitions 512
Acquisition costs (393)
Exceptional items (2,427)
Research and development expenses (545)
Other operating income 51
Operating profit 5,517
Finance income 28
Change in fair value of equity investments (286)
Finance costs (273)
Profit before tax 4,986
4. Acquisition costs
2020 2019
£000s £000s
Acquisition of Ashfield Pharmacovigilance 14 393
Acquisition of MedSource 825 -
Other acquisition costs 14 -
853 393
5. Exceptional items
Exceptional items
In line with the way the Board and chief operating decision maker review the
business, large one-off exceptional costs are shown as exceptional items.
2020 2019
£000s £000s
Impairment of equity investment - 2,427
During the year ended 31 December 2019, the fair value equity investment in
Modus Therapeutics Holding AB was impaired to £nil resulting in a charge to
exceptional items of £2,427,000 (see note 12).
6. Other operating income
Research and Development Expenditure Credit (RDEC)
The Group is eligible, within the UK, to claim tax credits against certain
research and development expenditure under the RDEC scheme. During the year
the Group submitted claims in respect of the 2017 and 2018 financial years and
recognised the related profit and loss charge within other operating income in
the current financial year.
2020 2019
£000s £000s
Foreign grant income 574 -
RDEC income 1,188 -
Other income 77 51
1,839 51
7. Finance costs
2020 2019
£000s £000s
Loan and other interest payable 158 13
Interest on lease liabilities 245 260
403 273
8. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Earnings 2020 2019
£000s £000s
Profit for the purposes of earnings per share - net profit attributable to 9,682 5,569
owners of the Company
Adjust for:
Amortisation of acquired fair valued intangible assets 1,332 671
Share-based payment charge 742 870
Acquisition-related contingent consideration - 87
Change in fair value of contingent consideration for acquisitions - (512)
Acquisition costs 853 393
Exceptional items - 2,427
Pay in lieu and non-compete compensation 232 -
Change in fair value of equity investments 511 286
RDEC income (2017) (527) -
Grants in recognition of employment creation in Serbia (307) -
Tax effect of adjusting items (41) (509)
Adjusted earnings for the purposes of adjusted earnings per share (Unaudited) 12,477 9,282
Number of shares 2020 2019
Number Number
Weighted average number of Ordinary Shares for the purposes of basic earnings 48,323,814 46,599,917
per share
Incremental shares in respect of employee share schemes 2,176,170 2,027,154
Weighted average number of Ordinary Shares for the purposes of diluted 50,499,984 48,627,071
earnings per share
Earnings per share (EPS) 2020 2019
pence pence
Basic 20.0 12.0
Diluted 19.2 11.5
Unaudited
Adjusted earnings per share (Adjusted EPS) 2020 2019
pence pence
Basic 25.8 19.9
Diluted 24.7 19.1
9. EBITDA and Adjusted EBITDA
Unaudited 2020 2019
£000's £000's
Operating profit 13,534 5,517
Adjusted for:
Depreciation and amortisation charges within Other selling, general & 3,511 3,041
administration expenses
Amortisation of acquired fair valued intangible assets 1,332 671
EBITDA 18,377 9,229
Adjusted for:
Share-based payment charge 742 870
Acquisition related contingent compensation - 87
Change in fair value of contingent consideration for acquisitions - (512)
RDEC income (2017) (527) -
Grants in recognition of employment creation in Serbia (307) -
Acquisition costs (note 4) 853 393
Pay in lieu and non-compete compensation 232 -
Exceptional items (note 5) - 2,427
Adjusted EBITDA 19,370 12,494
10. Goodwill
Cost £000s
At 1 January 2019 15,802
Translation movement (279)
At 31 December 2019 15,523
Arising on business combinations 11,261
Translation movement (36)
At 31 December 2020 26,748
Impairment provision
At 1 January 2019 and 2020 2,143
At 31 December 2019 and 2020 2,143
Net book value
At 31 December 2020 24,605
At 31 December 2019 13,380
The goodwill arising during the year ended 31 December 2020 relates to the
acquisitions of Ashfield Pharmacovigilance Inc. ('Ashfield') (note 17) and MS
Clinical Services, LLC. and its subsidiaries ('MedSource') (note 18).
Goodwill acquired in a business combination is allocated, at acquisition, to
the cash-generating units ('CGUs') that are expected to benefit from that
business combination. The carrying amount of goodwill has been allocated as
follows:
Cash-generating unit 2020 2019
£000s £000s
CRO 10,859 3,535
PV 13,746 9,845
24,605 13,380
11. Other intangible assets
Cost Total
£000s
At 1 January 2019 24,075
Additions 604
Translation movement (112)
At 31 December 2019 24,567
Acquisitions through business combinations 8,730
Additions 542
Translation movement (63)
At 31 December 2020 33,776
Amortisation
At 1 January 2019 20,335
Charge for the year 1,503
Impairment charge -
Translation movement (26)
At 31 December 2019 21,812
Charge for the year 2,266
Translation movement 80
At 31 December 2020 24,158
Net book value
At 31 December 2020 9,618
At 31 December 2019 2,755
12. Equity investments
2020 Carrying Equity Change in fair value recognised Impairment of Disposals Translation Carrying
amount at
received in
amount at
in the income investments £000s movement
1 January exchange for
31 December
statement £000s £000s
2020 services provided
2020
£000s
£000s £000s £000s
Asarina Pharma AB - 699 (511) - (175) (13) -
Modus Therapeutics Holdings AB - - - - - - -
- 699 (511) - (175) (13) -
2019 Carrying Equity Change in fair value recognised Impairment of Disposals Translation Carrying
amount at
received in
amount at
in the income investments £000s movement
1 January exchange for
31 December
statement £000s £000s
2019 services provided
2019
£000s
£000s £000s £000s
Asarina Pharma AB 863 567 (286) - (1,099) (45) -
Modus Therapeutics Holdings AB 1,202 1,337 - (2,427) - (112) -
2,065 1,904 (286) (2,427) (1,099) (157) -
Asarina Pharma AB ('Asarina')
In 2018, Asarina completed a public offering and listing on the Nasdaq First
North Exchange and the investment in equity was publicly traded. Under the
co-development agreement with Asarina, the Group receives shares in Asarina in
return for services provided to them under the co-development programme.
During the year ended 31 December 2020, shares valued at £699,000 (2019:
£567,000) were issued to the Group in exchange for services provided. All the
shares received were sold in the year for proceeds of £175,000 (2019:
£1,099,000).
Modus Therapeutics Holding AB ('Modus')
Under the co-development agreement with Modus, the Group receives shares in
Modus in return for its contribution to the co‑development programme. During
the year ended 31 December 2019, shares valued at £1,337,000 were issued to
the Group in exchange for services provided by the Group.
Modus announced the initial results from its Phase II trial on 13 May 2019.
Data from the study failed to show a meaningful benefit in the total study
population. Given the results of the trial and the company's lack of funding,
management have impaired the value of the investment to £nil as at the year
end.
13. Trade and other receivables
2020 2019
£000s £000s
Trade receivables 19,079 11,235
Amounts receivable from Group companies - -
Other receivables 1,241 1,609
Prepayments 1,482 1,144
Corporation tax receivable 422 371
22,224 14,359
14. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits.
2020 2019
£000s £000s
Cash at bank 18,994 14,259
The Group has a £15 million multi-currency rolling credit facility ('RCF')
with an option to increase by a further £15 million. The RCF was drawn down
on 23 March 2020 and was subsequently repaid on 19 August 2020. The RCF
expires on 13 March 2024.
15. Trade and other payables
2020 2019
£000s £000s
Trade payables 4,197 2,579
Amounts payable to related parties 55 58
Amounts payable to Group companies - -
Social security and other taxes 1,112 629
Other payables 1,295 1,086
Customer advances 408 537
Accruals 8,635 5,484
15,702 10,373
16. Ordinary share capital
2020 2019
Number £000s Number £000s
Ordinary shares of £0.01 each
Balance at 1 January 47,286,289 473 45,175,248 452
Exercise of share options 1,433,237 14 2,111,041 21
Shares to be issued for non-cash consideration 155,558 2 - -
48,875,084 489 47,286,289 473
2020 2019
Number £000s Number £000s
B Ordinary shares of £0.23 each
Balance at 1 January - - - -
Capitalisation of Merger reserve to 'B' Ordinary Shares 48,717,776 11,088 - -
Cancellation of 'B' Ordinary Shares (48,717,776) (11,088) - -
- - - -
Options over 1,433,237 (2019: 2,111,041) Ordinary Shares were exercised for
proceeds of £1,869,000 (2019: £1,427,000).
Shares to be issued for non-cash consideration
Ordinary shares to be issued as consideration for acquisitions (non-cash
consideration) are included within share capital once the conditions for
issuance have been met. Included within the ordinary share capital at 31
December 2020 are 155,558 Ordinary Shares that will be issued as part
consideration for the acquisition of MS Clinical Services, LLC. and its
subsidiaries and is subject to the satisfaction of certain representations and
warranties. The shares will be issued during the 2021 financial year.
Capital reduction
During the year the Directors determined that they would request shareholder
and court approval for a capital reduction for Ergomed plc, whereby the
balance on the Company's share premium account and merger reserves would be
used to eliminate the deficit on the retained earnings reserve.
The Capital Reduction was approved by shareholders at a General Meeting of the
Company held on 19 October 2019. The Capital Reduction was sanctioned by the
High Court of England and Wales on 10 November 2020 and was registered with
the Registrar of Companies on 17 November 2020 whereupon it became effective.
The Capital Reduction comprised: (i) the cancellation of the entire amount
standing to the credit of the Company's share premium account and (ii) the
capitalisation of the entire amount standing to the credit of the Company's
merger reserve by issuing B ordinary shares in the capital of the Company and
the subsequent cancellation of such B ordinary shares (the 'Merger Reserve
Reduction').
Share premium
As a result of the Capital Reduction, the entire amount standing to the credit
of the Company's Share premium (£27,642,000) was cancelled on 17 November
2020.
Merger reserve
When the Company issues shares in consideration for the shares in an acquired
entity, and on completion of the transaction the Company has secured at least
a 90% equity holding in the other entity, the excess of the fair value of the
shares over the nominal value is credited to the merger reserve ('Merger
Relief').
As a result of the Capital Reduction, the entire amount standing to the credit
of the Company's Merger reserve (£11,088,000) was capitalised on 9 November
2020 by issuing 48,717,776 B ordinary shares of £0.227584 each in the capital
of the Company. The B ordinary shares were subsequently cancelled on 17
November 2020.
On 11 December 2020, 155,558 Ordinary Shares were offered as part
consideration for MS Clinical Services LLC, MedSource UK Ltd and MS Clinical
Services (Canada) Inc ('MedSource') at an agreed market price of £8.76 per
share. The excess of the fair value over the nominal value of £1,349,000 was
credited to the merger reserve. The shares are subject to the satisfaction of
certain representations and warranties and will be issued during the 2021
financial year
17. Acquisition of subsidiary - PrimeVigilance USA Inc.
On 13 January 2020, the Group acquired all the issued share capital in
Ashfield Pharmacovigilance Inc. for $10,000,000, satisfied in cash.
Immediately after acquisition the subsidiary changed its name to
PrimeVigilance USA Inc. The company is a specialist pharmacovigilance provider
based in the US. The acquisition expands the geographical coverage of
PrimeVigilance, the pharmacovigilance brand of the Ergomed group, and further
develop the Group's broader combined CRO and PV business globally.
Book Fair Final
value value valuation
£000s adjustments £000s
£000s
Intangible assets 159 2,392 2,551
Property, plant and equipment 779 - 779
Right-of-use assets 987 - 987
Total non-current assets 1,925 2,392 4,317
Trade and other receivables 1,462 (75) 1,387
Cash and cash equivalents 727 - 727
Current assets 2,189 (75) 2,114
Trade and other payables (321) - (321)
Lease liability (1,075) - (1,075)
Tax payable - - -
Deferred tax liability (1,945) 1,282 (663)
Financial liabilities (3,341) 1,282 (2,059)
Total identifiable net assets 773 3,599 4,372
Goodwill 7,703 (3,692) 4,011
Total consideration 8,476 (93) 8,383
Satisfied by:
Cash 7,613
Cash - working capital advance 770
Total consideration 8,383
Net cash outflow arising on acquisition
Cash consideration 8,433
Less: cash and cash equivalent balances acquired (727)
Less: working capital adjustment (93)
Transaction expenses 407
8,020
The fair value of intangible assets relates to customer relationships of
£1,998,000 and contracted orderbook of £553,000. The Group incurred
acquisition related cost of £393,000 related to due diligence and legal
activities in the year ended 31 December 2019 and an additional £14,000 in
the year to 31 December 2020. These costs have been included in acquisition
costs within selling and administrative expenses in the Group's consolidated
income statement.
The fair value of acquired receivables was £1,250,000. The gross contractual
amount receivable is £1,325,000 and, at the acquisition date, £75,000 of
contractual cash flows were not expected to be received
Ergomed plc has a 12-month measurement period from the date of acquisition,
and therefore the measurement period ended on 13 January 2021.
18. Acquisition of subsidiary - MedSource
On 11 December 2020, the Group acquired all of the issued share capital in MS
Clinical Services, LLC, MedSource UK Ltd and MS Clinical Services (Canada) Inc
('MedSource') for $16,200,000 in cash, adjusted for net debt, and paid at the
closing of the transaction, with further consideration of $1,800,000 payable
in Ergomed plc equity issued at a price based on the average daily closing
price for 30 days preceding the acquisition (155,558 shares at a price of
£8.76) upon the satisfaction of certain representations and warranties. Up to
a further $7,000,000 is payable, 90% in cash and 10% in equity, depending on
MedSource's financial results in the year to 31 December 2021.
MedSource is a full-service CRO with a focus on complex diseases and study
designs. The acquisition greatly expands the geographical presence of
Ergomed's CRO service offering in the US whilst complementing the current
business specialism in oncology and rare disease. Eric Lund, founder of
MedSource and the primary shareholder, will continue in his current role as
President of MedSource after the acquisition.
Book Fair Provisional
value value valuation
£000s adjustments £000s
£000s
Intangible assets 475 5,704 6,179
Property, plant and equipment 89 - 89
Right-of-use assets - 131 131
Total non-current assets 564 5,835 6,399
Trade and other receivables 3,062 - 3,062
Cash and cash equivalents 4,346 - 4,346
Current assets 7,408 - 7,408
Trade and other payables (2,348) - (2,348)
Lease liability - (131) (131)
Deferred Revenue (6,528) - (6,528)
Deferred tax liability - (1,607) (1,607)
Financial liabilities (8,876) (1,738) (10,614)
Total identifiable net assets (904) 4,097 3,193
Goodwill 11,347 (4,097) 7,250
Total consideration 10,443 - 10,443
Satisfied by:
Cash 9,092
Equity 1,351
Total consideration 10,443
Net cash outflow arising on acquisition
Cash consideration 8,764
Less: cash and cash equivalent balances acquired (4,346)
Add: working capital adjustment 328
Transaction expenses 825
5,571
The fair value of intangible assets relates to customer relationships of
£4,077,000, contracted orderbook of £1,186,000 and brand of £916,000.
The Group incurred acquisition related cost of £825,000 related to due
diligence and legal activities in the year ended 31 December 2020. These costs
have been included in acquisition costs within selling and administrative
expenses in the Group's consolidated income statement.
Ergomed plc has a 12-month measurement period from the date of acquisition,
and therefore the measurement period will end on 11 December 2021.
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