TIDMHVO
RNS Number : 8800M
hVIVO plc
19 September 2019
hVIVO plc
("hVIVO" or the "Company")
Unaudited Interim Results
For the Six Months Ended 30 June 2019
Positioning for profitability
-- Significant cost reductions and operational efficiencies
implemented since FY18 expected to drive FY20 operating costs down
by GBP11m compared to FY17
-- Expanded service offerings enhance future revenue opportunities
-- Strong pipeline of contract opportunities for 2020
-- Targeting profitability in 2020
London, UK - 19 September 2019: hVIVO plc (AIM: HVO), an
industry leading clinical development services business pioneering
human disease models based upon viral challenge, announces its
interim results for the six months ended 30 June 2019.
Financial Highlights: Significant reductions in Admin and
R&D costs combined with growing revenues, positions Company
well for future profitability
-- Revenue up 22% to GBP5.9 million (H1 2018: GBP4.9 million)
-- Adjusted loss from operations* reduced 27% to GBP3.7 million (H1 2018: GBP5.0 million)
-- Adjusted EBITDA loss reduced 29% to GBP3.1 million (H1 2018:
GBP4.4 million) trending towards future profitability
-- Cash and cash equivalents of GBP4.0 million at 30 June 2019
(31 December 2018: GBP13.4 million) impacted by contract
cancellations
-- Research and development expense down 60% to GBP1.1 million (H1 2018: GBP2.8 million)
-- Admin expenses down 22% to GBP3.8 million (HY 2018: GBP4.9 million)
-- Ongoing efficiency initiatives will protect gross profit margins going forward
Post period: An R&D tax credit refund of GBP2.4 million was
received from HM Revenue & Customs on 4th September 2019.
* Adjusted loss from operations excludes provision against virus
inventory of GBP0.6 million (H1 2018: nil)
** Adjusted EBITDA loss is equal to Adjusted loss from
operations plus depreciation and amortisation of GBP0.5 million (H1
2018: GBP0.4 million) and share-based payment expense of GBP0.09
million (H1 2018: GBP0.3 million)
Operational Highlights: Good progress with further cost cutting
and operational efficiencies supporting business turnaround, but
cancellations of contracted work impacts cash position
-- Continued progress on business turnaround and implementation
of operational efficiency measures, primarily driven by headcount
reductions and process improvements have significantly reduced the
operating cost base. These actions are expected to deliver an GBP11
million reduction in operating costs in FY20 compared to FY17
-- Key operational improvements will bring costs in line with
services revenue, supporting business turnaround and enabling
profitability
-- Further validation of hVIVO's respiratory syncytial virus (RSV) challenge model
-- Unprecedented levels of contract cancellations, due to client
portfolio prioritisation, impacted cash position at a time when
business turnaround and efficiencies are still to be fully
realised
-- Pipeline of opportunities for 2020 looking strong and the
Company enters the second half of the year with a robust backlog of
contracted work, despite cancellations, to enable full year revenue
growth
-- Active discussions ongoing for business development
opportunities within Imutex Limited (joint venture) - FLU-v,
AGS-v
Dr Trevor Phillips, Executive Chairman, commented:
"In the first half of 2019 we have continued to rationalise the
Company's cost base to further reduce our operating costs and
improved our operating efficiency. We have made progress in
expanding our service offerings to enhance revenue opportunities,
delivered further successful client studies and extend our position
as a leader in viral challenge studies. hVIVO is now operationally
stronger, better positioned to both succeed in its core business
and be profitable in 2020.
During the period, we experienced what for hVIVO, was, an
unprecedented level of late contract cancellations as some of our
clients reprioritised their pipelines, which will continue to
impact revenue in the second half of the year. At the beginning of
2019, we were on track to show a substantial revenue increase on
2018, and whilst we still anticipate exceeding market expectations
for revenue for the full year, these cancellations have tempered
the revenue growth and had a negative impact on our cash position.
As a service business, where quality and delivery are essential, we
had already operationally geared up for this high level of study
activity and this, combined with the lost revenues, has impacted
our cash position. That said, we have continued to make progress on
implementing efficiencies and process initiatives and expect the
operating cost base to be significantly lower by year end, enabling
us to become profitable and generate cash based on achievable
revenue levels in 2020.
In addition to the core services business, we continue to
explore options for the FLU-v vaccine programme. We have engaged in
multiple business development discussions, some of which are still
active. We are also establishing schedules for meetings with key
regulatory authorities, FDA and EMEA, where we hope to gain further
insight into some of the key areas of interest expressed by
potential partners.
Following the significant adjustments to the business that we
have implemented and despite the high level of contract
cancellations, I am confident that hVIVO is now well positioned for
further revenue growth and to achieve profitability."
Analyst meeting
A presentation and webcast for analysts will be held at 11.00am
BST this morning, 19 September 2019 at the offices of FTI
Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD,
with registration and coffee from 10.45am. A webcast recording of
the event will be available on the Company's website -
http://hvivo.com/investors/presentations-webcasts/. For further
details, please contact FTI on 020 3727 1000.
For further information please contact:
hVIVO plc
Trevor Phillips (Executive Chairman) +44 207 756 1300
Anesh Patel (Interim Finance Director & Company Secretary)
Fleur Wood (EVP, Investor Relations & Communications)
Numis Securities Limited +44 207 260 1000
Freddie Barnfield / Huw Jeremy (Nominated Adviser)
James Black (Corporate Broking)
FTI Consulting
Simon Conway / Victoria Foster Mitchell +44 203 727 1000
Notes to Editors:
hVIVO is an industry leading clinical development services
business supporting product development for customers developing
antivirals, vaccines and respiratory therapeutics. Leveraging human
disease models in human rhinovirus (HRV), RSV, Influenza (Flu)
Asthma and chronic obstructive pulmonary disease (COPD), the hVIVO
platform illuminates the entire disease cycle in people from
healthy to sick and back to health. Based in the UK, market leader
hVIVO has conducted 56 clinical studies and inoculated over 2900
volunteers.
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, forward-looking statements. These forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms anticipates, believes, estimates, expects,
intends, may, plans, projects, should or will, or, in each case,
their negative or other variations or comparable terminology, or by
discussions of strategy, plans, objectives, goals, future events or
intentions. These forward-looking statements include all matters
that are not historical facts. Any forward-looking statements in
this announcement reflect the Group's (or, as the case may be, the
hVIVO directors') current view with respect to future events and
are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy. Investors should
specifically consider the factors identified in this announcement
which could cause actual results to differ before making an
investment decision.
Executive Chairman's Statement
Introduction
While hVIVO saw a number of challenges during the first half of
2019, the Company is on-track to report top-line growth for the
full year as we continue to successful deliver client studies.
We have worked hard to take actions to significantly reduce the
Company's cost base as well as expand our service offerings and we
have made and are making significant progress. Since 2018, changes
made across the business are delivering operational cost savings
that are expected to reach GBP11 million by 2020, compared with
2017 and these, combined with the anticipated growth in revenues,
position hVIVO for profitability next year.
Based on our contract backlog, sales pipeline and reduced cost
base, I am optimistic we can deliver our 2020 growth targets. We
continue to execute on our strategy of focusing on services,
specifically on the opportunities supporting product development
for companies developing antivirals, vaccines and respiratory
therapeutics.
Operational Review
Progress across contracted pipeline
Human challenge studies
The Company has conducted studies and provided services to
clients utilising a range of clinical trial and laboratory
methodologies across different viral challenge models.
In particular, we were pleased to have been able to support
Enanta in the development of its novel N-protein inhibitor EDP-938
with positive topline results announced from the RSV challenge
study conducted by hVIVO. The study highlights the value that can
be obtained from challenge studies to rapidly establish clear
indications of clinical efficacy and dose-response whilst
delivering supporting safety data in a cost-effective, controlled
study, at an early stage of a product's development. The data also
further validates the value of hVIVO's RSV challenge model.
Post period, hVIVO successfully completed an RSV challenge study
in older adults that represents a new model available to customers
as part of the Company's clinical trial services offering and
broadens the Company's commercial offering in RSV.
Flu challenge model
The Company is competitive again in this market and we are
encouraged by the level of discussions with potential customers
currently underway that we anticipate will lead to start up
agreements and contracts in the near term.
Wider respiratory opportunities
We have also directed sales and marketing efforts to develop
relationships with companies developing products targeted at COPD
and asthma. The pipeline of opportunities looks promising. This is
an opportunity to drive incremental revenue growth and broaden the
range of revenue generating capabilities in the near to medium
term.
Continued progress on business turnaround with operational
efficiency measures and headcount reductions implemented
The management team has continued to address the Company's cost
base with further headcount reductions and operational efficiency
measures implemented across the business. These measures will have
a positive net impact for the remainder of 2019 and into 2020 and
will support our margins going forwards. We expect to continue to
improve our operations and benefit from the resulting efficiencies
during 2020 and beyond.
Alliances/joint ventures
Progress regarding strategic discussions related to the assets
(FLU-v and AGS-v) in our joint venture Imutex, and, in particular,
around the continued development of the FLU-v vaccine, has been
slower than we would have liked. Business development discussions
with interested parties are still ongoing and we are continuing to
explore a number of options to enable continued development of the
FLU-v vaccine. We are in the process of setting up meetings with
key regulatory authorities (FDA and EMEA) to discuss the status of
and development pathway for FLU-v and anticipate these meetings
will take place in Q42019. These meetings are expected to deliver
answers to some of the questions raised by potential interested
parties and management believes this could lead to further positive
traction in those strategic discussions.
Post period, in July, it was confirmed that AGS-v PLUS, an
experimental vaccine designed to protect against many different
mosquito-borne diseases, is progressing into the clinic and will be
tested in a new Phase 1 clinical trial by the NIH at the University
of Maryland School of Medicine. The continuing development of this
asset will come from NIAID-funded researchers testing the vaccine
and additional funding for the study by Innovate UK.
Financial Review
Income Statement
Revenue for the six-month period ended 30 June 2019 increased
22% to GBP5.9 million (H1 2018: GBP4.9 million) from human
challenge studies and laboratory services. Gross profit fell to
GBP0.8 million (H1 2018: GBP1.2 million) as the business incurred
costs ahead of anticipated revenue from studies scheduled to enter
the quarantine unit during 2019 but which were subsequently
cancelled, impacting H1 2019 gross margin. We enter the second half
of the year with a robust backlog of contracted work despite the
cancellations, and we continue to anticipate exceeding market
expectations for revenue for the full year.
Other income reduced to GBP0.5 million (H1 2018: GBP1.5 million)
due to completion of our flu contagiousness project with DARPA in
H1 2019, with the final cost-share grant from DARPA of GBP0.1
million being received (H1 2018: GBP1.4 million). The remainder of
Other income in H1 2019 is primarily a Research & Development
Expenditure Credit ("RDEC") of GBP0.3 million (H1 2018: GBP0.1
million).
R&D expense decreased by GBP1.7 million to GBP1.1 million
(H1 2018: GBP2.8 million). The reduction was a result of the
termination of hVIVO's discovery projects, with the majority of
spend in H1 2019 relating to activities supporting the Company's
clinical development services offering, including the manufacture
of new virus stock to meet scheduled client study demand.
Administrative expenses decreased by GBP1.1 million to GBP3.8
million (H1 2018: GBP4.9 million), reflecting ongoing process
efficiencies and cost saving initiatives. We expect administrative
expenses for the remainder of the year and into 2020 to reduce
further as more cost savings, already initiated, are realised.
Adjusted loss from operations improved 27% to GBP3.7 million (H1
2018: GBP5.0 million) reflecting the ongoing rationalisation of the
Company's cost base combined with growing revenues. Similarly,
Adjusted EBITDA loss improved 29% to GBP3.1 million (H1 2018:
GBP4.4 million) due to the above and was also positively impacted
as a result of adopting IFRS 16 Leases on 1 January 2019 (see Note
2a). Loss for the year was GBP3.8 million (H1 2018: GBP4.4
million).
Balance Sheet
Following adoption of IFRS 16 Leases, the Company has recognised
a right-of-use asset of GBP3.3 million in non-current assets, and a
lease liability of GBP3.4 million of which GBP2.3 million is
presented within non-current liabilities and GBP1.1 million is
presented within current liabilities (see Note 2a).
As at 30 June 2019, net assets amounted to GBP13.6 million (31
December 2018: GBP17.3 million).
Cash Flow
Loss before tax was GBP4.3 million (H1 2018: GBP5.3 million) but
after adjusting for non-cash items of GBP0.9 million, the pre-tax
cash outflow from the income statement reduced to GBP3.5 million.
However, working capital movements of GBP5.0 million and onerous
lease and dilapidation payments of GBP0.6 million resulted in net
cash used in operating activities of GBP9.0 million (H1 2018:
GBP9.5 million).
Net cash generated from investing activities was GBP0.03 million
(H1 2018: GBP0.08 million outflow) due to reduced capital
expenditure. Net cash used in financing activities was GBP0.3
million (H1 2018: GBPnil) primarily reflecting the new
classification for leases adopted under IFRS 16.
The net decrease in cash in the period was GBP9.3 million (H1
2018: GBP9.6m) resulting in cash and cash equivalents as at 30 June
2019 of GBP4.0 million (31 December 2018: GBP13.4 million).
Post period, a R&D tax credit refund of GBP2.4 million was
received from HM Revenue & Customs on 4 September 2019.
Going Concern
Having made relevant and appropriate enquiries, including
consideration of the Company's and Group's current cash resources
and the working capital forecasts, the Directors have a reasonable
expectation that the Company and the Group will have adequate cash
resources to continue to meet the requirements of the business for
at least the next twelve months. Accordingly, the Board continues
to adopt the going concern basis in preparing the interim condensed
consolidated financial statements (see Note 1). Looking ahead there
is material uncertainty related to the conversion of the sales
pipeline into contracted work that may cast significant doubt upon
the Company's ability to continue to adopt the going concern basis
of accounting in the future.
Summary and outlook
We believe the markets in which we operate continue to be
attractive and the Board remains confident in the strategy to focus
on providing clinical trial services which we continue to expand to
drive revenue growth.
The cost savings introduced by management since 2018 are
expected to deliver reductions to the operating cost base of GBP11
million by 2020 with additional efficiency opportunities identified
that can further reduce our operating cost base.
While the level of cancelled contracts this year was
disappointing, these were a result of strategic portfolio
decisions, on the back of strategic programme reviews, by certain
of our clients and not a judgment on the value or quality of our
services. The timing of the cancellations, occurring post
implementation of activities to gear up for a significant level of
unit occupancy, has had an impact on the Company's cash position.
The Company is exploring options to support its working capital
requirements, if needed. We are confident in our ability to convert
our sales pipeline into contracted work and will end the year with
a modest positive net cash balance, which we believe will then
increase over the course of 2020 as we generate cash and our
revenue builds.
The pipeline of opportunities for 2020 looks strong, demand for
our services is significant and with the new model additions, is
broader than it has ever been. The aim is to establish a profitable
business leader in the field of viral challenge services and the
Board is confident of our ability to deliver on our objectives.
Dr Trevor Phillips
Executive Chairman
18 September 2019
hVIVO plc
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019
Re-presented* Re-presented*
6 months 6 months Year ended
ended ended
30 June 30 June 31 December
2019 2018 2018
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
----------- -------------- --------------
Revenue from contracts with customers 3 5,918 4,850 11,025
Cost of sales (5,128) (3,687) (8,901)
Gross profit 790 1,163 2,124
Other income 491 1,520 2,601
Research and development expense (1,107) (2,762) (4,786)
Administrative expense (3,834) (4,902) (9,511)
Impairment of intangible assets - - (2,632)
Provision against virus inventory 4 (564) - (1,223)
Loss from operations (4,224) (4,981) (13,427)
Finance income 26 30 58
Finance costs (97) (27) (51)
Impairment of investment in associate - - (4,698)
Share of loss of associates and joint
ventures 5 (24) (362) (738)
--------------------------------------------- ----- ----------- -------------- --------------
Loss before taxation (4,319) (5,340) (18,856)
Taxation 6 486 922 2,023
--------------------------------------------- ----- ----------- -------------- --------------
Loss for the period (3,833) (4,418) (16,833)
Other comprehensive income, net of
tax
Items that may be reclassified subsequently
to profit or loss
Share of other comprehensive income
of associates and joint ventures - 47 100
Exchange differences arising on translating
foreign operations 1 4 9
----- ----------- -------------- --------------
Total comprehensive loss for the period
attributable to owners of the parent (3,832) (4,367) (16,724)
---------------------------------------------------- ----------- -------------- --------------
Loss per share - basic (pence) 7 (4.6p) (5.6p) (21.3p)
Loss per share - diluted (pence) 7 (4.6p) (5.6p) (21.3p)
--------------------------------------------- ----- ----------- -------------- --------------
All results derive from continuing
operations.
The accompanying notes are an integral part of the Condensed
Consolidated Statement of Comprehensive Income.
* Management has determined that the Group's investment in associates
and joint ventures are not core operating assets related to
the core services business therefore the share of loss of associates
and joint ventures and the impairment of investment in associate
are now presented underneath Loss from operations in the Income
Statement. The comparative periods have been re-presented accordingly.
30 June 30 June 31 December
2019 2018 2018
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
------------------------------------- ----- ---------- ---------- --------------
Assets
Non-current assets
Goodwill 1,722 1,722 1,722
Intangible assets 259 3,131 308
Property, plant and equipment 288 378 392
Right of use assets 2 3,346 - -
Investment in associates and joint
ventures 8 7,192 12,238 7,216
12,807 17,469 9,638
------------------------------------- ----- ---------- ---------- --------------
Current assets
Inventories 1,158 1,553 887
Trade and other receivables 9 1,580 2,105 1,782
Contract assets 10 1,340 13 57
Research and development tax credit
receivable 3,341 3,686 2,501
Cash and cash equivalents 4,046 10,693 13,368
---------- ---------- --------------
11,465 18,050 18,595
---------- ---------- --------------
Total assets 24,272 35,519 28,233
------------------------------------- ----- ---------- ---------- --------------
Equity and liabilities
Equity
Share capital 4,150 3,911 4,030
Share premium account 93,421 93,310 93,434
Other reserve 211 211 211
Share-based payment reserve 819 637 779
Merger reserve 4,199 4,199 4,199
Retained deficit (89,209) (72,963) (85,320)
------------------------------------- ----- ---------- ---------- --------------
Total equity 13,591 29,305 17,333
------------------------------------- ----- ---------- ---------- --------------
Non-current liabilities
Lease liabilities 2 2,305 - -
Provisions 20 1,608 20
2,325 1,608 20
------------------------------------- ----- ---------- ---------- --------------
Current liabilities
Trade and other payables 11 2,205 2,393 3,156
Contract liabilities 12 4,458 2,213 6,546
Lease liabilities 2 1,108 - -
Provisions 585 - 1,178
------------------------------------- ----- ---------- ---------- --------------
8,356 4,606 10,880
------------------------------------- ----- ---------- ---------- --------------
Total liabilities 10,681 6,214 10,900
------------------------------------- ----- ---------- ---------- --------------
Total liabilities and equity 24,272 35,519 28,233
------------------------------------- ----- ---------- ---------- --------------
The accompanying notes are an integral part of the Condensed
Consolidated Statement of Financial Position.
The Condensed Consolidated Interim Financial Statements of hVIVO
plc (registered company number 08008725) were approved by the Board
of Directors and authorised for issue on 19 September 2019 and
signed on its behalf by:
Dr Trevor Phillips
Executive Chairman
Share-
Share based
Share premium payment Merger Other Retained Total
capital account reserve reserve reserve deficit equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------- -------- --------- ---------
As at 1 January 2018 3,909 93,290 382 4,199 211 (68,596) 33,395
Share-based payments - - 454 - - - 454
Proceeds from shares issued:
Issue of new shares 3 28 - - - - 31
Exercise of warrants and share options 118 116 (57) - - - 177
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
Total transactions with owners in their
capacity as owners 121 144 397 - - - 662
Loss for the year - - - - - (16,833) (16,833)
Share of other comprehensive income of
associates and joint ventures - - - - - 100 100
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
Total comprehensive income 121 144 397 - - (16,733) (16,733)
Exchange differences on translation of
foreign assets - - - - - 9 9
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
As at 31 December 2018 4,030 93,434 779 4,199 211 (85,320) 17,333
Change in accounting policy (Note 2) - - - - - (57) (57)
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
As at 1 January 2019 4,030 93,434 779 4,199 211 (85,377) 17,276
Loss for the period - - - - - (3,833) (3,833)
Other comprehensive income - - - - - 1 1
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
Total comprehensive income - - - - - (3,832) (3,832)
Issue of new shares 86 (78) - - - - 8
Share-based payments - - 85 - - - 85
Exercise of warrants and share options 34 65 (45) - - - 54
As at 30 June 2019 4,150 93,421 819 4,199 211 (89,209) 13,591
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
As at 1 January 2018 3,909 93,290 382 4,199 211 (68,596) 33,395
Loss for the period - - - - - (4,418) (4,418)
Other comprehensive income - - - - - 51 51
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
Total comprehensive income - - - - - (4,367) (4,367)
Issue of new shares 2 20 - - - - 22
Share-based payments - - 255 - - - 255
As at 30 June 2018 3,911 93,310 637 4,199 211 (72,963) 29,305
---------------------------------------------- -------- -------- -------- -------- -------- --------- ---------
The accompanying notes are an integral part of the Condensed
Consolidated Statement of Changes in Equity.
6 months ended 6 months ended Year ended
30 June 30 June 31 December
2019 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------------------------------ --- --------------- --------------- ------------
Net cash used in operating activities 13 (9,045) (9,514) (6,881)
Cash flows from investing activities
Acquisition of intangible assets - (89) (89)
Acquisition of property, plant and equipment (1) (23) (186)
Interest received 29 30 58
--------------- --------------- ------------
Net cash generated from/(used in) investing activities 28 (82) (250)
Cash flows from financing activities
Net proceeds from issue of shares 54 - 177
Payment of lease liabilities (359) - -
Net cash (used in)/generated from financing activities (305) - 177
------------------------------------------------------------ --- --------------- --------------- ------------
Net decrease in cash and cash equivalents (9,322) (9,596) (6,921)
Cash and cash equivalents at the start of financial period 13,368 20,289 20,289
Cash and cash equivalents at the end of financial period 4,046 10,693 13,368
------------------------------------------------------------ --- --------------- --------------- ------------
The accompanying notes are an integral part of the Condensed
Consolidated Statement of Cash Flows.
1. Accounting policies
Basis of preparation and approval of the Interim Financial
Statements
The accounting policies adopted in the preparation of the
Interim Financial Statements are consistent with those set out in
the Group's Annual Report and Financial Statements 2018, which were
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union and as issued
by the International Accounting Standards Board ("IASB"), and are
expected to be consistent with the accounting policies that will be
applied in the Group's Annual Report and Financial Statements 2019.
They are prepared in accordance with IAS 34, "Interim Financial
Reporting".
The Interim Financial Statements for the six months ended 30
June 2019 do not include all the information required for full
Annual Financial Statements and should be read in conjunction with
the Consolidated Financial Statements for the year ended 31
December 2018. The financial information for the six months ended
30 June 2019 and for the six months ended 30 June 2018 is
unaudited.
The Interim Financial Statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2018 were
approved by the Board on 11 April 2019 and delivered to the
Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under Section 498(2) or
Section 498(3) of the Companies Act 2006.
The Company is a limited liability company incorporated and
domiciled in England & Wales and whose shares are quoted on
AIM, a market operated by The London Stock Exchange. The Group
Financial Statements are presented in pounds Sterling (GBP), which
is the Group's presentational currency, and all values are rounded
to the nearest thousand (GBP'000) except where indicated
otherwise.
The Interim Financial Statements were approved by the Board of
Directors on 18 September 2019.
Going concern
In determining the basis for preparing the consolidated
financial statements, the Directors are required to consider
whether the Company can continue in operational existence for the
foreseeable future, being a period of not less than twelve months
from the date of the approval of the consolidated financial
statements. As at 30 June 2019, the Group had cash and cash
equivalents of GBP4.0 million (31 December 2018: GBP13.4 million)
and net current assets of GBP3.1 million (31 December 2018: GBP7.7
million). As at 6 September 2019 the Company's cash balance had
increased to GBP4.3 million with net inflows of GBP0.3 million
through that date. The Company has historically been loss making
primarily due to the level of Research & Development activity
and has no borrowing facilities.
In line with other CROs, the Company has a relatively fixed cost
base and typically does not hold cash significantly in excess of
expected near-term requirements, which means that in order to
continue to operate as a going concern it has to win and deliver
sufficient contracts to cover its cost base and operate within the
cash resources it has.
Management prepares detailed working capital forecasts which are
reviewed by the Board on a regular basis. The forecasts include
assumptions regarding the status of client engagements and sales
pipeline, future revenues and costs together with various scenarios
which reflect growth plans, opportunities, risks and mitigating
actions. Management have reviewed the contracts in the Company's
order pipeline, discussed the likelihood of the contracts being
placed with the counterparties and in the light of that assessed
the likelihood of the forecast revenue being achieved.
Management's forecasts indicate that the Company will continue
to incur net cash outflows in the second half of 2019 but that
thereafter the Company will start to generate cash and that its
current cash resources will be sufficient to enable it to continue
to operate. All of the 2019 financial year forecast revenue is
contracted however the majority of revenue in H1 2020 and all of
the revenue beyond then is dependent on winning and delivering new
contracts therefore there is material uncertainty over the
Company's forecasts beyond 2019 and over the likelihood that the
Company will win any individual contract. Notwithstanding this, the
pipeline of prospective studies for 2020 is strong with several
opportunities anticipated to advance to contract or start-up
agreement before year-end and the Directors are satisfied that
there are sufficient opportunities in the pipeline such that they
are satisfied that sufficient revenue will be generated to allow
the Company to operate within its cash resources.
Having made relevant and appropriate enquiries, including
consideration of the Company's and Group's current cash resources
and the working capital forecasts, the Directors have a reasonable
expectation that the Company and the Group will have adequate cash
resources to continue to meet the requirements of the business for
at least the next twelve months. Accordingly, the Board continues
to adopt the going concern basis in preparing the interim condensed
consolidated financial statements. Looking ahead, there is material
uncertainty related to the conversion of the sales pipeline into
contracted work that may cast significant doubt upon the Company's
ability to continue to adopt the going concern basis of accounting
in the future. Should the Company and Group be unable to obtain
further finance such that the going concern basis of preparation
were no longer appropriate, adjustments would be required which
would include reducing the balance sheet values of assets to their
recoverable amounts and to provide for further liabilities that
might arise.
2. New standards, interpretations and amendments adopted by the Group
The Group has not early adopted any standards, interpretations
or amendments.
The Group applies, for the first time, IFRS 16 Leases which does
not require restatement of previous financial statements. As
required by IAS 34, the nature and effect of this application is
disclosed below.
Several other amendments and interpretations apply for the first
time in 2019, but do not have an impact on the Condensed
Consolidated Interim Financial Statements of the Group.
a. IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. IFRS
16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The
standard includes two recognition exemptions for lessees - leases
of 'low-value' assets (e.g. personal computers) and short-term
leases (i.e. leases with a lease term of twelve months or less). At
the commencement date of a lease, a lessee will recognise a
liability to make lease payments (i.e. the lease liability) and an
asset representing the right to use the underlying asset during the
lease term (i.e. the right-of-use asset).
Lessees will be required to separately recognise the interest
expense on the lease liability and the depreciation expense on the
right-of-use asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g., a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right--of--use asset.
IFRS 16, which is effective for annual periods beginning on or
after 1 January 2019, requires lessees and lessors to make more
extensive disclosures than under IAS 17.
Transition to IFRS 16
The Group adopted IFRS 16 using the simplified retrospective
method of adoption with the date of initial application of 1
January 2019. The Group elected to use the transition practical
expedient allowing the standard to be applied only to contracts
that were previously identified as leases applying IAS 17 and IFRIC
4 at the date of initial application. The Group also elected to use
the recognition exemptions for lease contracts that, at the
commencement date, have a lease term of 12 months or less and do
not contain a purchase option ('short-term leases'), and lease
contracts for which the underlying asset is of low value
('low-value assets').
The effect of adoption of IFRS 16 is as follows:
Impact on the statement of financial position as at
31 December 2018:
31 Dec
2018
GBP'000
Assets
Property, plant and equipment
(right-of-use assets) 200
Prepayments (18)
Liabilities
Lease liabilities (239)
Net impact on equity 57
------------------------------------------ ------------
Impact on the statement of profit or loss (increase/(decrease))
for the six months ended 30 June 2018:
6 months
ended
30 June 2018
GBP'000
---------------------------------------------- -------------------
Depreciation expense (included
in Cost of sales) 26
Rent expense (included in Cost
of sales) (37)
----------------------------------------------- -------------------
Loss from operations 11
Finance costs 8
Profit for the period (3)
----------------------------------------------- -------------------
Impact on the statement of cash flows (increase/(decrease))
for the six months ended 30 June 2018:
6 months
ended
30 June 2018
GBP'000
------------------------------------------ -------------------
Net cash flows from operating
activities 37
Net cash flows from financing
activities (37)
------------------------------------------- -------------------
Summary of new accounting policies
Right of use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered of low value (i.e.,
below GBP5,000). Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a straight-line basis
over the lease term.
Amounts recognised in the statement of financial position
Right of use
assets Lease liabilities
GBP'000 GBP'000
-------------------------------- ------------------- ------------------------
As at 1 January 2019 200 239
Additions 3,460 3,460
Depreciation expense (included
in Cost of sales) (314) -
Interest expense (included in
Finance costs) - 73
Payments - (359)
--------------------------------- ------------------- ------------------------
As at 30 June 2019 3,346 3,413
--------------------------------- ------------------- ------------------------
Current - 1,108
Non-current 3,346 2,305
--------------------------------- ------------------- ------------------------
3. Revenue from contracts with customers and segmental information
The Group's Chief Operating Decision Maker, the Executive
Chairman, is responsible for resource allocation and the assessment
of performance. In the performance of this role, the Executive
Chairman reviews the Group's activities, in the aggregate. The
Group has therefore determined that it has only one reportable
segment under IFRS 8 Operating Segments, which is "medical and
scientific services".
The Group carries out its main activities from the United
Kingdom. The Group conducts sales activities in the US and in
Europe which are carried out through hVIVO Inc and hVIVO Services
Limited respectively. All revenue is derived from activities
undertaken in the UK.
4. Provision against virus inventory
Management has performed an assessment of the carrying value of
virus inventory as at 30 June 2019 and determined that a provision
of GBP0.6 million is required.
5. Share of loss of associates and joint ventures
hVIVO plc holds equity investments in development stage
biopharmaceutical companies. As the invested companies are
incurring expenditure to develop products no revenue will be
generated, and losses will be presented, until the products are
successfully developed.
At 30 June 2019, the Group held an investment in one associate,
PrEP Biopharm Limited, and one joint venture, Imutex Limited (see
Note 8). The carrying amount of PrEP Biopharm Limited was fully
impaired to GBPnil as at 31 December 2018. The carrying amount of
other investments are considered to be fully recoverable.
The Group's share of after-tax losses of its joint venture is
set out below:
6 Months 6 Months Year ended
ended ended 31 Dec
30 Jun 2019 30 Jun 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Share of loss of joint
venture (24) (362) (738)
Share of comprehensive
income/(loss) - 47 100
------------------------------ ------------- ------------- ------------
Share of total comprehensive
loss (24) (315) (638)
------------------------------ ------------- ------------- ------------
6. Taxation
6 Months 6 Months Year ended
ended ended 31 Dec
30 Jun 2019 30 Jun 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
---------------------------- ------------- ------------- -----------
Tax Benefit:
R&D tax credit (492) (934) (2,043)
Adjustments in respect
of prior periods - 5 5
Foreign current tax charge 6 7 15
---------------------------- ------------- ------------- -----------
(486) (922) (2,023)
---------------------------- ------------- ------------- -----------
The Group continues to account for its recurring annual SME
R&D tax credit as an income tax benefit due to the requirement
to surrender tax losses in exchange for recoverable R&D
credits.
The Group has not recognised any deferred tax assets including
carried forward losses and other temporary differences. These
deferred tax assets have not been recognised as the Group's
management considers that there is insufficient taxable income,
taxable temporary differences and feasible tax planning strategies
to utilise all the cumulative losses and it is probable that the
deferred tax assets will not be realised in full.
7. Loss per share (LPS)
The calculation of the basic and diluted LPS is based on the
following data:
6 Months 6 Months Year ended
ended ended 31 Dec
30 Jun 2019 30 Jun 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------ ------------- ------------- -----------
Loss:
Loss for the period (3,833) (4,418) (16,833)
------------------------------ ------------- ------------- -----------
Number of shares:
Weighted average number
of ordinary shares for
the purpose of basic LPS 82,467,589 78,205,609 78,992,387
Effect of dilutive potential
ordinary shares:
- share options - - -
- warrants - - -
------------------------------ ------------- ------------- -----------
Weighted average number
of ordinary shares for
the purpose of diluted
LPS 82,467,589 78,205,609 78,992,387
------------------------------ ------------- ------------- -----------
In the six months ended 30 June 2019 and in the comparative
periods presented, the potential ordinary shares were not treated
as dilutive as the Group is loss making, therefore the weighted
average number of ordinary shares for the purposes of the basic and
diluted loss per share were the same.
8. Investment in associates and joint ventures
At 30 June 2019, the Group held investments in one associate,
PrEP Biopharm Limited, and one joint venture, Imutex Limited. The
carrying amount of PrEP Biopharm Limited was fully impaired to
GBPnil as at 31 December 2018. The carrying amount of other
investments are considered to be fully recoverable. A
reconciliation of the carrying value of the Group's investments in
joint ventures and associates is as follows:
2019 2018
GBP'000 GBP'000
--------------------------------------- -------------- --------------
At 1 January 7,216 12,552
Loss after tax recognised in
the consolidated statement of
comprehensive income (24) (362)
Other comprehensive income recognised
in the consolidated statement
of comprehensive income - 47
---------------------------------------- -------------- --------------
At 30 June 7,192 12,238
---------------------------------------- -------------- --------------
2018
GBP'000
--------------------------------------- -------------- --------------
At 1 January 12,552
Loss after tax recognised in
the consolidated statement of
comprehensive income (738)
Other comprehensive income recognised
in the consolidated statement
of comprehensive income 100
Impairment (4,698)
---------------------------------------- -------------- --------------
At 31 December 7,216
---------------------------------------- -------------- --------------
9. Trade and other receivables
30 Jun 30 Jun 31 Dec
2019 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------- ----------- ----------- ---------
Trade receivables 298 764 677
VAT recoverable 182 113 212
Other receivables 451 479 387
Prepayments 649 749 506
1,580 2,105 1,782
------------------- ----------- ----------- ---------
10. Contract assets
30 Jun 30 Jun 31 Dec
2019 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------- ----------- ----------- ---------
Contract assets 1,340 13 57
----------------- ----------- ----------- ---------
11. Trade and other payables
30 Jun 30 Jun 31 Dec
2019 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
--------------------------------- ----------- ----------- ---------
Trade payables 1,020 1,123 1,106
Other taxes and social security 253 287 309
Other payables 54 44 81
Accruals 878 939 1,660
2,205 2,393 3,156
--------------------------------- ----------- ----------- ---------
12. Contract liabilities
30 Jun 30 Jun 31 Dec
2019 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
---------------------- ----------- ----------- ---------
Contract liabilities 4,458 2,213 6,546
---------------------- ----------- ----------- ---------
13. Net cash used in operating activities
Reconciliation of loss before taxation to net cash used in
operating activities:
6 months 6 months Year Ended
ended ended
30 Jun 30 Jun 31 Dec
2019 2018 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
------------------------------------- ---------- ---------- -----------
Loss before taxation (4,319) (5,340) (18,856)
Adjustments for:
Share of loss of associates
and joint ventures 24 362 738
Depreciation of property, plant
and equipment and right of
use assets 419 180 329
Amortisation and impairment
of intangible assets 49 190 3,013
Impairment of investment in
associate - - 4,698
Share-based payments 85 255 454
Payment of Non-Executive Director
fees by issue of shares 8 22 31
Finance costs 97 27 51
Finance income (26) (30) (58)
R&D Expenditure Credit included
in other income (348) (132) (318)
Provision against virus inventories 564 - 1,223
Operating cash flow before
changes in working capital
and provisions (3,447) (4,466) (8,695)
(Increase)/decrease in inventories (835) 189 (368)
(Increase)/decrease in trade
and other receivables and contract
assets (1,099) 70 349
(Decrease)/increase in trade
and other payables and contract
liabilities (3,031) (4,591) 503
Decrease in provisions (593) (672) (1,082)
Cash used in operations (9,005) (9,470) (9,293)
Finance costs (24) (27) (51)
Income tax refund - - 2,481
Foreign tax paid (16) (17) (18)
------------------------------------- ---------- ---------- -----------
Net cash used in operating
activities (9,045) (9,514) (6,881)
------------------------------------- ---------- ---------- -----------
14. Share Incentive Plan
As part of the Company's commitment to encouraging all employees
to be shareholders in the business, a total of 1,689,258 Ordinary
Shares of 5 pence each (the "New Ordinary Shares") have been
granted to employees pursuant to a new employee share incentive
plan introduced by hVIVO on 21 January 2019 (the "Share Incentive
Plan").
A total of 138 employees were found eligible and applied for the
Share Incentive Plan and have been granted 12,241 free Ordinary
Shares each representing approximately GBP3,600 at the market value
on the award date. The free shares were awarded on 21 January 2019
and are subject to a 3-year forfeiture period.
Application was made to AIM for the admission of the New
Ordinary Shares ("Admission"), which rank pari passu in all
respects with the Company's existing shares in issue, and Admission
occurred on 25 January 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EANNPFAKNEFF
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