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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IR BDLLLFKLEBBE
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