2022 Annual Report Anything is Possible with the Right Approach Creo Medical is a medical device company focused on the development and commercialisation of minimally invasive electrosurgical devices, bringing advanced energy to endoscopy. CONTENTS 1 Strategic Report Introduction Our Achievements Timeline CEO’s Review Global Footprint Training and Adoption Territory Overview Business Model Market Review Core Technology Our Portfolio Investment Case Transforming Patient Lives Healthcare Providers Pioneer Clinical Education Programme Healthcare Economics Case Studies Kamaptive Technology Core Technology CFO Review Risk Management 6 8 10 12 14 16 18 20 22 24 26 28 30 36 40 42 44 52 58 62 66 2 3 4 Sustainability Report Sustainability Strategy Sustainability Statement Explanation Healthcare Impacts Our People and Communities Our Planet Corporate Governance Chair’s Statement Board of Directors Directors’ Report Corporate Governance Report Statement of Directors’ Responsibilities Engaging with Stakeholders Audit Committee Report Directors’ Remuneration Report Financial Statements Independent auditors’ report Consolidated Statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Parent Company statement of financial position Parent Company statement of changes in equity Parent Company notes to the financial statements 71 74 76 78 82 88 90 94 96 101 102 106 108 120 126 127 128 129 130 159 160 161 Creo Medical Group plc — 2022 Annual Report & Accounts Strategic Report CLINICAL CASE STUDIES Learn how Speedboat Inject is improving lives SCAN THE QR CODE TO READ OUR CASE STUDIES 5 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Introduction Transforming Surgery, Transforming Energy, Transforming Lives Creo Medical is a UK based medical device and advanced energy company, transforming lives by delivering pioneering solutions to healthcare providers across the world. Our Kamaptive Licensing Programme has had a successful year with income already generated and with our team working extremely positively with others. The Company was founded in 2003 by Professor Chris Hancock, initially to target the treatment of cancers through the use of high frequency microwave energy. One in two1 people will develop some form of cancer in their lifetime. We will all likely know someone who will be or has been impacted in some way. These diseases can be treated using advanced energy, with potentially huge impact for both patients and their loved ones. Chris was driven to apply this technology to make a difference to improve people’s lives, and this is the foundation on which Creo is built. Our Products Creo Medical has developed a suite of unique endoscopic devices (see pages 24 and 25). When combined with the CROMA advanced energy platform, the Kamaptive Technology enables a broad spectrum of energies to be utilised. It is this unique combination that puts us at the forefront of a paradigm shift in the treatment of an increasing number of indications, particularly in the GI tract, pancreas, liver and lung. Creo is now able to complement these devices with a broader range of Endotherapy products, which are available to our EMEA and US customers. In addition to endoscopic products manufactured by Creo, we have begun to work with leaders from other sectors (particularly robotic surgery) through our Kamaptive Licensing Programme in order to ensure that the benefits of our advanced energy technology are maximised, both in aiding the treatment of more patients and indications worldwide and in generating income from multiple high- growth markets. Our Stakeholders In pursuing our mission ‘to improve patient outcomes’, a number of stakeholders directly or indirectly benefit from our technologies: Patients ▶ Improved patient outcomes ▶ Shorter procedure times ▶ Low recurrence risk (rate less than 1%2) ▶ Organ preservation rather than surgical intervention ▶ Reduced risk Healthcare Professionals ▶ Minimally invasive treatment ▶ Reduced risks associated with surgical procedures ▶ Removal of lesions en-bloc (in one) for improved histology and lower recurrence rates ▶ Streamlined training curve Hospitals ▶ Reduced procedure costs ▶ Reduced procedure time and fewer follow up appointments ▶ Reduced waiting times ▶ Improved patient pathways ▶ QALY (Quality Adjusted Life Years) value added Transforming Lives, Case by Case Creo’s products are in everyday use by some of the world’s best physicians and healthcare institutions, particularly our flagship device, Speedboat Inject, which is providing excellent outcomes and for which we have a growing pipeline of physicians globally. We employ a wide range of experts spanning all Company departments ▶ Engineering and R&D teams. ▶ Enhanced manufacturing capabilities optimised for growth. ▶ Excellently connected sales teams and bespoke direct and indirect distribution networks across territories. ▶ A world-class Pioneer Clinical Education Programme tailored to the needs of our customers and their patients. ▶ Global business support functions to continue to build the Creo brand globally. With our Kamaptive Licensing Programme also coming to fruition, it is clear 2022 was a year of great progress for Creo. Having established a presence across the US, Europe and APAC, the foundations are laid for rapid growth, not only for Speedboat Inject but across our portfolio. References 1. https://www.nhs.uk/conditions/cancer/ 2. Saito, Y., Fukuzawa, M., Matsuda, T. et al. Clinical outcome of endoscopic submucosal dissection versus endoscopic mucosal resection of large colorectal tumors as determined by curative resection. surg Endosc 24, 343–52 (2010). https://pubmed.ncbi.nlm.nih.gov/19517168/ 7 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Our Achievements Commercial and Operational Highlights Financial Highlights as of 31st December 2022 Threefold increase in revenue generated from Creo’s core technology ▶ Over 1,500 Speedboat Inject procedures performed to date with the device now in everyday use ▶ 124% increase in global cases ▶ 200% increase in trainers vs 2021 on our Pioneer Clinical Education Programme ▶ Announced first Kamaptive partnership with the world’s biggest robotics company, Intuitive Surgical, and first revenues received ▶ Announced non-exclusive IP licence and a royalty agreement with CMR Surgical, the global surgical robotics business ▶ Launched our wider suite of Endotherapy products in the US ▶ Strengthened IP portfolio with 460 granted patents and 901 pending applications as at 31st December 2022 ▶ Speedboat Inject introduced to new markets, with rapid adoption in Thailand, Israel, Hong Kong, Singapore and elsewhere ▶ New clinical market penetration with Speedboat Inject used to perform multiple POEM procedures, including gastric peroral endoscopic myotomy (“G-POEM”) and Zenkers peroral endoscopic myotomy (“Z-POEM”) in the US and APAC and a Gastrointestinal Stromal Tumor (“GIST”) procedure in EMEA ▶ Slimmer Speedboat Inject released to market, opening new opportunities ▶ Expanded Creo’s Pioneer Clinical Education Programme, facilitating both multi-national and bespoke regional training across the globe ▶ Fit-out of new Chepstow office to future-proof HQ and increase manufacturing, operational and training capacity ▶ Microblate Fine used to treat patients in Europe Revenue £27.2m (2021: £25.2m) Operating Loss £30.8m (2021: £29.9m) Underlying EBITDA loss* Gross Margin £22.1m (2021: £22.6m) 48.3% (2021: 46.0%) Net Assets Post balance sheet event £49.4m (2021: £73.3m) £34m (Oversubscribed Fundraise - March 2023) Kamaptive Licensing Programme Cash & Cash Equivalents First Revenues £13.1m (2021: £43.5m) * Underlying EBITDA is defined on page 63 9 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Timeline Milestones and Financial Achievements 2022 ▶ Global commercialisation expanding in USA, EMEA and APAC ▶ Kamaptive robotic licensing deal with Intuitive in May with first revenues �27.2m �2.3m 2021 ▶ Additional CE and FDA clearances ▶ Opening of APAC Hub in Singapore ▶ Core product revenues recovered to pre-pandemic levels �25.2m Key Total revenue Core Creo Technology 2017 – 2019 ▶ First Regulatory Clearances ▶ CE Mark and FDA clearance for CROMA and Speedboat Inject ▶ First patient treated with Speedboat Inject ▶ Initial of roll out of clinical use via distributors �26k �154k 2020 ▶ Acquisitions of Albyn Medical and Boucart Medical ▶ Opening of US HQ in Danbury, CT ▶ COVID-19 Pandemic restricted sales channels and markets �9.4m �101k �313k 11 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements CEO’s Review 2022 was an inflection point for Creo “ A year of significant operational progress and commercial traction cementing our technology at the forefront of a paradigm shift in patient treatment.” —Craig Gulliford, Chief Executive During 2022 we have moved quickly and decisively to build on the strong global foundations laid over the last few years. This resulted in: a four-fold increase in users of our core technology; partnering with two of the world’s biggest robotic surgery companies with first revenues received; and making notable improvements to our flagship devices (significantly, releasing of a slimmer Speedboat Inject to market in November 2022). Since the second half of 2021, operating losses have consistently reduced. Notwithstanding our progress, like all shareholders, I was disappointed with Creo’s share price performance during the period. The combination of a number of factors outside of Creo’s control, including the economic whirlwind caused by UK’s mini-budget in September, fuelled market nervousness which disproportionally impacted the access to capital needed by many early stage, high growth prospect businesses like Creo. With the support from our shareholders, we were able to execute on a planned anticipated final fundraise which was significantly over subscribed, early in 2023 to provide Creo with a strong cash position from which we can enter the next stage of our development and commercialisation of Core Technologies and drive the business through to cash flow break even, and, ultimately, profitability. I thank all shareholders, new and old, for the support provided. Looking back to our IPO in 2016 and the early-stage medtech business that Creo has grown from, it is clear that we have made significant progress. Despite the worldwide disruption caused by COVID19, the War in Ukraine and macro economic pressures, we have remained ahead of our projections and continue to improve lives. Widespread Adoption In 2022 our core technology improved lives in EMEA, USA and APAC daily. The vision of placing flexible endoscopic surgical capability into the hands of interventional endoscopists and surgeons is real. Over the year we significantly enhanced our heralded Pioneer Clinical Education Programme, doubling the number of training centres and offering multi-national and bespoke regional models. Most importantly, we supported the treatment of more patients than ever before. As more clinicians utilise our technology, the likelihood that it will be used to perform additional procedures increases too. In July 2022, a team of clinicians in Israel, led by Dr Sergei Vosko, applied Speedboat Inject to remove a GIST from a patient for the first time. See pages 46 to 47 for more details. We continue to progress device clearances across additional territories. The first reimbursement code for resection procedures in the Upper GI tract was approved by the AMA in late 2022 and is something we expect to be of real commercial interest to our customers across the lucrative US market. The process we need to execute for continued growth and to deliver a step change in patient care across multiple areas of therapy is clear. The rapid increase in patients treated, our growing pipeline of future users and our international successes all validate this. Additional Revenue Streams We have developed Creo’s business from the outset to have a multi-tiered revenue structure. Through our previous three-tiered build-buy-partner strategy we successfully acquired and integrated Albyn Medical and Boucart Medical, maximising the potential of both our core technology and acquired complementary product ranges. The subsequent acquisition of Aber Electronics in 2021 secured some of the best Microwave and RF engineering capability in the world, bolstered our existing team and secured a key element of our supply chain. With our accelerated growth and significant international footprint, we are leveraging this growth and our economies of scale for the benefit of our core product range. During 2022 we launched some of our endotherapy accessories, which sit alongside the core Creo GI products, in the US. We aim to replicate this into APAC during 2023, building on the successes of our European model and growing the Creo brand. I am particularly pleased with the progress of our Kamaptive Licensing Programme during 2022. We secured agreements with two of the world’s biggest robotic surgery companies. The quality of our partners demonstrates the wide potential of our technology. The receipt of our first revenues from our Kamaptive Licensing Programme affirms this valuable revenue tier for Creo. Our focus on the optimisation and commercialisation of our product range will maximise the impact of our Kamaptive Licensing Programme. Reshaping our engineering resources to meet the challenge of these opportunities has naturally resulted in some difficult decisions being made to structure our team composition and capabilities as we concentrate on successfully delivering the next phase of Creo. My sincere thanks go to those departing colleagues who helped us reach this point. We now have a clear roadmap to enable our Kamaptive Licensing Programme and additional products to work in tandem with Creo’s core technology, providing a multi- faceted business capable of reaching far more patients and potential markets than we would have imagined a few years ago. We are now bringing laparoscopic capability to flexible endoscopy, both large and exciting markets underserved by advanced energy. The Future 2022 was an inflection point for Creo, with significant operational progress and commercial traction cementing our technology at the forefront of a paradigm shift in the treatment of patients across multiple indications. Building on this progress, we continue to commercialise Creo’s core technology, improving the precision and control we afford our customers whilst enabling the delivery of further surgical outcomes. The Kamaptive Licensing Programme offers significant potential beyond our current partnerships to develop a range of potential derivatives of our technology into other partner programmes. The next stage of the ‘tech play in medical devices’ is equally exciting. As our partnerships bear fruit, my vision is to launch the CROMA – powered by Kamaptive developer eco-system, safely giving commercial access to the unique core technology we have to a wide range of potential partners, inspired by the reality of the current partner programmes. 2023 is already moving at pace. Having submitted 510K FDA clearance for our slimmest Speedboat possible, the Speedboat Flush, we will continue the introduction of Microblate Fine to soft tissue ablation in the liver. We are preparing for clinical trials for Microblate Flex in the lung and a whole host besides. This will be delivered alongside the further integration of our wider portfolio of products and their introduction to significant new markets, whilst continuing to evolve the Pioneer Clinical Education Programme. Tying this all together is the continued development of CROMA and with it the prospect of delivering truly game changing real time tissue characterisation software. Building on some key engineering undertaken in 2022, ‘Tissue Sensing’ has the potential to add tremendous value to flexible endoscopy. The prospect of enhanced precision and control opens up a new frontier for patient outcomes, not to mention the potential benefits to robotic surgical programmes. It is both a source of great pride and satisfaction to me that we have created a terrific team who know what we need to do in each sector to succeed. Alongside partnerships with some of the world’s best surgical robotic partners, our job is clear: to deliver on what we have very clear sight of over the coming months and years to become a premier, cash generative global medical device and tech licensing business, transforming and improving the lives of many thousands as we do so. 13 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Global Footprint The Foundations for Sustained Growth Creo Medical’s global activities span Clinical and Regulatory, Manufacturing, Training and Education, Market Development and Direct and Indirect Sales. US EMEA APAC 284 people worldwide Technology, Research and Development Domain expertise in advanced energy and devices Full R&D and support engineering capabilities Medical energy (RF, MW and more), electronics, device, materials, expertise Clinical and Regulatory Training and Mentoring Manufacturing Procurement and Logistics Sales and Commercial Service and Support Experienced Regulatory and Quality team UK, EU and USA based personnel Creo products are cleared in CE, FDA and wider areas Clinical education team covering Europe, USA and APAC, with dedicated nurse endoscopist employees assisting training labs and procedures, 20+ trained trainers (doctors), with courses run globally Creo manufactures/ assembles advanced energy generators, devices, a range of additional equipment and some dedicated electronics in-house in the UK, Spain and Germany, with clean room facilities Full procurement and logistics function with key hubs in the UK, France, Belgium, Germany, Spain and the USA shipping own and third-party products from and to a wide range of countries Experienced market development and sales team with deep industry experience and strong relationships with doctors and hospitals. Local teams in local healthcare systems, augmented by select country distributors Dedicated service and support function based across seven countries to support Creo equipment from installation, through maintenance and repair. Close working relationship with engineering teams granted patents & 460 901 pending CE, FDA and other clearances on core technology 20+ trainers and c.450 qualified target users 4 assembly/ manufacturing locations in Europe 6 key logistic sites moving products in country & worldwide * All figures as at 31 December 2022 sales and market development workforce 100+ 10 direct countries service centres 8 14 offices 15 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Training and Adoption A Year of Strong Progress “Premier institutions want to use Speedboat and are getting great results for their patients.” —David Woods, Chief Commercial Officer We began 2022 with four principal aims in relation to our core products 1 To continue to build our user base and expand the number of cases using Speedboat Inject 2 To enter new markets—not only in terms of sales but in regional regulatory approval, distribution, and training 3 To introduce a wider range of complementary products supporting better outcomes for advanced procedures 4 To build the Creo brand with key opinion and community leaders bringing innovation to their patients and robust data sets that further validate our technology 1. User Base Creo Medical has three primary targets for Speedboat Inject—interventional gastroenterologists, foregut, and colorectal surgeons. During 2022 we have increased the user base of all three by introducing advanced energy to procedures such as Endoscopic Submucosal Dissection (“ESD”) in lower and upper gastrointestinal (“GI”), per-oral endoscopic myotomy (“POEM”) in the oesophagus, stomach and Zenkers diverticulum, a pouch formed at the beginning of the digestive tract. Premier medical institutions and physicians around the world now use the Speedboat Inject and CROMA platform to deliver Speedboat Submucosal Dissection (“SSD”) for these expanded indications. Whether it’s Baylor College of Medicine in the US, Asian Institute of Gastroenterology in Hyderabad India or University College Hospital in the UK, it is clear that premier institutions want to use Speedboat and are getting great results for their patients. The combination of our technology, our Pioneer Training programme and our clinical team has made the adoption of our devices a smooth and localised process that will allow us to continue to increase our regular users, trainers, and mentors. Early adopters at academic institutions, are now training their colleagues and the next generation of physicians or fellows as well as community-based doctors interested in learning these procedures faster and more safely than possible previously. With direct commercial teams in the US, the larger markets in Europe and distributors in the rest of EMEA and APAC, targeted leads have turned into c.450 qualified physicians moving through a sales and training funnel to support a sharp uptick in future sales, users and cases in 2023. These physicians are made up of classically trained Endoscopic Submucosal Dissection doctors at academic medical centres who publish, teach and research, as well as EMR physicians in the larger audience of community- based GI physicians. Additionally, the recent introduction of a slimmer Speedboat device, compatible with a wider range of endoscopes, will promote broader utilisation with current and new users. The smaller devices allow simpler access deep into the colon with paediatric colonoscopes, easier retroflection techniques, accessing more difficult lesions behind mucosal folds. The response from users both new and old has been fantastic and we look forward to seeing the slimmer, optimised device continue to drive the number of users and cases. 2. New Markets In 2022 we added many customers in countries such as the US, UK, Italy, France and India while continuing to provide products and services to hospitals across 75 countries. We successfully completed further country- specific regulatory approval for the CROMA Generator and Speedboat and introduced Creo to new customers in Belgium, Turkey, Croatia, Israel, Thailand, Hong Kong, UAE and Chile. Distribution partners now target regional gastroenterologists and surgeons to introduce our technology and include them in regional Pioneer Clinical Education Programmes. With an established presence across EMEA, the US and APAC we will continue to expand globally, quickly taking countries from being introduced to our technology to having multiple users. Israel is a great example of where we’ve done that successfully in 2022. 3. Complementary Products 50% of our revenue is now being driven by products where Creo is the responsible manufacturer. This is a combination of our advanced energy products and complementary devices that support many of the same procedures. For instance, the Speedboat Inject, with hemostasis clips and injection needles supports lower GI resection procedures and upper GI swallowing disorders. A Creo manufactured pack of high-quality resection, injection and closure devices offers a high value proposition with great clinical outcomes. Other complementary GI endotherapy products support other procedures offering bundling and additional service opportunities. Some products in other specialties like urology and interventional pulmonology provide additional bundling opportunities and revenue streams within the same institutions. Benefits of a wider portfolio of products include; a steady and established revenue stream, sales access to hospitals/ clinicians to better package the sale of our core range, and a strong value proposition for our customers by cross selling products. This approach will continue into APAC, subject to regulatory clearances. Creo’s other core products at various stages of optimisation and adoption offer other bundling opportunities in multiple specialties. 4. KOLs and Data Many of the world’s top healthcare institutions and premier interventional gastroenterologists and surgeons have adopted Creo’s advanced energy technology. These leading care givers, educators, and researchers have validated our innovative technology, promote the minimally invasive procedures we support, and back our commitment to education. Many are faculty members at our Pioneer Training programmes and mentor other doctors with case observations, case reviews and shoulder to shoulder case support. Several of these opinion leaders are also involved in technology review, product development and product validation. These physicians highlight our technology at society meetings, webinars and live endoscopy events around the world and are committed to research data collection and publishing. We are already seeing an uptick in clinical data gathered over the past 12 months being submitted for presentation at large society meetings like Digestive Disease Week in the US, EMEA and APAC and in some of the world’s foremost medical journals in 2023. With case numbers now supporting more robust, statistically significant data, we anticipate a substantial increase in comprehensive data sets, both clinical and economic, to be made public by some of our early adopters very soon. In addition, two registries, one in the US and one in UK, are gathering data on Speedboat submucosal dissection to support data analytics, journal submissions and clinical and economic outcome enhancement. We are working closely with renowned certification bodies and societies such as NHS, ESGE, ASGE, and JSGE to maximise the impact of the results in independent clinical papers and to recognise SSD as a gold standard of treatment. This will provide a platform from which to increase our user base across our core technology product range, shift patient care away from invasive procedures towards minimally invasive procedures and the life changing treatment options we can provide to patients. 17 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Territory Overview A Global Reach EMEA USA APAC Creo Medical has a robust, well-established distribution network across EMEA that allows us to sell our full range of products. Thanks to the acquisitions of Albyn Medical and Boucart Medical, our direct market now covers most of mainland Europe, building on existing networks and relationships forged over a decade or more. We also have a growing number of regional distribution partners, who play a vital role to support Creo’s direct sales. By working closely with our partners, we are able to provide the best level of service, support, training, and access to our products for healthcare providers and, ultimately, transform the lives of more patients. Our range of GI, Urology, Pulmonology and Surgical products provides a stable revenue stream for the business as well as a strong platform on which to sell and bundle our core technology. We continue to increase our visibility and brand awareness through targeted marketing and PR campaigns to reach new customers. Our focus for 2023 is to build on the previous year, introducing advanced energy to new customers and further leveraging our established customer base to increase the sales of our ancillary devices. See Israel Case Study on page 45. In the USA, we primarily utilise a direct sales approach supported by our in house clinical support team. We have recently added additional independent sales representatives to supplement our business development resources to reach a wider range of customers and increase our market presence. The US team is actively engaged with a vast network of highly skilled clinicians. The quality of the interventional gastroenterologists which have been through the Pioneer Programme to train on Speedboat Inject is testament to both the potential for our technology and the value derived from the training. Additionally, we have recently enhanced our product offerings to healthcare settings, providing a more comprehensive range of options. By aligning more closely with what has been successful in EMEA, we are able to cater to a diverse set of needs in the healthcare industry. Our strategy for the US market is to continue to broaden our range of quality ancillary devices, to deliver a comprehensive therapeutic strategy with procedure bundles and ancillary devices across gastrointestinal, interventional pulmonology and foregut procedures. In addition, we will look for opportunities to cross-sell products alongside our core technology to increase revenue. This will involve creating packages tailored to specific customer needs and bundled offers that increase the perceived value of our offerings whilst driving higher sales and revenue for Creo. Each APAC country has unique requirements for market access. Creo Medical leverages a strategic distribution model in the APAC region to market and sell our core technology. By closely managing a network of distribution partners, we can reach and engage customers across wide ranging and diverse markets. Our regional hub in Singapore, which opened in April 2022, plays a key role in coordinating these efforts. In 2022, we accomplished a strong performance with the successful introduction of new customers to our core technology. Our distribution partners under direct management include India (North, West & South), Thailand, Australia, Hong Kong, Taiwan, Vietnam, Malaysia, Indonesia, South Korea, and Sri Lanka. This broad reach has helped us to strengthen our market base in the region. In addition to our distribution sales channels, we are also offering direct sales through our APAC regional hub in Singapore. In the LATAM region, we’ve set up our presence and generated business through distributors in Chile and we are securing distributorship for another two of the region’s biggest markets—Argentina and Mexico. During 2023 we will continue to build distribution networks across further territories, introducing our advanced energy technology to more markets across APAC and LATAM as clearances allow. We will also be expanding our product range in targeted countries during the early part of 2023. See Baylor Case Study on page 49. See Thailand Case Study on page 51. Creo Medical is proud to be a Wales-based business with a strong presence in key global markets. We are well represented across EMEA (Europe, Middle East and Africa), and have a growing presence in APAC (Asia-Pacific) and the USA. This allows us to serve customers and partners wherever they are, either directly by Creo or through our network of managed distributors. Maintaining our presence enables us to understand the unique needs and demands of our customers so we can deliver our products and services accordingly. Our blend of direct presence and directly managed distribution partners allows us to navigate the various cultural, regulatory and commercial environments in which we operate or are expanding into— ensuring seamless service delivery and support for all our partners and customers. Luis Collantes President EMEA Ryan Brennan President USA Tom Kwan President APAC 19 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Business Model Transforming Lives, Case by Case 2022 has been a pivotal year for Creo, paving the way for significant growth across revenue streams and, with it, a clear and tangible path towards profitability. Improving Outcomes Through Advanced Energy Improving patient outcomes is at the heart of everything we do. Our Advanced Energy Technology benefits patients, saves hospital resources and costs, and provides clinicians with increased flexibility precision and controlled surgical solutions. Our flagship device, Speedboat Inject, and the CROMA advanced energy platform that powers it are premium, high margin devices delivering clinical and patient benefits. Having complete control over the manufacturing, training and distribution of our products helps drive both clinical excellence and the associated revenue. Further development of our wider suite of devices continues apace. This includes MicroBlate Fine, which is showing positive results for Microwave ablation treatment in the pancreas and, for the first time in 2022, the liver. We are continuing to drive new indications and new territories for our suite of products. Our range of complementary single-use endoscopic devices for diagnostic and therapeutic procedures coupled with an established distribution network ensures that we are now able to further maximise the revenue potential of every case whilst providing a complete solution to our customers. Reaching More Patients Through Our Kamaptive Licensing Programme Creo continues to receive considerable interest in its technology. Potential parallel applications provide opportunities for growth, enabling us to exploit our significant IP portfolio and ensure our technology is used to treat as many patients as possible, across various indications. With the right partners, Creo’s Kamaptive Technology can accelerate the change in how patients are cared for. The licensing model provides a low outlay and high margin return for Creo when our technology is adopted. The Kamaptive Licensing programme has accelerated during 2022 through partnerships with two of the world’s biggest robotics companies, Intuitive and CMR. The potential for future partnerships in this space is extensive, with over 100 other surgical robotics companies worldwide. Our unique IP portfolio has a clear potential in several additional, potentially lucrative markets, continuing to place our technology at the heart of new patient treatment options across more indications. Single Use Devices CROMA and our Advanced Energy single use devices are premium, high margin products + Creo Medical has several complementary profitable and market leading products spanning gastrointestinal (“GI”), urology, pulmonology, and surgery that deliver solutions for therapeutic and diagnostic procedures, as well as cleaning of equipment. + The optimisation and commercialisation of a wider range of Advanced Energy devices and the treatment of an increasing range of indications Every Case = Revenue Kamaptive Licensing Programme The licensing model provides a low outlay and high margin return for Creo Medical when our technology is adopted, allowing for a potential case by case revenue. We have had a strong start to the Kamaptive Licensing Programme, establishing partnerships with two of the largest robotics companies, Intuitive and CMR. The potential for future partnerships in this space is extensive, with over 100 surgical robotics companies worldwide. Our unique IP portfolio has a clear potential to meet needs in several additional lucrative markets in robotics and beyond. 21 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Market Review Market Potential Resection Ablation Robotics ROW USA c.$1.1bn2 c.$1bn3 (est. 2031) ~20m4 Soft Tissue Surgery Procedures ~6m4 Line-of-Sight Procedures APAC Lower GI Addressable Market Lung Ablation Soft Tissue Procedures ▶ Single NHS Trust experience based ▶ Based on estimated procedures3 ▶ 1.8 million Intuitive procedures and expected device cost for lung ablation in 2031 in 2022 (Intuitive have significant majority robotics market share)4 ▶ 25+ cases completed using MicroBlate Fine expected to grow in 2023 ▶ Similar c.$1bn market developing in lung ablation by 2031 ▶ 240+ shipments of MicroBlate Flex within 2022 ▶ c.6 million pa Intuitive line of sight4 ▶ c.20 million soft-tissue surgery procedures total market4 ▶ Significant growth potential in Soft Tissue Robotic surgery market on c.13,800 colonoscopies ▶ 5.5% Complex polyps, of which c.49% required therapeutic intervention1 (c.2.6%) ▶ Applying to the US based on 16m colonoscopies p.a.2 implies a c.$425m US and $1.1bn overall total addressable market (“TAM”) for lower GI ▶ Doctor interviews place Creo target market c.$100m US and EMEA within five to seven years — lower GI only ▶ Additional market potential for Speedboat Inject for upper GI procedures 1 Based on individual account experience (not published) 2 US surgical procedure volumes 2010, Millennium Research, RPUS43SV10, February 2010 / idata Research 2019 3 Internal information on evolution of lung ablation 2023-2031 4 Intuitive Surgical JPM presentation January 2023 (Line of sight: Estimated robotically addressable portion of targeted procedures in targeted geographies with existing products and clearances. Excludes Ion) 23 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Creo is focused on minimally invasive endoscopic and robotic assisted surgery, in particular for pre-cancer and cancer surgery. Core Technology Creo Medical Core Technology n o i t c e s e R A n o i t a b A l Speedboat Inject is our flagship advanced energy device product with over 1,500 procedures performed using the device. Slimmer model launched in Nov 2022 Surgical device combining Speedboat blade and precise Microwave coagulation in a unique multi-modal jaw design TARGET APPLICATION ▶ Bowel ▶ Oesophagus ▶ Stomach ▶ Bowel ▶ Oesophagus ▶ Stomach Soft tissue Microwave ablation devices for ablation of tumours in a wide range of tissue types ▶ Anywhere accessible through the GI tract ▶ Same size as FNA needle & uses same procedure Flexible Microwave ablation device designed for soft tissue ablation where flexibility and small diameter is required ▶ Lung, stomach, oesophagus and colon ▶ Key areas for Creo are Upper and Lower Gastrointestinal (oesophagus, Colorectal), Lung and Soft Tissue (Pancreas, Liver) surgeries ▶ Creo’s products also address needs in wider (non-cancer) surgery ▶ All devices enabled by CROMA, powered by Kamaptive. See pages 52 to 57 25 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Our Portfolio Beyond the integration of staff, networks and processes, our regional hubs in Spain, Germany, France and Belgium provided Creo Medical with the opportunity to manufacture, sell and distribute a wider range of products in the fields of Endoscopy, Surgery and Urology. The continued optimisation of the product portfolio forms part of Creo’s ongoing wider product strategy, namely to develop and migrate products from being delivered through strategic distribution partnerships to increasing our ability to research and develop these products—maximising revenue in the process. This process has already begun and proven to be fruitful, particularly in the GI space, during 2022 (see CCO statement on pages 16 to 17). By making more products compatible with our Core Product Range and our CROMA platform we will continue to build on what we can offer our customers, providing a suite of complete ‘Creo-manufactured’ solutions for a wide range of indications and procedures in multiple markets. 1 Core Product Range Designed to provide the highest level of patient benefits, deliver cost savings and the latest technology to healthcare providers. The Creo Medical business is built around these products and they deliver a high margin return for Creo Medical. 2 Complementary Products Our ancillary devices have been strategically chosen to extend the reach of the Creo Medical brand, and work alongside our core technology to increase the Creo product portfolio across therapy, diagnostics and cleaning. We have partnerships for the R&D and Manufacturing of these devices. 3 Strategic Distribution Partnerships Can be bundled together with the Creo branded core technology and accessories to deliver a full suite of solutions to our customer base. The partnerships with these manufacturers also provide market insight and awareness of the state-of-the-art technology. When increased volumes are reached, these products have the potential to be elevated to Creo branded products. GASTROENTEROLOGY UROLOGY PULMONOLOGY SURGERY Powered by ▶ CROMA ▶ Speedboat Inject ▶ MicroBlate Fine ▶ Capital Equipment for Device Hygiene ▶ Endotherapy Accessories ▶ Hygiene Accessories ▶ Manometry Catheters ▶ Endoscopic Capsules ▶ Sonoscape Endoscopy Tower ▶ Urodynamics capital equipment ▶ CROMA (not yet available) ▶ CROMA ▶ MicroBlate Flex ▶ CROMA ▶ SpydrBlade Robotics ▶ Urodynamic Catheters and Accessories ▶ Endotherapy Accessories ▶ Single use ▶ Single Use Steriscopes and Cystoscopes Bronchoscopes, needles and stents ▶ ENT equipment, Piezosurgery Technology 27 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Investment Case Unparalleled Technology Harnessing advanced energy to treat indications endoscopically Intelligent Technology Multi-Tiered Revenue Stream Addressing Global Needs ▶ The development of a suite of ▶ Core advanced energy ▶ Entering new and established cutting-edge, miniaturised Creo manufactured devices ▶ Combining engineering experience with the latest advancements in science and technology ▶ Continued investment in R&D, both in house and through our Kamaptive partners, to expand and enhance the treatment options open to healthcare providers devices at various stages of commercialisation, with the slimmer Speedboat Inject yielding an increase in orders ▶ Complementary products providing opportunity to maximise revenue per procedure ▶ Additional product portfolio in areas such as urology, pulmonology and device hygiene providing consistent revenue stream ▶ A broad intellectual property ▶ Kamaptive Licensing (“IP”) portfolio Partnerships progressing well, providing revenue and milestone payments with excellent potential for future royalties markets where there are significant unmet needs in the treatment options available ▶ Bringing advanced energy, until now synonymous with surgery, to endoscopic procedures ▶ Significant potential in robotics partnerships ▶ Working with some of the world’s leading healthcare providers and physicians to ensure clinical excellence when introducing minimally invasive alternatives to surgery for patients across the globe Read more on our intelligent technology from our CTO and founder Chris Hancock, pages 60 to 61. Read more on our enhanced revenue streams in our CEO and CCO statements, pages 12 to 13 and 16 to 17. Read more about how healthcare providers and patients are already benefiting from our technology on pages 31 to 43. 29 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Transforming Patient Lives 31 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Transforming Patient Lives Transforming Lives Retired maths teacher Chris Grayling only visited his GP at his wife’s insistence. Tests revealed an 11cm growth in his bowel. Initially, Chris was told he would require a major operation that would have left him with a colostomy bag and an altered life. Thanks to the advanced capabilities of Speedboat Inject and the world-leading complex polyp service it has facilitated at NHS East Kent Hospitals Trust, Chris’s lesion was removed endoscopically, en-bloc and with no pain to the patient. He left the hospital the following morning and was back in the gym in no time. Histology showed the procedure to be curative. “ They said, a few years ago I would have ended up with a colostomy bag for six months to a year. If that was the option to keep me alive I would have taken it, but now I feel like I’ve got off virtually scot-free. One of my closest friends died of bowel cancer and that made me so frightened. I can’t thank the team enough for everything they have done. They were brilliant and I owe them my life.” Chris Grayling is one of well over a thousand patients all over the world to have already felt the benefits of Creo’s Advanced Energy Technology. Anything is Possible with the Right Approach 33 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Case by Case Device usage has grown quickly from multiple cases being performed daily on a global basis 35 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Healthcare Providers 37 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Transforming Patient Pathways Healthcare Providers The combination of our intelligent advanced energy technology and our expanded Pioneer Clinical Education Programme enables our customers from around the world to change patient pathways. An endoscopist can treat up to four to five patients a day under sedation with Speedboat Inject. With both the prevalence of complex polyps and waiting lists across the world growing, this is an attractive solution not just to hospitals and health boards but to bodies such as NHS Supply Chain, who are actively engaged with us. Because of the benefits to both patients and healthcare providers, doctors are beginning to be incentivised to perform SSD by payers of care, with tariffs of hundreds of pounds or more per procedure not uncommon in the NHS. As SSD becomes more common, so too does the increase in demand from the hospital, further facilitating a change in patient pathway. * Cost-effectiveness analysis of Speedboat submucosal dissection in the management of large non-pedunculated colorectal polyps, based on 50 patients. Authors: Amir Ansaripour, Mehdi Javanbakht, Adam Reynolds, Zacharias Tsiamoulos. Data on file. Current Patient Treatment Pathways—Why Speedboat Submucosal Dissection (“SSD”)? Current patient treatment pathways Surgery Endoscopic Mucosal Resection (“EMR”) Endoscopic Submucosal Dissection (“ESD”) ▶ Up to 30cm of bowel removed and sections re-joined ▶ Change to the patient’s anatomy ▶ Potential stoma bag for months, even life in some cases ▶ Approximately four hours of treatment under general anaesthetic with associated risks (e.g. infection) ▶ Up to five days hospital stay ▶ Follow up treatment required ▶ EMR has become the industry standard from removing small, non-cancerous complex polyps in the colon endoscopically ▶ Lesions can be removed en-bloc using monopolar devices in a procedure commonly referred to as ESD ▶ It does so by snaring and ripping complex polyps from the colon— bit by bit or ‘piecemeal’ ▶ This does not achieve an en-bloc resection, making follow ups a necessity and preventing a curative outcome ▶ High chance of re-occurrence, with associated need for further future procedures ▶ ESD traditionally has a long learning curve (with doctors often spending up to six months in Japan to train) ▶ Using monopolar energy requires the body to complete the Radiofrequency circuit—with energy passing though the patient at every use ▶ This requires high volumes of energy which can cause issues with precision and spread, and can cause complications ▶ Because of the distribution of energy, monopolar devices can often result in charring of the tissue or perforation into the muscle layer, with associated complications Why SSD? Speedboat Submucosal Dissection (“SSD”) ▶ Provides intelligent, controlled and precise distribution of energy using less power to greater effect— minimising the chances of perforation, charring and other unwanted outcomes ▶ Offers a curative outcome, with typically no follow up procedures required ▶ Changes a patient’s pathway from surgical to day care—freeing up surgeons and doctors ▶ Significant time and cost savings to the provider of care ▶ Creo Medical’s Pioneer training programme has demonstrated the potential to teach non ESD trained doctors to perform SSD in a weekend, with a short period of case mentioning to ensure optimal use 39 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Pioneer Clinical Education Programme Training—Growth of the Pioneer Programme With a pipeline of experts wanting to be part of the Creo journey, we have significantly increased our training capacity post-pandemic. ▶ Fourfold increase in doctors trained since 2021 Continued Growth Plan ▶ The Pioneer Clinical Education Programme is becoming recognised globally as a world-class programme Global experts providing training all over the world Creo Clinical Resources Driving Utilisation ▶ A huge increase in ex-vivo activities, used for better selection of trainees for higher procedure volumes following first human case Ability to run more cost-effective in-vivo training programmes ▶ Increase in trainers and demand allowing training events of 10 or more trainees at a time to become the norm, with cost efficiencies in the per head cost of training and time away from clinical practices for staff and trainers ▶ Introduction of both multi-national and local training programmes mean training can be provided in a way which encourages take up and onward regular use of the device ▶ Decrease in training costs per user means user accounts become profitable more quickly Increase in live training events ▶ Using our expanding group of experienced users, we have increased live case training events across all regions with Creo’s core technology Launch of the Pioneer Online Community ▶ Sharing learning and experience between clinicians, peer to peer, is the fastest way to educate and accelerate change of practice within the medical community. The Pioneer Community gives doctors a closed and secure way of sharing information on all Creo technology ▶ 2022 was the breakthrough year for establishing our clinical resources. We have added a Clinical Education Specialist in all geographies to be able to train, mentor and accelerate the pathway from trainee to user. This will continue to grow as we enter further new markets ▶ Wider suite of devices does not require such an intensive level of training as those to date so it will be easier, faster and more cost effective to train users on these devices ▶ With the pipeline of clinicians increasing due to brand awareness, device optimisation and the introduction of new territories, Creo now has the ability to provide bespoke training to ESD or EMR trained doctors based on background and skillset Adoption and Outcomes ▶ New users are being added each week with multiple cases daily on a global basis, the rate of adoption and conversion is increasing ▶ The second Speedboat Inject device in the Speedboat family of devices. With a ‘slimmer’ profile, the device is compatible with endoscopes with a working channel of 3.2mm or greater and enables endoscopists to address more indications in patients where narrower and more flexible devices are required over the original Speedboat Inject ▶ We have attracted some of the world’s finest endoscopists as early adopters and key opinion leaders of our devices 41 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Healthcare Economics Adoption & Outcomes East Kent Complex Polyp Service The first of its kind globally showing excellent results. Patient Nurse Clinician NHS Clinical Coder East Kent Complex Polyp Service Data Complex polyp service facilitated by Speedboat Inject and SSD. It has changed the patient pathway from one of surgical intervention to minimally invasive day care with better outcomes for the patient, the clinical team and the hospital. With Speedboat’s regular users now having treated a statistically significant number of patients, we are beginning to see clinical papers and data make the case for Speedboat Inject. We anticipate this accelerating sharply in the first half of 2023 given the data-sets now available to clinicians and this will only help increase the take up of Speedboat amongst Healthcare Providers. Speedboat Submucosal Dissection (“SSD”) Procedure—the alternative, impact and savings The Alternative, Clinical Impact & Health Economic Data ▶ Alternative is for up to 30cm of bowel removed and the two sections re-joined • Change to the patient’s anatomy • Potential stoma bag for up to six months or even life • Other associated effects such as depression ▶ Between three to four hours of treatment under general anaesthetic with associated risks ▶ Up to five days’ hospital stay ▶ In one day, four to five patients can be treated under sedation with Speedboat • Savings of over £10k per procedure • So in one day can save NHS: £40,000 – £50,000 of cost; 16-20 hours of operating theatre time and up to 20 to 25 inpatient days ▶ Actual savings based on an independent case series of 60 patients and episode data validated at £10,400 (c.50%) ▶ Cumulative NHS savings by end of 2022 forecast to be over £2.5m ▶ The potential NHS savings would amount to c.£180m per year* ▶ NICE accreditation submission targeted in late 2022 / early 2023 DATA STUDY Cost effectiveness analysis of Speedboat Submucosal Dissection Data gathered under a joint study with the NHS validates potential healthcare benefits and clinical opportunity for Speedboat technology. KEY FINDINGS Up to £10,000 saving per procedure, double that of originally thought. The potential NHS savings could amount to c.£180m per annum. Faster Diagnosis as tumour/lesion can be removed during initial investigation rather than during surgery. Improved Patient Outcomes as shorter procedure and recovery times allow patients to leave the hospital on the same day. Reduced Risk as patients would ordinarily have up to 30cm of bowel removed under traditional surgery with associated risk of complication. Life changing as patients can typically require a temporary or permanent ostomy with stoma bag following traditional surgery. 43 Scan the QR code to watch the full interview. * based on the The 2020 National Bowel Cancer Audit Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Rapid Clinical Adoption Petah Tikva Israel Israel’s Rapid Speedboat Adoption Distribution model enables seven hospitals across Israel to adopt Speedboat Inject in record time. Creo Medical’s unique advanced energy CROMA platform and associated Speedboat Inject device are now in everyday use across the world, with direct sales, clinical education and support structures having ensured a bespoke pathway to adoption for each individual user and hospital. In Israel, by combining with the strengths of local distributor Tradis Gat, a more streamlined approach is proving hugely successful. The distributor Upon the relaxation of international COVID19 restrictions, Creo Medical identified Israel as being a target market, well placed to quickly benefit from Speedboat Inject, with the device having gained FDA clearance for both upper and lower GI procedures. In Tradis Gat, Creo found a well-established distribution partner with an excellent reputation across Israel who also shares Creo’s drive and ambition to put the most advanced technology in the hands of skilled doctors to help transform lives. “ Besides its impact on patient care, Speedboat Inject is unique in that it empowers these professionals to handle complex situations more effectively and thus, completely change the role of Advanced Endoscopy. It is rare to see a medical device make such an impact as Speedboat Inject, and we look forward to maximising its opportunities with Creo Medical’s great team.” —Alon Gat, Managing Director, Tradis Gat Ltd The key to the Israel model has been selecting the right distribution partner for the market and ensuring that Creo Medical’s customers were trained as a team. For this to be successful the distributor, supported by Creo Medical, ensure early engagement at both a business and clinical level to ensure Speedboat Inject is the right fit and to establish a bespoke training and mentoring plan before gaining commitment to attend Creo Medical’s global Pioneer Clinical Education Programme. 45 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Rapid Clinical Adoption New user Dr Sergei Vosko removed a GIST using Creo’s Speedboat Inject for the first time anywhere in the world. September 2021 March 2022 May & June 2022 July 2022 August 2022 November 2022 Identified regional distributor, Tradis Gat, and agreed distribution model. Commercial agreement signed on 10th September. Four Israeli physicians attend Pioneer Training event in Spain. Dr. Sergei Vosko performs first human case on 1st of May. Three further physicians perform their first human cases. “ There’s nothing like watching our team return from a Speedboat Inject case with such a spark and thrill. We’re riding an opportunity wave with this unique device. We have built a network of driven, passionate, and eager professionals who are standing in line to be able to steer Speedboat Inject.” — Guy Dar, Tradis Gat Ltd Distributor began to lead on training, with support from Creo. Allows for more doctors trained and more procedures through localised training and alignment of training and first cases. Multiple physicians now performing multiple cases with several more planned. World’s first GIST (Gastro Intestinal Stromal Tumour) SSD removal procedure performed at Assaf Harofeh Medical Center by Dr. Sergei Vosko using Speedboat Inject device. Four more physicians trained in Cambridge. From the Clalit group— no.1 private hospital group in Israel. Eight doctors and counting from hospitals across Israel trained on Speedboat Inject, all with cases either completed or scheduled and with more in the pipeline. 47 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Multi-User Site Houston, Texas United States Baylor College of Medicine: Multi doctor site. More cases. More users. Baylor College of Medicine is a world-renowned medical institution and academic centre in Houston, Texas, US. Dr. Mohamed Othman is Professor of Medicine there, and has quickly become one of Speedboat’s biggest users following his first case with the Speedboat Inject device in April 2021. Dr. Othman also has more than 80 publications and book chapters in the field of pancreaticobiliary disorders and advanced endoscopy. 2021—with Dr Jawaid soon completing upwards of 40 cases with Speedboat Inject (POEM and lower GI SSD) since then. Having both now performed live educational cases using Speedboat Inject at both US and international endoscopy events, Dr. Othman and Dr. Jawaid are now completing Randomised Controlled Trials using the device as the data mounts on its impact. He uses advanced energy and the Speedboat Inject device to perform both POEM procedures in the upper GI tract and SSD in the lower GI tract, quickly completing more than 75 procedures as it rapidly became clear that the patient outcomes, caseloads and economic benefits of using Speedboat Inject merited a second doctor being able to offer the benefits facilitated by the technology. The positive impact of Speedboat Inject and CROMA’s advanced energy on the endoscopy programme at Baylor means that a third doctor, Dr. Kehanian, is now undergoing training to further widen the pool of doctors able to offer third space endoscopy procedures, with a second CROMA platform recently purchased to ensure that cases can be completed simultaneously where the need arises. Dr. Othman was part of the team who trained Dr. Jawaid, Assistant Professor—Advanced Endoscopy at Baylor College of Medicine, prior to his first case in October “ I learned it quickly with great mentors from the Creo Medical Group, as well as Dr. Othman. It feels like better technology. It feels like more precise technology. More focused energy with less waste resulting in better patient outcomes. We just have to prove the benefits over time, and I think we’re at that stage now from a research perspective. It’s very exciting.” —Dr. Jawaid* * Taken from our recent webinar —scan the QR code to watch. 49 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Early Adoption Bangkok Thailand Thailand—KOLs and first rate facilities supporting early Speedboat Inject adoption King Chulalongkorn Memorial Hospital is one of the two King’s Hospitals in Thailand and the second largest university affiliated teaching hospital in the country. After successfully identifying and partnering Meditop Co. Ltd. as Creo’s distributor for Thailand, both parties combined to successfully run the first Thai Speedboat Inject training lab at King Chulalongkorn Memorial Hospital on April 26, 2022. Six skilled local doctors joined Creo’s clinical specialists and two existing Speedboat Inject users: from the UK and India to complete a successful one-day training course at the world-renowned Chula Soft Cadaver Surgical Training Center. The trainee doctors took quickly to Speedboat Inject and were impressed by Creo’s advanced energy application from the onset of training. Prof Pradermchai Kongkam, Director of the GI Endoscopy Center at Chulalongkorn Hospital, and a highly regarded expert in ERCP/EUS across the Asia Pacific region, was so impressed by Creo’s new technology that he then went immediately to treating human patients using Speedboat Inject in the two days following training—his first SSD (or Rectal ESD of any kind). In fact, three out of the total six trained doctors at Chulalongkorn Hospital were able to immediately use Speedboat Inject for live cases, a real testament to the technology, the success of the improved, localised Pioneer Clinical Education Programme and the facilities available to Creo Medical in APAC. It also highlighted the volume of potential cases quickly treatable by Speedboat Inject in the region. Following another successful local training lab in July, Creo organised our first multi-national APAC training lab in September to engage regional doctors from Thailand, India, Malaysia and the Philippines in collaboration with Prof Pradermchai to accelerate the adoption of Speedboat Inject in the respective markets. In addition, the hospital will soon be made an APAC regional Centre of Excellence, collaborating with Prof Pradermchai Kongkam and others not only on the wider use of Speedboat Inject but also further Creo products as they make their journey towards commercialisation and adoption in the region. “ We are extremely pleased with the success of our training labs in Thailand’s King Chulalongkorn Memorial Hospital and how they, in conjunction with our technology, have facilitated quick adoption by numerous Thai doctors. “ We are also delighted with the reaction we have had from regional KOLs, which has not only cemented our presence in Thailand but also allowed us to quickly make inroads into lucrative markets such as India. “ With our technology easily compatible with the high volume of experienced ESD doctors practising in Asia, we look forward to building on our early successes across the region.” —Tom Kwan, President APAC 51 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Kamaptive Technology™ 53 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Transforming Energy Kamaptive™—Creo’s Proprietary Platform Intelligent Energy with Safety at Heart CROMA Kamaptive technology’s architecture allows multiple Creo development teams to design, test and build innovative devices independently whilst functioning with the CROMA platform without complex software changes or menu options for users. Miniaturised Creo Medical has been working to adapt Kamaptive Technology to miniaturised hand-held devices for heightened accuracy and control. The intuitive intelligence of the interface allows for the platform to be versatile and resilient in scale and function. What is Kamaptive Technology? Kamaptive is Creo Medical’s proprietary intelligent energy technology, found at the heart of all Kamaptive enabled advanced energy platforms and devices. Kamaptive represents seamless and empowering access to next level, game-changing patient outcomes, through use of full spectrum energy in surgical, medical and therapeutic applications. New Possibilities Kamaptive’s full spectrum adaptive technology allows for partnership opportunities in new and innovative fields from robotics to laparoscopy. Kamaptive Technology intuitively adapts to the specific tool in use, self provisioning and intelligently enhancing the settings of the CROMA platform for the purpose of the device being used. 55 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Kamaptive Technology Kamaptive Partnerships Creo’s Kamaptive Licensing Programme sees the Company partner with selected industry leaders in lucrative, growing markets. It provides Creo with a path to high margin, long term and repeat revenue, maximising the potential of our technology where it exists and where we wouldn’t be able to get to ourselves e.g by partnering with robotics giants. Kamaptive Licensing Programme will look to partners to fund the development, optimisation or customisation of technology in relation to their needs and that of their industry. This reduces the R&D burden on Creo Medical going forward whilst allowing us to continue to innovate. “ Technological advancements are facilitating a paradigm shift in the way many surgical procedures are delivered.“ —Craig Gulliford, CEO Creo Medical KAMAPTIVE COLLABORATION AGREEMENTS Creo technology to be adapted for use with robotic-assisted surgical platforms Intuitive CMR Surgical ▶ CMR’s next-generation surgical robot, Versius®, is a significant new entrant into the robotic surgery space, performing laparoscopic procedures worldwide across a range of specialties ▶ A non-exclusive Intellectual Property Licence and Royalty Agreement has been made to integrate certain aspects of Creo’s technology with Versius® ▶ Multi-year collaboration agreement with Intuitive—a global technology leader in minimally invasive care and the pioneer of robotic-assisted surgery ▶ Agreement will see optimisation of certain Creo products to be compatible with Intuitive’s state of the art robotic technology ▶ Agreement also provides a framework to allow joint clinical studies to be undertaken and includes a number of milestone payments to be made to Creo ▶ Future royalty structures have been agreed which will apply when products are commercialised ▶ First revenues from Kamaptive Licensing Programme received in H1-22 with further revenue in H2-22 and 2023 Source: https://cmrsurgical.com/press-kit 57 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Core Technology 59 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Intelligent Technology Technology Review Creo Medical harnesses latest advances in Microwave and Radiofrequency technology and innovative thinking to improve patient care. We have world-leading technology developed and optimised by experts in their field—pushing the boundaries of science and engineering to revolutionise the way patients are treated. Creo founder and CTO Professor Chris Hancock gives a run through of what makes Creo’s intelligent technology so unique. World-leading Components Our CROMA generator and associated miniature flexible instruments bring together the latest advances in material science, semiconductor Microwave power generation in miniature packages, high voltage fast switching RF transistors, low loss Microwave transmission lines and over 500 years of know how from our engineering team, working harmoniously with exceptional outcomes. Take the antennas and amplifiers we use as an example, manufactured uniquely and specifically by ABER Electronics, now part of the Creo Medical umbrella. The advanced antennas we use and the way we use them are just one example of how high-quality, cutting- edge components work together to make our products unparalleled and irreplicable. Hand-picked Talent Creo has a mixture of some of the most respected engineering talent in the UK. From global telecommunications experts and experts in military antenna and RADAR design to signal processing specialists and young Microwave focused PhD students, their brilliance is at the very heart of our ‘anything is possible with the right approach’ mantra. This approach is further enhanced by our collaboration with some of the most respected clinicians and key opinion leaders in the world, talented physicians who are passionate about delivering the best possible outcomes for their patients and who support Creo Medical across all aspects of product development, uptake, training and PROF. CHRIS HANCOCK , CTO evaluation. It’s a key part of ensuring that the products that come to market are optimised for clinical use and the best patient outcomes. The fact that they are excited by what we are delivering and what’s around the corner speaks volumes. Add to that the range of specialists Creo now has, having expanded the business, from manufacturing to marketing, and it’s clear that what we now have is the right talent in the right places to turn this technology into an attractive, all-round package for the user. Intellectual Property Our aggressive, wide-ranging patenting strategy is now also paying dividends through the Kamaptive Licensing Partnerships expanding our presence in new clinical specialties to provide better outcomes for more clinical indications. These Licensing Partnerships illustrate the importance of protecting and leveraging for the continued prosperity of the business. Any potential competitor that has attempted to enter our space has been blocked through our IP development strategy to file claims for new inventions at the prototype and ideation stages. During 2022 we continued this strategy and pressed ahead with different applications for our advanced energy, whether that be endoscopically, laparoscopically, in robotic surgery or elsewhere. A total of 15 patents were filed over the year to protect our advanced sensing as well as multi-modal energy delivery systems; this is 25% more than in 2021 and includes a handful directed to numerous developments for a new vessel sealer instrument and inventions relating to detecting optimal tissue seals among others. When I founded the Company all those years ago, I could never have envisaged the multiple markets we might enter. Thanks to a combination of tech, talent and our comprehensive patenting strategy we are making the treatment of more and more indications possible and achievable. Realising our Potential During 2022 we optimised existing devices, allowing physicians a pathway for broader indications, the development of future devices and the rapid progress in the potential for our technology to help treat patients in laparoscopic and robotic surgery. Packing the optimal capability, functionality and effectiveness into devices the size of a grain of rice is not easy, but we are doing it and are excited about what more we are delivering in our R&D and engineering departments. We know the cases are mounting and with it the clinical data. That will be what proves that what we have is better, more effective and will open up our technology to transform further lives. I think 2023 will be the year we really see that data coming to the fore. Elsewhere we are in the final stages of work on the next iteration of our CROMA platform, with future exciting enhanced delivery modalities such as tissue sensing also being developed. We’ve quickly taken vessel sealing tech from a concept to a working prototype and are excited about the potential opportunities for it and we’ve a number of further ongoing projects which I’m hopeful we can update on in the near future. I’m also heartened by Microwave ablation becoming more commonplace in the mix of treatments for cancers. The risks associated with percutaneous treatment (e.g. for treatment in the lung where there are well established risks of hemothorax and pneumothorax) further validates the potential for our focused, advanced energy technology which we are very excited about seeing the results for. Powered by Kamaptive Technology—Seamless, intuitive integration of multi-modal energy sources, optimised for Dissection, Resection, Coagulation and Ablation ▶ Closed loop multi-modal real time tissue feedback automating adaptive energy delivery specific to patient/tissue needs ▶ Automatic device recognition and provisioning of energy settings for specific device needs ▶ Simultaneous delivery of energy sources to create new tissue effects and improving patient outcomes ▶ Bipolar Radio Frequency and controlled high- frequency Microwave 61 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements CFO’s Review A year of significant financial progress “ First revenues from our Kamaptive Licensing Programme in the year along with growth in sales of our CROMA and Speedboat Inject device” —Richard Rees, Chief Financial Officer I am pleased to announce our sixth Annual Report and accounts since our IPO on AIM in 2016. We have seen the first revenues from our Kamaptive Licensing Programme in the year along with growth in sales of our CROMA and Speedboat Inject device. These revenues along with cost savings and operational efficiencies have reduced the underlying EBITDA loss year on year. The fund raise of £33.7m (before expenses) in Q1 2023 provides us with the platform to achieve positive underlying EBITDA by 2025. £24.9m was generated through consumable sales in Creo Europe. Other operating income of £0.1m in the 12-month period to 31 December 2022 (2021: £0.1m) relates to research grants. Gross Margin Gross margin improved from 46.0% in 2021 to 48.3% in 2022 driven by an increase in margin from consumable sales from 46.3% in 2021 to 48.0% in 2022. Revenue and other income Operating loss The Group has made significant progress in establishing sales channels through new products as well as the development of our commercial footprint with our Kamaptive Licensing Programme seeing its first revenues and additional Heads of Terms signed with new partners. Our European operations have continued to be cash generative to the business and we are starting to see growing sales through broader direct and indirect sales channels for CREO across our large portfolio of products. Revenues billed in the year in relation to Speedboat Inject and CROMA increased to £0.9m (2021: £0.3m) and Kamaptive licensing revenues of £1.4m (2021: nil). The operating loss for the year increased to £30.8m (2021: £29.9m), reflecting a full year of additional heads recruited towards the end of 2021, to support the increased operational growth and completion of key R&D projects. The underlying operating loss for the year was £20.8m (2021: £20.0m). The underlying EBITDA loss for the year was £22.1m (2021: £22.6m). Operating expenses peaked during the year as we completed key R&D projects and invested in our operational capacity and operational resources. In the second half of the year we saw these costs reduce against H1-22 by 5%, a trend we expect to continue into 2023 and we have already seen evidence of this in Q1-23 management numbers. All Figures �’000 12 MONTHS TO 31 DECEMBER 2022 12 MONTHS TO 31 DECEMBER 2021 Revenue Cost of Sales Gross Profit Other Operating Income Administrative Expenses 27,169 (14,047) 13,122 51 (43,929) 25,161 (13,576) 11,585 52 (41,544) OPERATING LOSS (statutory measure) (30,756) (29,907) SIP Charge Earnout Depreciation & Amortisation R&D expenditure recovered via tax credit scheme 119 933 3,112 4,507 – 500 2,562 4,299 UNDERLYING EBITDA (non-statutory measure) (22,084) (22,546) Share-based payments 1,279 2,564 UNDERLYING OPERATING LOSS (non-statutory measure) (20,805) (19,982) Whilst underlying EBITDA and underlying operating loss are not statutory measures, the Board believes they are helpful to include for investors as additional metrics to help provide a meaningful understanding of the financial information as this measure provides an approximation of the ongoing cash requirements of the business as it continues to pursue its future development and pursue ongoing commercialisation focus of its approved products. The underlying EBITDA position excludes SIP charges and Earnout charges (contingent and deferred payments on previous acquisitions), expenses which are non-cash and incorporates the recovery of research and development expenditure which the Group is able to benefit from through R&D tax credit schemes. The underlying operating loss position is the same as underlying EBITDA but also excludes share-based payment expenses which are non-cash. Tax The tax credits recognised in the current and previous financial year relate mainly to R&D tax credit claims. A deferred tax asset has been recognised in respect of the business combination relating to our Creo Europe subsidiaries. A £0.75m deferred tax asset has been recognised in respect of tax losses in Creo Medical Limited which we will utilise through Group relief of the future profits in Creo Medical UK Limited. No further tax assets in relation to these losses have been recognised due to the uncertainty over the timing of future recoverability. 63 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts CFO’s Review…continued Expenses Dividend Administrative expenses totalled £43.9m for the year (2021: £41.5m). The increase was largely driven by headcount costs which increased to £22.9m for the year from £20.5m in 2021 due to an increase in employees at the end of Q4- 21. Non employment R&D costs were £6.9m in the year (2021: £7.3m) due to the completion of key R&D projects and a move towards funded R&D projects such as the Intuitive agreement, offset by increase in Patent costs. Sales and marketing costs were £3.8m (2021: £3.2m) driven by increased travel compared to 2021 due to COVID-19 restrictions as well as costs associated with growing our Core Technology sales. General and Administrative expenses were £5.1m (2021: £5.0m) with our facility and utility costs all increased due to inflationary pressures. Non-cash expenses comprising of SIP charge, earnout expenses, sharebased payments and depreciation and amortisation were £5.2m (2021: £5.5m). Adjusting for these our underlying admin expenses were £38.8m (2021: £35.8m). In the second half of the year we saw these underlying administrative costs reduce against H1-22 by 5% a trend we expect to continue into 2023 and we have already seen evidence in Q1-23 in management numbers reported. This was following a restructuring of the R&D teams as we move to the next phase of commercial development with the completion of many projects in 2022. No dividend has been proposed for the year to 31 December 2022 (2021: £nil). Cash Flow and Balance Sheet Net cash used in operating activities was £25.0m (2021: £26.0m), driven by the increased investment in operational capacity, focusing on commercial activities and initial cash outlay for Endotherapy consumable products in the US and Europe. Net cash used in investing activities was £6.0m (2021: £7.8m) driven by the investments in new facilities for our UK headquarters and deferred and contingent payments made for previous acquisitions. Cash generated from financing activities was £0.5m during the year. Total assets at the end of the year decreased to £75.3m (31 December 2021: £100.6m), a 25% decrease, reflecting the reduction in cash from operations for the year. Cash and cash equivalents at 31 December 2022 was £13.1m (31 December 2021: £43.5m). Net assets were £49.4m (31 December 2021: £73.3m), a 33% decrease due to operating loss and share based payment expense. Post balance sheet event We raised £33.7m (before expenses) through an oversubscribed fundraise in March 2023 which enables Creo to push commercialisation of the suite of products and move to break even and being self-cash sustaining within the near future. Loss Per Share Loss per share was 15 pence (2021: 15 pence). Accounting Policies The Group’s financial statements have been prepared in accordance with International Financial Reporting standards. The Group’s accounting policies have been applied consistently throughout the year and are described on pages 130 to 131. Key Performance Indicators As the Group continues to develop and commercialise its core technology, the Directors consider the key financial performance indicators to be the level of cash held in the business, sales and operating expenses controlled and monitored. The Board performs regular reviews of actual results against budget, and management monitors cash balances on a monthly basis to ensure that the business has sufficient resources to enact its current strategy. Certain KPIs concern non-financial measures, such as the number of trainees for our Pioneer Clinical Education Programme, integration of acquired entities, ESG metrics such as carbon emissions, diversity ratios and employee engagement (see our sustainability report on pages 70 to 85). All non-financial measures are monitored monthly. The Board will continue to review the KPIs used within the business and assess them as the business grows. Principal Risks and Uncertainties The principal risks and uncertainties facing the Group are set out on pages 66 to 69. Directors Details of the Directors who served during the year ending 31 December 2022 are set out on pages 90 to 93. Six of the Directors serving on the Board at the year end were male with one female. Conflicts of Interest To address the provisions of section 175 of the Companies Act 2006 relating to conflicts of interest, the Company’s Articles of Association allow the Board to authorise situations in which a director has, or may have, a conflict of interest. Directors are required to give notice of any potential situations or transactional conflicts that are to be considered at the next Board meeting and, if considered appropriate, conflicts are authorised. Directors are not permitted to participate in such considerations or to vote regarding their own conflicts. On behalf of the Board Richard Rees Director 65 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Risk Management Principal Risks and Uncertainties Risk Management Process The ability to identify, manage and mitigate risks is integral to any business achieving its objectives and fulfilling its strategy. Creo’s risk management process adopts a bottom-up approach to identifying risks and reporting them to both the Audit Committee and, ultimately, the Board. The Board then reviews and assess the risks identified and the risk appetite for the Group which, in turn, provides department heads feedback and guidance on those key risks to focus on and address as a priority. Risk Committee Creo’s Risk Committee is a non-Board committee made up of department heads. The Risk Committee meets formally each quarter. Each member is responsible for the identification, monitoring and mitigation of the risks within their respective departments with guidance provided by the Board. Risks are reviewed by the Risk Committee and challenged by other heads of department as to the impact and probability ratings. Our Risk Appetite The Board is responsible for determining the Group’s risk appetite alongside its business and sustainability strategy. This includes identifying risks and opportunities across the Group. The risk appetite helps to determine those salient risks requiring the most attention and effort to mitigate or to which additional resource is allocated. We have determined the following risk appetites for the current period: During the reporting period, the appetite for operational risk has reduced from high to medium. This reflects the work undertaken over the last 12 months to hone Creo’s operations and internal processes and the increased impact operations has on the business. We recognise that the risks are different when achieving commercial traction in Europe, the US and APAC and each bring their own challenges and risk profiles. We therefore have input from the commercial heads in each region in relation to the risks to ensure we have appropriately identified, recognised and mitigated the key risks. As we continue to scale operations to head towards profitability the risks will change and the business will continue to evaluate these risks to ensure new risks which have not previously been identified will be captured and risks likelihood and impacts which might have become significant. As part of this we have appointed a Chief Operating Officer to oversee operations across the entire group and manage these risks. Risk Reporting Process Risk Tolerance Principal Risks Appetite Rationale Review of key risks to the business and progress against risk appetite. Communicate risk appetite to rest of business Board RISK APPETITE Review of central risk register, process and progress against risk appetite targets Audit Committee Identification of risks recorded in risk register, mitigations and update of impact/probability of risk Risk Committee MODERATE Barriers to sustain the market, Business Disruption Risks, Geopolitical Risks As a medical device company, we develop solutions that tackle unsolved problems, often by applying new technology. The technology risk we assume takes into consideration our stakeholders’ interests and is commensurate with the potential returns from our product pipeline and intellectual property’s assets. The Group has a measured approach to projects and acquisitions and will take an appropriate level of risk commensurate with the potential returns and availability of capital. Operational Risks, Executive and personnel Risks, Financial and going concern, IT and Cyber Security, Environmental The nature of our business means that we are exposed to operational and climatic risks that are beyond our influence but where possible, we take steps to mitigate the impact of these risks on the business. The Group recognises the importance of its supply chain and seeks to minimise risks within its supply chain which would compromise quality and service for its customer. Breach of legal and regulatory requirements, Product Liability Risks Creo operates in the healthcare sector which is highly regulated, where patient welfare is paramount. The Company has a very low tolerance to risks of breaching legal, regulatory or ethical standards or anything which could negatively impact on our people’s health, safety and wellbeing, the communities where we are present, our reputation or that of our customers. 67 REPORTING LOW Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Risk Management…continued The table below sets out those principal risks and uncertainties which, in the Directors’ opinion, are most relevant to the Group. We have shown the movement of impact and probability of each risk against the risk reported in the previous year. Whilst the business puts in place mitigations to reduce the probability of any risk arising and the impacts of any such risks, it is not possible to remove all risk. Further, additional factors could affect the likelihood or impact of risks as the business progresses on its commercialisation journey; for example an increase in revenue may increase impact; or increased product sales may result in product liability risks become inherently more probable and thus having a greater impact on the business. Principal Risk and Impact How we manage the risk Probability movement Impact movement Barriers to the market ▶ Engagement with KOLs and clinicians through Risk our products do not meet the necessary regulatory requirements for the market, are not competitively priced, do not provide value over competitor products. Risk that our technology becomes outdated or superseded by a competitor. Breach of legal and regulatory requirements Risk that the Group breaches legal or regulatory requirements in local jurisdictions which could result in fines, penalties and damage to the Creo brand. local industry and through our Clinical Education Programmes. ▶ Benchmarking prices of products in local markets. ▶ Extensive IP portfolio to protect our core technology in the market. ▶ Clear marketing strategy targeting individual markets. ▶ Development of our Kamaptive Technology, our suite of compatible devices and our Kamaptive Licensing Programme. ▶ Our Quality Assurance and Regulatory Assurance Team is focused on the regulatory needs for product development and develops quality documentation to support all regulatory applications. ▶ We have CE marking for six of our devices as well as our CROMA platform, and FDA clearance for Speedboat Inject, MicroBlate Fine, MicroBlate Flex and SlypSeal Flex devices in addition to the CROMA platform. ▶ Work with local advisors to keep abreast of the development of regulations and requirements. Operational Risks ▶ Chief Operating Officer* appointed to oversee all Risk that Creo is impacted by supply chain issues, manufacturing delays or lack of manufacturing capacity, product defects, supplier dependence. operations across the Group. ▶ Preventative maintenance plan to ensure out products are calibrated and maintained, both before and once they enter the market. ▶ Strategic purchasing of key components and careful monitoring of resource requirements. ▶ Review of at risk suppliers and alternatives identified to ensure minimal disruption if supply chain issues arose. ▶ We have an outsourcing partner ready if demand required additional manufacturing capacity. IT and Cyber Security Risks ▶ Remote servers across multiple sites reducing reliance The risk of industrial hacking for sensitive information and/or with the intention of deliberate malice resulting in disruption to the business. In the event of a data breach the Group may be liable to be fined for a breach of relevant data protection legislation. * Non-Board appointment on a single site. ▶ VPN across the business ▶ Key application being migrated to the Cloud. ▶ Cyber security awareness training implemented across all entities. Executive and Personnel Risks ▶ Appraisal process set up to maximise employees’ Risk of over-dependence on key staff and executives. Risk that we cannot recruit the right talent necessary for the Group to achieve its objectives. Product Liability Risks Criminal or civil proceedings might be filed against the Group by study subjects, patients, the regulatory authorities, other companies and any other third party using or marketing our products. Business Disruption Risks Brexit may cause issues with supply chain, increase export and import prices, cause delays in selling/ purchasing goods. COVID19 or similar pandemic disruption to business stopping us manufacture, sell and operate as usual. Financial and Going Concern Risks Risk that the Company does not have sufficient cashflow to meet its liabilities and is no longer a going concern. Risk that we do not have sufficient cashflow to seize opportunities and projects when they arise. potential and aid their development. ▶ HR Director overseeing the Group and implementing processes and policies. ▶ Leadership and management training to empower management and enhance performance. ▶ Benchmark benefits package across industry roles to ensure competitive. ▶ Identify points of failure (“PoF”) within the business if someone were to leave and mitigate these PoF. ▶ By capturing IPR through patent applications, we are able to ensure ownership of knowledge and create foundations for our product pipeline. ▶ A number of our products have obtained approvals/ clearance from third-party regulatory bodies in the EU and US. ▶ Our design process seeks to mitigate issues by including preclinical and clinical trials in the development of our products. ▶ We invite input from Key Opinion Leaders on product development and their needs. ▶ Our QMS system is designed to comply with ISO 13485. ▶ Third party and OEM/OBL products manufactured to ISO standards with audits undertaken. ▶ The Company property is well secured and we have taken reasonable steps to protect the contents. ▶ A disaster recovery plan has been developed. ▶ We monitor developments on an ongoing basis to allow the business to react when necessary. ▶ The business is continually monitoring local and global developments, including Brexit, COVID19, the war in Ukraine as well as the cost of living crisis and assessing the potential disruption impacts this could have and mitigating these where possible. ▶ On track with budgeted initial cash requirements. ▶ We work closely with a number of agencies and bodies to maximise the amount of grant funding that is available to assist with our technological development while minimising our spend. ▶ Creo Europe (previously Albyn) is profitable and generates cash for the business. ▶ We are constantly talking to current and new investors about our commercial plan and opportunities and the funds those opportunities would require. ▶ Local and Group budgets are reviewed each month with a five year forecast every six months to ensure sufficient cashflow. The Strategic Report was approved by the Board of Directors on 25 April 2023 and was signed on its behalf by Richard Rees Chief Financial Officer 25 April 2023 69 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Sustainability Report CLINICAL CASE STUDIES Learn more about the benefits of Speedboat Inject through a number of clinical case studies. SCAN THE QR CODE TO READ OUR CASE STUDIES 71 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Sustainability Strategy Our Mission: To Improve Patient Outcomes Creo’s sustainability strategy focuses on three key areas where we believe we can make the greatest impact, underpinned by our strong governance framework and aligned with our overall mission to ‘Improve Patient Outcomes’. Healthcare Impacts: Ensuring what we do has a positive impact on our patients, clinicians and the healthcare industry through championing innovation and ensuring quality outcomes. People and our Communities: ensuring what we do has a positive impact on our people and communities through promoting diversity, equality and enhancing opportunities within the business and wider communities Our Planet: ensuring that the actions we take as a business mitigate our environmental impact and work towards and contribute to global targets Supporting the following Sustainable Development Goals Healthcare Impacts People & Communities Our Planet KEY FOCUS ▶ Advancing technology in the field ▶ Create a safe, diverse workplace ▶ Achieve net-zero across our of therapeutic endoscopy ▶ Helping to tackle waiting times and rising healthcare costs ▶ Enhancing clinician education and skills where innovation and collaboration can thrive ▶ Supporting our communities and local schools to further education Scope 1 & Scope 2 emissions by 2027 ▶ Achieve net-zero over Scope 3 emissions by 2035 ▶ Enhanced sustainability reporting and communication OUR PROGRESS ▶ £10k savings per procedure in NHS ▶ Kamaptive pioneering technology opening up new treatment pathways using advanced energy ▶ Quality training which goes above and beyond the industry standard ▶ Investment in new office facilities in UK and Spain ▶ Appraisal & wellbeing workshops to maximise employee opportunity & mental health ▶ Over seven charity events attended with over £20k raised for local good causes ▶ ISO 14001 compliant in three sites across the Group ▶ 80% of energy comes from renewable sources ▶ Reporting on Scope 1, 2 and action plan to capture Scope 3 See more on our goals and progress on pages 76 to 77. See more on our goals and progress on pages 78 to 81. See more on our goals and progress on pages 82 to 85. GOVERNANCE ▶ Healthcare compliance ▶ ISO 13485 compliance ▶ Patient follow up ▶ Anti-bribery, anti-slavery, money laundering policies and training ▶ Diversity metrics & monitoring ▶ SECR compliance ▶ ISO 14001 compliance ▶ UN Sustainable Development Goals ▶ Strong Governance Framework — See our corporate governance report on pages 96 to 100. ▶ Sustainability Committee set up to guide, monitor and report on progress against strategy. See pages 74 to 75. ▶ Continuous stakeholder engagement — see our S.172 statement on pages 102 to 105. 73 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Sustainability Statement Explanation How we Develop our Plan In order to create and execute a successful sustainability strategy it is important to identify those issues that are most important to Creo, its business and its stakeholders. In turn, this allows us to focus on those matters where we have the greatest opportunity to make an impact and ensure an appropriate governance framework is in place to achieve the strategy. To gather insights, we engaged with our key stakeholders to gain their insight on the issues of greatest importance for our business and society. These included: External stakeholders—we sought insight from our patients, clinicians, healthcare providers (including the NHS), suppliers and partners to understand their views of our biggest risks and the opportunities to drive greater value. Our people—we engaged internal experts from across the business to understand the issues which have the greatest impact on the delivery of our strategy and those which are the highest concern for our stakeholders. What is clear is that Creo has a significant opportunity to create positive and lasting impacts in the healthcare sector, for the people Creo works with including local communities across the globe and to be proactive in the fight against climate change, minimising the impact we have on our planet. These formed our three key focus areas which, along with our strong internal governance framework, form the basis for our strategy. Materiality Assessment We used the Global Reporting Initiative (“GRI”) recommendations on materiality to ensure that our process was conducted according to best-practice reporting standards. Through this process we identified 21 material issues. We also combined the results of the materiality exercise alongside the prioritised issues identified by the UN Sustainable Development Goals (“SDGs”) to guide the development and focus of our materiality assessment. NO. MATERIAL ISSUES SUSTAINABILIT Y PILLARS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Supply Chain Management Healthcare Impacts Our People & Communities Our Planet Governance Governance, Ethics and Compliance Data Protection and Cyber Security Responsible and Transparent Sourcing Risk Management and Mitigation Hazardous Materials Sustainable Logistics and Product Distribution Ethical Animal Trials Diversity, Inclusion and Equal Opportunities Employee Engagement, Attraction and Development Occupational Health, Safety and Wellbeing Community Engagement Accessibility of Products Clinician Experience and Development Patient Outcomes Innovation, Research and Development Collaboration and Partnerships Climate Change and Energy Use Recycling and Waste S R E D L O H E K A T S O T E C N A T R O P M I 15 16 14 18 2 9 5 13 1 10 19 11 3 17 8 20 4 21 6 7 12 20 Product Life Cycle 21 Water Use and Efficiency IMPORTANCE TO CREO GROUP 75 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Healthcare Impacts Healthcare Impacts Our focus on healthcare impacts aligns with the following UN SDGs Ensuring what we do has a positive impact on our patients, clinicians and healthcare industry through championing innovation and ensuring quality outcomes. This was recognised as an area of specific focus due to the unique opportunity Creo has to make a positive impact in the following ways: Advancing Technology Everything Creo does has one main aim, to improve patient outcomes. In order to do this, current treatment pathways will need to adapt through continued innovation, challenge and collaboration. We do this through the following ways: Our products—we are constantly identifying new treatment pathways for our products such as Speedboat Inject. Since the introduction of Speedboat Inject we have expanded into further indications. As well, we are constantly innovating to make our product better and more accessible. Our new slimmer Speedboat Inject device which launched in November 2022 is a perfect example of this. Collaborating with others in the industry—sharing our knowledge and technology with partners allows innovation within the industry and will help lead to new products and pathways not yet available. We have currently partnered with CMR, Intuitive and IQ Endoscopes with the aim of identifying new technologies and disrupting the market norm. Being at the forefront of innovation—Creo is constantly at the forefront of innovation and has been recognised in the industry as a leader in innovation. Our CTO and founder Chris Hancock recently won the inaugural Technology Innovator of the Year Award at European Microwave Week. Tackling Waiting Lists and Rising Healthcare Costs Whilst our mission is to improve patient outcomes, our technology has been proven to have the potential to reduce procedure times and remove the need for long hospital stays. Further, results from our health economics data shows savings of up to £10,000 per procedure in the NHS. See page 43 for further details. We are not limiting our benefits to just the NHS or first world countries, but are actively looking to help ease healthcare pressures and improve patient outcomes globally. We want as many people to have access to our technology as possible. To achieve this we have supported clinicians to perform procedures and introduced our technology in a number of countries including Chile, Ecuador, India and Israel. With a focus not just on the markets we have a direct presence in but all across the world, we believe we can make a significant impact on the pressures faced by healthcare providers across the globe and help to tackle healthcare inequality between regions. Training that goes beyond expectations Quality is of paramount importance to Creo and the products and training we provide. As well as complying with ISO 13485 Medical Devices certification and relevant healthcare compliance, we strive to provide training and education long after the clinicians pass the required level of proficiency. Our Pioneer Clinical Education Programme champions this quality and follows users through multiple cases to ensure the patients receive the best care and we prevent any avoidable adverse impacts. Follow ups with patients and clinicians allow us to obtain valuable feedback to enhance future patient experience and clinician training. How We Govern ▶ Healthcare compliance ▶ ISO 13485 compliance ▶ Clinical Training Policy ▶ Technology Patents Scan the QR code to see more on our health economics Case Study: Speedboat Inject Thanks to the advanced capabilities of Speedboat Inject and the world-leading complex polyp service it has facilitated at NHS East Kent Hospitals Trust, Chris’ lesion was removed endoscopically, en-bloc and with no pain to the patient. He left the hospital the following morning and was back in the gym in no time. Histology showed the procedure to be curative. Read Chris’ story on page 33 What’s next? ▶ Release latest version of products to expand procedural capability ▶ Develop global accessibility to treatments through market penetration in developing countries ▶ Continue to invest in new treatment pathways ▶ Continue growth in our professional education programme 77 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Our People and Communities Our People and Communities Our focus on our people and communities aligns with the following UN SDGs Our people are the lifeblood of our business and the driving force behind the innovative work we do within the healthcare sector. We are committed to ensuring our recruitment, talent assessment and development processes can identify the best people for the roles irrespective of any personal characteristics. Creating a safe and inclusive environment which fosters innovation We recognise the importance of providing state of the art facilities and space for our people to collaborate face to face, share ideas and meet other members of the team. We have recently expanded our new office in Chepstow to complement our offices in the US and Singapore, with state-of-the-art training facilities, collaborative workspaces and R&D laboratories. This has allowed our employees to come back to the office post-COVID19 on a flexible basis and collaborate with other departments fostering innovation and inclusion within the Creo family. Online workshops and meetings are held with our international colleagues on a regular basis to ensure everyone feels part of the Creo family and that we are all working towards the same goals. To ensure a safe and inclusive environment we have the following policies and workshops in place: ▶ Diversity & Ethical Behaviour Training ▶ Menopause Awareness Workshops ▶ Employee team building days ▶ Equality, Diversity & Inclusion Policy (including respect for human rights) ▶ Whistleblowing Policy ▶ All hands meetings We are committed to creating a diverse workforce and working towards gender parity in senior positions within the business. We are committed to ensuring that all disabled persons whether newly hired or who have become disabled during employment, have appropriate support, training, career development and promotion opportunities. Sickness 3% 2022 Employee wellbeing Employee wellbeing is of paramount importance to Creo, particularly in light of recent global events such as the COVID19 pandemic, the war in Ukraine and the cost-of- living crisis. Happy and healthy people perform at their best. This is why we implemented a range of tools to help support our employees. ▶ Mental Health First Aiders—trained individuals provide a channel of confidential and non-judgmental support to employees who may require some assistance or simply need to chat. ▶ Employee Assistance Programme—employees have access to our free and confidential online and telephone support service (Unum LifeWorks). Support topics include bereavement support, financial wellbeing, mindfulness, elder care and more. ▶ Beam Development and Training and Awaken Wellbeing Services—Creo has engaged with a professional wellbeing coach in order to provide one to one telephone and online support to employees to help promote positive wellbeing and avoid burn out. ▶ Wellbeing Sessions—webinars covering a variety of topics including Menopause in the workplace, Understanding and managing stress and the importance of boundaries at home and work. Training has been provided in locally appropriate language and tailored content. As well as the above programmes we have also introduced Aviva Digicare and Unum Help@hand alongside our current health services provided. This provides our UK employees with: ▶ Annual Health Check—a home-based test examines 20 different health markers to help identify problems early, including diabetes risk, cholesterol status and liver health. ▶ Digital GP—a private doctor service offering our employees quick access to clinical advice and guidance, through up to three sessions a year. ▶ Nutritional Consultations—our employees can have up to six consultations a year with a nutritional expert, including advice and guidance on delicious healthy eating plans. ▶ Mental Health Consultations—tailored advice from mental health professionals if there’s any issue—home or work related—our employees need to talk over, including bereavement support. Employees get access to six Mental Health Consultations a year, with an additional six bereavement consultations. ▶ Physiotherapy—our employees and their partners can have up to eight sessions a year between them with a physiotherapist who will give them bespoke exercises normally via video consultation. ▶ Second Medical Opinion—helps our employees get two expert second medical opinions a year and treatment plan from a UK-based clinician after an initial diagnosis. These programmes help to keep our staff in the best condition and help to reduce sickness within the workplace. Board of Directors All employees F E MALE 1 107 MALE 6 177 79 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Our People and Communities…continued Challenging & Rewarding Careers Community Engagement Accidents per 100,000 hours 2021 0.67 vs. 2022 0.33 Health & Safety Physical health is also key to ensuring we provide our colleagues a safe place to work. During the year we have: ▶ Introduced a red tagging exercise ▶ Additional sharps bins for disposals ▶ DSE homeworking assessments ▶ New near miss reporting portal ▶ RoSPA Award We always strive to get the best out of our employees and ensure they are reaching their full potential. This year we have introduced our Appraisal process. Every employee within the business will have an appraisal where their strengths and development areas are identified and goals are set to help them achieve their potential. We have run appraisal workshops to ensure employees understand how to get the most out of their appraisals and managers understand how to set SMART goals. We keep our employees aware of our success stories with patients through regular communication to help remind them of the purpose of the business and difference they are making to people lives. Retaining and attracting the best talent is key to achieving our strategic goals. We offer various employee benefits including: ▶ Share Incentive Plan ▶ Cycle to work scheme ▶ Income protection ▶ Critical illness cover ▶ Time off for volunteering ▶ Flexible working ▶ Healthcare support ▶ Life Insurance Employee Voluntary Turnover Ratios 18% 2022 We actively encourage our employees to get involved in local community projects, volunteering and raising money for good causes. Some of the projects we have been involved in this year include: ▶ Tree planting at the local school in Chepstow. Not only did this help offset carbon in the atmosphere it also helped our employees engage with the local community, raising awareness within the community of the work that Creo is undertaking and the career opportunities that it can offer. ▶ Majorca Bike Ride—Creo employees took part in an overseas bike ride to Majorca over 384km to raise funds for Velindre Cancer Centre. ▶ Dragon Boat Race—32 of our UK colleagues competed in the Dragon Boat Race based in Bath this year to raise funds for Designability, a charity which designs and creates assistive technology and products for people living with a disability or long term health conditions. ▶ Jiffy50challenge—A team of colleagues completed the 50 mile cycle to help raise funds for Velindre Cancer Centre and the South West Wales Cancer Fund. ▶ Rhossili Bay Trek—A group of Creo employees trekked along the coastal path to raise funds for Bowel Cancer UK. ▶ Creo Medical Europe Charity Dinner—Our European colleagues joined a Charity Dinner to raise funds for a local cancer centre based in Spain. ▶ Our Global HR Director attended Dene Magna School to offer students mock interviews. ▶ Our Chepstow head office hosted a class of students from a local comprehensive school to show and inspire them with the work we do and the careers we offer. 421 Total Volunteering Hours £Thousands Raised for charities and good causes How we Govern ▶ Policies and training via our global learning platform: • Anti-Bribery Policy • Whistle Blowing Policy • Money Laundering & Anti Bribery • Equality & Diversity Policy ▶ Benchmarking pay and benefits to industry standard ▶ Diversity & behaviour in workplace training ▶ Appraisal process ▶ Exit interviews ▶ Analysis of key workforce data including sickness, leavers, hires, promotions and pay parity What’s next? ▶ Examining ways to improve employee value proposition ▶ Undertake employee surveys to track scores and measure progress ▶ Continued community engagement 81 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Our Planet Our Planet Our focus on the environment aligns with the following UN SDGs UK Emissions1 SCOPE 1 Emissions from facilities2 Emissions from vehicles3 SCOPE 2 METRIC 2022 2021 Tonnes / CO2e Tonnes / CO2e 15.3 1.3 16.6 8.3 8.3 0.25 1.03 6.3 0.6 6.9 27.1 27.1 0.12 30.79 Purchased Electricity4 Tonnes / CO2e Energy Consumption5 GWh Intensity Metric6 Tonnes CO2e / Revenue £m DISCLOSURE TIMELINE It is key that we all minimise our impact on the environment, including Creo and its employees. As a business we want to ensure that the actions we take minimise our environmental impact and work towards and contribute to global targets. We recognise that as our business grows so will our impact on the planet, however we also recognise that we have an opportunity to reduce or mitigate the negative impacts and an opportunity to create positive impacts along the way. Our emissions and energy usage As an evolving business we recognise the challenge in setting internal targets and want to ensure that any targets we set we can reliably measure, report on and actually have a positive impact. Our initial targets therefore focus on achieving net-carbon neutral by 2027 across our Scope 1 and Scope 2 emissions and net-zero for Scope 3 emissions by 2035. Further targets will be implemented as our strategy and data capture evolves. Scope 1 & Scope 2 Emissions We have put in place systems and controls to capture our Scope 1 & Scope 2 emissions and record this data on a regular basis. Using this data we are able to understand the impact from a Group perspective. We currently have data for all UK sites and are close to having data for all global sites across Europe, the US and APAC regions. We anticipate having all Scope 1 & Scope 2 data across all sites by the end of 2023. Scope 3 Emissions We recognise the challenges posed by obtaining Scope 3 data, particularly from third parties and indirect impacts. We have started to gather the appropriate data for these and have implemented the following timeline in relation to Scope 3 data and disclosures. Although we are not required to disclose Scope 3 data under current regulations, in line with best practice and TCFD and SECR guidance we have chosen to disclose the 2022 Scope 3 emissions for our Business Air and Land Travel from our Chepstow and Bath sites. In order to understand and reduce our Scope 3 emissions we need to have a clear understanding of our supply and value chain. We have begun this process through identifying suppliers which currently hold ISO:14001 certificates to understand if they are working to reduce their emissions. 80% of UK sites now run entirely on green electricity Sites Scope 1 Scope 2 Business Air Travel Business Land Travel Upstream Emissions Downstream Emissions UK 2022 2022 Global 2023 2023 2022 2023 2022 2023 2023 2024 UK Emissions7 SCOPE 3 Emissions from business air travel8 Emissions from business land travel8 METRIC Tonnes / CO2e Tonnes / CO2e Intensity Metric9 Tonnes CO2e / Revenue £m 1 CO2 per units for 2022 were calculated using the metrics provide by the suppliers directly. CO2 per units for 2021 were calculated using data from Energy and Carbon Conversions 2021 Update by Carbon Trust UK as the direct data was not available. 2 Facilities in 2022 include all UK facilities, facilities in 2021 only include our Chepstow and Bath offices as the other data was not available. 3 The 2022 emissions include vehicles owned by UK all UK entities, the 2021 emissions include only vehicles owned by Chepstow and Bath sites. 4 Purchased electricity for 2022 includes all UK sites, purchased electricity for 2021 only includes data for our Chepstow and Bath sites. 5 Energy consumption for 2022 includes all UK sites, energy consumption for 2021 includes only data for Chepstow and Bath. 6 Intensity metric is based on revenues. We believe this to be appropriate metric as it will help us monitor our progress as the company continues to grow. The 2022 revenues include revenues from all UK sites. 2021 revenue includes revenue from Chepstow and Bath sites only. 7 Scope 3 emissions for Chepstow and Bath site only. 8 9 CO2/Mile was calculated using direct data from travel provider and the CO2 per mile from Department for Transport 2020. Revenues from Chepstow and Bath sites only. 2024 2025 2022 411.9 22.2 434.1 216.0 83 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Our Planet…continued Action to Reduce Our Impact Water & Waste Despite our strategy and wider industry progress being in its infancy we have already made great strides in reducing our impact on the planet through the following: ▶ Obtained ISO: 14001 in Chepstow and Bath offices ▶ Installed LED lighting across our UK offices leading to an 80% reduction in CO2 emissions per light ▶ 80% of the Group’s electricity currently comes from renewable sources ▶ Revised our soak test requirements when manufacturing our CROMA platform to save 5.4kWh per generator ▶ Installed electric vehicle charging points at our Chepstow site ▶ Planting of trees within the UK and overseas to help offset emissions through business travel ▶ Smart travel campaign to raise awareness of types of business travel and the CO2 each produces ▶ Bike to work scheme We are also in the process of implementing the following, which we expect to be completed in early 2023: ▶ Supply chain analysis of supplier impacts ▶ Carbon calculator Although we do not use a significant amount of water we still track the amount of water usage across the Group and look for ways to reduce our water usage. We have undertaken an analysis to ensure that we do not operate in any water deprived areas and monitor the amount of water used throughout the business. ISO 14001 is an internationally recognised standard for Environmental Management Systems and demonstrates Creo’s commitment to Environmental Management. We now segregate all wastes at all our offices including batteries, WEEE, hazardous materials, sharps, and clinical waste etc. We have now implemented flexible working practices and we asked staff to return any waste electrical items, batteries, etc. to the workplace so it can be recycled as part of our business waste. Waste Electrical and Electronic Equipment (“WEEE”) As a producer we place electrical items onto the UK market which will eventually become waste. We understand our obligations to manage this, both morally and legally. We have joined a producer compliance scheme (“PCS”) to support and assist our efforts. Under the relevant laws, we are considered a small producer as we place less than five tonnes of electrical product onto the market annually. This allows us to register with the European Agency direct. However, we have chosen a PCS to handle our registration so that we receive timely and effective guidance as our business develops and additional obligations come into force. Regulatory Requirements and Frameworks We keep abreast of the rapidly evolving regulatory environment, particularly around climate change and disclosures. Although we are not required to report on Task Force on Climate-Related Financial Disclosures (“TCFD”) we have made significant progress on our disclosures of Scope 1 & 2 emissions and have a clear plan to understand and disclose more detail about our Scope 3 emissions in the next few years. The implementation of our Sustainability Committee alongside our Risk Committee will allow us to begin to set a clear climate impact strategy along with appropriate scenario testing, identification of opportunities and threats and resilience testing. We are aware that the IFRS Sustainability Standards Board are planning on issuing the IFRS Sustainability Standards Disclosures which are likely to come into force in the next few years and await to see how these align with the TCFD. The current plans and strategy mean we are on the front foot in this ever-changing environment to be able to meet future and current regulatory requirements as they arise. What’s next? ▶ Increased Scope 3 data capture and disclosures ▶ Regional sustainability champions within the business ▶ Benchmarking of KPIs to industry and competitors ▶ Continue to save energy in our current business practices How we Govern ▶ SECR compliance ▶ ISO: 14001 ▶ Data capture ▶ Sustainability Committee ▶ Producer compliance scheme 85 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Corporate Governance CLINICAL CASE STUDIES Learn more about the benefits of Speedboat Inject through a number of clinical case studies. SCAN THE QR CODE TO READ OUR CASE STUDIES 87 87 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Chair’s Statement Continued Evolution of a Medical Device Innovator “ … a shared culture spanning multiple markets and driving real synergies across the business” —Charles Spicer, Chair Overview Creo Medical continues its evolution from a UK medical device innovator into an international group focused on the clinical and commercial adoption of a full suite of electrosurgical products. With multi-tiered revenue streams and a global reach servicing over 4,800 customers from 14 offices, our core products are now in daily use around the world. During the year, the Group further embedded its core technologies into its acquired businesses to create a shared culture spanning multiple markets and driving real synergies across the business. This is seen from the launch of our Creo branded consumable products in the US providing additional revenue streams from these synergies. We signed a landmark collaboration agreement with Intuitive Surgical and announced a licence and royalty agreement with CMR Surgical. Consequently, we are now working on both sides of the Atlantic with two of the leading robotic surgery brands to deploy our proprietary technology into new surgical markets that complement our core electrosurgical products. Notwithstanding this progress, like most companies, we faced economic headwinds fuelled by both war in Europe and global fears around inflation and recession. These hit the equity markets for small-cap, technology companies like ours especially hard and increased as the year progressed and our share price worsened. This resulted in uncertainty over sources of equity finance in the second half of the year but has been addressed, post-period, by the placing, subscription and open offer that completed in March 2023 to raise gross proceeds of approximately £33.7 million. The Directors believe our strengthened balance sheet provides a pathway to cashflow breakeven and profitability and gives comfort to our shareholders, bank debt providers, customers, suppliers and partners. Sustainability Creo Medical is committed to best practice in its environmental and social policies under the umbrella term of ‘sustainability’ which emphasises our core social impact of improving clinical outcomes for patients. Ivonne Cantu leads the charge as the non-exec champion on sustainability and represents the Board on the Sustainability Committee. The Sustainability Report on pages 70 to 85 outlines the three areas where we believe we can make the greatest impact: by improving outcomes for our patients, clinicians and healthcare providers; by promoting diversity, equality and enhanced opportunities for our people and communities; and by ensuring that the actions we take as a business mitigate our environmental impact on our planet. Governance The Company continues to strengthen our governance framework with energetic engagement by the Non- Executive Directors at Board level, through the Board committees and in discussion with shareholders. As detailed in the 2022 Compliance Statement on pages 96 to 100, the Group has adopted the QCA Code of Conduct with its 10 principles to deliver growth, maintain a dynamic management framework, and build trust. The Board recognise the challenging MDR/MDD environment particularly for relatively new Companies and the uncertainties that arise from this. Therefore, the Directors share a close focus on risk management as the Group develops new products, new clinical procedures, and new markets. The Audit Committee, chaired by John Bradshaw, our Senior Independent Director, meets regularly to review and monitor the financial statements, accounting principles, internal controls and risk management systems as detailed in our maiden Audit Committee Report on pages 106 to 107. The Committee also monitors the relationship with our auditors to ensure independence and objectivity. The Board continues to seek guidance from our professional advisers, including solicitors, auditors, remuneration consultants and nominated adviser on recommended best practice for AIM companies. Employees Creo Medical’s staff has grown from just 27 employees in the year before IPO to 284 employees operating in 14 countries spanning Europe, the US and Asia. Approximately 120 employees came from acquisitions we completed in 2020 and 2021. 2022 was a tough year for all our management and employees with challenging delivery requirements set against constrained resources and disrupted economies and capital markets. A reorganisation reflecting the transition of the Company towards operational focus means we have had to say goodbye to some great people who have helped us get where we are today. The Board would like to thank all these employees along with the Creo Medical team for their hard work, commitment and patience during the year which laid the foundations for the successful equity raise and therefore the exciting next stage of our evolution. The Group promotes an entrepreneurial employee culture guided by five values: collaborative, creative, disruptive, ‘can-do’, and life-changing patient outcomes. The Remuneration Committee, chaired by Ivonne Cantu, aims to implement a remuneration policy that promotes long-term success, consistent with our culture and values and that is aligned with the interests of our shareholders and other stakeholders. Further details are included in the Remuneration Report on pages 108 to 117. Shareholders While the Company’s frustrating share price performance during 2022 can be partly blamed on the external factors outlined above, it was exacerbated by its weakening balance sheet and uncertainty over future sources of capital. This necessitated frequent discussions between the Company and its shareholders to determine the best route forwards. These resulted in the equity raise in Q1 2023 that was oversubscribed by both existing and new shareholders. The Directors extend heartfelt thanks to our fellow shareholders for this engagement and support in exceptionally challenging market conditions. Outlook Our CEO, Craig Gulliford, has outlined in his report on pages 12 to 13, the Group’s ambitions to become a premier global medical devices company transforming many thousands more lives. With a now strengthened balance sheet and clear targets for the next few years, management and staff can focus on these bold ambitions. Meanwhile, we will continue to build systems for governance, sustainability, and remuneration that are well aligned with the ambitions of all our stakeholders. 89 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Board of Directors Board of Directors NON-EXECUTIVE DIRECTORS Charles Spicer Chair Charles is an experienced director of public and private companies, especially in the MedTech sector. He is also Chair of IXICO plc and Korn Wall Limited (KwickScreen). He is the Chair of the UK Department of Health’s Product Development Awards Selection Panel B for Invention for Innovation (i4i). Charles served as a director of Aircraft Medical (acquired by Medtronic Inc. in 2015) and Stanmore Implants (acquired by Stryker Inc. in 2016). Charles was previously Chief Executive of MDY Healthcare plc, a strategic healthcare investor and, prior to that, Head of Healthcare Corporate Finance at both Numis Securities and Nomura International. Charles is a member of Creo’s Audit Committee. John Bradshaw Senior Independent Non-Executive Director John is a chartered accountant with more than 25 years’ experience as a chief financial officer with venture capital backed and listed companies. Prior to his retirement in July 2021, John was Chief Financial Officer of Syncona Investment Management Limited, the Investment Manager of Syncona Limited, a FTSE 250 listed life sciences investment company. John served as a non-executive director and chair of the audit committee of AIM listed IXICO plc from October 2013 until April 2022. John chairs Creo’s Audit Committee and is a member of the Remuneration Committee. Ivonne Cantu Independent Non-Executive Director Ivonne joined Creo’s Board on 1 February 2020 and has extensive experience in corporate finance, having acted as a corporate finance adviser to UK and international companies for more than 20 years at Cenkos Securities plc and previously at Merrill Lynch. Ivonne is currently director of Investor Relations and Sustainability at Benchmark Holdings plc, an AIM listed aquaculture biotechnology company and a non-executive director and chair of the remuneration committee at Primary Health Properties plc. In addition, Ivonne is a trustee of La Vida, a UK registered charity which supports grassroots projects in the fields of education, environment and health throughout Latin America. Ivonne holds a BSc in Engineering from Universidad Panamericana in Mexico and an MBA from the Wharton School of Business. Ivonne chairs Creo’s Remuneration Committee and is a member of the Audit Committee. 91 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Board of Directors…continued EXECUTIVE DIRECTORS Craig Gulliford Chief Executive Officer Craig was a founding angel investor in Creo Medical and became CEO in 2012. Craig qualified with an MSc in Electronic Engineering from the University College of North Wales. Craig’s early career developed in the Middle East, working with large corporates delivering complex commercial projects. Craig has over 25 years’ experience in building international businesses from early stage through to significant scale. In January 1999, Craig joined a start-up software and hardware business where, as COO, he was part of a small team that grew the company both organically and through acquisition, from a loss-making start-up to a profitable business delivering significant shareholder returns and an exit in 2007. Craig is a non-executive director of I.Q. Endoscopes Limited. Professor Christopher Hancock Chief Technology Officer Chris is the founder of Creo Medical and has over 25 years’ experience in medical device innovation, design and development. Chris holds a personal chair in the Medical Microwave Systems Research Group at Bangor University. Chris is a Fellow of the Royal Academy of Engineering, a Fellow of the Learned Society of Wales, a Fellow of the Institute of Physics, and a Fellow of the Institute of Engineering and Technology. He is also a Chartered Engineer, a Chartered Physicist and a Senior Member of the Institute of Electrical and Electronics Engineers. Chris is a Royal Academy of Engineering Visiting Professor at UCL, and an Honorary Professor in the School of Medicine at Cardiff University. Chris was awarded the Institute of Physics Katherine Burr Blodgett Gold Medal and Prize in 2019 for work on Creo’s CROMA Advanced Energy Platform technology and the Inaugural Junkosha Technology Innovator of the Year prize and award in 2022. Chris is a named inventor and lead author on over 1,200 worldwide granted patents, pending patents and international journal publications in the use of electromagnetic energy for medical applications. Richard Rees Chief Financial Officer Richard joined Creo Medical as CFO in July 2016. Prior to joining Creo, Richard was CFO of SPTS Technologies, a UK-based, global manufacturer of semiconductor capital equipment. In 2011, Richard was part of the SPTS Technologies’ management team that, together with Bridgepoint Capital, acquired SPTS Technologies for $200m from Sumitomo Precision Products. In 2014, SPTS Technologies was acquired by Orbotech Ltd for more than $350m. Prior to joining SPTS Technologies, Richard spent seven years at KPMG in audit. David Woods Chief Commercial Officer David joined Creo as CCO in August 2020, having previously sat on Creo’s Board as a Non-Executive Director. David provides leadership and strategic direction for Creo’s commercial divisions, overseeing all strategic global commercial activities. David is an industry veteran within the MedTech sector. His experience encompasses Gastroenterology, General and Orthopaedic Surgery, Pulmonology and Ear, Nose and Throat. Prior to joining Creo, David was the President and CEO of PENTAX Americas and M&A Director of Hoya Corporation, Pentax Life Care Division. David brings significant operating and commercial experience, market understanding and a proven track record of achievement to Creo. He has also previously sat on multiple MedTech boards over the years. He was awarded the American Society for Gastrointestinal Endoscopy President’s Award in 2010, recognising exceptional contributions to the society and its mission. 93 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Directors’ Report Directors’ Report The Directors present their report together with the audited consolidated financial statements for the 12 months to 31 December 2022. These will be laid before the shareholders of the Company at the next Annual General Meeting (“AGM”). Creo Medical Group plc (admitted to the AIM market of the London Stock Exchange (LSE: CREO), is incorporated in England and Wales with registration number 10371794. The Company’s registered office is at Creo House, Unit 2 Beaufort Park, Beaufort Park Way, Chepstow, Wales, United Kingdom NP16 5UH. Principal activity in the field of research and development and the steps being taken to commercialise the technology being developed. Directors The Directors who held office during the year and up to the date of approval of the financial statements were as follows: Executive Directors Craig Jonathan Gulliford Professor Christopher Paul Hancock Richard John Rees David Gerard Woods The principal activity of the Group during the period continued to be that of research and development and the manufacture and sale of medical devices and instruments. The principal activity of the Company is that of a holding company. Non-Executive Directors Charles Alexander Evan Spicer John Bradshaw Ivonne Maria Gloria Cantu Results and dividends The Group results for the 12 months to 31 December 2022 are set out in the Consolidated Statement of Profit or Loss and Other Comprehensive Income on page 126. The Directors do not recommend the payment of a dividend. Review of the period A summary of the Group’s progress and development is set out in: Directors’ interests and indemnity arrangements The Directors’ interests in the shares of the Company are disclosed in the Remuneration Report on pages 108 to 117. In accordance with Section 234 of the Companies Act 2006 and as permitted by the Articles of Association of the Company, the Company maintained insurance throughout the year for its Directors and officers against the consequences of actions brought against them in relation to the execution of their duties for the Company. The Chief Executive’s Statement on pages 12 to 13; The Chief Technology Officer’s Statement on pages 60 to 61; The Chief Commercial Officer’s Statement on pages 16 to 17; The Chair’s Statement on pages 88 to 89; and The Financial Review on pages 62 to 65. No Director had, during or at the end of the year, a material interest in any contract which was significant in relation to the Group’s business except in respect of service agreements and share option awards and as disclosed in the Directors’ Remuneration Report on pages 108 to 117. each of which form part of the Strategic Report. This analysis includes a commentary on the position of the Group at the end of the reporting period, an indication of likely future developments in the business of the Group including steps being taken in respect of the Group’s overall strategy, details of the commercial activity undertaken during the reporting period, details of the Group’s activities The Company has not granted any indemnities to any of its Directors against liability in respect of proceedings brought by third parties. Share capital Details of the Company’s issued share capital are shown in Note 21 to the consolidated financial statements on pages 155 to 166. As at 31 December 2022, 181,545,885 fully paid Ordinary Shares were in issue. Following the completion of the post period fundraising on 8 March 2023, 350,891,272 fully paid Ordinary Shares were in issue. The share capital comprises one class of Ordinary Shares and these are admitted on the AIM market of the London Stock Exchange. All shares are freely transferable and rank pari passu for voting and dividend rights. Substantial holdings As at 31 December 2022, shareholders holding more than 3% of the share capital of Creo Medical Group plc1 were as follows: Number of Voting rights Financial risk management objectives and policies The Company’s financial risk management objectives and policies are shown in Note 18 to the consolidated financial statements on pages 150 to 153. The main risks arising from the Company’s financial instruments are interest rate risk, exchange rate risk, credit risk, and liquidity risk, which are continuously monitored by the Board. Political contributions The Company made no political donations or incurred any political expenditure during the year. Disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Name of shareholder shares (%) Canaccord Genuity 26,082,158 14.37 Other information Finance Wales Investments 12,776,727 7.04 6.91 12,537,441 11,533,623 6.35 Baillie Gifford Capital Group Creo Medical Group EBT 10,000,000 M&G Investments 9,428,500 5.51 5.18 An indication of likely future developments in the business can be found in the Strategic Report on pages 56 to 61. Significant events which have occurred since the end of the financial year have been included in Note 27 of the consolidated financial statements on page 158. Streamlined Energy & Carbon Reporting (SECR) has been disclosed in the sustainability report on page 83. AXA Framlington Investment 7,992,961 4.40 Auditor Managers Hargreaves Lansdown, 6,753,632 3.72 stockbrokers (EO) Tellworth Investments 5,772,778 3.18 PricewaterhouseCoopers LLP (“PWC”) was reappointed as auditor at the last Annual General Meeting of the shareholders, in accordance with Section 489 of the Companies Act 2006. 1 Information obtained from an analysis of Creo Medical’s share register (dated 31 December 2022) undertaken on behalf of Creo Medical by Equiniti—RD:IR. Save as referred to above, the Directors are not aware of any persons as at 31 December 2022 who were interested in 3% or more of the voting rights of the Company or could directly or indirectly, jointly or severally, exercise control over the Company. On behalf of the Board Richard Rees Director Creo House Unit 2, Beaufort Park Beaufort Park Way Chepstow, Wales NP16 5UH 25 April 2023 95 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Corporate Governance Report 2022 Compliance Statement Introduction In accordance with the London Stock Exchange’s requirement for all AIM-quoted companies to adopt a recognised corporate governance code, the Board of Directors (Board) of Creo Medical Group plc (Creo, the Company, we or us) adopted the Quoted Companies Alliance (“QCA”) Corporate Governance Code (“Code”). This statement provides a summary of how Creo endeavours to comply with the 10 principles of the Code (as in force at the date of this statement) taking into account Creo’s stage of development and its available resources. In addition to the Code, Creo seeks guidance from its professional advisors including its solicitors, auditors, remuneration consultants and NOMAD on recommended best practice for AIM companies at a similar stage of development. Creo’s mission is to improve patient outcomes by applying advanced energy to the emerging field of surgical endoscopy. We aim to deliver value to all stakeholders, including: ▶ patients, by improving patient outcomes by bringing advanced energy to flexible medical devices; ▶ customers, by developing products with the aim of reducing procedure times and costs; ▶ business partners, by interacting in an ethical and equitable manner; ▶ employees, by offering rewarding careers with support and encouragement to allow everyone to fulfil their potential; and ▶ shareholders, by deploying capital against a well thought through and measured business plan to achieve long-term, sustainable growth. The Board’s role is to ensure that Creo is managed for the long-term benefit of all shareholders. Our corporate governance processes are designed to ensure control, reduce risk, enhance long-term value generation and underpin Creo’s long-term objectives. The Quoted Companies Alliance Corporate Governance Code is constructed around 10 principles, taking key elements of good governance and applying them in a manner which is workable for the needs of a growing company in pursuit of medium to long-term value creation for shareholders. Each principle is set out below along with a commentary of Creo’s compliance. To the extent an explanation of Creo’s compliance for one principle is relevant against another principle, the explanation is deemed to apply to all relevant principles. Deliver Growth 1. Establish a strategy and business model which promote long-term value for shareholders Creo is an advanced energy medical device company focused on the development and commercialisation of minimally invasive medical devices, bringing advanced energy to endoscopy. The Company’s vision is to improve patient outcomes through the development and commercialisation of a suite of electrosurgical medical devices, each enabled and powered by Creo’s proprietary adaptive technology. Pages 20 to 21 set out our strategy and business model and provide details on how we aim to promote long-term shareholder value. Creo’s commercial focus is the increase of clinicians trained in the safe use of its core technology and the conversion of those clinicians into regular users. In addition, as part of Creo’s Kamaptive Licensing Programme, Creo has entered into agreements with a number of partners pursuant to which it will develop and license its technology, providing additional income streams to the business and enabling third party products to benefit from Creo’s technology and expertise. This ensures that as many people as possible can benefit from Creo’s technology and that shareholders derive maximum returns. Any new initiatives, partnerships or variations to Creo’s core strategy are communicated in a timely manner to shareholders via the RNS through ad-hoc releases, trading updates and/or interim results announcements. 2. Seek to understand and meet shareholder needs and expectations Creo is committed to open communication with all shareholders to ensure that its strategy, business model and performance are clearly understood. Understanding what shareholders and analysts think about Creo and, in turn, helping shareholders and analysts understand our business and addressing any specific concerns that they may have, best places the Board to drive Creo’s business forward. Creo primarily communicates to its shareholders through the RNS, shareholder presentations and via the Annual Report and interim reporting process. Institutional Shareholders The Directors engage with our institutional shareholders regularly, and in any event meets with institutional and other significant shareholders at least twice annually through the results roadshow processes. This allows members of the Board to develop an understanding of their views and concerns and provides a forum for the Executive Directors to update shareholders on strategy, the Company’s performance and the evolution of its business. The Chair also meets with institutional shareholders separately from the Executive Directors. In addition, our Senior Independent Director and committee Chairs are also available to meet with shareholders on request to discuss specific areas of concern. Private Shareholders Creo’s AGM is the principal in-person forum for dialogue between private shareholders and the Board. All shareholders are invited to attend Creo’s Annual General Meeting where they can meet with the Directors and understand and exchange opinions on the direction of the Company. The Executive Directors, Chair of the Board and all other Directors routinely attend the AGM and are available to answer questions raised by shareholders. Copies of our Annual Report and the notice of AGM are sent to all shareholders at least 21 days before the AGM. Copies of these documents, along with other information for shareholders, are also provided on our website. The results of the AGM are released via the RNS as soon as practicable after the conclusion of the meeting. This announcement also provides, for information, details of the total number of votes in favour of each resolution. At our 2022 AGM all resolutions put to shareholders were duly passed. Along with broker analysis, Creo retains the services of Proactive Investors and Edison Research to provide research and commentary on the business. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success Creo’s key stakeholders are our patients, customers, employees and workers, business partners, suppliers, shareholders and the wider communities in which we operate. The Board takes into account wider stakeholder and social responsibilities when making its decisions. Our Annual Report includes examples of how the business takes into account the needs of our wider stakeholders when taking key decisions. Creo is a socially responsible company with ESG at its core. Our Sustainability Report is set out on pages 70 to 85. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board is responsible for maintaining a sound system of internal financial and operational control and the ongoing review of its effectiveness. The Board’s measures are designed to manage, not eliminate, risk and, as such, provide reasonable, but not absolute, assurance against material misstatement or loss. Some key features of the internal control system are: ▶ Management accounts information, budgets, forecasts and business risk information which are regularly reviewed by the Board; ▶ A rigorous quality management system which is compliant with the ISO:13485 standard and which is externally audited; ▶ Operational, accounting and employment policies which are regularly reviewed and updated as appropriate; ▶ Clearly defined organisational and reporting structures within the Company; and ▶ Established financial reporting and control systems within the Company which are reviewed and challenged by the Company’s Audit Committee. Creo reviews its internal controls regularly to ensure that they give the necessary flexibility to enable growth and the delivery of long-term shareholder value while having the correct checks and balances in place. 97 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Corporate Governance Report…continued The Company maintains a risk register which is reviewed regularly through a working committee within the business and ultimately by the Board who appraises external and internal threats and determine the necessary steps required to be taken to mitigate those risks. Principal risks and uncertainties that may affect the business are set out in more detail on pages 66 to 69 of this report. The business is supported by a number of professional advisors, including its patent agent, solicitors and legal advisors (both internally and externally), product regulatory advisors, auditors, accountants, NOMAD and its insurance brokers. All advisors provide relevant advice to the business to allow it to identify and mitigate risk accordingly. Maintain a Dynamic Management Framework 5. Maintain the board as a well-functioning, balanced team led by the chair Creo has a strong and effective leadership team. Creo’s Board comprises an Independent Non-Executive Chair, four Executive Directors, and two further Non-Executive Directors, one of which acts as Creo’s senior independent Non-Executive Director. Brief biographies for each Board member are set out on pages 90 to 93. Executive Board Members Craig Gulliford, Chief Executive Officer Richard Rees, Chief Finance Officer Prof. Christopher Hancock, Chief Technology Officer David Woods, Chief Commercial Officer Non-Executive Board Members Charles Spicer, Independent Non-Executive Chair John Bradshaw, Senior Independent Non-Executive Director Ivonne Cantu, Non-Executive Director The Board delegates certain duties to an Audit Committee and a Remuneration Committee, all of which operate within clearly defined terms of reference and, where applicable, in accordance with the Code. Further information on our Board committees can be found on our website. The Board does not currently have a Nomination Committee or Disclosure Committee as matters which would be considered by these committees are undertaken by the Board as a whole. The Company’s Articles of Association require one third of its Directors to stand for re-election at each AGM, with each Director to be re-elected at least every three years. The Company’s Articles of Association are available on our website. At our 2022 AGM, Prof. Christopher Hancock and John Bradshaw both stood for re-election. Both resolutions were duly passed. Charles Spicer is Creo’s Independent Non-Executive Chair. Charles has a limited shareholding in the Company, via his SIPP, and a limited pre-IPO interest in the Company’s share option scheme. The Board does not consider Charles’s limited share and option holdings to be significant and therefore consider him to be an independent Non-Executive Director. John Bradshaw is Creo’s senior independent Non-Executive Director. John has a limited shareholding in the Company, having exercised his pre-IPO share options during the year. The Board does not consider that John’s limited shareholding to be significant and consider him to be an independent Non-Executive Director. The Board feels that it has an appropriate balance between independence, knowledge of the Company’s technology, sector experience and professional standing to allow it to discharge its duties and responsibilities well. All Directors are encouraged to debate and use independent judgement based on their respective knowledge and experience on all matters affecting the business. The time commitment expected of the Directors is commensurate with the size and complexity of a quoted company and as necessary to properly perform their duties. During the 12 months ending 31 December 2022, the Directors attended the meetings set out above. To address the provisions of Section 175 of the Companies Act 2006 relating to conflicts of interest, the Company’s Articles of Association allow the Board to authorise situations in which a Director has, or may have, a conflict of interest. Directors are required to give notice of any potential situation or transactional conflict that are to be considered at the next Board meeting and, if considered appropriate, conflicts are authorised or Directors do not attend or participate in such discussions. Directors are not permitted to participate in such considerations or to vote regarding their own conflicts. 6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities The Board considers that it contains an appropriate range of skills, experience and knowledge, but is mindful of the need to continuously review the needs of the business to ensure that this remains true. Director Scheduled Board Meetings Ad hoc meetings* Audit Committee Remuneration Committee Charles Spicer John Bradshaw Ivonne Cantu Craig Gulliford Richard Rees Christopher Hancock David Woods 4/4 4/4 4/4 4/4 4/4 4/4 4/4 8/8 8/8 8/8 7/8 8/8 7/8 7/8 7/7 7/7 7/7 – 7/7 (as an attendee) – – 2/3 (as an attendee) 3/3 3/3 3/3 (as an attendee) 3/3 (as an attendee) – – * i.e. update calls, sub-committee meetings, or meetings where only a quorum is required Creo’s Board members are of sufficient calibre to bring independent judgment to issues of strategy, performance, resources and standards of conduct, which are vital to the future growth and success. The Board believes that it operates in an open and constructive manner, working effectively as a team. Each Director is aware of the importance of keeping their skills and capabilities up to date. The Board is kept up to date on changes to the AIM rules briefings from the Company’s nominated adviser, as well as other regulatory and market matters on an ad hoc basis. In addition, the Board has access to senior employees within the business and is supported by a number of professionals (both internal and external), including the Company’s General Counsel, the CFO (who is a chartered accountant), the Senior Independent Non-Executive Director (who is a chartered accountant) and external advisors. 7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement The Board seeks to improve the ways in which it interacts and the manner in which information is presented to it. Creo’s reporting processes allow a consistent reporting approach, thus aiding analysis by the Board of all matters at hand. While the Company does not currently have any formal appraisal processes or evaluation criteria for Board members, the Chair and Non-Executive Directors regularly discuss performance with members of the executive team which, in the Board’s opinion, is sufficient for the Company’s purposes currently. This will be kept under review and the Board will consider whether formal evaluations are appropriate in the future. 8. Promote a corporate culture that is based on ethical values and behaviours Ethical values and behaviours are at the heart of what we do. The Board seeks to enshrine such ethical values and behaviours throughout the conduct of all of Creo’s activities. Our values are set out in our policies, our working practices and our systems. The Board seeks to treat all persons fairly and equitably, through clearly defined parameters of operation. This includes full compliance with safe working practices but also maintaining and protecting a positive and supportive working environment. Pages 70 to 85 of our Sustainability Report set out further details of the steps we take in respect of the wellbeing of our employees. As part of the induction process, all employees are provided with details of Creo’s policies and procedures that promote and support ethical values and behaviours. Creo’s HR team continually monitor and support employees on their working practices and provide timely reminders and updates on policies and procedures, including formal online training. Breaches of Creo’s policies and procedures are reported to relevant line managers and ultimately to the Board to ensure that matters are dealt with in a timely and fair manner. In addition, Creo has a whistleblowing policy to allow and encourage all employees to bring matters which cause them concern to the attention of certain persons within the Company and, ultimately, to the attention of the Chair of the Board. The nature of our products requires a robust quality management system which is third party audited to the ISO:13485 standard. Underpinning this quality management system are processes to ensure that necessary safeguards are in place to ensure the integrity of this system and accordingly the quality of the products under development. 99 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Corporate Governance Report…continued Statement of Directors’ Responsibilities 9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the board The Board has adopted a schedule of specific matters reserved for the Board to consider and, if thought appropriate, decide upon. These reserved matters relate to: As Chair, Charles Spicer provides leadership to the Board and is responsible for agreeing the agenda for Board meetings, ensuring (with the Company Secretary) that the Directors receive the information that they need to participate in Board meetings in a timely fashion, and that the Board has sufficient time to discuss issues on the agenda, especially those relating to strategy and governance. Craig Gulliford, Creo’s Chief Executive Officer, is responsible for the day-to-day leadership of Creo, the management team and its employees. The Chief Executive Officer is responsible, in conjunction with senior management, for the execution of the Company’s strategy, as approved by the Board, and the implementation of Board decisions. The Board is collectively responsible for the long-term success of the Company. Its principal role is to provide leadership within a framework of prudent and effective controls, which enables risk to be assessed and managed. The Board considers the management team’s strategic proposals and, following a rigorous review, determines strategy and ensures that the necessary resources are in place for the management team to execute against that strategy. The Board seeks to meet regularly, but in any event holds Board meetings on a quarterly basis, together with meeting for an annual strategy event. In addition to the scheduled meetings, members of the Board regularly hold informal discussions with both Executive Directors and senior operational managers of the Company to discuss strategic business developments and other topics important to the Company’s progress. Further, Board calls are held when needed to allow the executives to update the Board on specific matters and/or to approve specific actions for which Board approval is required. The Board delegates certain duties to Board Committees, all of which operate within clearly defined terms of reference and, where applicable, in accordance with the Code. Further information on our Board committees can be found on our website. The Board and its committees are provided with information ahead of meetings to give time for review and analysis. For each Board meeting an agenda is prepared and approved by the Chair and followed. The Board maintains an ongoing list of matters arising from the Board meetings which are then followed up at subsequent meetings to ensure that matters and decisions are being implemented. ▶ Strategy and oversight, including the approval of annual budgets; ▶ Changes to the capital structure of the Company and the corporate structure of the Group; ▶ Approval of financial statements and reports and any capital spend above agreed limits; ▶ Approval of contracts outside of the ordinary course of the business; ▶ Changes to Board and committee membership; ▶ Remuneration of Executive Directors and issues relating to share options; ▶ Any delegation of authorities; ▶ Governance; and ▶ Approval of policies. Build Trust 10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders We seek to maintain dialogue with shareholders and other relevant stakeholders through a number of channels. Our Annual Report, full year and half year announcements are the primary sources of information for shareholders. These are supplemented by regular and appropriate RNS and RNS Reach announcements. The above, together with other relevant information on the Company, can be obtained from our website. The Company’s collegiate and open working environment means that all employees are able to relay concerns to the executive team directly. The Company has a whistleblowing policy to allow and encourage all employees to bring matters which cause them concern to the attention of certain persons within the Company and, ultimately, to the attention of the Chair of the Board. The Company has engaged Walbrook PR to advise on its communications strategy and to assist in the drafting and distribution of regular news and regulatory announcements. If shareholders or interested parties would like to contact Walbrook regarding any communications, they can be contacted at creo@walbrookpr.com. On behalf of the Board Richard Rees Director Statement of Directors’ Responsibilities in respect of the financial statements The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with UK-adopted international accounting standards and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law). Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of the profit or loss of the group for that period. In preparing the financial statements, the directors are required to: ▶ select suitable accounting policies and then apply them consistently; ▶ state whether applicable UK-adopted international accounting standards have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed for the parent company financial statements, subject to any material departures disclosed and explained in the financial statements; ▶ make judgements and accounting estimates that are reasonable and prudent; and ▶ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business. The directors are responsible for safeguarding the assets of the group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. The directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations In the case of each director in office at the date the directors’ report is approved: ▶ so far as the director is aware, there is no relevant audit information of which the group’s and parent company’s auditors are unaware; and ▶ they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group’s and parent company’s auditors are aware of that information. 101 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Engaging with Stakeholders Engaging with Stakeholders Section 172(1) Statement The Board of Directors’ statement regarding section 172(1) of the Companies Act 2006 and our commitment to transparent and constructive dialogue with all our stakeholders. The impact on each stakeholder group is carefully considered by the Board of Directors (the “Board”). The Board considers, in good faith, that it acts and has acted at all times, both individually and collectively, in a way that would be most likely to promote the success of the Company for the benefit of its members as a whole having regard to the matters set out in s172(1)(a-f) of the Companies Act 2006: (a) The likely consequences of any decision in the long term: The long-term success of the Company and the Group as a whole is key when making strategic decisions. The Company is developing and commercialising technology and products to address long-term clinical needs for which sizeable addressable markets have been identified. See page 23 for further details of these markets. (b) The interests of the Company’s employees: Creo’s employees are core to our success. As a significant and critical factor, employee wellbeing and development has continued as a priority during 2022. Our People and Communities section on pages 78 to 81 provides further details on the investment that we continue to make in our employees during the year. (c) Fostering business relationships with suppliers, customers and others: The adoption of Creo’s core technology requires strong customer relationships which allow Creo to provide support through ongoing clinical education on the safe use of our products. By developing these relationships along with continuing engagement with key opinion leaders (“KOLs”), we seek to ensure that we release products to the market in a measured and controlled manner, reducing the risk of misuse and ensuring our products are customer sponsored for the long term (i.e. through clinical education and peer support by KOLs). Outside of our core technology, the Group is both a customer and supplier of third party, Original Equipment Manufacturer (“OEM”) and Own Brand Labelling (“OBL”) products. It is essential that strong, collaborative, and fair relationships with third party partners is built on trust and mutual respect as their success is our success. Our Kamaptive licence partners are carefully selected to ensure alignment of long-term goals are aligned and that relationships can be built for the mutual benefit of both parties. (d) The impact of the Company’s operations on the community and the environment: We place a high value on our relationships with our communities around the globe. We are acutely aware of the impact our operations and products have on the environmental and how we can mitigate this. Our Sustainability Report on pages 70 to 85 provides further details on the steps that we are taking to minimise our footprint and to align our objectives with wider global initiatives. (e) Maintaining a reputation for high standards of business conduct: Creo’s mission is clear: to improve lives. As such, ethical values and high standards of business conduct are at the heart of what we do. We expect all employees and representatives of the Company to maintain the high standards that we set ourselves. These values and business conduct requirements are enshrined in our corporate governance, our policies, our working practices and our systems (including our third party audited ISO:13485 quality management system). Please also see our Governance Report on pages 98 to 100 for further details. (f) The need to act fairly between members of the Company: The Board recognises that members have different views and objectives. The Board always seeks to ensure that its decisions are equitable and fair as between the members of the Company whilst balancing the interests of all stakeholders. ▶ Attendance by Directors and employees at a number of investor and sector-specific conferences allow interested parties to have direct dialogue ▶ Timely and appropriate releases of business information via the RNS and RNS Reach ▶ Social media updates allowing an insight into the day- to-day activities of the business and its operations Stakeholder Engagement The Board takes into account the concerns of its stakeholder groups in its discussions and decision making. In discharging the duty set out in Section 172(1) of the Companies Act 2006, the Board ensures that the impact on each stakeholder group is carefully considered by management when formulating all proposals requiring Board approval. Set out below are, in the Board’s view, Creo’s key stakeholder groups, the key concerns of those groups and how the Board seeks to engage with them. Shareholders Key concerns ▶ Deployment of capital against a clear strategy ▶ The development of our product portfolio and its commercialisation ▶ Growth ▶ Corporate governance ▶ Sustainability How we engage ▶ Regular communication with institutional and major shareholders, not least to ensure that they understand our strategy and business model ▶ Our Annual General Meeting (“AGM”) and any General Meetings allow shareholders to meet and directly raise concerns and have discussion with the Board ▶ Investor roadshows following the release of half and full-year results Employees Key concerns ▶ Career development and remuneration ▶ Health & Safety and wellbeing ▶ Diversity ▶ Leadership How we engage ▶ Our executive team, supported by a number of senior managers, engage directly with all employees ▶ Team structures and organisation planning to facilitate effective delegation and reporting ▶ Investment in IT solutions to allow a number of communication channels, in particular to assist with home working and cross office communications ▶ Employees are encouraged to take control of their career development, in line with the longer-term growth of Creo ▶ During the reporting period we have continued to support, in many areas increased support, in respect of the health and safety and wellbeing of all employees ▶ Our performance management processes and the promotion a culture of continuous improvement throughout the business ▶ All employees have the ability to raise grievances and to escalate concerns through our whistleblowing procedures 103 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Engaging with Stakeholders…continued Customers/End Users Business Partners/Suppliers Key Decisions Key concerns Key concerns ▶ Quality products that meet clinical needs ▶ Strong relationships ▶ Competitive pricing ▶ Clear and ongoing dialogue to allow effective ▶ Clinical education and support How we engage ▶ Creo engages with KOLs worldwide. Engagement starts before prototype devices are made to ensure we develop products that meet customers’ identified needs and which they will ultimately use ▶ KOLs and clinicians provide feedback on our devices through design processes, usability studies and pre- clinical testing and analysis. This input assists strategic decision making to ensure capital is deployed on concepts and products that offer the greatest impact for our customers, their patients and ultimately, Creo’s business ▶ Creo’s Clinical Education Programme provides guidance and training on the safe use of products and also real-time feedback from the initial use of devices ▶ Creo’s expanded direct sales team offers support to all customers and users, as well as support to distribution partners business planning ▶ Financial strength ▶ Regulatory compliance How we engage ▶ We interact in an ethical and equitable manner with all business partners and suppliers ▶ We strive to have open, constructive and effective long-term relationships through open engagement, regular meetings and dialogue, and recognise that this is beneficial for the whole supply and product ecosystem ▶ Have dedicated internal resource to ensure we are able to directly engage with regulators in a timely and professional manner Community And The Environment Key concerns ▶ Safety ▶ Sustainability ▶ Community contribution How we engage ▶ We actively seek to engage with local government networks, with the intention of making a positive economic impact on the region ▶ Where possible, we try to source locally to support our community ▶ Our Pioneer Clinical Education Programme provides our clinical community the opportunity to further their practice which, in turn, benefits their patient community and thus society as a whole Two example decisions taken during the year together with a summary of how the Board has taken into account the factors set out in Section 172 of the Companies Act 2006, are set out below: Collaboration Agreement With Intuitive Development Of Chepstow Site Following Acquisition Actions ▶ Mortgaged the site with Barclays Bank plc ▶ Utilised funding to develop the site to create additional office, laboratory, training and meeting room space ▶ Utilised internal and external resource to undertake Actions the work ▶ Entered into a long-term, multi-year collaboration with Intuitive to optimise certain Creo products to be compatible with Intuitive’s robotic technology ▶ Utilised internal and external resource to negotiate the agreement ▶ Ongoing deployment of resource to meet obligations under the agreement Key stakeholder group considerations ▶ Shareholders—deployed capital to further develop Creo’s main site to provide sufficient space for expansion and growth. Leverage provided additional capital ▶ Employees—provided employees with additional facilities to allow closer collaboration in a more collegiate environment Key stakeholder group considerations ▶ Community and the Environment—by reinforcing ▶ Shareholders—considered the need to develop additional revenue streams from Creo’s technology to drive greater long-term business growth ▶ Employees—by engaging with third party partners, employees gain greater experience and career development opportunities Creo’s commitment to its current facilities in Chepstow it provides additional employment opportunities to the local community along with the potential to attract additional companies to locate there as part of the MedTech ecosystem On behalf of the Board ▶ Customers/End users—by working with third parties, more opportunity for our technology to be used and improve lives Richard Rees Director ▶ Partners, Customers and Suppliers—considered the need for a balanced relationship whilst not limited Creo’s ability to work with other partners 105 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Audit Committee Report Audit Committee Report Introduction Role and Responsibilities I am pleased to present the maiden report of the Audit Committee for Creo Medical Group plc, summarising the Audit Committee’s role and activities undertaken during the financial year ended 31 December 2022. Members of the Audit Committee The Audit Committee members as at 31 December 2022 are John Bradshaw, Charles Spicer and Ivonne Cantu, each being independent Non-Executive Directors. The Audit Committee has been chaired by John Bradshaw since Creo’s IPO in December 2016. The Board considers that the members of the Audit Committee have sufficient competence to understand, analyse and, when necessary, challenge the management accounts and public financial statements of the Company: ▶ John Bradshaw is a chartered accountant with more than 25 years’ experience as a chief financial officer with venture capital backed and listed companies. Prior to his retirement in July 2021, John was chief financial officer of Syncona Investment Management Limited, the Investment Manager of Syncona Limited, a FTSE 250 listed life sciences investment company. ▶ Charles Spicer is a seasoned non-executive chair and director, previously being head of Healthcare Corporate Finance at both Numis Securities and Nomura International. ▶ Ivonne Cantu has extensive experience in corporate finance, having acted as a corporate finance adviser to UK and international companies for more than 20 years at Cenkos Securities plc and previously Merrill Lynch. Ivonne is currently director of Investor Relations and Sustainability at Benchmark Holdings plc. The Audit Committee has the primary responsibility of: ▶ Reviewing and monitoring the integrity of the financial statements of the Company (including annual and interim accounts and results announcements) and the accounting principles and practice underlying them; ▶ Reviewing internal controls and risk management systems; ▶ Reviewing changes to accounting policies; ▶ Reviewing and monitoring the extent of the non-audit services undertaken by external auditors; and ▶ Advising on the appointment of and liaising with the Company’s auditors. The role and responsibilities of the Audit Committee are defined in Terms of Reference (“ToR”) which comply with the AIM market admission rules. The ToRs are reviewed annually by the Audit Committee and external advisors to ensure that they are in line with current market practice and guidance and remain relevant for the Company. The ToRs were last updated on 5 May 2021 and are available to download at www.creomedical.com/investors/corporate- governance/. A copy will be made available on request from the Company Secretary. The Audit Committee maintains an agenda to ensure that all matters for which the Audit Committee is responsible are considered during the year. During 2022, the main matters considered by the Audit Committee included: ▶ Financial statements and Annual Report review ▶ Consideration and review of the external audit report and management representation letter ▶ Review of the interim results ▶ Going concern assessment and review ▶ Review of the 2022 audit plan ▶ Risk management and internal control systems review ▶ Auditor engagement and meetings (with and without executive representation present) to discuss the above ▶ Review of the Audit Committee terms of reference ▶ Review of the Company’s Anti-Bribery and Corruption policy and training procedures At the end of the meeting, the auditors are given time without executive representation present to allow the auditors to raise any concerns directly with the Audit Committee. No such concerns were raised in the 2022 audit presentation. The Group does not currently have an internal audit function, however the need to establish such a function remains under review. Risk Management and Internal Controls The Group has established a framework of risk management and internal control systems, policies and procedures. Pages 66 to 69 set out further details on the Group’s approach to identifying and managing risks. The Audit Committee is responsible for reviewing the Group’s risk processes along with the Group’s internal control framework. The Audit Committee is satisfied that the risk and internal controls framework are operating effectively. The Audit Committee is not responsible for the identification of key risks or the review of the adequacy of arrangements to mitigate those risks, which remains the responsibility of the Board. John Bradshaw Chair of the Audit Committee ▶ Review of the Company’s whistleblowing policy ▶ Review of the Company’s ESG strategy, materiality assessment and disclosure plan The Audit Committee’s activities are reported at subsequent Board meetings and the minutes of each meeting are provided to all members of the Board. Auditors The Audit Committee monitors the relationship with the Group’s auditors to ensure that independence and objectivity are maintained. As part of its review, the Committee has oversight of the provision of non-audit services by the external auditors which is underpinned by a policy requiring Audit Committee approval for any such services. No non-audit services were provided by the auditor in the reporting period. In the usual course, the auditors prepare an audit plan for the full-year financial statements, setting out the scope of the audit, areas of special focus, materiality and audit timetable. The audit plan is presented to the Audit Committee for review and agreement prior to the audit work commencing. After the audit of the annual financial statements, the auditors present their findings to the Audit Committee for consideration. Along with the findings from the audit, the presentation includes details of all fees paid to the auditors by the Group during the reporting period along with confirmation of the auditor’s independence. 107 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report Statement from the Chair of the Remuneration Committee Introduction This report covers the activities of the Remuneration Committee during the year, the determination of reward outcomes linked to 2022 and the application of our remuneration policy in 2023. In 2022 the Company made good progress towards its main strategic objectives of achieving commercial adoption of its core Creo suite of products and developing new distribution channels for its technology through its robotics partnerships, while substantially delivering on the financial, commercial and ESG objectives set at the beginning of the year. At a macroeconomic level, 2022 was marked by highly adverse conditions in the global geopolitical and economic environment which significantly affected the financial markets in the UK and globally. Smaller growth companies in particular were affected by a change in investor sentiment which constrained the Company’s ability to pursue an anticipated fundraising to support its ongoing strategy. This resulted in a material deterioration in the Company’s share price contrasting with the Company’s solid performance and strategic progress in the year which will drive long term shareholder value. The Committee acknowledged the resulting experience for shareholders and the impact on the incentive plans in place for the Executive Directors and employees. Post period end, the Company successfully completed the planned equity fundraising despite prevailing challenging market conditions, raising £32m which places the Company in a solid position to continue to execute on its strategy to achieving profitability. Activities of the Committee during the year The Remuneration Committee’s principal objective is to implement a remuneration policy which promotes the long- term success of the Company and is aligned to the interests of the Company’s shareholders and other stakeholders including its patients, customers and employees. In meeting this objective, the Committee welcomes engagement with all its stakeholders. During the year the Committee met with some of the Company’s major shareholders to discuss their views on our remuneration arrangements. We are grateful for the valuable input we received which has been taken into consideration in the review and implementation of our directors’ remuneration policy and in the disclosure in this report. We shall continue to engage with our shareholders and other stakeholders on remuneration matters. Review of the Directors’ remuneration policy and disclosure During the year the Committee undertook a review of the Directors Remuneration Policy (the “Remuneration Policy”) and its implementation. The remuneration policy has been designed to adhere to the corporate governance principles set out in the QCA (Quoted Companies Alliance) Code and guidelines taking into consideration the latest market and governance developments. The Committee also undertook a review of the disclosure in the remuneration report with a view to enhance transparency. In conducting these reviews, we sought independent advice from our external adviser, FIT Remuneration Consultants LLP (“FIT Remuneration”), as well as consulting with some of our main shareholders as referenced above. We also took into account the principles of the major proxy voting agencies. Following the review, the Committee has decided to make certain changes to how we implement the remuneration policy. These include applying a higher weighting to the financial KPI’s for the purposes of the annual bonus measures and targets, and adopting forward-looking performance measures and targets to determine the vesting of share awards made under the Long-Term Incentive Plan (LTIP). This is described in detail further below. We have also increased transparency in our remuneration disclosure. Overview of the remuneration policy The Remuneration Committee determines pay for the Company’s four Executive Directors. The Committee applies a remuneration policy including four components: salary, benefits and pension, an annual bonus subject to performance conditions and an annual share-based long- term incentive award subject to performance conditions. In implementing the policy, the Committee seeks to ensure a close link between pay outcomes, Group and individual performance, and shareholder value creation. On an annual basis the Committee conducts a benchmarking review of the Executive Directors’ pay with the support of its external remuneration adviser. In addition, the Committee takes into consideration the views of our shareholders and the remuneration for the broader Group. The annual bonus scheme for Executive Directors allows for up to 100% of salary to be paid based on the successful delivery against financial, commercial, strategic and ESG objectives. In 2022 financial objectives included revenue and cost control; commercial objectives included the adoption of Creo core products in the market measured by the number clinical sites using Creo products and the total number of regular users, and strategic objectives included delivery against milestones for Company’s robotics partnership programme. Further detail on the 2022 measures and targets is presented below. LTIP and share ownership across the Group Creo Medical seeks to promote an entrepreneurial culture guided by five values: collaborative, creative, disruptive, “can-do” and life-changing patient outcomes. Aligned to this culture, the Company encourages share ownership including through share-based incentive arrangements for senior management delivered through a Long Term Incentive Plan (“LTIP”), and share ownership plans across the Group including an all-employee HMRC approved SIP. The remuneration policy encourages that the Executive Directors build and maintain a shareholding equivalent to at least 100% of salary. Three of the four Executive Directors meet this criteria. Executive Directors can be awarded annual share-based incentives of up to 100% of salary through a long-term incentive plan. Early in its development the company implemented a long term incentive plan across the workforce which has been a key driver behind recruitment and retention, in particular in the early years. The Company’s LTIP is operated through a joint share ownership plan (“JSOP”) structure implemented in 2020, whereby the participant and a trustee jointly own the beneficial interest in the LTIP shares under award. The participant is entitled to any value above a share price hurdle set relative to and higher than the share price on the date of award. The trustee is entitled to the value below the hurdle. The participant also has a nominal cost option over the trustee interest. Both elements vest after three years and three months subject to continuing employment. Further information on the operation of the JSOP is included in the table below on page 112. 109 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report…continued To date, LTIP awards have been based on pre-grant performance conditions on the same basis as the annual bonus, that is by reference to delivery against certain targets in the year prior to grant with vesting subject to retention. For example, in 2021 the annual bonus was 67% of salary, and therefore the face value of the LTIP award was also 67% of salary. The award is priced relative to the share price on the grant date and is subject to a three year vesting period incentivising Management to deliver long term share price accretion and shareholder returns. Going forward we intend to incorporate, in addition to continued service, forward-looking performance measures as conditions for vesting and fix the normal grant level at a consistent rate as a percentage of salary and de-link it from the level of annual bonus. This change represents a natural evolution of the LTIP plan as the Company fully enters a commercial phase resulting in increased financial visibility. Further details of the LTIP and of the other elements of the Directors’ remuneration policy are set out on pages 112 to 113. Performance and remuneration outcomes for FY2022 The Remuneration Committee assessed the performance outturn for the annual bonus against the objectives set at the start of the year. The Company substantially met its targets in full as set out in the table below with an output against targets of 95%. The Committee was conscious of the need to appropriately recognise the achievements of the management team while considering the overall experience of shareholders over the past 12 months. Taking this into account and acting in consultation with the CEO, the Committee has used its discretion to apply a reduction in the annual bonus outturn for the Executive Directors from 95% to 50% of salary. (FY2021: 67% of maximum (i.e. 67% of salary)). LTIP awards granted in FY2022 were made based on pre-grant conditions mirroring the annual bonus scheme for 2021 achievement. On this basis, in April 2023, the Remuneration Committee granted an LTIP award to the Executive Directors equivalent to 67% of salary in line with the annual cash bonus. No salary increases were awarded to Executive Directors in the year or in the prior year. Annual Bonus – Metrics Used and Weighting METRICS Financial ▶ Total revenue and revenue from Creo core products ▶ Expenditure control Commercial adoption of Creo core products ▶ Number of regular users and clinical sites using core Creo technologies WEIGHTING FORMULAIC OUTPUT 30% Met in full 30% Nearly met in full Salary and benefits Strategic 30% Nearly met in full ▶ Signing of robotics partnership agreements and delivery against milestones ▶ Acquisition integration ESG ▶ Delivery against ESG programme goals 10% Met in full Total 100% 95% The alignment of the Executive Directors’ remuneration and that of all employees across Creo Medical With input from the Group’s Head of People and the CEO, the Committee reviewed and discussed the approach to reward for all employees across the business and the alignment with the Executive Director’s remuneration and with the Company’s strategy, targets and culture. We seek to ensure that measures, targets and remuneration structures are cascaded through the business as appropriate and that the culture of pay for performance is translated across the organisation. In 2022, c.35% of employees received a bonus based on the achievement of objectives aligned to the Company’s overall targets and c.48% of employees participated in share option and/or share incentive plans at 31 December 2022. In addition 63% of eligible employees participated in the UK HMRC approved SIP during the year. Cost of Living Crisis Taking into account the macroeconomic backdrop, targeted cost of living increases were implemented for those most in need. The company did not implement a company wide scheme to address the wider impact of the cost of living crisis in 2022 due to the cash constraints in the business and this will need to be addressed in 2023. The average salary increase across all employees in the Group was 3.7%. This percentage also includes adjustments for increased responsibilities. No salary increases were awarded to Executive Directors in the year. How the policy will be applied for FY2023 The Company aims to conduct an annual review of salary and benefits across the Group with salary increases implemented in the second half of the year. This enables the Company to have sufficient visibility of the Company’s performance for the year and affordability. As mentioned above in 2022 salary increases were limited to employees most affected by the cost of living crisis and certain adjustments related to increased responsibilities leaving gaps that need to be addressed. In 2023 the Company intends to implement tiered salary increases to address the inflationary environment and cost of living pressures providing more support to those employees on lower salaries and awarding lower salary increases to those on higher salaries including the Executive Directors. Annual bonus The maximum bonus opportunity for the Executive Directors will be split between financial, strategic and ESG objectives. In 2023 a greater weighting of 60% will be applied to financial objectives (2022: 30%). This change reflects the stage of development of the Company and engagement with shareholders during the year. LTIP Awards Our policy allows for LTIP awards of up to 100% of salary. In 2023 we intend to evolve the LTIP by incorporating forward looking performance criteria including TSR, and an annual grant as a fixed percentage of salary. We plan to transition the framework over two years. In line with our policy, awards will have a three year vesting period and vesting will be subject to continued service and performance criteria being met. A holding period of two years applies from the date of vesting. We intend to engage with our largest shareholders on the changes that we plan to make in FY2023. Share dilution The total number of ordinary shares issued and issuable in respect of options granted in any ten-year period under the Company’s discretionary share option is restricted to 10% of the issued ordinary shares in any ten-year rolling period. In the financial year ended 31 December 2022, the Company allocated 1,537,212 options on 4 August 2022 (1% of issued share capital as at such date of grant to employees including Executive Directors. Following the equity raise conducted post period end the total number of ordinary shares issued and issuable in respect of options granted is 7% of the Company’s issued shares. Summary We seek and welcome engagement with our shareholders and other stakeholders and are grateful for the level of shareholder engagement in 2022. I hope that this report provides greater insight into the Committee’s remit as well as greater transparency on the remuneration framework and the way we apply our policy to achieve alignment between business performance, stakeholder interests and reward outcomes. 111 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report…continued Directors’ Remuneration Report…Continued COMPONENT PURPOSE AND LINK TO STRATEGY OPERATION MAXIMUM LINK TO OPPORTUNIT Y PERFORMANCE ▶ Strategic alignment - the Company’s remuneration arrangements are designed to support Creo Medical’s business objectives and strategy, to align with the Company’s values and entrepreneurial culture, and to ensure a close link between pay outcomes and Group and individual performance. In designing and implementing the remuneration policy, the Remuneration Committee adheres to principles of corporate governance appropriate for an AIM company of Creo’s size and maturity as set out in the QCA Code. The Committee also considers the views of shareholders on pay and the feedback received informs its decision-making. The 2022 Directors’ remuneration policy is shown below. Directors’ remuneration policy Objectives and principles The principal objective of the Directors’ remuneration policy is to promote the long-term success of the Company. It is guided by the following key principles: ▶ Competitive and fair - remuneration packages should be competitive but not excessive when compared with a relevant peer group and should be sufficiently attractive to recruit, retain and motivate individuals of the requisite calibre to deliver long-term success; ▶ Simple - remuneration packages should be clear and communicated transparently ▶ Aligned to performance and stakeholder interests - a significant proportion of remuneration should be based on performance-related components with potential rewards subject to the achievement of challenging performance targets linked to the Group’s KPIs and to the best interests of shareholders and other stakeholders Key Elements of Policy for Executive Directors COMPONENT PURPOSE AND LINK TO STRATEGY OPERATION MAXIMUM OPPORTUNIT Y LINK TO PERFORMANCE Base Salary To provide a competitive base salary to attract and retain high calibre executives Reviewed annually or on a significant change of responsibilities and typically takes effect from 1 January. Salaries are determined by reference to the skills, role and personal performance of the individual. The Committee takes into account external market data and pay and employment conditions elsewhere in the Group when considering increases to base salary levels. Although there are no formal performance conditions, any increase in base salary is only implemented after careful consideration of individual contribution and performance. Increases will normally be broadly in line with the range awarded (in percentage of salary terms) to the wider workforce. Increases above this level may apply to take into account individual circumstances, e.g. a change in scope or responsibilities of the role, a change in market practice, a change in the size/complexity of the business, or to reflect development and performance in role. Internal and external reference points including market salaries for comparable organisations may also be taken into account. Benefits Pension To provide broadly market competitive benefits as part of the total remuneration package To aid recruitment and retention by providing long-term savings to support retirement planning Annual bonus To incentivise the delivery of annual objectives Long- term incentive To drive superior performance of the Company and delivery of short- and long- term objectives, aid retention and align directors’ interests with those of the Company’s shareholders Other benefits may include car allowance, health-related life = cover and death in service insurance. Not applicable None For external and internal appointments or relocations, the Company may pay relocation costs 10% of salary None Awards are based on performance measured over one year. Pay-out levels are determined by the Committee after the year end based on performance against pre-set targets. Discretion will apply, enabling the Committee to adjust the bonus outcome upwards or downwards where the formulaic outcome is, in the view of the Committee, not a fair and accurate reflection of business performance. Capped at 100% of salary. Pay-outs are based on an assessment of performance against defined financial, commercial, strategic and ESG objectives. The Creo Medical LTIP is made up of two elements: (i) a JSOP award subject to a share price hurdle and (ii) a nominal cost option over the trustee interest in the JSOP shares. Both elements vest after three years and three months subject to continued employment and performance conditions. The nominal cost option gives the participant the opportunity to receive the value of the underlying shares, e.g. even if the share price hurdle is not reached. Following vesting: ▶ JSOP award may be split and resulting shares sold ▶ Employee may exercise nominal cost option over remaining trustee shares Key features of the JSOP element: ▶ Intended to deliver value to the participant (on a tax-efficient basis) if the share price exceeds a specified hurdle, e.g. £2.50 for the 2020-23 awards. ▶ Employee, together with a third party (the “co-owner” e.g. an employee trust) jointly acquires the entire beneficial interest in shares. ▶ The co-owner and the employee each sign a “joint ownership agreement” setting out how the proceeds of sale will be split between them when the shares are eventually sold. ▶ The value below the hurdle is not tax advantaged and any amount below this will incur full NI and PAYE. Any value above the hurdle will be tax advantaged. ▶ The Company may settle any upfront PAYE and NIC liabilities associated with participation in the JSOP on behalf of the directors with the cost to the Company recovered from any future LTIP option exercises 113 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report…continued Directors’ Remuneration Report…Continued Consideration of employment conditions elsewhere in the Group In setting remuneration for the Executive Directors, the Committee takes note of the overall approach to reward for employees in the Group. The Global HR Director updates the Remuneration Committee annually on remuneration arrangements and trends across the Group. The main principles of remuneration are cascaded through the Company, taking into account seniority and market practice. Key features include: ▶ The Company aims to provide market competitive levels of remuneration across the workforce in order to recruit and retain high calibre employees at all levels; ▶ The Company aim to sustain and promote a culture of share ownership. Share-based long-term incentive awards are made to a significant proportion of employees. In addition, UK employees have the opportunity to participate in HMRC-approved employee share scheme arrangements (with similar plans subject to local tax and regulatory environments offered to all employees worldwide); and ▶ senior managers participate in annual bonus arrangements based on Group and personal performance. At senior levels, the proportion of remuneration which is long-term is higher than it is for other colleagues and more ‘at risk’, with an increased emphasis on performance-related pay and share-based remuneration. c.25% of employees participate in an annual discretionary bonus plan with bonus potential determined based on delivery against Company and personal objectives. The Remuneration Committee regards the widespread use of share-based arrangements as a key plank of the remuneration policy. This ensures all employees are offered the opportunity to participate in the long-term success of the business while aligning their interests to those of our shareholders and other stakeholders. Since before the IPO in 2016 we have had an LTIP for all staff. The Creo Medical LTIP implemented in FY2020 is currently intended to be the primary vehicle for making long-term incentive awards using the CSOP scheme for awards to most staff and the JSOP Scheme used for the Executive Directors and other senior managers. Service contracts Executive Directors are employed under contracts which may be terminated by either party on no more than 12 months’ notice. Remuneration policy for the Chair and the Non-Executive Directors The Chair and the Non-Executive Directors are employed on letters of appointment which have an initial term of one year and then which may be terminated at any time by either party with three months’ notice. The remuneration of the Chair is set by the Remuneration Committee and the remuneration of the Non-Executive Directors is set by the Executive Directors of the Board. No individual is involved in the determination of their own pay. Neither the Chair nor the Non-Executive Directors receive awards under Creo Medical’s incentive schemes. Charles Spicer and John Bradshaw were awarded share options prior to the Company’s IPO in 2016 and have not been awarded share options since. Annual Report on Remuneration Remuneration Committee membership and responsibilities During the year ended 31 December 2022 the Remuneration Committee comprised Ivonne Cantu (Chair) and John Bradshaw. By invitation of the Committee, meetings are also attended by the CEO, CFO, the Company Chair, the General Counsel and the Global HR Director, who are consulted on matters discussed by the Committee, unless those matters relate to their own remuneration. The Company continues to seek professional, independent advice from FIT Remuneration Consultants LLP. FIT has no connection to the Company or its Directors other than in relation to advice provided to the Remuneration Committee. The key responsibilities of the Remuneration Committee are to set a remuneration policy for the Executive Directors and the Chair and to review and determine on behalf of the Board the Chair’s fee and specific remuneration and incentive packages for each of the Company’s Executive Directors to ensure that they are fairly rewarded for their individual contributions to the Company’s overall performance. The Remuneration Committee assesses the performance of the Executive Directors in the context of recommending their annual remuneration to the Board for final determination, including annual bonus awards and long-term incentive grants. The remuneration of the Non-Executive Directors (other than the Chair) is recommended by the Executive Directors and takes account of the time spent on Board and Committee matters. The Board will make the final determination although no Director will participate in any discussion about their own remuneration. Actions and decisions undertaken by the Committee during the year: ▶ conducted a review of the Company’s remuneration policy and disclosure; ▶ engaged with and sought the views of major shareholders on remuneration matters; ▶ reviewed market benchmark analysis for the executive director roles; ▶ undertook a review of the remuneration policy in light of the above; ▶ reviewed and approved the remuneration packages for our current executive directors; ▶ approved the annual bonus outcomes for FY2021 and the annual bonus plan for FY2022; and ▶ approved the terms of the LTIP grant for FY2022. Directors’ remuneration for 2022 (audited) The remuneration of the Board of Directors of Creo Medical Group plc during the 12-month period ending 31 December 2022 was: (ALL FIGURES £) EXECUTIVE SALARY TAXABLE BENEFITS PENSION ANNUAL BONUS1 LTIP2 OTHER3 31 DECEMBER 31 DECEMBER 12 MONTHS TO 12 MONTHS TO 2022 20214 Professor Christopher Hancock 210,000 22,280 21,000 105,000 153,590 1,894 513,764 1,030,207 Craig Gulliford 280,000 22,133 28,000 140,000 204,787 2,525 677,445 1,223,637 Richard Rees David Woods 210,000 21,910 21,000 105,000 153,590 1,894 513,394 894,661 262,210 36,775 13,111 134,281 164,642 - 611,019 557,162 Total Executive 962,210 103,098 83,111 484,281 676,609 6,313 2,315,622 3,705,666 NON-EXECUTIVE Charles Spicer John Bradshaw Ivonne Cantu 86,000 56,000 56,000 Total Non-Executive 198,000 - - - - - - - - - - - - - - - - - - - - 86,000 86,000 56,000 56,000 56,000 56,000 198,000 198,000 Total Directors’ Remuneration 1,160,210 103,098 83,111 484,281 676,609 6,313 2,513,622 3,903,666 1 Annual bonus for performance for the year ending 31 December 2022. The payments reflected the Remuneration Committee’s assessment of performance versus the targets set at the beginning of the year of 95% after applying discretion 2 Value relates to the options which have vested during the period at the share price on the vesting date net of the exercise price required to obtain the shares. In prior years we have reported the IFRS2 Share Based Payments charge as the value for the shares during the period. However this year we have elected to follow the regulations for quoted companies on the Main Market show the value of shares vested during the period where performance conditions are present and on date of grant where only a service condition exists. The LTIP award is structured as a joint share ownership plan whereby the Participant and the Trustee jointly own the beneficial interest of the LTIP Shares. The Participant is entitled to any value above the hurdle price of £2.50 per share and the Trustee entitled to all value below the hurdle price. The Participant has also been granted an option to acquire the Trustee’s beneficial interest in the LTIP Shares, at nominal cost, which is exercisable three years and three months after the acquisition date (subject to remaining in eligible employment) and followed by a three-month holding period. 3 Value relates to the upfront PAYE and NIC costs associated with participation in the JSOP which were paid by the Company during the year to settle the liabilities on behalf of the directors. The cost to the Company will be recovered from any future LTIP option exercises. 4 The prior year disclosure was based on the IFRS 2 charge, has been revised to show the prior year LTIP calculated based on the value of vesting shares in 2021 at the share price on the vesting date, the revised values were as follows: Professor Chris Hancock £329,010 (prior year £361,329), Craig Gulliford £426,891 (prior year £392,826), Richard Rees £329,010 (prior year £284,839) and David Woods £1,302 (prior year £83,970). 115 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Report…continued Directors’ Remuneration Report…Continued Directors’ shareholdings The interests of the Directors at 31 December 2022 in the shares of the Company, including family interests, were: (ALL FIGURES £) 31 DECEMBER 2022 NUMBER 31 DECEMBER 2022 % Executive Professor Christopher Hancock Craig Gulliford Richard Rees David Woods Total Executive Non-Executive Charles Spicer John Bradshaw Ivonne Cantu Total Non-Executive Total Directors’ Shareholdings 4,405,741 617,032 77,146 25,000 5,124,919 143,411 105,947 - 249,358 5,374,277 2.43% 0.34% 0.04% 0.01% 2.82% 0.08% 0.06% 0.00% 0.14% 2.96% Directors’ interests in LTIP awards and share options Directors’ interests in share options, granted under either the Creo Medical Group plc Enterprise Management Incentive Share Option Scheme or the Creo Medical Group PLC Unapproved Share Option Scheme, and interests in awards granted under the Creo Medical Group plc LTIP, at 31 December 2022 were: (ALL FIGURES £) EXECUTIVE Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock Prof. Christopher Hancock 31 DECEMBER 2021 GRANTED FORFEITED EXERCISED 31 DECEMBER 2021 VESTED BUT EXCERCISED NUMBER DURING YEAR DURING YEAR DURING YEAR NUMBER UNEXCERCISED PRICE 417,240 72,000 1,184,210 107,914 268,293 114,035 115,000 210,000 2,348,288 - - - - - - - - - - 184,645 4,836,980 184,645 - - - - - - - - - - - - - - - - - - - - - - 417,240 72,000 1,184,210 107,914 268,293 114,035 115,000 210,000 2,348,288 184,645 417,240 72,000 1,184,210 107,914 268,293 114,035 - - - - 5,021,625 2,163,692 16.67p 16.67p 76.00p 113.00p 153.75p 171.00p 0.01p 0.01p 0.01p 0.01p 31 DECEMBER 2021 GRANTED FORFEITED EXERCISED 31 DECEMBER 2021 VESTED BUT EXCERCISED NUMBER DURING YEAR DURING YEAR DURING YEAR NUMBER UNEXCERCISED PRICE (ALL FIGURES £) EXECUTIVE Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Craig Gulliford Richard Rees Richard Rees Richard Rees Richard Rees Richard Rees Richard Rees Richard Rees Richard Rees Richard Rees David Woods David Woods 540,000 936,000 1,578,948 143,885 325,203 143,275 140,000 280,000 1,553,658 - - - - - - - - - - 246,194 5,640,969 246,194 288,000 1,184,210 118,705 268,293 114,035 115,000 210,000 731,519 - - - - - - - - - 184,645 3,029,762 184,645 130,208 - 219,816 130,208 219,816 Total Executive 13,637,919 835,300 NON-EXECUTIVE Charles Spicer John Bradshaw John Bradshaw Ivonne Cantu 118,421 27,000 78,947 105,947 - Total Non-Executive 224,368 - - - - - - Total Directors’ Shareholdings 13,862,287 835,300 Ivonne Cantu Chair of the Remuneration Committee 25 April 2023 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 27,000 78,947 105,947 - 105,947 540,000 936,000 1,578,948 143,885 325,203 143,275 140,000 280,000 1,553,658 246,194 540,000 936,000 1,578,948 143,885 325,203 143,275 - - - - 5,887,163 3,667,311 288,000 1,184,210 118,705 268,293 114,035 115,000 210,000 731,519 184,645 288,000 1,184,210 118,705 268,293 114,035 - - - - 3,214,407 1,973,243 130,208 219,816 350,024 - - - 16.67p 16.67p 76.00p 113.00p 153.75p 171.00p 0.01p 0.01p 0.01p 0.01p 16.67p 76.00p 113.00p 153.75p 171.00p 0.01p 0.01p 0.01p 0.01p 0.00p 0.00p 105947 14,591,640 8,028,614 118,421 118,421 76.00p - - - - - - - - - 118,421 21.39p 76.00p - 105,947 14,591,640 7,922,667 117 Creo Medical Group plc — 2022 Annual Report & AccountsStrategic ReportSustainability ReportCorporate GovernanceFinancial Statements Financial Statements CLINICAL CASE STUDIES Learn more about the benefits of Speedboat Inject through a number of clinical case studies. SCAN THE QR CODE TO READ OUR CASE STUDIES 119 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsCreo Medical Group plc — 2022 Annual Report & Accounts Creo Medical Group plc – 2022 Annual Report & Accounts Independent auditors’ report to the members of Creo Medical Group plc Report on the audit of the financial statements Opinion In our opinion: X Creo Medical Group plc’s group financial statements and parent company financial statements (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 2022 and of the group’s loss and the group’s cash flows for the year then ended; X the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006; X the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and applicable law); and The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. X the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. The key audit matters below are consistent with last year. We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Parent Company statements of financial position as at 31 December 2022; the Consolidated statement of profit or loss and other comprehensive income, the Consolidated and Parent Company statements of changes in equity and the Consolidated statement of cash flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to other listed entities of public interest, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided. We have provided no non-audit services to the parent company or its controlled undertakings in the period under audit. Our audit approach Overview Audit scope X The UK Group audit team has performed full scope audit work over the four largest entities whose accounting records are based in the UK i.e Creo Medical Group Plc, Creo Medical Limited, Creo Medical Inc and Creo Medical UK Limited. X Creo Medical SAS and Creo Medical SRL were audited by local PwC component teams in France and Belgium respectively. X Specified procedures were performed over Creo Medical S.L by the local PwC component teams in Spain. X Specified procedures were then performed by the UK Group audit team over the remaining reporting units, not selected for full scope audits. X Further audit procedures were carried out by the UK Group audit team over central functions, the group consolidation and consolidation journals X Our scoping resulted in coverage of 98% of the Group’s revenue, 90% of the Group’s net assets and 92% of the Group’s loss before tax. Key audit matters X Goodwill impairment assessment (group) X Recoverability of the parent company investment in subsidiaries and intercompany receivable balance (parent) Materiality X Overall group materiality: £1,549,000 (2021: £1,459,000) based on 5% of Group’s loss before tax. X Overall parent company materiality: £1,472,000 (2021: £600,000) based on 1% of the parent company’s net assets, restricted to 95% of Group materiality. X Performance materiality: £1,162,000 (2021: £1,094,000) (group) and £1,104,000 (2021: £450,000) (parent company). Key audit matter How our audit addressed the key audit matter Goodwill impairment assessment (group) As at 31st December 2022, the Consolidated statement of financial position includes £19.6m of goodwill (2021: £18.6m). In accordance with International Accounting standards, management has performed impairment reviews in relation to the goodwill held in each of the Group’s cash generating units (CGUs). Management has prepared value in use calculations for each of the CGUs. The impairment reviews include significant estimates and judgements in respect of future growth rates, cash flows and discount rates. The sensitivity of these key assumptions is detailed in note 12, Intangible assets and goodwill. As part of our assessment of the carrying value of goodwill we have: • Held discussions with management to identify the key judgements and estimates in relation to the impairment assessments at the year end. • Agreed the impairment models to the FY23 strategic plan and tested the mathematical accuracy of the model. • Challenged management as to whether the forecast Revenues and EBITDA margins are reasonable by comparing them to historical trends and by considering the accuracy of management’s forecasting in the past. • Reviewed management’s allocation to CGUs and agreed carrying values to underlying support. Understood management’s consideration of wider risks including climate change. • Challenged the key assumptions identified, including consideration of the impact of changes to these assumptions on headroom under different scenarios, such as restrictions to future growth levels and changes to discount rates. • Used our in-house valuation experts to consider the appropriateness of the discount rate used in relation to the wider market and sector comparatives. Based on our audit work performed, we concur with the results of the impairment assessment performed. We consider that the carrying value of goodwill is materially correct and that the disclosures in the financial statements are appropriate. 121 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Independent auditors’ report …continued Key audit matter How our audit addressed the key audit matter Recoverability of the parent company investment in subsidiaries and intercompany receivable balance (parent) As at 31st December 2022, the Parent Company’s statement of financial position includes investments of £27.4m (2021: £26.8m) and intercompany receivables of £118.9m (2021: £89.1m). In accordance with International Accounting standards, at the end of each reporting period management are required to assess whether there is any indication that the investment/receivable value may be impaired. Management has identified an indicator of impairment due to a decline in market capitalisation of the Group during the year to 31 December 2022. Accordingly, management has prepared an impairment assessment. The impairment assessment compares the carrying value to the recoverable amount, which is calculated as the higher of the value in use and the fair value less costs to sell. Management has performed a value in use calculation, based on the long-term business plan. Management have also considered the average market capitalisation of the Parent Company over the past 12 months and changes since the balance sheet date. The recoverable amount, based on using the higher of these two models shows that there remains headroom over the net assets of the Parent Company. There is complexity and judgement involved in calculating the valuation of the investments and recoverability of the intercompany receivable. The key estimate in regard to the value in use calculation and recovery of the receivable is the revenue growth over the next 5 years. To assess the recoverability of the investment in subsidiary and the intercompany receivable balance, we have obtained managements Value In Use workings. We have challenged key inputs and assessed managements methodology including: • Verifying the accuracy of the underlying calculations and agreeing cash flow forecasts to the long term strategic plan. Evaluating the appropriateness of forecast cash flows by understanding management’s process for forecasting and examining support. • Evaluating the appropriateness of projected growth rates and considered the impact of restrictions to future growth. • Consideration of prior year and current performance in comparison to projected results. • Consideration of sensitivity analysis to assess the impact of changes in key assumptions. • Evaluating the appropriateness of the discount rate including comparison to the wider market. Based on our work performed, we consider the carrying value of investment in subsidiaries and intercompany receivables to be materially correct with no impairment being required. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate. Of the Group’s 12 reporting components, 3 are considered to be financially significant to the group. 3 further components were selected for full scope audit work to ensure appropriate coverage over revenue and loss before tax. The Group engagement team also audited the parent company, which was scoped in accordance with the company materiality. Specified procedures were also performed by the UK Group audit team over the remaining reporting units, not selected for full scope audits. Further audit procedures were carried out by the UK Group audit team over central functions, the group consolidation and consolidation journals. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Financial statements – group Financial statements – parent company Overall materiality £1,549,000 (2021: £1,459,000). £1,472,000 (2021: £600,000). How we determined it 5% of Group’s loss before tax 1% of the parent company’s net assets, restricted to 95% of Group materiality Rationale for benchmark applied Overall materiality is based on loss before tax. This is a primary measure used by shareholders and is a generally accepted auditing benchmark We determined materiality based on net assets (capped at 95% as part of group scoping), which is more applicable than a performance- related measure as the parent company is primarily a Holding company and therefore does not have any revenue. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was £230,000 to £1,468,000. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £1,162,000 (2021: £1,094,000) for the group financial statements and £1,104,000 (2021: £450,000) for the parent company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £77,000 (group audit) (2021: £73,000) and £74,000 (parent company audit) (2021: £30,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going concern basis of accounting included: X Evaluation of management’s going concern assessment and related disclosure in the financial statements. X Evaluation of the Group’s forecast financial performance,liquidity and covenant compliance over the going concern period. X Evaluation of stress testing performed by management in their downside scenario and consideration of whether the stresses applied are Our scoping resulted in coverage of 98% of the Group’s revenue, 90% of the Group’s net assets and 92% of the Group’s loss before tax. appropriate for assessing going concern The impact of climate risk on our audit As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the group’s and parent company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of climate risk. Our procedures did not identify any material impact as a result of climate risk on the group’s and parent company’s financial statements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the parent company’s ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. 123 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Independent auditors’ report …continued Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ Report for the year ended 31 December 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to AIM Listing Rules and employment legislation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as financial reporting regulations, tax legislation and Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to the posting of journal entries designed to increase revenue or to extract cash, together with the manipulation of accounting estimates which could be subject to management bias. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included: X Confirmation and enquiry with management and those charged with governance over compliance with laws and regulations, including consideration of actual or potential litigation and claims. X Reviewing board minutes for evidence of breaches of regulations or instances of actual or suspected fraud. X Challenging assumptions made by management in its significant accounting estimates. X Identifying and testing the validity of journal entries, in particular any journal entries posted with unusual account combinations. X Designing audit procedures to incorporate unpredictability around the nature, extent and timing of our testing. X Reviewing financial statement disclosures There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: X we have not obtained all the information and explanations we require for our audit; or X 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 X certain disclosures of directors’ remuneration specified by law are not made; or X the parent company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Jason Clarke (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Cardiff 25 April 2023 125 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position for the 12-month period ended 31 December 2022 31 December 2022 (All figures £’000) Note 12 months to 31 December 2022 12 months to 31 December 2021 Revenue Cost of sales Gross profit Other operating income Administrative expenses Operating loss Finance expenses Finance income Loss before tax Income tax credit Loss for the year Exchange gain/(loss) on foreign subsidiary Changes to the fair value of equity investments at fair value through other comprehensive income Total other comprehensive income (expense) Total comprehensive loss for the year Loss per Share Basic and diluted (£) The notes on pages 130 to 164 form part of the financial statements. 2 2 9 9 3 10 21 18 27,169 (14,047) 13,122 51 (43,929) (30,756) (287) 66 (30,977) 4,041 25,161 (13,576) 11,585 52 (41,544) (29,907) (463) 31 (30,339) 5,744 (26,936) (24,595) 1,166 (1,896) 388 1,554 231 (1,665) (25,382) (26,260) 11 (0.15) (0.15) (All figures £’000) Assets Non-current assets Intangible assets Goodwill Investments Property, plant and equipment Deferred tax Other assets Current assets Inventories Trade and other receivables Tax receivable Cash and cash equivalents Total assets Shareholder equity Called up share capital Share premium Merger reserve Share option reserve Foreign exchange reserve Financial assets at fair value through other comprehensive income Accumulated losses Total equity Liabilities Non-current liabilities Interest-bearing liabilities Deferred tax liability Provisions Current liabilities Interest-bearing liabilities Trade and other payables Non interest-bearing loans Other liabilities Provisions Total liabilities Total equity and liabilities 12 months to 31 December 2022 12 months to 31 December 2021 Note 12 12 18 13 16 15 14 15 10 21 21 21 21 21 18 21 19 16 20 19 17 17 17 20 8,080 19,563 2,122 10,184 1,548 153 41,650 9,325 6,765 4,500 13,097 33,687 75,337 182 149,516 13,603 9,338 (1,159) 619 (122,696) 8,692 18,563 1,733 8,603 1,705 146 39,442 8,504 4,830 4,299 43,534 61,167 100,609 181 149,448 13,603 7,940 (2,325) 231 (95,760) 49,403 73,318 6,067 2,000 384 8,451 4,029 9,000 1,587 2,622 245 17,483 25,934 75,337 5,175 1,786 593 7,554 3,705 9,921 1,676 4,221 214 19,737 27,291 100,609 These financial statements on pages 126 to 164 were approved by the Board of Directors on 25 April 2023 and were signed on its behalf by: Richard Rees Director Company registered number: 10371794 The notes on pages 130 to 164 form part of the financial statements. 127 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Consolidated statement of changes in equity Consolidated statement of cash flows for the 12-month period ended 31 December 2022 for the 12-month period ended 31 December 2022 (All figures £’000) Called up share capital Accumulated losses Share premium Merger reserve Share option reserve Balance at 1 January 2020 150 (50,849) 115,112 13,603 4,648 Total comprehensive loss for the year Loss for the financial year Other comprehensive (loss)/income Total comprehensive loss Transactions with owners, recorded directly in equity Issue of share capital Equity settled share-based payment transactions – – – 8 – (20,316) – (20,316) – – – – – 152 – – – – – – – – – – 728 Balance at 31 December 2020 158 (71,165) 115,264 13,603 5,376 Total comprehensive loss for the year Loss for the financial year Other comprehensive (loss)/income Total comprehensive (loss)/income Transactions with owners, recorded directly in equity Issue of share capital Equity settled share-based payment transactions Balance at 31 December 2021 Total comprehensive loss for the year Loss for the financial year Other comprehensive income Total comprehensive (loss)/income Transactions with owners, recorded directly in equity Issue of share capital Equity settled share-based payment transactions – – – 23 – 181 – – – 1 – (24,595) – (24,595) – – – – – 34,184 – – – – – – (95,760) 149,448 13,603 (26,936) – (26,936) – – – – – 68 – – – – – – – – – – 2,564 7,940 – – – – 1,398 Changes to the fair value of equity instruments at fair value through other comprehensive income – – – – – – – – 231 231 – – Foreign Exchange Reserve Total equity – 82,664 – (429) (20,316) (429) (429) (20,745) – – 160 728 (429) 62,807 – (1,896) (24,595) (1,665) (1,896) (26,260) – – 34,207 2,564 231 (2,325) 73,318 – 388 388 – – – 1,166 1,166 (26,936) 1,554 (25,382) – – 69 1,398 Balance at 31 December 2022 182 (122,696) 149,516 13,603 9,338 619 (1,159) 49,403 The notes on pages 130 to 164 form part of the financial statements. (All figures £’000) Cash flows from operating activities Loss for the year Depreciation/amortisation charges Equity settled share-based payment expenses Finance expenses Finance income Taxation Increase in inventories Increase in trade and other receivables (Decrease)/increase in trade and other payables Interest paid Tax received Net cash used in operating activities Cash flows from investing activities Purchase of intangible fixed assets Purchase of tangible fixed assets Acquisition of subsidiary net of cash acquired Interest received Net cash used in investing activities Cash flows from financing activities Capital repaid in respect of loans Proceeds of new loan Principal elements of lease repayments Share issue Net cash generated from financing activities (Decrease) in cash and cash equivalents Effect of exchange rates in cash held Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year The notes on pages 130 to 164 form part of the financial statements. 12 months to 31 December 2022 12 months to 31 December 2021 Note 8 9 9 10 9 12 13 17 9 18 18 18 22 (26,936) 3,112 1,398 287 (66) (4,041) (348) (1,570) (902) (287) 4,299 (24,595) 2,562 2,564 463 (31) (5,744) (2,967) (3,170) 1,975 (463) 3,395 (25,054) (26,011) (95) (3,179) (2,753) 66 (5,961) (1,572) 2,851 (827) 70 522 (30,493) 56 43,534 13,097 (146) (5,976) (1,752) 31 (7,843) (1,844) 144 (515) 34,208 31,993 (1,861) 303 45,092 43,534 129 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Notes to the financial statements 1. Accounting policies General information Creo Medical Group plc is a public company, limited by shares, registered and domiciled in England and Wales in the UK. The Company’s registered number is 10371794 and the registered office is Creo House, Unit 2, Beaufort Park, Beaufort Park Way, Chepstow, Wales NP16 5UH. The Group financial statements consolidate those of the Parent Company and its subsidiaries (together referred to as the “Group”). The Parent Company financial statements present information about Creo Medical Group plc as a separate entity and not about its Group. The Group financial statements have been prepared and approved by the Directors in accordance with UK-adopted international accounting standards (“Adopted IFRSs”). The Company has elected to prepare its Parent Company financial statements 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 UK-adopted international accounting standards (“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. Basis of preparation This is the sixth annual financial report of the Company since the incorporation of Creo Medical Group plc on 12 September 2016 and the subsequent acquisition of Creo Medical Limited via a share for share exchange on 9 November 2016. The financial statements are presented in sterling and rounded to the nearest thousandth pound. All accounting policies, other than new policies have been applied consistently throughout the year. This financial report for the 12-month period ended 31 December 2022 (including comparatives for the 12 months ended 31 December 2021) was approved by the Board of Directors on 25 April 2023. Changes in accounting policy and disclosures New standards, amendments and interpretations The following new standards, amendments and interpretations have been adopted by the Group for the first time for the financial year beginning on 1 January 2022: X Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 X Onerous contracts – Cost of Fulfilling a Contract – Amendments to IAS 37 X Annual Improvements to IFRS Standards 2018-2020; and X Reference to the Conceptual Framework – Amendments to IFRS 3 The adoption of these standards, amendments and interpretations has not had a material impact on the financial statements of the Group or Parent Company. New standards, amendments and interpretations issued but not effective and not adopted early The following new standards, amendments to standards and interpretations have been issued but not are yet effective and therefore have not been applied in preparing these consolidated financial statements: X Deferred Tax related to Assets and Liabilities arising from a Single Transaction – amendments to IAS 12; and X Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2. The Directors anticipate that none of the new standards, amendments to standards and interpretations is expected to have a significant effect on the financial statements of the Group or Parent Company. Measurement convention The financial statements are prepared on the historical cost basis except that derivative financial instruments and equity investments are stated at their fair value. Business combinations and basis of consolidation The Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured, and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. Where non-controlling interests do not still have present access to the returns associated with the underlying ownership interests, the anticipated-acquisition method will be applied and the acquisition accounted for as though 100% of the equity had already been acquired. This is the case for the acquisition of Albyn Medical S.L. in 2020. Accounting policies adopted are consistent across the Group. All intra-Group balances and transactions, including unrealised income and expenses arising from intra-Group transactions, are eliminated on consolidation. Going concern For the year ended 31 December 2022 the Group made a total comprehensive loss of £25.4m, had cash and cash equivalents of £13.1 million with net assets of £49.4m. £31.7m (after expenses) was raised in February and March 2023 through Share Placement and Open Offer. The financial statements have been prepared on a going concern basis which the Directors believe to be appropriate for the following reasons. The Directors have considered the applicability of the going concern basis in the preparation of the financial statements. This included the review of financial results, internal budgets and cash flow forecasts for the period of at least 12-months following the date of approval of the financial statements (“the going concern period”). The Directors have modelled severe but plausible downside scenarios on the going concern period. These scenarios include sensitivity analysis to delay future growth. In such a case the Group would take mitigating actions and the Directors concluded that the Group would be able to reduce expenditure on its research and development programmes and other areas in order to meet its liabilities as they fall due for the going concern period. The Directors have prepared forecasts which show under both the base case and severe but plausible scenario, the Group’s cash resources will extend at least 18 months from the date of approval of the financial statements. Based on the above, the Directors are satisfied that the Group and Company will have sufficient funds to meet their liabilities as they fall due for the going concern period and therefore have prepared the financial statements on a going concern basis. Intangible assets Intangible assets include the capitalisation of development costs and software for the year ended 31 December 2022. Software which is not an integral part of hardware assets are stated at historic cost, including expenditure that is directly attributable to the acquired item, less accumulated amortisation and impairment losses. Expenditure on research activities is recognised as an expense in the year in which it is incurred. Costs are classified as research expenditure rather than development unless all of the below criteria are met, in which case these costs are capitalised on the balance sheet. Development criteria: a. completion of the intangible asset is technically feasible so that it will be available for use or sale; b. c. the Company intends to complete the intangible asset and use or sell it; the Company has the ability to use or sell the intangible asset and the intangible asset will generate probable future economic benefits over and above cost; there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the expenditure attributable to the intangible asset during its development can be measured reliably. d. e. Amortisation commences when the project is available for sale or use within the business. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. Amortisation is charged so as to write off the costs of intangible assets over their estimated useful lives, on the following basis: Software Development costs Trade Name Supplier Relationships Customer Relationships – 3 years straight line – 5 years straight line – 10 years straight line – 10 years straight line – 10 years straight line 131 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Notes to the financial statements…continued 1. Accounting policies continued Property, plant and equipment (“PPE”) Property, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Leases are recognised if they meet the criteria in IFRS 16 as a lease. Where low value or short term lease exemptions are taken the asset is classified as PPE, otherwise it is classified as a right of use asset. Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease payments are accounted for as described below. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis: Freehold Land Buildings Leasehold improvements Office equipment Fixtures and fittings Motor vehicles Plant and machinery Demo equipment – not depreciated – 40 years straight line – 3 or 5 years straight line – 2, 3 or 4 years straight line – 3 or 4 years straight line – 4 years straight line – 3 years straight line or 4 years reducing balance – 3 years straight line The gain or loss arising on the disposal of an asset is determined as the difference between sales proceeds and the carrying amount of the asset and is recognised in income on the transfer of the risks and rewards of ownership. Inventories Inventories are stated at the lower of cost and net realisable value. Raw materials cost is based on the First In, First Out (“FIFO”) principle using standard costing techniques and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing location and condition. Finished goods cost is based on standard cost with variances between actual and standard going through the cost of sales line. Leases At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. This policy is applied to contracts entered into, on or after 1 January 2019. For leases acquired as part of a business combination the policy applies from the acquisition date. The Group has taken the practical expedient not to reassess whether contracts at the date of initial application constituted a lease. At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. On transition, the right-of-use assets were recognised at an amount equal to the lease liability, adjusted to the amount of prepaid lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease, country lease entered into and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: X fixed payments, including in-substance fixed payments; X variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; X amounts expected to be payable under a residual value guarantee; and X the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of financial position. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Financial instruments The Group predominantly enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other accounts receivable and payable, loans from other third parties, loans to related parties and investments in non-puttable financial instruments. Any transactions relating to share options issued by the entity are disclosed in the share-based payment accounting policy and Note 8. The Group is also able to enter into a variety of derivative financial instruments to manage its exposure to foreign exchange risk, including foreign exchange forward contracts and cross-currency swaps. Impairment The Group recognises loss allowances for expected credit losses (“ECLs“) on financial assets measured at amortised cost, debt investments measured at FVOCI and contract assets (as defined in IFRS 15). The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, which are measured as 12-month ECL. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, when demanded. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. 133 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts 1. Accounting policies continued Credit-impaired financial assets At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit- impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Write-offs The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. Provisions under IFRS 9 may still be made to account for the probability of such default events, however such a provision being made is not indicative that an actual default event will occur. Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement. Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest- bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Derivative financial instruments Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. The Group has not applied hedge accounting in the current or comparative periods. Foreign currencies The functional currency of the Group is Pounds Sterling. Transactions entered into by Group entities in a currency other than the reporting currency are recorded at the rates ruling when the transaction occurred. Foreign currency monetary assets and liabilities are translated into Sterling at the rates ruling at the statement of financial position date. Exchange differences arising on the retranslation of the unsettled monetary assets and liabilities are similarly recognised in the income statement. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency, Sterling, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve or non-controlling interest, as the case may be. When a foreign operation is disposed of, such that control, joint control or significant influence (as the case may be) is lost, the entire accumulated amount in the translation reserve, net of amounts previously attributed to non-controlling interests, is recycled to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while still retaining control, the relevant proportion of the accumulated amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while still retaining significant influence or joint control, the relevant proportion of the cumulative amount is recycled to profit or loss. Current and deferred tax Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the statement of financial position date. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. 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 balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. The Company incurs research and development expenditure which qualifies for Research and Development (“R&D“) tax relief and as such, prepares and submits an R&D claim to HMRC in relation to each accounting period. The claims are made on the basis that the Company and its activities meet the necessary conditions. As the Company is currently loss making, there is no corporation tax liability arising, therefore it has chosen to convert the tax relief into payable tax credits instead of carrying forward a loss. This results in the credit being paid in cash directly to the Company following the submission of a valid claim. The Company is claiming R&D tax relief predominately under the small or medium-sized enterprises (“SME“) scheme therefore the credit is accounted for as tax in accordance with IAS 12 Income Taxes. However, where the R&D expenditure is related to monies received from research grants, the Company is claiming an R&D expenditure credit (“RDEC“) under the Large Company Scheme and as such the related credit is accounted for ‘above the line’ in accordance with IAS 20 Accounting for Government Grants, specifically as a reduction from the related expenditure in the statement of comprehensive income. Employee benefits Wages, salaries, paid annual leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. Defined contribution plans A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement in the periods during which services are rendered by employees. Share-based payments Equity-settled share options are granted to certain Directors, employees and certain contractors which have been granted options to subscribe for Ordinary Shares. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model or where they are based on market- based performance conditions, the Monte Carlo model. Compensation expense is recognised over the tranche’s vesting period based on the number of awards expected to vest, through an increase to equity. The number of awards expected to vest is reviewed over the vesting period, with any forfeitures recognised immediately. Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group. The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service, market and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service, market and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Where the Company grants options over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity. Amounts recharged to the subsidiary are recognised as a reduction in the cost of investment in subsidiary. Where costs recharged match those incurred there is no net impact on the investment in subsidiary. Financing income and expenses Financing expenses comprise interest payable, finance charges on shares classified as liabilities and leases recognised in profit or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the income statement (see foreign currency accounting policy). Financing income comprises interest receivable on funds invested, dividend income, and net foreign exchange gains. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic benefit will be required to settle the obligation, the provision is reversed. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. Revenue from contracts with customers Revenue is recognised when substantially all of the risk and reward of ownership of the goods are transferred to the customer on despatch, and thus has the ability to direct the use and obtain the benefits from the goods. Revenue is recognised net of any sales tax. 135 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 1. Accounting policies continued Performance obligations and revenue recognition policies Revenue is recognised in accordance with IFRS 15 at the point at which the Group’s performance obligation has been satisfied. Below is a summary of the recognition policies for each type of sale: Type of product/ service Nature and timing of satisfaction of performance obligations, including significant payments terms Direct Sales of Devices/ Products Customers obtain control of medical devices or products when the goods either leave the warehouse or when they physically arrive at the customer premises based on the shipment terms. Invoices are generated at this point with payment required within 30-60 days depending on customer terms. Sales to Distributors Distributors obtain control of medical devices or products when the goods either leave the warehouse or when they physically arrive at the distributor premises based on the shipment terms. There is no right of return for the goods. Invoices are generated at this point with payment required within 30-60 days depending on distributor terms. Equipment may be provided free of charge to the customer provided they purchase ancillary products, or it may transfer to them if they purchase a set volume. No contract is deemed to exist under IFRS 15 in relation to the placement of the equipment, due to Creo retaining the significant element of risks and rewards including future cashflows, a lack of commercial substance in relation to the equipment and recoverability of the asset without ability to enforce compensation for the period of use of the equipment. Where the Group retains control of the equipment it is classified as a fixed asset. Revenue recognition policies Revenue is recognised when the goods leave the warehouse or are delivered to the customers premises (depending on shipment terms). Revenue is recognised when the goods leave the warehouse or are delivered to the customers’ premises (depending on shipment terms). Where the rights to an asset are retained by the Group the asset is depreciated over its useful life. Service/ Maintenance Contracts Service & maintenance contracts are for a set period of time as specified with the customer. Our performance obligations are satisfied over the length of the contract. Customers are invoiced monthly based on the annual value of the contract agreed. Revenue is recognised over the life of the contract on a straight line basis. We consider this matches the satisfaction of our performance obligations of the contract. Warranty Products manufactured by the Group have a warranty period. Customers have the right to return the product if it is faulty within this period. Revenue is only recognised when we consider it likely that the product will not be returned. We calculate a warranty provision based on historical warranty data of comparable products. The warranty provision is accounted of under IAS 37 as a provision and an expense. Income which is related to ongoing development or licensing activity is recognised as the activity is undertaken, in accordance with the contract to match the costs incurred. Development and regulatory approval milestone payments are recognised as revenue when the respective milestones are achieved. Licensing/ Development Income Licensing agreements may contain a number of elements and provide for varying consideration terms, such as initial fees, sales, development and regulatory milestones together with sales-based royalties and similar payments. Such arrangements are within the scope of IFRS 15 and are assessed under its five-step model to determine revenue recognition. The distinct performance obligations within the contract and the arrangement transaction price are identified. The fair value of the arrangement transaction price is allocated to the different performance obligations based upon the relative stand-alone selling price of those obligations together with the performance obligation activities to which the terms of the payments specifically relate. The allocated transaction price is recognised over the respective performance period of each performance obligation. Creo carries out development for or with a third party. Performance obligations are recognised at a point in time if considered a milestone or overtime as the development project is completed. Critical accounting judgements and policy update The application of the Group’s accounting policies requires judgements in certain areas and to make estimates and assumptions concerning the future. These estimates and judgements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The following are those areas that are deemed to involve judgements and/or estimation about matters that have the most significant effect on the amounts recognised in the financial statements. Critical accounting judgements in applying the Group’s accounting policies Capitalisation of development costs Capitalisation of development costs requires analysis of the technical feasibility and commercial viability of the project concerned. Capitalisation of the costs will only be made where there is clear demonstration that future economic benefit will flow to the Company. Costs relating to the development of our initial Speedboat Slim, Slypseal, Microblate and Spydrblade devices of £1.9m were expensed during the year. Our new Speedboat Slim product met the capitalisation criteria in Q3. Between it meeting the capitalisation criteria and being made available for sale the total amount of capitalisable development costs were £38k. Due to this being an immaterial amount these were not capitalised in the year and instead expensed. No further development of the Speedboat and CROMA products has been undertaken with an emphasis on developing the later versions of these devices. No further development costs have been capitalised in the year. The Group’s internal budgets demonstrate that the products will generate probable future economic benefits relating to Speedboat and CROMA and therefore there is no impairment to capitalised development costs. Recognition of deferred tax asset Management judgement is required on whether the Group should recognise any deferred tax assets for losses. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Given the nature and stage of development of Creo Medical Limited there are significant losses accumulated to date. To determine whether a deferred tax asset should be recognised in relation to the future tax deduction that these losses represent, the Directors have considered the estimated profits over a medium to long-term forecast and the events required to achieve such forecasts. Creo Medical UK Limited (formally AMLTD acquired in 2020) is forecast to make profits over the medium term and these profits would be available for Group relief. Therefore we have recognised a tax asset of £0.8m in relation to element of profit expected to be earned in that entity. Forecasts for Creo Medical Limited continue to show tax losses for at least the medium term (to four years) as the Group continues to develop and commercialise its products. Given the extent of uncertainty with forecasting over a longer-term horizon, it is determined that there is not the level of convincing evidence that sufficient taxable profit will be available against which further tax losses or tax credits can be utilised. Thus, there is considered to be insufficient certainty over the timing and amount of loss recoverability for a any further deferred tax asset to be recognised. Operating segments An entity is required to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. As the Group’s global reach has expanded in the year, management have exercised significant judgement in determining whether presenting segment information on an alternative basis would better adhere to this core principal. Whilst the operations in different geographical locations form a fundamental part of the Group’s long-term strategy, they are in the early stages of development and the Group continues to focus on the development and commercialisation of its key range of unique endoscopic surgical devices and CROMA Advanced Energy Platform. In making their judgement, the Directors considered the Group’s activities and the internal reporting structures and information regularly reviewed by the entity’s chief operating decision-maker to make decisions about resources to be allocated and assessing performance. After the assessment, the Directors concluded that financial information at a consolidated Group level appropriately reflects the business activities in which the Group is currently engaged, and the economic environment in which it operates. As explained in Note 2 of the financial statements, as the Group continues to grow it is expected that the internal reporting structure will evolve in order to meet the changing activities, goals and objectives of the business and therefore additional operating segments may be identified as appropriate in future reporting periods. 137 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 2. Revenue and other operating income The revenue split between the Group for 2022 was as follows: 5. Staff numbers and costs The cost of employees (including Directors) during the year was made up as follows: (All figures £’000) UK Europe RoW Total 12 months to 31 December 2022 12 months to 31 December 2021 7,780 19,099 290 27,169 6,027 19,068 66 25,161 (All figures £’000) Wages and salaries Social security costs Other pension costs Share-based payments Total remuneration At 31 December 2022 the Group had a number of unsatisfied performance obligations under IFRS 15 in relation to the Intuitive collaboration in line with the contract agreement. The value of this unsatisfied performance obligation is in excess of £1m. (2021: £nil). The average monthly number of employees during the year was as follows: Segmental reporting Operating segments are identified on the basis of internal reporting and decision making. Creo currently has one operating segment which is the research, development and distribution of electrosurgical medical devices relating to the field of surgical endoscopy. The Group has started the process of integrating the previous Albyn and Boucart brands into the Creo brand and offering customers our full suite of products. As such the Group is still operating in a single segment. As the Group continues to grow we expect the internal reporting structure to change to meet the changing goals and objectives of the business and additional operating segments may be identified in future reporting periods. (All numbers) The average monthly number of employees during the year was as follows; Research and development Administration & Operations Sales & Marketing As there is only one reportable operating segment whole profit, expenses, assets, liabilities and cashflows are measured and reported on a basis consistent with the financial statements, with no additional disclosures necessary. 6. Directors’ remuneration Other operating income Other operating income relates to research grants. Income is recognised necessary to match it with the related costs in the profit or loss on a systematic basis over the periods in which the entity recognises expenses for the related costs for which the grants are intended to compensate. Furthermore, income is recognised only when there is reasonable assurance that the Company will comply with any conditions attached to the grant and the grant will be received. Grant income received in the year was £51k (2021: £52k). (All figures £’000) Directors’ remuneration Pension Total Directors’ remuneration 12 months to 31 December 2022 12 months to 31 December 2021 18,102 2,675 1,042 1,279 23,098 16,122 2,530 742 2,564 21,958 12 months to 31 December 2022 12 months to 31 December 2021 100 122 87 309 55 107 77 239 12 months to 31 December 2022 12 months to 31 December 2021 1,753 83 1,836 2,735 82 2,817 3. Loss before tax The loss before income tax is stated after charging: (All figures £’000) Depreciation – owned assets Depreciation – right of use assets Amortisation Research and development expenditure 4. Audit and non-audit fees An analysis of auditors’ remuneration is as follows: (All figures £’000) Audit of Parent Company and Consolidation Audit of Group subsidiaries Audit fees Directors’ emoluments disclosed above paid to the highest paid Director in the year was £473k (31 December 2021: £623k) including Pension contribution of £28k. The share options exercised in the year by the highest paid Director was £nil (31 December 2021: £nil). There were Company pension contributions of £83k made to defined contribution schemes during the current year (31 December 2021: £82k). Four Directors are in the defined contribution scheme (2021: Four). No shares were received or receivable for any Director in respect of long- term incentive schemes. One of the Non-Executive Directors exercised 105,947 share options during the year. (All figures £’000) Gain on exercise of shares Total gain on exercise of shares 12 months to 31 December 2022 12 months to 31 December 2021 10 10 – – 7. Research and development expenditure During the current and comparative years, research and development was a significant activity of the entity. Expenditure on research activities is recognised in the statement of profit or loss as incurred. 12 months to 31 December 2022 12 months to 31 December 2021 1,296 672 1,145 13,527 782 651 1,129 12,869 12 months to 31 December 2022 12 months to 31 December 2021 149 148 297 129 136 265 139 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 8. Share-based payments At 31 December 2022 the Group has an established Enterprise Management Incentive (“EMI”) and non-EMI schemes (the “Schemes”) under which share options have been granted to certain officers, employees and certain suppliers. The Schemes are equity-settled share-based payment arrangements whereby holders of vested options are entitled to purchase shares in the Company at the market price of the shares at the grant date. The Schemes include both market and non-market based vesting conditions. The share options may be exercised from the date that they vest until the 10th anniversary of the date of the grant. In addition to the performance-based vesting conditions the only vesting requirement is that the recipient remains in employment with the Company with the exception of tranches 11 and 12 where employment is not a criteria. All options are to be settled by the physical delivering of shares. Details of the grants under these schemes are as follows: Award Grant date Number of options Vesting conditions 243,720 Continual service of employment over 3 years 1,121,400 Continual service of employment over 3 years 670,680 Continual service of employment over 3 years 1,242,000 Continual service of employment over 3 years 216,000 Continual service of employment over 3 years 1,944,000 Continual service of employment over 3 years 5,907,896 Continual service of employment over 3 years 875,902 Continual service of employment and market based performance conditions 1,746,718 Continual service of employment over 3 years and non market based performance conditions Exercise price (£) 0.21 0.17 0.17 0.17 0.17 0.17 0.76 1.13 1.54 Fair value (£) 0.09 0.11 0.11 0.12 0.12 0.11 0.48 0.58 Contractual life of options 10 years 10 years 10 years 10 years 10 years 10 years 10 years 10 years 0.84 10 years 749,209 Non market based performance conditions 1,000,000 Non market based performance conditions 3,348,475 Non market and market based performance 0.76 1.26 0.001 to 1.71 1.60 0.67 0.86 to 1.69 10 years 10 years 10 years conditions 490,000 Non market and market based performance 0.001 0.51 10 years conditions 23 July 2020 04 & 27 January 2021 725,369 Continual service of employment over 3 years 1,117,837 Continual service of employment over 3 years and non market based performance conditions 2.01 0.001 to 1.92 1.18 0.97 to 2.17 10 years 10 years 14 June 2021 928,164 Non market and market based performance 0.001 to 2.06 0.81 to 1.84 10 years conditions 23 November 2021 04 August 2022 4,633,465 Market based performance conditions 1,537,212 Market based performance conditions 0.001 0.001 to 1.92 1.41 0.26 to 0.76 10 years 10 years 28,498,047 06 December 2013 14 July 2015 14 July 2015 03 August 2015 04 August 2015 29 September 2016 09 December 2016 04 April 2018 29 August 2018 18 October 2018 02 July 2019 17 October & 7 November 2019 18 February 2020 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Share option activity for the year ended 31 December 2022 and 31 December 2021 is presented below: Outstanding at start of year as previously stated Granted during the prior year* Forfeited during the prior year Granted during the year Forfeited during the year Cancelled during the year Exercised during the year Outstanding at end of year Exercisable at end of year Weighted average remaining contractual life (in years) of options outstanding at the year end 31 December 2022 Number of options 31 December 2022 Weighted average exercise price 18,763,437 105,000 – 1,537,212 (297,835) – (123,947) 19,983,867 10,850,549 £0.60 £1.71 £0.00 £0.34 £1.69 £0.00 £0.55 £0.62 £0.79 6.3 31 December 2021 Number of options 15,187,115 100,000 (78,947) 6,679,466 (104,858) (2,772,130) (247,209) 18,763,437 10,318,487 31 December 2021 Weighted average exercise price £0.66 £1.71 £0.80 £0.21 £1.58 £0.01 £0.28 £0.60 £0.74 7.1 * Management identified 105,000 share options which were not disclosed in the prior year which have been added in the current year. The estimated fair value of the share options was calculated by applying a Black-Scholes model for shares with no market-based performance conditions and a Monte Carlo model for those with a market-based performance condition. The model inputs for the current period option grants were as follows: Exercise price Share price at date of grant Risk-free interest rate Expected volatility Dividend yield Contractual life of option (years) 31 December 2022 31 December 2021 £0.001 – £1.92 £0.75 1.75% 46% 0% 10 £0.001 – £2.06 £1.52 – £2.17 0.1% – 0.1% 32% – 49% 0% 10 Expected volatility was based on historical share price volatility for the 12 months to the grant date, which may not necessarily be the actual outcome. The weighted average share price of the shares exercised during the year was £0.55. (All figures £’000) Expense arising from share-based payment transactions 31 December 2022 31 December 2021 1,279 2,564 The following amounts for share-based payments are reflected in the above Consolidated Statement of Profit or Loss and Other Comprehensive Income in relation to Directors: (All figures £’000) Professor Christopher Hancock Craig Gulliford Richard Rees David Woods 31 December 2022 31 December 2021 212 251 184 22 669 361 393 285 84 1,122 During the prior year the Group implemented a SIP scheme for all UK employees. Employees are able to purchase up to £1,800 in Partnership shares each year. The Company will then provide two matching shares for each Partnership share purchased. Employees must remain with the Company for three years to keep the matching shares and five years to receive the shares tax free. The shares purchased/issued during the year under the scheme are as follows: (All figures exact numbers) Total Shares at 01 January Partnership shares purchased in year Matching shares issued in year Total Shares in SIP scheme at 31 December 31 December 2022 31 December 2021 139,838 111,211 322,752 573,801 – 78,226 61,612 139,838 The total value of the Partnership Shares which was charged to administrative expenses in the year was £119k. Matching shares for the partnership shares purchased under the SIP scheme in December 2022 were not issued until after the yearend. 9. Finance expenses and finance income (All figures £’000) Finance income: Bank interest Fair value adjustment for derivatives Total finance income Finance costs: Bank interest Interest expense on lease liabilities Fair value adjustment for derivatives Unwind of the discount on lease liabilities Unwind of the discount on deferred and contingent liabilities Total finance costs 12 months to 31 December 2022 12 months to 31 December 2021 34 32 66 202 5 – 41 39 287 31 – 31 183 26 100 28 126 463 141 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 10. Taxation Recognised in the income statement: (All figures £’000) Current tax: Current year Adjustments for prior years Foreign tax Current tax credit Deferred tax: Origination and reversal of temporary timing differences Total tax credit Reconciliation of effective tax rate: (All figures £’000) Loss for the year Total credit Loss excluding taxation Tax using the UK corporation tax rate of 19% (2021: 19%) Research and development Movement in deferred tax not provided Non-deductible expenses Equity-settled share-based payments Different tax rates applied in overseas tax jurisdictions Losses utilised Fixed asset differences Deferred tax assets recognised Adjustments for prior years Total tax credit 31 December 2022 31 December 2021 Note (4,394) – (3,879) (100) 114 161 (4,280) (3,818) 16 239 (4,041) (1,926) (5,744) 31 December 2022 31 December 2021 (26,936) (4,041) (24,595) (5,744) (30,977) (30,339) (5,886) (1,937) 2,895 430 119 63 440 35 (200) – (4,041) (5,764) (2,180) 3,314 87 240 139 163 16 (1,659) (100) (5,744) The Group has submitted R&D tax relief claims under the small or medium-sized enterprises (“SME“) scheme and £4,500k (2021: £4,299k) has therefore been accounted as a tax credit in accordance with IAS 12 Income Taxes. In addition, the Group has also submitted R&D claims under the large company (“RDEC“) scheme in relation to monies received from research grants. In accordance with IAS 20 Accounting for Government Grants, an amount of £nil (2021: £nil) has been accounted for ‘above the line’ as a reduction from the related expenditure in the statement of comprehensive income. 11. Loss per share Loss per share has been calculated in accordance with IAS 33 – Earnings Per Share using the loss for the year after tax, divided by the weighted average number of shares in issue. (All figures £) Loss Loss attributable to equity holders of Company (basic) Shares (number) Weighted average number of Ordinary Shares in issue during the year Loss per share Basic and diluted Ordinary Shares start of year Issued in year Issue 1 - Ordinary Issued with months remaining Issue 2 - Ordinary Issued with months remaining Issue 3 - Ordinary Issued with months remaining Issue 4 - Ordinary Issued with months remaining Issue 5 - Ordinary Issued with months remaining Issue 6 - Ordinary Issued with months remaining Closing Ordinary Shares Average Ordinary Shares Basic EPS 12 months to 31 December 2022 12 months to 31 December 2021 (26,936,464) (24,594,919) 181,335,216 164,433,455 (0.15) (0.15) 181,099,186 157,891,181 49,209 105,810 8 11 3,000,000 216,942 6 5 61,612 27,000 5 5 19,899,184 78,947 3 5 108,000 18,000 1 3 90,000 – – – 181,099,186 181,545,885 181,335,216 164,433,455 (0.15) (0.15) 12. Intangible assets and goodwill (All figures £000’s) Goodwill Trade Name Customer Relationships Supplier Relationships Development costs capitalisation Computer software Assets under construction Cost: At 1 January 2021 Additions Acquired on business combination Transferred Effect of movements in exchange rate At 31 December 2021 Accumulated amortisation and impairment: At 1 January 2021 Charge for year Effect of movements in exchange rate At 31 December 2021 Net book value at 31 December 2021 18,262 – 1,467 – (1,166) 18,563 – – – – 1,249 – – – (80) 1,169 48 120 (7) 161 1,161 – – – (74) 1,087 48 112 (6) 154 7,699 – – – (491) 7,208 278 742 (39) 981 650 – – – – 650 160 130 – 290 346 146 – – – 492 304 24 – 328 49 – – – – 49 49 – – 49 Total 29,416 146 1,467 – (1,811) 29,218 887 1,128 (52) 1,963 18,563 1,008 933 6,227 360 164 – 27,255 143 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 12. Intangible assets and goodwill continued (All figures £000’s) Goodwill Trade Name Customer Relationships Supplier Relationships Development costs capitalisation Computer software Assets under construction Cost: At 1 January 2022 Additions Transferred Effect of movements in exchange rate At 31 December 2022 Accumulated amortisation and impairment: At 1 January 2022 Charge for year Transferred Effect of movements in exchange rate At 31 December 2022 Net book value at 31 December 2022 18,563 – – 1,000 19,563 – – – – – 1,169 – – 68 1,237 161 119 – 14 294 1,087 – – 64 1,151 154 110 – 14 278 7,208 – – 421 7,629 981 730 – 88 1,799 650 – – – 650 290 130 – – 420 492 81 48 – 621 328 56 48 – 432 49 14 (48) – 15 48 – (48) – – Total 29,218 95 – 1,553 30,866 1,962 1,145 – 116 3,223 The discount rate has been calculated based on the weighted average cost of capital for Albyn Medical, based on the capital asset pricing model. In calculating the relevant inputs we considered historical and long-term market return studies, data from comparable companies within the industry and other relevant external data. We considered potential future impacts from climate change in the future and the impact these could have on the carrying value of each CGU in the Group. Although a formal scenario planning has not yet been finalised we did not identify any indicators which we consider would have a material impact on the assessment of the value in use of the CGU. The growth rate was based on a five year forecast based on management expectations with revenue assumed to reduce to a 2% terminal growth rate over the long term. The Group has conducted sensitivity analysis on the impairment testing. (Amounts in €000’s) Albyn CGU Group Sensitivity scenario (amounts in €’000s): Pre-tax Discount rate increase by 1% Terminal value growth rate reduce by 1% Budgeted revenue growth rate (average of next 5 years) reduced by 2% Headroom 10,843 Impact on Headroom (4,384) (3,500) (7,359) 19,563 943 873 5,830 230 189 15 27,643 Boucart Goodwill Assumptions Goodwill arising on acquisition of Boucart has been allocated to a single CGU. The recoverable amount of this CGU Group was based on value in use, estimated using discounted cashflows. The key assumptions used in the calculation are shown in the table below: The amortisation of intangibles has been charged to administrative expenses in the Consolidated Statement of profit or loss and other Comprehensive Income. The supplier relationship intangible arose on the acquisitions of Albyn and Boucart Medical in 2020. The remaining amortisation period of the Albyn supplier relationships is 91 months and the remaining amortisation period for the Boucart supplier relationships is 94 months. Capitalised development costs £48k of capitalised software was transferred from assets under construction to computer software in the year. No other assets have been transferred from assets under construction during the year. No development costs were capitalised during the year (31 December 2021: £nil). Assets under construction There was £15k of assets under construction at the 31 December 2022 in relation to software purchased during the year (31 December 2021: £nil). Impairment of intangible assets An impairment review of intangibles was carried out including consideration of potential climate related risks on the longer-term intangibles including trade name, supplier relationships and customer relationships. No impairment to intangible assets were recognised during the year. In percent Pre-tax discount rate Terminal value growth rate Budgeted revenue growth rate (average of next five years) 13.42% 2% 4% The discount rate has been calculated based on the weighted average cost of capital for Boucart, based on the capital asset pricing model. In calculating the relevant inputs we considered historical and long-term market return studies, data from comparable companies within the industry and other relevant external data. We considered potential future impacts from climate change in the future and the impact these could have on the carrying value of the CGU. Although a formal scenario planning has not yet been finalised we did not identify any indicators which we consider would have a material impact on the assessment of the value in use of the CGU. The growth rate was based on a five year forecast based on management expectations with revenue assumed to reduce to a 2% terminal growth rate over the long term. The Group has conducted sensitivity analysis on the impairment testing. Goodwill impairment test Goodwill assets considered significant in comparison to the Group’s total carrying amount of such assets have been allocated to cash generating units or groups of cash generating units as follows: (Amounts in €000’s) Boucart CGU (All figures £’000) Albyn Group of CGUs Boucart single CGU Aber single CGU 31 December 2022 31 December 2021 16,022 2,074 1,467 19,563 15,137 1,959 1,467 18,563 Sensitivity scenario (amounts in €’000s): Pre-tax Discount rate increase by 1% Terminal value growth rate reduce by 1% Budgeted revenue growth rate (average of next 5 years) reduced by 2% Albyn Goodwill Assumptions Goodwill arising on acquisition of Albyn has been allocated to a single CGU Group which consists of the subsidiary entities within the Albyn Group, each being classified as a CGU unit. The recoverable amount of this CGU Group was based on value in use, estimated using discounted cashflows. The key assumptions used in the calculation are shown in the table below: In percent Pre-tax discount rate Terminal value growth rate Budgeted revenue growth rate (average of next five years) 14.23% 2% 4% Headroom 3,435 Impact on Headroom (853) (674) (1,301) 145 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts Aber Goodwill Assumptions Goodwill arising on acquisition of Aber has been allocated to a single CGU. The recoverable amount of this CGU Group was based on value in use, estimated using discounted cashflows. The key assumptions used in the calculation are shown in the table below: In percent Pre-tax discount rate Terminal value growth rate Budgeted revenue growth rate (average of next five years) 14.89% 3% 6% The discount rate has been calculated based on the weighted average cost of capital for Aber, based on the capital asset pricing model. In calculating the relevant inputs we considered historical and long-term market return studies, data from comparable companies within the industry and other relevant external data. We considered potential future impacts from climate change in the future and the impact these could have on the carrying value of the CGU. Although a formal scenario planning has not yet been finalised we did not identify any indicators which we consider would have a material impact on the assessment of the value in use of the CGU. The growth rate was based on a five-year forecast based on management expectations with revenue assumed to reduce to a 2% terminal growth rate over the long term. The Group has conducted sensitivity analysis on the impairment testing. (Amounts in £000’s) Aber CGU Sensitivity scenario (amounts in £’000s): Pre-tax Discount rate increase by 1% Terminal value growth rate reduce by 1% Budgeted revenue growth rate (average of next 5 years) reduced by 2% Headroom 456 Impact on Headroom (229) (181) (378) 13. Property, plant and equipment (All figures £’000) Cost: At 1 January 2021 Acquired in business combination Additions Transferred Disposals Exchange rate movements At 31 December 2021 Accumulated Depreciation: At 1 January 2021 Acquired in business combination Charge for the year Disposals Exchange rate movements At 31 December 2021 Net book value at 31 December 2021 Cost: At 1 January 2022 Additions Transferred Disposals Exchange rate movements At 31 December 2022 Accumulated Depreciation: At 1 January 2022 Charge for the year Disposals Exchange rate movements At 31 December 2022 Net book value at 31 December 2022 Land & Buildings Leasehold Improvements Office equipment Fixtures and fittings Motor vehicles Plant and machinery Assets under construction Demo Equipment Right of Use Asset Leases Total – 695 1,014 179 499 1,391 29 696 2,466 6,969 – 4,507 – – – 4,507 – – 52 – – 52 – 41 29 – (25) – 347 – – 125 81 4 – – 3 – 36 – (22) (27) 21 823 – – (86) 740 1,486 267 486 2,149 457 – 126 – 1 584 755 – 191 – 27 973 119 48 10 – 7 291 1,019 – 44 (12) 22 12 236 – (8) 184 345 1,259 – 145 (29) – – 145 – – – – – – – 73 – (1) (48) 52 844 – (134) (103) 154 6,820 – (157) (161) 720 3,125 13,625 475 475 3,591 – 123 (1) (62) – 651 (28) (8) 60 1,433 (41) (21) 535 1,090 5,022 4,455 156 513 83 141 890 145 185 2,035 8,603 4,507 103 – – – 4,610 52 106 – – 158 740 92 146 – (38) 1,486 267 – (2) 27 940 1,778 584 134 – 1 719 973 289 (1) 9 1,270 267 3 – (18) 8 260 184 17 – 6 207 486 156 – (89) (66) 2,149 447 – (3) 32 145 1,388 (146) – 5 720 723 – (82) 25 3,125 215 – – 184 13,625 3,394 – (194) 177 487 2,625 1,392 1,386 3,524 17,002 345 62 (77) (79) 251 1,259 454 – 14 1,727 – – – – – 535 234 (76) 28 721 1,090 672 – 3 1,765 5,022 1,968 (154) (18) 6,818 4,452 221 508 53 236 898 1,392 665 1,759 10,184 Assets under construction for the year of £1,392k (2021: £145k) relate to leasehold improvements in our additional building at the Chepstow site. £145k of brought forward assets under construction were transferred to leasehold improvements during the year. 147 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 14. Inventories (All figures £’000) Raw materials & consumables Finished goods Total inventories 16. Deferred tax and other tax receivables continued 31 December 2022 31 December 2021 2,964 6,361 9,325 2,188 6,316 8,504 (All figures £’000s) Balances: Deferred tax asset Deferred tax liability Net deferred tax liability 31 December 2022 31 December 2021 (1,548) 2,000 452 (1,705) 1,786 81 These carrying values are stated net of impairment provisions of £2,645k (2021: £2,285k). Inventories of £1,434k (2021: £732k) were written down during the year and the expense recognised in the income statement. £13,387k of inventories was recognised in the income statement in cost of sales. The Directors are of the opinion that the replacement values of inventories are not materially different to the carrying values stated above. Inventories also include £1.6m of PPE inventories in Spain. The value of these inventories match the value of the loan from the Spanish government held on the balance sheet. 15. Trade and other receivables (All figures £’000) Current: Trade receivables Accrued other income Other debtors Prepayments Total current Non-current: Other assets Total trade and other receivables 31 December 2022 31 December 2021 4,859 387 428 1,091 6,765 153 6,918 3,876 66 518 370 4,830 146 4,976 An expected credit loss provision of £235k (2021: £505k) in relation to trade debtors has been booked during the year. An expected credit loss provision was calculated for the other debtors balance and was deemed immaterial and therefore not recognised. 16. Deferred tax and other tax receivables The accelerated capital allowances deferred tax liability set out below is expected to reverse over the life of the related fixed assets. Deferred tax has been calculated at a rate of 25% (2021: 25%). The movement on the deferred tax account is as shown below: (All figures £’000) Movement: At 1 January Deferred tax Asset recognised Tax charge recognised in profit and loss Losses utilised Exchange rate movements At 31 December 31 December 2022 31 December 2021 81 (201) 106 (14) 440 26 452 1,522 (1,632) (420) (530) 745 (134) 81 Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes. (All figures £’000) Balances: Intangible assets Pension accruals and other temporary timing differences Tax losses offset (see below) 31 December 2022 31 December 2021 2,132 (132) (1,548) 452 2,069 (283) (1,705) 81 There are unused trading losses at 31 December 2022 of approximately £50.6m (31 December 2021: £46.4m). A deferred tax asset of £0.75m has been recognised in relation to these losses as Group believe they will be able to offset future profits from Creo Medical UK Limited over the next two years. We also have £0.75m deferred tax asset relating to Creo Spain and Creo France. These have been recognised as we expect to utilise these losses against future profits over the next 1 to 2 years. A remaining deferred tax asset of approximately £12.5m (31 December 2021: £9.8m) has not been recognised in respect of these tax losses due to uncertainty in respect of its recoverability. A deferred tax asset of approximately £175k arises in respect of the share options that haven’t yet been exercised. This has not been recognised due to uncertainty in respect of its recoverability. Tax receivables at 31 December 2022 of £4.5m (31 December 2021: £4.3m) relate solely to R&D tax credits. The Company has submitted R&D tax credit claims for the years presented in relation to its qualifying research and development expenditure and has taken the option of surrendering the resulting losses and claiming an R&D tax credit in the form of immediate cash payments from HMRC. 17. Trade and other payables (All figures £’000) Current: Trade payables Social security and other taxes VAT payable Other payables Accrued expenses Derivative liability PPE loan Deferred and contingent consideration Total trade and other payables 31 December 2022 31 December 2021 4,279 532 530 592 3,067 – 1,587 2,622 13,209 3,538 470 – 1,099 4,714 100 1,676 4,221 15,818 The PPE loan relates to a loan provided to the Group subsidiary Albyn Medical SL from the Spanish government for the procurement of PPE equipment for Spanish hospitals and other industries. The loan is interest-free and repaid once the PPE has been purchased in Spain and the funds received. The initial loan was for €4m of which €2.3m has been paid to date. As at 31 December 2022 the Group had £1.6m of PPE stock. Albyn purchased PPE using the loan with suppliers based on an ‘arms length’ transaction. The PPE is then sold on to the end customer at a set price. Albyn does not have a mark up on product however where larger quantities are purchased some element of profit is made. The risks and rewards are all with Albyn and therefore this has been accounted for as a normal transaction as a principal. The proceeds received then go to pay back the loan provided by the government. As at 31 December 2022 the Group has deferred consideration in relation to the Albyn Medical acquisition in 2020 of £1.1m. £1.1m of deferred consideration was paid during the year. A contingent consideration liability of £0.7m has been recognised in the accounts in relation to the acquisition of Albyn Medical SL in 2020. The Group considered it probable that the targets will be achieved based on current performance to date and forecast results, and therefore expect the provision will be paid in full. £1.5m of contingent consideration was paid during 2022. A contingent consideration liability of £0.4m has been recognised in the accounts in relation to the acquisition of Boucart Medial SRL in 2020. The Group considered it probable that the targets will be achieved based on performance to date and forecast results and therefore the provision will be paid in full. A contingent consideration liability of £0.4m has been recognised in the accounts in relation to the acquisition of Aber Electronics Limited in 2021. The Group considered it probable that the targets will be achieved based on current performance to date and therefore expect the provision will be paid in full. 149 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 18. Financial instruments Carrying amount of financial instruments The amounts for all financial assets carried at fair value are as follows: The Company measured the fair value of instruments which are categorised as level 2 in the fair value hierarchy, being the investment in I.Q. Endoscopes as the price paid per share by other shareholders who also invested in the entity at the same time as the Group. As the investment was made close to the year-end we consider the fair value per share at the time of investment to be representative of the fair value of the shares at 31 December 2022. (All figures £’000) Investments: I.Q. Endoscopes Foreign currency forward contracts: Liabilities Reconciliation to cashflow movements 01 January 2021 Assumed in business combinations Additions Cashflow principles Cashflow interest Non-cash changes interest* Non-cash changes FX 31 December 2021 01 January 2022 Additions Cashflow principles Cashflow interest Non-cash changes interest* Non-cash changes FX 31 December 2022 31 December 2022 31 December 2021 2,122 1,733 – (100) Gross Loan Lease Liabilities 8,554 44 100 (1,844) (92) 60 – 6,822 2,011 – 868 (515) – 40 (348) 2,056 Gross Loan Lease Liabilities 6,822 2,851 (1,572) (125) 37 349 8,362 2,056 215 (827) (1) 41 252 1,736 * Non-cashflow changes relate to effective interest rate charge on the Cardiff Capital Region loan and lease interest incurred on IFRS 16 leases. Financial instruments measured at fair value The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. The value of forward contracts in place as at 31 December 2022 was £nil. (2021 £100k liability). The foreign currency forward contracts are categorised as level 1 in the fair value hierarchy. Financial risk management The main purpose of the Company’s financial instruments is to finance the Company’s operations. The financial instruments comprise of leases, foreign currency forward contracts, bank loans and facilities, cash and liquid resources and various items arising directly from its operations, such as trade receivables and trade payables. The main risks arising from the Company’s finance instruments are exchange rate risk, interest rate risk, and liquidity risk. The Company’s policies on the management of liquidity interest rates and foreign currency risks are set out below. Fair values of financial instruments All financial assets and liabilities are held at amortised cost apart from forward exchange contracts, and the investment which are held at fair value. Foreign exchange contracts changes go through the statement of profit or loss. The Groups preference shares held in I.Q. Endoscopes were converted to Ordinary Shares during the year. As part of this Creo was issued a warrant to purchase additional shares at par value. Creo exercised this warrant in December 2022. The investment was fair valued at 31 December 2022. (All figures £’000) Carrying value as at 1 January 2022 Additional investment Share warrant exercise Fair value gain through OCI Balance at 31 December 2022 2022 1,733 – 1 388 2,122 2021 500 1,002 – 231 1,733 Shares owned 1 January 2022 Additional shares acquired during the year Fair Value per share (£) Fair Value of investment (£’000s) Cost of initial investments (£’000s) Gain through OCI (£’000s) 755,900 94,808 2.494 2,122 1,503 619 We have made an irrevocable election to classify fair value changes of the investment in I.Q. Endoscopes through other comprehensive income rather than through profit or loss, the impact of this being any changes in fair value will never be reclassified through the profit or loss account even if the investment is disposed of. Management rationale for this treatment is that the investment is not being held for the purposes of future sale or to receive returns. Instead the investment is to help develop their disposable endoscopy products and potential synergies this could have with the Creo product range. The Company has not disclosed the fair values for certain financial instruments such as short-term trade receivables and payables, because their carrying amounts are a reasonable approximation of fair values. Short and long-term interest bearing liabilities, as detailed in Note 19, are discounted at the effective interest rate of the respective financial liability and their carrying value is considered to be a reasonable approximation of their fair value. Liquidity The Company’s policy is to ensure that it has sufficient cash resources to cover its future trading requirements which is predominately sourced from its shareholders and investors. Short-term flexibility is available through current investor support via funding rounds held when required. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers and investments in debt securities. Interest-rate risk and benchmark reform The Group has limited exposure to interest rate fluctuations with some acquired loans having variable interest rates. Where possible we look to offset interest from loans with interest received from our cash on deposit. We do not consider that any significant increase in interest rates would have a material impact on the business. The Group has some loans linked to the EURIBOR however these are expected to be settled within the next year with the exception of one loan which is not material to the Group. We therefore do not consider the transition to alternative benchmark rates to be a significant risk. Trade Receivables The carrying amounts of financial assets represent the maximum credit exposure. As at 31 December 2022 no investments in debt securities or other contract assets were held and receivables from customers were £4,658k (2021: £4,499k). The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate. Each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, if they are available and review of financial statements. Where it is deemed the risk of the customer defaulting may be high the Group will require the customer to pre-pay for items for a certain length of time before offering credit terms. The Group limits its exposure to credit risk from trade receivables by establishing a maximum payment period of one and three months for customers. The terms very depending on their individual characteristics such as credit risk assessment, geographical local and public or private customers. The majority of the Group’s customers have been transacting with the Group for a number of years with no credit issues arising. 151 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 18. Financial instruments continued Expected credit loss assessment for trade receivables The following table provides information about the exposure to credit risk and ECLs for trade receivables and contract assets from individual customers as at 31 December 2022. (All figures £’000) Excluded from ECL calculation Current (not past due) 0-60 days 61-120 days 121-180 days More than 180 days past due Weighted Average Loss Gross Carrying Amount Loss Allowance 0% 1% 5% 11% 20% 100% 202 3,312 1,038 122 57 128 4,859 – 33 48 14 12 128 235 The Group uses an allowance matrix to measure the ECLs of trade receivables consistent with IFRS 9. Loss rates are calculated using historical write-off data from the last 18 months to work out the probability of default based on the aging of the receivable. Where the Group has forward looking information which means the ECL would be unlikely to occur we have excluded these from the calculation. At 31 December 2022 the ECL for trade receivables was £235k (2021: £505k). The movement in the allowance for impairment in respect of trade receivables and contract assets during the year was as follows: (All figures £’000) Balance at 1 January Loss allowance movement Specific amounts provided for Balance at 31 December 2022 2021 (505) 270 – (235) (447) (58) (118) (623) Specific amounts of £nil (2021: £118k) were provided for in the year relate to the specific customer debts which we deem to be credit impaired. Foreign exchange risk The Company currently purchases certain materials throughout the world in connection with research and development of its primary product. The Company also has subsidiaries which operate in a different functional currency. The consequence of this is that the Company is exposed to movement in foreign currency rates. Liabilities within the Group are settled where possible using the currency of the liability to reduce foreign exchange exposure. Forward foreign exchange contracts are used to manage the net foreign exchange exposure where appropriate. 19. Interest-bearing liabilities (All figures £’000) Current: Lease liabilities Bank credit facilities Bank loans Mortgage Non-current: Lease liabilities Bank loan Commercial loan Mortgage Lease liabilities are payable as follows: Less than one year Between one and five years More than five years Bank borrowings are payable as follows: Less than one year Between one and five years More than five years 25 25 31 December 2022 31 December 2021 561 2,246 1,114 108 4,029 1,173 629 2,178 2,087 6,067 10,096 561 1,059 114 1,734 3,468 4,894 – 8,362 10,096 670 1,647 1,388 – 3,705 1,386 1,649 2,140 – 5,175 8,880 670 1,340 46 2,056 3,035 3,789 – 6,824 8,880 153 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts 19. Interest-bearing liabilities continued The terms and conditions of outstanding loans are as follows: (All figures £’000) Currency Nominal interest rate Year of maturity Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Secured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Unsecured Bank Loan Mortgage Commercial Loan Short term Credit with Banks Lease Liabilities Lease Liabilities EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR GBP GBP GBP EUR EUR GBP EURIBOR+2% EURIBOR+2,5% EURIBOR+2% EURIBOR+2% EURIBOR+2% EURIBOR+2% 2% EURIBOR+2% EURIBOR+2% EURIBOR+1% EURIBOR+1% EURIBOR+1% EURIBOR+1% EURIBOR+2% 2% EURIBOR+2% 1% 2% EURIBOR+2% 2% EURIBOR+1,9% 3% 2% 1% 1% 2% 2% EURIBOR+1,75% 0.44% 0.44% 0.44% 0.87% 0.46% 0.50% 2.50% Base rate +2.5% 5% 1.45-1.75% 1.5%-4% 2.8%-5% 2022 2023 2022 2022 2023 2023 2023 2022 2023 2023 2023 2023 2023 2023 2022 2023 2025 2022 2023 2023 2022 2022 2023 2023 2025 2025 2025 2025 2021 2022 2022 2021 2021 2021 2026 2021 2025 2021 2021–26 2021–24 31 December 2022 31 December 2021 Face Value 89 177 71 18 35 142 177 89 177 133 133 133 133 532 106 532 310 106 532 355 106 266 532 177 355 355 355 355 89 89 89 29 75 21 50 2,250 2,055 2,394 1,755 729 Carrying Value – 32 – – 6 25 34 – 31 27 27 27 27 121 – 111 142 – 111 40 – – 111 15 201 205 205 211 – – – – – – 35 2,195 2,178 2,246 1,148 585 Face Value 84 168 67 17 34 134 168 84 168 126 126 126 126 503 101 503 293 101 503 335 101 251 503 168 335 335 335 335 84 84 84 28 71 20 50 – 2,055 1,760 1,658 729 Carrying Value 15 59 12 3 11 47 60 15 58 50 51 51 50 215 17 207 193 17 208 151 19 43 208 71 257 260 260 265 – 28 84 – – – 44 – 2,140 1,645 1,223 833 Total interest bearing liabilities 16,106 10,096 12,753 8,880 The secured bank loans (other than the UK Secured Bank Loan) belong to Albyn Medical SL and are guaranteed by Elkargi. A mortgage for the building purchased in 2021 was obtained during the year. The mortgage is secured to the property and has a loan to value covenant of 75% and a cashcheck covenant of £5m. The commercial loan is provided by Cardiff Capital Region for the sum of £2,055k with the first year interest free. The loan has a 1:1 cashflow covenant attached which becomes active on the third anniversary of the commencement of the loan. The lease liabilities are detailed at Note 25. 20. Provisions (All figures £’000) At 1 January 2021 Provisions made in the year Provisions used in the year At 31 December 2021 Non current Current (All figures £’000) At 1 January 2022 Provisions made in the year Provisions used in the year At 31 December 2022 Non current Current Warranties Dilapidations Legal & Tax Other 89 7 (7) 89 – 89 89 459 172 (221) 410 410 – 410 761 – (578) 183 183 – 183 149 2 (26) 125 – 125 125 Warranties Dilapidations Legal & Tax Other 89 30 (5) 114 – 114 114 410 70 (96) 384 384 – 384 183 – (183) – – – – 125 6 – 131 – 131 131 Total 1,458 181 (832) 807 593 214 807 Total 807 106 (284) 629 384 245 629 Warranty provisions Warranty provisions relate to Albyn own brand products and services provided and is based on historical warranty data associated with similar products and services sold. Management expect the provision to be settled with 12 months of the year end. Dilapidation provisions Provisions have been made for the estimated restoration costs of the leased premises at our UK, Singapore, US, Spain, France, Germany and Belgium sites. Provisions for dilapidations are inherently uncertain in terms of quantum and timing, not least because they involve negotiations with landlords at future dates. The figures provided in the financial statements represent management’s best estimate of the likely outflows to the Group. Legal and tax provisions Our tax due diligence raised some potential tax liabilities and fines which may arise in the future as a result of the business acquisition. We are now satisfied that these liabilities will not occur and have released the remaining provision. Other provisions Other provisions include pensions provision of £92k as well as other staff benefit provisions which are required in local jurisdictions. Management expect these liabilities to be settled within 12 months of the year end. 21. Share capital and reserves (All figures £’000) Balance at start of year Issue of share capital Number of shares Price per share (£) Share value (£) Balance at 31 December 31 December 2022 31 December 2021 181 158 447 0.001 1 182 23,208 0.001 23 181 During the year 123,947 share options were exercised, with 322,752 to the SIP. The Group has a single class of share: Ordinary Shares £0.001. Issued share capital Issued share capital is the amount of nominal value of shares held by shareholders. At 31 December 2022 181,545,885 shares have been issued, each with the nominal value of £0.001 equalling a share capital for the Company of £181,545. All Ordinary Shares rank as pari passu with regards to voting, dividends and rights on winding up. All shares are fully paid. 155 Strategic ReportSustainability ReportCorporate GovernanceFinancial StatementsNotes to the financial statements…continued Creo Medical Group plc – 2022 Annual Report & Accounts Notes to the financial statements…continued 21. Share capital and reserves continued Share premium The share premium reserve comprises the difference between the nominal value and the value received on share issue offset by the costs directly associated with obtaining the capital funding e.g. legal fees. Merger reserve The merger reserve reflects the difference between the existing share capital and premium of Creo Medical Limited prior to share for share exchange and the nominal value of shares issued. Refer to Note 1 Business combinations and basis of consolidation. Share option reserve The share option reserve reflects the cost to the Group of share options granted but not yet exercised. Refer to Note 8 Share-based payments. Accumulated losses Retained earnings including profit or loss for the year comprises the earned profit of the Parent Company and its subsidiaries. Foreign exchange gain or loss reserve The foreign exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. Unrealised foreign exchange gains or losses from currency translations of foreign subsidiaries will go through other comprehensive income and into the foreign exchange gain or loss reserve. On disposal of a foreign operation the gain or loss will become realised and recognised as a profit or loss. Investment reserve Any loss or gain on our equity investments which we have elected to revalue through OCI is held in the investment reserve. This reserve will never be recognised as a profit or loss even upon disposal of the investment. The reserve may be transferred to retained earnings one the investment is disposed of. 22. Cash from share issue (All figures £’000) Share issue: Share options exercised Issued to EBT Trust Issued to SIP Share placing AIM 7 September 2021 Transaction costs AIM 7 September 2021 31 December 2022 31 December 2021 69 – 1 – – 70 68 3 1 36,316 (2,180) 34,208 23. Related party disclosures As at 31 December 2022 the Directors of the Company control 2.96% of the voting shares of the Company. The remuneration of the Directors of the Company is disclosed in the Directors’ Remuneration Report and Note 6 above. Share options held by Directors are detailed in the Directors’ Remuneration Report. Interests and related party transactions are disclosed below Monkey Business Consultants S.L. is a company owned and managed by Luis Collantes the CEO of the previous Albyn group and holds the remaining 5% of shares in the Company which will be purchased in 2022. For accounting purposes it is assumed the Group has 100% control. See accounting policy in Note 1. During the year total payments in the ordinary course of business to Monkey Business Consultants S.L. consisted of £nil. Total amounts paid to Monkey Business Consultants S.L. in relation to the purchase of additional 5% of shares was £2.6m. Total remuneration to Luis Collantes in the year was £272k (2021: £364k). During the year the preference shares held with I.Q. Endoscopes were converted to Ordinary Shares. As part of this Creo was offered a warrant for an additional 94,808 shares at par value. Creo exercised the warrant during the year for a total of £948. As at 31 December 2022 the total fair value of the shares was estimated to be £2,121,530. The Group controls 13.2% of the Company and is not deemed to have significant influence, therefore it has not been classified as an associate. Christopher Hancock holds a Professorship with Bangor University and is the common-law spouse of Ling Chen. The fees paid in the year to Ling Chen totalled £23k (2021: £27k) for consultation on the research and development projects throughout the year, with the balance payable at 31 December 2022 being £nil (2021: £nil). Key management personnel are deemed to be those with ultimate decision making power in a particular area of the business. Aggregate remuneration for the year for all key management totalled £2,785k (31 December 2021: £4,603k). (All figures £’000) Salary and other taxable benefits Pension SBP 24. Ultimate controlling party By virtue of the shareholding structure, there is no sole ultimate controlling party. 25. Leases The accounting policy for leases under IFRS 16 has been explained in Note 1. 12 months to 31 December 2022 12 months to 31 December 2021 2,025 83 677 2,785 3,100 82 1,421 4,603 Leases as lessee (IFRS 16) The Group leases building facilities in the UK, US, Singapore, France, Spain, Germany and Belgium. The leases typically run for a period of three to ten years, with an option to renew the lease after that date. Lease payments are renegotiated every five years to reflect market rentals. Some leases provide for additional rent payments that are based on changes in local price indices. For certain leases, the Group is restricted from entering into any sub-lease arrangements. Some of the building leases were entered into many years ago as combined leases of land and buildings. Previously, these leases were classified as operating leases under IAS 17. New leases have been recognised under IFRS 16. The Group leases equipment under a number of leases, which were classified as finance leases under IAS 17. The Group leases other equipment with contract terms of one to five years. These leases are short-term and/or leases of low-value items. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases. Information about leases for which the Group is a lessee is presented below. i) Right-of-use assets Right-of-use assets related to leased properties that do not meet the definition of investment property are presented as property, plant and equipment. 2021 (All figures £’000) Balance at 1 January Depreciation charge Additions to right of use assets Disposals of right of use assets Exchange difference Balance at 31 December 2022 (All figures £’000) Balance at 1 January Depreciation charge Additions to right of use assets Disposals of right of use assets Exchange difference Balance at 31 December Land and buildings Plant and machinery Motor Vehicles 1,620 (506) 847 (103) (26) 1,832 136 (37) – – (8) 91 235 (108) – – (15) 112 Land and buildings Plant and machinery Motor Vehicles 1,832 (557) 215 – 172 1,662 91 (36) – – 3 58 112 (79) – – 7 40 Total 1,991 (651) 847 (103) (49) 2,035 Total 2,035 (672) 215 – 182 1,760 157 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Notes to the financial statements…continued Parent Company statement of financial position As at 31 December 2022 As at 31 December 2021 Note 30 31 32 32 33 33 21 27,430 5,834 2,122 118,876 26,791 4,563 1,733 89,131 154,262 122,218 222 8,610 8,832 80 37,321 37,401 163,094 159,619 2,387 108 2,087 4,582 182 149,516 619 8,579 (384) 158,512 163,094 3,911 – – 3,911 181 149,448 231 7,182 (1,334) 155,708 159,619 25. Leases continued ii) Lease liabilities (All figures £’000) Maturity Analysis – undiscounted contractual cash flows Less than one year One to five years More than five years Total lease liabilities at 31 December Lease liabilities included in the statement of financial position at 31 December Current Non-current iii) Amounts recognised in profit or loss 2022 – Leases under IFRS 16 (All figures £’000) Depreciation on right of use asset Interest on lease liabilities Expenses relating to short-term leases Expenses relating to leases of low value assets The total cash outflow for leases in 2022 was £827k. 2022 2021 (564) (1,082) (126) (1,772) (1,772) (564) (1,208) (1,772) 2022 672 42 – – (672) (1,464) (48) (2,184) (2,184) (672) (1,512) (2,184) 2021 651 54 – – (All figures £’000) Assets Non-current assets Investments in subsidiaries Property, plant and equipment Investments Other assets Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Current Liabilities Trade and other payables Interest bearing liabilities Non-Current Liabilities Interest bearing liabilities Total Liabilities iv) Extension options Some property leases contain extension options exercisable by the Group up to one year before the end of the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. As at 31 December 2022 no lease extension is expected to be taken by the Group. 26. Capital commitments The amounts contracted for but not provided for as at 31 December 2022 are £nil (31 December 2021: £nil). 27. Subsequent events Fund raise On 16 February 2023, Creo announced it had raised £28.5 million (before expenses) by way of a conditional Placing and Subscription and on 7 March 2023 it had raised an additional £5.2m (before expenses) by way of an open offer, therefore raising gross proceeds of approximately £33.7 million, in aggregate. Investment by Key Management Personnel: Further to the announcements made on 16 February 2023 and 8 March 2023, and pursuant to the recent fundraising, the Company confirms that each of the Company’s Directors, Luis Collantes, a member of the Company’s senior leadership team and a director of various of the Company’s subsidiaries and certain PCAs, have either themselves or through parties affiliated with them acquired New Ordinary Shares at the Issue Price of 20 pence per Ordinary Share as follows: Director/PDMR Name Charles Spicer Craig Gulliford* Richard Rees Professor Christopher Hancock David Woods John Bradshaw Ivonne Cantu Luis Collantes** * These 1,000,000 shares are held by the spouse of Craig Gulliford ** Shares held via Monkey Business Consultants SL, a company owned and managed by Luis Collantes. No. of New Ordinary Shares acquired Resultant Shareholding post transaction % of voting rights post transaction 165,119 1,000,000 2,715,322 383,171 415,255 1,265,135 125,000 4,442,485 308,530 1,630,466 2,805,902 4,802,352 440,255 1,371,082 125,000 4,442,485 0.09% 0.46% 0.79% 1.36% 0.13% 0.39% 0.04% 1.27% Called up share capital Share premium Financial assets at fair value through other comprehensive income Share option reserve Accumulated losses* Total Equity Total equity and liabilities * Profit for the year was £950k. The Company has taken the s408 exemption from presenting a separate profit and loss for the year. These financial statements on pages 159 to 164 were approved by the Board of Directors on 25 April 2023 and were signed on its behalf by: Richard Rees Director Company registered number: 10371794 159 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Parent Company statement of changes in equity Parent Company note to the financial statements…continued Note Called up share capital Accumulated losses 158 (742) Share premium 115,264 Investment Fair Value Share option reserve Total equity – 4,617 119,297 28. Parent Company financial statements As permitted by section 408(3) of the Companies Act 2006, a separate Statement of Comprehensive Income, dealing with the profit of the Parent Company, has not been presented. The Parent Company profit for the year ended 31 December 2022 is £950k (2021: profit £592k). (All figures £’000) Balance at 1 January 2021 Total comprehensive income for the year Profit for the financial year Other comprehensive income Total comprehensive income Transactions with owners, recorded directly in equity Issue of share capital Equity settled share-based payment transactions Balance at 31 December 2021 Total comprehensive expense for the year Profit for the financial year Other comprehensive income Total comprehensive expense Transactions with owners, recorded directly in equity Issue of share capital Equity settled share-based payment transactions – – – 23 – 181 – – – 1 – (592) – (592) – – – – – 34,184 – (1,334) 149,448 950 – 950 – – – – – 68 – – 231 231 – – 231 – 388 388 – – 8 8 Balance at 31 December 2022 182 (384) 149,516 619 – – – – 2,565 7,182 – – – – 1,397 8,579 (592) 231 (361) 34,207 2,565 155,708 950 388 1,338 69 1,397 158,512 29. Parent Company accounting policies To the extent that an accounting policy is relevant to both the Group and Company financial statements, refer to the Group financial statements for disclosure of the accounting policy. The nature of the Company’s operations and business activities are the same as that of the Group and are described in the strategic report. 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 UK-adopted international accounting standards (“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 Parent Company has taken advantage of the following disclosure exemptions under FRS 101: X A Cash Flow Statement and related notes; X Comparative period reconciliations for share capital; X Comparative period reconciliations for PPE; X Disclosures in respect of transactions with wholly owned subsidiaries; X The effects of new but not yet effective IFRSs; X Disclosures in respect of the compensation of Key Management Personnel; X Disclosures of transactions with a management entity that provides key management personnel services to the Company; and X Certain disclosures required by IFRS 7 Financial Instrument Disclosures. As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of the following disclosures: X IFRS 2 Share Based Payments in respect of Group-settled share-based payments; X Certain disclosures required by IAS 36 Impairment of Assets in respect of the impairment of goodwill and indefinite life intangible assets; and X Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the Company. The accounting policies set out above have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. Judgements made by the Directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year, are discussed in Note 1 Critical accounting judgements and policy update. These accounts have been prepared on a going concern basis. These accounts have been prepared under the historic cost convention. Changes in accounting policy and disclosures as well as a description of the entities operations and business activities have been disclosed in Note 1. Measurement convention The financial statements are prepared on the historical cost basis except that derivative financial instruments and equity investments are stated at their fair value. Investments in subsidiaries are carried at cost less impairment. 161 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Parent Company note to the financial statements…continued 30. Investments (All figures £’000) Cost: As at 1 January 2018 Capital Contribution As at 31 December 2018 Capital Contribution As at 31 December 2019 Capital Contribution Albyn Acquisition As at 31 December 2020 Capital Contribution As at 31 December 2021 Capital Contribution As at 31 December 2022 The Company has the following investments in subsidiary companies: Subsidiary Domicile Status Registered Office address shares held Ownership Year end# Class of Investment in subsidiary companies 1 642 643 658 1,301 324 23,640 25,265 1,526 26,791 639 27,430 Ownership Type Creo Medical Limited UK Trading Creo House, Unit 2 Beaufort Park, Beaufort Ordinary 100% 31-Dec Direct Park Way, Chepstow, Wales, NP16 5UH Creo Medical, Inc. US Trading 100 Reserve Road, suite B400 Danbury, CT Ordinary 100% 31-Dec Indirect*** Creo Medical Innovations Limited (Company registration number: 11196260), Aber Electronics Limited (Company registration number: 07400511), Wiest Uropower Limited (Company registration number 05781601) and Creo Medical UK Limited (Company registration number: SC128038) is exempt from the requirements to file audited financial statements by virtue of section 479A of the companies act 2006. In adopting the exemption, Creo Medical Group PLC has provided a statutory guarantee to this subsidiary in accordance with section 479C of the companies Act 2006. The Company has an investment in equity shares in I.Q. Endoscopes. The Company made an irrevocable election to classify fair value changes of the investment in I.Q. Endoscopes through other comprehensive income rather than through profit or loss, the impact of this being any changes in fair value will never be reclassified through the profit or loss account even if the investment is disposed of. The fair value calculation for 31 December 2022 is shown in Note 18 of the Accounts. 31. Parent Company fixed assets (All figures £000’s) Cost: At 1 January 2022 Additions Transfers At 31 December 2022 Accumulated Depreciation: At 1 January 2022 Charge for the year At 31 December 2022 Land & Buildings Assets under Construction 4,507 127 105 4,739 52 128 180 108 1,272 (105) 1,275 – – – Total 4,615 1,399 – 6,014 52 128 180 06810, USA Net book value at 31 December 2022 4,559 1,275 5,834 Creo Medical Innovations Limited UK Trading Creo House, Unit 2 Beaufort Park, Beaufort Ordinary 100% 31-Dec Indirect*** Park Way, Chepstow, Wales, NP16 5UH Creo Medical Ireland Limited Ireland Dormant 70 Sir John Rogerson’s Quay, Dublin 2 , Ireland Ordinary 100% 31-Dec Indirect*** Creo Medical PTY Australia Dissolved Colin Biggers & Paisley Level 42 2 Park Ordinary 100% 31-Dec Indirect*** Street Sydney, NSW 2000 Creo Medical PTE Limited Singapore Trading 20A Tanjong Pagar Road, Singapore Ordinary 100% 31-Dec Indirect*** (088443) Creo Medical SL (formerly Albyn Medical SL) Spain Trading Cordovilla (Nevarra), Poligno Industrial Cordovilla, calle D, Munero 1 Ordinary 100%* 31-Dec Direct Creo Medical SAS (Albyn Medical SAS) Creo Medical UK Limited (formerly Albyn Medical Limited) Creo Medical GmbH (formally Endo-Technik Wolfgang Griest GmbH) France Trading 9 avenue Jean Prouve, 88100 Sain-des- Ordinary 100%* 31-Dec Indirect** Vosges UK Trading Kintail House, Beechwood Park, Inverness, Ordinary 100%* 31-Dec Indirect** Highland, IV2 3WB Germany Trading Vertrieb und Handelmit medizinischen Ordinary 100%* 31-Dec Indirect** Geraten, Langenfeld Premier Endoscopy UK Dormant Creo House, Unit 2 Beaufort Park, Beaufort Ordinary 100%* 30-Sep Indirect** Park Way, Chepstow, Wales, NP16 5UH Wiest Uropower Limited Germany Dormant Creo House, Unit 2 Beaufort Park, Beaufort Ordinary 100%* 30-Sep Indirect** Park Way, Chepstow, Wales, NP16 5UH Boucart Medical SRL Belgium Trading 1070 Anderlecht, rue des Veterinaires 42, Ordinary 100%* 31-Dec Indirect** Belgium Aber Electronics Limited UK Trading Creo House, Unit 2 Beaufort Park, Beaufort Ordinary 100% 31-Dec Indirect*** Park Way, Chepstow, Wales, NP16 5UH # * Wiest Uropower and Premier Endoscopy are dormant entities and we have no intention of trading through these companies. As a result their year-ends have not been aligned with that of the Group. Monkey Business Consulting SL retained 5% of the shares in Albyn as at 31 December 2022. The Group has an obligation to purchase the remaining 5% of shares by the end of 2023. For accounting purposes it is assumed the Group has 100% control see accounting policy in Note 1 and Note 23 related parties. ** Creo Medical SL holds 100% of the shares in these entities. *** Creo Medical Limited holds 100% of the shares in these entities. Assets under construction in the year relate to the improvements to the additional building purchased opposite of Creo House at Chepstow. 32. Parent Company trade and other receivables (All figures £’000) Current: Other debtors Social security and other taxes Prepayments Total current Non-current: Amount owed by subsidiary undertaking Total non-current Total trade and other receivables 31 December 2022 31 December 2021 139 – 83 222 118,876 118,876 119,098 19 20 41 80 89,131 89,131 89,211 Amounts owed by subsidiary undertakings are unsecured and repayable on demand. Interest is charged on the debt at a rate of 3% per annum. An expected credit loss provision was calculated for the other debtors and amounts owed by subsidiary balances; both were deemed immaterial and therefore not recognised. 163 Strategic ReportSustainability ReportCorporate GovernanceFinancial Statements Creo Medical Group plc – 2022 Annual Report & Accounts Parent Company note to the financial statements…continued 33. Parent Company trade and payables (All figures £’000) Current: Derivatives Other creditors Interest bearing liabilities Total current Non-current: Interest bearing liabilities Total trade and other payables 34. Staff numbers and costs (All figures £’000) Wages and salaries Total remuneration (All numbers) The average monthly number of employees during the year was as follows Employees 31 December 2022 31 December 2021 – 2,387 108 2,495 2,087 4,582 100 3,811 – 3,911 – 3,911 12 months to 31 December 2022 12 months to 31 December 2021 490 490 652 652 12 months to 31 December 2022 12 months to 31 December 2021 7 7 7 7 Staff costs are paid by Creo Medical Limited or Creo Medical Inc to the Directors. A proportion is then recharged for the services provided to the Company during the year. The total Directors’ remuneration including details of the highest paid Director can be found in Note 6. Creo Medical Group plc – 2022 Annual Report & Accounts Parent Company note to the financial statements…continued 33. Parent Company trade and payables (All figures £’000) Current: Derivatives Other creditors Interest bearing liabilities Total current Non-current: Interest bearing liabilities Total trade and other payables 34. Staff numbers and costs (All figures £’000) Wages and salaries Total remuneration (All numbers) The average monthly number of employees during the year was as follows Employees 31 December 2022 31 December 2021 – 2,387 108 2,495 2,087 4,582 100 3,811 – 3,911 – 3,911 12 months to 31 December 2022 12 months to 31 December 2021 490 490 652 652 12 months to 31 December 2022 12 months to 31 December 2021 7 7 7 7 Staff costs are paid by Creo Medical Limited or Creo Medical Inc to the Directors. A proportion is then recharged for the services provided to the Company during the year. The total Directors’ remuneration including details of the highest paid Director can be found in Note 6. CBP00019082504183028 Printed by a CarbonNeutral® Company certified to ISO 14001 environmental management system. Printed on material from well-managed, FSC™ certified forests and other controlled sources. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. Anything is Possible with the Right Approach Creo Medical Group plc Creo House Unit 2, Beaufort Park Beaufort Park Way Chepstow Wales NP16 5UH United Kingdom Tel: +44 (0) 1291 606005 Email: info@creomedical.com www.creomedical.com
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