RNS
Horizon Discovery Group
plcResults for the Six Months Ended 30 June
2019
Cambridge, UK, 16 September
2019: Horizon Discovery Group plc (LSE: HZD)
("Horizon", "the Group" or “the Company”), a global leader in the
application of gene editing and gene modulation technologies, today
announces its results for the six months ended 30 June 2019.
Group Financial highlights
- Reported revenue of £28.6m an increase of 13.9% on the prior
year (HY18: £25.1m) or growth of 8.8% on a constant currency
basis1
- Gross margin increased by 5.3 percentage points to 68.5% (HY18:
63.2%)
- Adjusted EBITDA1 loss of £0.9m2 (HY18: £2.2m
loss), including a positive impact of £1.3m from the implementation
of IFRS 16 Leases
- Loss after taxation2 of £5.3m for the half
year (HY18: £7.6m)
- Cash position at 30 June 2019 of £24.8m (HY18: £24.9m)
Business Unit performance*
- Research Reagents: Reported revenue of £16.5m up 11.5% on the
prior half year period (HY18: £14.8m) or growth of 6.8% on a
constant currency basis1
- Screening: Reported revenue of £4.3m up 38.7% on the prior half
year period (HY18: £3.1m) or growth of 32.3% on a constant currency
basis1
- Bioproduction: Reported revenue of £2.8m up 154.5% on the prior
half year period (HY18: £1.1m) or growth of 145.5% on a constant
currency basis1
- Diagnostics: Reported revenue of £2.5m down 28.6% on the prior
half year period (HY18: £3.5m) or a decline of 31.4% on a constant
currency basis1
- In Vivo: Reported revenue of £2.5m down 3.8% on the prior half
year period (HY18: £2.6m) or a decline of 11.5% on a constant
currency basis1
Other
- Post period end, licensing partner Celyad received FDA
acceptance of an IND filing for CYAD-02 its CAR-T cell therapy
based on Horizon’s optimized SMARTvector™ shRNA technology,
triggering the first milestone payment to the Group
- Product revenue increased 14.6% to £22.8m (HY18: £19.9m);
Service revenue increased 11.5% to £5.8m (HY18: £5.2m)
Financial Outlook
- Strong start to trading in H2 2019
- Revenues for FY19 are expected to be second half weighted
(consistent with previous years) and in line with current market
expectations
- The Group is trading in line with expectations for FY 2019
1
Refer to the financial review for the definition and
reconciliation of alternate performance
measures2
The HY19 results incorporate the impact of adopting IFRS16 Leases.
Refer to the financial review for the reconciliation*New market
aligned business unit structure introduced in January 2019.
Prior year equivalents provided for comparison. A detailed
explanation of the performance of each Business Unit is provided in
the CEO Review.
Terry Pizzie, Chief Executive Officer of
Horizon Discovery, commented: “Horizon has enjoyed a
solid performance in the first half of the year with the business
as a whole performing in line with expectations.”
“I am pleased to report Group revenues of
£28.6m, an increase of 13.9% on the prior year (HY18: £25.1m) or a
growth of 8.8% on a constant currency basis. This growth has
largely been driven by strong performance in the Group’s
Bioproduction and Screening business units, which increased
revenues by 154.5% and 38.7% respectively. The Group’s Research
Reagent business unit, which encompasses more than half of Group
revenues, also had a good start to the year and we expect strong
growth in the second half as this Business Unit benefits from the
increased capacity in Cell Line engineering that we have
implemented in the first half. We have experienced some
organisational challenges with our Diagnostics business unit, but
the corrective action that we have put in place should lead to an
improved performance in the second half.”
“I am pleased to report that the business is on
track to complete the delivery of the productivity and eCommerce
initiatives that we are implementing as part of our Investing for
Growth strategy. We expect these investments to generate
significant payback in the short and long-term, by reducing costs,
increasing capacity and operating leverage, whilst also opening up
new avenues of growth.”
“With our traditional second-half weighting and
strong order book for the remainder of 2019, we are well positioned
to deliver on our strategy, as we continue to transform Horizon
from a scientifically-led business, into a fully commercial tools
and services company with industrialised processes and
customer-directed R&D.”
Analyst briefing
An analyst briefing will be held at 12:00pm BST
on Monday 16 September 2019 at the offices of Numis, 10 Paternoster
Sq., London, EC4M 7LT. There will be a simultaneous live conference
call.
Conference call details:
- Participant UK dial‐in: 0800 376 7922
- Participant US dial‐in: 1 866 966 1396
- International dial‐in: +44 (0) 2071 928000
- Participant code: 6674702
A live webcast of the meeting and presentation
slides, will be available on the Group’s website:
https://www.horizondiscoveryplc.com/category/presentations-recordings/
For further information from Horizon
Discovery Group plc, please contact:
Horizon Discovery Group
plcTerry Pizzie, Chief Executive OfficerJayesh Pankhania,
Chief Financial OfficerJon Davies, Head of Investor RelationsTel:
+44 (0) 1223 655 580
Numis Securities Limited (Broker and
NOMAD)Freddie Barnfield / Tom Ballard / Duncan
MonteithTel: +44 (0) 207 260 1000
Consilium Strategic Communications (UK
Financial Media and Investor Relations)Mary-Jane Elliott /
Matthew Neal / Melissa GardinerTel: +44 (0) 20 3709
5700Email: horizon@consilium-comms.com
Westwicke, an ICR Company (US Investor
Relations)Stephanie CarringtonTel. 646-277-1282Email:
horizondisovery@icrinc.com
About Horizon Discovery Group
plc www.horizondiscovery.com
Horizon Discovery Group plc (LSE: HZD)
("Horizon") drives the application of gene editing and gene
modulation within the global life science market – supporting
scientists on the path from research to therapy.
Built upon more than a decade of experience in
the engineering of cell lines, Horizon offers an unmatched
portfolio of tools and services to help scientists gain a greater
understanding of gene function, identify genetic drivers behind
human disease, deliver biotherapeutics, cellular and gene therapies
for precision medicine as well as develop and validate diagnostic
workflows.
Horizon’s solutions enable almost any gene to be
altered, or its function modulated, in human and other mammalian
cell lines.
The Company’s customers include many of the
world’s foremost academic institutes, global biopharmaceutical and
biotechnology companies as well as clinical diagnostic
laboratories. Insight into the challenges faced by these
organizations enables Horizon to focus efforts on development of
innovative solutions that not only differentiate the Company’s
offering, but also fuel development of the next wave of precision
medicines.
Horizon is headquartered in Cambridge, UK with
offices in USA and Japan. The Group is listed on the London
Stock Exchange's AIM market under the ticker HZD.
CEO REVIEW
I am pleased to report a solid performance in
the first half of the financial year with the Group as a whole
performing in line with expectations. Reported revenues of £28.6m
increased 13.9% on the prior year (HY18: £25.1m) representing
growth of 8.8% on a constant currency basis1.
Gross Margins increased by 5.3 percentage points to 68.5% (HY18:
63.2%) largely driven by a strong performance in our Bioproduction
business unit. Our adjusted EBITDA1 loss of
£0.9m2 (HY18: £2.2m) is in line with our expectations as we
continue to invest in our business with a focus on achieving growth
and market share. We report a loss after tax2 of
£5.3m for the period, representing an improvement over the prior
period (HY18: £7.6m loss).
As we indicated in our FY18 results statement,
from the start of this year we implemented a new Business Unit
structure to allow the Group to better develop and target the
product and service offerings increasingly required by our evolving
markets. As a result, we replaced the former reporting
structure of Research Products, Applied Products and Services
(reported as Products and Services at a Group level), with five
market-aligned Business Units: Research Reagents, Screening,
Bioproduction, Diagnostics and In Vivo. Each of these business
units comprise a mix of products and services that are tailored to
the specific needs of their respective customer segments.
The implementation of this new structure has
resulted in some organisational changes within the business, some
of which are still bedding down. However, I am pleased to report
that the increased focus that it has delivered, through having
dedicated Business Unit Managers and Product Managers, has largely
delivered the expected results, with the exception of Diagnostics,
where some organisational challenges led to a disappointing first
half performance (see Performance by Business Unit)
This set of results is the first in which the
Group has reported according to this new structure. Further details
of the composition of these Business Units and their performance in
the half year are set out below. In summary, revenue growth for the
first six months was driven by a notably strong performance in
Bioproduction (up 154.5% on the prior year equivalent) and
Screening (up 38.7% on the prior year equivalent).
Research Reagents, which encompassed 58% (HY18:
59%) of Group revenues, grew by 11.5% in the period. We expect
continued strong growth in the second half of the year, as this
business unit benefits from the substantially increased capacity in
Cell Line engineering achieved in the first half.
In Vivo’s performance was down 3.8% on the prior
year reflecting the continuing challenges the business is facing in
its market.
Diagnostics was down 28.6% on the prior year due
to organisational issues in this business unit. These have
been identified and the corrective action that we have put in place
should lead to an improved performance in the second half.
Whilst we will henceforth report according to
this new structure, for this period we have also provided
commentary on the way we formerly reported, in order to help
investors track performance in the first half of the financial
year. Accordingly, Group Product revenue increased 14.6% to £22.8m
(HY18: £19.9m); whilst Group Services revenue increased 11.5% to
£5.8m (HY18: £5.2m).
Investing for Growth
This time last year, the Group announced its new
“Investing for Growth” strategy to support our goal to become the
‘go-to’ provider of IP-rich cell engineering solutions and to
establish leadership positions in key target markets. This has led
us to prioritise the highest value, highest growth areas of our
core markets, in particular CRISPR screening and reagents, cell
engineering, bioproduction and diagnostic reference
standards.
To support this growth, we have committed £5m
over an 18 month period to an investment program which is focussed
on supporting growth across the Group and includes investments in
automation to increase production capacity, in Laboratory
Information Management Systems (LIMS) to improve data handling, in
Business Intelligence to add customer and business insight, and in
digitisation to enhance customer experience through our eCommerce
channel. Alongside this, we are continuing to invest in
commercially led, scientific innovation in order to stay at the
forefront of emerging technologies and maintain our market-leading
position.
We are now nine months into this programme and
the work is still ongoing, but I am pleased to report that the
goals we set ourselves in the first half of the year have all been
achieved. As planned, by re-engineering our existing process
we have successfully delivered the expected tripling of capacity in
Cell Line Engineering with no additional headcount. We expect to
increase this further through the addition of automation by the end
of the first quarter of 2020, which will result in a five-fold
increase in capacity compared to the start of 2019. The
redevelopment of the Group’s web and e-commerce project is also
progressing to plan and is on track for completion in October 2019.
This will consolidate what are currently two separate web sites
(former Horizon and Dharmacon) into a single platform that will
provide an enhanced customer experience and opportunities for
cross-selling across the Group’s entire portfolio.
We expect these investments to generate
significant payback in the short and long-term, by reducing costs,
increasing capacity and operating leverage, whilst also opening up
new avenues of growth.
Performance by Business
Unit
The metrics included below are all reported
measures unless otherwise stated.
Research Reagents
- Revenue of £16.5m up 11.5% on the prior year (HY18:
£14.8m)
- On a constant currency basis Revenue of £15.8m up 6.8%
The Research Reagents business unit comprises
the tools (both products and services) that allow scientists in
both academia and drug discovery to better understand disease
mechanisms, and to identify the drivers behind disease via both
permanent and transient changes in gene expression. It includes
Horizon’s extensive catalogue of off-the-shelf (OTS) cell models
(formerly classified under Research Products) and bespoke cell
engineering services (formerly classified under Services) and
Dharmacon’s custom-made and OTS gene modification (RNAi) and gene
editing (CRISPR) reagents (formerly categorised under Research
Products) which are delivered from the Group’s manufacturing and
global logistics centre in Boulder, Colorado.
Horizon’s main customers for this revenue stream
are academic research labs and early-stage biopharmaceutical
companies, which are leveraging Dharmacon’s leadership position in
RNAi/siRNA and CRISPR reagents to perform gene modulation and
editing. Sales are typically high volume and transactional in
nature, captured primarily through the Group’s website, with some
sold via field sales.
Horizon’s OTS cell models are sold from the
Group’s website. Off-the shelf models are available for immediate
delivery, with an express service that delivers cell models
selected from a predefined menu. Horizon’s bespoke cell line
engineering service is available to those customers with highly
specific requirements and is predominantly sold to biotech and
biopharmaceutical companies through the Group’s field sales and Key
Accounts sales organisation.
Research Reagents delivered sales of £16.5m in
HY19, up 11.5% on the prior year, with the Group benefiting from
increased cross-selling and continuing recovery in the former
Dharmacon business. This accounted for 58% of the Group’s
revenues and delivered solid growth during the period.
We expect the overall growth rate of Research
Reagents to increase in the second half, as the business unit
benefits from the three-fold increase in cell line engineering
capacity delivered in H1 (through re-engineering existing
processes) with automation bringing this up to a five-fold increase
by the end of the first quarter of 2020.
Since the Group’s inception, cell line
engineering has been a core capability of Horizon and is also an
enabler for other business units (e.g. Diagnostics and
Screening). The market is currently fragmented with no
dominant players and our ambition is to significantly grow revenues
over the next 18-24 months. The increase in capacity is key
to this, as it will enable us to decrease our manufacturing costs
and extend our offering, with more compelling solutions on both
price and turnaround times.
This will have two main effects. Firstly,
it will significantly increase our addressable market, as we will
now have a more competitive offering and secondly, the increased
project volumes will allow us to increase operational leverage
across other business units, for example Diagnostics.
Screening (including leveraged
R&D)
- Revenue of £4.3m up 38.7% on the prior year (HY18: £3.1m)
- On a constant currency basis Revenue of £4.1m up 32.3%
The Screening business unit comprises tools and
services that address major challenges in drug development,
including Horizon’s CRISPR Screening and high throughput compound
screening (both formerly categorised under Services) and
Dharmacon’s CRISPR and RNAi libraries (formerly categorised under
Research Products). Customers for this revenue stream are
mid-to-large biotech and biopharmaceutical companies, which are
targeted by the Group’s field sales and Key Accounts team and have
the choice of buying either a fully outsourced service or just the
tools they need (CRISPR libraries) to do their own screening
in-house.
Horizon has a market-leading position in this
arena with more than 500 CRISPR screens completed and ongoing,
including with 8 out of the top 20 global biopharmaceutical
companies. In the early part of 2019, we announced the launch of
the world’s first primary human T-Cell CRISPR screening service,
underlining our leading position in this important developing
market.
In addition to this extensive know-how and track
record, Horizon’s ability to leverage Dharmacon’s manufacturing
expertise is a major differentiator, as it means that we do not
need to source CRISPR reagents from other suppliers. The ability to
package CRISPR reagents into libraries for sale to organisations
seeking to do their own CRISPR screening is also a major factor in
helping us to engage with biopharmaceutical companies on both a
tool supply and outsourcing basis.
Screening delivered revenues of £4.3m for the
period (HY18: £3.1m), an increase of 38.7% on the prior year.
Much of this growth has been driven by an increase in the number of
highly complex large-scale screens for major biopharmaceutical
companies. Demand continues to be very strong in the second half.
We have received an order for £850k – the largest single order to
date and we will begin to see revenue from this contract in H2
2019. Given the complexity and timescales of some of these major
projects, there can be a long time period between initiation of a
project and full revenue recognition. We are therefore evaluating
the development of simpler, standardised screens that can provide
run-rate business alongside these major projects, in order to
iron-out some of the lumpiness in the revenues.
Bioproduction
- Reported revenue of £2.8m up 154.5% on the prior year (HY18:
£1.1m)
- On a constant currency basis Revenue of £2.7m up 145.5%
The Bioproduction business unit was formerly
categorised under Applied Products. The business unit’s offering is
a Chinese Hamster Ovary (CHO) cell line which has been modified by
gene editing to improve the speed and efficacy of production of
biologic drugs. The cell line is available off-the-shelf as a
product, which is sold under license, with bespoke CHO cell line
development also available. The customers for this cell line are
biotech, biopharmaceutical and contract manufacture organisations
globally, which are served by Horizon’s Key Account Partner sales
team.
Biologics have revolutionised the treatment of
many diseases and now account for six out of the top 10
‘blockbuster’ drugs. CHO cells are the predominant system used in
the biologics manufacturing processes due to their ability to
produce complex biologics at scale and their track record of
regulatory approval.
There is strong demand from companies pursuing
biologic drugs and looking for cost-effective ways to commence
biomanufacturing. However, high entry costs and restrictive
licensing conditions can make it difficult to gain access to CHO
cells suitable for manufacturing biologics. Horizon is
differentiated in this market by offering a high-quality gene
edited, proprietary cell line, with a clear IP position, freedom to
operate and a disruptive, predictable pricing model.
Our cell lines have now been validated by five
successful Investigational New Drug (IND) filings by customers
(three in the USA and two in China) which means the Group’s market
access and credentials are now well established. The growing
acceptance in the market has meant that during H1, an increasing
number of customers have proceeded directly to full commercial
licenses without going through an initial evaluation period,
significantly shortening the sales cycle.
We remain optimistic for revenue growth during
the second half, but mindful of the fact that the sales of these
high value contracts tend to be lumpy in nature and that the strong
performance reported at the end of FY18, in which two new
commercial licences in excess of £1m were signed, has set a high
bar for a year-on-year comparison.
Diagnostics
- Revenue of £2.5m down 28.6% on the prior year (HY18:
£3.5m)
- On a constant currency basis Revenue of £2.4m down 31.4%
The Diagnostics business unit comprises
gene-edited cell lines that have been developed to mimic human
genetic diseases (especially cancer). These standards are used to
check the performance of diagnostic tests and to validate new
diagnostic tests. The business unit was formerly categorised as
Molecular Diagnostics under Applied Products.
Horizon is a leading innovator of cell
line-derived reference standards and provides a source of
genetically defined, quantitative, sustainable and independent
third-party reference material, critical to the validation and
routine performance monitoring of assays.
The business unit’s offering includes
off-the-shelf cell-based reference standards, which are typically
sold through the Group’s eCommerce platform, and both tailored and
bespoke reference standards that are developed to customers’
specific requirements and predominantly sold via the Group’s field
sales team. The customers for these reference standards include
academic laboratories, drug discovery companies and clinical
laboratories (including clinical R&D).
The key drivers for these tools are the need for
fast, minimally invasive, methods for detection of disease (as
opposed to patient derived biopsies) against a regulatory backdrop
for increased standardisation to remove subjectivity.
Performance in the first half of the year has
been disappointing, the root cause of which was internal
organisational issues rather than external market factors. We have
now implemented a number of changes in this business unit and are
confident that these will lead to an improved performance in the
second half.
In Vivo
- Revenue of £2.5m down 3.8% on the prior year (HY18: £2.6m)
- On a constant currency basis Revenue of £2.3m down 11.5%
The In Vivo Business Unit provides genetically
engineered rat and mice models from its premises in Boyertown,
Pennsylvania and St Louis, Missouri, USA. In Vivo’s animal models
feature specific gene deletions, insertions, repressions and
modifications, and are used as pre-clinical models for human
genetic disease for drug discovery. They are available as both OTS
models and bespoke models developed to customers’ specific
requirements. Customers include academic researchers and drug
discovery and development companies, who are served by a dedicated
specialist In Vivo sales team.
In our FY2018 results statement issued in April
2019, we highlighted that In Vivo was facing some challenging
market headwinds and that we had reset our expectations for the
growth of the business. Against this backdrop, it is pleasing
that revenues in the period were broadly in line with the previous
year.
There are a number of contributing factors for
these market challenges, including a decreasing demand for custom
animal models and pricing pressure. Additionally, In Vivo’s market
is dominated by a handful of very large dedicated incumbents and
gene editing is not a disruptive force in this market, which means
it will be challenging for the Group to establish a market leading
position in this segment. We are therefore continuing to monitor
the situation carefully to determine the best course of action for
this business.
Maintaining market
leadership
Horizon is committed to investing in
partnerships and high-value technologies that maintain the Group’s
market leadership positions.
In October 2018, we announced a partnership with
Celyad (Euronext Brussels and Paris, and Nasdaq: CYAD) a
clinical-stage biopharmaceutical company focused on the development
of CAR-T cell-based therapies, which had licensed the Horizon’s
novel shRNA technology to generate its second non-gene-edited
allogeneic platform.
Post period end, in early July 2019, Celyad
secured FDA Acceptance of an Investigational New Drug (IND)
application for CYAD-02, the autologous NKG2D based CAR-T cell
therapy that deploys Horizon’s optimised SMARTvector™ shRNA
technology. The Phase 1 trial with initiation planned for early
2020, will be the first CAR-T cell therapy to employ the
SMARTvector™ platform. Horizon will receive a milestone payment for
the successful IND filing.
In January 2019, Horizon signed a strategic
partnership with Rutgers, The State University of New Jersey (US),
to develop and commercialise base editing, a novel technology
platform that has the potential to provide more accurate gene
editing and fewer unintended genomic changes than currently
available gene editing methodologies.
As part of the agreement, Horizon has an option
to exclusively license the base editing technology for use in all
therapeutic applications. During the first half of the year,
Horizon has been working through the one-year evaluation phase of
the technology prior to taking the full licence. Data collated
so far is consistent with expectations and we expect to complete
our evaluation in the second half of 2019.
Also, in January, we announced the launch of the
world’s first primary human T-Cell CRISPR screening service to meet
the requirements of immunology-based research in drug
discovery.
In the past, the use of CRISPR screens in
primary T lymphocytes has proved to be challenging, owing to
complex issues around the introduction of the screening components
and Cas9 in particular. Horizon has adapted its established
CRISPRko (knockout) platform to address these issues enabling us to
deliver a robust screening platform, which allows customers working
in the immuno-oncology space to find gene targets and potential
therapeutic avenues in primary cells (T lymphocytes freshly
isolated from the body) rather than having to work through
surrogate cell lines.
This is significant because we believe that the
therapeutic development pipeline for all diseases will move away
from screening in immortalised (cancer) cell lines and move towards
screens in primary cells, as they more closely represent real
patients.
In order to capitalise on this market shift,
Horizon has leveraged its proprietary manufacturing expertise to
make guide RNAs as a long single strand, rather than as two
separate components (CRISPR RNA (crRNA) and tracrRNA) which is how
they are usually supplied.
There is a growing body of research that
indicates that such synthetic single guide RNA strands are able to
edit genes in primary cells without any detectable changes
elsewhere in the genome. The research also indicates that synthetic
single guide RNAs are more effective in primary cells, suggesting
that screens might work better in primary cells with a synthetic
single guide library.
Horizon’s work during the first half of the year
should lead to the launch of its first pooled synthetic single
guide library in Q4 2019, which will include subset libraries of
our well established druggable genome library. The whole genome
library will be complete later in 2020.
Summary and outlook 2019
The market opportunity for gene editing and gene
modulation is substantial and growing rapidly. Horizon is at the
forefront of this innovation wave and our products and services are
powering three key areas in the therapeutics ecosystem:
- Research: the demand for life science tools designed to
understand the genetic basis of disease;
- Development: the need to improve the speed and reduce the costs
of drug development and associated companion diagnostics; and
- Therapy: providing the tools to enable new therapeutic
approaches, including personalised medicines (cell and gene
therapies) and immuno-oncology
Scientific interest in these fields continues to accelerate as
gene editing and gene modulation become embedded in basic research
and drug discovery programmes. The Group’s core competence in
cell-line engineering (which underpins all of our business units)
enables us to create a unique and high value portfolio of tools and
services, which combined with our commercial reach, provides the
basis for sustainable competitive advantage and strong prospects
for growth.
In line with previous years, we anticipate a
strong second half weighting to our performance. With an already
strong order book for the second half of 2019, the Board expects
FY19 revenues to be in-line with market expectations and to
maintain a positive adjusted EBITDA.
On 23 June 2016, the UK held a referendum on continuing
membership of the EU, the outcome of which was a decision for the
UK to leave the EU (Brexit). Unless and until the Brexit
negotiation and parliamentary-ratification processes are complete,
it is difficult to anticipate the potential impact on the Group’s
performance.
The Group has responded by engaging proactively with key
external stakeholders and establishing a cross-functional team to
understand, assess, plan and implement operational actions that may
be required. The Group has adopted a base case planning assumption
of a hard Brexit/no deal. The Board reviews the potential impact of
Brexit regularly.
Terry PizzieChief
Executive Officer
16 September 2019
FINANCIAL REVIEW
A solid revenue performance during HY19 of £28.6m (HY18:
£25.1m), represents growth of 13.9% against the equivalent prior
period, being in line with market expectations. Revenue growth is
8.8% on a constant currency basis1 and consistent
with prior years we expect revenues to be second half weighted.
Reported gross margins for HY19 were 68.5% (HY18: 63.2%), which
benefitted from an increasing proportion of Bioproduction and
screening revenues.
Our reported adjusted EBITDA1 loss improved to
£0.9m2 (HY18: £2.2m loss). This included the benefit of £1.3m due
to the implementation of IFRS 16 Leases. On a like for like basis,
the adjusted EBITDA1 loss was £2.2m.
Exceptional items for the period totalled £0.1m (HY18: £1.6m)
relating to the departure of Richard Vellacott as Chief Financial
Officer.
We report a loss after tax2 of £5.3m for the period,
representing an improvement over the prior period (HY18: £7.6m
loss) substantially due to the implementation of IFRS 16 Leases and
an increase in the tax credit.
Management consider the following as additional alternative
performance measures to supplement statutory measures of
performance as they provide additional insight. Constant currency
is the measured current year revenues based on the prevailing
foreign exchange rates from the prior year.
Adjusted
EBITDA |
HY2019 £m |
HY2018£m |
Operating loss |
(5.7) |
(7.8) |
Amortisation and depreciation |
4.7 |
4.0 |
EBITDA |
(1.0) |
(3.8) |
Exceptional items (note
3) |
0.1 |
1.6 |
Adjusted EBITDA |
(0.9) |
(2.2) |
Exceptional itemsExceptional
items, due to their size, nature or the expected infrequency of the
events giving rise to them, are presented separately on the face of
the income statement.
The reported income statement for HY19 incorporates the modified
retrospective adoption of IFRS 16 (refer to Notes 1 and 10 to the
Financial Statements). The impact on the HY2019 alternative
performance measure is depicted below:
Adjusted
EBITDAImpact of adopting IFRS
16HY2019 |
Prior to
IFRS16 £m |
IFRS 16 Impact
£m |
As Reported HY2019£m |
Operating loss |
(6.0) |
0.3 |
(5.7) |
Amortisation and depreciation |
3.7 |
1.0 |
4.7 |
EBITDA |
(2.3) |
1.3 |
(1.0) |
Exceptional items (note
3) |
0.1 |
|
0.1 |
Adjusted EBITDA |
(2.2) |
1.3 |
(0.9) |
Balance
SheetImpact of adopting IFRS
16HY2019 |
Prior impact
IFRS16 £m |
IFRS 16 Impact
£m |
As Reported HY2019£m |
Right of use assets |
- |
11.2 |
11.2 |
Trade and other payables |
(10.1) |
0.6 |
(9.5) |
Current lease liabilities |
- |
(3.0) |
(3.0) |
Non-current lease liabilities |
- |
(11.3) |
(11.3) |
Operating costs
Total operating expenses (excluding exceptional items) for the
period are £25.2m (HY18: £22.1m). This is in line with expectations
as we invest in our people and infrastructure in order to deliver
our ambitious strategic objectives.
Balance sheet
Overall net assets of the Group were £136.8m at the end of the
period (31 December 2018: £143.3m). Group working capital (net
current assets less cash) is £6.9m (31 December 2018: £10.8m),
after allowing for the £2.4m impact of IFRS 16 to current
liabilities.
The Group remains well funded with cash resources of £24.8m (31
December 2018: £26.7m). This funding provides a robust position to
support our investment in key strategic projects such as the new
eCommerce platform which will be launched later this year.
Current trading and
outlook
We anticipate a stronger second half performance in line with
prior years, underpinned by a robust order book, the launch of our
eCommerce platform and the three-fold increase in capacity in Cell
Line engineering.
Independent review report to Horizon Discovery Group
plc
We have been engaged by the company to review
the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2019 which
comprises the consolidated income statement, the consolidated
balance sheet, the consolidated statement of changes in equity, the
consolidated cash flow statement and related notes 1 to 10. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in
accordance with International Standard on Review Engagements (UK
and Ireland) 2410 “Review of Interim Financial Information
Performed by the Independent Auditor of the Entity” issued by the
Financial Reporting Council. Our work has been undertaken so that
we might state to the company those matters we are required to
state to it in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company, for our
review work, for this report, or for the conclusions we have
formed.
Directors’ responsibilities
The half-yearly financial report is the
responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the half-yearly financial
report in accordance with the AIM Rules of the London Stock
Exchange.
As disclosed in note 1, the annual financial
statements of the Group are prepared in accordance with IFRSs as
adopted by the European Union. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with the accounting policies the Group
intends to use in preparing its next annual financial
statements.
Our responsibility
Our responsibility is to express to the Company
a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
“Review of Interim Financial Information Performed by the
Independent Auditor of the Entity” issued by the Financial
Reporting Council for use in the United Kingdom. A review of
interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our
attention that causes us to believe that the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2019 is not prepared, in all material
respects, in accordance with accounting policies the Group intends
to use in preparing its next annual financial statements and the
AIM Rules of the London Stock Exchange.
Deloitte LLP
Statutory Auditor
Cambridge, UK
13 September 2019
HORIZON DISCOVERY GROUP PLC
CONDENSED CONSOLIDATED INCOME
STATEMENTSix months ended 30 June
2019
|
|
|
Unaudited Six months ended 30 June
2019£`000 |
Unaudited Six months ended 30 June
2018£`000 |
Audited Year ended 31 December
2018£`000 |
|
Note |
|
|
|
|
REVENUE |
2 |
|
28,554 |
25,112 |
58,733 |
|
|
|
|
|
|
Cost of sales |
|
|
(9,002) |
(9,241) |
(19,205) |
|
|
|
|
|
|
Gross
profit |
|
|
19,552 |
15,871 |
39,528 |
|
|
|
|
|
|
Other operating income |
2 |
|
1,014 |
269 |
2,204 |
Sales, marketing and distribution
costs |
|
|
(7,065) |
(5,724) |
(13,003) |
Research and development
costs |
|
|
(7,864) |
(7,363) |
(15,241) |
Corporate and administrative
expenses |
|
|
(10,892) |
(9,159) |
(20,737) |
Share of results of joint
ventures |
|
|
(313) |
(137) |
(299) |
Exceptional items |
3 |
|
(143) |
(1,583) |
(33,185) |
|
|
|
|
|
|
OPERATING
LOSS |
|
|
(5,711) |
(7,826) |
(40,733) |
|
|
|
|
|
|
Investment income |
2 |
|
40 |
61 |
90 |
Finance costs |
|
|
(463) |
(3) |
(11) |
|
|
|
|
|
|
LOSS BEFORE
TAX |
|
|
(6,134) |
(7,768) |
(40,654) |
Taxation |
|
|
884 |
149 |
4,833 |
|
|
|
|
|
|
LOSS FOR THE
PERIOD |
|
|
(5,250) |
(7,619) |
(35,821) |
|
|
|
|
|
|
LOSS PER
SHAREBasic and diluted (pence) |
4 |
|
(3.5p) |
(5.1p) |
(23.9p) |
|
|
|
|
|
|
HORIZON DISCOVERY GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE
INCOMESix months ended 30 June 2019
|
|
|
Unaudited Six months ended 30 June
2019£`000 |
Unaudited Six months ended 30 June
2018£`000 |
Audited Year ended 31 December
2018£`000 |
LOSS FOR THE
PERIOD |
|
|
(5,250) |
(7,619) |
(35,821) |
|
|
|
|
|
|
Items that may be
reclassified subsequently to profit or loss: |
|
|
|
|
|
Exchange differences on
translation of foreign operations |
|
|
482 |
2,911 |
6,936 |
Tax on items that may be
reclassified subsequently to profit or loss |
|
|
- |
- |
314 |
|
|
|
|
|
|
Other comprehensive
income for the period net of tax |
|
|
482 |
2,911 |
7,250 |
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME FOR THE PERIOD |
|
|
(4,768) |
(4,708) |
(28,571) |
|
|
|
|
|
|
Total comprehensive
income attributable to: |
|
|
|
|
|
Owners of the Company |
|
|
(4,768) |
(4,708) |
(28,571) |
|
|
|
|
|
|
|
Note |
|
UnauditedAs at 30 June
2019£`000 |
UnauditedAs at 30 June
2018£`000 |
Audited As at 31 December
2018 £`000 |
|
|
|
|
|
|
|
|
|
|
|
|
Non current
assets |
|
|
|
|
|
Goodwill |
5 |
|
51,940 |
75,263 |
51,750 |
Other intangible assets |
|
|
44,558 |
51,426 |
45,644 |
Property, plant and
equipment |
|
|
10,905 |
12,482 |
11,680 |
Right of use assets |
|
|
11,161 |
- |
- |
Investments |
|
|
2,647 |
1,723 |
2,960 |
Other receivables |
|
|
433 |
433 |
433 |
|
|
|
|
|
|
|
|
|
121,644 |
141,327 |
112,467 |
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
Inventories |
|
|
2,272 |
2,533 |
2,541 |
Trade and other receivables |
|
|
15,280 |
18,441 |
19,071 |
Corporation tax receivable
|
|
|
1,820 |
- |
3,053 |
Cash and cash equivalents |
|
|
24,831 |
24,867 |
26,740 |
|
|
|
|
|
|
|
|
|
44,203 |
45,841 |
51,405 |
|
|
|
|
|
|
Total
assets |
|
|
165,847 |
187,168 |
163,872 |
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
Trade and other payables |
|
|
(9,481) |
(10,662) |
(13,912) |
Lease liabilities |
10 |
|
(2,990) |
- |
- |
|
|
|
|
|
|
Net current
assets |
|
|
31,732 |
35,179 |
37,493 |
|
|
|
|
|
|
Non-current
liabilities |
|
|
|
|
|
Deferred tax |
|
|
(5,043) |
(9,057) |
(5,955) |
Long term provisions |
|
|
(201) |
(191) |
(197) |
Other payables |
|
|
- |
(338) |
(495) |
Lease liabilities |
10 |
|
(11,349) |
- |
- |
|
|
|
|
|
|
Total
liabilities |
|
|
(29,064) |
(20,248) |
(20,559) |
|
|
|
|
|
|
Net assets |
|
|
136,783 |
166,920 |
143,313 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
6 |
|
3,135 |
3,125 |
3,134 |
Share premium account |
|
|
139,195 |
137,975 |
139,102 |
Share option reserve |
|
|
3,418 |
2,651 |
3,100 |
Merger reserve |
|
|
67,457 |
67,457 |
67,457 |
Retained earnings |
|
|
(76,422) |
(44,288) |
(69,480) |
|
|
|
|
|
|
Total
equity |
|
|
136,783 |
166,920 |
143,313 |
|
|
|
|
|
|
|
|
|
|
|
|
HORIZON DISCOVERY GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETSix
months ended 30 June 2019
HORIZON DISCOVERY GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY Six months ended 30 June
2019
|
UnauditedShare capital£`000 |
UnauditedShare
premiumaccount£`000 |
UnauditedShare
optionreserve£`000 |
UnauditedMergerreserve£`000 |
UnauditedRetainedearnings£`000 |
Total£`000 |
|
|
|
|
|
|
|
Balance at 1 January 2019 |
3,134 |
139,102 |
3,100 |
67,457 |
(69,480) |
143,313 |
Restatement of opening retained
earnings for IFRS16 |
- |
- |
- |
- |
(2,174) |
(2,174) |
Loss for the period |
- |
- |
- |
- |
(5,250) |
(5,250) |
Other comprehensive income for
the period |
- |
- |
- |
- |
482 |
482 |
Shares issued |
1 |
93 |
- |
- |
- |
94 |
Credit to equity for equity
settled share based payment transactions |
- |
- |
318 |
- |
- |
318 |
|
|
|
|
|
|
|
Balance at 30 June 2019 |
3,135 |
139,195 |
3,418 |
67,457 |
(76,422) |
136,783 |
|
|
|
|
|
|
|
|
UnauditedShare capital£`000 |
UnauditedShare
premiumaccount£`000 |
UnauditedShare
optionreserve£`000 |
UnauditedMergerreserve£`000 |
UnauditedRetainedearnings£`000 |
Total£`000 |
|
|
|
|
|
|
|
Balance at 1 January 2018 |
3,121 |
137,681 |
2,478 |
67,457 |
(39,580) |
171,157 |
Loss for the period |
- |
- |
- |
- |
(7,619) |
(7,619) |
Other comprehensive income for
the period |
- |
- |
- |
- |
2,911 |
2,911 |
Shares issued |
4 |
294 |
- |
- |
- |
298 |
Credit to equity for equity
settled share based payment transactions |
- |
- |
173 |
- |
- |
173 |
|
|
|
|
|
|
|
Balance at 30 June 2018 |
3,125 |
137,975 |
2,651 |
67,457 |
(44,288) |
166,920 |
|
|
|
|
|
|
|
HORIZON DISCOVERY GROUP PLC
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months ended 30 June 2019
|
Note |
Unaudited Six months ended 30 June
2019£`000 |
UnauditedSix months ended 30 June
2018 £`000 |
AuditedYear ended
31 December2018£`000 |
|
|
|
|
|
Net cash inflow/(outflow)
from operating activities |
7 |
1,309 |
(2,243) |
1,519 |
|
|
|
|
|
|
|
|
|
|
Investing
activities |
|
|
|
|
Interest and bank charges
paid |
|
(602) |
(123) |
(11) |
Interest received |
|
38 |
60 |
90 |
Acquisition of investment in
joint venture |
|
- |
- |
(1,400) |
Purchases of property, plant and
equipment |
|
(607) |
(718) |
(2,708) |
Purchase of intangible
assets |
|
(1,182) |
(512) |
(851) |
|
|
|
|
|
Net cash outflow from
investing activities |
|
(2,353) |
(1,293) |
(4,880) |
|
|
|
|
|
|
|
|
|
|
Financing
activities |
|
|
|
|
Proceeds on issue of shares net
of expenses |
|
93 |
298 |
1,433 |
Principal elements of lease
payments (2018 – principal elements of finance lease payments) |
|
(982) |
- |
- |
|
|
|
|
|
Net cash (outflow)/inflow
from financing activities |
|
(889) |
298 |
1,433 |
|
|
|
|
|
Net decrease in cash and
cash equivalents |
|
(1,933) |
(3,238) |
(1,928) |
|
|
|
|
|
Cash and cash equivalents
at beginning of period |
|
26,740 |
28,084 |
28,084 |
Effect of exchange rate
changes |
|
24 |
21 |
584 |
|
|
|
|
|
Cash and cash equivalents
at end of period |
|
24,831 |
24,867 |
26,740 |
|
|
|
|
|
1.
ACCOUNTING POLICIES
General information
This condensed consolidated interim financial
information does not constitute statutory accounts within the
meaning of section 434 of the Companies Act 2006. Statutory
accounts for the year ended 31 December 2018 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.
This consolidated interim financial information
has been reviewed, not audited.
Basis of preparation
The annual financial statements of Horizon
Discovery Group plc are prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations
Committee (IFRIC) interpretations as adopted by the European Union
and the Companies Act 2006 applicable to companies reporting under
IFRS. The condensed consolidated set of financial statements
included in this half-yearly financial report has not been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union.
The accounting policies adopted in the
preparation of the condensed consolidated interim information are
consistent with those followed in the preparation of the
Group’s financial statements for the year ended 31 December 2018
except where disclosed otherwise in this note.
Risks and uncertainties
An outline of the key risks and uncertainties
faced by the Group was described on pages 36 and 37 of the
Company’s Annual Report and Financial Statements for the year ended
31 December 2018. The identified critical accounting
estimates in the 2018 Annual Report and Financial Statements
were:
- Revenue recognition; and
- Deferred tax assets.
The critical accounting judgements identified
and disclosed in the 2018 Annual Report and Financial Statements
were:
- Goodwill, other intangible assets and other asset valuation;
and
- Forecasts and discount rates.
A further assessment was made at the half year
and the significant risks identified were unchanged from those in
the annual report. 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 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 Group’s forecasts and projections, taking
account of reasonably possible changes in trading performance,
support the conclusion that there is a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future, a period of not
less than twelve months from the date of this report.
Accordingly, the going concern basis has been adopted in
preparing the half-yearly financial information.
Adoption of new and revised
standards
In the current period the Group had to change
its accounting policies and make retrospective adjustments as a
result of adopting IFRS 16 Leases following the modified
retrospective approach. The impact of the adoption of the leasing
standard and the new accounting policies are disclosed in note 10
below.
On adoption of IFRS 16 the Group has recognised
within the balance sheet a right of use asset and lease liability
on all applicable leases. Within the income statement, rent expense
has been replaced by depreciation and interest expense.
There are no new standards that have been issued
but are not yet effective that are expected to have a material
impact on the Group.
2.
REVENUE
An analysis of the Group’s revenue is as
follows:
|
|
|
Unaudited Six months ended 30 June
2019£`000 |
Unaudited Six months ended 30 June
2018£`000 |
Audited Year ended 31
December2018£`000 |
|
|
|
|
|
|
Revenue |
|
|
28,554 |
25,112 |
58,733 |
Other operating income |
|
|
1,014 |
269 |
2,204 |
Interest received |
|
|
40 |
61 |
90 |
|
|
|
|
|
|
|
|
|
29,608 |
25,442 |
61,027 |
|
|
|
|
|
|
3.
EXCEPTIONAL
ITEMS
|
|
|
Unaudited Six months ended 30 June
2019£`000 |
Unaudited Six months ended 30 June
2018£`000 |
Audited Year ended 31
December2018£`000 |
|
|
|
|
|
|
Impairment charges |
|
|
- |
- |
(32,124) |
CFO exit costs |
|
|
(143) |
- |
- |
Acquisition and integration costs Restructuring costs CEO exit
costs Legal and advisory costsRebranding costs |
|
|
----- |
(297)(11)(445)(598)(232) |
--(476)(585)- |
|
|
|
|
|
|
|
|
|
(143) |
(1,583) |
(33,185) |
|
|
|
|
|
|
The exceptional items in the current period are costs relating to
the departure of Richard Vellacott as Chief Financial Officer.
4.
LOSS PER SHARE
The calculations of basic and diluted loss per
share are based upon the following data:
|
|
|
Unaudited Six months ended 30 June
2019£`000 |
Unaudited Six months ended 30 June
2018£`000 |
Audited Year ended 31 December
2018£`000 |
|
|
|
|
|
|
Loss |
|
|
|
|
|
Loss for the purposes of basic and diluted loss per share being net
loss attributable to owners of the Company |
|
|
(5,250) |
(7,619) |
(35,821) |
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
|
|
|
Weighted average number of ordinary shares for the
purposes of basic and diluted loss per share |
|
|
150,421,755 |
149,188,169 |
149,597,584 |
|
|
|
|
|
|
Loss per share |
|
|
(3.5p) |
(5.1p) |
(23.9p) |
|
|
|
|
|
|
Basic EPS is calculated by dividing the earnings attributable to
ordinary owners of the parent by the weighted average number of
shares outstanding during the period. Diluted EPS is calculated on
the same basis as basic EPS but with a further adjustment to the
weighted average shares in issue to reflect the effect of all
potentially dilutive share options. The number of potentially
dilutive share options is derived from the number of share options
and awards granted to employees where the exercise price
is less than the average market price of the Company’s
ordinary shares during the period.
IAS 33 – Earnings per Share, requires presentation of diluted
earnings per share where a company could be called upon to issue
shares that would decrease net profit or increase net loss per
share. No adjustment has been made to the basic loss per
share as at 30 June 2019, as the exercise of share options would
have the effect of reducing the loss per ordinary share, and
therefore is not
dilutive.
5.
GOODWILL
|
|
|
Unaudited£000 |
Cost |
|
|
|
At 30 June 2018 |
|
|
75,263 |
Effects of movements in foreign exchange |
|
|
2,379 |
|
|
|
|
At 31 December 2018 |
|
|
77,642 |
Effects of movements in foreign exchange |
|
|
314 |
|
|
|
|
At 30 June 2019 |
|
|
77,956 |
|
|
|
|
Accumulated impairment losses |
|
|
|
At 30 June 2018 |
|
|
- |
Impairment losses for the period |
|
|
(25,892) |
|
|
|
|
At 31 December 2018 |
|
|
(25,892) |
Effects of movements in foreign exchange |
|
|
(124) |
|
|
|
|
At 30 June 2019 |
|
|
(26,016) |
|
|
|
|
Net book value |
|
|
|
At 30 June 2019 |
|
|
51,940 |
|
|
|
|
At 31 December 2018 |
|
|
51,750 |
|
|
|
|
At 30 June 2018 |
|
|
75,263 |
|
|
|
|
As part of the FY18 goodwill and intangibles impairment review
enhanced disclosures were presented in relation to the Genomic
Products CGU which management consider are still relevant. These
were described on page 74 of the annual report.
6.
SHARE CAPITAL
Share capital as at 30 June 2019 amounted to £3,135,000. During the
period, the Group issued 81,606 £0.01 ordinary shares through the
exercise of employee share options.
7.
NOTES TO THE CASH FLOW STATEMENT
|
Unaudited Six months ended 30 June
2019£`000 |
Unaudited Six months ended 30 June
2018£`000 |
Audited Year ended 31
December2018£`000 |
|
|
|
|
Loss for the period |
(5,250) |
(7,619) |
(35,821) |
|
|
|
|
Adjustments for: |
|
|
|
Investment revenues |
(40) |
(61) |
(90) |
Finance costs |
627 |
142 |
11 |
Depreciation of property, plant and equipment |
1,354 |
1,709 |
2,876 |
Amortisation of intangible assets |
2,363 |
2,318 |
5,354 |
Amortisation of right of use assets |
1,000 |
- |
- |
Goodwill, intangible asset and property, plant and equipment
impairment charges |
- |
- |
32,124 |
Loss on disposal of property, plant and equipment |
- |
- |
7 |
Loss on disposal of intangible assets |
71 |
- |
145 |
RDEC tax credit in other operating income |
(125) |
- |
- |
Tax credit |
(884) |
(149) |
(4,833) |
Share option charge |
318 |
150 |
622 |
Share of loss of joint venture |
313 |
137 |
299 |
|
|
|
|
Operating cash flows before movements in working capital |
(253) |
(3,373) |
694 |
|
|
|
|
Decrease in inventories |
271 |
63 |
33 |
Decrease/(increase) in receivables |
4,429 |
2,116 |
(1,894) |
(Decrease)/increase in payables |
(4,709) |
(1,602) |
3,610 |
|
|
|
|
Cash generated by operations |
(262) |
(2,796) |
2,443 |
|
|
|
|
Tax received/(paid) |
1,571 |
553 |
(924) |
|
|
|
|
Net cash from operating activities |
1,309 |
(2,243) |
1,519 |
|
|
|
|
-
RELATED PARTY TRANSACTIONS
Transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation. There has been no material change in the type
of related party transactions described in the financial statements
for the year ended 31 December 2018.
9. SUBSEQUENT
EVENTS
On 6 August 2019 the Company invested a further
£700k in Avvinity Therapeutics Limited in return for 62,500 shares,
increasing the Company’s share of Avvinity’s equity from 43% to
47%. At the date of this announcement there had been no other
subsequent events to report.
10. ADOPTION OF
IFRS16
This note explains the impact of the adoption of
IFRS 16 Leases on the group’s financial statements and discloses
the new accounting policies that have been applied from 1 January
2019.
Until the 2018 financial year, leases of
property, plant and equipment were classified as either finance or
operating leases. Payments made under operating leases (net of any
incentives received from the lessor) were charged to profit or loss
on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a
right-of-use asset and a corresponding liability at the date at
which the leased asset is available for use by the group. Each
lease payment is allocated between the liability and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The
right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are
initially measured on a present value basis. Lease liabilities
include the net present value of the following lease payments:
- fixed payments (including in-substance fixed payments), less
any lease incentives receivable
- variable lease payment that are based on an index or a
rate
- amounts expected to be payable by the lessee under residual
value guarantees
- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option, and
- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
Right-of-use assets are measured at cost
comprising the following:
- the amount of the initial measurement of lease liability
- any lease payments made at or before the commencement date less
any lease incentives received
- any initial direct costs, and
- restoration costs.
Payments associated with short-term leases and
leases of low-value assets are recognised on a straight-line basis
as an expense in profit or loss.
The group has adopted IFRS 16 retrospectively
from 1 January 2019 but has not restated comparatives for the 2018
reporting period, as permitted under the specific transitional
provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 January 2019.
Short-term leases are leases with a lease term of 12 months or
less.
In applying IFRS 16 for the first time, the
group has used the following practical expedients permitted by the
standard:
- reliance on previous assessments on whether leases are
onerous
- the exclusion of short-term leases
- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application, and
- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The group has also elected not to reassess
whether a contract is, or contains a lease at the date of initial
application. Instead, for contracts entered into before the
transition date the group relied on its assessment made applying
IAS 17 and IFRIC 4 Determining whether an Arrangement contains a
Lease.
Adjustments on adoption of IFRS
16
On adoption of IFRS 16, the group recognised
lease liabilities in relation to leases which had previously been
classified as ‘operating leases’ under the principles of IAS 17
Leases. These liabilities were measured at the present value of the
remaining lease payments, discounted using the lessee’s incremental
borrowing rate as of 1 January 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1
January 2019 was between 5.13% and 8.85%. The group did not have
any leases previously classified as finance leases prior to the
adoption of IFRS 16.
The incremental borrowing rates have been
determined on a lease by lease basis, using the reference rate and
country risk premium, plus the entity credit risk premium, plus
asset specific risk adjustments.
The reference rate has been derived from
government bonds of the country with the leased asset with a term
corresponding to the weighted average lease length and currency. No
country risk premium was required for any of the leases as the
country of the leased asset matched the country in whose currency
the lease was denominated in, so there is no foreign currency risk.
The entity credit risk premium was determined by reference to each
entity within the group holding finance leases financial
performance to 31 December 2018 (the date of transition to IFRS 16)
compared to similar companies with external credit ratings. Using
these credit ratings, the credit risk premium for each lease and
entity has been estimated using corporate bond curves for companies
in the Healthcare sector with a matching credit rating and
term.
For property leases, asset risk adjustments were
made based on operational risk of each asset, which includes
whether security has been provided for the lease by the Group. This
only asset which required an asset specific adjustment was the UK
property, as it had a remaining term of more than ten years on
transition to IFRS 16.
|
£’000 |
|
|
Operating lease commitments disclosed as at 31 December
2018 |
19,043 |
|
|
Discounted using the lessee’s incremental borrowing rate of at the
date of initial application |
15,217 |
Add: Additional identified leases not included in 2018 operating
lease disclosure, discounted at lessee’s incremental borrowing rate
of at the date of initial application |
75 |
|
|
Total right of use assets |
15,292 |
|
|
Of which are: |
|
Current lease liabilities |
2,967 |
Non-current lease liabilities |
12,325 |
|
|
Total right of use assets |
15,292 |
|
|
The associated right-of-use assets for all
leases were measured on the modified retrospective basis as if the
new rules had always been applied but has not restated comparatives
for the 2018 reporting period, as permitted under the specific
transitional provisions in the standard. There were no onerous
lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
An impairment of the In Vivo CGU was made at 31
December 2018 so all assets valued at their recoverable amount. One
lease identified related to this unit, so value of the right of use
asset has been impaired to £nil at 1 January 2019. The effect of
this additional impairment above the expected amortisation over the
useful life of the asset was £687,000. This has been included as
part of the restatement of opening reserves on transition to IFRS
16.
The recognised right-of-use assets relate to the
following types of assets:
|
30 June 2019£’000 |
1 January 2019£’000 |
|
|
|
Properties |
11,124 |
12,095 |
Equipment |
42 |
50 |
|
|
|
Total right of use assets |
11,166 |
12,145 |
|
|
|
The change in accounting policy affected the
following items in the balance sheet on 1 January 2019:
- Right of use assets – Increase by £12,145,000
- Accruals – Decrease by £700,000
- Lease liabilities – Increase by £15,292,000
- Deferred taxation liabilities – Decrease by £97,000
The net impact on retained earnings at 1 January
2019 was a decrease of £2,350,000
In determining the lease term, management
considers all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise a
termination option. Extension options (or periods after termination
options) are only included in the lease term if the lease is
reasonably certain to be extended (or not terminated). The
assessment is reviewed if a significant event or a significant
change in circumstances occurs which affects this assessment and
that is within the control of the lessee.
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