Advanced Medical Solutions Group PLC Annual Report 2016

Plain-text annual report

Annual Report 2016 Creating quality outcomes About Us Advanced Medical Solutions is a leading developer and manufacturer of innovative and technologically advanced products for the global surgical and advanced woundcare markets. Our primary focus is to create quality outcomes for our customers, patients and shareholders. Go online For more information, please visit www.admedsol.com Governance 42 Board of Directors 44 Senior Management 46 Corporate Governance Report Audit Committee Report 51 55 Remuneration Report 65 Directors’ Report 70 Independent Auditors Report Contents Company Overview 01 Highlights 2016 02 Our Markets 03 Our Brands Strategic Report 04 Chairman’s Statement 06 Chief Executive’s Statement Our Strategic Objectives 13 Our Business Model 14 Business Units 16 16 20 24 28 Branded Direct Branded Distributed OEM Bulk Materials 29 Financial Review 33 Our Key Performance Indicators 34 Corporate Social Responsibility 38 Risk Management Financial Statements 71 Consolidated Income Statement Consolidated Statement of Comprehensive Income 71 72 Consolidated Statement of Financial Position 73 Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes Forming Part of the Consolidated Financial Statements 74 75 103 Company Balance Sheet 103 Statement of Changes in Equity 104 Notes to the Company Financial Statements 108 Five Year Summary 109 Notice of Meeting 112 Advisors Advanced Medical Solutions Group plc Annual Report 2016Highlights 2016 Creating quality outcomes through our financial strength Financial Group revenue (£ million) Adjusted2 operating margin (%) Adjusted2 profit before tax (£ million) Profit before tax (£ million) Adjusted2 diluted earnings per share (p) Diluted earnings per share (p) Net operating cash flow3 pre-exceptional items (£ million) Net cash (£ million)4 2016 82.6 23.9 19.7 19.1 7.66 7.38 22.3 51.1 2015 68.6 25.4 17.4 17.0 6.86 6.68 22.5 34.2 Reported growth 20% (150bps) 13% 12% 12% 10% (1%) 49% Growth at constant currency1 13% – – – – – – – Proposed final dividend of 0.62p per share, making a total dividend for the year of 0.92p (2015: 0.80p), up 15% Business e Good sales progress across all Business Units: • Branded Distributed up 42% to £20.8 million (2015: £14.6 million), and up 30% at constant currency • Branded Direct up 10% to £24.6 million (2015: £22.3 million), and up 3% at constant currency • OEM up 16% to £32.1 million (2015: £27.7 million), and up 12% at constant currency • Bulk Materials up 33% to £5.2 million (2015: £3.9 million), and up 21% at constant currency e Continued strong performance in the US with LiquiBand® tissue adhesive range: • Revenues up 56% to £12.5 million (2015: £8.0 million) and 39% at constant currency • As at 31 December 2016, market share by volume5 increased to 23% (June 2016: 19%) and initial 20% target share achieved in the combined hospital and non-hospital market e Successful launch of antimicrobial and atraumatic foam dressings into Europe e Antimicrobial dressing revenues including both silver and PHMB (Polyhexamethylene Biguanide) up 13% to £17.5 million (2015: £15.5 million) and 9% at constant currency e Sales of the hernia mesh fixation device, LiquiBand® Fix8™ increased 73% to £1.7 million (2016: £1.0 million), 68% at constant currency, and is in use in 25 countries; now preparing for Pre Market Approval (PMA) in the US e German and Czech RESORBA® business up 15% to £13.1 million (2015: £11.3 million) and 4% at constant currency e Successful launch of RESORBA® sutures into the US e ActivHeal® business declined 5% to £6.0 million (2015: £6.4 million) 01 Group revenue £82.6m (2015: £68.6m) Adjusted2 profit before tax £19.7m (2015: £17.4m) Adjusted2 diluted earnings per share 7.66p (2015: 6.86p) Net cash4 £51.1m (2015: £34.2m) 1 Constant currency removes the effect of currency movements by re-translating the current period’s performance at the previous period’s exchange rates 2 All items are shown before exceptional items which were £0.4 million (2015: £nil) and amortisation of acquired intangible assets which, in 2016, were £0.2 million (2015: £0.4 million) as defined in the financial review 3 Operating cash flow is arrived at by taking the operating profit for the period before exceptional items of £0.4 million (2015: £nil), depreciation, amortisation, working capital movements and other non cash items 4 Net cash is defined as cash and cash equivalents plus short term investments less financial liabilities and bank loans 5 Data supplied by Global Healthcare Exchange Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201602 Our Markets Creating quality outcomes for the global surgical and advanced woundcare markets... Our addressable market is large and growing. Addressable market ~4-6% Market growth £82.6m Global sales £19.7m *Adjusted PBT 23.9% *Adjusted operating margin 7 Locations >100 Distribution partners Surgical market £5.7bn +65 Countries Favourable global healthcare trends Advanced woundcare market1 (excluding NPWT) £2.8bn Structurally growing markets High degree of recurring revenues Low clinical R&D risks * Adjusted PBT and adjusted operating margin are shown before amortisation of intangible fixed assets and exceptional items. 1 Advanced woundcare market includes alginates, gelling fibre dressings, contact layers, hydrocolloids, hydrogels, superabsorbents, silvers/other antimicrobials and foams. It excludes Negative Pressure Wound Therapy (NPWT). Advanced Medical Solutions Group plc Annual Report 201603 RESORBA® Our comprehensive range of sutures sold in Europe and the Rest of the World. Approval to sell our sutures in the US was obtained in September 2015 and a range of sutures for dental use were launched in the US in 2016. We also have a range of haemostats based on collagen approved for use in Europe. RESORBA® sutures and haemostats can be used for both surgical and dental applications. Our Brands ... through quality respected brands LiquiBand® Our range of medical adhesives, based on cyanoacrylate. We have a range of formulations and applicators for topical skin closure. We have approval to use the adhesive internally in Europe for hernia mesh fixation with our LiquiBand® Fix8™ device. Work has started to gain approval for this device in the US. ActivHeal® Our brand of advanced woundcare products that are sold to the NHS in the UK, providing significant cost savings to payor without compromising on clinical effectiveness. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201604 Chairman’s Statement Creating quality outcomes... AMS has had another year of strong performance and continues to progress as a leading, international provider of high quality, high value, innovative and technologically advanced products for the surgical and advanced woundcare markets. We are pleased that we have delivered another year of strong revenue growth, profit performance and good cash generation. I am pleased to report a 20% increase in revenue to £82.6 million (2015: £68.6 million), representing growth of 13% on a constant currency basis and an increase in adjusted6 profit before tax before exceptional items of 13% to £19.7 million (2015: £17.4 million), and an increase in profit before taxation of 12% to £19.1 million (2015: £17.0 million). The continued strong cash flow generation of the business has resulted in the Group ending the year with net cash of £51.1 million (2015: £34.2 million). Our strategy of having multiple products and multiple routes to market continues to pay off and we have made good progress across all Business Units in the last year. Whilst revenue growth was steady in our Branded Direct Business Unit, our Branded Distributed Business Unit’s success in the US has continued with LiquiBand® gaining market share, and surpassing our initial 20% target market share. We have also launched a range of dental sutures into the US through a new partner and we intend to expand our distribution network more widely by targeting market opportunities in Asia-Pacific and South America. Advanced Medical Solutions Group plc Annual Report 201605 We ensure that the Group is managed in accordance with the UK Corporate Governance Code as far as is reasonably practicable, although it is not a requirement for an AIM quoted company. The Board believes that effective corporate governance will assist in the delivery of shareholder value and safe-guarding shareholders’ long-term interests. AMS continues to be in robust financial health and is well positioned to invest in both internal and external opportunities in line with the Group’s long-term strategy priorities and growth objectives. Peter Allen Chairman 28 April 2017 Revenue +20% +13%* to £82.6m (2015: £68.6m) * at constant currency Adjusted* profit before tax +13% to £19.7m (2015: £17.4m) * Profit is shown before amortisation of intangible assets and exceptional items Our OEM and Bulk Business Units have performed well. Our partners have delivered good growth supported by a number of new foam product launches. This follows on from our success with LiquiBand® Fix8™ Hernia Mesh Fixation Device, our first surgical device using medical adhesive inside the body, with plans in place for open surgery hernia use and other secondary indications subject to regulatory approval. The success of these launches demonstrates the strength and breadth of our innovation and our product development pipeline. The Board is proposing a final dividend of 0.62p per share, making a total dividend for the year of 0.92p per share (2015: 0.80p), an increase of 15%. If approved at the Annual General Meeting, this dividend will be paid on 16 June 2017 to shareholders on the register at the close of business on 26 May 2017. On behalf of the Board, I would like to thank all of our employees for their contributions during the past year which have been central to the Company’s strong performance. I would also like to thank our customers, suppliers, business partners and shareholders for their continued support in helping AMS achieve its goals. ... through strong governance “ AMS continues to be in robust financial health and is well positioned to invest in both internal and external opportunities in line with the Group’s long-term strategic priorities and growth objectives.” Peter Allen Chairman 6 All items are shown before amortisation of acquired intangible assets which, in 2016, was £0.2 million (2015: £0.4 million) as defined in the Financial Review and before exceptional items which were £0.4 million (2015 :£nil) Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201606 Chief Executive’s Statement Creating quality outcomes... I am pleased to report another strong set of results across the Group. Our revenue has increased 20% to £82.6 million (2015: £68.6 million) and we have improved our adjusted6 profit before tax and before exceptional items by 13% to £19.7 million (2015: £17.4 million), marking the twelfth consecutive year we have delivered growth in revenue, profits and earnings per share. We continue to deliver on our strategy for growth by expanding into new geographies, increasing our distribution of surgical products through our direct sales forces, enhancing our product portfolio and providing high quality products that add value to payors in our advanced woundcare and surgical markets. Branded Distributed The Branded Distributed Business Unit reports the sales of our brands through third party distributors where the Group does not have a direct sales force. Branded Distributed reported revenue was 42% higher at £20.8 million (2015: £14.6 million) and 30% higher at constant currency. The main contributor to this growth continues to be the sales of our LiquiBand® range of products into the US, which accounted for 60% of the Business Unit’s total sales. 6 All items are shown before amortisation of acquired intangible assets which, in 2016, was £0.2 million (2015: £0.4 million) as defined in the Financial Review and before exceptional items which were £0.4 million (2015 :£nil) Advanced Medical Solutions Group plc Annual Report 201607 Right: LiquiBand®Fix8™ Hernia Mesh Fixation device ... for our employees, customers and for patients “ 2016 was the twelfth consecutive year we have delivered growth in revenue, profits and earnings per share.” Chris Meredith Chief Executive Officer LiquiBand® in the US Sales of LiquiBand® in the US increased by 56% to £12.5 million (2015: £8.0 million) at reported currency and by 39% at constant currency. We have now increased our volume market share in the US market to 23.7%7 up from the half year and exceeding the initial target of 20% set when we first launched this product into the US in 2010. Our LiquiBand® range of products utilises different formulations of cyanoacrylate that meet the needs of the surgeon and are sold by our distributors throughout the whole of the US. LiquiBand® products combine cyanoacrylate adhesive technology with innovatively designed applicators that are able to meet the requirements of the surgeon and the treatment of the full spectrum of wounds that they need to close and protect. Our US based product sales specialists continue to work closely with our distributors to convert more hospitals and we are now targeting a further 10% market gain above our initial target over the next three years, to take our market share by volume to at least 30%. LiquiBand® in the EU and Rest of the World (ROW) Outside of the US, in the EU and ROW, our sales of LiquiBand® have increased by 29% to £2.2 million (2015: £1.7 million) at reported currency and 28% at constant currency. We have now started to increase our sales in Asia-Pacific by signing distributorships in these regions and are supporting these with personnel based in the region. We are already seeing some early success with an additional seven distributorships agreed, selling our tissue adhesives, haemostats and sutures. This provides a significant opportunity for us in the medium-term. Our regulatory approval process for LiquiBand® in China has proved challenging and has been paused. The tissue adhesive market in China is small and nascent and will take some time to develop. In the meantime we will invest resources into gaining access into the more readily accessible markets in Asia and the Middle East. 7 Data supplied by Global Healthcare Exchange Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201608 Chief Executive’s Statement continued Hernia Mesh Fixation Device - LiquiBand® Fix8™ AMS received approval to market LiquiBand® Fix8™ in Europe in May 2014. This was the Group’s first application using medical cyanoacrylate technology inside the body. It is used to hold hernia meshes in place within the body instead of traditional tacks and staples. This accurate laparoscopic application of adhesive is expected to reduce surgical complications, in particular the potential pain associated with the use of tacks and staples, thereby improving the patient experience and reducing healthcare costs overall. Surgeon response to LiquiBand® Fix8™ has been very positive about the ease of use of this device and the benefit it brings to patients regarding the reduced incidence of post-operative pain. Sales of LiquiBand® Fix8™ in our Branded Distributed Unit increased by 69% to £1.1 million (2015: £0.7 million). A number of surgeons have endorsed the product and have provided valuable feedback about enhancements to the device as well as other possible non-hernia applications. The Company is actively exploring these opportunities. Having had more than 12 months’ feedback from European usage, we have made improvements to the device. We are now in a position to start the process to gain approval to market this device in the US. As this will be a first-to-market device into the US, the regulatory process will be a full Pre Market Approval (PMA) involving clinical trials. Our estimate is that it will take around three years to achieve, requiring an investment of at least £3.0 million. RESORBA® Sales of RESORBA® products to all export markets (excluding Russia) increased by 25% at reported currency to £3.9 million (2015: £3.1 million), and by 12% at constant currency. Within this, our sales of dental products have increased 33% to £1.9 million and 20% at constant currency. This includes our first sales of dental sutures into the US following their approval from the FDA in 2015. We launched a range of dental sutures into the US with a specialised dental distributor in March 2016 and have achieved £0.2 million of sales in the first year. Gaining US approval for the RESORBA® product range has been an aim for the Group since we acquired the business in late 2011 and now provides a significant opportunity for the Group in the medium-term. The total US surgical suture market is estimated to be in excess of $1 billion in size and is dominated by a few major brands. Sales in Russia increased by 28% at constant currency, and increased 29% at reported currency to £1.0 million (2015: £0.8 million) reflecting improved market conditions. Research and Development In R&D our focus is on continuing to improve the formulations of the base monomers that are used in our adhesives as well as improving the design and innovation around our devices. We have modified the tip and priming mechanism of our hernia fixation device following surgeon feedback and have started the process to get FDA approval to sell this product into the US. Development work has also started on an open hernia mesh fixation device which we hope will gain approval in Europe this year. In addition, work has begun on gaining approval in Europe for the LiquiBand® Fix 8™ device for new indications and it is expected we will be selling the first of these in 2018. Branded Direct The Branded Direct Business Unit reports sales of our branded products through our own sales teams in the UK, Germany and Czech Republic. Reported revenue increased 10% to £24.6 million (2015: £22.3 million) and grew by 3% at constant currency. UK Within the UK we supply our range of woundcare dressings, ActivHeal® into the NHS, supplying both hospitals and community care. We supply LiquiBand®, haemostats and sutures as part of our surgical offering. ActivHeal® ActivHeal® is our range of high quality woundcare dressings that offer the NHS significant cost savings without compromising on clinical outcomes or patient care. Sales of our ActivHeal® range decreased by 5% to £6.0 million (2015: £6.4 million) as we failed to make up the lost ground that occurred during destocking in the first half of the year. We have been disappointed by this performance and have taken a number of initiatives to reinvigorate sales. We have refocused our sales efforts, provided further training to our commercial team and have enhanced our education and marketing materials. We have also strengthened our brand by broadening the product range being offered to include our antimicrobial and atraumatic foam dressings. ActivHeal® offers a compelling proposition for the NHS and remains a significant opportunity for the Group. Advanced Medical Solutions Group plc Annual Report 201609 LiquiBand® Sales of LiquiBand® into the Accident and Emergency Room (A&E) in the UK increased 1% to £2.3 million (2015: £2.3 million), reversing the decline of the prior year and addressing the competitive challenges we have seen, while sales of LiquiBand® into the Operating Room (OR) increased 31% to £0.9 million (2015: £0.7 million). We are confident of the market opportunity for LiquiBand® in the UK, particularly in the Operating Room. Sales of LiquiBand® Fix8™ in the UK increased to £0.1 million (2015: £0.05 million). Germany and the Czech Republic Germany is one of the key markets in Europe and sales of LiquiBand® in Germany, and the Czech Republic, increased 20% at reported currency to £1.7 million (2015: £1.4 million) and by 8% at constant currency, while sales of LiquiBand® Fix8™ increased 88% to £0.5 million (2015: £0.2 million). We are pleased with the steady progress we are making in converting doctors and surgeons to the benefits of LiquiBand® and LiquiBand® Fix8™. RESORBA® Sales of RESORBA® branded products in Germany and the Czech Republic increased 15% at £13.1 million (2015: £11.3 million) at reported level and 4% at constant currency. Within this, sales of haemostats increased by 21% to £3.9 million (2015: £3.3 million) and by 9% at constant currency, sales of sutures and collagens into the dental market increased by 14% to £3.5 million and by 3% at constant currency, whilst sales of sutures into hospitals were increased by 11% to £4.7 million (2015: £4.1 million) and flat at constant currency. We are seeing some success in targeting smaller accounts that should prove quicker to convert. However, it can take some time for conversions to be fully effective. We believe our ability to supply a comprehensive range of high quality sutures that provide cost savings to hospitals remains compelling. Sales of RESORBA® sutures and haemostats into the NHS increased by 18% to £0.2 million (2015: £0.2 million) and this still remains a sizeable opportunity for us, even though conversion remains slower than we would like. Research and Development In R&D, our focus is on extending the attributes of our collagens to meet the needs of dental surgeons as well as including new antibiotics in our haemostats. We also may consider licensing our technology to other parties if this will result in products being quicker to launch. Longer term we are looking to develop innovative applications for collagen to address unmet clinical needs or improve the outcome of current surgical procedures. OEM The OEM Business Unit reports the sales of products that are sold under third parties’ brands. We have been working with several of the world’s major woundcare companies for a number of years. We provide manufacturing services to supply their woundcare dressings, new products they can incorporate into their portfolio of brands, as well as regulatory assistance in obtaining product approvals in overseas markets. OEM revenue increased by 16% at reported currency to £32.1 million (2015: £27.7 million) and by 12% at constant currency. Our OEM business is dependent on the success of the customers that our partners serve and the outcome of their strategies. Historically, it is prone to volatility as a result of ordering patterns, pipeline filling associated with new product launches and variability surrounding tender award allocations. Consequently, revenues and product mix can vary from year to year and can impact operating margin. In general, as we work with a large number of partners, the potential effects of this volatility are mitigated. Through the latter part of 2016 we have identified that there has been a slowdown in activity in the Middle East resulting in delays in the determination of some hospital tender awards; this is having an impact on some of our partners that have significant business in the region. We are yet to see a reversal of this trend in 2017. This may impact performance of this Business Unit in the short term, however, we continue to believe in the long-term potential of this growth market. In 2016 we introduced two new ranges of foam products; our antimicrobial foam range containing Polyhexamethylene Biguanide (PHMB) and our atraumatic foam range incorporating silicone, facilitating easy dressing removal from sensitive skin. These have been successfully launched this year. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201610 Chief Executive’s Statement continued Research and Development We continue to work on extending our advanced woundcare portfolio with focus on extending our antimicrobial range, improving the absorbency of dressings and combining a number of materials to enhance product performance. Bulk Materials The Bulk Materials Business Unit reports sales of bulk materials to third party converters as well as supplying foam into the OEM and Branded Direct Business Units as a key material in our foam- based wound dressings. Bulk Materials revenue increased by 33% at reported currency to £5.2 million (2015: £3.9 million) and by 21% at constant currency. Rollstock foam contributed around 93% of Bulk Materials revenue and good growth was seen by several partners. Research and Development In R&D, the focus is on developing new foam formulations, working in conjunction with the OEM Business Unit. Operations Efficiency and gross margins We continue to make operational improvements by reducing set up times, eliminating non-value added activities and increasing outputs wherever possible. These incremental efficiencies help to improve gross margins across the Group. The launches of the two new foam dressing ranges have required new converting processes to be developed and the success of the launches has resulted in significant volumes of new product being required. We are pleased that we met these significant volume demands, however, the initial efficiencies of these processes have been lower than for our more established ranges and lower than we would expect to obtain on a regular basis. We estimate that these operating effects have had a negative impact of around 400 basis points on the operating margins for the OEM Business Unit, where most of the sales of these products have been recorded. Changes are currently being made to the manufacturing processes to improve our efficiencies and we would expect to see margin improvement in 2017. We received CE approval in Europe for our antimicrobial dressing on 1 September 2015. PHMB has been shown to be effective against several bacteria including, amongst others, Staphylococcus Aureus including the methicillin resistant type, (MRSA) and Escherichia Coli (E-Coli) and this dressing may be used throughout the healing process on moderate to heavily exuding chronic and acute wounds that are infected or are at risk of infection as well as on pressure ulcers, leg and foot ulcers, diabetic ulcers and surgical wounds. Our PHMB foam dressing range augments our antimicrobial, silver alginate dressing ranges and provides an alternative method of treating infected wounds. We are currently working to achieve approval for our PHMB foam dressings in the US and once this is received we expect to be able to launch later this year. Our silver alginate business grew by 4% to £16.2 million (2015: £15.5 million) at a reported level, but sales were flat at constant currency with the silver range taken by one specific partner being particularly affected by the slow-down in the Middle East. Excluding this partner’s sales, the rest of the silver alginate business grew 5% at constant currency. Our new PHMB dressings may have had some impact on our silver alginate business, however, our combined sales of all antimicrobial ranges have increased by 13% at a reported level to £17.5 million (2015: £15.5 million) and by 9% at constant currency. The launch of our range of atraumatic foam dressings into our advanced woundcare range has further extended our foam portfolio and sales of all our foam-based dressings have increased 196% to £5.3 million (2015: £1.8 million) and by 191% at constant currency. Sales of other woundcare products have also continued to perform well and have increased by 9% to £10.5 million (2015: £9.7 million) and by 5% at constant currency. During 2016, we renegotiated the supply agreement with an OEM partner for collagen products, from an exclusive to a non-exclusive arrangement, allowing us to now supply an enhanced range of collagen products through our distributors into the EU and through our direct sales force in the UK. In the medium-term, we expect increased sales in both our Branded Direct and Branded Distributed Business Units, as our collagen product portfolio is extended. As anticipated, given that the OEM partner is no longer required to meet a minimum amount of sales to maintain exclusivity, this has resulted in a decline of the sales of collagen products in the Business Unit, which reduced by 85% to £0.1 million and by 87% at constant currency. Advanced Medical Solutions Group plc Annual Report 201611 Capacity and resource Investment is being made in The Netherlands to increase our foam capacity by approximately 40%. A new line is expected to be operational in the second half of 2017. We continue to invest in improving our ERP (Enterprise Resource Planning) management and reporting systems and having already successfully completed the implementation in Winsford, Plymouth and The Netherlands facilities where we have converted to Oracle ERP. We are now working on implementing Oracle ERP in Germany. The project is expected to complete in the second half of 2017. Regulatory and quality assurance With the regulatory framework becoming increasingly complex, we have continued to invest in both Regulatory and Quality functions and systems to ensure that we are able to support our partners with winning approvals in new markets as well as obtaining approval for our own products. The FDA conducted its first ever routine inspection at the Group in June 2016 at our Winsford site and we were pleased with the positive outcome. On the back of our success with LiquiBand® Fix 8™ in Europe we have started work to gain approval to market this product in the US which will involve a full PMA and is likely to take at least three years with an investment of at least £3 million. We are also working on identifying the regulatory pathway to approve the inclusion of antibiotics in collagens and progressing with obtaining approval to sell our collagen products in the US. The latter approval is expected in late 2017 / early 2018. Our regulatory approval process for LiquiBand® in China has continued to be challenging. Having resubmitted our files to the Chinese FDA further extensive Chinese based clinical trials have been requested. As there is a lack of clarity around the nature of the trials we have decided to cease the process until there is more certainty around what is required for approval. Our culture As a Group that is highly dependent on the innovation and creativity of our employees for our future growth and success, it is important that we have a culture and set of values that is clearly understood across the business. We have adopted the business motto of ‘The AMS Care, Fair, Dare approach’ to summarise our culture, underpin our values, and to deliver results, building a sustainable future for our business. Under this motto, we have defined the principles and expectations of how we will operate together to deliver success. We recognise the importance of our people to the Group and that it is only by their effective engagement that we will continue to be highly successful. We value their commitment and determination to achieve and deliver good results. Our working environment encourages openness, teamwork, an understanding of others’ needs and the ability ‘to make a difference’. We continue to develop the talent at AMS by training and by providing a place to work where our employees feel valued, incentivised and fulfilled. Acquisition strategy The Group is actively looking for businesses that fit its acquisition strategy. During the period, an opportunity was identified and work undertaken to understand the business in more detail. As a result of the outcome of this work, a decision was taken not to proceed. An exceptional charge of £0.4 million has been incurred relating to this activity. The Group continues to actively review suitable acquisition opportunities. Referendum vote to leave the EU There has been no immediate impact on the Group’s operations following the UK’s referendum vote to leave the EU other than the positive impact on currency exchange rates. The Group is considering the potential impact to the business once the UK leaves the EU and has started to plan for this outcome. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201612 Chief Executive’s Statement continued Summary and Outlook We have delivered a reported 20% revenue growth, 13% at constant currency, with good profitability and cash generation during the year. All Business Units have delivered growth at constant currency with US sales, in particular, delivering a very strong performance and, not withstanding the OEM slight headwinds in emerging markets, we expect this to continue in the coming year. We have been very pleased with the launches of our antimicrobial and atraumatic foam dressings into our advanced woundcare range. With the continued success of our LiquiBand® Fix8™ Hernia Mesh Fixation Device, we are seeking approval for new indications and new market entry. We continue to invest in research and development to keep improving our product range and deliver innovation that benefits payors and patients. We are confident that the Group, with its highest quality products, is well placed to deliver growth and we remain optimistic about the prospects for our future. Chris Meredith Chief Executive Officer 28 April 2017 Right: Patient focus Creating quality outcomes for patients using our silicone foam dressing Advanced Medical Solutions Group plc Annual Report 201613 Our Strategic Objectives Creating quality outcomes by delivering on our strategy To become the best developer, producer and supplier of innovative medical devices in the areas of accelerating healing and managing wounds, minimising adverse surgical outcomes, and sealing and closing tissue. Market Outlook There is a rising incidence of both chronic and acute wounds. Predisposing factors are on the increase such as obesity, diabetes and old age. There is also an increasing demand from emerging healthcare markets. A continuing trend towards minimally invasive surgery further provides opportunities for innovations and market growth. Healthcare economics demand cost-effective product solutions. AMS’s mission is to meet these needs. Strategy for growth 1 2 3 4 Add value for payors in advanced woundcare and surgical markets Increase direct distribution of surgical products through AMS’s sales forces in target markets Continued geographic expansion Enhance product portfolio, technologies and pipeline through investment in in-house R&D, acquisitions and licensing Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016 14 Our Business Model Creating quality outcomes through our knowledge and experience in growing markets... Our Value Chain New product development Marketing and regulatory approval Operations Research and development Bringing product to market Design and testing Regulatory approval in key markets Manufacturing and security of supply Quality assurance e Strong regulatory affairs department with world-wide regulatory experience e Regulatory registrations in over 70 countries e Clinical support teams supporting both product development and post market surveillance e Six manufacturing sites e All manufacturing sites compliant with ISO 13485 and FDA CFR 21 part 820 Quality Management System (QMS) e Separate R&D teams focusing on different technologies: • Winsford: foams, fibres and antimicrobials • Plymouth: tissue adhesives • Nuremberg: haemostats and sutures e Collaborations with universities, key opinion leaders, surgeons and tissue viability nurses e Extensive patent portfolio: over 30 patent families e Stage gate process Advanced Medical Solutions Group plc Annual Report 201615 ... and clear routes to market through our divisions Our Routes to Market Branded l i a c g r u S e r a c d n u o W Our Business Units Branded Direct Revenue £24.6m +3%* Direct sales of AMS Group brands: ActivHeal®, LiquiBand®, and RESORBA®. – Direct sales teams in Germany, UK and Czech Republic For further information see page 16 Branded Distributed Sales of AMS Group brands: LiquiBand® and RESORBA®, through our global network of distributors. – Global network of >100 distribution partners For further information see page 20 Revenue £20.8m +30%* Outcomes Quality outcomes for patients Value for payors Third-party OEM Sales of finished products to our OEM partners. – Global advanced woundcare customer base Long-term value for shareholders Solid balance sheet Revenue £32.1m +12%* For further information see page 24 Bulk Materials Sales of bulk materials to converters and healthcare companies. Converters, packers, advanced woundcare partners Revenue £5.2m +21%* * at constant currency For further information see page 28 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201616 Business Units Branded Direct The Branded Direct Business Unit is responsible for selling our brands: ActivHeal®, LiquiBand® and RESORBA® to end users in the UK, Germany and Czech Republic through our own direct sales teams. This Business Unit is also responsible for directing R&D for sutures and collagens. Strategy To increase market share of the Group’s brands in the UK, Germany and the Czech Republic by: ActivHeal® e Ensuring ActivHeal® is included in relevant NHS tenders e Extending the ranges used in hospitals where ActivHeal® is listed e Converting new hospitals to ActivHeal® e Broadening the product range offered e.g. atraumatic and antimicrobial foam dressings LiquiBand® e Increasing usage in the Operating Room (OR) in the UK, Germany and Czech Republic through our existing sales teams e Promoting the hernia mesh fixation device LiquiBand® Fix8™ into the OR in the UK and Germany RESORBA® e Ensuring that RESORBA® is included in German and UK hospital tender processes e Targeting Group Purchase Organisations (GPOs) in Germany e Increasing the usage in the OR in the UK by cross-selling RESORBA® sutures and collagens with LiquiBand® products e Extending the attributes of our collagens by including antibiotics e Developing new applications of collagens for unmet surgical needs Advanced Medical Solutions Group plc Annual Report 201617 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201618 Business Units continued Branded Direct continued Jeff Willis Business Unit Director Revenue +10% +3%* to £24.6m (2015: £22.3m) * at constant currency Above: RESORBA® suture range 2016 Sales Branded Direct (£24.6m) LiquiBand® LiquiBand® Fix8™ ActivHeal® RESORBA® 4.8 0.5 6.0 13.3 ActivHeal® is the Group’s brand of advanced woundcare dressings that it sells into the NHS in the UK. The proposition of this brand is that it provides a range of ‘good value’, advanced woundcare dressings that deliver cost savings to the NHS without compromising on clinical outcomes or patient care. The ActivHeal® range is supported by a dedicated team of experienced healthcare professionals and by online education modules that provide training on the treatment of wounds. With the NHS operating under budgetary constraints, ActivHeal® continues to provide a good growth opportunity for the Group. The range has now been extended to include atraumatic silicone foam dressings, silicone wound contact layers and antimicrobial PHMB foam dressings. The LiquiBand® range of medical adhesives and sealants, based on cyanoacrylate, is used to close and protect wounds in a safe and secure way. In the UK, LiquiBand® is well recognised in the majority of Accident and Emergency (A&E) units where its attribute of high strength makes it the product of first choice for closing trauma wounds. We also sell LiquiBand® into the OR in the UK and Germany where it is used to make the final topical skin closure following the surgical procedure. In 2014 we launched our innovative LiquiBand® Fix8™ device which uses our cyanoacrylate technology within the body for hernia mesh fixation. Below: RESORBA® Collagen Advanced Medical Solutions Group plc Annual Report 201619 RESORBA®’s high quality comprehensive suture range includes several brands such as CAPROLON®, GLYCOLON®, MOPYLEN® and RESOPREN® that are sold into hospitals, private practices and to oral surgeons. Our suture range is extensive and includes both absorbable and non-absorbable sutures, mono and multifilament threads, and a wide range of needle shapes and sizes. RESORBA®’s haemostat range includes COLLAGEN-resorb and GENTA-COLL-resorb. The latter is a very pure collagen that includes the antibiotic gentamicin for use in wounds where there is a high risk of infection. Combining the suture and collagen technologies, RESORBA® has developed products and brands that are particularly applicable to the oral surgery market, e.g. PARASORB® Sombrero® is a collagen cone used for dental implants. The R&D focus of the Business Unit is on extending the attributes of our collagens and adding a range of antibiotics into our haemostats. Consideration may also be given to licensing technologies to other partners to increase speed to market. Our model of providing ‘high quality good value’ ranges to the NHS is applicable to our RESORBA® suture range and we are actively working to promote our RESORBA® products within the NHS. We are also aiming to extend the use of RESORBA®’s sutures within the German hospital system. Right: GENTA-FOIL RESORBA® in place within the middle joint of the index finger Creating quality outcomes with a proactive approach Joint infection following an incision with a utility knife “ Four days prior to presenting at the hospital, Mr F. had cut himself with a utility knife upon the middle joint of his right index finger (extensor). The wound was initially repaired using cutaneous sutures; following this the case was referred to our healthcare facility. The patient began to experience increased swelling and tenderness upon palpation of the joint. Surgery revealed that the original incision had severed the central slip of the extensor tendon and had opened the articular capsule. A cloudy coloured liquid was draining from the location of the joint. A swab was taken and the area thoroughly rinsed. The cartilage of the adjacent articular surfaces was found to be intact, allowing for a preservative course of action to be taken. A GENTA-FOIL RESORBA® was cropped to meet the required size and shape and was then inserted into the joint with forceps. A joint-spanning external fixator was placed along the extended finger in order to temporarily immobilise the joint. The swab collected during surgery produced a positive culture of Staphylococcus aureus and Staphylococcus sp. (coag neg), The fixator was used to immobilise the joint for four weeks, after which it was removed and then physiotherapy provided. There was no need to remove the GENTA-FOIL RESORBA®. Outcome: Thanks to a proactive approach and the use of the external fixator to keep the joint immobilised, the implementation of GENTA-FOIL RESORBA® was a success with the joint being subsequently preserved.” Presented by Dr. med Vanessa Haug, Dr. med Thomas Pillukat, Pillukat Clinic for Hand Surgery for more detail please visit www.admedsol.com/our-brands/resorba Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201620 Business Units continued Branded Distributed The Branded Distributed Business Unit is responsible for driving sales of our LiquiBand® and RESORBA® branded products to all markets where the Group does not have its own sales teams and sales are made through distributors. It is also responsible for directing R&D for medical adhesives and sealants. Strategy The strategy of this Business Unit is to increase sales of the Group’s brands in all markets where the Group does not have a sales force by: Increasing the market share of LiquiBand® in the US: e Partner with key distributors that access the US healthcare market e Develop and launch new products e Train partner personnel, and provide marketing and account support e Targeting 30% market share by volume in the next three years Developing and launching new products: e Next generation internal applications of cyanoacrylate for fixation including new indications for LiquiBand® Fix8™ and new product variations for open hernia repair Maximising opportunities across Europe, Asia-Pacific, the Middle East, and Latin America: e Leverage the combined existing distributor network for LiquiBand® and RESORBA® e Appointment of local regional Business Development and Product Training personnel to support customer sales activities Accessing new markets: e Gain regulatory approval for LiquiBand® topical skin adhesives, LiquiBand® Fix8™ and RESORBA® collagen products in select geographies e Progress approval for LiquiBand® Fix8™ in the US e Identify new market opportunities Advanced Medical Solutions Group plc Annual Report 201621 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201622 Business Units continued Branded Distributed continued The Group works with many distributors to promote our LiquiBand® and RESORBA® range of products, accessing over 70 countries throughout the world. One of the key growth drivers is accessing the US market. This is the largest market for LiquiBand® topical skin adhesives and continues to be a major focus for this Business Unit. We have a range of formulations with different attributes. Some provide quick, precision closure and other formulations are more film forming. Having received FDA Approval in November 2015 for LiquiBand® Exceed™, our market share of the TSA market in the US has now increased to 23%. LiquiBand® is also promoted and supported throughout the rest of the world. This Business Unit is also responsible for LiquiBand® Fix8™ which uses the cyanoacrylate technology within the body for hernia mesh fixation. Work is progressing to extend the application range of this product. Jeff Willis Business Unit Director Revenue +42% +30%* to £20.8m (2015: £14.6m) * at constant currency LiquiBand® in the US 56% +39%* to £12.5m (2015: £8.0m) * at constant currency 2016 Sales Branded Distributed (£20.8m) LiquiBand® US LiquiBand® EU & ROW LiquiBand® Fix8™ RESORBA® Other 12.5 2.2 1.1 4.9 0.1 Above: LiquiBand® Exceed™ Our LiquiBand® Exceed™ product can be used to cover wounds of up to 30cm in length as well as a single device being suitable for intra-operative reuse for up to 90 minutes on a single patient. Advanced Medical Solutions Group plc Annual Report 201623 Creating quality outcomes with innovative products Transabdominal preperitoneal (TAPP) laparoscopic repair for inguinal hernia using glue fixation “ Glue fixation seems to offer a proper and safe mesh fixation during TAPP repair, without any concerns regarding dangerous areas and no postoperative pain. This allows a faster recovery and return to normal activity for the patients.” Presented by Dr Victor Calu (Consultant Surgeon, Elias Emergency Hospital , Bucharest, Romania) at the European Association of Endoscopic Surgery conference in Amsterdam from 15-18 June 2016. for more detail please visit www.admedsol.com/our-brands/liquiband Development work on an open hernia mesh fixation device has started, which we hope will gain approval in Europe in 2017. Work has also begun on gaining approval in Europe for new indications for the LiquiBand® Fix8™ device. The RESORBA® suture and collagen ranges are sold throughout Europe, the Middle East and Asia. Approval to market the majority of our suture range in the US was received in November 2015 and the first sales of sutures for dental applications were achieved in 2016. During 2016 a supply agreement with an OEM partner for collagen products, including RESODURA® and GENTA-COLL®, was re- negotiated from an exclusive to a non-exclusive arrangement. This allows this Business Unit to supply an enhanced range of collagen products both in the EU and to the rest of the world. This Business Unit also includes all sales made by our Russian subsidiary, which are made both by the direct sales team in Moscow and by the distributor network that the Moscow sales team supports throughout the rest of Russia. Creating quality outcomes for our US partners “ We think the needs of our customers have been under met for years with existing adhesives. In AMS, Medtronic has found a partner who has thoughtfully engineered a solution that benefits patients, clinicians and hospitals, as well as Medtronic itself.” Christopher Ward, Vice President, marketing surgical innovations Medtronic PLC. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201624 Business Units continued OEM The OEM Business Unit is responsible for supporting our business-to-business partners with a multi-product portfolio that is globally competitive and comprises our intellectual property, technology and know-how. It is responsible for directing R&D for our advanced woundcare products and technologies. Strategy The strategy of this Business Unit is to support the Group’s partners to be successful with the products we supply, and to increase their market share in our areas of technical expertise by: Strong partner relationships: e Key account management e Reliability of service and quality e Expansion of product portfolio e Regulatory support for expansion into new markets e Strong pipeline of innovative products with links with global reputable universities for new emerging technologies Securing new partners through: e Reputation for quality, customer service and regulatory capability to assist with expansion into new geographies Develop new products including: e Expansion of the foam portfolio e Expansion of the fibre range e Enhanced product performance Advanced Medical Solutions Group plc Annual Report 201625 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201626 Business Units continued OEM continued Becky Walmsley Business Unit Director Revenue +16% +12%* to £32.1m (2015: £27.7m) * at constant currency Above: Antimicrobrial dressings Our R&D pipeline is delivering results with antimicrobial foam dressings and atraumatic foam dressing, launched in Europe 2016 Sales OEM (£32.1m) Other foam products PHMB foam REQUIRE HIGH RES IMAGE Silver alginate FROM CLIENT Other woundcare products Other 4.0 1.3 16.2 10.5 0.1 Unlike many of our competitors we offer a full design, development, manufacture and distribution service supported by regulatory, clinical and marketing professionals. We partner with many of the world’s leading healthcare companies, supplying them with finished packed products which are provided under their own brand. Our technologies include foams, fibres, collagens, hydrogels and hydrocolloids. We are also able to add antimicrobials such as silver and PHMB to our platform technologies, which are a key growth driver for this Business Unit. We support our partners to access new markets through our regulatory expertise with strong marketing collateral backed by clinical evidence. Following approval in 2015, we successfully launched our PHMB foam dressing into Europe in 2016. PHMB is an antimicrobial effective against several bacteria including, amongst others, Staphylococcus Aureus including the methicillin resistant type, (MRSA) and Escherichia Coli (E-Coli). This dressing may be used throughout the healing process on moderate to heavily exuding chronic and acute wounds that are infected or are at risk of infection as well as on pressure ulcers, leg and foot ulcers, diabetic ulcers and surgical wounds. Approval to market this product in the US is ongoing and we expect to launch the product in the US in 2017. We also successfully launched our atraumatic silicone product range into Europe and the US in 2016. We continue to extend our product range by developing new products. Advanced Medical Solutions Group plc Annual Report 201627 Performance Total Fluid Handling Performance1 Be confident this foam can handle patient exudate. AMS Silicone Foam 28.9g 10cm2/24hr Allevyn Gentle* 23.7g 10cm2/24hr Peel adhesion over 7 days1 Secure but pain free removal. AMS Silicone Foam 2.7 (N/2.5cm) Allevyn Gentle* 1.4 (N/2.5cm) Creating quality outcomes for chronic and acute wounds The management of pressure damage upon removal of full leg cast following fracture to the right patella “ The Silicone Non Border dressings were applied to the category 3 pressure ulcer to assist in the management of exudate, prevent adherence and trauma at dressing changes along with providing a moist wound environment to aid wound healing. Reducing the potential mechanism for pain at dressing changes helped promote patient comfort and improve clinical outcomes. The dressing was able to provide effective exudate handling as no signs of maceration visible to the peri wound area, whilst maintaining a moist wound environment and promoting wound progression as the wound reduced in size and showed areas of new epithelial tissue. The Silicone Foam dressing was easy to apply and remove and was atraumatic to the patient and was able to aid in the management of friable, vulnerable traumatic damaged tissue, and the achievement of satisfactory clinical outcomes for both the patient and the clinician.” Carolynne Sinclair, Tissue Viability Nurse for more detail please visit http://www.admedsol.com/our-divisions/oem-supply/fibres/ 1 Data on file 2016 * Allevyn Gentle is a registered trademark of Smith & Nephew Right: Silicone Foam dressing Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201628 Business Units continued Bulk Materials This Business Unit is responsible for providing Bulk Materials including foams, hydrocolloids, fibres and pattern coated films, to third party converters and partners who have their own converting capability. It is also responsible for supplying Bulk Materials within the Group. Rollstock foam contributes the majority of sales from this Business Unit. Our medical grade hydrophilic polyurethane foam is characterised by its ultrasoft, open-pored, medium density structure. It is very conformable and offers a high rate of absorbancy with good lateral control and fluid uptake. We are looking to extend our foam range. The development of our antimicrobial PHMB foam which was launched in 2016 is an example of the types of products we are working on. We are also able to supply film membranes with excellent moisture vapour transmission rates as well as film-foam membranes that have applications in scar reduction. As the range of foam products we manufacture increases, we are investing in increasing our foam making capacity in the Netherlands. Our new line, which will increase capacity by 40%, is expected to be operational in the second half of 2017. Below: Rollstock foam Becky Walmsley Business Unit Director Revenue +33% +21%* to £5.2m (2015: £3.9m) * at constant currency Strategy The strategy of this Business Unit is to: Extend the product offering through new product development Expand commercial focus to new markets and customers Reduce the cost of the foam process through operational improvements to enable partners to be more competitive Advanced Medical Solutions Group plc Annual Report 201629 Financial Review Creating quality outcomes and good financial performance Group revenue increased by 20% to £82.6 million (2015: £68.6 million). At constant currency, revenue growth was 13%. The Group uses alternative performance measures such as adjusted operating margin, adjusted profit before tax, net operating cash flow pre-exceptional items, together with current revenue measures restated at constant exchange rates, to allow the users of the accounts to gain a clearer understanding of the performance of the business, allowing the impacts of amortisation, exceptional items and exchange rate volatility to be separately identified. The Group incurred an exceptional expense of £0.4 million in the year relating to an aborted acquisition (2015: nil). Amortisation of acquired intangible assets was £0.2 million in the period (2015: £0.4 million). To aid comparison, the Group’s adjusted income statement is summarised in Table 1 below. Table 1: Adjusted Income Statement Revenue Gross profit Distribution costs Adjusted administration costs8 Other income Adjusted operating profit Net finance costs Adjusted profit before tax Amortisation of acquired intangibles Exceptional Items Profit before tax Tax Profit for the period Adjusted earnings per share – basic9 Earnings per share – basic9 Adjusted earnings per share – diluted9 Earnings per share – diluted9 8 Adjusted administration costs exclude amortisation of acquired intangible assets and exceptional items 9 See Note 15 Earnings per Share for details of calculation Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 82,621 47,427 (1,047) (27,293) 621 19,708 (3) 19,705 (242) (361) 19,102 (3,410) 15,692 7.77p 7.48p 7.66p 7.38p 68,596 39,908 (951) (22,138) 589 17,408 (45) 17,363 (367) – 16,996 (2,877) 14,119 6.95p 6.78p 6.86p 6.68p % Change 20% 19% 13% 13% 12% 11% 12% 10% 12% 10% Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements30 Financial Review continued Revenues were favourably impacted by approximately £4.9 million due to the effects of currency movements in the year. Gross margin reduced overall by 80bps due to adverse operational variances on new woundcare ranges, partly offset by mix changes and the favourable impact of currency movements. and further investment in selling and marketing, particularly to support the Branded Direct Business Unit. There was also a benefit from the translation of US dollar receivables. The Group expensed £2.3 million of R&D to the Income Statement (2015: £1.8 million). Spend as a percentage of sales increased to 2.8% (2015: 2.6%). Adjusted operating profit before exceptional items increased by 13% to £19.7 million (2015: £17.4 million) but the adjusted operating margin reduced by 150 bps to 23.9% (2015: 25.4%). Administration costs excluding exceptional items increased by 23% to £27.3m (2015: £22.1 million) due to currency movements Profit before tax for the year was 12% higher at £19.1 million (2015: £17.0 million). Table 2: Taxation Weighted average Group tax rate Loss utilisation and recognition Patent box relief R&D relief Expenses not deductible, prior year adjustments, depreciation and share based payments Effective taxation rate % 22.11 (1.06) (1.27) (0.96) (0.97) 17.85 The Board is proposing a final dividend of 0.62p per share, to be paid on 16 June 2017 to shareholders on the register at the close of business on 26 May 2017. This follows the interim dividend of 0.30p per share that was paid on 28 October 2016 and would, if approved, make a total dividend for the year of 0.92p per share (2015: 0.80p), a 15% increase on 2015. The operational performance of the Business Units is shown in Table 3 on page 31. The adjusted profit from operations and the adjusted margin are shown after excluding amortisation of acquired intangibles. To aid comparison and in determining the operational margins of the individual Business Units, the revenue of the Bulk Materials Business Unit sales made to other Business Units of £1.8 million (2015: £0.8 million) is included. The Group’s effective rate of tax for the year was 17.9% (2015: 16.9%). This is reflective of the utilisation of previously unrecognised brought-forward UK tax losses, Patent Box relief and R&D tax credits. It also reflects the impact of blending profits and losses from different countries and the different tax rates associated with these countries. The effective tax rate of the Group is expected to increase in 2017, as the Group is no longer classified as a Small Medium Enterprise (SME) and will no longer be able to gain R&D tax credits at the SME rate. We estimate that this will increase our taxation rate by approximately 2%. A reconciliation between the weighted average Group tax rate and the Group’s effective rate is summarised in Table 2 above. Earnings (excluding amortisation of acquired intangible assets and before exceptional items) increased by 12% to £16.3 million (2015: £14.5 million), resulting in a 12% increase in adjusted basic earnings per share to 7.77p (2015: 6.95p) and a 12% increase in adjusted diluted earnings per share to 7.66p (2015: 6.86p). Profit after tax increased by 11% to £15.7 million (2015: £14.1 million), resulting in a 10% increase in basic earnings per share to 7.48p (2015: 6.78p) and a 10% increase in diluted earnings per share to 7.38p (2015: 6.68p). Advanced Medical Solutions Group plc Annual Report 201631 Table 3: Operating Result by Business Segment Year ended 31 December 2016 Revenue Profit from operations Amortisation of acquired intangibles Adjusted profit from operations10 Adjusted operating margin10 Year ended 31 December 2015 Revenue Profit from operations Amortisation of acquired intangibles Adjusted profit from operations10 Adjusted operating margin10 10 Excludes amortisation of intangible assets and exceptional items Branded Distributed £’000 20,753 6,337 84 6,421 30.9% 14,631 4,366 127 4,493 30.7% Branded Direct £’000 OEM £’000 Bulk Materials £’000 24,553 4,976 141 5,117 20.8% 22,344 5,235 214 5,449 24.4% 32,070 6,881 17 6,898 21.5% 27,674 7,139 25 7,164 25.9% 7,040 1,796 – 1,796 25.5% 4,772 814 – 814 17.1% Branded Distributed OEM The adjusted operating margin of this Business Unit increased to 30.9% (2015: 30.7%), supported by US sales growth, but was lower than the margin reported in H1 2016 (35.4%), reflecting a higher than usual proportion of US sales in H1 and an increase in business unit operating expenses as a result of investment in sales and marketing personnel. Branded Direct The adjusted operating margin of this Business Unit reduced to 20.8% (2015: 24.4%) mainly due to continued investment in sales and marketing and was lower than the position at H1 2016 (23.7%) mainly due to the phasing of fee income which occurred in the first six months of the year. The adjusted operating margin of this Business Unit reduced to 21.5% (2015: 25.9%) due to adverse operational variances on new woundcare ranges albeit higher than the margin reported at H1 2016 (18.1%). It is worth noting that some of the margin benefit arising from the substantial increase in OEM foam sales is reported in the Bulk Materials Business Unit and is part of the reason for the increase in operating margin in that Business Unit. Bulk Materials The adjusted operating margin of this Business Unit increased to 25.5% (2015: 17.1%), and improved from the position in H1 2016 (22.9%). Margins were affected by the higher volumes of production and sales, including a substantial increase in intercompany sales to the OEM Business Unit. Table 4: Geographic Breakdown of Group Revenues Europe (excluding UK and Germany) Germany UK USA Rest of the World 2016 £ millions 21.4 18.3 17.4 23.5 2.0 % of total 25.9% 22.1% 21.1% 28.5% 2.4% 2015 £ millions 19.1 13.4 16.7 17.8 1.6 % of total 27.8% 19.5% 24.3% 25.9% 2.3% Geographic Breakdown of Revenues The geographic breakdown of Group revenues in 2016 is shown in Table 4 above: 48% of the Group’s sales are in Europe (excluding the UK) of which 59% are denominated in Euros. Approximately 95% of all sales to the US are denominated in US Dollars. The Group hedges significant transaction exposure by using forward contracts and options and aims to have 70% of its estimated transactional exposure for the next 12 months hedged. The Group estimates that a 10% movement in the £:US$ or £:Euro exchange rate will impact Sterling revenues by approximately 2.7% and 3.1% respectively and in the absence of any hedging this would have an impact on profit of 2.2% and 0.5%. Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements32 Financial Review continued Table 5 summarises the Group’s cash flows. Table 5: Group Cash Flows Year ended 31 December Adjusted operating profit (Table 1) Non-cash items Adjusted EBITDA11 Working capital movement Operating cash flow before exceptional items Exceptional items Operating cash flow after exceptional items Capital expenditure and capitalised R&D Net interest Tax Free cash flow Dividends paid Proceeds from share issues Exchange gains/(losses) 2016 £’000 19,708 4,023 23,731 (1,480) 22,251 (361) 21,890 (2,536) (3) (2,065) 17,286 (1,783) 868 553 2015 £’000 17,408 3,153 20,561 1,983 22,544 – 22,544 (2,675) (47) (1,253) 18,569 (1,521) 494 (621) Net increase in cash and cash equivalents 11 Adjusted EBITDA is earnings before interest, tax, depreciation, intangible asset amortisation, share based payments and exceptional items 16,924 16,921 Adjusted EBITDA increased by 15% to £23.7 million (2015: £20.6 million). Working capital increased in the year in line with the growth of the business. 4.4 months of supply of inventory was held across the Group (2015: 4.4 months of supply). Trade receivable days were in line with prior year at 41 days (2015: 41 days) while trade payable days decreased slightly to 33 days (2015: 34 days). The Group generated net cash from operating activities of £21.9 million (2015: £22.5 million) (see Table 5) and had net cash of £51.1 million (2015: £34.2 million) at the end of the year. In the year, we invested £2.6 million in capital equipment, software and capitalised R&D (2015: £2.7 million), including ERP software and internally developed products. The Group generated a free cash flow of £17.3 million in the year (2015: £18.6 million). The conversion of adjusted operating profit into free cash flow was 88% (2015: 107%). The Group paid its final dividend for the year ended 31 December 2015 of £1.2 million (2015: for the year ending 2014, £1.0 million) on 10 June 2016, and its interim dividend for the six months ended 30 June 2016 of £0.6 million (2015: £0.6 million) on 28 October 2016. Table 6: Movement in Net Cash Net cash as at 1 January 2016 Exchange rate impacts Free cash flow Dividends paid Proceeds from share issues Net cash as at 31 December 2016 The Group’s going concern position is fully described in Note 2. In December 2014 the Group entered into a five-year, £30 million, multi-currency revolving credit facility with an accordion option under which AMS can request up to an additional £20 million on the same terms. The previous facility for £4 million was due to expire in 2015. The Group chose to take advantage of favourable credit conditions to put in place a more suitable facility to support its growth ambitions. The new facility is provided jointly by the Group’s existing bankers, HSBC, as well as The Royal Bank of Scotland PLC. It is unsecured and has not been drawn down. This facility carries an annual interest rate of LIBOR or EURIBOR plus a margin that varies between 0.65% and 1.75% depending on the Group’s net debt to EBITDA ratio. At the end of the period, the Group had net cash of £51.1 million (2015: £34.2 million). The movement in net cash from the start of the year to net cash at the end of the year is reconciled in Table 6 below: £’000 34,201 553 17,286 (1,783) 868 51,125 Advanced Medical Solutions Group plc Annual Report 201633 Our Key Performance Indicators Creating quality outcomes by measuring our performance Revenue growth (%)1 at constant currency 13% Why we measure it We see revenue growth as a contributing factor to our aim of providing long-term value for our shareholders. Adjusted3 operating margin (%)1 24% Why we measure it We see operating margin as important to ensure the sustainability of our business and to our aim of providing long-term value for our shareholders. 57% 11% 9% 11% 13% Customer service (OTIF)2 94% 96% 99% 96% 90% 90% 12 13 14 15 16 12 13 14 15 16 Why we measure it We see OTIF as a contributing factor to our aim of providing excellent service to our customers. Progress made in the year Revenue has increased by 20% in 2016 to £82.6 million (2015: £68.6 million), representing growth of 20% (13% on a constant currency basis). Our strategy of having multiple products and multiple routes to market continues to pay off and we have made good progress across all Business Units in the last year. Progress made in the year OTIF fell to 90% in 2016 (2015: 96%), which is lower than the average Group OTIF of 96% over the previous four years. OTIF was impacted by an interruption in service from our steriliser, who experienced difficulties when they commissioned a new plant resulting in extended turnaround times. These issues have now been resolved. OTIF is expected to return to levels of previous years in 2017. 24% 24% 25% 25% 24% Adjusted3 diluted earnings per share growth (%)1 24% 6% 14% 10% 12% 12% 12 13 14 15 16 12 13 14 15 16 Why we measure it We see EPS as an important factor to our aim of providing value for our shareholders. Progress made in the year Adjusted diluted earnings per share has increased by 12% to 7.66p (2015: 6.86p). Progress made in the year The launch of the two new foam dressing ranges has required new converting processes to be developed and the success of the launches has resulted in significant volumes of new product being required. The initial efficiencies of these processes have been lower than for our more established ranges and lower than we would expect to obtain on a regular basis. This has had a negative impact at the Winsford site. Improvements are being made to our processes in 2017. 1 Includes twelve months contribution from RESORBA® acquisition in 2012 2 OTIF – ‘On time in full’ 3 Before exceptional items and amortisation of acquired intangible assets Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements34 Corporate Social Responsibility Creating quality outcomes... We continually review our business practices to ensure that our business operates in a responsible manner with respect to Employees, Ethical Standards, Health, Safety, Environment and Community. We remain committed to continuous improvement contributing to the success of the business. Employees At AMS we focus on creating an engaging place to work where employees are able to develop and are challenged to achieve both their ambitions and the long-term strategic goals of the business. With over 600 employees globally, AMS is focused on retaining and attracting the right calibre of people and providing an environment where individuals can deliver to the best of their capabilities. We recognise the importance of our people and that it is only by their effective engagement that we will continue to be highly successful. We value their commitment and determination to achieve and deliver good results. Our working environment encourages openness, teamwork, an understanding of others’ needs and the ability ‘to make a difference’. We develop the talent at AMS by training with programs such as the Management Development Programme and principles of Lean Manufacturing, and by providing a place to work where our employees feel valued, incentivised and fulfilled. We continue to support a number of apprenticeship schemes and graduate recruitments across the Group and intend to expand the number of schemes we operate in 2017. AMS promotes communication with employees who are encouraged to put forward their views to the Company through both our monthly briefing meetings and also through our employee surveys. Employees are encouraged to participate in suggesting and implementing improvements across the Group. Employee Diversity We are committed to actively encouraging a more inclusive and diverse workplace and look for opportunities to reinforce this where appropriate, although we continue to recruit on merit. The Group is committed to eliminating all forms of discrimination and giving fair and equal treatment to all employees and job applicants in terms of recruitment, pay conditions, promotions, training and all employment matters regardless of their age, disability, race, sex, sexual orientation, marriage and civil partnership, pregnancy and maternity, gender reassignment, religion or belief. The female representation on the Board, Senior Management Team and across the Group at the year-end is shown here: Gender Ratio Main Board 6 Male Female 4 2 Senior Management Team 8 Male Female 5 3 Total Employees 601 Male Female 269 332 Advanced Medical Solutions Group plc Annual Report 201635 ... by ensuring that our business is conducted in a responsible manner... Ethical Standards We recognise the importance of operating a business in an ethical manner. AMS has set appropriate standards and policies to uphold all laws relevant to prevention of bribery and corruption in all jurisdictions in which we operate. The Group also has in place policies and procedures covering Gifts and Hospitality, Whistleblowing, the Modern Slavery Act and the Market Abuse Regulations. Culture AMS is highly dependent on the innovation and creativity of our employees for our future growth and success. It is important that we have a culture and set of values that are clearly understood across the business, and that employees embrace. We aim to operate to the highest ethical standards. We have adopted the business motto of ‘The AMS Care, Fair, Dare approach’ to summarise our culture, underpin our values, and to deliver results, building a sustainable future for our business. Under this motto, we have defined the principles and expectations of how we will operate together to deliver success as the Company continues to grow. Care, Fare, Dare will be reviewed and updated throughout 2017 following input gained from employees across the Group. The Advanced Medical Solutions’ ‘Care Fair Dare’ Approach A culture of: A focus on: A behavioural style which is: A leadership style which: A set of values which: e Listening and understanding e Valuing contribution e Right first time e The “Bigger Picture” e Open minded e Sensitive to others e Builds engagement e Motivates and retains staff e Ownership and responsibility e Leading by example e Helping not judging e The team not the individual e Trustworthy e Inclusive e Proactively collaborates e Takes responsibility e Optimism e Determination and persistence e Solutions not problems e Continuous improvement e Responsive e Creative e Challenges the status quo e Promotes openness E R A C R I A F E R A D e Define the AMS culture e Are understood across the Group e Deliver results e Will build a sustainable future ... and developing talent within the business Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements36 Corporate Social Responsibility continued Supply Chain Health, Safety and Environment Our Sourcing Policy requires suppliers to confirm they engage in ethical treatment of employees and observe prevailing laws in relation to other ethical issues, and ensures that suppliers: e Do not employ any forced, bonded or involuntary labour; e Do not use child labour; e Provide safe and hygienic working conditions; e Take adequate steps to prevent accidents and injury to health arising out of, associated with, or occurring in the course of employment; e Pay wages and benefits and apply working hours for a standard working week that are no less than the applicable minimum national legal standard; e Do not discriminate on grounds of gender, age, religion, political affiliation or sexual orientation; e Do not permit harsh or inhumane treatment of its employees; e Do not supply equipment used in the unethical treatment of individuals; e Do not supply or trade in any banned or proscribed substances or materials in breach of the prevailing laws; e Do not engage in practices that amount to bribery; and e Respect and seek to avoid any unlawful infringement of the intellectual property rights of third parties The Health and Safety of our staff, visitors to our facilities, and those who carry out work on our behalf, is of the utmost importance to us. Identifying and complying with applicable legislation underpins our Health and Safety activities and improvement initiatives. The Board provides Health, Safety and Environmental (HSE) leadership and the Chief Executive Officer has primary responsibility for setting the principles. The Chief Financial Officer, supported by the Group Operations Director, ensures adequate resource is available to support operational health, safety and environmental improvement plans. We have established HSE Committees at each site which meet monthly. These Committees report monthly to the Senior Management Team and to the Board. We focus on the prevention of accidents and incidents through proactive reporting of potential hazards. Over the last 12 months we have focused our resources to improve the level of accountability and expectation for continuous improvement in Health and Safety. Initiatives to improve involvement and accountability will continue over the foreseeable future to help us to further reduce our accident potential. Safety Performance 2016 Our All Injury Rate (AIR) was 5.353 in 2016 and has been below the target of 6.0 over the past 3 years. We endeavour to take proactive initiatives to ensure our AIR remains below our target. Our AIR is measured as follows: AIR (per 100,000) No more than 6.0 5.764 4.296 5.353 6.0 AIR = Total number of injuries x 100,000 14 15 16 Total labour hours worked Advanced Medical Solutions Group plc Annual Report 2016 AMS sponsors a number of sports charities and clubs in the area. We have sponsored the annual Pie & Peas 5 mile race for three years, which is organised by the local athletics club based in Winsford, Cheshire, Vale Royal A.C. As well as sponsoring this local race, employees are encouraged to participate in pre-race training programs to foster employee well being as well as enjoying good-humoured rivalry. AMS aims to promote participation in sports and exercise so as to encourage healthy lifestyles. We also sponsor our local ladies football club, Witton Albion Ladies FC, who receive no other funding and are coached by one of our employees in their spare time, as well as a local junior rugby team (Crewe and Nantwich RUFC Junior Colts). We are involved with some international charities. We sponsor a number of children in Africa and Asia through Plan International, a charity that promotes child rights and aims to end child poverty. We intend to continue to provide ongoing support to these and other events. Environment It is the Group’s policy to abide by all laws, directives and regulations relevant to its field of operations and to act in a manner so as to minimise the effects of our operations on the environment. As AMS has operations across a number of countries, local management drives environmental performance. Specific site-level objectives are established to ensure compliance with local legislative and external management system requirements. AMS uses a variety of indicators to monitor environmental performance. Community We are committed to supporting and having a positive interaction with our local communities. The Whitechapel Centre is the leading homeless and housing charity for the Liverpool region. They work with people who are sleeping rough, living in hostels or struggling to manage their accommodation. They are committed to helping people find and maintain a home and learn the life skills essential for independent living. AMS has supported the Whitechapel Centre for the last two years and at Christmas employees provided over two hundred shoe boxes wrapped as presents containing essential items such as toiletries and warm clothing, and Christmas gifts. These contributions are matched financially by the Company. 37 Left: Witton Albion Ladies FC Team Photo We were delighted that Advanced Medical Solutions chose to support us. We had a fantastic season, thoroughly enjoyed our football, and really appreciate the support and commitment we received. Anthony Lee Manager, Witton Albion Ladies. Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements38 Risk Management Creating quality outcomes by managing risk Risk and uncertainty are an inherent part of doing business and could have an impact on our business, brands, assets, revenue, profits, liquidity and capital resources. To meet our strategic objectives, build shareholder value and promote our stakeholders’ interests, we must manage this risk. An effective and successful risk management process balances risk and reward and is dependent on the judgement of the likelihood and impact of the risk involved. The Board has overall responsibility for ensuring there is an effective risk management framework, which underpins our business model. The Business Units, Senior Management Team (SMT), Audit Committee and Board review risks throughout the year. These risks are documented in the Risk Register which is formally reviewed by the SMT, Internal Audit and the Board twice annually. The plans and actions assigned to the Executive Directors and SMT members are reviewed to ensure progress in being made with risk and mitigation plans. We believe that the policies, procedures and monitoring systems that are in place are sufficient to effectively manage the risks faced by our business. Key Roles and Responsibilities Board e Overall responsibility for corporate strategy, e Defining the Group’s appetite for risk governance, performance, internal controls and Risk Management Framework e Identification, review and management of identified Group strategic risks e Assessing the effectiveness of the risk management processes adopted across the Group e Challenging the content of the Risk Register y t i l i b i s n o p s e r g n i t r o p e r d n a g n i r o t i n o M Audit Committee e Assessing the effectiveness of the risk management e Monitoring compliance with internal control systems processes adopted across the Group and manages Internal Audit arrangements e Ensuring compliance with legislation, rules and regulations Senior Management Team e Management of the business and delivery of strategy e Challenging the appropriateness and adequacy of e Identification and monitoring of the key risk indicators action plans to mitigate risk and taking timely action where appropriate e Analysing the aggregation of risk across the Group e Ensuring implementation of the Group’s actions and e Provision of cross functional/Business Unit resource mitigation plans required to manage risk to effectively mitigate risk Business Units e Execution of the delivery of the actions associated e Identification and reporting of strategic risks to the with managing risk Senior Management Team e Timely reporting on the implementation and progress e Implementation of a risk management approach of agreed action plans which promotes the ongoing identification, evaluation, prioritisation, mitigation and monitoring of operational risk y t i l i b i s n o p s e r e c n a i l p m o c d n a n o i t a t n e m e p m l I Advanced Medical Solutions Group plc Annual Report 2016 39 Identifying Risks A robust methodology is used to identify key risks across the Group; in Business Units, operations and during projects. This is an ongoing process. Analysing Risks Once identified, the process will evaluate identified risks to establish root causes, financial and non- financial impacts and likelihood of occurrence. We use a scoring system to assess the likelihood of a risk materialising and the potential financial impact on the Group. The risks are prioritised in terms of severity based on the scoring and a mitigation plan is prepared to reduce the risk. Once controls and mitigating factors are considered, the risk is reassessed and re-scored (mitigated score) to ascertain the net exposure. Managing Risk The SMT, Internal Audit and the Board review the Risk Register formally at least twice a year, assessing whether the risks are still the most Risk Management Model significant facing the Group and whether new risks have arisen. Effectiveness, adequacy of controls and mitigating actions are assessed and if additional controls or actions are required, these are identified and actions assigned. The Risk Register documents this. Monitoring and Reporting Risk The SMT is responsible for monitoring progress to mitigate key risks. The risk management process is continuous; key risks are reported to the Board following the bi-annual review of the Group’s Risk Register. Internal Audit Additionally, the Board is supported by a program of Internal Audits. Internal Audit reports to the Audit Committee on progress of control or process improvements following Internal Audit recommendations. C o r p o r a t e Governance Identify Identify risks Assess existing controls Analyse Assess mitigating factors Score mitigating risks Risk Management Process Monitor and Report Monitor execution of actions Manage Assign responsibility Develop action plan Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements40 Risk Management continued Principal Risks: Impact, key controls and mitigating factors Risk Key Controls and Mitigating Factors Market share growth declines/ developing new markets is slower than expected Impact eIncome shortfall eLoss of OEM partners Lack of innovation/slow adoption of new products Impact eLoss of market share eReturn on R&D investment is poor eMisidentification of new, competitive technology eLoss of business eEffective alignment of strategy to consider the market changes and promote quality and cost savings eNew territories for revenue growth developed eContinued development of new products and projects to deliver growth to provide differentiation eMarketing strategy to support partners and products ePipeline of new products / technologies identified and prioritised eR&D progress is monitored against the stage gate process to ensure projects are progressing to plan and action is taken if necessary eStrong links with partners, including Universities, to reduce the risk of missed opportunities eInvestment in clinical programmes, Key Opinion Leaders, clinical training and symposia to foster the adoption of new approaches eConsideration of licensing technology Industry consolidation/loss of business at key account level Impact eIncome shortfall eNo over reliance on any one customer. No one customer is more than 10% of the Group’s revenue eAll customers have contracts with agreed termination clauses eEvaluation of opportunities to broaden reach into new markets eUnique products protected by Intellectual Property (IP) Increased global competition reduces profitability eFull service offering including strong regulatory and quality assurance together with product development, product differentiation and clinical support to mitigate a pure cost of supply proposition Impact eIncome shortfall Regulatory risk Impact eInability to supply product eProduct launches delayed eLoss of customer, revenue and reputation Making the wrong acquisition Impact eImpaction Group performance, revenue and market capitalisation eReputational loss eContacts have agreed set minimas which allow terms to be renegotiated or agreements terminated eDiversified approach reduces the impact on any one project, partner or product eStringent regulatory regime in place eExperienced regulatory team eStrong regulatory pathway ensures that the increased regulatory requirements are met to gain approvals eWork with partners and distributors where they have local expertise eStrictly controlled Quality Management System eStrategy set and M&A objectives defined eAdvisors appointed eDetailed market intelligence and identification of targets eExtensive due diligence process established Advanced Medical Solutions Group plc Annual Report 201641 Risk Brexit implications Impact eHigher costs eMore complicated/longer product approvals eLonger lead times for customers Forex exposure Impact eLoss of income eShortfall in profit eMarket expectations missed Key Controls and Mitigating Factors eBrexit team established with plans outlined eMonitor Brexit discussions and agree course of action once decisions are made eSet up as an Authorised Economic Operator to allow quicker customs clearance eEvaluate benefits of establishing a distribution hub in Mainland Europe eUtilise existing European subsidiaries to best advantage eTreasury policy on forex exposure determined eAt least 70% of estimated transactional exposure for next 12 months hedged Vulnerability to single source supply Impact eInability to supply specific products and eDual source key components wherever possible eHold levels of inventory to prevent operational issues arising from delays eBusiness Interruption Insurance to cover significant interruption of supply eR&D prioritising assessment of ability to patent ePatented technologies reviewed for inclusion into new developments eIP portfolio reviewed regularly eLegal team working closely with R&D and patent attorneys eStrong enforcement if IP infringed eCyber Security audits carried out ePenetration testing eOngoing user education eImplementation of audit and testing recommendations exposed to price increases eIncreased cost of supply Insufficient focus on protection of IP Impact eCommercial value of products not maximised eLoss of revenue ePotential patent infringement Cyber-Risk (Systems and Data compromised) Impact eLoss of sensitive data eLoss of reputation Mary Tavener Company Secretary 28 April 2017 Advanced Medical Solutions Group plc Annual Report 2016Company OverviewStrategic Report GovernanceFinancial Statements42 Board of Directors Peter V Allen Non-Executive Chairman Mr Allen was appointed as Non-Executive Chairman of the Group in January 2014. He is currently the Non-Executive Chairman of LSE listed Future plc, AIM listed Clinigen plc, and Diurnal plc, together with privately owned Oxford Nanopore Technologies Limited. He is a qualified Chartered Accountant. Mr Allen has extensive experience in the healthcare industry, having held key senior positions in a number of companies and playing a significant role in their development. This includes 12 years at Celltech Group plc (1992-2004) as CFO and Deputy CEO, 6 years as Chairman (2007-13) and interim CEO (2010-11) of ProStrakan Group plc, and three years as Chairman of Proximagen Neurosciences plc (2009-12). A R N* Chris Meredith N Chief Executive Officer Mr Meredith was appointed Group Chief Executive Officer in January 2011. He joined AMS as Group Commercial Director in July 2005 following a successful 18-year career in international healthcare sales, marketing and business development. His experience prior to joining AMS covered business-to business contract manufacturing, product development and clinical research as well as branded product sales all within the medical device, pharmaceutical or consumer healthcare markets. He was appointed Managing Director of Advanced Woundcare in February 2008 and in January 2010 he became Chief Operating Officer for the Group. Mr Meredith has previously held senior positions at Smiths Industries, Cardinal Health, Banner Pharmacaps, and Aster Cephac. Mary G Tavener Chief Financial Officer C Ms Tavener joined AMS as Finance Director in 1999. Prior to this she was the Group Financial Controller at BTP plc during a period of considerable corporate activity and was involved in the acquisition and disposal of several businesses that repositioned BTP plc as a fine chemical company prior to it being sold to Clariant AG. Her experience has been gained in several manufacturing companies and she has held financial positions with Cadburys Ltd and Parker Hannifin, a US Engineering Corporation. Prior to BTP plc she was the Finance Director of Churchill Tableware Ltd. She is a qualified Chatered Management Accountant and member of the Association of Corporate Treasurers. Advanced Medical Solutions Group plc Annual Report 201643 Key * Denotes Chairman C Company Secretary A Audit Committee R Remuneration Committee N Nomination Committee Registered Office Premier Park, 33 Road One, Winsford Industrial Estate, Winsford, Cheshire CW7 3RT Registered Number 2867684 Penny Freer A R* N Stephen G Bellamy A* R N Senior Independent Non-Executive Director Non-Executive Director Ms Freer was appointed as Senior Independent Non-Executive Director of AMS in March 2010. She is a partner of London Bridge Capital Partners, a corporate advisory business, and a Non-Executive Director of Empresaria Group plc, Crown Place VCT plc and Sinophi Healthcare. Mr Bellamy was appointed as Non- Executive Director of AMS in February 2007. He is currently Chairman of Becrypt Ltd (data security and protection technology) and a founding partner of Accretion Capital LLP (provider of strategic capital and advice to European emerging technology companies). With 25 years’ experience in investment banking she was formerly Head of Equities for Robert W Baird in London and prior to this held senior positions at Credit Lyonnais and NatWest Markets. Formerly an Executive Director of Sherwood International plc and Brierley Investments’ London operations, he has also held a number of other Non-Executive Directorships and advisory roles. He is a New Zealand qualified Chartered Accountant. Peter M Steinmann Non-Executive Director A R N Mr Steinmann was appointed as Non-Executive Director of AMS in July 2013. He is a Swiss national with over 25 years of commercial experience in Medical Devices and Diagnostics. He has held senior roles within Johnson & Johnson, Medtronic International and Boehringer Mannheim. Most recently, he was Regional Vice President Global Surgery and Shared Services, Medical Devices and Diagnostics, Austria, Germany and Switzerland at Johnson & Johnson AG, Switzerland as well as Chairman of the Board. Having worked throughout Europe and North America, he has extensive knowledge of the global medical devices market. He is currently Chairman of Advanced Perfusion Diagnostics SA, a Non-Executive Director of DistaMotion SA and is a Board Observer with Orthimo AG, and has held a number of other Non-Executive Directorships prior to joining AMS. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201644 Senior Management Simon Coates Group IS Manager Simon joined AMS in 2002 as Group Information Systems Manager and, during the Company’s growth since then, he has overseen many key IT projects including implementing ERP systems across the Group, integrating acquisitions and relocating the business into its existing Winsford site. Simon has over 25 years’ experience in IT infrastructure, systems implementation and software development gained from a number of different industries. Prior to joining AMS he was Worldwide IT manager at Whitford Plastics Ltd, a manufacturer of fluropolymer coatings, supporting them through a period of rapid growth, managing multiple sites and key IT projects including ERP implementation and adoption of the Euro for the European offices. Simon was appointed to the Senior Management Team in January 2015. Rose Guang Group Quality Assurance/ Regulatory Affairs (QA/RA) Director Rose joined AMS in May 2013 as Group QA/RA Director. Having completed her Masters Degree in Precision Engineering from Nanyang Technology University in Singapore, Rose has over 20 years’ experience working for medical device companies and has a strong background in setting up effective quality systems. Rose has worked for Bausch & Lomb International Healthcare, Nypro and spent nine years at Medical House Products plc as Director of Quality, Regulatory Affairs and Operations. Prior to joining AMS, Rose was Head of Quality and Regulatory Affairs at Bespak, part of Consort Medical plc. Rose is also a 6 Sigma Master Black Belt. Eddie Johnson Group Financial Controller Eddie joined AMS in October 2011. Having gained a first class degree in Maths and Computer Science from Keele University in 1993, he qualified as a Chartered Accountant in 1996. Since moving into industry in 1996 Eddie has held a number of senior finance roles in various sectors including, more recently, Head of Commercial Finance at Norcros plc and Western European Financial Controller for Sumitomo Electrical Wiring Systems. In November 2012, Eddie was appointed Group Financial Controller Advanced Medical Solutions Group plc Annual Report 201645 Pieter van Hoof Jeff Willis Group Operations Director Pieter joined AMS B.V. in November 2009. Having completed a Masters degree in Engineering in Chemistry and Biochemistry at the Katholieke Universiteit Leuven (Belgium). Pieter joined Janssen Pharmaceutica working as a production supervisor in the manufacturing unit for sterile injectable products before joining the DuPont Engineering Polymers business in September 1999. At DuPont Engineering Polymers Pieter worked in a number of business process improvement roles in Supply Chain, certifying as a 6 Sigma Master Black Belt, before moving into Sales and Marketing, gathering experience in account management and business development. Before joining Advanced Medical Solutions B.V. Pieter held the position of European Customer Services Manager for DuPont Engineering Polymers. Pieter was appointed Director of our Bulk Materials Business Unit in November 2012 and became the Operations Manager for our Winsford and Etten-Leur sites in February 2015. He was promoted to Group Operations Director in December 2016, following Richard Stenton’s retirement. Business Unit Director, Branded Direct and Branded Distributed Jeff joined AMS in October 2005 as Vice President Business Development, Americas. Jeff graduated with a degree in Biomedical Engineering from the University of Florida in 1996 and completed a Masters programme in Management of Technology at Georgia Institute of Technology in 2001. He spent ten years with Kimberly-Clark Health Care in various R&D, Product Development, and New Business Development roles. In 2004, Jeff joined Abbott Laboratories in Columbus, Ohio as Manager of Licensing and Business Development supporting the medical nutritional and consumer products division. In October 2009, Jeff assumed the role of Vice President of Group Marketing for AMS, relocating to the UK. In December 2011, Jeff also took responsibility for the Integration of RESORBA®. Jeff was appointed Director of our Branded Distributed Business Unit in November 2012, and following a recent re-organisation is now also Director of the Branded Direct Business Unit. He resides in the US. Becky Walmsley Business Unit Director, OEM and Bulk Materials Becky joined AMS in July 2015 as Business Unit Director of OEM and Bulk Materials. Becky graduated with a degree in Modern Languages (French and German) with International Studies from South Bank University in 1993 and completed an Executive Masters of Business Administration at Lancaster University in 2000. Becky has more than 13 years’ experience in the Medical Device sector, having held various senior management roles, most recently as European Sales Director for Scapa Healthcare. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201646 Corporate Governance Report Governance Statement The Company’s shares are quoted on the AIM market and are subject to the AIM Admission Rules of the London Stock Exchange and consequently are not required to comply with the provisions or report in accordance with the UK Corporate Governance Code (the Code) issued by the Financial Reporting Council in 2014. The Code was updated in April 2016 for accounting periods beginning on or after 17 June 2016 and will be applied for the following financial year. The Board is however committed to the principles of good corporate governance covering leadership, effectiveness, accountability, remuneration and shareholder relations as outlined in the Code. The Directors have applied the Code as far as is practicable and appropriate for a public company of the Group’s size. Role of the Board The role of the Board is to establish the vision and strategy for the Group, to deliver shareholder value and it is responsible for the long-term success of the Company. Individual members of the Board have equal responsibility for the overall stewardship, management and performance of the Group and for the approval of its long-term objectives and strategic plans. Division of Responsibilities There is a clear division of responsibilities between the role of the Chairman and Chief Executive Officer of the Company. The roles are clearly set out in writing and reviewed by the Board. Board Responsibilities Role Chairman Name Peter Allen Appointed Chairman on 1 January 2014 (following his appointment as a Non-Executive Director on 4 December 2013) Responsibility e Leadership and management of the Board e Setting the Board’s Agenda, style and tone of discussions e Ensuring the Board’s effectiveness in all aspects of its role e Work closely with the Chief Executive Officer on developing the Group’s strategy, and providing general advice and support Chief Executive Officer Chris Meredith Senior Independent Director Penny Freer Appointed Senior Independent Director in 2010 Non-Executive Directors Steve Bellamy Peter Steinmann e Facilitating active engagement by all members e Participating in shareholder communications e Promoting high standards of corporate governance e Managing the Group’s business e Developing Group strategy for consideration and approval by the Board e Leading the Senior Management Team (SMT) in delivering the Group’s strategic and day-to-day operational objectives e Leading and maintaining communications with all stakeholders e Acting as an intermediary for other Directors when necessary e Available to meet with shareholders and aid communication of shareholder concerns when normal channels of communication are inappropriate e Chair meetings of Non-Executive Directors if, and when, required e All responsibilities of a Non-Executive Director as outlined below e Constructively challenging and contributing to the development of Group strategy e Monitoring the integrity of financial information, financial controls and systems of risk management to ensure they are robust e Reviewing the performance of Executive Management e Formulating Executive Director remuneration The Non Executive Directors Each of the Non-Executive Directors are free from any relationship with the Executive Management of the Company and are free from any business or other relationship that could affect or appear to affect the exercise of their independent judgement. The Board considers that all of the Company’s Non-Executive Directors are Independent Directors, in both character and judgement, in accordance with the recommendations of the Code. This is explained in more detail on page 48. The Chairman, Peter Allen, was considered independent on his appointment. Advanced Medical Solutions Group plc Annual Report 201647 The Operation of the Board The Board has the authority for ensuring that the Group is appropriately managed and achieves the strategic objectives it sets. To achieve this, the Board reserves certain matters for its own determination including matters relating to Group strategy, approval of interim and annual financial results, dividends, major capital expenditure, budgets, monitoring performance, treasury policy, risk management, corporate governance and the effectiveness of its internal control systems. It has a schedule of matters specifically reserved for its approval. Matters are delegated to the Board Committees, Executive Directors and the Senior Management Team where appropriate. The Board performs its responsibilities through an annual programme of meetings and by continuous monitoring of the performance of the Group. Matters considered by the Board in 2016 included: e Finance and operations review e Annual budget e Risk review e Strategic plans e Health and Safety e Potential merger and acquisition targets e Reports from the Board Committees e Board evaluation e Acquisition strategy e Impact of Brexit e Market Abuse Regulations (MAR) e Consultant appointments across Group e Major capital expenditure The Board also delegates a number of its responsibilities to Committees and Management as described below. Board Committees The Board has delegated specific authority to the Audit Committee, Remuneration Committee and the Nomination Committee. Peter Allen, Steve Bellamy, Penny Freer and Peter Steinmann are members of the Audit, Remuneration and Nomination Committees. Chris Meredith is a member of the Nomination Committee. The Terms of Reference of all three Board Committees are available on the corporate website ‘www.admedsol.com’. Board and Committee Meetings The Board meets on a formal basis regularly, and met formally eight times in 2016. Members are supplied with financial and operational information in good time for review in advance of the meetings. Most Board Committee meetings are scheduled around Board meetings. The Directors attended the following meetings in the year ended 31 December 2016: Peter Allen Steve Bellamy Penny Freer Chris Meredith Peter Steinmann Mary Tavener * By invitation Board Audit Committee Remuneration Committee Nomination Committee 8 8 8 8 8 8 3 3 3 2* 3 3* 4 4 4 4* 4 4* 1 1 1 1 1 1* All Directors have access to the advice and services of the Company Secretary. The Board approves the appointment and removal of the Company Secretary. The Non-Executive Directors are able to contact the Executive Directors, Company Secretary, Deputy Company Secretary or Senior Managers at any time for further information. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201648 Corporate Governance Report continued Effectiveness Board Composition Board Composition The Board comprises the Non-Executive Chairman, two Executive Directors and three Non-Executive Directors. The Directors’ profiles appear on pages 42 and 43 and detail their experience and suitability for leading and managing the Group. Together they bring a valuable range of expertise and experience to the Group. No individual or group of individuals dominates the Board’s decision making process. The Chairman fosters a climate of debate and challenge in the boardroom, built on his challenging but supportive relationship with the Chief Executive Officer which sets the tone for Board interaction and discussions. Appointment of Non-Executive Directors Non-Executive Directors are appointed to the Board following a formal, rigorous and transparent process, involving external recruitment agencies, to select individuals who have a depth and breadth of relevant experience, thus ensuring that the selected candidates will be capable of making an effective and relevant contribution to the Board. The process for the appointment of Non- Executive Directors is managed by the Nomination Committee, whose responsibilities are outlined on page 49. Diversity We recognise the importance of diversity at Board level and our Board members comprise a number of different nationalities with a wide range of skills and experiences from a variety of business backgrounds. Our current female representation on the Board is 33.3%, already above the minimum representation level which was to be achieved by 2015. Additionally, the Senior Management Team also has a diverse experience. Its members comprise of several nationalities and female representation is 37.5%. Non-Executive Chairman Executive Directors Non-Executives Directors 1 2 3 Gender Diversity of Board Terms of Appointment and Time Commitment All Non-Executive Directors are appointed for an initial term of three years subject to satisfactory performance. After this time they may serve additional three year terms following review by the Board. All Non-Executive Directors are expected to devote such time as is necessary for the proper performance of their duties. Directors are expected to attend all Board meetings and Committee meetings of which they are members and any additional meetings as required. Male Female Further details of their terms and conditions are summarised in the Remuneration Report on page 62 and the terms and conditions of appointment of the Non-Executive Directors are available at the Company’s Registered Office. Board Tenure Tenure Chart The size of the Board during 2016 was six and the tenure was as follows. The Company follows the Code as far as is practicable. The Board notes the tenure requirement for a Non-Executive Director who has served on the Board for more than nine years from the date of first election to not be considered to be independent (Code Provision B.1.1.). Steve Bellamy has served as a Non-Executive Director for 10 years (February 2017). Due to his extensive experience with the Company, and that the Board consider him to be independent of character and judgement, he is considered to be an independent Director. As such Steve Bellamy will be subject to annual re-election starting in 2017 (Code Provision B.7.1.). 0-3 years 4-7 years 8+ years 4 2 nil 3 3 The Board further notes that under Code Provision B.1.2 a smaller company (below FTSE 350) must have at least 2 independent Non-Executive Directors. The Board consider Peter Allen, Steve Bellamy, Penny Freer and Peter Steinmann to be independent. Peter Allen, Steve Bellamy and Penny Freer own shares in the Company. These holdings have been highlighted to shareholders and are small. They are not considered to impact Non-Executive Director independence under Code Provision B.1.1. Code Provision B.2.3. states that any term beyond six years for a Non-Executive Director should be subject to rigorous review, taking into account the need for progressive refreshing of the Board. The Board reviewed the appointments of Steve Bellamy and Penny Freer, and consider that their continued appointment does not present any issues. Advanced Medical Solutions Group plc Annual Report 201649 Induction and Professional Development New Directors are given a formal induction process including details of how the Board and Committees operate, meetings with Senior Management and information on Group strategy, products and performance. Training and development needs of Directors are reviewed regularly. The Directors are kept appraised of developments in legal, regulatory and financial matters affecting the Group by the Deputy Company Secretary and the Group’s External Auditors and advisors. Professional Advice, Indemnities and Insurance There is provision for Directors to take independent professional advice relating to the discharge of their responsibilities should they feel they need it. The Company has arranged Directors’ and Officers’ liability insurance against certain liabilities and defence costs. However, the Directors’ insurance does not provide protection in the event of a Director being found to have acted fraudulently or dishonestly. Board and Committee Evaluation The performance evaluation of the Board, its Committees and Directors is undertaken by the Chairman annually and implemented in collaboration with the Committee Chairmen. The 2016 Board and Committee evaluations were conducted by way of each Director and Committee member completing comprehensive questionnaires. The results were collated, discussed and acted upon by the Board and Committees. The Board reviews the outcomes of the Committee evaluations and assesses their performance. The Chairman confirms that the performance of the Non-Executive Directors continues to be effective. Election and Re-Election of Directors The Company’s Articles of Association require all Directors to retire and submit themselves for re-election at the first AGM after appointment and thereafter at least every three years. The Notice of AGM will give details of those Directors seeking re-election. Remuneration Committee The Remuneration Committee comprises Penny Freer (Chairman), Peter Allen, Steve Bellamy and Peter Steinmann. The Committee has Terms of Reference that are reviewed at least annually, were updated at the end of 2016 and are available to view on the Company Website ‘www.admedsol.com’. The Deputy Company Secretary acts as Secretary to the Committee. The Remuneration Committee met four times in 2016. The Committee, in consultation with the Chief Executive Officer, determines the Group’s policy on Executive remuneration, employment conditions and the individual remuneration packages of the Executive Directors of all Group companies and all Management earning in excess of £100,000 per annum. It also approves all new incentive schemes, the grants of options under the Group’s share option schemes and the grant of shares under the Group’s Long-Term Incentive Plan (LTIP). The report of the Committee is included on pages 55 to 64. Nomination Committee The Nomination Committee comprises Peter Allen (Chairman), Penny Freer, Steve Bellamy, Chris Meredith and Peter Steinmann and meets as and when it is necessary to do so. The Committee has Terms of Reference that are reviewed at least annually, were updated at the end of 2016 and are available to view on the Company Website ‘www.admedsol.com’. The Deputy Company Secretary acts as Secretary to the Committee. The Committee met once during the year. The Committee’s role is to: e Ensure that appropriate procedures are in place for the nomination and selection of candidates for appointment to the Board considering the balance of skills, knowledge and experience of the Board; e Make recommendations to the Board regarding re-election of Directors, succession planning and Board composition, having due regard for diversity, including gender; and e Consider succession planning for Senior Management and membership of the Audit and Remuneration Committees. Audit Committee The Audit Committee comprises Steve Bellamy (Chairman), Peter Allen, Penny Freer, and Peter Steinmann. Steve Bellamy, a qualified Chartered Accountant, chairs the Committee. The Committee has Terms of Reference that are reviewed at least annually, were updated at the end of 2016 and are available to view on the Company Website ‘www.admedsol.com’. The Deputy Company Secretary acts as Secretary to the Committee. The Committee met three times during the year. The Chief Executive Officer, Chief Financial Officer, Group Financial Controller, External Audit Partner and Internal Auditor attended a number of these meetings. The Audit Committee also met with the External Audit partner without the Executives and Senior Managers present. The Audit Committee Report is included on pages 51 to 54. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201650 Corporate Governance Report continued Going Concern In carrying out their duties in respect of going concern, the Directors have carried out a review of the Group’s financial position and cash flow forecasts for the next 12 months from signing of the accounts. These have been based on a comprehensive review of revenue, expenditure and cash flows, taking into account specific business risks and the current economic environment. With regard to the Group’s financial position, it had cash and cash equivalents at the year end of £51.1 million (2015: £34.2 million) and was debt free (2015: debt free). The Group agreed a five-year, £30 million, multi-currency, revolving credit facility in December 2014 with an accordion option under which AMS can request up to an additional £20 million on the same terms. The new facility is provided jointly by the Group’s existing bank HSBC, as well as The Royal Bank of Scotland PLC and replaced the previous £4 million facility. It is unsecured on the assets of the Group and is currently undrawn. While the current economic environment is uncertain, AMS operates in a market whose demographics are favourable, underpinned by an increasing need for products to treat chronic and acute wounds. Consequently, market growth is predicted. The Group has a number of long-term contracts with customers across different geographic regions and also with substantial financial resources, ranging from government agencies through to global healthcare companies. Having taken the above into consideration, the Directors have reached the conclusion that the Group is well placed to manage its business risks in the current economic environment. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements. Remuneration The level of remuneration of the Directors is set out in the Remuneration Report on pages 55 to 64. Relations with Shareholders The Board appreciates that effective communication with the Company’s shareholders and the investment community as a whole is a key objective. The Chairman’s Statement, Chief Executive’s Statement and the Strategic Report and Financial Review, together with the information in the Annual Report of the Group, provides a detailed review of the business. The views of both institutional and private shareholders are important, and these can be varied and wide-ranging, as is their interest in the Company’s strategy, reputation and performance. The Executive Directors have overall responsibility for ensuring effective communication and the Company maintains a regular dialogue with its shareholders, mainly in the periods following the announcement of the interim and final results, but also at other times during the year. The views of shareholders are sought through direct contact and via feedback from advisors and are communicated to the Board as a whole. The Board encourages the participation of shareholders at its Annual General Meeting, notice of which is sent to shareholders at least 20 working days before the meeting. The AMS website ‘www.admedsol.com’ is regularly updated and provides additional information on the Group including information on the Group’s products and technology. Annual General Meeting This year’s AGM will, as last year, include a presentation by the Chief Executive Officer on the current progress of the business and allow the opportunity for questions on this or any of the resolutions. The Company proposes separate resolutions for each issue and specifically relating to the report and accounts. The Company ensures all proxy votes are counted and indicates the level of proxies on each resolution along with the abstentions after it has been dealt with on a show of hands. After the meeting, shareholders have the opportunity to talk informally to the Board and raise any further questions or issues they may have. The outcome of the AGM, a copy of the AGM presentation and details of the poll results will be posted on the Company’s website after the meeting. Mary Tavener Company Secretary 28 April 2017 Advanced Medical Solutions Group plc Annual Report 201651 Audit Committee Report Aims and Objectives The overall aim of the Committee is to monitor the integrity of the Group’s financial statements and announcements, its accounting processes, and the effectiveness of its internal controls and risk management system. The Committee assists the Board in fulfilling its responsibility to ensure that the Group’s financial systems provide accurate and up-to-date information on its financial position, and supports the Board in its consideration as to whether the Group’s published Financial Statements are fair, balanced and understandable. The Audit Committee is required to: e Oversee and advise the Board on the current risk exposures of the Company and related future risk strategies e Oversee the activities of Internal Audit e Review internal control policies and procedures for the identification, assessment and reporting of material financial and non-financial risks e Review the Group’s procedures for detecting fraud e Review the Group’s procedures for the prevention of bribery and corruption e Review the Group’s procedures for ensuring that appropriate arrangements are in place to enable employees to raise matters of possible impropriety in confidence e Review the effectiveness of the Group’s financial reporting e Review the content of the Annual Report and advise the Board whether, taken as a whole, it is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy e Review the engagement, effectiveness and independence of the External Auditor e Review audit and non audit services and fees e Review the Committee Terms of Reference Audit Committee Activities To discharge its responsibilities, during the year, the Committee has undertaken the following activities: Financial Statements and Reports e Reviewed and discussed changes to the UK Corporate Governance framework, including the update issued on 16 June 2016, and its impact on reporting requirements e Reviewed and approved the External Audit fees for 2016 e Reviewed the annual and half-yearly financial reports and related statements and discussed: • Key accounting judgements • The Income Statement for both the half year and the full year • Exceptional items - The Committee has challenged the basis and the nature of the items and determined whether separate disclosure was appropriate or not • Cost of capital • Goodwill impairment • Brexit effect e Reviewed and considered the significant issues in relation to the Financial Statements and how these have been addressed, including: • Going Concern – The 2014 UK Corporate Governance Code provision C.2.2 has set out a requirement for the Directors to explain in the Annual Report how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate. The Committee reviews the analysis undertaken in relation to strategic risk management and risk assessment, risk appetite, internal control, risk and control reporting structure and the principal risks identified on an ongoing basis. This monitoring and review validates the draft statement which was documented for the first time in 2016. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201652 Audit Committee Report continued External Audit e Monitored the independence and ensured the objectivity of the External Auditor e Approved all non-audit service work over £10,000 e Reviewed and approved the Audit Plan for the 2016 audit e Reviewed the performance of the External Auditor and considered the reappointment of Deloitte LLP as auditor for 2017 and recommended appointment to the Board e Considered and recommended to the Board the new engagement partner for the audit in line with partner rotation rules Internal Audit e Considered and agreed the strategic and annual Internal Audit plan e Reviewed and followed up on management responses to Internal Audit findings and recommendations e Reviewed the performance of RSM UK and considered their reappointment e Reviewed the performance and the resulting recommendations of the Internal Audits into the Site Operational Review and Payroll Risk Management e Reviewed the key risks to the Group and the plans to mitigate these risks e Reviewed the Purchasing Approval levels of the Group Terms of Reference e The Committee’s Terms of Reference are reviewed annually in line with the Institute of Chartered Secretaries and Administrators (ICSA) guidance to reflect the UK Governance Code. To assess the effectiveness of our External Auditor, a formal performance review is undertaken on an annual basis to identify the adequacy of their approach to: Resource quality: – it is important that the External Auditor has achieved the right balance of audit team resource. With the team providing both continuity and knowledge, as well as a fresh perspective through new team members to allow processes and accounting policies to be challenged. Effective communication: – key audit judgements are communicated at the earliest opportunity to promote discussion and challenge between the External Auditors and management, informing AMS of audit issues as they arise, so that these can be dealt with in a timely manner. Communication regarding good practice, changes to reporting requirements and accounting standards is also needed to enable the company to be prepared prior to year end. Timely provision of audit papers is required to enable adequate management review and feedback. The quality of the reports and publications provided by the External Auditor in terms of content, relevance and presentation is reviewed. Scoping and planning: – specifically relating to the year-end audit work: timely provision of the External Audit strategy and timetable to Audit Committee and management. Fees: – are transparent and communicated prior to the commencement of any work undertaken. Where variations occur, these are informed at the earliest opportunity to enable dialogue and negotiation to be undertaken. Auditor independence: – the Committee continues to monitor the External Auditor’s compliance with applicable ethical guidance and guidelines and considers the independence and objectivity of the External Auditor as part of the Committee’s duties. The Committee received and reviewed written confirmation from the External Auditor on all relationships that, in their judgement, may bear on their independence. The External Auditor has also confirmed that they consider themselves independent within the meaning of UK regulatory and professional requirements. Advanced Medical Solutions Group plc Annual Report 201653 The External Auditor may be appointed to provide non-audit services where it is in the Group’s best interests to do so, provided a number of criteria are met. These are that the External Auditor does not: e Audit their own work e Make management decisions for the Group e Create a conflict of interest e Find themselves in the role of an advocate for the Group All projects where forecasted expenditure exceeded £10,000 were approved by the Audit Committee. Deloitte LLP has been the Group’s External Auditor for eight financial years and the engagement partner has completed his five years as audit partner. Therefore, to aid in the smooth transition of engagement partner in 2017, Deloitte has already commenced the introduction of a new engagement partner to the Group and the External Audit team. Following the positive outcome of a performance and effectiveness evaluation undertaken by the management, the Audit Committee concluded that it was appropriate to recommend to the Board the reappointment of Deloitte LLP as the Group’s External Auditor for the next financial year. Internal Audit Internal Audit at AMS is managed and delivered by an external firm of Auditors, RSM UK, to provide this service under the direction and guidance of the Audit Committee. Against an agreed mandate, this function performs independent Internal Audits across the Group. A two-year Internal Audit strategy and an annual Internal Audit plan are approved by the Audit Committee each year. Internal Audits target areas of risk and provide assurance that key controls are effectively designed and operated consistently. Audit reports are produced to convey the extent of control assurance derived from the formal testing of controls. RSM UK’s findings and recommendations are reported directly to the Audit Committee. The Audit Committee: e Reviews and approves the charter of the Internal Audit function and ensures the function has the necessary resources and access to information to enable it to fulfil its mandate and is equipped to perform in accordance with appropriate professional standards for Internal Auditors; e Approves the appointment and the termination of the Internal Auditors; e Ensures the Internal Auditor has direct access to the Board Chairman and to the Committee Chairman and is accountable to the Committee; e Reviews and assesses the annual Internal Audit workplan; e Receives a report on the results of the Internal Auditors work at least twice per year; e Reviews and monitors management’s responsiveness to the Internal Auditor’s findings and recommendations and the corrective actions taken; e Meets with the Internal Auditor at least once a year without the presence of management; and e Monitors and reviews the effectiveness of the Company’s controls in the context of the Company’s overall risk management system. All Internal Audit reports are discussed with the Audit Committee and the External Auditor, and the recommendations considered and acted upon. RSM UK attends Audit Committee meetings twice a year and updates the Audit Committee in writing ahead of each Committee meeting. In 2016 the Internal Auditor undertook detailed audits of the Process Improvement Plan and Group Payroll at Plymouth, together with a review of previous audit reports. The recommendations of Internal Audit were accepted by the Audit Committee and acted upon. In 2017 audits are scheduled for Cyber Security and Planning and Forecasting. The Group also calls on the services of external bodies to review the controls in certain areas of the Group. The quality assurance systems are reviewed by the Group’s notified bodies, the British Standards Institute (BSI) and TÜV Rheinland LGA Products GmbH, on a regular basis. The Internal Controls Framework is available for all employees to view on the Intranet. Updates are driven by an underlying process change or by the outcomes of Internal Audit projects. Issues are identified, the policies are updated and then approved by the Group Financial Controller and Chief Financial Officer. The updated policies are then formally approved by the Board. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201654 Audit Committee Report continued Risk Management and Internal Controls To achieve good internal controls the Board takes responsibility for the Group’s system of internal control and for reviewing its effectiveness, taking guidance from the Audit Committee. The Board monitors and reviews all material controls including financial, operational and compliance controls. Risks arising from operations can only be managed rather than eliminated. Only reasonable and not absolute assurances can be made against material loss or misstatement. Key features of the internal control system are: e The Group has an organisational structure with clear responsibilities and lines of accountability. The Group promotes the values of integrity and professionalism. The members of the Board are available to hear, in confidence, any individual’s concerns about improprieties; e The Board has a schedule of matters reserved for its consideration. This schedule includes potential acquisitions, capital projects, treasury policies and management systems, risk management systems and policies, approval of budgets, re-forecasts and Health and Safety e The Board or the Audit Committee reviews the Risk Register at least twice a year; e The Board monitors the activities of the Group through the management accounts, monthly forecasts and other reports on current activities and plans. The Senior Management Team, at least monthly, monitors financial and operational performance in detail; e The Group has set appropriate levels of authorisation which must be adhered to as the Group concludes its business; e An Enterprise Resource Planning (ERP) system with in-built controls over process and authority, minimising manual intervention and overall strengthening controls is in place in the UK and the Netherlands and is being implemented in Germany; and e The Group operates a ‘whistle-blowing’ policy enabling any individual with a concern to approach any of the Non-Executive Directors in confidence. As part of the External Auditor’s annual review process, any weaknesses identified in the Group’s internal control system are reported to and discussed with the Audit Committee and corrective actions are agreed. Risk Management The Group’s corporate objective is to maximise long-term shareholder value, recognising that creating value is the reward for taking and accepting risk. The Directors consider risk management to be crucial to the Group’s success and give it a high priority to ensure that adequate systems are in place to evaluate and limit risk exposure. Management formally reviews the Risk Register at least twice a year. Risks are evaluated for both likelihood and financial impact and scored against both criteria. This is used to identify the most significant risks the business faces. These risks have been identified and are discussed in more detail in the Strategic Review on pages 4 to 41. Actions are agreed to mitigate the risks. At each review, progress on actions is assessed and further actions may be identified. Risks are re-scored and the effects of mitigating actions taken are used to identify a residual risk score. Management also gives consideration to other risks that have been identified, score these risks to understand significance and assign actions to be taken to mitigate, if required. The process for identifying, evaluating and managing the risks faced by the Group is ongoing throughout the year. Management report to the Audit Committee at least twice a year on the Risk Register. The Audit Committee reviews the Group’s Risk Register and the effectiveness of Management’s actions to mitigate the risks. As part of the External Auditor’s annual review process, any key risks and areas of audit focus are also identified and agreed with the Audit Committee. In September 2014 the FRC issued guidance on ‘Risk Management, Internal Control and Related Financial & Business Reporting’. The new guidance was applied in the Group’s 2015 accounting period. The Audit Committee believes it meets the FRC requirements. Mary Tavener Company Secretary 28 April 2017 Advanced Medical Solutions Group plc Annual Report 201655 Remuneration Report The Board presents the Remuneration Report for the year ended 31 December 2016. As an AIM quoted company, Advanced Medical Solutions Group plc is not required to comply with the Directors’ Remuneration Report regulations requirements under Main Market UK Listing Rules or those aspects of the Companies Act applicable to listed companies. The following disclosures are made voluntarily. The Remuneration Committee (Committee) comprises the three Non-Executive Directors of the Group and the Chairman of the Board. Penny Freer is the Chairman of the Committee. Biographical information on the Committee members is set out on pages 42 to 43. They have no personal financial interest, other than as shareholders, in the matters to be decided. They have no conflict of interest arising from cross-directorships and no day-to-day involvement in running the business. They do not participate in any bonus, share option or pension arrangements. The Committee met four times during the year. All the meetings were attended by all members. The Board has accepted the Committee’s recommendations in full. The Committee, on behalf of the Board, and in consultation with the Chief Executive Officer, determines the Group’s policy on executive remuneration, employment conditions and the individual remuneration packages of the Executive Directors of all Group companies and management and staff earning in excess of £100,000 per annum. It administers the share option schemes, determines the design of performance-related pay schemes, sets the targets for such schemes and approves payment under such schemes. The Terms of Reference of the Committee are reviewed each year and are available on the Company’s website, ‘www.admedsol.com’. A resolution will be put to shareholders at the Annual General Meeting on 7 June 2017 asking them to consider and approve this Report. The activities the Remuneration Committee undertook in 2016 were: Month February June October Principal Activities e Review of 2015 personal objectives and setting of 2016 personal objectives for Executive Directors e Review of 2015 Executive Director and Senior Management Team (SMT) bonus and Deferred Annual Bonus awards e Review of proposed share option and LTIP awards e Ratification of LTIP and share option awards for SMT e Ratification of bonus and Deferred Annual Bonus awards for Executive Directors and SMT e Review of Leaver Delegation Policy e Review of legal and corporate governance developments e Review of compliance with Executive Shareholding Policy for Executive Directors and SMT e Review of UK pension arrangements e Review of net settling of LTIPs and unapproved options e Review of Hermes Remuneration Principles and consideration of remuneration market trends e Initiation of salary benchmarking project with Towers Watson November e Consideration and approval of 2017 basic salary for Executive Directors and SMT e Discussion on pension arrangements for Executive Directors and SMT e Review of results of Committee Self Assessment questionnaire, Terms of Reference and Directors Expenses Policy e Agreement of 2017 Remuneration Committee Meeting dates Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201656 Remuneration Report continued Remuneration Policy The remuneration policy is formulated around the need to provide a remuneration structure that is competitive to attract, retain and motivate Senior Executives of the calibre required to develop and implement the Company’s strategy and enhance earnings over the long-term, whilst at the same time not paying more than is necessary for this purpose. A cohesive reward structure consistently applied with links to corporate performance is seen as crucial in ensuring attainment of the Group’s strategic goals. It is the intention of this policy to conform to best practice as far as reasonably practicable. It will continue to apply for 2017 and subsequent years, subject to regular review and supported by independent advice. The Committee retains the right for discretion, although no discretion was used in 2016. The policy is based around the following key principles: e Total rewards will be set at levels that are sufficiently competitive to enable the recruitment and retention of high calibre Senior Executives; e Total incentive-based rewards will be earned through the achievement of performance conditions consistent with shareholder interests; e The design of long-term incentives will be prudent and will not expose shareholders to unreasonable financial risk; and e In considering the market positioning of reward elements, account will be taken of the performance of the Group and of each individual Executive Director. Kepler, part of Mercer (previously Kepler Associates), were engaged in 2014 to advise the Committee with regard to the remuneration of the Executives and SMT. The Committee took into account recommendations which included the introduction of an Executive Shareholding Policy requiring the Executive Directors and SMT to hold a minimum of 100% and 50% respectively, of their pre-tax annual salary in Company shares within five years of attaining office, as well as changes to the bonus scheme. As a result of the Committee’s recommendations a Deferred Annual Bonus (DAB) Scheme was approved by shareholders at the 2014 AGM and options have been issued under the DAB every year since its introduction. All SMT members exceeded the threshold as at 31 December 2016, except one member who had only been appointed 18 months earlier. Each Executive Director’s remuneration package consists of basic salary, bonus, LTIPs, health and insurance benefits, and pension contributions. The Committee ensures that there is a balance between fixed and performance related remuneration elements. Consideration of Shareholder Views In formulating the remuneration policy, the Committee takes into account guidance issued by shareholder representative bodies, including the Investment Association, the Pensions and Lifetime Savings Association and Institutional Shareholder Services. The Committee also takes into consideration any views expressed by shareholders during the year (including at the AGM) and encourages open dialogue with its largest shareholders. Major shareholders are consulted in advance about changes to the remuneration policy. Consideration of Employment Conditions elsewhere in the Group The Committee considers the general basic salary increase for the broader employee population when determining the annual salary increases and remuneration for the Executive Directors. For example, as explained on page 59, reflecting the wider cost of living increase for the 2017 financial year, the Committee determined to only increase the basic salary for the Executive Directors by the cost of living. Statement of Voting at General Meeting At the 2016 AGM, the percentages of votes cast ‘for’, ‘against’ and ‘withheld’ in respect of the Directors’ Remuneration Report were as follows: Resolution To approve the Directors’ Remuneration Report No. of shares Votes cast ‘for’ Votes cast ‘against’ 122,758,450 99.95% 0.05% Advanced Medical Solutions Group plc Annual Report 201657 Overview of Director’s Remuneration Policy Directors’ Policy Table Element of remuneration Purpose and how it supports strategy How the element operated and maximum opportunity Framework used to assess performance Where there is a change in responsibility, progression in the role, change in size or structure of the Group or increased experience of the Executive Director or member of the SMT, the Committee retains the discretion to award a higher increase than the UK workforce. Base Salary To provide competitive fixed remuneration. To attract, retain and motivate Executive Directors and the SMT of the right calibre to deliver the Company’s strategy and to provide a core level of reward for the role. In line with the policy outlined on page 56 salary levels of Executive Directors and the SMT are set after taking into account experience, responsibilities and performance, both on an individual and business perspective, and external market data (benchmarked against companies of a similar size and complexity and other companies in the same industry sector). Salaries are reviewed annually (normally December, with any changes effective from 1 January). Details of the current salaries of the Executive Directors are set out below. This review was last carried out in November 2016. There is no prescribed maximum annual increase. The Committee will take into account the general increase for the broader employee population in the UK but on occasions may need to recognise, for example, an increase in the scale, scope or responsibility of the role. Current salary levels are set out on page 59. Benefits Annual Performance Bonus To attract, retain and motivate Executive Directors and the SMT of the right calibre to deliver the Company’s strategy by providing a market competitive level of benefit provision. Drives and rewards performance against annual financial and operational goals which are consistent with the medium to long-term strategic needs of the business. N/A The range of benefits that may be provided by the Committee after taking into account local market practice. The Executive Directors’ benefits currently comprise private medical insurance. Additional benefits may be provided as appropriate. There is no defined maximum as the cost benefits can vary annually and the Company requires the ability to remain competitive. Each of the Executive Directors is entitled under the terms of their service agreements to receive an Annual Bonus to be determined by the Committee based on the Group’s financial performance and the achievement of specific personal targets set by the Committee. The maximum Annual Bonus potential is 120% of salary for the Chief Executive Officer and 100% of salary for the Chief Financial Officer, of which 85% of the award is dependent on financial performance targets and 15% on personal objectives. Bonuses are paid in a mixture of cash and shares with an element deferred under the Deferred Annual Bonus scheme. The annual performance bonus is focused on the delivery of strategically important performance targets. These include demanding financial and non-financial measures. The financial targets are currently set against Group revenue, Group profit before tax and Earnings Per Share. 85% of the award is dependent upon the financial performance of the Group and 15% is achievable for meeting personal objectives. The SMT are entitled to receive up to 50% of their salary in bonus, of which 86% of the award is dependent on financial performance targets and 14% on personal objectives. The Committee may use different measures and/or weightings for future bonus cycles to take into account changes in the strategic needs of the business. Deferred Annual Bonus (DAB) Provides mechanism to exercise malus provisions. N/A Following advice from Mercer (formally Kepler) regarding corporate governance developments in remuneration, the Committee introduced a Deferred Annual Bonus (DAB) Scheme after receiving shareholder approval at the 2014 AGM whereby both Executive Directors and the SMT are required to defer up to 25% of their Annual Bonus into share awards that will vest after three years. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201658 Remuneration Report continued Element of remuneration Purpose and how it supports strategy How the element operated and maximum opportunity Deferred Share Bonus Plan (DSB) To align the interests of the Executive Directors, the SMT and the employees with shareholders, incentivise long-term value creation and is a key tool for retention of staff. Long Term Incentive Plan (LTIP) To align the interests of the Executive Directors and the SMT with shareholders and incentivise long-term value creation. The Deferred Share Bonus Plan (DSB) is available to all employees and allows them to choose for the payment of some bonus to be made in the form of shares. It also allows for the provision of matching shares if the bonus shares are held for a set period. The DSB encourages employees to acquire shares in the Company and retain those shares to receive additional free shares from the Company. It acts as a valuable retention tool aligning employees’ interests with those of shareholders. The first year that the DSB operated was in 2007. The existing scheme received shareholder approval at the 2015 AGM. The Company introduced a new Long-Term Incentive Plan (2014 LTIP) at the 2014 AGM, replacing the LTIP introduced in 2006. The LTIP permits an annual grant of shares that vest subject to performance and continued employment. The LTIP awards are granted in accordance with the rules of the plan. Individuals who are entitled to awards under the 2014 LTIP are not eligible to receive options under the Company’s Share Option Plan or the Executive Share Option Scheme. Under the rules of the LTIP, the maximum annual award size is 200% of salary. Details of the proposed award level for 2016 are set out below. Awards under the LTIP may be granted in the form of nil-cost options or cash (where the award cannot be settled in shares). Awards are currently structured with a consideration of £1. Framework used to assess performance N/A 50% of the Award is determined based on the Total Shareholder Return (TSR) performance of the Company compared with the AIM Healthcare Share Index over the vesting period and 50% of the Award is determined by the growth in the average Earnings Per Share (EPS) per year of the Company over the three-year vesting period commencing on the award date. Of the 50% of the Award that is determined by reference to the AIM Healthcare Share Index, no shares will be awarded if the Company is ranked below the median. Awards will vest on a sliding scale from 25% to 100% for performance above median to upper quartile performance against the Index. The performance measurement for EPS will be based on the percentage increase of the Company’s EPS over a three-year period commencing on the 1 January. Awards will vest on a sliding scale from 25% to 100% for an average increase of EPS from target EPS to an average increase of EPS of 20% over the vesting period. No awards will be made for an average increase of EPS below target EPS. In 2014 the EPS target was set at 5%. The Committee has the flexibility to make appropriate adjustments to the performance conditions to ensure that the Award achieves its purpose. Any vesting is also subject to the Committee being satisfied that the Company’s performance on these measures is consistent with the underlying performance of the business. Pensions To provide a market competitive remuneration package to enable the recruitment and retention of the Executive Directors and SMT. N/A All UK employees are entitled to become members of the Group Pension and Life Assurance Scheme which was set up with effect from 1 February 1999. The Scheme entitles Executive Directors to contribute up to 10% of salary with the Group contributing 10%. All other UK employees contribute a minimum of 3% of their salary which is matched by a 6% contribution of the Group. The Pension Plan is a money purchase scheme. In 2011, the Group made arrangements allowing individuals to sacrifice their salary for pension contributions. Following changes in the taxation of personal UK pension contributions, and limitations on the size of individual personal pension funds, the Group has agreed that an employee may substitute the pension contributions they would have received from the Group for salary. Automatic enrolment has been implemented for all UK employees. Advanced Medical Solutions Group plc Annual Report 201659 Directors’ Emoluments – Single Figure of Remuneration The various elements of the remuneration for each Executive Director in 2015 and 2016: Salary and fees Annual Bonus Deferred Annual Bonus LTIPs vested Gains on DSBs vested Benefits Pensions Total remuneration Name Chris Meredith Mary Tavener Peter Allen Steve Bellamy Penny Freer Peter Steinmann 2016 £’000 265 200* 69 41 41 35 2015 £’000 2016 £’000 2015 £’000 2016 £’000 2015 £’000 255 180 68 38 38 34 173 111 181 118 – – – – – – – – 58 37 – – – – 60 39 – – – – 2016 £’000 254 204 – – – – 284 Total * Sacrificed salary of £5,125 in January to March 2016 in lieu of Pension. Annual Salary of £205,000 458 299 651 613 99 95 2015 £’000 2016 £’000 2015 £’000 2016 £’000 2015 £’000 2016 £’000 2015 £’000 2016 £’000 2015 £’000 218 169 – – – – 387 7 – – – – – 7 – – – – – – – 1 1 – – – – 2 1 1 – – – – 2 26 26 – – – – 26 40 784 579 – – – – 69 41 41 35 741 547 68 38 38 34 52 66 1,549 1,466 The table above summarises the payments made and additional amounts earned by the Executive Directors and Non-Executive Directors for the 2015 and 2016 financial years. The Chairman of the Audit Committee and Remuneration Committee (Steve Bellamy and Penny Freer) received a supplementary fee of £3,000 for chairing the Committees. The Deferred Annual Bonus recorded in the table above is in respect of the 2015 and 2016 financial years, to be paid or deferred into shares, which will not be received until 2018 and 2019 respectively. The Executive Directors were granted further LTIPs as detailed on page 60. All Directors have confirmed that, save as disclosed in the single figures of remuneration tables above, they have not received any other items in the nature of remuneration. Salaries and Fees Executive Directors The Remuneration Committee determined there would be an increase of 2% for Executive Director base salary for 2017. The Group’s employees also received a 2% salary increase for the 2017 financial year. Director Chris Meredith Mary Tavener Annual Performance Bonus 2017 2016 % increase £270,300 £265,000 £209,100 £205,000 2% 2% The Annual Bonus contains two elements — the cash element and the deferred share element. The bonus is determined on both financial targets and personal objectives. Up to 25% of the bonus is deferred into shares in line with the malus provisions. The Annual Bonus payments presented in the table above were based on performance against growth in Group revenue, adjusted Profit before Tax, and EPS, and performance against personal performance objectives measured over the relevant financial year. The maximum bonus potential for the year ending 31 December 2017 will remain as 120% of salary for the Chief Executive Officer and 100% for the Chief Financial Officer. The personal objectives for the Executive Directors are usually set on an individual basis. The personal objectives of each Executive Director for the year ended 31 December 2016 were linked to the corporate, financial, strategic and other non-financial objectives of the Company. Up to 18% of salary was payable to the Chief Executive Officer and 15% of salary to the Chief Financial Officer upon achievement of personal objectives. Based on the assessment against objectives set, the Committee determined that the performance of the Chief Executive Officer and Chief Financial Officer warranted a 50% payout in relation to the non-financial elements of their respective bonuses, which resulted in payment worth 9% of salary to the Chief Executive Officer and 7.5% of salary to the Chief Financial Officer. The Committee consider the 2017 objectives to be commercially sensitive as they give our competitors insight into our business plans and therefore are not detailed in this Report. The bonus for the 2016 financial year is accrued and paid in 2017. Overall the 2016 bonus payments made in respect of the 2015 financial year were as follows: Name Chris Meredith Mary Tavener Bonus paid in 2016 (2015 Financial Year) Deferred Annual Bonus Percentage of salary (for total bonus) Maximum % of salary £180,752 £118,138 £60,251 £39,379 94.5% 78.8% 120% 100% Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201660 Remuneration Report continued Vesting of LTIPs for the year ended 31 December 2016 The LTIPs granted on 19 September 2013 to the Executive Directors under the 2006 Long-Term Investment Plan were based on performance criteria during the three-year period, including the year ended 31 December 2015. The LTIPs vested on 19 September 2016. The performance conditions were: e 50% of the Award is subject to a performance condition based on the Company’s Total Shareholder Return (TSR) performance over the performance period relative to the constituent companies of the AIM Healthcare Share Index over the performance period; and e 50% of each Award is subject to a performance condition based on the growth in the Company’s underlying diluted earnings per share (EPS) over the performance period The Performance Targets were as follows: TSR Performance Below 50% of the comparator group Between 50% and 75% of comparator group Vesting % 0% Pro-rata vesting between 0% and 100% based on the ranking in the comparator group EPS compound annual growth rate <10% CAGR 10%-20% CAGR Vesting % 0% Pro-rata vesting between 25% and 100% Following a review of the performance conditions of the LTIPs granted in September 2013, 50% of the award vested in September 2016. In the Directors’ emoluments single figure remuneration table on page 59, the figure attributable to the LTIPs granted on 19 September 2013 is calculated by multiplying the number of shares in respect of which the Award vested by the share price on the vesting date. Directors’ Interests in the Long-Term Incentive Plan (LTIP) On 18 April 2016 the following LTIP awards were granted to each Executive Director: Director Chris Meredith Type of Award Basis of grant awarded Share price at date of grant (£) Number of shares granted Face value of grant (£) Nil-cost option 100% of salary 1.846 143,553 265,000 Vesting determined by performance over See below Mary Tavener Nil-cost option 100% of salary 1.846 111,050 205,000 See below EPS – Three financial years to 31 December 2018 TSR – Three years to 18 April 2019 Outstanding Share Awards The maximum number of shares to be allocated to the Executive Directors under the LTIP, in each case for an aggregate consideration of £1, are as follows: Chris Meredith Mary Tavener As at 31 December 2015 188,628 143,631 227,111 210,753 168,316 – 111,314 176,011 148,817 132,013 Exercised in the year Issued in the year Lapsed in the year As at 31 December 2016 Market price at date of grant (p) – – – – – – – – – – – – – – – – 143,553 – – – – 111,050 – – 113,556 – – – – 88,006 – – – 188,628 143,631 113,555 210,753 168,316 143,553 111,314 88,005 148,817 132,013 111,050 88.00 76.75 90.00 116.25 151.50 184.60 76.75 90.00 116.25 151.50 184.60 First vesting date 15 April 2014 (vested) 6 September 2015 (vested) 19 September 2016 (vested) 6 June 2017 10 September 2018 18 April 2019 6 September 2015 (vested) 19 September 2016 (vested) 6 June 2017 10 September 2018 18 April 2019 The entitlement to shares under the LTIP is subject to achieving the performance conditions referred to on page 58. The figures shown are maximum entitlements and the actual number of shares (if any) will depend on these performance conditions being achieved. During the year ended 31 December 2016 the Executive Directors did not exercise any LTIPs. Awards made have no performance re-testing facility. Advanced Medical Solutions Group plc Annual Report 201661 Approach to Remuneration of Executive Directors on Recruitment In the cases of appointing a new Executive Director, the Committee may make use of all the existing components of remuneration. The salaries of new appointments will be determined by reference to the experience and skills of the individual, relevant market data, internal relativities and their current salary. New appointments will be eligible to receive a personal pension, benefits and to participate in the Company’s share schemes. Non-Executive Directors Non-Executive Directors are appointed under arrangements that may generally be terminated by either party on six months notice and their appointment is reviewed annually. The fees of the Non-Executive Directors are determined by the Executive Directors, taking into account the time and responsibility of each role. Additional fees relate to the supplementary fee paid to the Chairmen of the Audit and Remuneration Committees. No Director or Senior Manager shall be involved in any decisions as to their own remuneration. Non-Executive Directors receive travel expenses but do not participate in any incentive arrangements. All Non-Executive Directors have confirmed that, save as disclosed in the single figures of remuneration tables above, they have not received any other items in the nature of remuneration. Further details of the Non-Executive Director fees are outlined below. Element of remuneration Purpose and how it supports strategy Non-Executive Director fees and benefits Reflects time commitments, responsibilities of each role, fees paid and benefits provided by similar sized companies Framework used to assess performance Non-Executive Directors do not participate in variable pay arrangement and do not not receive retirement benefits How the element operated and maximum opportunity As per the Executive Directors there is no prescribed maximum annual increase. The Board is guided by the general increase in the Non- Executive Director market and the broader employee population but on occasion may need to recognise, for example, an increase in the scale, scope or responsibility of the role. Current fee levels are set out on page 59 Service Agreements Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee and are designed to recruit, retain and motivate Directors of the quality required to manage the Company. The service contract of each Executive Director is not fixed term and is terminable by either party giving not less than 12 months’ notice in writing. The Executive Directors’ contracts are available to view throughout the year at the Company’s registered office and at the Annual General Meeting. The Remuneration Committee reviews the contractual terms for new Executive Directors to ensure they reflect best practice. Details of the service contracts for the Executive Directors and letters of appointment of the Non-Executive Directors are as follows: Executive Director Chris Meredith Mary Tavener Non-Executive Directors Peter Allen Steve Bellamy Penny Freer Peter Steinmann Date of Contract 3 May 2005 28 June 1999 Unexpired Term (months) or Rolling Contract Rolling Contract Rolling Contract 4 December 2013 Rolling Contract 1 February 2007 1 March 2010 1 July 2013 Rolling Contract Rolling Contract Rolling Contract Notice Period (months) 12 12 6 6 6 6 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201662 Remuneration Report continued Policy on Payment for Loss of Office – Executive Directors The Remuneration Committee considers the circumstances of individual cases of early termination and determines compensation on a case-by-case basis accordingly, taking into account the relevant contractual terms, the circumstances of the termination and any applicable duty to mitigate. There are no special provisions in the event of loss of office or for payment in lieu of notice (PILON). The Remuneration Committee considers the circumstances of individual cases of early termination and determines compensation accordingly. If such circumstances were to arise, the Executive Director concerned would have no claim against the Company for damages or any other remedy in respect of the termination. The Remuneration Committee would apply general principles of mitigation to any payment made to a departing Executive Director and will honour previous commitments as appropriate. The table below summarises how the awards under the Annual Bonus and 2014 LTIP are typically treated in different leaver scenarios and on a change of control. Whilst the Remuneration Committee retains overall discretion for determining ‘Good Leaver’ status, it typically defines a ‘Good Leaver’ for the Annual Bonus and 2014 LTIP as circumstances which include retirement, ill health or injury, disability, redundancy and the employing company ceasing to be under the control of the Group. The 2014 DAB defines a ‘Good Leaver’ as ceasing to be a Director or employee of a Group Company where that individual is not a ‘Bad Leaver’. A ‘Bad Leaver’ is defined as a Director or employee leaving the business due to the financial statements requiring restatement. Final treatment is subject to the Committee’s discretion. Event Timing of vesting/award Calculation of vesting/payment Annual Bonus/DAB ‘Good Leaver’ eAnnual Bonus payment would be negotiated as part of the terms of the leaving arrangements (at the discretion of the Remuneration Committee) eUnvested Deferred Annual Bonus share awards vest at the normal vesting date (or earlier at the Remuneration Committee’s discretion) eNo automatic entitlement to Annual Bonus on a pro-rata basis (at the discretion of the Remuneration Committee) ‘Bad Leaver’ eNot applicable eIndividuals lose the right to their Annual Bonus and unvested Deferred Annual Bonus share awards Change of control eAnnual Bonuses are paid and unvested Deferred Share eAnnual Bonus is paid only to the extent that any Bonus share awards vest on the date of notification to the Executive Directors regarding the change of control performance conditions have been satisfied and is pro-rated for the proportion of the financial year worked to the effective date of change of control LTIP ‘Good Leaver’ eOn normal vesting date (or earlier at the Remuneration Committee’s discretion) eUnvested awards vest to the extent that any performance conditions have been satisfied and a pro-rata reduction applies to the value of the awards to take into account the proportion of vesting period not served ‘Bad Leaver’ eUnvested awards lapse eUnvested awards lapse on cessation of employment Change of control eUnvested awards vest on the date of notification to the Executive Directors regarding the change of control eUnvested awards vest and a pro-rata reduction applies for the proportion of the vesting period not served eOutstanding deferred shares vest in full Upon exit or change of control DSB awards will be treated in line with the DSB plan rules. If employment is terminated by the Company, the departing Executive Director may have a legal entitlement (under statute or otherwise) to additional amounts, which would need to be met. In addition, the Committee retains discretion to settle other amounts reasonably due to the Executive Director. In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including (but not limited to) settlement and/or consultancy arrangements. These will be used sparingly and only entered into where the Remuneration Committee believes that it is in the best interests of the Company and its shareholders to do so. There are no agreements between the Group and its Directors or employees for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. Payments to past Directors No payments were made to past Directors during the year ended 31 December 2016. Payments for Loss of Office No payments for loss of office were made during the year ended 31 December 2016. Advanced Medical Solutions Group plc Annual Report 201663 Statement of Directors’ Shareholdings and Share Interests Director Chris Meredith Mary Tavener Beneficially owned at 31 December 2015 Beneficially owned at 31 December 2016 Outstanding LTIP awards at 31 December 2016 Outstanding deferred share awards at 31 December 2016 Outstanding share awards under DSB at 31 December 2016 Shareholding as a % of Issued Share Capital at 31 December 2016 1,187,891 1,825,698 1,190,322 1,828,129 968,436 591,199 82,218 57,870 28,995 16,516 0.56% 0.87% Executive Directors are required to hold shares worth 100% of pre-tax annual salary in Company shares in compliance with the Executive Shareholding Policy. Compliance with this policy as at 31 December 2016 is shown below: Director Chris Meredith Shares held* 1,190,322 Vested DSB’s 38,368 LTIPs (50% of vested /unexercised LTIPs) 222,592 Mary Tavener * Beneficially held by the Executive Director (or their spouses and children) 1,828,129 25,006 99,659 Total Shares 1,451,282 1,952,794 Target shareholding target (£) 265,000 Actual shareholding value (£) 3,218,217 % vs holding target 1,214% 205,000 4,053,876 1,977% The shareholding as a % shown above is based on the share price as at 31 December 2016. CEO Total Remuneration The total remuneration figure for the Chief Executive Officer during each of the last five financial years is shown in the table below. The total remuneration figure includes the salary, Annual Bonus based on that year’s performance, gains made on DSBs in that year and LTIP awards based on the three-year performance periods ending in the relevant year. The Annual Bonus payout and LTIP vesting level as a percentage of the maximum opportunity are also shown for each of these years. Year ended 31 December Total remuneration (£’000) Annual Bonus (% of maximum) LTIP vesting (% of maximum) Relative Importance of Spend on Pay 2012 695 29.4% 81.7% 2013 331 50.1% – 2014 645 59.7% 61.5% 2015 741 78.76% 55.1% 2016 785 72.5% 50% The following table shows the Company’s actual spend on pay (for all employees) relative to dividends, tax and profits for the year attributable to owners of the parent: Year ended 31 December Staff costs Dividends1 Tax Profits for the year attributable to owners of the parent 1 The dividend figures relate to amounts payable in respect of the relevant financial year. 2015 (£m) 2016 (£m) change % 21.6 1.5 2.9 14.1 26.2 1.8 3.4 15.7 21.3% 17.2% 18.5% 11.1% £1,339,000 (2015:£1,108,000) of the staff costs figure relate to pay for the Directors, of which £778,000 relates to the highest paid Director (2015:£741,000). Total pension contributions were £944,000 (2015:£770,000) and for the highest paid Director £26,000 (2015:£26,000). Private Healthcare Executive Directors and other senior employees are entitled to private healthcare and permanent health insurance. Share Options Employees, except for participants in the Long-Term Incentive Plan (LTIP), may be granted options over shares in the Company under the Company Share Option Plan and Executive Share Option Scheme, under which either approved or unapproved options may be granted. Options granted under these schemes are not offered at a discount. The exercising of options under these schemes is conditional on certain performance conditions which are pre-determined by the Remuneration Committee. Options are exercisable normally only after the third anniversary of the date of grant (or such later time as may be determined at the time of grant) and cannot, in any event, be exercised later than the tenth anniversary of the date of grant. Awards will not vest if the Group is not profitable at the end of the performance period. Full details are included in Note 29 on pages 97 to 101. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201664 Remuneration Report continued Company Share Option Plan (CSOP) The Company received approval for a Company Share Option Plan (CSOP) on 2 June 2010. This was adopted after HMRC approval on 13 August 2010. This Plan allows relevant employees to receive up to £30,000 of Company shares by reference to the market value of these shares on the grant date and to benefit from the growth in value of those shares. 2009 Executive Share Option Scheme Up until 2010, the Company was able to offer options under an Enterprise Management Incentive (EMI) Scheme. The Company no longer satisfies the requirements for operating this scheme, however, options already granted will be allowed to vest in accordance with the scheme rules. Share Performance – 2016 The opening share price for 2016 was 181.25p and the closing price on the last trading day of the year, was 221.75p. The range during the year was 234p (high) and 157.65p (low). (Source: daily official list of the London Stock Exchange.) Five-year Share Performance For the five-year period ending 28 February 2017 the Advanced Medical Solutions Group plc share price has outperformed the FTSE All- Share Index by 101%, FTSE Techmark All-Share Index by 62%, FTSE All-Share Health Care Index by 80%, the FTSE Small Cap Index by 60%, and FTSE AIM All-Share Index by 121%. ) 0 0 1 o t d e s a b e r ( e c i r p e r a h S 250 200 150 100 50 2012 2013 2014 2015 2016 2017 AMS FTSE All Share FTSE Techmark All Share FTSE All Share Health FTSE Small Cap FTSE AIM All Share For the five-year period ending 28 February 2017 the Advanced Medical Solutions Group plc Total Shareholder Return (TSR), defined as share price growth plus reinvested dividends, has outperformed the FTSE All-Share Index by 82%, FTSE Techmark All-Share Index by 41%, FTSE All-Share Health Care Index by 53%, the FTSE Small Cap Index by 42%, and FTSE AIM All-Share Index by 121%. 250 200 150 100 50 ) 0 0 1 o t d e s a b e r ( n r u t e r l r e d o h e r a h s l a t o T 2012 2013 2014 2015 2016 2017 AMS FTSE All Share FTSE Techmark All Share FTSE All Share Health FTSE Small Cap FTSE AIM All Share Mary Tavener Company Secretary 28 April 2017 Advanced Medical Solutions Group plc Annual Report 2016 65 Directors’ Report For the year ended 31 December 2016 The Directors present their report, incorporating the Chairman’s Statement, the Strategic Report, the Chief Executive’s Statement, the Financial Review, and the audited Financial Statements for the year ended 31 December 2016. Strategic Report The Strategic Report can be found on pages 4 to 41. This report includes a balanced and comprehensive analysis of the development and performance of the business of the Group and a description of the main trends and factors likely to affect the future development, performance or position of the business at the end of the year, using key performance indicators where appropriate. Principal Risks and Uncertainties A description of the Group’s principal risks and uncertainties can be found on pages 38 to 41, which forms part of this Strategic Report. Research and Development The Group attaches a high priority to research and development aimed at developing new products and updating existing products. The Group has expensed to the Income Statement in the year ended 31 December 2016 £2,276,000 (2015: £1,817,000) on research and development. In accordance with International Accounting Standards a further £259,000 (2015: £373,000) has been capitalised. Following a review of development, £125,000 (2015: £nil) impairments were made in 2016. Dividends The Group made a profit before tax for the year to 31 December 2016 of £19.1 million (2015: £17.0 million). The Directors are recommending payment of a final dividend of 0.62p per share. The final dividend will, subject to shareholders’ approval, be paid on 16 June 2017 to shareholders on the register at the close of business on 26 May 2017. This will make a total dividend of 0.92p for the full year (2015: 0.80p). Post-Balance Sheet Events There have been no adjusting or non-adjusting post-balance sheet events. Key Performance Indicators The Directors have monitored the performance of the Group with particular reference to the relevant key performance indicators: e Revenue growth (%)1 at constant currency e Adjusted operating margin (%)1 e Customer service (OTIF)2 e Adjusted3 diluted Earnings per Share growth (%) The Group monitors progress on a regular basis. Performance against the key performance indicators can be found on page 33. Capital Structure The Group is debt free. A five-year, £30 million, multi-currency, revolving, credit facility was agreed in December 2014 with an accordion option under which AMS can request up to an additional £20 million on the same terms. The new facility is provided jointly by the Group’s existing bank HSBC, as well as The Royal Bank of Scotland PLC and replaced the previous £4 million facility. It is unsecured on the assets of the Group and is currently undrawn. Going Concern After making enquiries and on the basis outlined in the Corporate Governance Report on pages 46 to 50, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and for this reason they continue to adopt the going concern basis in preparing the accounts. Share Listing The Company’s Ordinary Shares are admitted to and traded on the Alternative Investment Market of the London Stock Exchange (AIM), a market operated by the London Stock Exchange. Further information regarding the Company’s share capital, including movements during the year, are set out in Note 27 to the Financial Statements. 1 Includes twelve months contribution from RESORBA® acquisition in 2012 2 OTIF – ‘On time in full’ 3 Before exceptional items and amortisation of acquired intangible assets Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201666 Directors’ Report continued For the year ended 31 December 2016 Share Capital and Issue of Ordinary Shares At 7 April 2017, the Group’s issued share capital comprised: Ordinary Shares of 5p each Number 210,524,191 £000 10,526 % of Issued Share Capital 100% The issued share capital of the Company is set out in Note 27 to the financial statements on page 96. Substantial Shareholdings As at 7 April 2017 the Company had been notified of, in accordance with the Disclosure and Transparency Rules, or was otherwise aware of, the following substantial interests of 3% or more in the Ordinary Share capital of the Company. Octopus Investments Limited AXA SA BlackRock Inc Hargreave Hale Ltd Stockbrokers Investec Group Schroders Aviva plc Charles Stanley Group Directors 7 April 17 18,700,969 16,839,237 16,692,089 13,270,056 11,491,169 9,642,800 9,242,575 7,816,840 % of Issued Share Capital 8.88 8.00 7.93 6.30 5.46 4.58 4.39 3.71 The names of the current Directors together with brief biographies are shown on pages 42 and 43. The Directors who were in office during the year ended 31 December 2016, the terms of the Directors’ service contracts and details of the Directors’ interests in the shares of the Company, together with details of share options granted and any other awards made to the Directors, are disclosed in the Remuneration Report commencing on page 55. Directors are re-appointed by ordinary resolution at the Annual General Meeting of shareholders. The Board can appoint a Director during the year but that Director must be elected by an ordinary resolution at the next Annual General Meeting, Directors are subject to re-election at intervals of no more than three years. At the forthcoming Annual General Meeting, Peter Allen, Steve Bellamy and Peter Steinmann have indicated their willingness to be re-elected and will retire by rotation. The Directors continue to contribute effectively and demonstrate commitment to their roles. Details of the notice period in their service agreements are disclosed in the Remuneration Report on page 61. Directors and their Interests The Directors of the Company at 31 December 2016 and their interests, all of which are beneficially held, in the share capital of the Company were: Ordinary Shares of 5p each 31 December 2016 Ordinary Shares of 5p each 31 December 2015 Shares DSBs LTIPs Deferred Bonus2 Shares DSBs LTIPs Chris Meredith Mary Tavener Steve Bellamy Peter Allen 1,190,322 1,828,129 100,000 50,000 28,995 968,436 82,218 1,187,891 25,116 938,439 16,516 591,199 57,870 1,825,698 12,637 568,155 – – – – – – – 100,000 50,000 13,888 – – – – – – – Penny Freer 1 Deferred Bonus shares are in respect of the bonus earned relating to the 2013 and 2014 financial years. 13,888 – 2 Deferred Bonus shares are in respect of the bonus earned relating to the 2013, 2014 and 2015 financial years. Further details of the Directors’ remuneration and benefits are included in the Remuneration Report on pages 55 to 64. Deferred Bonus1 49,580 36,538 – – – Advanced Medical Solutions Group plc Annual Report 201667 The Board has agreed procedures for considering and, where appropriate, authorising Directors’ conflicts or potential conflicts of interest. Only independent Directors i.e. those who have no interest in the matter under consideration are able to take the relevant decision. In taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. Directors will be able to impose limits or conditions when giving authorisation if they believe it is appropriate. The Board will report annually on the Company’s procedures for ensuring that the Board’s power of authorisation in respect of conflicts of interest operated effectively and that procedures have been followed. None of the Directors had any interest during or at the end of the year in any contract relating to the business of the Company or its subsidiaries. Directors and Officers’ Liability Insurance Insurance cover is in force in respect of the personal liabilities which may be incurred by Directors and Officers of the Company in the course of their service with the Group, as permitted by the Companies Act 2006. No cover is provided in respect of any fraudulent or dishonest act. Employees The Group depends on the skills and engagement of its employees in order to achieve its objectives. Staff at all levels are encouraged to make the fullest possible contribution to the Group’s success. The Group is an equal opportunities employer. It is committed to eliminating all forms of discrimination and to giving fair and equal treatment to all employees and job applicants in terms of recruitment, pay conditions, promotions, training and all employment matters regardless of age, disability, race, sex, sexual orientation, marriage or civil partnership status, pregnancy, maternity and paternity, gender reassignment, religion or belief. An Equality Policy is in force which aims to ensure that all employees are selected, trained, compensated, promoted and transferred solely on the strength of their ability, skills, qualifications and merit. The aim is to encourage a culture in which all employees have the opportunity to develop as fully as possible in accordance with their individual abilities and the needs of the Group. The Group also believes that all employees have a right to work in an environment free from harassment and bullying, and there is an emphasis upon providing a safe and healthy working environment. The Group ensures that every consideration is given to applications for employment from disabled persons. Should an employee become disabled, every effort would be made to retrain the employee if required and offer suitable alternative employment within the Group. The Group’s policy is to consult and discuss with employees, through meetings, both formal and informal, those matters likely to affect employees’ interests. The Employees’ Consultative Committee in the UK, which comprises representatives of employees and management, and the Work’s Council in Germany meet regularly to discuss business issues and areas of concern. Management also communicates with staff through regular team briefs. Details of policies, procedures and other information of interest are regularly updated and are easily accessed by all employees on the Group’s intranet page. The Group undertakes an annual Employee Opinion Survey and takes into account comments and feedback received when updating and formulating policies and procedures. The Group’s aim is to recruit and retain sufficient skilled and motivated employees to meet the needs of the business. The Group operates to the internationally recognised medical device standard ISO 13485. Staff work within a defined quality system, and have Personal Development Plans that identify their training requirements to help them progress their careers and development. Employees are encouraged to become involved in the financial performance of the Group through participation in the Group’s share option plans and are incentivised directly through the Company’s bonus scheme, performance reviews and training and development opportunities. Employee Share Schemes Employees, except for participants in the Long-Term Incentive Plan (2014 LTIP), may be eligible after a period of service to be granted options over shares in the Company under the Company Share Option Plan or Executive Share Option Scheme. The Group received HMRC approval in 2010 to adopt a Company Share Option Plan (CSOP). Under the CSOP, employees are allowed to receive up to £30,000 of options in a tax-efficient manner. Options granted under these schemes are not offered at a discount. Further details are included in the Remuneration Report on pages 55 to 64. The Company also operates a Deferred Share Bonus Scheme (DSB) in which employees are invited to participate. The DSB encourages employee share ownership which helps to align the employees’ interests with those of the shareholders. The details on the DSB Scheme are provided in the Remuneration Report on page 58. The original DSB was set up in 2006 and having reached the end of its ten-year life a new DSB scheme was introduced on the same terms as the existing scheme following shareholder approval at the 2015 Annual General Meeting. The Company no longer satisfies the requirements for granting tax-efficient options under its EMI scheme. Options already granted under this scheme will be allowed to vest in accordance with the rules of the scheme. 1,452,000 Ordinary Shares (2015: 1,170,000) were issued during the year to employees exercising their share options and options over other share incentive schemes. Details are given in Note 29 to the Group Financial Statements. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201668 Directors’ Report continued For the year ended 31 December 2016 Health and Safety The Group is committed to high standards in health, safety and environmental performance. It is the Group’s policy to abide by, and where appropriate exceed, all laws, directives and regulations pertinent to its field of operations and to act in a manner so as to minimise the effects of its operations on the environment. The Group provides safe places and systems of work, safe plant and machinery, safe handling of materials and ensures appropriate information, instruction and training is given. Employees are encouraged to identify ‘near misses’ to ensure preventative actions are taken to avoid any unsafe work practices and a common All Incident Rate (AIR) reporting metric is used across the Group. Emphasis is placed on all employees having a responsibility to maintain a safe working environment. Health and Safety Committees at all sites assist with advice on safe working practices and ensure any corrective action is taken where necessary. Health and Safety reports are regularly received from Group sites and are reviewed by the Board. Regular audits are undertaken to evaluate compliance with Group policy. Health and Safety is a key component of the Group’s Corporate Social Responsibility Policy. Environment Where possible, the Group aims to reduce its impact on the environment. The facility at Winsford has been built with a high level of thermal insulation to reduce the Group’s carbon footprint. It incorporates a solar wall, a renewable energy source that captures the sun’s warmth and supplements the building’s heating system. Lighting is controlled by movement sensors to avoid wastage and the heating system is fully programmable. Further details are available in the Corporate Social Responsibility Report on pages 34 to 37. Corporate Social Responsibility AMS is committed to ensuring that the business operates in a responsible way across these key areas: e Employees e Ethical Standards e Health, Safety and Environment e Customer and Community The Group has implemented a Corporate Social Responsibility Policy. Directors’ Responsibilities Statement The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law including FRS 101 ‘Reduced Disclosure Framework’). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Parent Company Financial Statements the Directors are required to: e Select suitable accounting policies and then apply them consistently; e Make judgements and accounting estimates that are reasonable and prudent; e State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and e Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group Financial Statements, International Accounting Standard 1 requires that Directors: e Properly select and apply accounting policies; e Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; e Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and e Make an assessment of the Group’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. Advanced Medical Solutions Group plc Annual Report 201669 Responsibility Statement We confirm that to the best of our knowledge: e The Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; e The Strategic Report and Directors’ Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and e The Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Group’s performance, business model and strategy. Auditor Each of the persons who is a Director at the date of approval of this Annual Report confirms that: e So far as the Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and e The Director has taken all the steps that he/she ought to have taken as Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of S418 of the Companies Act 2006. Deloitte LLP has expressed their willingness to continue in office as Auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Proposed resolutions for the Annual General Meeting Details of the business to be conducted at the Annual General Meeting to be held on 7 June 2017 are contained in the Notice of the Annual General Meeting on pages 109 to 111. In the opinion of the Directors, the passing of these resolutions is in the best interest of the shareholders. Details of the Special Business to be conducted are outlined below. Special Business The effect of Resolution 8, to be proposed at the meeting would be to allow the Company to allot shares conferred by S551 of the Companies Act 2006. The effect of Resolution 9, to be proposed at the meeting would be to disapply the statutory pre-emption rights conferred by S570 of the Companies Act 2006. The effect of Resolution 10, to be proposed at the meeting would be to allow the Company to purchase its own shares conferred by S701 of the Companies Act 2006. Annual General Meeting The Annual General Meeting will be held at 11.00 am on 7 June 2017 at the offices of Investec Bank plc, 2 Gresham Street, London, EC2V 7QP. Details of the Notice of the Annual General Meeting are given on pages 109 to 111. The Annual General Meeting provides an opportunity for private shareholders to question your Board and to meet informally with the executive management after the meeting. On behalf of the Board Mary Tavener Company Secretary 28 April 2017 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201670 Independent Auditor’s Report to the members of Advanced Medical Solutions Group plc We have audited the Financial Statements of Advanced Medical Solutions Group plc for the year ended 31 December 2016 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related Notes 1 to 31, the Parent Company Balance Sheet, the Parent Company Statement of Changes in Equity and the related Notes 1 to 7. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Company Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 101 'Reduced Disclosure Framework'. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditor As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the Audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our Report. Opinion on Financial Statements In our opinion: e The Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended; e The Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union; e The Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and e The Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: e The information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements; and e The Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report and the Directors’ Report. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: e Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or e The Parent Company Financial Statements are not in agreement with the accounting records and returns; or e Certain disclosures of Directors’ remuneration specified by law are not made; or e We have not received all the information and explanations we require for our audit. Timothy Edge BSc FCA (Senior Statutory Auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Manchester, United Kingdom 28 April 2017 Advanced Medical Solutions Group plc Annual Report 2016Consolidated Income Statement For the year ended 31 December 2016 Revenue Cost of sales Gross profit Distribution costs Administration costs Other income Profit from operations Finance income Finance costs Profit before taxation Income tax Profit for the year attributable to equity holders of the parent Earnings per share Basic Diluted Adjusted diluted The above results relate to continuing operations. 71 Year ended 31 December 2016 Before exceptional items £’000 Exceptional items (note 6) £’000 82,621 (35,194) 47,427 (1,047) (27,535) 621 19,466 108 (111) 19,463 (3,410) – – – – (361) – (361) – – (361) – Year ended 31 December 2015 Total £’000 68,596 (28,688) 39,908 (951) (22,505) 589 17,041 73 (118) 16,996 (2,877) Total £’000 82,621 (35,194) 47,427 (1,047) (27,896) 621 19,105 108 (111) 19,102 (3,410) 16,053 (361) 15,692 14,119 7.65p 7.55p 7.66p (0.17p) (0.17p) (0.17p) 7.48p 7.38p 7.49p 6.78p 6.68p 6.86p Note 4 4, 5 11 12 13 15 15 15 Consolidated Statement of Comprehensive Income For the year ended 31 December 2016 Profit for the year Items that will potentially be reclassified subsequently to profit and loss: Exchange differences on translation of foreign operations Loss arising on cash flow hedges Other comprehensive income/(expense) for the year Total comprehensive income for the year attributable to equity holders of the parent Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 15,692 14,119 8,851 (3,009) 5,842 21,534 (3,348) (3) (3,351) 10,768 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201672 Consolidated Statement of Financial Position At 31 December 2016 Assets Non-current assets Acquired intellectual property rights Software intangibles Development costs Goodwill Property, plant and equipment Deferred tax assets Trade and other receivables Current assets Inventories Trade and other receivables Current tax assets Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Current tax liabilities Other taxes payable Obligations under finance leases Non-current liabilities Trade and other payables Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium Share-based payments reserve Investment in own shares Share-based payments deferred tax reserve Other reserve Hedging reserve Translation reserve Retained earnings Equity attributable to equity holders of the parent Note 2016 £’000 2015 £’000 16 16 16 19 17 18 20 21 22 23 23 18 27 28 28 28 28 9,468 2,500 1,645 40,337 16,177 – 10 8,359 2,009 1,803 34,579 15,795 135 13 70,137 62,693 11,440 11,872 432 51,125 74,869 145,006 12,901 2,049 85 – 8,843 10,817 9 34,201 53,870 116,563 9,139 806 234 1 15,035 10,180 1,291 3,152 4,443 19,478 125,528 10,524 34,005 3,469 (152) 459 1,531 (3,534) 636 78,590 125,528 415 2,311 2,726 12,906 103,657 10,451 33,196 2,253 (152) 437 1,531 (525) (8,215) 64,681 103,657 The Financial Statements of Advanced Medical Solutions Group plc (registration number 2867684) on pages 71 to 102 were approved by the Board of Directors and authorised for issue on 28th April 2017 and were signed on its behalf by: Chris Meredith Chief Executive Officer 28 April 2017 Advanced Medical Solutions Group plc Annual Report 2016Consolidated Statement of Changes in Equity Attributable to equity holders of the Group 73 Share capital £’000 Share premium £’000 Share-based payments £’000 Investment in own shares £’000 Share-based payments deferred tax £’000 10,393 32,742 1,563 (148) 278 Other reserve £’000 1,531 Hedging reserve £’000 Translation reserve £’000 Retained earnings £’000 Total £’000 (522) (4,867) 52,083 93,053 At 1 January 2015 Consolidated profit for the year to 31 December 2015 Other comprehensive expense Total comprehensive income Share-based payments Share options exercised Shares purchased by EBT Shares sold by EBT Dividends paid At 31 December 2015 Consolidated profit for the year to 31 December 2016 Other comprehensive expense Total comprehensive income Share-based payments Share options exercised Shares purchased by EBT Shares sold by EBT Dividends paid – – – – 58 – – – – – – – 454 – – – – – – 709 (19) – – – 10,451 33,196 2,253 – – – – 73 – – – – – – – – – – 1,230 809 – – – (14) – – – At 31 December 2016 10,524 34,005 3,469 – – – – – (262) 258 – (152) – – – – – (449) 449 – (152) – – – 159 – – – – – – – – – – – – – (3) (3) – – – – – – 14,119 14,119 (3,351) – 14,119 10,768 (3,348) (3,348) – – – – – – – – – 868 493 (262) 258 (1,521) (1,521) 437 1,531 (525) (8,215) 64,681 103,657 – – – 22 – – – – – – – – – – – – – – 15,692 15,692 (3,009) (3,009) 8,851 – 5,842 8,851 15,692 21,534 – – – – – – – – – – – – – – 1,252 868 (449) 449 (1,783) (1,783) 459 1,531 (3,534) 636 78,590 125,528 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201674 Consolidated Statement of Cash Flows For the year ended 31 December 2016 Cash flows from operating activities Profit from operations Adjustments for: Depreciation Amortisation – intellectual property rights – software intangibles – development costs Impairment of development costs Increase in inventories (Increase)/decrease in trade and other receivables Increase in trade and other payables Share-based payments expense Taxation Net cash inflow from operating activities Cash flows from investing activities Purchase of software Capitalised research and development Purchases of property, plant and equipment Disposal of property, plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Dividends paid Finance lease Issue of equity shares Shares purchased by EBT Shares sold by EBT Interest paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 19,105 17,041 1,898 242 329 441 125 (2,005) (674) 1,199 1,230 (2,065) 19,825 (795) (259) (1,523) 41 109 1,745 367 289 410 – (1,501) 2,148 1,336 709 (1,253) 21,291 (472) (373) (1,907) 77 73 (2,427) (2,602) (1,783) (1,521) (1) 868 (449) 449 (111) (1,027) 16,371 34,201 553 51,125 (2) 498 (262) 258 (118) (1,147) 17,542 17,280 (621) 34,201 Advanced Medical Solutions Group plc Annual Report 2016 75 Notes Forming Part of the Consolidated Financial Statements 1 Reporting Entity Advanced Medical Solutions Group plc ('the Company') is a public limited company incorporated and domiciled in England and Wales (registration number 2867684). The Company’s registered address is Premier Park, 33 Road One, Winsford Industrial Estate, Cheshire, CW7 3RT. The Company’s Ordinary Shares are traded on the AIM market of the London Stock Exchange plc. The Consolidated Financial Statements of the Company for the 12 months ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the 'Group'). The Group is primarily involved in the design, development and manufacture of novel high performance polymers (both natural and synthetic) for use in advanced woundcare dressings, and distribution of medical adhesives, for closing and sealing tissue, and sutures and haemostats for sale into the global medical device market. 2 Basis of Preparation The Group accounts have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the EU. The Financial Statements have been prepared on the historical cost basis of accounting except as disclosed in the accounting policies set out below. The individual Financial Statements for each Group Company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results and financial position of each Group Company are expressed in Pounds Sterling, which is the functional currency of the Company, and the presentation currency for the Consolidated Financial Statements. In carrying out their duties in respect of going concern, the Directors have carried out a review of the Group’s financial position and cash flow forecasts for the next 12 months. These have been based on a comprehensive review of revenue, expenditure and cash flows, taking into account specific business risks and the current economic environment. With regards to the Group’s financial position, it had cash and cash equivalents at the year end of £51.1 million. The Group also has in place a five year, unsecured, multi-currency, revolving credit facility for £30 million which was undrawn during 2016. While the current economic environment is uncertain, the Group operates in markets whose demographics are favourable, underpinned by an increasing need for products to treat chronic and acute wounds. Consequently, market growth is predicted. The Group has a number of long-term contracts with customers across different geographic regions and also with substantial financial resources, ranging from government agencies through to global healthcare companies. After taking the above into consideration, the Directors have reached a conclusion that the Group is well placed to manage its business risks in the current economic environment. Accordingly, they continue to adopt the going concern basis in preparing the accounts. In the current year the Group has applied a number of amendments to IFRSs issued by the IASB. Their adoption has not had a material impact on the disclosures or on the amounts reported in the Annual Financial Statements. The following amendments were applied: e Amendments to IAS 1, Presentation of Financial Statements: Disclosure Initiative. e Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation. e Annual Improvements 2012-2014 Cycle, specifically amendments to (i) IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, (ii) IFRS 7, Financial Instruments: Disclosures, and (iii) IAS 19, Employee Benefits. 3 Accounting Policies Critical judgements in applying the Group’s accounting policies In the process of applying the Group’s accounting policies, which are described below, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the Financial Statements (apart from those involving estimations, which are dealt with below) and have been identified as being particularly complex or involve subjective assessments. Share based payments The charge to the Income Statement in relation to options and incentive plans is based on the Black-Scholes Merton or the Monte Carlo Option Pricing Model valuation technique. These techniques require a number of assumptions to be made such as those in relation to share price volatility, movement in interest rates, dividend yields and staff behavioural patterns. Details of the accounting policies applied in respect of share based payments are set out on page 80. Tax A deferred tax asset is recognised when it is judged probable that the Group will generate taxable profits which can be offset against tax losses. The measurement of the tax benefit recognised in the Consolidated Financial Statements is based upon the largest amount of tax benefit that, in management’s judgement, is likely to be realised. Details of the accounting policies applied in respect of deferred tax are set out on page 77. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201676 Notes Forming Part of the Consolidated Financial Statements continued 3 Accounting Policies continued Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the Balance Sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment of goodwill, intangible assets and fixed assets Determining whether goodwill, intangible assets and fixed assets are impaired requires an estimation of the value in use of the cash-generating units to which the assets have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill and intangible assets at the balance sheet date was £40.3m and £9.5m respectively (2015: £34.6m and £8.4m). Details of the accounting policies applied in respect of impairment are set out on page 78. Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to retain benefits from its activities. The Financial Statements of the subsidiaries are included in the Consolidated Financial Statements on the basis of acquisition accounting, from the date that control commences until the date that control ceases. Intercompany transactions and balances between Group entities are eliminated upon consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, the equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the issue of debt or equity. Acquisition related expenses are accounted for as expenses in the period in which the costs are incurred and the services rendered, with the exception of directly attributable costs incurred as a result of raising equity, which are off-set against share premium, and raising debt, which are capitalised and amortised over the term of the debt. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. Revenue recognition Revenue represents the fair value of sales of the Group’s products to external customers at amounts excluding value added tax, and is recognised when the products have been delivered and title has passed. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue from royalty income receivable under licence agreements from external customers at amounts excluding value added tax is recognised as the products under licence are sold and the revenue can be reliably measured. Other income This represents non-refundable up-front licence payments received for the grant of rights for the development and marketing of products, and other sundry income. The income is recognised in the Income Statement, over the life of each development project, in proportion to the stage of completion of each project. Finance income Finance income relates to interest earned on cash, cash equivalents and investments. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Exceptional items Exceptional items are those items that are unusual because of their size, nature or incidence, or that the Directors consider should be disclosed separately to enable a full understanding of the Group’s results. This includes non-recurring transaction costs (see Note 6). Exceptional items have been presented separately on the face of the Income Statement. The Directors consider that this presentation gives a fairer presentation of the results of the Group. Advanced Medical Solutions Group plc Annual Report 201677 Finance costs Finance costs relate to finance payments associated with financial liabilities. They are recognised in the Income Statement as they accrue using the effective interest method. Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Foreign currencies Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Income Statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the date the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the Balance Sheet date. The revenue and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates at the dates of the transactions. Exchange differences arising on consolidation are recognised in equity. Hedging The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item. Note 24 sets out details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are detailed in the Consolidated Statement of Changes in Equity. Taxation Taxation expense includes the amount of current income tax payable and the charge for the year in respect of deferred taxation. The income tax payable is based on an estimation of the amount due on the taxable profit for the year. Taxable profit is different from profit before tax as reported in the Income Statement because it excludes items of income or expenditure which are not taxable or deductible in the year as a result of either the nature of the item or the fact that it is taxable or deductible in another period. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax is accounted for on a basis of temporary differences, except to the extent where it arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax is charged or credited to the Income Statement, except when it relates to items charged or credited directly to equity, in which case it is dealt with within equity. It is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax laws enacted or substantively enacted by the reporting date. Intangible assets Acquired intellectual property rights Intellectual property rights that are acquired in a business combination are initially recognised at their fair value. Intellectual property rights purchased outright are initially recognised at cost. Intellectual property rights are capitalised and amortised over their estimated useful economic lives, usually not exceeding 18 years. In determining the useful economic life each asset is reviewed separately and consideration given to the period over which the Group expects to derive economic benefit from the asset. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201678 Notes Forming Part of the Consolidated Financial Statements continued 3 Accounting Policies continued Development costs Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge, is recognised in the Income Statement as an expense in the period in which it is incurred. Expenditure on development activities, where research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised once it can be demonstrated that the product or process is clearly identifiable, technically and commercially feasible, will generate future economic benefits, that the development costs of the asset can be measured reliably and the Group has sufficient resources to complete development. Expenditure capitalised is stated as the cost of materials and direct labour less accumulated amortisation. Where development expenditure results in new or substantially improved products or processes and it is probable that recovery will take place, it is capitalised and amortised on a straight-line basis over the product’s useful life starting from the date on which serial production commences, which is between one and ten years. Patents and trademarks are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives, which is between three and 20 years. Software intangibles Where computer software is not integral to an item of property, plant or equipment its costs are capitalised and categorised as intangible assets. Amortisation is provided on a straight-line basis over its economic useful life, which is in the range of three to ten years. Property, plant and equipment Land and buildings and plant and equipment held for use in the production of goods and services or for administrative purposes are carried in the Balance Sheet at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The Group elected to use the fair value as the deemed cost in respect of land and buildings at the date of transition to IFRS. Fair value was calculated by reference to their existing use at the date of transition. Depreciation is provided to write off the cost, less estimated residual values, of all property, plant and equipment, over the expected useful life of the asset from the date that the asset is brought into use. It is calculated at the following rates: e Freehold property and improvements e Leasehold improvements e Plant and machinery e Fixtures and fittings e Motor vehicles — 4% per annum on cost — over the length of the lease — 6.7% to 33.3% per annum on cost — 33.3% per annum on cost — 25% per annum on cost Property, plant and equipment in the course of construction for production are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property, plant and equipment assets, commences when the assets are ready for their intended use. No depreciation is provided on freehold land. Impairment of tangible and intangible assets excluding goodwill The carrying amount of the Group’s assets other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit on a pro rata basis. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Calculation of recoverable amount The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows. As the Group’s receivables are of short duration they are not discounted. Reversal of impairment An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Advanced Medical Solutions Group plc Annual Report 2016 79 Inventory Inventory is valued at the lower of cost or net realisable value. Cost comprises direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their present location and condition and an attributable proportion of manufacturing overheads based on normal levels of activity. Net realisable value is based on estimated selling price less further costs to completion and disposal. The Group makes provision for inventory deemed to be irrecoverable or where the net realisable value is lower than cost. This provision is established on a stock keeping unit (SKU) basis by reference to the age of the stock, the forward order book, management’s experience and its assessment of the present value of estimated future cash flow. Financial Instruments Classification of financial instruments Financial instruments are classified as financial assets, financial liabilities or equity instruments. Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions e They include no contractual obligations upon the Group to deliver cash or other financial assets that are potentially unfavourable to the Group; and e Where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Recognition and valuation of financial assets Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and cash deposits and amounts under short-term guarantees usually three months or less that are held for the purpose of meeting short-term cash commitments and are subject to insignificant risk in change in value and which are readily convertible to a known amount of cash. Cash held in accounts with more than 90 days’ notice that are not required to meet short-term cash commitments are shown as an investment. Investments Cash held in accounts with more than 90 days’ notice that are not required to meet short-term cash commitments are shown as an investment. The Group invests funds which are surplus to requirements in fixed rate deposits operating within parameters for credit ratings and credit limits for individual institutions that are approved and monitored by the Board. Under IAS 39 'Financial instruments; recognition and measurement', such investments are classified as loans and receivables and are recognised at fair value on initial recognition and subsequently measured at amortised cost using the effective interest method. Trade and other receivables Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. An impairment is made when it is likely that the balance will not be recovered in full. The recoverable amount is calculated as the present value of estimated future cash flows. Estimated future cash flows are not discounted due to the relatively short period of time between recognition of trade receivables and receipt of cash. Recognition and valuation of equity instruments Equity instruments are stated at par value. Any premium on issue is taken to the share premium account. Recognition and valuation of financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into. Trade payables Trade payables are initially recognised at fair value and are subsequently recognised at amortised cost using the effective interest method. Other loans Other loans are initially recognised at fair value and are subsequently recognised at amortised cost. Financial liabilities at Fair Value Through Profit or Loss ('FVTPL') A derivative that is not designated and effective as a hedging instrument is classified as held for trading. Financial liabilities are classified as at FVTPL where the financial liabilities are held for trading. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described in Note 24. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201680 Notes Forming Part of the Consolidated Financial Statements continued 3 Accounting Policies continued Derivative financial instruments The Group enters into foreign exchange forward contracts to manage its exposure to foreign exchange rate risk. Further details of derivative financial instruments are disclosed in Note 24 to the Financial Statements. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each Balance Sheet date. The resulting gain or loss is recognised in profit or loss (administrative costs) immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group currently designates certain derivatives as hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges). A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. Derivatives with remaining maturity of less than 12 months are presented as current assets or current liabilities. Leased assets Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases. Assets held as finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments during the lease term at the inception of the lease. Lease payments are apportioned between the reduction of the lease liability and finance charges in the Income Statement so as to achieve a constant rate of interest on the remaining balance of the liability. Assets held under finance leases are depreciated over the shorter of the estimated useful life of the assets and the lease term. Assets leased under operating leases are not recorded on the Balance Sheet. Rental payments are charged directly to the Income Statement. Lease incentives, primarily up-front cash payments or rent-free periods, are capitalised and spread over the period of the lease term on a straight line basis unless another systematic basis is more representative of the time pattern of the users’ benefit. Payments made to acquire operating leases are treated as prepaid lease expenses and amortised over the life of the lease. Pensions The Group operates a money purchase pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against the Income Statement represents the contributions payable to the scheme in respect of the accounting period. Share-based payments The Group has applied the requirements of IFRS 2 ‘Share-based payments’. IFRS has been applied to all options granted after 7 November 2002 that were unvested as of 1 January 2006. The group issues equity–settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value as determined at the grant date of equity–settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of options that will eventually vest. Fair value is measured by use of a Black-Scholes Merton or Monte Carlo model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations. Capital management For the year ended 31 December 2016, the Group had net funds with no borrowings. Capital is managed by maximising retained profits. Working capital is managed in order to generate maximum conversion of these profits into cash and cash equivalents thereby maintaining capital. Capital includes share capital, share premium, investment in own shares, share-based payments reserve, share-based payments deferred tax reserve, other reserve, translation reserve and retained earnings reserve. There are no externally imposed capital requirements on the Group. Employee Benefit Trusts The Group operates an Employee Benefit Trust (EBT): ‘Advanced Medical Solutions Group plc UK Employee Benefit Trust’. The Group has de facto control of the assets, liabilities and shares held by the Trust and bear their benefits and risks. The Group records assets and liabilities of the Trust as its own. In compliance with IAS 32 ‘Financial Instruments: Presentation Group’, shares held by the EBT are included in the Consolidated Balance Sheet as a reduction in equity. Gains and losses on Group shares are recognised directly in reserves. Advanced Medical Solutions Group plc Annual Report 201681 IFRS not yet effective and not adopted early New accounting standards not yet applied At the date of authorisation of the Annual Financial Statements, the following new and revised IFRSs that are potentially relevant to the Group, and which have not been applied in the Annual Financial Statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU): e IFRS 2, Share-based Payment - effective for accounting periods beginning on or after 1 January 2018. e IFRS 16, Leases - effective for accounting periods beginning on or after 1 January 2019. e IAS 7, Statement of Cash Flows - effective for accounting periods beginning on or after 1 January 2017. e IAS 12, Income Taxes - effective for accounting periods beginning on or after 1 January 2017. e IFRS 9, Financial Instruments: Classification and Measurement - effective for accounting periods beginning on or after 1 January 2018. e IFRS 15, Revenue from Contracts with Customers - effective for accounting periods beginning on or after 1 January 2018. The Directors do not expect that the adoption of the standards listed above will have a material impact on the Financial Statements of the Group in future periods, except as follows: e IFRS 9 is effective for annual periods beginning 1 January 2018 and will replace IAS 39 Financial Instruments. This standard covers the classification, measurement, impairment and de-recognition of financial assets and financial liabilities, together with the new hedge accounting model. The Group does not expect the transition to the standard to have a material impact on the Financial Statements. e IFRS 15 is effective for annual periods beginning 1 January 2018 and will replace IAS 11 Construction Contracts and IAS 18 Revenue. This standard requires the separation of performance obligations within contracts with customers, and the contractual value to be allocated to each of the performance obligations. Revenue is then recognised as each performance obligation is satisfied. Retrospective application in the comparative year ending 31 December 2017 is optional, however the Group does not expect to undertake this option. An initial assessment has been performed and it is not anticipated that transition to IFRS 15 will have a material impact on the Group. e IFRS 16 is effective for annual periods beginning 1 January 2019, subject to EU endorsement, and will replace IAS 17 Leases. This standard requires lessees to recognise assets and liabilities for all leases, unless the lease term is 12 months or less, or the underlying asset is of low value. As at 31 December 2016, the Group holds a number of operating leases, which currently, under IAS 17, are expensed on a straight line basis over the lease term. Retrospective application in the comparative year ending 31 December 2018 is optional, however the Group does not expect to undertake this option. An initial assessment has been performed and it is anticipated that transition to IFRS 16 will have a material impact on the value of lease assets and liabilities recognised in the Consolidated Balance Sheet. The Group will continue to monitor the impact until the transition date, providing further quantitative and qualitative measures as progress is made on implementation planning. Beyond the information above, it is not practicable to provide a reasonable financial estimate of the effect of these standards until a detailed review has been completed. 4 Segment Information As referred to in the Chief Executive’s Statement, the Group is organised into four Business Units: Branded Direct, Branded Distributed, OEM (Original Equipment Manufacturer) and Bulk Materials. These Business Units are the basis on which the Group reports its segment information. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly investments, and related revenue, corporate assets, head office expenses, income tax assets and the Group’s external borrowings. These are the measures reported to the Group’s Chief Executive Officer for the purposes of resource allocation and assessment of segment performance. Business segments The principal activities of the Business Units are as follows: Branded Direct Selling, marketing, and innovation of the Group’s branded products sold directly by the Group’s sales teams. Branded Distributed Distribution, marketing and innovation of the Group’s brands sold by distributors in markets not serviced by the Group’s sales team. OEM Selling, marketing and innovation of the Group’s products supplied to partners under their brands. Bulk Materials Selling, marketing and innovation of bulk materials to medical device partners and converters. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201682 Notes Forming Part of the Consolidated Financial Statements continued 4 Segment information continued Segment information about these Business Units is presented below. Year ended 31 December 2016 Revenue External sales Inter-segment sales Total revenue Result Segment result Unallocated expenses Profit from operations Finance income Finance costs Profit before tax Tax Profit for the year At 31 December 2016 Other Information Capital additions: Software intangibles Research and development Property, plant and equipment Depreciation and amortisation Balance sheet Assets Segment assets Unallocated assets Consolidated total assets Liabilities Segment liabilities Consolidated total liabilities Year ended 31 December 2015 Revenue External sales Inter-segment sales Total revenue Result Segment result Unallocated expenses Profit from operations Finance income Finance costs Profit before tax Tax Profit for the year Branded Direct £’000 Branded Distributed £’000 OEM £’000 Bulk Materials £’000 Eliminations £’000 Consolidated £’000 24,553 20,753 32,070 – – – 24,553 20,753 32,070 5,245 1,795 7,040 – (1,795) (1,795) 4,976 6,337 6,881 1,796 – 82,621 – 82,621 19,990 (885) 19,105 108 (111) 19,102 (3,410) 15,692 Branded Direct £’000 Branded Distributed £’000 OEM £’000 Bulk Materials £’000 Consolidated £’000 463 31 734 (843) 133 126 371 194 100 201 (466) (1,340) 5 2 217 (260) 68,197 29,301 40,665 6,723 7,082 4,938 6,291 1,167 795 259 1,523 (2,909) 144,886 120 145,006 19,478 19,478 Branded Direct £’000 Branded Distributed £’000 OEM £’000 Bulk Materials £’000 Eliminations £’000 Consolidated £’000 22,344 – 22,344 14,631 – 14,631 27,675 – 27,675 3,946 826 4,772 – (826) (826) 68,596 – 68,596 5,235 4,366 7,139 814 – 17,554 (513) 17,041 73 (118) 16,996 (2,877) 14,119 Advanced Medical Solutions Group plc Annual Report 201683 31 December 2015 Other Information Capital additions: Software intangibles Research and development Property, plant and equipment Depreciation and amortisation Balance sheet Assets Segment assets Unallocated assets Consolidated total assets Liabilities Segment liabilities Consolidated total liabilities Geographical Segments Branded Direct £’000 Branded Distributed £’000 OEM £’000 Bulk Materials £’000 Consolidated £’000 111 102 730 (855) 15 67 332 (431) 333 200 663 (1,309) 13 4 182 (217) 57,264 20,913 32,874 5,347 5,353 2,888 3,930 735 472 373 1,907 (2,812) 116,398 165 116,563 12,906 12,906 The Group operates in the UK, Germany, the Netherlands, the Czech Republic, with sales offices in Russia and a sales presence in the US. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services, based upon location of the Group’s customers: United Kingdom Germany Europe excluding United Kingdom and Germany United States of America Rest of the World The following table provides an analysis of the Group’s total assets by geographical location. United Kingdom Germany Europe excluding United Kingdom and Germany United States of America Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 17,457 18,345 21,360 23,505 1,954 82,621 16,657 13,371 19,223 17,766 1,579 68,596 Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 80,580 59,950 3,962 514 145,006 62,785 50,592 3,060 126 116,563 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201684 Notes Forming Part of the Consolidated Financial Statements continued 5 Profit from Operations Profit from operations is arrived at after charging: Depreciation of property, plant and equipment Amortisation of: – acquired intellectual property rights – software intangibles – development costs Operating lease rentals - plant and machinery - land and buildings Research and development costs expensed to the Income Statement Cost of inventories recognised as expense Staff costs Net foreign exchange loss 6 Exceptional Items Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 1,898 1,754 242 329 441 253 917 2,276 34,132 26,162 1,271 367 289 410 250 896 1,817 27,836 21,579 391 During 2016, £361,000 of exceptional costs were incurred relating to an acquisition that was not progressed in the year (2015: £nil). 7 Auditor’s Remuneration Amounts payable to Deloitte LLP and their associates in respect of both audit and non-audit services: Fees payable to the Company’s Auditor and their associates for the audit of the Company’s annual accounts Fees payable to the Company’s Auditor and their associates for other audit services to the Group - the audit of the Company’s subsidiaries Total audit fees Audit related assurance services Other services Corporate finance services Total non audit fees Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 13 71 84 13 4 114 130 214 19 67 86 13 – 55 68 154 Fees payable to the Company’s Auditor, Deloitte LLP and its associates, for non-audit services to the Company are not required to be disclosed in subsidiaries’ accounts because the Consolidated Financial Statements are required to disclose such fees on a consolidated basis. A description of the work of the Audit Committee is set out in the Governance section of the Annual Report which includes explanations of how the audit objectivity and independence is safeguarded when non-audit services are provided by the Auditor. Advanced Medical Solutions Group plc Annual Report 2016 85 8 Employees The average monthly number of employees of the Group during the year, including Executive Directors, was as follows: Production Research and development Sales and marketing Administration Staff costs for all employees, including Executive Directors, consists of: Wages and salaries Social Security costs Pension costs Share-based payments (see Note 29) Year ended 31 December 2016 Number Year ended 31 December 2015 Number 303 30 120 86 539 274 29 107 78 488 Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 20,979 2,965 988 1,230 26,162 17,543 2,523 804 709 21,579 The 2015 comparator has been restated to include an additional amount of £1,079,000 previously omitted from the Note in the 2015 accounts. 9 Directors’ Emoluments Remuneration for management services Pension Amounts paid to third parties Share-based payments Executive Directors Salaries and short-term employee benefits Pension Share-based payments Highest paid Director Salaries and short-term employee benefits Pension Share-based payments Retirement benefits are accruing to the following number of Directors under money purchase schemes Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 967 52 65 442 1,526 988 66 30 207 1,321 Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 845 52 442 1,339 835 66 207 1,108 Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 496 26 256 778 2 497 26 121 644 2 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201686 Notes Forming Part of the Consolidated Financial Statements continued 10 Remuneration of Key Management Personnel The key management of the Group comprises the Directors of the Group together with senior members of the management team. Their aggregate compensation is shown below: Salaries and short-term employee benefits Pension Share based payments 11 Finance Income Bank interest 12 Finance Costs Amortisation of facility fees Total interest expense 13 Taxation a) Analysis of charge for the year Current tax: Tax on ordinary activities - current year Tax on ordinary activities - prior year Deferred tax: Tax on ordinary activities - current year Effect of reduction in UK corporation tax rates Tax charge for the year Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 2,334 108 795 3,237 2,225 114 356 2,695 Year ended 31 December 2016 £’000 108 Year ended 31 December 2015 £’000 73 Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 111 111 118 118 Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 3,180 (358) 2,822 599 (11) 588 3,410 1,743 58 1,801 1,055 21 1,076 2,877 The Group has chosen to use a weighted average country tax rate rather than the UK tax rate for the reconciliation of the charge for the year to the profit per the Income Statement. The Group operates in several jurisdictions, some of which have a tax rate in excess of the UK tax rate. As such, a weighted average country tax rate is believed to provide the most meaningful information to the users of the Financial Statements. Advanced Medical Solutions Group plc Annual Report 201687 b) Factors affecting tax charge for the year The tax assessed for the year is lower (2015: lower) than the weighted average Group tax rate of 22.11% (2015: 22.35%) as explained below: Profit before taxation Weighted average group tax rate 22.11% (2015:22.35%) Effects of: Expenses not deductible for tax purposes and other timing differences Depreciation for period less than capital allowances Utilisation and recognition of trading losses Patent Box Relief Research and development relief Share-based payments Adjustments in respect of prior year - current tax Adjustments in respect of prior year and rate changes - deferred tax Taxation Year ended 31 December 2016 £’000 19,102 4,224 Year ended 31 December 2015 £’000 16,996 3,798 50 (31) (203) (242) (183) (47) (359) 201 43 (1) (438) (269) (324) 10 58 – 3,410 2,877 Legislation to reduce the main rate of UK corporation tax to 19% and 17% was passed by Parliament in September 2016 to take effect from 1 April 2017 and 1 April 2020. The reduction in the main rate to 17% had been substantively enacted at the Balance Sheet date and, therefore, the deferred tax assets and liabilities are calculated in these Financial Statements at this rate. In addition to the amount charged to the Income Statement and other Comprehensive Income, the Group has recognised directly in equity: e Excess tax deductions related to share-based payments on exercised options e Changes in excess deferred tax deductions related to share-based payments, totalling £22,000 deficit: (2015: £159,000 deficit) 14 Dividends Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2015 of 0.55p (2014: 0.48p) per Ordinary Share Interim dividend for the year ended 31 December 2016 of 0.30p (2015: 0.25p) per Ordinary Share Proposed final dividend for the year ended 31 December 2016 of 0.62p (2015: 0.55p) per Ordinary Share Year ended 31 December 2016 £’000 Year ended 31 December 2015 £’000 1,150 633 1,783 935 586 1,521 1,305 1,305 1,150 1,150 The proposed final dividend is subject to approval by the shareholders and has not been included as a liability in these Financial Statements. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016 88 Notes Forming Part of the Consolidated Financial Statements continued 15 Earnings per Share The calculation of the basic and diluted earnings per share is based on the following data: Year ended 31 December Profit for the year attributable to equity holders of the parent Pre exceptional items Post exceptional items Number of shares Weighted average number of Ordinary Shares for the purposes of basic earnings per share Effect of dilutive potential Ordinary Shares: share options, deferred share bonus, LTIPs Weighted average number of Ordinary Shares for the purposes of diluted earnings per share Profit for the year attributable to equity holders of the parent Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent Amortisation of acquired intangible assets Adjusted profit for the year attributable to equity holders of the parent Earnings per share Basic – pre exceptional Basic – post exceptional Diluted – pre exceptional Diluted – post exceptional Adjusted basic (before exceptional items) Adjusted diluted (before exceptional items) 2016 £’000 2015 £’000 16,053 15,692 14,119 14,119 ‘000 ‘000 209,815 208,376 2,778 212,593 £’000 16,053 2,902 211,278 £’000 14,119 242 16,295 367 14,486 pence 7.65 7.48 7.55 7.38 7.77 7.66 pence 6.78 6.78 6.68 6.68 6.95 6.86 Advanced Medical Solutions Group plc Annual Report 201689 16 Acquired Intellectual Property Rights, Software Intangibles and Development Costs 2016 Cost At beginning of year Additions Exchange differences At end of year Amortisation At beginning of year Charged in the year Disposals / Impairment Exchange differences At end of year Net book value At 31 December 2016 At 31 December 2015 Acquired intellectual property rights £’000 Software intangibles £’000 Development costs £’000 Total £’000 11,541 – 1,356 12,897 3,182 242 – 5 2,859 795 70 3,724 850 329 – 45 3,340 364 31 3,735 1,537 441 125 (13) 3,429 1,224 2,090 17,740 1,159 1,457 20,356 5,569 1,012 125 37 6,743 9,468 8,359 2,500 2,009 1,645 1,803 13,613 12,171 Acquired intellectual property rights were initially recognised on the acquisition of MedLogic Global Limited representing patents and on the acquisition of RESORBA® representing brand names, know-how and customer listings and contracts. Intangible assets are amortised on a straight-line basis and the amortisation is recognised within administration costs, the largest intangible asset being RESORBA® ‘know-how’ which is being amortised over ten years with five years remaining, with the exception of the RESORBA® brand name, which the Directors believe has an unlimited useful economic life and has a carrying value of £8,885,000. In reaching this assessment, the Directors have considered that the RESORBA® brand has existed for over 80 years and is widely recognised as a market leader in the surgical market. 2015 Cost At beginning of year Additions Exchange differences At end of year Amortisation At beginning of year Charged in the year Exchange differences At end of year Net book value At 31 December 2015 At 31 December 2014 Acquired intellectual property rights £’000 Software intangibles £’000 Development costs £’000 Total £’000 12,089 – (548) 11,541 2,851 367 (36) 3,182 8,359 9,238 2,402 468 (11) 2,859 567 289 (6) 850 2,009 1,835 2,994 17,485 357 (11) 825 (570) 3,340 17,740 1,144 410 (17) 1,537 1,803 1,850 4,562 1,066 (59) 5,569 12,171 12,923 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201690 Notes Forming Part of the Consolidated Financial Statements continued 17 Property, Plant and Equipment 2016 Cost At beginning of year Additions Transfer of assets into use Disposals Exchange adjustment At end of year Depreciation At beginning of year Provided for the year Disposals Exchange adjustment At end of Year Net book value At 31 December 2016 At 31 December 2015 Freehold land, property and improvements £’000 Short leasehold improvements £’000 Plant and machinery £’000 Fixtures and fittings £’000 Motor vehicles £’000 Assets under construction £’000 Total £’000 4,443 12 22,430 679 29 – (2) 564 5,034 451 124 – 82 657 – – – – 1,247 72 (493) 620 12 – (18) 15 12 23,876 688 10 11,566 340 – – – 1,572 (457) 302 58 (17) 5 10 12,983 386 4,377 3,992 2 2 10,893 10,864 302 339 641 235 – (239) 82 719 115 144 (157) 14 116 603 526 72 – (72) – – – – – – – – 28,277 1,523 – (752) 1,281 30,329 12,482 1,898 (631) 403 14,152 – 72 16,177 15,795 At 31 December 2016, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £354,000 (2015: £783,000). The net book value of plant and equipment includes £167,000 (2015: £188,000) of capitalised borrowing costs relating to the Winsford site. Freehold land, property and improvements £’000 Short leasehold improvements £’000 Plant and machinery £’000 Fixtures and fittings £’000 Motor vehicles £’000 Assets under construction £’000 Total £’000 2015 Cost At beginning of year Additions Transfer of assets into use Disposals Exchange Adjustment At end of year Depreciation At beginning of year Provided for the year Disposals Exchange Adjustment At end of Year Net book value At 31 December 2015 At 31 December 2014 4,657 12 20,578 26 – (33) (207) 4,443 360 111 – (20) 451 3,992 4,297 – – – – 1,604 591 (186) (157) 647 35 – – (3) 12 22,430 679 10 10,379 – – – 1,465 (179) (99) 281 60 – (1) 10 11,566 340 2 2 10,864 10,199 339 366 619 170 – (118) (30) 641 71 118 (76) 2 115 526 548 591 72 (591) – – 27,104 1,907 – (337) (397) 72 28,277 – – – – – 11,101 1,754 (255) (118) 12,482 72 591 15,795 16,003 Advanced Medical Solutions Group plc Annual Report 201691 18 Deferred Tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting year. Share-based payment £’000 Tax losses £’000 Advanced capital allowances £’000 At 31 December 2014 Charge to income Charge to equity Exchange adjustment At 31 December 2015 Charge to income Charge to equity Exchange adjustment At 31 December 2016 407 (4) 159 – 562 100 22 – 684 1,669 (1,079) – – 590 (590) – – – Intangible assets £’000 (2,513) 56 – 146 (2,311) (199) – (410) Research and Development Assets £’000 (382) 29 – – (353) 50 – – Total £’000 (1,405) (1,076) 159 146 (2,176) (588) 22 (410) (586) (78) – – (664) 51 – – (613) (2,920) (303) (3,152) Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Deferred tax liabilities Deferred tax assets 2016 £’000 (916) 684 (232) 2015 £’000 (1,017) 1,152 135 At the balance sheet date, the Group has unused tax losses of £0.6 million (2015: £8.0 million) available for offset against future profits. No deferred tax asset has been recognised in respect of this loss (2015: £4.7 million) due to the unpredictability of future profit streams. 19 Goodwill Cost At 1 January Exchange differences At 31 December 2016 £’000 2015 £’000 34,579 5,758 40,337 36,696 (2,117) 34,579 Two cash-generating units (CGU) exist within the Branded Distributed segment whereby goodwill has been allocated. CGU1 has goodwill and indefinite useful life intangible assets of £29.7m and £6.8m (2015: £25.4m and £6.4m) respectively, and CGU2 has £0.8m (2015: £1.0m) of goodwill allocated. Goodwill arose on the acquisition of Advanced Medical Solutions B.V. on 30 September 2009 and the acquisition of RESORBA® on the 22nd December 2011. The goodwill and intangible assets with indefinite useful economic life have been allocated to the relevant Business Units in proportion to profit from operations on a consistent basis for all four segments, as follows: At 31 December 2016 Goodwill Intangible assets with indefinite useful life Branded Direct £’000 30,516 6,753 37,269 Branded Distributed £’000 8,489 2,132 10,621 OEM £’000 1,092 – 1,092 Bulk Materials £’000 240 – 240 Consolidated £’000 40,337 8,885 49,222 The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts have been determined based on a value-in-use calculation on a cash generating unit basis, which uses cash flow projections based on financial budgets approved by the Directors covering a 12 month period. These budgets have been adjusted for specific risk factors that take into account sensitivities of the projection. The base 12 month projection is extrapolated using reasonable growth rates specific to each cash generating unit up to year five of between 0% and 15% and has not been inflated for years six to 20 which management believes does not exceed the long-term average growth rate for the industry or forecast company growth. The growth rate would have to fall significantly in order for an impairment to be required. A discount rate of between 6.5% and 7.0% per annum (2015: between 6.0% and 7.5%), being the Group’s current pre tax weighted average cost of capital adjusted for risk, has been applied to these cash flows, being an estimation of current market risks and the time value of money. The Group has conducted a sensitivity analysis on the impairment test. The Directors believe that any reasonably possible further change in the key assumptions on which the recoverable amount is based would not cause any of the carrying amounts to exceed the relevant recoverable amount. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201692 Notes Forming Part of the Consolidated Financial Statements continued 20 Inventories Raw materials Work in progress Finished goods 2016 £’000 4,971 2,819 3,650 11,440 2015 £’000 4,376 1,699 2,768 8,843 There is no material difference between the replacement cost of stock and the amount at which it is stated in the Financial Statements. Included above are finished goods of £nil (2015: £nil) carried at net realisable value. Total gross inventories Inventory provision Net inventory Inventory impairment At beginning of year Income statement charge Provision released Provision utilised At end of year 21 Trade and Other Receivables Due: within one year Trade receivables Other receivables Prepayments and accrued income Amount receivable for the sale of goods Provision for impairment 2016 £’000 12,995 (1,555) 11,440 2016 £’000 (921) (1,304) 69 601 (1,555) 2015 £’000 9,764 (921) 8,843 2015 £’000 (685) (694) 36 422 (921) 2016 £’000 2015 £’000 10,456 255 1,161 11,872 2016 £’000 10,692 (236) 10,456 9,376 41 1,400 10,817 2015 £’000 9,644 (268) 9,376 The Group’s principal financial assets are cash and trade receivables. The Group’s credit risk is primarily attributable to its trade receivables. The average credit period taken on sales of goods is 41 days (2015: 41 days). No interest is charged on the receivables within the contracted credit period. Thereafter, interest may be charged at 2% per month on the outstanding balance. In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the Group’s large and unrelated customer base. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for impairments. Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits are reviewed on an ongoing basis and reflect current payment history. Included in the Group’s trade receivable balance are debtors which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable - a large proportion of debts overdue over 30 days were recovered post the Balance Sheet date. The Group does not hold any collateral or other credit enhancements over these balances. The carrying amount and ageing of these debtors are summarised on page 93. Advanced Medical Solutions Group plc Annual Report 2016Ageing of overdue but not impaired receivables 31-60 days overdue 61 to 90 days overdue Total Movement in provision for impairment Balance at the beginning of the year Impairment losses recognised Amounts written off as uncollectible Amounts recovered during the year Balance at the end of the year Ageing of impaired trade receivables Not yet due 0 to 30 days overdue 31 to 60 days overdue 61 to 90 days overdue Over 90 days overdue Total 93 2015 £’000 187 56 243 2015 £’000 243 147 (9) (113) 268 2015 £’000 82 – 3 – 183 268 2016 £’000 128 20 148 2016 £’000 268 100 (1) (131) 236 2016 £’000 3 – 2 18 213 236 Analysis of customers In the year ended 31 December 2016, there were no customers accounting for more than 10% of revenue (2015: same). 22 Cash and Cash Equivalents Cash and cash equivalents 2016 £’000 51,125 2015 £’000 34,201 Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets is approximately equal to their fair value. 23 Trade and Other Payables Current liabilities Trade payables Other payables Derivative financial instruments Accruals and deferred income Non-current liabilities Other payables Derivative financial instruments 2016 £’000 2015 £’000 3,278 1,599 2,605 5,419 12,901 362 929 1,291 3,339 1,367 525 3,908 9,139 415 – 415 Trade payables, other payables and accruals and deferred income principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 33 days (2015: 34 days). No interest is charged on trade payables that are within pre-agreed credit terms. Thereafter, interest may be charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. The Directors consider that the carrying amount of trade payables approximates to their fair value. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201694 Notes Forming Part of the Consolidated Financial Statements continued 24 Financial Instruments Categories of financial instruments All financial instruments held by the Group, as detailed in this Note, are classified as ‘Loans and Receivables’ (trade and other receivables, cash and cash equivalents), ‘Held to maturity investments’ (short-term investments), ‘Financial Liabilities Measured at Amortised Cost’ (trade and other payables, financial liabilities and obligations under finance leases), ‘Derivative instruments in designated hedge accounting relationships (cash flow hedges)’ and ‘Fair value through profit and loss (FVTPL)’ (derivative financial instruments) under IAS 39 ‘Financial Instruments: Recognition and Measurement’ and finance leases under IAS 17 ‘ Leases’. Carrying value 2016 £’000 2015 £’000 Financial assets Loans and receivables (including cash and cash equivalents 61,846 43,631 Financial liabilities Derivative instruments in designated hedge accounting relationships Amortised cost 3,534 14,192 525 9,555 In December 2014 the Group entered into a multi-currency facility with the Royal Bank of Scotland and HSBC. The principle features of the facility are: e The committed value of the facility is £30 million e There is an uncommitted accordion of an additional £20 million e Is unsecured e Facility will expire in December 2019 e The interest payable on drawings under the loan is based on inter-bank interest (EURIBOR or, if sterling denominated LIBOR) plus a sliding scale margin determined by the Group’s leverage: the margin is currently 0.65% e The facility has two covenants - interest cover (ratio of EBITDA to net finance charges) must be above 4:1 and leverage (ratio of Total Net Debt to adjusted EBITDA) should not exceed 3:1 e It was undrawn at the end of the year The Risk Management section on pages 38 to 41 provides an explanation of the financial risks faced by the Group and the objectives and policies for managing those risks. The information below deals with the financial assets and liabilities. (a) Maturity of financial liabilities The maturity profile of the Group’s financial liabilities, of which other loans and finance lease obligations are at fixed rates and denominated in Sterling whilst derivative financial instruments are non-interest bearing, is as follows: 2016 Trade and other payables At 31 December 2016 2015 Trade and other payables Finance lease creditors At 31 December 2015 Finance lease creditors On demand or within one year £’000 13,830 13,830 On demand or within one year £’000 9,139 1 9,140 Between one and two years £’000 53 53 Between one and two years £’000 53 – 53 Between two and five years £’000 158 158 Between two and five years £’000 158 – 158 Five years or more £’000 151 151 Five years or more £’000 204 – 204 Total financial liabilities £’000 14,192 14,192 Total financial liabilities £’000 9,554 1 9,555 Interest rate % – Interest rate % – 24% Fixed rate financial liabilities Weighted average period for which rate is fixed 2016 Years – 2015 Years 5 Advanced Medical Solutions Group plc Annual Report 201695 Floating £’000 Non-interest bearing £’000 Total £’000 16,195 136 2,625 18,956 Floating £’000 5,543 51 2,192 7,786 30,621 46,816 973 575 32,169 Non-interest bearing £’000 24,048 528 1,839 26,415 2016 £’000 6,389 2,399 3,084 11,872 1,109 3,200 51,125 Total £’000 29,591 579 4,031 34,201 2015 £’000 5,963 1,874 2,980 10,817 (b) Interest rate and currency of financial assets The currency and interest rate profile of the financial assets of the Group is as follows: Cash and cash equivalents Currency Sterling US Dollar Euro At 31 December 2016 Currency Sterling US Dollar Euro At 31 December 2015 Trade and other receivables The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Sterling US Dollar Euro The financial assets all mature within one year. (c) Currency exposures At 31 December 2016, the Group had unhedged US Dollar currency exposures of £nil (2015: £nil) and unhedged Euro currency exposures of £nil (2015: £nil). Risk sensitivity The Group estimates that a 10% movement in the £:US$ or £:Euro exchange rate will impact 2016 Sterling revenues by approximately 2.7% and 3.1% respectively and in the absence of any hedging this would have an impact on profit of 2.2% and 0.5%. Forward foreign exchange contracts It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts. The following table details the forward foreign currency contracts outstanding as at the year-end: Outstanding contracts Cash flow hedges Average exchange rate Foreign currency Contract value Sell US dollars Less than 3 months 3 to 6 months 7 to 12 months Over 12 months 2016 USD:£1 1.467 1.421 1.423 1.319 2015 USD:£1 2016 USD ‘000 2015 USD ‘000 2016 £’000 2015 £’000 1.606 1.527 1.526 1.524 5,250 5,250 10,500 22,200 43,200 5,100 4,000 8,600 3,000 20,700 3,579 3,696 7,377 16,829 31,481 3,176 2,619 5,634 1,969 13,398 Fair value 2016 £’000 (673) (548) (1,079) (857) (3,157) 2015 £’000 (257) (80) (167) (56) (560) Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201696 Notes Forming Part of the Consolidated Financial Statements continued 24 Financial Instruments continued Sell Euros Less than 3 months 3 to 6 months 7 to 12 months Over 12 months Average exchange rate Foreign currency Contract value 2016 EUR:£1 1.290 1.263 1.245 1.192 2015 EUR:£1 1.309 1.358 1.358 1.356 2016 £’000 2015 £’000 2016 £’000 1,050 1,250 2,500 2,400 7,200 600 650 1,900 350 3,500 814 990 2,009 2,013 5,826 2015 £’000 459 479 1,399 258 2,595 Fair value 2016 £’000 2015 £’000 (85) (73) (146) (72) (376) 21 2 9 1 33 The fair value amounts presented above are the difference between the market value of equivalent instruments at the balance sheet date and the contract value of the instruments. No profits or losses are included in operating profit in the year (2015: £nil) in respect of FVTPL contracts. The loss of £3,533,000 (2015: £526,000 loss) in respect of cash flow hedges has been taken to reserves. 25 Fair Value of Financial Assets and Liabilities The Directors consider that the fair value of the Group’s financial instruments do not differ significantly from their book values. 26 Foreign Exchange Rates Currency US Dollar Euro 27 Share Capital Number of Ordinary Shares of 5p each At 1 January 2015 Share options exercised At 31 December 2015 Share options exercised or Shares issued into Trust At 31 December 2016 Average rate Closing rate Percentage change 2016 2015 2016 2015 Average % Closing % 1.3661 1.2352 1.5315 1.3740 1.2312 1.168 1.4833 1.3625 (11) (10) (17) (14) Allotted, called up and fully paid ‘000 207,852 1,170 209,022 1,452 210,474 During the year, employees exercised share options and options over LTIPs for 965,958 shares (2015: 1,002,578) at a range of option prices from 17p to 132p. During the year, 354,582 (2015: 167,422) shares were issued under the Deferred Share Bonus Scheme and the Deferred Annual Bonus Scheme at the nominal value of 5p per share. At the balance sheet date, 501,324 (2015: 450,000) of shares are retained by the Trust to meet the matching requirements of the scheme. Ordinary Shares of 5p each At 1 January 2015 Share options exercised At 31 December 2015 New issues in the year At 31 December 2016 28 Reserves Investment in own shares This is the nominal value of the shares held in trust on behalf of employees in respect of the DSB scheme. Other reserve This represents Advanced Medical Solutions Limited’s share premium account arising from merger accounting. Allotted, called up and fully paid ‘000 10,393 58 10,451 73 10,524 Advanced Medical Solutions Group plc Annual Report 201697 Hedging reserve The hedging reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedged transaction impacts the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy. Translation reserve Exchange differences relating to the translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only, from their functional currency into the parents functional currency, being Sterling, are recognised directly in the translation reserve. Gains and losses on hedging instruments that are designated as hedges of net investments in foreign operations are included in the translation reserve. A £8,851,000 gain has been recorded in the translation reserve during the period, which would otherwise have been recognised in administration costs (2015: £3,348,000 loss), if hedge accounting had not been adopted. 29 Share-Based Payments The charge for share based payments under IFRS 2 arises across the following schemes: Unapproved Executive Share Option Scheme, Enterprise Management Incentive Scheme and Company Share Option Scheme Long-Term Incentive Plan Deferred Share Bonus Scheme and Deferred Annual Bonus Scheme 2016 £’000 102 744 384 1,230 2015 £’000 98 360 251 709 Unapproved Executive Share Option Scheme and Enterprise Management Incentive Scheme (EMI) and Company Share Option Plan (CSOP) The fair value of the executive options is calculated based on a Black-Scholes Merton model assuming the inputs below: Grant Date 12/04/2007 20/04/2009 16/04/2010 15/04/2011 08/09/2011 10/05/2012 20/06/2012 06/09/2012 Share price at grant date Exercise price Expected life Contractual life Risk free rate Expected volatility Expected dividend yield Fair value of options 16.75p 16.75p 3.5 yrs 10 yrs 5.00% 27% 0% 2p 33.75p 33.75p 3 yrs 10 yrs 2.40% 34% 0% 6p 42.0p 42.0p 3.5 yrs 10 yrs 2.40% 34% 0% 9p 88.0p 88.0p 3 yrs 10 yrs 1.92% 18% 0.7% 9p 86.25p 86.25p 3 yrs 10 yrs 1.92% 18% 0.7% 9p 69.08p 69.08p 3 yrs 10 yrs 0.39% 34% 0.7% 13p 67.5p 67.5p 3 yrs 10 yrs 0.39% 34% 0.7% 12p 76.75p 76.75p 3 yrs 10 yrs 0.17% 34% 0.7% 17p Grant Date 26/04/2013 21/05/2013 19/09/2013 15/04/2014 19/09/2014 02/04/2015 18/04/2016 Share price at grant date Exercise price Expected life Contractual life Risk free rate Expected volatility Expected dividend yield Fair value of options 77.5p 77.5p 3 yrs 10 yrs 0.36% 36% 0.7% 15p 74.0p 74.0p 3 yrs 10 yrs 0.49% 36% 0.7% 14p 90.0p 90.0p 3 yrs 10 yrs 0.86% 36% 0.7% 14p 115.75p 115.75p 3 yrs 10 yrs 0.80% 36% 0.7% 23p 121.75p 121.75p 3 yrs 10 yrs 0.80% 36% 0.7% 24p 132.0p 132.0p 3 yrs 10 yrs 0.80% 31% 0.7% 22p 184.6p 184.6p 3 yrs 10 yrs 0.67% 25% 0.4% 25p Under the terms of the Company’s Share Option Schemes, approved by Shareholders in 2010, the Board may offer options to purchase Ordinary Shares in the Company to all employees of the Company at the market price on a date to be determined prior to the date of the offer. Since 2005, individuals who are entitled to awards under the LTIP are no longer eligible to receive options under the Company’s Share Option Schemes. Performance targets are assessed over a three-year period from the date of grant. Once options have vested they can be exercised during the period up to ten years from the date of grant. The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous three years. Options have been granted over the following number of Ordinary Shares which were outstanding at 31 December 2016: Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 201698 Notes Forming Part of the Consolidated Financial Statements continued 29 Share-Based Payments continued Date of grant Option price (p) Weighted average price at exercise (p) No. of options as at 1 January 2016 Remaining life 1 January 2016 Issued Lapsed Exercised No. of options as at 31 December 2016 Remaining life 31 December 2016 Unapproved Executive Share Option Scheme 16.04.10 20.06.12 26.04.13 21.05.13 19.09.13 15.04.14 19.09.14 02.04.15 18.04.16 42.00 67.50 77.50 74.00 90.00 115.75 121.75 132.00 184.60 192.38 192.38 198.35 5,000 118,390 15,000 202.73 451,454 215.25 3,000 484,679 127,680 365,296 – – – – 4.3 6.5 7.3 7.4 7.7 8.3 8.7 9.2 – – – – – – – – – – 755,572 Enterprise Management Incentive Scheme 12.04.07 20.04.09 16.04.10 16.75 33.75 42.00 214.00 181.77 186.46 15,000 9,000 118,500 Company Share Option Plan 15.04.11 08.09.11 10.05.12 20.06.12 06.09.12 26.04.13 21.05.13 15.04.14 19.09.14 02.04.15 18.04.16 88.00 86.25 69.08 67.50 76.75 77.50 74.00 115.75 121.75 132.00 184.60 183.00 197.53 198.35 173.95 196.70 183.00 196.70 – – – – 19,000 3,000 51,000 128,591 2,500 85,000 119,865 135,321 116,320 99,704 1.0 3.3 4.3 5.3 5.7 6.4 6.5 6.7 7.3 7.4 8.3 8.7 9.2 – – – – – – – – – – – – – – 148,053 – – – – – – – – – – – – (5,000) – (43,056) 75,334 (15,000) – (391,454) 60,000 (3,000) – – – – – 484,679 127,680 365,296 755,572 (15,000) (6,000) – 3,000 (60,500) 58,000 (11,000) – – – – (2,000) (2,000) 6,000 1,000 (22,000) 29,000 (128,591) (2,500) – – (15,000) (69,000) 1,000 – – – – – (74,716) 45,149 – – – – 135,321 116,320 99,704 148,053 3.3 5.5 6.3 6.4 6.7 7.3 7.7 8.2 9.3 – 2.3 3.3 4.3 4.7 5.4 5.5 5.7 6.3 6.4 7.3 7.7 8.2 9.3 The weighted average remaining contractual life of the options outstanding at 31 December 2016 is 8.0 years (2015 7.8 years). 2,473,300 903,625 (26,000) (839,817) 2,511,108 2016 2015 Number of Options Weighted average exercise price (p) Number of Options Weighted average exercise price (p) Outstanding at beginning of the year 2,473,300 97.52 2,965,254 Granted Exercised Lapsed Outstanding at end of the year Exercisable at end of year 903,625 (839,817) (26,000) 2,511,108 278,483 184.60 194.23 81.94 138.49 64.99 495,000 (766,954) (220,000) 2,473,300 469,981 84.32 132.00 149.70 106.20 97.52 59.70 Advanced Medical Solutions Group plc Annual Report 201699 Long Term Incentive Plan (LTIP) The fair value of the LTIP is calculated based on a binominal tree model assuming the inputs below: Grant date 15/04/2011 20/06/2012 06/09/2012 21/05/2013 19/09/2013 06/06/2014 02/04/2015 10/09/2015 18/04/2016 Share price of grant date 88.00p Exercise price Expected life Contractual life Risk free rate Expected volatility Expected dividend yield Probability of performance conditions Fair value of option 0p 3 yrs 10 yrs 1.92% 33% 0% 52% 76.5p 67.5p 0p 3 yrs 10 yrs 0.39% 34% 0.7% 44% 28.8p 76.8p 0p 3 yrs 10 yrs 0.39% 34% 0.7% 49% 36.4p 74.0p 0p 3 yrs 10 yrs 0.49% 35% 0.7% 64% 46.3p 90.0p 0p 3 yrs 10 yrs 0.86% 36% 0.7% 70% 60.9p 117.0p 132.0p 151.5p 184.6p 0p 3 yrs 10 yrs 0.80% 36% 0.7% 75% 85.9p 0p 3 yrs 10 yrs 0.80% 29% 0.7% 65% 64.4p 0p 3 yrs 10 yrs 0.67% 27% 0.4% 65% 75.5p 0p 3 yrs 10 yrs 0.67% 25% 0.4% 64% 159.0p The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous three years. The entitlement to shares under the LTIP is subject to achieving the performance conditions referred to on page 58. The numbers shown are maximum entitlements and the actual number of shares (if any) will depend on these performance conditions being achieved. Date of grant Market price at date of grant (p) Number of LTIPs at 1 January 2016 Remaining life 1 January 2016 Issued Lapsed Exercised Number of LTIPs at 31 December 2016 Remaining life 31 December 2016 Long-Term Incentive Plan 15.04.11 20.06.12 06.09.12 21.05.13 19.09.13 06.06.14 02.04.15 10.09.15 18.04.16 88.00 188,628 67.50 76.75 55,118 254,945 74.00 100,000 90.00 117.00 403,122 857,957 132.00 494,357 151.50 300,329 6.3 6.5 6.7 7.4 7.8 8.5 9.3 9.7 – – – – – – – – – – – – 188,628 (55,118) – – 254,945 (50,000) (50,000) – (201,562) – 201,560 (33,334) (16,666) 807,957 (21,787) (4,357) 468,213 – – – 300,329 632,016 184.60 – – 700,991 (68,975) 5.3 – 5.7 – 6.8 7.5 8.3 8.7 9.7 The weighted average remaining contractual life of the LTIPs outstanding at 31 December 2016 is 7.9 years (2015: 8.3 years). 2,654,456 700,991 (375,658) (126,141) 2,853,648 Outstanding at beginning of the period Granted Exercised Lapsed Outstanding at end of the period Exercisable at end of period The exercise price of these options is £1 for each issue of LTIPs per individual. 2016 Number of Options 2015 Number of Options 2,654,456 2,460,076 700,991 (126,141) (375,658) 794,686 (235,624) (364,682) 2,853,648 2,654,456 1,453,090 498,691 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016100 Notes Forming Part of the Consolidated Financial Statements continued 29 Share-Based Payments continued Deferred Share Bonus Scheme (DSB) The fair value of the DSB Shares are calculated based on a Black-Scholes Merton model assuming the inputs below: Grant date 12/04/2007 12/04/2007 02/05/2008 23/04/2009 05/05/2010 05/05/2010 11/05/2011 11/05/2011 10/05/2012 Share price at grant date 18.25p 18.25p 35.50p 34.00p 40.32p 40.32p 83.00p 83.00p 70.625p Exercise price Expected life Contractual life Risk-free rate Expected volatility Expected dividend yield Probability of performance conditions Fair value of option 0p 3.5 yrs 10 yrs 5.00% 27% 0% 0p 3.5 yrs 10 yrs 5.00% 27% 0% 100% 14p 66.70% 9p 0p 3.5 yrs 10 yrs 5.00% 38% 0% 100% 30p 0p 3 yrs 10 yrs 2.40% 30% 0% 100% 29p 0p 5 yrs 10 yrs 2.40% 34% 0% 100% 34p 0p 3 yrs 10 yrs 2.40% 34% 0% 100% 34p 0p 5 yrs 10 yrs 1.92% 18% 0.7% 100% 72p 0p 3 yrs 10 yrs 1.92% 18% 0.7% 100% 72p 0p 5 yrs 10 yrs 0.39% 34% 0.7% 100% 61p Grant date 10/05/2012 02/07/2013 02/07/2013 30/04/2014 30/04/2014 29/04/2015 29/04/2015 03/05/2016 03/05/2016 Share price at grant date 70.625p 74.125p 74.125p 126.0p 126.0p 141.5p 141.5p 183.0p 183.0p Exercise price Expected life Contractual life Risk-free rate Expected volatility Expected dividend yield Probability of performance conditions Fair value of option 0p 3 yrs 10 yrs 0.39% 34% 0.7% 100% 62p 0p 5 yrs 10 yrs 0.69% 36% 0.7% 100% 63p 0p 3 yrs 10 yrs 0.69% 36% 0.7% 100% 64p 0p 5 yrs 10 yrs 0.80% 36% 0.7% 100% 108p 0p 3 yrs 10 yrs 0.80% 36% 0.7% 100% 110p 0p 5 yrs 10 yrs 0.80% 31% 0.7% 100% 122p 0p 3 yrs 10 yrs 0.80% 31% 0.7% 100% 124p 0p 5 yrs 10 yrs 0.67% 25% 0.4% 100% 160p 0p 3 yrs 10 yrs 0.67% 25% 0.4% 100% 161p The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous three years. The entitlement to shares under the DSB is subject to a three-year holding period. Additionally, for certain levels of share matching, additional performance conditions also need to be achieved. The actual number of shares that will be matched will depend on these performance conditions. Details on the DSB are given on page 58. Market price at date of grant (p) Number of DSB matching shares at 1 January 2016 Remaining life 1 January 2016 Issued Lapsed Exercised Number of DSB matching shares at 31 December 2016 Remaining life 31 December 2016 Deferred Share Bonus Plan Date of grant 12.04.07 02.05.08 23.04.09 05.05.10 11.05.11 10.05.12 02.07.13 18.25 35.50 34.00 40.32 83.00 70.625 17,970 15,048 53,275 99,450 60,508 51,471 74.125 379,905 30.04.14 126.000 171,514 29.04.15 141.500 252,563 1.3 2.3 3.3 4.3 5.4 6.4 7.5 8.6 9.6 – – – – – – – – – – – – – – – – (2,191) (1,408) 15,779 13,640 (18,063) 35,212 (70,310) 29,140 (26,487) 34,021 (14,543) 36,928 (191,489) 188,416 (8,303) (2,338) (10,624) 152,587 (7,803) 242,422 0.3 1.3 2.3 3.3 4.4 5.4 6.5 7.6 8.6 9.6 03.05.16 183.000 – – 367,204 (18,104) (2,949) 346,151 1,101,704 367,204 (28,745) (345,867) 1,094,296 The weighted average remaining contractual life of the DSBs outstanding at 31 December 2016 is 7.6 years (2015: 7.3 years). Advanced Medical Solutions Group plc Annual Report 2016Deferred Share Bonus Scheme (DSB) Outstanding at beginning of the period Granted Exercised Forfeited Outstanding at end of the period Exercisable at end of period The exercise price of the matching shares is £nil. 101 2016 Number of Options 2015 Number of Options 1,101,704 1,021,404 367,204 (345,867) (28,745) 1,094,296 353,136 264,812 (167,422) (17,090) 1,101,704 297,722 Deferred Annual Bonus Scheme (DABs) The fair value of the DSB are calculated based on a Black-Scholes Merton model assuming the inputs below: Grant date Share price at grant date Exercise price Expected life Contractual life Risk-free rate Expected volatility Expected dividend yield Probability of performance conditions Fair value of option 21/05/2014 15/04/2015 18/04/2016 115.4p 0p 3 yrs 10 yrs 0.80% 31% 0.7% 100% 115p 129.0p 0p 3 yrs 10 yrs 0.80% 31% 0.7% 100% 129p 184.6p 0p 3 yrs 10 yrs 0.67% 25% 0.4% 100% 183p The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous three years. The Deferred Annual Bonus scheme (DAB) began on 21 May 2014. Participants compulsorily defer part of their bonus for the relevant financial year. The grant vests at the end of a three-year period determined by the Remuneration Committee starting from the date of grant. Market price at date of grant (p) Number of DAB matching shares at 1 January 2016 Remaining life 1 January 2016 Date of grant Issued Lapsed Exercised Number of DAB shares at 31 December 2016 Remaining life 31 December 2016 Deferred Annual Bonus Plan 21.05.2014 15.04.2015 18.04.2016 115.40 129.00 184.60 52,398 81,961 – 8.6 9.6 – 134,359 18.2 – – 94,201 94,201 – – – (1,585) (3,668) (3,462) 50,813 78,293 90,739 (8,715) 219,845 7.6 8.6 9.6 The weighted average remaining contractual life of the DABs outstanding at 31 December 2016 is 8.8 years (2015: 9.2). Deferred Annual Bonus Plan (DAB) Outstanding at beginning of the period Granted Exercised Forfeited Outstanding at end of the period Exercisable at end of period 2016 Number of Options 134,359 94,201 (8,715) – 2015 Number of Options 52,398 81,961 – – 219,845 134,359 – – Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016102 Notes Forming Part of the Consolidated Financial Statements continued 30 Commitments under Operating Leases As at 31 December 2016, the Group had outstanding commitments under operating leases, which fall due as follows: Amounts payable under operating leases: Within one year In two to five years After five years 31 Related Party Transactions 2016 Land and buildings £’000 908 3,633 2,207 6,748 2016 Other £’000 83 143 7 233 2015 Land and buildings £’000 885 3,561 3,087 7,533 2015 Other £’000 73 87 – 160 Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and there are no other related party transactions to disclose. Advanced Medical Solutions Group plc Annual Report 2016Company Balance Sheet At 31 December 2016 Non current assets Investments in subsidiaries Current assets Investments Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Net current assets Net assets Equity shareholders’ funds Share capital Share-based payments reserve Investment in own shares Share premium Retained earnings Equity attributable to equity holders of the parent Statement of Changes in Equity For the Year ended 31 December 2016 At 1 January 2015 Share-based payments Share options exercised Shares purchased by EBT Shares sold by EBT Profit for the year Dividends paid At 31 December 2015 Share-based payments Share options exercised Shares purchased by EBT Shares sold by EBT Profit for the year Dividends paid At 31 December 2016 103 Notes 2016 £’000 2015 £’000 3 4 5 6 52,147 52,082 3,479 42,530 46,009 (3,698) 42,311 94,458 10,524 3,469 (152) 34,005 46,612 94,458 212 28,693 28,905 (5,120) 23,785 75,867 10,451 2,253 (152) 33,196 30,119 75,867 Share-based payments £’000 Investment in own shares £’000 Share premium £’000 Retained earnings £’000 Total £’000 (148) 32,742 13,640 58,190 Share capital £’000 10,393 – 58 – – – – 10,451 – 73 – – – – 1,563 709 (19) – – – – 2,253 1,230 (14) – – – – – – (262) 258 – – (152) – – (449) 449 – – – 454 – – – – 33,196 – 809 – – – – – – – – 18,000 (1,521) 30,119 – – – – 18,276 (1,783) 46,612 709 493 (262) 258 18,000 (1,521) 75,867 1,230 868 (449) 449 18,276 (1,783) 94,458 10,524 3,469 (152) 34,005 The Financial Statements of Advanced Medical Solutions Group plc (registration number 2867684) on pages 71 to 102 were approved by the Board of Directors and authorised for issue on 28 April 2017 and were signed on its behalf by: Chris Meredith Chief Executive Officer 28 April 2017 Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016104 Notes to the Company Financial Statements Year ended 31 December 2016 1 Significant Accounting Policies Basis of preparation These Financial Statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework ('FRS 101'). In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'), but makes amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. In these Financial Statements, the Company has adopted FRS 101. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, capital management, presentation of a Cash Flow statement, presentation of comparative information in respect of certain assets, standards not yet effective, impairment of assets business combinations, discontinued operations and related party transactions. IFRS 2 Share-based payments has not been applied to any equity instruments that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 January 2005. This treatment is consistent with the transitional provisions taken when the Company adopted FRS 20, the UK equivalent standard. In the transition to FRS 101 from UK GAAP, the Company has made measurement and recognition adjustments which are detailed below. Critical judgements in applying the company’s accounting policies In the process of applying the Company’s accounting policies, which are described below, the directors have made the following judgements that have the most significant effect on the amounts recognised in the Financial Statements (apart from those involving estimations, which are dealt with below) and have been identified as being particularly complex or involve subjective assessments. Share-based payments The charge to the Income Statement in relation to options and incentive plans is based on the Black-Scholes Merton or the Monte Carlo Option Pricing Model valuation technique. These techniques require a number of assumptions to be made such as those in relation to share price volatility, movement in interest rates, dividend yields and staff behavioural patterns. Details of the accounting policies applied in respect of share-based payments are set out on page 105. Tax A deferred tax asset is recognised when it is judged probable that the Company will generate taxable profits which can be offset against tax losses. The measurement of the tax benefit recognised in the Consolidated Financial Statements is based upon the largest amount of tax benefit that, in management’s judgement, is likely to be realised. Details of the accounting policies applied in respect of deferred tax are set out below. Impairment of investments and intragroup receivables Investment and receivable carrying values are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of an asset or cash generating unit is not recoverable. Recoverable amount is the higher of fair value, as supported by management valuation, less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset for which the estimates of future cash flows have not been adjusted. Investments in subsidiaries Investments in subsidiaries are shown at cost less provision for impairment Foreign currencies Transactions in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each Balance Sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the Balance Sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses arising on retranslation are included in the profit or loss for the period. Taxation Tax on the profit or loss for the period comprises current and deferred tax. Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. 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. Temporary differences in respect of the initial recognition of assets and liabilities that affect neither accounting nor taxable profit are not provided for. 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 reporting date. Advanced Medical Solutions Group plc Annual Report 2016105 Trade and other creditors Trade and other creditors are non-interest bearing and recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Finance charges Finance charges comprise interest payable on interest-bearing loans and borrowings and fair value losses on interest rate swap derivative financial instruments. Finance charges are recognised in the Income Statement on an effective interest method. Financial instruments Financial assets and financial liabilities are recognised in the Company’s Balance Sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or are transferred. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. Derivatives The Company uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value and re-measured at each period end. The gain or loss on re-measurement to fair value is recognised immediately in the Income Statement. The Company has elected not to apply hedge accounting. Forward currency contracts are recognised at fair value in the Balance Sheet with movements in fair value recognised in the Income Statement for the period. The fair value of the instruments is the estimated amount that the Company would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the respective risk profiles of the swap counterparties. Derivatives are presented as assets when the fair values are positive and as liabilities when the fair values are negative. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Share-based payments The Company has applied the requirements of IFRS 2 Share-based payments. The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period. At each Balance Sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimates with a corresponding adjustment to the equity-settled employee benefits reserve. 2 Income Statement As permitted by section 408 of the Companies Act 2006 the Company has elected not to present its own Income Statement for the year. Advanced Medical Solutions Group plc reported a profit for the financial year ended 31 December 2016 of £18,276,000 (2015: profit of £18,000,000). The Auditors’ remuneration for audit and other services is disclosed in Note 7 to the Consolidated Financial Statements. The average number of employees in the year was 11 (2015: 11). The Directors’ remuneration is detailed in Note 9 to the Consolidated Financial Statements. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016106 Notes to the Company Financial Statements continued Year ended 31 December 2016 3 Investments in Subsidiaries Cost At 1 January 2016 Additions At 31 December 2016 Provisions for impairment At 1 January 2016 At 31 December 2016 Net Book value At 31 December 2016 At 31 December 2015 Investments in subsidiaries £’000 80,752 65 80,817 28,670 28,670 52,147 52,082 In the year to 31 December 2014, a loan of £59,000,000 with Advanced Medical Solutions (Germany) GmbH was converted to an investment in Advanced Medical Solutions (Europe) Limited. Shares in Group undertakings and loans to Group undertakings have been written down to recognise losses in subsidiary companies. The following were subsidiary undertakings at the end of the year and have all been included in the consolidated accounts: Name Advanced Medical Solutions Limited Advanced Medical Solutions (UK) Limited Country of Operation England England Advanced Medical Solutions Trustee Company Limited England Advanced Medical Solutions (Plymouth) Limited Advanced Healthcare Systems Limited Advanced Medical Solutions Group Inc. MedLogic Global Holdings Limited Innovative Technologies Limited England England USA England England Advanced Medical Solutions BV Netherlands Advanced Medical Solutions (Germany) GmbH Resorba Medical GmbH Resorba s.r.o. Resorba ooo MPN Medizin Produkte Neustadt GmbH Advanced Medical Solutions (USA) Inc. Advanced Medical Solutions (Europe) Limited * Held indirectly through Advanced Medical Solutions Limited. ‡ Held indirectly through MedLogic Global Holdings Limited. † Held indirectly through Advanced Medical Solutions (UK) Limited. Germany Germany Czech Republic Russia Germany USA England Proportion of voting rights and ordinary share capital Held 100% 100% 100% 100% 100%* 100% † 100%¶ 100%‡ 100% 100%^ 100%# 100%# 100%# 100%# 100%¶ 100% Nature of business Development and manufacture of medical products Holding Company Trustee Company Development and manufacture of medical products Dormant Holding Company Holding Company Dormant Development and manufacture of medical products Holding Company Development and manufacture of medical products Manufacture and sales office of medical products Sales office of medical products Manufacturer of medical products Marketing support of medical products Providing financial support to other Group entities ^ s.291 of German Commercial Code invoked: No consolidated financial statements prepared for the German companies. ¶ Held indirectly through Advanced Medical Solutions (Plymouth) Limited # Held indirectly through Advanced Medical Solutions (Germany) GmbH The above table reflects the situation at the year-end. Advanced Medical Solutions Group plc Annual Report 20164 Trade and Other Receivables Due within one year Prepayments and accrued income Amounts due from Group undertakings Derivative financial instruments Amounts owed by Group undertakings Cost At 1 January Movement At 31 December Provisions for impairment At 1 January At 31 December Net book value At 31 December 5 Creditors: Amounts Falling Due within One Year Trade creditors Other creditors Amounts owed to Group undertakings Accruals and deferred income Derivative financial instruments 6 Share Capital Details on the share capital of the Company are provided in Note 27 on page 96 to the Group’s accounts. 7 Share-based Payments The charge for share-based payments under IFRS 2 arises across the following schemes: Unapproved Executive Share Option Scheme, Enterprise Management Incentive Scheme and Company Share Option Scheme Long-Term Incentive Plan Deferred Share Bonus Scheme 107 2016 £’000 180 3,299 – 3,479 2016 £’000 2,340 3,299 5,639 2,340 2,340 2015 £’000 178 – 34 212 2015 £’000 2,399 (59) 2,340 2,340 2,340 3,299 – 2016 £’000 55 – 287 2,980 376 3,698 2016 £’000 102 744 384 1,230 2015 £’000 31 7 2,862 2,220 – 5,120 2015 £’000 98 360 251 709 Details on the share-based payments of the Company are provided in Note 29 on pages 97 to 101 in the Notes to the Group’s accounts. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016108 Five Year Summary Consolidated Income Statement (Pre-exceptional) Revenue Profit from operations Profit attributable to equity holders of the parent Basic earnings per share Consolidated Statement of Financial Position Net assets employed Non-current assets Current assets Total liabilities Net assets Shareholders’ equity Share capital & investment in own shares Share-based payments reserve Share-based payments deferred tax reserve Share premium account Other reserve Hedging reserve Translation reserve Retained equity Equity attributable to equity holders of the parent 2016 £m 82.6 19.1 15.7 7.5p 70.1 74.9 (19.5) 125.5 10.4 3.5 0.5 34.0 1.5 (3.5) 0.6 78.6 125.5 2015 £m 68.6 17.0 14.1 6.8p 62.7 53.9 (12.9) 103.7 10.3 2.3 0.4 33.2 1.5 (0.5) (8.2) 64.7 103.7 2014 £m 63.0 15.2 12.9 6.2p 66.8 37.8 (11.5) 93.1 10.2 1.6 0.3 32.8 1.5 (0.5) (4.9) 52.1 93.1 2013 £m 59.5 13.7 11.4 5.5p 71.3 25.8 (11.0) 86.1 10.2 1.3 0.2 32.4 1.5 0.7 (0.7) 40.5 86.1 2012 £m 52.6 12.3 10.5 5.2p 71.9 25.7 (23.9) 73.7 10.2 1.1 0.2 31.9 1.5 (0.1) (1.4) 30.3 73.7 Advanced Medical Solutions Group plc Annual Report 2016109 Notice of Meeting Notice is hereby given that the twenty-third Annual General Meeting of the Company will be held at 11.00 am on 7 June 2017 at the offices of Investec Bank plc, 2 Gresham Street, London, EC2V 7QP, for the following purposes: As Ordinary Business: 1. To receive the Report of the Directors and the Financial Statements of the Company for the year ended 31 December 2016 (together with the Report of the Auditor thereon). 2. To approve the Directors’ Remuneration Report for the year ended 31 December 2016. 3. To reappoint Deloitte LLP as Auditor and to authorise the Directors to fix their remuneration. 4. To re-elect Peter Allen (who retires by rotation in accordance with the Articles of Association) as a Director of the Company. 5. To re-elect Steve Bellamy (who retires by rotation in accordance with the Articles of Association) as a Director of the Company. 6. To re-elect Peter Steinmann (who retires by rotation in accordance with the Articles of Association) as a Director of the Company. 7. To declare a final dividend of 0.62p per Ordinary Share, payable on 16 June 2017 to shareholders on the register at close of business on 26 May 2017. As Special Business: To consider and, if thought fit, to pass Resolution 8, which will be proposed as an Ordinary Resolution, and Resolutions 9 and 10, which will be proposed as Special Resolutions. 8. To authorise the Directors generally and unconditionally for the purposes of section 551 of the Companies Act 2006 (the ‘2006 Act’) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company (each an allotment of ‘relevant securities’) up to an aggregate nominal amount of £3,508,736 provided that this authority is for a period expiring upon the earlier of the date of the Company’s next Annual General Meeting and 15 months after the date of the passing of this Resolution but the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this Resolution has expired. This authority is in substitution for all subsisting authorities, to the extent unused. 9. Subject to the passing of Resolution 8 above, to authorise the Directors pursuant to section 570 of the 2006 Act to allot equity securities (within the meaning of section 560 of the 2006 Act) wholly for cash pursuant to the authority conferred by Resolution 8 above as if section 561(1) of the 2006 Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: (a) in connection with an offer of such securities by way of rights to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; (b) otherwise than pursuant to sub-paragraph (a) above up to an aggregate nominal amount of £1,052,620; and (c) which shall expire on the earlier of the conclusion of the next Annual General Meeting of the Company and 15 months after the date of the passing of this Resolution, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this Resolution has expired. 10. That the Company is hereby generally and unconditionally authorised for the purposes of Section 701 of the 2006 Act to make market purchases (within the meaning of Section 693(4) of the 2006 Act) of any of its Ordinary Shares of 5p each in the capital of the Company on such terms and in such manner as the Directors may from time to time determine provided that: (a) the maximum number of Ordinary Shares which may be purchased is 10,526,209; (b) the minimum price which may be paid for each Ordinary Share is 5p which amount shall be exclusive of expenses, if any; (c) the maximum price (exclusive of expenses) which may be paid for each Ordinary Share shall not be more than 5% above the average of the middle market quotations for an Ordinary Share as derived from The London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the ordinary share is purchased; (d) unless previously renewed, revoked or varied, this authority shall expire upon the earlier of the date of the Company’s next Annual General Meeting and 15 months after the date of the passing of this Resolution; and (e) under this authority the Company may make a contract to purchase Ordinary Shares which would or might be executed wholly or partly after the expiry of this authority, and may make purchases of Ordinary Shares pursuant to it as if this authority had not expired. By order of the Board Mary Tavener Company Secretary 28 April 2017 Registered office: Premier Park, 33 Road One, Winsford Industrial Estate, Winsford, Cheshire, CW7 3RT. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016110 Notice of Meeting continued Notes 1. A member entitled to attend and vote at the meeting convened by the Notice set out on page 109 may appoint a proxy to attend, speak and, on a poll to vote in his place. A holder of more than one Ordinary Share may appoint different proxies in relation to each or any of those Ordinary Shares. 2. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. A member may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy notice must be given to the Company’s Registrars not later than 48 hours before the time appointed for the holding of the meeting. 3. A proxy does not need to be a member of the Company but must attend the meeting to represent you. Details of how to appoint the Chairman of the meeting or another person as your proxy using the proxy form are set out at Note 1 of the proxy form. If you wish your proxy to speak on your behalf at the meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. 4. On a vote on a Resolution on a show of hands at the meeting, a proxy has one vote for and one vote against if the proxy has been appointed by more than one member and the proxy has been instructed by one or more of the members to vote for the resolution and by one or more other member to vote against it. 5. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 6. A form of proxy is enclosed for use by members. To be effective, it must be completed and arrive not later than 48 hours before the time fixed for the Meeting at Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU. You may also deliver by hand to The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU during usual business hours. 7. The Register of Directors’ Interests in the shares of the Company will be available for inspection at the registered office of the Company during usual business hours on any weekday (public holidays excepted) until the date of the Meeting and also on that date and at the place of the Meeting from 9.00 am until the conclusion of the Meeting. 8. The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those shareholders registered in the Register of Members of the Company as at close of business on 5 June 2017 shall be entitled to attend or vote at the aforesaid Annual General Meeting in respect of the number of shares registered in their names at that time. Changes in the entries in the relevant register of Securities after close of business on 5 June 2017 shall be disregarded in determining the rights of any person to attend or vote at the meeting. Notes on Special Business Resolution 8: Authority to Allot Shares and other relevant securities This Resolution would give the Directors the authority to allot Ordinary Shares up to an aggregate nominal amount equal to £3,508,736 (representing 70,174,730 Ordinary Shares of 5p each). This amount represents approximately one-third of the issued Ordinary Share capital of the Company as at 31 March 2017, the latest practicable date prior to publication of this Notice. The authority sought under this resolution will expire at the conclusion of the Annual General Meeting of the Company held in 2018 or, if earlier, 15 months after the passing of the resolution. While the Directors have no present intention of issuing any of the authorised but unissued share capital, it is considered prudent and appropriate to maintain the flexibility that this authority provides. Resolution 9: Disapplication of Pre-emption Rights Your Directors also require additional authority from shareholders to allot shares or grant rights over shares or sell treasury shares where they propose to do so for cash and otherwise than to existing shareholders in proportion to their existing holdings. Accordingly, Resolution 9 will be proposed as a Special Resolution to grant such authority. Apart from rights issues, open offers or any other pre-emptive offer as mentioned the authority will be limited to the issue of shares and sales of treasury shares for cash up to an aggregate nominal value of £1,052,620 (being 10% of the Company’s issued Ordinary Share capital at 31 March 2017, the latest practicable date prior to publication of this Notice). This is in keeping with the extent for which such authority has been sought and given at each previous Annual General Meeting of the Company since 2006. Allotments made under the authorisation in paragraph (a) of Resolution 9 would be limited to allotments by way of a rights issue only (subject to the right of the Directors to impose necessary or appropriate limitations to deal with, for example, fractional entitlements and regulatory matters). If given, this authority will expire at the conclusion of the Annual General Meeting of the Company held in 2018 or, if earlier, 15 months after the passing of the Resolution. Advanced Medical Solutions Group plc Annual Report 2016111 Resolution 10: Purchase by the Company of its own Shares In certain circumstances, it may be advantageous for the Company to purchase its own shares. Under section 701 of the 2006 Act, the Directors of a Company may make market purchases of that Company’s shares if authorised to do so. Your Directors believe that granting such approval would be in the best interests of shareholders in allowing Directors the flexibility to react promptly to circumstances requiring market purchases. Accordingly, Resolution 10, which will be proposed as a Special Resolution, will give the Directors the authority to purchase issued shares of the Company under section 701 of the 2006 Act. The authority contained in this Resolution will be limited to an aggregate nominal value of £526,310 (representing 5% of the issued Ordinary Share capital of the Company as at 31 March 2017 the latest practicable date prior to publication of this Notice; representing 10,526,209 Ordinary Shares of 5p each). The price which may be paid for those shares is also restricted as set out in the Resolution. This authority will expire at the conclusion of the Annual General Meeting of the Company held in 2018 or, if earlier, 15 months after the passing of the Resolution. The Board has no present intention of exercising this authority. However, this will be kept under review, and the Board will use this power only if and when, taking account of market conditions prevailing at the time, other investment opportunities, appropriate gearing levels and the overall financial position of the Group, they believe that the effect of such purchases will be in the best interests of shareholders generally and that they will result in an increase in earnings per share. Shares purchased under this authority may be held as treasury shares. Shares held in treasury do not carry voting rights and no dividends will be paid on any such shares. Shares held in treasury in this way can be sold for cash or cancelled. This would allow the Company to manage its capital base more effectively and to replenish its distributable reserves. If and when the Board resolves to exercise its authority to make market purchases, it will at that time decide whether shares purchased are to be cancelled or held in treasury. As at 31 March 2017, the latest practicable date prior to publication of this Notice, there were share options outstanding over Ordinary Shares, representing 3.2% of the Company’s issued ordinary share capital. The Company has no warrants in issue in relation to its shares. If the buyback authority was to be exercised in full, these options would represent 3.3% of the Company’s ordinary issued share capital. Company OverviewStrategic Report GovernanceFinancial StatementsAdvanced Medical Solutions Group plc Annual Report 2016112 Advisors Nominated Advisor and Broker Bankers Investec Bank plc 2 Gresham Street London EC2V 7QP Auditor Deloitte LLP Chartered Accountants and Statutory Auditor PO Box 500 2 Hardman Street Manchester M60 2AT Tax Adviser PwC 101 Barbirolli Square Lower Mosley Street Manchester M2 3PW Solicitors Brown Rudnick LLP 8 Clifford Street London W1S 2LQ Registrars and Transfer Office Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU HSBC 99–101 Lord Street Liverpool L2 6PG Royal Bank of Scotland 2nd Floor 1 Spinningfields Square Manchester M3 3AP Patent Attorneys Marks & Clerk Manchester Office 1 New York Street Manchester M1 4HD Foley & Lardner LLC 975 Page Mill Square Palo Alto CA 94304-1013 Public Relations Consilium Strategic Communications 41 Lothbury London EC2R 7HG Advanced Medical Solutions Group plc Annual Report 2016The L&S Chain of custody number is C014531 minimum width 17mm The paper stock dictates which version to use. Mix, 100% or Recycled. (Core is always Mix). Prints in Pantone 626c, black, white or darkest available Pantone colour. White outline versions for placing into artwork ﬁles are included to the right of each option. ® ® ® ® ® www.fsc.org MIX Paper from responsible sources FSC® C014531 www.fsc.org MIX Paper from responsible sources FSC® C014531 www.fsc.org MIX Paper from responsible sources FSC® C014531 www.fsc.org MIX Paper from responsible sources FSC® C014531 m m 2 1 Designed and produced by Radley Yeldar www.ry.com Printed by L&S Printing Company Ltd who are certified to ISO 14001 environmental management system. Printed using vegetable oil based inks. i t h g e h m u m n m i i ® www.fsc.org MIX Paper from responsible sources FSC® C014531 This report is printed on Chorus Lux Silk which contains material sourced from responsibly managed forests, certified in accordance with the FSC(r) MIX (Forest Stewardship Council). Paper from responsible sources FSC® – Forest Stewardship Council. This ensures that there is an audited chain of custody from the tree in the well-managed forest through to the finished document in the printing factory. ® FSC® C014531 ISO 14001. A pattern of control for an environmental management system against which an organisation can be accredited by a third party www.fsc.org ® www.fsc.org ® www.fsc.org MIX Paper from responsible sources FSC® C014531 MIX Paper from responsible sources FSC® C014531 ® ® ® ® ® www.fsc.org 100% Paper from www.fsc.org 100% Paper from www.fsc.org 100% Paper from www.fsc.org 100% Paper from responsible sources responsible sources responsible sources responsible sources FSC® C014531 FSC® C014531 FSC® C014531 FSC® C014531 www.fsc.org www.fsc.org ® ® 100% Paper from responsible sources FSC® C014531 100% Paper from responsible sources FSC® C014531 ® ® 100% Paper from responsible sources FSC® C014531 100% Paper from responsible sources FSC® C014531 www.fsc.org www.fsc.org ® ® ® ® ® www.fsc.org www.fsc.org www.fsc.org www.fsc.org RECYCLED Paper from responsible sources FSC® C014531 RECYCLED Paper from responsible sources FSC® C014531 RECYCLED Paper from responsible sources FSC® C014531 RECYCLED Paper from responsible sources FSC® C014531 www.fsc.org RECYCLED Paper from responsible sources FSC® C014531 www.fsc.org www.fsc.org ® ® RECYCLED Paper from responsible sources FSC® C014531 RECYCLED Paper from responsible sources FSC® C014531 ® ® RECYCLED Paper from responsible sources FSC® C014531 RECYCLED Paper from responsible sources FSC® C014531 www.fsc.org www.fsc.org ® RECYCLED Paper from responsible sources FSC® C014531 www.fsc.org RECYCLED www.fsc.org MIX Paper from responsible sources FSC® C014531 ® MIX Paper from responsible sources FSC® C014531 www.fsc.org MIX www.fsc.org 100% Paper from responsible sources FSC® C014531 ® 100% Paper from responsible sources FSC® C014531 www.fsc.org 100% A n n u a l R e p o r t 2 0 1 6 Registered Office: Premier Park, 33 Road One Winsford Industrial Estate Winsford, Cheshire, CW7 3RT Company Number: 2867684 Tel: +44 (0)1606 863500 Fax: +44 (0)1606 863600 e-mail: info@admedsol.com Web: www.admedsol.com

Continue reading text version or see original annual report in PDF format above