Results for the year ended 31 December 2018

RNS Number : 6898V
Plant Health Care PLC
10 April 2019
 

Plant Health Care plc

Results for the year ended 31 December 2018

 

Plant Health Care® (AIM: PHC), a leading provider of novel patent-protected biological products to the global agriculture markets, announces its preliminary results for the full year ended 31 December 2018.

 

Highlights

Operational

•     Harpin αß was launched into sugarcane in Brazil in February 2018, which is a 10 million hectares opportunity. Over 20,000 hectares treated so far, a promising start.

•     Harpin αß was launched into US corn in September 2018, which is a 90 million acre market. First use in the field will be in the second quarter of 2019.

•     The Company won the global award of Best New Biological Product for work on citrus in Spain.

•     Nine companies, including all five of the top global agrochemical/seed companies, tested peptides from our PREtec platforms during 2018.

•     PREtec product pipeline defined, targeting $5 billion market opportunities.

•     Regulatory submission to EPA for first PREtec peptide made in August 2018.

•     Substantial progress made in developing cost-effective production of PREtec peptides.

•     New strategy for commercialisation of PREtec: both technology licensing and direct sales to distributors.

Financial

•     Revenue from commercial products in 2018 increased by 5% to $8.1 million (2017: $7.7 million); Strong external sales growth in the Americas (up 105%) was offset by weaker sales in Rest of World due to slower draw-down of inventory.

•     Sales of core Harpin αß products increased by 10% (8% in constant currency*), driven by broadly based growth in many countries. Harpin αß and Myconate® products represented 68% of sales in 2018 (2017: 69%).

•     Gross Margin increased to 65% (2017: 62%).

•     Adjusted LBITDA** reduced to $5.4 million (2017: $5.5 million)

•     Cash, cash equivalents and investments at 31 December 2018 were $4.3 million (2017: $3.9 million).

•     On 27 February 2018, the Group successfully raised $6.7 million (net of costs) which was well supported by existing shareholders and brought in a number of new institutional investors.

*: constant currency is defined below.

**: Adjusted LBITDA: Loss before Interest, tax, depreciation, amortisation, share based payments and intercompany foreign exchange

 

Chris Richards, Executive Chairman & Interim CEO, comments:

"Plant Health Care continued to make good progress in 2018, under challenging conditions.

 

The launch of our new corn product in the US holds great promise for future sales growth.  With the expected level of grower sales in 2019, we anticipate strong sales growth thereafter. Sales of our new soy product, which we had expected our channel partner to launch before the end of 2018, have now started on a modest scale, as our partner introduces the product to the market.  We expect sales to be comparable to the corn product, over time.

 

Our Commercial team in Brazil has got off to an impressive start.  The launch of H2Copla into sugarcane with our partner Coplacana has gone well, with over 20,000 hectares treated to date.  With growers reporting yield increases of up to 20% and an ROI of up to 20 times, we have strong expectations for growth in 2019 and progress towards our target of 500,000 Ha treated in four to five years' time.  The launch of Harpin αβ as a soy seed treatment in Brazil holds out the prospect of sales comparable to those in sugarcane.

 

While 2018 trials of Innatus 3G in Brazil did not show commercially useful levels of disease control, they did show significant improvement in yield.  A total of nine companies tested PREtec peptides in 2018, including all of the five major agrochemical/seed companies.  We are now planning to commercialise these peptides both through technology licensing and through direct sales to distributors.

 

Within the Company, we have made strong progress in production methods, which gives us great confidence in our ability to produce PREtec peptides at low cost.  At the same time, the submission for registration by the EPA in the US holds out the prospect of fast track registration as early as 2020, with registration in Brazil following later.

 

The Company's cash reserves remain sufficient to take us to cash positive in 2020."

Inside information

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.

For further information, please contact:

Plant Health Care plc

Christopher Richards, Executive Chairman & Interim Chief Executive Officer                     Tel: +1 919 926 1600

 

Arden Partners plc (Nomad and Broker)

John Llewellyn-Lloyd / Dan Gee-Summons (Corporate Finance)

Fraser Marshall (Equity Sales)

            Tel: +44 (0) 20 7614 5900

 

 

 

Company website: www.planthealthcare.com

 

 

 

Chairman's letter

Overview

Plant Health Care® is a leading provider of proprietary agricultural biological products and technology solutions focused on improving crop performance.

The Group made further good progress in 2018 in both our commercial operations and continued development of our new technology. In the Commercial business, the launches of Harpin αß in US corn and in Brazilian sugarcane during 2018 are confidently expected to substantially accelerate revenue growth in 2019 and beyond. In New Technology, we are transforming the PREtec peptide platforms into a rich product development pipeline with fast track to launches as early as 2021, reaching growers both through technology licences and through direct sales to distributors.

Commercially, sales growth was 5%, as increased sales in the US and Brazil were offset by materially reduced sales in South Africa. Gross Margin improved to 65%, as Harpin αß rose to 66% of sales; Harpin αß has now grown at 20% CAGR (Compound Annual Growth Rate) since we re-launched the business in 2013. Increasing numbers of growers are discovering the benefits of Harpin αß, as a biological product which delivers exceptional additional yield with favourable environmental profile.

In New Technology, nine companies, including the top five global agrochemical/seed companies conducted PREtec field trials during 2018. Peptide evaluation in greenhouse and field trials has now enabled us to define specific products for target markets; these markets have a total value in excess of $5 billion. Submissions have been made to the EPA, the relevant regulatory department in the USA, which are expected to result in first product registrations during 2020. We have advanced production methods for our lead peptides, which will provide cost-effective products in time for launches in 2021 and beyond. To accelerate market entry, we are now developing plans to enter markets not only through technology licensing but also for direct sales to distribution partners in key markets; this new approach to commercialisation is expected to bring PREtec peptide products to market more rapidly and enhance the Group's margins.

The Group successfully completed an equity raise in February 2018, raising $6.7 million (net of costs). We are confident that our cash reserves and income from our commercial sales are sufficient to take the Group to cash positive, no later than the end of 2020.

We report here separately on the two areas of focus for the business: Commercial and New Technology. We are organised in these two lines of business and report our Commercial business in three geographic segments - Americas, Mexico and Rest of World. We report our New Technology business in a single segment.

Commercial

Our Commercial business sells our proprietary products worldwide through distributors and also distributes complementary third-party products in Mexico.

Overall sales in 2018 were $8.1 million, an increase of 5% in both actual and constant currency* over 2017 ($7.7 million). Strong sales growth in the USA (up 31% to $2.1 million), Brazil ($1.1 million from nil in 2017), Spain (up 16%) and Mexico (up 9%) was offset by reduced sales in Europe/Africa (down 46%), due to slower draw-down of in-market inventory in South Africa.

Sales of core Harpin αß products increased by 10% (8% in constant currency). Harpin αß and Myconate® products represented 68% of sales in 2018 (2017: 69%). Harpin αß sales have now grown at 20% CAGR since 2013.

Sales in Brazil reached $1.1 million (nil in 2017). The launch in March 2018 of H2Copla, the exclusive brand of our distributor Coplacana into the 10 million hectare sugarcane market in Brazil was well received, boosted by trials which showed an ROI (Return on Investment) for growers of up to 20 times. Sales into sugarcane during the year were $1.0 million. In October, Harpin αß was launched as a seed treatment in soy, with initial sales ex Plant Health Care of $0.1 million. We anticipate rapid sales growth in both markets during 2019.

In the USA, Harpin αß was launched into the 35 million hectare corn market in 4Q 2018, through a very strong distribution partner. Trials have shown an illustrative ROI of 7 times or more to growers and the launch was well received with further demand anticipated in 2019. The Group sold $1.6 million in 2018, which is expected to be consumed in the spring of 2019. Total sales for Harpin αß in the USA reached $2.1 million (2017: $1.6 million).

Sales in Mexico grew 9% to $3.1 million (10% in constant currency), recovering from the effects of drought in 2017. In Spain, the Group's work on the use of Harpin αß to improve the quality of citrus was recognised by the prestigious global Agrow award for Best New Biological Product. Sales in Spain increased by 16% to $0.6 million (2017: $0.5 million). In South Africa, in-market sales in the 2017/18 season did not reach ambitious targets and the 2018 early season was also hit by severe drought; as a result, the Group had lower sales. This resulted in sales being down by 46% in the UK/Africa region, to $1.7 million.

New Technology

New Technology is focused on novel proprietary biological solutions using the Group's PREtec science and technology capabilities (PREtec stands for Plant Response Elicitor technology). PREtec is a novel, environmentally friendly approach to protecting crops, based on peptides derived from natural proteins. These proprietary peptides are stable and compatible with mainstream agriculture practices such as seed treatment and foliar sprays. By activating the innate growth and defence mechanisms of plants, PREtec peptides lead to higher crop yields and better protection against disease and environmental stresses such as drought.

PREtec generates the possibility of many peptide product candidates across several platforms; we have so far characterised and presented to our partners peptides from three related families of peptides, each of which is a platform for product development: Innatus™ 3G, T-Rex 3G and Y-Max 3G. A fourth platform has also been characterised.

The Group believes PREtec has substantial potential to support farmers to increase yields and productivity. Our vision is for growers to apply a PREtec peptide on every hectare or acre of agricultural land in combination with conventional agricultural products to improve their performance, reduce their environmental impact, reduce the development of disease resistance to chemical pesticides, and increase yields.

In 2017, the Group initiated field trials of PREtec peptides for the control of Asian Soybean Rust (ASR) in Brazil, together with partners. While earlier results had given promising results for ASR control, the trials in the 2017/18 crop did not show results sufficient to convince partners to move to license PREtec for soy in 2018. However, low doses of PREtec peptides did show significant yield increases and work continues on this target crop in the 2018/19 season, with encouraging early results.

During 2018, the Group conducted a full review of the potential product pipeline emerging from PREtec and of the routes to market for those products. The Group expects to launch the first products from PREtec as early as 2021.

The target markets for our current pipeline of PREtec peptides include corn and soy (yield increase through seed treatment), control of Asian Soybean Rust (ASR) and other diseases, sugarcane (yield and disease), enhanced plant nutrition, and nematode control in fruit and vegetable crops; most of the larger target markets are in North and South America. These markets are very large for both disease control and yield enhancement products. The Group's product pipeline will be addressing markets worth in excess of $5 billion. The increasing presence and relationships we have in both the USA and Brazil with Harpin αß gives us a great advantage in these markets for new PREtec products.

For each of these target markets, we have identified a lead peptide and a back-up. The Group has made submissions for product regulatory approval in the USA, which are anticipated to result in first registration during 2020. Registration in Brazil will follow.

Strong progress has been made in developing efficient production methods for PREtec peptides. During 2018, the target production efficiency for PHC398 was comfortably achieved. Work on production methodology for other peptides is also promising. This gives the Group confidence that PREtec peptides will be cost-effective in the field and provide a competitive advantage. Preliminary estimates suggest margins could be comparable to those which the Group currently enjoys with Harpin αß.

Work continues with evaluation partners to develop both technical profiles and routes to commercialisation. The Group expects to access the market through technology licences for several products. However, following the review of commercialisation strategy and recognising the growing strength of the Group's commercial relationship with distributors, some of the products are now expected to be commercialised directly with in-country distribution. We believe that this sales route will take products to market more rapidly and result in higher margins being retained by the Group.

What is PREtec?

PREtec works by inducing natural defensive and metabolic responses in crop plants so that they suffer less harm from the usual stresses (like nematodes or disease) faced during a growing season. This is achieved by designing peptides that mimic the active sites of larger naturally-occurring proteins to which plants are evolved to respond defensively. These peptides are generally accepted as being safe to handle and having negligible toxicity. They do not leave any detectible residue and rapidly degrade so that they do not persist on the plant after application. For these reasons, PREtec peptides should be generally easier, cheaper and quicker to register for commercial use than most other agricultural chemicals.

Intellectual Property Protection of PREtec

Novel variations in peptide structures and their use in agriculture are patentable. It is possible to design a very large number of closely related peptide variants. Our first proprietary peptide platform, Innatus 3G, was introduced to partners in 2014-15. In 2016, we presented the next two platforms - T-Rex 3G and Y-Max 3G each of which has biological activity which is distinct from but complements Innatus 3G. We continue to design peptides which will be evaluated and launched in due course.

Plant Health Care has an extensive global portfolio consisting of more than 40 patent applications pending worldwide which cover the various PREtec platforms and their use in agricultural applications. The patent applications also include the genes that code for those peptides in order to, for example, create crops having increased innate defensive responses to disease. The Group's IP estate covers a significant share of the 'space' available for using peptides in agricultural production.

Financial and corporate

Net cash used in operations was $6.3 million (2017: $6.1 million). Included in the cash used in operations is an increase in the Group's inventory offset by lower accounts receivable and accounts payable balances. The delay in the launch of the soy product caused the Group's inventory to be $0.6 million higher than expected.  The Group anticipates that this inventory will be consumed in the second half of 2019.

 

Constant currency

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-IFRS measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results.

Board changes

I have had the honour to act as Interim Chief Executive Officer, as well as Executive Chairman, since November 2016. The Board reviews these arrangements regularly and has requested that I continue as Interim CEO for the time being. The Board will review the situation periodically and may initiate a search for a new CEO in due course.

Dr Richard Webb stepped down from his role as Executive Director for New Technology at the end of 2018. From that date, he resumed his earlier role as Non-executive Director.

Outlook

Agriculture markets are generally stable at present. Demand for agrochemicals is unlikely to grow significantly until commodity prices increase. However, growers are increasingly adopting biological products, because of their potential to improve productivity while reducing environmental impact. Based on various reports, we expect growth in the demand for biological products to increase at approximately 10% per annum from 2018 to 2020. We are confident that Harpin αß sales will continue to grow significantly faster than the market for biological products as a whole over the medium term. However, sales in any one period will be subject to seasonal factors such as weather, timing of registrations and requirements of distributor partners. Furthermore, we sell our products into our distributors in advance of the growing season with the next year's demand in large part driven by the conditions during that season. As a result, Group sales may not follow a strictly linear trend and in some cases can see short delays which can switch sales in some markets from one calendar year to the next.

We are confident of strong revenue growth in 2019, based on the successful launches of Harpin αß in sugarcane and soy in Brazil and in US corn. In addition, we are launching a product for soy seed treatment in the USA in 2019, through the same distribution partner which launched the corn product in 2018. The combination of these product launches, on top of growth in existing markets, is in our view likely to accelerate our revenue growth over the coming years.

In PREtec we are focusing on accelerating product development, with a view to launching products from 2021 onwards. We expect to generate revenue in the coming years through both technology licensing and direct sales approaches.

Plant Health Care has a clearly defined strategy, which we are implementing effectively. 2019 will be a decisive year for the Group, which we enter with confidence.

In closing, I would like to thank the entire Plant Health Care team for all their hard work during the year. Strong results come from great people, working towards shared goals. As Interim CEO, I am proud of the Group's impressive team of highly motivated professionals, in whom I have the greatest confidence.

 

Our products and technologies

 

Harpin αß

Harpin αß is an exceptionally powerful biostimulant, which stimulates the plant's natural defence systems. The result is increased yield, quality and improved resistance to soil pests and disease. Harpin αß is a recombinant protein, developed from the original research by the Company's Chief Science Officer Dr Zhongmin Wei on naturally occurring Harpin proteins.

Sales of Harpin αß have grown at 20% CAGR over the six years to 2018, since we adopted a strategy of expanding registrations and developing distribution through new partners. We are now able to sell Harpin αß in more than 14 countries. Sales were developed initially in a range of fruit and vegetable crops in the USA, Mexico, Europe and Africa. The focus over the last three years has been to enter into larger scale arable or row crops (such as corn, soy and sugarcane), which provide much larger sales opportunities.

In Mexico, Harpin αß is now well-established as a biostimulant for vegetables such as bell peppers, which are grown in greenhouses for export to the USA. The Company is a significant player in the application of Harpin αß in the bell pepper market in the Sinaloa/Baja California area of Mexico, delivering increased yield of higher quality product. The Group now sells in excess of $0.5 million of Harpin αß in Mexico.

In Spain, the Group has been developing Harpin ß to improve the quality of citrus fruits over the last five years. Studies in co-operation with Barcelona University have shown that applications of Harpin αß result in more uniform skin formation and colour. The practical result is that growers have a higher proportion of their fruit which grades as export quality, thereby increasing their economic returns. This work was recognised in November 2018 in the prestigious Agrow Awards, which evaluates agricultural inputs from all around the world; the Company was awarded Best New Biological Product. The Group now makes sales of $0.6 million in Spain.

After four years of trials, the Group launched Harpin αß into sugarcane in Brazil in February 2018. There are 10 million hectares of sugarcane in Brazil, of which more than 50% are in Sao Paulo State. Demonstration trials have shown very substantial yield improvements, with average yield increase up to 20%, from a single foliar application of Harpin αß. The product was launched under the brand H2Copla, exclusively in Sao Paulo state by Coplacana, the leading sugarcane co-operative, which services more than 70% of the sugarcane hectares in Sao Paulo State. The launch was very well received; the Group sold approximately $1.0 million into this market in 2018.

Also in Brazil, the Group is developing sales into soy, which is grown on 35 million hectares. Harpin αß is applied as a seed treatment in soy and results in increased yields. Initial sales were made in the fourth quarter of 2018, through GAIA, a strong distributor in the Mato Grosso.

After several years of trials, the Group launched Harpin αß into corn in September 2018. In this case, Harpin αß is sold as a mixture product for on-farm seed treatment. The product is being sold by a leading distributor of inputs to corn growers, which supplies products into the 90 million acre US corn market. The Group sold $1.6 million for this launch in 2018; this product will be used on farm during the spring of 2019.

The Group is now launching Harpin αß into soy, through the same distributor in the USA. The product was introduced into the market on a small scale (a soft launch) in early 2019; if results are promising, the product is expected to be sold on a larger scale in the latter part of 2019.

Benefits of Harpin αß in Brazil

•     There are 10 million hectares of sugarcane in Brazil*

•     There are 5 million hectares of sugarcane in Sao Paulo State

•     Coplacana, our distributor, is the largest supplier of inputs for sugarcane in Sao Paulo state

•     Applications of H2Copla (Harpin αß) have been shown to increase sugarcane yield by as much as 20% resulting in a possible 20 times return for the grower**

•     Coplacana launched the H2Copla brand in February 2018.

*     Based on 2016 sugarcane harvested data and 2017/2018 projected data from USDA Foreign Agricultural Service's GAIN report dated 19 April, 2017.

**    Yield increase based on Plant Health Care field trials conducted on sugarcane in Brazil in 2017; Value and ROI based on cost data from Agrianual 2016 FNP - Informa report.

PREtec

PREtec (Plant Response Elicitor technology) is our core new technology, inspired by harpin proteins found in nature. Based on our unique understanding of how key amino acid sequences elicit a desired response in target crops, we are able to design families of peptides (chains of amino acids) that when applied to crops provide increased growth, disease resistance and other benefits for farmers. We have so far designed and filed patent applications for four peptide platforms from our research; three of these have been named and launched with partners. Each family of related peptides is considered its own platform, all covered by extensive patent filings. In the chart below, 3G signifies third generation product candidates (distinct from the second generation commercial Harpin αß products). In addition, we have a fourth generation (4G) platform, consisting of the use of custom genes within plants and microbes to express the desired PREtec protein.

PREtec: three patented platforms

Since 2012, the Group has conducted extensive laboratory, greenhouse and field trials in our own facilities, with co-operators and with more than 10 evaluation partners. These trials have demonstrated the potential of our lead PREtec peptides in a wide range of crops to deliver targeted agronomic benefits, such as stronger root growth, resistance to attack by fungi and soil pests (nematodes) and improved recovery from the effects of drought. In parallel, we are well advanced in development of production methods, which hold out the promise of PREtec peptides being cost-effective in the field. In August 2018, the Group submitted an application for registration with the EPA in the USA for approval to sell PHC398 as a biopesticide and expect to receive approval during 2020; registration of other peptides in the USA will follow, permitting the first launches of PREtec peptides in 2021. Registrations in Brazil will follow.

Within each 3G platform, we are able to modify the peptide sequence in order to customise the performance of peptides in various ways. For example, to make them better at inducing resistance to pests and diseases in plants, to improve the tolerance of plants to drought or to accelerate root growth. Furthermore, we can optimise the physical and chemical stability of peptides, so that they are stable in mixtures with agrochemicals. Our 3G peptides are designed to be combined with standard crop protection products through both seed treatment and foliar applications.

PREtec: Moving from platforms to products

Innatus 3G was our first platform. It delivers a range of disease and yield benefits to growers and has amassed the most comprehensive database of compelling crop use-cases in the Group's testing and in tests conducted by partners. It has been under evaluation with four of the top global agricultural/seed companies.

T-Rex 3G is a platform developed to protect crop plants against pest nematodes. It also shows good effects in limiting the loss of yield caused by drought stress. Y-Max 3G behaves as a biostimulant, promoting vigour and yield by regulating growth genes in the plant. As a biostimulant, Y-Max 3G has the potential to be registered very quickly in the USA on a state-by-state basis and will appeal to that segment of the industry focusing on the development and marketing of crop biostimulants. T-Rex 3G and Y-Max 3G were introduced to selected partners in the latter part of 2016.

Our fourth platform of 3G peptides offers a tool for improved resistance to drought, a major and increasing challenge for farmers in many parts of the world. This platform, which has not yet been named, is now being introduced to partners.

We are in the early stages of development of our 4G peptide platform. This platform entails the incorporation of genetic sequences in the plant enabling it to express peptides internally, thereby gaining the benefits of improved disease control and abiotic stress tolerance without the need to apply PREtec to the surface of the plant.

In New Technology, nine companies, including the top five global agrochemical/seed companies, conducted PREtec field trials during 2018. For some of these companies, 2018 was their third or even fourth year of PREtec field trials. Further testing by partners will continue in 2019. The Group expects to engage in detailed discussions with some of these companies in late 2019 and 2020 concerning commercial terms of access to select PREtec peptides for use in key crops and geographies. These discussions are expected to lead to one or more significant commercial transactions in due course. However, given the uncertain timing of concluding licences, the Group is actively seeking additional routes to market, with a view to launching products soon after first registrations are granted. These additional routes will include direct sales to distributors in the USA and Brazil. Relationships which we have established with large distributors for the sale of Harpin ß are developing in a very positive manner; these and other partners are highly interested in commercialising PREtec peptides. We anticipate that sales into certain markets through large distributors will allow us to launch products more quickly and to retain higher margins within the Group. We anticipate that a series of commercial collaborations will be finalised in due course, which will target launches of products from 2021 onwards.

Our laboratory, glasshouse and field trials, and a number of other trials run for us by university groups and other specialists, have continued to demonstrate that PREtec peptides from the Innatus 3G, T-Rex 3G and Y-Max 3G families can deliver targeted agronomic benefits, such as stronger root growth, resistance to attack by fungi and soil pests (nematodes), and improved recovery from the effects of drought. All of these benefits lead to increased crop yield and quality which translates directly into higher financial return for growers.

Financial review

A summary of the financial results for the year ended 31 December 2018 with comparatives for the previous financial year is set out below:

 

2018

$'000

2017

$'000

Revenue

8,128

7,685

Gross profit

5,271

4,732

 

65%

62%

Operating loss

(8,033)

(5,801)

Finance income (net)

89

85

Net loss for the year

(7,944)

(5,716)

Revenues

Revenues in 2018 increased by 5% to $8.1 million (2017: $7.7 million) as a result of strong growth in our Americas segment. The gross margin increased 3% to 65% (2017: 62%) due to level of margins achieved on strong sales in North America.

Americas

This segment includes activities in both North and South America but is exclusive of Mexico.

External revenue in the Americas segment increased 105% to $3.3 million (2017: $1.6 million). The increase in revenue was primarily due to increased sales of Harpin αß in corn in North America and sugarcane in South America. The initial launch of our soy product in North America was delayed, but sales have started on a modest scale in early 2019. Revenue in the Americas is predominantly from Harpin αß sales.

Mexico

A significant portion of the Group's revenue continues to come from Mexico. Revenue from the Mexican segment increased 9% (10% in local currency) to $3.1 million (2017: $2.9 million). This was due to the rebound of produce prices in the north-west portion of Mexico. Revenue in Mexico includes sales of Harpin αß, Myconate and third-party products.

Rest of World

External revenue in the Rest of World segment decreased 46% (48% in constant currency) to $1.7 million (2017: $3.2 million). The decrease was primarily due to slower draw-down of in-market inventory in the South African region partially offset by a sales increase of 16% in Spain. Revenue in the Rest of World segment is predominantly from Harpin αß and some Myconate sales.

Operating expenses

Operating expenses increased to $13.3 million from $10.5 million. The increase was principally due to a non-cash expense in relation to Sterling loans within our UK subsidiary resulting in a foreign currency loss of $1.2 million (2017: foreign currency gain of $1.3 million).  The foreign currency loss was charged to Administration expenses. During 2018, the Group agreed to transfer stock from our original distributor to a new distributor in South Africa in order to strengthen its sales position in this region. The transfer of stock has been accounted for by the Group recording a sale of $0.6 million to the new distributor and a write-off of receivables with the original distributor of $0.6 million. 

 

In addition, we have set out in Note 6 the separate category of expenditure relating to Business Development, which decreased to $0.5 million in 2018 (2017: $0.6 million). This relates to reduced personnel costs and other costs relating to customer support and market research.

Unallocated corporate expenses increased $3.2 million to $2.9 million (2017: $0.3 million gain). The increase was attributable to the decrease in the value of Sterling loans from our UK subsidiary due to the appreciation of the Pound.

Balance sheet

At 31 December 2018 and 2017, investments, cash and cash equivalents were $4.3 million and $3.9 million respectively.

Working capital increased to $8.6 million in 2018 (2017: $7.2 million). The increase is primarily due to increased inventory of $1.4 million. Other contributors to the working capital increase was lower accounts receivable and accounts payable balances. The Group made significant Harpin αß and other inventory purchases ($1.0 million) in the second half of 2018. The Group expects this inventory to be consumed in the first half of 2019. The launch of a new product for the soy crop in the USA was delayed, with its associated revenues, until 2019. This delay caused our inventory levels to be $0.6 million higher than anticipated. The Group expects the inventory for the soy product to be used during 2019.

Translation of the results of foreign subsidiaries for inclusion within the consolidated Group results resulted in an exchange gain of $1.1 million recorded within Other Comprehensive Income and Foreign Exchange Reserves (2017: loss of $1.3 million).

Cash flow and liquidity

Net cash used in operations was $6.3 million (2017: $6.1 million). Included in the cash used in operations is an increase in the Group's inventory offset by lower accounts receivable and accounts payable balances. The delay in the launch of the soy product caused the Group's inventory to be $0.6 million higher than expected. The Group anticipates that this inventory will be consumed in the second half of 2019.

Net cash provided by investing was $0.9 million in 2018 (2017: $2.6 million). The Group holds surplus cash in several bond and money market funds. The movement in these funds was used to further invest in the New Technology business and fund the Commercial business.

Net cash provided by financing activities was $6.7 million for 2018 (2017: $nil). The difference is due to a $6.7 million (net of costs) fundraise concluded in February 2018 from new and existing investors.

 

Consolidated statement of comprehensive income

for the year ended 31 December 2018

 

Note

2018

$'000

2017

$'000

Revenue

4

8,128

7,685

Cost of sales

 

(2,857)

(2,953)

Gross profit

 

5,271

4,732

Research and development expenses

 

(4,090)

(5,127)

Business development expenses

 

(501)

(623)

Sales and marketing expenses

 

(3,154)

(2,995)

Administrative expenses

 

(5,559)

(1,788)

Operating loss

5

(8,033)

(5,801)

Finance income

7

90

87

Finance expense

7

(1)

(2)

Loss before tax

 

(7,944)

(5,716)

Income tax credit

8

252

262

Loss for the year attributable to the equity holders of the parent company

 

(7,692)

(5,454)

Other comprehensive income:

 

 

 

Items which will or may be reclassified to profit or loss:

 

 

 

Exchange difference on translation of foreign operations

 

1,120

(1,282)

Total comprehensive loss for the year attributable to the equity holders of the parent company

 

(6,572)

(6,736)

Basic and diluted loss per share

9

$(0.05)

$(0.04)

 

 

Consolidated statement of financial position

at 31 December 2018

 

Note

2018

$'000

2017

$'000

Assets

 

 

 

Non-current assets

 

 

 

Intangible assets

10

1,692

1,898

Property, plant and equipment

 

701

968

Trade and other receivables

11

140

134

Total non-current assets

 

2,533

3,000

Current assets

 

 

 

Inventories

 

2,975

1,536

Trade and other receivables

11

3,357

4,311

Tax receivable

 

400

377

Investments

 

1,825

2,719

Cash and cash equivalents

 

2,459

1,175

Total current assets

 

11,016

10,118

Total assets

 

13,549

13,118

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

12

2,404

2,879

Finance leases

13

-

8

Total current liabilities

 

2,404

2,887

Total liabilities

 

2,404

2,887

Total net assets

 

11,145

10,231

Share capital

 

2,586

2,237

Share premium

 

86,126

79,786

Foreign exchange reserve

 

731

(389)

Accumulated deficit

 

(78,298)

(71,403)

Total equity

 

11,145

10,231

 

Consolidated statement of changes in equity

for the year ended 31 December 2018

 

 

 

 

 

Share

capital

$'000

 

Share

premium

$'000

Foreign

exchange

reserve

$'000

 

Accumulated

deficit

$'000

 

 

Total

$'000

Balance at 1 January 2017

2,237

79,786

893

(66,885)

16,031

Loss for the year

-

-

-

(5,454)

(5,454)

Exchange difference arising on translation of foreign operations

-

-

(1,282)

-

(1,282)

Total comprehensive income/(loss)

-

-

(1,282)

(5,454)

(6,736)

Shares issued

-

-

-

-

-

Share-based payments

-

-

-

936

936

Options exercised

-

-

-

-

-

Balance at 31 December 2017

2,237

79,786

(389)

(71,403)

10,231

Loss for the year

-

-

-

(7,692)

(7,692)

Exchange difference arising on translation of foreign operations

-

-

1,120

-

1,120

Total comprehensive income/(loss)

-

-

1,120

(7,692)

(6,572)

Shares issued

349

6,340

-

-

6,689

Share-based payments

-

-

-

797

797

Options exercised

-

-

-

-

-

Balance at 31 December 2018

2,586

86,126

731

(78,298)

11,145

 

 

Consolidated statement of cash flows

for the year ended 31 December 2018

 

 

Note

2018

$'000

Restated *

2017

$'000

Cash flows from operating activities

 

 

 

Loss for the year

 

(7,692)

(5,454)

Adjustments for:

 

 

 

Depreciation

 

382

393

Amortisation of intangibles

10

206

264

Share-based payment expense

 

797

936

Finance income

7

(90)

(87)

Finance expense

7

1

2

Foreign exchange on intercompany

14

1,120

(1,261)

Income taxes credit

 

(252)

(262)

Decrease/(increase) in trade and other receivables

11

961

(1,024)

Gain on disposal of fixed assets

 

(7)

(4)

Increase in inventories

 

(1,439)

(291)

 (Decrease)/increase in trade and other payables

 

(475)

771

Income taxes /received/(paid)

 

216

(121)

Net cash used in operating activities

 

(6,272)

(6,138)

Investing activities

 

 

 

Purchase of property, plant and equipment

 

(115)

(125)

Sale of property, plant and equipment

 

7

4

Finance income

7

90

87

Purchase of investments

 

(3,994)

(2,258)

Sale of investments

 

4,887

4,888

Net cash provided by investing activities

 

875

2,596

Financing activities

 

 

 

Finance expense

7

(1)

(2)

Issue of ordinary share capital

 

6,689

-

Repayment of finance lease principal

 

(7)

(8)

Net cash provided/(used) by financing activities

 

6,681

(10)

Net increase/(decrease) in cash and cash equivalents

 

1,284

(3,552)

Cash and cash equivalents at the beginning of period

 

1,175

4,727

Cash and cash equivalents at the end of period

 

2,459

1,175

*- See note 14

 

1. Basis of Preparation

The financial information set out in this document does not constitute the Group's statutory accounts for the years ended 31 December 2017 or 2018.  Statutory accounts for the years ended 31 December 2017 and 31 December 2018, which were approved by the directors on 9 April 2019, have been reported on by the Independent Auditors.  The Independent Auditor's Reports on the Annual Report and Financial Statements for each of 2017 and 2018 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

               

Statutory accounts for the year ended 31 December 2017 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2018 will be delivered to the Registrar in due course and will be communicated to shareholders shortly, and thereafter will be available from the Company's registered office at 1 Scott Place, 2 Hardman Street, Manchester M3 3AA and from the Group's website www.planthealthcare.com.

               

The financial information set out in these results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs).  The accounting policies adopted in these results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2017, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018.  New standards impacting the Group that have be adopted in the annual financial statements for the year ended 31 December 2018 are IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers.  Other new standards, amendments and interpretations to existing standards, which have been adopted by the Group have not been listed, since they have no material impact on the financial statements. The Group's financial statements have been presented in US Dollars.

 

2. Accounting policies

Going concern

In assessing whether the going concern basis is an appropriate basis for preparing the 2018 Annual Report, the Directors have utilised its detailed forecasts which take into account its current and expected business activities, its cash and cash equivalents balance and investments of $4.3 million as shown in its balance sheet at 31 December 2018, the principal risks and uncertainties the Group faces and other factors impacting the Group's future performance.

Various sensitivity analyses have been performed to reflect possible downside scenarios as referred to above. Even in the worst case scenario whereby the Group achieves reduced revenues for the twelve months following the date of this Annual Report, the Group has sufficient resources to continue in operational existence for the foreseeable future. In order to provide sufficient headroom the Directors have identified costs savings associated with the reduction in revenues and have the ability to identify further cost savings if necessary.

Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments designated at fair value through the profit and loss.

New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2018, and which have given rise to changes in the Group's accounting policies are:

•     IFRS 9 Financial Instruments; and

•     IFRS 15 Revenue from Contracts with Customers

Details of the impact of these two standards are given below.

IFRS 9 Financial Instruments

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had an effect on the Group in the following area:

•     The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) have been calculated in accordance with IFRS 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39. This has not resulted in a material change to the impairment provision at 1 January 2018.

IFRS 15 Revenue from Contract with Customers

•     IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction Contracts as well as various Interpretations previously issued by the IFRS Interpretations Committee, noting the Group has adopted the modified retrospective approach.

The Group has reviewed and refined its revenue recognition policy in accordance with the new accounting standard. As part of this review the Group now recognises any marketing support payments provided in conjunction with sales contracts as a reduction to revenue (previously recorded as marketing expenditure, however payments made under these initiatives in prior years were immaterial such that no adjustment to opening reserves has been recorded).

Additional disclosure has also been provided regarding the nature, amount, timing and uncertainty of revenue and cash flows.

Basis of consolidation

These consolidated financial statements incorporate the financial statements of the Group and the entities controlled by the Group. Control exists when the Group has (i) power over the investee, (ii) exposure, or rights, to variable returns from its involvement with the investee, and (iii) the ability to use its power over the investee to affect the amount of the investor's returns. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All significant intercompany transactions, balances, revenues and expenses have been eliminated.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

Revenue

The Group recognises revenue at the fair value of consideration received or receivable. Sales of goods to external customers are at invoiced amounts less value-added tax or local tax on sales. The Group currently generates revenue solely within its Commercial business through the sale of its proprietary and third-party products, as well as from granting certain licences for the use of its intellectual property. Credit terms provided to customers also affects the recognition of revenue where a significant financing component is considered to exist.

The majority of the Group's revenue is derived from selling goods with revenue recognised at a point in time when control of the goods has transferred to the customer. This is generally when the goods are delivered to the customer. However, for some sales, control might also be transferred when delivered either to the port of departure or port of arrival, depending on the specific terms of the contract with a customer. There is minimal judgement needed in identifying the point control passes to the customer: once physical delivery of the products to the agreed location has occurred, the group no longer has physical possession, usually will have a present right to payment (as a single payment on delivery) and retains none of the significant risks and rewards of the goods in question.

In the limited situations where the Group offers a product rebate to the customer, it records the fair value of the product rebate as a reduction to product revenue. An accrued liability for these product rebates is estimated and recorded at the time the revenues are recorded.

Licence/milestone payment income is recognised when the Group has no remaining obligations to perform under a non-cancellable contract which permits the user to act freely under the terms of the agreement and the collection of the resulting receivable is reasonably assured. To date the Group has not achieved the performance obligations for any milestone payments.

Sales support payments to customers are considered a reduction in transaction price and are recognised as a reduction to revenue as incurred.

Goodwill

Goodwill is measured as the excess of the cost of an acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities, plus any direct costs of acquisition for acquisitions before 1 January 2010. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to administrative expenses in the consolidated statement of comprehensive income. The Group performs annual impairment tests for goodwill at the financial year end.

Other intangible assets

Externally-acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. The amortisation expense is included within administrative expenses in the consolidated statement of comprehensive income.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to contractual or other legal rights, and are initially recognised at their fair value.

Expenditure on internally-developed intangible assets (development costs) are capitalised if it can be demonstrated that:

•     it is technically feasible to develop the product for it to be sold;

•     adequate resources are available to complete the development;

•     there is an intention to complete and sell the product;

•     the Group is able to sell the product;

•     sale of the product will generate future economic benefits; and

•     expenditure on the project can be measured reliably.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in profit or loss.

Capitalised development costs are amortised over the periods of the future economic benefit attributable to the asset. The amortisation expense is included within administrative expenses in the consolidated statement of comprehensive income. The Group has not capitalised any development costs to date.

The significant intangibles recognised by the Group and their estimated useful economic lives are as follows:

Licences              -            12 years
Registrations       -             5-10 years

Impairment of goodwill and other intangible assets

Impairment tests on goodwill are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (that is the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Impairment charges are included within administrative expenses in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.

Foreign currency

Foreign currency transactions of individual companies are translated into the individual company's functional currency at the rate on the date the transaction occurs.

At the year end, non-functional currency monetary assets and liabilities are translated at the year-end rate with the differences being recognised in the profit or loss.

On consolidation, the results of operations that have a functional currency other than US Dollars are translated into US Dollars at rates approximating to those ruling when the transactions took place. Statements of financial position are translated at the rate ruling at the end of the financial period. Exchange differences arising on translating the opening net assets at opening rate and the results of operations that have a functional currency other than US Dollars at average rate are included within "other comprehensive income" in the consolidated statement of comprehensive income and taken to the foreign exchange reserve within capital and reserves.

Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Group's chief operating decision maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer.

Financial instruments

Trade receivables collectible within one year from the date of invoicing are recognised at invoice value less provision for expected credit losses. Trade receivables collectible after more than one year from the date of invoicing are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Investments comprise short-term investments in notes and bonds having investment grade ratings. Investments are designated as at fair value through profit and loss upon initial recognition when they form part of a group of financial assets which is actively managed and evaluated by key management personnel on a fair value basis in accordance with the Company's documented investment strategy that seeks to improve the rate of return earned by the Company on its excess cash while providing unrestricted access to the funds. The Company's investments are carried at fair value as determined by quoted prices on active markets, with changes in fair values recognised through profit or loss.

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to insignificant risk of changes in value.

Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

The Group applies both the simplified and general approaches under IFRS 9 to measure expected credit losses using a lifetime expected credit loss provision for trade receivables. Under the simplified approach, expected credit losses on a collective basis, trade receivables are grouped based on credit risk and aging. Under the general approach, trade receivables that have payment terms over 180 day are reviewed.

The expected loss rates are based on the Group's historical credit losses experienced over the three year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on factors affecting the Group's customers.

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. The Group's ordinary shares are classified as equity instruments.

Employee benefits

The Group maintains a number of defined contribution pension schemes for certain of its employees; the Group does not contribute to any defined benefit pension schemes. The amount charged to profit or loss represents the employer contributions payable to the schemes for the financial period.

The expected costs of all short-term employee benefits, including short-term compensated absences, are recognised during the period the employee service is rendered.

Equity share-based payments

The Group operates a number of equity-settled, share-based payment plans, under which it receives services from employees and non-employees as consideration for the Group's equity instruments, in the form of options or restricted stock units (''awards''). The fair value of the award is recognised as an expense, measured as of the grant date using a binomial option pricing model. The total amount to be expensed is determined by reference to the fair value of instruments granted, excluding the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is typically the period over which all of the specified vesting conditions are to be met.

Leased assets: lessee

Where assets are financed by leasing agreements that give rights approximating to ownership (finance leases), the assets are treated as if they had been purchased outright. The amount capitalised is the lower of fair value and present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitments are shown as amounts payable to the lessor. Depreciation on the relevant assets is recognised in profit or loss over the shorter of useful economic life and lease term.

Lease payments are analysed between capital and interest components. The interest element of the payment is charged to income over the period of the lease and is calculated so that it represents a constant proportion of the balances of capital repayments outstanding. The capital element reduces the amounts payable to the lessor.

All other leases are treated as operating leases. Their annual rentals are charged to income on a straight-line basis over the lease term.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. Cost includes the purchase price and costs directly attributable to bringing the asset into operation. Depreciation is provided to write off the cost, less estimated residual values, of all property, plant and equipment over their expected useful lives.

It is calculated at the following rates:

Production machinery         -            10 - 20% per annum
Office equipment                 -            20 - 33% per annum
Vehicles                               -            20% per annum
Leasehold improvements    -            25% per annum

Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost is based upon a weighted average cost method. The Group compares the cost of inventory to its net realisable value and writes down inventory to its net realisable value, if lower than its cost. Cost comprises all costs of purchase and all other costs of conversion. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The inventory provision is based on which products have been determined to be obsolete.

Taxation

Current tax is the expected tax payable on the taxable income arising in the period reported on, calculated using tax rates relevant to the financial period.

Companies within the group may be entitled to claim special tax allowances in relation to qualifying research and development expenditure (e.g. R&D tax credits). The Group accounts for such allowances as tax credits which means they are recognised when it is probable that the benefit will flow to the group and that the benefit can be reliably measured. R&D tax credits reduce current tax expense and to the extent the amounts are due in respect of them and not settled by the balance sheet date, reduce current tax payable.

Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences on:

•     the initial recognition of goodwill;

•     the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit; and

•     investments in subsidiaries and joint arrangements where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the end of the financial period and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis.

3. Critical accounting estimates and judgements

In preparing its financial statements, the Group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from estimates and assumptions. The estimates and judgements that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Revenue

The Group recognises revenue at the fair value of consideration received or receivable. Sales of goods to external customers are at invoiced amounts less value-added tax or local tax on sales. The Group currently generates revenue solely within its Commercial business through the sale of its proprietary and third-party products, as well as from granting certain licences for use of its intellectual property. When the Group makes product sales under contracts / agreements which may be inclusive of additional performance obligations, different payment terms and associated rebate or support payments judgement can be required in the assessment of the transaction price.

Impairment of goodwill

The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount is determined based on value-in-use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary. Additional information on carrying values is included in note 10.

Impairment of intangible assets (excluding goodwill)

At the end of the financial period, the Group reviews the carrying amounts of its definite lived intangible assets to determine whether there is any indication that those assets have suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any).

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their net present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately within administrative expenses in the consolidated statement of comprehensive income. Additional information on carrying values is included in note 10.

Recoverability of trade receivables

The Group applies both the simplified and general approaches under IFRS 9 to measure expected credit losses using a lifetime expected credit loss provision for trade receivables. Under the simplified approach, expected credit losses on a collective basis, trade receivables are grouped based on credit risk and aging. Given the Group has a low history of default limited judgement is required for trade receivables in this grouping.

The Group then separately reviews those receivables with payment terms over 180 days using the general approach. Under this approach judgements are required in the assessment of the risk and probability of credit losses and the quantum of the loss in the event of a default. The Group has debtors with a gross value (before provisioning but after the assessment of financing components) of $1.3 million within this grouping.

4. Revenue

Revenue arises from:

2018

$'000

2017

$'000

Proprietary products

5,581

5,344

Third-party products

2,547

2,341

Total

8,128

7,685

 

The following table gives an analysis of revenue according to sales with payment terms of less than or more than 180 days:

Year to 31 December 2018:

 

Sales contracts

with payment

terms less

than 180 days

Sales contracts

with payment

terms greater

than 180 days

Total

Segment

($'000)

($'000)

($'000)

Mexico

3,127

-

3,127

Americas

3,270

-

3,270

Rest of World

769

962

1,731

 

7,166

962

8,128

 

 

Sales contracts

with payment

terms less

than 180 days

Sales contracts

with payment

terms greater

than 180 days

Total

Timing of transfer of goods

($'000)

($'000)

($'000)

Point in time (delivery to port of departure)

7,079

282

7,361

Point in time (delivery to port of arrival)

87

680

767

 

7,166

962

8,128

 

Year to 31 December 2017:

 

Sales contracts

with payment

terms less

than 180 days

Sales contracts

with payment

terms greater

than 180 days

Total

Segment

($'000)

($'000)

($'000)

Mexico

2,880

-

2,880

Americas

444

1,155

1,599

Rest of World

1,139

2,067

3,206

 

4,463

3,222

7,685

 

 

Sales contracts

with payment

terms less

than 180 days

Sales contracts

with payment

terms greater

than 180 days

Total

Timing of transfer of goods

($'000)

($'000)

($'000)

Point in time (delivery to port of departure)

4,157

1,278

5,435

Point in time (delivery to port of arrival)

306

1,944

2,250

 

4,463

3,222

7,685

 

Financing component of sales contracts

($'000)

At 1 January 2018

-

Financing components recognised

324

Financing components unwound to the income statement

(20)

At 31 December 2018

304

 

5. Operating loss

 

 

Note

2018

$'000

2017

$'000

Operating loss is arrived at after charging/(crediting):

 

 

 

Share-based payment charge

 

797

936

Depreciation

 

382

393

Amortisation of intangibles

10

206

264

Operating lease expense

 

420

446

Gain on disposal of property, plant and equipment

 

(7)

(4)

Impairment of trade receivables

 

174

-

Employee termination costs

 

308

228

Foreign exchange losses/gains

 

1,485

(1,432)

Auditor's remuneration:

 

 

 

Amounts for audit of parent company and consolidation

 

95

79

Amounts for audit of subsidiaries

 

41

34

Total auditor's remuneration

 

136

113

 

6. Segment information

The Group's CODM views, manages and operates the Group's business segments according to its strategic business focuses -Commercial and New Technology. The CODM further analyses the results and operations of the Group's Commercial business on a geographical basis; and therefore the Group has presented separate geographic segments within its Commercial business below: Commercial - Americas (North and South America, other than Mexico); Commercial - Mexico; and Commercial - Rest of World. The Rest of World segment includes the results of the United Kingdom and Spanish subsidiaries, which together operate across Europe and South Africa. The Group's Commercial segments are focused on the sale of biological products and are the Group's only revenue generating segments. The Group's New Technology segment is focused on the research and development of the Group's PREtec platform.

Below is information regarding the Group's segment loss information for the year ended:

2018

Americas

$'000

Mexico

$'000

Rest of

World

$'000

Elimination

$'000

Total

Commercial

$'000

New

Technology

$'000

Total

$'000

Revenue*

 

 

 

 

 

 

 

Proprietary product sales

3,244

606

1,731

-

5,581

-

5,581

Third-party product sales

26

2,521

-

-

2,547

-

2,547

Inter-segment product sales

1,539

-

67

(1,606)

-

-

-

Total revenue

4,809

3,127

1,798

(1,606)

8,128

-

8,128

Group consolidated revenue

4,809

3,127

1,798

(1,606)

8,128

-

8,128

Cost of sales

(2,242)

(1,574)

(647)

1,606

(2,857)

-

(2,857)

Research and development

-

-

-

-

-

(3,487)

(3,487)

Business development

(478)

-

-

-

(478)

(23)

(501)

Sales and marketing

(1,302)

(805)

(1,047)

-

(3,154)

-

(3,154)

Administration**

(786)

(250)

(1,001)

-

(2,037)

(193)

(2,230)

Non-cash expenses:

 

 

 

 

 

 

 

Depreciation

(25)

(51)

(4)

-

(80)

(302)

(382)

Amortisation

(201)

-

(5)

-

(206)

-

(206)

Share-based payment

(17)

-

(61)

-

(78)

(395)

(473)

Segment operating (loss)/profit

(242)

447

(967)

-

(762)

(4,400)

(5,162)

Corporate expenses***

 

 

 

 

 

 

 

Wages and professional fees

 

 

 

 

 

 

 (1,334)

Administration****

 

 

 

 

 

 

(1,537)

Operating loss

 

 

 

 

 

 

(8,033)

Finance income

 

 

 

 

 

 

90

Finance expense

 

 

 

 

 

 

 (1)

Loss before tax

 

 

 

 

 

 

(7,944)

 

*     Revenue from one customer within the Americas segment totalled $1,611,000, or 20% of Group revenues.
Revenue from one customer within the Mexico segment totalled $1,089,000 or 14% of Group revenues.
Revenue from one customer within the Rest of World segment totalled $1,100,000 or 14% of Group revenues.

**    The Administration expense for the Rest of World segment includes a charge of $600,000 for the write-off of receivables. During 2018, the Group transferred stock from our original distributor to a new distributor in South Africa in order to strengthen its sales position in this region. This transfer of stock has been accounted for by the Group recording a write-off of receivables with the original distributor of $600,000.

***  These amounts represent public company expenses for which there is no reasonable basis by which to allocate the amounts across the Group's segments.

**** Includes net share-based payment expense of $324,000 attributed to corporate employees who are not affiliated with any of the Commercial or New Technology segments.

Other segment Information

 

Americas

$'000

 Mexico

 $'000

Rest of

World

 $'000

Eliminations

$'000

Total

 Commercial

$'000

New

Technology

$'000

Total

$'000

Segment assets

8,369

2,103

2,501

-

12,973

576

13,549

Segment liabilities

1,630

414

168

-

2,212

192

2,404

Capital expenditure

14

58

-

-

72

43

115

 

2017

Americas

$'000

Mexico

$'000

Rest of

World

$'000

Elimination

$'000

Total

Commercial

$'000

New

Technology

$'000

Total

$'000

Revenue*

 

 

 

 

 

 

 

Proprietary product sales

1,574

570

3,200

-

5,344

-

5,344

Third-party product sales

25

2,310

6

-

2,341

-

2,341

Inter-segment product sales

1,608

-

85

(1,693)

-

-

-

Total revenue

3,207

2,880

3,291

(1,693)

7,685

-

7,685

Group consolidated revenue

3,207

2,880

3,291

(1,693)

7,685

-

7,685

Cost of sales

(1,978)

(1,440)

(1,228)

1,693

(2,953)

-

(2,953)

Research and development

-

-

-

-

-

(4,350)

(4,350)

Business development

(561)

-

-

-

(561)

(62)

(623)

Sales and marketing

(1,277)

(688)

(1,030)

-

(2,995)

-

(2,995)

Administration

(860)

(318)

(58)

-

(1,236)

(188)

(1,424)

Non-cash expenses:

 

 

 

 

 

 

 

Depreciation

(30)

(55)

(7)

-

(92)

(301)

(393)

Amortisation

(255)

-

(9)

-

(264)

-

(264)

Share-based payment

(83)

(3)

(70)

-

(156)

(632)

(788)

Segment operating (loss)/profit

(1,837)

376

889

-

(572)

(5,533)

(6,105)

Corporate expenses**

 

 

 

 

 

 

 

Wages and professional fees

 

 

 

 

 

 

 (1,048)

Administration***

 

 

 

 

 

 

1,352

Operating loss

 

 

 

 

 

 

(5,801)

Finance income

 

 

 

 

 

 

 87

Finance expense

 

 

 

 

 

 

 (2)

Loss before tax

 

 

 

 

 

 

 (5,716)

 

*     Revenue from one customer within the Americas segment totalled $1,001,000, or 13% of Group revenues.
Revenue from one customer within the RoW segment totalled $1,958,000, or 25% of Group revenues.
Revenue from one customer within the Mexico segment totalled $989,000, or 13% of Group revenues.

**    These amounts represent public company expenses for which there is no reasonable basis by which to allocate the amounts across the Group's segments.

***  Includes net share-based payment expense of $148,000 attributed to corporate employees who are not affiliated with any of the Commercial or New Technology segments.

 

Other segment information

 

Americas

$'000

 Mexico

 $'000

Rest of

World

 $'000

Eliminations

$'000

Total

Commercial

$'000

New

Technology

$'000

Total

$'000

Segment assets

7,014

1,997

3,198

-

12,209

909

13,118

Segment liabilities

1,630

251

420

-

2,301

586

2,887

Capital expenditure

-

34

4

-

38

87

125

 

Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories, property, plant and equipment and intangible assets, net of allowances and provisions. Segment liabilities include all operating liabilities and consist principally of trade payables and accrued liabilities.

Geographic information

The Group operates in three principal countries - the United Kingdom (country of domicile), the US and Mexico.

The Group's revenues from external customers by location of operation are detailed below:

 

 

 

 

 

 

 

Year Ended 31 December 2018

 

Year Ended 31 December 2017

 

Amount

$'000

Percent

 

Amount

$'000

Percent

United Kingdom

 1,126

14

 

2,687

35

United States

2,101

26

 

1,598

21

Mexico

3,127

38

 

2,880

37

All other

1,774

22

 

520

7

Total

 8,128

100

 

7,685

100

 

The Group's non-current assets by location of assets are detailed below:

 

 

 

 

 

 

 

Year Ended 31 December 2018

 

Year Ended 31 December 2017

 

Amount

 

 

Amount

 

 

$'000

Percent

 

$'000

Percent

United Kingdom

 16

1

 

 31

1

United States

2,307

91

 

2,782

93

Mexico

201

8

 

180

6

All other

9

-

 

7

-

Total

 2,533

100

 

 3,000

100

 

7. Finance income and expense

 

2018

$'000

2017

$'000

Finance income

 

 

Interest on deposits and investments

70

87

Financing component of revenue contracts

20

-

 

90

87

Finance expense

 

 

Interest on finance leases

(1)

(2)

 

8. Tax credit

 

2018

 $'000

 2017

 $'000

Current tax on loss for the year

(239)

(256)

Deferred tax - origination and reversal of timing differences

(13)

(6)

Total tax credit

(252)

(262)

 

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK applied to profits for the year are as follows:

 

 2018

 $'000

 2017

 $'000

Loss before tax

(7,944)

(5,716)

Expected tax credit based on the standard rate of corporation tax in the UK of 19.0% (2017: 19.3%)

(1,509)

(1,100)

Effect on tax rates in foreign jurisdictions

48

 

Disallowable expenses

7

31

Share-based payment expense per accounts

151

180

Prior period R&D credit

(419)

(360)

Losses available for carryover

1,365

1,225

Losses utilised in the year

-

(398)

Capital allowances in excess of amortisation

(79)

(80)

Other temporary differences

184

240

Actual tax credit

(252)

(262)

 

Deferred tax asset

 Deferred

taxation

 $'000

At 1 January 2018

66

Credited to the profit and loss account

13

At 31 December 2018

79

 

The deferred tax asset comprises sundry timing differences.

At 31 December 2018, the Group had a potential deferred tax asset of $18,546,752 (2017: $17,557,554) which includes tax losses available to carry forward of $17,793,692 (2017: $16,226,770) (being actual federal, foreign and state losses of $98,786,744 (2017: $89,835,719)) arising from historical losses incurred and other timing differences of $1,621,447.

9. Loss per share

Basic loss per ordinary share has been calculated on the basis of the loss for the year of $7,692,000 (2017: loss of $5,454,000) and the weighted average number of shares in issue during the period of 168,850,278 (2017: 147,822,881).

Equity instruments of 14,098,057 (2017: 9,709,418), which includes share options, the 2015 Employee Share Option Plan and the 2017 Employee Share Option Plan, that could potentially dilute basic earnings per share in the future have been considered but not included in the calculation of diluted earnings per share because they are anti-dilutive for the periods presented. This is due to the Group incurring a loss on operations for the year.

10. Intangible assets

 

 

Goodwill

$'000

Licences and

registrations

$'000

Trade name

and customer

 relationships

$'000

Total

$'000

Cost

 

 

 

 

Balance at 1 January 2017

1,620

3,342

159

5,121

Additions - externally acquired

-

-

-

-

Balance at 31 December 2017

1,620

3,342

159

5,121

Additions - externally acquired

-

-

-

-

Balance at 31 December 2018

1,620

3,342

159

5,121

Accumulated amortisation

 

 

 

 

Balance at 1 January 2017

-

2,800

159

2,959

Amortisation charge for the year

-

264

-

264

Balance at 31 December 2017

-

3,064

159

3,223

Amortisation charge for the year

-

206

-

206

Balance at 31 December 2018

-

3,270

159

3,429

Net book value

 

 

 

 

At 1 January 2017

1,620

542

-

2,162

At 31 December 2017

1,620

278

-

1,898

At 31 December 2018

1,620

72

-

1,692

 

The intangible asset balances have been tested for impairment using discounted budgeted cash flows of the relevant cash generating units. For the years ended 31 December 2017 and 2018, cash flows are projected over a five-year period with a residual growth rate assumed at 0%. For the years ended 31 December 2017 and 2018, a pre-tax discount factor of 15.6% and 14.9% has been used over the forecast period.

Goodwill

Goodwill comprises of a net book value of $1,432,000 related to the 2007 acquisition of the assets of Eden Bioscience and $188,000 related to an acquisition of VAMTech LLC in 2004. The entire amount is allocated to Harpin, a cash generating unit within the Commercial - Americas segment. No impairment charge is considered necessary, and no reasonable possible change in key assumptions used would lead to an impairment in the carrying value of goodwill.

Licences and registrations

These amounts represent the cost of licences and registrations acquired in order to market and sell the Group's products internationally across a wide geography. These amounts are amortised evenly according to the straight-line method over the term of the licence or registration. Impairment is reviewed and tested according to the method expressed above. Licences and registrations have a weighted average remaining amortisation period of three years. No impairment charge is considered necessary, and no reasonable possible change in key assumptions used would lead to an impairment in the carrying value of licences and registrations.

11. Trade and other receivables

 

2018

$'000

2017

$'000

Current:

 

 

Trade receivables

3,366

4,131

Less: provision for impairment

(186)

(52)

Trade receivables, net

3,180

4,079

Other receivables and prepayments

177

232

Current trade and other receivables

3,357

4,311

Non-current:

 

 

Other receivables

61

68

Less: provision for impairment

-

-

Deferred tax asset

79

66

Non-current trade and other receivables

140

134

 

3,497

4,445

 

The trade receivable current balance represents trade receivables with a due date for collection within a one-year period. The other receivable non-current balance represents lease deposits.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses for sales contracts with 180 days or fewer payment terms. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and aging. The expected loss rates are based on the Group's historical credit losses experienced over the three year period prior to the period end. For contracts provided on these terms, the credit risk and history of default is immaterial such that no provision is assessed.

Sales contact receivables provided on terms greater than 180 days are at first discounted to recognise the financing component of the transaction and then assessed using the "general approach". Under this approach, the Group models and probability weights a number of scenarios based on their assessment of the credit risk and historical expected losses.

 

Considered under

the simplified

 approach

$'000

Considered under

 the general

approach

$'000

Trade receivables

2,068

1,298

Expected credit loss assessed

(8)

(178)

 

2,060

1,120

 

The receivables considered under the general approach relate to two customers in the Rest of World segment. These receivables had payment terms in excess of 12 months. The key considerations in the assessment of the provision were the probability of default, expected loss in the event of default and the exposure at the point of default.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivables set out above.

No transitional adjustment was assessed at 1 January 2018 owing to the credit risk profile of trade receivables at this date.

Movements on the provision for impairment of trade receivables are as follows:

 

2018

$'000

2017

$'000

Balance at the beginning of the year

52

51

Provided

775

(2)

Receivables written off as uncollectible

(641)

(1)

Foreign exchange

-

4

Balance at the end of the year

186

52

 

The net value of trade receivables for which a provision for impairment has been made is $1,306,000 (2017: $80,000).

The following is an analysis of the Group's trade receivables, both current and past due, identifying the totals of trade receivables which are not yet due and those which are past due but not impaired.

 

2018

$'000

2017

$'000

Current

2,608

3,927

Past due:

 

 

Up to 30 days

1

7

31 to 60 days

82

17

61 to 90 days

24

39

Greater than 90 days

465

89

Total

3,180

4,079

 

12. Trade and other payables

 

2018

$'000

2017

$'000

Current:

 

 

Trade payables

1,434

1,523

Accruals

918

1,292

Taxation and social security

50

62

Income tax liability

2

2

 

2,404

2,879

13. Finance leases

(a) Current borrowings

 

2018

$'000

2017

$'000

Finance leases

-

8

 

Finance lease obligations are secured by retention of title to the relevant equipment and vehicles.

(b) Due date for payment:

The contractual maturity of the Group's financial liabilities on a gross basis is as follows:

 

Trade and other payables

 

Finance leases

 

2018

$'000

2017

$'000

 

2018

$'000

2017

$'000

In less than one year

1,681

1,863

 

-

8

In more than one year, but less than two years

-

-

 

-

-

 

1,681

1,863

 

-

8

 

14. Note supporting statement of cash flows

 

Finance

 leases

$'000

Note 18

Share

Capital

$'000

Note 22

Share

 Premium

$'000

Note 22

Total

$'000

At 1 January 2018

8

2,237

79,786

82,031

Cash Flows:

 

 

 

 

Repayment of finance lease principal

(7)

-

-

(7)

Finance expense

(1)

-

-

(1)

Issue of Ordinary Share Capital

-

349

6,340

6,689

At 31 December 2018

-

2,586

86,126

88,712

 

Foreign exchange losses of $1,120,000 (2017: $1,261,000 gain) arising on intercompany balances within the consolidated statement of cash flows, have been reclassified to within 'cash flows from operating activities', so as to better reflect the nature of the non-cash movement. This has had no impact on the closing cash balances previously reported.

 

15. Cautionary statement

 

Plant Health Care has made forward-looking statements in this press release, including: statements about the market for and benefits of its products and services; financial results; product development plans; the potential benefits of business relationships with third parties; and business strategies. These statements about future events are subject to risks and uncertainties that could cause Plant Health Care's actual results to differ materially from those that might be inferred from the forward-looking statements. Plant Health Care can give no assurance that any forward-looking statements will prove correct.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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