Fusion Antibody Regulatory News (FAB)

Fusion Antibodies plc 

("Fusion" or the "Company")

16 August 2018

Final results

Fusion Antibodies plc (AIM: FAB), a contract research organisation providing a range of antibody engineering services for the development of antibodies for both therapeutic drug and diagnostic applications, announces its final results for the year ending 31 March 2018.

Highlights

· Revenue growth of 41% to £2.7m; adj EBITDA broadly in-line with expectations

· Admitted to trading on AIM in December 2017

· Raised £5.5m before expenses

· Loss for the financial year of £699,941

· Adjusted* loss for the financial year of £2,309

· Adjusted* EBITDA of £132,018 (2017: £288,473)

· Cash and cash equivalents as at 31 March 2018 of £4.49m

* Adjusted to exclude accelerated share-based payment charges and IPO costs.

Post period end highlights

· Facilities and technical capacity expansion is underway and will be completed by September 2018, earlier than planned and under budget

· New affinity maturation service on schedule and expected to be introduced by December 2018

· Mammalian antibody library on track for delivery in 2020

Paul Kerr, CEO of Fusion Antibodies commented: "This year was a transformative year, securing new investment from our AIM listing, which has been applied towards expanding our facility and capacity of services to our clients.

We see the drug development sector strong and demand for seamless, high-quality, antibody engineering services integrated into expression and cell line development services. We continue to differentiate our service offering to give our clients access to our enhanced CDRx Humanisation platform, which has delivered two antibodies for clinical trials, rescued failed development projects and not only revived them but added enhanced performance allowing new IP to be sought.

We look forward to launching our antibody affinity maturation services and growing our cell line development capacities further to continue the development of our Company."

Enquiries:

Chairman's statement

I am delighted to present the first Annual Report for the Company following our successful admission to AIM in December 2017. The year to 31 March 2018 was characterised by the delivery of strong revenue growth across the year, our successful admission to AIM and the raising of additional funds to support our on-site expansion plans, drive further organic sales growth, and to fund the development of new services.

Admission to AIM, a market operated by the London Stock Exchange

Fusion Antibodies was established in 2001 to develop monoclonal antibodies to be used as therapeutics in cancer treatment and over the years it built deep in-house expertise in antibody development, protein engineering and protein expression. From 2011, the Company ceased drug development activity and focused instead on the provision of services to third parties using its antibody and protein related expertise. In recent years revenues have grown significantly to the point where the Company needed to expand its laboratory facilities and to develop further services. The Board concluded that these developments would be optimally funded by seeking a quotation on AIM.

In December 2017, we announced the admission of our shares to trading on AIM and a successful placing with institutional investors, raising a total of £5.5m (before expenses) at a placing price of 82p (the "Placing"). We were pleased with the level of interest generated from new institutional investors and the funds raised are being used to support the expansion of our existing laboratory space, increase our sales and marketing efforts, and to develop new service lines.

Strategy & Progress

I am pleased to report that revenues in 2017/2018 grew by 41% over the previous financial year, despite the significant distraction in the second six months to the senior executive team caused by the AIM admission process and I thank them, and all our employees, for their hard work during the year. The year- on-year growth rate did slow in the second six months and trading has been slower than anticipated in the early part of the current year.

A large part of the revenue growth came from antibody humanisation and stable cell line development and we continue to believe that there is the potential for further significant organic growth in these areas as the use of antibodies and the outsourcing of specific R&D activities in the Pharmaceutical industry continues to grow. To ensure that we can meet this demand, we have undertaken a significant expansion of our laboratory and office space. The laboratory expansion has been completed, six months earlier than originally planned and within budget.

An additional key driver for revenue growth is expected to come from new products and service areas, and in particular our affinity maturation service and the production of a mammalian antibody library for human antibody discovery. Development continues on both and we are on schedule to launch the antibody affinity maturation service by the end of 2018, and the mammalian antibody library remains on track for 2020.

We are also investing in our sales and marketing capabilities to generate additional business and we believe that further geographical expansion of our customer base will be a key driver of revenue growth.

More details on financial performance are given in the Chief Executive Officer's report.

Board changes

At the time of the AIM admission, two of the Company's long-standing non-executive directors, Sir John Cadogan and David Moore, stepped down from the board and I would like to thank them both for their service to the Company. Immediately after the IPO, Tim Watts was appointed as a non-executive director and became Chair of the Audit Committee. I welcome Tim to the board.

Corporate governance

Good governance underpins the long term success of the business and supports the strategy for growth and the Company has adopted the Quoted Companies Alliance's Corporate Governance Code 2018.

Outlook

Although there was a slowdown in sales growth in the second half of 2017/2018 which has extended into the first quarter of 2018/2019, management has taken steps to address this, including the recruitment of more sales and marketing staff and focussing on the geographical expansion of our customer base. The company is experiencing increased competition and consequential price pressures in the current year but we continue to have a positive outlook for the underlying business drivers. We believe that further growth will come from our antibody humanisation and stable cell line development services, supported by our investments in expanding our facilities and capacity and in our sales and marketing team. The development of the new affinity maturation service is progressing well and should come on line by the end of 2018. Taking these factors together, the board considers that modest revenue growth will be achieved in 2018/2019.

I would like to extend my thanks to all staff at Fusion for their hard work and to our shareholders for their ongoing support.

Dr Simon Douglas

Chairman

15 August 2018

CEO's statement and operation review

Introduction & Company Overview

Fusion Antibodies is an established contract research organisation, providing a multi-service offering, from antibody discovery to clinical supply, to blue-chip global pharmaceutical, biotech and diagnostic companies looking to develop antibody based therapeutic drugs and diagnostics.

We provide services covering antibody identification and discovery, lead optimisation via antibody sequencing and engineering, and particularly focus on antibody humanisation, as well as offering scale up and manufacturing services. Our team has developed a proprietary technology platform called the CDRxTM antibody humanisation platform which can rapidly design and generate humanised antibody constructs using a data base of over 100,000 antibody sequences. We have completed over 100 antibody humanisation commercial projects and have a high success rate using this platform and, as can be seen below, we now have two client humanisation projects in clinical trials and we expect more to follow. In addition, we generate additional revenues from our high value expert witness and technical advisory services, having previously been appointed by the US court of Delaware as expert witnesses in multibillion dollar drug cases.

In May 2018, we were pleased to be informed that the antibody from our very first humanisation project, performed in 2012, has now entered into clinical trials. This will be our second client project to move into the clinical trial stage and we expect more to follow based on customer feedback. Whilst this project did not include any milestone payments, we consider that it is a strong indicator of the company's capabilities.

The Company is growing and derives its revenues primarily from fee-for-service payments. Where appropriate, milestone or success-based fees are included in certain contracts.

Business Review

Revenues for the year demonstrated strong organic growth, up by 41% to £2.69m (2017: £1.91m), continuing the growth seen in recent years.

The main driver of revenue growth came from antibody humanisation fees, substantially the largest contributor to overall sales. Sales from cell-line development services have also grown, albeit from a small base. We also continued to earn fees from providing expert witness services in the field of antibody development.

As announced in our trading update in March 2018, first half sales were particularly strong, with revenues up 70% compared to the comparable period in the previous year. Whilst trading in the second half was up against the previous comparable period, growth was affected by the significant management time required to complete our AIM admission and Placing in December 2017. Whilst this impacted revenues during the period, there was minimal impact on adjusted EBITDA due to the sales mix of higher margin services such as humanisation and cell-line development.

In terms of geographical split, revenues grew in all regions except for the UK, which reflects the expanding global reach of our new business development efforts and our targeting of the large North American market, as well as opportunities within Asia. UK sales were down 15.4% to £0.28m (2017: £0.31m), Europe grew 10.4% to £0.93m (2017: £0.85m) and the US saw sales growth of 9.6% to £0.82m (2017: £0.75m).

The biggest regional driver of growth was from sales to Rest of the World, up significantly from £12k in 2017 to £0.66m for the year ended March 2018. This growth has been achieved through the engagement of agents and distributors across Asia who are targeting a pharmaceutical market that is experiencing a big shift to monoclonal antibodies within therapeutic drug discovery. During the period, the Company secured agreements with new clients in Japan and South Korea to provide humanisation and antibody identification services.

Whilst not a large amount, we also received our first milestone payment during the period. Where appropriate, new contracts include a milestone or success-based fees and in selected cases the opportunity to share the risk in future opportunities through future royalties. The Directors believe that these have the potential to provide meaningful additional revenue streams from 2020.

Laboratory and office expansion update

Building work on the expansion of our facility in Belfast, Northern Ireland, has continued to progress according to our accelerated timetable. We remain on track to complete the expansion by the September 2018, within budget and earlier than originally planned.

Development of new services

Funds from our Placing are also being directed to the development of new service areas, namely our affinity maturation services and the creation of a mammalian antibody library for human antibody discovery. In addition, we have continued to invest in our CDRxTM humanisation platform to offer Antibody Developability by Design (ADDTM) service to differentiate further our technical ability to provide solutions to our clients' antibodies drug candidates by enhancing manufacturability performance.

Development progress on our new antibody affinity maturation service has been good and we are planning to launch this service before the end of the calendar year. Development of our mammalian antibody library remains on track to be available for customers in 2020.

Post-period end events

Also in May, we announced the receipt of additional grants from Invest Northern Ireland ("Invest NI") to support our growth with grants potentially totalling up to £213,000 which can be used to create up to 28 additional jobs and support additional business development over the next 24 months. £168,000 of the grants cover payments for each employee as they are taken on over the next 24 months. The additional 28 jobs, if they are all filled, are expected to take our total workforce to more than 50 people and this is part of our investment programme to deliver future growth. The remaining £45,000 will support additional business development activity to grow our international customer base. This announcement also followed on from confirmation on 1 March 2018 of other grants from Invest NI. We are very grateful for the support provided by Invest NI as we expand the business and these grants are an important part of our strategy of investing for growth.

In June 2018, we announced the notice of termination of our existing collaboration agreement with MAB Discovery GmBH ("MAB"). The agreement specified the terms of engagement regarding our high throughput humanisation of antibodies being developed by MAB, using our CDRxTM platform. We are currently in discussions to develop a revised collaboration agreement. No reduction in revenues is expected as a result.

Financial Results

The year to 2018 was a period of strong organic revenue growth with total sales increasing by 41% to £2.69m (2017: £1.91m). Growth came from customer projects in all geographic regions other than the UK. The fastest growth was seen in the first six months of the financial year as H2 revenue growth was impacted by the demands of the AIM admission process.

The EBITDA loss of £641k (2017 profit: £160k) and adjusted EBITDA profit (adjusted for accelerated share-based payment charges and IPO costs) £132k (2017: £288k) was broadly in-line with expectations. A reconciliation of adjusted profit to adjusted EBITDA is set out in Note 28 to the financial statements. Performance at the EBITDA level reflects the investment that the Company has made in future growth, with investment into employees, facilities and research which are expected to deliver further significant revenue growth. The Company produced a loss before tax of £711k (2017: profit £126k) and adjusted profit before tax of £62k (2017: £255k). The Company generated cash of £77k from operating activities during the year (2017: £37k cash used in operations). Cash and cash equivalents as at 31 March 2018 totaled £4.5m (2017: £0.3m) reflecting the funds raised in our Placing. The Company's full results are set out in the financial statements included with this report.

Key Performance Indicators

The key performance indicators (KPIs) regularly reviewed by the board are:

Outlook

Although there was a slowdown in sales growth in the second half of 2017/2018 which has extended into the first quarter of 2018/2019, management has taken steps to address this, including the recruitment of more sales and marketing staff and focussing on the geographical expansion of our customer base. The company is experiencing increased competition and consequential price pressures in the current year bit we continue to have a positive outlook for the underlying business drivers. We believe that further growth will come from our antibody humanisation and stable cell line development services, supported by our investments in expanding our facilities and capacity and in our sales and marketing team. The development of the new affinity maturation service is progressing well and should come on line by the end of 2018. Taking these factors together, the board considers that modest revenue growth will be achieved in 2018/2019.

Paul Kerr

Chief Executive Officer

15 August 2018 

Statement of Comprehensive Income

The statement of comprehensive income has been prepared on the basis that all operations are continuing operations.

The accompanying notes form an integral part of the financial statements.

Statement of Financial Position

The accompanying notes form an integral part of these financial statements.

The financial statements were approved by the Board on 15 August 2018, and signed on its behalf:

Dr Paul Kerr James Fair

Director Director

Statement of Changes in Equity

The accompanying notes form an integral part of these financial statements.

Cash Flow Statement

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements

For the year ended 31 March 2018

1 General information

Fusion Antibodies plc is a company incorporated and domiciled in the UK, having its registered office at Marlborough House, 30 Victoria Street, Belfast BT1 3GG.

The principal activity of the company is the research, development and manufacture of recombinant proteins and antibodies, particularly in the areas of cancer and infectious diseases.

This preliminary announcement was approved for issue on 15 August 2018.

2 Significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated.

Basis of preparation

The financial information included in this preliminary announcement does not constitute statutory accounts of the company for the years ended 31 March 2018 and 31 March 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts: their reports were (1) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The financial statements have been prepared on the historical cost convention, modified to include certain financial instruments at fair value.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £1.

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRS Interpretations Committee (IFRIC) as adopted by the European Union and with the Companies Act 2006 applicable to companies reporting under IFRS.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the company has adequate resources to continue in operational existence for 12 months from the reporting date. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. In arriving at this conclusion the Directors have reviewed detailed forecast models for the company. These models are based on best estimates of future performance and have been adjusted to reflect various scenarios and outcomes that could potentially impact the forecasts.

Changes in accounting policy and disclosures

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 April 2018, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the company, except the following, set out below:

· IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018. The company will apply the standard retrospectively for the first time in the half year report ending 30 September 2018 and the annual report ending 31 March 2019.

IFRS 9 is applicable to financial assets and financial liabilities, and covers classification, measurement and derecognition.

On adoption of IFRS 9, the main areas of change that are relevant for the company are:

- requirement to use an expected credit loss method for impairment calculation; and

- broadening of hedge accounting application with more focus on risk management alignment.

If applied at 31 March 2018 it is estimated that the credit loss impairment would have been less than £3,500. The full impact will be subject to a further assessment and is dependent on the instruments and balances open at the transition date.

· IFRS 15, 'Revenue from contracts with customers', deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for accounting periods beginning on or after 1 January 2018. The company will apply the standard retrospectively for the first time in the half year report ending 30 September 2018 and the annual report ending 31 March 2019.

The new standard will replace existing accounting standards used to determine the measurement and timing of revenue recognition, and requires an entity to align the recognition of revenue to the transfer of goods or services at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard also requires enhanced revenue disclosure.

For the company's revenue streams an initial review has been performed on a sample of service agreements and upon adoption there will be a minor delay in the recognition of revenue due to a change in the percentage of completion method currently being used. If applied at 31 March 2018 this is estimated to reduce revenues for the year then ended by £24,400 Given the customised nature of some of the contracts open at any given date, the company is continuing to assess the full impact on these areas of revenue in future periods.

· IFRS 16, 'Leases', will introduce a single lessee accounting model, eliminating the previous classification of leases as either operating or finance. The standard is effective for accounting periods beginning on or after 1 January 2019. The company will apply the standard retrospectively for the first time in the half year report ending 30 September 2019 and the annual report ending 31 March 2020.

The standard will require recognition of an asset and a related liability unless the lease term is 12 months or less or the underlying asset value is low. An initial impact review indicates that the only lease currently in force that will be affected is for the company premises in Belfast.

Given that the transition date will be 1 April 2019, the final transition impact assessment is still in progress and will be dependent on the transition method selected by the company and the leases in existence at the transition date.

The standard was endorsed by the EU on 31 October 2017.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents the amount receivable for goods supplied or services rendered, net of returns, discounts and rebates allowed by the company and value added taxes. Where the consideration receivable in cash or cash equivalents is deferred, and the arrangement constitutes a financing transaction, the fair value of the consideration is measured as the present value of all future receipts using the imputed rate of interest. The company recognises revenue when (i) the significant risks and rewards of ownership have been transferred to the buyer; (ii) the company retains no continuing involvement or control over the goods; (iii) the amount of revenue can be measured reliably; and (iv) it is probable that future economic benefits will flow to the company. 

Revenue in respect of the services the company provide are recognised using the percentage of completion method applied to each stage of its agreements with customers.

Grant income

Revenue grants received by the company are recognised in a manner consistent with the grant conditions. Once conditions have been met, revenue is recognised in the Statement of Comprehensive Income and shown as Other Operating Income.

Research and development

Research expenditure is written off as incurred. Development expenditure is recognised in the Statement of Comprehensive Income as an expense until it can be demonstrated that the following conditions for capitalisation apply:

· It is technically feasible to complete the scientific product so that it will be available for use;

· Management intends to complete the product and use or sell it;

· There is an ability to use or sell the product;

· It can be demonstrated how the product will generate probable future economic benefits;

· Adequate technical, financial and other resources to complete the development and to use or sell the product are available; and

· The expenditure attributable to the product during its development can be reliably measured.

Property, plant and equipment

Property, plant and equipment are initially recognised at historical cost, net of depreciation and any impairment losses.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

Subsequently, property plant and equipment are measured at cost or valuation net of depreciation and any impairment losses.

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Software acquired with hardware is considered to be integral to that operations of that hardware and is capitalised with that equipment. Software acquired separately from hardware is recognised as an intangible asset and amortised over its estimated useful life.

Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset on a straightline basis over its expected economic useful life as follows:

Impairment of non-financial assets

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

All individual assets or cash-generating units are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. Value in use is based on estimated future cash flows from each cash-generating unit or individual asset, discounted at a suitable rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures is directly linked to the company's latest approved budgets, adjusted as necessary to exclude any restructuring to which the company is not yet committed. Discount rates are determined individually for each cash-generating unit or individual asset and reflect their respective risk profiles as assessed by the directors.

Impairment losses for cash-generating units are charged pro rata to the assets in the cash-generating unit. Cash generating units and individual assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment charges are included in administrative expenses in the Statement of Comprehensive Income. An impairment charge that has been recognised is reversed if the cash-generating unit's or individual asset's recoverable amount exceeds its carrying amount.

Current tax and deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity.

The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the UK, where the company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is recognised on temporary differences arising between the carrying amounts of assets and liabilities and their tax bases. Deferred tax is determined using tax rates (and laws) that have been enacted, or substantively enacted, by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities.

Share based employee compensation

The company operates equity-settled share-based compensation plans for remuneration of its Directors and employees.

All employee services received in exchange for the grant of any share-based compensation are measured at their fair values. The fair value is appraised at the grant date and excludes the impact of any non-market vesting conditions (e.g. profitability and remaining an employee of the company over a specified time period).

Share based compensation is recognised as an expense in the Statement of Comprehensive Income with a corresponding credit to equity. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Other vesting conditions include the restriction for certain options to vest only on a takeover or listing of the company on a recognised stack market.

Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates.

The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised.

Financial assets

The company classifies its financial assets as loans and receivables. The classification depends on the purpose for which the asset was acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The company's loans and receivables comprise 'trade and other receivables' and 'cash and cash equivalents' in the Statement of Financial Position.

Financial assets are initially recognised at fair value. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently measured at amortised cost using the effective interest method.

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

The company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cashflows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of comprehensive income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the company may measure impairment on the basis of an instrument's fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the statement of comprehensive income.

Trade receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Cash and cash equivalents

In the statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less and bank overdrafts. In the statement of financial position, overdrafts are shown within borrowings in current liabilities.

Inventories

Inventories comprise consumables.

Consumables inventory is stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Cost represents the amounts payable on the acquisition of materials. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in selling and distribution.

Financial liabilities

All of the company's financial liabilities are classified as financial liabilities carried at amortised cost. The company does not use derivative financial instruments or hedge accounts for any transactions. Financial liabilities comprise Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Provisions

A provision is recognised in the Statement of Financial Position when the company has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. The increase in the provision due to the passage of time is recognised as a finance cost.

Provisions for dilapidation charges that will crystallise at the end of the period of occupancy are provided for in full.

Employee benefits - Defined contribution plan

The company operates a defined contribution pension scheme which is open to all employees and directors. The assets of the schemes are held by investment managers separately from those of the company. The contributions payable to these schemes are recorded in the Statement of Comprehensive Income in the accounting period to which they relate.

Foreign currency translation

The company's functional currency is the pound sterling. Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the reporting date. Exchange differences arising on the settlement or on translating monetary items at rates different from those at which they were initially recorded are recognised in administrative expenses in the Statement of Comprehensive Income in the period in which they arise.

Equity

Equity comprises the following;

Called up share capital

Share capital represents the nominal value of equity shares.

Share premium

Share premium represents the excess over nominal value of the fair value of consideration received of equity shares, net of expenses of the share issue.

Retained earnings/(accumulated losses)

Retained earnings/(accumulated losses) represents retained profits and losses.

Leases

Leases in which a significant portion of the risks and rewards of ownership remain with the lessor are classified as operating leases and are charged to the Statement of Comprehensive Income on a straight-line basis over the period of the lease.

3 Critical accounting estimates and judgements

Many of the amounts included in the financial statements invoice the use of judgement and/or estimates. These judgements and estimates are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policy and/or the notes to the financial statements and the key areas are summarised below:

Critical judgements in applying accounting policies

The directors do not consider there are any critical judgements in applying accounting policies.

Critical accounting estimates and assumptions

· Deferred Taxation. The company has significant tax losses which are able to be carried forward to be offset against future profits of the company. A deferred tax asset has been calculated based on estimates of future profits against which these losses can be utilised. Deferred tax represents a significant asset of the company and therefore movements being charged through the Statement of Comprehensive Income also have the potential to affect reported profit or loss. Profits may be offset at future taxation rates of either 19% or 17%. Should £100,000 of taxable profits be forecast to be realised at the lower rate rather than the higher then the deferred taxation asset would reduce by £2,000.

· Costs associated with the IPO. During the year the company incurred significant costs in association with issuing new shares and listing on AIM. As these two transactions occurred at the same time costs from the company's advisers contained elements relating to both the issue of shares and the listing of the shares. Where a clear division was apparent costs were allocated on that basis and, for all other costs an apportionment was made based on the directors' estimation of the proportion of work associated with each transaction. Costs in relation to the issue of new shares has been deducted from share premium and the remainder has been charged to the income statement.

· Share Based Payments. The company operates an employee share option scheme and has recognised an annual cost in the Income Statement. The calculation of the costs is based on a number of estimates and assumptions, of which one has a significant impact on the amounts recorded in the financial statements:

o Fair value of the shares at date of grant. As a private company an open market share price was not available when options were awarded so the company has historically applied the Black-Scholes method based on the most recent price at which capital was raised. A 5% fluctuation in the fair value of shares at grant date would have resulted in the cumulative charge to the income statement being approximately £45,000 higher or lower (2017: £36,000).

4 Revenue

All of the activities of the company fall within one business segment, that of research, development and manufacture of recombinant proteins and antibodies.

In the year sales to one customer exceeded 10% of revenues, that customer accounted for £308,049 or 11.45% of revenues. In 2017 one customer exceeded 10% of revenues, that customer accounted for £198,334 or 10.37% of revenues 

5 Operating (loss)/profit is stated after charging/(crediting)

6 Average staff numbers

7 Remuneration of directors and key senior management

Directors

Highest paid director

The highest paid director received the following emoluments:

Key senior management

Key senior management is considered to be the directors of the company with total remuneration for the year of £363,399 (2017: £249,687).

8 Finance income and costs

9 Share based payments

During the year all remaining grants under the historic 2005 schemes "historic options" either lapsed or were exercised prior to the IPO. In addition, at the reporting date the company had two share based reward schemes under which options were granted during the year and are now closed to future grants and a third scheme in place for future use under which no grants had been made at the reporting date:

· A United Kingdom tax authority approved scheme for executive directors and senior staff;

· An unapproved scheme for awards to those, such as non-executive directors, not qualifying for the unapproved scheme; and

· A United Kingdom tax authority approved scheme for executive directors and senior staff which incorporates unapproved options for grants to be made following listing of the company shares, "2017 EMI and Unapproved Employee Share Option Scheme".

Options awarded during the year under both the approved and unapproved schemes have no performance conditions other than the continued employment within the company. Options vest one to two years from the date of grant, which may accelerate for a change of control. Options lapse if not exercised within ten years of grant, or if the individual leaves the company prior to the vesting date, except under certain circumstances such as leaving by reason of redundancy.

At the reporting date no grants had been made under the 2017 EMI and Unapproved Employee Share Option Scheme.

The total share-based remuneration recognised in the Statement of Comprehensive Income was £330,176 (2017: £128,953). The most recent options granted in the year were valued using the Black-Scholes method. With no open market valuation, the share price on grant used a share price based on a multiple of FY 2017 revenues consistent with that used to set the share price at listing, expected volatility of 13.4% and a compound risk free rate assumed of 1.53%.

The options outstanding at the end of each year were as follows:

Of the total number outstanding none (2017: none) had vested at the year end.

10 Income tax (credit)/expense

The difference between (loss)/profit before tax multiplied by the base rate of 19% (2017: 20%) and the income tax credit/(expense) is explained in the reconciliation below:

11 Earnings per share

Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of shares in issue during the year. During the year the company subdivided its ordinary shares of £1 into 25 ordinary shares of £0.04. The number of shares for 2017 has been restated by a factor of 25 for ease of comparison of earnings per new share.

Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shared to reflect the effect of partially dilutive ordinary share options.

12 Property, plant and equipment

Plant & machinery with a net book value of £100,303 is held under hire purchase agreements or finance leases (2017: none).

The depreciation expense is included in administrative expenses in the statement of comprehensive income in each for the financial years shown.

13 Investment in subsidiary

The company has the following investment in a subsidiary:

Group accounts are not prepared on the basis that the subsidiary company is dormant and not material to the financial statements.

14 Deferred tax

The movement in deferred tax assets and liabilities during the financial year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax assets are recognised for the carry forward of corporation tax losses to the extent that the realisation of a future benefit is probable. The deferred tax asset arising from future utilisation of taxable losses of £6,596,169 (2017: £5,414,228) is dependent on future taxable profits arising in the UK. The directors are of the opinion that it is more likely than not that there will be sufficient future taxable profits against which the tax losses can be deducted and accordingly, a deferred tax asset has been recognised.

Deferred tax assets are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted, or substantively enacted, at the reporting date. The change of rate from 19% to 17%, effective from 1 April 2020, was substantively enacted as part of the Finance Act 2016.

Deferred tax liabilities and assets expected to reverse after more than 12 months: £1,136,487 (2017: £913,843).

15 Inventories

The cost of inventories recognised as an expense for the year was £628,428 (2017: £591,099).

16 Trade and other receivables

The fair value of receivables approximates to their carrying value.

At the reporting date, trade receivables of £2,994 (2017: £27,045) were impaired. The individually impaired receivables related to customers which were in unexpectedly difficult circumstances. It is assessed that £nil (2017: £10,000) is expected to be recovered. The ageing of these receivables is as follows:

The carrying amount of trade and other receivables are denominated in the following currencies:

The aging of unimpaired trade receivables which were past due at the reporting date was as follows:

Movements on the provision for impairment of trade receivables are as follows:

The creation and release of provision for impaired receivables has been included in administrative expenses in the Statement of Comprehensive Income.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The company does not hold any collateral as security.

17 Trade and other payables

The fair value of payables approximates to their carrying value.

Invest Northern Ireland hold a mortgage dated 9 December 2009 for securing all monies due or to become due from the company on any account. At the reporting date a balance of £6,879 (2017: £24,235) was due to Invest Northern Ireland.

18 Borrowings

All borrowings are denominated in UK pounds. Using a discount rate of 5.5% per annum the fair value of borrowings at the reporting date is £72,502.

Borrowings are secured by a fixed and floating charge over the whole undertaking of the company, its property, assets and rights in favour of Northern Bank Ltd trading as Danske Bank.

19 Provisions for liabilities

Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. The company's premises are held under a lease expiring 31 July 2022. The costs of dilapidations would be incurred on vacating the premises.

20 Financial instruments

The company is exposed to risks that arise from its use of financial instruments. This note describes the company's objectives, policies and processes for managing those risks and methods used to measure them. There have been no substantive changes in the company's exposure to financial instrument risks and the methods used to measure them from previous periods unless otherwise stated in this note.

The principal financial instruments used by the company, from which the financial instrument risk arises, are trade receivables, cash and cash equivalents and trade and other payables. The fair values of all the company's financial instruments are the same as their carrying values.

Financial instruments by category

Financial instruments categories are as follows:

Capital management

The company's objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the company may issue new shares or sell assets to provide working capital.

Consistent with others in the industry at this stage of development, the company has relied on issuing new shares and cash generated from operations.

General objectives, policies and processes - risk management

The company is exposed through its operations to the following financial instrument risks: credit risk; liquidity risk and foreign currency risk. The policy for managing these risks is set by the Board following recommendations from the Chief Financial Officer. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the company's competitiveness and flexibility. The policy for each of the above risks is described in more detail below.

Credit risk

Credit risk arises from the company's trade and other receivables, and from cash at bank. It is the risk that the counterparty fails to discharge their obligation in respect of the instrument.

The company is mainly exposed to credit risk from credit sales. It is company policy to assess the credit risk of new customers before entering contracts. Also, for certain new customers the company will seek payment at each stage of a project to reduce the amount of the receivable the company has outstanding for that customer.

At the year end the company's bank balances were all held with Northern Bank Ltd trading as Danske Bank (Moody's rating P-1).

Liquidity risk

Liquidity risk arises from the company's management of working capital, and is the risk that the company will encounter difficulty in meeting its financial obligations as they fall due.

At each board meeting, and at the reporting date, the cash flow projections are considered by the Board to confirm that the company has sufficient funds and available funding facilities to meet its obligations as they fall due.

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The company seeks to transact the majority of its business in its reporting currency (£Sterling). However, many customers and suppliers are outside the UK and a proportion of these transact with the company in US Dollars, Euros and Japanese Yen. For that reason the company operates current bank accounts in US Dollars and Euros as well as in its reporting currency. To the maximum extent possible receipts and payments in a particular currency are made through the bank account in that currency to reduce the amount of funds translated to or from the reporting currency. Cash flow projections are used to plan for those occasion when funds will need to be translated into different currencies so that exchange rate risk is minimised.

If the exchange rate between Sterling and the Dollar, Euro or Japanese Yen had been 10% higher/lower at the reporting date the effect on profit and equity would have been approximately £7,393 (2017: £7,300) higher/lower, £23,017 (2017: £ 17,400) higher/lower and £2,550 (2017: £nil) higher/lower respectively.

21 Called up share capital

During the year the company subdivided each ordinary share of £1 into 25 ordinary shares of £0.04 and issued and allotted 8,399,817 shares for £5,606,352.

22 Capital commitments

At 31 March 2018 the company had contracted for but not incurred capital expenditure of £232,653 (2017: £nil).

23 Operating lease commitments

24 Retirement benefits obligations

The company operates a defined contribution scheme, the assets of which are managed separately from the company. During the year the company charged £33,915 to the Statement of Comprehensive Income (2017: £34,733) in respect of Company contributions to the scheme. At the reporting date there was £5,779 (2017: £4,481) payable to the scheme and included in other payables.

25 Transactions with related parties

The company had the following transactions with related parties during the year:

Invest Northern Ireland ("Invest NI") is a shareholder in the company. The company received invoices for rent and estate services amounting to £78,957 (2017: £49,295). A balance of £6,879 (2017: £24,235) was due and payable to Invest NI at the reporting date. The company claimed various grants during the year from Invest NI amounting to £47,591 (2017: £45,674). A balance of £2,660 was due on submitted claims from Invest NI (2017: £nil).

Director Colin Walsh is also a director of Crescent Capital. During the year Crescent Capital charged the company £10,800 (2017: £10,000) for his services as a director and other consultancy and at the reporting date an amount of £2,000 (2017: £5,000) was payable to Crescent Capital.

Director Alan Mawson is also a director of Clarendon Fund Managers. During the year Clarendon Fund Managers charged the company £33,607 (2017: £33,641) for his services as a director and at the reporting date an amount of £nil (2016: £27,000) was payable to Clarendon Fund Managers.

26 Events after the reporting date

There have been no events from the reporting date to the date of approval which need to be reported.

27 Ultimate controlling party

There is no ultimate controlling party.

28 Adjusted results

(a) In advance of the IPO, share options granted before 31 March 2017 (historic options) were accelerated so they vested and were exercised before the company listed on AIM. As a result the expense charged to the Statement of Comprehensive Income for the two years ended 31 March 2018 was significantly increased over the annual charge to profits that would be expected. In order to understand the underlying performance of the business, these exceptional charges have been adjusted to arrive at the adjusted results. The total expense for share based payments for the year was £330,176 (2017: £128,853) which includes the charge for options granted in the year (2017: £nil) in addition to the £163,100 above.

(b) In the year an expense of £609,836 was charged to the Statement of Comprehensive Income for professional fees in relation to listing on AIM, a market operated by the London Stock Exchange. These charges are non-recurrent and do not include ongoing adviser fees in respect of the AIM listing.

Reconciliation of adjusted profit to adjusted EBITDA