Results for the year ended 31 December 2019
Plant Health Care plc
Results for the year ended 31 December 2019
Plant Health Care® (AIM: PHC), a leading provider of novel patent-protected biological products to the global agriculture markets, is pleased to announce its preliminary results for the full year ended 31 December 2019, together with an update on the potential impact of COVID-19 on the business.
Operational
• In both the US and Brazil, Harpin aß is showing excellent customer benefits and we have large, strong and committed distribution partners.
• The Company has made impressive progress towards the launch of the first products from the PREtec peptide platforms, targeting markets worth more than $5 billion.
• The Group has seen robust performance in first quarter 2020 trading, with revenue 10% above 2019, buoyed by strong demand in the USA.
• Agricultural inputs, which represent almost all sales by the Group, are considered an 'essential industry'. Planting intentions in the US and elsewhere remain robust. However, the recent collapse in the oil price has led to a severe reduction in the price of ethanol from sugarcane in Brazil, which will lower demand for Harpin aß.
• The Group nonetheless is positive about the prospects for revenue in 2020, compared with 2019.
• Delayed sales in Brazil (down 64%) and exceptionally difficult market conditions in the US (down 18%) held back sales, despite robust market demand for Harpin aß.
Financial
• Revenue was $6.4 million (2018: $8.1 million), 21% down on the prior year, 18% in constant currency*.
• Gross margin decreased to 56% (2018: 65%). The decrease is primarily due to the increased proportion of third-party sales in Mexico and increased tariffs imposed on China by the US.
• Adjusted LBITDA ** improved to $3.8 million (2018: $5.4 million).
• Cash and cash equivalents at 31 December 2019 were $2.4 million.
• The Company successfully raised £2.4 million ($3.0 million) through the issuance of new ordinary shares in November 2019 and a further £3.6 million ($4.6 million) in March 2020.
• The Group has strong cash reserves.
* Constant currency is defined below.
** Adjusted LBITDA: Loss before Interest, tax, depreciation, amortisation, share-based payments and intercompany foreign exchange
Richard Webb, Chairman comments:
Plant Health Care is a leading provider of proprietary agricultural biological products and technology solutions focused on improving crop performance. Plant Health Care is strategically positioned in an industry sector that is on the cusp of change. The plant-based approach to improving crop yields and food security has never been more topical. The UN Food and Agriculture Organisation ("FAO") has designated 2020 as the International Year of Plant Health. Maintaining the health of crop plants can positively impact various Sustainable Development Goals ("SDGs") including the eradication of hunger, sustainable use of terrestrial ecosystems, sustainable production and climate action.
In agriculture the biologicals input sector has attracted extensive interest over recent years, with billions of dollars invested in efforts to develop new biological technologies. There are many drivers, and they are growing in urgency. These include:
• the pressure to reduce use of chemical pesticides and fertilisers;
• the urgency to nurture soils and sequester carbon;
• the requirement to buffer crops against weather shocks; and
• the importance of raising quality and extending the shelf life of food after harvest.
Naturally, for farmers, their primary demands of any input remain:
• yield improvement;
• cost effectiveness; and
• full compatibility with their other inputs and supply chains.
These are tough challenges for biologicals.
So far, no clear champion has emerged in the biologicals sector. Most new players are sub-scale, and many of them are still years from meaningful commercialisation. It was widely believed that the few corporate giants of agriculture would license in or buy out the promising biological technologies, but other than a few significant acquisitions, this has moved slowly in recent years. If anything, the majors are doubling down on the conventional chemistry and genetics they know best.
Plant Health Care has been one of the pioneers of this sector and can be seen as one of the sector's few success stories. With an established product range based on Harpin, Myconate and third-party products we have more than a decade of practical commercial experience in key markets.
• large markets in the USA accessed through two of the top six distributors, with strong grower feedback from innovative products;
• an established operation in Brazil with two years of experience selling into the world's largest sugar cane market through a strong distributor, and
• in Mexico, a long-established, steadily growing, cash-positive business.
Meanwhile, The Group continues to make strong progress with the patented PREtec "plant vaccine" technology:
• field performance has been demonstrated in markets valued at $5 billion.
• formulation stability and ease of use is now achieved; and
• excellent progress in production development has given us a projected cost of goods low enough to allow us to model the capture of substantial market share in our target markets.
These achievements of our science and technology colleagues are especially impressive against the background of our strategic pivot away from a pure out-licensing model. We were previously targeting co-development licensing agreements with the major agrochemical players, to the exclusion of other channels. Given the lack of appetite for doing such deals, we have reached out instead to other routes to market and have made strong progress towards signing up major regional distributors.
Over the past couple of years, the New Technology team, under the leadership of Chief Science Officer Dr Zhongmin Wei, has made better than expected progress in establishing the ability to make, formulate, register and supply finished product and ingredients. PREtec products will be manufactured at a fraction of the expected cost. The additional outlay will in due course convert into higher revenues and margins.
In the latter part of 2019, we were able to secure the interest of a strategic investor, Ospraie Ag Science LLC, who shares our belief in the industry sector opportunities. Ospraie has taken strategic positions in a number of other agriculture and biologicals businesses. After an extensive analysis of Plant Health Care's assets, capabilities and operations, their purchase of $3.0 million in new shares validated our business model and progress.
Later, in the March 2020 funding round, Ospraie expanded their shareholding at a higher price. We look forward to tapping into their industry expertise as we seek out new opportunities in a sector that many see as ripe for consolidation.
2019 was a difficult year for the industry. But through it all, the composition of Plant Health Care's Senior Executive team has remained essentially unchanged. Led by Christopher Richards, based in three continents, and operating round the world, I believe them to be the best in the industry. Highly talented and ever more experienced, they are fully capable of managing a business substantially larger than Plant Health Care is today. This expansion we will deliver by strong organic growth and continue to build shareholder value.
On 31 January 2020, the World Health Organisation declared a global pandemic due to the COVID-19 virus that has spread across the globe, causing different governments and countries to enforce restrictions on people movements, a stop to international travel, and other precautionary measures. This has had a widespread impact economically and a number of industries have been heavily impacted. This has resulted in supply chain impacts on certain industries, uncertainty over cash collection from certain customers, and a more general need to consider whether budgets and targets previously set are realistic in light of these events. Further consideration of the impact of COVID-19 is detailed in our Chief Executive Officer's statement.
Board changes
In October 2019 I took over the role of Non-executive Chairman from Christopher Richards, who had been holding the joint remits of Executive Chairman and Interim Chief Executive for three years. I have been a Director myself for six years under Christopher's inspirational chairmanship. I shall remain focused on giving him and his Executive team the best possible support, while developing into the Chairman role.
In September 2019 Michael Higgins relinquished his post as Senior Independent Director and Chair of the Audit Committee, after six years of sterling service. His contribution to the effective operation and good governance of the Company has been immense.
We were lucky enough to recruit Guy van Zwanenberg to take on Michael's roles, with effect from October 2019. Guy brings deep experience and pragmatism to the Board and has already established himself as a core member.
Alongside William Lewis and myself, the Board now has a well-balanced non-executive team, which can help to steer the Company through the opportunities and challenges ahead.
In October we also strengthened the Executive presence on the Board, by appointing Chief Financial Officer Jeffrey Hovey and Chief Operating Officer Jeff Tweedy as Board Directors. While both of them have been participating in Board matters for some time, Jeffrey Hovey as Chief Financial Officer since 2013, these promotions strengthen the Executive team, and ensure we continue to pay the fullest attention to financial management and customer-facing matters.
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
Richard Webb, Non-executive Chairman Tel: +1 919 926 1600
Arden Partners plc (Nomad and Broker) Tel: +44 (0) 20 7614 5900
John Llewellyn-Lloyd / Dan Gee-Summons (Corporate Finance)
Fraser Marshall (Equity Sales)
Company website: www.planthealthcare.com
Chief Executive Officer's statement
Overview
Plant Health Care fell short of revenue expectations in 2019, due to adverse market conditions in the US and delays to sales in Brazil. As a result, sales of Harpin aß by the Group were down 34% compared to the prior year. These factors obscured positive customer benefits in newly launched Harpin aß products, supported by new relationships with very strong national distributors in the US and Brazil. These have established a very promising base for revenue growth in 2020 and beyond.
At the same time, progress with the development of our first PREtec products has been outstanding, with product launches into large market opportunities now anticipated from 2022 or earlier. Field trials with partners continue to show admirable farmer benefits, in market opportunities valued at more than $5 billion. Cost of goods with our leading product PHC279 have continued to fall, as we progress to scale-up towards commercial production. Regulatory applications are progressing in the USA and Brazil and we eagerly anticipate first sales to distribution partners.
Following the successful equity raises in November 2019 and March 2020, the Group now has sufficient cash resources both to deliver strong commercial sales growth in 2020 and beyond and to increase spend on PREtec product development, in order to maximise the impact of impending product launches. These investment plans, however, have now been paused until the effects of the COVID-19 situation on the Company's cash flow have become clear.
COVID-19 - impact assessment
Agriculture and agricultural inputs are classified as essential industries around the world. As such, COVID-19 has so far had limited impact on the business. However, we have no experience of a similar crisis, so it is difficult to predict the extent of COVID-19 impact on our revenues. It is not yet clear how widespread the virus will become, how long the pandemic will last and what the medium to long term effect of this will be on consumer and business behaviour.
The timing of the COVID-19 pandemic is such that the majority of agricultural inputs for the northern hemisphere crop season were already in place before the recent lockdowns were implemented. At the same time, farmers' planting intentions have not been significantly affected by the crisis, in spite of wider turbulence in markets and on the prices of agricultural commodities. For example, USDA estimates that 97 million acres of corn will be planted in 2020, some 10% higher than in 2019; the Group's sales in the US so far have been stronger than forecast. Shortage of migrant labour is very likely to affect the harvesting of fruit and vegetable crops over the coming weeks; sales in Mexico and Spain have been affected. Sales to the amenity market, which are largely in the UK and a modest part of revenues, have stopped.
In Brazil, our sales are principally to sugar cane and that crop has been substantially affected by the recent collapse in the oil price, exacerbated by the COVID-19 crisis. Approximately half of the sugar cane in Brazil is used to produce ethanol; the price of ethanol in Brazil has reduced by some 50% in response to the reduction in global oil prices. As a result, the sugar cane industry is struggling. In addition, the response of the Brazilian government, particularly recent statements on the need for suppliers to extend payment terms, has led many distributors (including the Group's distributor Coplacana) to stop sales for the time being. It is not clear at present how long this disruption will last.
Our priority is to do all we can to keep our business as safe as possible for customers and staff. We have suspended operations at our Seattle laboratory and most other staff are working from home. We must also prepare the business for varying levels of sales declines. To that end, we have modelled the effects of differing levels of sales declines and delays in collection, along with all the measures we can take to ensure that the Group remains within its cash reserves, and have prepared cash flow forecasts for a period in excess of 12 months.
The Board's "central case" scenario is based upon a continuation of the current crisis into the third quarter of 2020. We anticipate downsides in demand over the next six months (especially in Mexico and Spain), with a return to normal levels in the fourth quarter, with the exception of Brazil. Due to the situation in sugar cane, we assume a 50% reduction in sales to Brazil (compared with our earlier forecast). In addition to the impact of reduced sales, we assume that $0.5 million in Accounts Receivable now due will not be collected during 2020. Operating Expenses are held to the same level as in 2019. Under this scenario, the Group's cash reserves are sufficient beyond the end of 2021.
The Board's "severe downside" forecast is based on sales that are further constrained in Mexico and Europe for the rest of 2020. Sales in the USA are not affected. Sales to Brazil fall to 25%, compared with our earlier forecast. In addition to the impact of reduced sales, we assume that $1.0 million in Accounts Receivable due in 2020 will not be collected until 2021. In this scenario, sales projections in 2021 are lower than previously forecast. Operating Expenses are held to the same level as in 2019, in both 2020 and 2021 in an effort to manage existing cash resources. Even under this pessimistic scenario, the Group's cash reserves are sufficient beyond the end of 2021.
The Directors have no reason to believe that customer revenues and receipts will decline to the point that the Group no longer has sufficient resources to fund its operations. However, in the unlikely event that this should occur, and the risk of this is materially amplified due to the very fluid nature of the current situation, the Group may need to seek additional funding beyond the facilities that are currently available to it, as well as making significant reductions in its fixed cost expenses.
Group trading for FY-2020 to date has been in line with management expectations, with only limited apparent adverse effects on the Group's performance due to COVID-19 currently being experienced, outside of Brazil. However, there is unprecedented uncertainty around the impact of COVID-19 on the global economy. While the Board is encouraged by the resilience shown by the Group and its employees to date, the impact on FY-2020 cannot as yet be fully assessed. Accordingly, the Board believes it would be inappropriate to provide forward looking financial guidance to investors and analysts at this time.
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
Overall sales in 2019 were $6.4 million, a decrease of 21% in both actual and constant currency* compared with 2018 ($8.1 million). Sales in the USA decreased 18% to $1.7 million (2018: $2.1 million), Brazil sales decreased 64% to $0.4 million (2018: $1.1 million), Spain (up 17%) and Mexico (up 6%) was offset by reduced sales in Europe/Africa (down 76%), due to slower draw-down of in-market inventory in South Africa.
Sales of core Harpin aß products decreased by 34% (32% in constant currency). Harpin aß and Myconate products represented 59% of sales in 2019 (2018: 68%).
Sales in Brazil were $0.4 million (2018: $1.1 million). Our distributor Coplacana was unable to buy due to delays in the approval of a critical import licence and existing inventory. The import licence was issued in January 2020. However, sales of H2Copla, Coplacana's exclusive brand into the 10 -million-hectare sugarcane market in Brazil are growing strongly. Coplacana sales to growers were some 3 times up on 2018. Sales to growers, however, were from a lower base than previously reported. Adoption of the product is slow, due to the very long crop cycle (a year between harvests. Since the launch of H2Copla in 2018, more than 400 cane growers have made applications of the product. Demonstration field trials conducted in 2016-2019 showed an average yield increase of over 21%. With these outstanding results, we anticipate strong sales growth in 2020 and beyond. The Group expanded sales in 2019 of Harpin aß as a seed treatment in soybeans and as a foliar application in corn.
Sales in North America were $1.7 million (2018: $2.1 million) In the USA, Harpin aß was launched into the 90-million-acre corn market in Q4 2018, through a very strong distribution partner. Demonstration trials in 2019 continued to show impressive grower benefits, with corn three weeks after planting growing taller and healthier than untreated corn. However, the US corn market was hammered in 2019, by a combination of the worst weather in decades and low commodity prices. Our partner estimates that growers treated some 350,000 acres with Harpin aß in 2019, a successful result under these conditions but well short of its target of one million acres. As a result, our partner finished the year with substantial inventory (bought in Q4 2018) and did not make further purchases in 2019. Sales by the Group in 2020 will depend on the ramp-up of sales to growers this year.
In 2019, the Group signed a new agreement with Wilbur-Ellis, one of the largest distributors in the USA, for the exclusive distribution of Harpin aß in specialty (fruit and vegetable) crops. Wilbur-Ellis had prior experience with Harpin aß, having previously bought the product through an existing distributor, SymAgro. This move to a larger distributor brings national coverage for Harpin aß and is already resulting in increased sales.
Sales in Mexico grew 6% to $3.3 million (7% in constant currency). Sales of Harpin aß grew by 15%, with entry into new crops. Sales in Spain increased by 17% to $0.7 million (2018: $0.6 million). In South Africa, sales continued to be hit by drought and the Group decided not to make any sales in order to reduce in-market inventory.
What is PREtec?
PREtec works by inducing natural defensive and metabolic responses in crop plants so they suffer less harm from the usual stresses faced during a growing season, such as nematodes or disease. This is achieved by designing peptides that mimic the active sites of larger naturally occurring proteins to which plants have evolved to respond defensively. These peptides are generally accepted as being safe to handle and having negligible toxicity. They do not leave any detectable residue and rapidly degrade so that they do not persist on the plant after application. For these reasons, PREtec peptides should benefit from regulations in the US and many foreign countries intending to accelerate the commercial approval of biological products.
The New Technology team discovers and develops 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. 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. Because of their novel mode of action, PREtec peptides complement standard chemical pesticides, improving disease control and yield, while being compatible with mainstream agriculture practices such as seed treatment and foliar sprays.
After many years of development, the PREtec technology platform has resulted in the identification of three lead peptides for commercial development, a larger series of development candidates undergoing further characterisation, and a collection of early-stage peptides available for further screening. PREtec generates the possibility of many peptide product candidates across several platforms; we have so far characterised and presented to our partners peptides from four related families of peptides: Innatus 3G, T-Rex 3G, Y-Max 3G and P-Max 3G. The members of each peptide family share certain key agronomic performance attributes and each family is a platform for product development.
New technology
Plant Health Care's Plant Response Elicitor Technology ("PREtec") platforms are generating numerous promising products. The Group is currently focusing on three products targeting very large market opportunities with a value of more than $5 billion. These products are currently under evaluation with six potential commercial partners. The Group also continues to evaluate further candidate products from its robust pipeline of development candidates for additional crops and indications.
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 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.
The lead PREtec peptide product is PHC279, from the Innatus 3G platform, which promotes healthy growth of a wide range of crops. For example, PHC279 has been shown to promote disease control in Brazilian soybeans when applied as a seed treatment. It has the potential to reduce substantially the use of toxic fungicides.
Also progressing rapidly in development is PHC949, from the T-Rex 3G platform, which provides outstanding control of nematode soil pests in crops including soybeans and vegetables. PHC414, from the Y-Max 3G platform, promotes the quality and yield of fruits and vegetables.
The Group has submitted for registration of PHC279 in the USA and Brazil. Earliest regulatory approvals are expected in 2021.
Remarkable progress has been made in developing cost-effective production methods for the lead PREtec peptide products.
During 2019, the Group contracted with Penn State University's CSL Behring Fermentation Facility to scale up manufacturing of PHC279. Production efficiency targets have already been exceeded, giving the Group confidence that PHC279 will be cost effective in the field and provide a competitive advantage over other biological products. Preliminary estimates suggest margins for PHC279 could be superior to those which the Group currently enjoys with Harpin aß.
The Group expects to take the lead products to growers through distribution agreements with strong distributors. The existing relationships established in the USA and Brazil for Harpin aß provide a strong basis for PREtec peptide product distribution. Product launches are expected to take place soon after regulatory approvals have been obtained.
Intellectual property protection of PREtec
The Group has designed a very large number of closely related peptide variants and filed more than 50 patent applications worldwide since 2012 to protect this technology. On 12 November 2019, our first US patent for PREtec was issued. US Patent No. 10,470,461 claims a large number of unique response elicitor peptides, as well as their use in combination with other agricultural products to enhance disease resistance, improve plant growth and impart tolerance to both biotic stresses and abiotic stresses such as heat, drought and excess soil salinity.
This is the first of a series of patents that we expect will issue shortly in the US and internationally. Plant Health Care is carving out a dominant patent position around the use of response elicitor peptides in agriculture, which will ultimately cover a significant share of the "space" available for using peptides in agricultural production.
Financial and corporate
The Group has maintained strict control of cash operating expenses (defined as expenses less depreciation, amortization, share-based payments and translational gains/losses), which finished the year at $7.4 million (2018: $10.4 million); the main contributors were reduced New Technology spend at $2.1 million (2018: $3.5 million) and reduced bad debt expense to $85,000 (2018: $0.7 million). Inventory ($3.0 million), accounts receivable ($3.6 million) and payables ($0.8 million) were comparable to the prior year ($3.0 million, $3.5 million and $1.4 million, respectively).
The Group ended 2019 with $2.4 million (2018: $4.3 million) being the total of both cash and cash equivalents and the investment balance. The Group's cash burn reduced to $4.8 million (2018: $6.3 million) primarily due to decreased operating costs and reduced inventory purchases.
*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.
Outlook
Agriculture markets were hit in 2019 by the combination of low commodity prices and, especially in the USA, severe weather and the trade war with China. With more confidence returning for exports to China, anticipated plantings for corn and soybeans in the US are up to 97 million acres and 85 million acres, respectively.
We are confident that Harpin aß sales will continue to grow with this market 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.
In prior years, sales of the Group's products were heavily dependent on sales to both the USA and Brazil in the last quarter of the year. The Group is now taking active steps to rebalance sales across the year.
The combination of product launches, on top of growth in existing markets, is in our view likely to accelerate our revenue growth over the coming years.
We are investing to accelerate the launch of PHC279 into several target markets, once regulatory permits have been obtained. These launches will be followed by other products over the coming years. We expect to generate significant revenue from these products.
Plant Health Care has a clearly defined strategy, which we are implementing effectively. 2020 will be a decisive year for the Group, which we enter with confidence.
The COVID-19 pandemic has so far had limited impact on our business and the Board believes that the business is well positioned to navigate through its impact, due to the strong balance sheet and net cash position of the Group.
While the Directors have no reason to believe that customer revenues and receipts will decline to the point that the Group no longer has sufficient resources to fund its operations, should this occur, the Group may need to seek additional funding beyond the facilities that are currently available to it, as well as making significant reductions in its fixed cost expenses.
Our products and technologies
Harpin aß
Harpin aß is an exceptionally powerful biostimulant of the plant's natural defence systems. The result is increased yield and quality and improved resistance to soil pests and disease. Harpin aß is a recombinant protein, developed from the original research on naturally occurring Harpin proteins by the Group's Chief Science Officer, Dr Zhongmin Wei.
We are now able to sell Harpin aß in nearly 30 countries. Sales were developed initially in a range of fruit and vegetable crops in the USA, Mexico, Europe and Africa. The focus over recent years has been to enter into larger scale arable or row crops (such as corn, soy and sugarcane) with targeted products sold through very strong, committed distributors. This approach provides much larger sales opportunities, as demand grows over the coming years.
After four years of trials, Plant Health Care Brasil launched H2Copla (Harpin aß) into sugar cane in Brazil in February 2018, through Coplacana, the leading sugar cane co-operative, which services more than 70% of the sugar cane hectares in Sao Paulo State. There are more than eight million hectares of sugar cane in Brazil, of which more than 50% are in Sao Paulo State. Grower reaction to the launch has been very positive, with demonstration trials showing very substantial yield improvements, with average yield increase up to 20%. The adoption cycle in sugar cane is prolonged-the crop takes some 12 months to grow to harvest. With Coplacana, the Group is focused on demonstrating the value of H2Copla on as many farms as possible, especially the 35 large processors who represent some 50% of the market opportunity. Like many small companies in Brazil, the team has experienced teething problems, including the slow authorisation of import permits. These issues are being addressed and we do not expect such constraints in the future, as grower demand builds.
In the USA, the Group launched Harpin aß into corn in the spring of 2019. In this case, Harpin aß 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 is a leading supplier of the 90-million-acre US corn market. Although applications of the product were limited by the very exceptional weather conditions, users reported that their corn crops emerged taller and stronger, compared with untreated corn. These promising results are expected to lead to acceleration of sales in the coming years. The Group now plans to launch the same product into soy, starting with the 2020 crop.
Also in the USA, the Group has reached agreement with Wilbur-Ellis, a very large distributor with sales over $3.2 billion, for exclusive distribution of Employ (Harpin aß) into fruit and vegetable crops. Wilbur-Ellis has been selling Employ for several years, through the smaller distributor SymAgro; this gave them experience with the product. Under the new agreement, Wilbur-Ellis aims to extend sales nationwide, through their very extensive network. We anticipate that this much stronger distribution reach will lead to increased sales into these crops over the coming years.
In Mexico, Harpin aß is now well established as a biostimulant for vegetables such as bell peppers, which are grown in greenhouses for export to the USA. The Group is a significant player in the application of Harpin aß in the bell pepper market in the Sinaloa/Baja California area of Mexico, delivering increased yield of higher quality product. Sales of Harpin aß in Mexico grew by 15% in 2019, reaching $0.7 million.
In Spain, the Group has been developing Harpin aß to improve the quality of citrus fruits and other crops over the last five years. Sales of Harpin aß in Spain grew 18% in 2019, reaching $0.7 million.
In Europe, the Group has established a relationship with Origin Enterprises, one of the largest distributors in the EU, to commercialise Harpin aß. In the UK, Origin is now selling Harpin aß into potatoes. In addition, Origin companies are selling the product into the amenity market; both leading golf courses and well-known soccer clubs are now using Harpin aß to improve the quality of their turf.
SugarCane picture
· There are 8.4 million hectares of sugarcane in Brazil.
· There are 5.0 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 aß) 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.
* 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 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, each of which has been named and launched with partners. In the chart below, 3G signifies the third-generation product candidates (distinct from the second generation commercial Harpin aß 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.
Since 2012, the Group has made huge progress towards bringing the first PREtec products to market. As our experience and confidence has built, we have modified our plans from a dependence on technology licensing, to targeting direct sales to distributors. This change has been particularly welcomed by our existing large distribution partners, who are building portfolios of proprietary biological products. While trials continue with major international agrochemical companies, we believe that distributors will bring PREtec peptides to market more rapidly than the traditional agrochemical companies.
The Group is targeting product launches in very large markets, with a combined opportunity of some $5 billion. We aim to launch products soon after regulatory permits are achieved.
The peptide PHC279, from the Innatus 3G platform, is likely to be the first PREtec peptide to be launched to the market. Extensive trials have shown that PHC279 is a versatile and highly effective product, in a range of crops.
In August 2018, the Group submitted an application for registration with the US EPA for approval to sell PHC279 as a biopesticide and expects to receive approval during 2021. In October 2019, the Group submitted an application for registration in Brazil as a biochemical product for the control of Asian soybean rust, a devastating disease of soy. The timing of achieving registrations in Brazil is less certain than in the USA.
Other peptide products are also in the later stages of development. PHC949, from the T-Rex platform, is showing remarkably strong benefits, with control of nematode worm infestations in soil comparable to that of leading chemical pesticides. We anticipate registration of PHC949 in the USA in 2022. PHC414, from the Y-Max platform, is showing promise as a biostimulant, promoting yield in a range of crops. We anticipate registration of PHC414 in the USA in 2022 or 2023.
As we move towards product launches, our team in Seattle has developed laboratory-scale methods for the manufacture of PREtec peptides A particular achievement has been the development of both liquid and solid formulations of PREtec peptides, which are highly stable and easy to use. Remarkable progress has also been made in reducing product cost, with indicative costs of production now substantially lower than those of Harpin aß. During 2019, we started scaling up production of PHC279 at Penn State's University's CSL Behring Fermentation Facility. These scale-up trials are currently ahead of schedule. We are now searching for toll manufacturers to produce PHC279 and other peptides on a commercial scale, in time for the first product launches.
IP protection is fundamentally important for the Group. Since 2012, numerous patents have been filed around the PREtec platforms. In an important landmark, the US Patent and Trademark Office has now granted the first of these patents, approving the very wide claims sought by the Group. Additional US and foreign patents are expected to issue in 2020. Plant Health Care is carving out a dominant patent position around the use of response elicitor peptides in agriculture, which will ultimately cover a significant share of the "space" available for using peptides in agricultural production.
Our growth strategy
Our future growth will be achieved by focusing on the following key areas:
· Substantial increase in market access. We intend to drive revenue in the short term by focusing on distribution of Harpin aß by aligning with large distributors with broad market access. We plan to expand sales in broad acre crops where Harpin aß provides most benefits to farmers, including sugar cane, corn, soy, citrus, rice, almonds and grapes.
· Launching peptide products from our PREtec platforms. In trials conducted by PHC and our partners in 2019, our lead peptide, PHC279, continued to provide impressive levels of disease control and improved yield in a variety of crops, including soybeans, corn, wheat and lettuces. Our application to sell PHC279 in Brazil for the treatment of Asian Soybean Rust was accepted by the relevant agencies, and we are anticipating a rapid approval process. We anticipate launches from 2021 onwards.
· Building further the capability to deliver additional products from PREtec. Having now established pilot plant manufacturing capabilities at Penn State University's CSL Behring Fermentation Facility, Plant Health Care can quickly scale up production of other PREtec peptides in our pipeline, including PHC949 and PHC414.
· IP protection and ongoing innovation. The Group has an extensive library of PREtec peptides, which can be further expanded. The Group has now been granted the first patents for PREtec peptides by the US PTO; numerous filings are in the process of being reviewed around the world, as the Group builds its IP portfolio.
In closing, I would like to thank the entire Plant Health Care team for all their hard work during the year. As Chief Executive Officer, I am proud of the Group's impressive team of highly motivated professionals, in whom I have the greatest confidence.
Financial review
A summary of the financial results for the year ended 31 December 2019 with comparatives for the previous financial year is set out below:
|
|
2019 $'000 |
2018 $'000 |
|
Revenue |
6,436 |
8,128 |
|
Gross profit |
3,602 |
5,271 |
|
|
56% |
65% |
|
Operating loss |
(4,127) |
(8,033) |
|
Finance income (net) |
285 |
89 |
|
Net loss for the year before tax |
(3,842) |
(7,944) |
Revenues
Revenues in 2019 decreased by 21% to $6.4 million (2018: $8.1 million) as a result of a delay to sales in Brazil and postponement of sales into the North American corn market by our channel partner as they respond to working capital pressures. The gross margin decreased 9% to 56% (2018: 65%) primarily due to the increased proportion of third-party sales in Mexico and increased tariffs imposed on China by the US.
Americas
This segment includes activities in both North and South America but is exclusive of Mexico.
External revenue in the Americas segment decreased 35% to $2.1 million (2018: $3.3 million). The decrease in revenue was primarily due to a delay to sales in Brazil and postponement of sales into the North American corn market by our channel partner as they respond to working capital pressures. Revenue in the Americas is predominantly from Harpin aß sales.
Mexico
A significant portion of the Group's revenue comes from Mexico. Revenue from the Mexican segment increased 6% (7% in local currency) to $3.3 million (2018: $3.1 million). This was due to the rebound of produce prices in the north-west portion of Mexico. Revenue in Mexico includes sales of Harpin aß, Myconate and third-party products.
Rest of World
External revenue in the Rest of World segment decreased 44% (37% in constant currency) to $1.0 million (2018: $1.7 million). The decrease was primarily due to channel stock remaining high in the South African region partially offset by a sales increase of 17% in Spain. Revenue in the Rest of World segment is predominantly from Harpin aß and some Myconate sales.
Gross margin
Gross margin declined 8.9% to 56.0% (2018: 64.9%). The decline is primarily due to the increased proportion of third-party sales in Mexico and increased tariffs imposed on China by the US.
Operating expenses
The Group has maintained strict control of cash operating expenses, which decreased to $7.4 million from $10.4 million in 2018. The main contributors were reduced New Technology spend at $2.1 million (2018: $3.5 million) and reduced bad debt expense of $85,000 (2018: $0.8 million).
Unallocated corporate expenses decreased $2.6 million to $0.3 million (2018: $2.9 million loss). The decrease was attributable to the increase in the value of Sterling loans from our UK subsidiary due to the depreciation of the Pound.
Adjusted LBITDA*, a non-GAAP measure, decreased by $1.6 million to $3.8 million primarily due to reduced gross profit of $1.7 million offset by decreased spend in New Technology and sales and marketing of $1.5 million and $0.5 million, respectively and reduced bad debt expense to $85,000 (2018: $0.8 million).
|
|
2019 $'000 |
2018 $'000 |
|
Gross margin |
3,602 |
5,271 |
|
Operating expenses |
(7,729) |
(13,305) |
|
Depreciation/amortization |
778 |
588 |
|
Share-based payment expense |
318 |
797 |
|
Intercompany foreign exchange gains/(losses) |
(783) |
1,235 |
|
Adjusted LBITDA |
3,814 |
5,414 |
* Adjusted LBITDA: loss before interest, tax, depreciation, amortization, share-based payments and intercompany foreign exchange.
Balance sheet
At 31 December 2019 and 2018, investment, cash and cash equivalents were $2.4 million and $4.3 million, respectively. Cash remains a primary focus for the Group. Cash burn decreased $1.5 million to $4.8 million (2018: $6.3 million) primarily due to reduced operating expenses in New Technology of $2.1 million (2018: $3.5 million). Working capital decreased to $7.7 million in 2019 (2018: $8.6 million). The decrease is primarily due to a decrease in cash and cash equivalents, offset by a fall in accounts payable.
Translation of the results of foreign subsidiaries for inclusion within the consolidated Group results resulted in an exchange loss of $0.8 million recorded within other comprehensive income and foreign exchange reserves (2018: gain of $1.1 million).
Cash flow and liquidity
Net cash used in operations was $4.4 million (2018: $6.3 million).
Net cash provided by investing was $0.1 million in 2019 (2018: $0.9 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 $2.6 million for 2019 (2018: $6.7 million). The reduction of $3.0 million (net of costs) is due to the 2019 equity raise compared to the prior year equity raise.
Going concern
In assessing whether the going concern basis is appropriate for preparing the 2019 Annual Report, the Directors have utilised the Group's detailed forecasts, which take into account its current and expected business activities, its cash and cash equivalents balance and investments of $2.4 million. The principal risks and uncertainties the Group faces and other factors impacting the Group's future performance were considered. Analysis of the going position is detailed in the CEO's report and Note 2 to this announcement.
Consolidated statement of comprehensive income
for the year ended 31 December 2019
| Note | 2019 $'000 | 2018 $'000 |
Revenue | 4 | 6,436 | 8,128 |
Cost of sales |
| (2,834) | (2,857) |
Gross profit |
| 3,602 | 5,271 |
Research and development expenses |
| (2,775) | (4,090) |
Sales and marketing expenses |
| (3,144) | (3,655) |
Administrative expenses |
| (1,810) | (5,559) |
Operating loss | 5 | (4,127) | (8,033) |
Finance income | 7 | 323 | 90 |
Finance expense | 7 | (38) | (1) |
Loss before tax |
| (3,842) | (7,944) |
Income tax credit | 8 | 158 | 252 |
Loss for the year attributable to the equity holders of the parent company |
| (3,684) | (7,692) |
Other comprehensive income: |
|
|
|
Items which will or may be reclassified to profit or loss: |
|
|
|
Exchange (loss)/gain on translation of foreign operations |
| (792) | 1,120 |
Total comprehensive loss for the year attributable to the equity holders of the parent company |
| (4,476) | (6,572) |
Basic and diluted loss per share | 9 | $(0.02) | $(0.05) |
Consolidated statement of financial position
at 31 December 2019
| Note | 2019 $'000 | 2018 $'000 |
Assets |
|
|
|
Non-current assets |
|
|
|
Intangible assets | 10 | 1,649 | 1,692 |
Property, plant and equipment |
| 475 | 701 |
Right of use assets | 13 | 416 | - |
Trade and other receivables | 11 | 150 | 140 |
Total non-current assets |
| 2,690 | 2,533 |
Current assets |
|
|
|
Inventories |
| 2,960 | 2,975 |
Trade and other receivables | 11 | 3,412 | 3,357 |
Tax receivable |
| 335 | 400 |
Investments |
| 1,964 | 1,825 |
Cash and cash equivalents |
| 457 | 2,459 |
Total current assets |
| 9,128 | 11,016 |
Total assets |
| 11,818 | 13,549 |
Liabilities |
|
|
|
Current liabilities |
|
|
|
Trade and other payables | 12 | 1,406 | 2,404 |
Short-term lease liabilities | 13 | 353 |
|
Total current liabilities |
| 1,759 | 2,404 |
Non-current liabilities |
|
|
|
Long-term lease liabilities | 13 | 107 | - |
Total non-current liabilities |
| 107 | - |
Total liabilities |
| 1,866 | 2,404 |
Total net assets |
| 9,952 | 11,145 |
Share capital |
| 3,030 | 2,586 |
Share premium |
| 88,647 | 86,126 |
Foreign exchange reserve |
| (61) | 731 |
Accumulated deficit |
| (81,664) | (78,298) |
Total equity |
| 9,952 | 11,145 |
Consolidated statement of changes in equity
for the year ended 31 December 2019
| Share capital $'000 | Share premium $'000 | Foreign exchange reserve $'000 | Accumulated deficit $'000 | Total $'000 |
Balance at 1 January 2018 | 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 net of issue costs | 349 | 6,340 | - | - | 6,689 |
Share-based payments | - | - | - | 797 | 797 |
Balance at 31 December 2018 | 2,586 | 86,126 | 731 | (78,298) | 11,145 |
Loss for the year | - | - | - | (3,684) | (3,684) |
Exchange difference arising on translation of foreign operations | - | - | (792) | - | (792) |
Total comprehensive loss | - | - | (792) | (3,684) | (4,476) |
Shares issued net of issue costs | 444 | 2,521 | - | - | 2,965 |
Share-based payments | - | - | - | 318 | 318 |
Balance at 31 December 2019 | 3,030 | 88,647 | (61) | (81,664) | 9,952 |
Consolidated statement of cash flows
for the year ended 31 December 2019
| Note | 2019 $'000 | 2018 $'000 |
Cash flows from operating activities |
|
|
|
Loss for the year |
| (3,684) | (7,692) |
Adjustments for: |
|
|
|
Depreciation |
| 358 | 382 |
Depreciation of right of use assets | 13 | 373 | - |
Amortisation of intangibles | 10 | 43 | 206 |
Share-based payment expense |
| 318 | 797 |
Finance income | 7 | (323) | (90) |
Finance expense | 7 | 38 | 1 |
Foreign exchange (loss)/gain |
| (824) | 1,120 |
Income taxes credit |
| (158) | (252) |
(Increase)/ Decrease in trade and other receivables |
| 155 | 961 |
Gain/(loss) on disposal of fixed assets |
| - | (7) |
Decrease/(increase) in inventories |
| 15 | (1,439) |
Decrease in trade and other payables |
| (941) | (475) |
Income taxes received |
| 223 | 216 |
Net cash used in operating activities |
| (4,407) | (6,272) |
Investing activities |
|
|
|
Purchase of property, plant and equipment |
| (132) | (115) |
Sale of property, plant and equipment |
| 20 | 7 |
Finance income | 7 | 56 | 90 |
Purchase of investments |
| (1,940) | (3,994) |
Sale of investments |
| 1,859 | 4,887 |
Net cash (used)/provided by investing activities |
| (137) | 875 |
Financing activities |
|
|
|
Finance expense | 7 | (3) | (1) |
Payment of lease liability |
| (420) | - |
Issue of ordinary share capital |
| 2,965 | 6,689 |
Repayment of finance lease principal |
| - | (7) |
Net cash provided by financing activities |
| 2,542 | 6,681 |
Net (decrease)/increase in cash and cash equivalents |
| (2,002) | 1,284 |
Cash and cash equivalents at the beginning of the period |
| 2,459 | 1,175 |
Cash and cash equivalents at the end of the period |
| 457 | 2,459 |
Notes
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 2018 or 2019. Statutory accounts for the years ended 31 December 2018 and 31 December 2019, which were approved by the directors on 23 April 2020, have been reported on by the Independent Auditors. The Independent Auditor's Reports on the Annual Report and Financial Statements for each of 2018 and 2019 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. However, while the year ended 31 December 2018 did not draw attention to any matters by way of emphasis, the audit report for the ended 31st December 2019 contained a statement in respect of uncertainly over going concern, further details are included in Note 2 below.
Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2019 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 2018, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019. The new standard impacting the Group that has been adopted in the annual financial statements for the year ended 31 December 2019 is IFRS 16: Leases, further details of which appear in Note 2 below. 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. Amounts are rounded to the nearest thousand, unless otherwise stated.
2. Accounting policies
Reporting currency
The annual financial statements are presented in thousands of US Dollars. The exchange rates used to convert British Pounds to US Dollars at 31 December 2019 and 2018 were 1.3185 and 1.2734, respectively, and the average exchange rates for the years then ended were 1.2767 and 1.3348, respectively. The exchange rates used to convert Mexican Pesos to US Dollars at 31 December 2019 and 2018 were 0.0529 and 0.0509, respectively, and the average exchange rates for the years then ended were 0.0519 and 0.0521, respectively. The exchange rates used to convert Euros to US Dollars at 31 December 2019 and 2018 were 1.1215 and 1.1444, respectively, and the average exchange rates for the years then ended were 1.1194 and 1.1809, respectively.
The functional currency of the parent company is US Dollars primary due to the US being the country whose competitive forces and regulations impact this business.
Going concern
In assessing whether the going concern basis is an appropriate basis for preparing the 2019 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 $2.4 million as shown in its balance sheet at 31 December 2019, 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 a variety of possible cash flow scenarios, taking into account the COVID-19 pandemic, where the Group achieves significantly reduced revenues for the twelve months following the date of this Annual Report. Overall, the directors have prepared cash-flow forecasts covering a period of at least 12 months from the date of approval of the financial statements, which foresee that the Group will be able to operate within its existing facilities.
The COVID-19 pandemic has so far had limited impact on our business and the Board believes that the business is able to navigate through the impact of COVID-19 due to the strength of its customer proposition, its balance sheet and net cash position of the Group. This is supported by, the Company successfully completed an equity raise which generated $4.6 million (net of costs) from new and existing investors in March 2020. The Company issued 44,602,188 ordinary shares at 8p per share, directly attributable costs of $150,000 were incurred.
However, the rapid emergence of the coronavirus pandemic has caused significant disruption to many businesses where the implementations of social distancing measures is not practical or deemed ineffective and this had implication for the wider global economy and specifically to the supply chain of which we reside within - be it our customers willingness to purchase volumes planned prior to the pandemic or where customers will have the ability to settle their debts to the value of sales already recorded and to the originally agreed settlement terms. In many countries agricultural processes and procedures has been protected from more general worker restrictions and we expect this to remain to be the case throughout the pandemic. In addition, our products support human subsistence, by enhancing crop yields and crop robustness, which flow into the wider food production process. However, there is a risk that the Group will be impacted by decisions further up the supply chain leading to delays in contract negotiations and cancelling of anticipated sales. If sales and settlement of existing debts are not in line with cash flow forecasts, the directors have identified cost savings associated with the reduction in revenues and have the ability to identify further cost savings if necessary, then additional funding may be required. While the Directors have no reason to believe that customer revenues and receipts will decline to the point that the Group no longer has sufficient resources to fund its operations, should this occur, the Group may need to seek additional funding beyond the facilities that are currently available to it through a placement of shares or source other funding, as well as making significant reductions in its fixed cost expenses.
The directors have concluded that the circumstances set forth above represent a material uncertainty, which may cast significant doubt about the Company and Group's ability to continue as going concerns and therefore that they may be unable to realise assets and discharge liabilities in the normal course of business. The financial statements do not include the adjustments that would be required if the Company and the Group were unable to continue as a going concern.
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.
The principal accounting policies are set out below. The policies have been applied consistently to all the years presented and on a going concern basis.
Adoption of new and revised standards
New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2019, and which have given rise to changes in the Group's accounting policies are:
• IFRS 16 "Leases"
Details of the impact of this standard is set out below. A number of other new standards, amendments and interpretations to existing standards have been adopted by the group, but have not been listed, since they have no material impact on the financial statements. None of the other new standards, amendments and interpretations in issue but not yet effective are expected to have a material effect on the financial statements.
The Group has adopted IFRS 16 "Leases" with a date of initial application of January 2019. IFRS 16 supersedes IAS 17 "Leases" and related interpretations.
IFRS 16 introduces a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.
(a) Transition method and practical expedients utilised
The Group has applied IFRS 16 using the modified retrospective transition approach (option 1, asset = liability), with recognition of transitional adjustments on the date of initial application (1 January 2019), without restatement of comparative figures.
Previously, the Group determined at the inception of a contract whether an arrangement was or contained a lease under IFRIC 4 "Determining Whether an Arrangement Contains a Lease". The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
• excluded initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
• applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases. However, the Group has elected not to recognise a right-of-use asset and lease liability in our Brazil subsidiary due to the low value of the asset. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
At the commencement date of property leases the Group determines the lease term non-cancellable period of the lease. Leases are regularly reviewed and will be revalued if it becomes likely that an option to extend the lease will be exercised.
(b) Right-of-use assets
The Group recognises a right-of-use asset at the lease commencement date. The right-of- use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments - the Group applied this approach to all leases. Subsequent to measurement, right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter.
(c) Lease liabilities
The lease liabilities are measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate applicable to each lease as at 1 January 2019. The Group's incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. Judgement is required to determine an approximation, calculated based on US Government treasury bill rates of an appropriate duration and adjusted by an indicative credit premium and a lease specific adjustment. The weighted average incremental borrowing rate applied to the lease liabilities was 5.00%.
Subsequently, the lease liability is increased by the interest cost on the lease liability and decreased by the lease payment made. It is remeasured if there is a modification, a change in lease term or a changed in the fixed lease payments.
(d) Impacts on the financial statements
The table below shows a reconciliation from the total operating lease commitment as disclosed at 31 December 2019 to the total lease liabilities recognised in the accounts immediately after transition:
For the period | 1 January 2019 $'000 |
Operating lease commitment at 31 December 2018 as disclosed in the Group's consolidated financial statements | 812 |
Operating lease commitment prior period omission error | 44 |
Discounted using the incremental borrowing rate at 1 January 2019 | (47) |
Recognition exemption for lease of low-value assets / short-term leases | (3) |
Total lease liabilities recognised at 1 January 2019 | 806 |
The implementation of IFRS 16 affected the following items on the balance sheet:
Right-of-use assets | Increased by $750K |
Lease liabilities | Increased by $806K |
Accrued expense | Decreased by $57K |
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. 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.
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. 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. Internally generated intangibles expenses includes costs that are directly attributable to making the asset capable of operating as intended.
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 days 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-settled 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 the binomial option pricing and Monte Carlo models. 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
The Group has changed its accountancy policy for leases where the Group is the lessee as a result of IFRS 16. This replaces the existing guidance in IAS 17, "Leases". The standard sets out the principles for the recognition, measurement, presentation, and disclosure of leases and the group adopted this new standard front effect from 1 January 2019.
Prior to the 2019 financial year, the group classified its leases as either finance or operating leases. Payments made under operating leases were charged to the profit and loss on a straight-line basis over the period of the lease.
IFRS 16 changes the previous guidance in IAS 17 that requires lessees to recognise a lease liability that reflects the net present value of future lease payments and a corresponding "right of use asset" in all lease contracts, although lessees may not elect to recognise lease liabilities and right-of-use assets in respect of short term leases or leases of assets of low value.
IFRS 16 also changes the definition of a "lease" and the manner of assessing whether a contract contains a lease. At inception of a contract, the group assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The group recognises a right-of-use asset and a corresponding lease liability at the lease commencement date. The lease liability is initially measured at the present value of the following lease payments:
• fixed payments
• variable payments that are based on index or rate
• the exercise price of any extension or purchase option if reasonably certain it can be exercised; and
• penalties for terminating the lease, if relevant
The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group's incremental borrowing rate.
The right-of-use assets are initially measured based on initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs. The right-of-use assets are depreciated over the period of the lease term using the straight-line method. The lease term includes periods covered by the option to extend, if the group is reasonably certain to exercise that option. In addition, right-of -use assets may during the lease term be reduced by any impairment losses, if any, or adjusted for certain remeasurements of the lease liability.
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.
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.
Research and development tax
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.
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. When the Group makes product sales under contracts/agreements these will frequently be inclusive of rebate/support payments or a financing component where judgement can be required in the assessment of the transaction price.
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 $1.6 million within this grouping.
4. Revenue
Revenue arises from: | 2019 $'000 | 2018 $'000 |
Proprietary products | 3,770 | 5,581 |
Third-party products | 2,666 | 2,547 |
Total | 6,436 | 8,128 |
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 2019
| Sales contracts with payment terms less than 180 days | Sales contracts with payment terms greater than 180 days | Total |
Segment | $'000 | $'000 | $'000 |
Mexico | 3,330 | - | 3,330 |
Americas | 1,394 | 737 | 2,131 |
Rest of World | 848 | 127 | 975 |
| 5,572 | 864 | 6,436 |
| 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) | 5,536 | 737 | 6,273 |
Point in time (delivery to port of arrival) | 36 | 127 | 163 |
| 5,572 | 864 | 6,436 |
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 |
Financing component of sales contracts | $'000 |
At 1 January 2019 | 335 |
Financing components recognised | 67 |
Financing components unwound to the income statement | (267) |
At 31 December 2019 | 135 |
5. Operating loss
|
Note | 2019 $'000 | 2018 $'000 |
Operating loss is arrived at after charging/(crediting): |
|
|
|
Share-based payment charge |
| 318 | 797 |
Depreciation |
| 358 | 382 |
Depreciation of right of use assets | 13 | 373 | - |
Amortisation of intangibles | 10 | 43 | 206 |
Operating lease expense |
| 41 | 420 |
Gain on disposal of property, plant and equipment |
| (20) | (7) |
Impairment of trade receivables |
| 85 | 174 |
Employee termination costs |
| 63 | 308 |
Foreign exchange (losses)/gains |
| (784) | 1,485 |
Auditor's remuneration: |
|
|
|
Amounts for audit of parent company and consolidation |
| 101 | 95 |
Amounts for audit of subsidiaries |
| 44 | 41 |
Total auditor's remuneration |
| 145 | 136 |
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:
2019 | Americas $'000 | Mexico $'000 | Rest of World $'000 | Elimination $'000 | Total Commercial $'000 | New Technology $'000 | Total $'000 |
Revenue* |
|
|
|
|
|
|
|
Proprietary product sales | 2,109 | 689 | 972 | - | 3,770 | - | 3,770 |
Third-party product sales | 22 | 2,641 | 3 | - | 2,666 | - | 2,666 |
Inter-segment product sales | 844 | - | 368 | (1,212) | - | - | - |
Total revenue | 2,975 | 3,330 | 1,343 | (1,212) | 6,436 | - | 6,436 |
Group consolidated revenue | 2,975 | 3,330 | 1,343 | (1,212) | 6,436 | - | 6,436 |
Cost of sales | (1,583) | (1,704) | (759) | 1,212 | (2,834) | - | (2,834) |
Research and development | - | - | - | - | - | (2,031) | (2,031) |
Sales and marketing | (1,530) | (883) | (731) | - | (3,144) | - | (3,144) |
Administration | (651) | (233) | (153) | - | (1,037) | (193) | (1,230) |
Non-cash expenses: |
|
|
|
|
|
|
|
Depreciation | (97) | (87) | (11) | - | (195) | (540) | (735) |
Amortisation | (38) | - | (5) | - | (43) | - | (43) |
Share-based payment | (62) | - | (32) | - | (94) | (188) | (282) |
Segment operating (loss) / profit | (986) | 423 | (348) | - | (911) | (2,952) | (3,863) |
Corporate expenses:** |
|
|
|
|
|
|
|
Wages and professional fees |
|
|
|
|
|
| (1,026) |
Administration*** |
|
|
|
|
|
| 762 |
Operating loss |
|
|
|
|
|
| (4,127) |
Finance income |
|
|
|
|
|
| 323 |
Finance expense |
|
|
|
|
|
| (38) |
Loss before tax |
|
|
|
|
|
| (3,842) |
* Revenue from one customer within the Americas segment totalled $675,000, or 10% of Group revenues.
Revenue from one customer within the Mexico segment totalled $1,243,000 or 19% 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 $36,000 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 | 7,367 | 1,915 | 1,972 | - | 11,254 | 564 | 11,818 |
Segment liabilities | 967 | 434 | 137 | - | 1,538 | 328 | 1,866 |
Capital expenditure | 78 | 38 | - | - | 116 | 16 | 132 |
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 |
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 United States and Mexico.
The Group's revenues from external customers by location of operation are detailed below:
| Year ended 31 December 2019 |
| Year ended 31 December 2018 | ||
| Amount $'000 | % |
| Amount $'000 | % |
United Kingdom | 271 | 4 |
| 1,126 | 14 |
United States | 1,715 | 27 |
| 2,101 | 26 |
Mexico | 3,330 | 52 |
| 3,127 | 38 |
All other | 1,120 | 17 |
| 1,774 | 22 |
Total | 6,436 | 100 |
| 8,128 | 100 |
The Group's non-current assets by location of assets are detailed below:
| Year Ended 31 December 2019 |
| Year Ended 31 December 2018 | ||
| Amount $'000 | % |
| Amount $'000 | % |
United Kingdom | 11 | - |
| 16 | 1 |
United States | 2,430 | 90 |
| 2,307 | 91 |
Mexico | 209 | 8 |
| 201 | 8 |
All other | 40 | 2 |
| 9 | - |
Total | 2,690 | 100 |
| 2,533 | 100 |
7. Finance income and expense
| 2019 $'000 | 2018 $'000 |
Finance income |
|
|
Interest on deposits and investments | 56 | 70 |
Financing component of revenue contracts | 267 | 20 |
| 323 | 90 |
Finance expense |
|
|
Interest on finance leases | (35) | - |
Other interest | (3) | (1) |
8. Tax credit
| 2019 $'000 | 2018 $'000 |
Current tax on loss for the year | (167) | (239) |
Deferred tax - origination and reversal of timing differences | 9 | (13) |
Total tax credit | (158) | (252) |
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:
| 2019 $'000 | 2018 $'000 |
Loss before tax | (3,842) | (7,944) |
Expected tax credit based on the standard rate of corporation tax in the UK of 19.0% (2018: 19.0%) | (730) | (1,509) |
Effect on tax rates in foreign jurisdictions | (12) | 48 |
Disallowable expenses | 204 | 7 |
Share-based payment expense per accounts | 60 | 151 |
Prior period R&D credit | (326) | (419) |
Losses available for carryover | 654 | 1,365 |
Losses utilised in the year | (3) | - |
Capital allowances in excess of amortisation | (79) | (79) |
Other temporary differences | 74 | 184 |
Actual tax credit | (158) | (252) |
Deferred tax asset | Deferred taxation $'000 |
At 1 January 2019 | 79 |
Credited to the profit and loss account | 9 |
At 31 December 2019 (note 16) | 88 |
The deferred tax asset comprises sundry timing differences.
At 31 December 2019, the Group had a potential deferred tax asset of $18,749,361 (2018: $18,456,752) which includes tax losses available to carry forward of $17,972,737 (2018: $17,793,692) (being actual federal, foreign and state losses of $98,263,971 (2018: $98,786,744)) arising from historical losses incurred and other timing differences of $776,624.
The tax receivable of $335,000 (2018: $400,000) represents money owed from HMRC for the Research and Development tax relief program offered to small and mid-sized companies.
9. Loss per share
Basic loss per ordinary share has been calculated on the basis of the loss for the year of $3,684,000 (2018: loss of $7,692,000) and the weighted average number of shares in issue during the period of 178,031,230 (2018: 168,850,278).
Equity instruments of 18,098,134 (2018: 14,098,057), which includes share options, the 2015 Employee Share Option Plan and the 2017 Employee Share Option Plan, as shown within Note 21, 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 2018 | 1,620 | 3,342 | 159 | 5,121 |
Additions - externally acquired | - | - | - | - |
Balance at 31 December 2018 | 1,620 | 3,342 | 159 | 5,121 |
Additions - externally acquired | - | - | - | - |
Balance at 31 December 2019 | 1,620 | 3,342 | 159 | 5,121 |
Accumulated amortisation |
|
|
|
|
Balance at 1 January 2018 | - | 3,064 | 159 | 3,223 |
Amortisation charge for the year | - | 206 | - | 206 |
Balance at 31 December 2018 | - | 3,270 | 159 | 3,429 |
Amortisation charge for the year | - | 43 | - | 43 |
Balance at 31 December 2019 | - | 3,313 | 159 | 3,472 |
Net book value |
|
|
|
|
At 1 January 2018 | 1,620 | 278 | - | 1,898 |
At 31 December 2018 | 1,620 | 72 | - | 1,692 |
At 31 December 2019 | 1,620 | 29 | - | 1,649 |
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 2018 and 2019, cash flows are projected over a five-year period with a residual growth rate assumed at 0%. For the years ended 31 December 2018 and 2019, pre-tax discount factor of 14.9% and 14.9% has been used over the forecast period.
Goodwill
Goodwill comprises 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 reasonably 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 reasonably possible change in key assumptions used would lead to an impairment in the carrying value of licences and registrations.
11. Trade and other receivables
| 2019 $'000 | 2018 $'000 |
Current: |
|
|
Trade receivables | 3,497 | 3,366 |
Less: provision for impairment | (264) | (186) |
Trade receivables, net | 3,233 | 3,180 |
Other receivables and prepayments | 179 | 177 |
Current trade and other receivables | 3,412 | 3,357 |
Non-current: |
|
|
Other receivables | 62 | 61 |
Deferred tax asset (see note 11) | 88 | 79 |
Non-current trade and other receivables | 150 | 140 |
| 3,562 | 3,497 |
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 aging of the receivable, past experience of credit losses with customers and forward-looking information. An allowance for a receivable's estimated lifetime expected credit losses is first recorded when the receivable is initially recognised, and subsequently adjusted to reflect changes in credit risk until the balance is collected. In the event that management considers that a receivable cannot be collected, the balance is written off.
Sales contract 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 | 1,508 | 1,989 |
Expected credit loss assessed | (10) | (254) |
| 1,498 | 1,735 |
The receivables considered under the general approach relate to two customers in the Americas segment and one customer in the Rest of World segment. 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.
Movements on the provision for impairment of trade receivables are as follows:
| 2019 $'000 | 2018 $'000 |
Balance at the beginning of the year | 186 | 52 |
Provided | 161 | 775 |
Receivables written off as uncollectible | (85) | (641) |
Foreign exchange | 2 | - |
Balance at the end of the year | 264 | 186 |
The net value of trade receivables for which a provision for impairment has been made is $1.6 million (2018: $1.3 million).
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.
| 2019 $'000 | 2018 $'000 |
Current | 2,401 | 2,608 |
Past due: |
|
|
Up to 30 days | - | 1 |
31 to 60 days | 9 | 82 |
61 to 90 days | 11 | 24 |
Greater than 90 days | 812 | 465 |
Total | 3,233 | 3,180 |
12. Trade and other payables
| 2019 $'000 | 2018 $'000 |
Current: |
|
|
Trade payables | 826 | 1,434 |
Accruals | 527 | 918 |
Taxation and social security | 52 | 50 |
Income tax liability | 1 | 2 |
| 1,406 | 2,404 |
13. Leases: Right of use assets and lease liabilities
The recognised right-of-use assets relate to the following types of assets:
| 2019 $'000 |
| |
Real estate leases | 387 |
Vehicles | 29 |
Real estate leases
Buildings are leased for office/warehouse space under leases which typically run for a period of three and five years and lease payments are at fixed amounts. Some leases include extension options exercisable for a period of one year before the end of the cancellable lease term.
Vehicles
The group leases a vehicle for an employee with a standard lease term of three years with fixed payments. The group does not purchase or guarantee the future value of lease vehicles.
Right-of-use assets
| Real estate lease $'000 | Vehicles $'000 | Total $'000 |
At 1 January 2019 | 750 | - | 750 |
Additions | - | 39 | 39 |
Amortisation | (363) | (10) | (373) |
At 31 December 2019 | 387 | 29 | 416 |
Lease liabilities
| Real estate lease $'000 | Vehicles $'000 | Total $'000 |
At 1 January 2019 | 806 | - | 806 |
Additions | - | 41 | 41 |
Interest expense | 32 | 1 | 33 |
Lease payments | (408) | (12) | (420) |
At 31 December 2019 | 430 | 30 | 460 |
The maturity of the lease liabilities is as follows:
2019 | Carrying amount | Undiscoutedcontractual cash flows | Less than one year | One to two years | Two to five years |
Leased buildings | 430 | 445 | 353 | 85 | 7 |
Leased vehicle | 30 | 31 | 14 | 14 | 3 |
Total | 460 | 476 | 367 | 99 | 10 |
The current and non-current portions of the leases were $353,000 and $107,000 as at 31 December 2019, respectively.
14. 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.
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