CEL Celadon Pharmaceuticals Plc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2023

 

1.     About Celadon Pharmaceuticals Plc

 

Celadon Pharmaceuticals Plc (the "Company") and its subsidiaries (together "the Group") are a UK based pharmaceutical group with a primary focus on growing indoor hydroponic high-quality cannabis initially for use within the chronic pain market.

 

The Company is a public limited company incorporated in England and Wales and domiciled in the United Kingdom (company number: 11545912). It is a public company listed on the AIM market of the London Stock Exchange. The registered address is 32-33 Cowcross Street, London, EC1M 6DF.

 

On 28 March 2022, the Company completed the acquisition of Vertigrow Technology Limited (and its subsidiaries Celadon Pharma Limited and Harley Street (CPC) Limited) and the settlement of the Vertigrow Technology Limited convertible loan notes via an issuance of new shares.  Vertigrow Technology Limited was renamed Celadon Property Co Limited on 3 January 2023.  Further details on this transaction and the subsequent Group structure is included at note 5.

 

 

2.     Basis of preparation

The financial information for the year ended 31 December 2023 has been extracted from the Group's audited statutory financial statements which were approved by the Board of Directors on 13 May 2024 which will be delivered to the Registrar of Companies for England and Wales. The report of the auditor on these financial statements was unqualified, did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006. The information included in this announcement has been prepared on a going concern basis under the historical cost convention and in accordance with UK-adopted International Accounting Standards. The information in this announcement has been extracted from the audited statutory financial statements for the year ended 31 December 2023 and as such, does not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006 as it does not contain all the information required to be disclosed in the financial statements prepared in accordance with UK-adopted International Accounting Standards. This announcement was approved by the board of directors and authorised for issue via RNS on 14 May 2024.

The financial information is presented in Pound Sterling (£) which is the functional currency of the Company and the presentation currency of the Group and all values are rounded to the nearest Pound Sterling thousand (£000s).

a.     Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiary undertakings).  Where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies in line with those of the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

 

Subsidiaries are entities controlled by the Group. The Group "controls" an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

 

Non-controlling interests are measured initially at their proportionate share of the acquiree's identifiable net assets at the date of acquisition.

 

b.     Going concern

 

These consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will continue in operational existence for the foreseeable future. 

 

The Group currently consumes cash resources and will continue to do so as it completes the fit out and construction of its growing facilities and until sales revenues are sufficiently high enough to generate net cash inflows.

 

In assessing whether the going concern assumption is appropriate, the Directors have taken into account all relevant information about the current and future position of the Group and including the current level of resources. 

 

At 31 December 2023 the Group had £1.3 million (2022: £5.1 million) of cash and net assets of £3.2 million (2022: £7.1 million).  In addition on 29 May 2023, the Group entered into a 2 year £7.0m Revolving Credit Facility to provide additional liquidity for operating and capital expenditure.  On 11 April 2024 this Revolving Credit Facility was extended for a further 6 months.  On 10 May 2024, the Group announced that it had raised £2.1 million through the issuance of 2,000,000 ordinary shares of 1p at a subscription price of £1.05 each.

 

Having prepared budgets and cash flow forecasts covering the going concern until June 2025 which have been stress tested, by creating a number of different scenarios in which a number of the assumptions were adversely tweaked down - such as to assume: a) a 6 month delay in revenue arising; b) cost increases of more than 10% and c) a combination of the two,  the Directors believe the Group has sufficient resources to meet its obligations for a period of at least 12 months from the date of approval of these financial statements.

 

Taking these matters into consideration, the Directors consider that the continued adoption of the going concern basis is appropriate having prepared cash flow forecasts for the coming 12 months.

 

3.     Accounting policies

 

Details of significant accounting policies are set out below.

 

a.     Creation of the Celadon Pharmaceuticals Plc group of companies

 

On 28 March 2022 the Company became the legal parent of Celadon Property Co Limited.

 

 

The results for the year ended, and as at 31 December 2023 are those of Celadon Property Co Limited group with the inclusion of the Celadon Pharmaceuticals Plc group.  

 

The comparative results for the year ended, and as at 31 December 2022 are those of Celadon Property Co Limited group from 1 January 2022 to 31 December 2022 with the inclusion of the Celadon Pharmaceuticals Plc group at the acquisition date of 28 March 2022 through to 31 December 2022.

 

This transaction is deemed outside the scope of IFRS 3 Business Combinations (Revised 2008) ("IFRS 3") and not considered a business combination because the directors have made a judgement that prior to the transaction, that Celadon Pharmaceuticals Plc was not a business under the definition of IFRS 3 Appendix A and the application guidance in IFRS 3.B7-B12 due to that company being a company that had no processes or capability for outputs (IFRS 3.B7). 

 

On this basis, the Directors have developed an accounting policy for this transaction, applying the principles set out in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") paragraphs 10-12, in that the policy adopted:

 

§  Provides more relevant financial information to users of these statements;

 

§  Is more representative of the performance, financial position, and cash flows of the Group;

 

§  reflects the economic substance of the transaction, not merely the legal form; and

 

§  Is free from bias, prudent and complete in all material aspects.

 

The accounting policy adopted by the Directors applies certain principles of IFRS 3 in identifying the accounting acquirer (Celadon Property Co Limited) and the presentation of the consolidated financial statements of the legal acquirer (Celadon Pharmaceuticals Plc) as a continuation of the accounting acquirer's financial statements (Celadon Property Co Limited).

 

This policy reflects the commercial substance of this transaction as:

 

§  the original shareholders of Celadon Property Co Limited are the most significant shareholders after the business combination and initial public offering, owning 86 per cent of the issued share capital; and

 

§  the executive management team of Celadon Property Co Limited became the executive management of Celadon Pharmaceuticals Plc.

 

Accordingly, the following accounting treatment and terminology has been applied in respect of the reverse acquisition:

 

§  the assets and liabilities of the legal subsidiary Celadon Property Co Limited group are recognised and measured in the group financial statements at the pre-combination carrying amounts, without reinstatement to fair value;

 

§  the retained earnings and other equity balances recognised in the group financial statements reflect the retained earnings and other equity balances of the Celadon Property Co Limited group immediately before the business combination; and

 

§  the results of the period from 1 January 2022 to 28 March 2022 are those of the Celadon Property Co Limited group.

 

However, in the Group financial statements:

 

§  the equity structure presented, reflects the equity structure of the legal parent (Celadon Pharmaceuticals Plc), including the equity instruments issued under the share-for-share exchange to effect the business combination; and

 

§  the cost of the combination has been determined from the perspective of Celadon Property Co Limited group.

 

Transaction costs of equity transactions relating to the issue and re-admission of the Company's shares, are accounted for as a deduction from equity where they relate to the issue of new shares, and listing costs are charged to the consolidated statement of comprehensive income.  See note 5 for further explanation.

 

b.     Acquisition of controlling shareholding in Harley Street (CPC) Limited

 

On 14 July 2021, Celadon Property Co Limited acquired a 57.5% shareholding in Harley Street (CPC) Limited for £2.0 million, of which £500,000 was paid in cash and £1,500,000 of contingent consideration was to be paid in shares in December 2022 (subject to certain targets being achieved). 

 

In addition to acquiring the share ownership Celadon Property Co Limited had the ability to appoint four directors to the board of Harley Street (CPC) Limited compared with two from the other investor.  Celadon also exercised operational control of the business.  Given the degree of control, it is appropriate to include Harley Street (CPC) Limited as part of the consolidation and reflect the ownership by third parties as a non-controlling interest.

 

The £1,500,000 contingent consideration payment was estimated to have an acquisition date fair value of £375,000 based upon a 6.2% discount rate and management's probability estimate of the payment criteria being satisfied.

 

In June 2022, the Directors reassessed that the targets for the contingent consideration payment would not be met within the time frame set, and released the contingent liability of £375,000 back to the consolidated statement of comprehensive income.

 

On 31 May 2023, Celadon Property Co Limited acquired the remaining 42.5% shareholding for £1. An adjustment of £661,000 was made to the retained reserves to release the non-controlling interest share of the accumulated losses which is comprised of the non-controlling interest shares of the loss for the 5 months to 31 May 2023 of £122k and a transfer to retained earnings of the accumulated non-controlling interest's share of the losses of £783k. 

 

c.     Revenue recognition

 

Revenues relate to the provision of services and products to patients engaged on the feasibility study in advance of the clinical trial with Harley Street (CPC) Limited and to the supply of dried cannabis flower and cannabis-based products.

 

Patients engaged on this feasibility study are required to pay an initial fee on joining the trial and a monthly fee thereafter in relation to the subsequent provision of clinical products.

 

Revenue is measured based on the completion of the performance obligations that are identified and satisfied as outlined below:

 

-       for the initial fees paid by patients on joining the study, the performance obligations are to provide an initial suitability screening test and to determine if the patient is suitable.  Revenue is recognised, at a point in time, on provision of the screening test kit to the patient, with the related costs of test kits recognised in cost of sales.

 

-       for the subsequent monthly fees paid by patients on the study, the performance obligation is to provide monthly supplies of filled cartridges containing medicinal cannabis.  Revenue is recognised on delivery of these supplies to the patient. The contracts with patients do not include any fixed term or locked in periods, so monthly fees are only recognised on provision of the monthly supplies.

 

Revenue from the supply of cannabis flower and cannabis-based products is recognised at the point in time when the performance conditions in the contract with the customer are met, which is when the products have been shipped or made available to the customer.

 

d.     Financial instruments

 

Recognition and initial measurement

Financial assets and liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.  The Group's financial instruments comprise cash, trade and other receivables, unlisted investments, trade and other payables, convertible loan notes and embedded derivative, contingent consideration, and long-term incentive arrangements.

 

Financial instruments are initially measured at fair value which is deemed to be the transaction price. Transaction costs arising on the issue of financial asset or liability are included in the initial measurement if they are directly attributable to the acquisition of the instrument, and the instrument is not measured at FVTPL on an ongoing basis. Where the financial asset or liability is measured at FVTPL, transaction costs are immediately recognised in profit or loss.

 

Classification and subsequent measurement

The Group classifies and subsequently measures its financial instruments in the following measurement categories:

 

·      Amortised cost:

·      Fair value through profit or loss ("FVTPL")

·      Fair value through other comprehensive income ("FVTOCI") (financial assets only)

 

With the exception of the convertible loan note and embedded derivative that the Group was party to in the prior period, all recognised financial assets and liabilities are subsequently measured in their entirety at either amortised cost or fair value, depending on their classification under one of these categories.

 

Financial Assets

 

Trade and other receivables

For purposes of subsequent measurement, trade and other receivables are classified as financial assets measured at amortised cost.

 

They are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Any interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

 

The Group will write-off financial assets, either in their entirety or a portion thereof, if there is no reasonable expectation of its recovery. A write-off constitutes a derecognition of a financial asset.

 

Cash and cash equivalents

The Group manages short-term liquidity through the holding of cash and highly liquid interest-bearing deposits.  Only deposits that are readily convertible into cash with maturities of three months or less from inception, with no penalty of lost interest, are shown as cash and cash equivalents.

 

Unlisted Investments

The Group recognises unlisted equity investments at transaction cost which management believes approximates the fair value or measured based on discounted cashflow models if this is what has been used to determine if there has been an impairment.

 

Impairment of financial assets

An impairment loss allowance is recognised for the expected credit losses on financial assets when there is an increased probability that the counterparty will be unable to settle an instrument's contractual cash flows on the contractual due dates, a reduction in the amounts expected to be recovered, or both.  The probability of default and expected amounts recoverable are assessed using reasonable and supportable past and forward-looking information that is available without undue cost or effort.  This impairment loss allowance is reassessed at each reporting date.

 

Financial liabilities

 

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL.

 

Financial liabilities are classified and measured at FVTPL when (i) the financial liability is a contingent consideration to which IFRS 3 applies, or (ii) it is a derivative. Financial liabilities at FVTPL are stated at fair value with any gains or losses arising on changes in fair value recognised in profit or loss.

 

Trade and other payables

Trade and other payables are initially measured at fair value, net of direct transaction costs and subsequently measured at amortised cost.

 

Borrowings

Borrowings are classified as current liabilities unless the Group has an unconditional right and an intention to defer settlement of the liability for at least 12 months after the reporting date. Borrowings are initially recognised at fair value, net of transaction costs incurred. They are subsequently measured at amortised cost using the effective interest method.

 

Convertible Loan Notes

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

 

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.  Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

 

The component parts of compound instruments, such as convertible loan notes, are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement.

 

If the conversion feature of a convertible loan note does not meet the definition of an equity instrument, that portion is classified as an embedded derivative and measured accordingly.  The debt component of the instrument is determined by deducting the fair value of the conversion option at inception from the fair value of the consideration received for the instrument as a whole.  The debt component amount is recorded as a financial liability on an amortised cost basis using the effective interest rate method until extinguished upon conversion or at the instrument's maturity date.

 

Where debt instruments issued by the Group are repurchased or cancelled, the financial liability is derecognised at the point at which cash consideration is settled.  Upon derecognition, the difference between the liability's carrying amount that has been cancelled and the consideration paid is recognised as a gain or loss in the Income Statement, net of any direct transaction costs.

 

Derivative financial instruments

Embedded derivatives in financial instruments or other host contracts that are not financial assets are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contract are not measured at fair value through the profit or loss ("FVTPL").  Derivatives embedded in financial instruments that are closely related or other host contracts that are financial assets are not separated, instead the entire contract is accounted for either at amortised cost or fair value as appropriate.

 

Contingent Consideration

The Group is party to consideration arrangements in the form of contingent consideration. Contingent consideration is consideration that is contingent on a future event, usually the future performance of the acquired business. It is measured at its discounted present value and remeasured at each reporting date. The discount unwind and remeasurement of the liability is recognised in profit or loss as finance cost.

 

e.     Equity

 

An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.  Equity instruments issued by the Company are recorded at fair value on initial recognition net of transaction costs.

 

Equity comprises the following:

 

§  Called up share capital represents the nominal value of the equity shares.

 

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

 

§  Capital Redemption Reserve is a statutory, non-distributable reserve into which amounts are transferred following the redemption or purchase of a company's own shares.

 

§  Merger Relief Reserve is a statutory, non-distributable reserve arising when conditions set out in section 612 of the Companies Act occur and relate to the share-premium from shares issued to acquire Celadon Property Co Limited.

 

§  Retained Deficit represents accumulated net gains and losses from incorporation recognised in the Statement of Comprehensive Income.

 

§  Reverse Acquisition Reserve includes the accumulated losses incurred prior to the reverse acquisition and the share capital and share premium of Celadon Pharmaceuticals Plc at acquisition; the value of the shares issued to acquire all of the share capital of Celadon Property Co Limited; the value of share capital and share premium of Celadon Property Co Limited at acquisition; as well as the reverse acquisition share-based payment expense.

 

§  Warrant Reserve represents the fair value of warrants issued as part of an equity-based payment.

 

§  Non-controlling Interest represents the amounts subscribed for the B Ordinary Shares of Celadon Subco Limited pursuant to the Group's Subsidiary incentive plan; and until 31 May 2023, the accumulated net gains and losses of Harley Street (CPC) Limited attributable to the minority shareholder. 

 

f.      Right-of-use Assets

 

Initial Recognition

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.  In addition, at the lease commencement date the right-of-use asset incorporates the unavoidable costs to return the asset to its original condition, for which a corresponding amount is recognised in provisions.

 

Depreciation of right-of-use Assets

The right-of-use asset is depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets as:

 

§  Leasehold property - over 25 years

§  Leased plant and equipment - over 3 to 5 years.

 

In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

 

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.

 

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date.  After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.  The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. 

 

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period.

 

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases (of less than 12 months) including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Please refer to note 15 for further information on the Group's lease arrangements.

 

g.     Property, plant and equipment

 

Recognition and measurement

Property, plant and equipment are measured at cost, which includes capitalised borrowing costs, less accumulated depreciation and any accumulated impairment losses. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. 

 

Assets under construction is stated at cost, net of accumulated impairment losses, if any. Depreciation of assets under construction will commence from the date on which the asset becomes available for use. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.

 

Depreciation

Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss.

 

The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:

 

§  Leasehold improvements - 10 to 25 years

§  Plant and equipment - 3 to 10 years

§  Office equipment and IT - 3 to 5 years

§  Assets under construction - depreciation will commence when assets brought in to use.

 

h.     Intangible Assets

 

Goodwill

Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment loss.

 

Cost comprises the difference between the fair value of the consideration given for the investment and the fair value of the assets and liabilities acquired as a result of the acquisition, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree.

 

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income.  Impairment tests on Goodwill are undertaken at least annually at the financial year end, and more frequently if indicators of impairment exist.  Where the carrying value of goodwill exceeds its recoverable amount an impairment is recognised and shall not be reversed in later periods. 

 

Other Intangible Assets

Other intangible assets relate to the Intellectual Property associated with the design of the chronic pain clinical study protocol devised by the Group's subsidiary Harley Street (CPC) Limited.  The valuation of this intangible asset was based on the estimated replacement cost for the asset at the time of the acquisition. The amortisation period for this has been determined to be 5 years. 

 

i.      Inventory

 

Production consumables and lab inventory is measured at the lower of cost and net realisable value.  The cost of inventory is based on the first‑in, first‑out allocation method.

 

j.      Biological Assets and Agricultural Products

 

The Group cultivates high-THC cannabis in a highly controlled indoor environment to a Good Agricultural and Collection Practices standard.  When harvested the plants are dried and cannabinoid oils are extracted following Medicines and Healthcare products Regulatory Agency ("MHRA") approved Good Manufacturing Processes. 

 

The Group sells the cannabis products to pharmaceutical companies engaged in research and development and to medicinal cannabis companies.  It is recognised that accounting for biological assets is an area which includes key sources of estimation uncertainty.

 

Given the relatively short lifecycle of cannabis plants, with plants growing from cuttings to mature plants ready for harvesting typically within 14-16 weeks, none of the Group's biological assets is considered to be a non-current asset.   Drying plants and extracting cannabinoid oils are production processes rather than a biological process. 

 

Until the point of harvest, plants are categorised as Biological Assets, and are valued on the basis of the cashflows that are expected to arise from the sale of the finished products less the anticipated cost of getting the plants to be finished products.  After harvest, the plants are categorised as Agricultural Products.

 

Plants are therefore transferred to inventory at their fair value at the point of harvest.  This fair value becomes the deemed cost of the inventory under IAS 2.  Inventories are stated at the lower of this deemed cost and net realisable value.

 

k.     Taxation

 

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in Other Comprehensive Income.

 

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

 

Current tax assets and liabilities are offset only if certain criteria are met.

 

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.  The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted, or substantively enacted, at the date of the Statement of Financial Position.

 

Deferred tax is not recognised for:

 

§  temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

 

§  temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

 

§  taxable temporary differences arising on the initial recognition of goodwill.

 

Temporary differences in relation to a right‑of‑use asset and a lease liability for a specific lease are regarded as a net package (the lease) for the purpose of recognising deferred tax.

 

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

 

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset only if certain criteria are met.

 

l.      Provisions

 

A provision is recognised where there is a present obligation, whether legal or constructive, as a result of a past event for which it is probable that a transfer of economic benefits will be required to settle the obligation, and a reasonable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is management's best estimate of the consideration required to settle the present obligation at the reporting date, considering the risks and uncertainties surrounding the obligation.

 

Provisions are determined by discounting the expected future cash flows at a pre‑tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

 

m.   New and amended accounting standards

 

New and amended standards and interpretations applied

The following accounting standards and updates were applicable in the reporting period but did not have a material impact on the Company:

 

·      IFRS 17: Insurance Contracts (effective 1 January 2023)

·      Amendments to IFRS 17: Insurance Contracts (effective 1 January 2023)

·      Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 1 January 2023)

·      Amendments to IAS 12: Income Taxes (effective 1 January 2023)

·      Amendments to IAS 1: Presentation of Financial Statements (effective 1 January 2023)

 

New and amended standards and interpretations not applied

The following new and amended standards and interpretations in issue are applicable to the Company but are not yet effective and therefore, have not been adopted by the Company:

 

·      Amendments to IAS 1 Classification of Liabilities as Current or Non Current and Non-current Liabilities with Covenants (effective 1 January 2024)

·      Amendment to IFRS 16 Lease Liability in a Sale and Leaseback (effective 1 January 2024)

·      Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements (effective 1 January 2024)

 

The Company has considered the IFRS's in issue but not yet effective and do not consider any to have a material impact on the Company.

 

 

4.     Use of critical judgements and key accounting estimates

 

In preparing the financial statements, management has made judgements and estimates that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income, expenses, shareholders' equity and reserves.  Actual results may differ from these estimates.  Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. In the process of applying the Group's accounting policies, management has made the following judgements and estimates, which have the most significant effect on the amounts recognised in the financial statements:

 

Critical Judgements

 

a.     Reverse Acquisition Accounting

 

The Celadon Pharmaceuticals Plc Group of companies was formed by Celadon Property Co Limited reverse acquiring Celadon Pharmaceuticals Plc (a "reverse acquisition") on 28 March 2022. The Board used judgment in applying Reverse Acquisition Accounting principles and used an estimate as to the average share price of £1.5125 on 28 March 2022, the first day of trading after the Company was readmitted to trading on AIM, to value the consideration shares issued by Celadon Pharmaceuticals Plc to the owners of Celadon Property Co Limited.  Further details are in note 5.

 

b.     Tax Losses

 

The Group has significant tax losses and has incurred significant capital expenditure on leasehold improvements and plant and machinery.  The corporation tax treatment of these items and the potential recognition of deferred tax assets requires management judgement.  The Group has decided not to recognise a deferred tax asset at the balance sheet date, given the uncertainty of when profits will arise.  See note 12.

 

c.     Biological Assets and Agricultural Products

 

The Group undertakes agricultural activities and is required to recognise the fair value of its biological assets.  Judgement is required in determining this fair value.  In the absence of an appropriate comparator in the market for the Group's biological assets, the Board has used its judgement in determining the fair value of the biological assets based on the anticipated cashflows arising from those biological assets.  This judgement requires a judgement to be exercised of the anticipated yield from the biological assets being cultivated at the balance sheet date, less the costs that would be required to get those biological assets to their saleable state.

 

 

Key accounting estimates

 

d.     Subsidiary incentive scheme

 

The Group established a Subsidiary Incentive Scheme in 2018 (in Celadon Subco Limited) in order to incentivise and retain key employees, directors and advisers to the Group.  The fair value of share-based awards is measured using the Monte Carlo model which inherently makes use of significant estimates and assumptions including the share price volatility, an estimate of exercise date and the number of scheme members that will achieve the vesting conditions. Further details of the scheme, and the assumptions used in the Monte Carlo model are given in note 30.

 

e.     Convertible loan notes

 

Celadon Property Co Limited raised £4.13 million through an issue of convertible loan notes in February and March 2021.  The convertible loan notes contained an embedded derivative (the right to convert in to shares) that was fair valued at inception and at each reporting date.  The fair value estimate required assumptions on share price volatility, the expected value of the shares and conversion date.  Further details of the methodology applied and assumptions made are given in note 24.  The convertible loan notes were converted to equity in March 2022.

 

f.      Leases and right-of-use assets

 

In 2019, Celadon Property Co Limited signed a 25 year lease on a 100,000 square foot production and head office facility in the UK.  The lease was varied in February of 2022. The fair value accounting for the lease liability and associated asset value, at inception and the date of variation requires the estimation of the effective borrowing rate in the lease. Further details of the assumptions made in calculating the incremental borrowing cost are provided in note 16.

 

g.     Site Restoration Obligation provision

 

In October 2019 Celadon Property Co Limited signed a 25 year lease which included the option for the landlord to require the company (at the end of the lease in 2044) to repair the leasehold property to its original condition.  The fair value of the site restoration obligation provision requires estimation and judgement of the potential costs to put the site back in its original state.  See note 27 for further details of the assumptions made.

 

 

h.     Research & Development Tax Credits

 

The Group has submitted its first R&D tax credit application to HMRC totalling £269k relating to 2021 activities.  Elements of the R&D claims required judgement by management.  At the date of these financial statements £269k had been received by the company in respect of the year to 31 December 2021.  Using the same methodology, the estimated R&D claim for the year to 31 December 2023 is £236k (2022: £412k).  See note 12.

 

5.     Reverse Acquisition of Celadon Property Co Limited

 

On 28 March 2022, Celadon Pharmaceuticals Plc (previously Summerway Capital Plc) acquired through a share-for-share exchange, the entire share capital of Celadon Property Co Limited and its subsidiary companies Celadon Pharma Limited and Harley Street (CPC) Limited (together the "Celadon Group"), whose principal activity is growing highly controlled indoor hydroponic, high THC cannabis for use within medicinal products used to treat chronic pain.

 

Although the transaction resulted in the Celadon Group becoming a wholly-owned subsidiary group of the Company, the substance of the transaction means it constitutes a reverse acquisition, as the previous shareholders of Celadon Property Co Limited own a substantial majority of the Ordinary Shares of the Company and the executive management of Celadon Property Co Limited became the executive management of Celadon Pharmaceuticals Plc.

 

Furthermore, as Celadon Pharmaceuticals plc's activities prior to the acquisition were purely the maintenance of the AIM Listing, acquiring Celadon Property Co Limited and raising equity finance to provide the required funding for the operations of the acquisition, it did not meet the definition of a business in accordance with IFRS 3.

 

Accordingly, this reverse acquisition does not constitute a business combination and was accounted for in accordance with IFRS 2 Share-based Payments ("IFRS 2") and associated IFRIC guidance.

 

Although, the reverse acquisition is not a business combination, the Company has become a legal parent and is required to apply IFRS 10 Consolidated Financial Statements ("IFRS 10") and prepare consolidated financial statements with Celadon Pharmaceuticals Plc consolidated as a subsidiary.  The Directors have prepared these financial statements using the reverse acquisition methodology, but rather than recognising goodwill, the difference between the equity value given up by the shareholders of Celadon Property Co Limited and the share of the fair value of net assets gained by the shareholders of Celadon Property Co Limited is charged to the statement of comprehensive income as a share-based payment on reverse acquisition. In substance, this represents the cost of acquiring an AIM listing.

 

In accordance with reverse acquisition accounting principles, these consolidated financial statements represent a continuation of the consolidated statements of Celadon Property Co Limited and its subsidiaries and include:

 

a.     the assets and liabilities of Celadon Property Co Limited and its subsidiaries at their pre-acquisition carrying value amounts and the results for the periods presented; and

 

b.     the assets and liabilities of the Company (and its wholly owned subsidiary Celadon Subco Limited (previously Summerway Subco Limited)) as at 28 March 2022 and its results from the date of the reverse acquisition (28 March 2022) to 31 December 2022.

 

On 28 March 2022, Celadon issued 43,316,201 ordinary shares to acquire the entire share capital of Celadon Property Co Limited, and issued 5,168,647 ordinary shares to redeem the Celadon Property Co Limited convertible loan notes.  At 28 March 2022, the average share price of Celadon for the day was £1.5125.

 

On consolidation and presentation of the Group's financial position, performance and cash flows, Celadon Property Co Limited, was treated as the accounting acquirer, and the legal parent company, Celadon, was treated as the accounting acquiree.

 

The fair value of the shares deemed to have been issued by Celadon Property Co Limited was calculated at £12,151k based on an assessment of the purchase consideration for a 100% holding of Celadon on the reverse acquisition date.

 

The fair value of the net assets of Celadon plc at acquisition was as follows:

 

	£000
Cash and equivalents	3,494
Other assets	2,285
Accounts payable and other liabilities	(28)
Net assets	5,751

 

The difference between the deemed cost £12,151k and the fair value of the net assets assumed per above of £5,751k resulted in £6,400k being expensed within "Reverse Acquisition Expenses" in accordance with IFRS 2, reflecting the economic cost to the shareholders of Celadon Property Co Limited of acquiring a quoted entity.

 

The professional fees in connection with the reverse acquisition in the period were £- (2022: £2,493k), of which £- (2022: £1,028k) was charged to the share premium account, and £- (2022: £1,465k) was expensed in the consolidated statement of comprehensive income.

 

Reverse Acquisition Reserve

 

The Reverse Acquisition Reserve which arose from the reverse acquisition is made up as follows:

 

	Note	£000
Pre-acquisition total retained earnings of Celadon Pharmaceuticals Plc	1	(1,746)
Celadon Property Co Limited share capital at acquisition	2	1,662
Investment in Celadon Property Co Limited, net of convertible loan note charge	3	(65,516)
Reverse acquisition expense	4	6,400
		(59,200)

 

1.     Recognition of pre-acquisition equity of Celadon Pharmaceuticals Plc.

 

2.     Celadon Property Co Limited had issued share capital of £1,662k. As these financial statements present the capital structure of the legal parent entity, the equity of Celadon Property Co Limited is eliminated.

 

3.     The value of the shares issued by the Company in exchange for the entire share capital of Celadon Property Co Limited.

 

4.     The reverse acquisition expense represents the difference between the value of the equity issued by the Company, and the deemed consideration given by Celadon Property Co Limited to acquire the Company.

 

6.     Operating segments

 

a.     Basis of segmentation

 

Reportable segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis. The operating results of each are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Board of Directors. Discrete financial information is available for each segment and used by the Board of Directors for decisions on resource allocation and to assess performance.

 

The Group has the following segments:

 

Reportable segment	Operations
Celadon	Build out of the grow facilities, growing and selling of medical grade cannabis and research in the GMP lab
Harley Street (CPC)	A clinical study into the pain relief benefits of medicinal cannabis

 

Information related to each reportable segment is set out below.

 

 

2023	Celadon	Harley Street	Central Costs	Group
	£000	£000	£000	£000
External revenue	64	11	-	75
Cost of sales	(29)	(45)	-	(74)
Fair value adjustments	74	-	-	74
Gross margin	109	(34)	-	75
Operating costs	(4,933)	(27)	(512)	(5,472)
Depreciation	(429)	(105)	-	(534)
Operating (loss)	(5,253)	(166)	(512)	(5,931)
Unallocated central costs	-	-	(1,026)	(1,026)
Finance costs	-	-	(566)	(566)
Group (loss) before tax				(7,523)
Segment assets	6,613	256	2,012	8,881
Segment Capital expenditure	340	-	-	340
Total Group assets				9,221
Segment liabilities	(5,486)	(82)	(472)	(6,040)
Total Group liabilities				(6,040)
2022		Celadon	Harley Street	Central Costs	Group
		£000	£000	£000	£000
External revenue		-	24	-	24
Cost of sales		-	(90)	-	(90)
Gross margin		-	(66)	-	(66)
Operating costs		(4,006)	(848)	-	(4,854)
Depreciation		(360)	(6)	-	(366)
Operating (loss)		(4,366)	(920)	-	(5,286)
Unallocated central costs		-	-	(12,684)	(12,684)
Finance costs		-	-	(23)	(23)
Group (loss) before tax					(17,993)
Segment assets		4,235	400	6,314	10,949
Segment Capital expenditure		2,300	2	-	2,302
Total Group assets					13,251
Segment liabilities		(4,151)	(1,610)	(453)	(6,214)
Total Group liabilities					(6,214)

 

 

The group operates only in the UK only and has only one geographical area.

 

7.     Revenue

 

The Group recorded revenue in the year ended 31 December 2023 of £75k (2022: £24k).  £64k (2022: £Nil) from the supply of dried cannabis flower and trim product, £11k (2022: £24k) from patients on the Group's clinical study in Harley Street (CPC) Limited.

 

8.     Fair value movements on biological assets and agricultural products

 

The Group reflected a fair value movement of £74k (2022: -) on the revaluation of biological assets £40k (2022: -) and the initial recognition of agricultural products £34k (2022: -)

 

9.     Loss for the year

 

The loss for the year has been arrived at after charging (crediting):

 

	2023		2022
	£'000		£'000
Depreciation of property, plant and equipment	206		156
Depreciation of leasehold improvements	28		45
Depreciation of office equipment	37		27
Depreciation of right-of-use asset	163		138
Amortisation of intangible assets	100		100
Loss on disposal of fixed assets	6		-
Non-cash charge in respect of Harley Street (CPC) Limited	-		139
Fair value charge relating to long term incentive plans	285		1,136
Fair value charge relating to Canaccord warrants included in Other acquisition costs	-		227
Other acquisition costs	741		-
Auditor's remuneration	122		130
Non-audit Services (IPO related costs)	-		83
Director's remuneration (including share-based payment charge)	777		888

 

 

10.  Directors and staff costs

 

The average number of staff (including Directors) during the year was 27 (2022: 24).

 

Staff costs for the year, including Directors were:

 

	2023		2022
	£'000		£'000
Salaries	2,212		1,778
Bonuses	-		37
Pension contributions	36		30
Phone allowance	14		11
	2,262		1,856
Social security costs	277		227
Share based payments	241		460
	2,780		2,543

 

The Directors have determined that there are no key management personnel other than the Directors during the year.

 

Management remuneration paid and other benefits supplied to the Directors during the period plus the associated social security costs were as follows:

 

	2023		2022
	£'000		£'000
Salaries	642		474
Phone allowance	2		1
	644		475
Social security costs	81		51
Share based payments	52		362
	777		888

 

 

In accordance with section 412 Companies Act 2006 the table below shows the full amount of remuneration paid and other benefits supplied to the Directors of Celadon Pharmaceuticals plc even if those amounts relate to the period prior to the Reverse Acquisition of Celadon Property Co Limited.

 

Director	Salary	Loss of service	Benefits in kind	Pension	31 December 2023 Total	31 December 2022 Total
	£	£	£	£	£	£
Alexander Anton1	50,000	-	-	-	50,000	38,266
Benjamin Shaw2	-	-	-	-	-	4,500
James Short3	245,000	-	-	-	245,000	246,150
David Firth4	45,000	-	-	-	45,000	44,440
Robbie Barr5	50,000	-	-	-	50,000	38,266
Dr Steven Hajioff6	35,000	-	-	-	35,000	34,786
Elizabeth Shanahan7	40,000	-	-	-	40,000	40,000
Kathleen Long8	-	-	-	-	-	56,154
Jonathan Turner9	177,410	-	-	-	177,410	-
	642,410	-	-	-	642,410	502,562

 

 

1.     Alexander Anton resigned 15 January 2021 and was re-appointed 28 March 2022

2.     Benjamin Shaw resigned as Interim Chairman on 28 March 2022

3.     James Short was appointed on 28 March 2022 - the figure quoted for 2022 is the combined figure for the services provided to Celadon Pharmaceuticals plc since March 2022, and Vertigrow from 1 January 2022 to 28 March 2022

4.     David Firth was appointed on 17 September 2018 - of the fees quoted above for 2022, £11,100 relates to the period 1 January - 28 March 2022

5.     Robbie Barr was appointed on 28 March 2022

6.     Dr Steven Hajioff was appointed on 28 March 2022 - the figure quoted is the combined figure for services provided to Celadon Pharmaceuticals plc since March 2022, and Vertigrow from 1 January 2022 to 28 March 2022.

7.     Elizabeth Shanahan was appointed on 21 September 2021 - of the fees quoted above for 2022, £10,000 relate to the period 1 January -28 March 2022

8.     Kathleen Long was appointed on 28 March 2022 and resigned on 17 January 2023

9.     Jonathan Turner was appointed on 17 January 2023

 

11.  Net finance costs

 

	2023		2022
	£'000		£'000
Finance gain on derivative liability associated with convertible loan notes (note 24)	-		556
Finance (charge) on leased assets (note 24)	(581)		(531)
Finance (charge) on related party loan (note 24)	-		(53)
Finance (charge) on external loans (note 24)	(1)		(7)
Unwind of discount on Site Restoration Obligation	(16)		-
Finance income on bank deposits	32		12
	(566)		(23)

 

12.  Income tax

 

The Group has had no taxable profits since incorporation.

 

Reconciliation of effective tax rate

	2023	2022
	£000	£000
Loss before tax from operations	(7,523)	(17,993)
Tax rate	25%	19%
Tax credit at the standard rate of corporation tax	(1,881)	(3,418)
Items disallowable for corporation tax	212	2,217
Additional deduction for R&D expenditure	(-)	(303)
Surrendered for R&D purposes	591	539
Capital allowances in excess of depreciation	(34)	(33)
Impact of unrelieved tax losses carried forward	1,035	998
Tax credit before impact of surrender of R&D expenditure	-	-
Refundable tax credit for surrender of enhanced R&D expense (at 14.5%):  - current year - prior year adjustment	236 -	412 270
Release of deferred tax liability on intangible assets	25	25
Tax credit for the year	261	707

 

 

 

The Group has estimated tax losses of £14,894k (2022: £8,811k) which may be available for relief against future profits from current operations.

 

For tax years starting on or after 1 April 2023, the rate of corporation tax in the UK is 25%.   As it is anticipated that the tax losses will not be utilised in the year to December 2023, the deferred tax asset not recognized has been calculated using the rate in force from 1 April 2023.  The deferred tax asset not provided for in the accounts is £3,724k (2022: £2,203k).

 

The release of the deferred tax liability on intangible assets reflects the amortisation of the Clinical Trial related intangible assets.

 

13.  Loss per share

 

	2023	2022
	£000	£000
Loss attributable to the owners of the Company	(7,140)	(17,006)
Weighted average number of ordinary shares in issue	61,893,906	57,295,086
Basic loss per share	(11.5p)	(29.7p)
Diluted loss per share	(11.5p)	(29.7p)

 

Basic earnings per share is calculated by dividing the loss/profit after tax attributable to the equity holders of the group by the weighted average number of shares in issue during the year.

 

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potential dilutive shares.

 

Under the Subsidiary Incentive Scheme certain directors and employees of, and advisers to, the Group are able to participate in a share of the growth of the Group's market capitalisation over predetermined thresholds over a three- to five- year period.  The participants can realise their value from the Subsidiary Incentive Scheme by exercising a put option to transfer their Celadon Subco Limited shares to Celadon Pharmaceuticals plc with the consideration satisfied at the Company's option either in cash or through the issue of ordinary shares of the Company. 

 

The calculation of earnings per share is based on the following earnings and number of shares.  In calculating the weighted average number of ordinary shares outstanding (the denominator of the earnings per share calculation) during the period in which the reverse acquisition occurs:

 

§  The number of ordinary shares outstanding from the beginning of that period to the acquisition date shall be computed, on the basis of the weighted average number of ordinary shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement; and

 

§  The number of ordinary shares outstanding from the acquisition date to the end of that period shall be the actual number of ordinary shares of the legal acquirer (the accounting acquiree) outstanding during that period.

 

The basic earnings per share for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse acquisition shall be calculated by dividing:

 

§  the profit or loss of the legal acquiree attributable to ordinary shareholders in each of those periods by

 

§  the legal acquiree's historical weighted average number of ordinary shares outstanding multiplied by the exchange ratio established in the acquisition agreement.

 

The weighted average number of ordinary shares for the purpose of calculating the basic and diluted measures is the same.  This is because the outstanding warrants and other instruments would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive under the terms of IAS 33.

 

14.  Intangible Assets

 

	Clinical Trial Intangible Asset	Goodwill	Total
	£000	£000	£000
Cost
At 1 January 2022	498	719	1,217
Impairment	-	(639)	(639)
At 31 December 2022	498	80	578
Additions	-	-	-
At 31 December 2023	498	80	578
Amortisation
At 1 January 2022	(50)	-	(50)
Charge for the period	(100)	-	(100)
At 31 December 2022	(150)	-	(150)
Charge for the period	(100)	-	(100)
At 31 December 2023	(250)	-	(250)
Net book value
At 31 December 2022	348	80	428
At 31 December 2023	248	80	328

 

 

Celadon Property Co Limited has goodwill arising from two acquisitions: (1) the purchase of the entire share capital of Celadon Pharma Limited (in 2019); and (2) an initial 57.5% equity investment in Harley Street (CPC) Limited (in 2021).

 

Acquisition of Celadon Pharma Limited - 2020

 

On 1 January 2020, Celadon Property Co Limited acquired 100% of the share capital for Celadon Pharma Limited for £2, together with the assumed liabilities generated goodwill of £80k. 

 

Acquisition of Harley Street (CPC) Limited - 2021 and 2023

 

On 14 July 2021, Celadon Property Co Limited acquired 57.5% of the issued share capital of Harley Street (CPC) Limited ("HSCPCL"), which is in the advanced stages of obtaining MHRA and Research Ethics Committee approval for a UK-based cannabis trial for a maximum consideration of £2,000k.

 

£500k was paid in cash on completion with a contingent consideration payment of £1,500k due in ordinary shares of the Company in the event that (a) each of MHRA and REC authorise the Trial in full; and (b) 5,000 paying patients of the Company's clinic are accepted onto the Trial and receive their first prescriptions under the Trial within 18 months of completion of the acquisition of LVL. 

 

		£000
Fair value of initial cash consideration paid		500
Fair value of contingent consideration		375
Total consideration		875
Fair value of net liabilities acquired		238
Non-controlling interest		(101)
Fair value of assets acquired		1,012
Fair value of -  Intangible Assets acquired		498
- Deferred tax liability on intangible assets		(125)
Goodwill		639

 

The £1,500k contingent consideration payment was estimated to have an acquisition date fair value of £375k based upon 6.2% discount rate and management's probability estimate of the payment criteria being satisfied.

 

Release of contingent consideration in 2022

 

In June 2022, the Directors reassessed that the targets for the contingent consideration payment would not be met within the time frame set, and released the contingent consideration liability of £375k back to consolidated statement of comprehensive income.

 

 

Impairment test

 

Goodwill is tested for impairment annually, and whenever there is an indication that it may be impaired. The annual impairment test is performed as at 31 December each year. An impairment, if any, that results from that annual impairment test would be reflected in the 31 December financial statements.

 

Goodwill is, for the purposes of impairment testing, allocated to cash generating units ("CGUs") or groups of CGUs expected to benefit from the business combination associated with that goodwill, where a CGU is the smallest identifiable group of assets that generate independent cash inflows. Management reviewed business performance, as of 31 December 2023 based on the performance of the various operating segments identified in note 6, which are also the Group's CGUs.

 

An impairment test of goodwill is performed by comparing the carrying amount of each division (i.e. CGU or group of CGUs), including the goodwill, with the recoverable amount of the division. The recoverable amount of a division is the higher of its fair value less costs of disposal ('FVLCD') and its value in use ('VIU'), where the VIU of the division is the present value of its future cash flows.

 

If the recoverable amount of a division is lower than its carrying amount, an impairment loss is recognised. The impairment test of the divisions as at 31 December 2022 resulted in an impairment charge to goodwill in respect of the Harley Street CGU, the table below shows the position after that impairment.

 

The key data is summarised in the following tables:

 

			Goodwill	Carrying Amount	Recoverable Amount	Headroom
Cash Generating Unit		£000		£000	£000	£000
Celadon		80		2,384	158,000	155,616
Harley Street		-		191	376	185

 

Carrying Amount

The 'Carrying amount' column in the above table includes the carrying amounts of the CGUs. These amounts are determined by adding back external debt and lease liabilities to the net assets of each division and the Corporate non-operating division, by allocating the resulting adjusted net assets of the Head Office non-operating division across the divisions on a pro rata basis to the resulting adjusted net assets of each division, and by adding these amounts to the goodwill of the divisions after first grossing that goodwill up for the non-controlling interest.

 

Recoverable Amount

The recoverable amount of both CGUs has been determined on a Value-in-Use basis, being the present value of board approved forecasted future cash flows of the CGUs together with an allocation of the cash flows of the Head Office non-operating division, where the cash flows are based on the most recent five-year forecast.

 

These forecasts were derived from market information, by overlaying it with assumptions to reflect areas where growth or income improvement is expected, and by taking into account the expected results of cost management programmes to which the Group is committed. The 2029 forecast is extrapolated to subsequent years using a steady growth rate being the CPI inflation rate of 1.9% per annum, and a terminal value is calculated using the perpetual growth model. The discount rate of 15.0% that has been applied to the forecasts is a market participant weighted average cost of capital.  Given that the Celadon CGU only obtained the requisite regulatory licences to allow it to start selling it product during the year, its calculation of its value in use is most sensitive to the anticipated increase in revenue.  Similarly, the revenues generated by the Harley Street CGU have been lower than anticipated due to its Clinical Study being conditionally-approved only.  The value in use for this CGU is also sensitive to the anticipated increase in revenues. 

 

Net impact on income statement

The net impact on income statement of the impairment of the Goodwill relating to Harley Street and the release of the deferred consideration is a charge of £Nil (2022: £264k).

 

15.  Property, plant and equipment

 

	Leasehold improvement	Plant and machinery	Office equipment	Assets under construction	Total
	£000	£000	£000	£000	£000
Cost
At 1 January 2022	465	719	66	-	1,250
Additions	-	279	36	1,987	2,302
Disposal	(216)	-	-	-	(216)
At 31 December 2022	249	998	102	1,987	3,336
Additions	52	230	34	25	341
Disposal	-	(10)	-	-	(10)
At 31 December 2023	301	1,218	136	2,012	3,667
Depreciation
At 1 January 2022	(37)	(177)	(15)	-	(229)
Charge for the period	(45)	(156)	(27)	-	(228)
Disposals	42	-	-	-	42
At 31 December 2022	(40)	(333)	(42)	-	(415)
Charge for the period	(28)	(206)	(37)	-	(271)
Disposals	-	3	-	-	3
At 31 December 2023	(68)	(536)	(79)	-	(683)
Net book value
At 31 December 2022	209	665	60	1,987	2,921
At 31 December 2023	233	682	57	2,012	2,984

 

2022: Leasehold improvements with a cost of £216k were sold for their net book value of £174k generating no gain or loss on the disposal.

 

Assets under construction are for Phase 2 works including waste removal, walls, doors, drainage and flooring.

 

16.  Right-of-Use Assets

	Right-of-use Property Lease	Right-of-use Equipment	Total
	£000	£000	£000
Cost
At 1 January 2022	2,511	-	2,511
Additions	-	30	30
Increase in Restoration Obligation	389	-	389
Lease variation	553	-	553
At 31 December 2022	3,453	30	3,483
At 31 December 2023	3,453	30	3,483
Amortisation charge
At 1 January 2022	(226)	-	(226)
Lease variation - interest reset	235	-	235
Amortisation charge	(132)	(6)	(138)
At 31 December 2022	(123)	(6)	(129)
Amortisation charge	(153)	(10)	(163)
At 31 December 2023	(276)	(16)	(292)
Net book value
At 31 December 2022	3,330	24	3,354
At 31 December 2023	3,177	14	3,191

 

 

Property lease

 

The Group operates from a 100,000 square foot facility in the UK under a 25 year lease signed in 2019, with rent reviews every 5 years, with the first review on 1 October 2024.  At the inception, management estimated fair value of the minimum cash flow payments under the lease to establish the right-of-use inception value.  The incremental borrowing cost of 13.35% was calculated by using the credit spread of CCC rated bonds with duration of 13.75 years for bonds issued on the date the Group entered into the lease.

 

In February 2022, Celadon Property Co Limited varied the terms of its long-term property lease by (a) extending the rent-free period by 12 months to 11 March 2023; and (b) increasing the un-discounted cash flow payments over the existing lease term (to 30 September 2044) by £3.9 million.  On a discounted cash flow basis this increased the right-of-use asset and corresponding lease liability by £553k on the variation date. There was no change required to the Incremental borrowing rate used to discount lease payments resulting from this variation.

 

Included in the Property Lease Right-of-Use asset is £405k (2022: £389k) for Site Restoration Obligations (note 27).

 

 

17.  Unlisted Investments

 

	2023		2022
	£'000		£'000
At 1 January	218		200
Investment	-		18
At 31 December	218		218

 

In 2021 Celadon Property Co Limited invested £200k in Kingdom Therapeutics Limited (for a 17% shareholding) and acquired an additional holding for £18k in May 2022.  At 31 December 2023 Celadon Property Co Limited has a 18.5% shareholding in Kingdom Therapeutics Limited.  The ownership does not materially impact on the Group's ability to control the activities of Kingdom Therapeutics Limited and as a result it is not appropriate to consolidate the entity with the Group.

 

 

18.  Subsidiaries

 

The Group has five subsidiaries for the year ended 31 December 2023.  All subsidiary companies are consolidated in the Group's financial statements.  The companies in the Group at 31 December 2023 are:

 

Name	Proportion of Ownership Interest		Proportion of Control	Profit / (Loss) for the year	Capital and Reserves
				£000	£000
Celadon Subco Limited *	100%	100%		-	65,539	a
Celadon Property Co Limited *	100%	100%		1,808	3,049	b
Celadon Pharma Limited *	100%	100%		758	1,038	c
Celadon Pharmaceuticals (UK) Limited *	100%	100%		-	-	d
Harley Street (CPC) Limited	100%	100%		168	(29)	e

 

All companies are incorporated and operate in the UK.  The registered office of all group companies is 32-33 Cowcross Street, London, EC1M 6DF.

 

* The financial statements of these subsidiary undertakings have not been audited for the year ended 31 December 2023 in accordance with Section 479A of the Companies Act 2006 as the Group has opted to take advantage of a statutory exemption.  Strict criteria must be met for this exemption to be taken and it must be agreed to by the directors of those subsidiary companies.  In order to facilitate the adoption of this exemption, Celadon Pharmaceuticals plc, the ultimate parent company of the subsidiaries undertakes to provide a guarantee under Section 479C of the Companies Act 2006 in respect of those subsidiaries.

 

 

The principal activities of the companies are:

 

a.     Celadon Subco Limited - This is an equity incentive company.  The company has A Ordinary Shares and B Ordinary Shares. 

 

§  The A Ordinary Shares have full voting rights, full rights to participate in a dividend and full rights to participate in a distribution of capital. Celadon Pharmaceuticals plc holds all of the 80,000,801 issued A Ordinary shares.

 

§  The B Ordinary Shares have no voting rights, no rights to participate in any dividend without the consent of Celadon Pharmaceuticals Plc. The B Ordinary Shares were created to facilitate a Long Term Incentive Scheme.  See note 28 for more details.

 

b.     Celadon Property Co. Limited - This is a property holding company of the Group and holds the 25 year lease on the Group's 100,000 square foot facility, and following a group reorganization holds the assets relating to the CANPAIN Trial previously held by Harley Street (CPC) Limited.

 

c.     Celadon Pharma Limited - This is an operating company growing the medicinal cannabis.

 

d.     Celadon Pharmaceuticals (UK) Limited - Is a dormant company.

 

e.     Harley Street (CPC) Limited - Is operates a CQC registered clinic.  The assets relating to the CANPAIN Trial were transferred to Celadon Property Co Limited during the year to 31 December 2022.

 

 

19.  Inventories

 

	2023		2022
	£'000		£'000
Production consumables	26		20
Agricultural Produce	34		-
	60		20

 

The production consumables are utilised in cultivating pharmaceutical-grade cannabis and the agricultural produce is the fair value of the biological assets at the time of harvest.  £59k (2022: £99k) of production consumables were utilized during the year.

 

20.  Fair value of biological assets and agricultural products

 

IAS 41 "Agriculture" requires the carrying value of biological assets to be shown on the Group Balance Sheet.  This carrying value is determined in accordance with IAS 41's provisions and show the net valuation movement in the Income Statement. 

 

The fair value of biological assets Is based on the net cash flows anticipated to be received from selling the cannabis products.  A number of assumptions need to be made when calculating the fair values, including the anticipated yield of dried plant material, the expected market price for the cannabis products and the anticipated costs of drying and finishing the produce.

 

Cuttings are not valued given the limited biological transformation that has taken place. The Group does not currently recognise a value in respect of the strains it has access to given the limited revenue generated to date from these strains.

 

Given that the Group did not receive all necessary regulatory licences to allow it to sell its cannabis products until March 2023 it was not cultivating plants, and there were no biological assets at 1 January 2022 or 31 December 2022.

	£'000
Fair value of biological assets
At 1 January 2022	-
Changes in fair value less estimated sale costs	-
Decreases attributable to harvest	-
At 31 December 2022	-
Changes in fair value less estimated sale costs	108
Decreases attributable to harvest	(68)
At 31 December 2023	40

 

	£'000
Changes in fair value of biological assets	108
Inventory transferred to cost of sales at fair value	(34)
Biological assets transferred to agricultural products at fair value	(34)
Net IAS 41 valuation movement on biological assets	40

 

 

21.  Trade and other receivables

	2023		2022
	£'000		£'000
Gross Trade receivables	75		-
Less Expected Credit Allowance	-		-
Net Trade Receivables	75		-
Prepayments	300		186
VAT receivable	118		381
R&D tax receivable	648		682
	1,141		1,249

 

 

22.  Cash & Cash Equivalents

	2023		2022
	£'000		£'000
Cash and cash equivalents	1,259		5,061

 

Cash at bank comprises of balanced held by the Group in current bank accounts. The carrying amount of these assets approximated to their fair value.

 

23.  Trade and other payables

 

	2023		2022
	£'000		£'000
Trade payables	327		539
Accruals	446		476
Other taxes and social security costs	83		91
	856		1,106

 

In the event of payment in line with agreed payment terms, trade payables are non-interest bearing.  Normal payment terms vary between suppliers but are typically settled in 30-60 days.

 

24.  Loans and borrowings

	2023		2022
	£'000		£'000
Current liabilities
Bounce back bank loan	(10)		(10)
Revolving credit facility	(10)		-
Loans and borrowings	(20)		(10)
Lease liabilities	(54)		(56)
	(74)		(66)
Non-current liabilities
Bounce back bank loan	(14)		(24)
Lease liabilities	(4,629)		(4,542)
	(4,643)		(4,566)

 

a.     Bounce back bank loan

 

Celadon Pharma Limited has a £50k bounce back loan with Barclays Bank plc.  The loan was taken out on 31 May 2020, has a 6-year term, an interest rate of 2.5% pa and is repayable in monthly instalments of £833 until 31 May 2026.  The loan is unsecured.

 

b.     Revolving credit facility

 

On 29 May 2023, the Group obtained £7 million of new funding via a 2-year fixed rate Revolving Credit Facility Agreement.  Interest will accrue at a rate of 10% on balances drawn under the agreement.  The Revolving Credit Facility Agreement will be repayable in the event that the Group obtains sufficient alternative funding to allow the Revolving Credit Facility Agreement to be repaid in full.  At 31 December 2023, £10k had been drawn.

 

c.     Related party loan

 

On 28 October 2021 Vertigrow Technology Limited entered a £2,125k loan from Summerway Capital Plc (renamed Celadon Pharmaceuticals Plc), drawing down this amount in full.  Interest accrued at 10% per annum. This has been eliminated on consolidation on 28 March 2022 in the reverse acquisition.  In the year to 31 December 2023, this loan was eliminated.

 

d.     Convertible loan note and embedded derivative

 

In February and March 2021, Vertigrow Technology Limited issued £4,130k convertible loan notes, the notes carried interest at 8% pa and were issued without a redemption date, but were anticipated to be converted to ordinary shares on the Company's Initial Public Offering.

 

The Company estimated the fair value of the equity component of the convertible loan notes as embedded derivates totalling £1,998,000 (at inception), and remeasured this fair value at each reporting date, with the movement recording in the statement of comprehensive income.

 

The inputs used in the Black Scholes valuation model to calculate those fair values were:

 

		At Inception	31 December 2021	28 March 2022
Risk free rate		-0.03%	0.02%	0.51%
Volatility		54.2%	51.0%	48.0%
Dividend yield		0%	0%	0%

 

Volatility was estimated using the Summerway Capital Plc share prices for the periods shown.  The balance sheet values of the host liability and embedded derivative were:

 

	2023	2022
	£000	£000
Amount classified as Host Liability	-	-
Amount classified as Embedded Derivative	-	-
Net	-	-

 

On 28 March 2022, the convertible loan notes balance of £4,412k (comprising: £2,103k of derivative liability and £2,309k of host liability and accrued interest) was redeemed through the issuance of 5,168,647 Summerway Capital Plc shares worth £8,528,268.

 

e.     The amounts charged to the statement of comprehensive income were:

 

	2023	2022
	£000	£000
Convertible loan note finance charge	-	43
Finance charge on redemption of convertible loan notes	-	3,406
	-	3,449

 

f.      Lease liabilities

 

The Group has leases for its premises and also for plant and equipment assets, and has the following undiscounted minimum lease payment commitments under right-of-use leases as at 31 December 2023:

	Leasehold Property	Plant & Equipment	Total
	£000	£000	£000
Less than 1 year	550	11	561
1 to 2 years	650	11	661
2 to 3 years	650	3	653
3 to 4 years	650	-	650
4 to 5 years	650	-	650
More than 5 years	10,086	-	10,086
Total	13,236	25	13,261

 

 

The movement in carrying value in the lease liabilities is summarised as follows:

 

	2023	2022
	£000	£000
Leasehold Property
Start of period	4,575	3,258
Variation (note 15)	-	787
Lease payments	(485)	-
Finance charge - lease discount unwind	580	530
End of period	4,670	4,575
Plant & Machinery
Start of period	23	-
Inception of lease	-	30
Lease payments	(11)	(8)
Finance charge - lease discount unwind	1	1
End of period	13	23
Total	4,683	4,598
Due within 12 months	54	56
Due after 12 months	4,629	4,542