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Ergomed plc (ERGO)

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Tuesday 28 September, 2021

Ergomed plc

Ergomed Interim results

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 £56.0 million (up 48.1% in constant currency*)
  •   djusted EBITDA of £12.1 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 £27.2 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 (£193.0 million) and up 50.5% on prior year to £227.8 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 £35.5 million with recent acquisitions Ashfield Pharmacovigilance and MedSource fully integrated
  • Cash balance increased to £24.6 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

 

 

First Half 2021

 

First

Half

2020

 

% change

Figures in £ millions, unless otherwise stated

 

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 (%)

Gross Margin Service Fee (%)

 

41.1%

48.2%

 

45.8%

50.1%

 

-4.7 ppts

-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 £6.6m 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 £ 56.0 million, up 38.8 % (H1 2020: £ 40.4 million)

· Adjusted EBITDA of £ 12.1 million, up 33.0% (H1 2020: £9.1 million)

· Basic adjusted earnings per share of 16.8p, up 48.7% (H1 2020: 11.3p)

· Net cash of £ 24.6 million, up 74.5% (30 June 2020: £14.1 million)

 

Operational Highlights

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

· Order book of future contracted revenue up 50.5% to £ 227.8 million (30 June 2020: £151.4 million) and up 18.0% since 1 January 2021 (£193.0 million)

· CRO division delivered strong growth with revenue up 90.2% over H1 2020 to £27.2 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 £35.5 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 Adviser and Joint Broker)

Tel: +44 (0) 20 7260 1000

Freddie Barnfield / Matthew O'Dowd

 

James Black (Broker)

 

Peel Hunt LLP (Joint Broker) 

James Steel / Dr Christopher Golden

 

 

Tel: +44 (0) 20 7418 8900

 

 

Consilium Strategic Communications

Tel: +44 (0) 20 3709 5700

Chris Gardner / Matthew Neal

[email protected]

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 £56.0 million (H1 2020: £40.4 million), an increase of 38.8% (48.1% in constant currency). Service fee revenues of £47.6 million (H1 2020: £36.9 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 £12.1 million compared to £9.1 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 £0.5 million and taxation of £2.1 million in H1 2021 as the business switched to quarterly instalment payments, the net cash at 30 June 2021 was up 74.5% at £24.6 million compared to H1 2020. The Company continues to be debt free with committed banking facilities of £30 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 £90.8 million (H1 2020: £60.2 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 £227.8 million at the end of H1 2021, up 18.0% from £193.0 million at 31 December 2020 and up 50.5% on the prior year (H1 2020: £151.4 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 £56.0 million (H1 2020: £40.4 million) was achieved across both the PrimeVigilance and Clinical Research Services businesses.

PrimeVigilance

Ergomed's pharmacovigilance (PV) business saw total revenue increase to £28.8 million in H1 2021 from £26.1 million in H1 2020, up by 10.3% (16.2% in constant currency). Reported gross profit increased from £13.4 million to £14.6 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 £14.3 million in H1 2020 to £27.2 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 £14.3 million in H1 2020 to £16.6 million in H1 2021.

 

Reported gross profit in the CRO division increased by 64.7% to £8.4 million (H1 2020: £5.1 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 (£2.7 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:

 

£ 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

Profit after tax

 

48.2%

6.6

50.1%

4.3

Adjusted EBITDA (Note 7)

 

12.1

9.1

Cash and cash equivalents

Cash generated from operating activities

 

24.6

10.6

14.1

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 £56.0 million (H1 2020: £40.4 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 £10.6 million in MedSource acquired in December 2020. Revenues in the key North American market grew by 70.8% to £35.5 million (H1 2020: £20.8 million), despite the impact of adverse foreign exchange headwinds.

 

Gross profit was £23.0 million and service fee gross margin was 48.2% (H1 2020: gross profit £18.5 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 £14.8 million (H1 2020: £11.3 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 £0.9 million (H1 2020: £0.9 million). Research and development costs expensed in the period were £0.04 million (H1 2020: £0.10 million), the reduction being due to the strategic withdrawal from co-development projects.

 

Adjusted EBITDA increased to £12.1 million in H1 2021 from £9.1 million in H1 2020, with profit after tax up 53.5% at £6.6 million (H1 2020: £4.3 million). Basic adjusted earnings per share were up 48.7% to 16.8p (H1 2020: 11.3p).

 

Consolidated balance sheet

Net assets increased by £6.0 million during the first half of 2021 and amounted to £58.9 million at 30 June 2021 (31 December 2020: £52.9 million) including net cash and cash equivalents of £24.6 million (31 December 2020: £19.0 million).

 

Cash flow statement

At 30 June 2021, the Group's net cash balance was £24.6 million, having paid a property lease surrender premium of £0.5m and taxation of £2.1m in H1 2021 as the business switched to quarterly instalment payments (net cash at 30 June 2020: £14.1 million, 31 December 2020: £19.0 million).

 

Cash generated from operating activities was £10.6 million (H1 2020: £8.2 million) primarily due to the increased revenues and profitability of the business. Ergomed has no debt.

 

Net outflows from investing activities decreased to £0.9 million (net outflows from investing activities H1 2020: £7.9 million). Net outflows on financing activities for the period of £1.6 million was primarily related to lease costs and interest paid.

Richard Barfield

Chief Financial Officer

 

 

INDEPENDENT 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

Six months

ended

30 June 2021

 

£000s

Unaudited

Six months

ended

30 June 2020

 

£000s

Audited

Year

ended

31 December 2020

 

£000s

 

 

 

 

 

 

 

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

Six months

ended

30 June 2021

 

£000s

Unaudited

Six months

ended

30 June 2020

 

£000s

Audited

Year

ended

 31 December 2020

 

£000s

 

 

 

 

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

Six months

ended

30 June 2021

 

£000s

Unaudited

Six months

ended

30 June 2020

 

£000s

Unaudited

Year

ended

 31 December 2020

 

£000s

 

 

 

 

 

EARNINGS PER SHARE

3

 

 

 

 

 

 

 

 

Basic

 

13.6p

8.9p

20.0p

 

 

 

 

 

Diluted

 

13.0p

8.4p

19.2p

 

 

 

 

 

 

 

 

Note

 

Unaudited

Six months

ended

30 June 2021

 

£000s

Unaudited

Six months

ended

30 June 2020

 

£000s

Unaudited

Year

ended

 31 December 2020

 

£000s

 

 

 

 

 

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

 

 

Note

Unaudited

30 June 2021

 

£000s

Unaudited

30 June 2020

 

£000s

Audited

31 December 2020

 

£000s

 

 

 

 

 

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

capital

 

 

£000s

Share

premium

account

 

£000s

Merger reserve

 

 

£000s

Share-based payment

reserve

£000s

Translation

reserve

 

 

£000s

Retained

earnings

 

 

£000s

Total

 

 

 

£000s

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Six months

ended

30 June 2021

 

£000s

Unaudited

Six months

ended

30 June 2020

 

£000s

Audited

Year

ended

 31 December 2020

 

£000s

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 £841,000 (2020: £959,000) which resulted in a charge to the Income Statement in the period of £533,000 (2020: £937,000).

Impairment of goodwill

The impairment provision against goodwill at the period end was £2,143,000 (2020: £2,143,000) and related fully against the investment in Haemostatix Limited. £nil (2020: £nil) 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 £nil 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 customer

contracts

Revenue for CRO services is recognised based on the costs incurred on a project as a proportion of total 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 mediumterm 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

 

£000s

PV services


£000s

Total services

 

£000s

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

 

 

 

 

 

 

 

 

 

 

30 June 2020 Geographical market and major service lines

 

CRO services

 

£000s

PV services


£000s

Total services

 

£000s

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

 

 

 

 

 

 

 

 

 

31 December 2020 Geographical market and major service lines

 

CRO services

 

£000s

PV services


£000s

Total services

 

£000s

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

 

 

 

 

 

 

 

 

 

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

 

 

30 June 2021

£000s

30 June 2020

£000s

31 December 2020

£000s

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

 

CRO

£000s

PV

£000s

Consolidated

total

£000s

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

 

CRO

£000s

PV

£000s

Consolidated

total

£000s

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

 

CRO

£000s

PV

£000s

Consolidated

total

£000s

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

 

 

30 June 2021

£000s

30 June 2020

£000s

31 December 2020

£000s

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

Six months

ended

30 June 2021

 

£000s

Unaudited

Six months

ended

30 June 2020

 

£000s

Unaudited

Year

ended

31 December 2020

 

£000s

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

Six months

ended

30 June 2021

£000s

Unaudited

Six months

ended

30 June 2020

£000s

Audited

Year

ended

31 December 2020

£000s

 

 

 

 

Operating lease interest

108

131

245

Other Interest payable

105

103

158

 

 

 

 

 

213

234

403

 

 

 

 

 

5.  OTHER OPERATING INCOME

 

Unaudited

Six months

ended

30 June 2021

£000s

Unaudited

Six months

ended

30 June 2020

£000s

Audited

Year

ended

31 December 2020

£000s

 

 

 

 

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

Six months

 ended

30 June 2021

Unaudited

Six months

 ended

30 June 2020

Audited

Year

ended

31 December 2020

 

£000s

£000s

£000s

 

 

 

 

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

Six months

ended

30 June 2021

 

Unaudited

Six months

ended

30 June 2020

 

Unaudited

Year

ended

31 December 2020

 

 

£000s

£000s

£000s

 

 

 

 

 

 

 

 

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

 

 

 

 

£000s

 

 

 

 

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

 

 

 

£000s

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

30 June 2021

£000s

Unaudited

30 June 2020

£000s

Audited

31 December 2020

£000s

 

 

 

 

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 £15 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 £15 million was repaid. The full RCF of £15 million remains available to the Company, along with an accordion option to increase this borrowing by an additional £15 million.

 

Unaudited

30 June 2021

£000s

Unaudited

30 June 2020

£000s

Audited

31 December 2020

£000s

 

 

 

 

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

30 June 2021

£000s

Unaudited

30 June 2020

£000s

Audited

31 December 2020

£000s

 

 

 

 

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


£000s

 

 

 

Ordinary shares of £0.01 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 £8.76) 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 adjustments

Provisional valuation

 

£000s

£000s

£000s

 

 

 

 

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 £4,317,000 and contracted order book of £1,276,000. The Group incurred acquisition related costs of £825,000 related to due diligence and legal activities in the year ended 31 December 2020 and £327,000 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.

 

30 June 2021

Carrying amount

Fair value

Financial

assets

at fair value

through

profit and

loss

£000s

Financial

assets at

amortised

cost

£000s

Financial

liabilities at

amortised

cost

£000s

Financial

liabilities at

fair value

through

profit and

loss

£000s

Total

£000s

Total

£000s

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

 

30 June 2020

Carrying amount

Fair value

Financial

assets

at fair value

through

profit and

loss

£000s

Financial

assets at

amortised

cost

£000s

Financial

liabilities at

amortised

cost

£000s

Financial

liabilities at

fair value

through

profit and

loss

£000s

Total

£000s

Total

£000s

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

 

 

31 December 2020

Carrying amount

Fair value

Financial

assets

at fair value

through

profit and

loss

£000s

Financial

assets at

amortised

cost

£000s

Financial

liabilities at

amortised

cost

£000s

Financial

liabilities at

fair value

through

profit and

loss

£000s

Total

£000s

Total

£000s

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 2021

£000s

30 June 2020

£000s

31 December 2020

£000s

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 £nil 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 £328,000 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 £175,000. The level 3 investment in Modus Therapeutics Holding AB at the reporting date had a £nil 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

Unobservable input

Estimate of the input

Sensitivity of the fair value measurement to input

Contingent consideration

Probability of meeting earn-out targets

0%

An increase in the acquisition Adjusted EBITDA forecast of >12% for FY 2021 would result in earn-out consideration payments.

Equity investments - Modus (Level 3)

Probability of Modus securing additional funding for clinical trials

0%

The sensitivity is binary; either additional funds can be secured or not. Securing 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

consideration

£000s

Equity

investments

£000s

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 £15 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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