Interim Results

RNS Number : 1860B

Ergomed plc

19 September 2018

 

PRESS RELEASE

FOR IMMEDIATE RELEASE

Unaudited Interim Results for the six months ended 30 June 2018

Net service revenue growth of 12% to £21.8 million

and management actions implemented to secure profitability improvements

London, UK - 19 September 2018: Ergomed plc (AIM: ERGO) ('Ergomed' or the 'Company'), a company focused on providing specialised services to the pharmaceutical industry, today announces its unaudited interim results for the six months ended 30 June 2018.

Certain comparable numbers for the six months ended 30 June 2017 and figures at 31 December 2017 include restatements which are fully reconciled within this document. The restatements are in relation to the treatment of share based payments reported at the 2017 Year End and the reallocation of certain costs based on the implementation of improved cost reporting.

Selected Financial Highlights (Unaudited)

Unaudited Figures in £ millions, unless otherwise stated	1st Half 2018	Restated 1st Half 2017
Service Fee Revenue 1	21.8	19.5
Total Revenue	25.3	22.9
Gross Profit	8.6	8.8
Gross Margin (%)	34.0%	38.4%
Research & Development	(0.9)	(1.1)
Adjusted EBITDA (after exceptional and other items) 2	(0.4)	1.8
Exceptional Items	(0.4)	0.0
Cash and cash equivalents	7.4	2.4
Backlog	91.4	66.2

Note: EBITDA is defined as net profit for the period plus finance costs, depreciation and amortisation

Stephen Stamp, Chief Executive Officer of Ergomed plc, commented: "The reasons for the disappointing first half were well documented in our Trading Statement at the end of June. Since then, the management team has addressed the Company's cost base by terminating or re-negotiating vendor contracts and reducing headcount, with an emphasis on non-billable headcount. These measures are expected to have a positive net impact for the remainder of 2018 and an annualized benefit of around £4.0 million next year. Our focus on services is beginning to show promise in terms of the scale of pharmacovigilance opportunities and the number of orphan drug development opportunities and we remain confident in our strategy and ability to deliver future growth."

Key Highlights

§ Established pharmacoepidemiology business as part of PV offering and integrated PSR

§ Net service fee revenues up 11.8% to £21.8 million (H1 2017: £19.5 million) with inclusion of PSR

§ Gross margin reduced to 34.0% (H1 2017: 38.4%) reflecting previously announced delay in commencement of some projects

§ Adjusted EBITDA loss of £0.4 million after £0.4 million exceptional items

§ Cash and cash equivalents of £7.4 million as at 30 June 2018 (30 June 2017: £2.4 million)

§ Backlog of £91.4 million contracted revenue as of 30 June 2018 (30 June 2017: £66.2 million)

Recent Developments

§ Cost reduction programme implemented, reducing headcount by approximately 10%

§ Total order intake in July and August amounted to £16.0 million

§ Small acquisition of Harefield Pharmacovigilance Limited completed in September

§ Stuart Jackson was appointed to the Board as Chief Financial Officer

§ Asarina Pharma AB, a co-development partner, completed a public offering ahead of listing on the First North exchange, scheduled for 24 September 2018

Notes:

¹ To align with industry practice, Ergomed plc is disclosing reimbursement revenue and reimbursable expenses as part of total revenues and separately from costs of sales respectively. Net service revenues exclude reimbursement revenues.

² Adjustments are made to EBITDA for share-based payment charge, deferred consideration for acquisition relating to post acquisition remuneration, revaluation of deferred consideration for acquisition, acquisition costs and exceptional items.

Conference call for analysts:

A briefing for analysts will be held at 8.30am BST on 19 September at the offices of Numis Securities Ltd., 10 Paternoster Square, London, EC4M 7LT. There will be a simultaneous live conference call with Q&A.

Conference call details:

Participant dial-in: 08003767922
International dial-in: [phone]
Participant code: 6379908

Enquiries:

Ergomed plc	Tel: [phone]
Stephen Stamp (Chief Executive Officer)
Stuart Jackson (Chief Financial Officer)
Numis Securities Limited	Tel: [phone]
Michael Meade / Freddie Barnfield (Nominated Adviser)
James Black (Joint Broker)
Consilium Communications - for UK Enquiries	Tel: [phone]
Chris Gardner / Mary-Jane Elliott Matthew Neal / Olivia Manser	[e-mail]
MC Services - for Continental Europe Enquiries	Tel: [phone]
Anne Hennecke

About Ergomed plc

Ergomed provides specialist services to the pharmaceutical industry spanning all phases of clinical development, post-approval pharmacovigilance and medical information. Ergomed's fast-growing, profitable services offering encompasses a complete suite of specialist pharmacovigilance solutions, integrated under the PrimeVigilance brand, in addition to a full range of high quality contract research and trial management services (CRS). Leveraging its CRS expertise, Ergomed also has a drug development portfolio of co-development partnerships and wholly-owned programmes. For further information, visit: http://ergomedplc.com.

Forward Looking Statements

Certain statements contained within the announcement are forward looking statements and are based on current expectations, estimates and projections about the potential returns of Ergomed plc ("Ergomed") and industry and markets in which Ergomed operates, the Directors' beliefs and assumptions made by the Directors. Words such as "expects", "anticipates", "should", "intends", "plans", "believes", "seeks", "estimates", "projects", "pipeline" and variations of such words and similar expressions are intended to identify such forward looking statements and expectations. These statements are not guarantees of future performance or the ability to identify and consummate investments and involve certain risks, uncertainties, outcomes of negotiations and due diligence and assumptions that are difficult to predict, qualify or quantify. Therefore, actual outcomes and results may differ materially from what is expressed in such forward looking statements or expectations. Among the factors that could cause actual results to differ materially are: the general economic climate, competition, interest rate levels, loss of key personnel, the result of legal and commercial due diligence, the availability of financing on acceptable terms and changes in the legal or regulatory environment.

These forward-looking statements speak only as of the date of this announcement. Ergomed expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Ergomed's expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority.

INTERIM MANAGEMENT REPORT

OPERATIONAL AND FINANCIAL REVIEW

Introduction

As stated in the trading update of 28 June 2018, the first half of 2018 was impacted by delays to the start of some contracts and reductions in scope by sponsors of others. Since then, a cost reduction programme has been implemented which will result in a one-time charge, but benefit underlying profitability in the second half of 2018, and lead to a more significant improvement in profitability in 2019 and beyond. We believe the markets in which we operate remain attractive and in recent months we have signed new contracts with a value of £16.0 million. The Board remains confident in Ergomed's strategy and the opportunities for growth in key areas of specialist pharmaceutical services.

Results from Operations

Unaudited Figures in £ millions, unless otherwise stated	1st Half 2018	Restated 1st Half 2017
Net Service Fee Revenue	21.8	19.5
Reimbursement Revenue	3.5	3.4
Total Revenue	25.3	22.9
Cost of Sales	(13.2)	(10.7)
Reimbursable expenses	(3.5)	(3.4)
Gross Profit	8.6	8.8
Gross Margin %	34.0%	38.4%

Net service fee revenue increased 12% to £21.8 million, with the largest element of the increase being the maiden H1 contribution from the PSR acquisition completed in October 2017. With the inclusion of reimbursement revenue, total revenue was up 10% to £25.3 million. Gross profit slightly reduced at £8.6 million despite the inclusion of the PSR acquisition. The delay in commencement of work on certain contracts in the first half of 2018 meant that the business was carrying costs ahead of revenue, thus leading to a reduction in overall margin.

Segmental Analysis

The Ergomed business is managed through two business units covering Clinical Research Services (CRS) and Pharmacovigilance (PV). Additionally, the business has an R&D activity and corporate overheads which are disclosed separately. The CRS and PV business segments constitute the operations of the overall Ergomed business and their performance over the period is set out below:

Segmental Analysis

Unaudited	1st Half 2018		Restated 1st Half 2017
Figures in £ millions, unless otherwise stated	CRS	PV	CRS	PV
Net Service Fee Revenue	9.8	12.0	8.8	10.7
Reimbursement Revenue	3.4	0.1	3.3	0.1
Total Revenue	13.2	12.1	12.1	10.8
Cost of Sales	(6.1)	(7.1)	(5.3)	(5.4)
Reimbursable expenses	(3.4)	(0.1)	(3.3)	(0.1)
Gross Profit	3.7	4.9	3.5	5.3
Gross Margin %	28.0%	40.5%	28.9%	49.1%
Backlog	49.9	41.5	44.5	21.7

The revenue growth in the CRS business reflects the inclusion of the PSR acquisition, which has also contributed positively to profitability for the business unit. The PV business showed slower revenue growth than anticipated as a result of the delay in commencement of some contracts. This impacts gross margin adversely because the costs associated with the delayed commencement were still carried by the business during the period.

Cost Reduction Programme

Since the period end, management have implemented a number of actions to reduce the cost base of the business, increase operating efficiency and improving overall profitability. These actions have included the reduction of headcount by approximately 10% and the renegotiation or cancellation of certain consultancy and other supplier contracts. The majority of the headcount reductions were focused on non-billable personnel and we are confident the slight reduction in billable personnel will not have an impact on project execution.

The cost reduction programme is now substantially complete and the current assessment is that there will be an improvement at an operating profit level of £1.2 million for the remainder of 2018, against which an exceptional charge of £0.6 million will be taken. On a fully annualised basis it is expected that the results of the cost reduction programme will provide approximately £4.0 million improvement in profitability.

Backlog

Unaudited Figures in £ millions as at:	30 June 2018	30 June 2017	31 December 2017
Service Fee Backlog	74.7	50.5	68.0
Total Backlog	91.4	66.2	86.9

Backlog of £91.4 million at 30 June 2018 reflected an increase of 38% over the year, although this growth had largely been accomplished by year end. Of the £91.4 million backlog, £25.0 million is in relation to work to be executed in the remainder of 2018. In terms of business units, £49.9 million of the backlog is in relation to the CRS business and £41.5 million relates to the PV business.

The market for CRS and PV activities remains buoyant and we maintain a high level of tenders at the late stage of negotiation of which £16.0 million have been signed in the past two months. Whilst the PV business did not grow as quickly as anticipated in the first half of 2018 we still remain very confident in the growth opportunities of this market. We continue to invest in robotics and automation of some PV activities to drive improvements in product delivery.

Haemostatix and Co-Development

Ergomed's continues to believe that the Haemostatix opportunities in PeproStat™ and ReadyFlow™ have a high chance of clinical success. Our strategy, ahead of Phase III trials, is to continue with limited investment whilst pursuing further development through co-investors and/or licensees of the individual products. A number of these opportunities are being pursued.

Asarina Pharma AB, where Ergomed has maintained a co-development partnership in relation to PMDD, completed a public offering ahead of listing on the First North exchange scheduled for 24 September 2018.

Management Change

Stuart Jackson was appointed Chief Financial Officer on 2 July 2018 bringing with him 20 years' experience as a Chief Financial Officer having managed companies on the London, NASDAQ and Oslo Stock Exchanges.

INTERIM MANAGEMENT REPORT

FINANCIAL RESULTS

Restatements and Comparable Figures

At the 2017 year end Ergomed made a restatement of its financial results in respect of the treatment of share based payments and inventory. As a consequence of this, comparative figures for first half 2017 have now been restated. Additionally, following the implementation of new financial systems, the Company has better visibility on costs as they apply to operational activities and overhead activities. As a result of this improved cost analysis certain reallocations of costs for first half 2017 have been made to provide comparable figures. The impact of these adjustments are disclosed fully in the financial statements.

With effect from 1 January 2018 Ergomed is required to recognise revenue in accordance with IFRS 15.  Accordingly, in line with the introduction of new financial systems, when reporting full year figures for 2018 these will be stated in accordance with IFRS 15 and prior year figures will be restated to show the effect of IFRS 15 adoption using the cumulative effect method.  Ergomed has not complied with IFRS 15 in the figures for first half 2018 reporting as they remain in accordance with IAS 18.

Abbreviated Profit & Loss

Unaudited Figures in £ millions, unless otherwise stated	1st Half 2018	Restated 1st Half 2017
Total Revenue	25.3	22.9
Cost of Sales	(13.2)	(10.7)
Reimbursable expenses	(3.5)	(3.4)
Gross Profit	8.6	8.8
Administrative and Other Expenses	(10.3)	(7.0)
Research & Development	(0.9)	(1.1)
Operating (Loss) / Profit	(2.5)	0.7
Finance Costs & Other Income	(0.3)	(0.2)
(Loss) / Profit Before Taxation	(2.8)	0.5
Taxation	(0.1)	(0.0)
(Loss) / Profit After Taxation	(2.9)	0.5
Adjusted EBITDA (after exceptional and other items)	(0.4)	1.8
Exceptional Items	(0.4)	0.0
(Loss) / Earnings Per Share (pence) 3	(6.6)p	1.2p

³ Adjustments are made to EPS for amortisation of acquired fair valued intangible assets, share-based payment charge, deferred consideration for acquisitions relating to post acquisition remuneration, acquisition costs and exceptional items.

Administrative expenses increased from £7.0 million to £10.3 million of which £0.4 million related to exceptional items covering the amalgamation of the PV and PharmInvent businesses and the establishment of a pharmacoepidemiology capability and a further £0.2 million in relation to increased amortisation of acquired intangible assets and share based payment charges.

Of the remaining £2.7 million increase in other administrative expenses, £0.4 million related to the general overheads of PSR, acquired in October 2017, and £0.3 million related to the amortisation of software previously in development.  The remaining increase in costs related to expansion of the business, including the establishment of a PV presence in the USA and increased headcount and salary increases over the business as a whole.

R&D expenditure was £0.9 million in the period (H1 2017: £1.1 million) after expensing £0.2 million in relation to clinical trial material; costs were incurred in relation to certain preparations for the Phase III study for Peprostat and further progress on the development of ReadyFlow. Ergomed continues to progress discussions with respect to partnering before commencing the Peprostat Phase III study.

A charge of £0.3 million was made in respect of Finance Costs & Other Income relating to the unwinding of the discount applied to the deferred consideration for the Haemostatix and PSR acquisitions.

The number of ordinary shares in issue at 30 June 2018 amounted to 44,873,602 including 2,029,971 shares issued in a Placing in February 2018 and 62,000 shares issued following the exercise of options. With a loss of £2.9 million in the period this equated to a Loss per Share of 6.6 pence.

Abbreviated Cashflow

Unaudited Figures in £ millions, unless otherwise stated	1st Half 2018	1st Half 2017
Operating (Loss) / Profit	(2.5)	0.7
Add: Depreciation & Amortisation	1.2	0.8
EBITDA	(1.3)	1.5
FX and Other Non Cash items	0.1	(0.1)
(Increase)/Decrease in Working Capital	2.6	(2.0)
Net Cash Inflow / (Outflow) from Operations	1.4	(0.6)
Taxation	0.4	(0.2)
Investing Activities	(1.3)	(1.2)
Financing Activities	3.7	(0.0)
Increase / (Decrease) in Cash	4.2	(2.0)
Closing Cash Balance	7.4	2.4

A net inflow of working capital occurred during the period largely as a result of successful management of the CEL-SCI overdue receivable. At 30 June 2018 £1.7 million remained outstanding (31 December 2017: £2.8 million) of which £0.9 million was overdue compared to £2.0 million at the year end. Of the £0.9 million overdue the majority of this has been cleared post period end.

Investing activities include £0.3 million in tangible assets, primarily being computer equipment and leasehold improvements, 0.3 million in intangible assets, primarily being investment in database and accounting systems, and £0.8 million relating to the payment of earn-out to the vendors of Pharminvent (now PrimeVigilance s.r.o.).

Financing activities included the receipt of £3.7 million in net proceeds from the issue of 2,029,971 shares in February 2018. A further 62,000 shares were issued pursuant to the exercise of options.

Abbreviated Balance Sheet

Figures in £ millions, unless otherwise stated	Unaudited 30 Jun 2018	Restated Unaudited (*) 30 Jun 2017	Audited 31 Dec 2017
Non-current Assets	38.7	35.3	38.9
Current Assets	22.2	19.7	23.0
Current Liabilities	(11.5)	(8.3)	(13.9)
Non-current Liabilities	(13.3)	(11.3)	(13.2)
Total Net Assets	36.0	35.4	34.8
Total Equity	36.0	35.4	34.8

Non-current assets are broadly unmoved since the year end. The carrying value of Goodwill and In Process R&D in relation to Haemostatix totalled £17.4 million and other co-development projects at 30 June 2018 were £1.2 million. Investments increased by £0.5 million, reflecting the issue of equity by co-development partners.

Current Assets at £22.2 million includes a reduction of £3.5 million in trade and other receivables compared to the year end as a result of improved cash collection on trade receivables and specifically the reduction to an overdue receivable balance as well as receipt of tax receivables from the previous year. In addition, £0.5 million of other receivables was converted to equity following the issue of shares by Modus Therapeutics under the co-development agreement. These shares are shown as investments on the balance sheet. Current Assets also includes cash and cash equivalents of £7.4 million compared to £3.2 million at 31 December 2017 with the increase broadly relating to the placing in February 2017, raising net proceeds of £3.7 million.

Current Liabilities have decreased from £13.9 million at 31 December 2017 to £11.5 million at the period end, primarily as a result of the payment of £0.8 million Earn-out in relation to the performance of PharmInvent in 2017, and a reduction to trade creditors of £1.1 million. There were no material borrowings at the period end.

Deferred consideration included in Non-current Liabilities has increased from £9.8 million at the year end to £10.1 million at 30 June 2018 as a result of unwinding of the discount provision on the deferred consideration in respect of the Haemostatix and PSR acquisitions.

Current Trading and Outlook

While the first half performance was disappointing, the cost reduction programme implemented by management is expected to deliver an improvement of £1.2 million (excluding the one-time cost of implementation) at an operating profit level for the remainder of 2018 and a more significant improvement in profitability in 2019 and beyond. We have a £91.4 million backlog, of which £25.0 million is in relation to work to be executed in the remainder of 2018, and have signed new contracts with an initial value of £16 million in recent months. We continue to believe the markets in which we operate are attractive and the Board remains confident in the strategy to focus on services, and positive on the outlook for the Company.

INTERIM MANAGEMENT REPORT

FINANCIAL STATEMENTS AND NOTES

Consolidated Income Statement

For the six months ended 30 June 2018

	Note	Unaudited Six months ended 30 June 2018 £000s	Unaudited Six months ended 30 June 2017 (re-stated) £000s	Unaudited Year ended 31 December 2017 (re-stated) £000s
Net service revenue		21,797	19,476	39,645
Licence revenue		-	-	370
Reimbursement revenue		3,541	3,431	7,609
REVENUE	2	25,338	22,907	47,624
Cost of sales		(13,208)	(10,726)	(22,398)
Reimbursable expenses		(3,541)	(3,431)	(7,609)
GROSS PROFIT		8,589	8,750	17,617
Administrative expenses		(10,288)	(6,975)	(18,950)
Administrative expenses comprises:
Other administrative expenses		(8,745)	(6,093)	(12,721)
Amortisation of acquired intangible assets		(677)	(552)	(1,167)
Share-based payment charge		(359)	(278)	(1,033)
Deferred consideration for acquisitions expense		-	-	(752)
Revaluation of deferred consideration		-	-	(2,875)
Acquisition costs	7	(66)	(52)	(259)
Exceptional items	8	(441)	-	(143)
Research and development		(863)	(1,065)	(2,689)
Other operating income		16	12	118
OPERATING (LOSS)/PROFIT		(2,546)	722	(3,904)
Investment revenues		4	3	3
Finance costs		(303)	(247)	(546)
(LOSS)/PROFIT BEFORE TAXATION		(2,845)	478	(4,447)
Taxation		(83)	(4)	(57)
(LOSS)/PROFIT FOR THE PERIOD		(2,928)	474	(4,504)
(LOSS)/EARNINGS PER SHARE
Basic	3	(6.6)p	1.2p	(11.0)p
Diluted	3	(6.6)p	1.1p	(11.0)p

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

FINANCIAL STATEMENTS AND NOTES

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2018

	Unaudited Six months ended 30 June 2018 £000s	Unaudited Six months ended 30 June 2017 £000s	Audited Year ended  31 December 2017 £000s
(Loss)/profit for the period	(2,928)	474	(4,504)
Items that may be classified subsequently to profit or loss:
Exchange differences on translation of foreign operations	(3)	138	619
Other comprehensive income for the period net of tax	(3)	138	619
Total comprehensive income for the period	(2,931)	612	(3,885)

FINANCIAL STATEMENTS AND NOTES

Consolidated Balance Sheet

At 30 June 2018

	Note	Unaudited 30 June 2018 £000s	Unaudited 30 June 2017 (re-stated) £000s	Audited 31 December 2017 £000s
Non-current assets
Goodwill		15,223	12,342	15,269
Other intangible assets		19,471	19,662	20,229
Property, plant and equipment		1,161	850	1,078
Investments		1,214	747	754
Deferred tax asset		1,651	1,725	1,613
		38,720	35,326	38,943
Current assets
Trade and other receivables	4	14,498	16,758	19,250
Other current assets	5	168	485	502
Current asset investments		90	-	-
Cash and cash equivalents		7,406	2,436	3,218
		22,162	19,679	22,970
Total assets		60,882	55,005	61,913
Current liabilities
Borrowings		(11)	(2)	(12)
Trade and other payables	6	(8,085)	(6,619)	(10,717)
Deferred consideration		(1,969)	-	(1,957)
Deferred revenue		(1,232)	(1,597)	(976)
Taxation		(196)	(51)	(201)
Total current liabilities		(11,493)	(8,269)	(13,863)
Net current assets		10,669	11,410	9,107
Non-current liabilities
Borrowings		(1)	(5)	(6)
Deferred consideration		(10,094)	(7,993)	(9,804)
Deferred tax liability		(3,253)	(3,306)	(3,397)
Total liabilities		(24,841)	(19,573)	(27,070)
Net assets		36,041	35,432	34,843
Equity
Share capital		449	406	428
Share premium account		24,326	17,957	20,616
Merger reserve		11,008	10,264	11,008
Share option reserve		3,033	2,107	2,674
Translation reserve		759	281	762
Retained earnings		(3,534)	4,417	(645)
Total equity		36,041	35,432	34,843

FINANCIAL STATEMENTS AND NOTES

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2017

	Share capital £000s	Share premium account £000s	Merger reserve £000s	Share option reserve £000s	Translation reserve £000s	Retained earnings £000s	Total £000s
Balance at 31 December 2016*	406	17,957	10,264	1,048	143	4,790	34,608
Prior period adjustment*	-	-	-	781	-	(991)	(210)
Balance at 31 December 2016 (re-stated)*	406	17,957	10,264	1,829	143	3,799	34,398
Profit for the six month period**	-	-	-	-	-	474	474
Other comprehensive income for the period**	-	-	-	-	138	-	138
Total comprehensive income for the period**	-	-	-	-	138	474	612
Share-based payment charge for the period**	-	-	-	278	-	-	278
Deferred tax charge taken directly to equity**	-	-	-	-	-	144	144
Balance at 30 June 2017 (re-stated)**	406	17,957	10,264	2,107	281	4,417	35,432

* Audited

** Unaudited

FINANCIAL STATEMENTS AND NOTES

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2018

	Share  capital £000s	Share premium account £000s	Merger reserve £000s	Share option reserve £000s	Translation reserve £000s	Retained earnings £000s	Total £000s
Balance at 31 December 2016*	406	17,957	10,264	1,048	143	4,790	34,608
Prior period adjustment*	-	-	-	781	-	(991)	(210)
Balance at 31 December 2016 (re-stated)*	406	17,957	10,264	1,829	143	3,799	34,398
Loss for the year*	-	-	-	-	-	(4,504)	(4,504)
Other comprehensive income for the year*	-	-	-	-	619	-	619
Total comprehensive income for the year*	-	-	-	-	619	(4,504)	(3,885)
Share-issue during the period for cash (net of expenses)*	18	2,659	-	-	-	-	2,677
Share-issues during the period for non-cash consideration*	3	-	555	-	-	-	558
Contingent share-issues during the period for non-cash consideration*	1	-	189	(188)	-	-	2
Share-based payment charge for the year*	-	-	-	1,033	-	-	1,033
Deferred tax credit taken directly to equity*	-	-	-	-	-	60	60
Balance at 31 December 2017*	428	20,616	11,008	2,674	762	(645)	34,843
Loss for the six month period**	-	-	-	-	-	(2,928)	(2,928)
Other comprehensive income for the period**	-	-	-	-	(3)	-	(3)
Total comprehensive income for the period**	-	-	-	-	(3)	(2,928)	(2,931)
Share-issue during the period for cash (net of expenses)*	21	3,710	-	-	-	-	3,731
Share-based payment charge for the period**	-	-	-	359	-	-	359
Deferred tax credit taken directly to equity**	-	-	-	-	-	39	39
Balance at 30 June 2018**	449	24,326	11,008	3,033	759	(3,534)	36,041

* Audited

** Unaudited

FINANCIAL STATEMENTS AND NOTES

Consolidated Cash Flow Statement

For the six months ended 30 June 2018

	Unaudited Six months ended 30 June 2018 £000s	Unaudited Six months ended 30 June 2017 (re-stated) £000s	Audited Year ended  31 December 2017 £000s
Cash flows from operating activities
(Loss)/profit before taxation	(2,845)	478	(4,447)
Adjustment for:
Amortisation and depreciation	1,248	764	1,626
Loss/(gain) on disposal of fixed assets	5	-	(7)
Share-based payment charge	359	278	1,033
Acquisition of shares for non-cash consideration	(460)	(463)	(462)
Exchange adjustments	102	70	(44)
Acquisition costs	-	-	218
Revaluation of deferred consideration	-	-	2,875
Investment revenues	(4)	(3)	(3)
Finance costs	303	247	546
Operating cash flow before changes in working capital and provisions	(1,292)	1,371	1,335
Decrease/(increase) in trade and other receivables	3,989	(1,970)	(3,445)
Decrease/(increase) in other current assets	334	(245)	(262)
(Decrease)/increase in trade and other payables	(1,625)	279	2,753
Cash generated from/(utilised in) operations	1,406	(565)	381
Taxation received/(paid)	448	(186)	(355)
Net cash inflow/(outflow) from operating activities	1,854	(751)	26
Investing activities
Investment revenues received	4	3	3
Acquisition of property, plant and equipment	(343)	(308)	(721)
Acquisition of intangible assets	(302)	(375)	(704)
Acquisition of subsidiaries including expenses of acquisition	-	-	(1,946)
Acquisition related earn-out paid	(751)	(559)	(559)
Receipts from sale of property, plant and equipment	3	4	11
Net cash outflow from investing activities	(1,389)	(1,235)	(3,916)
Financing activities
Issue of new shares	3,914	-	2,900
Expenses of fundraising	(183)	-	(224)
Finance costs paid	(2)	-	(2)
Increase in borrowings	-	-	20
Repayment of borrowings	(6)	(2)	(10)
Net cash inflow/(outflow) from financing activities	3,723	(2)	2,684
Net increase/(decrease) in cash and cash equivalents	4,188	(1,988)	(1,206)
Cash and cash equivalents at start of the period	3,218	4,424	4,424
Cash and cash equivalents at end of period	7,406	2,436	3,218

FINANCIAL STATEMENTS AND NOTES

Notes

1.            GENERAL INFORMATION

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

Other than as described below under "Reimbursement revenue and reimbursable expenses", the interim financial statements have been prepared using accounting policies and method of computation consistent with those used in the audited statutory financial statements for the year ended 31 December 2017 and International Reporting Standards (IFRSs) adopted for use in the European Union. While the financial information included in this interim statement has been compiled in accordance with the recognition and measurement principles of IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs and does not comply with IAS 34.

The information for the six month period ended 30 June 2018 is unaudited, but reflects all normal adjustments which are, in the opinion of the Board, necessary to provide a fair statement of results and the Group's financial position for and as at the period presented.

Statutory accounts for the year ended 31 December 2017 were approved by the Board of Directors and have been delivered to the Registrar of Companies. The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

At 30 June 2018 Ergomed had cash resources of £7.4 million (30 June 2017: £2.4 million; 31 December 2017: £3.2 million).

Reimbursement revenue and reimbursable expenses

Reimbursable expenses are reflected in the Company's Consolidated Income Statement as "Reimbursement revenue" in total revenue and as "Reimbursable expenses" separately from cost of sales as the Company is the primary obligor for these expenses despite being reimbursed by its clients. Reimbursable expenses are comprised primarily of payments to physicians (investigators) who oversee clinical trials and travel expenses for our clinical monitors and other employees. Costs for such activities are recorded based upon payment requests or invoices that have been received from third parties in the periods presented or accrued based on patient recruitment. Reimbursed expenses may fluctuate from period-to-period due, in part, to the lifecycle of contracts that are in progress at a particular point in time. Service revenues or revenues before reimbursements ("net service revenues") include any margin earned on reimbursed expenses. When such an expense is not reimbursed, they are classified as costs of sales on the Consolidated Income Statement.

Risks and uncertainties

An outline of the key risks and uncertainties faced by the Group was described in the Company's AIM Admission Document from July 2014 which is located in the Company website (www.ergomedplc.com) in the Investors section. These risks include competition; dependence on a small number of customers; legislation and regulation of the pharmaceutical and biotechnology industries; licensees, approvals and compliance; and the potential for cancellation or delay of clinical studies by customers. It is anticipated that the risk profile will not significantly change for the remainder of the year. Risk is an inherent part of doing business and the profitability and strong cash position of the Group, along with the growth profile of the business, leads the Directors to believe that the Group is well placed to manage business risks successfully.

Going concern

The Directors have considered cash flow forecasts for the group, detailing cash inflows and outflows for the period ending 31 December 2019. Based on their review of these forecasts and consideration of the economic environment in which the group operates, the Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial information for the six months ended 30 June 2018.

Business Combinations

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

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

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

2.         REVENUE

	Clinical research services	Drug safety and medical information services	Total revenue
	£000s	£000s	£000s
Six months ended 30 June 2018
Net service revenue**	9,845	11,952	21,797
Reimbursement revenue**	3,373	168	3,541
Revenue**	13,218	12,120	25,338
Six months ended 30 June 2017
Net service revenue**	8,747	10,729	19,476
Reimbursement revenue**	3,336	95	3,431
Revenue**	12,083	10,824	22,907

* Audited

** Unaudited

3.         EARNINGS PER SHARE

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

	Unaudited Six months ended 30 June 2018 £000s	Unaudited Six months ended 30 June 2017 £000s	Audited Year ended 31 December 2017 £000s
(Loss)/earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company	(2,928)	474	(4,504)
Earnings for the purposes of diluted earnings per share	(2,928)	474	(4,504)
	No.	No.	No.
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	44,399,323	40,534,603	41,086,201
Effect of dilutive potential ordinary shares
Share options	2,289,101	2,058,829	2,056,583
Equity related earn-out	218,551	-	213,033
Weighted average number of ordinary shares for the purposes of diluted earnings per share	46,906,975	42,593,432	43,355,817

4.         TRADE AND OTHER RECEIVABLES

	Unaudited 30 June 2018 £000s	Unaudited 30 June 2017 £000s	Audited 31 December 2017 £000s
Trade receivables	8,984	11,179	13,390
Other receivables	1,387	1,191	1,702
Prepayments	1,035	792	733
Accrued income	2,782	2,753	2,443
Corporation tax receivable	310	843	982
	14,498	16,758	19,250

5.         OTHER CURRENT ASSETS

	Unaudited 30 June 2018 £000s	Unaudited 30 June 2017 £000s	Audited 31 December 2017 £000s
Clinical trial material	168	485	502

6.         TRADE AND OTHER PAYABLES

	Unaudited 30 June 2018 £000s	Unaudited 30 June 2017 £000s	Audited 31 December 2017 £000s
Trade creditors	3,855	3,027	4,942
Amounts payable to related parties	89	54	418
Social security and other taxes	564	876	1,113
Other payables	921	785	1,186
Customer advances	579	-	751
Accruals	2,077	1,877	2,307
	8,085	6,619	10,717

7.         ACQUISITION COSTS

	Unaudited Six months  ended 30 June 2018	Unaudited Six months  ended 30 June 2017	Audited Year ended 31 December 2017
	£000s	£000s	£000s
Acquisition of PSR	-	-	218
Other M&A activities	66	52	41
	66	52	259

8.         EXCEPTIONAL ITEMS

	Unaudited Six months  ended 30 June 2018	Unaudited Six months  ended 30 June 2017	Audited Year ended 31 December 2017
	£000s	£000s	£000s
Pharmacoepidemiology business	185	-	-
Business reorganisation	256	-	-
Severance costs relating to former CEO	-	-	143
	441	-	143

In line with the way the Board and chief operating decision makers review the business, large one-off exceptional costs are separately identified and shown as exceptional costs. In the period ended 30 June 2018, these related to the establishment of the pharmacoepidemiology business and the reorganisation expenses associated with the combining of the PrimeVigilance and PharmInvent businesses. In the full year of 2017, these were directly related to the severance costs regarding the former CEO.

9.         EBITDA and EBITDA (adjusted)

	Unaudited Six months ended 30 June 2018	Unaudited Six months ended 30 June 2017	Audited Year ended 31 December 2017
	£000s	£000s	£000s
Operating (loss)/profit	(2,546)	722	(3,904)
Adjust for:
Depreciation and amortisation charges within Other administrative expenses	571	212	459
Amortisation of acquired intangible assets	677	552	1,167
EBITDA	(1,298)	1,486	(2,278)
Share-based payment charge	359	278	1,033
Deferred consideration for acquisition	-	-	752
Revaluation of deferred consideration for acquisition	-	-	2,875
Acquisition costs (note 7)	66	52	259
Exceptional items (note 8)	441	-	143
Adjusted EBITDA	(432)	1,816	2,784

RE-STATEMENTS

1.     Re-statement of Balance Sheet

As described in the Annual Report for the year ended 31 December 2017, the Balance Sheet as at 31 December 2016 was re-stated. This has a consequential effect on the Balance Sheet as at 30 June 2017, as explained below.

Certain Directors, former Directors and the Company Secretary hold options over shares held by Dr Miroslav Reljanovic under agreements between those parties. The grant and vesting of such options was dependent on their continued employment by the Company. Although these options are not dilutive and the Company is not party to the arrangements, in accordance with IFRS 2, a share-based payment charge arises. No such charge was shown in the financial statements for the years ended 31 December 2016.

In November 2016, the Company acquired European PharmInvent Services s.r.o. (now PrimeVigilance s.r.o.). Deferred consideration payable to the vendors is dependent on their remaining employees of the group. The total amount payable to vendors for the year ended 31 December 2016 was charged to the income statement. However, a proportion of that deferred consideration is payable in equity. In accordance with IFRS 2, this proportion should be treated as a share-based payment.

In 2016, the raw material and manufacturing costs of clinical trial material to be used in clinical studies were capitalised and categorised as Clinical Trial Inventory. However, under IFRS, the raw material costs were not eligible for capitalisation. Therefore, a prior year adjustment has arisen and the remaining capitalised amount is categorised as 'Other current assets'.

The impact of the restatement for share based payments and inventory on the Consolidated Balance Sheet as at 30 June 2017 is set out below.

Re-statement of Consolidated Balance Sheet

At 30 June 2017

		Unaudited 30 June 2017 £000s	Adjustment £000s	Unaudited 30 June 2017 (re-stated) £000s
Non-current assets
Goodwill		12,342	-	12,342
Other intangible assets		19,662	-	19,662
Property, plant and equipment		850	-	850
Investments		747	-	747
Deferred tax asset		1,725	-	1,725
		35,326	-	35,326
Current assets
Trade and other receivables		16,758	-	16,758
Inventory		695	(695)	-
Other current assets		-	485	485
Cash and cash equivalents		2,436	-	2,436
		19,889	(210)	19,679
Total assets		55,215	(210)	55,005
Current liabilities
Borrowings		(2)	-	(2)
Trade and other payables		(6,619)	-	(6,619)
Deferred revenue		(1,597)	-	(1,597)
Taxation		(51)	-	(51)
Total current liabilities		(8,269)	-	(8,269)
Net current assets		11,620	(210)	11,410
Non-current liabilities
Borrowings		(5)	-	(5)
Deferred consideration		(7,993)	-	(7,993)
Deferred tax liability		(3,306)	-	(3,306)
Total liabilities		(19,573)	-	(19,573)
Net assets		35,642	(210)	35,432
Equity
Share capital		406	-	406
Share premium account		17,957	-	17,957
Merger reserve		10,264	-	10,264
Share option reserve		1,326	781	2,107
Translation reserve		281	-	281
Retained earnings		5,408	(991)	4,417
Total equity		35,642	(210)	35,432

2.     Re-statement of Consolidated Cash Flow Statement

In the first half of 2017, deferred consideration was paid to the vendors of European Pharminvent Services s.r.o. (now PrimeVigilance s.r.o.).  Since that deferred consideration was contingent upon the continued employment of the vendors, these amounts were charged to the income statement, in accordance with IFRS 3. In the unaudited results for the period ended 30 June 2017, the payment of these amounts was reflected as a movement in working capital. However, in the audited financial statements for the year-ended 31 December 2017, these payments were separately identified as an investing activity. Thus the cash flow statement for the period ended 30 June 2017 has been re-stated to show these amounts as an investing activity.

Re-statement of Consolidated Cash Flow Statement

For the six months ended 30 June 2017

	Unaudited Six months ended 30 June 2017 £000s	Adjustment £000s	Unaudited Six months ended 30 June 2017 (re-stated) £000s
Cash flows from operating activities
Profit before taxation	478	-	478
Adjustment for:
Amortisation and depreciation	764	-	764
Loss/(gain) on disposal of fixed assets	-	-	-
Share-based payment charge	278	-	278
Acquisition of shares for non-cash consideration	(463)	-	(463)
Exchange adjustments	70	-	70
Acquisition costs	-	-	-
Revaluation of deferred consideration	-	-	-
Investment revenues	(3)	-	(3)
Finance costs	247	-	247
Operating cash flow before changes in working capital and provisions	1,371	-	1,371
Decrease/(increase) in trade and other receivables	(1,970)	-	(1,970)
Decrease/(increase) in other current assets	(245)	-	(245)
(Decrease)/increase in trade and other payables	(280)	559	279
Cash (utilised in)/generated from operations	(1,124)	559	(565)
Taxation paid	(186)	-	(186)
Net cash (outflow)/inflow from operating activities	(1,310)	559	(751)
Investing activities
Investment revenues received	3	-	3
Acquisition of property, plant and equipment	(308)	-	(308)
Acquisition of intangible assets	(375)	-	(375)
Acquisition of subsidiaries including expenses of acquisition	-	-	-
Acquisition related earn-out paid	-	(559)	(559)
Receipts from sale of property, plant and equipment	4	-	4
Net cash outflow from investing activities	(676)	(559)	(1,235)
Financing activities
Repayment of borrowings	(2)	-	(2)
Net cash (outflow)/inflow from financing activities	(2)	-	(2)
Net (decrease)/increase in cash and cash equivalents	(1,988)	-	(1,988)
Cash and cash equivalents at start of the period	4,424	-	4,424
Cash and cash equivalents at end of period	2,436	-	2,436

3.     Re-statement of Consolidated Income Statement

There has been a re-allocation of costs between Cost of sales and Administrative expenses resulting in a re-statement of the income statements for the year-ended 31 December 2017 and the period ended 30 June 2017. This change in allocation arises as a result of improved systems and visibility on personnel utilisation and associated costs, and is required to enable comparisons between the current and prior periods.

Re-statement of Consolidated Income Statement

For the six months ended 30 June 2017

		Unaudited Six months ended 30 June 2017 £000s	Adjustment £000s	Unaudited Six months ended 30 June 2017 (re-stated) £000s
Net service revenue		19,476	-	19,476
Reimbursement revenue		3,431	-	3,431
REVENUE		22,907	-	22,907
Cost of sales		(11,962)	1,236	(10,726)
Reimbursable expenses		(3,431)	-	(3,431)
GROSS PROFIT		7,514	1,236	8,750
Administrative expenses		(5,739)	(1,236)	(6,975)
Administrative expenses comprises:
Other administrative expenses		(4,857)	(1,236)	(6,093)
Amortisation of acquired intangible assets		(552)	-	(552)
Share-based payment charge		(278)	-	(278)
Deferred consideration for acquisitions expense		-	-	-
Revaluation of deferred consideration		-	-	-
Acquisition costs		(52)	-	(52)
Exceptional items		-	-	-
Research and development		(1,065)	-	(1,065)
Other operating income		12	-	12
OPERATING (LOSS)/PROFIT		722	-	722
Investment revenues		3	-	3
Finance costs		(247)	-	(247)
(LOSS)/PROFIT BEFORE TAXATION		478	-	478
Taxation		(4)	-	(4)
(LOSS)/PROFIT FOR THE PERIOD		474	-	474

Re-statement of Consolidated Income Statement

For the year ended 31 December 2017

		Audited Year ended 31 December 2017 £000s	Adjustment £000s	Unaudited Year ended 31 December 2017 (re-stated) £000s
Net service revenue		39,645	-	39,645
Licence revenue		370	-	370
Reimbursement revenue		7,609	-	7,609
REVENUE		47,624	-	47,624
Cost of sales		(25,394)	2,996	(22,398)
Reimbursable expenses		(7,609)	-	(7,609)
GROSS PROFIT		14,621	2,996	17,617
Administrative expenses		(15,954)	(2,996)	(18,950)
Administrative expenses comprises:
Other administrative expenses		(9,725)	(2,996)	(12,721)
Amortisation of acquired intangible assets		(1,167)	-	(1,167)
Share-based payment charge		(1,033)	-	(1,033)
Deferred consideration for acquisitions expense		(752)	-	(752)
Revaluation of deferred consideration		(2,875)	-	(2,875)
Acquisition costs		(259)	-	(259)
Exceptional items		(143)	-	(143)
Research and development		(2,689)	-	(2,689)
Other operating income		118	-	118
OPERATING (LOSS)/PROFIT		(3,904)	-	(3,904)
Investment revenues		3	-	3
Finance costs		(546)	-	(546)
(LOSS)/PROFIT BEFORE TAXATION		(4,447)	-	(4,447)
Taxation		(57)	-	(57)
(LOSS)/PROFIT FOR THE PERIOD		(4,504)	-	(4,504)

 

END

 

 

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