TIDMERGO
RNS Number : 1024T
Ergomed plc
23 March 2021
PRESS RELEASE
Audited Full Year Results for the year ended 31 December
2020
-- Adjusted EBITDA GBP19.4 million (up 55.2%)
-- Revenue GBP86.4 million (up 26.5%)
-- Strategic acquisitions in CRO and pharmacovigilance in the US
strengthen global specialist leadership
-- Forward visibility underpinned by strong order book of GBP193 million (up 55.5%)
-- Year-end net cash balance of GBP19.0 million with unutilised
credit facilities of GBP30 million
Guildford, UK - 23 March 2021: Ergomed plc (LSE: ERGO)
('Ergomed' or the 'Company' or the 'Group'), a company focused on
providing specialised services to the pharmaceutical industry,
today announces its audited Full Year Results for the year ended 31
December 2020.
Selected Financial Highlights
Figures in GBP millions, unless Full Full % change
otherwise stated Year Year
2020 2019
Total Revenue 86.4 68.3 26.5
Service Fee Revenue 78.4 59.2 32.4
Like-for-like Service Fee Revenue
(Note 1) 68.6 57.6 19.1
Gross Profit 39.7 29.5 34.6
Gross Margin (%) 45.9% 43.3% +2.6ppts
Adjusted EBITDA (Note 2) 19.4 12.5 55.2
Net cash at 31 December 19.0 14.3 32.9
Order book at 31 December 193.0 124.1 55.5
Basic adjusted earnings per
share (pence) (Note 3) 25.8p 19.9p 29.6
------------------------------------ ------ ------ ---------
Notes :
(1) Like-for-like Service Fee revenue excludes 2020 revenues of
GBP9.2 million in PrimeVigilance USA Inc acquired on 10 January
2020 and GBP0.6 million in MS Clinical Services, LLC. and its
subsidiaries ('MedSource') acquired on 11 December 2020, as well as
exceptional 2019 revenues of GBP1.6 million.
(2) Adjusted EBITDA is defined as operating profit for the
period plus depreciation and amortisation, share-based payment
charge, acquisition related consideration and costs and exceptional
items, less one-off receipts in the period comprising a prior year
R&D tax credit and Serbian employment growth grants (Note 9 to
the financial statements).
(3) Basic adjusted earnings per share is defined as earnings per
share after adjustment for items referred to in Note 8 to the
financial statements.
Dr Miroslav Reljanović, Executive Chairman of Ergomed, said:
"Ergomed made exceptional progress in delivering its strategy in
2020, despite the challenges of the COVID-19 pandemic. The
resilience and robustness of our global services business was
demonstrated by our continued strong organic growth whilst
completing key strategic acquisitions in the US in both our
pharmacovigilance and CRO businesses. We have started 2021 in a
strong position, focused on our vision to achieve global leadership
in specialised pharmaceutical services addressing unmet medical
needs and patient safety."
Key Financial Highlights
-- Revenue of GBP86.4 million increased by 26.5% (2019: GBP68.3 million)
-- Revenue growth in pharmacovigilance (PV) up 55.6 % to GBP55.1
million (2019: GBP35.4 million) and up 30.0% to GBP46.0 million on
a like-for-like basis excluding the acquisition of Ashfield
Pharmacovigilance
-- Revenue in Clinical Research Services (CRO) flat at GBP31.3
million (2019: GBP31.2 million excluding exceptional revenue)
despite COVID-19, with service fee revenue returning to growth in
H2 up 13.5% over H1
-- Gross profit up 34.6% to GBP39.7 million (2019: GBP29.5 million)
-- Adjusted EBITDA(2) up 55.2% to GBP19.4 million (2019: GBP12.5 million)
-- Basic adjusted EPS up 29.6% to 25.8 p (2019: 19.9p)
-- Cash and cash equivalents up 32.9% to GBP19.0 million at 31
December 2020 (31 December 2019: GBP14.3 million) with operating
cash flow of GBP19.0m
-- Order book of GBP193.0 million future contracted revenue up
55.5% at 31 December 2020 (31 December 2019: GBP124.1 million)
Key Operational Highlights
-- Continued strong growth trend in challenging markets
-- Demonstrated resilience and ability to contribute in COVID-19 crisis
-- Completed two strategic acquisitions in USA to significantly expand our presence in both pharmacovigilance and CRO
- Ashfield Pharmacovigilance (now PrimeVigilance USA), acquired
in January 2020, rapidly and successfully integrated
- MS Clinical Services, LLC. and its subsidiaries ('MedSource'),
acquired December 2020, in process of integration
-- US revenue growth 82.4% over prior year
-- Successful focus on business development and cross-selling opportunities
COVID-19 Update
The Group continues to monitor closely developments relating to
the unprecedented global healthcare challenge of the COVID-19
pandemic. We have been able to adapt our business model to the
challenge and are proud to play a role in helping to combat the
disease. We are confident that we will continue to be able to bring
our expertise and proven capabilities to bear in advancing drug
development in the field and improving outcomes for patients.
Conference call for analysts:
A conference call for analysts will be held at 9.00am GMT on 23
March 2021.
Conference call details:
Participant dial-in: 080 0279 6619
International dial-in: +44 (0) 2071 928338
Participant code: 6293710
Webcast link: https://edge.media-server.com/mmc/p/mvia3sy8
Enquiries:
Ergomed plc Tel: +44 (0) 1483 402
975
Miroslav Reljanović (Executive Chairman)
Richard Barfield (Chief Financial Officer)
Numis Securities Limited Tel: +44 (0) 20 7260 1000
Freddie Barnfield / Matthew O'Dowd (Nominated
Adviser)
James Black (Broker)
Consilium Strategic Communications Tel: +44 (0) 20 3709 5700
Chris Gardner / Angela Gray ergomed@consilium-comms.com
Matthew Neal / Olivia Manser
About Ergomed plc
Ergomed provides specialist services to the pharmaceutical
industry spanning all phases of clinical development, post-approval
pharmacovigilance and medical information. Ergomed's fast-growing
services business includes an industry-leading suite of specialist
pharmacovigilance (PV) solutions, integrated under the
PrimeVigilance brand, a full range of high-quality clinical
research and trial management services under the Ergomed brand
(CRO), and an internationally recognised specialist expertise in
orphan drug development, under PSR. For further information, visit:
http://ergomedplc.com .
Forward-Looking Statements
Certain statements contained within the announcement are
forward-looking statements and are based on current expectations,
estimates and projections about the potential returns of Ergomed
plc (Ergomed) and the industry and markets in which Ergomed
operates, the Directors' beliefs and assumptions made by the
Directors. Words such as "expects", "anticipates", "should",
"intends", "plans", "believes", "seeks", "estimates", "projects",
"pipeline" and variations of such words and similar expressions are
intended to identify such forward-looking statements and
expectations. These statements are not guarantees of future
performance or the ability to identify and consummate investments
and involve certain risks, uncertainties, outcomes of negotiations
and due diligence and assumptions that are difficult to predict,
qualify or quantify. Therefore, actual outcomes and results may
differ materially from what is expressed in such forward-looking
statements or expectations. Among the factors that could cause
actual results to differ materially are: the general economic
climate, competition, interest rate levels, loss of key personnel,
the result of legal and commercial due diligence, the availability
of financing on acceptable terms and changes in the legal or
regulatory environment.
These forward-looking statements speak only as of the date of
this announcement. Ergomed expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any
forward-looking statements contained herein to reflect any change
in Ergomed's expectations with regard thereto, any new information
or any change in events, conditions or circumstances on which any
such statements are based, unless required to do so by law or any
appropriate regulatory authority.
Chairman's Statement
EXCEPTIONAL DELIVERY IN CHALLENGING TIMES
During 2020 Ergomed made exceptional progress in delivering its
strategy, despite the global challenge of the COVID-19 pandemic. We
achieved strong organic growth and completed acquisitions in the
key US market in both our Clinical Research Services (CRO) and
Pharmacovigilance (PV) businesses. Across the Group we transitioned
smoothly to remote working with the business remaining fully
operational whilst continuing to trade strongly and delivering a
strong uplift in revenues in the second half of the year,
particularly in the CRO business. We improved gross and net margins
and continued to strengthen our balance sheet, with increased cash
balances and financial resources, as well as a capital reduction
approved unanimously by our shareholders. During an extraordinary
and challenging year, the core strengths of our business and the
hard work and dedication of all our colleagues have shone through,
delivering exceptional progress towards our strategic vision of
global leadership in specialised pharmaceutical services addressing
unmet medical needs and patient safety.
Excellent Financial Performance
Following the positive results for the first half of the year
reported in September 2020, Ergomed continued to deliver strong
year on year top-line growth and financial performance across the
business in the second half. For the year as a whole, Ergomed
continued its excellent financial performance delivering
substantial revenue growth of 26.5% with improved gross margins.
Adjusted EBITDA increased by 55.2% to GBP19.4 million,
substantially exceeding the market expectations set at the
beginning of the year. After investing GBP12.0m on acquisitions,
funded fully out of cash, the Group continued to be debt-free at
the year end with cash and equivalent balances of GBP19.0 million
(2019: GBP14.3 million) and unutilised banking facilities of
GBP30.0 million. We ended 2020 with our order book of future
contracted revenue at GBP193.0 million, up 55.5% versus the prior
year. This excellent performance in a year that was extremely
challenging for companies across the world, demonstrates the
robustness of Ergomed's business model and firmly positions the
Group to realise its ambitious long-term growth plans.
Executing our Strategy
The transition to a fully services-based business model
announced in 2018 was completed on schedule in 2020, with the
business now entirely focused on its core service businesses in the
PV and CRO sectors. 2020 saw further validation of this strategic
focus on services, evidenced by significantly improved financial
and operational performance with revenue growth of 26.5% to GBP86.4
million and strong performances in both PV and CRO. This continued
the trend of a compound annual revenue growth rate of over 20%
since the initial public offering in 2014.
Building on these foundations, with the successful execution of
our M&A strategy, rapid integration of acquisitions and
alignment of commercial strategies in our CRO and PV businesses, as
well as investment in business development, we are delivering
substantial increases in cross-selling opportunities and a growing
order book of contracted long-term future revenues.
In 2020, we completed two highly strategic acquisitions in the
key US market for pharmaceutical services. In January, we acquired
Ashfield Pharmacovigilance, a long-established and highly respected
provider of pharmacovigilance services in the US. This was rapidly
and successfully integrated, providing cross-selling and growth
opportunities within the significantly expanded PV client base, as
evidenced by the Group's US revenue growth of 82.4% in 2020. In
December, we acquired MS Clinical Services, LLC. and its
subsidiaries ('MedSource'), a specialist provider of oncology and
rare disease CRO services, which is expected to provide further
growth and development potential within the key CRO sector in the
USA and globally.
The Board continues to actively consider further acquisitions
that will complement and strengthen the existing CRO and PV service
offerings and give access to new customers and geographies.
We are also continuing to invest in infrastructure, technology
and digital transformation, with the development of applications to
achieve significant automation over the coming years. In our PV
business this includes the development of applications for robotic
process automation and the digitisation of simple adverse event
reports, leading to the deployment of machine learning for full
case processing. In the CRO business, we plan to play a significant
role in the global trend, accelerated by COVID-19, towards digital
transformation of clinical trials, including eConsent, ePRO and
wearable technology for remote and home-based patient monitoring as
well as virtual and telemedicine as standard of care, risk-based
monitoring and remote data verification. These investments are
expected to build on Ergomed's leadership position with service
offerings to our international client base, as well as providing
further potential for profitability improvement.
Strong Leadership and Employment Growth
During the year, Ergomed continued to strengthen its executive
leadership with key appointments in Europe and in the US where we
are expanding rapidly both organically and through M&A. Our
acquisitions of Ashfield Pharmacovigilance (now PrimeVigilance USA)
and MedSource have included the addition of key new senior team
members. Despite the COVID-19 pandemic, employment throughout the
Group grew from 850 employees to around 1,150 over the course of
2020.
We are delighted to welcome our new colleagues to the Group.
These additions to the Ergomed global team reflect the growing
strength and ambition of our business, add to our high-quality
professional experience and strength in depth and bolster Ergomed's
growth potential.
COVID-19
The COVID-19 virus outbreak was a dominant factor for global
businesses during 2020. Ergomed's response to the pandemic
continues to demonstrate the robustness and resilience of our
services business model, which, together with the hard work and
dedication of all our colleagues, has been highlighted during this
challenging year.
Health and Safety
Throughout the pandemic, our priority has remained the health
and safety of our employees and the maintenance of our service to
all the patients and medical staff involved in our clinical studies
and pharmacovigilance services.
We took stringent hygiene measures across all our sites and
cancelled unnecessary travel. Our established business continuity
plans enabled the Group to transition to home working and we
continued to provide clinical study and pharmacovigilance
monitoring services in support of all our patients and medical
partners. We saw a temporary reduction in our ability to provide
on-site monitoring services in our CRO business particularly in H1,
but elsewhere there was no impact on our service levels or
productivity metrics, and the quality and scale of the care
provided to our patients and the healthcare profession continued at
normal levels.
Business Continuity
Ergomed's services in both clinical research and
pharmacovigilance are provided under long-term contracts in order
to meet monitoring needs essential for medical research as well as
legally mandated pharmacovigilance requirements. We have not seen a
material COVID-19 impact on our business or our performance
metrics, nor major delays or cancellations to studies or contracts.
The slowdown in monitoring experienced in the CRO business in the
second quarter of 2020 was replaced by a return to growth in the
second half of the year, with revenue higher than in the first half
of the year and in the corresponding period in 2019, as remote
monitoring was implemented combined with a limited return to near
normal levels of onsite monitoring in H2. In addition, our
development activities continued in the second half of 2020
providing a strong sales performance and a significant uplift in
our order book at the end of the year.
Risk Mitigation
Ergomed maintained a robust financial position throughout the
year, with strong cash generation and substantial cash balances. We
continue to monitor closely the rapidly evolving situation and see
no significant immediate risks to the Group's revenues or
operations, however, plans for financial risk mitigation are in
place if necessary. The Group has a strong balance sheet and an
unutilized GBP30 million credit facility and is continuing to prove
resilient in the face of the risks posed by COVID-19.
Our Contribution to the Global Fight Against COVID-19
Ergomed was proud to make an ongoing contribution to the global
effort to overcome the challenges created by the spread of the
COVID-19 virus. We continued to provide our clinical trial and
monitoring services for our existing and new clients and patients
to the highest professional standards.
At the same time, we provided our clinical research as well as
pharmacovigilance services for new projects designed to combat the
virus. A number of COVID-19 related studies and contracts are
continuing, and our business development pipeline includes
significant further opportunities.
Conclusion
Ergomed's success in 2020 reflects the resilient business model
and robust position of the business as well as the hard work and
dedication of all our colleagues in a time of exceptional
challenge. I would like to thank everyone at Ergomed for their
contribution during the year, and our investors for their continued
support.
Miroslav Reljanović
Executive Chairman
Operational review
INTRODUCTION
In 2020 there was a strong operational and financial performance
from both of the Group's businesses, Pharmacovigilance (PV) and
Clinical Research Services (CRO). We continued to execute our
strategy of delivering world-class PV and CRO services to our
customers, whilst fostering business development and cross-selling
opportunities between these two highly complementary businesses.
Despite the challenges of the COVID-19 pandemic, Ergomed
demonstrated resilience and maintained its momentum in 2020. The
Group has begun 2021 from a position of strength, with a robust
financial platform and a proven growth strategy, ensuring that we
are well positioned to achieve the longer-term strategic priorities
of the business.
PHARMACOVIGILANCE
Regulatory context
The increasing global requirement for pharmacovigilance services
coupled with a perpetual drive to improve drug safety through
regulation continue to facilitate the transition towards specialist
outsourced PV providers and general market growth.
In Europe, the implementation of Good Pharmacovigilance Practice
('GPvP') in 2012 and subsequent mandatory compliance has led to an
increased demand for outsourced PV services and been a consistent
driver for Ergomed's growth. In the US, the existing stringent PV
regulatory regime continues to be regularly strengthened on an
ongoing basis. Similarly, PV regulation continues to be rolled out
in the Middle East, China and South East Asia, providing further
growth opportunities for Ergomed's PV business. Ergomed intends to
continue to leverage existing partnerships in these regions to
facilitate growth and meet client requirements.
The latest regulation to affect Europe is Brexit, as a result of
which the UK will no longer fall under the EU GPvP jurisdiction.
This is expected to add regulatory complexity and drive further
demand for specialist outsourced PV services.
Acquisition of Ashfield Pharmacovigilance
In January 2020 PrimeVigilance, Ergomed's pharmacovigilance
business, welcomed the addition of Ashfield Pharmacovigilance
('Ashfield PV'), an established PV provider in North America, into
the Group. Ashfield PV was immediately rebranded as PrimeVigilance
USA Inc. ('PV USA') and, through its rapid integration into the
Group, significantly expanded Ergomed's PV offering in North
America.
The acquisition immediately saw the addition of around 70 highly
qualified and experienced staff, 40 new clients and around $12
million of annual revenue from this strategically important market.
Since then, the operational and administrative functions of PV USA
have been fully integrated into the wider Group and we have already
seen the benefits of the acquisition through increased economies of
scale and cross-selling opportunities. The hard work and dedication
of all the Ashfield and PrimeVigilance staff was key to making this
business combination as successful as it has been to date.
Financial Performance
The addition of PV USA and the strong organic growth of the PV
business saw revenues increase by GBP19.7 million from GBP35.4
million in 2019 to GBP55.1 million in 2020 (55.6% increase) of
which GBP9.3 million was due to the addition of PV USA. Margins
continued to be strong for the PV business increasing from 51.5% in
2019 to 52.0% in 2020.
Sales Awards and Order Book
PV new business in 2020 was primarily driven by North America
which accounted for 90% of repeat business and 72% of new business.
The contracted order book grew from GBP54.6 million in 2019 to
GBP79.8 million at the end of 2020, an increase of 46.2%.
Management and Staff
In addition to the acquisition of Ashfield, the business
continued to invest in its employees to support its geographical
expansion, with over 250 employees being promoted during the year.
PrimeVigilance employs around 50 physicians, over 300 pharmacists
and other life sciences professionals and over 20 in-house EU
Qualified Persons for Pharmacovigilance ('QPPVs') covering more
than 60 countries. This constitutes one of the largest qualified
teams of PV specialist professionals in any independent
pharmaceutical services business globally and it continues to grow.
The breadth and depth of staff and professionals supporting
PrimeVigilance is reflected in the quality of services provided.
Testament to this is PrimeVigilance's high customer renewal and
retention figures and the fact that PrimeVigilance participated in
over 70 regulatory inspections with no critical findings relating
to its activities.
Technology Investment
Investment in technology is at the core of the PrimeVigilance
quality first approach. During the year the business, in
partnership with DataRobot and Automation Anywhere, commenced the
development of a cloud-based solution to automate certain PV
processes, allowing faster analysis and reporting of adverse
medical events.
The technology is expected to bring new levels of speed and
intelligence to a key activity of the business, freeing up valuable
hours for highly trained pharmacovigilance professionals to focus
on value creation and problem solving that only humans can address,
and helping to deliver a higher quality service more efficiently.
The PV business is also consolidating its safety databases into a
single cloud-based platform, which will drive further
efficiencies.
Constantly evolving regulations, geographic expansion,
investment in technology and people, combined with the strength of
the PrimeVigilance brand, mean that the PV business is well placed
to continue delivering its growth strategy into 2021 and
beyond.
CLINICAL RESEARCH SERVICES
Ergomed delivers high-quality clinical research services through
a comprehensive offering of clinical trial research support
services covering all phases of medical development via a global
network of research experts and patients.
The CRO market has experienced significant expansion with high
annual growth in oncology and rare disease research expected to
continue over the coming years. This specific growth in Ergomed's
core focus areas is underpinned by broader market trends including
increased investment in drug development by pharma-biotech
companies, a shift towards clinical trial outsourcing and strong
growth in the number of trials in markets such as Asia.
COVID-19
COVID-19 caused significant disruption to the global CRO market
during 2020. Restrictions on movement meant that access to patients
for physical monitoring visits was limited, with some leading
listed CROs reporting restricted site access in 50% to 80% of
trials at the pandemic peak.
Despite these disruptions, Ergomed's CRO business demonstrated
robustness and resilience during the pandemic. While the pandemic
peak did impact some of our clinical studies, clinical trials in
rare disease and oncology, in which Ergomed specialises, are
focused on critical unmet needs and were therefore among the
therapeutic areas least disrupted by COVID-19. Restrictions on
movement and patient access accelerated the trend towards remote
monitoring, an area which Ergomed was already pioneering. During
the pandemic, Ergomed successfully implemented remote and
risk-based monitoring techniques, allowing clinical trial
activities to continue even when physical access to sites was not
possible. For early phase studies where frequent and timely
monitoring of safety and tolerability is required, Ergomed
implemented patient profile software that provides a holistic view
of each patient in an interactive and real time environment. In
addition, study physicians supported trial investigators in patient
identification and procedures resulting in consistent patient
recruitment and milestone achievement.
Financial Performance
Overall the CRO business saw total revenues flat at GBP31.3
million year on year (2019: GBP31.2 million after adjusting for
exceptional revenues of GBP1.6 million in 2019). This included an
increase in service fee revenue of GBP1.0 million to GBP23.7
million, offset by a decline of GBP0.9 million in zero-margin
pass-through revenue to GBP7.6 million. There was also an increase
in third party full-margin service fee revenue (excluding
co-development) from GBP18.3 million to GBP21.5 million, an
increase of 17.5%, with almost all co-development projects having
now concluded. As a result of these positive trends, the service
fee gross margin in the CRO business grew by 3.7ppts from 42.6% to
46.3%, highlighting the underlying strength of the CRO business and
resilience to the pandemic. It is also notable that in H2 2020, the
CRO business resumed growth with service fee revenues increasing by
13.5% compared to the first half of the year.
Acquisition of MS Clinical Services LLC. and its subsidiaries
('MedSource')
In December 2020, Ergomed was pleased to announce the
acquisition of MedSource, a US-based CRO business with over 20
years' experience in delivering specialist oncology and rare
disease clinical trial services. MedSource further strengthens
Ergomed's position as a high-quality oncology and rare disease CRO
provider in the strategically important North American market. With
the acquisition of MedSource, the Group welcomed the addition of
110 highly qualified staff, primarily based in the US, and 20 new
clients. The work of integrating the business has already started
as the Group looks to expand its offering in North America and
build upon the success in 2020 which saw 65% of Ergomed's CRO
repeat business wins in this region.
Sales Awards and Order Book
The CRO contract order book grew from GBP69.5 million in 2019 to
GBP113.2m million in 2020. The combined total order book gives the
Group excellent visibility on the rollout of revenue during 2021
and confidence in delivering its strategy of growth.
Rare Disease and Oncology Focus
Ergomed's CRO business works across all therapeutic areas, as a
differentiated provider of clinical trial services with a
particular strength in patient recruitment in oncology and rare
disease trials. Oncology trials are generally very complex,
although this varies with the type of cancer, and studies are often
confronted by challenges including low patient enrolment, changing
regulatory requirements, increased research costs, and trial
protocols with increased study-related procedures. This explains in
part why oncology trials are the biggest recipients of funding and
makes the case for outsourcing to CROs who are better positioned to
address these challenges. Ergomed's expertise and focus on oncology
supports its CRO growth strategy and is evidenced by the fact that
88% (by value) of new business wins in 2020 related to oncology and
rare disease, where similarly specialist expertise is also
required.
Patient and Clinician Focus
Ergomed's focus on rare and orphan drug development is one of
its core strengths. Drug development for rare and orphan diseases
is challenging for many reasons, including complex biology, limited
knowledge of the history and progression of the disease and the
inherently small patient population available for clinical trials,
who are usually geographically dispersed. Ergomed's focus on
physician support teams helps ensure efficient patient recruitment,
patient retention and clinical trial management of complex studies.
Through the PSR Orphan Expert brand and the recent addition of
MedSource, Ergomed distinguishes itself from peers in the
market.
With the addition of MedSource and the continuing focus on
patient needs, the CRO business is well placed to deliver on its
growth strategy in 2021. There is an increasing need to draw on
patient knowledge and experience to improve the discovery,
development and evaluation of new effective medicines. In addition,
greater patient engagement optimises clinical study design, outcome
measures and endpoint development. Ergomed maintains a Patient
Organisation Advisory Board, comprising of representatives of
patient groups in the field of rare diseases and has a dedicated
Patient Engagement Officer.
BUSINESS DEVELOPMENT AND COMMERCIAL INTEGRATION
A strong business development performance in 2020 resulted in
sales increasing by 41.9% to GBP117.8 million (2019: GBP83.0
million). This included significant levels of new awards due to
effective cross-selling between the CRO and PV businesses,
bolstered by the addition of Ashfield PV in the USA (now
PrimeVigilance USA). In 2020 total cross-selling awards were GBP8.6
million, with over GBP50 million of further opportunities in the
business development pipeline at the end of the year. Key to new
contract wins in both CRO and PV services was Ergomed's broader
geographic footprint arising from organic expansion into the USA
and Asia, as well as its ability to offer increased services and
broader geographic coverage to the newly acquired PrimeVigilance
USA client base. As a result, the order book increased to GBP193.0
million at the year end, up 55.5% over the course of 2020.
OUTLOOK
Ergomed made exceptional progress in delivering its strategy in
2020, despite the challenges of the COVID-19 pandemic. The
resilience and robustness of our global services business was
demonstrated by our continued strong organic growth whilst
completing key strategic acquisitions in the US in both our
pharmacovigilance and CRO businesses. We have started 2021 in a
strong position focused on our vision to achieve global leadership
in specialised pharmaceutical services addressing unmet medical
needs and patient safety.
For and on behalf of the Board of Directors
Miroslav Reljanović
Executive Chairman
Financial Review
Introduction
Ergomed's financial performance was strong in 2020 with market
expectations upgraded on a number of occasions. With the transition
to a fully services-based business model now largely complete, the
Group's complementary CRO and PV divisions continued to trade
strongly despite the impact of the pandemic. Gross and net margins
continued to improve throughout the year. This was in part due to
effective cost control both at the cost of sales and general and
administration levels, coupled with the successful integration of
recent acquisitions and continuing investment in technology.
Effective management of working capital and the new GBP30.0 million
credit facility established in March 2020, which remains undrawn,
also contributed to the overall strong financial position of the
Group. The balance sheet has been further strengthened by the
elimination of exposure to previous co-development investments. The
capital reduction, approved unanimously by the Group's shareholders
in October 2020, together with significantly increased
profitability in the past two years, have increased the Group's
consolidated retained earnings by over GBP50 million.
KPIs and APMs
Key Performance Indicators (KPIs)
The table below summarizes the KPIs that management uses to
measure the financial performance of the Group.
GBP millions (unless otherwise stated) 2020 2019
Total Revenue 86.4 68.3
--------------------------------------- ----------- -----
CRO (Note 1) 31.3 31.2
PV 55.1 35.4
--------------------------------------- ----------- -----
Gross profit 39.7 29.5
Gross margin 45.9% 43.3%
EBITDA 18.4 9.2
Adjusted EBITDA 19.4 12.5
Basic adjusted earnings per share 25.8p 19.9p
Cash generated from operations 19.0 11.7
Cash and cash equivalents 19.0 14.3
Order book 193.0 124.1
--------------------------------------- ----------- -----
Note 1: CRO Revenue in 2019 is stated after adjustment for
exceptional revenues of GBP1.6 million.
Alternative performance measures (APMs)
In measuring and reporting financial information, management
reviews Alternative Performance Measures (APMs), such as EBITDA,
adjusted EBITDA and basic adjusted earnings per share, which are
not defined measures under financial reporting standards.
Management believes that these measures, when considered in
conjunction with defined financial reporting measures, provide
management and stakeholders with a broader understanding of the
performance of the business.
Operating profit is the financial reporting measure under IFRS
most comparable to EBITDA and adjusted EBITDA. The Directors make
certain adjustments to EBITDA to derive adjusted EBITDA, which they
consider more reflective of the Group's underlying trading
performance, enabling comparisons to be made with prior periods.
Certain items, such as share-based payments and change in fair
value of contingent consideration for acquisitions are non-cash
items and reflect adjustments to expected future consideration
payments.
Operating profit is reconciled to EBITDA and adjusted EBITDA as
follows:
2020 2019
GBP000's GBP000's
---------------------------------------------------------------------------------------------- ---------- ----------
Operating profit 13,534 5,517
Adjusted for:
Depreciation and amortisation charges within Other selling, general & administration expenses 3,511 3,041
Amortisation of acquired fair valued intangible assets 1,332 671
---------------------------------------------------------------------------------------------- ---------- ----------
EBITDA 18,377 9,229
---------------------------------------------------------------------------------------------- ---------- ----------
Adjusted for:
Share-based payment charge 742 870
Acquisition related contingent compensation - 87
Change in fair value of contingent consideration for acquisitions - (512)
RDEC income (2017) (527) -
Grants in recognition of employment creation in Serbia (307) -
Acquisition costs 853 393
Pay in lieu and non-compete compensation 232 -
Exceptional items - 2,427
---------------------------------------------------------------------------------------------- ---------- ----------
Adjusted EBITDA 19,370 12,494
---------------------------------------------------------------------------------------------- ---------- ----------
Acquisition-related contingent compensation relates to the cash
component of deferred consideration which is payable contingent on
the continued employment of the vendors. These costs, together with
acquisition costs, pay in lieu and non-compete compensation and
exceptional items, are cash costs but are not considered as normal
recurring trading items and therefore are not included in adjusted
EBITDA. RDEC income in relation to 2017 and grants received are not
considered as normal recurring trading items and therefore are not
included in adjusted EBITDA.
Adjusted basic earnings per share is calculated on a similar
basis to basic earnings per share but uses a profit measure which,
like adjusted EBITDA, is adjusted for non-recurring income items
(see note 8 of the financial statements).
Management has previously used order book, (referred to in prior
years as contracted order backlog) as an APM. Order book is the
contracted value of customer revenue relating to in-progress
performance obligations which are expected to be recognised in the
future. The use of order book by management is no longer considered
to be an APM as, from 1 January 2018, it is now a defined financial
measure under IFRS 15 and is therefore included in KPIs.
Growth
Ergomed's CRO and PV businesses both continued to show positive
revenue performance through to year-end, resulting in a strong
order book to start 2021.
Revenues for 2020 totalled GBP86.4 million, an increase of 26.5%
over the prior year (2019: GBP68.3 million). CRO revenues were flat
at GBP31.3 million (2019: GBP31.2 million after adjusting for
exceptional revenues of GBP1.6 million), with the wider CRO sector
experiencing challenges in the wake of the pandemic. PV revenues
increased 55.6% from GBP35.4 million to GBP55.1 million including
GBP9.3 million due to the addition of PV USA.
The 26.5% revenue growth overall was accompanied by a 34.6%
increase in gross profit from GBP29.5 million in 2019 to GBP39.7
million in 2020, with gross margin increasing from 43.3% in 2019 to
45.9% in 2020 as a result of effective cost controls at the cost of
sales level.
The Group also concluded most of its co-development projects, in
line with the strategy to focus on the services-based model in both
PV and CRO. As a result, the Group has reduced its overall R&D
expenditure from GBP0.5 million in 2019 to GBP0.2 million in 2020.
Having recognised realised impairment charges and write-offs
totalling GBP2.4 million as exceptional costs related to this
strategic focus in 2019, there were no exceptional charges in 2020.
Ongoing costs required to exercise prudent stewardship over the
co-development assets are not expected to be material.
In 2020 the significant revenue growth, profitability focus and
effective cost management resulted in an adjusted EBITDA of GBP19.4
million, an increase of 55.2% over the prior year (2019: GBP12.5
million).
Financial strength
The growth in revenue and profitability achieved during 2020 led
to strong cash generation at an operating level. Cash generated
from operations was GBP19.0 million, an increase of GBP7.3 million
over the prior year (2019: GBP11.7 million). The cash generated
represented 99.0% of adjusted EBITDA and demonstrated the strong
cash conversion capabilities of the business.
The Group continues to strengthen its balance sheet, with cash
and cash equivalents increasing by GBP4.7 million to GBP19.0
million at the year-end (2019: GBP14.3 million). This was after net
cash outflows on the acquisitions of Ashfield Pharmacovigilance in
January 2020 of GBP7.6 million and MedSource in December 2020 of
GBP4.4 million. In March 2020 as a precautionary measure taken
during the initial phase of the COVID-19 pandemic, GBP15.0 million
cash was drawn down on the Group's GBP30.0 million credit facility
established in March 2020 with the Group's banking partner, HSBC UK
Bank plc. This cash was held in the bank and remained unutilised
until it was repaid in full in August 2020.
In October 2020, a capital reduction was unanimously approved by
shareholders, whereby the amounts of GBP27.6 million standing to
the credit of the share premium account and GBP11.1 million
standing to the credit of the merger reserve were cancelled and the
balances were transferred to the retained earnings account. As a
result of this and the generation of distributable reserves, the
consolidated retained earnings account of the Group stood at
GBP45.4 million at the end of 2020.
Ergomed plc has a strong balance sheet with net assets as of 31
December 2020 of GBP52.9 million up 43.8% on prior year (2019:
GBP36.8 million) which includes cash and cash equivalents of
GBP19.0 million (2019: GBP14.3 million) within total assets of
GBP92.3 million (2019: GBP57.0 million). Consolidated retained
earnings of the Group at the year-end were GBP45.4 million, an
increase of GBP50.9 million over the retained earnings deficit of
GBP5.5 million reported in 2019.
Outlook
A strong financial foundation is now in place to continue to
support the Group on a steady course beyond the COVID-19 pandemic.
Ergomed is well placed to trade strongly into new opportunities for
organic growth and expansion through M&A activity.
Richard Barfield
Chief Financial Officer
Co nsolidated income statement
For the year ended 31 December 2020
2020 2019
Notes GBP000s GBP000s
----------------------------------------------------- ----- -------- --------
Revenue 2, 3 86,391 68,255
Cost of sales (38,686) (29,790)
Reimbursable expenses (8,055) (8,940)
----------------------------------------------------- ----- -------- --------
Gross profit 3 39,650 29,525
Selling, general and administration expenses (27,518) (23,514)
----------------------------------------------------- ----- -------- --------
Selling, general and administration expenses
comprises:
Other selling, general and administration expenses (24,591) (19,578)
Amortisation of acquired fair valued intangible
assets (1,332) (671)
Share-based payment charge (742) (870)
Acquisition-related contingent compensation - (87)
Change in the fair value of contingent consideration
for acquisitions - 512
Acquisition costs 4 (853) (393)
Exceptional items 5 - (2,427)
----------------------------------------------------- ----- -------- --------
Research and development expenses (152) (545)
Net impairment losses on trade receivables and
contract assets (285) -
Other operating income 6 1,839 51
----------------------------------------------------- ----- -------- --------
Operating profit 13,534 5,517
Finance income 8 28
Change in fair value of equity investments 12 (511) (286)
Finance costs 7 (403) (273)
----------------------------------------------------- ----- -------- --------
Profit before taxation 12,628 4,986
Taxation (2,946) 583
----------------------------------------------------- ----- -------- --------
Profit for the year 9,682 5,569
----------------------------------------------------- ----- -------- --------
All activities in the current and prior period relate to
continuing operations.
The accompanying notes form an integral part of these financial
statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
GBP000s GBP000s
---------------------------------------------------------- -------- --------
Profit for the year 9,682 5,569
---------------------------------------------------------- -------- --------
Items that may be classified subsequently to profit
or loss:
Exchange differences on translation of foreign operations (59) (208)
---------------------------------------------------------- -------- --------
Other comprehensive (loss) for the year net of tax (59) (208)
---------------------------------------------------------- -------- --------
Total comprehensive profit for the year 9,623 5,361
---------------------------------------------------------- -------- --------
Profit or loss and each component of other comprehensive income
are attributable to the owners of the Company.
2020 2019
Earnings Per Share (EPS) 8 pence pence
-------------------------- ------ ------
Basic 20.0 12.0
Diluted 19.2 11.5
------------------------------ ------ ------
Unaudited
Adjusted Earnings Before Interest, Tax, Depreciation
and Amortisation 2020 2019
(Adjusted EBITDA) GBP000s GBP000s
----------------------------------------------------- -------- --------
Adjusted EBITDA 9 19,370 12,494
----------------------------------------------------- -------- --------
Unaudited
2020 2019
Adjusted Earnings Per Share (Adjusted EPS) 8 pence pence
------------------------------------------- ------ ------
Basic 25.8 19.9
Diluted 24.7 19.1
----------------------------------------------- ------ ------
The accompanying notes form an integral part of these financial
statements.
Consolidated balance sheet
As at 31 December 2020
2020 2019
Notes GBP000s GBP000s
------------------------------ ----- -------- --------
Non-current assets
Goodwill 10 24,605 13,380
Other intangible assets 11 9,618 2,755
Property, plant and equipment 1,742 1,110
Right-of-use assets 4,715 5,171
Equity investments 12 - -
Deferred tax asset 4,898 2,616
------------------------------ ----- -------- --------
45,578 25,032
------------------------------ ----- -------- --------
Current assets
Trade and other receivables 13 22,224 14,359
Accrued revenue 5,553 3,382
Cash and cash equivalents 14 18,994 14,259
------------------------------ ----- -------- --------
46,771 32,000
------------------------------ ----- -------- --------
Total assets 92,349 57,032
------------------------------ ----- -------- --------
Current liabilities
Lease liabilities (1,978) (1,718)
Trade and other payables 15 (15,702) (10,373)
Deferred consideration (328) -
Deferred revenue (13,829) (2,957)
Current tax liability (1,775) (813)
------------------------------ ----- -------- --------
(33,612) (15,861)
------------------------------ ----- -------- --------
Net current assets 13,159 16,139
------------------------------ ----- -------- --------
Non-current liabilities
Lease liabilities (3,128) (3,716)
Provisions (317) (341)
Deferred tax liability (2,426) (294)
------------------------------ ----- -------- --------
(5,871) (4,351)
------------------------------ ----- -------- --------
Total liabilities (39.483) (20,212)
------------------------------ ----- -------- --------
Net assets 52,866 36,820
------------------------------ ----- -------- --------
Equity
Share capital 16 489 473
Share premium account 16 3 25,790
Merger reserve 16 1,349 11,088
Share-based payment reserve 5,042 4,300
Translation reserve 615 674
Retained earnings 45,368 (5,505)
------------------------------ ----- -------- --------
Total equity 52,866 36,820
------------------------------ ----- -------- --------
The accompanying notes form an integral part of these financial
statements.
Consolidated statement of changes in equity
For the year ended 31 December 2020
Share-
Share based
Share premium Merger payment Translation Retained Total
capital account reserve reserve reserve earnings equity
Notes GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Balance at 1 January 2019 452 24,384 11,088 3,430 882 (11,873) 28,363
Profit for the year - - - - - 5,569 5,569
Other comprehensive income
for the year - - - - (208) - (208)
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - (208) 5,569 5,361
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Transactions with shareholders
Shares issued during the
year for cash 16 21 1,406 - - - - 1,427
Share-based payment charge
for the year - - - 870 - - 870
Deferred tax credit taken
directly to equity - - - - - 799 799
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Total transactions with
shareholders 21 1,406 - 870 - 799 3,096
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Balance at 31 December 2019 473 25,790 11,088 4,300 674 (5,505) 36,820
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Profit for the year - - - - - 9,682 9,682
Other comprehensive income
for the year - - - - (59) - (59)
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Total comprehensive income - - - - (59) 9,682 9,623
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Transactions with shareholders
Shares issued during the
year for cash 16 14 1,855 - - - - 1,869
Share-based payment charge
for the year - - - 742 - - 742
Deferred tax credit taken
directly to equity - - - - - 2,461 2,461
Shares issued for non-cash
consideration 16 2 - 1,349 - - - 1,351
Transactions with shareholders
- Capital Reduction 16
Capitalisation of Merger
reserve to 'B' Ordinary
Shares 16 11,088 - (11,088) - - - -
Cancellation of 'B' Ordinary
Shares 16 (11,088) - - - - 11,088 -
Cancellation of Share Premium 16 - (27,642) - - - 27,642 -
Total transactions with
shareholders 16 (25,787) (9,739) 742 - 41,191 6,423
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
Balance at 31 December 2020 489 3 1,349 5,042 615 45,368 52,866
------------------------------- ----- -------- -------- -------- -------- ----------- --------- --------
The accompanying notes form an integral part of these financial
statements.
Consolidated cash flow statement
For the year ended 31 December 2020
2020 2019
Notes GBP000s GBP000s
----------------------------------------------------- ----- -------- --------
Cash flows from operating activities
Profit before taxation 12,628 4,986
Adjustment for:
Amortisation and depreciation 4,843 3,712
Impairment of goodwill, intangibles, equity
investments and other assets 5 - 2,427
Loss on disposal of fixed assets 16 25
Share-based payment charge 742 870
Change in the fair value of equity investments 12 511 286
Change in the fair value of contingent consideration
for acquisition - (512)
RDEC income 6 (1,188) -
Finance income (8) (28)
Finance costs 7 403 273
----------------------------------------------------- ----- -------- --------
Operating cash inflow before changes in working
capital and provisions 17,947 12,039
(Increase)/decrease in trade, other receivables
and accrued revenue (6,137) 1,878
Increase/(decrease) in trade, other payables
and deferred revenue 7,182 (2,380)
(Decrease)/increase in provisions (18) 126
----------------------------------------------------- ----- -------- --------
Cash generated from operations 18,974 11,663
Taxation (paid)/received (926) 124
----------------------------------------------------- ----- -------- --------
Net cash inflow from operating activities 18,048 11,787
----------------------------------------------------- ----- -------- --------
Investing activities
Interest received 8 7
Acquisition of intangible assets 11 (542) (604)
Acquisition of property, plant and equipment (432) (392)
Receipts from sale of property, plant and equipment 46 8
Equity investments received in exchange for
services provided 12 - (1,904)
Receipts from the sale of equity investments 12 175 1,099
Acquisition of subsidiaries, net of cash acquired 17,18 (12,031) (115)
Acquisition related earn-out paid - (930)
----------------------------------------------------- ----- -------- --------
Net cash outflow from investing activities (12,776) (2,831)
----------------------------------------------------- ----- -------- --------
Financing activities
Issue of new shares 16 1,869 1,427
Finance costs paid (157) -
Proceeds from borrowings 14 15,000 -
Repayment of borrowings 14 (15,000) -
Payment of lease liabilities (2,189) (1,677)
----------------------------------------------------- ----- -------- --------
Net cash outflow from financing activities (477) (250)
----------------------------------------------------- ----- -------- --------
Net change in cash and cash equivalents 4,795 8,706
Effect of foreign currency on cash balances (60) 364
Cash and cash equivalents at start of year 14,259 5,189
----------------------------------------------------- ----- -------- --------
Cash and cash equivalents at end of year 14 18,994 14,259
----------------------------------------------------- ----- -------- --------
The accompanying notes form an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 31 December 2020
1. Basis of preparation
The consolidated financial statements of the Group have been
prepared on the going concern basis in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006, the IFRS Interpretations
Committee ('IFRS-IC') interpretations and those parts of the
Companies Act 2006 applicable to companies reporting under
IFRS.
The consolidated financial statements have been prepared on a
historical cost basis except that the following assets and
liabilities are stated at their fair value: certain financial
assets and financial liabilities measured at fair value, and
liabilities for cash-settled share -- based payments.
The same accounting policies, presentation and methods of
computation have been followed in these condensed financial
statements as were applied in the preparation of the Group's
financial statements for the year ended 31 December 2020.
The financial statements for 2019 have been delivered to the
Registrar of Companies and the 2020 financial statements will be
delivered after the Annual General Meeting on 10 June 2021.
The Auditor has reported on both sets of accounts without
qualification, did not draw attention to any matters by way of
emphasis without qualifying their report, and did not issue a
statement under Section 498(2) or 498(3) of the Companies Act
2006.
Except as described below, the accounting policies adopted are
consistent with those of the financial statements for the year
ended 31 December 2019, as described in those financial
statements.
Going concern
The financial statements have been prepared on the going concern
basis, which assumes that the Group and Company will have
sufficient funds to continue in operational existence for the
foreseeable future, being a period of no less than 12 months from
the date of signing of the financial statements. The Directors have
reviewed a cash flow forecast for the period 31 December 2023,
which is derived from the 2021 Board approved budget and a
medium-term cash flow forecast through to 31 December 2023, which
is an extrapolation of the approved budget under multiple scenarios
and growth rates. The 2021 budget and medium -- term forecast
represents the Directors' best estimate of the Group's future
performance and necessarily includes a number of assumptions,
including the level of revenues. The 2021 budget and medium-term
forecast demonstrate that the Directors have a reasonable
expectation that the Group will be able to meet its liabilities as
they fall due for a period of at least 12 months from the date of
approval of the financial statements.
On the basis of the above factors and, having made appropriate
enquiries, the Directors have a reasonable expectation that the
Company and Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing these
financial statements.
2. Revenue
The Group's revenue is disaggregated by geographical market and
major service lines:
Geographical market and major service lines
2020
Major service lines
--------------------------------------- ----------------------------
CRO PV Total
GBP000s GBP000s GBP000s
--------------------------------------- -------- -------- --------
Geographical market by client location
UK 3,589 8,590 12,179
Rest of Europe, Middle East and Africa 10,146 13,183 23,329
North America 15,828 30,836 46,664
Asia 1,753 2,269 4,022
Australia - 197 197
--------------------------------------- -------- -------- --------
31,316 55,075 86,391
--------------------------------------- -------- -------- --------
2019
Major service lines
--------------------------------------- ----------------------------
CRO PV Total
GBP000s GBP000s GBP000s
--------------------------------------- -------- -------- --------
Geographical market by client location
UK 5,096 7,590 12,686
Rest of Europe, Middle East and Africa 17,427 10,910 28,337
North America 9,245 16,337 25,582
Asia 1,064 445 1,509
Australia 10 131 141
--------------------------------------- -------- -------- --------
32,842 35,413 68,255
--------------------------------------- -------- -------- --------
3. Operating segments
Products and services from which reportable segments derive
their revenues
Information reported to the Company's Board, which is the chief
operating decision maker ('CODM'), for the purpose of resource
allocation and assessment of segment performance, is focused on the
Group operating as two business segments, being Clinical Research
Services ('CRO') and Pharmacovigilance ('PV'). All revenues arise
from direct sales to customers. The segment information reported
below all relates to continuing operations. The PV segment includes
the revenues of Ashfield Pharmacovigilance Inc. ('Ashfield')
following its acquisition by the Group in the year. The CRO segment
includes the revenues of MS Clinical Services, LLC. and its
subsidiaries ('MedSource') following its acquisition by the Group
in the year.
The accounting policies of the reportable segments are the same
as the Group's accounting policies. Segment profit represents the
gross profit earned by each segment. Other amounts, including
selling, general and administration expenses were not allocated to
a segment. This was the measure reported to the CODM for the
purpose of resource allocation and assessment of segment
performance.
2020
Consolidated
CRO PV total
GBP000s GBP000s GBP000s
--------------------------------------------------- -------- -------- ------------
Segment revenues 31,316 55,075 86,391
Cost of sales (12,737) (25,949) (38,686)
Reimbursable expenses (7,584) (471) (8,055)
--------------------------------------------------- -------- -------- ------------
Segment gross profit 10,995 28,655 39,650
Selling, general and administration expenses (27,518)
--------------------------------------------------- -------- -------- ------------
Selling, general and administration expenses
comprises:
Other selling, general and administration expenses (24,591)
Amortisation of acquired fair valued intangible
assets (1,332)
Share-based payment charge (742)
Acquisition costs (853)
Research and development expenses (152)
Net impairment of trade receivables and contract
assets (285)
Other operating income 1,839
--------------------------------------------------- -------- -------- ------------
Operating profit 13,534
Finance income 8
Change in fair value of equity investments (511)
Finance costs (403)
--------------------------------------------------- -------- -------- ------------
Profit before tax 12,628
--------------------------------------------------- -------- -------- ------------
2019
Consolidated
CRO PV total
GBP000s GBP000s GBP000s
----------------------------------------------------- -------- -------- ------------
Segment revenues 32,842 35,413 68,255
Cost of sales (13,045) (16,745) (29,790)
Reimbursable expenses (8,498) (442) (8,940)
----------------------------------------------------- -------- -------- ------------
Segment gross profit 11,299 18,226 29,525
Selling, general and administration expenses (23,514)
----------------------------------------------------- -------- -------- ------------
Selling, general and administration expenses
comprises:
Other selling, general and administration expenses (19,578)
Amortisation of acquired fair valued intangible
assets (671)
Share-based payment charge (870)
Acquisition-related contingent compensation (87)
Change in the fair value of contingent consideration
for acquisitions 512
Acquisition costs (393)
Exceptional items (2,427)
----------------------------------------------------- -------- -------- ------------
Research and development expenses (545)
Other operating income 51
Operating profit 5,517
----------------------------------------------------- -------- -------- ------------
Finance income 28
Change in fair value of equity investments (286)
Finance costs (273)
----------------------------------------------------- -------- -------- ------------
Profit before tax 4,986
----------------------------------------------------- -------- -------- ------------
4. Acquisition costs
2020 2019
GBP000s GBP000s
------------------------------------------ -------- --------
Acquisition of Ashfield Pharmacovigilance 14 393
Acquisition of MedSource 825 -
Other acquisition costs 14 -
------------------------------------------ -------- --------
853 393
------------------------------------------ -------- --------
5. Exceptional items
Exceptional items
In line with the way the Board and chief operating decision
maker review the business, large one-off exceptional costs are
shown as exceptional items.
2020 2019
GBP000s GBP000s
-------------------------------- -------- --------
Impairment of equity investment - 2,427
-------------------------------- -------- --------
During the year ended 31 December 2019, the fair value equity
investment in Modus Therapeutics Holding AB was impaired to GBPnil
resulting in a charge to exceptional items of GBP2,427,000 (see
note 12).
6. Other operating income
Research and Development Expenditure Credit (RDEC)
The Group is eligible, within the UK, to claim tax credits
against certain research and development expenditure under the RDEC
scheme. During the year the Group submitted claims in respect of
the 2017 and 2018 financial years and recognised the related profit
and loss charge within other operating income in the current
financial year.
2020 2019
GBP000s GBP000s
--------------------- -------- --------
Foreign grant income 574 -
RDEC income 1,188 -
Other income 77 51
--------------------- -------- --------
1,839 51
--------------------- -------- --------
7. Finance costs
2020 2019
GBP000s GBP000s
-------------------------------- -------- --------
Loan and other interest payable 158 13
Interest on lease liabilities 245 260
403 273
-------------------------------- -------- --------
8. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
2020 2019
Earnings GBP000s GBP000s
-------------------------------------------------------- -------- --------
Profit for the purposes of earnings per share - net
profit attributable to owners of the Company 9,682 5,569
-------------------------------------------------------- -------- --------
Adjust for:
Amortisation of acquired fair valued intangible assets 1,332 671
Share-based payment charge 742 870
Acquisition-related contingent consideration - 87
Change in fair value of contingent consideration for
acquisitions - (512)
Acquisition costs 853 393
Exceptional items - 2,427
Pay in lieu and non-compete compensation 232 -
Change in fair value of equity investments 511 286
RDEC income (2017) (527) -
Grants in recognition of employment creation in Serbia (307) -
Tax effect of adjusting items (41) (509)
-------------------------------------------------------- -------- --------
Adjusted earnings for the purposes of adjusted earnings
per share (Unaudited) 12,477 9,282
-------------------------------------------------------- -------- --------
2020 2019
Number of shares Number Number
------------------------------------------------------------ ---------- ----------
Weighted average number of Ordinary Shares for the purposes
of basic earnings per share 48,323,814 46,599,917
Incremental shares in respect of employee share schemes 2,176,170 2,027,154
Weighted average number of Ordinary Shares for the purposes
of diluted earnings per share 50,499,984 48,627,071
------------------------------------------------------------ ---------- ----------
2020 2019
Earnings per share (EPS) pence pence
------------------------- ------ ------
Basic 20.0 12.0
Diluted 19.2 11.5
------------------------- ------ ------
Unaudited
2020 2019
Adjusted earnings per share (Adjusted EPS) pence pence
------------------------------------------- ------ ------
Basic 25.8 19.9
Diluted 24.7 19.1
------------------------------------------- ------ ------
9. EBITDA and Adjusted EBITDA
2020 2019
Unaudited GBP000's GBP000's
------------------------------------------------------------- --------- ---------
Operating profit 13,534 5,517
Adjusted for:
Depreciation and amortisation charges within Other selling,
general & administration expenses 3,511 3,041
Amortisation of acquired fair valued intangible assets 1,332 671
EBITDA 18,377 9,229
------------------------------------------------------------- --------- ---------
Adjusted for:
Share-based payment charge 742 870
Acquisition related contingent compensation - 87
Change in fair value of contingent consideration for
acquisitions - (512)
RDEC income (2017) (527) -
Grants in recognition of employment creation in Serbia (307) -
Acquisition costs (note 4) 853 393
Pay in lieu and non-compete compensation 232 -
Exceptional items (note 5) - 2,427
------------------------------------------------------------- --------- ---------
Adjusted EBITDA 19,370 12,494
------------------------------------------------------------- --------- ---------
10. Goodwill
Cost GBP000s
--------------------------------- -------
At 1 January 2019 15,802
Translation movement (279)
At 31 December 2019 15,523
Arising on business combinations 11,261
Translation movement (36)
--------------------------------- -------
At 31 December 2020 26,748
Impairment provision
At 1 January 2019 and 2020 2,143
--------------------------------- -------
At 31 December 2019 and 2020 2,143
--------------------------------- -------
Net book value
--------------------------------- -------
At 31 December 2020 24,605
--------------------------------- -------
At 31 December 2019 13,380
--------------------------------- -------
The goodwill arising during the year ended 31 December 2020
relates to the acquisitions of Ashfield Pharmacovigilance Inc.
('Ashfield') (note 17) and MS Clinical Services, LLC. and its
subsidiaries ('MedSource') (note 18).
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash-generating units ('CGUs') that are
expected to benefit from that business combination. The carrying
amount of goodwill has been allocated as follows:
2020 2019
Cash-generating unit GBP000s GBP000s
--------------------- -------- --------
CRO 10,859 3,535
PV 13,746 9,845
--------------------- -------- --------
24,605 13,380
--------------------- -------- --------
11. Other intangible assets
Total
Cost GBP000s
----------------------- --------
At 1 January 2019 24,075
Additions 604
Translation movement (112)
----------------------------- --------
At 31 December
2019 24,567
Acquisitions through
business combinations 8,730
Additions 542
Translation movement (63)
----------------------------- --------
At 31 December
2020 33,776
----------------------------- --------
Amortisation
At 1 January 2019 20,335
Charge for the
year 1,503
Impairment charge -
Translation movement (26)
----------------------------- --------
At 31 December
2019 21,812
Charge for the
year 2,266
Translation movement 80
----------------------------- --------
At 31 December
2020 24,158
----------------------------- --------
Net book value
At 31 December
2020 9,618
----------------------------- --------
At 31 December
2019 2,755
----------------------------- --------
12. Equity investments
Equity
received
Carrying in Change in
amount exchange fair value Carrying
at for recognised Impairment amount at
1 January services in the income of Translation 31 December
2020 provided statement investments Disposals movement 2020
2020 GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------------- ---------- --------- -------------- ------------ --------- ----------- ------------
Asarina Pharma AB - 699 (511) - (175) (13) -
Modus Therapeutics - - - - - - -
Holdings AB
------------------- ---------- --------- -------------- ------------ --------- ----------- ------------
- 699 (511) - (175) (13) -
------------------- ---------- --------- -------------- ------------ --------- ----------- ------------
Equity
received
Carrying in Change in
amount exchange fair value Carrying
at for recognised Impairment amount at
1 January services in the income of Translation 31 December
2019 provided statement investments Disposals movement 2019
2019 GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------------- ---------- --------- -------------- ------------ --------- ----------- ------------
Asarina Pharma AB 863 567 (286) - (1,099) (45) -
Modus Therapeutics
Holdings AB 1,202 1,337 - (2,427) - (112) -
------------------- ---------- --------- -------------- ------------ --------- ----------- ------------
2,065 1,904 (286) (2,427) (1,099) (157) -
------------------- ---------- --------- -------------- ------------ --------- ----------- ------------
Asarina Pharma AB ('Asarina')
In 2018, Asarina completed a public offering and listing on the
Nasdaq First North Exchange and the investment in equity was
publicly traded. Under the co-development agreement with Asarina,
the Group receives shares in Asarina in return for services
provided to them under the co-development programme. During the
year ended 31 December 2020, shares valued at GBP699,000 (2019:
GBP567,000) were issued to the Group in exchange for services
provided. All the shares received were sold in the year for
proceeds of GBP175,000 (2019: GBP1,099,000).
Modus Therapeutics Holding AB ('Modus')
Under the co-development agreement with Modus, the Group
receives shares in Modus in return for its contribution to the co
-- development programme. During the year ended 31 December 2019,
shares valued at GBP1,337,000 were issued to the Group in exchange
for services provided by the Group.
Modus announced the initial results from its Phase II trial on
13 May 2019. Data from the study failed to show a meaningful
benefit in the total study population. Given the results of the
trial and the company's lack of funding, management have impaired
the value of the investment to GBPnil as at the year end.
13. Trade and other receivables
2020 2019
GBP000s GBP000s
---------------------------------------- -------- --------
Trade receivables 19,079 11,235
Amounts receivable from Group companies - -
Other receivables 1,241 1,609
Prepayments 1,482 1,144
Corporation tax receivable 422 371
------------------------------------------ -------- --------
22,224 14,359
---------------------------------------- -------- --------
14. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term
deposits.
2020 2019
GBP000s GBP000s
------------- -------- --------
Cash at bank 18,994 14,259
--------------- -------- --------
The Group has a GBP15 million multi-currency rolling credit
facility ('RCF') with an option to increase by a further GBP15
million. The RCF was drawn down on 23 March 2020 and was
subsequently repaid on 19 August 2020. The RCF expires on 13 March
2024.
15. Trade and other payables
2020 2019
GBP000s GBP000s
----------------------------------- -------- --------
Trade payables 4,197 2,579
Amounts payable to related parties 55 58
Amounts payable to Group companies - -
Social security and other taxes 1,112 629
Other payables 1,295 1,086
Customer advances 408 537
Accruals 8,635 5,484
------------------------------------- -------- --------
15,702 10,373
----------------------------------- -------- --------
16. Ordinary share capital
2020 2019
------------------- -------------------
Number GBP000s Number GBP000s
----------------------------------------------- ---------- ------- ---------- -------
Ordinary shares of GBP0.01 each
Balance at 1 January 47,286,289 473 45,175,248 452
Exercise of share options 1,433,237 14 2,111,041 21
Shares to be issued for non-cash consideration 155,558 2 - -
----------------------------------------------- ---------- ------- ---------- -------
48,875,084 489 47,286,289 473
----------------------------------------------- ---------- ------- ---------- -------
2020 2019
---------------------- ---------------
Number GBP000s Number GBP000s
---------------------------------------- ------------ -------- ------ -------
B Ordinary shares of GBP0.23 each
Balance at 1 January - - - -
Capitalisation of Merger reserve to 'B'
Ordinary Shares 48,717,776 11,088 - -
Cancellation of 'B' Ordinary Shares (48,717,776) (11,088) - -
---------------------------------------- ------------ -------- ------ -------
- - - -
---------------------------------------- ------------ -------- ------ -------
Options over 1,433,237 (2019: 2,111,041) Ordinary Shares were
exercised for proceeds of GBP1,869,000 (2019: GBP1,427,000).
Shares to be issued for non-cash consideration
Ordinary shares to be issued as consideration for acquisitions
(non-cash consideration) are included within share capital once the
conditions for issuance have been met. Included within the ordinary
share capital at 31 December 2020 are 155,558 Ordinary Shares that
will be issued as part consideration for the acquisition of MS
Clinical Services, LLC. and its subsidiaries and is subject to the
satisfaction of certain representations and warranties. The shares
will be issued during the 2021 financial year.
Capital reduction
During the year the Directors determined that they would request
shareholder and court approval for a capital reduction for Ergomed
plc, whereby the balance on the Company's share premium account and
merger reserves would be used to eliminate the deficit on the
retained earnings reserve.
The Capital Reduction was approved by shareholders at a General
Meeting of the Company held on 19 October 2019. The Capital
Reduction was sanctioned by the High Court of England and Wales on
10 November 2020 and was registered with the Registrar of Companies
on 17 November 2020 whereupon it became effective.
The Capital Reduction comprised: (i) the cancellation of the
entire amount standing to the credit of the Company's share premium
account and (ii) the capitalisation of the entire amount standing
to the credit of the Company's merger reserve by issuing B ordinary
shares in the capital of the Company and the subsequent
cancellation of such B ordinary shares (the 'Merger Reserve
Reduction').
Share premium
As a result of the Capital Reduction, the entire amount standing
to the credit of the Company's Share premium (GBP27,642,000) was
cancelled on 17 November 2020.
Merger reserve
When the Company issues shares in consideration for the shares
in an acquired entity, and on completion of the transaction the
Company has secured at least a 90% equity holding in the other
entity, the excess of the fair value of the shares over the nominal
value is credited to the merger reserve ('Merger Relief').
As a result of the Capital Reduction, the entire amount standing
to the credit of the Company's Merger reserve (GBP11,088,000) was
capitalised on 9 November 2020 by issuing 48,717,776 B ordinary
shares of GBP0.227584 each in the capital of the Company. The B
ordinary shares were subsequently cancelled on 17 November
2020.
On 11 December 2020, 155,558 Ordinary Shares were offered as
part consideration for MS Clinical Services LLC, MedSource UK Ltd
and MS Clinical Services (Canada) Inc ('MedSource') at an agreed
market price of GBP8.76 per share. The excess of the fair value
over the nominal value of GBP1,349,000 was credited to the merger
reserve. The shares are subject to the satisfaction of certain
representations and warranties and will be issued during the 2021
financial year
17. Acquisition of subsidiary - PrimeVigilance USA Inc.
On 13 January 2020, the Group acquired all the issued share
capital in Ashfield Pharmacovigilance Inc. for $10,000,000,
satisfied in cash. Immediately after acquisition the subsidiary
changed its name to PrimeVigilance USA Inc. The company is a
specialist pharmacovigilance provider based in the US. The
acquisition expands the geographical coverage of PrimeVigilance,
the pharmacovigilance brand of the Ergomed group, and further
develop the Group's broader combined CRO and PV business
globally.
Fair
Book value Final
value adjustments valuation
GBP000s GBP000s GBP000s
------------------------------------------------- -------- ------------ ----------
Intangible assets 159 2,392 2,551
Property, plant and equipment 779 - 779
Right-of-use assets 987 - 987
------------------------------------------------- -------- ------------ ----------
Total non-current assets 1,925 2,392 4,317
------------------------------------------------- -------- ------------ ----------
Trade and other receivables 1,462 (75) 1,387
Cash and cash equivalents 727 - 727
------------------------------------------------- -------- ------------ ----------
Current assets 2,189 (75) 2,114
------------------------------------------------- -------- ------------ ----------
Trade and other payables (321) - (321)
Lease liability (1,075) - (1,075)
Tax payable - - -
Deferred tax liability (1,945) 1,282 (663)
------------------------------------------------- -------- ------------ ----------
Financial liabilities (3,341) 1,282 (2,059)
------------------------------------------------- -------- ------------ ----------
Total identifiable net assets 773 3,599 4,372
Goodwill 7,703 (3,692) 4,011
------------------------------------------------- -------- ------------ ----------
Total consideration 8,476 (93) 8,383
------------------------------------------------- -------- ------------ ----------
Satisfied by:
Cash 7,613
Cash - working capital advance 770
------------------------------------------------- -------- ------------ ----------
Total consideration 8,383
------------------------------------------------- -------- ------------ ----------
Net cash outflow arising on acquisition
Cash consideration 8,433
Less: cash and cash equivalent balances acquired (727)
Less: working capital adjustment (93)
Transaction expenses 407
------------------------------------------------- -------- ------------ ----------
8,020
------------------------------------------------- -------- ------------ ----------
The fair value of intangible assets relates to customer
relationships of GBP1,998,000 and contracted orderbook of
GBP553,000. The Group incurred acquisition related cost of
GBP393,000 related to due diligence and legal activities in the
year ended 31 December 2019 and an additional GBP14,000 in the year
to 31 December 2020. These costs have been included in acquisition
costs within selling and administrative expenses in the Group's
consolidated income statement.
The fair value of acquired receivables was GBP1,250,000. The
gross contractual amount receivable is GBP1,325,000 and, at the
acquisition date, GBP75,000 of contractual cash flows were not
expected to be received
Ergomed plc has a 12-month measurement period from the date of
acquisition, and therefore the measurement period ended on 13
January 2021.
18. Acquisition of subsidiary - MedSource
On 11 December 2020, the Group acquired all of the issued share
capital in MS Clinical Services, LLC, MedSource UK Ltd and MS
Clinical Services (Canada) Inc ('MedSource') for $16,200,000 in
cash, adjusted for net debt, and paid at the closing of the
transaction, with further consideration of $1,800,000 payable in
Ergomed plc equity issued at a price based on the average daily
closing price for 30 days preceding the acquisition (155,558 shares
at a price of GBP8.76) upon the satisfaction of certain
representations and warranties. Up to a further $7,000,000 is
payable, 90% in cash and 10% in equity, depending on MedSource's
financial results in the year to 31 December 2021.
MedSource is a full-service CRO with a focus on complex diseases
and study designs. The acquisition greatly expands the geographical
presence of Ergomed's CRO service offering in the US whilst
complementing the current business specialism in oncology and rare
disease. Eric Lund, founder of MedSource and the primary
shareholder, will continue in his current role as President of
MedSource after the acquisition.
Fair
Book value Provisional
value adjustments valuation
GBP000s GBP000s GBP000s
------------------------------------------------- -------- ------------ -----------
Intangible assets 475 5,704 6,179
Property, plant and equipment 89 - 89
Right-of-use assets - 131 131
------------------------------------------------- -------- ------------ -----------
Total non-current assets 564 5,835 6,399
------------------------------------------------- -------- ------------ -----------
Trade and other receivables 3,062 - 3,062
Cash and cash equivalents 4,346 - 4,346
------------------------------------------------- -------- ------------ -----------
Current assets 7,408 - 7,408
------------------------------------------------- -------- ------------ -----------
Trade and other payables (2,348) - (2,348)
Lease liability - (131) (131)
Deferred Revenue (6,528) - (6,528)
Deferred tax liability - (1,607) (1,607)
------------------------------------------------- -------- ------------ -----------
Financial liabilities (8,876) (1,738) (10,614)
------------------------------------------------- -------- ------------ -----------
Total identifiable net assets (904) 4,097 3,193
Goodwill 11,347 (4,097) 7,250
------------------------------------------------- -------- ------------ -----------
Total consideration 10,443 - 10,443
------------------------------------------------- -------- ------------ -----------
Satisfied by:
Cash 9,092
Equity 1,351
------------------------------------------------- -------- ------------ -----------
Total consideration 10,443
------------------------------------------------- -------- ------------ -----------
Net cash outflow arising on acquisition
Cash consideration 8,764
Less: cash and cash equivalent balances acquired (4,346)
Add: working capital adjustment 328
Transaction expenses 825
------------------------------------------------- -------- ------------ -----------
5,571
------------------------------------------------- -------- ------------ -----------
The fair value of intangible assets relates to customer
relationships of GBP4,077,000, contracted orderbook of GBP1,186,000
and brand of GBP916,000.
The Group incurred acquisition related cost of GBP825,000
related to due diligence and legal activities in the year ended 31
December 2020. These costs have been included in acquisition costs
within selling and administrative expenses in the Group's
consolidated income statement.
Ergomed plc has a 12-month measurement period from the date of
acquisition, and therefore the measurement period will end on 11
December 2021.
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