TIDMPHC
RNS Number : 7218K
Plant Health Care PLC
24 April 2020
Plant Health Care plc
Results for the year ended 31 December 2019
Plant Health Care(R) (AIM: PHC), a leading provider of novel
patent-protected biological products to the global agriculture
markets, is pleased to announce its preliminary results for the
full year ended 31 December 2019, together with an update on the
potential impact of COVID-19 on the business.
Operational
-- In both the US and Brazil, Harpin aß is showing excellent
customer benefits and we have large, strong and committed
distribution partners.
-- The Company has made impressive progress towards the launch
of the first products from the PREtec peptide platforms, targeting
markets worth more than $5 billion.
-- The Group has seen robust performance in first quarter 2020
trading, with revenue 10% above 2019, buoyed by strong demand in
the USA.
-- Agricultural inputs, which represent almost all sales by the
Group, are considered an 'essential industry'. Planting intentions
in the US and elsewhere remain robust. However, the recent collapse
in the oil price has led to a severe reduction in the price of
ethanol from sugarcane in Brazil, which will lower demand for
Harpin aß.
-- The Group nonetheless is positive about the prospects for
revenue in 2020, compared with 2019.
-- Delayed sales in Brazil (down 64%) and exceptionally
difficult market conditions in the US (down 18%) held back sales,
despite robust market demand for Harpin aß.
Financial
-- Revenue was $6.4 million (2018: $8.1 million), 21% down on
the prior year, 18% in constant currency*.
-- Gross margin decreased to 56% (2018: 65%). The decrease is
primarily due to the increased proportion of third-party sales in
Mexico and increased tariffs imposed on China by the US.
-- Adjusted LBITDA ** improved to $3.8 million (2018: $5.4 million).
-- Cash and cash equivalents at 31 December 2019 were $2.4 million.
-- The Company successfully raised GBP2.4 million ($3.0 million)
through the issuance of new ordinary shares in November 2019 and a
further GBP3.6 million ($4.6 million) in March 2020.
-- The Group has strong cash reserves.
* Constant currency is defined below.
** Adjusted LBITDA: Loss before Interest, tax, depreciation,
amortisation, share-based payments and intercompany foreign
exchange
Richard Webb, Chairman comments:
Plant Health Care is a leading provider of proprietary
agricultural biological products and technology solutions focused
on improving crop performance. Plant Health Care is strategically
positioned in an industry sector that is on the cusp of change. The
plant-based approach to improving crop yields and food security has
never been more topical. The UN Food and Agriculture Organisation
("FAO") has designated 2020 as the International Year of Plant
Health. Maintaining the health of crop plants can positively impact
various Sustainable Development Goals ("SDGs") including the
eradication of hunger, sustainable use of terrestrial ecosystems,
sustainable production and climate action.
In agriculture the biologicals input sector has attracted
extensive interest over recent years, with billions of dollars
invested in efforts to develop new biological technologies. There
are many drivers, and they are growing in urgency. These
include:
-- the pressure to reduce use of chemical pesticides and fertilisers;
-- the urgency to nurture soils and sequester carbon;
-- the requirement to buffer crops against weather shocks; and
-- the importance of raising quality and extending the shelf life of food after harvest.
Naturally, for farmers, their primary demands of any input
remain:
-- yield improvement;
-- cost effectiveness; and
-- full compatibility with their other inputs and supply chains.
These are tough challenges for biologicals.
So far, no clear champion has emerged in the biologicals sector.
Most new players are sub-scale, and many of them are still years
from meaningful commercialisation. It was widely believed that the
few corporate giants of agriculture would license in or buy out the
promising biological technologies, but other than a few significant
acquisitions, this has moved slowly in recent years. If anything,
the majors are doubling down on the conventional chemistry and
genetics they know best.
Plant Health Care has been one of the pioneers of this sector
and can be seen as one of the sector's few success stories. With an
established product range based on Harpin, Myconate and third-party
products we have more than a decade of practical commercial
experience in key markets.
-- large markets in the USA accessed through two of the top six
distributors, with strong grower feedback from innovative
products;
-- an established operation in Brazil with two years of
experience selling into the world's largest sugar cane market
through a strong distributor, and
-- in Mexico, a long-established, steadily growing, cash-positive business.
Meanwhile, The Group continues to make strong progress with the
patented PREtec "plant vaccine" technology:
-- field performance has been demonstrated in markets valued at $5 billion.
-- formulation stability and ease of use is now achieved; and
-- excellent progress in production development has given us a
projected cost of goods low enough to allow us to model the capture
of substantial market share in our target markets.
These achievements of our science and technology colleagues are
especially impressive against the background of our strategic pivot
away from a pure out-licensing model. We were previously targeting
co-development licensing agreements with the major agrochemical
players, to the exclusion of other channels. Given the lack of
appetite for doing such deals, we have reached out instead to other
routes to market and have made strong progress towards signing up
major regional distributors.
Over the past couple of years, the New Technology team, under
the leadership of Chief Science Officer Dr Zhongmin Wei, has made
better than expected progress in establishing the ability to make,
formulate, register and supply finished product and ingredients.
PREtec products will be manufactured at a fraction of the expected
cost. The additional outlay will in due course convert into higher
revenues and margins.
In the latter part of 2019, we were able to secure the interest
of a strategic investor, Ospraie Ag Science LLC, who shares our
belief in the industry sector opportunities. Ospraie has taken
strategic positions in a number of other agriculture and
biologicals businesses. After an extensive analysis of Plant Health
Care's assets, capabilities and operations, their purchase of $3.0
million in new shares validated our business model and
progress.
Later, in the March 2020 funding round, Ospraie expanded their
shareholding at a higher price. We look forward to tapping into
their industry expertise as we seek out new opportunities in a
sector that many see as ripe for consolidation.
2019 was a difficult year for the industry. But through it all,
the composition of Plant Health Care's Senior Executive team has
remained essentially unchanged. Led by Christopher Richards, based
in three continents, and operating round the world, I believe them
to be the best in the industry. Highly talented and ever more
experienced, they are fully capable of managing a business
substantially larger than Plant Health Care is today. This
expansion we will deliver by strong organic growth and continue to
build shareholder value.
On 31 January 2020, the World Health Organisation declared a
global pandemic due to the COVID-19 virus that has spread across
the globe, causing different governments and countries to enforce
restrictions on people movements, a stop to international travel,
and other precautionary measures. This has had a widespread impact
economically and a number of industries have been heavily impacted.
This has resulted in supply chain impacts on certain industries,
uncertainty over cash collection from certain customers, and a more
general need to consider whether budgets and targets previously set
are realistic in light of these events. Further consideration of
the impact of COVID-19 is detailed in our Chief Executive Officer's
statement.
Board changes
In October 2019 I took over the role of Non-executive Chairman
from Christopher Richards, who had been holding the joint remits of
Executive Chairman and Interim Chief Executive for three years. I
have been a Director myself for six years under Christopher's
inspirational chairmanship. I shall remain focused on giving him
and his Executive team the best possible support, while developing
into the Chairman role.
In September 2019 Michael Higgins relinquished his post as
Senior Independent Director and Chair of the Audit Committee, after
six years of sterling service. His contribution to the effective
operation and good governance of the Company has been immense.
We were lucky enough to recruit Guy van Zwanenberg to take on
Michael's roles, with effect from October 2019. Guy brings deep
experience and pragmatism to the Board and has already established
himself as a core member.
Alongside William Lewis and myself, the Board now has a
well-balanced non-executive team, which can help to steer the
Company through the opportunities and challenges ahead.
In October we also strengthened the Executive presence on the
Board, by appointing Chief Financial Officer Jeffrey Hovey and
Chief Operating Officer Jeff Tweedy as Board Directors. While both
of them have been participating in Board matters for some time,
Jeffrey Hovey as Chief Financial Officer since 2013, these
promotions strengthen the Executive team, and ensure we continue to
pay the fullest attention to financial management and
customer-facing matters.
Inside information
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regulation.
For further information, please contact:
Plant Health Care plc
Richard Webb, Non-executive Chairman Tel: +1 919 926 1600
Arden Partners plc (Nomad and Broker) Tel: +44 (0) 20 7614 5900
John Llewellyn-Lloyd / Dan Gee-Summons (Corporate Finance)
Fraser Marshall (Equity Sales)
Company website: www.planthealthcare.com
Chief Executive Officer's statement
Overview
Plant Health Care fell short of revenue expectations in 2019,
due to adverse market conditions in the US and delays to sales in
Brazil. As a result, sales of Harpin aß by the Group were down 34%
compared to the prior year. These factors obscured positive
customer benefits in newly launched Harpin aß products, supported
by new relationships with very strong national distributors in the
US and Brazil. These have established a very promising base for
revenue growth in 2020 and beyond.
At the same time, progress with the development of our first
PREtec products has been outstanding, with product launches into
large market opportunities now anticipated from 2022 or earlier.
Field trials with partners continue to show admirable farmer
benefits, in market opportunities valued at more than $5 billion.
Cost of goods with our leading product PHC279 have continued to
fall, as we progress to scale-up towards commercial production.
Regulatory applications are progressing in the USA and Brazil and
we eagerly anticipate first sales to distribution partners.
Following the successful equity raises in November 2019 and
March 2020, the Group now has sufficient cash resources both to
deliver strong commercial sales growth in 2020 and beyond and to
increase spend on PREtec product development, in order to maximise
the impact of impending product launches. These investment plans,
however, have now been paused until the effects of the COVID-19
situation on the Company's cash flow have become clear.
COVID-19 - impact assessment
Agriculture and agricultural inputs are classified as essential
industries around the world. As such, COVID-19 has so far had
limited impact on the business. However, we have no experience of a
similar crisis, so it is difficult to predict the extent of
COVID-19 impact on our revenues. It is not yet clear how widespread
the virus will become, how long the pandemic will last and what the
medium to long term effect of this will be on consumer and business
behaviour.
The timing of the COVID-19 pandemic is such that the majority of
agricultural inputs for the northern hemisphere crop season were
already in place before the recent lockdowns were implemented. At
the same time, farmers' planting intentions have not been
significantly affected by the crisis, in spite of wider turbulence
in markets and on the prices of agricultural commodities. For
example, USDA estimates that 97 million acres of corn will be
planted in 2020, some 10% higher than in 2019; the Group's sales in
the US so far have been stronger than forecast. Shortage of migrant
labour is very likely to affect the harvesting of fruit and
vegetable crops over the coming weeks; sales in Mexico and Spain
have been affected. Sales to the amenity market, which are largely
in the UK and a modest part of revenues, have stopped.
In Brazil, our sales are principally to sugar cane and that crop
has been substantially affected by the recent collapse in the oil
price, exacerbated by the COVID-19 crisis. Approximately half of
the sugar cane in Brazil is used to produce ethanol; the price of
ethanol in Brazil has reduced by some 50% in response to the
reduction in global oil prices. As a result, the sugar cane
industry is struggling. In addition, the response of the Brazilian
government, particularly recent statements on the need for
suppliers to extend payment terms, has led many distributors
(including the Group's distributor Coplacana) to stop sales for the
time being. It is not clear at present how long this disruption
will last.
Our priority is to do all we can to keep our business as safe as
possible for customers and staff. We have suspended operations at
our Seattle laboratory and most other staff are working from home.
We must also prepare the business for varying levels of sales
declines. To that end, we have modelled the effects of differing
levels of sales declines and delays in collection, along with all
the measures we can take to ensure that the Group remains within
its cash reserves, and have prepared cash flow forecasts for a
period in excess of 12 months.
The Board's "central case" scenario is based upon a continuation
of the current crisis into the third quarter of 2020. We anticipate
downsides in demand over the next six months (especially in Mexico
and Spain), with a return to normal levels in the fourth quarter,
with the exception of Brazil. Due to the situation in sugar cane,
we assume a 50% reduction in sales to Brazil (compared with our
earlier forecast). In addition to the impact of reduced sales, we
assume that $0.5 million in Accounts Receivable now due will not be
collected during 2020. Operating Expenses are held to the same
level as in 2019. Under this scenario, the Group's cash reserves
are sufficient beyond the end of 2021.
The Board's "severe downside" forecast is based on sales that
are further constrained in Mexico and Europe for the rest of 2020.
Sales in the USA are not affected. Sales to Brazil fall to 25%,
compared with our earlier forecast. In addition to the impact of
reduced sales, we assume that $1.0 million in Accounts Receivable
due in 2020 will not be collected until 2021. In this scenario,
sales projections in 2021 are lower than previously forecast.
Operating Expenses are held to the same level as in 2019, in both
2020 and 2021 in an effort to manage existing cash resources. Even
under this pessimistic scenario, the Group's cash reserves are
sufficient beyond the end of 2021.
The Directors have no reason to believe that customer revenues
and receipts will decline to the point that the Group no longer has
sufficient resources to fund its operations. However, in the
unlikely event that this should occur, and the risk of this is
materially amplified due to the very fluid nature of the current
situation, the Group may need to seek additional funding beyond the
facilities that are currently available to it, as well as making
significant reductions in its fixed cost expenses.
Group trading for FY-2020 to date has been in line with
management expectations, with only limited apparent adverse effects
on the Group's performance due to COVID-19 currently being
experienced, outside of Brazil. However, there is unprecedented
uncertainty around the impact of COVID-19 on the global economy.
While the Board is encouraged by the resilience shown by the Group
and its employees to date, the impact on FY-2020 cannot as yet be
fully assessed. Accordingly, the Board believes it would be
inappropriate to provide forward looking financial guidance to
investors and analysts at this time.
We report here separately on the two areas of focus for the
business: Commercial and New Technology. We are organised in these
two lines of business and report our Commercial business in three
geographic segments - Americas, Mexico and Rest of World. We report
our New Technology business in a single segment.
Commercial
Overall sales in 2019 were $6.4 million, a decrease of 21% in
both actual and constant currency* compared with 2018 ($8.1
million). Sales in the USA decreased 18% to $1.7 million (2018:
$2.1 million), Brazil sales decreased 64% to $0.4 million (2018:
$1.1 million), Spain (up 17%) and Mexico (up 6%) was offset by
reduced sales in Europe/Africa (down 76%), due to slower draw-down
of in-market inventory in South Africa.
Sales of core Harpin aß products decreased by 34% (32% in
constant currency). Harpin aß and Myconate products represented 59%
of sales in 2019 (2018: 68%).
Sales in Brazil were $0.4 million (2018: $1.1 million). Our
distributor Coplacana was unable to buy due to delays in the
approval of a critical import licence and existing inventory. The
import licence was issued in January 2020. However, sales of
H2Copla, Coplacana's exclusive brand into the 10 -million-hectare
sugarcane market in Brazil are growing strongly. Coplacana sales to
growers were some 3 times up on 2018. Sales to growers, however,
were from a lower base than previously reported. Adoption of the
product is slow, due to the very long crop cycle (a year between
harvests. Since the launch of H2Copla in 2018, more than 400 cane
growers have made applications of the product. Demonstration field
trials conducted in 2016-2019 showed an average yield increase of
over 21%. With these outstanding results, we anticipate strong
sales growth in 2020 and beyond. The Group expanded sales in 2019
of Harpin aß as a seed treatment in soybeans and as a foliar
application in corn.
Sales in North America were $1.7 million (2018: $2.1 million) In
the USA, Harpin aß was launched into the 90-million-acre corn
market in Q4 2018, through a very strong distribution partner.
Demonstration trials in 2019 continued to show impressive grower
benefits, with corn three weeks after planting growing taller and
healthier than untreated corn. However, the US corn market was
hammered in 2019, by a combination of the worst weather in decades
and low commodity prices. Our partner estimates that growers
treated some 350,000 acres with Harpin aß in 2019, a successful
result under these conditions but well short of its target of one
million acres. As a result, our partner finished the year with
substantial inventory (bought in Q4 2018) and did not make further
purchases in 2019. Sales by the Group in 2020 will depend on the
ramp-up of sales to growers this year.
In 2019, the Group signed a new agreement with Wilbur-Ellis, one
of the largest distributors in the USA, for the exclusive
distribution of Harpin aß in specialty (fruit and vegetable) crops.
Wilbur-Ellis had prior experience with Harpin aß, having previously
bought the product through an existing distributor, SymAgro. This
move to a larger distributor brings national coverage for Harpin aß
and is already resulting in increased sales.
Sales in Mexico grew 6% to $3.3 million (7% in constant
currency). Sales of Harpin aß grew by 15%, with entry into new
crops. Sales in Spain increased by 17% to $0.7 million (2018: $0.6
million). In South Africa, sales continued to be hit by drought and
the Group decided not to make any sales in order to reduce
in-market inventory.
What is PREtec?
PREtec works by inducing natural defensive and metabolic
responses in crop plants so they suffer less harm from the usual
stresses faced during a growing season, such as nematodes or
disease. This is achieved by designing peptides that mimic the
active sites of larger naturally occurring proteins to which plants
have evolved to respond defensively. These peptides are generally
accepted as being safe to handle and having negligible toxicity.
They do not leave any detectable residue and rapidly degrade so
that they do not persist on the plant after application. For these
reasons, PREtec peptides should benefit from regulations in the US
and many foreign countries intending to accelerate the commercial
approval of biological products.
The New Technology team discovers and develops novel proprietary
biological solutions using the Group's PREtec science and
technology capabilities (PREtec stands for Plant Response Elicitor
technology). PREtec is a novel, environmentally friendly approach
to protecting crops, based on peptides derived from natural
proteins. By activating the innate growth and defence mechanisms of
plants, PREtec peptides lead to higher crop yields and better
protection against disease and environmental stresses such as
drought. Because of their novel mode of action, PREtec peptides
complement standard chemical pesticides, improving disease control
and yield, while being compatible with mainstream agriculture
practices such as seed treatment and foliar sprays.
After many years of development, the PREtec technology platform
has resulted in the identification of three lead peptides for
commercial development, a larger series of development candidates
undergoing further characterisation, and a collection of
early-stage peptides available for further screening. PREtec
generates the possibility of many peptide product candidates across
several platforms; we have so far characterised and presented to
our partners peptides from four related families of peptides:
Innatus 3G, T-Rex 3G, Y-Max 3G and P-Max 3G. The members of each
peptide family share certain key agronomic performance attributes
and each family is a platform for product development.
New technology
Plant Health Care's Plant Response Elicitor Technology
("PREtec") platforms are generating numerous promising products.
The Group is currently focusing on three products targeting very
large market opportunities with a value of more than $5 billion.
These products are currently under evaluation with six potential
commercial partners. The Group also continues to evaluate further
candidate products from its robust pipeline of development
candidates for additional crops and indications.
The Group believes PREtec has substantial potential to support
farmers to increase yields and productivity. Our vision is for
growers to apply a PREtec peptide on every hectare of agricultural
land in combination with conventional agricultural products to
improve their performance, reduce their environmental impact,
reduce the development of disease resistance to chemical
pesticides, and increase yields.
The lead PREtec peptide product is PHC279, from the Innatus 3G
platform, which promotes healthy growth of a wide range of crops.
For example, PHC279 has been shown to promote disease control in
Brazilian soybeans when applied as a seed treatment. It has the
potential to reduce substantially the use of toxic fungicides.
Also progressing rapidly in development is PHC949, from the
T-Rex 3G platform, which provides outstanding control of nematode
soil pests in crops including soybeans and vegetables. PHC414, from
the Y-Max 3G platform, promotes the quality and yield of fruits and
vegetables.
The Group has submitted for registration of PHC279 in the USA
and Brazil. Earliest regulatory approvals are expected in 2021.
Remarkable progress has been made in developing cost-effective
production methods for the lead PREtec peptide products.
During 2019, the Group contracted with Penn State University's
CSL Behring Fermentation Facility to scale up manufacturing of
PHC279. Production efficiency targets have already been exceeded,
giving the Group confidence that PHC279 will be cost effective in
the field and provide a competitive advantage over other biological
products. Preliminary estimates suggest margins for PHC279 could be
superior to those which the Group currently enjoys with Harpin
aß.
The Group expects to take the lead products to growers through
distribution agreements with strong distributors. The existing
relationships established in the USA and Brazil for Harpin aß
provide a strong basis for PREtec peptide product distribution.
Product launches are expected to take place soon after regulatory
approvals have been obtained.
Intellectual property protection of PREtec
The Group has designed a very large number of closely related
peptide variants and filed more than 50 patent applications
worldwide since 2012 to protect this technology. On 12 November
2019, our first US patent for PREtec was issued. US Patent No.
10,470,461 claims a large number of unique response elicitor
peptides, as well as their use in combination with other
agricultural products to enhance disease resistance, improve plant
growth and impart tolerance to both biotic stresses and abiotic
stresses such as heat, drought and excess soil salinity.
This is the first of a series of patents that we expect will
issue shortly in the US and internationally. Plant Health Care is
carving out a dominant patent position around the use of response
elicitor peptides in agriculture, which will ultimately cover a
significant share of the "space" available for using peptides in
agricultural production.
Financial and corporate
The Group has maintained strict control of cash operating
expenses (defined as expenses less depreciation, amortization,
share-based payments and translational gains/losses), which
finished the year at $7.4 million (2018: $10.4 million); the main
contributors were reduced New Technology spend at $2.1 million
(2018: $3.5 million) and reduced bad debt expense to $85,000 (2018:
$0.7 million). Inventory ($3.0 million), accounts receivable ($3.6
million) and payables ($0.8 million) were comparable to the prior
year ($3.0 million, $3.5 million and $1.4 million,
respectively).
The Group ended 2019 with $2.4 million (2018: $4.3 million)
being the total of both cash and cash equivalents and the
investment balance. The Group's cash burn reduced to $4.8 million
(2018: $6.3 million) primarily due to decreased operating costs and
reduced inventory purchases.
*Constant currency
We evaluate our results of operations on both an as reported and
a constant currency basis. The constant currency presentation,
which is a non-IFRS measure, excludes the impact of fluctuations in
foreign currency exchange rates. We believe providing constant
currency information provides valuable supplemental information
regarding our results of operations, consistent with how we
evaluate our performance. We calculate constant currency
percentages by converting our prior-period local currency financial
results using the current period exchange rates and comparing these
adjusted amounts to our current period reported results.
Outlook
Agriculture markets were hit in 2019 by the combination of low
commodity prices and, especially in the USA, severe weather and the
trade war with China. With more confidence returning for exports to
China, anticipated plantings for corn and soybeans in the US are up
to 97 million acres and 85 million acres, respectively.
We are confident that Harpin aß sales will continue to grow with
this market over the medium term. However, sales in any one period
will be subject to seasonal factors such as weather, timing of
registrations and requirements of distributor partners.
Furthermore, we sell our products into our distributors in advance
of the growing season with the next year's demand in large part
driven by the conditions during that season. As a result, Group
sales may not follow a strictly linear trend and in some cases can
see short delays which can switch sales in some markets from one
calendar year to the next.
In prior years, sales of the Group's products were heavily
dependent on sales to both the USA and Brazil in the last quarter
of the year. The Group is now taking active steps to rebalance
sales across the year.
The combination of product launches, on top of growth in
existing markets, is in our view likely to accelerate our revenue
growth over the coming years.
We are investing to accelerate the launch of PHC279 into several
target markets, once regulatory permits have been obtained. These
launches will be followed by other products over the coming years.
We expect to generate significant revenue from these products.
Plant Health Care has a clearly defined strategy, which we are
implementing effectively. 2020 will be a decisive year for the
Group, which we enter with confidence.
The COVID-19 pandemic has so far had limited impact on our
business and the Board believes that the business is well
positioned to navigate through its impact, due to the strong
balance sheet and net cash position of the Group.
While the Directors have no reason to believe that customer
revenues and receipts will decline to the point that the Group no
longer has sufficient resources to fund its operations, should this
occur, the Group may need to seek additional funding beyond the
facilities that are currently available to it, as well as making
significant reductions in its fixed cost expenses.
Our products and technologies
Harpin aß
Harpin aß is an exceptionally powerful biostimulant of the
plant's natural defence systems. The result is increased yield and
quality and improved resistance to soil pests and disease. Harpin
aß is a recombinant protein, developed from the original research
on naturally occurring Harpin proteins by the Group's Chief Science
Officer, Dr Zhongmin Wei.
We are now able to sell Harpin aß in nearly 30 countries. Sales
were developed initially in a range of fruit and vegetable crops in
the USA, Mexico, Europe and Africa. The focus over recent years has
been to enter into larger scale arable or row crops (such as corn,
soy and sugarcane) with targeted products sold through very strong,
committed distributors. This approach provides much larger sales
opportunities, as demand grows over the coming years.
After four years of trials, Plant Health Care Brasil launched
H2Copla (Harpin aß) into sugar cane in Brazil in February 2018,
through Coplacana, the leading sugar cane co-operative, which
services more than 70% of the sugar cane hectares in Sao Paulo
State. There are more than eight million hectares of sugar cane in
Brazil, of which more than 50% are in Sao Paulo State. Grower
reaction to the launch has been very positive, with demonstration
trials showing very substantial yield improvements, with average
yield increase up to 20%. The adoption cycle in sugar cane is
prolonged-the crop takes some 12 months to grow to harvest. With
Coplacana, the Group is focused on demonstrating the value of
H2Copla on as many farms as possible, especially the 35 large
processors who represent some 50% of the market opportunity. Like
many small companies in Brazil, the team has experienced teething
problems, including the slow authorisation of import permits. These
issues are being addressed and we do not expect such constraints in
the future, as grower demand builds.
In the USA, the Group launched Harpin aß into corn in the spring
of 2019. In this case, Harpin aß is sold as a mixture product for
on-farm seed treatment. The product is being sold by a leading
distributor of inputs to corn growers, which is a leading supplier
of the 90-million-acre US corn market. Although applications of the
product were limited by the very exceptional weather conditions,
users reported that their corn crops emerged taller and stronger,
compared with untreated corn. These promising results are expected
to lead to acceleration of sales in the coming years. The Group now
plans to launch the same product into soy, starting with the 2020
crop.
Also in the USA, the Group has reached agreement with
Wilbur-Ellis, a very large distributor with sales over $3.2
billion, for exclusive distribution of Employ (Harpin aß) into
fruit and vegetable crops. Wilbur-Ellis has been selling Employ for
several years, through the smaller distributor SymAgro; this gave
them experience with the product. Under the new agreement,
Wilbur-Ellis aims to extend sales nationwide, through their very
extensive network. We anticipate that this much stronger
distribution reach will lead to increased sales into these crops
over the coming years.
In Mexico, Harpin aß is now well established as a biostimulant
for vegetables such as bell peppers, which are grown in greenhouses
for export to the USA. The Group is a significant player in the
application of Harpin aß in the bell pepper market in the
Sinaloa/Baja California area of Mexico, delivering increased yield
of higher quality product. Sales of Harpin aß in Mexico grew by 15%
in 2019, reaching $0.7 million.
In Spain, the Group has been developing Harpin aß to improve the
quality of citrus fruits and other crops over the last five years.
Sales of Harpin aß in Spain grew 18% in 2019, reaching $0.7
million.
In Europe, the Group has established a relationship with Origin
Enterprises, one of the largest distributors in the EU, to
commercialise Harpin aß. In the UK, Origin is now selling Harpin aß
into potatoes. In addition, Origin companies are selling the
product into the amenity market; both leading golf courses and
well-known soccer clubs are now using Harpin aß to improve the
quality of their turf.
SugarCane picture
-- There are 8.4 million hectares of sugarcane in Brazil.
-- There are 5.0 million hectares of sugarcane in Sao Paulo State.
-- Coplacana, our distributor, is the largest supplier of inputs
for sugarcane in Sao Paulo State.
-- Applications of H2Copla (Harpin aß) have been shown to
increase sugarcane yield by as much as 20%, resulting in a possible
20 times return for the grower*.
-- Coplacana launched the H2Copla brand in February 2018.
* Yield increase based on Plant Health Care field trials
conducted on sugarcane in Brazil in 2017; value and ROI based on
cost data from Agrianual 2016 FNP - Informa report.
PREtec
PREtec is our core new technology, inspired by harpin proteins
found in nature. Based on our unique understanding of how key amino
acid sequences elicit a desired response in target crops, we are
able to design families of peptides (chains of amino acids) that
when applied to crops provide increased growth, disease resistance
and other benefits for farmers. We have so far designed and filed
patent applications for four peptide platforms from our research,
each of which has been named and launched with partners. In the
chart below, 3G signifies the third-generation product candidates
(distinct from the second generation commercial Harpin aß
products). In addition, we have a fourth generation ("4G")
platform, consisting of the use of custom genes within plants and
microbes to express the desired PREtec protein.
Since 2012, the Group has made huge progress towards bringing
the first PREtec products to market. As our experience and
confidence has built, we have modified our plans from a dependence
on technology licensing, to targeting direct sales to distributors.
This change has been particularly welcomed by our existing large
distribution partners, who are building portfolios of proprietary
biological products. While trials continue with major international
agrochemical companies, we believe that distributors will bring
PREtec peptides to market more rapidly than the traditional
agrochemical companies.
The Group is targeting product launches in very large markets,
with a combined opportunity of some $5 billion. We aim to launch
products soon after regulatory permits are achieved.
The peptide PHC279, from the Innatus 3G platform, is likely to
be the first PREtec peptide to be launched to the market. Extensive
trials have shown that PHC279 is a versatile and highly effective
product, in a range of crops.
In August 2018, the Group submitted an application for
registration with the US EPA for approval to sell PHC279 as a
biopesticide and expects to receive approval during 2021. In
October 2019, the Group submitted an application for registration
in Brazil as a biochemical product for the control of Asian soybean
rust, a devastating disease of soy. The timing of achieving
registrations in Brazil is less certain than in the USA.
Other peptide products are also in the later stages of
development. PHC949, from the T-Rex platform, is showing remarkably
strong benefits, with control of nematode worm infestations in soil
comparable to that of leading chemical pesticides. We anticipate
registration of PHC949 in the USA in 2022. PHC414, from the Y-Max
platform, is showing promise as a biostimulant, promoting yield in
a range of crops. We anticipate registration of PHC414 in the USA
in 2022 or 2023.
As we move towards product launches, our team in Seattle has
developed laboratory-scale methods for the manufacture of PREtec
peptides A particular achievement has been the development of both
liquid and solid formulations of PREtec peptides, which are highly
stable and easy to use. Remarkable progress has also been made in
reducing product cost, with indicative costs of production now
substantially lower than those of Harpin aß. During 2019, we
started scaling up production of PHC279 at Penn State's
University's CSL Behring Fermentation Facility. These scale-up
trials are currently ahead of schedule. We are now searching for
toll manufacturers to produce PHC279 and other peptides on a
commercial scale, in time for the first product launches.
IP protection is fundamentally important for the Group. Since
2012, numerous patents have been filed around the PREtec platforms.
In an important landmark, the US Patent and Trademark Office has
now granted the first of these patents, approving the very wide
claims sought by the Group. Additional US and foreign patents are
expected to issue in 2020. Plant Health Care is carving out a
dominant patent position around the use of response elicitor
peptides in agriculture, which will ultimately cover a significant
share of the "space" available for using peptides in agricultural
production.
Our growth strategy
Our future growth will be achieved by focusing on the following
key areas:
-- Substantial increase in market access. We intend to drive
revenue in the short term by focusing on distribution of Harpin aß
by aligning with large distributors with broad market access. We
plan to expand sales in broad acre crops where Harpin aß provides
most benefits to farmers, including sugar cane, corn, soy, citrus,
rice, almonds and grapes.
-- Launching peptide products from our PREtec platforms. In
trials conducted by PHC and our partners in 2019, our lead peptide,
PHC279, continued to provide impressive levels of disease control
and improved yield in a variety of crops, including soybeans, corn,
wheat and lettuces. Our application to sell PHC279 in Brazil for
the treatment of Asian Soybean Rust was accepted by the relevant
agencies, and we are anticipating a rapid approval process. We
anticipate launches from 2021 onwards.
-- Building further the capability to deliver additional
products from PREtec. Having now established pilot plant
manufacturing capabilities at Penn State University's CSL Behring
Fermentation Facility, Plant Health Care can quickly scale up
production of other PREtec peptides in our pipeline, including
PHC949 and PHC414.
-- IP protection and ongoing innovation. The Group has an
extensive library of PREtec peptides, which can be further
expanded. The Group has now been granted the first patents for
PREtec peptides by the US PTO; numerous filings are in the process
of being reviewed around the world, as the Group builds its IP
portfolio.
In closing, I would like to thank the entire Plant Health Care
team for all their hard work during the year. As Chief Executive
Officer, I am proud of the Group's impressive team of highly
motivated professionals, in whom I have the greatest
confidence.
Financial review
A summary of the financial results for the year ended 31
December 2019 with comparatives for the previous financial year is
set out below:
2019 2018
$'000 $'000
---------------------- ------- -------
Revenue 6,436 8,128
Gross profit 3,602 5,271
56% 65%
Operating loss (4,127) (8,033)
Finance income (net) 285 89
Net loss for the year
before tax (3,842) (7,944)
---------------------- ------- -------
Revenues
Revenues in 2019 decreased by 21% to $6.4 million (2018: $8.1
million) as a result of a delay to sales in Brazil and postponement
of sales into the North American corn market by our channel partner
as they respond to working capital pressures. The gross margin
decreased 9% to 56% (2018: 65%) primarily due to the increased
proportion of third-party sales in Mexico and increased tariffs
imposed on China by the US.
Americas
This segment includes activities in both North and South America
but is exclusive of Mexico.
External revenue in the Americas segment decreased 35% to $2.1
million (2018: $3.3 million). The decrease in revenue was primarily
due to a delay to sales in Brazil and postponement of sales into
the North American corn market by our channel partner as they
respond to working capital pressures. Revenue in the Americas is
predominantly from Harpin aß sales.
Mexico
A significant portion of the Group's revenue comes from Mexico.
Revenue from the Mexican segment increased 6% (7% in local
currency) to $3.3 million (2018: $3.1 million). This was due to the
rebound of produce prices in the north-west portion of Mexico.
Revenue in Mexico includes sales of Harpin aß, Myconate and
third-party products.
Rest of World
External revenue in the Rest of World segment decreased 44% (37%
in constant currency) to $1.0 million (2018: $1.7 million). The
decrease was primarily due to channel stock remaining high in the
South African region partially offset by a sales increase of 17% in
Spain. Revenue in the Rest of World segment is predominantly from
Harpin aß and some Myconate sales.
Gross margin
Gross margin declined 8.9% to 56.0% (2018: 64.9%). The decline
is primarily due to the increased proportion of third-party sales
in Mexico and increased tariffs imposed on China by the US.
Operating expenses
The Group has maintained strict control of cash operating
expenses, which decreased to $7.4 million from $10.4 million in
2018. The main contributors were reduced New Technology spend at
$2.1 million (2018: $3.5 million) and reduced bad debt expense of
$85,000 (2018: $0.8 million).
Unallocated corporate expenses decreased $2.6 million to $0.3
million (2018: $2.9 million loss). The decrease was attributable to
the increase in the value of Sterling loans from our UK subsidiary
due to the depreciation of the Pound.
Adjusted LBITDA*, a non-GAAP measure, decreased by $1.6 million
to $3.8 million primarily due to reduced gross profit of $1.7
million offset by decreased spend in New Technology and sales and
marketing of $1.5 million and $0.5 million, respectively and
reduced bad debt expense to $85,000 (2018: $0.8 million).
2019 2018
$'000 $'000
---------------------------- ------- --------
Gross margin 3,602 5,271
Operating expenses (7,729) (13,305)
Depreciation/amortization 778 588
Share-based payment expense 318 797
Intercompany foreign
exchange gains/(losses) (783) 1,235
Adjusted LBITDA 3,814 5,414
---------------------------- ------- --------
* Adjusted LBITDA: loss before interest, tax, depreciation,
amortization, share-based payments and intercompany foreign
exchange.
Balance sheet
At 31 December 2019 and 2018, investment, cash and cash
equivalents were $2.4 million and $4.3 million, respectively. Cash
remains a primary focus for the Group. Cash burn decreased $1.5
million to $4.8 million (2018: $6.3 million) primarily due to
reduced operating expenses in New Technology of $2.1 million (2018:
$3.5 million). Working capital decreased to $7.7 million in 2019
(2018: $8.6 million). The decrease is primarily due to a decrease
in cash and cash equivalents, offset by a fall in accounts
payable.
Translation of the results of foreign subsidiaries for inclusion
within the consolidated Group results resulted in an exchange loss
of $0.8 million recorded within other comprehensive income and
foreign exchange reserves (2018: gain of $1.1 million).
Cash flow and liquidity
Net cash used in operations was $4.4 million (2018: $6.3
million).
Net cash provided by investing was $0.1 million in 2019 (2018:
$0.9 million). The Group holds surplus cash in several bond and
money market funds. The movement in these funds was used to further
invest in the New Technology business and fund the Commercial
business.
Net cash provided by financing activities was $2.6 million for
2019 (2018: $6.7 million). The reduction of $3.0 million (net of
costs) is due to the 2019 equity raise compared to the prior year
equity raise.
Going concern
In assessing whether the going concern basis is appropriate for
preparing the 2019 Annual Report, the Directors have utilised the
Group's detailed forecasts, which take into account its current and
expected business activities, its cash and cash equivalents balance
and investments of $2.4 million. The principal risks and
uncertainties the Group faces and other factors impacting the
Group's future performance were considered. Analysis of the going
position is detailed in the CEO's report and Note 2 to this
announcement.
Consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 2018
Note $'000 $'000
---------------------------------------------------------- ---- ------- -------
Revenue 4 6,436 8,128
Cost of sales (2,834) (2,857)
---------------------------------------------------------- ---- ------- -------
Gross profit 3,602 5,271
Research and development expenses (2,775) (4,090)
Sales and marketing expenses (3,144) (3,655)
Administrative expenses (1,810) (5,559)
---------------------------------------------------------- ---- ------- -------
Operating loss 5 (4,127) (8,033)
Finance income 7 323 90
Finance expense 7 (38) (1)
---------------------------------------------------------- ---- ------- -------
Loss before tax (3,842) (7,944)
Income tax credit 8 158 252
---------------------------------------------------------- ---- ------- -------
Loss for the year attributable to the equity holders
of the parent company (3,684) (7,692)
Other comprehensive income:
Items which will or may be reclassified to profit
or loss:
Exchange (loss)/gain on translation of foreign operations (792) 1,120
---------------------------------------------------------- ---- ------- -------
Total comprehensive loss for the year attributable
to the equity holders of the parent company (4,476) (6,572)
---------------------------------------------------------- ---- ------- -------
Basic and diluted loss per share 9 $(0.02) $(0.05)
---------------------------------------------------------- ---- ------- -------
Consolidated statement of financial position
at 31 December 2019
2019 2018
Note $'000 $'000
------------------------------ ---- -------- --------
Assets
Non-current assets
Intangible assets 10 1,649 1,692
Property, plant and equipment 475 701
Right of use assets 13 416 -
Trade and other receivables 11 150 140
------------------------------ ---- -------- --------
Total non-current assets 2,690 2,533
------------------------------ ---- -------- --------
Current assets
Inventories 2,960 2,975
Trade and other receivables 11 3,412 3,357
Tax receivable 335 400
Investments 1,964 1,825
Cash and cash equivalents 457 2,459
------------------------------ ---- -------- --------
Total current assets 9,128 11,016
------------------------------ ---- -------- --------
Total assets 11,818 13,549
------------------------------ ---- -------- --------
Liabilities
Current liabilities
Trade and other payables 12 1,406 2,404
Short-term lease liabilities 13 353
------------------------------ ---- -------- --------
Total current liabilities 1,759 2,404
------------------------------ ---- -------- --------
Non-current liabilities
Long-term lease liabilities 13 107 -
------------------------------ ---- -------- --------
Total non-current liabilities 107 -
------------------------------ ---- -------- --------
Total liabilities 1,866 2,404
------------------------------ ---- -------- --------
Total net assets 9,952 11,145
------------------------------ ---- -------- --------
Share capital 3,030 2,586
Share premium 88,647 86,126
Foreign exchange reserve (61) 731
Accumulated deficit (81,664) (78,298)
------------------------------ ---- -------- --------
Total equity 9,952 11,145
------------------------------ ---- -------- --------
Consolidated statement of changes in equity
for the year ended 31 December 2019
Foreign
Share Share exchange Accumulated
capital premium reserve deficit Total
$'000 $'000 $'000 $'000 $'000
------------------------------------------- -------- -------- --------- ----------- -------
Balance at 1 January 2018 2,237 79,786 (389) (71,403) 10,231
------------------------------------------- -------- -------- --------- ----------- -------
Loss for the year - - - (7,692) (7,692)
Exchange difference arising on translation
of foreign operations - - 1,120 - 1,120
------------------------------------------- -------- -------- --------- ----------- -------
Total comprehensive income/(loss) - - 1,120 (7,692) (6,572)
Shares issued net of issue costs 349 6,340 - - 6,689
Share-based payments - - - 797 797
------------------------------------------- -------- -------- --------- ----------- -------
Balance at 31 December 2018 2,586 86,126 731 (78,298) 11,145
------------------------------------------- -------- -------- --------- ----------- -------
Loss for the year - - - (3,684) (3,684)
Exchange difference arising on translation
of foreign operations - - (792) - (792)
------------------------------------------- -------- -------- --------- ----------- -------
Total comprehensive loss - - (792) (3,684) (4,476)
Shares issued net of issue costs 444 2,521 - - 2,965
Share-based payments - - - 318 318
------------------------------------------- -------- -------- --------- ----------- -------
Balance at 31 December 2019 3,030 88,647 (61) (81,664) 9,952
------------------------------------------- -------- -------- --------- ----------- -------
Consolidated statement of cash flows
for the year ended 31 December 2019
2019 2018
Note $'000 $'000
----------------------------------------------------- ---- ------- -------
Cash flows from operating activities
Loss for the year (3,684) (7,692)
Adjustments for:
Depreciation 358 382
Depreciation of right of use assets 13 373 -
Amortisation of intangibles 10 43 206
Share-based payment expense 318 797
Finance income 7 (323) (90)
Finance expense 7 38 1
Foreign exchange (loss)/gain (824) 1,120
Income taxes credit (158) (252)
(Increase)/ Decrease in trade and other receivables 155 961
Gain/(loss) on disposal of fixed assets - (7)
Decrease/(increase) in inventories 15 (1,439)
Decrease in trade and other payables (941) (475)
Income taxes received 223 216
----------------------------------------------------- ---- ------- -------
Net cash used in operating activities (4,407) (6,272)
----------------------------------------------------- ---- ------- -------
Investing activities
Purchase of property, plant and equipment (132) (115)
Sale of property, plant and equipment 20 7
Finance income 7 56 90
Purchase of investments (1,940) (3,994)
Sale of investments 1,859 4,887
----------------------------------------------------- ---- ------- -------
Net cash (used)/provided by investing activities (137) 875
----------------------------------------------------- ---- ------- -------
Financing activities
Finance expense 7 (3) (1)
Payment of lease liability (420) -
Issue of ordinary share capital 2,965 6,689
Repayment of finance lease principal - (7)
----------------------------------------------------- ---- ------- -------
Net cash provided by financing activities 2,542 6,681
----------------------------------------------------- ---- ------- -------
Net (decrease)/increase in cash and cash equivalents (2,002) 1,284
Cash and cash equivalents at the beginning of the
period 2,459 1,175
----------------------------------------------------- ---- ------- -------
Cash and cash equivalents at the end of the period 457 2,459
----------------------------------------------------- ---- ------- -------
Notes
1. Basis of preparation
The financial information set out in this document does not
constitute the Group's statutory accounts for the years ended 31
December 2018 or 2019. Statutory accounts for the years ended 31
December 2018 and 31 December 2019, which were approved by the
directors on 23 April 2020, have been reported on by the
Independent Auditors. The Independent Auditor's Reports on the
Annual Report and Financial Statements for each of 2018 and 2019
were unqualified and did not contain a statement under 498(2) or
498(3) of the Companies Act 2006. However, while the year ended 31
December 2018 did not draw attention to any matters by way of
emphasis, the audit report for the ended 31st December 2019
contained a statement in respect of uncertainly over going concern,
further details are included in Note 2 below.
Statutory accounts for the year ended 31 December 2018 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2019 will be delivered to the Registrar
in due course and will be communicated to shareholders shortly, and
thereafter will be available from the Company's registered office
at 1 Scott Place, 2 Hardman Street, Manchester M3 3AA and from the
Group's website www.planthealthcare.com.
The financial information set out in these results has been
prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations adopted for use in the
European Union (collectively Adopted IFRSs). The accounting
policies adopted in these results have been consistently applied to
all the years presented and are consistent with the policies used
in the preparation of the financial statements for the year ended
31 December 2018, except for those that relate to new standards and
interpretations effective for the first time for periods beginning
on (or after) 1 January 2019. The new standard impacting the Group
that has been adopted in the annual financial statements for the
year ended 31 December 2019 is IFRS 16: Leases, further details of
which appear in Note 2 below. Other new standards, amendments and
interpretations to existing standards, which have been adopted by
the Group have not been listed, since they have no material impact
on the financial statements.
The Group's financial statements have been presented in US
Dollars. Amounts are rounded to the nearest thousand, unless
otherwise stated.
2. Accounting policies
Reporting currency
The annual financial statements are presented in thousands of US
Dollars. The exchange rates used to convert British Pounds to US
Dollars at 31 December 2019 and 2018 were 1.3185 and 1.2734,
respectively, and the average exchange rates for the years then
ended were 1.2767 and 1.3348, respectively. The exchange rates used
to convert Mexican Pesos to US Dollars at 31 December 2019 and 2018
were 0.0529 and 0.0509, respectively, and the average exchange
rates for the years then ended were 0.0519 and 0.0521,
respectively. The exchange rates used to convert Euros to US
Dollars at 31 December 2019 and 2018 were 1.1215 and 1.1444,
respectively, and the average exchange rates for the years then
ended were 1.1194 and 1.1809, respectively.
The functional currency of the parent company is US Dollars
primary due to the US being the country whose competitive forces
and regulations impact this business.
Going concern
In assessing whether the going concern basis is an appropriate
basis for preparing the 2019 Annual Report, the Directors have
utilised its detailed forecasts which take into account its current
and expected business activities, its cash and cash equivalents
balance and investments of $2.4 million as shown in its balance
sheet at 31 December 2019, the principal risks and uncertainties
the Group faces and other factors impacting the Group's future
performance.
Various sensitivity analyses have been performed to reflect a
variety of possible cash flow scenarios, taking into account the
COVID-19 pandemic, where the Group achieves significantly reduced
revenues for the twelve months following the date of this Annual
Report. Overall, the directors have prepared cash-flow forecasts
covering a period of at least 12 months from the date of approval
of the financial statements, which foresee that the Group will be
able to operate within its existing facilities.
The COVID-19 pandemic has so far had limited impact on our
business and the Board believes that the business is able to
navigate through the impact of COVID-19 due to the strength of its
customer proposition, its balance sheet and net cash position of
the Group. This is supported by, the Company successfully completed
an equity raise which generated $4.6 million (net of costs) from
new and existing investors in March 2020. The Company issued
44,602,188 ordinary shares at 8p per share, directly attributable
costs of $150,000 were incurred.
However, the rapid emergence of the coronavirus pandemic has
caused significant disruption to many businesses where the
implementations of social distancing measures is not practical or
deemed ineffective and this had implication for the wider global
economy and specifically to the supply chain of which we reside
within - be it our customers willingness to purchase volumes
planned prior to the pandemic or where customers will have the
ability to settle their debts to the value of sales already
recorded and to the originally agreed settlement terms. In many
countries agricultural processes and procedures has been protected
from more general worker restrictions and we expect this to remain
to be the case throughout the pandemic. In addition, our products
support human subsistence, by enhancing crop yields and crop
robustness, which flow into the wider food production process.
However, there is a risk that the Group will be impacted by
decisions further up the supply chain leading to delays in contract
negotiations and cancelling of anticipated sales. If sales and
settlement of existing debts are not in line with cash flow
forecasts, the directors have identified cost savings associated
with the reduction in revenues and have the ability to identify
further cost savings if necessary, then additional funding may be
required. While the Directors have no reason to believe that
customer revenues and receipts will decline to the point that the
Group no longer has sufficient resources to fund its operations,
should this occur, the Group may need to seek additional funding
beyond the facilities that are currently available to it through a
placement of shares or source other funding, as well as making
significant reductions in its fixed cost expenses.
The directors have concluded that the circumstances set forth
above represent a material uncertainty, which may cast significant
doubt about the Company and Group's ability to continue as going
concerns and therefore that they may be unable to realise assets
and discharge liabilities in the normal course of business. The
financial statements do not include the adjustments that would be
required if the Company and the Group were unable to continue as a
going concern.
Basis of measurement
The consolidated financial statements have been prepared on a
historical cost basis, except for financial instruments designated
at fair value through the profit and loss.
The principal accounting policies are set out below. The
policies have been applied consistently to all the years presented
and on a going concern basis.
Adoption of new and revised standards
New standards impacting the Group that have been adopted in the
annual financial statements for the year ended 31 December 2019,
and which have given rise to changes in the Group's accounting
policies are:
-- IFRS 16 "Leases"
Details of the impact of this standard is set out below. A
number of other new standards, amendments and interpretations to
existing standards have been adopted by the group, but have not
been listed, since they have no material impact on the financial
statements. None of the other new standards, amendments and
interpretations in issue but not yet effective are expected to have
a material effect on the financial statements.
The Group has adopted IFRS 16 "Leases" with a date of initial
application of January 2019. IFRS 16 supersedes IAS 17 "Leases" and
related interpretations.
IFRS 16 introduces a single, on-balance sheet accounting model
for lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make
lease payments. Lessor accounting remains similar to previous
accounting policies.
(a) Transition method and practical expedients utilised
The Group has applied IFRS 16 using the modified retrospective
transition approach (option 1, asset = liability), with recognition
of transitional adjustments on the date of initial application (1
January 2019), without restatement of comparative figures.
Previously, the Group determined at the inception of a contract
whether an arrangement was or contained a lease under IFRIC 4
"Determining Whether an Arrangement Contains a Lease". The Group
now assesses whether a contract is or contains a lease based on the
new definition of a lease. Under IFRS 16, a contract is, or
contains, a lease if the contract conveys a right to control the
use of an identified asset for a period of time in exchange for
consideration.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- excluded initial direct costs for the measurement of the
right-of-use asset at the date of initial application; and
-- applied the exemption not to recognise right-of-use assets
and liabilities for leases with less than 12 months of lease term
remaining as of the date of initial application.
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognises right-of-use assets
and lease liabilities for most leases. However, the Group has
elected not to recognise a right-of-use asset and lease liability
in our Brazil subsidiary due to the low value of the asset. The
Group recognises the lease payments associated with these leases as
an expense on a straight-line basis over the lease term.
At the commencement date of property leases the Group determines
the lease term non-cancellable period of the lease. Leases are
regularly reviewed and will be revalued if it becomes likely that
an option to extend the lease will be exercised.
(b) Right-of-use assets
The Group recognises a right-of-use asset at the lease
commencement date. The right-of- use assets are measured at an
amount equal to the lease liability, adjusted by the amount of any
prepaid or accrued lease payments - the Group applied this approach
to all leases. Subsequent to measurement, right-of-use assets are
amortised on a straight-line basis over the remaining term of the
lease or over the remaining economic life of the asset if this is
judged to be shorter.
(c) Lease liabilities
The lease liabilities are measured at the present value of the
remaining lease payments, discounted using the incremental
borrowing rate applicable to each lease as at 1 January 2019. The
Group's incremental borrowing rate is the rate at which a similar
borrowing could be obtained from an independent creditor under
comparable terms and conditions. Judgement is required to determine
an approximation, calculated based on US Government treasury bill
rates of an appropriate duration and adjusted by an indicative
credit premium and a lease specific adjustment. The weighted
average incremental borrowing rate applied to the lease liabilities
was 5.00%.
Subsequently, the lease liability is increased by the interest
cost on the lease liability and decreased by the lease payment
made. It is remeasured if there is a modification, a change in
lease term or a changed in the fixed lease payments.
(d) Impacts on the financial statements
The table below shows a reconciliation from the total operating
lease commitment as disclosed at 31 December 2019 to the total
lease liabilities recognised in the accounts immediately after
transition:
1 January
2019
For the period $'000
----------------------------------------------------------------- ---------
Operating lease commitment at 31 December 2018 as disclosed in
the Group's consolidated financial statements 812
Operating lease commitment prior period omission error 44
Discounted using the incremental borrowing rate at 1 January
2019 (47)
Recognition exemption for lease of low-value assets / short-term
leases (3)
Total lease liabilities recognised at 1 January 2019 806
----------------------------------------------------------------- ---------
The implementation of IFRS 16 affected the following items on
the balance sheet:
Increased by
Right-of-use assets $750K
Increased by
Lease liabilities $806K
Decreased by
Accrued expense $57K
------------------- ------------
Basis of consolidation
These consolidated financial statements incorporate the
financial statements of the Group and the entities controlled by
the Group. Control exists when the Group has: (i) power over the
investee; (ii) exposure, or rights, to variable returns from its
involvement with the investee; and (iii) the ability to use its
power over the investee to affect the amount of the investor's
returns. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
commences until the date that control ceases. All significant
intercompany transactions, balances, revenues and expenses have
been eliminated.
The consolidated financial statements incorporate the results of
business combinations using the purchase method. In the
consolidated statement of financial position, the acquiree's
identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date.
The results of acquired operations are included in the statement of
comprehensive income from the date on which control is obtained.
They are deconsolidated from the date control ceases.
Revenue
The Group recognises revenue at the fair value of consideration
received or receivable. Sales of goods to external customers are at
invoiced amounts less value-added tax or local tax on sales. The
Group currently generates revenue solely within its Commercial
business through the sale of its proprietary and third-party
products. Credit terms provided to customers also affects the
recognition of revenue where a significant financing component is
considered to exist.
The majority of the Group's revenue is derived from selling
goods with revenue recognised at a point in time when control of
the goods has transferred to the customer. This is generally when
the goods are delivered to the customer. However, for some sales,
control might also be transferred when delivered either to the port
of departure or port of arrival, depending on the specific terms of
the contract with a customer. There is minimal judgement needed in
identifying the point control passes to the customer: once physical
delivery of the products to the agreed location has occurred, the
group no longer has physical possession, usually will have a
present right to payment (as a single payment on delivery) and
retains none of the significant risks and rewards of the goods in
question.
In the limited situations where the Group offers a product
rebate to the customer, it records the fair value of the product
rebate as a reduction to product revenue. An accrued liability for
these product rebates is estimated and recorded at the time the
revenues are recorded.
Sales support payments to customers are considered a reduction
in transaction price and are recognised as a reduction to revenue
as incurred.
Goodwill
Goodwill is measured as the excess of the cost of an acquisition
over the net fair value of the identifiable assets, liabilities and
contingent liabilities, plus any direct costs of acquisition for
acquisitions. For business combinations completed on or after 1
January 2010, direct costs of acquisition are recognised
immediately as an expense.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to administrative
expenses in the consolidated statement of comprehensive income. The
Group performs annual impairment tests for goodwill at the
financial year end.
Other intangible assets
Externally-acquired intangible assets are initially recognised
at cost and subsequently amortised on a straight-line basis over
their useful economic lives. The amortisation expense is included
within administrative expenses in the consolidated statement of
comprehensive income. Internally generated intangibles expenses
includes costs that are directly attributable to making the asset
capable of operating as intended.
Intangible assets are recognised on business combinations if
they are separable from the acquired entity or give rise to
contractual or other legal rights, and are initially recognised at
their fair value.
Expenditure on internally-developed intangible assets
(development costs) are capitalised if it can be demonstrated
that:
-- it is technically feasible to develop the product for it to be sold;
-- adequate resources are available to complete the development;
-- there is an intention to complete and sell the product;
-- the Group is able to sell the product;
-- sale of the product will generate future economic benefits; and
-- expenditure on the project can be measured reliably.
Development expenditure not satisfying the above criteria and
expenditure on the research phase of internal projects are
recognised in profit or loss.
Capitalised development costs are amortised over the periods of
the future economic benefit attributable to the asset. The
amortisation expense is included within administrative expenses in
the consolidated statement of comprehensive income. The Group has
not capitalised any development costs to date.
The significant intangibles recognised by the Group and their
estimated useful economic lives are as follows:
Licences - 12 years
Registrations - 5-10 years
Impairment of goodwill and other intangible assets
Impairment tests on goodwill are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (that
is the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
Impairment charges are included within administrative expenses
in the consolidated statement of comprehensive income. An
impairment loss recognised for goodwill is not reversed.
Foreign currency
Foreign currency transactions of individual companies are
translated into the individual company's functional currency at the
rate on the date the transaction occurs.
At the year end, non-functional currency monetary assets and
liabilities are translated at the year-end rate with the
differences being recognised in the profit or loss.
On consolidation, the results of operations that have a
functional currency other than US Dollars are translated into US
Dollars at rates approximating to those ruling when the
transactions took place. Statements of financial position are
translated at the rate ruling at the end of the financial period.
Exchange differences arising on translating the opening net assets
at opening rate and the results of operations that have a
functional currency other than US Dollars at average rate are
included within other comprehensive income in the consolidated
statement of comprehensive income and taken to the foreign exchange
reserve within capital and reserves.
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the Group's chief operating decision
maker ("CODM"). The CODM, who is responsible for allocating
resources and assessing performance of the operating segments, has
been identified as the Chief Executive Officer.
Financial instruments
Trade receivables collectible within one year from the date of
invoicing are recognised at invoice value less provision for
expected credit losses. Trade receivables collectible after more
than one year from the date of invoicing are initially recognised
at fair value, and subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment.
Investments comprise short-term investments in notes and bonds
having investment grade ratings. Investments are designated as at
fair value through profit and loss upon initial recognition when
they form part of a group of financial assets which is actively
managed and evaluated by key management personnel on a fair value
basis in accordance with the Company's documented investment
strategy that seeks to improve the rate of return earned by the
Company on its excess cash while providing unrestricted access to
the funds. The Company's investments are carried at fair value as
determined by quoted prices on active markets, with changes in fair
values recognised through profit or loss.
Cash and cash equivalents comprise cash on hand, demand deposits
and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to
insignificant risk of changes in value.
Trade and other payables are initially recognised at fair value
and subsequently carried at amortised cost using the effective
interest method.
The Group applies both the simplified and general approaches
under IFRS 9 to measure expected credit losses using a lifetime
expected credit loss provision for trade receivables. Under the
simplified approach, expected credit losses on a collective basis,
trade receivables are grouped based on credit risk and aging. Under
the general approach, trade receivables that have payment terms
over 180 days are reviewed.
The expected loss rates are based on the Group's historical
credit losses experienced over the three year period prior to the
period end. The historical loss rates are then adjusted for current
and forward-looking information on factors affecting the Group's
customers.
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs. The Group's ordinary
shares are classified as equity instruments.
Employee benefits
The Group maintains a number of defined contribution pension
schemes for certain of its employees; the Group does not contribute
to any defined benefit pension schemes. The amount charged to
profit or loss represents the employer contributions payable to the
schemes for the financial period.
The expected costs of all short-term employee benefits,
including short-term compensated absences, are recognised during
the period the employee service is rendered.
Equity-settled share-based payments
The Group operates a number of equity-settled, share-based
payment plans, under which it receives services from employees and
non-employees as consideration for the Group's equity instruments,
in the form of options or restricted stock units ("awards"). The
fair value of the award is recognised as an expense, measured as of
the grant date using the binomial option pricing and Monte Carlo
models. The total amount to be expensed is determined by reference
to the fair value of instruments granted, excluding the impact of
any service and non-market performance vesting conditions.
Non-market vesting conditions are included in assumptions about the
number of options that are expected to vest. The total expense is
recognised over the vesting period, which is typically the period
over which all of the specified vesting conditions are to be
met.
Leased assets: lessee
The Group has changed its accountancy policy for leases where
the Group is the lessee as a result of IFRS 16. This replaces the
existing guidance in IAS 17, "Leases". The standard sets out the
principles for the recognition, measurement, presentation, and
disclosure of leases and the group adopted this new standard front
effect from 1 January 2019.
Prior to the 2019 financial year, the group classified its
leases as either finance or operating leases. Payments made under
operating leases were charged to the profit and loss on a
straight-line basis over the period of the lease.
IFRS 16 changes the previous guidance in IAS 17 that requires
lessees to recognise a lease liability that reflects the net
present value of future lease payments and a corresponding "right
of use asset" in all lease contracts, although lessees may not
elect to recognise lease liabilities and right-of-use assets in
respect of short term leases or leases of assets of low value.
IFRS 16 also changes the definition of a "lease" and the manner
of assessing whether a contract contains a lease. At inception of a
contract, the group assesses whether a contract is, or contains, a
lease based on whether the contract conveys the right to control
the use of an identified asset for a period of time in exchange for
consideration.
The group recognises a right-of-use asset and a corresponding
lease liability at the lease commencement date. The lease liability
is initially measured at the present value of the following lease
payments:
-- fixed payments
-- variable payments that are based on index or rate
-- the exercise price of any extension or purchase option if
reasonably certain it can be exercised; and
-- penalties for terminating the lease, if relevant
The lease payments are discounted using the interest rate
implicit in the lease or, if that rate cannot be readily
determined, the group's incremental borrowing rate.
The right-of-use assets are initially measured based on initial
amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs.
The right-of-use assets are depreciated over the period of the
lease term using the straight-line method. The lease term includes
periods covered by the option to extend, if the group is reasonably
certain to exercise that option. In addition, right-of -use assets
may during the lease term be reduced by any impairment losses, if
any, or adjusted for certain remeasurements of the lease
liability.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. Cost includes the purchase price and costs directly
attributable to bringing the asset into operation. Depreciation is
provided to write off the cost, less estimated residual values, of
all property, plant and equipment over their expected useful
lives.
It is calculated at the following rates:
Production machinery - 10-20% per annum
Office equipment - 20-33% per annum
Vehicles - 20% per annum
Leasehold improvements - 25% per annum
Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of cost and net realisable value. Cost is based upon a
weighted average cost method. The Group compares the cost of
inventory to its net realisable value and writes down inventory to
its net realisable value, if lower than its cost. Cost comprises
all costs of purchase and all other costs of conversion. Net
realisable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses. The
inventory provision is based on which products have been determined
to be obsolete.
Taxation
Current tax is the expected tax payable on the taxable income
arising in the period reported on, calculated using tax rates
relevant to the financial period.
Deferred tax
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the statement of
financial position differs from its tax base, except for
differences on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting nor taxable profit;
and
-- investments in subsidiaries and joint arrangements where the
Group is able to control the timing of the reversal of the
difference and it is probable that the difference will not reverse
in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the end of
the financial period and are expected to apply when the deferred
tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and when they relate to income taxes levied by the same
tax authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Research and development tax
Companies within the group may be entitled to claim special tax
allowances in relation to qualifying research and development
expenditure (e.g. R&D tax credits). The Group accounts for such
allowances as tax credits which means they are recognised when it
is probable that the benefit will flow to the group and that the
benefit can be reliably measured. R&D tax credits reduce
current tax expense and to the extent the amounts are due in
respect of them and not settled by the balance sheet date, reduce
current tax payable.
3. Critical accounting estimates and judgements
In preparing its financial statements, the Group makes certain
estimates and judgements regarding the future. Estimates and
judgements are continually evaluated based on historical experience
and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future,
actual experience may differ from estimates and assumptions. The
estimates and judgements that have a risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Revenue
The Group recognises revenue at the fair value of consideration
received or receivable. Sales of goods to external customers are at
invoiced amounts less value-added tax or local tax on sales. The
Group currently generates revenue solely within its Commercial
business through the sale of its proprietary and third-party
products. When the Group makes product sales under
contracts/agreements these will frequently be inclusive of
rebate/support payments or a financing component where judgement
can be required in the assessment of the transaction price.
Recoverability of trade receivables
The Group applies both the simplified and general approaches
under IFRS 9 to measure expected credit losses using a lifetime
expected credit loss provision for trade receivables. Under the
simplified approach, expected credit losses on a collective basis,
trade receivables are grouped based on credit risk and aging. Given
the Group has a low history of default, limited judgement is
required for trade receivables in this grouping.
The Group then separately reviews those receivables with payment
terms over 180 days using the general approach. Under this approach
judgements are required in the assessment of the risk and
probability of credit losses and the quantum of the loss in the
event of a default. The Group has debtors with a gross value
(before provisioning but after the assessment of financing
components) of $1.6 million within this grouping.
4. Revenue
2019 2018
Revenue arises from: $'000 $'000
--------------------- ------ ------
Proprietary products 3,770 5,581
Third-party products 2,666 2,547
--------------------- ------ ------
Total 6,436 8,128
--------------------- ------ ------
The following table gives an analysis of revenue according to
sales with payment terms of less than or more than 180 days
Year to 31 December 2019
Sales contracts Sales contracts
with payment with payment
terms less terms greater
than 180 than 180
days days Total
Segment $'000 $'000 $'000
-------------- --------------- --------------- -----
Mexico 3,330 - 3,330
Americas 1,394 737 2,131
Rest of World 848 127 975
-------------- --------------- --------------- -----
5,572 864 6,436
-------------- --------------- --------------- -----
Sales contracts Sales contracts
with payment with payment
terms less terms greater
than 180 than 180
days days Total
Timing of transfer of goods $'000 $'000 $'000
---------------------------------------------- --------------- --------------- -----
Point in time (delivery to port of departure) 5,536 737 6,273
Point in time (delivery to port of arrival) 36 127 163
---------------------------------------------- --------------- --------------- -----
5,572 864 6,436
---------------------------------------------- --------------- --------------- -----
Year to 31 December 2018
Sales contracts Sales contracts
with payment with payment
terms less terms greater
than 180 than 180
days days Total
Segment $'000 $'000 $'000
-------------- --------------- --------------- -----
Mexico 3,127 - 3,127
Americas 3,270 - 3,270
Rest of World 769 962 1,731
-------------- --------------- --------------- -----
7,166 962 8,128
-------------- --------------- --------------- -----
Sales contracts Sales contracts
with payment with payment
terms less terms greater
than 180 than 180
days days Total
Timing of transfer of goods $'000 $'000 $'000
---------------------------------------------- --------------- --------------- -----
Point in time (delivery to port of departure) 7,079 282 7,361
Point in time (delivery to port of arrival) 87 680 767
---------------------------------------------- --------------- --------------- -----
7,166 962 8,128
---------------------------------------------- --------------- --------------- -----
Financing component of sales contracts $'000
----------------------------------------------------- -----
At 1 January 2019 335
Financing components recognised 67
Financing components unwound to the income statement (267)
----------------------------------------------------- -----
At 31 December 2019 135
----------------------------------------------------- -----
5. Operating loss
2019 2018
Note $'000 $'000
--------------------------------------------------------- ----- ------ ------
Operating loss is arrived at after charging/(crediting):
Share-based payment charge 318 797
Depreciation 358 382
Depreciation of right of use assets 13 373 -
Amortisation of intangibles 10 43 206
Operating lease expense 41 420
Gain on disposal of property, plant and equipment (20) (7)
Impairment of trade receivables 85 174
Employee termination costs 63 308
Foreign exchange (losses)/gains (784) 1,485
--------------------------------------------------------- ----- ------ ------
Auditor's remuneration:
Amounts for audit of parent company and consolidation 101 95
Amounts for audit of subsidiaries 44 41
--------------------------------------------------------- ----- ------ ------
Total auditor's remuneration 145 136
--------------------------------------------------------- ----- ------ ------
6. Segment information
The Group's CODM views, manages and operates the Group's
business segments according to its strategic business
focuses-Commercial and New Technology. The CODM further analyses
the results and operations of the Group's Commercial business on a
geographical basis, and therefore the Group has presented separate
geographic segments within its Commercial business below:
Commercial - Americas (North and South America, other than Mexico);
Commercial - Mexico; and Commercial - Rest of World. The Rest of
World segment includes the results of the United Kingdom and
Spanish subsidiaries, which together operate across Europe and
South Africa. The Group's Commercial segments are focused on the
sale of biological products and are the Group's only revenue
generating segments. The Group's New Technology segment is focused
on the research and development of the Group's PREtec platform.
Below is information regarding the Group's segment loss
information for the year ended:
Rest
of Total New
Americas Mexico World Elimination Commercial Technology Total
2019 $'000 $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Revenue*
Proprietary product sales 2,109 689 972 - 3,770 - 3,770
Third-party product sales 22 2,641 3 - 2,666 - 2,666
Inter-segment product sales 844 - 368 (1,212) - - -
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Total revenue 2,975 3,330 1,343 (1,212) 6,436 - 6,436
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Group consolidated revenue 2,975 3,330 1,343 (1,212) 6,436 - 6,436
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Cost of sales (1,583) (1,704) (759) 1,212 (2,834) - (2,834)
Research and development - - - - - (2,031) (2,031)
Sales and marketing (1,530) (883) (731) - (3,144) - (3,144)
Administration (651) (233) (153) - (1,037) (193) (1,230)
Non-cash expenses:
Depreciation (97) (87) (11) - (195) (540) (735)
Amortisation (38) - (5) - (43) - (43)
Share-based payment (62) - (32) - (94) (188) (282)
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Segment operating (loss) /
profit (986) 423 (348) - (911) (2,952) (3,863)
Corporate expenses:**
Wages and professional fees (1,026)
Administration*** 762
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Operating loss (4,127)
Finance income 323
Finance expense (38)
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
Loss before tax (3,842)
---------------------------- -------- ------- ------ ----------- ----------- ----------- -------
* Revenue from one customer within the Americas segment totalled
$675,000, or 10% of Group revenues.
Revenue from one customer within the Mexico segment totalled
$1,243,000 or 19% of Group revenues.
** These amounts represent public company expenses for which
there is no reasonable basis by which to allocate the amounts
across the Group's segments.
*** Includes net share-based payment expense of $36,000
attributed to corporate employees who are not affiliated with any
of the Commercial or New Technology segments.
Other segment Information
Rest
of Total New
Americas Mexico World Eliminations Commercial Technology Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- -------- ------- ------ ------------ ----------- ----------- ------
Segment assets 7,367 1,915 1,972 - 11,254 564 11,818
Segment liabilities 967 434 137 - 1,538 328 1,866
Capital expenditure 78 38 - - 116 16 132
-------------------- -------- ------- ------ ------------ ----------- ----------- ------
Rest
of Total New
Americas Mexico World Elimination Commercial Technology Total
2018 $'000 $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Revenue*
Proprietary product sales 3,244 606 1,731 - 5,581 - 5,581
Third-party product sales 26 2,521 - - 2,547 - 2,547
Inter-segment product sales 1,539 - 67 (1,606) - - -
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Total revenue 4,809 3,127 1,798 (1,606) 8,128 - 8,128
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Group consolidated revenue 4,809 3,127 1,798 (1,606) 8,128 - 8,128
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Cost of sales (2,242) (1,574) (647) 1,606 (2,857) - (2,857)
Research and development - - - - - (3,487) (3,487)
Business development (478) - - - (478) (23) (501)
Sales and marketing (1,302) (805) (1,047) - (3,154) - (3,154)
Administration ** (786) (250) (1,001) - (2,037) (193) (2,230)
Non-cash expenses:
Depreciation (25) (51) (4) - (80) (302) (382)
Amortisation (201) - (5) - (206) - (206)
Share-based payment (17) - (61) - (78) (395) (473)
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Segment operating (loss) /
profit (242) 447 (967) - (762) (4,400) (5,162)
Corporate expenses:***
Wages and professional fees (1,334)
Administration**** (1,537)
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Operating loss (8,033)
Finance income 90
Finance expense (1)
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
Loss before tax (7,944)
---------------------------- -------- ------- ------- ----------- ----------- ----------- --------
* Revenue from one customer within the Americas segment totalled
$1,611,000, or 20% of Group revenues.
Revenue from one customer within the Mexico segment totalled
$1,089,000 or 14% of Group revenues.
Revenue from one customer within the Rest of World segment
totalled $1,100,000 or 14% of Group revenues
** The Administration expense for the Rest of World segment
includes a charge of $600,000 for the write-off of receivables.
During 2018, the Group transferred stock from our original
distributor to a new distributor in South Africa in order to
strengthen its sales position in this region. This transfer of
stock has been accounted for by the Group recording a write-off of
receivables with the original distributor of $600,000.
*** These amounts represent public company expenses for which
there is no reasonable basis by which to allocate the amounts
across the Group's segments.
**** Includes net share-based payment expense of $324,000
attributed to corporate employees who are not affiliated with any
of the Commercial or New Technology segments.
Other segment Information
Rest
of Total New
Americas Mexico World Eliminations Commercial Technology Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- -------- ------- ------ ------------ ----------- ----------- ------
Segment assets 8,369 2,103 2,501 - 12,973 576 13,549
Segment liabilities 1,630 414 168 - 2,212 192 2,404
Capital expenditure 14 58 - - 72 43 115
-------------------- -------- ------- ------ ------------ ----------- ----------- ------
Segment assets include all operating assets used by a segment
and consist principally of operating cash, receivables,
inventories, property, plant and equipment and intangible assets,
net of allowances and provisions. Segment liabilities include all
operating liabilities and consist principally of trade payables and
accrued liabilities.
Geographic information
The Group operates in three principal countries - the United
Kingdom (country of domicile), the United States and Mexico.
The Group's revenues from external customers by location of
operation are detailed below:
Year ended Year ended
31 December 31 December
2019 2018
-------------- --------------
Amount Amount
$'000 % $'000 %
--------------- -------- ---- -------- ----
United Kingdom 271 4 1,126 14
United States 1,715 27 2,101 26
Mexico 3,330 52 3,127 38
All other 1,120 17 1,774 22
--------------- -------- ---- -------- ----
Total 6,436 100 8,128 100
--------------- -------- ---- -------- ----
The Group's non-current assets by location of assets are
detailed below:
Year Ended Year Ended
31 December 31 December
2019 2018
-------------- --------------
Amount Amount
$'000 % $'000 %
--------------- -------- ---- -------- ----
United Kingdom 11 - 16 1
United States 2,430 90 2,307 91
Mexico 209 8 201 8
All other 40 2 9 -
--------------- -------- ---- -------- ----
Total 2,690 100 2,533 100
--------------- -------- ---- -------- ----
7. Finance income and expense
2019 2018
$'000 $'000
----------------------------------------- ------ ------
Finance income
Interest on deposits and investments 56 70
Financing component of revenue contracts 267 20
----------------------------------------- ------ ------
323 90
----------------------------------------- ------ ------
Finance expense
Interest on finance leases (35) -
Other interest (3) (1)
----------------------------------------- ------ ------
8. Tax credit
2019 2018
$'000 $'000
-------------------------------------------------------------- ------- -------
Current tax on loss for the year (167) (239)
Deferred tax - origination and reversal of timing differences 9 (13)
-------------------------------------------------------------- ------- -------
Total tax credit (158) (252)
-------------------------------------------------------------- ------- -------
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the UK applied
to profits for the year are as follows:
2019 2018
$'000 $'000
-------------------------------------------------------------- -------- -------
Loss before tax (3,842) (7,944)
-------------------------------------------------------------- -------- -------
Expected tax credit based on the standard rate of corporation
tax in the UK of 19.0% (2018: 19.0%) (730) (1,509)
Effect on tax rates in foreign jurisdictions (12) 48
Disallowable expenses 204 7
Share-based payment expense per accounts 60 151
Prior period R&D credit (326) (419)
Losses available for carryover 654 1,365
Losses utilised in the year (3) -
Capital allowances in excess of amortisation (79) (79)
Other temporary differences 74 184
-------------------------------------------------------------- -------- -------
Actual tax credit (158) (252)
-------------------------------------------------------------- -------- -------
Deferred
taxation
Deferred tax asset $'000
---------------------------------------- ----------
At 1 January 2019 79
Credited to the profit and loss account 9
---------------------------------------- ----------
At 31 December 2019 (note 16) 88
---------------------------------------- ----------
The deferred tax asset comprises sundry timing differences.
At 31 December 2019, the Group had a potential deferred tax
asset of $18,749,361 (2018: $18,456,752) which includes tax losses
available to carry forward of $17,972,737 (2018: $17,793,692)
(being actual federal, foreign and state losses of $98,263,971
(2018: $98,786,744)) arising from historical losses incurred and
other timing differences of $776,624.
The tax receivable of $335,000 (2018: $400,000) represents money
owed from HMRC for the Research and Development tax relief program
offered to small and mid-sized companies.
9. Loss per share
Basic loss per ordinary share has been calculated on the basis
of the loss for the year of $3,684,000 (2018: loss of $7,692,000)
and the weighted average number of shares in issue during the
period of 178,031,230 (2018: 168,850,278).
Equity instruments of 18,098,134 (2018: 14,098,057), which
includes share options, the 2015 Employee Share Option Plan and the
2017 Employee Share Option Plan, as shown within Note 21, that
could potentially dilute basic earnings per share in the future
have been considered but not included in the calculation of diluted
earnings per share because they are anti-dilutive for the periods
presented. This is due to the Group incurring a loss on operations
for the year.
10. Intangible assets
Trade
Licences name
and and customer
Goodwill registrations relationships Total
$'000 $'000 $'000 $'000
--------------------------------- --------- -------------- -------------- ------
Cost
Balance at 1 January 2018 1,620 3,342 159 5,121
Additions - externally acquired - - - -
--------------------------------- --------- -------------- -------------- ------
Balance at 31 December 2018 1,620 3,342 159 5,121
Additions - externally acquired - - - -
--------------------------------- --------- -------------- -------------- ------
Balance at 31 December 2019 1,620 3,342 159 5,121
--------------------------------- --------- -------------- -------------- ------
Accumulated amortisation
Balance at 1 January 2018 - 3,064 159 3,223
Amortisation charge for the year - 206 - 206
--------------------------------- --------- -------------- -------------- ------
Balance at 31 December 2018 - 3,270 159 3,429
Amortisation charge for the year - 43 - 43
--------------------------------- --------- -------------- -------------- ------
Balance at 31 December 2019 - 3,313 159 3,472
--------------------------------- --------- -------------- -------------- ------
Net book value
At 1 January 2018 1,620 278 - 1,898
--------------------------------- --------- -------------- -------------- ------
At 31 December 2018 1,620 72 - 1,692
--------------------------------- --------- -------------- -------------- ------
At 31 December 2019 1,620 29 - 1,649
--------------------------------- --------- -------------- -------------- ------
The intangible asset balances have been tested for impairment
using discounted budgeted cash flows of the relevant cash
generating units. For the years ended 31 December 2018 and 2019,
cash flows are projected over a five-year period with a residual
growth rate assumed at 0%. For the years ended 31 December 2018 and
2019, pre-tax discount factor of 14.9% and 14.9% has been used over
the forecast period.
Goodwill
Goodwill comprises a net book value of $1,432,000 related to the
2007 acquisition of the assets of Eden Bioscience and $188,000
related to an acquisition of VAMTech LLC in 2004. The entire amount
is allocated to Harpin, a cash generating unit within the
Commercial - Americas segment. No impairment charge is considered
necessary, and no reasonably possible change in key assumptions
used would lead to an impairment in the carrying value of
goodwill.
Licences and registrations
These amounts represent the cost of licences and registrations
acquired in order to market and sell the Group's products
internationally across a wide geography. These amounts are
amortised evenly according to the straight-line method over the
term of the licence or registration. Impairment is reviewed and
tested according to the method expressed above. Licences and
registrations have a weighted average remaining amortisation period
of three years. No impairment charge is considered necessary, and
no reasonably possible change in key assumptions used would lead to
an impairment in the carrying value of licences and
registrations.
11. Trade and other receivables
2019 2018
$'000 $'000
---------------------------------------- ------ ------
Current:
Trade receivables 3,497 3,366
Less: provision for impairment (264) (186)
---------------------------------------- ------ ------
Trade receivables, net 3,233 3,180
Other receivables and prepayments 179 177
---------------------------------------- ------ ------
Current trade and other receivables 3,412 3,357
---------------------------------------- ------ ------
Non-current:
Other receivables 62 61
Deferred tax asset (see note 11) 88 79
---------------------------------------- ------ ------
Non-current trade and other receivables 150 140
---------------------------------------- ------ ------
3,562 3,497
---------------------------------------- ------ ------
The trade receivable current balance represents trade
receivables with a due date for collection within a one-year
period. The other receivable non-current balance represents lease
deposits.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses for sales contracts with 180 days or fewer
payment terms. To measure expected credit losses on a collective
basis, trade receivables and contract assets are grouped based on
similar credit risk and aging. The expected loss rates are based on
the aging of the receivable, past experience of credit losses with
customers and forward-looking information. An allowance for a
receivable's estimated lifetime expected credit losses is first
recorded when the receivable is initially recognised, and
subsequently adjusted to reflect changes in credit risk until the
balance is collected. In the event that management considers that a
receivable cannot be collected, the balance is written off.
Sales contract receivables provided on terms greater than 180
days are at first discounted to recognise the financing component
of the transaction and then assessed using the "general approach".
Under this approach, the Group models and probability weights a
number of scenarios based on their assessment of the credit risk
and historical expected losses.
Considered Considered
under under
the simplified the general
approach approach
$'000 $'000
------------------------------ --------------- ------------
Trade receivables 1,508 1,989
Expected credit loss assessed (10) (254)
------------------------------ --------------- ------------
1,498 1,735
------------------------------ --------------- ------------
The receivables considered under the general approach relate to
two customers in the Americas segment and one customer in the Rest
of World segment. The key considerations in the assessment of the
provision were the probability of default, expected loss in the
event of default and the exposure at the point of default.
The maximum exposure to credit risk at the reporting date is the
fair value of each class of receivables set out above.
Movements on the provision for impairment of trade receivables
are as follows:
2019 2018
$'000 $'000
----------------------------------------- ------ ------
Balance at the beginning of the year 186 52
Provided 161 775
Receivables written off as uncollectible (85) (641)
Foreign exchange 2 -
----------------------------------------- ------ ------
Balance at the end of the year 264 186
----------------------------------------- ------ ------
The net value of trade receivables for which a provision for
impairment has been made is $1.6 million (2018: $1.3 million).
The following is an analysis of the Group's trade receivables,
both current and past due, identifying the totals of trade
receivables which are not yet due and those which are past due but
not impaired.
2019 2018
$'000 $'000
--------------------- ------ ------
Current 2,401 2,608
Past due:
Up to 30 days - 1
31 to 60 days 9 82
61 to 90 days 11 24
Greater than 90 days 812 465
--------------------- ------ ------
Total 3,233 3,180
--------------------- ------ ------
12. Trade and other payables
2019 2018
$'000 $'000
----------------------------- ------ ------
Current:
Trade payables 826 1,434
Accruals 527 918
Taxation and social security 52 50
Income tax liability 1 2
----------------------------- ------ ------
1,406 2,404
----------------------------- ------ ------
13. Leases: Right of use assets and lease liabilities
The recognised right-of-use assets relate to the following types
of assets:
2019
$'000
------------------- ------
Real estate leases 387
Vehicles 29
------------------- ------
Real estate leases
Buildings are leased for office/warehouse space under leases
which typically run for a period of three and five years and lease
payments are at fixed amounts. Some leases include extension
options exercisable for a period of one year before the end of the
cancellable lease term.
Vehicles
The group leases a vehicle for an employee with a standard lease
term of three years with fixed payments. The group does not
purchase or guarantee the future value of lease vehicles.
Right-of-use assets
Real
estate
lease Vehicles Total
$'000 $'000 $'000
-------------------- ------- -------- ------
At 1 January 2019 750 - 750
Additions - 39 39
Amortisation (363) (10) (373)
-------------------- ------- -------- ------
At 31 December 2019 387 29 416
-------------------- ------- -------- ------
Lease liabilities
Real
estate
lease Vehicles Total
$'000 $'000 $'000
-------------------- ------- -------- ------
At 1 January 2019 806 - 806
Additions - 41 41
Interest expense 32 1 33
Lease payments (408) (12) (420)
-------------------- ------- -------- ------
At 31 December 2019 430 30 460
-------------------- ------- -------- ------
The maturity of the lease liabilities is as follows:
Undiscoutedcontractual Less Two to
Carrying cash than One to five
2019 amount flows one year two years years
----------------- --------- ---------------------- --------- ---------- ------
Leased buildings 430 445 353 85 7
Leased vehicle 30 31 14 14 3
----------------- --------- ---------------------- --------- ---------- ------
Total 460 476 367 99 10
----------------- --------- ---------------------- --------- ---------- ------
The current and non-current portions of the leases were $353,000
and $107,000 as at 31 December 2019, respectively.
14. Cautionary statement
Plant Health Care has made forward-looking statements in this
press release, including: statements about the market for and
benefits of its products and services; financial results; product
development plans; the potential benefits of business relationships
with third parties; and business strategies. These statements about
future events are subject to risks and uncertainties that could
cause Plant Health Care's actual results to differ materially from
those that might be inferred from the forward-looking statements.
Plant Health Care can give no assurance that any forward-looking
statements will prove correct.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR IJMPTMTITBLM
(END) Dow Jones Newswires
April 24, 2020 02:00 ET (06:00 GMT)
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