EMIS Group plc Annual report and accounts 2016
Continued
momentum
The UK leader in connected
healthcare software and services.
EMIS Group continues to benefit from
strong revenue visibility, loyal customers,
quality products, thriving partnerships
and leading or growing market shares.
Strategic report
1
2
4
6
8
10
12
16
20
28
32
Highlights
At a glance
Chairman’s statement
Chief Executive Officer’s Q&A
Business model
Markets
Strategy
Principal risks and uncertainties
Operational review
Financial review
Sustainability policy
Governance
36
38
46
51
53
55
67
70
70
Board of Directors
Corporate governance
Report of the audit committee
Report of the nomination committee
Report of the remuneration committee
Directors’ remuneration report
Directors’ report
Viability statement
Statement of Directors’ responsibilities
Further information and investor
updates can be found on our website
at www.emisgroupplc.com
Financial statements
71
72
73
74
Independent auditor’s report
Group statement of comprehensive income
Group and parent company balance sheets
Group and parent company
statements of cash flows
Group and parent company statements
of changes in equity
Notes to the financial statements
75
76
102 Five year Group financial summary
103 Shareholder information
104 Directors and advisers
All text from last year Highlights
OPERATIONAL HIGHLIGHTS
• Continued growth in revenue, recurring revenue, operating profit and improved operating margin
• Strong market share maintained across the Group and Child, Community and Mental Health (CCMH) above target
• Cost reduction measures and operational improvements within Secondary Care complete with benefits seen in the second half of 2016
• Integration of Primary & Community, CCMH, and Secondary Care begun at the end of 2016
• Growth plans for Patient Platform (Patient.info/Patient Access)
PRIMARY & COMMUNITY CARE
COMMUNITY PHARMACY
Strong financial performance
• UK primary care market leading position maintained
at 55% market share (2015: 55%)
• EMIS Web roll-out programme progressing in
Northern Ireland and Scotland in pre-procurement
• CCMH market share of 16% (2015: 12%) exceeded
full year target despite slower rate of larger
contract awards
Strong financial performance
• Market leading share of the combined supermarket/
independent market increased to 37% (2015: 36%),
expected to grow to close to 50% in 2018
• Next generation dispensary pharmacy management
product (ProScript Connect) accredited throughout
the UK and independent pharmacy roll-out begun
• Lloyds Pharmacy/AAH Pharmaceuticals ProScript
Connect acceptance testing expected to complete
by Q2 2017 with accelerated roll-out thereafter
SECONDARY & SPECIALIST CARE
CURRENT TRADING & OUTLOOK
Mixed performance
• Secondary Care largely in line with expectations after
In line with the Board’s expectations
• Strong revenue visibility with 81% recurring revenue
first half restructuring
• Secondary Care NHS environment remains difficult to
predict but secured a number of important contract wins
• Specialist Care contract wins of £19m and significant
implementation activity ongoing but profit held back
by related costs and operational inefficiencies
• Solid order books and pipelines across every segment
• Structural re-organisation, in Primary Care, CCMH, and
Secondary Care, to improve efficiency and better align
the Group and its customers
• Responding positively to political and economic uncertainty
• Growth in CCMH, EMIS Care and Community Pharmacy
markets with further opportunities in new models of care
and Patient Platform
Total revenue
£158.7m +2%
Adjusted operating profit1
£38.8m +6%
Adjusted EPS1
49.4p +9%
2016
2015
2014
2013
2012
158.7
155.9
137.6
105.5
86.3
2016
2015
2014
2013
2012
38.8
36.6
32.6
26.1
22.8
2016
2015
2014
2013
2012
49.4
45.3
39.5
34.0
30.8
Recurring revenue
£128.5m +4%
Total dividend for the year
Cash generated from operations2
23.4p +10%
£38.0m +4%
2016
2015
2014
2013
2012
128.5
123.0
102.7
81.4
69.4
2016
2015
2014
2013
2012
23.4
21.2
18.4
16.0
14.2
2016
2015
2014
2013
2012
38.0
36.5
38.3
32.6
27.4
1
Excludes capitalisation and amortisation of development costs, amortisation of acquired intangibles and exceptional items as set out in the Group statement
of comprehensive income on page 72. Earnings per share calculations also adjust for the related tax and non-controlling interest impact.
2 Stated after deduction of capitalised development costs of £5.7m (2015: £6.2m) and of the cash impact of the cost reduction programme of £3.1m (2015: nil).
1
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS At a glance
Faster, safer and better healthcare...
EMIS Group is a major provider of healthcare software, information technology and related services
in the UK. Our solutions are widely used across every major healthcare setting from primary and
community care, to high street pharmacies, secondary care and specialist care services.
This puts the Group in a unique position to facilitate the NHS’s connected care strategy across
every major UK healthcare setting.
Our brands
Healthcare management
software and services
EMIS Health provides
clinical software to customers
across the healthcare sector,
including providers in primary
care, community pharmacy,
community care, mental health,
child health, secondary care and
diabetic eye screening, as well as
commissioners and public health
and research organisations.
Patient-facing and
online services
Patient.info is the UK’s
leading independent online
health platform, accessed
globally by millions of visitors
each month. Patient Platform
Limited became a separate
limited company owned by
EMIS Group on 1 January 2017.
Strategy
Page 12
2
EMIS Group plc Annual report and accounts 2016
Provision of
healthcare screening
EMIS Care is the healthcare
screening arm of EMIS Group,
specialising in the delivery
of diabetic retinopathy
eye screening.
Non-clinical ICT
solutions and services
Egton provides non-clinical
products and services for
customers across the EMIS
Group and to others in the
healthcare market. Since
December 2016, Egton also
offers software to the social
care sector.
STRATEGIC REPORT ...with integrated and innovative technology
We link up different healthcare sectors through integrated and interoperable technology that
makes patient information available where it is needed, when it is needed.
It is more efficient for the NHS and it is how we support longer and healthier lives.
EMIS Group serves the following healthcare settings
PRIMARY & COMMUNITY CARE
Primary care – EMIS Group provides the technology
to connect different primary care services, as well
as joining them up with wider healthcare services.
It means GPs and specialist clinics such as diabetes
can instantly access a complete picture of the
patient’s care. This is integrated care, and it improves
efficiency, patient safety and clinical outcomes.
Child, community and mental health – EMIS Group
enables healthcare professionals working in a child,
community or mental health setting to access and
contribute to the patient’s GP record. In turn,
primary care professionals can see the details
recorded by their colleagues working in wider
healthcare environments – instantly and in real
time. This means a better experience for the
patient because their care is joined up.
Patient – This is the Group’s online platform
that helps patients play a key part in their own
healthcare through high quality information and
guidance. It also supports professionals in clinical
decision making by providing high quality, accurate
and up-to-date reference material.
Egton – A provider of non-clinical ICT solutions
such as back-office document sharing systems
for healthcare professionals and other regulated
business-to-business organisations. It also supplies
ICT infrastructure and hosting services and, since
December 2016, social care administrative software.
SECONDARY & SPECIALIST CARE
Secondary care – EMIS Group software is used by
NHS Trusts in a wide range of secondary care settings.
Our systems are mainly used to manage hospital
pharmacy and prescribing, emergency care and
electronic patient records (including patient
administration systems).
Specialist care – EMIS Group provides IT
systems for specialist care settings, offering
expert and invaluable solutions to niche markets
with specific requirements, such as image
management and storage for the ophthalmology
market. The Group also provides diabetic
retinopathy screening services for patients.
COMMUNITY PHARMACY
ProScript – The single most widely used system
in the community pharmacy software market.
It efficiently manages the dispensing process
and handles standard tasks such as labelling and
endorsing, patient records, ordering and stock control.
It is used by independent community pharmacies,
pharmacy group chains and supermarket pharmacies.
Pharmacy Access – This enables pharmacies
to view a summarised patient record and
order repeat prescriptions direct from the GP.
It provides an introduction to the provision of
clinical services by pharmacies, such as flu
vaccinations and smoking cessation.
63%
of Group
revenue
24%
of Group
revenue
13%
of Group
revenue
2017 will see Primary & Community and Secondary Care come together under common leadership to create one
integrated business under the EMIS Health brand. This will both align the Group with the NHS’s need to deliver more
integrated care between hospitals, GP practices and community services and optimise the Group’s cost base.
3
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Dear Shareholder
It is my pleasure to present to you the 2016 annual report, which
provides an overview of the Group’s performance over the year.
Performance overview
Overall performance for the year was in line with the Board’s
expectations with strong profitability and cash generation.
An increasingly difficult environment, created by NHS funding
pressure and by a procurement pause as NHS local plans emerged
to address its funding gap, impacted Group performance, slowing
the rate of growth in 2016. However, the Group again made
progress in all key financial metrics and continues to benefit
from strong revenue visibility and market share, a solid order book
and a healthy sales pipeline. Further details of the Group’s
achievements during the year are set out in the CEO’s Q&A on
page 6 and the operational review on pages 20 to 27.
Restructure
The Group has accelerated its internal integration in 2017 to reflect
anticipated changes in NHS models of care. In January 2017,
it began bringing together its Primary & Community Care and
Secondary Care businesses under common leadership. The
majority of the integration process is expected to be completed
by the end of the first quarter of 2017. This will align the Group
with the NHS’s need to deliver more connected care between
hospitals, GP practices and community services, and also
optimise the Group’s cost base.
Chairman’s statement
Longer,
healthier lives
The Group again made progress in all key
finanacial metrics and continues to benefit
from strong revenue visibility and market
share, a solid order book and a healthy
sales pipeline.
The Group has accelerated its
internal integration in 2017 to
reflect anticipated changes in
NHS models of care.
4
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT
Strong governance
As Chairman of the Board my role is to be responsible for
ensuring the Board operates within a sound governance
framework, based on best practice principles suitable for a
company listed on the Alternative Investment Market. This has
continued to be an important focus during the year and will
remain so during 2017. The Board is committed to setting the
correct tone and, by ensuring the highest level of governance,
we seek to ensure that the business operates in a transparent
and ethical way that will benefit all stakeholders.
Details of how the governance framework operates in practice
and how risk is managed and mitigated are set out in the
corporate governance report on pages 38 to 45.
Dividend
Your Board remains committed to a progressive dividend policy
and has pleasure in recommending a final dividend of 11.7p per
share which, together with the interim dividend of 11.7p,
provides a total dividend for the year of 23.4p per share. Subject
to approval by shareholders at the AGM on 28 April 2017,
the final dividend will be paid on 3 May 2017 to shareholders on
the register on 31 March 2017. Details of the Group’s capital
allocation policy are set out on page 67.
Our people
2016 has been a challenging year and it is a testament to the
continued strong commitment, professionalism and desire to
succeed of our employees that we have once again produced
such a strong performance. Some difficult decisions have had
to be taken during the year, which have resulted in a reduction
in the workforce in some parts of the Group. However, we have
sought to ensure that those decisions were implemented in a
fair and transparent way, consistent with the Group’s values
and beliefs.
On behalf of the Board, I thank all of our employees for enabling
us to continue to facilitate better patient outcomes and more
efficient healthcare delivery, thus supporting longer and
healthier lives for everyone.
Mike O’Leary
Chairman
15 March 2017
EMIS GROUP VALUES
During 2016 EMIS Group staff helped to define four key values that underpin every area of the
business. These values are closely aligned with our customers’ priorities, so that the fabric and culture
of our business is synonymous with meeting and exceeding external and internal expectations.
We are caring
We are a caring organisation: we look after
our customers, their patients and our colleagues.
We care about the quality of the products and
services we provide. We care about citizen
health: every business function helps our
ambition to support longer and healthier lives
– from the 24/7 support we provide to our
community customers, to our user experience
teams, who ensure that our software products
allow healthcare professionals’ focus to be on
the patient and not the technology.
We are joined up
We believe that the healthcare sector works best
when it safely shares vital patient information.
Joined-up healthcare is when a GP, a pharmacist
and an A&E consultant are all aware of a patient’s
allergies, current medication, recent tests and
long-term conditions. It means they can provide
the best possible care with the best possible
information. With a strong presence in every
major healthcare setting, EMIS Group is uniquely
placed to provide the technology to enable this.
We do this by being joined up as a business
and taking a collaborative approach with
our strategic customers and partners.
We are innovative
EMIS Group operates in a culture of
innovation. We spend over £17m on research
and development each year. We lead the field
in finding new ways to use technology to benefit
healthcare. We collaborate with world class
organisations to innovate too. For example our
work with Apple to come up with solutions to
make patient healthcare data more accessible to
citizens and partnership with healthcare charities
like the UK Sepsis Trust to develop software to
help clinicians recognise and treat sepsis.
We are accountable
One of the cornerstones of EMIS Group is
customer service. We listen to customers and
deliver what they need. Whether that is by
working in partnership on development and
implementation, or by hitting and exceeding
our support targets, good relationships with
our customers is a priority. It is why, for example,
almost 75% of our primary care customers have
been with us for more than ten years.
5
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS What were the highlights of 2016?
2016 was a busy year of progress and achievements throughout
the Group.
In Primary & Community Care, GP market share was retained in
England and we began to roll out EMIS Web in Northern Ireland.
Reprocurement of the primary care framework agreement has
begun in Wales, and in Scotland EMIS Web is being offered in
place of the Group’s older software and pre-procurement has
begun for likely implementation in 2018.
The Group’s child, community and mental health (CCMH)
market share grew exceeding the Group’s internal target to 16%
(31 December 2015: 12%). Sixteen material contract wins were
secured in the year plus an additional two subsequently.
We made progress in our aim to help deliver connected care.
Fifty-one Clinical Commissioning Groups (CCGs) use EMIS
Health systems across 100% of their GP practices, and EMIS
Health is the sole supplier in primary care with a strong
presence in CCMH in 38 CCGs.
Egton Digital performed well in the year. In December 2016
it extended the Group’s capabilities into social care through the
acquisition of Intrelate for net cash consideration of £0.8m.
Patient.info saw an increase in unique monthly visitors from
11.5 million to over 18 million during the year and generated
advertising revenues in excess of £2.0m. We appointed a new
CEO for the business to accelerate growth into a marketplace
Chief Executive Officer’s Q&A
Aligned with
NHS strategy
Successfully digitising the NHS is essential
for better health, better healthcare and to
lower costs.
The NHS needs joined-up IT
systems to reduce costs and
drive up the quality of healthcare.
This is what we do best.
6
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT
e-commerce platform, connecting Patient.info’s global audience
to a network of digital healthcare services.
care, such as walk-in centres. This strengthens our integrated
care proposition by connecting emergency and primary care.
The Secondary Care division performed largely in line with
expectations, making progress in a number of areas including
becoming one of two suppliers on the NHS Scotland Hospital
Electronic Prescribing and Medicines Administration (HEPMA)
framework, worth £15m over two years.
EMIS Health Specialist Care maintained its position as
the leading software provider in English diabetic retinopathy
screening with a 77% market share. EMIS Care remains the clear
market leader in outsourced diabetic eye screening and
ophthalmology imaging services with a number of contract wins
during the year.
The Community Pharmacy division continued to prepare for future
market share growth (from 37% to circa 50% by 2018) through
implementation of the agreement with AAH Pharmaceuticals/
Lloyds Pharmacy. The Group’s next generation pharmacy
dispensary management product, ProScript Connect, has been
accredited in England, Scotland and Wales.
Operational review
Page 20
EMIS Group also offers a suite of products to streamline
back-office operations.
Our integrated intelligence products allow NHS organisations
to interrogate macro-level data from multiple healthcare settings
to improve processes.
Egton Digital provides back-office systems such as practice
internet sites and intranet systems that enable non-clinical
document storage and sharing. Egton Digital will pioneer
the Group’s steps into social care, following the acquisition
of Intrelate in December 2016.
Patient.info became a separate limited company owned by
EMIS Group on 1 January 2017, which offers opportunity for
further growth in online media revenue. There are plans for a
patient platform that will help people take a more active role
in their healthcare, particularly around prevention of illness:
a key area of focus for the NHS in 2017.
Strategy
Page 12
What are the challenges in the market and
how can you help?
2016 saw increasingly difficult market conditions created by the
estimated £30bn NHS funding gap. The NHS’s task is to redesign
itself and deliver faster, better and cheaper care to address this
shortfall, by focussing on prevention and changing how healthcare
is delivered. NHS England’s 2015 strategy document “The Forward
View” detailed that the NHS needs joined-up IT systems to reduce
costs and drive up the quality of healthcare. This is what we do best.
An additional challenge was a strategic pause in England as the
NHS’s local plans to address its funding gap emerged (called
Sustainability and Transformation Plans or STPs). Delivering
connected care through an increasingly digitally joined-up NHS
is an important part of STPs. This endorses the Group strategy of
facilitating connected care, and offers an opportunity as additional
funding has been announced for healthcare technology.
Circa £1.8bn is expected to be allocated to the paperless NHS
agenda and circa £0.5bn to the completion of the national
programme for IT contracts. NHS England states that being
paperless at the point of care is about “digital information
that is more comprehensive, more timely and better quality”.
This was further reinforced by the publication of a key strategy
paper in September 2016. Professor Robert M Wachter’s report,
“Making IT Work: Harnessing the Power of Health Information
Technology to Improve Care in England”, argues that successfully
digitising the NHS is essential for better health, better healthcare
and to lower costs, and recommends the allocation of new national
funding to help trusts go digital and achieve maximum benefit
from digitisation.
Markets
Page 10
What other opportunities are there?
EMIS Group has opportunities for growth in our core markets
of software and service provision to community care, secondary
care and community pharmacy, and to extend into emergency
What is integrated care and why is it important?
Integrated care is when the patient experience is seamless
when transferred from one healthcare professional to another.
This means one or more healthcare services can use and often
add to information recorded by other healthcare professionals.
Across the UK, healthcare professionals work without the
data they need to do their jobs effectively, such as A&E
departments treating patients without sight of their medical
history or allergies. This causes clinical risk, delays to treatment,
duplication of work, increased costs and lower productivity,
and worsens patient experience.
Integrated care means joining all this up through technology.
In the last few years we have seen our customers start to connect
their services with our systems. They have made massive strides
in delivering care that is faster, better and cheaper.
This is the direction of travel for large scale NHS procurements.
EMIS Group is perfectly placed to provide the technology, and
has been doing so for many years.
Business model
Page 8
What is the likely impact of Brexit on the Group?
The outcome of the referendum to leave the EU has minimal
direct effect on the Group as it is not a significant exporter
or importer of goods or services to or from affected areas.
The indirect effects include: exchange rate volatility affecting
the value of sterling when the company pays overseas staff;
increased pressures placed on NHS budgets; and relations
with non-UK national employees and the cost of attracting
or retaining such staff.
Chris Spencer
Chief Executive Officer
15 March 2017
7
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Business model
Facilitating improved clinical
outcomes and efficiency...
OUR KEY INPUTS
• Innovative connected
technology services.
• Highly skilled people.
• Trusted brand.
• Strong relationships and
strategically aligned with
government, partners and
the markets we serve.
• Strong revenue visibility.
• Responsible leadership.
• Strong culture of caring for
both patients and customers.
Clinicians use our systems
to care for patients every day
We con n e c t w i t h o t h er systems acro
y & Com
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WHAT WE DO
• Support the constantly
evolving landscape of healthcare
through well implemented,
dynamic and innovative software
and services.
• Listen to customers and citizens
and deliver what they need.
• Deliver on our connected
product strategy to facilitate
the use of clinical information.
• Maximise the return on our
resources by joining them up
and making them super-efficient.
• Ensure that information is
available where it’s needed,
when it’s needed.
Markets
Page 10
Technical s u p p o r
t
Strategy
Page 12
INTEGRATED CARE CASE STUDY
Record sharing helps improve end-of-life care
East Cheshire Hospice in Macclesfield is using EMIS Web to
securely share vital data with other organisations as part of
the national Electronic Palliative Care Co-ordination Systems
(EPaCCS). The hospice team worked with EMIS Health to
tailor the technology to its patients’ needs, and says it has
been “invaluable” in helping to improve end of life care.
The hospice has cared for over 400 inpatients and over 300
day patients, and delivered 1,700 outpatient appointments
since EMIS Web was introduced in April 2015.
Helen Knight, Clinical and Operations Director of the
hospice, said: “End-of-life care involves often complex and
sensitive discussions with patients, whether it is about their
preferred place of death or decisions that may be taken on
their behalf once they’re no longer able to. Being able to
record that information and ensuring it is visible to the
right people at the right time is crucial.
8
EMIS Group plc Annual report and accounts 2016
“Until EMIS Web was introduced, we simply weren’t able
to ensure the records were up to date or readily accessible.
Patients often had to repeat themselves and we weren’t
able to capture data for monitoring and auditing.”
Now with EMIS Web, the team is able to record patients’
wishes accurately and consistently across healthcare
services (e.g. advanced decisions and preferred place of
death), ensuring they are visible in real time when needed.
Mike Drew, ICT Manager for the hospice, said: “We have
shown that with a co-ordinated approach and a great
interoperable IT system, we can collect and share patient
data to improve patient care. We are very proud that the
technology is helping our patients to end their lives with
dignity and in the way that they wish.
STRATEGIC REPORT
INTEGRATED CARE CASE STUDY
...through connected
technology services
HOW WE GENERATE REVENUE
HOW WE ADD VALUE
WHY CUSTOMERS CHOOSE US
Through providing:
• Software licences.
• Software maintenance
and support.
• Hosting services.
• Hardware installation,
maintenance and support.
• Training, consultancy
and implementation.
• Other support services,
including screening services.
• Interoperability fees.
• Join up healthcare through
• We are clinically focussed.
innovative IT to give better access
to information for better, faster
and cheaper patient care.
• Deliver planned returns to
customers, clinicians, citizens,
investors and other stakeholders.
• Ensure that healthcare
maximises the benefits that can
be attained through clinically
focussed, innovative software.
• Strong cash generation through
recurring revenues.
• Retain and grow market share.
• We are pioneering.
• We are joining up healthcare.
• We care about what we do.
• We assist in providing better
patient care.
• We are their trusted supplier.
• We are used in every major
healthcare setting directly
supporting patients and clinicians
to provide safe and efficient care.
Financial review
Page 28
Operational review
Page 20
Case studies
Pages 21 – 26
We have shown that with a
co-ordinated approach and a
great interoperable IT system,
we can collect and share patient
data to improve patient care.
We are very proud that the
technology is helping our patients
to end their lives with dignity and
in the way that they wish.
Mike Drew
ICT Manager, East Cheshire Hospice
“Simply, it’s the best thing we’ve done – and we want to help
others do the same. So far, almost 30 other hospices have
visited us to see the difference it’s made.”
East Cheshire Hospice is now looking to introduce managed
referrals, which will allow referrals to be made electronically
via the system, and to start prescribing via EMIS Web. The
Hospice@Home service, which they hope to launch by 2018
will also rely on EMIS Health technology. Mike Drew is
now chairing a dedicated hospice user group to work
with EMIS Health to make it even better.
9
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Markets
EMIS Group and NHS strategy:
putting IT at the heart of an
efficient NHS
Two significant papers defined the market in England in 2016: “Paper-free at the Point of Care:
Guidance for Developing Local Digital Roadmaps” and “Harnessing the Power of Health Information
Technology to Improve Care in England”. They provide further evidence that EMIS Group delivers the
technology the NHS needs to meet current market challenges. Scotland, Wales and Northern Ireland
have separate national plans, which follow the same theme – to use the power of technology to join
up care to deliver faster, better and cheaper healthcare.
THE FORWARD VIEW INTO ACTION
“Paper-free at the Point of Care:
Guidance for Developing Local
Digital Roadmaps” National Information Board
Commissioners, providers and social care partners were
invited by the NHS’s National Information Board to come
together to produce Local Digital Roadmaps (LDRs). These
roadmaps are intended to drive the vision of the NHS as set
out in the NHS Forward View. The guidance was released
in September 2015, and sets out the vision of healthcare
in 2016 and over the next four years. An information sharing
approach will underpin the paper-free vision, so interoperable
IT systems will be key.
Every local health and care system will be
expected to deliver ten universal capabilities
by March 2018:
1
2
Professionals across care settings
can access information on GP
prescribed medications, patient
allergies and adverse reactions
With EMIS Web, customers are able to
share this key information between a
wide range of healthcare professionals
such as GPs, A&E consultants,
community care clinicians and
community pharmacists.
Clinicians in urgent and emergency
care settings access key GP-held
information for patients previously
identified as most likely to present
at A&E
EMIS Group technology makes this
possible. Somerset CCG implemented
EMIS Web to share vital GP record
information with all emergency
departments in the region.
10
EMIS Group plc Annual report and accounts 2016
Patients can access their GP record
EMIS Health was the first to launch
this facility in the UK GP market, and
now 97.7% of practices have enabled
patient access to records.
3
4
GPs can refer electronically
to secondary care
99.5% of GP customers use the
national e-Referral Service (ERS),
which enables them to electronically
refer patients to secondary care.
This functionality is also available
in EMIS Web.
STRATEGIC REPORT THE FORWARD VIEW INTO ACTION
DIGITISING THE NHS
“ Making IT Work – Harnessing the Power
of Health Information Technology to
Improve Care in England”
Professor Robert M Wachter
This is the first report of the National Health Information
Advisory Group on Health Information Technology in England,
chaired by Professor Robert M Wachter. The report is focussed
on the efforts of the NHS in England to digitise secondary care.
It is unequivocal about the fundamental role of IT for the
future of the health service. It argues that successfully
digitising the NHS is essential to achieve the triple aim
of better health, better healthcare and lower cost.
The report outlines that a consensus has now emerged
that the time has come to move forward with technology
– hence the allocation by the treasury of £4.2bn to support
the digitisation of the NHS.
It concludes: “The one thing that the NHS cannot afford to
do is to remain a largely non-digital system. It is time to get
on with IT.”
How EMIS Group addresses the market challenges
Put simply, by providing the technology to join it up.
Patient records accompany citizens as they move through the
varying touch points of the NHS, creating a digitised
and paper-free NHS.
These reports, together with the focus of the Sustainability
Transformation Plans (STPs) (see Chief Executive Officer’s
Q&A on pages 6 and 7), all agree that joining up healthcare
through technology means customers can deliver faster,
better and cheaper healthcare.
Clinicians in unscheduled care
settings can access child protection
information with social care
professionals notified accordingly
National child protection data is
integrated directly into Symphony,
the Group’s emergency care clinical
system, alerting clinicians when they
are dealing with a known vulnerable
child or young adult.
7
8
Professionals across care settings
made aware of end-of-life preferences
Healthcare localities are increasingly
using EMIS Web to share patient
records between GPs, CCMH settings
and hospices, to keep everyone
involved up to date on clinical
information and patient preferences.
GPs receive timely electronic
discharge summaries from
secondary care
Secondary care can send automated
hospital discharge letters to primary
care. eDischarge is available in EMIS
Health CaMIS (patient administration
system) and Symphony (accident and
emergency), ensuring that letters to
GPs are sent electronically.
5
6
Social care receive timely electronic
assessment, discharge and withdrawal
notices from acute care
With the acquisition of Intrelate
in December 2016, the Group
is taking the first steps towards
becoming an integrated health and
social care provider, linking Egton
Digital’s Carista with EMIS Web.
Patients can book appointments
and order repeat prescriptions
from the GP practice
EMIS Health was the first supplier
to provide this for patients of its GP
customers, winning an innovation
award in 2005. During 2016, 7.5 million
appointments were booked and
10.3 million repeat prescriptions
ordered using our systems.
10
9
GPs and community pharmacists
can utilise electronic prescriptions
88.7% of GP customers can send
basic prescription information to
community pharmacies with the
national Electronic Prescriptions
Service (EPS). Enhanced prescription
information can be sent to and from
EMIS Group GP and community
pharmacy systems.
11
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Strategy
Our vision
To support longer and healthier lives for everyone by providing integrated,
excellent and innovative healthcare IT.
Our 2016 achievements and 2017 priorities
1 One EMIS Group
2016 ACHIEVEMENTS
• Improved clinical product development delivery
across the Group through formally merging Primary
& Community Care and Secondary Care development.
• Improved clinical sales, support and implementation
across the Group through closer working of the
Primary & Community Care and Secondary Care
senior management teams.
• Improved staff mobility within the Group and lessened
risk of inequality through the creation and roll-out of a
single remuneration framework for all central Group, EMIS
Health and Egton staff.
• Improved our vision of integration of care through
development of a specific product growth strategy
to identify products that we will support, those
we will not and those we will be creating afresh.
• Prepared proactively to lead the NHS and other
customers toward full integration of care through
planning for the formal merger of EMIS Health
Primary & Community Care and Secondary Care.
2017 PRIORITIES
• Continue the implementation of common, joined-up
internal systems across EMIS Group.
2 Deliver financial performance
2016 ACHIEVEMENTS
• Full year results delivered in line with expectations.
• Contract wins in CCMH and Secondary Care,
continuing positive momentum.
• Good progress towards development, accreditation
and roll-out of the new enhanced dispensary product
into existing and Lloyds pharmacies.
• Implementation of cost reduction programme
to ensure the business is appropriately resourced for
lower growth environment.
• Continuation of the roll-out of an enterprise
resource planning solution.
• Pinbellcom performing well (2015 acquisition).
• Acquisition of Intrelate, giving direct access to
social care market.
2017 PRIORITIES
• Continue to deliver on financial expectations
for the business.
• Business reorganisation to respond to emerging
integrated healthcare markets and drive down cost.
• Operational improvement plans in Specialist Care.
• Accelerated investment in Patient business and
• Bring together the Primary & Community Care division
India-based development team.
with our Secondary & Specialist Care division.
• Continue the implementation of the growth strategy
and optimal organisational model.
• Focus on EMIS Web roll-out for primary care in
Northern Ireland, securing a renewed contract in
Scotland and optimising positions in England and
Wales in primary care.
• Implementation of ProScript Connect software across
the entire Community Pharmacy estate in 2017/18.
• Review of capital structure and re-banking.
EMIS Group
market share
in CCMH
12
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT 3 People: communication,
engagement and development
4 Strategic customer and
stakeholder engagement
2016 ACHIEVEMENTS
• Continued development of a transformational people
strategy that saw the harmonisation of pay and benefits
and terms and conditions across the Group.
• Our second Group-wide employee engagement
survey, “Your Say”, showed further improvement
in our engagement scores.
• Senior management development has continued. Over
300 managers started a development programme
called “Leading the EMIS Group Way”.
• Investment in an online management learning
and development portal, which is available throughout
EMIS Group.
• Further strengthened the internal communications
function and piloted a new innovative social media
platform with plans to improve communication with field
teams and more face-to-face leadership sessions.
2017 PRIORITIES
• Attract and actively manage the best talent.
• Embrace and value equality and diversity across
the Group.
• Encourage contributing to our communities.
• Better understand and improve employee engagement.
• Continue to develop a “learning” organisation.
2016 ACHIEVEMENTS
• Strategic pathfinder programme established with
key health economies to discuss alignment of local
NHS and EMIS Health strategy.
• Strong working relationships established in all four
UK countries at a national level.
• Representation on the Digital Primary Care Executive
Board alongside the Department of Health, NHS England,
NHS Digital and other key suppliers to review the
effectiveness of the National Information Board (NIB)
2020 plans for digitising primary care.
• Worked closely with one of the Global Digital Exemplars
(GDE) as their partner of choice.
2017 PRIORITIES
• Work closely at the new planning levels of STPs
and LDRs, especially where EMIS Health has a strong
market share.
• Become part of the GDE and NHS England Vanguard
programmes to create technologies for new models
of care.
• Build on the strength of relationships with the national
authorities across the UK to align national, regional
and local NHS requirements.
• Continue to bring together CCGs, community trusts
and secondary care acute trusts to support new
models of care.
managers have started a
development programme
strategic
pathfinder
customers
13
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Strategy continued
Our vision continued
To support longer and healthier lives for everyone by providing integrated,
excellent and innovative healthcare IT.
Our 2016 achievements and 2017 priorities continued
5 Deliver a one-system brand
and product strategy
6 Promote customer and
clinical operational outcomes
2016 ACHIEVEMENTS
• Strategy created around the EMIS Health Framework
(currently covering EMIS Web for GP, EMIS Web for
Community, EMIS Web for Urgent Care, EPMA and EMIS
Mobile).
• End of product life of legacy primary care products
EMIS LV and EMIS PCS in Northern Ireland and
Scotland.
2016 ACHIEVEMENTS
• National media recognition for the Group’s work with
national charities when our software alert for the life
threatening condition, sepsis, was rolled out across
the country.
• Customer speaker slots at national industry events,
highlighting how the Group products have helped
drive up the standard of care.
• Announced that the end of product life of ePex, legacy
• The PR strategy delivered 648 million opportunities
mental health system, will be at the end of 2017.
• EMIS Health strengthened as the single brand for the
Primary & Community and Secondary Care
and Community Pharmacy divisions.
2017 PRIORITIES
• Create consistent EMIS Health product branding and
establish the EMIS Group branding guidelines for all
corporate and product branding use.
• Implement mobile infrastructure for all EMIS Health
framework solutions.
• Deliver urgent and emergency care product in all
care settings.
• Leverage EMIS Health clinical platform in all
relevant sectors, including EMIS Web for community
pharmacy implementation.
for people to read company press releases, including
customer stories about clinical and operational
outcomes using our products.
• A programme of thought leadership positions the
Group as a healthcare supplier committed to improved
healthcare outcomes using technology.
2017 PRIORITIES
• A proactive PR strategy will continue to promote
clinical and operational outcomes of our customers’
integrated care projects through the Group channels
and to industry and national media.
• Speaker sessions at events will continue to demonstrate
on a national level the improved clinical outcomes that
customers are achieving with Group technology.
• Engagement with third party academic organisations
in projects.
• Highlight the work EMIS Group does with charities
to promote longer and healthier lives in the UK.
• Use the 30-year anniversary of EMIS Group to raise the
profile of the EMIS Group brands and raise awareness
of the EMIS Health proposition.
patient consultations
were recorded in
EMIS Web in 2016
opportunities for people
to read our PR stories
14
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT 7 Further enhancement
of Patient online services
8 Consolidate clinical
services provision
2016 ACHIEVEMENTS
• Rebranded the diabetic eye screening arm of the
business, Medical Imaging, to EMIS Care.
• Secured a number of mainly three-year initial term
contracts with an initial total contract value of £19m,
which will see EMIS Care’s market share rise to 26%.
• Integrated service provision and software development
teams into a single division.
2017 PRIORITIES
• Successfully mobilise diabetic eye screening
programmes won in 2016.
• Continue to focus on delivering high-quality screening
services by optimising available resources.
2016 ACHIEVEMENTS
• 97% deployment of the Patient Access summary care
record and newly created detailed care record viewer
across the 4,300 English GP practices.
• 5.1 million users of Patient Access.
• Established partnership for an e-consultations product
for patients.
• Plan for creation and growth of Patient Platform.
2017 PRIORITIES
• Build a professional team that has a passion for
digital healthcare and truly believes in further
enhancing the Patient brand as the favourite
on-demand healthcare marketplace.
• Build the Patient Platform to enable patients to manage
their own health and access multiple clinical services.
• Grow, engage and monetise the Patient user-base
through the delivery of personalised content and
community and clinical experiences.
• Attract and network clinical professionals, pharmacies
and strategic partners to power Patient’s global
healthcare marketplace.
repeat prescriptions
ordered using
Patient Access in 2016
market share
forecast for
EMIS Care
15
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Principal risks and uncertainties
Management of risk
The Board sets clear strategic objectives for the business and risks to the achievement
of those objectives are identified by corporate and divisional management.
Our risk management framework
The Board has overall responsibility for ensuring risk
is appropriately managed across the business and it has
approved a Group risk management policy which outlines
the Group’s risk management approach.
The Board sets clear strategic objectives for the business
and risks to the achievement of those objectives are identified
by corporate and divisional management through the creation
and maintenance of risk registers. These are consolidated
to form the Group’s corporate risk register.
The corporate risk register is considered by the CEO and
reviewed and discussed by the Group Executive Board
before being submitted to the main Board at least twice
a year for review. The audit committee provides further
independent review and robust challenge, and internal
audit provides independent assurance through a programme
of risk-based reviews.
Identified risks are evaluated, both before and after controls
and mitigating actions have been applied, as to their likelihood
of occurring and potential financial and reputational impact.
Risks are treated in accordance with risk appetite, which has
been defined by the Board across a range of risk categories.
The Board’s risk appetite is described on page 49.
Each risk is assigned to an appropriate individual or discrete
operating group and all mitigation and action plans are recorded
and monitored.
During the year, the Board approved a project to configure
the Group’s proprietary risk management software application
(called TheOneView) for internal use. The primary benefits of
TheOneView are to encourage wider involvement in the risk
management process, improve consistency in the evaluation
and treatment of risks, automate the consolidation of risk
registers, provide a real-time view of the Group’s risk profile,
enable assignment of tasks and actions directly to managers,
and provide improved risk reporting and monitoring. This
system is expected to be in operation throughout most of 2017.
The principal risks and uncertainties identified by management
and how they are being managed are set out on pages 17 to
19. These risks are not intended to be an extensive analysis
of all risks that may arise in the ordinary course of business
or otherwise.
The principal financial risks are disclosed in note 3 to the
financial statements on page 82.
h
g
H
i
D
O
O
H
I
L
E
K
I
L
w
o
L
Board of Directors
Ownership and monitoring
Audit committee
Independent review
and challenge
Group internal audit
Independent,
objective assurance
Chief Executive Officer
Review and input
Group Executive Board
Operational risk input
Corporate risk review
Divisional and functional
risk registers
Risk heat map
The risk heat map below provides a graphical representation of the
principal risks and uncertainties described in detail on pages 17 to 19.
It shows the assessment of the relative impact and likelihood of each
risk, along with an indication of the year on year movement of each risk
(explained more fully in the risk description on the following pages).
D
A
B
F
C
E
Corporate governance
Page 38
Audit committee
Page 46
Low
IMPACT
High
A Healthcare structure
and procurement changes
B Product integration
and interoperability
C Software development
and hosting
D Recruitment and retention
E Information governance
and cyber security
F Clinical safety
16
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT A Healthcare structure
and procurement changes
DESCRIPTION OF RISK
The Group is dependent on the strategic direction of the
NHS in respect of how it plans to make use of available IT
innovations to reduce its costs and improve its efficiency.
The ability to sell hosted and managed products to the
healthcare community can be affected by the way the NHS
procures goods and services. The NHS is constantly looking
for ways to reduce its cost base and improve efficiency; this
may include how it is organised and how it procures goods
and services, including outsourcing services.
There is a risk that EMIS Group services are not in line
with the strategic requirements of the healthcare
industry or that these requirements will change with
successive governments.
HOW WE MITIGATE THE RISK
To ensure it is not disadvantaged by changes
in healthcare structures and procurement policies,
EMIS Group ensures that its strategies are closely
aligned with government policies.
Specific actions taken to mitigate this risk include:
• close engagement with the NHS at both strategic
and tactical levels;
• working to ensure the Group is perceived not just as a
GP supplier but as a supplier of connected IT healthcare
solutions covering a wide range of healthcare sectors
including pharmacies, secondary care, specialist care,
community, social care and mental health, as well
as primary care;
• proactive response to published NHS plans and
changes in structures, e.g. the NHS Forward View
and the development of GP federations;
• regular monitoring and analysis of the markets
and competitors;
• development of clear, integrated market and
product strategies;
• ongoing review of our sales team structures including
establishing an integrated sales board to better manage
pan-healthcare economy procurement structures;
• development of a strategic mental health solution; and
• development of next generation pharmacy software.
B Product integration
and interoperability
DESCRIPTION OF RISK
The Group’s core strategy is to provide IT healthcare
systems, across a range of healthcare sectors, which are
integrated with each other and interoperable with other
non-Group systems. This efficiently aligns technology
and workflows and enables realisation of the best
clinical safety and financial outcomes.
Failure to achieve this could have a significant impact on
the Group’s ability to meet the government’s healthcare
technology requirements and to sell its products and
services to the NHS and others in the longer term.
In order to achieve its objectives the Group has, in
recent years, acquired several businesses across a range
of healthcare sectors. There is a risk that these businesses
do not function effectively as a group, impacting on the
success of product integration.
HOW WE MITIGATE THE RISK
The Group has taken a range of actions designed to
bring together its products and create synergies across
the Group:
• Board-level responsibility for product and
acquisition integration with a clear strategic
plan and regular monitoring;
• established Group standards to share and mandate
best practice in, for example, software development,
customer support, project implementation, clinical
safety governance and cross-sector product integration;
• all integrated product implementations include
a clinical safety review;
• open API strategy to enable the Group to work
with any other supplier;
• extending connectivity between the Group
and third party solutions providers; and
• planning for bringing together our Primary &
Community Care and Secondary Care businesses.
LINK TO STRATEGIC PRIORITIES
1
2
3
4
5
6
7
8
LINK TO STRATEGIC PRIORITIES
1
2
4
5
6
7
KEY
1 One EMIS Group
2 Deliver financial performance
3 People: communication
5 Deliver a “one-system brand
7 Further enhancement
engagement and development
and product strategy”
of Patient online services
4 Strategic customer and
stakeholder engagement
6 Promote customer clinical
and operational outcomes
8 Consolidate clinical
services provision
17
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Principal risks and uncertainties continued
C Software development
and hosting
DESCRIPTION OF RISK
The Group’s core products are critical to the efficient
and effective operation of a wide range of healthcare
organisations and they are designed and developed
to meet the exacting standards of our key customers
and the needs of patients and carers.
The technical or physical failure of our systems, during
development, implementation or everyday use, could
lead to disruption or complete service denial of high
profile public services.
The Group hosts a significant proportion of the patient
information that supports our systems and this creates
significant risks associated with information security and
system reliability. These risks are covered separately in
more detail under information governance.
HOW WE MITIGATE THE RISK
In order to ensure the secure and effective
development, implementation and hosting of new
and existing products, the Group has in place a range
of mitigating actions including:
• development brought together as a Group function and
a strategy to lead effective development prioritisation;
• a staged new system implementation process that
minimises disruption and tests system operation
on pilot systems before wider implementation;
• ring-fencing of development teams to preserve
sensitive data security and integrity;
• ISO-certified secure IT hosting facilities. Dual hosting
sites operating in real-time enable almost instant
failover; and
• disaster recovery plans in place, tested, externally
challenged and reviewed regularly.
D Recruitment and retention
DESCRIPTION OF RISK
The Group is reliant on the skills and knowledge of
its people in a wide range of areas, but especially in
software development, clinical safety and information
technology systems.
Failure to recruit and retain an appropriate number of
suitably qualified people in critical areas could lead to a
deterioration in the quality of products and services. This
could lead to failure to meet customers’ needs, losing their
business and to the Group failing to deliver expected
financial returns to shareholders.
Following the announcement in December 2016 of the
CEO’s decision to retire during 2017 there is a heightened
risk that a suitably qualified and experienced replacement
is not identified on a timely basis.
HOW WE MITIGATE THE RISK
Key actions implemented or commenced during
the year include:
• implementation of a people strategy across the Group;
• providing an environment for improved
communication, engagement and development,
including a Group-wide intranet;
• recruitment of budgeted resource to deliver
planned projects;
• succession plans in place for key roles, which are
regularly reviewed;
• undertaking a pay and benefits review to establish
greater consistency across the Group and
benchmarking externally;
• employee satisfaction surveys including suggestions
for improvement;
• investment in modern, inspirational and motivational
working environments for employees; and
• the nomination committee undertaking a
comprehensive process, in conjunction with
an external search firm, to identify a new CEO.
LINK TO STRATEGIC PRIORITIES
1
2
3
4
6
8
LINK TO STRATEGIC PRIORITIES
1
2
3
6
8
KEY
1 One EMIS Group
2 Deliver financial performance
3 People: communication
5 Deliver a “one-system brand
7 Further enhancement
engagement and development
and product strategy”
of Patient online services
4 Strategic customer and
stakeholder engagement
6 Promote customer clinical
and operational outcomes
8 Consolidate clinical
services provision
18
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT E Information governance
and cyber security
DESCRIPTION OF RISK
The Group is responsible for hosting over 40 million
individual primary care records containing confidential
and sensitive personal data.
The Group’s systems contribute towards the efficient
operation of GP surgeries, hospitals, pharmacies and other
healthcare providers through the secure, reliable and
accurate processing of such information.
There are significant risks associated with managing and
hosting such information, including loss, theft or corruption
of data.
The Group recognises that the trust placed in it by the
government, by healthcare providers and by private
individuals is fundamental to the success of the business.
EMIS Group’s reputation rests on integrity and the
quality of stewardship it applies to such sensitive and
valuable data.
Cyber attacks are becoming more common generally,
including those targeting healthcare system providers.
The risk of a cyber attack has therefore increased and
is likely to remain of concern both to the Group and
the market generally.
HOW WE MITIGATE THE RISK
The Group invests heavily in ensuring that the physical
and logical controls in place over hardware and software
systems are strong.
Mitigating controls in place and actions taken to manage
this risk include:
• strong physical controls over building and server
room access;
• attainment and maintenance of ISO 27001 certification,
including an in-house ISO quality assurance team;
• regular penetration testing and denial of service
attack simulations;
• strong information governance culture including
NHS-standard training for all employees;
• documented and externally tested business
continuity and disaster recovery plans;
• maintenance of duplicate servers at physically separate
locations with virtually real-time failover capability; and
F Clinical safety
DESCRIPTION OF RISK
As a provider of critical IT systems to organisations that
provide direct healthcare to patients, and as a direct provider
of healthcare itself, the Group is exposed to a range of clinical
risks. While it has been successfully managing clinical
risk for three decades, the Group has decided to more
clearly identify and report on these risks and the systems
we have in place to manage them.
There is a risk of clinical harm to patients should EMIS Group
IT systems fail to provide accurate, reliable and timely
personal information to healthcare professionals;
for example, regarding a patient’s known allergies,
existing prescribed medication or other relevant
personal information. These risks may be amplified where
Group systems interoperate with third party applications.
For pharmacy software products, there are similar risks
around incorrect dosages and labelling of products dispensed.
The Group is also exposed to direct clinical risk of causing
harm to patients where it is the provider of clinical services,
for example in the ophthalmic imaging services and diabetic
eye screening programmes (DESPs) operated by EMIS Care.
HOW WE MITIGATE THE RISK
Most clinical risks are allied to other principal risks;
for example, software development, recruitment
and information governance, failures in any of these
could lead to clinical harm to patients. Actions taken
to manage general risks in these areas are noted under
the relevant sections. Mitigating actions specifically
pertaining to clinical risk management are noted here:
• the Chief Medical Officer and a network of clinical safety
officers in place with responsibility for clinical safety
across the Group;
• policies and procedures designed to meet the
regulatory requirements of NHS Digital’s information
standards SCCI0129 or SCCI0160 (depending upon
the nature of the business involved);
• accredited clinicians involved in software development
procedures to identify and mitigate potential clinical risks
in new software releases or updates. Clinical sign-off is
required for all releases and new implementations;
• qualified technicians and expert clinical leadership
at all DESPs; and
• EMIS Web hosted environment virtually within the NHS.
• oversight by external regulators.
LINK TO STRATEGIC PRIORITIES
1
2
3
4
5
6
7
8
LINK TO STRATEGIC PRIORITIES
1
2
3
4
6
7
8
KEY
1 One EMIS Group
2 Deliver financial performance
3 People: communication
5 Deliver a “one-system brand
7 Further enhancement
engagement and development
and product strategy”
of Patient online services
4 Strategic customer and
stakeholder engagement
6 Promote customer clinical
and operational outcomes
8 Consolidate clinical
services provision
19
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chief Executive’s overview
Overall, performance for the year was in line with the Board’s
expectations with strong profitability and cash generation. The
Group continues to benefit from strong revenue visibility, loyal
customers, quality products, leading and growing market shares
and a solid order book and pipeline.
The gap continues to widen between the health demands of a
growing population with more long term conditions year-on-
year and a governmental desire to slow the rate of growth in
NHS funding. Perhaps counter-intuitively the development of
Sustainability and Transformation Plans (STPs) – intended to
show how the NHS and local authorities will bridge that gap by
remodelling healthcare and later merging health and social care
– has caused another hiatus in the deployment of planned funds
for NHS IT transformation.
In 2016 the Group took appropriate steps in relation to reducing
the cost base in Secondary Care and in harmonising employee
pay and conditions. 2017 will see an internal transformation to
anticipate the NHS’s sharing of back-office functions and the
acceleration in the creation of “new models of care”. To that end,
the Group’s Primary & Community and Secondary Care businesses
will be combined and integrated by the end of Q1 2017. The Group
is also investing in the building of a patient-centric digital platform
based on its existing Patient.info business.
The Group has continued to demonstrate its commitment to and
alignment with NHS strategy, whether stated centrally through
the Wachter Report or locally through the STPs, which continues
to endorse the facilitation of connected patient-centric care
through the mobilisation of health and care related data using
integrated and interoperable software systems. EMIS Group
remains at the forefront of this market.
Operational review
EMIS Group is a leading provider of UK healthcare software,
information technology and related services. It has again
maintained or grown strong market share positions in every
major area of healthcare facilitating the NHS’s ongoing
connected care strategy across primary, community, secondary
and specialist healthcare and community pharmacy.
Operational review
Another
strong year for
EMIS Group
EMIS Group has again maintained or grown
strong market share positions in every major
area of healthcare facilitating the NHS’s
ongoing connected care strategy.
PRIMARY & COMMUNITY CARE
Revenue up
6%
COMMUNITY PHARMACY
Revenue up
7%
Adjusted
operating
profit up
9%
Adjusted
operating
profit up
15%
SECONDARY & SPECIALIST CARE
Revenue down
10%
Adjusted
operating
profit down
21%
20
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT PRIMARY & COMMUNITY CARE
EMIS Health – Primary Care (EHPC)
Primary Care maintained its record of steady growth from a
loyal customer base, with almost three-quarters of the Group’s
English GP practices being EMIS Health users for over ten years.
EMIS Health’s leading market share of 55% (2015: 55%) was
increasingly supported by a local NHS strategy to consolidate
clinical management systems and the number of 100% EHPC
Clinical Commissioning Groups (CCGs) again rose from 46 to 51.
This common strategy creates a platform for STPs to seamlessly
connect primary, community and other healthcare data.
The estate-wide deployment and utilisation of nationally-created
electronic services in England, such as electronic prescriptions
and the transfer of GP records, reached an all-time high for EMIS
Health, further facilitating connected care that involves primary
care professionals. These NHS national programmes also include
Patient Access, with 5.1 million citizens registered to interact
with GP services online by the end of 2016.
In Northern Ireland, implementation of EMIS Web for primary
care began slowly, with the first pilot sites live on 16 August
2016, however the roll-out is expected to be completed in 2017.
In Scotland, EMIS Web is being offered in place of the Group’s
older software and pre-procurement engagement has begun for
likely implementation in 2018. In Wales, re-procurement of the
primary care framework agreement has begun although it is
worth noting that existing EMIS Web agreements will continue
until 2019–2020.
EMIS Health’s leading market
share of 55% (2015: 55%) was
increasingly supported by a local
NHS strategy to consolidate clinical
management systems and the
number of 100% EHPC Clinical
Commissioning Groups (CCGs)
again rose from 46 to 51.
PRIMARY & COMMUNITY CARE
Better diabetes care
Better diabetes care for thousands with
information prescriptions
GPs and practice nurses across the country are improving
care for thousands of patients with type 2 diabetes, thanks
to a partnership between EMIS Health and Diabetes UK.
Diabetes UK has developed information prescriptions
that not only alert clinicians to key information on their
patients’ condition during consultations, but give
patients the tailored information they need to self-
manage at home. Clinicians say the system is helping to
improve care and empowering patients.
Practice nurse Nicola Milne from Northenden Group
Practice who manages almost 700 patients with type 2
diabetes said: “When you are consulting with someone
with diabetes who feels well it can be difficult to explain
to them the potential damage that could be happening
within their bodies as a result of poorly controlled
conditions such as high blood pressure, raised
cholesterol and a high HbA1c.”
Information and advice for patients
“It is fantastic to be able to have a tool that gives
patients accurate information on their condition,
alongside an easy to understand graphic of what could
happen if their condition isn’t managed well.
“The information prescription gives the person with
diabetes the information and advice to self-manage their
condition and set goals, which we can discuss together.
Presenting it as written information, with the backing of
Diabetes UK, gives it added credibility and the link to the
Diabetes UK website is also included so it opens up a
wealth of information to patients. They help patients to
better understand their condition and actively manage it.”
Future plans
Nicola, who has been a practice nurse for 14 years and is
also a Queen’s Nurse, is on the Diabetes UK working group
that is helping to develop the information prescriptions with
EMIS Health. She’s excited about future developments:
“We are now looking at diabetes and pregnancy. This
information prescription is for women with diabetes who
are of child bearing age. With the system alert function, we
can give appropriate pre-conception advice and ensure that
if a woman is planning a pregnancy then appropriate care
and advice is given. Information prescriptions really are
helping us to provide better diabetes care for thousands
of people.”
21
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Operational review continued
PRIMARY & COMMUNITY CARE CONTINUED
EMIS Health – Child Community & Mental Health (CCMH)
CCMH market share grew to 16% (2015: 12%), exceeding the
Group’s internal target despite the general sluggishness of the
market as a whole.
Egton - ICT infrastructure, engineering,
and non-clinical software
Egton performed well, providing a range of software, hardware
and services, including health administration, compliance
software and GP practice websites.
A number of previously unannounced material contract wins
were secured in the year including:
• Tameside Hospital NHS Foundation Trust – Community
• Isle of Man Department of Health and Social Care – Community
• First Community Health & Care – Community and Mental Health
• Central Manchester University Hospitals NHS Foundation Trust
– Community and Mental Health
Including those previously announced 2016 wins had an
aggregate total contract value in excess of £11m with a strong
pipeline of opportunities in 2017 as former National Programme
for IT CCMH contracts continue to be re-procured. Two material
CCMH contracts (Bridgewater Community Healthcare and
Central Surrey) have already been secured in early 2017.
The CCMH team has secured 38 CCGs where EMIS Health is the
sole supplier in primary care as well as having a strong presence
in CCMH. This further supports the Group’s strategy of helping
delivery of connected care.
Patient.info is already the UK’s
leading independent provider
to consumers of medical and
well-being information with 18.3m
unique monthly visitors (2015: 11.5m)
and advertising revenues of £2.1m
(2015: £1.7m).
On 22 December 2016 Egton extended the Group’s capability
into social care through the acquisition of Intrelate for £0.8m net
of cash acquired. The business was immediately integrated
within Egton to provide its Carista administrative software in
social care. Carista is a mobile software platform helping carers
(paid and unpaid) to plan, monitor, manage and measure social
care outcomes. This extends the Group’s capability into directly
helping deliver integrated health and social care.
Another exciting area of growth for Egton in 2017 will be the
securing and implementation of CCG-funded NHS WiFi in GP
practices, with a current order book of £1.8m.
Patient – patient-centric medical and well-being
information/transactional services
Patient.info is already the UK’s leading independent provider to
consumers of medical and well-being information with 18.3m
unique monthly visitors (2015: 11.5m) and advertising revenues
of £2.1m (2015: £1.7m). Patient helps people proactively manage
their own health and wellbeing often in a “pre-primary care” setting.
The number of visitors to Patient has grown strongly as planned
in 2016 especially from international visitors who at the end of
2016 accounted for 74% of the total.
To accelerate Patient’s growth and ensure its consumer focus
Jason Keane joined Patient as Digital CEO in October 2016.
He has extensive digital media experience in a number of senior
roles including at Saffron Digital, Universal Networks Interactive,
and Yahoo! Answers. Following his appointment, work
immediately began to optimise Patient’s existing media business
and inventory including new site design, an improved content
management system, initial changes to the user experience and
user interface, and ongoing improvements to the organic
search position.
On 1 January 2017 Patient became an independent legal entity
with a plan to grow its publishing/media business and to expand
into a market-place e-commerce platform connecting Patient’s
global audience to a network of digital healthcare services.
A detailed business plan is in place for an investment of up to
£7m over the next two years against appropriate performance
milestones. This is mainly for the people costs to deliver the
media content and platform environment needed to drive
growth over the next five years toward a targeted annual
revenue of £50m.
22
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT
COMMUNITY PHARMACY
EMIS Health – Community Pharmacy (EHCP)
EHCP, the provider of the UK’s single most widely used
community pharmacy dispensary management system, delivered
strong results. It also continued to prepare for future market share
growth over the next 18 months (from 37% at the year end to
approximately 50% by 2018) through the implementation of the
agreement with AAH Pharmaceuticals/Lloyds.
The Group’s next generation pharmacy dispensary management
product, ProScript Connect, has now been accredited in
England, Scotland, and Wales. As well as having a pipeline of
opportunities in the independent pharmacy space, ProScript
Connect had been installed in 25 independent pharmacies by
the end of 2016. Implementation continues mainly to be done
remotely, to minimise resource requirements at each location and
enable “out of hours” upgrades where appropriate, while more
complex sites, for example those with robotic systems, are likely to
require on-site attendance.
The business is also preparing for implementation in the Lloyds
estate. The first three ProScript Connect pilot sites in the AAH
independent estate also went live by the end of December and
are performing in line with expectations.
The total dispensary management estate size grew to 5,091 sites
(2015: 4,910 sites) through incremental gains from competitors
as well as growth of existing customers. After the year end,
EHCP secured a six year contract with a total contract value of
£1.4m with a further supermarket customer.
Commercial and technical models are being considered
following piloting of EMIS Web for community pharmacy. This
will enable pharmacies to diversify into extended primary care
services (for example smoking cessation, influenza injections)
and monitoring of long term conditions.
Community Pharmacy continued
to prepare for future market
share growth over the next 18
months (from 37% at the year
end to approximately 50% by
2018) through the implementation
of the agreement with AAH
Pharmaceuticals/Lloyds.
COMMUNITY PHARMACY
Faster, more
integrated working with
ProScript Connect
A busy pharmacy in North West London is offering a
faster, more integrated service to customers thanks to
EMIS Health’s ProScript Connect.
Healthways Pharmacy in Pinner, which has used
ProScript for around 20 years, switched to the new
generation ProScript Connect dispensary management
system in November 2016.
Pharmacist Dhimant Patel said the business, which has
over 75% turnover in NHS services, is already benefiting
from the new system.
“ProScript Connect downloads prescriptions from the
NHS Spine very quickly, which means patients are
getting their medication more speedily. We can
multitask, filling prescriptions while doing day to day
work in the background.
“This is very important to us, as the pharmacy is right by
a Tube station, serving a big transient population. It
means that not only can we offer a speedy, seamless
service to customers, but nobody has to stay behind at
the end of the day to catch up on administration.
“As the system is also more integrated, it helps us to
enhance our professional role in line with NHS
recommendations. Everything is linked to the patient’s
name, and the new pharmacy services are built in. So for
example, ProScript Connect prompts us if a patient is
due to have a consultation on the New Medicines Service
(NMS) or a Medicines Use Review (MUR) and I can ask
them there and then if they want one.”
Dhimant praised the technical team at EMIS Health for
their help during the switch to the new system and their
continued support.
“We continued an uninterrupted service to patients on the
morning of the switchover. We were very well supported
by the technical team, something that gave us confidence
in the new system. There is a dedicated, named team for
ProScript Connect, including a trained pharmacist who
understands our terminology when we ring with a query. I
would definitely recommend ProScript Connect to other
pharmacies. It is a fast, stable, intuitive system backed by
a very good support team.”
23
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Operational review continued
SECONDARY & SPECIALIST CARE
EMIS Health – Secondary Care (EHSC)
EHSC performed largely in line with expectations following the
various cost-improvement measures taken in the first half of
2016 and taking into account the sluggishness of the NHS
secondary care market for mid-sized procurements. In addition,
the transfer of revenues and profits associated with the ePEX
(acute mental health) product to EHPC and the lack of one-off
implementation revenues compared with 2015 meant that
performance in EHSC was held back. Until the effects of the
STPs become clearer, including increased merger activity
between hospital trusts, the NHS procurement environment will
continue to be difficult to predict. The Wachter Report, while
strongly supporting investment in the digitisation of secondary
care, also served to slow small to mid-sized procurements in
favour of predominantly large-scale implementations in Global
Digital Exemplars (GDEs).
Despite that, as previously announced, EHSC:
• was awarded a contract for a Patient Administration System
in Northampton in April 2016 with a total contract value
of £6.7m;
• in association with the UK’s other major hospital pharmacy
software provider, has created an electronic procurement hub
to enable 75% of UK hospitals to replace the manual
processing of home care pharmacy; and
• is one of two suppliers on the NHS Scotland Hospital
Electronic Prescribing and Medicines Administration
framework, worth £15m over two years.
The strategic decision, announced on 15 February 2016, for
EHSC to focus on core markets and products with a related
reduction in costs and staff numbers was largely implemented
in the UK and in Kenya by the end of the first half.
EMIS Health is working as the principal
supplier with University Hospitals of
Southampton NHS Foundation Trust
as they formulate their plan as a GDE.
In September 2016 NHS England
announced £10m funding for each
of twelve initial GDEs to help them
become paperless by 2020.
24
EMIS Group plc Annual report and accounts 2016
During 2017, EHSC is also expected to benefit from an NHS
England initiative to centrally fund upgrades to the latest version
of EMIS Health’s hospital pharmacy product. In addition,
EMIS Health is working as the principal supplier with University
Hospitals of Southampton NHS Foundation Trust as they
formulate their plan as a GDE. In September 2016 NHS England
announced £10m funding for each of twelve initial GDEs to help
them become paperless by 2020. Funding and contracts are
expected to be released in the second half of 2017. A “Fast
Follower” programme is also expected to be announced allowing
other NHS Trusts to access a smaller pot of centrally matched
funding for adopting the technologies pioneered by the GDEs.
EMIS Health is directly engaged with a further three GDEs and
indirectly involved, as a supporting supplier, with three more.
EMIS Health - Specialist & Care (EHS&C)
EMIS Health Specialist has maintained its position as the leading
software provider in English diabetic retinopathy screening with
a 77% market share (2015: 79%).
Public Health England has initiated a procurement process to
develop a national screening platform intended to achieve
standardised local programme operation through common IT
system design and core functionality. Although intended to begin
with diabetic eye screening, the platform is designed to encompass
all systematic screening services. Should the procurement conclude
it would provide an opportunity for EHS&C to secure the rest of the
English diabetic eye screening market.
EMIS Care remains the clear market leader in outsourced
diabetic eye screening and ophthalmology imaging services
with an 18% market share (2015: 19%). In 2016 EMIS Care was
awarded further contracts for screening provision in:
• Lancashire Lot 1 (East Lancashire & Preston – from the NHS)*
• Lancashire Lot 2 (North Lancashire & Fylde Coast – from
the NHS)*
• West Yorkshire Lot 2 (Bradford, Huddersfield & Calderdale –
from the NHS, EMIS Care and 1st Retinal Screen)*
• Bath, Swindon and Wiltshire (from the NHS and Virgin Care)
• Surrey (from Virgin Care)
• Plymouth (from the NHS)
* Indicates awards previously announced.
These mainly three year initial term contracts, with an initial
total contract value of £19m, will see EMIS Care’s market share
rise to 26%. Some of the new contracts were implemented
during the second half of 2016 and the remainder will be
implemented in the first half of 2017.
As previously announced, this unprecedented level of tender
and implementation activity has held back and will continue to
hold back financial performance through sub-optimal cost bases
and operational practices and the incurring of implementation
costs. This is especially so in the case of contracts previously
operated by the NHS. As operational efficiencies are delivered
over the life of the contracts, the division is building the
foundations necessary to improve the profit profile. Pending
that improvement, the Board has decided to recognise an
impairment charge of £4.6m relating to the goodwill of the EMIS
Care (Medical Imaging) business to reflect the delay in
contribution created by those additional costs.
STRATEGIC REPORT
SECONDARY & SPECIALIST CARE
Nottinghamshire Healthcare
Making informed decisions using reports created in minutes at Nottinghamshire Healthcare.
Business intelligence - from ward to board
Nottinghamshire Healthcare NHS Foundation Trust is
producing faster, more valuable reports using automated
systems from EMIS Health. It provides the information
required to help improve care and decision making. It helps
monitor service performance, patient care and resources,
from ward to board level.
Manually producing reports from all areas of the Trust was
resource intensive and time consuming.
Reports now produced in minutes
Andy Milsom, project manager, said: “Previously, if clinicians
wanted data on how their service was performing, a bespoke
report would be built manually – finding data from a number
of separate systems and combining it. It could take a few
days to produce bespoke reports, but now it can be done in
a matter of minutes. This helps our clinical and managerial
staff get access to their information quicker, helping them
make faster, safer decisions when it comes to patient care
and productivity.”
Close partnership working with the Trust’s BI team meant
that once the project was delivered from EMIS Health, the BI
team had the in-house capability to continue developing the
solution to meet the evolving demands of the Trust and
incorporate additional data sources.
Gaining intelligence and insight
Andy Milsom explained: “As well as the increased skills in the
BI team, our analysts will be able to replace many of the 100
ad-hoc requests for bespoke reports and other outputs they
receive each month with interactive self-service dashboards,
allowing users to gain valuable intelligence and insight
themselves as they explore and interrogate the data.”
Nottinghamshire Healthcare is now able to quickly and easily
build its own reports and drill down into the data to really
understand performance.
“At Board level, managers will be able to see summaries and
reports on how the service as a whole is performing,
presented in a way that makes the data easy to understand
and interpret. At ward level, ward managers will see what is
happening on their wards. They will all access the same data
in a way tailored to their needs.”
25
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Operational review continued
INTEGRATED CARE
Ayrshire Hospital
Reviewing patient health with all the details to hand at Ayrshire Hospital.
Electronic records enable safer hospital care for
Ayrshire patients
A multidisciplinary team is giving safer, more efficient care
to vulnerable patients in an Ayrshire hospital, with the help
of EMIS Health technology.
More than 50 staff – including doctors, nurses and allied
health professionals such as physiotherapists – have
switched from paper records to EMIS Web.
It has helped transform patient care, and connected hospital
and community staff, who can securely view each other’s
records. Just six months down the line, they have reduced
the average length of stay by 12 days and cared for 30%
more patients.
The aim of the ward, which treats up to 300 frail patients a
year is to support earlier discharge, while freeing up acute
beds for those who need them. It admits hospital patients
who need further care before going home, and this year will
also take people in the community who need non-acute care
outside the home.
More streamlined care
Dr Colin Jamieson was on the team of GPs providing medical
cover when the ward first opened. He said: “Moving from
paper to electronic records on the ward was a real eye-
opener. The process of arranging referrals and transfers of
patients is a lot more streamlined, and EMIS Web has helped
improve care on the ward.”
Charge nurse Ailsa McCallum said: “EMIS Web is a vital cog
in the wheel here. Any member of the team can add their
notes to the electronic record, and everybody in the team
can see them. Nursing assistants, who are the backbone of
the ward, are contributing to the records for the first time.”
Providing safer care and saving time
“We can see the community team’s records, and they can
see ours. Because you can see real-time information in one
place, care is safer. We can spot immediately if a patient’s
condition is deteriorating. We are also saving time, as there
is no more trawling through pages of paper records.”
The next step on the ward will be secure record sharing
with 18 local GP practices – subject to robust data sharing
agreements – which will allow them to see the patient’s
complete medical history to enable even more informed care.
26
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT Summary and outlook
Overall our businesses have continued to deliver results in line
with our expectations. This was despite headwinds created by
the NHS funding gap, which resulted in a difficult operating
environment for the Group with delays to the pace and level of
procurement activity.
We remain clear market leaders in primary care with the further
roll-out of EMIS Web ongoing and have once again increased
our market share in CCMH. Our new community pharmacy
product is now being rolled out into independent pharmacies,
pending implementation of the AAH/Lloyds contract that will
see our market share grow close to 50%.
Current trading remains in line with the Board’s expectations
and the outlook is encouraging with strong revenue visibility
provided by 81% recurring revenue and solid order books and
pipelines across every segment. Structural re-organisation,
bringing together Primary Care, CCMH, and Secondary Care, will
improve efficiency and better align the Group and its customers.
We are looking for growth from the implementation of existing
contracts in EMIS Care and Community Pharmacy with further
growth opportunities in CCMH, new models of care and Patient.
The NHS’s plans to bridge its funding gap continue to cause
sluggishness in immediate discretionary procurements.
However, that planning process highlights the Group’s unique
ability to help address the challenges in the NHS.
In light of the proactive operational steps we are taking and our
investment in a patient-centred digital platform we remain
confident in overcoming short term headwinds and securing a
positive outlook in 2017 and beyond.
Chris Spencer
Chief Executive Officer
15 March 2017
Integrated care
The Group Continued to make progress during the year in
integrating health and social care by connecting its own and
third party products helping the NHS to facilitate faster, better,
cheaper care. The Group’s Partner programme reached 80
participating suppliers, generating over £5m in revenue in 2016
for the Primary Care business.
The publication of STPs in June 2016 and the subsequent debate
and activity showed the clearest sign yet that the NHS is actively
embracing integrated care especially with a primary/community
care focus. This not only reinforces EMIS Group’s strategy in
existing markets but also provides new market opportunities in
the short and medium term. Those opportunities include
in-hospital and out-of-hospital markets like urgent and
emergency care, out of hours and medicines management.
Internal reorganisation
In December 2016, the Group began to bring together EHPC and
EHSC. This will combine Primary & Community and Secondary
Care into a single operating unit under the leadership of Duane
Lawrence formerly managing director of secondary care. This is
intended to align the Group with the NHS’s need to deliver more
integrated care between hospitals, GP practices, and community
services and optimise the Group’s cost base.
A new management structure was designed and the senior
management team was established in early January 2017 while
collective consultation for other affected staff began in the
second week of February. The majority of the integration
exercise is expected to be completed by the end of the first
quarter of 2017. The exercise is expected to reduce headcount
by over 100 people at a cost of around £3.0m and will deliver an
estimated in year cost-saving of £3.0m, rising to £4.0m on an
annual basis.
Board changes
As announced on 12 December 2016, Chris Spencer, the Group’s
Chief Executive, intends to retire from his position and from the
Board by the end of 2017. The formal search for his successor
has already identified a number of credible candidates and
interviews are underway. On the same date, although unrelated,
the Group also announced the appointment of David Sides as an
additional independent non-executive director with effect from
1 January 2017. David is currently CEO of Streamline Health
Solutions, a provider of transformational data-driven solutions
to healthcare providers, and before that his career included
17 years in senior roles at Cerner Corporation.
27
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Financial review
Solid financial
performance
The Group delivered sustained improvement
in all key financial metrics.
In the year ended 31 December 2016, the Group delivered
a solid financial performance with sustained improvement
in all key financial metrics, despite a more challenging
market environment.
Adjusted operating profit for the year, as set out in the table on
page 29, was £38.8m (2015: £36.6m) with statutory operating
profit, reduced by exceptional charges for the cost reduction
programme and by an impairment charge, at £23.5m
(2015: £11.4m). A reconciliation between the operating
profit measures is given in the Group statement of
comprehensive income.
Segmental performance
Group revenue increased by 2% to £158.7m (2015: £155.9m),
including revenue from the 2015 Pinbellcom acquisition in
Primary & Community Care of £1.2m (2015: £0.7m).
The revenue growth in the year included varied performance
from the Group’s segments. The Primary & Community Care
business delivered 6% organic revenue growth and 8% organic
profit growth, driven by good progress in market share in CCMH,
the Partner programme and Patient revenues.
Adjusted operating profit increased
by 6% to £38.8m (2015: £36.6m). The
6% organic profit growth in the year
was delivered by stronger growth in
the Primary & Community Care and
Community Pharmacy businesses,
partly offset by lower than expected
results in Specialist Care.
Revenue
Primary & community care 63%
Secondary & specialist care 24%
Community pharmacy 13%
28
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT
Performance in the Community Pharmacy business was
again strong, boosted by some paid-for development work in
connection with the new Proscript Connect product, in advance
of the accelerated roll-out into the estate being delivered in
2017 and 2018.
Results in the Secondary & Specialist Care segment were
behind expectations, with the slowdown in Secondary Care
procurements and the transfer of £1.9m mental health revenues
to the Primary & Community Care segment resulting in a
reduction in revenues overall. However, the actions taken early
in the year to address the cost base for the Secondary Care
business resulted in an improvement in underlying profitability.
In Specialist Care, strong revenue growth was secured with new
contracts won by EMIS Care, but profit reduced due to
additional costs associated with the implementation of those
new contracts in geographical areas previously operated by
the NHS. However, focus on delivering operational efficiencies
is expected to improve the profit profile over the life of the
contracts as described in the operational review, thereby
positioning it for stronger financial performance ahead.
Revenue mix
Group recurring revenue, principally licences, maintenance
and software support, hosting and other support services,
was £128.5m (2015: £123.0m) representing 81% of total
revenue (2015: 79%). This high level of recurring revenue
and the strength of the Group’s customer relationships continue
to provide an excellent foundation for the business to invest
with confidence in developing future products and services, as
well as providing good visibility of future financial performance.
The drivers of revenue change within the Group included
the following:
• licences, driven significantly higher to £54.8m (2015: £50.3m),
principally as a result of growth in Primary & Community Care,
particularly in the Partner programme and Patient, but also with
some one-off development revenues in Community Pharmacy;
• maintenance and software support, which increased slightly
overall to £38.6m (2015: £37.9m) with growth in CCMH;
• other support services, where the £1.8m year-on-year revenue
growth from new contracts won in EMIS Care was more than
offset by a reduction in project engineering revenues and
lower levels of supporting revenues in Secondary Care and
Community Pharmacy, resulting in broadly flat total revenues
of £29.3m (2015: £30.6m);
• training, consultancy and implementation, which reduced
to £14.6m (2015: £16.1m), with fewer large implementation
projects in Secondary Care;
• hosting, which was unchanged at £13.1m (2015: £13.1m), as a
result of a reduction in funded hosting asset revenues offset
by CCMH hosting growth; and
• hardware revenues, which increased to £8.3m (2015: £7.9m)
with higher sales of the EMIS Anywhere mobile product.
Profitability
Adjusted operating profit increased by 6% to £38.8m (2015: £36.6m).
The 6% organic profit growth in the year was delivered by
stronger growth in the Primary & Community Care and
Community Pharmacy businesses, partly offset by lower
than expected results in Specialist Care.
The operating margin nonetheless increased to 24.4%
(2015: 23.4%) with a strong focus on cost control in staff
costs delivering this improvement in the context of a lower
pace of revenue growth than in recent years.
Group staff costs increased with staff numbers at the year end
increasing to 1,922 (2015: 1,897), including 15 from the Intrelate
business acquired at the end of the year. The average headcount
increased to 1,875 (2015: 1,863). The increase has been driven
by growth in EMIS Care to support the new programmes
implemented during the year and the planned expansion of
the India-based development team, numbering 128 at the end
of 2016, building upon a subcontracted arrangement in place
during 2015.
The Group has recognised three exceptional items in arriving at
profit before tax in 2016. The first relates to the cost reduction
programme carried out during the year. This programme was
initially focussed on the Secondary Care business, but was
Selected financial extracts
2016
2015
Revenue
Adjusted segmental operating profit
Group expenses
Adjusted operating profit1
Adjusted operating margin
Primary &
Community
Care
£m
Community
Pharmacy
£m
Secondary
& Specialist
Care
£m
99.6
32.2
21.4
4.9
37.7
3.3
Primary &
Community
Care
£m
Community
Pharmacy
£m
Secondary
& Specialist
Care
£m
93.9
29.6
20.0
4.3
42.0
4.2
Total
£m
158.7
40.4
(1.6)
38.8
Total
£m
155.9
38.1
(1.5)
36.6
32.3%
22.8%
8.7%
24.4%
31.5%
21.2%
10.0%
23.4%
1 Excludes capitalisation and amortisation of development costs, amortisation of acquired intangibles and exceptional items.
29
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Financial review continued
Profitability continued
expanded to encompass other parts of the Group in response
to the more challenging trading conditions which emerged
during the year. The programme, which resulted in a charge of
£3.6m in the year, delivered an annualised cost saving of £3.0m
in 2016, rising to over £5.0m on an annual basis and has directly
reduced headcount by 110.
The second, a non-cash charge of £4.6m, relates to the carrying
value of goodwill arising on the Medical Imaging (EMIS Care)
acquisition and reflects the fact that the business has not yet
delivered the financial returns expected when it joined the
Group in 2014.
The third is a credit of £1.5m, recognised after operating profit,
which relates to the profit realised on the disposal of the Group’s
minority investment in Pharmacy2U during the year.
After accounting for the operating exceptional items, the
capitalisation and amortisation of development costs, and the
amortisation of acquired intangibles, statutory operating profit
was £23.5m (2015: £11.4m).
Taxation
The tax charge for the year of £5.2m (2015: £5.6m) includes
a credit of £0.4m, arising from the finalisation of prior years’
tax returns. Excluding the credit and a small deferred tax
adjustment in respect of the lowering of future tax rates, the
effective tax rate for the year was 20.0% (2015: 20.2%) on profit
before tax and the non-deductible/taxable exceptional items.
Earnings per share (EPS)
Adjusted basic and diluted EPS increased by 9% to 49.4p
and 49.2p respectively (2015: 45.3p and 45.1p). The statutory
basic and diluted EPS were 30.4p and 30.3p respectively
(2015: 7.2p for both measures).
Dividend
Subject to shareholder approval at the Annual General Meeting
on 28 April 2017, the Board proposes an increase in the final
dividend to 11.7p (2015: 10.6p) per ordinary share, payable
on 3 May 2017 to shareholders on the register at the close of
business on 31 March 2017. This would make a total dividend
of 23.4p (2015: 21.2p) per ordinary share for 2016. This is 10%
higher than in the prior year, reflecting the Board’s commitment
to increasing dividends in line with growth in adjusted EPS and
its continued confidence in the Group’s prospects.
Revenue analysis
Licences 35%
Maintenance & software support 24%
Other support services 19%
Training/consultancy/implementation 9%
Hosting 8%
Hardware 5%
Revenue analysis
Recurring 81%
Non-recurring 19%
Total revenue
£158.7m +2%
Adjusted operating profit1
£38.8m +6%
Adjusted EPS1
49.4p +9%
2016
2015
2014
2013
2012
158.7
155.9
137.6
105.5
86.3
2016
2015
2014
2013
2012
38.8
36.6
32.6
26.1
22.8
2016
2015
2014
2013
2012
49.4
45.3
39.5
34.0
30.8
1
Excludes capitalisation and amortisation of development costs, amortisation of acquired intangibles and exceptional items as set out in the Group statement of
comprehensive income on page 72. Earnings per share calculations also adjust for the related tax and non-controlling interest impact.
30
EMIS Group plc Annual report and accounts 2016
STRATEGIC REPORT
Cash flow and net debt
The principal movements in net debt were as follows:
Cash from operations:
Cash generated from operations
Less: internal development costs capitalised
Net cash generated from operations
Business combinations
Net capital expenditure
Transactions in own shares
Tax
Dividends
Other
Change in net debt in the year
Net debt at end of year
2016
£m
2015
£m
43.7
(5.7)
38.0
(3.8)
(5.9)
0.6
(7.7)
(14.0)
1.5
8.7
(0.4)
42.7
(6.2)
36.5
(5.2)
(7.2)
0.6
(6.9)
(12.4)
(2.7)
2.7
(9.1)
Net cash generated from operations increased by 4% to £38.0m
(2015: £36.5m), with a lower level of working capital outflow
compared to the prior year. Net cash from operations is stated
after expensing the £3.1m cash cost of the cost reduction
programme in the year. On an adjusted basis, adding back this
cost, cash flow from operations was 12% higher than in 2015.
The Group completed the acquisition of Intrelate in the year
for net cash consideration of £0.8m and also paid £3.0m of
contingent consideration in respect of the 2014 Medical Imaging
acquisition. There are no outstanding acquisition-related
payments on the year end balance sheet.
Net cash spent on capital expenditure excluding capitalised
development costs reduced to £5.9m (2015: £7.2m). Capital
additions in the year included £5.0m on computer equipment
(£2.6m of which related to hosting contract assets).
The Group’s Employee Benefit Trust received £0.6m (2015: £0.6m)
for shares transferred in connection with the Group’s share
schemes. After tax, dividends and other payments, including
the £1.5m receipt relating to the disposal of the Group’s minority
interest in Pharmacy2U in the year, the total net cash inflow of
£8.7m resulted in a year end net debt position of £0.4m (2015:
£9.1m), comprised of cash of £4.3m and bank overdraft and debt
of £4.7m. At 31 December 2016, the Group had available bank
facilities of £18.0m committed until June 2017. The Group has
commenced a process to secure replacement facilities to provide
flexibility to meet day-to-day working capital requirements,
support the Group’s organic growth, secure M&A opportunities
and provide appropriate levels of cash return to shareholders
in line with the Group’s capital allocation policy.
Peter Southby
Chief Financial Officer
15 March 2017
Recurring revenue
£128.5m +4%
Total dividend for the year
Cash generated from operations2
23.4p +10%
£38.0m +4%
2016
2015
2014
2013
2012
128.5
123.0
102.7
81.4
69.4
2016
2015
2014
2013
2012
23.4
21.2
18.4
16.0
14.2
2016
2015
2014
2013
2012
38.0
36.5
38.3
32.6
27.4
2 Stated after deduction of capitalised development costs of £5.7m (2015: £6.2m) and of the cash impact of the cost reduction programme of £3.1m (2015: nil).
31
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Sustainability policy
Committed to sustainability
EMIS Group is committed to high ethical standards and contributes to economic
development, whilst both improving the delivery of healthcare and the quality
of life for our people and the communities within which we work and live.
EMIS Group sustainability policy covers the key areas of:
Ethical business practices
Community
Health and safety
Environmental
management
Employees
Ethical business practices
EMIS Group policies detail the standards expected throughout
the Group including free and fair competition, the prohibition
of bribery, honest and fair dealing with suppliers, and ensuring
that the welfare of workers and employment conditions within
the supply chain meet recognised standards.
Community
EMIS Group’s presence in, and contribution to, local
communities around its offices continues to remain important.
The Group has supported a wide range of initiatives this year
including a range of both national and local charities, from CLIC
Sargent and Oxfam, to local elderly and homeless initiatives.
The Group has a statement of ethics and a whistleblowing
policy, which is reviewed annually by the audit committee.
During the year the whistleblowing policy was updated and
rolled out to all employees. All employees are made aware of the
Bribery Act 2010 and refresher training is carried out annually.
Many colleagues raised funds for their own charitable activities
and were actively supported to do this at work with publicity
through both the Group intranet and the in-house magazine.
In total the Group supported and helped to raise funds for
around 30 charities over the year.
Modern Slavery Act 2015
During the year, and in compliance with the Modern Slavery Act
2015, the Group issued a statement which confirmed its commitment
to ensuring that there is no modern slavery or human trafficking
(or any other kind of coerced labour) in its supply chains or any
part of the business. Work has commenced to identify and
assess potential risk areas across the business and the Group
will continue to update its policies and procedures as required to
ensure it maintains appropriate safeguards in relation to its own
business and in respect of its supply chain and partners. Initial
indications from the work carried out are that EMIS Group’s
operations appear to have a low inherent risk of slavery/
trafficking primarily due to the skilled nature of the business
and the fact that most labour is UK based and in house.
A process has commenced to contact all active suppliers as
part of a broader ongoing review of the Company’s terms and
conditions. As part of this process, confirmation will be sought
from suppliers that they are compliant with the Modern Slavery
Act. For those companies not compliant, a risk analysis process
will be commenced and they will be given the opportunity to
comply within an agreed period. Where compliance is not
achieved, an alternative supplier will be sourced.
32
EMIS Group plc Annual report and accounts 2016
The London South 2016 Tough Mudder team, helping to
raise funds for Help for Heroes.
STRATEGIC REPORT Health and safety
Reporting
The EMIS Group Board receives reports twice a year on
environmental and health and safety compliance across
the Group.
Health and safety is a centralised Group Services function
with responsibility for day-to-day activities in each business.
During the year, audits of all policies and procedures were
undertaken along with a managed roll-out of Group policies
through an online system which records compliance by
individuals to ensure a consistent Environmental and
Health and Safety approach across the Group.
Training
All new starters receive health and safety induction training
and existing staff have all received refresher training. A total
of 1,462 training modules were completed during the year.
In addition, 268 members of staff have attended instructor-led
training sessions. Further modules will be released throughout
2017, if required, through the online system, which was introduced
during 2016.
Accidents and incidents
Information from any reported accidents is collated from
across the Group. There was a 29% reduction in accidents
and incidents in 2016.
There was one RIDDOR accident reported across the Group in
2016, compared to four in 2015. Reviews of the risk assessment
process and the type of accidents and incidents that occurred
during the year were carried out.
Work has continued to encourage company vehicle drivers
to undertake advanced classroom-based and in-car driver
training, and to work with our insurers to improve the standard
of driving and reduce the number of motor accidents.
Accidents and incidents (excluding driver accidents)
39
2016
2015
2014
2013
39
54
66
66
Driver accidents
33
2016
2015
2014
2013
33
48
62
53
Environmental management
Accreditations
We continue to recognise the importance of protecting the
environment and mitigating the impact of the Group’s activities.
EMIS Group has established an environmental management
system that provides a framework for managing and reducing
the Group’s environmental impacts and establishes programmes
to help achieve our environmental objectives as part of the
continual improvement process. Following certification of the
management system ISO 14001:2004 in 2014 and the continued
development of the environmental management system,
the Group will transition to the updated ISO 14001:2015 by
December 2017.
A three-year plan was put in place in 2015, with six-monthly
surveillance visits planned across the EMIS Group to ensure
that compliance and that continual improvement is made
against the set objectives and targets.
Three key areas remain:
• utility usage;
• waste; and
• travel.
Utility usage
Baseline data across the Group was recorded in 2016 and
targets have been set to continue to reduce usage during 2017.
EMIS Group is now compliant with Article 8 (4-6) of the
EU Energy Efficiency Directive (2012/2/EU).
Waste
The Group disposed of 20.38 tonnes of IT waste which
was a decrease of 63% from the previous year. This reflects the
completion of a project where the Group disposed of IT waste
on behalf of its customers.
CO₂ emissions
Vehicles available to staff have a CO2 emissions average of 112g/km
(2015: 112g/km).
Video conferencing facilities have been installed across the
Group and targets established to further reduce business travel
by encouraging mobile working, as well as offering the ‘cycle to
work’ scheme.
EMIS Group has established
an environmental management
system that provides a framework
for managing and reducing the
Group’s environment impact.
33
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Sustainability policy continued
The work our people do is important
not only to the business, but to
society as a whole, as the solutions
we create and the services we
provide help to improve patient lives.
Supporting our people to do this
incredible work is essential so we have
introduced a fair and competitive
deal to recognise their efforts, and to
provide greater equality throughout
the Group. We will continue to build
on this in 2017, so that all employees
feel valued and rewarded for the
work they do.
Nicola Cliffe
People Director
34
EMIS Group plc Annual report and accounts 2016
Employees
People strategy
2016 saw the development of the Group’s people strategy. The aim
is to foster passion and engagement by supporting and developing
employees to achieve, learn and grow at EMIS Group. It outlines its
commitment to employees through: offering a fair and competitive
deal; bringing in the best talent; creating a learning organisation;
doing the basics brilliantly; providing compelling communications;
caring for people; and contributing to local communities.
Employee feedback (Your Say)
A second survey was carried out across the whole Group for
all employees to have their say about what it feels like to work
for EMIS Group – “Your Say”. Results improved year on year and
engagement scores increased with 78% of colleagues being
happy at work and 87% proud of what the Group does.
We improved the focus on internal communications with the
intranet, the internal magazine “Link” and the “Town Hall”
events becoming trusted sources of information.
Across the Group, action plans have been created for each
business and department; focus groups and champion networks
have worked together to discuss how they can drive employee
engagement and work together to promote a positive and
empowered working environment.
Equality and diversity
Equality and diversity continue to be very important to the
Group and it recognises the benefits a diverse workforce brings
to the business. To build on the foundations already in place, the
Group plans to promote equality and diversity in 2017 by making
this one of the “vital few” priorities. As the Group continues to
create a culture of equal opportunities, it will ensure all colleagues
are aware of the practices in place through updated people policies,
STRATEGIC REPORT
and will monitor the effectiveness. It is the Group’s intention to
be a great place to work, with teams that have a diverse blend
of knowledge, skills and experience.
A fair and competitive deal
Following the Group’s growth via acquisition, colleagues fed back
for the last two years that they would like to see a fairer company
in relation to pay and benefits. As a consequence, a review was
completed in 2016. In conjunction with Hay Group, all job roles
within scope were evaluated and colleagues were given the
option to accept a new standardised contract that ensures all
colleagues in equivalent roles have the same terms and
conditions. Of those colleagues, 95% voluntarily accepted their
new contract, with many seeing increased benefits as a result.
Employee benefits
A new benefits portal for all employees was created during the
year delivering an enhanced suite of new benefits for colleagues
around the Group. Employees now have access to a range of
flexible benefits through this portal including: buying and selling
holidays, car leasing, childcare vouchers, the opportunity to
increase pension contributions and life cover.
A learning organisation
Continuing to deliver on the Group’s commitment to develop people,
both job-specific and behavioural training have been implemented
during the year, which built on the platform created in 2015.
The Group invested in an online learning portal called Virtual
Ashridge, available to everyone in EMIS Group. Staff can use this
portal to access resources which will support their personal
development, positive behaviours (related to our values in action)
and knowledge. This learning portal supports the new personal
development framework called Driving Performance, which will
launch in 2017.
Nearly two-thirds of the Group’s managers, over 300, have started
an internal management course, “Leading the EMIS Group Way”. This
training programme is aimed at equipping managers with skills such
as performance management, influencing styles and communication.
A number of employees have gained NVQ qualifications across the
Group and this will continue throughout 2017. The apprenticeship
scheme continued with several graduates from the scheme being
employed on a permanent basis. The Group continues to support
local communities by offering work experience placements across
a variety of Group departments.
Pension schemes
95% of all employees are now members of a company
pension scheme. New employees are auto-enrolled into their
relevant scheme with the contribution rates the Group offers
ahead of the minimum requirements. EMIS Health Specialist and
EMIS Care, the last parts of the Group to implement pension
arrangements, started auto-enrolment in August 2016 and
all colleagues have joined their schemes.
The Group has a phased approach to pension contributions and
by April 2019 pension contributions will be a minimum of 9%
(4.5% employee and 4.5% employer) rising to 10% by April 2020
(5% employee and 5% employer).
Share incentive scheme
The Share Incentive Plan (SIP) continues to be offered to all
employees with over twelve months’ service. At the end of 2016,
1,004 employees from across the Group were shareholders in the SIP.
Male 61%
All employees
61+
73+
Female 39%
Management (including directors)1
Male 73%
Female 27%
1
Directors and management as defined
by EMIS Group.
35
Annual report and accounts 2016 EMIS Group plcSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS27
+
G
39
+
G
Board of Directors
APPOINTED
March 2011
BOARD COMMITTEES
A
R
N
APPOINTED
October 2012
BOARD COMMITTEES
None
Mike O’Leary
Non-executive Chairman
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
Non-executive director of Epwin Group plc
EXPERIENCE
Mike’s public company main board experience
dates back to 1987. He has served AIM-listed,
FTSE 250 and FTSE 100 companies during that
time in a variety of markets, mostly with a tech
focus. He has extensive experience of running
global operations and a strong background
in the IT industry, as well as an intimate
association with the UK and international
healthcare sectors. Mike has managed a
healthcare division in the US which supplied
software and services to over 70,000 primary
care physicians. He also has experience of
enterprise acute care and departmental
solutions in the healthcare sector.
Mike’s previous roles have included joint
chief operating officer of Misys plc; chief executive
of healthcare and insurance divisions of Misys plc;
chairman of ACT Medisys; chief executive
of Huon Corporation; chief executive of
Marlborough Stirling plc; chairman of
Digital Healthcare Ltd; and non-executive director
of Headlam Group plc.
Peter Southby
Chief Financial Officer
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
Institute of Chartered Accountants in
England and Wales (Fellow)
EXPERIENCE
Peter has over 20 years of experience in
finance, mainly in a public company environment,
including ten years at board level. He has led
numerous corporate transactions including
fundraising and acquisitions. His experience
has given him an in-depth knowledge
of strategy across multiple industry sectors
with a particular focus on support services.
Peter also has lead responsibility for
a number of shared service functions.
Peter was formerly financial director at
ENER-G plc; finance director at Augean plc;
and has held senior financial positions at
White Young Green plc and Leeds United plc,
having started his career at Arthur Andersen.
APPOINTED
July 2013
BOARD COMMITTEES
None
APPOINTED
March 2010
BOARD COMMITTEES
A
R
N
Chris Spencer
Chief Executive Officer
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
Chartered Management Institute (Fellow)
Society for Computers and Law
Law Society of England and Wales
Chartered Institute of
Patent Agents (Associate)
EXPERIENCE
Chris has nearly four decades of experience
of general management, leadership and software
(specification, design, development, project
management, implementation, marketing and
sales) within the healthcare, legal and educational
sectors, both as a founder of his own companies
and a senior manager in established companies.
His roles at EMIS Group since joining in 1999
include Commercial Development Director,
Group Legal Counsel, Chief Administrative
Officer and CEO.
Chris was previously general manager and
head of IT at Markgraaf Patents Ltd; founder
shareholder and director of software house
Solicitec Ltd; and managing partner at
Emsley Collins (solicitors).
Robin Taylor
Senior Independent Non-executive Director
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
Non-executive director of Fusionex International plc
Non-executive director of FDM Group plc
Institute of Chartered Accountants of Scotland
EXPERIENCE
Robin joined EMIS Group as Senior Independent
Non-executive Director and Chair of the audit
committee on 1 March 2010 and brings many
years’ experience as a plc director. Robin has held
a variety of financial and general management
roles in both Europe and North America. He has
experience of financial reporting, financing,
transactions and risk management.
Robin’s previous roles include chief financial
officer of Intec Telecom Systems plc; chief financial
officer of ITNET plc; chief financial officer of
JBA Holdings plc; and non-executive director
of Phoenix IT Group plc.
36
EMIS Group plc Annual report and accounts 2016
GOVERNANCE APPOINTED
September 2015
(having previously
served on the Board
between February
2013 and April 2015)
BOARD COMMITTEES
A
R
N
Andy McKeon
Independent Non-executive Director
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
Chairman of the Nuffield Trust
Vice-chair at the National Institute for
Health and Care Excellence (NICE)
EXPERIENCE
Andy’s extensive knowledge of the NHS
and experience in shaping health policy add
invaluable expertise to the Board discussions.
He is an advocate for change which benefits
patients. The Board believes Andy brings an
independent view and is well suited to the
chairmanship of the remuneration committee.
Andy was formerly interim chief executive
of the Nuffield Trust; managing director,
Health at the Audit Commission; departmental
board member at the Department of Health
director general responsible for policy and
planning; head of primary care. Department
of Health; deputy chief executive of the Barts
and London NHS Trust; and adjunct professor
of the Institute of Global Health Innovation,
Imperial College London.
APPOINTED
May 2014
BOARD COMMITTEES
A
R
N
Kevin Boyd
Independent Non-executive Director
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
Group finance director at
Spirax-Sarco Engineering plc
Institute of Chartered Accountants
in England and Wales (Fellow)
Institution of Engineering and Technology (Fellow)
EXPERIENCE
As a current FTSE 250 group finance director,
Kevin brings real-time financial expertise and
software systems knowledge to the Board.
Together with Kevin’s experience of running
complex businesses and corporate transactions,
the Board considers his financial and investor
relations experience to be of particular value
to the Board.
Kevin was previously group finance director at
Oxford Instruments plc; group finance director
at Radstone Technology plc; and finance
director at Siroyan Ltd, and has held senior
financial positions at TI Group plc.
COMMITTEE MEMBERSHIP
A
R
N
Audit committee
Remuneration committee
Nomination committee
Chairman of committee
APPOINTED
January 2017
BOARD COMMITTEES
A
R
N
David Sides
Independent Non-executive Director
EXTERNAL APPOINTMENTS AND MEMBERSHIPS
President and CEO of Streamline Health Inc.
American College of Healthcare
Executives (Fellow)
EXPERIENCE
David is the president and CEO of Streamline
Health Inc. a Nasdaq-listed company. Prior to
joining Streamline Health, David was CEO of
iMDSoft Inc., a provider of clinical information
systems and electronic medical records for critical,
perioperative and acute care organisations.
David previously worked at Cerner Corporation,
serving as the managing director of Cerner
UK & Ireland, and later as senior vice president
worldwide consulting. He led Cerner’s professional
services in 24 countries and was accountable
for every implementation and all consulting
work carried out by Cerner.
37
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc
Corporate governance
MIKE O’LEARY, CHAIRMAN
Chairman’s introduction
to corporate governance
Dear Shareholder
On behalf of the Board I am pleased to present the EMIS Group plc
corporate governance report for the year ended 31 December 2016.
The Company remains committed to high standards of corporate
governance and the Board acknowledges the importance of the
principles set out in the 2016 UK Corporate Governance Code
(“the Code”) published by the Financial Reporting Council.
As your Chairman I am responsible for ensuring that the
Board operates within a sound governance framework, based
on best practice principles suitable for a company quoted on the
Alternative Investment Market (AIM). Governance arrangements
are reviewed on an ongoing basis to ensure that they remain fit for
purpose. As the Company operates within the connected healthcare
software and services sector, it is increasingly important the focus
remains on the safety and security of the Company as well as
balancing the interests of all our stakeholders.
The following report outlines how the Company has applied the
principles of the Code. The Board understands the importance
of ensuring that there is a strong governance framework in place
which underpins the Company’s ability to achieve its strategic
goals. Although compliance with the Code is not mandatory for
companies admitted to AIM, the Company continues to establish
a framework of policies and procedures designed to comply with
the Code as far as is reasonably practicable and appropriate for
a company of its size and complexity.
38
EMIS Group plc Annual report and accounts 2016
As Chairman I undertake an annual internal review of the
performance of the Board and each Director as part of the
overall effectiveness review. The Board considers the current
balance of skills, experience, independence and knowledge
and assesses whether it remains appropriate for the business.
This year’s review concluded that the Board continues to operate
effectively and in an open and constructive manner where challenge
is actively encouraged. An important part of my role is to ensure
that the Board collectively has the right mix of skills, diversity
and independence to provide an appropriate level of oversight
of the business. Following a review of the Board composition
carried out by the nomination committee, the Board decided
to recruit an additional Non-executive Director during the year.
On 12 December 2016, it was announced that Chris Spencer had
indicated his intention to retire from his position as Chief Executive
Officer and from the Board by the end of 2017. A formal search
has begun for his successor. Chris has been a pivotal member of
EMIS Group’s leadership team, and a major contributor at both a
strategic and operational level, since he joined the Group in 1999.
He served as Chief Administrative Officer, as well as roles including
Group Counsel and Company Secretary, prior to being appointed
as Chief Executive Officer in July 2013.
At the same time, it was announced that David Sides had joined
the Board as a Non-executive Director, further strengthening the
Board’s composition, with effect from 1 January 2017. David brings
with him a wealth of experience of the healthcare industry gained
on a global basis. Further details of his skills and experience
can be found in the Board of Directors section on page 37.
The process adopted for his appointment is set out in the
report of the nomination committee.
Directors are subject to election or re-election by shareholders
at each Annual General Meeting (AGM). The nomination committee
considers that all the Directors continue to be effective and
demonstrate an appropriate commitment to their roles.
The Board has extensive operational experience with many years
of detailed knowledge of the healthcare sector, both in the UK and
overseas. This knowledge is supplemented by significant financial,
transactional, risk management and public company experience.
All members of the Board agreed that appropriate processes were
in place for setting the strategic direction of the Group, monitoring
its performance against the plan and ensuring that risks and
governance were properly addressed. Each of the principal Board
committees has carried out a separate effectiveness review, details
of which are set out later in this report. Each committee concluded
that it continued to be effective and all members are considered
to have made valuable contributions. When considering Board
membership, factors including the balance of skills, experience,
independence and knowledge of the Group and diversity,
including gender, are taken into account.
GOVERNANCE Communication between the Company and its shareholders is an
essential element of a sound governance framework. Details of the
process adopted for such communications are set out on page 45.
The AGM will be held at Rawdon House, Green Lane, Yeadon,
Leeds LS19 7BY on Friday 28 April 2017 at 10.30am. I welcome
the opportunity to meet as many of our shareholders as can
attend. The AGM provides a great opportunity for shareholders
to ask any questions that they may have in respect of the
Group’s activities.
In conclusion, the Company has maintained its progress in improving
standards of corporate governance established in recent years
and the importance of retaining a strong governance framework
in an ever challenging marketplace cannot be over-emphasised.
I remain confident that the Board will continue to set the correct
tone and provide strong leadership. The pages that follow explain
how we applied specific aspects of the Group’s compliance
arrangements and how the main principles of the Code in relation
to leadership, effectiveness, accountability, remuneration and
relations with shareholders have been applied.
Mike O’Leary
Chairman
15 March 2017
Governance at EMIS Group
The governance structures have been established and developed
based on the EMIS Group values of being a caring, innovative,
joined-up and accountable business. It is through these strong
beliefs that we seek to improve the delivery of healthcare.
Although the Company is not required to comply with the
Code, the Board seeks, where possible and appropriate, to
comply with the Code’s principles and provisions to ensure
alignment with good practice, transparency and openness.
This report follows the key themes of the Code of leadership,
effectiveness, accountability and relations with shareholders.
The other key theme of remuneration is addressed separately
in the Directors’ remuneration report.
Leadership and effectiveness
The Board
The Board’s principal role is to provide effective leadership of the
Group. It is responsible to shareholders for delivering shareholder
value by developing the overall strategy and supporting the
development of the direction of the Group. The Board is also
responsible for overseeing the Group’s external financial and
other reporting and for ensuring that appropriate risk management
and internal control systems are implemented and maintained.
These responsibilities are largely exercised through the audit
committee, which reports separately on pages 46 to 50.
The Board has a schedule of matters reserved to it including,
but not limited to:
• strategy and long-term objectives;
• financial statements, dividend payments and accounting
policies and practices;
• approval of the Group budget;
• measuring performance of KPIs, both financial
and non-financial;
• capital structure;
• internal controls and risk management;
• acquisitions and disposals;
• major capital expenditure;
• legal (including major contracts), health and safety
and insurance issues; and
• Board structure and the appointment of advisers.
The business model on pages 8 and 9 explains the basis on
which the Group generates and preserves value over the longer
term, and the strategy of the Group and achievements in 2016
are outlined on pages 12 to 15.
The Board undertakes a formal strategic review once a year.
This two-day meeting reviews progress and seeks to develop
the future strategic direction of the Group. It is attended by all
Board members (on the first day) and the members of the Group
Executive Board (GXB). The forum considers the economic
environment in which the Group operates, reviews the current
business model and market opportunities, reviews the principal
risks facing the Company and sets the key strategic priorities for
the next three years. It also sets the strategy for the longer term
to enhance competitive advantage and shareholder value.
Board – Executive/
Non-executive membership
Chairman – Non-executive 1
Executive Directors 2
Non-executive Directors 4
39
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Corporate governance continued
Leadership and effectiveness continued
Board structure
At the start of the year, the Board of EMIS Group plc ("the Board")
consisted of Mike O’Leary, Non-executive Chairman; Chris Spencer,
Chief Executive Officer; Peter Southby, Chief Financial Officer;
Robin Taylor, Senior Independent Non-executive Director;
Andy McKeon, Non-executive Director; and Kevin Boyd,
Non-executive Director.
As previously referenced, Chris Spencer has announced his intention
to retire as Chief Executive Officer and from the Board during 2017.
A process has begun for the appointment of his successor.
On 1 January 2017, David Sides was appointed as a Non-executive
Director of the Company. Appointments to the Board are led by
the nomination committee. Further information on the process
for this appointment can be found in that committee’s report.
Mike O’Leary, Kevin Boyd, Andy McKeon, Robin Taylor and
David Sides were considered by the Board to be independent
at the time of their appointments. Each Non-executive Director
is considered to be independent as to character and judgement
and to be free of relationships and other circumstances that might
impact their independence. The Chairman and Non-executive
Directors meet at least annually without the Executive
Directors present.
Appointments of Non-executive Directors are for specific
terms and subject to statutory provisions relating to the
removal of a Director.
Board gender
Male 7
Female 0
Biographies of individual Directors are provided on
pages 36 and 37. Their respective Board and committee
responsibilities are outlined below and in the individual
reports of the various committees.
The Board delegates certain responsibilities to the three principal
Board committees: the audit committee, the remuneration
committee and the nomination committee. These responsibilities
are set out in formal terms of reference for each committee, which
are available on the Group’s website, www.emisgroupplc.com/
investors/corporate-governance.
The Chairman of each committee reports to the Board in relation
to the committee’s activities and recommendations. Members of
the Board who are not members of individual committees may
be invited to attend meetings of those committees at the discretion
of the respective committee’s Chairman; however, they are not
permitted to vote in respect of committee business.
40
EMIS Group plc Annual report and accounts 2016
Audit committee – The committee is responsible for overseeing
the external financial reporting obligations and associated
announcements, considering risk management, internal controls
procedures and the work of the external auditor. The committee
met four times during the year and comprises all of the
Non-executive Directors. Full details of the work of the committee
are set out in the audit committee report on pages 46 to 50.
Nomination committee – The committee is responsible for
leading the Board appointments process and for considering
the size, structure and composition of the Board, and met five
times in the year. Full details of the work of the committee are
set out in the nomination committee report on page 51.
The Board is satisfied that the size of the Board and its committees
and the balance of Executive and Non-executive members is
such that no individual or small group of individuals can unduly
influence its decisions. The Board is made up of a majority
of independent Non-executive Directors. As at the date of this
report, the Board comprised the Chairman, four independent
Non-executive Directors and two Executive Directors who
collectively possess an appropriate balance of expertise to lead
the Company’s business. Each Non-executive Director brings
a broad range of business knowledge and experience, as well
as specific skills in the NHS, healthcare, digital technology,
finance, corporate transactions or risk management.
The Executive Directors do not hold any non-executive directorships
posts or positions as chairman in any other companies.
Remuneration committee – The committee met six times during
the year and comprises all of the Non-executive Directors. The
committee is responsible for establishing a formal and transparent
procedure for developing policy on Executive remuneration and
for setting the remuneration of individual Directors. Full details
of the work of the committee are set out in the remuneration
committee report on pages 53 and 54.
The roles of the Chairman and the Chief Executive Officer are
separate and defined in writing. This provides a clear division of
responsibilities between the running of the Board and the executive
responsibility of running the business. The key responsibilities of
the Chairman, the Chief Executive Officer and the Non-executive
Directors are set out below:
Chairman
Mike O’Leary, as Chairman, is responsible for the leadership
and effectiveness of the Board.
The Chairman:
• chairs the Board, the nomination committee and shareholder
meetings (including the AGM);
• provides leadership of the Board and ensures the
effectiveness of all aspects of the Board’s role;
• provides challenge to the Executive Directors and
works closely with the Chief Executive Officer on
key strategic decisions;
• maintains a dialogue with major shareholders on governance
and other strategic matters, as appropriate;
GOVERNANCE • sets the Board agenda and ensures all Directors have the
opportunity to maximise their contribution to the Board
by encouraging open and honest debate and constructive
challenge of the Executive Directors; and
• undertakes the annual evaluation of the Board and builds
an effective Board.
On his appointment, Mike O’Leary met the Code’s requirement
for independence. There have been no significant changes to his
other commitments during the year which have had an impact
on his ability to perform his duties for the Group.
Board age profile
41–45
46–50
51–55
56–60
1
1
1
1
61–65 3
Chief Executive Officer
The Chief Executive Officer, Chris Spencer, is responsible for the
implementation of the approved strategic and financial objectives
of the Group through the day-to-day leadership of the Group’s
business, within defined authority limits. To assist in this, the
Chief Executive Officer has created a Group Executive Board
(GXB) which consists of the Divisional Managing Directors, the
Chief Financial Officer, the Director of Strategy and Marketing,
the People Director, the Chief Medical Officer and the Chief
Technology Officer. The GXB meets at least once a month with a
focus on cross-Group integration and operational performance.
The Chief Executive Officer:
• is responsible for the day-to-day running of the business
and is accountable to the Board for the Group’s financial
and operational performance;
• develops the Group strategy and leads the annual
strategic forum;
• with the Chief Financial Officer, maintains close contact
with the government, shareholders and major customers;
• with the Chief Financial Officer, approves the
divisional budgets;
• chairs the GXB to direct and co-ordinate the management
of the Group’s business generally;
• monitors the performance of senior managers; and
• monitors the Group’s principal risks.
Senior Independent Non-executive Director
The Senior Independent Non-executive Director, Robin Taylor,
acts as a sounding board for the other Directors and conducts
the Chairman’s annual evaluation. He is also available to Directors
and shareholders should a situation arise where it is necessary
for concerns to be referred to the Board other than through
the Chairman or the Chief Executive.
Non-executive Directors
The Non-executive Directors provide independent, constructive
challenge and insight to the Executive team, forming an integral
part of the Board’s decision-making process together with the
monitoring of management and business performance.
The Non-executive Directors play a key role in developing and
reviewing proposals on strategy, actively participating in the annual
strategy forum. They strengthen governance through participation
in and chairmanship of the Board committees, providing a wide
range of experience and independence. This aids the Board in
developing a broader understanding and in evaluating the
implications, risks and consequences of decisions.
Board operation
The number of meetings of the Board and its committees
held during the year ended 31 December 2016, together with
the Directors’ attendance records, are summarised in the table
on page 43. The location for Board meetings is rotated around
the Group’s principal sites in order to provide opportunities for
the Board to meet management and colleagues and develop a
better understanding of the Group’s operations.
Board and committee papers are circulated one week in advance
of meetings to enable the Board to review and consider the
materials provided.
The Chairman ensures that input is sought and obtained from any
Director who is unable to attend a Board meeting and he provides
a verbal update following the meeting to complement the minutes.
There is ongoing contact between the Chairman, the Executive
Directors and the Non-executive Directors between Board meetings.
The amount of time that Non-executive Directors are expected
to commit to discharge their duties is agreed on an individual basis
and depends on their responsibilities. As part of the recruitment
process, the individual time commitment for Non-executive Directors
is agreed at the time of appointment and reviewed periodically
thereafter. The time commitment takes into account whether the
appointee is the Chair or a member of a Board committee and
whether the Director has any external executive responsibilities.
Typically this equates to a minimum of two days per month for a
Non-executive Director and four days per month for the Chairman.
As part of the Chairman’s annual review of Directors’ performance,
it was confirmed that each of the Non-executive Directors continues
to allocate sufficient time to discharge his responsibilities effectively
and did so throughout the year.
41
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Corporate governance continued
Leadership and effectiveness continued
Board operation continued
A topical Board calendar is prepared on an annual basis with
divisional Managing Directors and key Group functional Directors
regularly invited to attend to present an update on their areas of
the business. This is critical in providing further detail to support
strategic decisions. In addition, the Board meets on an ad hoc
basis as necessary to consider specific issues, such as acquisitions,
which are supported by detailed Board papers circulated in
advance analysing all relevant aspects of the topic under discussion.
Standing agenda items
At each meeting comprehensive Board packs are provided
and the following standing items are discussed:
• strategic review;
• financial results and key performance indicators (KPIs);
• sales pipeline;
• management accounts and commentary;
• reports from the CEO on operational matters and the CFO
on financial matters;
• regular presentations from members of the GXB;
• mergers and acquisitions;
• progress reports on major projects;
• analysts’ forecasts;
• Board committee updates;
• investor relations engagement;
• legal, company secretarial and regulatory matters; and
• implementation of actions agreed at previous meetings.
Key topics considered by the Board in 2016
• acquisition opportunities;
• growth strategy operating model – Egton and Group;
• review, debate and challenge of the corporate strategy
and plan;
• the 2017 Group budget;
• employee pay and rewards strategy;
• succession planning and Non-executive Director recruitment;
• banking facilities;
• financial results announcements, presentations, report
and accounts and market updates (annual and half year);
• the Group’s viability statement;
• risk profile;
• new Market Abuse Regulations;
• the Board evaluation report and discussion of the recommendations;
• management information and KPIs;
• half yearly update on environmental health and safety matters;
• presentation on the development function from the
Chief Technology Officer; and
• Managing Directors’ presentations relating to EMIS Health
Primary & Community Care, Secondary Care and Specialist Care
and EMIS Health India.
Board and committee effectiveness
During the year, the Chairman undertook an internal performance
evaluation of individual Directors and the Board as a whole. The
evaluation process considered the balance of skills, knowledge,
independence and experience of the Board.
The Chairman met individually with each Board member and
with the Company Secretary. A framework for those meetings
was provided via a previously circulated agenda, covering topics
which included strategic direction, governance, meeting agendas,
Board packs, Board composition, risk monitoring and mitigation,
and specific areas for improvement. Board members were invited
to add any other topics to this agenda which they felt to be
material or appropriate.
For each principal committee, a tailored questionnaire was
circulated for completion by committee members and regular
attendees covering all aspects of good governance. Directors
were required to assess their satisfaction with the operation
of the Board and its committees and the effectiveness of these
bodies in fulfilling the key responsibilities set out in their respective
terms of reference. The responses were collated and discussed.
Overall, responses indicated a continued satisfaction with the
governance framework and the working methods of each
Director, the Board and its committees.
The Directors agreed that it is important for the Board to strive
for continuous improvement in the way it is governed and operates
and this will remain a focus for the year ahead.
Tenure (Board)
0–3 years 2
4–6 years 4
7+ years 1
42
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Number of meetings of the Board and its committees during the year
The attendance record for Board members during the year to 31 December 2016 is set out below. Additional ad hoc meetings
are held at short notice, as appropriate.
Total number of meetings
Executive Directors
Chris Spencer
Peter Southby
Non-executive Directors
Mike O’Leary
Robin Taylor
Kevin Boyd
Andy McKeon
Board
Audit
committee
Nomination Remuneration
committee
committee
12
12
12
12
12
12
12
4
—
—
4
4
4
4
5
—
—
5
5
5
5
6
—
—
6
6
6
6
The Directors have access to the advice and services of the Company Secretary, Simon Waite, who is responsible for ensuring
that the Board and its committees’ procedures and applicable rules and regulations are complied with. The Directors all
have access to the Group’s key advisers. There is a procedure for the Directors to take independent professional advice
at the Company’s expense, if required, in the performance of their duties, and appropriate insurance cover is in place in
respect of legal action against the Directors. The Company has adopted and maintained a share dealing code for Directors
and employees in accordance with the Market Abuse Regulations which came into effect in July 2016.
The Board evaluation concluded that the Directors are open,
constructive and able to express their views, and that the Board
meets its regulatory requirements. Areas to be targeted specifically
for improvement included:
• Content of the monthly Board pack. A review had previously
commenced to identify ways in which the content of Board
papers could be further enhanced. The evaluation supported
the review process which sought to achieve an enhanced
and clearer analysis of issues with a focus on the quality
of information to support the Board decision-making process
and to allow a broadening of debate.
• Risk evaluation. An improved process should be developed to
enable the Board to consider risks in more detail. The assessment
of risk management had also been highlighted in the audit
committee evaluation.
• Board composition. It was noted that composition had been
enhanced by the appointment of David Sides as an additional
Non-executive Director, from both a commercial and market
expertise perspective.
• Annual strategy review. This was highlighted as a key opportunity
for the Board, and in particular the Non-executive members,
to better understand strategic options available. It was agreed
to review the form and content of the session to ensure that the
strategic direction of the business was appropriately addressed.
As Senior Independent Non-executive Director, Robin Taylor
reviewed the performance of the Chairman with the other
members of the Board. The Directors unanimously agreed
that Mike O’Leary continues to lead the Board in an effective
and inclusive way. He remains engaged, knowledgeable and
committed to his role. Directors are actively encouraged to
contribute to Board discussions on all matters of significance
to the strategy and development of the business.
Conflicts of interest
Directors have a legal duty to avoid conflicts of interest. Prior
to appointment, conflicts of interest are disclosed and assessed
to ensure that there are no matters which would prevent that
person from taking on the appointment. If any potential conflict
arises, the Articles of Association permit the Board to authorise
the conflict, subject to such conditions or limitations as the Board
may determine. In situations where a potential conflict arises,
the Director concerned will not attend any related meeting
or discussion, and all material in relation to that matter will
be restricted, including Board papers and minutes. A revised
conflicts of interest policy was approved during the year.
Induction and development
All new Directors undergo a comprehensive induction and
development programme, which is designed to help Directors
make an effective and informed contribution to the Board as
quickly as possible after appointment. Induction programmes
are tailored to the new Directors based upon their needs identified
during the recruitment process. The aim is for an induction
programme to be completed over a six to nine-month timescale
depending upon the Directors’ knowledge, experience and other
commitments. New Directors receive a comprehensive pack of
information and a tailored induction programme that includes
meeting senior managers. This ensures that knowledge and
understanding of the business and its technology are developed
rapidly with that understanding subsequently maintained and
enhanced by regular Board site visits to keep up to date with
Group developments. All Directors are encouraged to attend
relevant training courses and events.
The process for the appointment of new Directors is rigorous
and transparent, and further information is contained in the
report of the nomination committee on page 51.
43
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Corporate governance continued
Accountability
There are formal and transparent arrangements for considering
how corporate reporting, risk management and internal control
principles are applied and for maintaining an appropriate
relationship with the Company’s auditor.
The Company has a wide range of governance policies and
procedures in place, including: a code of ethics; an anti-bribery
and corruption policy and training programme; a whistleblowing
policy (including an external whistleblowing hotline); human
resource and staff welfare policies and procedures (including health
and safety); new Group-wide employment contracts; and
internal audit visits.
Internal control
The Board is accountable to its shareholders and seeks to balance
their interests with those of a broader range of stakeholders,
which includes colleagues, suppliers, customers, regulators and
the community. The Board has ultimate responsibility for the
Group’s internal control arrangements and for reviewing their
effectiveness. Such arrangements guide and direct the activities
of the Group to support delivery of its strategic, financial,
operational and other objectives and safeguard shareholders’
investment and the Group’s assets. The Board governs through
clearly defined committee structures which support the work
of, and are accountable to, the Board. Details of the role
and activities of the principal committees are set out in the
committee reports.
The Board recognises that a system of internal control
reduces, but cannot eliminate, the likelihood and/or impact
of poor judgement in decision making, human error, deliberate
circumvention of control processes by employees and others,
management override of controls and the occurrence of
unforeseeable circumstances.
The Board sets policies and seeks and obtains on an ongoing
basis, both directly and through the audit committee, assurance
regarding the existence and operation of appropriate internal
controls to mitigate key strategic, financial, operational, compliance
and reputational risks. The Board and audit committee consider
any significant control matters raised in reports from management,
the Company’s external auditor and the Head of Group Internal
Audit, and the Board monitors the progress of remedial actions.
The key components of the Group’s overall control
frameworks, all of which were in place, throughout the year
ended 31 December 2016 and up to the date of approval
of this report, are set out below.
• Authorisation limits are in place.
• An appropriate finance function for each principal business in
the Group with suitably qualified and experienced professionals.
Divisional finance leads report to the Divisional Managing
Directors and the Group Financial Controller.
• A comprehensive monthly financial reporting system in place
which covers, amongst other things, operating results, cash
flow, balance sheet information, forecasts and comparisons
against budgets.
• Regular updates to the Board from management on property,
insurance, litigation, human resources, corporate social
responsibility and health and safety matters.
• The Group’s continuation of the structured roll-out of a common
ERP solution (Microsoft Dynamics AX) across the business to
improve controls, business and financial reporting and processes.
Segregation of duties, authorisation limits and other key
internal controls are designed into both system-based and
manual processes. These arrangements are reviewed periodically
by management, internal quality assurance functions and
internal audit to ensure they remain appropriate.
The Group has extensive internal quality assurance processes
in critical areas of the business and there are functions within
the Group that provide assurance and advice covering specialist
areas, such as information security and clinical safety.
These are reviewed on an annual basis against the current factors
relevant to the Company’s activities or markets, or other areas
of the external environment that may be expected to increase
the risks faced by the Company.
The Group’s divisions variously hold ten separate ISO certifications
against the following four standards; ISO 27001: Information
Security; ISO 9001: Quality; ISO 20000: Service Management;
and ISO 14001: Environmental (Group certification). Each certificate
requires an overall management system, which includes an
internal audit process that feeds into a service improvement
process, to ensure that the standards are being adhered to,
remain relevant to the business and are continually improved.
In 2017, the aim is to create Group certifications, which will
reduce the overall number of certificates held, but will update
existing certifications and enable the standardisation of processes
and the application of a more consistent approach to assurance
and governance across the Group. It is also planned to prioritise
areas of the business which require inclusion under the scope of
these certificates and to provide a pathway to extend the scope
to cover them at the appropriate time.
Financial planning and monitoring
EMIS Group sets annual budgets, incorporating three-year
projections, which are subject to Board approval.
The Board reviews business performance when it meets.
Summary financial information, including actual performance
versus budget, expected performance and prior year comparatives,
is provided to all Board members on a monthly basis. The monthly
reporting process is supplemented by a cycle of reviews that
incorporate in-depth reforecasting of expected financial
performance for the remainder of the current financial year.
Policies, procedures and authorisation limits
The Group has grown both organically and through business
acquisition in recent years. This has resulted in a mix of locally
defined policies and procedures covering a range of activities,
which are adequate, but not necessarily fully aligned with each
other. There is an ongoing programme to define and create
Group policies in key areas and for the divisions to adopt and
apply those policies.
44
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Relations with shareholders
The Executive Directors provide the key focus for engagement
with shareholders and prospective investors. During the year, an
extensive programme of meetings with analysts and institutional
shareholders took place following the preliminary and interim
financial results announcements. The success of the US roadshow
introduced in 2015 was built upon with a further visit by the CFO
in March 2016. There is regular dialogue with individual institutional
shareholders throughout the year to discuss strategy, performance
and governance and to obtain feedback. These meetings are
usually attended by the CEO and the CFO. A capital markets
event was held in October 2016 at which investors and analysts
were invited to Leeds and received presentations from some
of the Group’s customers and from members of the GXB.
Feedback from these meetings, and regular market
updates prepared by the Company’s broker, are presented
to the Board to ensure the Directors have a good understanding
of shareholders’ views. The Chairman and the Senior Independent
Non-executive Director are also available separately to shareholders
to discuss strategy and governance issues. Feedback from any
such communications is provided to the Board at the next
scheduled meeting.
The Company has a dedicated investors’ section on its
website, www.emisgroupplc.com/investors, together with
a wide range of information on the Group’s activities,
including all regulatory announcements.
At the AGM, on 28 April 2017, separate resolutions will be
proposed for each substantially different issue. Proxy votes are
disclosed by means of an announcement on the London Stock
Exchange and via the Group’s website. All Directors, including
the committee Chairmen, will be available to answer questions
at the AGM. The annual report, financial statements and related
papers are placed on the Group’s website and posted to
shareholders if they have requested a paper copy.
Mike O’Leary
Chairman
15 March 2017
During the year, significant work has been carried out to produce
a Group Finance Manual, which will be completed and rolled out
across the business in 2017. The manual defines the Group’s
policies across a range of areas, including delegated authority
levels, and the divisions will be aligning their local practices to
the guiding principles outlined in the manual. A new Group
business expenses policy was launched on 1 January 2017.
A revised Group whistleblowing policy was implemented
during the year. This introduced a confidential reporting hotline
operated by an external independent whistleblowing service
provider. The policy and the reporting hotline were launched
across the Group by the CEO and considerable efforts have
been made to publicise the policy and the reporting hotline
to the business. Employees are expected to acknowledge
that they have read and understood the policy.
With effect from 1 January 2017, a new rewards and recognition
policy was introduced, following a review carried out in conjunction
with Hay Group. The policy has introduced a more consistent,
standardised and simplified approach to how the Group looks
after its people, based on the following core elements: one EMIS
Group reward framework; one EMIS Group set of policies and
one employee handbook; and consistent employment contracts
across the Group.
Risk management
The risk management process is described in the report of the
audit committee on pages 46 to 50.
The Board considers the nature and extent of the principal risks
for which it has appetite in achieving its strategic objectives and
maintains sound risk management and internal control systems.
During the year, the Board spent considerable time with the senior
management team discussing and defining its risk appetite across
a range of key risk categories. This continues to be communicated
to the business through the risk management process.
The principal risks and uncertainties that the Group faces,
and features of the internal control system that operated
throughout the period covered by the financial statements,
are referred to either above or in the report of the audit
committee. The approach to risk management and the
principal risks themselves are set out on pages 16 to 19.
Internal audit
The Group established a risk-based internal audit function
during 2015 and this continued to operate throughout 2016.
The Head of Group Internal Audit reports administratively
to the Group Financial Controller, but operates independently
and has direct and unfettered access to the Chairman of the
audit committee. These reporting lines will be kept under
review to ensure the function maintains its independence from
management. The function provides regular and timely updates
on its activities to the audit committee. The work of internal
audit is further described in the report of the audit committee
on page 49.
45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Report of the audit committee
ROBIN TAYLOR, CHAIRMAN OF THE AUDIT COMMITTEE
Committee members
Regular attendees
• Robin Taylor (Chairman)
• Mike O’Leary
• Kevin Boyd
• Andy McKeon
• David Sides
(appointed 1 January 2017)
• Chief Executive Officer1
• Chief Financial Officer1
• Group Financial Controller1
• Head of Group Internal Audit1
• Representatives from the
external auditor, KPMG1
• Company Secretary
1 By invitation.
What does the committee do?
The committee provides oversight of:
• financial reporting and external audit;
• internal controls;
• internal audit; and
• whistleblowing, fraud and bribery provision.
The committee reviews its terms of reference on an annual basis
and these are available on the Group’s website.
The audit committee was in place throughout the year and held
four meetings.
46
EMIS Group plc Annual report and accounts 2016
Dear Shareholder
As Chairman of the audit committee, I am pleased to present
our report for the year ended 31 December 2016.
The report provides insight into the composition of the
audit committee and the work it undertakes to ensure that it
has performed its main responsibilities in reviewing financial
reporting, internal control procedures and risk management,
and in relation to the objectivity and independence of the
external auditor.
The committee acknowledges and embraces its role in protecting
the interests of shareholders and we are committed to monitoring
the integrity of the Group’s reporting. The committee performed
a detailed review of the content and tone of the full year, half
year and trading update regulatory announcements, and the
annual report and accounts and half-yearly financial statements.
The committee has satisfied itself that controls over the accuracy
and consistency of information presented are robust.
Composition and governance
In addition to my role as Chairman of the audit committee,
I am also Senior Independent Non-executive Director.
The Board considers both myself and Kevin Boyd to have
recent and relevant financial experience.
The other members of the committee during 2016 were
Andy McKeon and Mike O’Leary. David Sides was appointed
to the committee on 1 January 2017. The Board evaluates
membership of the committee on an annual basis. The Board
considered all members of the committee to be independent
on appointment.
Biographical details of all of the Directors are set out on pages
36 and 37.
The Board believes that the current members have sufficient skills,
qualifications and experience to discharge their duties in accordance
with the committee’s terms of reference. The appointment of
David Sides has provided additional strength to the committee,
especially in the field of digital healthcare systems.
The Chief Executive Officer, the Chief Financial Officer, the Head
of Group Internal Audit, the Group Financial Controller and
senior representatives of the external auditor attend committee
meetings by invitation to ensure that all relevant information
is available to the committee.
All Board members attend each committee meeting and as a
committee we meet with the external auditor, without executive
management present, to discuss matters relating to its remit
and any issues relating to the audit. I also meet with the external
auditor, the Chief Financial Officer and the Head of Group
Internal Audit outside the formal meetings to ensure that
any areas for discussion are dealt with on a timely basis.
GOVERNANCE How the committee discharged its responsibilities
The audit committee met four times during the year in alignment with its terms of reference and with the Group’s financial
reporting timetable.
The audit committee is assisted in discharging its responsibilities by executive management reports, internal and external audit
reports, engagement with the executive management team at the annual strategy meeting and by regular business planning
and performance presentations.
A self-assessment internal review of the effectiveness of the audit committee was carried out during the year through the completion
of questionnaires by committee members and regular attendees. No major deficiencies were noted; however, several recommendations
were made to improve the committee’s effectiveness, including:
• to review the number of committee meetings and time allocated for these meetings to ensure that it was appropriate for the
issues to be addressed;
• to clarify the committee’s role in the risk management process; and
• to provide training and development opportunities for committee members from a variety of sources including the
external auditor.
Executive management assisted the audit committee in ensuring that relevant papers of good quality were presented
to allow informed debate.
The work undertaken by the audit committee during the past year is detailed below:
Financial reporting
• Reviewed the full year results including the annual report and accounts, preliminary results statement and the report from the
external auditor. In reviewing the statements and determining whether they were fair, balanced and understandable, the committee
considered the work and recommendations of management as well as the report from the external auditor.
• Reviewed the interim results statement.
• Considered the appropriateness of accounting policies and critical accounting estimates and judgements. To do this, the committee
considered information provided by the Chief Financial Officer and reports from the external auditor setting out its views on
the accounting treatments and judgements in the financial statements.
• Reviewed going concern assumptions when considering interim and final results statements and long-term viability when
considering the final results statement. Internal financial projections and the results of stress testing the financial models
were taken into account.
Risk management and internal control
• Reviewed the current Group risk management process and concluded that it is appropriate and operating effectively.
• Reviewed and approved a Group risk management policy.
• Approved a project to develop an in-house, web-based risk management software application, TheOneView, to further enhance
and embed risk management across the business.
• Considered the process for ensuring that the principal business risks are being captured and reported to the Board and that
the risk disclosures in the annual report are appropriate.
• Considered the effectiveness of internal controls and risk management systems. There is continued focus on the quality and
timeliness of internal financial reporting with the ongoing programme to roll out the Microsoft Dynamics AX ERP solution across
the Group. The system is now live in EMIS Health Primary & Community Care, EMIS Group plc, EMIS Health India, Egton and Patient.
• Reviewed the effectiveness of the current procedures for the prevention of fraud. The committee reviewed the measures
in place for the prevention and detection of fraud including extensive internal quality assurance processes and the system
of internal financial controls as set out in the corporate governance report.
• Monitored and reviewed the effectiveness of the internal audit and Group finance functions.
• Reviewed the whistleblowing policy and procedures to ensure arrangements are in place for the proportionate and independent
investigation of any reported incidents. The whistleblowing policy includes provision for employees to raise concerns with the
Senior Independent Non-executive Director. No matters were reported during the year.
• Reviewed the effectiveness of compliance with the UK Bribery Act. There were no areas of non-compliance reported to
the committee during the year and the committee was satisfied with current procedures, including online training on the
UK Bribery Act given to all employees.
47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Report of the audit committee continued
How the committee discharged its responsibilities continued
External auditor
• Reviewed the scope and the audit plan for the year-end Group and subsidiary audits.
• Reviewed the formal engagement terms, objectivity and independence of the auditor, including the qualifications, expertise
and resources available.
• Assessed the effectiveness of the external audit process by reviewing, amongst other things, whether the auditor has met the
agreed audit plan and by considering the robustness and perceptiveness of the auditor in its handling of key accounting and
audit judgements identified.
Financial reporting and significant areas of judgement
In finalising the 2016 financial statements, the significant judgements considered by the committee and discussed with the
external auditor were as follows:
Nature of the issue
What the committee considered and any actions undertaken
Carrying amounts of
goodwill, intangible assets
acquired and investments
The carrying amounts of goodwill, intangible assets acquired and investments are reviewed for
impairment at least annually and are assessed against the net present value of projected cash
flows for each cash-generating unit (CGU). Details of the assumptions used in relation to the
review of goodwill carrying value are set out in note 13 to the financial statements.
Following the reviews during the year, an impairment charge of £4,616,000 has been recognised
in the Group statement of comprehensive income against the carrying value of goodwill in the
Specialist Care CGU.
This is in respect of the EMIS Care business which has experienced additional costs associated
with the implementation of its new contracts along with some operational inefficiencies.
The committee discussed the assumptions underlying the related cash flow projections with
both management and KPMG and also considered the appropriateness of the discount rates
used. Following discussion on headroom and sensitivity, the committee was satisfied that the
carrying amounts of goodwill, intangible assets acquired and investments, after the impairment
charge recognised in the year, were appropriate.
The audit committee considered the Group’s revenue recognition policies and concluded that
the Group’s existing approach remained appropriate, noting that this was adequately explained
in the revenue recognition accounting policy note and consistent with the requirements of IAS 18.
The external auditor performed substantive testing in this area and reported its findings to the
committee.
The process to capture and categorise development costs was reviewed. There were no material
changes to this process from the prior year, with the roll-out of Microsoft Dynamics AX during
2017 expected to further improve the quality of reporting in this area. Balances carried forward
in respect of development costs were considered for possible impairment and the committee
concluded that the carrying values and amortisation periods were appropriate.
Revenue recognition
Research and
development costs
External audit
In accordance with its terms of reference, the committee annually
reviews the audit requirements of the Group and the effectiveness
and independence of the incumbent external auditor prior to any
decision to re-appoint.
The committee is responsible for ensuring that the independence
of the Group’s external auditor is not compromised or put at risk
of compromise. The committee reviews both the annual audit plan
and output from the audit process as part of assessing the auditor’s
expertise and performance.
The Group is excluded from the provisions of the recent
EU Audit Directive and Regulation on the grounds that it is
AIM quoted; however, we aim to voluntarily meet the regulatory
requirements as a matter of good practice. KPMG has been the
Group’s external auditor since 2013, with the current audit partner,
Johnathan Pass, having been appointed in that year. Having
undertaken an appropriate tender process and appointed an
external auditor so recently, we have no plans to put the external
audit out to tender in the near future, and would not be required
to do so until 2023 under the EU Audit Directive and Regulation.
We will commence the process of partner rotation in 2017 to
facilitate the smooth change of engagement partner ahead
of the current partner reaching five years in that position.
48
EMIS Group plc Annual report and accounts 2016
GOVERNANCE The committee used a questionnaire-based approach to gather
the opinions of key Directors and senior finance management to
assess, amongst other criteria, the performance, quality and value
provided by the external auditor. The external auditor provided
information relevant to assuring us about its own independence,
objectivity and compliance with regulatory and ethical standards.
We also considered external regulatory reviews of the external
auditor’s performance.
Provision of non-audit services by the external auditor
The audit committee monitors the nature and extent of non-audit
services provided by the external auditor. The committee is consulted
prior to engagement of the external auditor for non-audit work
and formally approves any individually material non-audit services.
Consideration is given to any perceived threat to independence
prior to the procurement of non-audit services from the external
auditor, with other external advisers used where appropriate.
During the year, the committee determined that tax services would
no longer be procured from the external auditor. Following a
selection process, Deloitte LLP was appointed to provide these
services in future.
A summary analysis of fees to KPMG for audit and non-audit services
during the year ended 31 December 2016 appears in note 6 to the
financial statements on page 86.
Internal audit
EMIS Group maintains an in-house internal audit function,
which objectively reviews the Group’s internal control processes
in line with the risk-based internal audit plan as approved by the
committee. The internal audit plan is based primarily on output
from the risk management process, but it is flexible and may include
ad hoc investigations and other assurance work as agreed by the
committee. Specialist technical knowledge is externally sourced
when required.
Internal audit operates in accordance with the Audit Charter, which
is periodically reviewed and approved by the audit committee.
The Head of Group Internal Audit maintains independence
through direct access to me, without the need to refer to
Executive management. He attends audit committee meetings
by invitation and reports to the committee on internal audit, risk
management and corporate governance matters. I periodically
meet with him without management being present.
Risk management
The committee is responsible for the effectiveness of sound
risk management and internal control systems. It fulfils this role
by monitoring the risk management processes in place and the
activities of the finance and internal audit functions.
The committee has reviewed and approved the Group risk
management policy and the Group operates a structured risk
management process led by the Chief Executive Officer. The
purpose of the risk management process is to identify, evaluate,
mitigate and monitor principal risks to the achievement of the
Group’s stated objectives.
In 2016, this was done using documents completed by members
of the GXB and submitted to the Chief Executive Officer for review
and consolidation into a corporate risk register. During the year, the
Board approved a project to implement TheOneView, an in-house,
web-based risk management application owned by Egton Digital.
This will extend management’s accountability for, and understanding
of, risk management in the divisions and in key Group functions.
It will enable real-time risk reporting, instant collation of risk registers
and the assignment of actions directly to managers. TheOneView
began to be piloted across the business in January 2017 and
continues to be configured to match the Group’s requirements.
Risk appetite
At the annual Group strategy meeting in May 2016, the Board, with
input from the GXB, defined its risk appetite across a range of risk
categories as outlined below. Detailed statements were drafted to
support these basic levels of risk appetite. For example, the statement
supporting the “Overall” category states: “EMIS Group operates
within a low overall risk range. Although there are areas where
EMIS Group is prepared to take higher levels of risk, it normally
operates in a manner that would not be expected to put the
business at risk of significant financial or reputational damage.
Generally speaking, there should be no significant deviations from
stakeholders’ expectations and rewards should be commensurate
with the level of risk being taken within a reasonable timeframe.”
These statements provide management with guidance on how
much and what types of risk the Board is prepared to accept when
management is making business decisions.
The Board will periodically review and revise its risk appetite
in these areas. Risk appetite parameters are built into TheOneView,
and any area where exposure is seen to exceed the Board’s risk
appetite will be flagged and assigned to specific members of the
GXB to determine what, if any, additional action is required.
Risk category
Overall
Strategic
Financial
Compliance (legal, regulatory, health and
safety, environmental)
Operational:
– Commercial
– Sales
– Marketing (including product strategy)
– People
– Property
Technical:
– Innovation
– Development
– Release (testing/quality assurance, etc.)
– Implementation
Clinical:
– Safety
– Delivery
Data management:
– Information governance (in relation to
clinical safety)
– Information security (in relation to data
records and data security)
Risk appetite
Low
Medium
Low
Very low
Low/medium
Medium
Medium
Low
Low
Medium
Low
Low
Low
Very low
Very low
Very low
Very low
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Report of the audit committee continued
Risk appetite continued
The committee reviews the corporate-level risk register at each
of its scheduled meetings and ensures that the risks identified
align with its view of the principal risks facing the business.
During 2017 it is intended that more focussed risk reviews will
be carried out and that the Board will review the risk register
on a bi-annual basis.
All risks are evaluated using the same measurement metrics
comprising of financial and reputational impact on the business
and the likelihood of a risk occurring. Each risk has a named owner
who is responsible for ensuring that mitigating actions and controls
are in place and operating effectively.
Periodic updates on the status of agreed risk management
actions are provided to the committee. More detail of the
principal risks and uncertainties facing the business can be
found on pages 16 to 19.
Effectiveness of internal control arrangements
On behalf of the Board the committee carries out at least
annually a robust review of the Group’s internal control
arrangements including operational, financial and compliance
controls. The ongoing review of systems comprises a mixture
of annual exercises and regular status updates received
from senior management and internal audit at each of the
committee’s meetings.
Key components of the review that have been considered
throughout the year include the following:
• review of the Group’s confidential reporting (whistleblowing)
arrangements and any matters raised through this process;
• reports from the Group’s external and internal auditors;
• updates on the status of issues raised in internal audit reports;
• management representations; and
• mapping of assessment questions proposed in the appendix
to the Code against key control processes in place.
The committee is satisfied that appropriate actions have been,
or are being, taken to remedy any significant weaknesses or
failures identified as a result of this or other review processes
and has reported this conclusion to the Board.
Robin Taylor
Chairman of the audit committee
15 March 2017
50
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Report of the nomination committee
MIKE O’LEARY, CHAIRMAN OF THE NOMINATION COMMITTEE
Committee members
Regular attendees
• Chief Executive Officer1
• Chief Financial Officer1
• Company Secretary
• Mike O’Leary (Chairman)
• Kevin Boyd
• Andy McKeon
• Robin Taylor
• David Sides
(appointed 1 January 2017)
1 By invitation.
What does the committee do?
The committee is responsible for:
• ensuring that the balance of Directors on the Board remains
appropriate as the Group develops to ensure that the business
can compete effectively in the marketplace;
• identifying and nominating candidates to fill Board vacancies
as and when they arise;
• evaluating of the balance of skills, knowledge, experience
and diversity of the Board to ensure the optimum mix; and
• considering the succession planning for Directors and senior
managers to ensure that there is a pipeline of high calibre
candidates and that succession is managed smoothly.
The committee’s terms of reference are reviewed and
approved at least annually and are available on the Group’s
website. Non-executive Directors are appointed by a letter
of appointment and details of their terms and those of the
Executive Directors are set out on pages 60 to 62.
The committee solely comprises independent Non-executive
Directors and met five times during the year. The committee
Chairman provided a verbal update to the Board following
each committee meeting.
Dear Shareholder
I am pleased to present our report for the year ended
31 December 2016.
Review of activity during the year
A detailed review was carried out of the skills and experience
required to ensure that the Board is well placed to address the
changing needs of, and challenges facing, the business. The
review concluded that an additional Non-executive Director
should be recruited to further strengthen the Board. Ensuring
that the Board has the right balance of skills, diversity and
independence is an important part of ensuring its effectiveness
and a key responsibility of the committee.
The committee provided oversight of the selection process of an
independent search firm to identify the new Non-executive Director.
The chosen firm, Spencer Stuart, worked with the committee to
prepare a detailed role and person specification. The key attributes
of the specification included: international healthcare market
experience and understanding; knowledge of digital businesses;
public company and broad business experience; and a commercially
experienced business leader with a strong track record of success.
An extensive search of the market was then carried out (both in
the UK and overseas), which produced a longlist before this was
narrowed down to a shortlist for interview. The committee, with
support from the Executive Directors, carried out the interviews
to assess the suitability of the candidates to the role. The importance
of ensuring the candidate’s fit with EMIS Group’s culture was an
important element of the selection process.
During the process the committee was mindful of the issue
of Board diversity. This is not just related to gender, but to
a broader diversity challenge that exists. The committee
understands the importance of a diverse Board but also
acknowledges the importance of ensuring that the selection
of Directors and, in a wider context, employees throughout the
Group should be based upon a range of factors including skills,
experience, qualifications, background and values. Accordingly,
all vacancies are filled taking into account these wider factors
and are not based to a disproportionate extent on one factor
such as gender or ethnicity. Notwithstanding this, there remains
a strong commitment to improving diversity within the Board
and this will be taken into account as part of any future Board
appointments process.
The committee recommended the appointment of David Sides
as a Non-executive Director and this was approved by the Board
with effect from 1 January 2017. David brings with him a wealth
of experience of the healthcare industry gained on a global basis.
He spent 17 years at Cerner Corporation covering a range of roles
including senior vice president (worldwide consulting) and four
years as managing director of the UK and Ireland business, based
in London. He is currently president and CEO of Streamline Health
Solutions, Inc., a provider of transformational data-driven solutions
to healthcare providers, and before that was CEO of iMDsoft Inc.
David is based in Atlanta, Georgia.
51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Report of the nomination committee continued
Review of activity during the year continued
On 12 December 2016, it was announced that Chris Spencer had
indicated his intention to retire from his position as Chief Executive
Officer and from the Board by the end of 2017. A formal search
has begun for his successor led by the committee. Spencer Stuart
has been appointed to assist the committee and good progress
is being made in identifying suitably qualified and experienced
candidates for the role. Once the comprehensive and robust process
has concluded, a recommendation will be made to the Board and
an announcement will be made. Spencer Stuart has no other
connections with the Group.
Consideration was given to succession planning for the Board
and senior management because ensuring a strong pipeline
of future leaders is an important factor in the Group’s continued
success. This was also considered by the full Board. Coaching
and mentoring was provided to senior individuals and during
the course of the year opportunities were identified to support
the broadening of skillsets and experience.
An evaluation of the committee’s own performance and terms
of reference was carried out. A questionnaire sent to each Director
on the performance of the nomination committee concluded
that specific tasks were handled both appropriately and in a
timely manner.
These tasks are currently addressed on an ad hoc basis. Board
members generally felt that an improved contribution to the Group’s
direction could be achieved if there were to be a more formal
regular review of some topics by the committee, but without risking
an added layer of unnecessary bureaucracy. As the Group grows,
this formality is likely to become more important.
Terms of reference for this committee are agreed to be
appropriate and the Board is satisfied that the committee is
adequately constituted to enable these to be met. It was not felt
that a broadening of the role of this committee to consider
corporate governance would be desirable as such matters are
more than amply covered elsewhere by other bodies.
Interaction with management by the committee was felt to be
constructive but some felt that succession management could
be improved, especially by better use of internal resource, rather
than regular recruitment externally.
The committee considered the election and re-election of each
Director to the Board. In all cases the Directors who were subject
to election or re-election, in accordance with the Code, were not
present at these discussions and did not vote on proposals
regarding their own position.
Mike O’Leary
Chairman of the nomination committee
15 March 2017
52
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Report of the remuneration committee
Dear Shareholder
On behalf of the Board I am pleased to present the report of the
remuneration committee for 2016. This report is split into three
sections: firstly, my report, which summarises the work of the
remuneration committee during the year and outlines some of
the factors taken into account by the committee when reaching
key decisions; secondly, the remuneration policy which has been
revised and seeks to adopt, where appropriate, best practice for
a public listed company of our size; and, finally, the annual report
on remuneration. Major shareholders were consulted regarding
the committee’s proposed changes to the remuneration policy.
The annual report sets out the remuneration paid to Directors in
2016 including bonus payments and long-term incentives and also
includes the detail on how we intend to implement our remuneration
policy in 2017.
As the Company is quoted on AIM, it is not required to comply with
the UK Listing Authority Rules or the UK Corporate Governance
Code; however, the committee has previously decided to adopt
a number of the key reporting requirements from this guidance.
The committee remains committed to continuing development
of best practice, where appropriate, in the remuneration policy
and has clearly defined terms of reference which are reviewed
annually by the committee. These are available on the website
at www.emisgroupplc.com/investors.
The remuneration report and remuneration policy will be
presented at the Annual General Meeting on 28 April 2017
by way of a separate advisory vote.
ANDY MCKEON, CHAIRMAN OF THE REMUNERATION COMMITTEE
Committee members
Regular attendees
• Chief Executive Officer1
• Chief Financial Officer1
• Company Secretary
• Andy McKeon (Chairman)
• Kevin Boyd
• Mike O’Leary
• Robin Taylor
• David Sides
(appointed 1 January 2017)
1 By invitation.
What does the committee do?
The committee is responsible for:
• determining and agreeing with the Board the framework
or broad policy for the remuneration of the Company’s
Chief Executive Officer, the Chairman of the Board, the
Executive Directors and other senior members of Executive
management, including pension and compensation payments;
• reviewing the ongoing appropriateness and relevance of the
remuneration policy;
• approving the design of, and determining targets for,
any performance-related pay schemes operated by the
Company and approving the total annual payments
made under such schemes;
Work of the committee
During 2016 the committee considered a number
of issues including:
• the AGM voting outcome for the 2015 report;
• the overall remuneration packages (including pensions) of the
Executive Directors with the aim of recognising best practice,
aligning with shareholder objectives and encouraging behaviours
to maintain the long-term success of the business;
• the performance measures set for the bonus scheme and the
determination of any awards made under it;
• reward structures for the Executive management and the
wider management team (including for the new CEO to be
appointed during 2017);
• reviewing the design of all share incentive plans for approval by
the Board and shareholders, and determining each year whether
awards will be made and, if so, the overall amount of such awards,
the individual awards to Executive Directors and other senior
Executives, and the performance targets to be used; and
• all awards made under the Company share option plan
(CSOP). The committee also approved the performance
measures set for the CSOP;
• the vesting of the awards under the 2013 CSOP;
• the part-vesting at the second measurement date of a long-term
share award originally granted to the CFO in 2013;
• determining the policy for, and scope of, pension and
benefits arrangements for each Executive Director and
other senior Executives.
The committee’s terms of reference are reviewed and approved
at least annually and are available on the Group’s website.
Non-executive Directors are appointed by a letter of appointment
and details of their terms are set out on pages 61 and 62.
The committee solely comprises independent Non-executive
Directors and met six times during the year. The committee
Chairman provided an oral update to the Board following each
committee meeting.
53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Report of the remuneration committee continued
Implementation of policy for 2017
Base salaries – As reported last year, a detailed review of the
remuneration packages of Chris Spencer and Peter Southby
was carried out in late 2015 and increases to base salaries for
both were implemented on 1 January 2016. Chris Spencer chose
not to accept his full increase in 2016 and chose not to accept
any further increase in his base salary in 2017 under the award
agreed in 2015. For Peter Southby an increase of 1.5% of base
salary to £253,750, was agreed with effect from 1 January 2017.
Chris Spencer will retire during the coming year and the
committee expects his successor as CEO to be appointed with
a market-appropriate package consistent with the remuneration
policy set out in this report.
Committee effectiveness
An annual effectiveness review was carried out and concluded
that the committee continued to operate effectively. However,
three areas for potential improvement were highlighted:
• the opportunity to ensure that there was an improved linkage
between rewards and strategic objectives;
• the need to ensure that the committee provided oversight
in the application of remuneration principles across all
companies within the Group; and
• the provision of access to appropriate training and development
for committee members, including an annual update from
Deloitte, as its principal external adviser.
David Sides joined the committee upon his appointment to
the Board on 1 January 2017 and I look forward to his input
to the committee’s deliberations.
On behalf of the committee, I hope that you will support the
resolutions to be presented at the AGM in April 2017.
Andy McKeon
Chairman of the remuneration committee
15 March 2017
Work of the Committee continued
• all awards made under the Long Term Incentive Plan (LTIP).
The committee also approved the performance measures set
for the LTIP;
• the CSOP and LTIP structure taking into account current market
best practice and institutional investors’ current guidelines;
• the remuneration arrangements for the GXB members;
• the review of, and consultation with shareholders, on a revised
remuneration policy. In reviewing the policy the committee
took external advice on external market developments and
best practice in remuneration;
• its external remuneration advisers, with Deloitte appointed
as principal external advisers during the year; and
• a review of the committee terms of reference.
Corporate performance
As outlined in the strategic report on pages 1 to 35, EMIS Group
had another strong year in 2016, delivering a 6% increase in
adjusted operating profit and a 9% increase in adjusted earnings
per share, achieved despite a more challenging market
environment. Overall, trading for the year was in line with the
Board’s expectations and the Group increased its operating
margin from 23.4% to 24.4%.
Our market leading position in UK primary care was maintained
and the Group continued its contract win momentum in CCMH.
The leading position in the independent pharmacy market was
maintained and preparation continued for the implementation
of next-generation software into the estate, including into sites
secured through a major new contract which will give further
market share growth in the coming year.
Results in the Secondary & Specialist Care segment were
behind expectations, with a slowdown in Secondary Care
procurements and, in Specialist Care, additional costs associated
with the implementation of new contracts in geographical areas
previously operated by the NHS resulting in a reduction in revenue
and profit overall.
The Group’s revenue visibility, order book and pipeline remained
strong, with the Group maintaining a high level of recurring
revenue in the period.
Remuneration for 2016
As in previous years, Executive Directors were eligible to receive
a bonus depending on the level of Group adjusted profit achieved.
Performance targets were stretching and based on the financial
performance of the Group. Performance in the year did not meet
the targeted level and therefore the committee concluded that,
in line with the rules, no bonus payments would be made.
Further details about the variable pay awards are set out in the
Directors’ remuneration report on pages 55 to 66.
54
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Directors’ remuneration report
Directors’ remuneration policy
The remuneration policy aims to ensure that members of the Board and Executive management are provided with appropriate
incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their contribution to the
success of the Group. The policy outlined on pages 55 to 62 will apply from 28 April 2017.
Policy table
The policy table below summarises the key components of remuneration for Executive Directors:
Element
Base salary
To recognise the individual’s
skills and experience and
provide a competitive base
reward to attract and retain
Executive Directors.
Pension
To provide a market competitive
retirement benefit.
Operation
Opportunity
Performance metrics
None.
While there is no maximum
salary, any increase will typically
be in line with those awarded to
the wider employee population.
The committee has discretion
to award higher increases in
circumstances that it considers
appropriate, such as:
• a material change in the size
or complexity of the business
or responsibility of the role;
• development in the role;
• changes in market
practice; and
• moving the salary of a newly
appointed Executive Director
to be aligned with a market
competitive range over time.
Details of salary changes
will be disclosed in the annual
report for the relevant year.
Executive Directors receive a
contribution or cash payment
in lieu of this of up to 15%
of salary.
None.
Base salaries are usually
reviewed annually, taking
into account the individual’s
performance, responsibility,
skills and experience; Group
performance and market
conditions; salary levels
for similar roles at relevant
comparators (including
companies of a similar size
and sector); and pay levels
and percentage salary
increases across the wider
employee population.
There is no set maximum.
Any changes usually take
effect from 1 January
each year.
The Group makes
contributions to the private
pension schemes or other
appropriate arrangements
for the Executive Directors.
The committee has discretion
to make a cash payment in lieu
of pension contribution. Any
such payments (and pension
contributions) do not count
for bonus or LTIP purposes.
55
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ remuneration report continued
Directors’ remuneration policy continued
Policy table continued
Element
Operation
Opportunity
Performance metrics
Share Incentive Plan (SIP)
To provide market
competitive benefits.
Benefits
To provide market
competitive benefits.
Open to all UK tax resident
employees of participating
Group companies with at
least one year’s service.
Executive Directors are
eligible to participate.
The plan is an HMRC tax
qualifying plan that allows an
employee to purchase shares
using gross pay. If an employee
agrees to purchase shares, the
Company matches purchased
shares with an award of matching
shares which are subject to
continued employment for
three years. Dividends accrue
on purchased shares and
matching shares.
Benefits may include, but
are not limited to, a car or car
allowance and life insurance.
In certain circumstances, the
committee may also approve
the provision of additional
allowances relating to the
relocation of an Executive
Director and other expatriate
benefits to perform his or
her role.
Participants can purchase
shares up to the limits allowed
by the legislation from time to
time (currently up to £1,800
per annum).
None.
Matching shares may be
awarded up to the limits
allowed by the legislation
from time to time.
The Company currently offers
to match purchases made
through the plan at the rate
of one free matching share for
every three shares purchased.
None.
While no maximum level
of benefits has been set, the
value of benefits provided
is set at a level which the
committee considers to be
appropriately positioned
taking into account the role
and individual circumstances.
Benefits provided are
reviewed periodically.
Benefits in respect of the year
under review are disclosed in
the annual report.
56
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Policy table continued
Element
Annual bonus
Operation
Opportunity
Performance metrics
To provide an incentive to
drive the Executive Directors
to deliver stretching
performance and growth.
Performance measures,
targets and weightings are
set by the committee at the
start of the bonus period.
At the end of each bonus period,
the committee determines the
extent to which targets have
been achieved. The committee
has the discretion to adjust the
formulaic bonus outcomes both
upwards (within the plan limits)
and downwards to ensure that
payments accurately reflect
business performance over
the performance period, e.g.
in the event of unforeseen
circumstances outside of
management control.
At the discretion of the
committee, Executive Directors
may be required to invest up
to 40% of any after-tax amount
in shares, to be held until the
minimum shareholding
requirement is met.
Bonuses are subject to
clawback as described
on page 59.
For Executive Directors,
the maximum annual bonus
opportunity is up to 150%
of base salary with the
committee determining the
actual level of opportunity
each year within this limit.
No bonus is payable
until target performance
is achieved. For target
performance, the bonus level
is up to 50% of the maximum
payable for that year.
Performance is usually
assessed on an annual basis,
using a combination of the
Group’s main KPIs for the
year. Measures may include
financial and non-financial
metrics as well as the
achievement of personal
objectives. A minimum
of 80% of the bonus will be
determined by financial
objectives. The financial
performance measure
currently applied is Group
adjusted profit; however,
the committee has the
discretion to adjust the
performance measures
and weightings to ensure
that they continue to be
linked to the delivery
of Group strategy.
The range of performance
required under each measure
is calibrated with reference
to the Group’s internal
budgets and external
expectations. Any individual
element is based on the
strength of the Executive’s
personal performance over
the course of the year.
57
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ remuneration report continued
Directors’ remuneration policy continued
Policy table continued
Element
Operation
Opportunity
Performance metrics
Long Term Incentive Plan (LTIP)
To drive sustained long-term
business performance, aid
retention and align the
interests of Executive Directors
with shareholders.
Awards are made in the form
of conditional share awards
or nil-cost options which vest
subject to the achievement
of pre-defined performance
conditions measured over
a three-year period.
The maximum award that
may be granted to an Executive
Director in respect of any
financial year is 200% of salary.
Ordinarily, awards are granted
at the level of up to 100%
of salary.
Awards vest subject to
performance measures
based on key financial
metrics which may include,
for example, measures
based on EPS and
shareholder returns.
Each year the committee
determines the maximum LTIP
opportunity, the measurement
period and the threshold level.
Threshold performance will
result in up to 25% of maximum
vesting for the period, set rising
to full vesting for maximum levels
of performance in accordance
with the progression set by
the committee for the period
in question.
The committee has the
discretion to adjust the
performance measures
and weightings to ensure
that they continue to be
linked to the delivery
of Group strategy.
The committee has the
discretion to adjust the
formulaic LTIP outcomes
to ensure that payments
accurately reflect business
performance over the
performance period.
At the start of each
performance period, the
committee reviews award levels
and performance conditions to
ensure they remain appropriate
and sets performance targets
which it considers to be
appropriately stretching.
Following the end of
the performance period
and the vesting of any awards,
Executive Directors are
required to hold them for a
further two years, subject to
being permitted to dispose
of shares to meet any resultant
tax liability. During the holding
period the shares are not subject
to performance conditions.
LTIP awards are subject
to clawback as described
on page 59.
Notes to the policy table
Performance measurement selection
The aim of the bonus plan is to reward key Executives over and above base salary for the achievement of business objectives.
The bonus criteria are selected annually to reflect the Group’s main KPIs for the year and are designed to encourage continuous
performance improvement for the Group. Group financial performance targets relating to the bonus plan are set from the Group’s
annual budget, reviewed and signed off by the Group Board prior to the start of each financial year and taking into account external
expectations. Adjusted operating profit is currently used as a KPI for the annual bonus plan because it is a clear measure of the
underlying financial performance of the Group.
LTIP awards currently vest based on EPS growth over three years. EPS has been selected as it is a key measure of long-term
performance for the Group and is closely aligned with the Group’s strategic plans and with the profit attributable to shareholders.
For the 2017 awards a relative total shareholder return (TSR) measure will be introduced for 20% of the award. For the LTIP, performance
measures and targets are reviewed by the committee ahead of each grant and must be considered by the committee to be challenging
but achievable.
Targets applying to the bonus and the LTIP are reviewed regularly, based on a number of internal and external reference points.
Performance targets are set to be stretching but achievable, with regard to the particular strategic priorities and economic environment
in a given year.
58
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Notes to the policy table continued
Performance measurement selection continued
The committee retains the ability to adjust performance measures or targets if events occur (such as a change in Group strategy,
a material acquisition and/or a divestment of a Group business, or a change in prevailing market conditions) which cause the committee to
determine that measures are no longer appropriate and that an amendment is required so that they achieve their original purpose.
Awards under the LTIP and deferred share awards may be adjusted in the event of a variation of the Company’s share capital or other
relevant event in accordance with the terms of the awards.
Malus and clawback provisions
Clawback applies if the figures on which awards were based are shown to be inaccurate; or there is misconduct by the individual
or action which has damaged the Group’s reputation; or if there is significant deterioration in financial performance. These provisions
apply for one year after the award of a bonus and during the two-year holding period for a vested LTIP.
Remuneration policy for other employees
The approach to annual salary reviews is consistent across the Group, with consideration given to individual performance, skills,
experience and responsibility; Group performance and market conditions; and salary levels for similar roles in relevant comparators.
Opportunities and specific performance conditions vary by organisational level with business area-specific metrics incorporated
where appropriate. A senior management group of approximately 40 individuals is eligible to participate in the LTIP. Performance
conditions are consistent for all participants, while award sizes vary by organisational level. Specific cash incentives are also in place
to motivate, reward and retain staff below Board level. All UK-based employees are eligible to participate in the Group’s SIP scheme
on the same terms.
Shareholding guidelines
The committee continues to recognise the importance of Executive Directors aligning their interests with shareholders through building
up a significant shareholding in the Company. Shareholding guidelines are in place requiring Executive Directors to acquire a minimum
holding, equivalent to 200% of base salary for the Chief Executive Officer and 100% of base salary for the Chief Financial Officer.
A Director is only permitted to dispose of shares if it does not take the holding below the relevant minimum level or if the disposal
was to meet a tax or other liability created by the vesting of a share award. Different shareholding requirements may be set for
any newly appointed Executive Director.
Unexercised share options do not count towards the shareholding requirement. Executive Directors are required to retain shares
acquired under the LTIP (subject to sales to cover tax liabilities) until they have satisfied the guideline.
Pay scenario charts for Executive Directors
The charts below provide estimates of the potential future reward opportunity for each of the two current Executive Directors
for 2017 and the potential split between different elements of remuneration under three different scenarios: “Minimum”, “Target”
and “Maximum” performance.
Chief Executive Officer – Chris Spencer
Chief Financial Officer – Peter Southby
Maximum
1,024
Maximum
815
Target
626
Target
498
Minimum
387
Minimum
307
£’000
0
200
400
600
800
1,000
1,200
£’000
0
200
400
600
800
1,000
1,200
— Basic salary and benefits
— Bonus
— Long term incentives
59
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ remuneration report continued
Directors’ remuneration policy continued
Pay scenario charts for Executive Directors continued
Potential reward opportunities illustrated on page 59 are based on the remuneration policy, applied to the base salary as at
1 January 2017. It should be noted that LTIP awards granted in a year normally vest following the end of a three-year performance
period and the projected value of LTIP amounts excludes the impact of share price movement over the vesting period. All other
elements of actual pay delivered, however, will be influenced by the following factors:
Fixed
Annual bonus
LTIP
Component
Base salary
Pension
“Minimum”
“Target”
“Maximum”
Latest known salary
Contribution rate applied to latest known salary
Other benefits
Benefits as provided in the single figure table on page 63
No bonus payable
No LTIP vesting
50%
25%
100%
100%
Approach to recruitment remuneration – Executive Directors
When hiring or appointing a new Executive Director, the committee may make use of any or all of the existing components
of remuneration, as follows:
Component
Approach
Base salary
Pension
SIP
The base salaries of new appointees will be determined by reference to the individual’s role,
responsibilities, experience and skills; relevant market data; internal relativities; and their
current basic salary. Where new appointees have initial basic salaries set below market rate,
any shortfall may be managed with phased increases over a period of years subject to their
development in the role.
New appointees will be eligible to receive a pension contribution in line with existing policy.
New appointees will be eligible to participate in the Company’s HMRC tax qualifying
all-employee share scheme, in line with the policy.
Benefits
New appointees will be eligible to receive benefits in line with the policy.
Maximum
value
Not applicable.
Annual bonus
The annual bonus described in the policy table will apply to new appointees with the
opportunity ordinarily being pro-rated to reflect the proportion of employment over the
relevant performance period. Targets for the individual element will be tailored to
the Executive.
Up to 150%
of salary p.a.
LTIP
New appointees will be eligible for awards under the LTIP which will normally be on the same
terms as awards made to other Executive Directors, as described in the policy table.
Up to 200%
of salary p.a.
In determining appropriate remuneration for a new Executive Director, the committee will take into consideration all relevant factors
(including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that the pay
arrangements are in the best interests of the Group and its shareholders.
The committee may include additional elements of pay which it considers appropriate in circumstances which may include: interim
appointments; Non-executive Directors taking on an Executive function on a short-term basis; and where the timing of the recruitment
means that it would be inappropriate to provide a bonus or LTIP opportunity for the year, in which case the quantum in respect of
the opportunity for the year of recruitment may be transferred to the subsequent year in order that reward is provided on a fair and
appropriate basis. However, the committee’s discretion is not uncapped. As noted above, salary, pension and benefits will be provided
in line with the existing policy and non-performance-related incentives (such as a “golden hello”) will not be offered. The committee
may alter the performance measures and vesting periods of incentive remuneration and the holding period for the LTIP to reflect
the circumstances of the recruitment. The rationale for any exercise of this discretion will be explained in the following annual
report on remuneration.
In addition to the above elements of remuneration, the committee may consider it appropriate to grant an award under a different
structure in order to facilitate the recruitment of an individual, or to replace remuneration and/or incentive arrangements forfeited
on leaving a previous employer.
Any “buyout awards” would typically have a fair value no higher than that of the awards forfeited. In doing so, the committee will
consider relevant factors including any performance conditions attached to these awards, the likelihood of those conditions being
met and the proportion of the vesting period remaining. Such awards would typically be subject to clawback.
In the event of the appointment of a new Executive Director by way of internal promotion, the remuneration committee will consistently
apply the policy for external appointees detailed above. Where an individual has contractual commitments made prior to their promotion
to Executive Director level, the Company will continue to honour these arrangements.
60
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Approach to recruitment remuneration – Executive Directors continued
External appointments
It is the Board’s policy to allow each Executive Director to take up one non-executive position on the board of another company,
subject to the prior approval of the Board. Any fee earned in relation to outside appointments is retained by the Executive Director.
No such positions were taken and so no such fees were paid during the financial year.
Service contracts
The Executive Directors are employed under contracts of employment with the Group. Executive Directors’ contracts are available
to view at the Company’s Registered Office. The principal terms of the Executive Directors’ service contracts are as follows:
Executive Director
Chris Spencer
Peter Southby
Position
Effective date of contract
From Company
From Director
Chief Executive Officer
Chief Financial Officer
3 July 2013
1 October 2012
Twelve months
Twelve months
Twelve months
Twelve months
Notice period
Remuneration policy for the Chairman and the Non-executive Directors
The Board determines the remuneration policy and the level of fees for the Non-executive Directors, within the limits set out in the
Articles of Association. The remuneration committee recommends the remuneration policy and the level of fees for the Chairman
of the Board.
The policy table below summarises the key components of remuneration for the Chairman and the Non-executive Directors.
Element
Fees
To reflect market competitive
rates for the role, as well
as individual performance
and contribution.
Operation
Opportunity
Performance
metrics
The Chairman and Non-executive
Directors receive a basic fee for their
respective roles. Additional fees may
be paid to Non-executive Directors
for additional services such as chairing
a Board committee or acting as the
Senior Independent Non-executive
Director. Expenses related to the
Non-executive’s duties, such as travel
and accommodation or secretarial
support, may also be reimbursed.
Fees are reviewed annually with
reference to information provided by
remuneration surveys, the extent of the
duties performed, time commitment
and the size and complexity of the
Group. Fee levels are benchmarked
against sector comparators and
appropriate listed companies of
similar size and complexity.
Fee increases are applied in line
with the outcome of the annual
review. Fees for the year commencing
1 January 2017 are set out in the annual
report on remuneration.
None.
There is no prescribed maximum
fee. It is expected that increases
to Non-executive Director fee levels
will be in line with salaried employees
over the life of the policy. However,
in the event that there is a material
misalignment with the market or a
change in the complexity,
responsibility or time commitment
required to fulfil a Non-executive
Director role, the Board has discretion
to make an appropriate adjustment
to the fee level.
Non-executive Directors’ remuneration
In the case of hiring or appointing a new Non-executive Director, the committee will follow the policy as set out in the table above.
A base fee in line with the prevailing fee schedule would be payable for Board membership, with additional fees payable for additional
services, such as chairing a Board committee.
Non-executive Directors’ service contracts
Letters of appointment are provided to the Chairman and the Non-executive Directors. Non-executive Directors have letters
of appointment effective for a period of three years and are subject to annual re-election at the AGM. Non-executive Directors’
letters of appointment are available to view at the Company’s Registered Office.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ remuneration report continued
Directors’ remuneration policy continued
Non-executive Directors’ service contracts continued
Non-executive Directors’ letters of appointment and the unexpired period of their appointments (where appropriate after extension
by re-election) are set out below:
Non-executive Director
Mike O’Leary1
Robin Taylor1
Kevin Boyd1
Andy McKeon
David Sides
Date of first
appointment
17 March 2011
1 March 2010
9 May 2014
Unexpired term
as at
31 December 2016
3 months
2 months
4 months
Date of last
appointment
Last
re-appointment
at AGM
17 March 2014
26 April 2016
1 March 2014
26 April 2016
9 May 2014
26 April 2016
1 February 2013
1 year 9 months
21 September 2015
26 April 2016
1 January 2017
3 years
1 January 2017
—
Notice period
3 months
3 months
3 months
3 months
3 months
1 At the Board meeting on 22 February 2017 the re-appointment of Mike O’Leary and Kevin Boyd for a further term of three years and Robin Taylor for two years was agreed.
Exit payment policy
The Company’s policy is to limit any payment made to a departing Director to contractual arrangements and to honour any
pre-established commitments. A payment in lieu of notice (consisting of salary, benefits and pension contributions for the
relevant portion of the notice period) may be made. As part of this process, the committee will take into consideration the
Executive Director’s duty to mitigate any loss.
The table below summarises how the awards under the bonus scheme and the LTIP are typically treated in different leaver
scenarios or a change of control. Whilst the committee retains overall discretion on determining “good leaver” status, it typically
defines a “good leaver” in circumstances such as retirement with the consent of the Company, ill health, disability, death or redundancy.
Final treatment is subject to the committee’s discretion. The holding period that applies to vested LTIP awards ceases when an
individual ceases employment with the Group.
Reason for
leaving
Annual bonus
“Good leaver”
Timing of vesting
Treatment of awards
Usually paid at the same time as continuing
employees. Pro-rata payments may also be made
early on compassionate grounds to a “good leaver”.
Eligible for an award to the extent that performance
targets are reasonably judged to be likely to be satisfied
and the award is pro-rated for the proportion of the
financial year served.
“Bad leaver”
No annual bonus payable.
Not applicable.
Change of control
Paid immediately on the effective date of change
of control.
LTIP
“Good leaver” –
awards which have
not yet vested
Continue until the normal vesting date or vest
immediately, at the discretion of the committee.
In the event of death of a participant, the award
would vest immediately.
Eligible for an award to the extent that performance
targets are satisfied at the date of change of control and
the award is pro-rated for the proportion of the financial
year served to the effective date of change of control.
Outstanding awards vest to the extent the performance
conditions are reasonably considered to be likely to be
satisfied, and the awards are pro-rated to reflect the
length of the performance period served unless the
committee decides otherwise. In the event of the death
of a participant during the performance period, the
award would vest in full.
“Bad leaver"
Outstanding awards are forfeited.
Not applicable.
Change of control
Vest immediately on the effective date of change
of control.
Outstanding awards vest subject to the satisfaction
of performance conditions or to the extent these are
reasonably considered likely to be satisfied as at the
effective date of change of control, and the award is
pro-rated for the proportion of the performance period
served to the effective date of change of control unless
the committee decides otherwise.
62
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Annual report on remuneration
The following section provides details of how the remuneration policy was implemented during the financial year ended
31 December 2016.
Remuneration committee membership in 2016
The committee met six times during the year under review. The members of the committee and their attendance record at meetings
during the year are set out on page 43. David Sides joined the committee with effect from 1 January 2017.
During the year, the committee sought internal support from the Chief Executive Officer and the Chief Financial Officer, who attended
committee meetings by invitation from the Chairman to advise on specific questions raised by the committee and on matters relating
to the performance and remuneration of senior managers where it was considered that their attendance would make a significant
contribution. The Chief Executive Officer and the Chief Financial Officer were not present for any discussions that related directly to
their own remuneration. The Company Secretary attended each meeting as Secretary to the committee.
Independent advice
In undertaking its responsibilities, the committee seeks independent external advice as necessary. The committee evaluates the support
provided by its advisers on a regular basis and during the year appointed Deloitte as its principal external adviser. Deloitte is available
to provide independent advice on a wide range of remuneration matters including current market practice, benchmarking of Executive
pay, LTIP performance measures, the remuneration policy and incentive scheme design. Deloitte has also been appointed as tax
adviser to the Group.
The committee is satisfied that the Deloitte team provides independent remuneration advice to the committee. Deloitte is a
member and signatory of the Code of Conduct for Remuneration Consultants, in the United Kingdom, details of which can be
found at www.remunerationconsultantsgroup.com.
Summary of shareholder voting at the 2016 AGM
There was an advisory vote on the Directors’ remuneration report at the AGM in 2016. The result of the vote was published on the
website after the meeting. Of the 43,006,637 votes cast, 41,493,864 (96.5%) of the votes were for the resolution, with 1,512,773
(3.5%) against and 1,482,212 votes withheld.
Single total figure of remuneration for Executive Directors – audited
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended
31 December 2016 and the prior year:
Base salary
Taxable benefits1
Pension2
Annual bonus3
Share schemes4,5
Total
Chris Spencer
£’000
Peter Southby
£’000
2016
318
20
48
—
8
394
2015
312
28
47
—
1
388
2016
250
15
38
—
13
316
2015
225
16
34
—
102
377
1
Taxable benefits consist primarily of a company car and private fuel benefit.
2 Pension: during the year the Executive Directors received 15% of base salary as employer contributions. At the request of Peter Southby £28,000 of his employer
pension contributions were commuted to a cash payment in accordance with the remuneration policy.
3 Annual bonus: this is the total bonus earned in respect of performance during the relevant year. Annual bonuses are received in cash. Further details of annual
bonus awards for 2016 can be found in the report of the remuneration committee on page 64.
4 Details of options exercised are provided on page 64.
5 The total amount shown includes the value of matching shares awarded under the SIP.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ remuneration report continued
Annual report on remuneration continued
Single total figure of remuneration for Non-executive Directors – audited
The table below sets out a single figure for the total remuneration received by each Non-executive Director for the year ended
31 December 2016 and the prior year:
Mike O’Leary
Robin Taylor
Andy McKeon1
Kevin Boyd
Sean Riddell2
Base fee
£’000
Committee
chairmanship fees
£’000
Total
£’000
2016
2015
2016
2015
2016
2015
85
40
40
40
—
80
35
18
35
3
5
5
5
—
—
—
8
2
—
—
90
45
45
40
—
80
43
20
35
3
1 Andy McKeon resigned as a Director on 2 April 2015 and was re-appointed on 30 September 2015.
2 Sean Riddell resigned as a Director on 30 January 2015.
Incentive outcomes for the year ended 31 December 2016
Bonus
During the year ended 31 December 2016, Executive Directors were eligible to receive a bonus of up to 100% of salary, depending
on the level of Group adjusted profit achieved. Target performance was calibrated to deliver a bonus of 50% of maximum, with no
payment for below threshold performance. Bonuses are paid entirely in cash and are subject to clawback. Corporate targets set by
the committee require Executive Directors to deliver significant stretching performance to achieve maximum bonus.
Performance during the year did not reach the level required for target performance. The remuneration committee reviewed
the results and, in line with the rules, concluded that no bonus payments would be made for the year under review.
For 2016 the targets were as follows:
• 0% of salary if the Group adjusted operating profit was below £41.121m;
• 50% of salary if the Group adjusted operating profit was or exceeded £41.121m; and
• if the Group adjusted operating profit was greater than £41.121m then the bonus would increase pro rata to Group adjusted profit
up to a maximum of 100% at £44.416m.
Long-term incentive awards vesting
Chris Spencer exercised options over:
• 1 June 2016 over 1,369 ordinary shares at a price of £7.30 per ordinary share under a share option plan granted on 2 May 2013
and disposed of 942 ordinary shares at a price of £10.62 per ordinary share to fund the exercise price; and
• 3 November 2016 over 1,524 ordinary shares at a price of £6.56 per ordinary share under a share option plan granted on
18 October 2013 and disposed of 1,198 ordinary shares at a price of £8.35 per ordinary share to fund the exercise price.
Peter Southby exercised the following options on 3 November 2016:
• 6,853 ordinary shares at a price of £7.09 per ordinary share under an LTIP option contract granted on 2 May 2013 and disposed
of 6,306 ordinary shares at a price of £8.35 per ordinary share to fund the exercise price and tax and national insurance obligations;
• 1,369 ordinary shares at a price of £7.30 per ordinary share under a share option plan granted on 2 May 2013 and disposed of 1,197
ordinary shares at a price of £8.35 per ordinary share to fund the exercise price; and
• 1,524 ordinary shares at a price of £6.56 per ordinary share under a share option plan granted on 18 October 2013 and disposed
of 1,198 ordinary shares at a price of £8.35 per ordinary share to fund the exercise price.
With the exception of the LTIP options granted to Peter Southby on 2 May 2013 which were subject to TSR performance criteria, none
of the above options exercised during the year were subject to performance criteria. These were the last such awards without performance
conditions. All awards made from 2014 have been subject to performance conditions. All of the above ordinary shares were acquired
by JY Trustees Limited on behalf of the EMIS Group plc Employee Benefit Trust.
64
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Scheme interests awarded in 2016
2016 Long Term Incentive Plan
In 2016, the following nil cost option awards were granted under the LTIP:
Executive Director
Chris Spencer
Peter Southby
Performance conditions for 2016 awards
Performance level
Below threshold
Base target threshold
Middle target threshold
Maximum target threshold
Date of
grant
26 April 2016
26 April 2016
Shares
granted
32,808
25,773
Market
price
at date of
award
Normal
vesting
date
Face value
at date of
award
970p
970p
26 April 2019
£318,000
26 April 2019 £250,000
EPS three year
growth target
% award
to vest
Below 22.5%
22.5%
33.1%
52.1% or higher
0%
25%
50%
100%
To the extent that the base target threshold is exceeded, the percentage of award shares vesting increases pro rata between the
base target and the middle target and similarly between the middle target and the maximum target.
2016 SIP awards
During the year under review, the Executive Directors were awarded matching shares under the SIP as a result of their own personal
contributions in acquiring partnership shares. The value of these was less than £1,000 each. There were no performance conditions
attached to the SIP awards. The Executive Directors participate in the SIP to the maximum extent permitted by the HMRC. The Company
offers one matching share for every three partnership shares purchased by employees.
Ad hoc payments
There were no ad hoc payments to any Directors for the year ended 31 December 2016.
Payments to past Directors
There were no payments to past Directors for the year ended 31 December 2016.
Relative importance of spend on pay
The table below shows the Group’s expenditure on shareholder distributions (including dividends) and total employee pay expenditure
for the financial years ending 31 December 2015 and 31 December 2016.
2016
2015
% change
TSR performance
450
400
350
300
250
200
150
100
50
Total
employee
expenditure
£77.2m
£74.1m
4%
Distributions to
shareholders
£14.7m
£13.3m
10%
— EMIS Group total
shareholder return
(since IPO)
— FTSE Small Cap Index
0
26/3/10
26/3/11
26/3/12
26/3/13
26/3/14
26/3/15
26/3/16
13/3/17
The graph above compares the value of £100 invested in EMIS Group plc shares, including re-invested dividends, with the
FTSE Small Cap Index since 26 March 2010, which is the date of admission to trading on AIM. This index was selected because
it is considered to be the most appropriate against which the total shareholder return of the Group should be measured.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ remuneration report continued
Annual report on remuneration continued
Directors’ interests
The beneficial interests of the Directors in the ordinary shares of the Company, including those acquired through the SIP,
as at 31 December 2016 were as follows:
Ordinary shares
at 31 December 2016
Ordinary shares
at 31 December 2015
288,189 1
12,059 1
1,000
1,800
1,626
4,000
285,369
9,878
1,000
1,800
1,626
2,500
Director
Chris Spencer
Peter Southby
Mike O’Leary
Robin Taylor
Andy McKeon
Kevin Boyd
Executive Director
Chris Spencer
Peter Southby
1 This includes matching shares awarded under the SIP which may be subject to forfeiture under certain circumstances.
Since the year end further share awards under the SIP have continued to be awarded each month to the Executive Directors, for which
monthly regulatory information service announcements are made. This has resulted in Chris Spencer holding an additional 67 shares and
Peter Southby holding an additional 65 shares, which include matching shares awarded under the SIP which may be subject to forfeiture
in certain circumstances.
Implementation of remuneration policy for 2017
Base salary
The base salaries for the Executive Directors in 2017 are set out in the table below. The letter from the Chairman of the remuneration
committee on pages 53 and 54 includes further detail.
Base salary from
1 January 2016 to
31 December 2016
Base salary from
1 January 2017 to
31 December 2017
£318,240
£250,000
£318,240
£253,750
Percentage
increase
—
1.5
Pension
For 2017, Executive Directors will receive a contribution equivalent to 15% of base salary.
Annual bonus
The performance measure for the annual bonus for Executive Directors will be unchanged for the 2017 financial year and will
operate on the same basis as in 2016. The bonus outcome will be based on an adjusted operating profit measure. Adjusted profit
means operating profit as adjusted for exceptional items, investment in Patient, any mergers and acquisitions activity in the year,
the effect of capitalisation and amortisation of development costs, and the amortisation of acquired intangible assets. For 2017,
the Executive Directors’ annual bonus opportunity will be up to 100% of salary.
Proposed targets have been set to be challenging relative to the 2017 business plan. As specific targets are deemed to be
commercially sensitive they will be published retrospectively in the annual report on remuneration for 2017.
Bonus payments will continue to be delivered in cash and will continue to be subject to the following conditions:
• Clawback where the remuneration committee becomes aware of any information on the basis of which it is reasonable for them
to form the opinion that inaccurate figures had been reported, on which the bonus target had been calculated and based or
bonus outcome calculated; or there had been misconduct; or there had been any action or omission that had resulted in damage
to the Group’s reputation; or there is a significant deterioration in financial performance.
• The requirement to invest 40% of any net bonus payment in shares of the Company until the minimum shareholding level relevant
to the Executive Director is met.
LTIP
For 2017, Executive Directors will be eligible to receive awards of performance shares up to 100% of salary, based on EPS growth
over three years and vesting three years from the date of grant and 20% will be based on relative TSR performance. Details of any
awards in the 2017 financial year will be provided in next year’s annual report on remuneration.
Executive Directors are subject to the requirement to use vested shares to add to their beneficial shareholding until the minimum
shareholding level relevant to the Executive Director is met.
SIP
Executive Directors will be able to continue to participate in the SIP on the same basis as in the 2016 financial year.
Chairman and Non-executive Director fees
Fee levels of the Chairman and the Non-executive Directors are subject to annual review taking into account appropriate FTSE
comparators and the level of engagement of the Chairman and other Non-executive Directors. The Board agreed that no change
be made to the fees payable in 2017.
66
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Directors’ report
The Directors present their report and audited consolidated
financial statements for the year ended 31 December 2016.
These markets are also supported by other EMIS
Group businesses:
This report contains certain statutory, regulatory and other
information and incorporates, by reference, certain disclosures
included earlier in this document.
• under the Patient brand, the UK’s leading independent provider
of patient-centric medical and well-being information and related
transactional services.
General information and principal activities
EMIS Group plc (“the Company” or “the parent company”)
is an AIM quoted company. The Company is the parent
of a number of trading subsidiary companies. The principal
trading subsidiaries are:
• Egton Medical Information Systems Limited and Ascribe
Limited, trading under the EMIS Health and Egton brands;
• Digital Healthcare Limited, trading as EMIS Health Specialist;
• Medical Imaging UK Limited and MIDRSS Limited,
trading as EMIS Care;
• Rx Systems Limited, trading as EMIS Health Community
Pharmacy; and
• with effect from 1 January 2017, Patient Platform Limited was
established as a principal trading subsidiary, carrying on the
business of Patient.info, which previously operated as part
of Egton Medical Information Systems Limited.
EMIS Group is the UK leader in connected healthcare software
and services. Its solutions are widely used across every major
UK healthcare setting from primary and community care, to high
street pharmacies, secondary care and specialist services. EMIS
Group helps clinicians in over 10,000 organisations share vital
information, facilitating better, more efficient healthcare and
supporting longer and healthier lives.
EMIS Group serves a number of healthcare markets under the
EMIS Health brand, with the below divisions:
• Primary & Community Care, the UK leader in clinical IT
systems for GPs and commissioners. EMIS Health products,
including the flagship EMIS Web, hold over 40 million patient
records and are used by nearly 6,000 healthcare organisations,
including community-based teams.
• under the Egton brand, providing specialist ICT
infrastructure, hardware and engineering services,
and non-clinical software into health and social care.
• under the EMIS Care brand, providing healthcare
screening programmes such as diabetic eye screening.
Primary & Community Care and EMIS Health Secondary Care
are being brought together in 2017 under the EMIS Health brand.
The Company is incorporated in England and Wales and
domiciled in the UK. The address of its Registered Office
is Rawdon House, Green Lane, Yeadon, Leeds LS19 7BY.
Capital allocation policy
EMIS Group seeks to deliver high quality visible earnings,
future earnings growth and strong cash returns. The Board
has adopted a clear capital allocation policy:
• reinvestment for growth – we invest in the infrastructure,
technology and intellectual capital to drive growth in our core
markets, through constant product innovation and integration.
• regular returns to shareholders – we pay a regular dividend to
shareholders, representing 40% to 50% of adjusted earnings,
increasing the proposed full year dividend for 2016 by 10%.
• acquisition – we supplement our organic growth by acquiring
companies with promising technologies and in markets adjacent
to, and consistent with, our current capabilities, such as Intrelate
in 2016.
• balance sheet leverage and return of excess capital – we
will maintain an efficient balance sheet, appropriate to our
investment requirements. While we are prepared to take on
additional debt if circumstances warrant, we aim to return
excess capital to shareholders when appropriate.
• Secondary & Specialist Care, a leading software provider to
NHS Acute Trusts and Boards, focussed primarily on hospital
pharmacy, A&E (holding over 30 million patient records) and
patient administration systems as well as England’s leading
provider of diabetic eye screening software, and other
ophthalmology-related solutions.
Dividends
Subject to shareholder approval at the AGM on 28 April 2017,
the Board proposes paying a final dividend of 11.7p per ordinary
share (2016: 10.6p) on 3 May 2017 to shareholders on the register
at the close of business on 31 March 2017. This would make a total
dividend of 23.4p per ordinary share for 2016 (2015: 21.2p).
• Community Pharmacy, the UK’s single most used integrated
community pharmacy dispensary and retail system.
67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Directors’ report continued
Substantial interests in shares
The Company has been notified of the following substantial interests in 3% or more in its ordinary shares:
Liontrust Investment Partners LLP
Primestone Capital
Standard Life Investments
NFU Mutual Insurance Society Ltd
Octopus Investments Nominees Ltd
Phillip Woodrow
GVQ Investment Management
Invesco
Wise Investment
31 December 2016
%
1 March 2017
%
9.02
8.50
8.17
4.98
4.35
4.18
3.42
3.14
3.01
9.92
8.50
5.25
4.98
4.58
4.18
3.42
6.06
3.63
Directors and their interests
The Directors of the Company who served during the year
ended 31 December 2016 and subsequently are as follows:
Mike O’Leary
Chairman
Chris Spencer
Chief Executive Officer
Peter Southby
Chief Financial Officer
Robin Taylor
Senior Independent Non-executive Director
Kevin Boyd
Independent Non-executive Director
Andy McKeon
Independent Non-executive Director
David Sides (appointed 1 January 2017)
Independent Non-executive Director
Directors are subject to annual re-election and details
of Directors’ remuneration, service agreements and interests
in the share capital of the Company are given in the annual
report on remuneration on pages 63 to 66.
No Director has had any material interest in any contract
of significance with the Company or any of its subsidiaries
during the year under review.
Research and development
Research and development expenditure in the year amounted to
£17.3m (2015: £19.6m) of which £5.7m (2015: £6.2m) was capitalised.
Share capital
As at 15 March 2017 and 31 December 2016, the Company had
63,311,396 (31 December 2015: 63,311,396) ordinary shares of 1p
each in issue. The shares are traded on AIM, a market operated
by the London Stock Exchange. The rights and obligations
attached to the shares are set out in the Company’s Articles
of Association which are available on the Company’s website.
The Company has previously established an Employee Benefit
Trust (EBT) to hold shares in the Company to facilitate share-based
emolument payments and the Group SIP. As at 31 December 2016
the EBT held 464,867 (2015: 540,034) ordinary shares of 1p each.
The EBT has waived its right to dividends.
Details of ordinary shares under option in respect of the Company’s
share schemes are shown in note 26 to the financial statements.
The rules of the LTIP and the CSOP set out the consequences
in the event of a change of control. Further information is given
in the remuneration committee report on page 62.
Directors’ indemnities and liability insurance
As permitted by the Articles of Association, in accordance
with Section 234 of the Companies Act 2006, the officers of the
Company and its subsidiaries would be indemnified in respect
of proceedings which might be brought by a third party. No cover
is provided for Directors and officers in respect of any fraudulent
or dishonest actions. No such indemnities have been granted.
The Company maintains directors’ and officers’ liabilities insurance
to provide appropriate cover for any legal action brought against
its Directors.
68
EMIS Group plc Annual report and accounts 2016
GOVERNANCE AGM notice
The notice convening the AGM to be held on 28 April 2017,
together with an explanation of the resolutions to be
proposed at the meeting, is contained in a separate circular
to shareholders and may be found on the Company’s website
at www.emisgroupplc.com/investors.
Auditor and statement as to disclosure
of information to the auditor
The Directors who were in office on the date of approval
of these financial statements have confirmed, as far as they
are aware, that there is no relevant audit information of which
the auditor is unaware. All of the Directors have individually
confirmed that they have taken all reasonable steps that they
ought to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish that
it has been communicated to the auditor.
The auditor, KPMG LLP, has indicated its willingness to be
re-appointed and, in accordance with Section 489 of the
Companies Act 2006, a resolution for re-appointment will
be proposed at the AGM.
Corporate governance and employee information
The Company’s statement on corporate governance can be
found in the corporate governance report on pages 38 to 45
of this annual report and accounts. The Sustainability Policy
report, on pages 32 to 35 includes details about the Company’s
pay practices. The corporate governance report forms part
of this Directors’ report and is incorporated into it by
cross-reference.
By order of the Board
Simon Waite
Company Secretary
15 March 2017
Employees
The Group’s policy is to ensure adequate provision for the
welfare, and health and safety of its employees and of other
people who may be affected by its activities. The Group is
committed to ensuring there are equal opportunities for all
employees, irrespective of age, gender, ethnicity, race, religion
and belief, sexual orientation, disability and marital status.
All employees are treated fairly and equally.
The Group encourages the involvement of its employees and they
are made aware of significant matters through regular updates
from the Chief Executive Officer and other members of the GXB,
roadshow presentations, management meetings, informal briefings,
team meetings and the Company’s intranet, magazine, discussion
forums and website. Employee involvement is an essential element
in the development of the business and during the year the
second staff survey was carried out for all employees to have
their say about what it feels like to work for EMIS Group.
The Group treats applications for employment from disabled
persons equally with those of other applicants having regard to
their ability, experience and the requirements of the job. Where
existing employees become disabled, appropriate efforts are
made to provide them with continuing suitable work within the
Group and to provide retraining if necessary.
Political donations
No political donations were made in 2016 (2015: £nil).
Going concern
The Group’s activities and an outline of the developments taking
place in relation to its products, services and marketplace are
considered in the strategic report on pages 1 to 35. The revenue,
trading results and cash flows are explained in the financial
review on pages 28 to 31.
Note 3 to the financial statements sets out the Group’s financial
risks and the management of capital risks.
The Group is profitable and expects to continue to be so, with
significant cash resources, a high and continuing level of recurring
revenue and with high levels of cash conversion expected for
the foreseeable future.
The Group’s current bank debt facilities expire on 30 June 2017,
with two final quarterly term loan repayments of £1m each to be
made before then. A process is underway to ensure appropriate
facilities (covering both credit facilities and transactional banking)
are in place for the Group from this point forward. The latest
cash flow projections for the Group indicate that it will be in a
net cash position at 30 June 2017.
The Directors considered the going concern assumption and
after careful enquiry and review of available financial information,
including detailed projections of profitability and cash flows for
the next three years, the Directors believe that the Group has
adequate resources to continue to operate for the foreseeable
future and that it is therefore appropriate to continue to adopt
the going concern basis of accounting in the preparation of the
consolidated and Company financial statements.
69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSAnnual report and accounts 2016 EMIS Group plc Viability statement
While there is no requirement for the Group to comply fully
with the UK Corporate Governance Code, the Directors have
voluntarily adopted the provision of section C.2.2 and assessed
the viability of the Group over a three year period, taking into
account the Group’s current position and the potential impact
of the principal risks and uncertainties set out above.
The Directors have determined that a three year period to
March 2020 constitutes an appropriate period over which
to provide the Group’s viability statement. This is the period
focussed on by the Board during the strategic planning process
and is also aligned to typical contract lengths across much
of the Group (three to five years).
For the purpose of making this statement, the Board has taken
into account its ongoing robust assessment of the principal
risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity. Each
year, the Board considers a three year bottom-up strategic
plan together with the ability of the Group to raise finance
and undertake mitigating actions to avoid or reduce the
impact or occurrence of the underlying risks.
In addition, the following risks were subjected to enhanced
stress testing: healthcare structure and procurement changes,
product integration and inter-operability, software development
and hosting, recruitment and retention, and information
governance/cyber-security. The Group’s strong contractual
forward visibility of revenues, significant cash resources and
strong cash conversion provide some inherent protection
against unexpected shocks to the business model. Also, the
ability to adjust the Group’s cost base protects its viability in
the face of adverse economic conditions and/or political events.
Based upon the robust assessment of the principal risks facing
the Group and their stress-testing based on an assessment of
the Group’s prospects, as described above, the Directors have
a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
period to March 2020, subject to the following key assumptions:
• funding for the business will continue to be available in all
plausible market conditions;
• mitigating actions to reduce the impact of principal risks can
be successfully undertaken, including cost management; and
• the political environment in which the NHS exists will not
result in major structural change to the market in which the
Group operates.
Statement of Directors’ responsibilities
in respect of the annual report, the strategic report, the Directors’ report and the financial statements
The Directors are responsible for preparing the annual report,
the strategic report, the Directors’ report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements
in accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent company financial
statements on the same basis.
Under company law the 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 their profit or loss for that period. In preparing each of the Group
and parent company financial statements, the Directors are
required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable
and prudent;
• state whether they have been prepared in accordance
with IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the parent company and enable them to
ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, a Directors’ report,
a Directors’ remuneration report and a corporate governance
statement that comply with that law and those regulations.
Responsibility statement of the Directors in respect
of the annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
• the strategic report and the Directors’ report include a fair
review of the development and performance of the business
and the position of the issuer and the undertakings included in
the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
70
EMIS Group plc Annual report and accounts 2016
GOVERNANCE Independent auditor’s report
to the members of EMIS Group plc
We have audited the financial statements of EMIS Group plc for the year ended 31 December 2016 set out on pages 72 to 101.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 70, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit,
and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2016
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the strategic report and the Directors’ report for the financial year is consistent with the
financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the
strategic report and the Directors’ report:
• we have not identified material misstatements in those reports; and
• in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• 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
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Johnathan Pass (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
15 March 2017
Annual report and accounts 2016 EMIS Group plc
71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Group statement of comprehensive income
for the year ended 31 December 2016
Revenue
Costs:
Changes in inventories
Cost of goods and services
Staff costs1
Other operating expenses2
Depreciation of property, plant and equipment
Amortisation of intangible assets
Adjusted operating profit
Development costs capitalised
Amortisation of intangible assets3
Cost reduction programme4
Impairment of goodwill
Impairment of investment
Operating profit
Finance income
Finance costs
Share of result of associate
Share of result of joint venture
Gain on sale of associate
Profit before taxation
Income tax expense
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Currency translation differences
Other comprehensive income
Total comprehensive income for the year
Attributable to:
– equity holders of the parent
– non-controlling interest in subsidiary company
Total comprehensive income for the year
Earnings per share attributable to equity holders of the parent
Basic
Diluted
Notes
2016
£’000
2015
£’000
5
158,712
155,898
9
14
9, 14
14
13
17
6
7
8
17
17
17
10
609
(14,760)
(71,197)
(31,750)
(4,504)
(13,571)
38,753
5,684
(12,652)
(3,630)
(4,616)
—
23,539
188
(425)
—
499
1,532
25,333
(5,208)
(344)
(12,611)
(67,465)
(45,873)
(4,665)
(13,510)
36,553
6,183
(12,806)
—
(16,183)
(2,317)
11,430
28
(477)
(388)
339
—
10,932
(5,558)
20,125
5,374
27
27
(111)
(111)
20,152
5,263
19,128
1,024
20,152
Pence
30.4
30.3
11
11
4,432
831
5,263
Pence
7.2
7.2
1
Including cost reduction programme costs of £3,387,000 (2015: £nil).
2 Including contract asset depreciation of £1,955,000 (2015: £3,175,000), cost reduction programme costs of £243,000 (2015: £nil), goodwill impairment
of £4,616,000 (2015: £16,183,000) and investment impairment of £nil (2015: £2,317,000).
3 Excluding amortisation of computer software used internally of £919,000 (2015: £704,000).
4 The cost reduction programme relates to redundancy and restructuring costs, primarily within the Secondary & Specialist Care segment.
The notes on pages 76 to 101 are an integral part of these consolidated financial statements.
72
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS Group and parent company balance sheets
as at 31 December 2016
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in subsidiaries
Investment in joint venture and associate
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Amounts owed by subsidiary companies
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Bank loans
Bank overdraft
Amounts owed to subsidiary companies
Contingent acquisition consideration
Deferred income
Non-current liabilities
Bank loans
Deferred tax liability
Total liabilities
NET ASSETS
EQUITY
Ordinary share capital
Share premium
Own shares held in trust
Retained earnings
Other reserve
Equity attributable to owners of the parent
Non-controlling interest
TOTAL EQUITY
Group
Company
Notes
2016
£’000
2015
£’000
2016
£’000
2015
£’000
13
14
15
16
17
18
19
30
50,336
60,617
22,187
—
152
54,388
66,995
22,032
—
131
—
3,729
—
67,356
—
—
1,801
—
70,380
—
133,292
143,546
71,085
72,181
1,815
39,970
4,303
—
46,088
179,380
1,206
33,893
4,701
—
39,800
183,346
—
3,264
—
47,623
50,887
121,972
—
3,506
—
44,960
48,466
120,647
21
22, 30
22, 30
(21,089)
(1,918)
(1,951)
(2,782)
—
—
(28,418)
(56,158)
(17,777)
(3,183)
(5,402)
(6,457)
(926)
—
(1,951)
(11,168)
— (34,072)
—
—
(48,117)
(3,000)
(28,000)
(63,819)
22, 30
24
—
(9,080)
(1,951)
(10,530)
—
—
(9,080)
(65,238)
114,142
(12,481)
(76,300)
107,046
—
(48,117)
73,855
25
25
633
51,045
(2,275)
58,239
2,027
109,669
4,473
114,142
633
51,045
(2,929)
52,848
2,000
103,597
3,449
107,046
633
51,045
—
19,958
2,219
73,855
—
73,855
(1,049)
—
(5,402)
(7,756)
(28,678)
(3,000)
—
(45,885)
(1,951)
—
(1,951)
(47,836)
72,811
633
51,045
—
18,914
2,219
72,811
—
72,811
The notes on pages 76 to 101 are an integral part of these consolidated financial statements.
The financial statements on pages 72 to 101 were approved by the Board of Directors and authorised for issue on 15 March 2017 and
are signed on its behalf by:
Chris Spencer
Chief Executive Officer
Peter Southby
Chief Financial Officer
Annual report and accounts 2016 EMIS Group plc
73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Group and parent company statements of cash flows
for the year ended 31 December 2016
Cash generated from operations
Finance costs
Finance income
Tax paid
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Development costs capitalised
Purchase of software
Increase/(decrease) in loan from subsidiary company
Dividends received
Business combinations
Proceeds from sale of associate
Notes
29
Group
Company
2016
£’000
43,657
(328)
4
(7,655)
2015
£’000
42,711
(450)
28
(6,896)
2016
£’000
(1,757)
(292)
6
714
2015
£’000
(996)
(443)
—
197
35,678
35,393
(1,329)
(1,242)
(5,413)
527
(5,684)
(987)
—
400
(3,849)
1,532
(6,145)
—
644
—
(6,183)
—
(1,730)
(1,928)
—
3,204
— 20,000
(4,045)
—
(5,231)
—
—
—
—
(1,017)
(14,332)
42,890
(5,715)
—
Net cash (used in)/generated from investing activities
(13,474)
(18,645)
17,231
21,826
Cash flows from financing activities
Increase in loan to Employee Benefit Trust
Transactions in own shares held in trust
Bank loan repayments
Non-controlling interest dividend paid
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
—
579
(5,500)
—
(14,006)
—
589
(11,500)
(2,110)
(12,422)
192
—
(5,500)
—
(14,006)
784
—
(11,500)
—
(12,422)
(18,927)
(25,443)
(19,314)
(23,138)
3,277
(1,756)
(8,695)
6,939
(3,412)
(7,756)
(2,554)
(5,202)
Cash and cash equivalents at end of year
30
1,521
(1,756)
(11,168)
(7,756)
Group cash and cash equivalents of £1,521,000 comprise cash of £4,303,000 and a bank overdraft of £2,782,000.
The notes on pages 76 to 101 are an integral part of these consolidated financial statements.
74
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS Group and parent company statements of changes in equity
for the year ended 31 December 2016
Group
At 1 January 2015
Profit for the year
Transactions with owners
Share acquisitions less sales
Share-based payments
Deferred tax in relation to share-based payments
Dividends paid (note 12)
Other comprehensive income
Currency translation differences
At 31 December 2015
Profit for the year
Transactions with owners
Share acquisitions less sales
Share-based payments
Deferred tax in relation to share-based payments
Dividends paid (note 12)
Other comprehensive income
Currency translation differences
Share
capital
£’000
633
—
—
—
—
—
—
Share
Own shares
premium held in trust
£’000
£’000
51,045
—
(3,718)
—
—
—
—
—
—
789
—
—
—
—
Retained
earnings
£’000
60,109
4,543
(200)
684
134
(12,422)
Other
reserve
£’000
2,111
—
Non-
controlling
interest
£’000
Total
equity
£’000
4,728
831
114,908
5,374
—
—
—
—
—
—
—
(2,110)
589
684
134
(14,532)
—
(111)
—
(111)
633
—
51,045
—
(2,929)
—
52,848
19,101
2,000
—
3,449
1,024
107,046
20,125
—
—
—
—
—
—
—
—
—
—
(75)
654
473
—
—
(102)
— (14,006)
—
—
—
—
—
—
27
579
—
473
—
—
(102)
— (14,006)
—
27
At 31 December 2016
633
51,045
(2,275)
58,239
2,027
4,473
114,142
Company
At 1 January 2015
Profit for the year
Transactions with owners
Share acquisitions less sales
Share-based payments
Dividends paid (note 12)
At 31 December 2015
Profit for the year
Transactions with owners
Share acquisitions less sales
Share-based payments
Dividends paid (note 12)
At 31 December 2016
Share
capital
£’000
633
—
—
—
—
633
—
—
—
—
Share
premium
£’000
51,045
—
—
—
—
51,045
—
Retained
earnings
£’000
5,068
25,784
(200)
684
(12,422)
18,914
14,652
Other
reserve
£’000
2,219
—
—
—
—
2,219
—
Total
equity
£’000
58,965
25,784
(200)
684
(12,422)
72,811
14,652
(75)
—
—
473
— (14,006)
(75)
—
—
473
— (14,006)
633
51,045
19,958
2,219
73,855
The notes on pages 76 to 101 are an integral part of these consolidated financial statements.
Annual report and accounts 2016 EMIS Group plc
75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements
for the year ended 31 December 2016
1. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have
been applied consistently to all periods presented.
1.1 Basis of preparation
The financial statements have been prepared under the historical cost convention and in accordance with International Financial
Reporting Standards (IFRS) as endorsed by the European Union, interpretations issued by the IFRS Interpretations Committee and
with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
For the Group statement of comprehensive income, in addition to the results presented in accordance with IFRS, the Board has also
disclosed information on what it regards as the underlying performance of the business. This presentation reflects the information
which the Board uses to determine performance when making operating and strategic decisions for the business.
The Group is profitable and it is anticipated that this will continue. There is a high and continuing level of recurring revenue and high
cash conversion is anticipated for the foreseeable future.
After careful enquiry and review of available financial information, including projections of profitability and cash flows, the Directors
believe that the Group has adequate resources to continue to operate for the foreseeable future and that it is therefore appropriate
to continue to adopt the going concern basis of accounting in the preparation of the consolidated and Company financial statements.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and
assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses. It also requires management
to exercise its judgement in the application of accounting policies. The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the Company or Group financial statements are disclosed in note 2.
The financial statements are presented in sterling, which is also the functional currency of the parent company. The financial
statements are presented in round thousands.
1.2 Parent company statement of comprehensive income
As permitted by Section 408 of the Companies Act 2006, the parent company has not presented its own statement
of comprehensive income. The profit of the parent company for the year was £14,652,000 (2015: £25,784,000).
1.3 Changes in accounting policy and disclosure
(a) New and amended standards adopted by the Group
The Group has adopted the following new standards and amendments for the first time. Unless otherwise stated, they have not had
a material impact on the financial statements.
• Annual Improvements to IFRSs – 2012–2014 Cycle.
• Disclosure Initiative – Amendments to IAS 1.
(b) Adopted IFRS not yet applied
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their adoption
is not expected to have a material effect on the financial statements unless otherwise indicated:
• IFRS 9 ‘Financial Instruments’ (effective date 1 January 2018).
• IFRS 15 ‘Revenue from Contracts with Customers’ (effective date 1 January 2018).
• IFRS 16 ‘Leases’ (effective date 1 January 2019).
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective date to be confirmed).
• Amendments to IAS 7: Disclosure Initiative (effective date to be confirmed).
• Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (effective date to be confirmed).
• Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (effective date to be confirmed).
76
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 1. Summary of significant accounting policies continued
1.4 Basis of consolidation
The Group financial statements consolidate those of the Company and of its subsidiary undertakings drawn up to 31 December 2016.
Subsidiaries
Subsidiaries are entities that the Company has power over, exposure or rights to variable returns and an ability to use its power to
affect those returns. The Group uses the acquisition method of accounting to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity
interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition
date. The Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets on an acquisition-by-acquisition basis.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of
the separable identifiable net assets acquired and liabilities incurred or assumed at the acquisition date is recorded as purchased
goodwill. Provision is made for any impairment. Accounting policies previously applied by acquired subsidiaries are changed as
necessary to comply with accounting policies adopted by the Group.
Intra-Group transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated
on consolidation.
In the parent company balance sheet, investments in subsidiaries are recorded at cost and are tested for impairment when there
is objective evidence of impairment. Any such impairment losses are recognised in the income statement in the period they occur.
The EMIS Group plc Employee Benefit Trust is treated as a separate legal entity within the Group consolidation.
Associates and joint ventures
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control,
through participation in financial and operating policy decisions.
A joint venture is a contractual arrangement whereby the Group and other parties undertake economic activities that are subject
to “joint control”, which means that the strategic financial and operating policy decisions relating to the relevant activities require
the unanimous consent of the parties sharing control.
Investments in associates and joint ventures are recognised in the Group financial statements using the equity method of
accounting and initially carried in the balance sheet at cost. The carrying value of investments (including any goodwill) is tested
for impairment when there is objective evidence of impairment and is stated net of any impairment loss. The Group’s share of
post-acquisition profits or losses is recognised in the Group statement of comprehensive income and its share of post-acquisition
movements in reserves is recognised in reserves. Unrealised gains and losses on Group transactions with the associates are
eliminated to the extent of the Group’s interest in the associate. Where necessary, adjustments are made to bring the accounting
policies used into line with those used by the Group.
1.5 Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating and
geographical segments, has been identified as the main Board.
Annual report and accounts 2016 EMIS Group plc
77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
1. Summary of significant accounting policies continued
1.6 Revenue recognition
Revenue is recognised at the fair value of the right to the consideration received or receivable for goods sold and services provided
in the normal course of business during the year. Revenue is shown net of value added tax, returns, rebates and discounts and after
eliminating sales within the Group.
The Group recognises revenue when the amount can be reliably measured, when it is probable that future economic benefits will
flow to the entity and when specific criteria have been met for each of the Group’s activities, as described below:
• Revenue from licences, maintenance and software support and other support services is recognised on a straight-line basis over the
period of supply. Licence fees that form part of long-term software installation contracts (principally within the Secondary & Specialist
Care segment) are spread over the implementation phase of these contracts (in line with the period over which the service is provided)
according to the hours worked on the implementation, to best represent the period over which the vendor obligations are satisfied.
Secondary & Specialist Care service contract revenues are recognised as delivered over the period of supply.
• Revenue from hosting services, principally under the General Practitioner Systems of Choice (GPSoC) framework, is recognised
as follows:
– Provision of infrastructure and hardware – over the period that the service is provided, in line with the anticipated life of the
related assets as capitalised within property, plant and equipment.
– Other services are recognised over the period of supply or when delivered as appropriate.
• Revenue from hardware sales is recognised when ownership passes.
• Revenue from training, consultancy and system implementations is recognised when delivery to a customer has occurred
with no significant vendor obligations remaining and where the collection of the resulting receivable is considered probable.
In instances where a significant vendor obligation exists, revenue recognition is delayed until the obligation has been satisfied.
For long-term software installation contracts (principally within the Secondary & Specialist Care segment), revenue is recognised
according to the stage of completion.
Invoices raised in advance of the provision of services to customers are recorded on the balance sheet as deferred income, within
current liabilities.
Where Group recognition criteria have been met but no invoice to the customer has been raised at the reporting date, revenue
is recognised and included as an accrued income, within trade and other receivables.
1.7 Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition of a subsidiary compared with the fair value at the date of acquisition
of the identifiable net assets acquired. Goodwill does not have a finite life and is not subject to amortisation. It is reviewed annually
for impairment and whenever there is an indication that there may be impairment.
Any impairment is recognised immediately in the statement of comprehensive income and is not subsequently reversed. For the
purpose of impairment testing, goodwill is allocated to those cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination and which represent the lowest level within the entity at which the goodwill
is monitored for internal management purposes.
(b) Computer software developed for external sale
Expenditure on software development is capitalised as an intangible asset if it meets the recognition criteria set out in IAS 38
‘Intangible Assets’, requiring it to be probable that the expenditure will generate future economic benefits and can be measured
reliably. To meet these criteria, it is necessary to be able to demonstrate, among other things, the technical feasibility of completing
the intangible asset so that it will be available for use or sale.
The costs incurred in the development stage for substantially new or enhanced products are assessed against the IAS 38 criteria and
considered for recognition as an asset when they meet those criteria. These costs are generally incurred in developing the detailed
product design, software configuration and interfaces, in the coding of software, in its integration with hardware, and in its testing.
Development expenditure directed towards incremental improvements in existing products, remedial work and other maintenance
activity does not qualify for recognition as an intangible asset.
Where a product is technically feasible, production and sales are intended, a market exists, and sufficient resources are available to
complete the project, development costs (only direct employee costs) are capitalised and subsequently amortised on a straight-line
basis over the estimated useful life, reflecting the pattern of the expected future economic benefits. Where these conditions are not
met, development expenditure is recognised as an expense in the period in which it is incurred.
78
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 1. Summary of significant accounting policies continued
1.7 Intangible assets continued
(b) Computer software developed for external sale continued
Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. The estimated useful
life for development expenditure is between four and eight years, based on the anticipated conditions in the market from which
economic benefits are expected to be derived for each unique software product.
Development expenditure is capitalised in accordance with the criteria of IAS 38, and for this reason is not regarded as a realised loss.
(c) Other intangible assets
Intangible assets acquired in a business combination are initially recognised at their fair value. Other intangible assets are initially
recognised at cost. Intangible assets are subsequently stated at this value less accumulated amortisation and any accumulated
impairment losses.
Amortisation is recognised in the statement of comprehensive income on a straight-line basis over the estimated useful life of the
asset, as shown below:
Computer software used internally
Computer software acquired on business combinations
Customer relationships
4–6 years
4–8 years
10–15 years
1.8 Property, plant and equipment
Property, plant and equipment acquired with subsidiary companies are recognised at fair value at the date of acquisition. Other
additions are recognised at purchase cost. Depreciation is provided on all property, plant and equipment, other than freehold land,
to write assets down to their residual value on a straight-line basis over their estimated useful lives at the following annual rates:
Freehold property
Leasehold property
Computer equipment
Fixtures, fittings and equipment
Motor vehicles
2%
Life of lease
25%–33%
25%
20%
1.9 Impairment of property, plant and equipment and intangible assets excluding goodwill
At each year end, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
An impairment loss is recognised whenever the carrying amount of an asset, or its cash-generating unit, exceeds the asset’s
recoverable amount. Impairment losses are recognised as an expense in the Group statement of comprehensive income.
The recoverable amount of assets is the greater of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
1.10 Taxation
The taxation expense charged in the Group statement of comprehensive income represents the sum of the current tax expense and
the deferred tax expense.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from accounting profit as reported in the
Group statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Group liability for current tax is measured using tax
rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial
recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities
in a transaction which affects neither the taxable profit nor the accounting profit.
Annual report and accounts 2016 EMIS Group plc
79
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
for the year ended 31 December 2016
1. Summary of significant accounting policies continued
1.10 Taxation continued
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates,
except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is
settled, based upon tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged
or credited in the Group statement of comprehensive income, except when it relates to items credited or charged directly to equity,
in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and
the deferred tax relates to income tax levied by the same tax authorities on either:
• the same taxable entity; or
• different taxable entities which intend to settle current tax assets and liabilities on a net basis or to realise and settle them
simultaneously in each future period when the significant deferred tax assets and liabilities are expected to be realised or settled.
1.11 Leasing
Operating lease annual rentals are charged in the Group statement of comprehensive income on a straight-line basis over the term
of each lease.
1.12 Share-based payments
The Group operates equity-settled share schemes for certain employees. The cost of equity-settled share-based payments is
measured at fair value at the date of grant, excluding the effect of non-market based vesting conditions. The cost is recognised
in the Group statement of comprehensive income on a straight-line basis over the vesting period with the corresponding amount
credited to equity, based on an estimate of the number of shares that will eventually vest. The estimate of the level of vesting is
reviewed annually and the charge is adjusted accordingly in respect of non-market based vesting conditions. The fair values are
measured using the Black Scholes and Monte Carlo models.
1.13 Retirement benefit costs
The costs charged in the financial statements represent contributions payable by the Group during the period into publicly or
privately administered defined contribution pension plans on a mandatory, contractual or voluntary basis. The Group has no further
payment obligations once the contributions have been paid. Differences between contributions payable in the period and
contributions actually paid are shown as either accruals or prepayments in the balance sheet.
1.14 Foreign currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange
rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date
are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising
on translation are recognised in the statement of comprehensive income. Non-monetary assets and liabilities that are measured
in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at
foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated
to the Group’s presentational currency 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 taken directly to the
translation reserve. When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation
reserve is reclassified to the statement of comprehensive income as part of the gain or loss on disposal.
80
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 1. Summary of significant accounting policies continued
1.15 Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is based upon estimated selling price less
further costs expected to be incurred to completion and disposal. Provision is made for obsolete and slow-moving items.
1.16 Own shares held in trust
The shares in the Company held by The EMIS Group plc Employee Benefit Trust are treated as treasury shares, stated at weighted
average cost and presented as a reduction of shareholders’ equity (see note 25). Gains and losses on transactions in the Company’s
own shares are taken directly to equity.
1.17 Financial instruments
Financial assets and financial liabilities are recognised in the Group balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
(a) Financial assets
Trade receivables
Trade receivables are amounts due from customers for goods sold and services provided in the ordinary course of business. Trade
receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment. A provision for impairment of trade receivables is established when the carrying value of the
receivable exceeds the present value of the future cash flows discounted using the original effective interest rate.
Investments
Investments in subsidiaries, associates and joint ventures are recorded at cost in the Company balance sheet. They are tested for
impairment when there is objective evidence of impairment. Any impairment losses are recognised in the income statement in the
period they occur.
Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents include cash in hand and at bank, and bank overdrafts.
There are no bank deposits with maturity dates of more than one month.
(b) Financial liabilities
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year. Trade payables are recognised
initially at fair value and subsequently measured at amortised cost using the effective interest method, where this is different
to the initial recognition value.
Bank borrowings
Bank loans are recorded initially at their fair value, net of issue costs. Issue costs are charged to the Group statement of
comprehensive income over the term of the instrument at a constant rate on the carrying amount. Such instruments are
subsequently carried at their amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the fair value of the consideration received.
1.18 Dividends
Interim dividends are recognised as distributions in the accounts when paid. Final dividends are recognised in the accounts
in the year in which they are approved by shareholders.
Annual report and accounts 2016 EMIS Group plc
81
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
2. Critical accounting estimates and judgements
Accounting estimates and judgements are made and continually evaluated based on past experience together with expectations
relating to future events that are believed to be reasonable at the present time. Due to the inherent uncertainty involved in making
these estimates and judgements, actual outcomes could be different. The critical estimates, assumptions and judgements made
in arriving at the amounts recognised in the Group financial statements that have a significant risk of causing a material adjustment
to the carrying values of assets and liabilities within the next financial year are as follows:
Carrying amount of goodwill, intangible assets acquired, and investments
The carrying amounts of goodwill, intangible assets acquired, and investments are reviewed for impairment at least annually and
are assessed against the net present value of projected cash flows for each cash-generating unit (CGU). Cash flows are discounted
using an adjusted weighted average cost of capital for each CGU. Judgements are made in calculating the value in use, and ongoing
appropriateness, of the CGUs.
Revenue recognition
The key area of judgement in respect of recognising revenue is the timing of recognition, specifically in relation to deferral of
revenues that are invoiced and paid in advance of services being provided.
Development costs
The key areas of judgement are in determining whether the expenditure meets the criteria for capitalisation and the useful life
over which this expenditure is amortised. Expenditure is only capitalised if it meets the criteria set out in IAS 38 ‘Intangible Assets’,
details are set out in note 1.7(b). Useful lives are based on management estimates of the period over which assets are expected
to generate revenue. These estimates are reviewed periodically for continued appropriateness. Changes to estimates can result
in variations in carrying values and amounts charged to the Group statement of comprehensive income from period to period.
3. Financial risk management
3.1 Financial risk factors
The Group’s activities expose it to financial risks including credit risk, liquidity risk, interest rate risk and price risk. The Group
manages these risks through an effective risk management programme that seeks to minimise potential adverse effects on the
Group’s performance.
Exposure to financial risks is monitored by the finance team under policies approved by the Board. An assessment of the risks is
provided to the Board at regular intervals and is discussed to ensure that the risk mitigation procedures are compliant with Group
policy and that any new risks are appropriately managed.
Credit risk
The Group’s credit risk is primarily attributable to its trade receivables, which are stated net of allowances for any estimated
irrecoverable amounts. However, this risk is mitigated by payment being received in advance for a significant proportion of goods
and services provided.
There is some concentration of risk, as the Group trades extensively with various parties within the National Health Service.
However, the Group has longstanding relationships with its large number of end users and, in addition to the normal credit
management processes, the nature of these relationships assists management in controlling its credit risk.
Credit risk also arises on cash and cash equivalents placed with the Group’s banks. The Group monitors the financial standing
of any institution with which it deposits cash.
Liquidity risk
Management controls and monitors the Group’s cash flow on a regular basis, including forecasting future cash flows, to ensure
that it has sufficient financial resources to meet the obligations of the Group as they fall due.
A detailed analysis of Group debt together with the maturity profile is disclosed in notes 22 and 23.
Interest rate risk
The Company has limited exposure to interest rate risk in relation to its bank debt of £2.0m and bank overdraft of £2.8m, with the
latest cash flow projections for the Group indicating that it will be in a net cash position by 30 June 2017, when the Group’s current
bank debt facilities expire. Details of the interest rates and repayment terms are disclosed in note 22. The Group’s cash generation
is sufficient to enable it to pay down the bank debt rapidly in the event of any significant adverse movement in interest rates.
The Group’s current assets include cash and cash equivalents at the year end amounting to £4.3m, on which interest received
is subject to fluctuations in market rates.
82
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 3. Financial risk management continued
3.1 Financial risk factors continued
Price risk
As a significant proportion of the Group’s revenues are secured under framework agreements or other long-term contracts,
it has only limited exposure to price risk other than at the point of renegotiation of these frameworks or contracts. Where
these negotiations are material, the Group, including the Board, is fully engaged with the process in order to secure the best
possible outcome.
3.2 Capital risk management
The Group defines the capital that it manages as the Group’s total equity, including non-controlling interests.
The Group’s objectives when managing capital are:
• to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns to investors and benefits
for other stakeholders and to maintain an appropriate capital structure to reduce the cost of capital;
• to provide an adequate return to shareholders based on the level of risk undertaken;
• to have financial resources available to allow the Group to invest in areas that may deliver future benefits and returns
to shareholders and other stakeholders; and
• to maintain financial resources sufficient to mitigate against risks and unforeseen events.
The Group is profitable and has high cash conversion and a low level of indebtedness. As a result, capital risk is not significant for
the Group and measurement of capital management is not a tool currently used in the internal management reporting procedures
of the Group.
The Group’s reserves include:
Own shares held in trust – an Employee Benefit Trust holds shares in the Company to facilitate share-based emolument payments
and the Group’s Share Incentive Plan.
Other reserve – comprises a translation reserve of foreign exchange differences from the translation of the financial statements
of overseas operations and other reserves related to merger reliefs taken under UK law.
4. Operating segments
IFRS 8 ‘Operating Segments’ provides for segmental information disclosure on the basis of information reported internally to the
chief operating decision-maker for decision-making purposes. The Group considers that this role is performed by the main Board.
The Group has three operating segments, all involved with the supply and support of connected healthcare software and services:
(a) Primary & Community Care;
(b) Community Pharmacy; and
(c) Secondary & Specialist Care.
Each operating segment is assessed by the Board based on a measure of adjusted operating profit. This measurement basis
excludes exceptional items, the effect of capitalisation and amortisation of development costs, and the amortisation of acquired
intangible assets as the Board considers this to provide the best measure of underlying performance. Group operating expenses,
finance income and costs, cash and cash equivalents and bank loans and overdrafts are not allocated to segments, as Group and
financing activities are not segment specific.
Annual report and accounts 2016 EMIS Group plc
83
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
4. Operating segments continued
Segmental information
2016
2015
Primary &
Community
Care
£’000
Community
Pharmacy
£’000
Secondary &
Specialist
Care
£’000
Primary &
Community
Care
£’000
Community
Pharmacy
£’000
Secondary &
Specialist
Care
£’000
Total
£’000
Total
£’000
Segmental result
Revenue
Segmental operating profit as reported
internally
Development costs capitalised
Amortisation of development costs
Amortisation of acquired intangible assets
Cost reduction programme
Impairment of goodwill
99,615
21,425
37,672
158,712
93,860
20,013
42,025
155,898
32,202
1,882
(4,497)
(1,054)
(1,162)
—
4,876
1,927
—
(576)
(140)
—
3,292
1,875
(1,516)
(5,009)
(2,328)
(4,616)
40,370
5,684
(6,013)
(6,639)
(3,630)
(4,616)
29,603
3,031
(5,396)
(923)
—
—
4,248
1,017
—
(577)
—
—
4,182
2,135
(901)
(5,009)
—
(16,183)
38,033
6,183
(6,297)
(6,509)
—
(16,183)
Segmental operating profit/(loss)
27,371
6,087
(8,302)
25,156
26,315
4,688
(15,776)
15,227
Group operating expenses
Impairment of investment
Operating profit
Net finance costs
Share of result of associate
Share of result of joint venture
Gain on sale of associate
Profit before taxation
Segmental assets and liabilities
Segmental assets as reported internally
Goodwill and other intangible assets
Group assets
Investment in joint venture and associate
Group cash and cash equivalents
Total assets
(1,617)
—
23,539
(237)
—
499
1,532
25,333
(1,480)
(2,317)
11,430
(449)
(388)
339
—
10,932
41,948
42,333
5,204
12,656
16,423
55,964
63,575
110,953
36,036
49,307
4,469
11,223
16,254
60,853
56,759
121,383
84,281
17,860
72,387
174,528
85,343
15,692
77,107
178,142
397
152
4,303
179,380
372
131
4,701
183,346
Segmental liabilities as reported internally
(32,746)
(8,877)
(17,927)
(59,550)
(30,739)
(7,476)
(20,011)
(58,226)
Group liabilities
Group bank loans and overdraft
Total liabilities
Other segmental information
Purchase of property, plant and equipment
Depreciation of property, plant and equipment
Purchase of computer software used internally
Amortisation of computer software
used internally
5,296
5,032
902
918
(954)
(4,734)
(65,238)
(4,264)
(13,810)
(76,300)
443
187
85
1
1,088
1,240
—
6,827
6,459
987
3,409
6,749
1,730
—
919
687
180
137
—
17
2,556
954
—
6,145
7,840
1,730
—
704
84
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS
4. Operating segments continued
Segmental information continued
Revenue excludes intra-Group transactions on normal commercial terms from the Primary & Community Care segment to the
Community Pharmacy segment totalling £4,254,000 (2015: £3,750,000), from the Primary & Community Care segment to the
Secondary & Specialist Care segment totalling £411,000 (2015: £883,000), and from the Secondary & Specialist Care segment to
the Primary & Community Care segment totalling £nil (2015: £33,000).
Revenue of £112,396,000 (2015: £112,786,000) is derived from the NHS and related bodies.
Revenue of £7,270,000 (2015: £6,942,000) is derived from customers outside the United Kingdom. Non-current assets held outside
the UK total £663,000 (2015: £235,000).
5. Revenue
Revenue is analysed as follows:
Licences
Maintenance and software support
Other support services
Training, consultancy and implementation
Hosting
Hardware
6. Operating profit
The following have been included in arriving at operating profit:
Research and development expenditure
Development expenditure capitalised:
– Software for external sale
– Software used internally
Depreciation of property, plant and equipment:
– Depreciation of owned assets
Amortisation of intangible assets:
– Computer software used internally
– Computer software developed for external sale
– Arising on business combinations
Cost reduction programme
Impairment of goodwill
Impairment of investment
Operating lease rentals:
– Land and buildings
– Plant, machinery and motor vehicles
2016
£’000
54,762
38,654
29,340
14,572
13,120
8,264
2015
£’000
50,300
37,887
30,611
16,128
13,075
7,897
158,712
155,898
2016
£’000
2015
£’000
17,326
19,561
(5,684)
(305)
(6,183)
(472)
6,459
7,840
919
6,013
6,639
3,630
4,616
—
2,276
882
704
6,297
6,509
—
16,183
2,317
1,241
783
The total research and development cost shown above of £17,326,000 (2015: £19,561,000) consists of the direct salary
and National Insurance costs of relevant staff. Software development costs amounting to £5,684,000 (2015: £6,183,000)
have been capitalised in accordance with the criteria set out in IAS 38.
Annual report and accounts 2016 EMIS Group plc
85
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
6. Operating profit continued
Total fees payable by the Group during the year to KPMG LLP in respect of the audit and other services provided were as follows:
Audit of these financial statements
Amounts payable to the Company’s auditor and associated companies in respect of:
– Audit of the financial statements of subsidiaries of the Company
– Tax compliance services
– Other tax advisory services
– Forensic advisory
– All other services
7. Finance income
Bank interest
Foreign currency gain
8. Finance costs
Bank loan interest
Amortisation of bank loan issue costs
9. Employees
The average monthly number of people (including Directors) employed by the Group during the year was as follows:
Management and administration
Software support and development
Sales, maintenance and training
Others
2016
£’000
26
125
—
58
—
30
239
2016
£’000
4
184
188
2016
£’000
328
97
425
2015
£’000
25
115
46
34
75
21
316
2015
£’000
28
—
28
2015
£’000
380
97
477
2016
Number
2015
Number
184
956
470
265
180
913
493
277
1,875
1,863
86
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 9. Employees continued
Staff costs were:
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Share incentive plan (note 26)
Share option expense (note 26)
Dealt with as follows:
– Charged in Group statement of comprehensive income
– Capitalised in the development of software for external sale
– Capitalised in respect of computer software used internally
10. Income tax expense
Income tax:
– Current year tax charge
– Adjustment in respect of prior years
Total current tax
Deferred tax:
– Current year
Total deferred tax
Total tax charge in Group statement of comprehensive income
Factors affecting the tax charge for the year
Profit before taxation
Taxation at the average UK corporation tax rate of 20% (2015: 20.25%)
Tax effects of:
– Expenses/income not allowable/taxable in determining taxable profit
– Adjustment in respect of prior years
– Joint venture reported net of tax
– Deferred tax rate change
Tax charge for the year
2016
£’000
67,543
6,588
2,523
59
473
77,186
71,197
5,684
305
77,186
2015
£’000
63,977
6,620
2,402
437
684
74,120
67,465
6,183
472
74,120
2016
£’000
2015
£’000
7,307
(422)
6,885
7,943
—
7,943
(1,677)
(2,385)
(1,677)
(2,385)
5,208
5,558
25,333
10,932
5,067
2,214
707
(422)
(100)
(44)
5,208
3,726
—
—
(382)
5,558
The main rate of UK corporation tax will reduce to 19% from 1 April 2017, and to 17% from 1 April 2020. The impact of the further
reduction from 1 April 2020 from the previously enacted rate of 18% on the deferred tax balances of the Group has been included
in the current year tax charge.
Annual report and accounts 2016 EMIS Group plc
87
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
11. Earnings per share (EPS)
The calculation of basic and diluted EPS is based on the following earnings and numbers of shares:
Earnings
Basic earnings attributable to equity holders
Cost reduction programme
Impairment of goodwill
Impairment of investment
Gain on sale of associate
Development costs capitalised
Amortisation of development costs and acquired intangible assets
Tax and non-controlling interest effect of above items
Adjusted earnings attributable to equity holders
Weighted average number of ordinary shares
Total shares in issue
Shares held by Employee Benefit Trust
For basic EPS calculations
Effect of potentially dilutive share options
For diluted EPS calculations
EPS
Basic
Adjusted
Basic diluted
Adjusted diluted
12. Dividends
Final dividend for the year to 31 December 2014 of 9.2p
Interim dividend for the year to 31 December 2015 of 10.6p
Final dividend for the year to 31 December 2015 of 10.6p
Interim dividend for the year to 31 December 2016 of 11.7p
2016
£’000
19,101
3,630
4,616
—
(1,532)
(5,684)
12,652
(1,776)
2015
£’000
4,543
—
16,183
2,317
—
(6,183)
12,806
(1,266)
31,007
28,400
2016
Number
’000
63,311
(502)
62,809
215
2015
Number
’000
63,311
(576)
62,735
230
63,024
62,965
2016
Pence
30.4
49.4
30.3
49.2
2016
£’000
—
—
6,656
7,350
2015
Pence
7.2
45.3
7.2
45.1
2015
£’000
5,771
6,651
—
—
14,006
12,422
A final dividend for the year to 31 December 2016 of 11.7p amounting to approximately £7,354,000 will be proposed at the Annual
General Meeting on 28 April 2017. If approved, this dividend will be paid on 3 May 2017 to shareholders on the register on 31 March
2017. The dividend is not accounted for as a liability in these financial statements and will be accounted for as an appropriation of
distributable reserves in the year to 31 December 2017.
88
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 13. Goodwill
Goodwill is allocated to the Group’s cash-generating units (CGUs) as follows:
Group
Cost
At 1 January 2015
Acquisition of business
Reallocation of goodwill
Measurement period adjustment
At 31 December 2015
Acquisition of business (note 31)
At 31 December 2016
Accumulated impairment losses
At 1 January 2015
Impairment of goodwill
At 31 December 2015
Impairment of goodwill
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Community
Pharmacy
£’000
Secondary
Care
£’000
Specialist
Care
£’000
Total
Group
£’000
Primary &
Community
Care
£’000
15,853
1,967
3,473
—
21,293
564
6,756
—
—
—
6,756
—
37,390
—
(3,473)
—
33,917
—
21,857
6,756
33,917
—
—
—
—
—
—
—
—
—
—
—
16,183
16,183
—
8,578
—
—
27
8,605
—
8,605
—
—
—
4,616
68,577
1,967
—
27
70,571
564
71,135
—
16,183
16,183
4,616
16,183
4,616
20,799
21,857
21,293
15,853
6,756
6,756
6,756
17,734
17,734
37,390
3,989
8,605
8,578
50,336
54,388
68,577
Impairment tests for goodwill
Each allocation is tested annually for impairment and, to confirm whether an impairment of the goodwill is necessary, management
compares the carrying value to the value in use.
The value in use for each allocation of the existing goodwill has been calculated using internal Group budgets for the year ending
31 December 2017 to forecast pre-tax cash flows from each CGU (with the key budget assumptions being in relation to revenue
growth). These cash flows have then been extrapolated for a further four years assuming average annual growth rates of 3.5%
(2015: 3.5%) until 31 December 2021 and then 1% into perpetuity (2015: 1%) for all CGUs except Specialist Care, which is based on
management forecasts to 2019 followed by 3.5% growth in 2020 and 2021, and 1% growth into perpetuity. The pre-tax cash flows
have been discounted back to 31 December 2016 using a discount rate of 9.1% in relation to Primary & Community Care (2015: 9.1%),
and 10.1% for all other CGUs (2015: 10.1%).
As a result of this exercise a £4,616,000 impairment of goodwill within the Specialist Care CGU has been recognised, reflecting
the fact that the Medical Imaging business has not yet delivered the financial returns expected when it joined the Group in 2014.
The recoverable amount of the Specialist Care CGU assessed under the value in use method is £9,909,000. The exercise has
confirmed that there has been no impairment in any other CGU.
Sensitivity analysis has been performed on the key assumptions which indicated that, with the exception of the Specialist Care CGU,
no reasonably possible change to key assumptions would cause an impairment. An impairment would not be recognised outside of
the Specialist Care CGU if annual growth rates, and growth into perpetuity, were reduced to zero, or if discount rates were
increased to 13.5%.
A 1% increase in the Specialist Care CGU discount rate would reduce the value in use by £1,209,000, and a 1% reduction in both the
annual growth rate and the perpetuity growth rate would reduce the value in use by £1,183,000.
Management has determined the discount rates for each CGU by considering the specific risks relating to the relevant segment.
Growth rates beyond the budget period are determined based on a prudent assessment of long-term growth rates.
Annual report and accounts 2016 EMIS Group plc
89
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
14. Other intangible assets
Group
Cost
At 1 January 2015
Additions
Acquisition of business
At 31 December 2015
Additions
Acquisition of business (note 31)
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2015
Charged in year
At 31 December 2015
Charged in year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Computer
software
used
internally
£’000
Computer
software
developed for
external sale
£’000
Computer
software
acquired on
business
combinations
£’000
Customer
relationships
£’000
Total
£’000
2,810
1,730
—
4,540
987
—
28,660
6,183
—
34,843
5,684
—
35,217
—
844
36,061
—
259
35,113
—
928
36,041
—
263
101,800
7,913
1,772
111,485
6,671
522
5,527
40,527
36,320
36,304
118,678
665
704
1,369
919
7,300
6,297
13,597
6,013
13,002
3,469
16,471
3,553
10,013
3,040
13,053
3,086
30,980
13,510
44,490
13,571
2,288
19,610
20,024
16,139
58,061
3,239
3,171
2,145
20,917
21,246
21,360
16,296
19,590
22,215
20,165
22,988
25,100
60,617
66,995
70,820
The accounting policy for intangible assets is set out in note 1.7. The remaining average amortisation period for software developed
for external sale is three years. At 31 December 2016 software acquired on business combinations had a remaining amortisation
period of five years for both Ascribe and Digital Healthcare, three years for Indigo 4 Systems (part of the Secondary Care CGU),
and four years for PinBellCom Group Limited (part of the Primary & Community Care CGU). The amortisation period for software
acquired during the year with Intrelate Limited (part of the Primary & Community Care CGU) is five years. Customer relationships
have a remaining amortisation period of seven years for Primary & Community Care, four years for Community Pharmacy, seven
years for both Ascribe and Digital Healthcare, eight years for both Indigo 4 Systems and Medical Imaging, and nine years for
PinBellCom Group Limited. The amortisation period for customer relationships acquired during the year with Intrelate Limited
is ten years.
Company intangible assets comprise computer software developed for external sale with a cost of £3,729,000 (2015: £1,801,000;
2014: £784,000) and accumulated amortisation of £nil (2015: £nil; 2014: £nil). Amortisation on this is expected to commence in 2017.
90
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 15. Property, plant and equipment
Group
Cost
At 1 January 2015
Additions
Acquisition of business
Disposals
Exchange differences
At 31 December 2015
Additions
Acquisition of business (note 31)
Disposals
Exchange differences
At 31 December 2016
Accumulated depreciation and impairment
At 1 January 2015
Charged in year
On disposals
At 31 December 2015
Charged in year
On disposals
Exchange differences
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Land and
buildings
£’000
Computer
equipment
£’000
Fixtures.
fittings and
equipment
£’000
9,698
1,715
—
(186)
—
11,227
441
—
—
56
31,037
2,916
11
(111)
3
33,856
4,999
2
—
12
3,552
1,376
—
(27)
—
4,901
1,338
—
(1,163)
31
Motor
vehicles
£’000
5,294
138
—
(1,893)
—
3,539
49
—
(1,620)
17
Total
£’000
49,581
6,145
11
(2,217)
3
53,523
6,827
2
(2,783)
116
11,724
38,869
5,107
1,985
57,685
1,074
266
(116)
1,224
328
—
—
20,357
5,998
(16)
26,339
4,660
—
6
1,532
517
(8)
2,041
825
(1,161)
18
2,305
1,059
(1,477)
1,887
646
(1,324)
9
25,268
7,840
(1,617)
31,491
6,459
(2,485)
33
1,552
31,005
1,723
1,218
35,498
10,172
10,003
8,624
7,864
7,517
10,680
3,384
2,860
2,020
767
1,652
2,989
22,187
22,032
24,313
Included within property, plant and equipment are contract assets allocated to the data centre hosting services contract
(see note 1.6 for further details) with an original cost of £21,430,000 (2015: £18,795,000) and accumulated depreciation of
£18,781,000 (2015: £16,826,000). Depreciation of £1,955,000 (2015: £3,175,000) has been included in other operating expenses
in the year. The net book value of these assets amounts to £2,649,000 (2015: £1,969,000).
16. Investments in subsidiaries
Company
At 1 January 2015
Acquisition of business
Investment in subsidiary undertaking
Capital contribution
Impairment
At 31 December 2015
Acquisition of business (note 31)
Impairment
At 31 December 2016
£’000
82,370
3,464
1
1,748
(17,203)
70,380
1,045
(4,069)
67,356
The Company’s investment in Medical Imaging UK Limited was impaired by £4,069,000, writing down the cost of investment
to £7,931,000, following a review of future cash flows against the carrying value of the investment.
Annual report and accounts 2016 EMIS Group plc
91
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
16. Investments in subsidiaries continued
The undertakings whose results and financial position are consolidated within the Group financial statements at 31 December 2016
are as follows:
ASC Computer Software (NZ) Limited
ASC Computer Software PTY Limited
Ascribe Group Limited
Ascribe Holdings Limited
Ascribe Limited
Ascribe Limited (Kenya)
CBD-E Limited1
Digital Healthcare Limited
Egton Limited1
Egton Medical Information Systems Limited
EMIS Care Limited1
EMIS Health Community Pharmacy Limited1
EMIS Health India Private Limited
EMIS Health Limited1
EMIS Health Primary Care Limited1
EMIS Health Secondary Care Limited1
EMIS Health Specialist Care Limited1
Footman Walker Associates Limited1
Healthcare Gateway Limited
Indigo 4 Systems Limited
Intrelate Limited
Medical Imaging UK Limited
MIDRSS Limited
Patient Platform Limited
PinBellCom Group Limited
PinBellCom Limited
Protechnic Exeter Limited1
Rx Systems Limited
Scroll Bidco Limited
1 Dormant.
2 Held directly by EMIS Group plc.
Country of
incorporation
New Zealand
Australia
England
England
England
Kenya
England
England
England
England
England
England
India
England
England
England
England
England
England
England
Scotland
England
Republic of Ireland
England
England
England
England
England
England
% of issued
ordinary
shares held
100
100
100 2
100
100
100
100
100 2
100 2
100 2
100 2
100 2
100 2
100 2
100 2
100 2
100 2
100
50
100
100 2
100 2
100 2
100 2
100 2
100
100
78.9 2
100
The above subsidiary undertakings which are not dormant are engaged in providing software and support services to the healthcare
market, with the exception of Ascribe Group Limited, Scroll Bidco Limited, Ascribe Holdings Limited and PinBellCom Group Limited which
are all holding companies.
All undertakings incorporated in England, with the exception of Healthcare Gateway Limited, have a registered office of Rawdon House,
Green Lane, Yeadon, Leeds, LS19 7BY. The registered office of Healthcare Gateway Limited is C/O IBB Solicitors, Capital Court, 30 Windsor
Street, Uxbridge, UB8 1AB.
Other registered offices are as follows: ASC Computer Software (NZ) Limited, Suite 6035, 17b Farnham Street, Parnell, Auckland,
New Zealand; ASC Computer Software PTY Limited, Unit 1B, 5-7 Compark Circuit, Mulgrave, VIC 3170, Australia; Ascribe Limited (Kenya),
PO Box 40296 - 00100, Nairobi, Kenya; Emis Health India Private Limited, Unit No. A1, Level 3, Shriram The Gateway SEZ, No. 16, G.S.T.
Road, Perungalathur, Chennai-600 063, India; Intrelate Limited, Bush House, Edinburgh Technopole, Milton Bridge, Penicuik, Scotland,
EH26 0BB; and MIDRSS Limited, The Care Centre Unit 3, Enterprise House, 36 Mary Street, Cork City, Co. Cork, Ireland.
92
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 17. Investment in joint venture and associate
Associate
Group
At 1 January
Share of result for year
Impairment
At 31 December
2016
£’000
—
—
—
—
2015
£’000
2,705
(388)
(2,317)
—
The results above relate to Pharmacy 2U Limited (P2U), an unlisted company incorporated in the UK. On 2 July 2016 the Group
disposed fully of its minority interest in P2U, generating net proceeds and a gain on disposal of £1,532,000, following the full
impairment of the investment in the prior year.
Joint venture
Healthcare Gateway Limited (HGL) is a joint venture formed with In Practice Systems Limited. Its purpose is to enable the sharing
of patient data via a medical interoperability gateway.
The Group has a 50% interest in the ordinary share capital of HGL, acquired on formation for £1. The venture was initially funded by
loans from each joint venture party and at 31 December 2016 the Group was owed £nil (2015: £155,000).
Aggregate amounts relating to HGL are as follows:
Revenues
Profit before taxation
Profit after taxation
Current assets
Current liabilities
Net assets
Group’s interest in net assets of investee at beginning of year
Share of total comprehensive income
Dividends received
Adjustment in relation to prior year tax
Group’s interest in net assets of investee at end of year
18. Inventories
Group
Finished goods
19. Trade and other receivables
Trade and other receivables
Prepayments and accrued income
Loan to Employee Benefit Trust
Income tax
2016
£’000
2,479
1,248
998
2015
£’000
1,648
678
532
1,954
(1,650)
1,512
(1,406)
304
106
131
499
(400)
(78)
152
(208)
339
—
—
131
2016
£’000
1,815
2015
£’000
1,206
Group
Company
2016
£’000
15,611
24,359
—
—
39,970
2015
£’000
15,385
18,508
—
—
33,893
2016
£’000
—
394
2,870
—
3,264
2015
£’000
—
369
3,137
—
3,506
The loan to the Employee Benefit Trust is non-interest bearing and is repayable on demand.
Annual report and accounts 2016 EMIS Group plc
93
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
20. Credit quality of financial assets
The amounts of the maximum exposure to credit risk at the reporting date are as follows:
Trade and other receivables
Cash at bank
No collateral security is held.
Trade and other receivables
Reporting date balances fall within the following categories:
UK governmental health bodies
Community pharmacies and associated wholesalers
Other third party receivables
Group
Company
2016
£’000
15,611
4,303
2015
£’000
15,385
4,701
19,914
20,086
2016
£’000
2015
£’000
—
—
—
—
—
—
Group
2016
£’000
5,900
3,519
6,192
15,611
2015
£’000
7,124
3,933
4,328
15,385
Trade and other receivables are mainly due one month following the date of the invoice. At the reporting date the aged analysis of
trade and other receivables is as follows:
December
November
October and earlier
2016
£’000
9,343
2,543
3,725
15,611
2015
£’000
10,482
2,263
2,640
15,385
The Group carries a provision for impairment of trade receivables of £318,000 (2015: £348,000).
Cash at bank
The Group’s cash is held with a number of different banks. The Moody’s long-term credit ratings of those banks and the respective
balances held are as follows:
Group
2016
£’000
808
204
777
—
1,707
—
132
81
594
4,303
2015
£’000
475
232
44
1,024
658
411
—
71
1,786
4,701
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Caa2
94
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 21. Trade and other payables
Trade payables
Accrued expenses
Other tax and social security
22. Borrowings
Non-current
Unsecured bank loans
Current
Bank overdraft
Unsecured bank loans
Group
Company
2016
£’000
4,751
9,787
6,551
21,089
2015
£’000
5,081
7,084
5,612
17,777
2016
£’000
230
696
—
926
Group
Company
2016
£’000
—
—
2,782
1,951
4,733
2015
£’000
1,951
1,951
6,457
5,402
11,859
2016
£’000
—
—
11,168
1,951
13,119
2015
£’000
562
487
—
1,049
2015
£’000
1,951
1,951
7,756
5,402
13,158
Bank loans comprise £2,000,000 of term loan and £49,000 of unamortised arrangement fees. All bank loans bear an interest rate
of 1.50% above LIBOR.
The term loan is repayable by equal quarterly instalments of £1,000,000, with a final maturity date of 30 June 2017. The revolving
credit facility and overdraft facility are committed until 30 June 2017. At 31 December 2016, £6,000,000 of the revolving credit facility
was undrawn, and there was £7,218,000 of unused overdraft facility.
The financial covenants in place for these facilities are: EBITA interest cover; net debt to adjusted EBITDA senior leverage; and cash
flow to senior debt cash flow cover. All covenants were comfortably met during the year and are projected to be so in the remaining
period of the facility.
The fair value of current and non-current borrowings approximates to their carrying amount, as the impact of discounting is not significant.
23. Liquidity risk
The following are the contractual maturities of the Group’s borrowings, including estimated interest payments:
Less than
1 year
£’000
Contractual
cash flow
£’000
Carrying
amount
£’000
1–2 years
£’000
2–3 years
£’000
At 31 December 2016
Trade and other payables due within one year
External borrowings
Bank overdraft
At 31 December 2015
Trade and other payables due within one year
External borrowings
Contingent acquisition consideration
Bank overdraft
(21,089)
(1,951)
(2,782)
(21,089)
(2,028)
(2,782)
(21,089)
(2,028)
(2,782)
(25,822)
(25,899)
(25,899)
—
—
—
—
(17,777)
(7,353)
(3,000)
(6,457)
(17,777)
(7,610)
(3,000)
(6,457)
(17,777)
(5,594)
(3,000)
(6,457)
—
(2,016)
—
—
(34,587)
(34,844)
(32,828)
(2,016)
—
—
—
—
—
—
—
—
—
Contingent consideration is measured at fair value, with fair values measured using level three inputs (being those that are not
based on observable market data).
Annual report and accounts 2016 EMIS Group plc
95
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
24. Deferred tax
Group
At 1 January 2015
Credited to statement of comprehensive income
Credited to equity
Acquisition of business
Exchange differences
At 31 December 2015
(Charged)/credited to statement of comprehensive income
Charged to equity
Acquisition of business (note 31)
Exchange differences
At 31 December 2016
Property,
plant and
equipment
£’000
522
504
—
—
—
1,026
(107)
—
(26)
—
Intangible
assets
£’000
(13,583)
1,867
—
(338)
—
(12,054)
1,600
—
(94)
—
Other
temporary
differences
£’000
352
14
134
—
(2)
498
184
(102)
—
(5)
Total
£’000
(12,709)
2,385
134
(338)
(2)
(10,530)
1,677
(102)
(120)
(5)
893
(10,548)
575
(9,080)
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset)
for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
25. Share capital and share premium
Company and Group
At 1 January 2015, 31 December 2015 and 31 December 2016
2016
£’000
2015
£’000
(10,966)
1,886
(12,509)
1,979
(9,080)
(10,530)
Ordinary shares of 1p each
Number
£’000
Share
premium
£’000
63,311,396
633
51,045
All issued shares are fully paid. At 31 December 2016 the EMIS Group plc Employee Benefit Trust held 464,867 shares in the
Company (2015: 540,034 shares).
During the year the Employee Benefit Trust purchased 41,889 shares, representing 0.1% of the issued share capital of the Company,
in relation to the exercise of employee share options.
During the year the Employee Benefit Trust disposed of 117,056 shares, representing 0.2% of the issued share capital of the
Company, for total consideration of £1,016,000.
The maximum number of shares held by the Employee Benefit Trust during the year was 540,034, representing 0.9% of the issued
share capital of the Company.
96
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 26. Share-based payments
At 31 December 2016 outstanding awards to subscribe for ordinary shares of 1p each in the Company, granted in accordance with
the rules of the EMIS Group share option schemes and the EMIS Group LTIP, were as follows:
Date of grant
2011 Share Option Plan
11 October 2011
1 October 2012
2 May 2013
18 October 2013
15 October 2014
28 April 2015
27 April 2016
At
1 January
2015
22,704
33,826
4,107
89,154
53,562
—
—
Granted
Lapsed
Exercised
—
—
—
—
—
47,437
—
— (16,082)
(21,406)
—
(444)
(56)
—
—
(2,460)
—
(13,335)
(3,478)
(1,423)
—
At
1 January
2016
6,622
9,960
4,107
75,375
50,028
46,014
—
Granted
Lapsed
Exercised
At
31 December
2016
—
—
—
—
—
—
40,172
—
(120)
—
(9,843)
(9,687)
(3,847)
(1,030)
(5,203)
(3,075)
(2,738)
(35,814)
—
—
—
1,419
6,765
1,369
29,718
40,341
42,167
39,142
203,353
47,437
(20,696)
(37,988)
192,106
40,172
(24,527)
(46,830)
160,921
Weighted average exercise price
690p
901p
705p
690p
741p
970p
740p
656p
823p
Unapproved Option Scheme
1 October 2012
18 October 2013
27 April 2016
52,500
121,000
—
173,500
Weighted average exercise price
703p
—
—
—
—
—
— (45,264)
—
—
7,236
— 121,000
—
—
—
(4,003)
— (121,000)
—
2,317
— (45,264)
128,236
2,317
(125,003)
—
812p
665p
970p
661p
—
—
—
—
—
3,233
—
2,317
5,550
878p
EMIS Group LTIP
2 May 2013
16 January 2014
1 May 2014
28 April 2015
27 April 2016
50,000
49,019
292,400
—
—
—
— 266,554
—
—
—
—
(22,714)
(16,380)
—
22,286
(27,714)
—
49,019
— 269,686
— 250,174
—
—
—
—
—
— (56,562)
(40,812)
—
(14,247)
— 235,977
(6,853)
15,433
—
49,019
— 213,124
— 209,362
— 221,730
391,419
266,554
(39,094)
(27,714)
591,165
235,977
(111,621)
(6,853) 708,668
Weighted average exercise price
91p
0p
0p
710p
27p
0p
0p
710p
16p
The number of vested options which had not been exercised at 31 December 2016 was 42,504 (2015: 23,818). The weighted average
share price at the date of exercise for share options exercised in 2016 was £9.01 (2015: £9.18).
The parent company operates share option schemes (the HMRC approved EMIS Group plc 2011 Share Option Plan and the EMIS
Group plc Unapproved Option Scheme) and an LTIP scheme. Tranches of options have been granted at market value to senior
members of management under the 2011 Share Option Plan, the Unapproved Option Scheme and the 2013 LTIP scheme, and at nil
cost under the 2014, 2015 and 2016 LTIP schemes. Performance conditions apply to the 2014, 2015 and 2016 awards under the 2011
Share Option Plan, and to all awards under the Unapproved Option Scheme and the EMIS Group LTIP.
Options are conditional on the employee completing three years’ service, other than in certain limited circumstances. The Group
has no legal or constructive obligation to repurchase or settle any of the options for cash.
The key assumptions used in the valuations are shown on page 98. The fair values of options with performance conditions have
been determined using the Monte Carlo Model. The fair values of options without performance conditions have been determined
using the Black Scholes Model.
Annual report and accounts 2016 EMIS Group plc
97
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
26. Share-based payments continued
Grant date
Exercise period
Share price at
grant date
Exercise price
Expected volatility
Expected life (years)
Risk-free rate
Expected
dividend yield
Fair value per option
11 October
2011
October
2014–
October
2016
1 October
2012
October
2015–
October
2017
528p
528p
36%
3
2.75%
2.35%
109p
812p
812p
30%
3
1.00%
1.64%
153p
2011 Share Option Plan
18 October
2013
October
2016–
October
2018
15 October
2014
October
2017–
October
2019
656p
656p
35%
3
1.40%
2.20%
141p
737p
737p
35%
3
2.37%
2.33%
164p
2 May
2013
May
2016–
May
2018
730p
730p
35%
3
1.40%
2.20%
157p
28 April
2015
April
2018–
April
2020
901p
901p
26%
3
2.37%
2.03%
152p
Grant date
Exercise period
Share price at grant date
Exercise price
Expected volatility
Expected life (years)
Risk-free rate
Expected dividend yield
Fair value per option
Grant date
Exercise period
Share price at grant date
Exercise price
Expected volatility
Expected life (years)
Risk-free rate
Expected dividend yield
Fair value per option
Unapproved Option Scheme
1 October 2012
June 2015–
July 2016
812p
812p
30%
3
1.00%
1.64%
75p
EMIS Group LTIP
1 May 2014
May 2017–
May 2024
635p
0p
35%
3
2.37%
2.52%
589p
18 October 2013
July 2016–
October 2018
656p
656p
35%
3
1.40%
2.20%
89p
28 April 2015
April 2018–
April 2025
908p
0p
26%
3
2.37%
2.03%
854p
2 May 2013
July 2015–
July 2017
710p
710p
30%
3
1.00%
1.90%
177p
16 January 2014
January 2017–
January 2024
630p
0p
35%
3
2.37%
2.52%
584p
27 April
2016
April
2019–
April
2021
970p
970p
30%
3
2.37%
2.19%
190p
27 April 2016
April 2019–
April 2021
970p
970p
30%
3
2.37%
2.19%
190p
27 April 2016
April 2019–
April 2026
970p
0p
30%
3
2.37%
2.19%
908p
The expected volatility assumption is based on statistical analysis of the historical volatility of the Company’s share price.
The Company also operates an HMRC approved Share Incentive Plan, which is open to all UK employees with at least one year’s
service. Those joining contribute a maximum of the lower of £1,800 a year or 10% of salary, which is used to acquire shares in the
Company at market price from the EMIS Group plc Employee Benefit Trust, which holds shares in the Company to satisfy Share
Incentive Plan and other employee share scheme requirements.
For every three shares acquired by an employee the Company adds one free “matching” share. The matching shares, together
with any free shares allocated to members under the scheme during the year, had a value of £59,000 (2015: £437,000).
98
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS
27. Operating lease commitments
The future aggregate minimum lease commitments under non-cancellable operating leases are as follows:
Group
Land and buildings:
– Due within one year
– Due between one and five years
– Due after five years
Plant, machinery and motor vehicles:
– Due within one year
– Due between one and five years
– Due after five years
2016
£’000
2015
£’000
1,178
3,902
3,469
1,346
1,351
—
11,246
1,584
4,296
3,618
767
1,488
—
11,753
28. Capital commitments
At 31 December 2016 the Group had capital commitments in respect of computer equipment amounting to £243,000 (2015: £1,732,000).
29. Cash generated from operations
Profit before taxation
Finance income
Finance costs
Share of result of associate
Share of result of joint venture
Gain on sale of associate
Dividends received
Operating profit/(loss)
Adjustment for non-cash items
Amortisation of intangible assets
Depreciation of property, plant and equipment
Impairment of goodwill
Impairment of investment
Profit on disposal of property, plant and equipment
Share-based payments
Operating cash flow before changes in working capital
Changes in working capital
(Increase)/decrease in inventory
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in deferred income
Cash generated from operations
Group
Company
2016
£’000
2015
£’000
2016
£’000
2015
£’000
25,333
(188)
425
—
(499)
(1,532)
—
10,932
13,937
(28)
—
477
385
388
—
(339)
—
—
—
— (20,000)
23,676
—
541
—
—
—
(42,890)
23,539
11,430
(5,678)
(18,673)
13,571
6,459
4,616
—
(229)
473
13,510
7,840
16,183
2,317
(44)
684
—
—
—
4,069
—
—
—
—
—
17,203
—
—
48,429
51,920
(1,609)
(1,470)
(609)
(6,369)
1,915
291
344
(3,945)
(3,246)
(2,362)
—
(25)
(123)
—
—
(218)
692
—
43,657
42,711
(1,757)
(996)
Annual report and accounts 2016 EMIS Group plc
99
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements continued
for the year ended 31 December 2016
30. Change in net debt
Group
Cash and cash equivalents
Bank overdraft
Bank loans due within one year
Bank loans due after one year
Net debt
2015
£’000
Cash flow
£’000
4,701
(6,457)
(5,402)
(1,951)
(398)
3,675
3,500
2,000
(9,109)
8,777
Finance
costs
£’000
—
—
(49)
(49)
(98)
2016
£’000
4,303
(2,782)
(1,951)
—
(430)
31. Business combinations
On 22 December 2016 the Group acquired 100% of the share capital of Intrelate Limited, a provider of mobile social care software.
The acquisition is in line with the Group’s strategy of providing health and social care IT for patients and those involved in their care.
The provisional fair values of the net assets acquired, consideration paid and goodwill arising on the transaction are shown in the
table below:
Group
£’000
Goodwill
Intangible assets acquired:
– Computer software
– Customer relationships
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred income
Deferred tax
Total net assets
Consideration:
Cash consideration
Total consideration
Cash and cash equivalent balances acquired
Net cash cost of acquisition paid in year
564
259
263
2
101
196
(93)
(127)
(120)
1,045
1,045
1,045
(196)
849
Goodwill relates principally to the experienced staff within the business.
Provisional fair values of assets and liabilities represent the best estimate of the fair values at the date of acquisition. As permitted by
IFRS 3 (Revised) ‘Business Combinations’, these provisional amounts can be amended for a period of up to twelve months following
acquisition if subsequent information becomes available which changes the estimates of fair values at the date of acquisition.
The post-acquisition contribution of the acquired business to Group revenue and adjusted operating profit is not material to the
year under review as the business was only acquired on 22 December 2016, immediately prior to the year end. Had the acquisition
occurred on 1 January 2016, the Group’s revenue and adjusted operating profit for the year would have been £159,719,000 and
£38,764,000 respectively.
In relation to the acquisition, costs of £30,000 have been expensed in the statement of comprehensive income.
32. Pension commitments
Pension contributions of £2,523,000 (2015: £2,402,000) represent contributions paid on behalf of employees by the Group
to various defined contribution schemes.
100
EMIS Group plc Annual report and accounts 2016
FINANCIAL STATEMENTS 33. Related party transactions
Key management compensation
Key management includes Executive and Non-executive Directors and members of the Group Executive Board. The compensation
paid or payable to key management for employee services is shown below:
Salaries and other short-term employee benefits
Post retirement benefits
Directors’ emoluments
Aggregate emoluments
Pension costs – defined contribution plans
2016
£’000
3,118
212
3,330
2016
£’000
823
86
909
Retirement benefits are accruing to two (2015: two) Directors under defined contribution personal pension schemes.
Highest paid Director
Aggregate emoluments
Pension costs – defined contribution plans
Other related party transactions
Transactions between the Group and:
Associate – Pharmacy 2U Limited
Sales of goods and services in year
Joint venture – Healthcare Gateway Limited
Sales of goods and services in year
Amounts owed by related party at year end
Key management personnel
Sale of motor vehicles at market value
2015
£’000
3,095
243
3,338
2015
£’000
758
81
839
2015
£’000
340
47
387
2016
£’000
338
48
386
2016
£’000
2015
£’000
26
854
—
16
67
598
155
13
Transactions between Company and subsidiaries
The Company enters into transactions with its subsidiary undertakings in respect of internal funding and the provision of certain
services which are procured by the Company. Such services are recharged based on the utilisation by the subsidiary undertaking.
The amounts outstanding from subsidiary undertakings to the Company at 31 December 2016 totalled £47,623,000 (2015: £44,960,000).
Amounts owed by the Company at 31 December 2016 totalled £34,072,000 (2015: £28,678,000).
The Company and certain subsidiary undertakings have entered into cross guarantees over bank loans and overdrafts to the
Company. The total value of such borrowings at 31 December 2016 was £13,119,000 (2015: £15,109,000).
Annual report and accounts 2016 EMIS Group plc
101
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Five year Group financial summary
Revenue
Adjusted operating profit1
Profit before tax
Earnings per share – basic
Earnings per share – adjusted1
Dividends paid to Company’s shareholders
Dividends per ordinary share
Total equity
Cash generated from operations2
Net (debt)/cash
Average number of employees
2016
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
158,712
155,898
137,639
105,542
86,333
38,753
25,333
30.4p
49.4p
14,704
23.4p
36,553
32,639
26,065
22,820
10,932
28,540
24,635
24,059
7.2p
45.3p
13,307
21.2p
35.3p
39.5p
11,533
18.4p
32.6p
34.0p
10,056
16.0p
32.5p
30.8p
8,237
14.2p
114,142
107,046
114,908
104,123
64,065
37,973
(430)
36,528
(9,109)
38,333
(11,817)
32,627
(13,491)
27,402
7,711
1,875
1,863
1,611
1,356
1,116
1
Excludes capitalisation and amortisation of development costs, amortisation of acquired intangibles and exceptional items. Earnings per share calculations also
adjust for the related tax and non-controlling interest impact.
2 Stated after deduction of capitalised development costs and the cash impact of exceptional items.
102
EMIS Group plc Annual report and accounts 2016
Shareholder information
Internet
The Group’s investor website can be found at
www.emisgroupplc.com/investors. This site is regularly updated
to provide information about the Group. In particular, the share
price and all of the Group’s press releases and announcements
can be found on the site. The annual report and accounts will be
published on www.emisgroupplc.com/investors. The maintenance
and integrity of the website is the responsibility of the Directors.
The auditor does not consider these matters.
Payment of dividends
Shareholders may find it more convenient to make arrangements
to have dividends paid directly into their bank account. The
advantages of this are that the dividend is credited to a shareholder’s
bank account on the payment date, there is no need to present
cheques for payment and there is no risk of cheques being lost
in the post. To set up a dividend mandate or to change an
existing mandate, please contact Capita Asset Services,
our registrar, whose contact details appear on this page.
Share dealing services
The sale or purchase of shares must be done through a stockbroker
or share dealing service provider. The London Stock Exchange
provides a “Locate a broker” facility on its website which gives
details of a number of companies offering share dealing services.
For more information, please visit the private investors section
at www.londonstockexchange.com. Please note that the Directors
of the Company are not seeking to encourage shareholders to
either buy or to sell shares. Shareholders in any doubt about
what action to take are recommended to seek financial advice
from an independent financial adviser authorised pursuant
to the Financial Services and Markets Act 2000.
Share price information
The latest information on the share price is available at
www.emisgroupplc.com/investors.
Registrar
Any enquiries concerning your shareholding should be addressed
to the Company’s registrar. The registrar should be notified
promptly of any change in a shareholder’s address or other details
at: Capita Asset Services, The Registry, 34 Beckenham Road,
Beckenham BR3 4TU, tel. 0871 664 0300, calls cost 12p per minute
plus your phone company’s access charge. If you are outside the
United Kingdom, please call +44 371 664 0300. Calls outside the
United Kingdom will be charged at the applicable international rate.
The registrar is open between 9.00am and 5.30pm, Monday
to Friday, excluding public holidays in England and Wales. The
registrar’s website is www.capitashareportal.com. This will give
you access to your personal shareholding by means of your
investor code which is printed on your share certificate or statement
of holding. A user ID and password will be sent to you once you
have registered on the site.
Shareholder security
Shareholders are advised to be wary of any unsolicited advice,
offers to buy shares at a discount, or offers of free reports about
the Company. Details of any share dealing facilities that the
Company endorses will be included in Company mailings or
on our website. More detailed information can be found at
www.moneyadviceservice.org.uk.
You can find out more information about investment scams, how
to protect yourself and how to report any suspicious telephone
calls to the Financial Conduct Authority (FCA) by visiting their
website (www.fca.org.uk) or contacting them on 0800 111 6768.
Annual report and accounts 2016 EMIS Group plc
103
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Directors and advisers
Directors
Executive
Chris Spencer – Chief Executive Officer
Peter Southby – Chief Financial Officer
Non-executive
Mike O’Leary – Chairman
Robin Taylor – Senior Independent Non-executive Director
Kevin Boyd – Independent Non-executive Director
Andy McKeon – Independent Non-executive Director
David Sides – Independent Non-executive Director
Auditor
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
Nominated adviser and broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Company Secretary
Simon Waite
Company number
06553923 (England and Wales)
Registered Office
Rawdon House
Green Lane
Yeadon
Leeds LS19 7BY
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham BR3 4TU
Financial PR
MHP Communications
60 Great Portland Street
London W1W 7RT
Legal advisers to the Company
Pinsent Masons LLP
1 Park Row
Leeds LS1 5AB
Schofield Sweeney LLP
Church Bank
Bradford
BD1 4DY
104
EMIS Group plc Annual report and accounts 2016
Design Portfolio is committed to planting
trees for every corporate communications
project, in association with Trees for Cities.
EMIS Group plc
Registered Office
Rawdon House
Green Lane
Yeadon
Leeds LS19 7BY
Tel: 0113 380 3000
www.emisgroupplc.com
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