TIDMERGO

RNS Number : 1399N

Ergomed plc

28 September 2021

Interim results for the six months ended 30 June 2021

Strong organic growth and acquisitions drive increased revenue and profit

Growth in new sales awards and order book underpins high levels of forward visibility

   -- Total revenue growth of 38.8% over H1 2020 to GBP56.0 million (up 48.1% in constant currency*) 
 
   --   djusted EBITDA of GBP12.1 million up 33.0% 
 
   -- Basic adjusted earnings per share of 16.8p, up 48.7% 
 
   -- Service fee revenue growth of 29.3% (11.1% on a like-for-like basis, 18.2% in constant currency*) 
 
   -- CRO revenue up 90.2% over H1 2020 to GBP27.2 million, with like-for-like growth of 16.1% (up 24.5% in constant 
      currency*) 
 
   -- Net new sales awards in H1 2021 increased by 50.8% over H1 2020 
 
   -- Growth in order book maintained - up 18.0% since 1 January 2021 (GBP193.0 million) and up 50.5% on prior year to 
      GBP227.8 million, providing high visibility into H2 2021 and beyond 
 
   -- Continued international expansion with growing presence in the USA 
 
   -- North America revenues up 70.8% to GBP35.5 million with recent acquisitions Ashfield Pharmacovigilance and 
      MedSource fully integrated 
 
   -- Cash balance increased to GBP24.6 million and debt free 

*Constant currency growth is calculated by restating H1 2021 performance using H1 2020 exchange rates

Guildford, UK - 28 September 2021 : Ergomed plc, (LSE: ERGO) ('Ergomed' or the 'Company'), a company focused on providing specialised services to the global pharmaceutical industry, announces its unaudited interim results for the six months ended 30 June 2021.

Financial Summary

 
 
 Figures in GBP millions, unless        First         First        % change 
  otherwise stated                       Half          Half 
                                         2021          2020 
 Total Revenue                           56.0          40.4            38.8 
  Service Fee Revenue                    47.6          36.9            29.3 
  Like-for-like Service Fee Revenue 
   (Note 1)                              41.0          36.9            11.1 
 Gross Profit                            23.0          18.5            24.3 
   Gross Margin (%)                     41.1%         45.8%            -4.7 
                                                                       ppts 
    Gross Margin Service Fee (%)        48.2%         50.1%            -1.9 
                                                                       ppts 
 Adjusted EBITDA (Note 2)                12.1           9.1            33.0 
 Net cash at 30 June                     24.6          14.1            74.5 
 Order book at 30 June                  227.8         151.4            50.5 
 Basic adjusted earnings per 
  share (pence) (Note 3)                16.8p         11.3p            48.7 
------------------------------------  -------  ---  -------  ---  --------- 
 

Notes :

(1) Like-for-like Service Fee revenue excludes H1 2021 Service Fee revenues of GBP6.6m in MedSource acquired on 11 December 2020.

(2) Adjusted EBITDA is defined as operating profit for the period plus depreciation and amortisation, share-based payment charge, and other income and costs further detailed in Note 7 to the financial statements which management believes are not reflective of the Group's underlying trading performance.

(3) Basic adjusted earnings per share is defined as basic earnings per share after adjustment for certain income and costs detailed in Note 3 to the financial statements which management believes are not reflective of the Group's underlying trading performance.

Dr Miroslav Reljanović, Executive Chairman of Ergomed, said: "The excellent financial results that Ergomed has reported in the first half of 2021 reflect continued strong organic growth and the successful integration of value-enhancing acquisitions with significant new business won in both the pharmacovigilance and CRO businesses. Global demand for our services continues to strengthen and our confidence in the long-term growth of the Company is underpinned by the buoyant markets in which we operate, our acquisition strategy, and the robust platform provided by our order book and balance sheet."

Key Financial Highlights

   --      Revenue of GBP 56.0 million, up 38.8 % (H1 2020: GBP 40.4 million) 
   --      Adjusted EBITDA of GBP 12.1 million, up 33.0% (H1 2020: GBP9.1 million) 
   --      Basic adjusted earnings per share of 16.8p, up 48.7% (H1 2020: 11.3p) 
   --      Net cash of GBP 24.6 million, up 74.5% (30 June 2020: GBP14.1 million) 

Operational Highlights

   --      Robust sales performance with net new sales awards up 50.8% 

-- Order book of future contracted revenue up 50.5% to GBP 227.8 million (30 June 2020: GBP151.4 million) and up 18.0% since 1 January 2021 (GBP193.0 million)

-- CRO division delivered strong growth with revenue up 90.2% over H1 2020 to GBP27.2 million, including the MedSource business acquired in 2020, with like-for-like growth of 16.1% (24.5% in constant currency)

   --      Integration of recent acquisitions of Ashfield Pharmacovigilance and MedSource completed 
   --      North America revenues up 70.8% to GBP35.5 million, despite foreign exchange headwinds 

Webcast and conference call for analysts:

A webcast and conference call for analysts will be held at 10.30am BST today, 28 September 2021.

Webcast link: https://edge.media-server.com/mmc/p/4p2rdmjm

Conference call details

UK Participant Local Dial-In: +44 (0) 2071 928338

US Participant International Dial-In: +16467413167

International Dial-In: +44 (0) 2071 928338

Conference ID: 6359509

Enquiries:

 
 Ergomed plc                                        Tel: +44 (0) 1483 402 
                                                                      975 
 Miroslav Reljanović (Executive 
  Chairman) 
 Richard Barfield (Chief Financial Officer) 
 
 Numis Securities Limited (Nominated                 Tel: +44 (0) 20 7260 
  Adviser and Joint Broker)                                          1000 
 Freddie Barnfield / Matthew O'Dowd 
 James Black (Broker) 
 
  Peel Hunt LLP (Joint Broker)                       Tel: +44 (0) 20 7418 
  James Steel / Dr Christopher Golden                                8900 
 
 Consilium Strategic Communications                  Tel: +44 (0) 20 3709 
                                                                     5700 
 Chris Gardner / Matthew Neal                 ergomed@consilium-comms.com 
 Angela Gray 
 
 
 
 

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 and a full range of high-quality clinical research and trial management services under the Ergomed brand (CRO). 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 results 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.

INTERIM MANAGEMENT REPORT

OPERATIONAL REVIEW

Introduction

Ergomed continued to make significant strategic progress in the first half of 2021, demonstrating its ongoing robustness globally throughout the COVID-19 pandemic, concluding its strategic transition to a services-based business model, and completing the integration of recent acquisitions. A further period of strong operational and financial performance was achieved in H1 2021, underlining the value of Ergomed's services model and the strength of the foundations which the Company is building for long-term growth.

Favourable market dynamics have continued and strengthened in the areas in which Ergomed operates, with increased research and development investment generally and particular strength in Ergomed's specialist areas of rare disease and oncology, where the Company's physician- and patient-centric model is also a key competitive advantage. In addition, regulatory scrutiny and harmonisation are also increasing, and the COVID-19 pandemic is accelerating innovation and the adoption of digital technologies. With the Company's growing order book, recognised expertise and brand recognition in our specialist fields, and complementary geographies and service offerings, Ergomed is well placed to take advantage of these favourable market dynamics.

Financial summary

Ergomed reported strong financial performance in the first half of 2021 with total revenues of GBP56.0 million (H1 2020: GBP40.4 million), an increase of 38.8% (48.1% in constant currency). Service fee revenues of GBP47.6 million (H1 2020: GBP36.9 million) were up 29.3% (37.7% in constant currency). This increase in revenues was driven by a robust order book at the beginning of 2021, combined with substantial levels of new business wins over the first half. Significant revenue growth in North America continued and was up 70.8% compared to H1 2020, despite the impact of foreign exchange headwinds. Like-for-like service fee revenue, excluding revenue from MedSource, the US-based CRO acquired in December 2020, grew 11.1% (18.2% in constant currency).

Adjusted EBITDA for the first half of 2021 was up 33.0% to GBP12.1 million compared to GBP9.1 million in H1 2020.

Cash generation in H1 2021 was strong and derived entirely from earnings with no debt or equity financing. After the payment of a property lease surrender premium of GBP0.5 million and taxation of GBP2.1 million in H1 2021 as the business switched to quarterly instalment payments, the net cash at 30 June 2021 was up 74.5% at GBP24.6 million compared to H1 2020. The Company continues to be debt free with committed banking facilities of GBP30 million available to support expansion.

Operational summary

Ergomed had an excellent first half with overall growth in revenue driven by increasing demand for its services across the business.

Ergomed's international expansion is continuing at pace. The Company's operational presence in the US continues to develop rapidly with strong organic growth alongside the integration of the two new US businesses acquired in 2020. There is also ongoing expansion into further geographic areas, including the development of operational capabilities in key European countries as well as the new operation in Japan, the fourth largest pharmaceutical market in the world. Ergomed is also recognised as a global provider of COVID-19 research support with involvement in a number of COVID-19 projects in its CRO and PV businesses.

A strong business development performance saw net sales of new business for H1 2021 increase by 50.8% to GBP90.8 million (H1 2020: GBP60.2 million), accelerated by effective cross-selling activities between the CRO and PV businesses as well as the expanded geographic territory and client bases from the two US acquisitions in 2020. The order book remains robust at GBP227.8 million at the end of H1 2021, up 18.0% from GBP193.0 million at 31 December 2020 and up 50.5% on the prior year (H1 2020: GBP151.4 million), providing excellent visibility of contracted revenues into the second half of 2021 and beyond. The order book has continued to develop well in the third quarter of 2021 with further substantial wins.

The increase in total revenues of 38.8% to GBP56.0 million (H1 2020: GBP40.4 million) was achieved across both the PrimeVigilance and Clinical Research Services businesses.

PrimeVigilance

Ergomed's pharmacovigilance (PV) business saw total revenue increase to GBP28.8 million in H1 2021 from GBP26.1 million in H1 2020, up by 10.3% (16.2% in constant currency). Reported gross profit increased from GBP13.4 million to GBP14.6 million, up 9.0%, whilst gross margin was broadly flat at 50.7% (H1 2020: 51.3%).

During the first half of 2021, further progress was made through strategic partnerships with key vendors to develop the technology suite and optimise processes and systems to support increased revenues and profitability. The Japan office is now fully operational, with local pharmacovigilance experts providing fully integrated and comprehensive medical information and PV services compliant with Japan's Pharmaceutical and Medical Devices Agency requirements.

Clinical Research Services (CRO)

The Clinical Research Services (CRO) division has seen further acceleration of the growth that resumed in the second half of 2020. Including MedSource, acquired in December 2020, the CRO division saw its total revenue increase by 90.2% from GBP14.3 million in H1 2020 to GBP27.2 million in H1 2021 (up 106.4% in constant currency). Excluding MedSource, the CRO division revenue increased by 16.1% (24.5% in constant currency) from GBP14.3 million in H1 2020 to GBP16.6 million in H1 2021.

Reported gross profit in the CRO division increased by 64.7% to GBP8.4 million (H1 2020: GBP5.1 million) and service fee gross margin was 44.2% (H1 2020: 45.9%). The reduction in overall gross margin was as anticipated and was due to foreign exchange headwinds and increased staffing in the USA to facilitate further revenue growth from the Company's growing order book.

During the first half of 2021, substantial operational progress was achieved, which is expected to further strengthen Ergomed's CRO services and accelerate patient recruitment on behalf of clients. This included the expansion of operational capabilities in Spain, Bulgaria, Romania and Georgia, significant organisational improvements including the enhancement of global study start-up capabilities, and the rationalisation of standard operating procedures. Ergomed's strategic focus on rare disease and oncology was strengthened with over 80% of revenues now generated in these therapeutic areas.

The MedSource CRO business performed well over the first half of 2021. In July 2021 Ergomed agreed with the former MedSource owners that the earn-out agreed as part of the acquisition terms would be accelerated with final payments totalling $3.8 million (GBP2.7 million) to be paid during the third quarter of 2021. This has facilitated the full integration of all CRO activities in North America under the Ergomed CRO brand and management, and enabled the business to realise fully the benefit of a wider CRO operational base in North America significantly ahead of schedule.

Acquisitions

The acquisitions of Ashfield Pharmacovigilance and MedSource in 2020 have proved successful with both businesses now fully integrated and delivering significant new sales, cross-selling benefits and cost synergies. Both acquisitions were completed using internally generated cash resources without utilising available debt facilities and have significantly augmented Ergomed's underlying organic growth. The Company continues to review acquisition opportunities to further grow the CRO and PV businesses and deliver enhanced shareholder value.

Board Changes

As previously announced, Rolf Soderstrom has informed the Board of his intention to step down from the Board to focus on his other business activities and will leave the Board on 30 September 2021. We thank Rolf for the significant contribution he has made to Ergomed's growth and success during the recent period and we wish him well in all his future endeavours.

During the first half the Board was strengthened by the appointments as Non-Executive Directors of Dr Llew Keltner, M.D., Ph.D., in April, and Mark Enyedy, in June.

Current trading and outlook

The excellent results that Ergomed has reported in the first half of 2021 reflect continued strong organic growth and the successful integration of value enhancing acquisitions with significant new business won in both the pharmacovigilance and CRO businesses. Global demand for our services continues to strengthen and our confidence in the long-term growth of the Company is underpinned by the buoyant markets in which we operate, our acquisition strategy, and the robust platform provided by our order book and balance sheet.

Dr Miroslav Reljanović

Executive Chairman

FINANCIAL REVIEW

The unaudited primary financial statements of Ergomed plc for the six months ended 30 June 2021 are presented later in this announcement along with the key accounting policies, notes to the financial statements and the independent review report from KPMG.

Key performance indicators

The Directors consider the principal financial performance indicators of the Company and its subsidiary undertakings (together the 'Group') to be:

 
 GBP million (unless stated otherwise)              H1 2021   H1 2020 
-------------------------------------------  ----  --------  -------- 
 Total revenue                                         56.0      40.4 
 Gross profit                                          23.0      18.5 
 Gross margin% on service fee revenue                 48.2%     50.1% 
  Profit after tax                                      6.6       4.3 
 Adjusted EBITDA (Note 7)                              12.1       9.1 
 Cash and cash equivalents                             24.6      14.1 
  Cash generated from operating activities             10.6       8.2 
 Basic adjusted earnings per share 
  (Note 3)                                            16.8p     11.3p 
-------------------------------------------------  --------  -------- 
 

Consolidated income statement

Total revenue on a reported basis for the six months ended 30 June 2021 was GBP56.0 million (H1 2020: GBP40.4 million), an increase of 38.8%, driven by growth in the PV division (up 10.3%) and the CRO division (up by 16.1% on a like-for-like basis), as well as revenues of GBP10.6 million in MedSource acquired in December 2020. Revenues in the key North American market grew by 70.8% to GBP35.5 million (H1 2020: GBP20.8 million), despite the impact of adverse foreign exchange headwinds.

Gross profit was GBP23.0 million and service fee gross margin was 48.2% (H1 2020: gross profit GBP18.5 million and service fee gross margin 50.1%), the slightly lower gross margin percentage being an anticipated result of foreign exchange headwinds and increased staffing in the USA ahead of expected further revenue growth. Selling, general and administration expenses including acquisition related costs were GBP14.8 million (H1 2020: GBP11.3 million). The potential risk of non-recoverability of certain trade receivables including as a result of COVID-19 has been assessed and the provision for net impairment losses remains at GBP0.9 million (H1 2020: GBP0.9 million). Research and development costs expensed in the period were GBP0.04 million (H1 2020: GBP0.10 million), the reduction being due to the strategic withdrawal from co-development projects.

Adjusted EBITDA increased to GBP12.1 million in H1 2021 from GBP9.1 million in H1 2020, with profit after tax up 53.5% at GBP6.6 million (H1 2020: GBP4.3 million). Basic adjusted earnings per share were up 48.7% to 16.8p (H1 2020: 11.3p).

Consolidated balance sheet

Net assets increased by GBP6.0 million during the first half of 2021 and amounted to GBP58.9 million at 30 June 2021 (31 December 2020: GBP52.9 million) including net cash and cash equivalents of GBP24.6 million (31 December 2020: GBP19.0 million).

Cash flow statement

At 30 June 2021, the Group's net cash balance was GBP24.6 million, having paid a property lease surrender premium of GBP0.5m and taxation of GBP2.1m in H1 2021 as the business switched to quarterly instalment payments (net cash at 30 June 2020: GBP14.1 million, 31 December 2020: GBP19.0 million).

Cash generated from operating activities was GBP10.6 million (H1 2020: GBP8.2 million) primarily due to the increased revenues and profitability of the business. Ergomed has no debt.

Net outflows from investing activities decreased to GBP0.9 million (net outflows from investing activities H1 2020: GBP7.9 million). Net outflows on financing activities for the period of GBP1.6 million was primarily related to lease costs and interest paid.

Richard Barfield

Chief Financial Officer

INDEPENT REVIEW REPORT TO ERGOMED PLC

Introduction

We have been engaged by the Company to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related explanatory notes. Our review was conducted in accordance with the Financial Reporting Council's International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects in accordance with IAS 34 as adopted for use in the UK and the AIM Rules.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM rules. As disclosed in note 1, the annual financial statements of the Group for the period ended 30 June 2021 were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act and the next annual financial statements will be prepared in accordance with UK-adopted international accounting standards .The directors are responsible for ensuring that the condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK.

Our responsibility

Our responsibility is to express to the Entity a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with the Financial Reporting Council's International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We read the other information contained in the half-yearly financial report to identify material inconsistencies with the information in the condensed set of consolidated financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Entity in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the Entity those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Entity for our review work, for this report, or for the conclusions we have reached.

KPMG

27 September 2021

Chartered Accountants, Statutory Audit Firm

1 Stokes Place

St Stephen's Green,

Dublin 2,

Ireland

Consolidated Income Statement

For the six months ended 30 June 2021

 
                                               Note      Unaudited      Unaudited       Audited 
                                                        Six months     Six months          Year 
                                                             ended          ended         ended 
                                                      30 June 2021   30 June 2020   31 December 
                                                                                           2020 
                                                           GBP000s        GBP000s 
                                                                                        GBP000s 
 
REVENUE                                           2         56,042         40,379        86,391 
 
Cost of sales                                             (24,671)       (18,343)      (38,686) 
Reimbursable expenses                                      (8,354)        (3,498)       (8,055) 
 
GROSS PROFIT                                                23,017         18,538        39,650 
 
Selling, general and administrative 
 expenses                                                 (14,848)       (11,327)      (27,518) 
 
Selling, general and administrative 
 expenses comprises: 
   Other selling, general and administrative 
    expenses                                              (13,201)       (10,147)      (24,591) 
   Amortisation of acquired fair 
    valued intangible assets                                 (728)          (675)       (1,332) 
   Share-based payment charge                                (431)          (488)         (742) 
   Acquisition costs                              6          (488)           (17)         (853) 
---------------------------------------------  ----  -------------  -------------  ------------ 
 
Research and development expenses                             (36)           (99)         (152) 
Net impairment losses on trade 
 receivable and contract assets                              (533)          (937)         (285) 
Other operating income                            5            926            704         1,839 
 
OPERATING PROFIT                                             8,526          6,879        13,534 
 
Finance income                                                   1              7             8 
Change in fair value of equity 
 investments                                                     -          (686)         (511) 
Finance costs                                     4          (213)          (234)         (403) 
 
PROFIT BEFORE TAXATION                                       8,314          5,966        12,628 
 
Taxation                                          8        (1,681)        (1,687)       (2,946) 
 
PROFIT FOR THE PERIOD                                        6,633          4,279         9,682 
 
 

All activities in the current and prior periods relate to continuing operations.

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2021

 
                                          Unaudited      Unaudited       Audited 
                                         Six months     Six months          Year 
                                              ended          ended         ended 
                                       30 June 2021   30 June 2020   31 December 
                                                                            2020 
                                            GBP000s        GBP000s 
                                                                         GBP000s 
 
OTHER COMPREHENSIVE INCOME 
 
Profit for the period                         6,633          4,279         9,682 
 
 
 
Exchange differences on translation 
 of foreign operations                      (1,001)            291          (59) 
 
Other comprehensive income for 
 the period net of tax                      (1,001)            291          (59) 
 
 
Total comprehensive profit for 
 the period                                   5,632          4,570         9,623 
 
 

All activities in the current and prior periods relate to continuing operations.

 
                     Note      Unaudited      Unaudited     Unaudited 
                              Six months     Six months          Year 
                                   ended          ended         ended 
                            30 June 2021   30 June 2020   31 December 
                                                                 2020 
                                 GBP000s        GBP000s 
                                                              GBP000s 
 
EARNINGS PER SHARE      3 
 
Basic                              13.6p           8.9p         20.0p 
 
Diluted                            13.0p           8.4p         19.2p 
 
 
 
                                       Note      Unaudited      Unaudited     Unaudited 
                                                Six months     Six months          Year 
                                                     ended          ended         ended 
                                              30 June 2021   30 June 2020   31 December 
                                                                                   2020 
                                                   GBP000s        GBP000s 
                                                                                GBP000s 
 
ADJUSTED EBITDA 
 (Adjusted Earnings Before Interest, 
 Tax, Depreciation and Amortisation)      7         12,111          9,113        19,370 
 
 
ADJUSTED EARNINGS PER SHARE               3 
 
Basic                                                16.8p          11.3p         25.8p 
 
Diluted                                              16.1p          10.7p         24.7p 
 
 

Consolidated Balance Sheet

As at 30 June 2021

 
                                                    Unaudited      Unaudited       Audited 
                                          Note   30 June 2021   30 June 2020   31 December 
                                                                                      2020 
                                                      GBP000s        GBP000s 
                                                                                   GBP000s 
 
Non-current assets 
Goodwill                                     9         25,646         17,895        24,605 
Other intangible assets                     10          7,683          4,508         9,618 
Property, plant and equipment                           1,957          1,916         1,742 
Right-of-use assets                                     3,731          5,630         4,715 
Equity investments                                          -              -             - 
Deferred tax asset                                      5,343          3,184         4,898 
 
                                                       44,360         33,133        45,578 
 
Current assets 
Trade and other receivables                 11         21,966         17,418        22,224 
Accrued revenue                              2          4,268          4,957         5,553 
Cash and cash equivalents                   12         24,571         29,116        18,994 
 
                                                       50,805         51,491        46,771 
 
Total assets                                           95,165         84,624        92,349 
 
Current liabilities 
Borrowings                                  12              -       (15,000)             - 
Lease Liabilities                                     (1,338)        (2,000)       (1,978) 
Trade and other payables                    13       (13,180)       (11,549)      (15,702) 
Contingent and deferred consideration                       -              -         (328) 
Deferred revenue                             2       (15,489)        (5,139)      (13,829) 
Current tax liability                                 (1,676)        (2,098)       (1,775) 
 
                                                     (31,683)       (35,786)      (33,612) 
 
Net current assets                                     19,122         15,705        13,159 
 
Non-current liabilities 
Lease Liabilities                                     (2,429)        (4,015)       (3,128) 
Provisions                                               (19)          (353)         (317) 
Deferred tax liability                                (2,101)          (796)       (2,426) 
 
                                                      (4,549)        (5,164)       (5,871) 
 
Total liabilities                                    (36,232)       (40,950)      (39,483) 
 
Net assets                                         58,933             43,674        52,866 
 
Equity 
Share capital                               14            490            482           489 
Share premium account                                     116         27,207             3 
Merger reserve                                          1,349         11,088         1,349 
Share-based payment reserve                             5,473          4,788         5,042 
Translation reserve                                     (386)            965           615 
Retained earnings                                      51,891          (856)        45,368 
 
Total equity                                           58,933         43,674        52,866 
 
 

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2021

 
                                          Share     Share    Merger  Share-based  Translation   Retained     Total 
                                        capital   premium   reserve      payment      reserve   earnings 
                                                  account                reserve 
                                                                         GBP000s 
                                        GBP000s   GBP000s   GBP000s                   GBP000s    GBP000s   GBP000s 
 
 
Balance at 1 January 2020                   473    25,790    11,088        4,300          674    (5,505)    36,820 
 
Profit for the period                         -         -         -            -            -      4,279     4,279 
Other comprehensive income 
 for the period                               -         -         -            -          291          -       291 
 
Total comprehensive income 
 for the period                               -         -         -            -          291      4,279     4,570 
 
Shares issued on exercise 
 of share options                             9     1,417         -            -            -          -     1,426 
Equity-settled share-based 
 payment charge                               -         -         -          488            -          -       488 
Deferred tax credit taken 
 directly to equity                           -         -         -            -            -        370       370 
 
Total transactions with shareholders 
 in their capacity as shareholders            9     1,417         -          488            -        370     2,284 
 
Balance at 30 June 2020                     482    27,207    11,088        4,788          965      (856)    43,674 
 
 
Profit for the period                         -         -         -            -            -      5,403     5,403 
Other comprehensive income 
 for the period                               -         -         -            -        (350)          -     (350) 
 
Total comprehensive income 
 for the period                               -         -         -            -        (350)      5,403     5,053 
 
Shares issued on exercise 
 of share options                             5       438         -            -            -          -       443 
Equity-settled share-based 
 payment charge                               -         -         -          254            -          -       254 
Deferred tax credit taken 
 directly to equity                           -         -         -            -            -      2,091     2,091 
Shares issued for non-cash 
 consideration                                2         -     1,349            -            -          -     1,351 
Transactions with shareholders 
 - capital reduction 
Capitalisation of Merger reserve 
 to B Ordinary Shares                    11,088         -  (11,088)            -            -          -         - 
Cancellation of B Ordinary 
 Shares                                (11,088)         -         -            -            -     11,088         - 
Cancellation of Share Premium                 -  (27,642)         -            -            -     27,642         - 
 
Total transactions with shareholders 
 in their capacity as shareholders            7  (27,204)   (9,739)          254            -     40,821     4,139 
 
Balance at 31 December 2020                 489         3     1,349        5,042          615     45,368    52,866 
 
 
 
Profit for the period                    -    -      -      -        -   6,633    6,633 
Other comprehensive income 
 for the period                          -    -      -      -  (1,001)       -  (1,001) 
 
Total comprehensive income 
 for the period                          -    -      -      -  (1,001)   6,633    5,632 
 
Shares issued on exercise 
 of share options                        1  113      -      -        -       -      114 
Equity-settled share-based 
 payment charge                          -    -      -    431        -       -      431 
Deferred tax credit taken 
 directly to equity                      -    -      -      -        -   (110)    (110) 
 
Total transactions with shareholders 
 in their capacity as shareholders       1  113      -    431        -   (110)      435 
 
Balance at 30 June 2021                490  116  1,349  5,473    (386)  51,891   58,933 
 
 

Consolidated Cash Flow Statement

For the six months ended 30 June 2021

 
                                                 Unaudited      Unaudited       Audited 
                                                Six months     Six months          Year 
                                                     ended          ended         ended 
                                              30 June 2021   30 June 2020   31 December 
                                                                                   2020 
                                                   GBP000s        GBP000s 
                                                                                GBP000s 
Cash flows from operating activities 
Profit before taxation                               8,314          5,966        12,628 
 
Adjustment for: 
Amortisation and depreciation                        2,623          2,411         4,843 
Profit on disposal of Right-of-use 
 assets                                              (145)              -             - 
Share-based payment charge                             431            488           742 
Change in fair value of equity investments               -            686           511 
RDEC income                                          (559)          (527)       (1,188) 
Finance costs                                          213            234           403 
Other non-cash movements                               162            (3)             8 
 
Operating cash flow before changes 
 in working capital and provisions                  11,039          9,255        17,947 
Decrease/(increase) in trade, other 
 receivables and accrued revenue                     1,672        (4,071)       (6,137) 
(Decrease)/increase in trade, other 
 payables and deferred revenue                     (1,833)          3,039         7,182 
(Decrease)/increase in provisions                    (298)             19          (18) 
 
Cash generated from operating activities            10,580          8,242        18,974 
 
Taxes paid                                         (2,059)          (119)         (926) 
 
Net cash from operating activities                   8,521          8,123        18,048 
 
Cash flows from investing activities 
Finance income received                                  1              7             8 
Acquisition of intangible assets                      (14)          (128)         (542) 
Acquisition of property, plant and 
 equipment                                           (545)          (261)         (432) 
Proceeds from the sale of property, 
 plant and equipment                                    14             12            46 
Proceeds on the disposal of equity 
 investments                                             -             36           175 
Acquisition of subsidiaries, net 
 of cash acquired                                        -        (7,613)      (12,031) 
Acquisition related earn-out paid                    (318)              -             - 
 
Net cash used in investing activities                (862)        (7,947)      (12,776) 
 
Cash flows from financing activities 
Proceeds from the issue of new ordinary 
 shares                                                114          1,427         1,869 
Finance costs paid                                   (105)          (103)         (157) 
Payment of lease liabilities                       (1,607)        (1,107)       (2,189) 
Proceeds from borrowings                                 -         15,000        15,000 
Repayment of borrowings                                  -              -      (15,000) 
 
Net cash (used in)/from financing 
 activities                                        (1,598)         15,217         (477) 
 
Net increase in cash and cash equivalents            6,061         15,393         4,795 
Effect of foreign currency on cash 
 balances                                            (484)          (536)          (60) 
Cash and cash equivalents at start 
 of the period                                      18,994         14,259        14,259 
Cash and cash equivalents at end 
 of period                                          24,571         29,116        18,994 
 
 

Notes to the Consolidated Financial Statements

For the six months ended 30 June 2021

   1.         BASIS OF PREPARATION AND ACCOUNTING POLICIES 

The interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board (IASB) adopted by the European Union.

The interim financial statements have been prepared in accordance with International Accounting Standard 34 ("IAS 34") - Interim Financial Reporting, and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2020. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.

The condensed financial statements have been prepared under the historical cost convention, except for the fair value of certain financial instruments which are further detailed in note 16.

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.

These condensed financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors and have been delivered to the Registrar of Companies. The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

Risks and uncertainties

An outline of the key risks and uncertainties faced by the Group was described in the Company's Annual Report which is available on the Company website (www.ergomedplc.com). The principal risks were: competition; cancellation or delay of clinical trials or projects by customers including as a result of COVID-19; COVID-19 pandemic, natural disaster; dependency on pharmaceutical industry; legislation and regulation of the pharmaceutical and biotechnology industries; quality and third party oversight; information security and data privacy; UK withdrawal from the European Union; access to capital; retention of senior and key employees; and dependence on a limited number of key clients.

Critical accounting judgements and key sources of estimation uncertainty

In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements and are summarised below.

 
Source of estimation 
 uncertainty            Overview 
----------------------  -------------------------------------------------------------- 
Bad debt provision      The Group had provisions against trade receivables and 
                         accrued revenue at the period end of GBP841,000 (2020: 
                         GBP959,000) which resulted in a charge to the Income 
                         Statement in the period of GBP533,000 (2020: GBP937,000). 
----------------------  -------------------------------------------------------------- 
Impairment of           The impairment provision against goodwill at the period 
 goodwill                end was GBP2,143,000 (2020: GBP2,143,000) and related 
                         fully against the investment in Haemostatix Limited. 
                         GBPnil (2020: GBPnil) was charged to the Income Statement 
                         in the period. 
----------------------  -------------------------------------------------------------- 
Fair value assessments  During the year ended 31 December 2020 the Group acquired 
                         Ashfield Pharmacovigilance, Inc. ('Ashfield') and MS 
                         Clinical Services, LLC. and its subsidiaries ('MedSource'). 
                         At the acquisition date the Group is required to estimate 
                         the fair value of identifiable assets acquired and the 
                         liabilities assumed. Due to the substantial nature of 
                         the acquisitions, the Group engaged third-party qualified 
                         valuation experts to establish the appropriate techniques 
                         and inputs to complete this work. 
                         Contingent consideration is measured using a discounted 
                         cash flow approach, utilising management's forecasts 
                         to estimate the likely pay out and discounting these 
                         using a risk-adjusted weighted average cost of capital. 
                         The contingent consideration payable in respect MedSource 
                         is categorised as level 3 within the fair value hierarchy. 
                         The fair value of contingent consideration and has been 
                         assessed at GBPnil as no conditions, including the subsequent 
                         agreement of a revised earn-out and settlement agreement, 
                         existed at the reporting date. 
                         The Company has a 12-month measurement period from the 
                         date of acquisition, and therefore the measurement period 
                         will end on 11 December 2021. 
----------------------  -------------------------------------------------------------- 
 
 
Accounting policy  Critical judgements 
-----------------  --------------------------------------------------------------- 
Revenue from       Revenue for CRO services is recognised based on the 
 customer           costs incurred on a project as a proportion of total 
 contracts          expected costs to determine a percentage of completion 
                    which is applied to the estimate of the transaction 
                    price. Given the long-term nature and complexity of 
                    clinical trials, the forecast costs to complete is judgemental 
                    and can impact the timing and value of revenue recognised 
                    for the CRO business. 
-----------------  --------------------------------------------------------------- 
 

Going concern

The financial statements have been prepared on the going concern basis, which assumes that the Group 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 these interim financial statements are approved. The Directors have reviewed cash flow forecasts for the period through to 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 these interim financial statements are approved.

On the basis of the above factors and, having made appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Business Combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred on acquisition is the fair value at the date of transaction for assets and liabilities transferred. All acquisition related costs are expensed as incurred.

Goodwill arises as the excess of acquisition cost over the fair value of the assets transferred at the date of transaction. Goodwill is reviewed for impairment annually and is carried at cost less accumulated impairment losses. Impairment losses are not reversed in subsequent periods.

Goodwill arising on the acquisition of a foreign operation, including any fair value adjustments to the carrying amounts of assets or liabilities on the acquisition, are treated as assets and liabilities of that foreign operation in accordance with IAS 21 and as such are translated at the relevant foreign exchange rate at the statement of financial position date.

   2.         REVENUE AND OPERATING SEGMENTS 

The Group's revenue is disaggregated by geographical market and major service lines:

30 June 2021 Geographical market and major service lines

 
                                          CRO services  PV services  Total services 
 
                                               GBP000s      GBP000s         GBP000s 
        Geographical market by client 
         location 
        UK                                       2,444        4,534           6,978 
        Rest of Europe, Middle East and 
         Africa                                  4,058        6,243          10,301 
        North America                           18,843       16,661          35,504 
        Asia                                     1,860        1,399           3,259 
 
                                                27,205       28,837          56,042 
 
 

30 June 2020 Geographical market and major service lines

 
                                          CRO services  PV services  Total services 
 
                                               GBP000s      GBP000s         GBP000s 
        Geographical market by client 
         location 
        UK                                       2,043        4,477           6,520 
        Rest of Europe, Middle East and 
         Africa                                  5,261        6,124          11,385 
        North America                            6,379       14,410          20,789 
        Asia                                       582        1,103           1,685 
 
                                                14,265       26,114          40,379 
 
 

31 December 2020 Geographical market and major service lines

 
                                          CRO services  PV services  Total services 
 
                                               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        2,466           4,219 
 
                                                31,316       55,075          86,391 
 
 

The receivables, contract assets and liabilities in relation to contracts with customers are as follows:

 
                                                   31 December 
                       30 June 2021  30 June 2020         2020 
                            GBP000s       GBP000s      GBP000s 
---------------------  ------------  ------------  ----------- 
Contract assets 
Trade receivables            18,900        14,791       19,079 
---------------------  ------------  ------------  ----------- 
Accrued revenue               4,268         4,957        5,553 
---------------------  ------------  ------------  ----------- 
                             23,168        19,748       24,632 
---------------------  ------------  ------------  ----------- 
Contract liabilities 
Deferred revenue           (15,489)       (5,139)     (13,829) 
---------------------  ------------  ------------  ----------- 
Customer advances             (247)         (490)        (408) 
---------------------  ------------  ------------  ----------- 
                           (15,736)       (5,629)     (14,237) 
---------------------  ------------  ------------  ----------- 
 

Accrued revenue primarily relates to consideration for work completed but not billed at the reporting date. The contract assets are transferred to trade receivables when the rights become unconditional.

Deferred revenue primarily relates to the advance consideration received from customers. There are no significant financing components associated with deferred revenue.

Customer advances relate to deposits made by customers as security over future services and third-party costs incurred in relation to those services.

Operating segments

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 January 2020. The CRO segment includes the revenues of MS Clinical Services, LLC. and its subsidiaries ('MedSource') following its acquisition by the Group in January 2020.

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.

30 June 2021

 
                                                                 Consolidated 
                                                  CRO        PV         total 
                                              GBP000s   GBP000s       GBP000s 
-------------------------------------------  --------  --------  ------------ 
Segment revenues                               27,205    28,837        56,042 
Cost of sales                                (10,664)  (14,007)      (24,671) 
-------------------------------------------  --------  --------  ------------ 
Reimbursable expenses                         (8,176)     (178)       (8,354) 
-------------------------------------------  --------  --------  ------------ 
Segment gross profit                            8,365    14,652        23,017 
-------------------------------------------  --------  --------  ------------ 
Selling, general and administration 
 expenses                                                            (14,848) 
-------------------------------------------  --------  --------  ------------ 
Selling, general and administration 
 expenses comprises: 
-------------------------------------------                      ------------ 
Other selling, general and administration 
 expenses                                                            (13,201) 
-------------------------------------------                      ------------ 
Amortisation of acquired fair valued 
 intangible assets                                                      (728) 
-------------------------------------------                      ------------ 
Share-based payment charge                                              (431) 
-------------------------------------------                      ------------ 
Acquisition costs                                                       (488) 
-------------------------------------------  --------  --------  ------------ 
Research and development expenses                                        (36) 
Net impairment of trade receivables 
 and contract assets                                                    (533) 
-------------------------------------------  --------  --------  ------------ 
Other operating income                                                    926 
-------------------------------------------  --------  --------  ------------ 
Operating profit                                                        8,526 
Finance income                                                              1 
Change in fair value of equity investments                                  - 
-------------------------------------------  --------  --------  ------------ 
Finance costs                                                           (213) 
-------------------------------------------  --------  --------  ------------ 
Profit before tax                                                       8,314 
-------------------------------------------  --------  --------  ------------ 
 

30 June 2020

 
                                                                 Consolidated 
                                                  CRO        PV         total 
                                              GBP000s   GBP000s       GBP000s 
-------------------------------------------  --------  --------  ------------ 
Segment revenues                               14,265    26,114        40,379 
Cost of sales                                 (5,891)  (12,452)      (18,343) 
-------------------------------------------  --------  --------  ------------ 
Reimbursable expenses                         (3,268)     (230)       (3,498) 
-------------------------------------------  --------  --------  ------------ 
Segment gross profit                            5,106    13,432        18,538 
-------------------------------------------  --------  --------  ------------ 
Selling, general and administration 
 expenses                                                            (11,327) 
-------------------------------------------  --------  --------  ------------ 
Selling, general and administration 
 expenses comprises: 
-------------------------------------------                      ------------ 
Other selling, general and administration 
 expenses                                                            (10,147) 
-------------------------------------------                      ------------ 
Amortisation of acquired fair valued 
 intangible assets                                                      (675) 
-------------------------------------------                      ------------ 
Share-based payment charge                                              (488) 
-------------------------------------------                      ------------ 
Acquisition costs                                                        (17) 
-------------------------------------------  --------  --------  ------------ 
Research and development expenses                                        (99) 
-------------------------------------------  --------  --------  ------------ 
Net impairment of trade receivables 
 and contract assets                                                    (937) 
-------------------------------------------  --------  --------  ------------ 
Other operating income                                                    704 
-------------------------------------------  --------  --------  ------------ 
Operating profit                                                        6,879 
Finance income                                                              7 
Change in fair value of equity investments                              (686) 
-------------------------------------------  --------  --------  ------------ 
Finance costs                                                           (234) 
-------------------------------------------  --------  --------  ------------ 
Profit before tax                                                       5,966 
-------------------------------------------  --------  --------  ------------ 
 

31 December 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 
-------------------------------------------  --------  --------  ------------ 
 

Segment net assets

 
                                                            31 December 
                                30 June 2021  30 June 2020         2020 
                                     GBP000s       GBP000s      GBP000s 
------------------------------  ------------  ------------  ----------- 
CRO                                   27,609         9,932       24,156 
------------------------------  ------------  ------------  ----------- 
PV                                    31,324        33,742       28,710 
------------------------------  ------------  ------------  ----------- 
Consolidated total net assets         58,933        43,674       52,866 
------------------------------  ------------  ------------  ----------- 
 
   3.         EARNINGS PER SHARE 

The calculation of the basic and diluted earnings per share is based on the following data:

 
                                                         Unaudited      Unaudited      Unaudited 
                                                        Six months     Six months           Year 
                                                             ended          ended          ended 
                                                      30 June 2021   30 June 2020    31 December 
                                                                                            2020 
                                                           GBP000s        GBP000s 
                                                                                         GBP000s 
        EARNINGS 
        Earnings for the purposes of 
         basic and diluted earnings per 
         share being net profit attributable 
         to owners of the Company                            6,633          4,279          9,682 
 
 
        Adjustments to earnings: 
          Amortisation of acquired fair 
           valued intangible assets                            728            675          1,332 
          Share-based payment charge                           431            488            742 
          Acquisition costs (note 6)                           488             17            853 
          Pay in lieu and non-compete compensation              45              -            232 
          Change in fair value of equity 
           investments                                           -            686            511 
          RDEC income (2017)                                     -          (527)          (527) 
          Grants in recognition of employment 
           creation in Serbia                                    -          (155)          (307) 
          Tax effect of adjusting items                      (101)           (34)           (41) 
 
        Adjusted earnings for the purposes 
         of basic and diluted earnings 
         per share                                           8,224          5,429         12,477 
 
 
                                                               No.            No.            No. 
        NUMBER OF SHARES 
        Weighted average number of shares 
         for the purposes of basic earnings 
         per share                                      48,910,834     48,050,454     48,323,814 
 
        Dilution effect of: 
          Share options                                  2,293,726      2,678,812      2,176,170 
 
        Weighted average number of shares 
         for the purposes of diluted earnings 
         per share                                      51,204,560     50,729,266     50,499,984 
 
 
   4.         FINANCE COSTS 
 
                                       Unaudited      Unaudited       Audited 
                                      Six months     Six months          Year 
                                           ended          ended         ended 
                                    30 June 2021   30 June 2020   31 December 
                                         GBP000s        GBP000s          2020 
                                                                      GBP000s 
 
        Operating lease interest             108            131           245 
        Other Interest payable               105            103           158 
 
                                             213            234           403 
 
 
   5.         OTHER OPERATING INCOME 
 
                                   Unaudited      Unaudited        Audited 
                                  Six months     Six months           Year 
                                       ended          ended          ended 
                                30 June 2021   30 June 2020    31 December 
                                     GBP000s        GBP000s           2020 
                                                                   GBP000s 
 
        Foreign grant income             298            147            574 
        RDEC income                      559            527          1,188 
        Other income                      69             30             77 
 
                                         926            704          1,839 
 
 
   6.         ACQUISITION COSTS 
 
                                                   Unaudited       Unaudited        Audited 
                                                  Six months      Six months           Year 
                                                       ended           ended          ended 
                                                30 June 2021    30 June 2020    31 December 
                                                                                       2020 
                                                     GBP000s         GBP000s        GBP000s 
 
  Acquisition of Ashfield Pharmacovigilance                -              17             14 
  Acquisition of MedSource                               327               -            825 
  Other acquisition costs                                161               -             14 
 
                                                         488              17            853 
 
 
   7.         EBITDA and Adjusted EBITDA 
 
                                                          Unaudited      Unaudited     Unaudited 
                                                         Six months     Six months          Year 
                                                              ended          ended         ended 
                                                       30 June 2021   30 June 2020   31 December 
                                                                                            2020 
                                                            GBP000s        GBP000s       GBP000s 
 
 
  Operating profit                                            8,526          6,879        13,534 
 
  Adjusted for: 
           Depreciation and amortisation 
            charges within Other selling, 
            general & administration expenses                 1,895          1,736         3,511 
           Amortisation of acquired fair 
            valued intangible assets                            728            675         1,332 
 
  EBITDA                                                     11,149          9,290        18,377 
 
  Adjusted for: 
           Share-based payment charge                           431            488           742 
           RDEC Income (2017)                                     -          (527)         (527) 
           Grants in recognition of employment 
            creation in Serbia                                    -          (155)         (307) 
           Acquisition costs (note 6)                           488             17           853 
           Pay in lieu and non-compete compensation              43              -           232 
 
  Adjusted EBITDA                                            12,111          9,113        19,370 
 
 

The Directors make certain adjustments to EBITDA to derive Adjusted EBITDA, which they consider are more reflective of the Group's underlying trading performance, enabling comparisons to be made with prior periods.

   8.         INCOME TAX EXPENSE 

Income tax expense is recognised at an amount determined by multiplying the profit before tax for the interim reporting period by management's best estimate of the weighted-average annual income tax rate, adjusted for the tax effect of certain items recognised in full in the interim period. As such, the effective tax rate in the interim financial statements may differ from management's estimate of the effective tax rate for the annual financial statements.

The Group's consolidated effective tax rate in respect of continuing operations for the six months ended 30 June 2021 was 20.2% (twelve months ended 31 December 2020: 23.3%).

   9.         GOODWILL 
 
           Reconciliation of carrying amount:              Total 
                                                         GBP000s 
 
           Balance at 30 June 2020                        17,895 
           Arising on business combinations                7,250 
           Translation movement                            (540) 
 
           Balance at 31 December 2020                    24,605 
 
           Fair value adjustment arising on business 
            combinations                                   1,520 
           Translation movement                            (479) 
 
           Balance at 30 June 2021                        25,646 
 
 
   10.       OTHER INTANGIBLE ASSETS 
 
                                                              Total 
                                                            GBP000s 
           Cost 
             At 1 July 2020                                  27,497 
             Acquisitions through business combinations       6,179 
             Additions                                          414 
             Translation movement                             (314) 
 
             At 31 December 2020                             33,776 
 
             Fair value adjustment arising on business 
              combinations                                    (586) 
             Additions                                           14 
             Disposals                                        (211) 
             Translation movement                             (190) 
 
             At 30 June 2021                                 32,803 
 
           Amortisation 
             At 1 July 2020                                  22,989 
             Charge for the year                              1,138 
             Translation movement                                31 
 
             At 31 December 2020                             24,158 
 
             Charge for the year                              1,024 
             Translation movement                              (62) 
 
             At 30 June 2021                                 25,120 
 
  Net Book Value 
 
             At 30 June 2021                                  7,683 
 
             At 31 December 2020                              9,618 
 
             At 30 June 2020                                  4,508 
 
 
   11.       TRADE AND OTHER RECEIVABLES 
 
                                                  Unaudited      Unaudited       Audited 
                                               30 June 2021   30 June 2020   31 December 
                                                    GBP000s        GBP000s          2020 
                                                                                 GBP000s 
 
        Trade receivables                            18,900         14,791        19,079 
        Other receivables                               834            901         1,241 
        Derivative asset - Foreign currency 
         forward contracts                               13              -             - 
        Prepayments                                   1,572          1,475         1,482 
        Corporation tax receivable                      647            251           422 
 
                                                     21,966         17,418        22,224 
 
 
   12.       CASH AND CASH EQUIVALENTS AND BORROWINGS 

On 23 March 2020, the Company drew down GBP15 million against its multi-currency revolving credit facility ("RCF") with HSBC. The drawdown was instructed as a precautionary response to the COVID-19 outbreak. The interest rate payable on this borrowing was LIBOR plus 2.1%. On 19 August 2020 the entire drawdown of GBP15 million was repaid. The full RCF of GBP15 million remains available to the Company, along with an accordion option to increase this borrowing by an additional GBP15 million.

 
                                            Unaudited      Unaudited       Audited 
                                         30 June 2021   30 June 2020   31 December 
                                              GBP000s        GBP000s          2020 
                                                                           GBP000s 
 
        Cash and cash equivalents              24,571         29,116        18,994 
 
        Borrowings                                  -       (15,000)             - 
 
        Cash and cash equivalents net 
         of borrowings                         24,571         14,116        18,994 
 
 
   13.       TRADE AND OTHER PAYABLES 
 
                                                 Unaudited      Unaudited       Audited 
                                              30 June 2021   30 June 2020   31 December 
                                                   GBP000s        GBP000s          2020 
                                                                                GBP000s 
 
        Trade payables                               3,435          2,224         4,197 
        Amounts payable to related parties              52            123            55 
        Social security and other taxes                859            732         1,112 
        Other payables                               1,451            596         1,295 
        Derivative liability - Foreign 
         currency forward contracts                     98              -             - 
        Customer advances                              247            490           408 
        Accruals                                     7,038          7,384         8,635 
 
                                                    13,180         11,549        15,702 
 
 
   14.       ORDINARY SHARE CAPITAL 
 
 
                                                                  Number     GBP000s 
 
        Ordinary shares of GBP0.01 each 
 
        Balance at 30 June 2020                               48,215,791         482 
 
           Exercise of share options                             503,735           5 
           Shares to be issued for non-cash consideration        155,558           2 
 
        Balance at 31 December 2020                           48,875,084         489 
 
           Exercise of share options                              80,155           1 
 
        Balance at 30 June 2021                               48,955,239         490 
 
 
   15.       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.

 
                                                  Book values    Fair value  Provisional 
                                                                adjustments    valuation 
                                                      GBP000s       GBP000s      GBP000s 
 
        Intangible assets                                 475         5,118        5,593 
        Property, plant and equipment                      89             -           89 
        Right-of-use assets                                 -           131          131 
 
        Total non-current assets                          564         5,249        5,813 
 
        Trade and other receivables                     3,062             -        3,062 
        Cash and 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)       (1,086)      (7,614) 
        Deferred tax liability                              -       (1,454)      (1,454) 
 
        Financial liabilities                         (8,876)       (2,671)     (11,547) 
 
        Total identifiable net assets                   (904)         2,578        1,674 
 
 
        Goodwill                                                                   8,769 
 
        Total consideration                                                       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: deferred consideration                                                  328 
        Transaction expenses                                                       1,152 
 
                                                                                   5,898 
 
 
 

The fair value of intangible assets relates to customer relationships of GBP4,317,000 and contracted order book of GBP1,276,000. The Group incurred acquisition related costs of GBP825,000 related to due diligence and legal activities in the year ended 31 December 2020 and GBP327,000 in the period to 30 June 2021. These costs have been included in acquisition costs within selling and administrative expenses in the Group's consolidated income statement.

In order to facilitate the full integration of all CRO activities under the Ergomed CRO brand and management, and fully realise the benefit of a wider CRO operational base in North America before the originally planned and anticipated earn-out and handover period at the end of 2021, the management of the Company and MedSource agreed a revised earn-out and settlement agreement after the period end on 23 July 2021. The revised earn-out and settlement agreement will give rise to final payments totalling $3.8 million in H2 2021, resulting in total expenditure of $17.9 million for the purchase of MedSource. Further details regarding management's assumption of the contingent consideration fair value at the reporting date are set out in note 16 - Financial Instruments.

The Company has a 12-month measurement period from the date of acquisition, and therefore the measurement period will end on 11 December 2021.

   16.       FINANCIAL INSTRUMENTS 

Categories of financial instruments

The following table shows the carrying amounts and fair values of financial assets and financial liabilities at the reporting date.

 
                                                              Carrying amount                        Fair value 
--------------------------------------  -----------------------------------------------------------  ---------- 
                                        Financial                               Financial 
                                           assets                             liabilities 
                                          at fair                                      at 
                                            value   Financial     Financial    fair value 
                                          through      assets   liabilities       through 
                                           profit          at            at        profit 
                                              and   amortised     amortised           and 
                                             loss        cost          cost          loss     Total       Total 
30 June 2021                              GBP000s     GBP000s       GBP000s       GBP000s   GBP000s     GBP000s 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Financial assets 
Equity investments                            nil           -             -             -       nil         nil 
Trade receivables                               -      18,900             -             -    18,900      18,900 
Accrued revenue (contract asset)                -       4,268             -             -     4,268       4,268 
Other receivables                               -         834             -             -       834         834 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Derivative asset - Foreign currency 
 forward contracts                             13           -             -             -        13          13 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Cash and cash equivalents                       -      24,571             -             -    24,571      24,571 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
                                               13      48,573             -             -    48,586      48,586 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Financial liabilities 
Lease liabilities                               -           -         3,767             -     3,767       3,767 
Trade payables                                  -           -         3,435             -     3,435       3,435 
Amounts payable to related parties              -           -            52             -        52          52 
Other payables                                  -           -         1,451             -     1,451       1,451 
Derivative liability - Foreign 
 currency forward contracts                     -           -             -            98        98          98 
Customer advances                               -           -           247             -       247         247 
Contingent and deferred consideration           -           -             -           nil       nil         nil 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Accruals                                        -           -         7,038             -     7,038       7,038 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
                                                -           -        15,990            98    16,088      16,088 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
 
 
                                                              Carrying amount                        Fair value 
--------------------------------------  -----------------------------------------------------------  ---------- 
                                        Financial                               Financial 
                                           assets                             liabilities 
                                          at fair                                      at 
                                            value   Financial     Financial    fair value 
                                          through      assets   liabilities       through 
                                           profit          at            at        profit 
                                              and   amortised     amortised           and 
                                             loss        cost          cost          loss     Total       Total 
30 June 2020                              GBP000s     GBP000s       GBP000s       GBP000s   GBP000s     GBP000s 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Financial assets 
Equity investments                            nil           -             -             -       nil         nil 
Trade receivables                               -      14,791             -             -    14,791      14,791 
Accrued revenue (contract 
 asset)                                         -       4,957             -             -     4,957       4,957 
Other receivables                               -         901             -             -       901         901 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Cash and cash equivalents                       -      29,116             -             -    29,116      29,116 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
                                                -      49,765             -             -    49,765      49,765 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Financial liabilities 
Borrowings                                      -           -        15,000             -    15,000      15,000 
Lease liabilities                               -           -         6,015             -     6,015       6,015 
Trade payables                                  -           -         2,224             -     2,224       2,224 
Amounts payable to related 
 parties                                        -           -           123             -       123         123 
Other payables                                  -           -           596             -       596         596 
Customer advances                               -           -           490             -       490         490 
Contingent and deferred consideration           -           -             -             -         -           - 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Accruals                                        -           -         7,384             -     7,384       7,384 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
                                                -           -        31,832             -    31,832      31,832 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
 
 
                                                              Carrying amount                        Fair value 
--------------------------------------  -----------------------------------------------------------  ---------- 
                                        Financial                               Financial 
                                           assets                             liabilities 
                                          at fair                                      at 
                                            value   Financial     Financial    fair value 
                                          through      assets   liabilities       through 
                                           profit          at            at        profit 
                                              and   amortised     amortised           and 
                                             loss        cost          cost          loss     Total       Total 
31 December 2020                          GBP000s     GBP000s       GBP000s       GBP000s   GBP000s     GBP000s 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Financial assets 
Equity investments                            nil           -             -             -       nil         nil 
Trade receivables                               -      19,079             -             -    19,079      19,079 
Accrued revenue (contract 
 asset)                                         -       5,553             -             -     5,553       5,553 
Other receivables                               -       1,241             -             -     1,241       1,241 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Cash and cash equivalents                       -      18,994             -             -    18,994      18,994 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
                                                -      44,867             -             -    44,867      44,867 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Financial liabilities 
Lease liabilities                               -           -         5,106             -     5,106       5,106 
Trade payables                                  -           -         4,197             -     4,197       4,197 
Amounts payable to related 
 parties                                        -           -            55             -        55          55 
Other payables                                  -           -         1,295             -     1,295       1,295 
Customer advances                               -           -           408             -       408         408 
Contingent and deferred consideration           -           -             -           328       328         328 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
Accruals                                        -           -         8,635             -     8,635       8,635 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
                                                -           -        19,696           328    20,024      20,024 
--------------------------------------  ---------  ----------  ------------  ------------  --------  ---------- 
 

Financial instruments measured at fair value

The financial instruments measured at fair value have been categorised within the fair value hierarchy based on the valuation technique used to determine fair value at the reporting date.

 
                                         30 June                31 December 
                                            2021  30 June 2020         2020 
                                         GBP000s       GBP000s      GBP000s 
--------------------------------------  --------  ------------  ----------- 
Financial assets 
Equity investments - Level 1                   -           nil            - 
Equity investments - Level 3                 nil           nil          nil 
Foreign currency forward contracts 
 used for hedging - Level 2                   13             -            - 
--------------------------------------  --------  ------------  ----------- 
Financial assets measured at fair 
 value                                        13             -            - 
--------------------------------------  --------  ------------  ----------- 
Financial liabilities                          -             -            - 
Foreign currency forward contracts 
 used for hedging - Level 2                   98             -            - 
Deferred and contingent consideration 
 - Level 3                                   nil             -          328 
--------------------------------------  --------  ------------  ----------- 
Financial liabilities measured at 
 fair value                                   98             -          328 
--------------------------------------  --------  ------------  ----------- 
 

Deferred and contingent consideration (Level 3)

Deferred and contingent consideration is measured using a discounted cash flow approach, utilising management's forecasts to estimate the likely pay out and discounting these using a risk-adjusted weighted average cost of capital, both of which are significant unobservable inputs. The contingent consideration payable in respect of MS Clinical Services, LLC. and its subsidiaries ('MedSource') is categorised as level 3 within the fair value hierarchy. The fair value of contingent consideration and has been assessed at GBPnil as no conditions, including the subsequent agreement of a revised earn-out and settlement agreement, existed at the reporting date. The deferred consideration for MedSource at 31 December 2020 of GBP328,000 is categorised as level 3 within the fair value hierarchy and is due upon the verification of the net assets acquired by the Group at the acquisition date and was settled in cash during in H1 2021.

Foreign currency forward contracts (Level 2)

The Group's foreign currency forward contracts are not traded in active markets. These contracts have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant for foreign currency forward contracts.

Equity investments (Level 1 and 3)

Equity investments which are publicly quoted are measured based on the quoted market price. Unlisted equity investments are measured based on the market price of recent share issuances or, where not available, management's best estimate of the realisable value of those investments. The level 1 investment held as at 30 June 2020 related to Asarina Pharma AB and was disposed of in H2 2020 for proceeds (net of sale costs) of GBP175,000. The level 3 investment in Modus Therapeutics Holding AB at the reporting date had a GBPnil fair value, representing management's best estimate of the realisable value of the investment. The Modus investment was fully impaired during prior financial periods after the results of the most recently completed clinical trials were published.

Valuation techniques and significant unobservable inputs

The significant input for the fair value estimate is management's estimate of the probability that the contract's target level will be achieved. The following table provides information about the sensitivity of the fair value measurement to changes in that input:

 
Description               Significant           Estimate  Sensitivity of the fair value 
                           Unobservable input    of the    measurement to input 
                                                 input 
------------------------  --------------------  --------  ------------------------------------ 
Contingent consideration  Probability of        0%        An increase in the acquisition 
                           meeting earn-out                Adjusted EBITDA forecast of 
                           targets                         >12% for FY 2021 would result 
                                                           in earn-out consideration payments. 
Equity investments        Probability of        0%        The sensitivity is binary; 
 - Modus (Level            Modus securing                  either additional funds can 
 3)                        additional funding              be secured or not. Securing 
                           for clinical trials             additional funding may not 
                                                           necessarily result in an increase 
                                                           in the fair value. 
------------------------  --------------------  --------  ------------------------------------ 
 

Given the nature and term of the deferred consideration balance as at the reporting date and 31 December 2020, the sensitivity of the fair value to possible increases in the significant unobservable inputs for the period were immaterial.

There are no major interrelationships between the significant input (management's estimate of the probability that the contract's target level will be achieved) and the unobservable inputs.

Reconciliation of Level 3 fair values

The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.

 
                                                             Deferred 
                                                       and contingent        Equity 
                                                        consideration   investments 
                                                              GBP000s       GBP000s 
----------------------------------------------------  ---------------  ------------ 
At 30 June 2020                                                     -           nil 
Fair value of deferred and contingent consideration 
 arising on business combinations                               (328)             - 
At 30 December 2020                                             (328)           nil 
Cash settled in the period                                        318             - 
Translation movement                                               10             - 
----------------------------------------------------  ---------------  ------------ 
At 30 June 2021                                                   nil           nil 
----------------------------------------------------  ---------------  ------------ 
 

Interest rate benchmark reform

A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as 'IBOR reform'). The Group has a limited exposure to IBORs in its existing financial instruments which will be reformed as part of these market-wide initiatives.

The Group's main financial instrument IBOR exposure at the reporting date is its borrowing facility (revolving credit and accordion facility) with HSBC. This facility was undrawn at the reporting date.

The potential IBOR exposure of the Group is dependent upon the currency in which the borrowing is drawdown. At 30 June 2020 the GBP15 million borrowing was in GBP and therefore, the exposure was to sterling LIBOR. The alternative reference rate for sterling LIBOR is the Sterling Overnight Index Average (SONIA).

On 5 March 2021, the Financial Conduct Authority announced that panel bank submissions for all LIBOR settings will cease as at 31 December 2021, after which representative LIBOR rates will no longer be available. The Group plans to finish the process of amending contractual terms in respect of its facility with HSBC by the end of 2021.

The Group anticipates that the IBOR reform will not have a significant financial or operational impact on the business.

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September 28, 2021 02:00 ET (06:00 GMT)

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