Audited Full Year Results for the year ended 31 December 2019
PRESS RELEASE
Audited Full Year Results for the year ended 31 December 2019
Revenue £68.3m (up 26.1%)
Adjusted EBITDA £12.5m (up from £2.3m in 2018)
Order book of future contracted revenue £124.1 million (up 13.6%)
New £30m credit facility
Guildford, UK – 25 March 2020: Ergomed plc (LSE: ERGO) ('Ergomed' or the 'Company'), a company focused on providing specialised services to the pharmaceutical industry, today announces its audited Full Year Results for the year ended 31 December 2019.
Selected Financial Highlights
| Audited Figures in £ millions, unless otherwise stated | Full year 2019 | Full year 2018 | %Change |
| Total Revenue | 68.3 | 54.1 | +26.1% |
| Gross Profit | 29.5 | 19.3 | +53.3% |
| Gross Margin | 43.3% | 35.6% | |
| Adjusted EBITDA 1 | 12.5 | 2.3 | +454.6% |
| Exceptional Items | (2.4) | (8.5) | |
| Cash and Cash Equivalents | 14.3 | 5.2 | +174.8% |
| Order book at 31 December | 124.1 | 109.2 | +13.6% |
Dr Miroslav Reljanovi?, Executive Chairman of Ergomed, said: “2019 has been a transformational year for Ergomed, delivering strong financial results and executing our focused strategy to become a leading global provider of specialist services to the pharmaceutical industry. We performed strongly across the business and the post year-end acquisition of Ashfield Pharmacovigilance Inc was a major strategic step for Ergomed in the US and in expanding our global presence. A substantial improvement in our profitability and cash resources, our significantly increased order book and new credit facility position Ergomed with financial resilience and a solid platform from which to achieve growth over the long term.
“The Group is monitoring closely the rapid development of the coronavirus outbreak. COVID-19 represents an unprecedented global healthcare challenge and we are proud to have been able to so rapidly play an integral role in establishing a clinical trial with a hospital at the heart of the outbreak in Bergamo, Italy. We hope we will be able to bring our expertise and proven capabilities to bear in advancing drug development in the field and improving outcomes for patients.”
Key Financial Highlights
- Revenue of £68.3 million increased by 26.1% on a comparable basis (2018: £54.1 million)
- Revenue growth in Pharmacovigilance (PV) up 28.6% to £35.4 million (2018: £27.5 million)
- Revenue growth in Clinical Research Outsourcing (CRO) up 23.6% to £32.9 million (2018: £26.6 million)
- Gross profit up 53% to £29.5 million (2018: £19.3 million)
- Adjusted EBITDA 1 of £12.5 million (2018: £2.3 million)
- Basic EPS of 12.0p (2018: loss of 20.0p)
- Cash and cash equivalents up 174.8% to £14.3 million at 31 December 2019 (31 December 2018: £5.2 million)
- Order book of £124.1 million future contracted revenue up 13.6% at 31 December 2019 (31 December 2018: £109.2 million)
Operational Highlights Including Post Year-End
- Targeted services business strategy around our core expertise has generated strong growth across the business
- Strengthened management team and Board through the appointment of senior leaders with significant industry experience and proven track records in building international businesses
- Continued focus on business development and cross-selling opportunities has resulted in double digit order book growth and enhanced confidence in the revenue pipeline for 2020
- Post year-end acquisition of Ashfield Pharmacovigilance Inc for $10 million cash will expand PrimeVigilance’s geographical reach to North America and enhance the platform for broader clinical services in the region
- Post year-end initiation of a study at the Papa Giovanni XXIII Hospital in Bergamo, Italy of siltuximab, an interleukin (IL)-6 targeted monoclonal antibody, for the treatment of patients with serious respiratory complications caused by COVID-19
New Credit Facility
·Post year-end, agreed a new three-year, multi-currency, £30 million credit facility with the Group’s bankers to facilitate the pursuit of the growth strategy
COVID-19 Update
·Ergomed is monitoring closely the rapid development of events in relation to the coronavirus outbreak. To date we have not seen a material impact on the business. Plans for financial risk mitigation are in place and will be implemented should this become necessary. The Group has a strong balance sheet and a £30m credit facility and is a resilient business in the face of the risks posed by COVID-19.
Notes:
[1] Adjusted EBITDA is defined as profit before tax for the year, adding back finance costs, depreciation and amortisation, share-based payments, acquisition-related contingent consideration, change in fair value of contingent consideration, acquisition costs and exceptional items. Adjusted EBITDA is management's key financial metric for measuring ongoing operational profitability.
Conference call for analysts:
A conference call for analysts will be held at 9.30am GMT on 25 March 2020
Conference call details:
Participant dial-in: 08003767922
International dial-in: +44 (0) 2071 928000
Participant code: 7082317
Enquiries:
| Ergomed plc | Tel: +44 (0) 1483 402 975 |
| Miroslav Reljanovi? (Executive Chairman) | |
| Richard Barfield (Chief Financial Officer) | |
| Numis Securities Limited | Tel: +44 (0) 20 7260 1000 |
| Freddie Barnfield / Huw Jeremy (Nominated Adviser) | |
| James Black (Broker) | |
| Consilium Strategic Communications – for UK enquiries | Tel: +44 (0) 20 3709 5700 |
| Chris Gardner / Sue Stuart | ergomed@consilium-comms.com |
| Matthew Neal / Olivia Manser | |
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 business includes an industry leading suite of specialist pharmacovigilance (PV) solutions, integrated under the PrimeVigilance brand, a full range of high-quality contract research and trial management services under the Ergomed brand (CRO), and an internationally recognised specialist expertise in orphan drug development, under PSR. 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 the industry and markets in which Ergomed operates, the Directors' beliefs and assumptions made by the Directors. Words such as "expects", "anticipates", "should", "intends", "plans", "believes", "seeks", "estimates", "projects", "pipeline" and variations of such words and similar expressions are intended to identify such forward-looking statements and expectations. These statements are not guarantees of future performance or the ability to identify and consummate investments and involve certain risks, uncertainties, outcomes of negotiations and due diligence and assumptions that are difficult to predict, qualify or quantify. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements or expectations. Among the factors that could cause actual results to differ materially are: the general economic climate, competition, interest rate levels, loss of key personnel, the result of legal and commercial due diligence, the availability of financing on acceptable terms and changes in the legal or regulatory environment.
These forward-looking statements speak only as of the date of this announcement. Ergomed expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Ergomed’s expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority.
Chairman’s Statement
A TRANSFORMATIONAL YEAR
2019 has been a transformational year for Ergomed delivering strong revenue growth and financial results across both the pharmacovigilance (PV) and the contract research outsourcing (CRO) offerings and executing on our strategy to become a leading global provider of specialist services to the pharmaceutical industry. We also strengthened our Board and executive management team through the appointment of senior leaders with significant industry experience and proven track records in building international businesses.
Ergomed is now firmly established in a position of strength and stability which will support our ambitious long-term growth plans.
A Solid Base for Continued Growth
During the year, we have substantially strengthened the Ergomed business by completing our transition to a profitable and cash-generative service-based business model, with both divisions now demonstrating consistent growth and profitability, whilst terminating the previous co-development strategy and thereby eliminating ongoing R&D expense. We have also now closed out all deferred payments on prior acquisitions, enabling our strengthened management team to complete the integration of those prior acquisitions and to develop cost saving and cross-selling opportunities.
From this stable platform, our ambitious plans to rapidly build a global pharmaceutical services business are strongly underpinned by our substantial forward order book providing high visibility of future contracted profitable revenue growth. The potential for investment in the future of the business is supported by our existing cash balances, organic cash generation and substantial new banking facilities. Our 2019 results show our highest level of revenue growth is in North America. Together with the acquisition and rapid integration of Ashfield Pharmacovigilance Inc (“Ashfield PV”), we have rapidly built a platform for future growth in the largest pharmaceutical market globally for both clinical research and pharmacovigilance.
Attractive Long-Term Market Dynamics
The global CRO market is predicted to grow at 5% compound annual growth rate (CAGR) to $70 billion by 2027. Higher growth is expected in markets in the biotechnology and specialty pharma drug development sectors in which Ergomed specialises, including rare disease and orphan drug development growth of 11% CAGR and oncology growth of 9% CAGR. The North American and European markets are key to this growth, with over 70% of all global clinical trials started in 2018 requiring either US or European operations.
The global PV market is also expected to see continued growth of 11.6% CAGR to $8.9 billion by 2025. This growth reflects the increasing complexity of pharmacovigilance regulation globally and the trend among pharmaceutical and biotechnology companies towards greater outsourcing of PV workstreams to specialist providers such as Ergomed.
We believe that these macro trends and the continued consolidation of the larger global pharmaceutical service companies will create an opportunity for Ergomed and its shareholders over the long term, through the creation of a publicly-traded global specialist service provider meeting dynamic industry demands, with high growth potential.
Executing our Strategy
In 2018, Ergomed announced that it would focus its strategy on its core service businesses in the PV and CRO sectors. We envisaged that this focus would result in significant growth and improved financial performance through realising the potential of our specialist services and established brands.
2019 saw further execution of this strategy, resulting in a significantly improved financial and operational performance. During the year, we saw revenue growth of 26.1% to £68.3 million underpinned by strong performances in PV and CRO. This continues a trend which has seen a compound annual growth rate of 22% over the past 6 years.
We have refined and aligned commercial strategies in our CRO and PV businesses and invested in our business development teams, the benefits of which can be seen in our growing order book and the increase in cross-selling opportunities.
Having acquired and successfully integrated several businesses into the Group, Ergomed is now realising the benefits of these acquisitions, positioning the Group as a leader in rare disease and orphan drug development, oncology, biotechnology and specialty pharma drug development, key drivers of growth across the combined PV and CRO business.
The acquisition of Ashfield PV, a long-established and respected provider of pharmacovigilance services in the US, provides the opportunity for further growth and, in line with its stated strategy, the Board will continue to actively consider the acquisition of PV and CRO businesses that will complement and strengthen the existing service offering of the Ergomed and PrimeVigilance brands and give access to new customers and geographies.
Strengthening the Board
During the year, Ergomed announced a number of key appointments including additions to the executive team and Board. Richard Barfield, our Chief Financial Officer (‘CFO’), appointed in June 2019, brings with him a wealth of experience, including as the former CFO of Chiltern International. Post year-end, we welcomed Lewis Cameron to the Board as Chief Operating Officer (‘COO’) and expect to benefit from his considerable operational expertise from companies including Covance and Chiltern.
The Board was also pleased to welcome Dr. Jim Esinhart, former CEO of Chiltern, Rolf Soderstrom, former CFO of BTG plc and Ian Johnson, former Executive Chairman of Bioquell PLC, as Non-Executive Directors, joining Michael Spiteri, Global COO of Digital Data and Development at HSBC, who has been a Non-Executive Director since October 2018.
These appointments add to the growing pool of industry-leading talent Ergomed is attracting and reflect the professionalism of the current team and the growth potential of the business. We have now established a single leadership structure across all commercial and operational functions to maximise opportunities for synergies and cross-selling and delivery on strategy.
COVID-19
Events in relation to the COVID-19 virus outbreak are continuing to evolve rapidly. The Group is monitoring the situation closely as it develops.
Health and Safety
Ergomed’s priorities remain the health and safety of our employees and the maintenance of our service to all the patients and medical staff involved in our clinical studies and pharmacovigilance services.
We have increased vigilance on hygiene across all our sites and stopped all but absolutely necessary travel. After thorough systems stress testing and in reliance on our established business continuity plans, the Group has transitioned to home working and digital communications for the majority of our staff. We are fortunate that the nature of our work and the robustness of our technology systems make this possible with minimal disruption to our operations. We have additional protocols to take further contingency measures should the situation deteriorate further.
We are continuing to provide clinical study and pharmacovigilance monitoring services in support of all our patients and medical partners. In most cases these services are already or can be performed remotely and we have now been able to transition to full remote working. To date we have not seen any reduction in our service levels or productivity metrics, indicating that the quality and scale of the care we are providing to our patients and the healthcare profession continue at normal levels so far.
Business Continuity
At this time, Ergomed has not seen a material impact on its business. As mentioned above, we have not so far seen any decline in our performance metrics. As the vast majority of Ergomed’s services in both clinical research and pharmacovigilance are provided under long-term contracts and in order to meet medical monitoring needs essential for medical research and to meet legally mandated pharmacovigilance requirements, we believe it is likely that this will continue to be the case for all existing contracted services. However, whilst the duration of the outbreak and the prospects for financing of new drug development remain unclear, it can be expected to cause disruption to business development activities as scientific conferences are cancelled and travel restrictions tighten.
Risk Mitigation
Ergomed will continue to monitor closely the rapidly evolving situation. Whilst no immediate risks to the Group’s revenues have been identified, plans for financial risk mitigation are in place and will be implemented should this become necessary. The Group has a strong balance sheet and a £30m credit facility and is a resilient business in the face of the risks posed by COVID-19.
Our Contribution to the Global Fight Against COVID-19
Ergomed will use all the resources at its disposal to contribute to the efforts of the global and scientific community to beat the COVID-19 virus. We will do this by continuing to provide our clinical trial and monitoring services for our existing and new clients and patients to the highest professional standards.
At the same time, we will provide our services to researchers and clinicians for new projects designed to combat the virus. As an example, we have recently announced the initiation of a study of siltuximab, an interleukin (IL)-6 targeted monoclonal antibody, for the treatment of patients with COVID-19 who have developed serious respiratory complications. The study is sponsored by the Papa Giovanni XXIII Hospital in Bergamo, Italy and supported by EUSA Pharma. This important study illustrates how Ergomed’s long experience and deep expertise in the provision of clinical study and pharmacovigilance services can play a part in assisting the global scientific community in its fight against COVID-19.
Conclusion
The success which Ergomed achieved in 2019 is the product of the hard work and dedication of all our colleagues. We attracted many new professionals to our team during the year, which will create more opportunities, both in the UK and internationally, as we look to strengthen our operational base further. I would like to thank everyone at Ergomed for their contribution during the year, and our investors for their continued support.
Globally the COVID-19 situation is developing extremely rapidly. While we are confident in the resilience of the Group and in our strategy, there are significant uncertainties arising from the spread of the coronavirus and the policy choices made in each country, and the outlook and longer term financial impact of the pandemic remain uncertain. We will provide further updates as we have more clarity, including as part of our usual reporting cycle in July and September 2020.
Miroslav Reljanovi?
Executive Chairman
Operational Review
Introduction
2019 has seen a strong operational and financial performance across the Group. This reflects the continued execution of our strategy to deliver world-class pharmacovigilance and contract research outsourcing services to customers and the cultivation of business development and cross-selling opportunities between these two complementary businesses. The Group enters 2020 on a stable platform with a clear and proven growth strategy, a robust financial position and experienced leadership to realise the longer-term strategic priorities of the business.
Pharmacovigilance
Ergomed’s comprehensive range of services in both the PV and CRO sectors are complementary and allow it to support pharmaceutical and biotechnology companies through all phases of clinical development, post-approval pharmacovigilance and medical information services.
The PV market continues to see significant change through the introduction of strict drug testing and approval regulations and the need for the market to use big data analytics. PrimeVigilance is recognised as a global leader in providing pharmacovigilance, regulatory and medical information services, as highlighted by the receipt of The Queen’s Award for Enterprise in the International Trade category in 2019. The increased visibility of the brand and PrimeVigilance’s growth over the past year has been facilitated by our focus on a ‘quality first’ approach, ongoing investment in people, recruitment and training, and the development and deployment of the latest available technologies, including automation and robotic technology.
Fundamental to the “quality first” approach is Ergomed’s medic-led service. PrimeVigilance employs around 50 physicians, over 300 pharmacists and other life sciences professionals and over 20 in-house EU Qualified Persons for Pharmacovigilance (EU QPPV) and has a network of Local Qualified Persons covering over 60 countries. This constitutes one of the largest qualified teams of PV specialist professionals in any independent pharmaceutical services business globally. The breadth and depth of staff and professionals supporting PrimeVigilance has contributed to the growing number of customers serviced in the year increasing to more than 150 with a presence in over 100 countries and resulting in a top-line service revenue growth of 28.6% (2018: 21.9%).
This was complemented post year-end as a result of the acquisition of Ashfield PV by the addition of a further 40 customers and over 70 new PV specialist colleagues.
Technology is at the core of the PrimeVigilance quality first approach. Its technology offering has allowed pharmacovigilance services to be delivered with speed, consistency and accuracy within both customer and in-house databases. Ergomed will continue to invest in technology to further drive efficiency, quality and, as a result, competitiveness.
In addition, the PV strategy has been to grow the business and brand awareness organically and through the acquisition and successful integration of businesses which are complementary to the PrimeVigilance approach and offer routes into new markets, be it customer specialisms or geographies. In 2019, this focus has effectively delivered with revenue growth up 28.6% to £35.4 million (2018: £27.5 million) and gross margin growth up 44.8% to £18.2 million (2018: £12.6 million).
The PV business, with the significant growth over the last year and the post year-end acquisition of Ashfield PV, is well placed to continue the delivery of its growth strategy into 2020.
Contract Research Outsourcing
Ergomed delivers market-leading quality CRO services through a comprehensive offering of clinical trial research support covering all phases of medical development via a global network of research experts and patients.
The Group’s CRO brands, Ergomed and PSR Orphan Experts, are leading providers of full-service clinical research in the specialist areas of oncology and orphan drug development. Using their extensive experience in specialist fields and their global presence, both brands are able to focus on effective patient recruitment and reducing the time and cost of clinical trials across all phases of development.
The continued growth and success of the Group’s CRO business is a result of its focus on management and physician teams working closely together to ensure focus on a considered patient recruitment process, maximising patient retention and ensuring efficient programme management and control over complex trial protocols. In addition, the Group has continued to invest in its CRO service offering through its investment in the enhanced digitalisation of CRO services.
Orphan drug development focuses on rare diseases, which by definition are smaller drug trials, but which require specialist expertise. Through the PSR brand, Ergomed has distinguished itself from competitors in this market, and as a result, 45% of new CRO business in 2019 has been secured through orphan drug related customers.
Revenues for the CRO business have grown 23.6% from £26.6 million to £32.8 million resulting in an increase in gross margin to £11.3 million, up 50.8% from £7.5 million in 2018.
As is typical for a CRO business, 25.9% (£8.5million) of Ergomed’s CRO revenue is generated as reimbursement revenue or pass-through costs (2018: 28.5%, £7.7 million). This reimbursement revenue, which is generated from costs on clinical trials passed on to the customer at no mark-up, can cause fluctuations in both revenue and gross margin. However, the underlying service fee gross margin of the CRO business (gross margin less reimbursement revenue and costs) increased substantially during the year, from 38.0% in 2018 to 46.4% in 2019.
Acquisitions
The Group continued to integrate, deliver revenue and cost synergies and realise growth opportunities from the PharmInvent, Harefield, Pharmacovigilance Services and PSR Group acquisitions from prior years. These businesses have allowed Ergomed to strengthen its position as a leading global specialist, leveraging this position and the cross-selling opportunities it provides across the PV and CRO businesses.
Shortly after the year-end in January 2020, the Group acquired Ashfield PV, a long-established and respected provider of PV services in North America, from UDG Healthcare. The Ashfield PV name was immediately rebranded to PrimeVigilance USA Inc and, through its offices in the Research Triangle in Cary, North Carolina, expands PrimeVigilance’s geographic coverage in the strategically important US market and strengthens Ergomed’s global service offering.
Operations
Leadership changes and appointments
During the year Dr. Miroslav Reljanovi? was appointed as Executive Chairman following the resignation of former CEO, Stephen Stamp, in January 2019. Miroslav is the founder of Ergomed and was previously the Chief Executive Officer of the Group.
The Group was pleased to welcome Richard Barfield, who took over from Stuart Jackson as CFO in June 2019. Richard is a Fellow of the Institute of Chartered Accountants with previous experience of the international CRO market having formerly served as CFO at Chiltern International.
Post year-end Lewis Cameron was appointed as Chief Operating Officer (COO). Lewis brings considerable operational expertise from companies in the services industry, including Covance and Chiltern.
Roy Ovel was appointed as Chief Commercial Officer (CCO) in April 2019 and leads the business development team across both the PV and CRO businesses, with a remit to maximise opportunities arising from the commercial integration of the business. Roy has worked in the clinical services industry for over 35 years and has a strong track record for developing high performing sales and marketing teams, previously with TFS and more recently with Worldwide Clinical Trials.
Jonathan West was appointed as President of Ergomed’s pharmacovigilance business, PrimeVigilance, in September 2019. Jon brings a wealth of experience in the global pharmacovigilance sector, including senior roles with Parexel. He is a PV expert and was the first employee of PrimeVigilance when it was formed in 2008, and later its Commercial Director.
Co-development
During the year, in line with our previously stated strategy to grow Ergomed as a pharmaceutical services business and reduce our commitment to co-development projects, no new co-development partnerships were signed. The Group continues to seek a licensing or financial partner (or partners) for the Haemostatix products, Peprostat and ReadyFlow, whilst seeking to minimse our ongoing R&D expense and protect our intellectual property interests. Any future ongoing costs relating to co-development programmes are expected to be minimal.
Outlook
The demand for both PV and CRO services is expected to remain strong over the long term and in our CRO business we are currently experiencing high levels of interest in COVID-19 clinical research. Ergomed remains focused on its strategy to become a market leader in pharmacovigilance and orphan drug trial services. These combined businesses are expected to continue to create organic and inorganic growth opportunities to strengthen the existing service offering and expand the Group’s geographical markets.
The Group’s strong financial position is expected to support the delivery of its strategy, based on its year-end cash balance, cash generative operations, substantial contracted order book and the recently agreed credit facility.
For and on the behalf of the Board of Directors.
Miroslav Reljanovi?
Executive Chairman
Financial Review
Introduction
2019 saw a number of upgrades to market expectations, and the full year results include a further small uplift compared to the latest market expectations, as well as the announcement of the Group’s new credit facilities, thereby underlining the two key financial achievements of 2019: profitable growth and financial stability,
The upturn in revenues and margins seen in the second half of 2018 continued into 2019 and the Group is in a strong financial position at the year-end with a strengthened balance sheet. We believe that the Group now has the platform and resilience required to maintain a steady course through 2020, recently bolstered by the acquisition of Ashfield PV in January 2020.
The Group and wider financial reporting community have experienced significant changes in the accounting regulatory landscape over the past two years, firstly with the introduction of the International Financial Reporting Standards IFRS 9 on financial instruments and IFRS 15 on revenue from contracts with customers, and more recently with the introduction of IFRS 16 on leases. These new accounting standards continue to increase the robustness and transparency of financial reporting.
The implementation of IFRS 16, Leases, for the 2019 results has introduced all the Group’s leases onto the balance sheet as a ‘right-of-use’ asset and lease liability and uplifted 2019 reported and adjusted EBITDA by £1.8m. Further detail on the adoption of IFRS 16 is set out in note 10.
KPIs and APMs
Key Performance Indicators (KPIs)
The table below summarises the KPIs that management uses to measure the financial performance of the Group. The 2019 results are set out ‘As reported’ under current applicable accounting standards including the adoption of IFRS 16 in the year, and ‘Under IAS 17’ as if they were presented under the prior year accounting standards and were consistent with those prepared in 2018.
| 2019 | |||
| £ millions (unless otherwise stated) | As reported | Under IAS 17 | 2018 |
| Total Revenue | 68.3 | 68.3 | 54.1 |
| CRO | 32.8 | 32.8 | 26.6 |
| PV | 35.4 | 35.4 | 27.5 |
| Gross profit | 29.5 | 29.5 | 19.3 |
| Gross margin | 43.3% | 43.3% | 35.6% |
| EBITDA | 9.2 | 7.4 | (7.9) |
| Adjusted EBITDA | 12.5 | 10.7 | 2.3 |
| Earnings per share (basic) | 12.0p | 12.2p | (20.0)p |
| Cash generated from operations | 11.6 | 10.1 | 0.9 |
| Cash and cash equivalents | 14.3 | 14.3 | 5.2 |
| Order book | 124.1 | 124.1 | 109.2 |
Alternative performance measures (APMs)
In measuring and reporting financial information, management reviews Alternative Performance Measures (APM’s), such as EBITDA and adjusted EBITDA, which are not defined measures under financial reporting standards. Management believes that these measures, when considered in conjunction with defined financial reporting measures, provide management and stakeholders with a better understanding of the performance of the business.
Operating profit/(loss) is the financial reporting measure under IFRS most comparable to EBITDA and adjusted EBITDA. Operating profit/(loss) is reconciled to EBITDA and adjusted EBITDA as follows:
| 2019 | 2018 | |
| £000s | £000s | |
| Operating profit/(loss) | 5,518 | (10,446) |
| Adjust for: | ||
| Depreciation and amortisation charges within Other selling, general & administration expenses | 3,041 | 1,248 |
| Amortisation of acquired fair valued intangible assets | 671 | 1,286 |
| EBITDA | 9,230 | (7,912) |
| Share-based payments | 870 | 758 |
| Acquisition-related contingent compensation | 87 | 972 |
| Change in the fair value of contingent consideration for acquisitions | (512) | (233) |
| Acquisition costs | 393 | 174 |
| Exceptional items | 2,427 | 8,494 |
| Adjusted EBITDA | 12,495 | 2,253 |
The Directors make certain adjustments to EBITDA to derive adjusted EBITDA, which they consider more reflective of the Group’s underlying trading performance and enables comparisons to be made with prior periods. Certain items, such as share-based payments, revaluation of deferred consideration for acquisitions and write-back of deferred consideration for acquisitions are non-cash items and reflect adjustments to expected future deferred consideration payments.
Deferred consideration for acquisitions expense relates to the cash component of deferred consideration which is payable contingent on the continued employment of the vendors. These costs, together with acquisition costs and exceptional items, are cash costs but are not considered as normal recurring trading items and therefore are not included in adjusted EBITDA.
Management also uses order book, or, in prior years, contracted order backlog, as an APM. Order book is the contracted value of customer revenue relating to in-progress performance obligations which are expected to be recognised in the future. The use of order book by management is no longer considered to be an APM as, from 1 January 2018, it is now a defined financial measure under IFRS 15.
Growth
The positive revenue performance seen in both Clinical Research Outsourcing and Pharmacovigilance during the first six months of the year continued through to the year-end and resulted in a strong order book at the start of 2020.
Revenues for 2019 totaled £68.3 million, an increase in of 26.1% over the prior year (2018: £54.1 million), with CRO revenues increasing 23.6% from £26.6 million to £32.8 million and PV revenues increasing 28.6% from £27.5 million to £35.4 million.
The growth in revenue was accompanied by a 53.3% increase in gross profit from £19.3 million in 2018 to £29.5 million in 2019 and an enhancement in gross profit margin from 35.6% in 2018 to 43.3% in 2019. The increase in revenue and gross margin percentage was enhanced by one-off change orders and project completions in the first half of the financial year which are not expected to recur in 2020.
The Group also progressed its strategy to close out its co-development activities to enable greater focus on the PV and CRO service model. As a result, the Group has reduced its overall R&D expenditure from £1.6 million in 2018 to £0.5 million in 2019 and, during 2019, realised impairment charges and write-offs totaling £2.4 million as exceptional costs (2018: £6.6 million). The Group will continue to minimise the ongoing costs to maintain the programmes while continuing to exercise prudent stewardship over the co-development assets.
The strong revenue growth and continued focus on profitability in 2019 have resulted in an adjusted EBITDA of £12.5 million, an increase of £10.2 million over the prior year (2018: £2.3 million). The adjusted EBITDA result for 2019 was augmented by the cost reduction programme implemented and completed in 2018.
Financial stability
The strong results for the year, specifically the growth in revenue and profitability, have significantly enhanced the Group’s cash generation at an operating level, with cash generated from operations of £11.7 million, an increase of £10.7 million over the prior year (2018: £1.0 million).
The Group continues to strengthen its balance sheet, with cash and cash equivalents increasing by £9.1 million to £14.3 million at the year-end (2018: £5.2 million). The cash headroom has been augmented after the year-end by the agreement of a £30 million credit facility with the Group’s bankers, HSBC UK Bank plc. The facility comprises a £15 million, three-year, multi-currency revolving credit facility and an accordion facility under which up to an additional £15 million can be borrowed on the same terms with the bank’s approval. The facility is secured by a debenture.
Outlook
We move into 2020 having secured a combined order book at the end of 2019 of £124.1 million, up 13.6% on the prior year (2018: £109.2 million), being debt free and starting the year with significant cash headroom, including cash and cash equivalents of £14.3 million prior to the Ashfield PV acquisition in January 2020.
This stable financial platform facilitated the acquisition of Ashfield PV, which completed on 10 January 2020 for a total cash consideration of $10 million. Ashfield PV was rebranded as PrimeVigilance USA Inc immediately after purchase and is expected to drive the rapid expansion of the PV business in North America and to strengthen our global service offering. The purchase of the business at the start of 2020 will allow almost a whole financial year of enhanced revenue and EBITDA to complement the Group’s results in 2020.
Ergomed will continue to monitor closely the rapidly evolving coronavirus outbreak. Whilst no immediate risks to the Group’s revenues have been identified, plans for financial risk mitigation are in place and will be implemented should this become necessary. The Group has a strong balance sheet and a £30m credit facility and is a resilient business in the face of the risks posed by COVID-19.
Richard Barfield
Chief Financial Officer
Consolidated income statement and consolidated statement of comprehensive income
For the year ended 31 December 2019
| 2019 | 2018 | ||
| Notes | £000s | £000s | |
| Revenue | 2,3 | 68,255 | 54,112 |
| Cost of sales | (29,790) | (26,788) | |
| Reimbursable expenses | (8,940) | (8,070) | |
| Gross profit | 3 | 29,525 | 19,254 |
| Selling, general and administration expenses | (23,514) | (28,152) | |
| Selling, general and administration expenses comprises: | |||
| Other selling, general and administration expenses | (19,578) | (16,701) | |
| Amortisation of acquired fair valued intangible assets | (671) | (1,286) | |
| Share-based payment charge | (870) | (758) | |
| Acquisition-related contingent compensation | (87) | (972) | |
| Change in the fair value of contingent consideration for acquisitions | 512 | 233 | |
| Acquisition costs | (393) | (174) | |
| Exceptional items | 4 | (2,427) | (8,494) |
| Research and development | (545) | (1,578) | |
| Net impairment losses on financial and contract assets | - | (9) | |
| Other operating income | 51 | 39 | |
| Operating profit/(loss) | 5,517 | (10,446) | |
| Finance income | 28 | 23 | |
| (Loss)/gain on fair value of equity investments | 7 | (286) | 277 |
| Finance costs | (273) | (622) | |
| Profit/(loss) before taxation | 4,986 | (10,768) | |
| Taxation | 5 | 583 | 1,788 |
| Profit/(loss) for the year | 5,569 | (8,980) | |
| Profit/(loss) per share | |||
| Basic | 6 | 12.0p | (20.0)p |
| Diluted | 6 | 11.5p | (20.0)p |
All activities in the current and prior period relate to continuing operations.
| 2019 | 2018 | |
| £000s | £000s | |
| Profit/(loss) for the year | 5,569 | (8,980) |
| Items that may be classified subsequently to profit or loss: | ||
| Exchange differences on translation of foreign operations | (208) | 120 |
| Other comprehensive income for the year net of tax | (208) | 120 |
| Total comprehensive profit/(loss) for the year |
By: GlobeNewswire
- 25 Mar 2020
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