Investing in innovation E M I S G r o u p p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 9 EMIS Group plc Annual report and accounts 2019 Delivering the strategy The UK leader in connected healthcare software and systems. INNOVATION EMIS Group is focussed on innovation for the NHS and business-to-business (B2B) healthcare industry. Innovative technology will drive improvements to healthcare efficiency and better patient outcomes. GROWTH EMIS Group delivered positive revenue growth and adjusted profit growth, maintaining its nine-year track record of increasing dividends by 10% year on year. Highlights At a glance Chair’s statement Chief Executive Officer’s statement Business model Strategic report 1 2 4 6 10 12 Stakeholder engagement 14 16 20 Key performance indicators 22 Alternative performance measures Principal risks and uncertainties 24 Operational review 30 Financial review 34 Our people 38 Sustainability policy 41 Markets Strategy Board of Directors Chair’s introduction to governance Governance 42 44 45 Corporate governance statement Report of the audit committee 51 Report of the nomination committee 56 Report of the remuneration committee 58 Remuneration at a glance 61 Directors’ remuneration report 63 Directors’ report 68 Viability statement 71 Statement of Directors’ responsibilities 72 Financial statements 73 78 79 80 81 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 82 107 Five-year Group financial summary 108 Shareholder information Highlights OPERATIONAL Results in line with expectations, with growth in both revenue and adjusted operating profit maintained at similar levels to the half year along with further strategic progress: • Leadership positions maintained in key NHS markets • Improved our operational efficiency, service and • EMIS Health appointed to the NHS National Services Scotland (NSS) and the NHS GP IT Futures framework and Digital Buying Catalogue in England • Expanded the EMIS Enterprise business achieving outright leadership in community pharmacy responsiveness to customers • Robust and resilient business model with 78% recurring revenues, net cash and market leading positions in key healthcare markets • As part of the focus on future strategy, completed the internal transition and organisational plans underway through the year Key performance indicators page 20 FINANCIAL Total revenue £159.5m +7% Recurring revenue1 £125.0m +4% Reported operating profit £26.8m -3% Adjusted operating profit1 £39.3m +9% Reported cash generated from operations £50.1m – Adjusted cash generated from operations1 £46.3m -15% Net cash £31.1m +£15.5m Reported EPS 36.0p – Adjusted EPS1 51.4p +14% Total dividend for the year 31.2p +10% 1 Recurring revenue, adjusted operating profit, adjusted cash generated from operations and adjusted EPS are all alternative performance measures. See page 22 for further details and reconciliation to the relevant IFRS number. EMIS Group plc Annual report and accounts 2019 1 At a glance PURPOSE Enable better care through technology innovation • Connecting care settings to improve patient experience and health outcomes • Empowering people through online access to clinically authored content and approved services • Delivering insight for clinicians to improve UK health and wellness WHY DOES THE OPPORTUNITY EXIST? WHY INVEST IN EMIS? The NHS Long Term Plan is driving the agenda for integrated care, delivered through technology. • Strong positions in specialist markets • Opportunity to strengthen position in B2B healthcare sector markets over time both organically and by selective bolt-on acquisition £4.5bn is committed to increasing primary and community healthcare 2023–24 deadline for every patient to be offered digitally enabled primary care Markets page 14 • Excellent financial strength and track record • High levels of earnings visibility and cash generation • New technology driving future growth and efficiency Read more at emisgroupplc.com 2 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT SEGMENTS EMIS HEALTH EMIS ENTERPRISE Primary, community and acute care Medicines management Partners and other services Patient-facing services 63% of revenue in 2019 #1 in primary care #2 in community #1 in A&E 22% of revenue in 2019 #1 in community pharmacy #2 in hospital pharmacy 13% of revenue in 2019 113 accredited partners 2% of revenue in 2019 #1 patient services app BRANDS The clinical software business, supplying innovative and essential technology to 10,000 healthcare organisations across every major UK health sector. Dedicated to providing specialist ICT infrastructure, hardware and engineering services and non-clinical software into health and social care. The UK’s leading independent provider of patient-centric medical and well-being information and related transactional services. EMIS Group plc Annual report and accounts 2019 3 Chair’s statement “We are focussed on delivering our strategy.” Mike O’Leary Chair 4 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT A year of good progress EMIS Group delivered higher rates of growth both to revenue and adjusted profit. Dear Shareholder I am pleased to report a year of good progress for EMIS Group. We have delivered higher rates of growth both to revenue and adjusted profit. We have maintained our nine-year track record of increased annual dividends. We have also completed the internal transformation of the business and we are focussed on delivering our strategy. Talent, culture and diversity During 2019 we continued to attract and retain key talent, selecting and developing exceptional people who are motivated by our purpose. Our teams comprise people driven to grow their areas of the business in the mid and long term. We are thoughtful in our approach to recruitment and retention and have robust succession plans in place. I would like to thank all of our employees for delivering such a strong performance through their commitment, hard work and support of the Group. A positive culture and employee engagement are fundamental contributors to success. I am pleased to report that an independent culture audit this year saw a very high response rate with continued strong engagement at all levels. This will be an ongoing area of focus during 2020. Diversity in all forms brings material benefit to EMIS Group and we seek to provide opportunities for all, regardless of background, age, gender or race. The gender diversity of our business has been enhanced with the appointment of Jen Byrne as a Non-executive Director of the Group in May 2019 and Suzy Foster as CEO of EMIS Health in April 2019. We will continue to promote diversity throughout the organisation. Board changes As reported in the 2018 annual report and accounts, following completion of nine years of service, Robin Taylor retired on 8 May 2019 at the conclusion of the 2019 Annual General Meeting (AGM), following which Kevin Boyd took on the role of chair of the audit committee and Andy McKeon took on the role of Senior Independent Director. On 22 August 2019 David Sides resigned from the Board following his appointment to a new executive role in the United States. I would like to thank both Robin and David for their contributions to EMIS Group over an extended period. We were delighted to appoint Jen Byrne to the Board on 8 May 2019 and she has taken up the role of designated Non-executive Director for engagement with our workforce. This is a new role introduced in compliance with the 2018 UK Corporate Governance Code (“the Code”), which we have chosen to apply voluntarily. We were also extremely pleased to appoint Patrick De Smedt to the Board on 1 January 2020 as Chair designate. Patrick will take over from me as Chair on my retirement at the conclusion of our AGM on 6 May 2020. I would like to welcome Patrick and wish him every success in the Chair role. I have thoroughly enjoyed the nine years that I have spent at EMIS Group and would like to thank my fellow Board members and all of the Group’s employees for their support during my tenure as Chair. Corporate governance Corporate governance remains an important area of focus for the Board and underpins the sustainability of our business and the achievement of our strategy. The Board has taken steps to consider and strengthen our governance to align with the new Code, in particular in the areas of stakeholder and workforce engagement. Further details of our approach to the Code are set out in our corporate governance statement on pages 45 to 50. Dividend A final dividend of 15.6p per share is recommended by the Board. The dividend progression is in line with the capital allocation policy adopted by the Group and will result in a total dividend for the year of 31.2p. Subject to approval by shareholders at the AGM, the final dividend will be paid on 11 May 2020 to shareholders on the register on 14 April 2020. Outlook 2019 finished strongly and, as noted above, revenue and adjusted profit growth have both been encouraging. Innovation remains key for our future and we will continue to invest in technology development. Our strategy remains closely aligned with NHS policy, which will drive growth for both the EMIS Health and EMIS Enterprise areas of the business. We are unique in the breadth of markets we serve and the strong market positions we hold. We remain well positioned for future success. Mike O’Leary Chair 17 March 2020 Stakeholder engagement page 12 “I would like to thank all of our employees for delivering such a strong performance through their commitment, hard work and support of the Group.” EMIS Group plc Annual report and accounts 2019 5 Chief Executive Officer’s statement “A positive year for EMIS Group.” Andy Thorburn Chief Executive Officer 6 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT Considerable operational progress We achieved key customer retention goals and maintained our leadership positions in key NHS markets. 2019 was a positive year for the Group, with considerable operational progress across the organisation. We have completed the internal transition and organisational plans that were underway through the year and which have in turn improved our operational efficiency, service and responsiveness to customers. In parallel, we delivered positive revenue growth of 7% and adjusted operating profit growth of 9%, improved our adjusted operating margin to 25% and maintained our nine-year track record of increased annual dividends. This performance was particularly pleasing as we continued to invest to expand our research and development (R&D) capabilities to deliver new, innovative solutions to our customers. We achieved two key customer retention goals when EMIS Health was appointed to the NHS National Services Scotland (NSS) framework in Scotland and the NHS GP IT Futures framework and Digital Buying Catalogue in England. This ensures that we maintain our accreditation to supply IT systems and services to these primary care markets. We maintained our leadership positions in key NHS markets and expanded the EMIS Enterprise business with some excellent commercial work, including achieving outright leadership in the community pharmacy market. We maintained our critical focus on clinical safety, data security and service level performance. We invested in all these areas through the year and supervised progress with regular operational reviews and oversight by our risk management committee. Transition Over the last two years, we have successfully dealt with legacy issues, putting us in a strong position in 2020 to execute the next stage of our strategy. In April 2019 we disposed of our Specialist & Care business as it was non-core to the Group’s technology strategy. We also exited a number of smaller legacy products that are not part of the Group’s future, streamlining our business so that every product and service we provide directly contributes to our core purpose. We made changes to several of our office spaces according to our business needs, moving our head office to a smaller, more modern facility and reconfiguring other locations to reduce building-related operating costs in 2020 and beyond. Overall staff numbers decreased as part of our efficiency drive, but at the same time there was a significant change in the mix of staff towards more technology-focussed roles. This included the removal of management layers and administration roles through the deployment of new processes and systems, including our service management platform, ServiceNow. These changes enabled us to invest in the future, increasing our headcount in product management, technology innovation and software engineering roles, which now represent 37% of the Group compared to 22% in January 2018. Customers and end users Our customers and end users are central to everything we do, from planning and designing our software at the outset through to daily support interactions. We are continually asking ourselves how we can do better for our customers and as a result during 2019 we adapted the structure of our customer engagement teams to respond to the market’s evolution. The NHS is consolidating to deliver a digital transformation that will improve services and outcomes for patients. In England this will be driven by Sustainability and Transformation Partnerships (STPs) and Integrated Care Systems (ICSs): a collaboration of NHS organisations and local councils. Our two business areas are responsible for managing relationships with NHS customers (EMIS Health) and private sector healthcare business and consumer customers (EMIS Enterprise). We introduced a new support system that improves our responsiveness and increases the ability for customers and end users to self-serve. Our service and support performance improved in the second half of 2019 following the deployment of new systems and, importantly, new leadership. These changes provide us with robust foundations for 2020. It was a strong year in the EMIS Enterprise business as we completed the roll-out of our community pharmacy dispensing system, ProScript Connect, to almost 5,200 locations. We also upgraded our customer-facing networks as well as taking our data security systems and processes to the next level. Innovation Our increased investment in technology and software engineering roles has accelerated the development of our product roadmap: • We launched phase one of our patient-centric marketplace, allowing the UK public to book appointments for pharmacy services at their local community pharmacy through Patient Access. • We continued our investment in EMIS-X, our next generation platform, and we expect version one of the platform to be available during 2020 as planned. • We expect the first applications running on the EMIS-X platform to be launched in 2021. Talent Our business is all about people; they drive the energy, innovation and passion behind the quality of our products and services. We continued to attract and retain key talent in 2019; as well as expanding our overall technology development team in the year, we strengthened our team in various key focus areas, including leadership, customer engagement and marketing. EMIS Group plc Annual report and accounts 2019 7 Chief Executive Officer’s statement continued Talent continued We now have more than 550 employees working directly on product development across the Group. We also have 71 people in our clinical team including doctors, consultants, nurses and pharmacists, driving our high clinical safety standards and contributing essential insight into product development. We have seen an increase in collaborative working across Group segments, business areas and teams as we unite in our shared common purpose of enabling improved care through technology innovation. We increased our staff benefits packages and introduced performance-related pay for key roles. Share ownership in the business increased during 2019 when we offered a shares grant through the share incentive plan (SIP) scheme, with a 75% participation rate. Post year-end acquisition Following the year-end, we completed the acquisition of Pinnacle Health Partnership LLP and Pinnacle Systems Management Ltd, owners and operators of the widely-used PharmOutcomes platform. PharmOutcomes is a secure, web-based service management solution used by more than 11,000 community pharmacies to record and manage nationally and locally commissioned patient services such as flu vaccinations, the Community Pharmacist Consultation Service and hospital discharge referral management. It allows local and national level analysis and reporting on the effectiveness of commissioned services, helping to improve evidence-based reporting for community pharmacy services. EMIS Group acquired the business on a cash and debt free basis for £3.0m in cash with further consideration of up to £4.0m payable in cash on the attainment of certain performance targets. Our focus for 2020 Our focus for 2020 is continuing to deliver our strategic plan of innovation and growth. With our core foundation principles in place – of delivering the highest standards of clinical safety and content, never compromising on data security and exceeding customer service expectations – our 2020 plans are the building blocks for our next stage of growth as a resilient and dynamic business. We operate in a complex and diverse market and the business is now organised around the operational structures of our healthcare customers. While NHS structures may change, its commitment to technology to deliver positive change remains and we continue apace with the development of EMIS-X and Patient marketplace services for the forthcoming year. We are developing EMIS Web to meet the requirements of GP IT Futures and these new enhancements will carry forwards to EMIS-X this year. Through our existing EMIS Health product portfolio, we will deliver enhancements to our primary, community and acute care products to satisfy contractual requirements such as for GP IT Futures and to deliver essential user-requested enhancements. We have detailed product roadmaps and resource plans for both existing and new products to meet our go-to-market and retention goals. The focus for the EMIS Enterprise business in 2020 is to work on further integration of ProScript Connect and to develop Patient Access to offer new services to the UK public through our community pharmacy customers and other partners. The primary care partner programme remains a core focus, as we continue to strengthen the EMIS Health ecosystem through interoperability and integration. “We delivered positive revenue growth of 7% and adjusted operating profit growth of 9%.” 8 EMIS Group plc Annual report and accounts 2019 Looking further ahead, we maintain our targets that the financial outcomes from our growth strategy are expected to be sustained mid-to-high single-digit revenue growth in the mid-term, moving towards an even split of revenue derived from our NHS and enterprise sectors and operating margins increasing towards 30% in the mid-term. Brexit As reported in previous years, we anticipate that Brexit will have minimal direct impact on the Group as it is not a significant exporter or importer of goods or services. There are potential indirect effects, including exchange rate volatility affecting the value of sterling and increased pressure on NHS budgets, which could have a negative impact on the Group’s prospects. However, despite the improved clarity provided by the UK leaving the EU on 31 January 2020, the scale and timing of these remains uncertain. We will continue to monitor the progress of the withdrawal agreement regarding the terms under which the UK left the EU and the potential market implications of those terms. Coronavirus We are monitoring the potential impact of the virus on the UK healthcare market and our business as it changes daily. Our NHS and community pharmacy customers need our support as they tackle the crisis. We are working with NHS Digital on new coronavirus insights and for our GP end-users we have offered free access to our software to provide video consultations through Patient Access. We have released new coronavirus related functionality in EMIS Web and our product EMIS Anywhere allows full access to EMIS Web through a mobile device, to enable flexible working for GP practices. We have a robust business continuity plan in place to prioritise both the wellbeing of our employees and keep our software systems and support services up and running for our end-users. To date we have implemented home working for our employees according to government advice. We will continue to take proactive action to mitigate the emerging threat from coronavirus. Summary and outlook EMIS Group has a robust business model, with 78% recurring revenue and a strong balance sheet, and is well positioned to weather the short-term market uncertainties created by coronavirus. We have no delivery risks associated with our recurring revenue. We are focussed on looking after our EMIS Group colleagues and supporting our customers as they take care of the population through the coronavirus challenges. As a resilient and dynamic business, the Group will focus on delivering its strategic plan of innovation and growth beyond the immediate market uncertainty. Longer term, we are in alignment with NHS policy and fully support the Secretary of State for Health and Social Care’s modernisation agenda. The NHS Long Term Plan, published in January 2019, sets out the strategy for the NHS as it plans a digital transformation to provide better patient care across the UK. It is clear that technology will play a huge part in alleviating the pressure on already-stretched NHS services. Our products and services are being designed for market need, responding to the drivers for change in the market, positioning us well for both the NHS and private and consumer healthcare sectors. Andy Thorburn Chief Executive Officer 17 March 2020 STRATEGIC REPORT “Our people drive the energy, innovation and passion behind our products and services.” Andy Thorburn Chief Executive Officer EMIS Group plc Annual report and accounts 2019 9 Business model Joined-up healthcare through innovative IT OUR KEY INPUTS • Innovative connected technology services. • Highly skilled people. • Trusted brand. • Strong relationships strategically aligned with government, partners and the markets we serve. • Strong revenue visibility. • Responsible leadership. • Strong culture of caring for both patients and customers. Markets page 14 M ark e t - l e a d i n g t echnology develo E M I S Health p m e n t C o m munity care Integrated healthcare ary care rim P p r P o a g r t r n a e m r A c u t e A & E m e Patient n ity C o m m u c y r m a p h a e s EMIS Ente r p r i nding customer s e r v i c e a O u t sta l y a c t a pi m os ar H ph p p ort d s u n Our four key values underpin everything we do, throughout every area of the business Caring The Group has a strong culture of caring for its customers and employees and making a difference in its community. In 2019 EMIS Group continued to support employees in fundraising for Mind, the chosen Group charity. Innovative EMIS Group continues to invest in innovation to drive growth, from continued development on the EMIS-X platform to brand new, first-to-market, patient-facing services through Patient Access. Joined-up EMIS Group has joined teams together into two focussed segments, EMIS Health and EMIS Enterprise. There is a strong emphasis on virtual teams and bringing people together to work in a collaborative, integrated way. Accountable EMIS Group’s culture of accountability drives the commitment to excellence in every aspect of the business, from development to customer services, working towards the overarching goal of improving health and wellness in the UK. 10 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT HOW WE GENERATE REVENUE HOW WE ADD VALUE Through providing: • Software and software licences. • Maintenance and software support. • Other support services: interoperability fees and B2B services in healthcare. • Training, consultancy and implementation. • Hosting services. • Hardware installation, maintenance and support. 78+ Recurring revenue 78% Non-recurring revenue 22% Financial review page 34 Why customers choose us CUSTOMERS We help make integrated care a reality across the healthcare industry. 45 out of 191 Clinical Commissioning Groups (CCGs) use EMIS Health systems for both community care and 100% of primary care CLINICIANS Our systems and services are designed to support healthcare on the front line. 10,000 healthcare organisations rely on our clinical systems daily UK PUBLIC We provide trusted healthcare information and digital services for the UK general public. 8.4 million Patient Access users SHAREHOLDERS We deliver long-term growth in dividends and share price. 31.2p dividend for the year B2B We provide B2B systems and services to enterprise customers in the healthcare market. 5,179 community pharmacies use our software to deliver better customer service and drive up revenue EMPLOYEES We are investing in technology innovation and software engineering roles as we accelerate new software development. 37% of employees are dedicated to software and product development Clinically focussed We enable clinicians to provide safe and efficient care through excellent software and services – helping patients live longer, healthier lives. Trusted supplier Our software and services are used in every major healthcare setting – from GP surgeries to high street pharmacies, community, hospitals and specialist services. Joining up patient care Through innovative technology, we are giving more and more healthcare professionals access to the information they need to provide the best possible front line healthcare. Care about our customers Clinically led development teams work with our customers to develop systems. That is why we consistently meet the needs of end users. Innovative We are always looking at future technologies and trends to make sure we develop ground- breaking services that benefit patients, clinicians and NHS organisations. EMIS Group plc Annual report and accounts 2019 11 22 + C Stakeholder engagement Strengthened relationships The Board recognises its responsibility to take into consideration the needs and concerns of EMIS Group’s key stakeholders as part of its discussion and decision-making process. More information about how the Directors have discharged their duties under Section 172 of the Companies Act 2006 (s.172) is available in the strategic report on pages 2 to 41. EMPLOYEES Link to strategy 1 2 3 4 5 6 Outcomes • Regular employee updates to increase their understanding of overall strategy, performance and priorities. • Greater transparency and two-way communication. • Increased employee engagement with senior management and an opportunity for the Board to lead by example on values and culture. • A greater understanding of employee culture by the Board. Key topics • New benefits portal • Share schemes • Office relocation • Feedback on engagement survey • Gender pay gap report • Group performance updates • Culture audit How we engage Employees have the opportunity to ask the Chief Executive Officer questions about the business in the regular, live online “Ask Andy” sessions. Board members are able to view these sessions to understand what is most important to employees. Similar sessions have been run by a number of the Group Executive Team (GXT) to increase two-way communication. A number of meetings were held between employees and Jen Byrne, the designated Non-executive Director responsible for workforce engagement. These meetings are held at the main UK locations on a regular basis. Jen feeds back to the rest of the Board on employee issues, concerns and culture. The Board discusses other key employee issues, including training and development and the initiatives and outcomes of the Women’s Network in both the UK and Chennai. Employees were surveyed on important decisions such as office relocations, with feedback being considered by the Board. Key Group performance information such as trading updates is always communicated to employees. All employees were surveyed as part of a culture audit and employee focus groups were held at different offices to gather more in-depth feedback on culture. KEY TO STRATEGIC PRIORITIES 1 Connected healthcare 2 Patient empowerment 3 Technology innovation 4 Highest clinical content and safety standards 5 Talent 6 Customer experience 12 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT SHAREHOLDERS Key topics • EMIS Group strategy • Corporate governance • Remuneration • Financial results • Disposals and acquisitions Link to strategy 1 2 3 4 5 6 Outcomes • A wide range of communication styles is used to suit investor and potential investor preferences to engage and enable them to gather the information they need, from in person to hard copy to online. • All material new information is made available to shareholders and potential shareholders at the same time. • EMIS Group won the Best Investor Communication Award at the AIM Awards 2019 for the second year running. How we engage The Chief Executive Officer and Chief Financial Officer hold analyst and investor meetings throughout the year with a particular focus following the release of the Group’s annual and half year results. Feedback from these meetings is shared with the Board. The chair of the remuneration committee discussed remuneration matters with several major shareholders during the year. The Board Chair also met with several major shareholders during the year to discuss strategy and remuneration matters. The AGM is an important opportunity for communication between the Board and shareholders, particularly private shareholders. The Group’s annual report and accounts is available to shareholders in both hard copy form and online. All announcements and presentations are available on the Company’s website and key information is announced on EMIS Group social media channels. CUSTOMERS AND END USERS Link to strategy 1 2 3 4 5 6 Key topics • Service levels • Product development and roadmaps • Customer service Outcomes • Increased engagement with customers at strategic level. • A greater understanding of both customer pain points and future requirements from strategic to end-user level. • A Board-level drive for the Group to deliver products and services to the highest quality. • Publication of product development roadmaps to customers to increase clarity. • Improvements to the provision of support and service with the introduction of ServiceNow. How we engage The Board receives feedback from both its NHS and B2B customers and end users, both directly and through reports from customer-facing teams. The Chief Executive Officer attended a number of meetings with strategic-level customers, including NHS Digital (NHSD) and NSS, and reported back to the Board. The Chief Executive Officer also met with representatives at user group meetings to gather direct end-user feedback. The Chief Executive Officer also met senior executives in community pharmacy and partner organisations. Customer feedback and support performance statistics are regularly collected by the business. This information is discussed by the Board with outcomes and actions passed to the relevant teams. A number of major contracts were reviewed by the Board including the GP IT Futures framework. EMIS Group plc Annual report and accounts 2019 13 Markets Delivering digitally enabled care The NHS has a long-term strategy to use technology to deliver better, more efficient care. It is planning, consolidating and providing funding for its future as the digital NHS, which will rely on IT for every task and every patient interaction. The NHS Long Term Plan, published in January 2019, set the direction of travel for the NHS for the next ten years. At the heart of the Plan is the digital transformation of the NHS to improve services and outcomes for patients. The digital transformation in England will be driven by STPs, a collaboration of NHS organisations and local councils. In some areas STPs have evolved to become ICSs. In June 2019 the NHS Long Term Plan Implementation Framework was published, setting out the requirement for STPs and ICSs to create strategic plans to improve care for their local populations. Underpinning each plan is a requirement for a comprehensive digital strategy, including improving provision for digital services and access to personal healthcare records. There is an emphasis on integration and interoperability, such as through a local shared health and care record platform, and NHS funding has been allocated. The digital NHS will be an everyday working reality for all; NHS staff at every level will be required to make adjustments to how they work as part of the digital transformation, from clinicians to receptionists. INTEGRATED CARE Link to strategy 1 2 3 4 5 6 £4.5bn is committed to STPs and ICSs for an increase in primary and community health services. • £4.5bn is committed to STPs and ICSs for an increase in primary and community health services. In addition, NHS England has committed to providing extra development funding of around £1m per STP or ICS. • Healthcare providers are grouping and consolidating to better deliver integrated care. More than 1,200 primary care networks have been introduced to promote collaborative working between GPs and other healthcare professionals, with £1.8bn funding assigned over the next five years. • CCGs are responsible for commissioning healthcare services in their local area. Large-scale mergers of CCGs are planned in 2020; 74 of the current 191 CCGs have announced plans to consolidate to 18, highlighting the move towards integrated care. • The second wave of Local Health and Care Record Exemplars (LHCREs) was announced in 2019, with a continued focus on electronic sharing of local health and care records. • 25 trusts are due to receive a share of £26m to upgrade digital prescribing systems to reduce errors and improve patient safety. • NHSX is a new unit created to oversee digital transformation including interoperability across systems and local sharing of records to support integrated care. How EMIS Group can help • EMIS Web already helps facilitate the collaborative healthcare that CCGs and Primary Care Networks (PCNs) are working towards, connecting, for example, GPs and community nurses. EMIS-X will take this to the next stage, enabling wide-scale interoperability across the healthcare industry, from GPs to paramedics to social care. • EMIS-X will be the common core to a series of clinical applications for any clinical setting, enabling efficient and seamless exchange of clinical data. • EMIS Health supports 35% of acute care trusts with its Electronic Prescribing and Medicines Administration (ePMA) system, already enabling digital prescribing. • EMIS Group restructured its sales and account management teams during 2019 to have a regional focus to better serve consolidated healthcare organisations. KEY TO STRATEGIC PRIORITIES 1 Connected healthcare 2 Patient empowerment 3 Technology innovation 4 Highest clinical content and safety standards 5 Talent 6 Customer experience 14 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT INDUSTRY INSIGHT The latest research predicts a 7,000 GP shortfall by 2023/24. More than half of GPs are working 11-hour days and seeing one third more patients than they should be. Technology can be part of the solution to managing rising demand. A digital front door to primary care Nine out of ten households have internet access and 78% of adults use smartphones to access the internet. This means digital healthcare services can provide a ‘digital front door’ into primary care to benefit patients and GPs. More efficient complex care Behind the scenes technology can deliver the greatest benefits, by joining up information between different practitioners to enable seamless care for better patient outcomes. Read more online at emisgroupplc.com “Digital healthcare benefits patients and clinicians” Dr Shaun O’Hanlon Chief Medical Officer, EMIS Group DIGITALLY ENABLED CARE Link to strategy 1 2 3 4 5 6 Every patient will have the right to be offered digital-first primary care by 2023-24. • The NHS Long Term Plan aims for every patient with a long-term condition to have access to their care plan via the NHS App, enabled by the Summary Care Record (SCR). • Every patient will have the right to be offered digital-first primary care by 2023-24. GP practices are required to make a minimum of 25% of their appointments available for online booking. All patients will have the right to online consultations by April 2020 and video consultation by April 2021. • The plan will support pharmacies to take on increased patient-facing clinical roles to alleviate pressure on general practices. How EMIS Group can help • EMIS Web is integrated with the NHS App, providing all patients registered to a practice using EMIS Web with the ability to use the NHS App. 99% of EMIS Web practices contribute to the NHS SCR. • Patient Access provides 24/7 online appointment booking. • Patient Access enables people to book appointments for healthcare services such as flu vaccinations at community pharmacies, in alignment with the Long Term Plan, helping pharmacies to extend their role beyond dispensing medications. • In 2018-19, £20m of funding for online consultations was • Video consultations are available through Patient Access, included in CCG baselines. facilitating a digital-first approach. • In 2019-20, £16m has been made available to STPs/ICSs to support online consultations. • There is agreement for additional funding between 2020-2023 to support the delivery of a digital-first approach, including online and video consultations. • Egton launched Online Consult in 2018 (formerly called Online Triage), enabling GPs to offer a route to primary care services online. The system allows practice staff to triage patients and provide the best and most appropriate help quickly and effectively. 360 practices are already using Online Consult with more than 67,000 online patient requests sent in 2019. EMIS Group plc Annual report and accounts 2019 15 Strategy Enabling better care through technology innovation EMIS Group is focussed on delivering its strategic plan as outlined at its Capital Markets Day in November 2018. The Group has three clearly defined growth pillars: • digital access to healthcare-related information and care services; • focus on dispensing and clinical consulting services for community pharmacy; and • continuing its journey to provide connected care through enhancements to current systems and the build of EMIS-X, the integrated care software platform. EMIS Group’s strategy is a combination of three core parts – connected healthcare, patient empowerment and technology innovation. This powerful combination of priorities means the Group continually adds value to the NHS and B2B healthcare sector. The strategy is underpinned by an unswerving commitment to maintaining the highest quality clinical content and standards, supporting and developing the organisation’s talent and ensuring an excellent customer experience for all. 1 Connected healthcare 2 Patient empowerment 3 Technology innovation 4 Highest clinical content and safety standards 5 Talent 6 Customer experience STRATEGY ACHIEVEMENTS 1 • EMIS Group’s technology strategy enables the vision of integrated care to become a reality, creating a joined-up NHS across all settings. • 45 out of 191 CCGs use EMIS Health systems for both community care and 100% of primary care, with the potential for integrated working. Connected healthcare EMIS Group delivers the technology the NHS needs to provide integrated healthcare. • The Group’s current and future product portfolio aligns with market need, including NHS England’s strategy, NHSD’s roadmap and the requirements and ambitions of GP IT Futures. • The Group continued working on national standards and projects for interoperability, including SNOMED CT coding compatibility and the Fast Healthcare Interoperability Resource. • In the mid-term, EMIS-X will be the UK’s first integrated clinical platform serving all of the Group’s major healthcare markets. • Patient Access provides connected healthcare services to the general public. • EMIS Group is uniquely positioned to be able to join up medicines management, from prescribing to dispensing to wholesale, connecting and improving this vital aspect of healthcare. • EMIS Health progressed with NHSD’s national GP Connect programme, receiving full roll-out approval for GP Connect appointment management and shared record viewer. • Direct interoperability between clinical system suppliers is now on general release, beginning with interoperability between EMIS Health and third party supplier, TPP. • Close collaboration across different areas of the Group is resulting in integrated care innovations. Joined-up working between Community Pharmacy and Patient resulted in the release of community pharmacy appointment booking through Patient Access. 16 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT STRATEGY ACHIEVEMENTS 2 • Through Patient Access, the Group will provide a single point of access to a wide range of healthcare services. • 11,500 people have booked 14,000 community pharmacy appointments in the first six months since the pilot of the new service began. Patient empowerment Technology helps keep patients at the centre of every healthcare touchpoint. • New Patient Access developments will enhance • Strong take-up of Online Consult in its first the end-user experience. • Development of Patient Access transformational features will add new, innovative services to help patients even further. • Growth of Patient marketplace by adding new suppliers and services. • Delivering connected care through the core suite of EMIS Health products so that clinicians have all the information they need when they need it, empowering them to spend more time focussing on patient care and less on retrieving information. year, helping patients get the best and most appropriate primary care quickly and effectively. • Patient Access registered users increased from 6 million to 8.4 million, booking 6.7 million appointments and ordering 20.2 million repeat prescriptions during 2019. • 8,700 flu vaccination appointments were booked with community pharmacies through Patient Access in the second half of 2019. 3 Technology innovation EMIS Group’s purpose is to enable better care through technology innovation. • Increased investment in technology over the next two to three years. • Completion of additional EMIS Web functionality to meet contract obligations under GP IT Futures. • Further innovation of new Patient marketplace services. • Development of ProScript Connect to meet the future demands of a changing market. • EMIS-X will be the core foundation technology that forms the basis of clinical applications for any healthcare setting. • Clear development roadmap of existing and new products, aligned with customer strategic priorities. • Development of new technology to improve the process of medicines management for the acute and community pharmacy markets, as well as analytics to drive large-scale improvements in future. • Launch of the new community pharmacy appointment booking function in Patient Access, the first release of the Group’s Patient marketplace services. • EMIS-X development on track and meeting internal milestones, with core functionality now largely in place. • Disposal of the Specialist & Care segment to focus on technology innovation and development for core strategic markets. 4 Highest clinical content and safety standards EMIS Group is committed to the highest clinical standards in every product and service. • The Group’s focus is to improve patient outcomes and deliver efficient, easy-to-use products for customers and end users. • 24/7 clinical safety support is embedded across all products operated by the Clinical Safety Officers across the Group. • The expert clinical team advises and directs on all aspects of product development, bringing a broad range of experience from every major clinical setting. • Tracking clinical safety through detailed weekly key performance indicators reviewed by the Chief Medical Officer. • The clinical safety team maintains the highest clinical standards for the Group, including creating, embedding and governing the safety processes throughout the product lifecycle. • Continued involvement of the clinical safety team in support processes, including assessing clinical safety impact to ensure any potential clinical safety issue is identified and escalated immediately. • The Group is committed to providing the highest standard of content on Patient.info, written and peer reviewed by the clinical content team following The Information Standard guidelines. • Ensuring any clinical safety issues that may occur are managed through working collaboratively with customers on appropriate mitigations. • A robust “safety advisory notice” process provides a formal notice of clinical safety issues to relevant customers and any mitigations required to address any risks. EMIS Group plc Annual report and accounts 2019 17 Strategy continued 5 Talent EMIS Group’s people are the driving force of its energy, innovation and success. STRATEGY ACHIEVEMENTS • Year on year enhancement to employee benefits to increase engagement and retention, subject to affordability. • A higher proportion of people to be employed in software development and associated product and technology roles, moving towards 45% of the Group’s headcount. • Improvements made in five key areas: inspirational leadership; talent and development; reward and recognition; operational excellence; and culture and communication. • Giving back to the community through the Caring EMIS programme, supporting employees in charity fundraising. • Continual focus on wellbeing, including supporting the Women’s Network, flexible working and charity work through the Caring EMIS programme. • Increased benefits for employees, including improvements to paternity pay, holidays and death in service. • Understanding, reviewing and improving the culture of EMIS Group to make it a great place to work. • Increasing employee engagement through improved internal communications, clear role objectives and career development plans. • Standardisation of a flexible working policy across the Group to help those balancing family and work life, including the introduction of a mentoring programme to support returners back to the workplace after periods of leave. 6 Customer experience Customer satisfaction and end-user experience is at the heart of the business. • Continued development of existing products, to maintain customer satisfaction and retention. • Deliver a high standard of customer service, utilising ServiceNow to increase efficiency and enable customers to self-serve for support and training. • Customer service teams are empowered to resolve more issues at the point of contact, to meet and exceed key service level agreements (SLAs). • The focus on high-quality customer service at every touchpoint is championed by the leadership team, creating a customer-centric culture across the business. • Each segment has a clear focus for streamlined customer engagement, with EMIS Health managing relationships with NHS customers and EMIS Enterprise managing B2B healthcare sector customers. • The Group improved EMIS Health’s go-to- market strategy, delivered through teams that have been restructured to reflect the changing healthcare market. • Patient Access continues to maintain a 4.8/5 star rating for satisfaction. • Completion of ProScript Connect roll-out to all customers. • Increased take-up of the new digital support channels, with 30% of all cases being logged through the ServiceNow portal, via email or the new digital chat feature. Key performance indicators page 20 Risk management page 24 18 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT “Our 2020 plans are the building blocks for the next stage of growth.” Andy Thorburn Chief Executive Officer EMIS Group plc Annual report and accounts 2019 19 Key performance indicators Measuring our performance The Group’s key performance indicators (KPIs) monitor progress towards the achievement of its objectives. Total revenue2 Adjusted operating profit1,2 Adjusted earnings per share (EPS)1,2 £159.5m +7% £39.3m +9% 51.4p +14% 2019 2018 2017 2016 159.5 149.7 170.1 142.4 160.4 144.5 158.7 2019 2018 2017 2016 39.3 35.9 37.6 36.8 37.4 38.3 38.8 2019 2018 2017 2016 51.4 45.1 47.4 46.4 47.2 48.7 49.4 DESCRIPTION Total revenue is a reflection of the level of business that customers choose to place with the Group. It is important as a measure of the attractiveness of the Group’s products to the market. Financial review pages 34 to 37 STRATEGIC FOCUS Total revenue decreased by 6% in the year. On a like-for-like basis (adjusted to exclude the disposal of the Specialist & Care business in April 2019) revenue increased by 7%. This is a sign of customer confidence in the Group’s products and is consistent with the Group’s strategy of increasing revenue at a mid-to-high single digit growth rate. DESCRIPTION This is the key measure of the Group’s underlying financial profitability, as defined in the alternative performance measures (APM) section on page 22, excluding exceptional items and expensing development costs as incurred. DESCRIPTION Adjusted EPS represents the best measure of underlying profit attributable to shareholders, as set out in the APM section on page 22. STRATEGIC FOCUS The 4% increase in the year was reflective of a combination of stronger revenue growth accompanied by investment in the business to deliver on past contractual commitments and for future growth. On a like-for-like basis (adjusted to exclude the disposal of the Specialist & Care business in April 2019) adjusted operating profit increased by 9%. The Group’s target continues to be to increase operating margins towards 30%, which implies a faster rate of growth in profit than in revenue, to be delivered by operational leverage and greater efficiency in the Group’s systems. STRATEGIC FOCUS The increase in adjusted EPS in the year was consistent with the growth in adjusted operating profit. On a like-for-like basis (adjusted to exclude the disposal of the Specialist & Care business in April 2019) adjusted EPS increased by 14%. As a key measure of shareholder return and driver of executive long-term incentive plans, EMIS Group’s strategy is to focus on driving improvements in this metric in future through delivering sustainable business growth. LINK TO STRATEGIC PRIORITIES LINK TO STRATEGIC PRIORITIES LINK TO STRATEGIC PRIORITIES 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 LINK TO REMUNERATION LINK TO REMUNERATION LINK TO REMUNERATION R R R 1 Adjusted operating profit and adjusted EPS are APMs. See page 22 for further details. 2 Continuing operations excluding Specialist & Care business. Continuing operations and discontinued Specialist & Care business. 20 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT KEY TO LINKS STRATEGIC PRIORITIES REMUNERATION 1 Connected healthcare 2 Patient empowerment 3 Technology innovation R Link to remuneration 4 Highest clinical content and safety standards 5 Talent 6 Customer experience R No link to remuneration Total dividend for the year Employee engagement R&D investment2 31.2p +10% 70% – £20.7m +11% 2019 2018 2017 2016 31.2 28.4 25.8 23.4 2019 2018 2017 2016 70 70 65 65 2019 2018 2017 2016 20.7 18.7 19.0 16.8 17.1 17.0 17.3 DESCRIPTION This measure records the amount of dividend paid out per share relating to the financial year. DESCRIPTION An engagement score is the best focal point to understand overall employee engagement and represents the employee population’s average response to questions on engagement, belief, loyalty and satisfaction. DESCRIPTION This measures the level of R&D investment in the Group’s software products and is a key measure of the Group’s commitment to ensuring that it not only maintains its existing portfolio but is also investing in developing the products of the future. STRATEGIC FOCUS The Board’s recommendation of a 10% increase in dividend is a reflection of the Board’s commitment through the capital allocation policy (see page 68) to increase direct returns to shareholders over time in line with underlying earnings growth. STRATEGIC FOCUS Employee engagement stayed consistent during 2019. As set out in the people section on pages 38 to 40 and stakeholder engagement section on pages 12 and 13, the Group is committed to the continual improvement of its working culture, to create a great working environment. The outcomes of a culture audit during the year are being evaluated. STRATEGIC FOCUS The increase in investment in the year is consistent with the Group’s strategic focus on preparing new products for the evolving healthcare market, including Patient and the EMIS-X clinical platform, as well as enhancing existing products such as EMIS Web. LINK TO STRATEGIC PRIORITIES LINK TO STRATEGIC PRIORITIES LINK TO STRATEGIC PRIORITIES 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 LINK TO REMUNERATION LINK TO REMUNERATION LINK TO REMUNERATION R R R EMIS Group plc Annual report and accounts 2019 21 Alternative performance measures (APMs) This annual report and accounts contains certain financial measures (APMs) that are not defined or recognised under IFRS but are presented to provide readers with additional financial information that is evaluated by management and investors in assessing the performance of the Group. This additional information presented is not uniformly defined by all companies and may not be comparable with similarly titled measures and disclosures by other companies. These measures are unaudited and should not be viewed in isolation or as an alternative to those measures that are derived in accordance with IFRS. Recurring revenue Recurring revenue is the revenue that annually repeats either under contractual arrangement or by predictable customer habit. It highlights how much of the Group’s total revenue is secured and anticipated to repeat in future periods, providing a measure of the financial strength of the Group. It is a measure that is well understood by the Group’s investor and analyst community and is used for internal performance reporting. Reported revenue Non-recurring revenue Recurring revenue 2019 £’000 2018 £’000 159,507 (34,538) 149,710 (29,160) 124,969 120,550 Adjusted operating profit, adjusted operating margin, and adjusted earnings per share Adjusted operating profit is operating profit excluding exceptional items, the effect of capitalisation and amortisation of development costs and the amortisation of acquired intangible assets. The same adjustments are also made in determining the adjusted operating margin of the Group and its segments and also in determining adjusted earnings per share (EPS). The EPS calculation further adjusts for the related tax and non-controlling interest effects of the operating profit adjustments. The Board considers this adjusted measure of operating profit to provide the best metric of assessing underlying performance, as: • it excludes exceptional items (items are only classified as exceptional due to their nature or size); • it excludes any one-off goodwill impairment; • by expensing capitalised development costs (and also not amortising these costs) it reflects the underlying in-year cash cost of development of software for external sale, as development is considered to be a core ongoing operating function of the business; and • it excludes the amortisation of acquired intangibles arising from business combinations which varies year on year dependent on the timing and size of any acquisitions. This is consistent with the presentation of the amortisation of the Group’s own software intangibles. These metrics are used internally for reporting business unit performance and in determining management and executive remuneration. They are commonly used by other software companies and are also well understood by the Group’s investor and analyst community. 22 EMIS Group plc Annual report and accounts 2019 Reported operating profit Exceptional items Development costs capitalised Amortisation of computer software developed for external sale Amortisation of intangible assets arising on business combinations Adjusted operating profit 2019 £’000 26,827 5,360 (7,363) 2018 £’000 27,680 (1,657) (5,782) 7,132 9,447 7,317 6,202 39,273 35,890 The exceptional item in 2019 relates to redundancy and restructuring costs, including property exit costs. The exceptional item in 2018 relates to a credit for service level reporting charges. A reconciliation of adjusted earnings used in the adjusted EPS calculations is shown below: Profit attributable to equity holders Profit from discontinued operation, net of tax Exceptional items Development costs capitalised Amortisation of computer software developed for external sale Amortisation of intangible assets arising on business combinations Tax and non-controlling interest effect of above items Adjusted profit attributable to equity holders 2019 £’000 2018 £’000 22,658 22,710 (476) 5,360 (7,363) (862) (1,657) (5,782) 7,132 9,447 7,317 6,202 (2,319) (1,624) 32,309 28,434 Adjusted cash generated from operations The Group’s adjusted cash generated from operations adjusts for capitalised development cost expenditure and the cash costs of exceptional items, consistent with the adjusted operating profit metric used by the Group. This provides a meaningful metric for the underlying cash the Group generates having accounted for the cash cost of all development expenditure and adding back the cash cost of non-recurring exceptional items. Reported cash generated from operations Development costs capitalised Cash cost of exceptional items Adjusted cash generated from operations 2019 £’000 2018 £’000 50,059 (7,363) 3,636 49,873 (5,782) 10,378 46,332 54,469 Net cash/(debt) The Group uses net cash/(debt), defined as cash and cash equivalents less total borrowings (excluding IFRS 16 lease liabilities), as a supplementary measure in evaluating its liquidity, as it indicates the level of cash available to the Group and provides an indicator of the overall balance sheet strength. It is used in the calculation of the leverage ratio under its bank facility arrangements. For the period ending 31 December 2019 the Group was in a net cash position, with no borrowings. STRATEGIC REPORT “The strength of the Group’s customer relationships and high level of recurring revenue gives confidence to invest in developing future products and services.” Peter Southby Chief Financial Officer EMIS Group plc Annual report and accounts 2019 23 Principal risks and uncertainties Management of risk Risk management remains a key priority for EMIS Group to sustain the success of the business in years to come. Each area of the business identifies, evaluates and manages risk according to the Board policy. The risk management framework The Board is responsible for the proactive risk management policy, to ensure that EMIS Group has a structured and appropriate approach to risk. Each area of the business has a clear focus to identify, evaluate and manage risk in line with Group strategic priorities and risk appetite. The risk management process is overseen by the risk management committee (RMC). The RMC has formal terms of reference and the committee comprises the Chief Financial Officer (chair), Chief Executive Officer, Director of Legal and Administrative Services, Company Secretary and Head of Group Internal Audit. The committee met monthly throughout 2019; minutes and action plans are formally recorded and reported to the audit committee, which maintains oversight of the RMC. Members of the GXT and other operational management regularly attend RMC meetings to review their key risks and explain in detail how they are managing them. The RMC reviews a consolidated Group risk register at least twice a year before it is submitted to the main Board for consideration. The audit committee reviews and challenges the principal risks and mitigating controls identified by management. Group internal audit provides independent, objective assurance on key risks through a programme of audit reviews. Risks are evaluated using consistent measurements of likelihood, financial and reputational impact, both before and after mitigating controls are taken into account. Risk registers and risk scores are independently verified by the Head of Group Internal Audit. A named risk owner is responsible for ensuring that adequate mitigating controls are in place and operating effectively for individual risks and that, where a risk exceeds the Group’s risk appetite, there is an action plan to address this. Impact of the UK leaving the European Union (Brexit) As reported in previous years, the Board continues to believe that Brexit will have minimal direct effect on the Group as it is not a significant exporter or importer of goods or services. There are potential indirect effects including exchange rate volatility affecting the value of sterling and increased pressure on NHS budgets that could have a negative impact on the Group’s prospects, but the scale and timing of these remains uncertain, despite the improved clarity provided by the UK leaving the EU on 31 January 2020 following the passing of the Brexit withdrawal agreement bill by Parliament. The Board has considered this scenario in its stress testing of the modelling which supports its viability assessment (see viability statement on page 71). While the Board continues to monitor the progress of the withdrawal agreement regarding the terms under which the UK left the EU, and the potential market implications of those terms and those under any future additional agreements, it does not believe that Brexit represents a principal risk for the Group. However, it will continue to keep the situation under review as the UK government and the EU negotiate additional deals in the future. 24 EMIS Group plc Annual report and accounts 2019 Board of Directors Ownership and monitoring Audit committee Independent review and challenge Risk management committee Review and input Group internal audit Independent, objective review function GXT Operational risk input Corporate risk review Divisional and functional risk registers Principal risks heat map h g H i D O O H I L E K I L w o L C E B D A Low IMPACT High The risk heat map above provides a graphical representation of the principal risks and uncertainties. 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 described in detail on pages 26 to 29. A Healthcare structure and procurement changes B Software (product) development C People and culture D E Clinical safety Information governance and cyber security STRATEGIC REPORT Risk appetite The Board, with input from the GXT, has defined its risk appetite across a range of risk categories as outlined opposite, along with detailed statements to support these basic levels of risk appetite. Although there are areas where EMIS Group is prepared to take higher levels of risk, the risk management framework is designed to manage down to an acceptable level the risk of significant financial or reputational impact, with rewards being 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 reviews and revises its risk appetite as its understanding of the level and nature of risk in the business develops or as its appetite for taking risk changes. Acceptable risk appetite levels have remained consistent throughout 2019. Risk appetite parameters have been built into the Group’s web-based risk management application. Any area where exposure is assessed as exceeding the Board’s defined risk appetite is flagged and assigned to specific members of the GXT to determine what, if any, action is required. Such risks are monitored by the RMC and remedial actions are tracked. Emerging risks Emerging risks differ from principal risks, or other lesser risks in the risk management system. They have a higher degree of uncertainty around when, or even if, they may occur; therefore their impact cannot readily be assessed. Emerging risks have the potential to increase in significance and affect the performance of the Group and its ability to meet its strategic objectives. Their timeline may be well beyond the current three-year time horizon we apply to future risks. As their status changes and they become more certain and more quantifiable, we will move them into the risk registers as clearer, better defined risks. The RMC is the recognised forum for identifying, assessing and reporting on any significant emerging risks facing the Group. Impact of coronavirus (Covid-19) In the early weeks of 2020 EMIS Group is responding to the emerging risk of coronavirus (Covid-19). An internal operational task force reviews daily the advice and guidance issued by the UK and Indian government and public health bodies, and responds accordingly to protect the health and safety of employees and anyone with whom they come into contact. The Group has also prioritised the continuity and availability of its technologies for end users and has updated its customer-facing software systems to reflect the latest government advice. It has also provided GP practices with the option to use Video Consult free of charge in the event that they need to provide medical care and advice remotely. 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) – Implementation – Internal IT systems 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 Low Medium Medium Medium Low Low Medium Low Low Low Low Low Low Low Low Each key risk is assigned to an appropriate individual or discrete operating group and all mitigation and action plans are recorded and monitored. Possible impacts for EMIS Group include the lack of availability of staff in the event of a pandemic, or restricted access to key sites should these need to be closed. The Group has a robust business continuity plan in place including home working and video conferencing to address these eventualities. The Group has a limited reliance on its product supply chains but has sought reassurance from key suppliers that they have adequate stock buffers of several months. It is difficult to assess the potential financial impact of what is a fast-moving situation. However, the Group has modelled scenarios as part of its viability statement assessment which have demonstrated the Group’s resilience to a short-term downturn in trading. The Group will continue to take proactive action to mitigate the emerging threat from Covid-19, both to keep people safe and healthy and to reduce the impact on all the Group’s stakeholders. Principal risks The principal risks and uncertainties identified by management, and how they are being managed, are set out on pages 26 to 29. These risks are not intended to be an extensive analysis of all risks that may arise in the ordinary course of business or otherwise. During the year the risk regarding recruitment and retention was expanded to cover people and culture more widely, and the risk regarding interoperability and integration was incorporated into healthcare and software product-related risks to better reflect the integrated nature of these areas. The principal financial risks are separately disclosed in note 3 to the financial statements on page 88. Annual report and accounts 2019 25 EMIS Group plc Principal risks and uncertainties continued DESCRIPTION OF RISK WHY IS IT A RISK? HOW WE MITIGATE THE RISK OPPORTUNITY FOR EMIS GROUP A Healthcare structure and procurement changes B Software (product) development The commercial success of the Group is dependent on the healthcare sector and its strategic direction to use IT to reduce costs and improve efficiency. There is a risk that the Group’s products and services are not in line with the healthcare sector’s strategies, or that these will change as NHS and B2B healthcare organisations’ plans continue to evolve. The NHS represents a significant proportion of the Group’s revenues; how it is organised and how it procures goods and services could affect the Group’s ability to sell effectively to this market. While the Group’s appointment to the GP IT Futures framework in 2019 has reduced the level of this risk, the framework imposes obligations including the requirement that our products are interoperable with the products of other non-Group suppliers of healthcare services to the NHS. The English primary care market currently represents the largest single area of revenue for the Group. While the Group has successfully been appointed to the GP IT Futures framework, there is a risk that the Group may not be included on future frameworks which govern procurement in this important area. Failure to achieve interoperability with third party systems 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 other private sector customers in the longer term. The Group provides innovative IT healthcare systems across a range of sectors, which are integrated with each other and interoperable with other non-Group systems. The core software products are critical to the efficient and effective operation of a wide range of healthcare organisations. Developing excellent, robust and reliable software systems is essential to the ongoing success of the business. The Group’s products may be disrupted by competitors if they develop more innovative technology. To achieve its objectives, the Group has acquired several businesses across a range of healthcare sectors in recent years. There is a risk that these businesses do not function effectively as a group, impacting on the success of product integration across the sectors. The technical or physical failure of the Group’s systems, during development, implementation or everyday use, could lead to disruption or complete service denial of high-profile public or B2B services. The failure to monitor and rectify software defects on a timely basis could result in reduced customer satisfaction and contractual penalties. Failure to deliver modern, interoperable software platforms that integrate healthcare services 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. This is a reputational risk as EMIS Group is the leading connected healthcare IT supplier to the NHS. To reduce the risk of changes in the healthcare structure impacting procurement, EMIS Group The opportunity for EMIS Group is to has the following measures in place: align its strategy to policy, so that its products and services deliver the integrated and interoperable solutions that the market is seeking to procure. This positions the Group as a trusted high-tech supplier delivering at every level from end-user experience through to government strategy. • EMIS Group continues to align its strategies with planned and published government policy on healthcare and technology through close engagement with the NHS at strategic and tactical levels. This ensures products meet the essential requirements of the NHS’s current and future major frameworks; • the Group’s new operating segments reflect the split between NHS and non-NHS driven revenues to provide greater focus on these two different markets; • the segments will reduce reliance on the NHS as a revenue source, with a stated target of achieving a balance between the two segments over time through organic growth • EMIS Group has continued to invest significantly in product management to develop clear, and acquisition; product-led strategies; • EMIS-X will provide extensive integration and interoperability across both Group and third party products and will serve different healthcare needs beyond the NHS across the broader healthcare sector; and • EMIS Group strives to ensure it is perceived as a supplier of connected healthcare IT solutions in its key markets and regularly monitors and analyses key markets and competitors. To ensure the secure and effective development and implementation of both new and existing The opportunity is to build on the Group’s products, the Group has in place a range of mitigating controls, including: strong 30-year history as a market innovator and instigator of positive change, with new software development that is both technologically leading edge and in alignment with customer requirements. • investment in new development, product and project management talent and technologies; • adoption of strategic product portfolio management across the Group; • improved in-life software management processes including capturing, classifying, prioritising and reporting software defects and enhancements, clinical safety checks, testing and implementation; • continued development of best practice standards in software development, product management, customer support, project implementation, clinical safety governance and product integration; • close liaison between product and sales teams ensuring that commercially attractive product propositions underpin the go-to-market approach; • aligning product and development teams to specific business and strategic areas with cross-functional teams ensuring that direct feedback from users and customers is taken into account throughout the software life cycle; • central team responsible for the architecture of the Group’s software, ensuring that its platform continues to evolve as new technologies emerge; and • Board-level responsibility for product and acquisition integration with a clear strategic plan and regular monitoring. 26 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT KEY TO STRATEGIC PRIORITIES 1 Connected healthcare 2 Patient empowerment 3 Technology innovation 4 Highest clinical content and safety standards 5 Talent 6 Customer experience DESCRIPTION OF RISK WHY IS IT A RISK? HOW WE MITIGATE THE RISK A Healthcare structure and procurement changes The commercial success of the Group is dependent on the The English primary care market currently healthcare sector and its strategic direction to use IT to represents the largest single area of revenue reduce costs and improve efficiency. There is a risk that for the Group. While the Group has successfully the Group’s products and services are not in line with the been appointed to the GP IT Futures framework, healthcare sector’s strategies, or that these will change as there is a risk that the Group may not be NHS and B2B healthcare organisations’ plans continue included on future frameworks which govern to evolve. procurement in this important area. The NHS represents a significant proportion of the Failure to achieve interoperability with Group’s revenues; how it is organised and how it procures third party systems could have a significant goods and services could affect the Group’s ability to sell impact on the Group’s ability to meet effectively to this market. While the Group’s appointment to the GP IT Futures framework in 2019 has reduced the level of this risk, the framework imposes obligations including the requirement that our products are interoperable with the products of other non-Group suppliers of healthcare services to the NHS. the government’s healthcare technology requirements and to sell its products and services to the NHS and other private sector customers in the longer term. To reduce the risk of changes in the healthcare structure impacting procurement, EMIS Group has the following measures in place: • EMIS Group continues to align its strategies with planned and published government policy on healthcare and technology through close engagement with the NHS at strategic and tactical levels. This ensures products meet the essential requirements of the NHS’s current and future major frameworks; • the Group’s new operating segments reflect the split between NHS and non-NHS driven revenues to provide greater focus on these two different markets; • the segments will reduce reliance on the NHS as a revenue source, with a stated target of achieving a balance between the two segments over time through organic growth and acquisition; • EMIS Group has continued to invest significantly in product management to develop clear, product-led strategies; • EMIS-X will provide extensive integration and interoperability across both Group and third party products and will serve different healthcare needs beyond the NHS across the broader healthcare sector; and OPPORTUNITY FOR EMIS GROUP The opportunity for EMIS Group is to align its strategy to policy, so that its products and services deliver the integrated and interoperable solutions that the market is seeking to procure. This positions the Group as a trusted high-tech supplier delivering at every level from end-user experience through to government strategy. LINK TO STRATEGIC PRIORITIES • EMIS Group strives to ensure it is perceived as a supplier of connected healthcare IT solutions in its key markets and regularly monitors and analyses key markets and competitors. 1 2 3 4 5 6 B Software (product) development The Group provides innovative IT healthcare systems The technical or physical failure of the across a range of sectors, which are integrated with each Group’s systems, during development, other and interoperable with other non-Group systems. implementation or everyday use, could lead The core software products are critical to the efficient to disruption or complete service denial of and effective operation of a wide range of healthcare high-profile public or B2B services. organisations. Developing excellent, robust and reliable software systems is essential to the ongoing success of the business. The failure to monitor and rectify software defects on a timely basis could result in reduced customer satisfaction and The Group’s products may be disrupted by competitors contractual penalties. if they develop more innovative technology. Failure to deliver modern, interoperable To achieve its objectives, the Group has acquired several software platforms that integrate healthcare businesses across a range of healthcare sectors in recent services could have a significant impact on years. There is a risk that these businesses do not function the Group’s ability to meet the government’s effectively as a group, impacting on the success of product integration across the sectors. healthcare technology requirements and to sell its products and services to the NHS and others in the longer term. This is a reputational risk as EMIS Group is the leading connected healthcare IT supplier to the NHS. To ensure the secure and effective development and implementation of both new and existing products, the Group has in place a range of mitigating controls, including: • investment in new development, product and project management talent and technologies; • adoption of strategic product portfolio management across the Group; • improved in-life software management processes including capturing, classifying, prioritising and reporting software defects and enhancements, clinical safety checks, testing and implementation; • continued development of best practice standards in software development, product management, customer support, project implementation, clinical safety governance and product integration; • close liaison between product and sales teams ensuring that commercially attractive product propositions underpin the go-to-market approach; • aligning product and development teams to specific business and strategic areas with cross-functional teams ensuring that direct feedback from users and customers is taken into account throughout the software life cycle; • central team responsible for the architecture of the Group’s software, ensuring that its platform continues to evolve as new technologies emerge; and • Board-level responsibility for product and acquisition integration with a clear strategic plan and regular monitoring. The opportunity is to build on the Group’s strong 30-year history as a market innovator and instigator of positive change, with new software development that is both technologically leading edge and in alignment with customer requirements. LINK TO STRATEGIC PRIORITIES 1 2 3 4 5 6 EMIS Group plc Annual report and accounts 2019 27 Principal risks and uncertainties continued DESCRIPTION OF RISK WHY IS IT A RISK? HOW WE MITIGATE THE RISK C People and culture The Group is reliant on the skills and knowledge of its people in a range of areas, but especially in software development, clinical safety and information technology systems. The Group may not be able to recruit or retain an appropriate calibre of employees. Business reorganisation has continued apace throughout the year. The nature and speed of change can create short-term disruption and uncertainty and lead to the loss of skills and knowledge. Workload is high for many people and this can lead to poor physical and/or mental wellbeing. Failure to recruit or retain appropriate numbers 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, loss of business and the Group failing to deliver expected financial returns. Low level engagement caused by a poor culture could risk the retention of critical employees and/or a reduction in productivity. D Information governance and cyber security The Group processes significant volumes of confidential and sensitive personal data, particularly in the areas of hosting patient care records and processing employee data. Hosting personal data (in particular special category data such as patient care records) carries risks associated with information security, data protection and system reliability, including loss, theft and corruption of data. Breaches may arise in relation to any of the three pillars of information security: confidentiality, integrity or availability. The majority of reported data breach incidents are owing to people inadvertently disclosing data, but attacks and malware incidents continue to rise. Recent media reports involving the misuse of employee data by internal actors has highlighted the need for vigilance in relation to this data and the threat of the insider. E Clinical safety As a provider of critical IT systems to organisations that provide healthcare to patients, the Group is exposed to a range of clinical risks. These include risks associated with the use of algorithms in the Group’s products, which clinicians use to direct and support day-to-day patient care. For pharmacy software products, similar risks exist around incorrect dosages and labelling of products dispensed. The Group’s Patient business provides technology-based enabling tools for clinicians. There are no direct clinical services provided by Patient. The Group does not carry direct clinical risk from causing harm to patients, as it is no longer a provider of clinical services following the disposal of Specialist & Care in 2019. This has considerably reduced the Group’s overall exposure to clinical safety risks. 28 EMIS Group plc Annual report and accounts 2019 EMIS Group’s trusted reputation rests on its integrity and the quality of stewardship it applies in respect of its customers’ sensitive data. Changes in information governance legislation, including the EU General Data Protection Regulation (GDPR), the Data Protection Act 2018 and the Networks and Information Systems Directive, have raised awareness across the industry and the general public and brought a much tougher enforcement regime. Failure to comply could lead to significant fines, claims for damages and reputational damage. “Class action” style claims are increasingly being brought on behalf of affected individuals where individual claims might be relatively modest but when multiplied by the number of individuals involved the sums can become very significant. There is a risk of clinical harm to patients should the software used by healthcare professionals, such as EMIS Group hosted IT systems, fail to provide accurate, reliable and timely personal information. For example, this could include alerts 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. OPPORTUNITY FOR EMIS GROUP The Group’s strategy to become an employer of choice will lead to improved recruitment and retention of talent. Attracting and retaining highly skilled, motivated employees will lead to better business performance, enhancing the Group’s good reputation as well as financial return. Key actions implemented, or commenced, during the year include: • improved empowerment and accountability through restructuring; • investment in management skills through training, performance management and 360-degree feedback; • improved internal communication; • team management objectives included in bonus achievement of senior leaders; • succession plans in place for key roles; • operating a regularly reviewed and externally benchmarked pay and benefits framework to ensure greater consistency across the Group; • Group-wide employee satisfaction surveys including suggestions for improvement; • investment in improved working environments to motivate and inspire employees; • mental health first aiders trained and roll-out of their support across the business; • continued focus on the Women’s Network, aimed at increasing engagement of female employees; • focus on graduate and apprentice hiring to provide a ready supply of “home grown” talent; and • culture audit to evaluate business culture to improve employee engagement. An information governance (IG) framework has been established including: • culture placing IG at the heart of everything we do; • oversight structure includes an IG Board, Data Protection Officer, Senior Information Risk Owner, IG Officer and Caldicott Guardian; With a clear, dedicated focus on information governance and cyber security, the Group is able to operate in the healthcare market with confidence in its processes, products and services, • all employees receive mandatory annual online IG training provided by the NHS’ e-learning inspiring, in turn, confidence in customers and end users. programme and internal and external GDPR training; • policies and procedures meet the requirements of GDPR; and • Data Protection Impact Assessments undertaken in relation to key products and services where personal data is processed. The Group has implemented a major security improvement programme, which is continually implementing new measures, hardening existing controls and increasing employee education in keeping data and systems secure. The programme includes: • physical security improvement measures at data centres; • programme of penetration testing and vulnerability scanning; • maintaining compliance to ISO 27001, ISO 22301, ISO 9001 and Cyber Essentials Plus; • building resilience to social engineering and phishing attacks; • cloud security measures for AWS/EMIS-X; • specialist cyber responders to manage breaches; and • cyber insurance. Most clinical risks are allied to other principal risks, for example, software development, EMIS Group’s priority is to deliver the recruitment and information governance, as failures in any of these could lead to clinical highest standards of clinical safety. harm to patients. This is an unswerving focus that runs through the Group’s culture, creating an opportunity to continue to build the trust of the healthcare profession, leading to increased software and service sales and customer retention. Mitigating actions specifically relevant to clinical risk management are noted here: • 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 NHSD’s clinical risk management standards DCB 0129 or DCB 0160; • policies and processes in place to meet regulatory standards for “software as a medical device” pertaining to embedded algorithms and decision support; • procedure for accredited clinicians to identify and mitigate potential clinical risks in new software development, releases and updates. Clinical sign-off is required for all releases; and • oversight by external regulators. STRATEGIC REPORT KEY TO STRATEGIC PRIORITIES 1 Connected healthcare 2 Patient empowerment 3 Technology innovation 4 Highest clinical content and safety standards 5 Talent 6 Customer experience DESCRIPTION OF RISK WHY IS IT A RISK? HOW WE MITIGATE THE RISK C People and culture The Group is reliant on the skills and knowledge of its people Failure to recruit or retain appropriate in a range of areas, but especially in software development, numbers of suitably qualified people in clinical safety and information technology systems. The Group critical areas could lead to a deterioration may not be able to recruit or retain an appropriate calibre in the quality of products and services. This of employees. Business reorganisation has continued apace throughout the year. The nature and speed of change can create short-term disruption and uncertainty and lead to the loss of skills and knowledge. Workload is high for many people and this can lead to poor physical and/or mental wellbeing. could lead to failure to meet customers’ needs, loss of business and the Group failing to deliver expected financial returns. Low level engagement caused by a poor culture could risk the retention of critical employees and/or a reduction in productivity. D Information governance and cyber security The Group processes significant volumes of confidential and EMIS Group’s trusted reputation rests on sensitive personal data, particularly in the areas of hosting its integrity and the quality of stewardship patient care records and processing employee data. it applies in respect of its customers’ Hosting personal data (in particular special category data sensitive data. such as patient care records) carries risks associated with Changes in information governance information security, data protection and system reliability, legislation, including the EU General Data including loss, theft and corruption of data. Breaches may arise Protection Regulation (GDPR), the Data in relation to any of the three pillars of information security: Protection Act 2018 and the Networks and confidentiality, integrity or availability. The majority of reported data breach incidents are owing to people inadvertently disclosing data, but attacks and malware incidents continue to rise. Recent media reports involving the Information Systems Directive, have raised awareness across the industry and the general public and brought a much tougher enforcement regime. misuse of employee data by internal actors has highlighted Failure to comply could lead to significant the need for vigilance in relation to this data and the threat fines, claims for damages and reputational of the insider. damage. “Class action” style claims are increasingly being brought on behalf of affected individuals where individual claims might be relatively modest but when multiplied by the number of individuals involved the sums can become very significant. E Clinical safety As a provider of critical IT systems to organisations that There is a risk of clinical harm to patients provide healthcare to patients, the Group is exposed to a should the software used by healthcare range of clinical risks. These include risks associated with the use of algorithms in the Group’s products, which clinicians use to direct and support day-to-day patient care. For pharmacy software products, similar risks exist around incorrect dosages and labelling of products dispensed. professionals, such as EMIS Group hosted IT systems, fail to provide accurate, reliable and timely personal information. For example, this could include alerts 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 The Group’s Patient business provides technology-based enabling tools for clinicians. There are no direct clinical services party applications. provided by Patient. The Group does not carry direct clinical risk from causing harm to patients, as it is no longer a provider of clinical services following the disposal of Specialist & Care in 2019. This has considerably reduced the Group’s overall exposure to clinical safety risks. Key actions implemented, or commenced, during the year include: • improved empowerment and accountability through restructuring; • investment in management skills through training, performance management and 360-degree feedback; • improved internal communication; • team management objectives included in bonus achievement of senior leaders; • succession plans in place for key roles; • operating a regularly reviewed and externally benchmarked pay and benefits framework to ensure greater consistency across the Group; • Group-wide employee satisfaction surveys including suggestions for improvement; • investment in improved working environments to motivate and inspire employees; • mental health first aiders trained and roll-out of their support across the business; • continued focus on the Women’s Network, aimed at increasing engagement of female employees; • focus on graduate and apprentice hiring to provide a ready supply of “home grown” talent; and • culture audit to evaluate business culture to improve employee engagement. An information governance (IG) framework has been established including: • culture placing IG at the heart of everything we do; • oversight structure includes an IG Board, Data Protection Officer, Senior Information Risk Owner, IG Officer and Caldicott Guardian; • all employees receive mandatory annual online IG training provided by the NHS’ e-learning programme and internal and external GDPR training; • policies and procedures meet the requirements of GDPR; and • Data Protection Impact Assessments undertaken in relation to key products and services where personal data is processed. The Group has implemented a major security improvement programme, which is continually implementing new measures, hardening existing controls and increasing employee education in keeping data and systems secure. The programme includes: • physical security improvement measures at data centres; • programme of penetration testing and vulnerability scanning; • maintaining compliance to ISO 27001, ISO 22301, ISO 9001 and Cyber Essentials Plus; • building resilience to social engineering and phishing attacks; • cloud security measures for AWS/EMIS-X; • specialist cyber responders to manage breaches; and • cyber insurance. Most clinical risks are allied to other principal risks, for example, software development, recruitment and information governance, as failures in any of these could lead to clinical harm to patients. Mitigating actions specifically relevant to clinical risk management are noted here: • 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 NHSD’s clinical risk management standards DCB 0129 or DCB 0160; • policies and processes in place to meet regulatory standards for “software as a medical device” pertaining to embedded algorithms and decision support; • procedure for accredited clinicians to identify and mitigate potential clinical risks in new software development, releases and updates. Clinical sign-off is required for all releases; and • oversight by external regulators. OPPORTUNITY FOR EMIS GROUP The Group’s strategy to become an employer of choice will lead to improved recruitment and retention of talent. Attracting and retaining highly skilled, motivated employees will lead to better business performance, enhancing the Group’s good reputation as well as financial return. LINK TO STRATEGIC PRIORITIES 1 2 3 4 5 6 With a clear, dedicated focus on information governance and cyber security, the Group is able to operate in the healthcare market with confidence in its processes, products and services, inspiring, in turn, confidence in customers and end users. LINK TO STRATEGIC PRIORITIES 1 2 3 4 5 6 EMIS Group’s priority is to deliver the highest standards of clinical safety. This is an unswerving focus that runs through the Group’s culture, creating an opportunity to continue to build the trust of the healthcare profession, leading to increased software and service sales and customer retention. LINK TO STRATEGIC PRIORITIES 1 2 3 4 5 6 Annual report and accounts 2019 29 EMIS Group plc Operational review – EMIS Health Focussed on integrated care Connected healthcare solutions for strategic customers in alignment with market need and NHS policy. EMIS Health The EMIS Health segment comprises business areas where revenues are generated from NHS organisations. This includes the primary, community and acute A&E markets as well as the Egton business. Market shares EMIS Health maintained its UK GP market leadership position with a market share of 57% (2018: 57%). EMIS Health increased its community market share to 21% (2018: 20%), maintaining the number two market position. The Group increased its market share in Acute A&E to 23% (2018: 22%) moving to market leadership. NHS primary care frameworks As previously announced, EMIS Health was awarded a place on the NHS GP IT Futures framework in October 2019 and shortly afterwards became the first GP clinical system supplier to be accepted onto the Digital Buying Catalogue. The framework commenced on 1 January 2020 and replaced the previous contractual framework, GP Systems of Choice (GPSoC), to supply IT systems and services to the GP market in England. The framework will govern the provision of the majority of EMIS Group’s clinical IT system-related services to GPs in England. During 2019 EMIS Health delivered the EMIS Web functionality required to meet the initial contract obligations under GP IT Futures with further development planned during 2020. Following the announcement in February 2019 that EMIS Health had been awarded a place on the NSS framework, the Group is investing in its team and facilities in Scotland and continues to work closely with NSS to deliver the technology to support its health and care strategy. EMIS Health has successfully completed the upgrade to EMIS Web in Northern Ireland. It continues to support its GP customer base in Wales following NHS Wales Informatics Service’s (NWIS) announcement in mid-2019 that it had cancelled the contract with one of its GP clinical software suppliers, which had been appointed to replace EMIS Health over time. EMIS-X The development of EMIS-X continues at pace. EMIS Group is working towards an expected first version of the platform during 2020 and the first upgraded application in 2021. Our development activity is closely aligned with market need and NHS policy. The Group’s clinical team brings a wealth of clinical insight from all major settings to ensure EMIS-X delivers innovation that makes a difference and the best end-user experience. Dovetail has contributed well in 2019 as an integrated part of our technology development activity. Improved go-to-market strategy During 2019, EMIS Health brought together its primary, community and acute care sales and service functions into one unit, together with Egton. The NHS market is moving towards joined-up healthcare solutions that span multiple care settings. The Group refined its go-to-market strategy during 2019 to focus on its overarching connected healthcare propositions to strategic customers, including STPs and ICSs. The focus is to work in partnership with strategic organisations to deliver the technology solutions they need to meet the challenges of integrating care in their locality. EMIS Health is working closely with its acute A&E and community customers to share development roadmaps with the intention of building a personalised plan for each patient to meet their needs. It continues to work closely with customer user groups on enhancements and developments. Streamlined support and service EMIS Health has streamlined its support and service function with migration onto a single customer and internal platform, ServiceNow. It co-located two of its support teams during 2019 to improve joined-up working and increase efficiency. This has seen an increase in the use of digital-first options to access support services. Digital chat is a new and additional route for end users to provide quick access to WE DELIVER A&E systems 6.3m electronic discharge messages sent to NHSD 30 EMIS Group plc Annual report and accounts 2019 GP systems 163m Community systems GP hosted systems 79m 40m patient records appointments booked annually consultations recorded STRATEGIC REPORT support teams via ServiceNow. In the last six months of 2019 EMIS Health saw an increasing uptake of digital-first support, with around 30% of all support issues now logged via email, portal or digital chat. Digitisation Egton’s Lloyd George Digitisation service continued to perform well, with strong sales of its service to digitise legacy paper records, as the market continues to work towards its target to be fully digitised by 2024. Future plans The focus for EMIS Health for the forthcoming year is on the development of EMIS-X, working towards its first deployments in the Scottish and English GP markets. Essential developments will be delivered to the existing product suite, meeting market and contractual need until the EMIS-X platform and resulting applications are ready. INDUSTRY INSIGHT Technology allows us to think as one Ian Bailey, RN, DN, BN (Hons) Queen’s Nurse, Clinical Design Director “Caring for people more effectively in their own homes relieves pressure on busy hospitals. This relies on joined-up working." Clinicians working across different teams need instant, electronic access to a shared care record – whether they are in a clinical room, the patient’s home or the car. This helps them make more informed and safer decisions, have more effective conversations with their colleagues and provide patients with the best experience possible. Read more online at emisgroupplc.com INDUSTRY INSIGHT Party like it’s 2019 Haidar Samiei Clinical Director, EMIS Health “As a junior doctor, I was working in A&E on New Year’s Eve 1999, armed with only a backpack full of textbooks and a pager." Life as a junior doctor was information-poor back then: imagine replacing access to the consultant, registrar, intranet and mobile phone with a pager and some textbooks on a night shift. Now in 2019 we have decision support tools: we can streamline processes and use people with specialist skill sets to provide better, faster care. Read more online at emisgroupplc.com EMIS Group plc Annual report and accounts 2019 31 Operational review – EMIS Enterprise B2B healthcare opportunities The release of the first Patient marketplace service is a true demonstration of joined-up healthcare technology in action. EMIS Enterprise The EMIS Enterprise segment comprises business areas where revenues are derived predominantly from B2B healthcare sector sources, including medicines management across both community and hospital pharmacy, and the Patient business. Market shares The Group moved to a sole market-leading position in community pharmacy during 2019 at 36% (2018: 37%) and maintained its number two market position in hospital pharmacy with a market share of 35% (2018: 36%). ProScript Connect upgrade The roll out of ProScript Connect was completed during 2019. This brings all community pharmacy customers onto the same system, enabling efficiencies in supporting and developing just one system instead of two. The retirement of the legacy product, ProScript, resulted in the loss of a small number of sites which opted not to upgrade. Other community pharmacy products and services Two Group-wide solutions for the Falsified Medicines Directive (FMD) authenticator via barcode scanning were developed and released to both the community pharmacy and hospital pharmacy user base. The electronic controlled drug register functionality was released and included as standard for all community pharmacy customers, adding an essential timesaving feature to help with customer retention. Other strong performing products included the pharmacy WiFi service and the hardware required to support FMD. The pilot of the Patient Group Directions (PGD) functionality was completed and the software will shortly be launched as part of ProScript Connect. This enables community pharmacies to provide clinical services to patients as part of the PGD directive to help more patients in community pharmacy and alleviate pressure on primary care. Hospital pharmacy EMIS Group continues to develop its existing ePMA system to provide better functionality for end users, working with customers to align to the same release version to realise development and support efficiencies and ensure updated technology for all. Patient 2019 was another successful year of growth for Patient. Registered users for Patient Access climbed from 6.0m to 8.4m, booking 6.7m GP appointments and 20.2m repeat prescriptions. The app continues to receive positive user ratings, with an average 4.8/5 star rating on the Apple App Store from 315,000 ratings (2018: 4.8/5 star rating from 150,000 ratings). Following a successful pilot with the Day Lewis pharmacy group, EMIS Group launched community pharmacy appointment booking during 2019, enabling the UK public to book appointments for clinical services with participating community pharmacies, adding to the existing functionality allowing GP appointment booking. This supports the PGD directive. In the first six months since launch of the pilot in July 2019, 14,000 community pharmacy appointments were booked by 11,500 members of the public. By February 2020 the service was live with more than 800 pharmacy branches across 22 organisations. There was a seasonal uplift during flu season, with 8,700 flu vaccination appointments booked with community pharmacies through Patient Access. The service includes a flu eligibility checker, where patients can check whether they are entitled to an NHS flu vaccination, allowing them to book their vaccination with either their practice or pharmacy as they choose. In the first six months, 56,000 people took advantage of this service. Patient Access community pharmacy booking is the first release of the Group’s marketplace services and uses the EMIS-X appointment engine as its underlying technology. It is a true demonstration of joined-up healthcare technology in action. Pharmacists using ProScript Connect software are able to send an electronic consultation summary back to the EMIS Web patient medical record, where the GP can review and update the record accordingly. The patient can then access the medical record at any time using the Patient Access medical record viewer. WE DELIVER Patient Access Hospital pharmacy systems Community pharmacy Partner programme 8.4m registered users 14m 454m patient records annually items dispensed annually 113 partners in the primary care ecosystem 32 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT The partner programme The partner programme continued to perform strongly during 2019, providing accredited technology solutions that interoperate with EMIS Health primary care clinical systems. There are now 113 accredited companies in the partner ecosystem (2018: 104), providing 158 accredited products or services (2018: 149) as a connected care solution to help primary care end users improve efficiency and patient outcomes. Future plans The focus for EMIS Enterprise during the forthcoming year remains on developing additional marketplace services into Patient Access, to both enhance the app for the general public and add increasing value for community pharmacies. There is growing collaboration between the Community Pharmacy and Patient teams to bring additional pharmacies on board to offer Patient marketplace services at more locations across the UK. The Group will also continue to develop ePMA for hospital pharmacy and launch the PGD software to community pharmacy during the 2020 financial year. INDUSTRY INSIGHT A positive impact on medicines management Shanel Raichura MRPharmS Clinical Director, EMIS Health “People can now book appointments for services in their local community pharmacy through Patient Access." The UK public can find and book a range of clinical services provided by their local community pharmacist through Patient Access. It’s one way we’re working on joining up medicines management across the healthcare journey: pharmacists using ProScript Connect can send an electronic consultation summary back to the Patient’s GP, (with patient consent). It means greater visibility of the patient’s journey for all. Read more online at emisgroupplc.com INDUSTRY INSIGHT Easing pressure on general practices Dr Sarah Jarvis, MBE, FRCGP Clinical Director, Patient Platform Limited “The average wait to see a GP is now two weeks and 40% of patients wait longer than this." The NHS Long Term Plan emphasises digital services to provide patients with the tools they need to look after their own health. The pace of change in the digital world is rapid and we have been providing our users with more services, driven by the growing need to empower patients to take control of their own health and wellbeing. Read more online at emisgroupplc.com EMIS Group plc Annual report and accounts 2019 33 Financial review “Group revenue increased by 7%.” Peter Southby Chief Financial Officer 34 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT Good progress and investment Adjusted operating profit for the year increased by 9%. The results for the year ended 31 December 2019 reflect a year of good trading progress for the Group, increased investment in the business to deliver future growth and the completion of the Group’s reorganisation. Adjusted operating profit for the year, as set out in the table below, increased by 9% to £39.3m (2018: £35.9m) with statutory operating profit, including an exceptional £5.4m charge for reorganisation costs, at £26.8m (2018: £27.7m). A reconciliation between the operating profit measures is given in the Group statement of comprehensive income and in the appendix to this report. Group revenue increased by 7% to £159.5m (2018: £149.7m), with recurring revenue 4% higher. Segmental performance The table below sets out the summary segmental performance. In the EMIS Health business, revenue grew by 2% with adjusted operating profit lower than the previous year as a consequence of increased investment in developing the EMIS-X software platform. Performance in the EMIS Enterprise division reflected a strong performance in the market with revenue increasing by 16% and adjusted operating profit by 37%. These results included a number of commercial licence deals for both continuing and legacy products. Revenue Group recurring revenue, principally software and software licences, maintenance & software support, hosting and other support services, was £125.0m (2018: £120.6m). This represented 78% of the Group’s total revenue (2018: 81%), slightly lower as a result of increased non-recurring revenues in the EMIS Enterprise division. The strength of the Group’s customer relationships supported by the high level of recurring revenue give the Group confidence to invest in developing future products and services, as well as providing good visibility of future financial performance. Revenue is analysed in the following categories: • software and software licences, higher at £66.6m (2018: £62.1m), reflecting a strong overall performance and benefiting from the licensing referred to above; • maintenance & software support, consistent at £39.3m (2018: £39.8m) with business growth offset by reduced revenues from legacy products; • other support services, which grew to £17.4m (2018: £16.9m) with business growth in part offset by a reduction in online advertising revenues; • training, consultancy and implementation, which was higher at £15.6m (2018: £11.7m) with growth in partner and in Egton patient record digitisation implementation fees; • hosting, where additional revenues associated with the end of GPSoC resulted in an increase to £13.7m (2018: £11.9m); and • hardware revenues, which were slightly lower at £6.9m (2018: £7.3m). Summary segmental performance Revenue Adjusted segmental operating profit Group expenses Adjusted operating profit1 Adjusted operating margin EMIS Health 2019 £’m EMIS Health 2018 £’m EMIS Enterprise 2019 £’m EMIS Enterprise 2018 £’m 100.9 23.3 99.3 25.2 58.6 17.5 50.4 12.8 Total 2019 £’m 159.5 40.8 (1.5) 39.3 Total 2018 £’m 149.7 38.0 (2.1) 35.9 23.1% 25.4% 29.9% 25.4% 24.6% 24.0% 1 Excludes capitalisation and amortisation of development costs, amortisation of acquired intangibles and exceptional items. EMIS Group plc Annual report and accounts 2019 35 Financial review continued Profitability Adjusted operating profit increased by 9% to £39.3m (2018: £35.9m), after taking account of the increased level of investment in development across the business during the year, which amounted to £20.7m (2018: £18.7m). The adjusted operating margin also improved to 24.6% (2018: 24.0%). There was a small increase in total staff costs with higher levels of variable compensation across the Group, although year-end staff numbers fell to 1,527 (2018: 1,685 excluding the disposal of the Specialist & Care business) and the average headcount was also lower at 1,575 (2018: 1,667). Overall staff numbers have reduced over the year, despite the Group continuing to invest in hiring developers, through the careful management of recruitment and the restructuring exercise, which is now complete. This resulted in exceptional costs of £5.4m in 2019 in respect of staff and related property costs. After accounting for the exceptional items, the capitalisation and amortisation of development costs, and for the amortisation of acquired intangibles, statutory operating profit was £26.8m (2018: £27.7m). Taxation The tax charge for the year was £5.0m (2018: £5.4m). The effective tax rate for the year was 19.2% (2018: 18.9%). Earnings per share (EPS) Adjusted basic and diluted EPS were 14% higher at 51.4p and 51.1p respectively (2018: 45.1p and 45.0p). The statutory basic and diluted EPS were marginally lower at 36.0p and 35.8p respectively (2018: 36.1p and 36.0p) principally as a result of the impact on the respective years of exceptional items. Dividend Subject to shareholder approval at the AGM on 6 May 2020, the Board proposes an increase in the final dividend to 15.6p (2018: 14.2p) per ordinary share, payable on 11 May 2020 to shareholders on the register at the close of business on 14 April 2020. This would make a total dividend of 31.2p (2018: 28.4p) per ordinary share for 2019. This is 10% higher than in the prior year, reflecting the Group’s strong financial position, the Board’s commitment to increasing dividends in line with underlying earnings growth and its continued confidence in the Group’s prospects. Disposal On 2 April 2019, the Group announced the disposal of its Specialist & Care business for a total of up to £14.9m. This is accounted for as a discontinued operation and contributed a profit of £0.5m in the period (2018: £0.9m) as set out in note 11. 36 EMIS Group plc Annual report and accounts 2019 Cash flow and net cash The principal movements in net cash were as follows: Cash from operations: Cash generated from operations Less: internal development costs capitalised Adjusted cash generated from operations Cash cost of exceptional items Net cash generated from operations Business combinations Acquisition of non-controlling interest Business disposal Net capital expenditure Transactions in own shares Tax Dividend to non-controlling interest shareholder Dividends Lease payments Other Change in net cash in the year Net cash at end of year 2019 £m 2018 £m 50.1 49.9 (7.4) (5.8) 46.3 (3.6) 42.7 (1.2) — 6.2 (5.6) (3.1) (4.5) — (18.7) (0.9) 0.6 15.5 31.1 54.5 (10.4) 44.1 (1.4) (8.0) — (6.8) 0.3 (5.8) (4.0) (17.1) — 0.3 1.6 15.6 Cash generated from operations was broadly unchanged at £50.1m (2018: £49.9m). Adjusted cash from operations is stated after adding back the cash cost of exceptional items of £3.6m (2018: £10.4m) and after deducting capitalised development costs. On this adjusted basis, cash flow from operations was 15% lower than in 2018, largely due to an adverse working capital movement with the December 2019 one-off transition impact of moving to new payment arrangements under GP IT Futures from GPSoC compounded by a particularly strong working capital performance in 2018. The disposal of the Specialist & Care business gave rise to a net cash inflow of £6.2m. The Group paid £1.0m of deferred contingent consideration in respect of the 2018 Dovetail acquisition and also acquired a minority stake in an early-stage pharmacy data business for £0.2m. Net cash spent on capital expenditure (excluding capitalised development costs) was slightly lower at £5.6m (2018: £6.8m). Capital additions in the year included £3.1m on computer equipment, £0.8m on internal systems and software, and £1.7m on property assets. During the year, the Group agreed terms for the disposal of its former head office building for consideration of £2.5m. As this transaction completed in January 2020, the property has been classified as a current asset held for sale in the balance sheet. The Group’s Employee Benefit Trust (EBT) acquired £3.6m of shares and received £0.5m (2018: £0.3m) for shares transferred in connection with the Group’s share schemes. After tax, dividends, lease payments and other transactions, the total net cash inflow of £15.5m resulted in a year-end net cash position of £31.1m (2018: £15.6m). At 31 December 2019, the Group had available undrawn bank facilities of £30.0m committed until June 2021, reducing to £15.0m for the twelve-month period ending 30 June 2022. An accordion arrangement is in place to increase the quantum up to £60.0m, reducing to £30.0m for the twelve-month period ending 30 June 2022. Peter Southby Chief Financial Officer 17 March 2020 STRATEGIC REPORT REVENUE ANALYSIS 42+ support: 24% Maintenance & software Other support services: 11% Software and software licences: 42% C 78+ Training/consultancy/ implementation: 10% Hardware: 4% Hosting: 9% Recurring: 78% Non-recurring: 22% Total revenue3 £159.5m +7% Recurring revenue2,3 £125.0m +4% Reported operating profit3 £26.8m -3% 2019 2018 2017 2016 2015 159.5 149.7 170.1 142.4 160.4 144.5 158.7 143.2 155.9 Adjusted operating profit1,2,3 £39.3m +9% 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 39.3 35.9 37.6 36.8 37.4 38.3 38.8 34.6 36.6 Reported EPS3 36.0p – 36.0 34.7 36.1 12.8 13.2 30.4 38.9 5.6 7.2 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 125.0 120.6 140.7 115.8 133.5 114.8 128.5 111.1 123.0 Reported cash generated from operations £50.1m – 50.1 49.9 48.8 43.7 42.7 Adjusted EPS1,2,3 51.4p +14% 51.4 45.1 47.4 47.246.4 47.2 48.7 49.4 42.9 45.3 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 26.8 27.7 28.7 23.5 29.1 10.6 10.9 10.2 11.4 Adjusted cash generated from operations2 £46.3m -15% 46.3 54.5 49.7 41.1 36.5 Total dividend for the year 31.2p +10% 31.2 28.4 25.8 23.4 21.2 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 78. Earnings per share calculations also adjust for the related tax and non-controlling interest impact. 2 These are alternative performance measures. See page 22 for further details and reconciliation to the relevant IFRS number. 3 Continuing operations excluding Specialist & Care business. Continuing operations and discontinued Specialist & Care business. EMIS Group plc Annual report and accounts 2019 37 24 + 11 + 10 + 9 + 4 + 22 + C Our people Our people strategy EMIS Group set out five key objectives to underpin its people strategy during 2019, with a continual focus on being a great place to work. Inspirational leadership In 2019 the Group focussed on identifying and building the strengths of future leaders. It launched Academis, a consolidated learning resource, including a hub to support managers in day-to-day leadership and ensure all employees receive a consistently excellent experience. Regular senior leadership briefings from Andy Thorburn and the GXT enable teams to deliver their best performance. Talent and development A key objective in 2019 was upskilling, retraining and professional development to support career progression. Managers have been trained on a consistent process for performance management that will enable people to succeed and grow in their role. A wealth of personal development resources are available to all employees, encompassing topics such as honest conversations, building collaborative relationships and decision making. The Group launched its apprenticeship scheme, bringing new talent into the business, (see page 41) and piloted a returners’ programme to help those rejoining the business following extended leave, such as maternity leave (see page 41). Reward and recognition The Group aims to develop fair and consistent reward and recognition plans to support a performance culture. External market data is used as a benchmark to develop market competitive reward strategies to help attract and retain key talent. The Group continued to make improvements to benefits at every job level and all UK employees were offered an award of free shares through the SIP. EMIS Group engaged a new benefits provider in 2019 to enhance the offering to employees and increase value for money. Culture and communication The Group has a continual focus on creating an open, collaborative working culture and driving up the standards of its internal communications. The regular “Ask Andy” Chief Executive Officer live online Q&A sessions continued, with a number of GXT members running their own live Q&As. Feedback indicates that people value the honesty and direct access to senior management in these sessions. A key priority is the Group’s caring and wellbeing culture. The Group introduced a mental health first aider programme, training volunteers to support other colleagues. Its charity partnership with Mind continued to inspire colleagues to raise funds. During 2019 the Group undertook a culture audit, to help shape its vision, values and strategy to do even better in key areas such as communication, collaboration and performance. Designated Non-executive Director Jen Byrne held regular meetings at different locations, to meet and hear from employees about the Company culture and feed back to the Board. Employee forums were launched in Leeds and Bolton with more to follow. Operational excellence Operational excellence enables the business to focus on its priorities, supported by well running HR processes. The Group set up systems to bring clarity to HR policies and resources so that everyone has the support and information they need. Academis provides all key personal development information on one platform, previously held on different systems. For example, building on the flexible working policy introduced in 2018, there is one central resource to support working parents and enable managers to provide the best support possible. 1 2 3 4 5 Inspirational leadership Talent and development Reward and recognition Culture and communication Operational excellence 38 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT JACQUI SUMMONS, HR DIRECTOR Jacqui Summons Group HR Director EMPLOYEES PEOPLE STRATEGY WHAT’S NEXT? “Our goal is to attract the very best people to want to work for EMIS Group, support and encourage them to fulfil their career goals with us and reward them for excellent performance. Our people drive the growth of our business and we want to inspire their best performance. We do this through striving to increase employee engagement, taking good care of our people, rewarding high performance, providing clarity to people on what is expected of them and overall making EMIS Group an attractive place to work. “During 2020 we will continue to develop career pathways for employees. We plan to enhance our remuneration and benefit packages to ensure we attract and retain key talent. Employee engagement will remain a key priority: having engaged people means a happier workforce and improves retention. We plan to further extend our wellbeing initiatives; we’ve achieved a lot in two years already and I’m particularly proud of the Women’s Network and our approach to mental wellbeing (see page 40).” Equality and diversity EMIS Group recognises the benefits of a diverse workforce. Equality and diversity is becoming embedded in the culture of the business, for example through the Women’s Network and HR policies such as flexible working both in the UK and Chennai. The gender pay gap (GPG) was published for the second year in April 2019, showing a mean average of 16.9% (a 3.3% reduction from the previous year). The Group will publish information in line with the requirements of the Equality Act 2010 (Gender Pay Gap Information) Regulations on an annual basis. GPG data for 2019 has just been published showing a further drop of the mean gap from the previous year to 10.3%. Further details on equality and diversity are included in the nomination committee report on page 57 and in the report of the remuneration committee on page 59. Enhanced benefits The Group launched a new benefits programme, focussing on the areas people have said matter to them. This includes improvements to paternity pay, holidays and death in service. The Group has made a commitment to enhance its benefits where it can, subject to affordability, each year. Pension contribution 92% of UK employees have pension contributions paid on their behalf into a pension scheme (2018: 94%). New employees are auto-enrolled into the Group scheme. The Group has been increasing pension contributions over a number of years and during 2019 increased standard UK contributions by 0.5% to 4.5%, 1.5% above the minimum statutory requirement for employers. By April 2020 standard pension contributions will be a minimum 10% (5% employee and 5% employer). Share Incentive Plan The SIP is offered to all UK employees with over six months’ service. In December 2019 there were 232 regular contributors into the SIP out of 1,197 eligible employees (19%), an increase of 3% in participation rate from December 2018. In April 2019 the Group offered a free share award and 971 employees opted to accept the award out of 1,292 who were eligible (75%). GENDER DIVERSITY 30+ GXT Female: 30% Male: 70% 39+ SENIOR MANAGEMENT (AND THEIR DIRECT REPORTS)1 Female: 39% Male: 61% 1 Senior management as defined by the Code. 31+ ALL EMPLOYEES Female: 31% Male: 69% Annual report and accounts 2019 39 EMIS Group plc 61 + C 70 + C 69 + C Our people continued Highlights SPOTLIGHT ON THE WOMEN’S NETWORK EVENTS CULTURE CHANGE The second annual UK Women’s Network event was a day of shared experiences, learning and networking with both internal and external inspirational speakers. The focus was on removing barriers. The Women’s Network is driving an open and honest culture, redefining the norm so that people can be open about sometimes taboo subjects that affect employees such as imposter syndrome and coping with the menopause. The Women’s Network is driving real change to the business by feeding into HR policy. It has so far delivered improvements to flexible working, the returners’ programme and fed into the apprenticeships scheme. In India, the quarterly World of Women forums enable discussion on topics on women’s welfare specific to Chennai, to support and empower women to remove barriers they encounter in working life. A dedicated Workplace page (Facebook for Work) keeps this alive in everyday working life, providing a platform for people to stay connected, support each other and share learning and ideas. 2019 saw the launch of “The.Girl.Code” events, to promote the apprentice scheme. Two female apprentices joined the business to start a new career in development after attending one of the events. CASE STUDY CASE STUDY Women in tech UK: Vicky A passion for healthcare Women in tech India: Varshini Balancing a career and family life Vicky Askham is a senior developer based in Sheffield. Varshini Karthik is a senior associate at EMIS Health India. “As a teenager I dreamed of becoming a doctor, but I had a natural talent for ICT so I followed that path and I couldn’t have chosen a better career to combine my passion for healthcare and IT!” Vicky applied for a job as a developer, gaining experience in the development and maintenance of clinical pathology and radiology, requesting and reporting software systems. “It’s been a male dominated area in the past but there are definitely more women entering the industry, which is great to see and something I am determined to support.” “In India it’s challenging for women to balance work and our responsibility to care for our family. Many women discontinue working in technology when our personal responsibilities grow because of the long hours typically expected in the industry. “At EMIS Health India I feel respected for my work and able to balance my responsibilities at home, which has helped me enjoy and excel in my role. It is both a stimulating and nurturing environment for women to grow in their careers and as individuals: it’s made it possible for my female colleagues and me to continue our IT careers.” 40 EMIS Group plc Annual report and accounts 2019 STRATEGIC REPORT Sustainability policy Health and safety EMIS Group is committed to maintaining high standards of health and safety. New starters receive health and safety training during their induction period and refresher training is provided to all employees every 18 months. Two RIDDOR accidents were reported during the year (2018: one RIDDOR accident). Travel The Group offers the cycle to work scheme and hybrid company fleet vehicles, to encourage its employees to make more fuel-efficient and environmentally friendly choices. The number of fleet vehicles has reduced over the year and 52% of new orders are for hybrid vehicles. Environmental management EMIS Group has completed an Energy Savings Opportunity Scheme (ESOS) (Phase 2) Assessment and notified the Environment Agency of compliance. From January 2020 EMIS Group will be compiling energy data to comply with the Streamlined Energy Carbon Report regulation and will disclose data on energy consumption in the 2020 annual report and accounts. Waste There has been an overall increase of 5% in total electrical waste handled in 2019 (25 tonnes). This increase is due to a programme for one of the Group’s customers to dispose of printers and monitors. Electrical waste figures incorporate both EMIS Group and customer waste. Utilities EMIS Group continues to implement energy efficient technologies during redevelopment work on its buildings and also within the data centres to assist in energy reduction. In 2020 the Group will consider other projects that will help to reduce its impact on the environment. The strategic report on pages 2 to 41 is signed on behalf of the Board. Andy Thorburn Chief Executive Officer 17 March 2020 CASE STUDY CASE STUDY Returners’ programme: Lauren Making a difference “When I returned from maternity leave, I expected to pick up where I left off but I didn’t feel the same. Being away for six months made me doubt myself. I joined the pilot of the returners’ programme and it really helped me build my confidence again and understand my value to the organisation. I realised I was struggling with imposter syndrome.” Lauren Latham is the Head of Product Management for the Acute division. “I joined EMIS Group to make a difference, with a vision to improve healthcare by creating excellent products and inspiring others to do the same. I’m back to feeling fulfilled in my career, delivering my goal to help the NHS with exceptional technology.” Apprentice scheme: Subah Beginning a new career in software development “When I finished school, I didn’t know what I wanted to do and ended up doing all kinds of jobs. At that stage I just wanted to earn money. But as I’ve got older, I’ve wanted to get into a career that I’m really passionate about.” Subah Khan joined EMIS Health’s apprenticeship programme to begin a new career as a developer at age 36, with no prior experience of healthcare or technology. Subah found the apprenticeship scheme was a perfect way to retrain but remain financially stable for his family. “EMIS Health has given me a life-changing opportunity to begin a new career.” Annual report and accounts 2019 41 EMIS Group plc Board of Directors MIKE O’LEARY Non-executive Chair APPOINTED March 2011 BOARD COMMITTEES R N SKILLS AND EXPERIENCE Over 30 years’ main board experience with AIM, FTSE 250 and FTSE 100 companies Experience of running global operations in varied business environments with focus on the technology sector In-depth knowledge and understanding of UK and international healthcare sectors EXTERNAL APPOINTMENTS CURRENT Non-executive director, Epwin Group plc Non-executive chairman, dotdigital Group plc ANDY THORBURN Chief Executive Officer APPOINTED May 2017 BOARD COMMITTEES None PREVIOUS Main board director and joint chief operating officer of Misys plc, chief executive of Healthcare and Insurance divisions of Misys plc, chair of ACT Medisys, chief executive of Huon Corporation, chief executive of Marlborough Stirling plc, chair of Digital Healthcare Ltd, non-executive director and chair of remuneration committee of Headlam Group plc, non-executive director and chair of remuneration committee at Psion Group plc, non-executive director and chair of remuneration committee at Stroud & Swindon Building Society, non-executive director and senior independent director at Helphire Group and chief executive officer of West Bromwich Albion Group PLC SKILLS AND EXPERIENCE Over 19 years’ experience in the software industry in the UK and internationally Ability to drive significant growth in revenues and profitability for companies through organic growth as well as mergers and acquisitions Track record in creating value in software and communications industries 30 years’ experience in senior management and executive positions EXTERNAL APPOINTMENTS CURRENT None PREVIOUS Group chief operating officer of Digicel Group, chief executive officer of Digicel Caribbean and Central America, chief executive officer of Digicel Jamaica, chief executive officer/president roles at Intec Telecom Systems plc, Chronicle Solutions Ltd and a number of Benchmark Capital Portfolio companies (including Kalido Inc. and Orchestria Ltd) and a managing director within BT Group 42 EMIS Group plc Annual report and accounts 2019 PATRICK DE SMEDT Independent Non-executive Director and Chair designate APPOINTED January 2020 BOARD COMMITTEES A R N SKILLS AND EXPERIENCE International business experience including a diverse portfolio of main board-level appointments in public and private equity-backed companies varying in size up to multi-billion pound turnover Entire executive career spent in the software sector, primarily with Microsoft, across a range of largely general management roles throughout Europe Experience in manufacturing, construction, recruitment and financial services sectors Expertise in driving innovation and growth, bringing focus to customer centricity and development of successful go-to-market strategies PETER SOUTHBY Chief Financial Officer APPOINTED October 2012 BOARD COMMITTEES None SKILLS AND EXPERIENCE Over 25 years’ experience in finance, mainly in a public company environment, with over half of this at board level Proven ability in corporate transactions, including fundraising, acquisitions and disposals Detailed knowledge of strategy across multiple industry sectors, with a focus on support services Institute of Chartered Accountants in England and Wales (Fellow) EXTERNAL APPOINTMENTS CURRENT Senior independent director, PageGroup plc Non-executive Director, Kodak Alaris Holdings Ltd Non-executive director and chair, Divitias Holdco Limited PREVIOUS Chair of Microsoft Europe, Middle East and Africa, vice president of Microsoft Western Europe, general manager (founder) of Microsoft Benelux, non-executive director and chair of the remuneration committee of Victrex plc, senior independent director and chair of the remuneration committee of Morgan Sindall Group plc, senior independent director and chair of the remuneration committee of Anite plc and non-executive interim chair of KCOM Group plc EXTERNAL APPOINTMENTS CURRENT None PREVIOUS Finance director at ENER-G plc and Augean plc, senior financial positions at White Young Green plc and Leeds United plc and trained with Arthur Andersen as audit manager GOVERNANCE ANDY MCKEON CBE Senior Independent Non-executive Director1 APPOINTED September 20152 BOARD COMMITTEES A R N SKILLS AND EXPERIENCE Deep knowledge of the NHS and extensive experience in shaping health policy Extensive knowledge of European and American healthcare Advocate for change that benefits patients Broadly based NED experience across the private and public sectors Over 20 years’ senior and board-level management experience in major organisations EXTERNAL APPOINTMENTS CURRENT Chair, The Nuffield Trust PREVIOUS Interim chief executive of The Nuffield Trust, managing director of health at the Audit Commission, departmental board member at the Department of Health (director general responsible for policy and planning), head of primary care at the Department of Health, deputy chief executive at the Barts and London NHS Trust, adjunct professor of the Institute of Global Health Innovation, Imperial College London and vice-chair at the National Institute for Health and Care Excellence (NICE) 1 Became Senior Independent Director on 8 May 2019. 2 Having previously served on the Board between February 2013 and April 2015. KEVIN BOYD Independent Non-executive Director APPOINTED May 2014 BOARD COMMITTEES 3 A R N SKILLS AND EXPERIENCE Considerable senior management and listed company experience Real-time financial experience and software systems knowledge EXTERNAL APPOINTMENTS CURRENT Group chief financial officer, Spirax-Sarco Engineering plc Member of the 100 Group Experience of running complex business and corporate transactions Institute of Chartered Accountants in England and Wales (Fellow) Institution of Engineering and Technology (Fellow) PREVIOUS Group finance director at Oxford Instruments plc and Radstone Technology plc, finance director at Siroyan Ltd and held senior financial positions at TI Group plc BOARD OF DIRECTORS KEY Executive Non-executive COMMITTEE MEMBERSHIP A Audit committee N Nomination committee R Remuneration committee Chair of committee SUMMARY OF SKILLS BROUGHT TO EMIS GROUP Technology/software experience: Healthcare experience: Financial experience: Previous PLC board experience: Driving growth and innovation: JEN BYRNE Independent and designated Non-executive Director APPOINTED May 2019 BOARD COMMITTEES A R N SKILLS AND EXPERIENCE Extensive commercial experience in the global software sector Strong track record in using technical insight to deliver challenging and technically complex engineering programmes In-depth knowledge of finance and engineering A strategic thinker with experience of companies in a growth phase Strong leadership skills EXTERNAL APPOINTMENTS CURRENT Chief operating officer, G-Research Non-executive director, RUAG Holding AG PREVIOUS 15 years at the Lockheed Martin Corporation. Latterly as vice president, Space and Missiles Systems 3 Became Chair of the audit committee on 8 May 2019. Annual report and accounts 2019 43 EMIS Group plc Chair’s introduction to governance High standard of corporate governance DEAR SHAREHOLDER On behalf of the Board I am pleased to present the EMIS Group plc governance report for the year ended 31 December 2019. As Chair, I am responsible for ensuring that the Board operates effectively and that it continues to uphold a high standard of corporate governance. The Board understands the importance of ensuring that there is a strong governance framework in place which underpins the Group’s ability to achieve its strategic goals. Governance arrangements are reviewed on an ongoing basis to ensure that they remain fit for purpose. As the Group operates within the healthcare sector, it is particularly important the focus remains on the safety and security of the Group’s products as well as balancing the interests of all our stakeholders. As a business quoted on AIM we decided to apply the Code voluntarily as best practice. This governance section of the annual report including the corporate governance statement, the audit committee report, the nomination committee report and the Directors’ remuneration report describes how the Group has applied the main principles contained within the Code. Our statement of compliance, required for AIM companies, can also be found on our website at www.emisgroupplc.com/ investors/corporate-governance. Compliance with the Code The Group remains committed to high standards of corporate governance. During the year the Group has complied fully with the Code with the exception of a small number of provisions. In particular, these provisions relate to remuneration matters covering post-employment shareholding policy and pension rates for Executive Directors. Areas of non-compliance are explained in more detail on page 45 and will be considered further in 2020 by the remuneration committee. S.172 Statement UK Companies Act 2006 The Board recognises its responsibility to take into consideration the needs and concerns of all our stakeholders as part of our discussion and decision-making process. We strive to care for our colleagues, help our customers deliver a better experience for patients and healthcare professionals, and support our wider communities. More details on how we engage with our stakeholders can be found in the strategic report on pages 2 to 41 and the corporate governance statement on pages 45 to 50. Mike O’Leary Chair 17 March 2020 Mike O’Leary Chair 44 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Corporate governance statement Introduction This statement explains the key features of the Group’s governance structure and how it complies with the Code. The Code is published by the Financial Reporting Council (FRC) and is available at www.frc.org.uk. Compliance with the Code The Group is committed to achieving and maintaining the highest standards of corporate governance. During 2019, the Group was compliant with the Code except for: • Provision 36 – the Group did not comply with the requirement to develop a formal policy for post-employment shareholding requirements. The remuneration committee considers that market practice in this area is still developing and will make any necessary changes when it becomes clearer. The long-term incentive plan (LTIP) leaver provisions already provide some requirement for post-employment shareholding by Executive Directors. • Provision 38 – the Group did not comply with the requirement that pension contribution rates for Executive Directors, or payments in lieu of pension, are aligned with those available to the workforce. Employer pension contributions for EMIS Group staff range from 5% to 10% of base salary (dependent on seniority) and are set at 15% for Executive Directors. The remuneration committee recognises the importance of aligning pension contributions for Executive Directors with those of the wider workforce and it will be reviewing the pension contribution arrangements for all staff in 2020. In light of that review the remuneration committee will make a decision on the process for aligning contribution rates for existing Executive Directors with staff generally. Pension contributions for any new Executive Directors will be aligned with those for other senior staff. Details and explanations of the application of the principles of corporate governance are set out in the following sections of this corporate governance statement. BOARD LEADERSHIP AND COMPANY PURPOSE Role of the Board The Board’s principal role is to provide effective leadership of the Group and establish and align the Group’s purpose, strategy, values and culture. 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 on its activities on pages 51 to 55. The Board has a schedule of matters reserved to it including, but not limited to: 2019 membership and Board attendance The attendance record for Board members during the year ended 31 December 2019 is set out below. The Board met nine times in 2019. Additional ad hoc meetings are held at short notice, as appropriate. There were no ad hoc meetings held in 2019. Number of meetings attended Executive Directors Andy Thorburn Peter Southby Non-executive Directors • strategy and long-term objectives; Mike O’Leary (Chair) Kevin Boyd Andy McKeon Jen Byrne1 David Sides2 Robin Taylor3 1 Jen Byrne was appointed to the Board on 8 May 2019. 2 David Sides resigned from the Board on 22 August 2019. 3 Robin Taylor retired from the Board after the AGM on 8 May 2019. • financial statements, dividend payments and accounting policies and practices; • approval of the Group budget; • measuring performance using 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; • approval of policies adopted by the Group; and • Board structure and the appointment of advisers. The business model on pages 10 and 11 explains the basis on which the Group generates and preserves value over the longer term. The strategy of the Group and its achievements in 2019 are outlined on pages 16 to 18. The Board recognises the importance of establishing the right culture and communicating this message throughout the organisation. It is important that it provides strong and effective leadership and constructive challenge and, along with the GXT, the Board accepts collective accountability for the long-term sustainable success of the Group. In so doing, the Board will continue to drive and deliver its strategy in the best interests of all the Group’s stakeholders. Annual report and accounts 2019 45 EMIS Group plc Corporate governance statement continued BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED Board operation The Board meets as often as necessary to discharge its duties. The number of Board meetings held during 2019, together with the Directors’ attendance records, is set out on page 45. Details on the number of committee meetings held during the year together with the Directors’ attendance records can be found in the committee reports on pages 51, 56 and 60. 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 employees and develop a better understanding of the Group’s operations and culture within the Group. The Directors have access to the advice and services of the Company Secretary, Christine Benson, who is responsible for ensuring that the Board and its committees’ procedures and applicable rules and regulations are met. The Directors all have access to the Group’s key advisers. If required in the performance of their duties, Directors may take independent professional advice at the Company’s expense. Appropriate insurance cover is in place in respect of legal action against the Directors. The Group has adopted and maintained a share dealing code for Directors and employees in accordance with the Market Abuse Regulations. Board and committee papers are circulated one week in advance of meetings to enable the Board to review and consider the materials provided. The Chair 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 Chair, Executive Directors and Non-executive Directors between Board meetings. A topical Board calendar is prepared on an annual basis with GXT members regularly invited to attend to present an update on their areas of the business. This is highly valuable 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 potential corporate activity, supported by detailed Board papers circulated in advance analysing 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: • strategy; • financial results and KPIs; • sales pipeline and forecasts; • management accounts and commentary; • reports from the Chief Executive Officer on operational matters and the Chief Financial Officer on financial matters; • regular presentations from members of the GXT; • mergers and acquisitions; • progress reports on major projects; • analysts’ forecasts; • Board committee updates; • investor relations engagement; • legal, governance and regulatory matters; and • implementation of actions agreed at previous meetings. KEY TOPICS CONSIDERED BY THE BOARD IN 2019 • acquisition opportunities; • appointment of Jen Byrne and Patrick De Smedt; • banking facilities; • internal reorganisation; • employee engagement and culture; • presentations on Patient marketplace, product roadmap, information security, business continuity and disaster recovery; • review, debate and challenge of the corporate strategy 42+ 46 EMIS Group plc Annual report and accounts 2019 TENURE (BOARD) and plan; 0–3 years: 3 4–6 years: 2 7+ years: 2 • risk management and internal controls; • 2020 Group budget; • Group operating model; • disposal of the Specialist & Care business; • financial results announcements, presentations, report and accounts and market updates (annual and half year); • investor engagement; • the Group’s viability statement and capital allocation policy, including dividends; • Group segmental reporting; • Board evaluation and discussion of the recommendations and review of the Chair’s performance; • management information and KPIs; • half yearly update on environmental/health and safety matters; and • operational efficiency, including service level reporting. GOVERNANCE29 + 29 + C Stakeholder engagement The Board recognises its responsibility to take into consideration the needs and concerns of the Group’s stakeholders as it discusses matters and makes decisions. Relations with shareholders Communication between the Group and its shareholders is an essential element of a sound governance framework. The Chief Executive Officer and Chief Financial Officer are the main day-to-day point of engagement with shareholders and prospective investors. During the year, formal programmes of meetings with analysts and institutional shareholders took place immediately after the results announcements, supplemented by ad hoc meetings and calls at other times. Feedback from these meetings, and regular market updates prepared by the Group’s broker, are presented to the Board to ensure the Directors have a good understanding of shareholders’ views. The Chair and the Senior Independent 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 Chair of the remuneration committee consulted with a number of shareholders in 2019 to seek views on the 2019 LTIP awards. The Chair of the Board also consulted with a number of shareholders in 2019 to seek views on strategy and remuneration matters. The Group 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. The AGM will be held at 10.30am on Wednesday 6 May 2020 at the offices of Pinsent Masons LLP, 1 Park Row, Leeds LS1 5AB. All shareholders will have the opportunity to attend and vote, in person or by proxy, at the AGM. The notice of the AGM is available on the Group’s website and sets out the business of the meeting and an explanatory note. In line with good governance, voting on all resolutions at this year’s AGM will be conducted by way of a poll. Workforce engagement In line with the Code, the Board decided to appoint a designated Non-executive Director in 2019 to better understand the views of employees. Jen Byrne was appointed designated Non-executive Director during the year and meets with groups of employees around the business on a regular basis. The feedback from these meetings is discussed with the Board on a six-monthly basis. Further information on workforce engagement can be found in the people section on pages 38 to 40 and the stakeholder engagement section on pages 12 and 13. More detail on how the Group has engaged with its various different stakeholders during the year can be found on pages 12 and 13. Whistleblowing A whistleblowing policy is in place where employees can raise concerns to an independent organisation on a confidential basis. Reports on the use of the service, any significant concerns that have been received, details of investigations carried out and any actions arising as a result are reported to the audit committee on a regular basis. 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 subsequently, 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 be permitted to remain present in any meeting or discussion concerning that conflict, and all material in relation to that matter will be restricted, including Board papers and minutes. DIVISION OF RESPONSIBILITIES Board structure Robin Taylor retired at the AGM on 8 May 2019 having served nine years on the Board. Andy McKeon took on the role of Senior Independent Director and Kevin Boyd took on the role of Chair of the audit committee. Jen Byrne was appointed as a Non-executive Director to the Board at the close of the AGM on 8 May 2019. David Sides resigned from the Board on 22 August 2019 and Patrick De Smedt was appointed to the Board as Non-executive Director and Chair designate on 1 January 2020. Mike O’Leary will retire from the Board at the AGM on 6 May 2020 as he will have completed nine years’ service. A recruitment process is underway to appoint an additional Non-executive Director. Biographies of each Director are provided on pages 42 and 43. Their respective Board and committee responsibilities are outlined below and in the committee reports. Appointments to the Board are led by the nomination committee. Further information on succession planning can be found in the nomination committee’s report on pages 56 and 57. 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, and which are reviewed annually. The Chair 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 Chair; however, they are not permitted to vote in respect of committee business. Details are provided in the respective committee reports. 14+ Male: 86% Female: 14% C BOARD GENDER Annual report and accounts 2019 47 EMIS Group plc 86 + Corporate governance statement continued DIVISION OF RESPONSIBILITIES CONTINUED Chair The roles of the Chair 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 for running the business. The key responsibilities of the Chair, the Chief Executive Officer and Non-executive Directors are set out below: Mike O’Leary, as Chair, is responsible for the leadership and effectiveness of the Board. The Chair’s responsibilities include: • chairing the Board, the nomination committee and shareholder meetings (including the AGM); • providing leadership of the Board and ensuring the effectiveness of all aspects of the Board’s role; • providing challenge to the Executive Directors and working closely with the Chief Executive Officer on key strategic decisions; Senior Independent Director The Senior Independent Director, Andy McKeon, acts as a sounding board for the other Directors and conducts the Chair’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 Chair or the Chief Executive Officer. 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 leading and participating in 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. 15+ BOARD – EXECUTIVE/ NON-EXECUTIVE MEMBERSHIP Chair – Non-executive: 1 Executive Directors: 2 Non-executive Directors: 4 Independence Mike O’Leary, Patrick De Smedt, Kevin Boyd, Andy McKeon and Jen Byrne 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 Chair and Non-executive Directors meet at least annually without the Executive Directors present. Appointments of Non-executive Directors are for specific terms (initially for three years) and are subject to statutory provisions relating to the removal of a Director. Time commitments The amount of time that Non-executive Directors are expected to commit to discharge their duties is agreed on an individual basis at the time of appointment and reviewed periodically thereafter. The time commitment agreed 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 circa two days per month for a Non-executive Director and four days per month for the Chair. As part of the Chair’s annual review of Directors’ performance it was confirmed that each of the Non-executive Directors continues to allocate sufficient time to discharge responsibilities effectively and did so throughout the year. • maintaining a dialogue with major shareholders on governance and other strategic matters, as appropriate; • setting the Board agenda and ensuring 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 • undertaking the annual evaluation of the Board and the Directors and building 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 could impact his ability to perform his duties for the Group. Chief Executive Officer The Chief Executive Officer, Andy Thorburn, is responsible for the implementation of the approved strategic and financial objectives of the Group. To assist in this, the Chief Executive Officer leads the GXT, which consists of the Chief Financial Officer, the Group Chief Operating Officer, the Chief Executive Officer of EMIS Health, the Chief Executive Officer of Dovetail, the Chief Executive Officer of Patient, the Group HR Director, the Chief Medical Officer, the Group Chief Technology Officer and the Group Business Development Director. The GXT has a weekly call and meets in person on a regular basis with a focus on cross-group integration and operational performance. The Chief Executive Officer’s responsibilities include: • the day-to-day running of the business, accountable to the Board for the Group’s financial and operational performance; • developing and reviewing the Group strategy; • with the Chief Financial Officer, maintaining close contact with government, shareholders and major customers; • with the Chief Financial Officer, approving the divisional budgets; • chairing the GXT to direct and co-ordinate the management of the Group’s business generally; • monitoring the performance of senior managers; and • monitoring the Group’s principal risks. 48 EMIS Group plc Annual report and accounts 2019 GOVERNANCE30 + 55 + C COMPOSITION, SUCCESSION AND EVALUATION Nomination committee and diversity The nomination committee is responsible for leading the Board appointments process and for considering the size, structure and composition of the Board. Full details of the work of the committee are set out in the nomination committee report on pages 56 and 57. 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 Chair, four independent Non-executive Directors and two Executive Directors who collectively possess an appropriate balance of expertise appropriate to lead the Group’s business. The Non-executive Directors have a broad range of UK and international business knowledge and experience, as well as specific skills in the NHS, healthcare, digital technology, finance, corporate transactions and risk management. A skills matrix is included in the Directors’ biographies on page 43. The Executive Directors do not hold any external directorships. Annual re-election of Directors Directors are subject to election or re-election by shareholders at each AGM. The nomination committee considers that all the Directors continue to be effective and demonstrate an appropriate commitment to their roles. Board and committee effectiveness The Board has extensive operational experience and many years of detailed knowledge of the healthcare sector, both in the UK and overseas. The Board also benefits from significant financial, transactional, risk management and public company expertise. As Senior Independent Director, Andy McKeon reviewed the performance of the Chair 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. Mike will retire at the 2020 AGM as he has completed nine years’ service. Patrick De Smedt will take the role of Chair at the close of the 2020 AGM. Directors are actively encouraged to contribute to Board discussions on all matters of significance to the strategy and development of the business. The Board will consider carrying out an external Board evaluation in 2020 in line with good governance practice. Appointment and induction The process for the appointment of new Directors is rigorous and transparent. All new Directors undergo a comprehensive induction and development programme which is designed to help Directors make an early contribution to the Board. Further information on appointments and induction is contained in the report of the nomination committee on pages 56 and 57. AUDIT, RISK AND INTERNAL CONTROL Audit committee composition The committee is responsible for overseeing the Group’s external financial reporting and associated announcements, considering risk management, internal controls procedures and the work of the external and internal auditors. Full details of the work of the committee are set out in the audit committee report are set out on pages 51 to 55. Accountability There are formal and transparent arrangements for considering how corporate reporting, risk management and internal control principles are applied. During the year, the Chair undertook an overall effectiveness review, including the performance of the Board and each Director. The Group has a range of governance-related policies and procedures in place. Full details are set out on page 50. The Chair met individually with each Board member during the year. A framework for those meetings was provided 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. When considering Board appointments, a wide variety of factors is taken into account, including the balance of skills, experience, independence, knowledge of the Group and diversity, including gender. The 2019 Board evaluation concluded that the Board meets its regulatory requirements and that appropriate processes are in place for setting the strategic direction of the Group. Board discussions are open and constructive, and members are encouraged to express their views in an independent fashion. A tailored questionnaire was circulated for completion by members and regular attendees of each principal committee, covering all aspects of good governance. Directors were required to assess their satisfaction with the operation of the Board and its committees, as well as effectiveness of these bodies in fulfilling the key responsibilities set out in their respective terms of reference. The responses were collated and discussed. Each committee concluded that it continued to be effective and all members are considered to have made valuable contributions. Further details of the effectiveness of each committee are outlined in their individual reports. Internal control The Board is accountable to its shareholders and seeks to balance its interests with those of a broader range of stakeholders, which includes employees, 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 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 Group’s external auditor and the Head of Group Internal Audit, and they monitor the progress of remedial actions. Annual report and accounts 2019 49 EMIS Group plc Corporate governance statement continued AUDIT, RISK AND INTERNAL CONTROL CONTINUED Internal control continued The key components of the Group’s overall control frameworks, all of which were in place, or established, throughout 2019 and up to the date of approval of this report, are set out below: The Board reviews business performance when it meets. Summary financial information, including actual performance versus budget and expected future performance, is provided to all Board members as part of the Board papers. The monthly reporting cycle includes a twelve-month rolling forecast. • delegated limits of authority in place; • an appropriate finance function for each business unit in the Group with suitably qualified and experienced professionals; • a comprehensive weekly and monthly financial and operational performance reporting system which covers, amongst other things, operating results, cash flow, balance sheet information, forecasts and comparisons against budgets; • letters of representation issued to all senior management and senior Group finance officers in respect of key risks, internal controls, business relationships and financial controls for the financial year under review; Policies, procedures and authorisation limits The programme to define, create and embed Group-wide policies in key areas continued throughout 2019. Policies and documented procedures in place include: • Group finance manual; • Group expenses policy; • Group treasury policy; • Group anti-tax evasion policy; • delegated authority limits; • a risk management committee meets on a monthly basis to review and monitor risk and mitigating controls across the Group; and • Group anti-bribery and corruption policy; • Group human resource and staff welfare policies; • regular updates to the Board from management on property, • Group health, safety and environmental policies; insurance, litigation, human resources, corporate social responsibility and health and safety matters. 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. In 2020, the Group is planning to introduce a control and risk self-assessment questionnaire covering a wide range of risks. Management will be expected to provide signed confirmation that internal controls are in place and operating effectively for these key risk areas. 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. The Group’s businesses hold eight ISO certifications against the following five standards: ISO 27001: Information Security, ISO 9001: Quality, ISO 20000: Service Management, ISO 14001: Environmental and, most recently, ISO 22301: Business Continuity. A single management system covers all five standards and five of the eight certifications. Throughout 2019, the Group continued to consolidate and update its ISO certifications, merging EMIS Health Primary Care and Egton’s ISO 20000 certifications. The Group also achieved certification for ISO 22301 for head office and data centre operations, providing further assurance that operational activities and processes that support key products will continue seamlessly in the event of a major incident. In 2020, the Group plans to continue to consolidate and update the ISO certifications, including bringing Dovetail and Patient under the scope of the EMIS Group 27001 certification, merging the EMIS Health India ISO 9001 certification into the EMIS Group ISO 9001 certification and adding the Bolton office into the scope of the EMIS Group ISO 20000 certificate. Financial planning and monitoring EMIS Group sets annual budgets, which are subject to Board approval, and also prepares longer-term five-year projections. • Group code of ethics and standards of business conduct; • Group contract management process; and • Group whistleblowing policy. The Group whistleblowing procedures include a confidential reporting hotline operated by an external, independent whistleblowing service provider. The policy and the reporting hotline continue to be internally promoted and all employees were required to acknowledge that they have read and understood the policy and procedures in place during the year. Employees were also required to formally acknowledge that they have read and understood the anti-bribery and corruption policy and the code of ethics and standards of business conduct policy. Risk management The approach to risk management, risk appetite and the principal risks themselves are set out on pages 24 to 29. Internal audit The Group has an established risk-based internal audit function. The Head of Group Internal Audit leads a team of two internal auditors and managing the co-sourcing agreement with Deloitte which provides specialist knowledge and expertise in areas such as cyber security, data privacy, clinical safety governance and culture. The Head of Group Internal Audit reports administratively to the Chief Financial Officer, but operates independently and has direct and unfettered access to the Chair of the audit committee. These reporting lines are kept under constant 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 pages 51 to 55. REMUNERATION Remuneration is addressed separately in the report of the remuneration committee and the Directors’ remuneration report on pages 58 to 67. Christine Benson Company Secretary 17 March 2020 50 EMIS Group plc Annual report and accounts 2019 GOVERNANCE DIRECTORS’ REPORT Report of the audit committee Oversight of the financial reporting process DEAR SHAREHOLDER I am pleased to present the report of the audit committee for the financial year ended 31 December 2019. The audit committee provided oversight of the financial reporting process in order to ensure that the information provided to the shareholders is fair, balanced and understandable and allows accurate assessment of the Company’s position, performance, business model and strategy. During the year the committee also continued to oversee the risk management and internal control systems and was satisfied that the controls over the accuracy and consistency of information presented are robust. Kevin Boyd Chair of the audit committee 2019 MEMBERSHIP AND ATTENDANCE Number of meetings attended Robin Taylor1 (Chair) Kevin Boyd2 (Chair) Andy McKeon Jen Byrne3 David Sides4 1 Robin Taylor retired from the committee on 8 May 2019. 2 Kevin Boyd was appointed Chair of the committee on 8 May 2019. 3 Jen Byrne was appointed to the committee on 8 May 2019. KEY RESPONSIBILITIES The committee reviews its terms of reference on an annual basis. These describe the committee’s responsibilities in detail and they are available on the Group’s website. The committee assists the Board in meeting its responsibilities relating to financial reporting and internal control and risk management. It provides oversight and ensures that formal and transparent arrangements are in place in the following areas: • financial reporting, which includes responsibility for reviewing the year-end and half year financial reports; • oversight of the external audit process and management of the relationship with the Group’s external auditor; 4 David Sides resigned from the committee on 22 August 2019. • risk management and related controls and compliance; • Other regular attendees are the Chair of the Board, Chief Executive Officer, Chief Financial Officer, Group Financial Controller, Group Finance Directors, Head of Group Internal Audit, representatives from the external auditor, KPMG and the Company Secretary. • The committee meets at least four times a year; it met four times in 2019. • All committee members were considered independent upon their appointment. • Kevin Boyd is considered to have recent and relevant financial experience. • The committee as a whole has significant experience relevant to the industry sector the Group operates in. • internal audit, including monitoring of the Group’s internal audit function, its processes and findings; and • provision of whistleblowing facilities and prevention of bribery and other types of fraud and corruption. The committee acknowledges and embraces its role in protecting the interests of shareholders. It also considers the interests of other stakeholders and it is committed to monitoring the integrity of the Group’s reporting. EMIS Group plc Annual report and accounts 2019 51 Report of the audit committee continued FINANCIAL REPORTING • Reviewed the full year results including the annual report and accounts, the preliminary results statement and the report from the external auditor. Key activities in 2019 • Reviewed the half year results statement. • Assisted the Board in ensuring that the annual report is fair, balanced and understandable. • Reviewed the going concern assumption when considering the half year and final results statement and long-term viability. • Assessed and considered the potential impact on the business of the UK leaving the European Union in 2020. • Considered the appropriateness of accounting policies, critical accounting judgements and key sources of estimation of uncertainty. • Reviewed the application and impact of new accounting standard IFRS 16. Further details are set out on pages 82 and 83. EXTERNAL AUDIT • Reviewed and approved the 2019 audit plan and strategy including fees. • Assessed the effectiveness of the external audit process. • Agreed appropriateness of remuneration in respect of audit and non-audit services. INTERNAL AUDIT • Reviewed the key findings from internal audit reports conducted during 2019. • Monitored progress against the 2019 approved internal audit plan. • Reviewed and approved the scope and areas of focus for year two (2020) of the approved three-year internal audit plan (2019–2021). RISK AND INTERNAL CONTROL • Monitored and assessed the Group’s risk management process. • Confirmed the Group’s risk appetite. • Monitored developments in the Group’s risk management processes by reviewing minutes and action plans from operational risk management committee meetings and reviewing risk KPIs. • Assisted the Board in its assessment of the Group’s principal risks and its review of the effectiveness of risk management and internal control processes. • Reviewed detailed information security and business continuity reports and action plans from operational management. • Received progress reports from senior management in respect of key internal projects, including support improvements and cyber security. • Monitored and reviewed the effectiveness of the Group’s internal audit and finance functions. COMPLIANCE • Reviewed the Group’s whistleblowing arrangements, confirming that they are operating effectively. • Monitored anti-bribery and corruption training results. • Reviewed and approved the Group’s treasury policy. • Reviewed the committee’s terms of reference. 52 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Composition and governance Robin Taylor retired as Chair of the committee and as Non-executive Director of the Company on 8 May 2019 having served for nine years. Kevin Boyd was appointed as Chair of the committee and Jen Byrne and Patrick De Smedt were appointed as Non-executive Directors and members of the committee on 8 May 2019 and 1 January 2020 respectively. In line with the Code, Patrick De Smedt will only be a member of the committee up to his appointment as Board Chair on 6 May 2020. The Board evaluates committee membership on an annual basis. Biographical details of the Directors are set out on pages 42 and 43. Further information on the composition of the Board can be found on page 49. 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 and as a committee has competence in the sector within which the Company operates. All Board members attend each committee meeting. The committee meets with KPMG biannually without Executive management present, to discuss matters relating to its remit and any issues relating to the audit. I also meet with 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. Committee evaluation The audit committee undertakes an annual evaluation of its performance and effectiveness. For 2019 an internal questionnaire was used to evaluate the work of the committee. The review concluded that the committee had performed effectively and that the skills and experience of the members remained relevant. However, it was agreed that there would be more focus on personal development in 2020, given the increasing levels of complexity and governance compliance, and that appropriate training would be put in place. More focus will also be given to communication, with the committee having more contact with senior managers below the level of the GXT. Financial reporting During the year, the committee reviewed the full year results including the annual report and accounts, the 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. The committee also reviewed the half year results statement. We considered the appropriateness of accounting policies, critical accounting judgements and key sources of estimation uncertainty. To do this the committee reviewed 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 2019 financial statements. In preparing the 2019 financial statements, no judgements have been made in the process of applying the Group’s accounting policies, other than those involving estimations, that could have a material effect on the amounts recognised in the financial statements. These estimations are detailed below. Key sources of estimation uncertainty In applying the Group’s accounting policies, various estimates are made in arriving at the amounts recognised in the financial statements. The source of estimation uncertainty at 31 December 2019 that has a significant risk of resulting in a material change to the carrying value of assets and liabilities within the next year is with regard to the fair value of the financial liability representing the put option in place over the 10% of share capital of Dovetail Digital Limited not owned by the Group. The approach and accounting agreed in 2018 has been applied consistently in 2019 and is summarised below. The put option is exercisable in 2026 (provided the Group has not exercised the related call option between 2023 and 2025), on an exercise price based on a multiple of operating profit for the preceding year. The estimate of the put liability is therefore dependent on the future financial performance of Dovetail Digital Limited, specifically future revenues and costs. Judgement has been exercised in recognising a non-controlling interest, with the Group having applied the present-access method, on the basis that the non-controlling shareholders continue to have present access to the returns associated with their underlying ownership interests. The committee agrees with the estimates and judgements made, having discussed and reviewed the approach undertaken and methodology adopted both with management and with the auditor. The committee acknowledges that the estimate of the put option liability carries the most significant risk of material change in future reporting periods, dependent on the future financial performance of Dovetail Digital Limited. Another source of estimation uncertainty is with regard to capitalised development costs. The committee is updated at least twice a year on the carrying value of capitalised development expenditure, including detail on projects underway and projects completed, with the largest carrying values relating to the Group’s EMIS-X and ProScript Connect products. The committee is satisfied that an asset is only recognised when the criteria of IAS 38 are met, including the demonstration of technical feasibility, the existence of a market and the availability of resources to complete the project. Based on their knowledge of the products, and the markets in which EMIS Group operates, the committee is in agreement with the estimates of Useful Economic Life (UEL) over which capitalised development expenditure is amortised. The UEL is different for each unique product and reviewed every six months for appropriateness. Amortisation is accelerated if there is no longer a market for the product. Further details are set out in note 2 to the accounts. The committee reviewed papers from management on going concern assumptions when considering half year and final results statements and on long-term viability when considering the final results statement. This included an assessment of the possible impact of Brexit on the business, as set out in the viability statement on page 71. Internal financial projections and the results of stress testing the financial models were taken into account. Annual report and accounts 2019 53 EMIS Group plc Report of the audit committee continued 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 meets regularly with the external auditor, both with and without management present. 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, challenges and approves both the annual audit plan and output from the audit process as part of assessing the auditor’s expertise and performance. External auditor effectiveness review The auditor is considered to be effective in the performance of its duties. The committee uses an annual questionnaire-based approach to gather the opinions of Directors and senior management, with findings (and areas for improvement) shared with the auditor. The external auditor regularly provides information relevant to assuring us about its own independence, objectivity and compliance with regulatory and ethical standards. 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 all 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. A summary analysis of fees paid to KPMG for audit and non-audit services during the year ended 31 December 2019 appears in note 7 to the financial statements on page 91. Fees for non-audit services continue to be well within the 70% cap of the average audit fees for the preceding three-year period as required by EU audit legislation. Internal audit EMIS Group maintains an in-house internal audit function, co-sourced with an external audit services provider, which objectively reviews the Group’s internal control processes in accordance with the Audit Charter. The Charter was reviewed and approved by the committee in 2018 and it remained in place and relevant in 2019. The committee previously approved a three-year risk-based audit plan to run from 2019 through to 2021. The second year of this plan covering 2020 was reviewed, amended as required and approved during the year. Internal audit’s resources are kept under constant review, and the current combination of internal staff and a co-sourced internal audit agreement with Deloitte was felt to be appropriate and sufficient to obtain adequate assurance over the Group’s internal controls and key risks. The co-source arrangement ensures continued audit coverage of technical and specialist areas, such as clinical safety, culture, data privacy and cyber security. The original three-year internal audit plan for 2019 to 2021 was formulated utilising input from the Board and committee members, our external auditor, our internal audit co-source partner and using output from the risk management process. The plan remains flexible and includes time for ad hoc investigations and other high-risk assurance work as it arises and as agreed by the committee. The audit plan for 2020 includes key risk areas such as cyber security, business continuity planning, clinical safety and product management, along with a range of financial risk areas such as procurement, accounts payable, payroll, month-end reporting and accounts receivable at all locations across the Group including EMIS Health India. 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 and in 2019 the whole audit committee met with him without executive management being present. External auditor effectiveness review Qualification and expertise Independence and objectivity Planning and organisation Resources Non-audit services review Quality The committee considers that the external auditor has appropriate resources and expertise to conduct the audit. Non-audit services provided by KPMG were reviewed and are not considered to have affected the auditor’s independence. The committee considered there to be an effective audit planning process in place. The committee also considered the quality of external auditor reporting (including recommendations) to be appropriate. 54 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Auditor rotation timeline The Company is excluded from the provisions of the 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 and, as a result, the current partner, Fran Simpson, took over from the previous partner, John Pass, in 2018. Under the EU Audit Directive and Regulation, the Company is not required to put the external audit out to tender until 2023. 2013 KPMG appointed 2018 Partner rotation – Fran Simpson takes over from John Pass after five years 2019 Partner maternity cover – Hugh Harvie provides cover for Fran Simpson, who took maternity leave during the year 2023 Competitive tender unless specific circumstances require an earlier tender Risk management The committee is responsible for monitoring and developing the effectiveness of sound risk management and internal control systems on behalf of the Board. • following up on internal control reports and action plans from the Group’s external and internal auditors; • reviewing and approving its own terms of reference; The Group has a Board-approved risk management policy and operates a structured risk management process with oversight from the RMC, which meets monthly and includes the Chief Executive Officer and the Chief Financial Officer. The committee reviews minutes and action plans from the RMC meetings. I also attended an RMC meeting during the year to observe its operation first hand. During the year the committee continued to monitor the Group’s risk appetite, which remains unchanged. The committee reviewed the Group’s principal risks to ensure they are being adequately captured and reported to the Board and that the risk disclosures in the annual report are appropriate. The RMC is the recognised forum for identifying, assessing and reporting on any significant emerging risks facing the Group. Emerging risks are risks that are particularly uncertain and difficult to quantify but which have the potential to become more significant over time. They usually have longer expected timelines than principal risks, or other risks detailed in the risk registers. For full details of the risk management process, principal risks and risk appetite statements of the Group, see pages 24 to 29. Effectiveness of internal control arrangements On behalf of the Board the committee reviews the Group’s internal control arrangements, as set out in the corporate governance report, including operational, financial and compliance controls. This review comprises both examination of particular areas of interest and also regular status updates received from senior management and internal audit at each of the committee’s meetings. Areas that have been considered throughout the year, and subsequently, include the following: • suitability and effectiveness of core financial systems in place across the Group; • reviewing the Group’s IT-related internal control arrangements and any actions proposed to continue to strengthen this position; • receiving updates on business continuity plans in place across key areas of the Group; • reviewing the Group’s confidential reporting (whistleblowing) arrangements and any matters raised through this process; • receiving updates and monitoring progress on the status of issues raised in internal audit reports; and • assessing and validating management representations. The committee is satisfied that appropriate actions have been taken to remedy any significant weaknesses or failures identified as a result of these or other review processes and has reported such to the Board. The committee’s action plan for 2020 Looking ahead to 2020, the committee’s focus will remain on the key audit and assurance areas of the business, and on its oversight of financial and other regulatory requirements. The action plan for 2020 will focus on: • reviewing and making recommendations in relation to the statutory, preliminary and interim financial results; • overseeing key financial policies and practices; • assessing the effectiveness of the internal audit function and monitoring its annual plan; • reviewing corporate governance policy and procedure including the whistleblowing and anti-bribery and corruption policies and procedures; • undertaking a thorough review of the annual report and accounts and ensuring that the narrative messages are consistent and accurately reflect the financial statements and that the information as a whole is fair, balanced and understandable; and • assessing the appropriateness and effectiveness of the risk management process, including overseeing management letters of representation and control and risk self-assessment. Kevin Boyd Chair of the audit committee 17 March 2020 Annual report and accounts 2019 55 EMIS Group plc Report of the nomination committee A robust leadership model DEAR SHAREHOLDER I am pleased to present our report for the year ended 31 December 2019 which summarises our membership and activities during the year. Board composition and succession planning The committee continues its focus on Board composition and succession planning, including a review of the skills and experience needed to ensure a robust and sustainable leadership model for the Board, its committees and the wider management team. The committee plays a vital role in ensuring the effectiveness of the Board and its ability to deliver long-term success for the business, including having the appropriate balance of skills, experience and knowledge on the Board to both reflect the changing needs of the business and anticipate and prepare for the future. Mike O’Leary Chair of the nomination committee KEY RESPONSIBILITIES The committee’s responsibilities are set out in its terms of reference which are reviewed annually. The terms of reference can be found on the Group’s website at www.emisgroupplc.com. 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; • evaluation of the balance of skills, knowledge, experience and diversity of the Board to ensure the optimum mix; and • consideration of 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. 2019 MEMBERSHIP AND ATTENDANCE Number of meetings attended1 Mike O’Leary (Chair) Kevin Boyd Andy McKeon Jen Byrne2 Robin Taylor3 David Sides4 1 There were three scheduled committee meetings and one ad hoc meeting. 2 Jen Byrne was appointed to the Board on 8 May 2019. 3 Robin Taylor retired from the Board on 8 May 2019. 4 David Sides resigned from the Board on 22 August 2019. • Other regular attendees are the Chief Executive Officer, Chief Financial Officer and Company Secretary. • The committee meets at least twice a year; it met four times in 2019. • All committee members were considered independent upon their appointment. • The committee Chair provided a verbal update to the Board following each committee meeting. • Non-executive Directors are appointed by a letter of appointment and details of their terms and those of the Executive Directors are set out in the full remuneration policy on the website www.emisgroupplc.com/investors/corporate-governance. 56 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Key activities in 2019 SUCCESSION PLANNING • Review of succession plans for Executive Directors, GXT and critical positions. BOARD AND COMMITTEE COMPOSITION • Review of Board and committee composition and in particular the skills and experience required for new Non-executive Directors. • Recommended the appointment of Jen Byrne as a Non-executive Director and Patrick De Smedt as Non-executive Director and Chair designate. GOVERNANCE • Reviewed the committee’s terms of reference. • Reviewed the time commitment required for Non-executive Directors. • Carried out an internal committee evaluation. New Non-executive Director appointments In light of Robin Taylor’s retirement from the Board at the 2019 AGM and my impending retirement as noted in the 2018 annual report and accounts, Spencer Stuart was engaged to assist with the search for two additional Non-executive Directors. The committee prepared a description of the roles and the capabilities required for both positions. A detailed search and selection process then followed. A wide range of candidates was assessed against the agreed criteria for both roles, with a thorough process resulting in a shortlist of preferred candidates, which was given final consideration by the committee. The committee subsequently made recommendations to the Board, culminating with the appointment of Jen Byrne as Non-executive Director with effect from 8 May 2019 and Patrick De Smedt as Non-executive Director and Chair designate with effect from 1 January 2020, subject to approval by shareholders at the forthcoming AGM on 6 May 2020. Details of the experience and skills that both Jen Byrne and Patrick De Smedt bring to the Board can be found on pages 42 and 43. The committee reviewed the balance and skills of the Board when David Sides resigned in August 2019 but it was agreed that the role of Chair would be filled before a decision is made on the criteria for the recruitment of a further Non-executive Director. Diversity The committee recognises the importance of a diverse Board and is mindful of the issue of Board diversity in its succession plans. It 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 any one factor such as gender or ethnicity. The committee has considered the diversity of the Board during the year. In order to bring the widest range of perspectives to the Group, diversity should remain a key factor in determining appropriate nominations, which will help to promote creativity, innovation, debate, understanding and ultimately better overall decision making. Director induction process Following the appointment of any new Director, a full, formal and customised induction to the Group is delivered. On appointment, the Company Secretary provides information on the Group’s business, including: • Board and relevant committee minutes and Board papers from the last six months; • key policies, procedures and governance information about the Group, including the whistleblowing policy, anti-bribery and corruption policy, code of ethics and standards of business policy and share dealing code; • analysis of the Company’s key shareholders and share capital; • guidance for Directors on their legal and regulatory responsibilities in an AIM-quoted company; • guidance on corporate governance and Board effectiveness; and • relevant information in the healthcare arena. As part of the induction process the new Director will: • attend business briefings with the Chief Executive and the Chief Financial Officer; • attend meetings with other members of the GXT; and • visit all principal UK sites. Further to the appointments of Jen Byrne and Patrick De Smedt, full, formal and customised inductions were carried out. Board evaluation An evaluation of the committee’s own performance and terms of reference was carried out during the year. A questionnaire was sent to each Director on the performance of the committee and it was concluded that specific tasks were handled both appropriately and in a timely manner. It was agreed that the balance and skills of the Board would be further reviewed once my replacement had been appointed before making a decision on the criteria for the recruitment of a further Non-executive Director. Mike O’Leary Chair of the nomination committee 17 March 2020 EMIS Group plc Annual report and accounts 2019 57 Report of the remuneration committee Committed to best practice DEAR SHAREHOLDER On behalf of the Board I am pleased to present the Directors’ remuneration report for the year ended 31 December 2019. It includes my letter, a summary of our remuneration policy and the annual report on remuneration, which sets out the remuneration paid to Directors in 2019 including bonus payments and long-term incentives and also includes the detail on what we intend for remuneration in 2020 and beyond. The remuneration report will be presented at the AGM on 6 May 2020 by way of an advisory vote. Corporate performance EMIS Group reported a solid financial performance in 2019, delivering an increase in adjusted operating profit of 9% and a 14% increase in adjusted EPS. Overall, trading for the year was in line with the Board’s expectations with an increase in revenue growth compared with recent years. Revenue visibility, order book and pipeline remained strong with a continued high level of recurring revenue. The committee has taken overall Group performance into consideration when determining remuneration matters for 2019 and 2020. Remuneration for 2019 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 was marginally ahead of on-target levels and the remuneration committee therefore approved the payment of bonuses of 63% of salary to Andy Thorburn and Peter Southby. The Group remuneration policy allows a maximum bonus opportunity of 150% of salary but we have normally restricted this to 100% and in 2020 this will continue to be the case. In 2019 the Group granted LTIP awards to support and incentivise effective implementation of our published strategy. The structure, amounts and performance targets for these awards were included in the Directors’ remuneration report, which was approved by shareholders at the AGM in May 2019. Major shareholders were consulted about the proposals in advance of putting them forward for approval. The majority of those shareholders who responded to the consultation supported the awards. Shareholders approved the Directors’ remuneration report at the AGM with a majority of just over 80% of the votes cast. The committee decided in light of the voting that it should undertake a further round of consultation. Seven shareholders, together holding over 40% of the Company’s shares, were consulted, with face-to-face meetings held with nearly all. The meetings confirmed general support for the proposals. A few shareholders suggested use of a different mix of performance metrics to include return on capital employed (ROCE). The committee considered this but as EMIS Group is a software house in which capital employed is relatively low, it was not deemed appropriate to use ROCE as a measure in this set of awards. In light of the AGM vote and the further round of consultation, the awards were confirmed. The ordinary award will vest in three years’ time, subject to the achievement of performance conditions. The two exceptional awards, which will reward performance over four and five years respectively, have challenging targets and will only reward exceptional performance. Andy McKeon CBE Chair of the remuneration committee 58 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Between 2014 and 2018 EPS growth of circa 5% per annum was achieved. For the two exceptional awards to vest in full, growth would need to treble to 15% per annum over the full five years, excluding the accretive element of any acquisitions or buybacks. The exceptional awards also represent a fair distribution between shareholders and managers. If the share price moved in line with EPS growth the Group would double in value over the performance period, to £1.5bn. The two exceptional awards were granted to the Executive Directors and eight other members of the senior management team at a face value of £5.3m. The 2017 LTIP EPS performance conditions with a weighting of 80% of the award were not met. The total shareholder return (TSR) conditions with a weighting of 20% of the award were partly met, resulting in a 50.8% vesting of this element. Overall, therefore 10.2% of the total award will vest on the third anniversary of the April 2017 award and on 1 May 2020 for the awards made to Andy Thorburn on 1 May 2017 and 4 September 2017. Further details about the variable pay awards are set out in the Directors’ remuneration report on pages 63 to 67. Lastly, I can confirm that, having reviewed performance in the round, the committee did not make use of its discretionary powers in 2019. Implementation of policy for 2020 The annual salary review date has moved from 1 January to 1 April and a range of salary increases from 0 to 6% is planned for the wider workforce. Across the Company, at all levels, an enhanced benefits package has been provided including a 0.5% employer pension contribution increase for the majority below Executive level. Andy Thorburn and Peter Southby will be awarded salary increases of 3%. Bonus levels for both individuals have been set at 100% of base salary and pension arrangements are unchanged. An ordinary LTIP award of 150% of salary for Andy Thorburn and 100% for Peter Southby will be granted in 2020. The award will vest in three years’ time subject to the achievement of performance conditions. Targets and further details of the 2020 awards are set out on page 67. Mike O’Leary will retire in May 2020 on completion of a nine-year term as EMIS Group Chair. The Board is delighted to welcome Patrick De Smedt as Mike’s successor. Careful consideration was given to the fee level necessary to attract a new Chair of appropriate calibre, taking into account the Group’s approach to governance and its adoption of the Code and acknowledging that, whilst quoted on AIM, it operates in the spirit of a main market organisation. As such, the Board sought a Chair with significant main market experience. Patrick has previously been a chair and a senior independent director at organisations larger than EMIS Group. Patrick’s fee will be £160,000 per annum. This was set with reference to the lower quartile of fees paid to main market companies of a similar size to EMIS Group. Whilst this is higher than the fee paid to Mike O’Leary, we consider it to be in the best interests of the Company and shareholders and to be within the arrangements for recruitment set out in our remuneration policy. The 2018 Directors’ remuneration report included proposals for a two-stage increase to Non-executive Directors' fees. The first stage was implemented in 2019. The second stage was implemented on 1 January 2020. Details are on page 67. UK Corporate Governance Code The Company is quoted on AIM and adopts the Code. We remain committed to best practice in remuneration policy and have clearly defined terms of reference which are reviewed annually and listed on our website at www.emisgroupplc.com/investors. The committee reviewed its compliance with the Code. It concluded that the remuneration arrangements complied with the Code other than on two aspects. The committee is mindful of evolving best practice and will deliberate these areas further in the forthcoming year. Pensions Pension contributions for EMIS Group staff range from 5% to 7% of base salary for the majority of employees, 10% for the GXT and 15% for Executive Directors. The committee recognises the importance of aligning pension contributions for Executive Directors with those of our wider workforce. The pension contributions for staff have been increased in each of the last six years. We will be reviewing the level of contributions in 2020. In light of the review we will take a view on the process for aligning contributions for existing Executive Directors with staff generally. Pension contributions for any new Executive Directors will be no higher than those for other senior staff. Post-employment shareholding requirements. The committee considers that market practice in this area is still developing and will consider making any necessary changes when it becomes clearer. The LTIP leaver provisions already provide some requirement for post-employment shareholding by Executive Directors. Gender pay reporting Information on the GPG for 2018 was published in 2019 and showed a mean gap of 16.9% (a 3.3% reduction from the previous year) for EMIS Group, which was similar to the national average mean gap of 17.3%. After an analysis of the data, further improvement plans were implemented which included a returners’ programme which is aimed to support those returning from long-term leave through continuous development. A pilot phase for 2019 was implemented with a cohort of maternity returners. The returners’ programme is to be expanded in 2020 to all those returning from long-term absence. GPG data for 2019 has just been published showing a further drop of the mean gap from the previous year to 10.3%. Work is now underway to agree plans for the next year to reduce the GPG further. Committee effectiveness An annual effectiveness review was carried out and the outcome was discussed. It was concluded that the committee continued to operate effectively. Some detailed operational points will be addressed in 2020. On behalf of the committee I hope that you will support the resolution to be presented at the AGM in May 2020. Andy McKeon Chair of the remuneration committee 17 March 2020 Annual report and accounts 2019 59 EMIS Group plc Report of the remuneration committee continued 2019 MEMBERSHIP AND ATTENDANCE Number of meetings attended Andy McKeon (Chair) Mike O’Leary Kevin Boyd Jen Byrne1 Robin Taylor2 David Sides3 1 Jen Byrne was appointed to the committee on 8 May 2019. 2 Robin Taylor retired from the committee on 8 May 2019. 3 David Sides resigned from the committee on 22 August 2019. • Other attendees to committee meetings by invitation include the Chief Executive Officer, Chief Financial Officer, Group HR Director and Company Secretary. • Representatives from Mercer, our principal external adviser, attend on invitation. • The committee meets at least twice a year. It met four times in 2019. • All committee members were considered independent upon their appointment. KEY RESPONSIBILITIES The committee is responsible for: • oversight of overall remuneration policy issues for the Group, including gender pay reporting, the Chief Executive Officer pay ratio and adherence to legal obligations such as the National Minimum Wage; • determining the framework for remuneration of the Company’s Executive Directors, the Chair of the Board and other members of the senior management team; • determining the policy for pension and benefits arrangements for each Executive Director and other senior executives; • approving the design of, and determining targets for, any performance-related pay schemes operated by the Group and approving the total annual payments made under such schemes; • 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 • reviewing annually the terms of reference for the committee. DIRECTORS’ REMUNERATION EXECUTIVE REMUNERATION Key activities in 2019 • Evaluated Directors’ remuneration. • Reviewed the 2018 Directors’ remuneration report prior to its approval by the Board and subsequent approval by shareholders at the 2019 AGM. • Considered 2020 remuneration arrangements in light of changes to the Code. • Reviewed the GXT’s remuneration packages and wider remuneration across the Group with the aim of recognising best practice, aligning with shareholder objectives and encouraging behaviours to maintain the long-term success of the business. • Reviewed Group performance against the 2018 annual bonus plan targets and reviewed metrics to apply to the 2019 bonus plan. • Reviewed LTIP criteria and approved the 2019 awards after consultation with major shareholders. • Reviewed performance for LTIP awards granted in 2016. HUMAN RESOURCES AND POLICY • Reviewed the GPG analysis. • Considered the policies and incentives implemented across the Group in the last twelve months. GOVERNANCE 60 EMIS Group plc Annual report and accounts 2019 • Tendered for remuneration consulting services. • Considered compliance with the Code. • Reviewed the committee’s terms of reference. • Carried out an internal committee evaluation. GOVERNANCE Remuneration at a glance Directors’ remuneration policy and 2020 implementation This section provides a summary of the policy that has applied from 8 May 2019 and our proposed approach to remuneration in 2020. Full details of the policy can be found on our website. Our remuneration policy at a glance and our approach to implementing this in 2020 Element Summary of policy Summary of 2019 Implementation in 2020 Chief Executive Officer: £400,000 (0% increase) Chief Financial Officer: £264,915 (4.4% increase) Chief Executive Officer: £412,000 (3% increase) Chief Financial Officer: £272,862 (3% increase) Chief Executive Officer/Chief Financial Officer: 15% of salary No changes for 2020 Chief Executive Officer/Chief Financial Officer: are eligible to participate No changes for 2020 Base salary Pension SIP 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. Changes previously took effect from 1 January each year; however, from 2020 they will be effective from 1 April. The Group makes contributions to the private pension schemes or other appropriate arrangements for the Executive Directors. The committee has discretion to authorise cash payments in lieu of pension contribution. Such a payment would not count for bonus or LTIP purposes. Incumbent Executive Directors receive a contribution or cash payment in lieu of up to 15% of salary. Pension contributions for any new Executive Directors will be aligned with those for other senior staff. Open to all UK tax resident employees of participating Group companies with at least six months’ service needed 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 Group matches purchased shares with an award of matching shares which are subject to continued employment for three years. The Group currently offers to match purchases at the rate of one free matching share for every three shares purchased. From time to time, EMIS Group may offer all employees free share awards up to the HMRC approved limits. Dividends accrue on purchased shares and matching shares and are reinvested into additional shares. Benefits Benefits may include, but are not limited to, a 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. Chief Executive Officer/Chief Financial Officer: primarily consist of a car allowance plus private medical insurance, business travel and subsistence No changes for 2020 Annual bonus Maximum opportunity is up to 150% of base salary (target: 50% of maximum). No bonus is payable until target performance is achieved. Performance measures, targets and weightings are set by the committee at the start of the bonus period. 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. 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 for a period of one year after award. Chief Executive Officer/Chief Financial Officer: maximum opportunity of 100% of salary (target being 50% of salary) Payment in respect of 2019: 63% of salary. Details may be found on page 64 No changes for 2020 The performance targets are deemed commercially sensitive and will be published retrospectively in the annual report for 2020 Annual report and accounts 2019 61 EMIS Group plc Remuneration at a glance continued Directors’ remuneration policy and 2020 implementation continued Our remuneration policy at a glance and our approach to implementing this in 2020 continued Element Summary of policy Summary of 2019 Implementation in 2020 LTIP Chief Executive Officer: 150% of salary Chief Financial Officer: 100% of salary Awards will vest over three years subject to meeting the performance conditions (75% EPS growth and 25% relative TSR against the FTSE SmallCap) Ordinarily a single award of up to 200% of base salary vesting after three years subject to performance. In 2019 two additional exceptional awards were made with performance measured over a four and five-year period and subject to extremely stretching performance targets as disclosed in the 2019 annual report and accounts. These exceptional awards were subject to shareholder consultation before the 2019 AGM when they were approved as part of the Directors’ remuneration report and a round of confirmatory consultation followed after that. Prior to grant, the committee reviews the award levels and performance conditions to ensure they remain appropriate and sets performance targets which it considers to be appropriately stretching. Threshold performance over the period set will result in up to 25% of maximum vesting, rising to full vesting for stretching levels of performance. Following the end of the performance period, and the vesting of any awards, a “holding period” applies such that the full vesting plus holding period is five years. LTIP awards are subject to clawback for a period of up to two years following vesting. Chief Executive Officer: ordinary award of 150% of salary and two exceptional awards of 200% of salary (with performance periods of four and five years) Chief Financial Officer: ordinary award of 100% of salary, an exceptional award of 100% of salary with a four-year performance period and a second exceptional award of 125% of salary with a five-year performance period Outcome of 2017 LTIP (based on 2019 performance): 10.2% of maximum will vest. Details may be found on page 64 Malus and clawback 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 EMIS Group’s reputation or, in the case of LTIPs, if there is significant deterioration in financial performance. Shareholding guidelines Executive Directors are required to acquire a minimum holding equivalent to 200% of base salary for the CEO and 100% of salary for the CFO. Executive Directors are required to retain shares acquired under the LTIP (subject to sales to cover tax liabilities) until they have satisfied the guideline. Performance in 2019 at a glance 2019 annual bonus 2017 LTIP Group adjusted profit (100% weighting) EPS growth (80% weighting) Relative TSR (20% weighting) Target Threshold <£38.5m Maximum £41.5m Actual £39.3m Threshold <56.4p 51.4p Performance outcome: 63% of maximum Element outcome: 0% Maximum 74.1p Threshold median Maximum upper quartile 106 out of 256 companies (between median and upper quartile) Element outcome: 50.8% or 10.2% of maximum overall 62 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Directors’ remuneration report The following section provides details of how the remuneration policy was implemented during the financial year ending 31 December 2019. Remuneration committee membership in 2019 The members of the committee and their attendance record at meetings during the year are set out on page 60. During the year, the committee sought internal support from the Chief Executive Officer, the Chief Financial Officer and the Group HR Director, who attend committee meetings by invitation from the Chair, 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. None of these officers were 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. Following a competitive tender process, Mercer was appointed in June 2019 and acts as the principal external adviser to the committee, replacing Deloitte who had acted as principal external adviser since 2016. Mercer 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. Mercer is subject to periodic performance evaluation in common with other advisers to the Group. The committee is satisfied that Mercer provides independent remuneration advice to the committee. Mercer is a member and signatory of the Remuneration Consultants Group and voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK, details of which can be found at www.remunerationconsultantsgroup.com. The committee was similarly satisfied that Deloitte, also a Code of Conduct signatory, provided independent advice during their engagement. Summary of shareholder voting at the 2019 AGM There was an advisory vote on the Directors’ remuneration report at the AGM in 2019. Of the 40,892,249 votes cast, 32,748,936 (80.1%) of the votes were for the resolution, with 8,141,363 (19.9%) against and 1,950 votes withheld. The results of the votes were published on the website after the meeting. As set out in the Chair’s letter, the committee held a further round of consultation following the result at the AGM. The meetings confirmed general support for the exceptional LTIP proposals. The committee considered the adoption of ROCE as a performance measure which was suggested by a number of shareholders. However, as EMIS Group is a software house with relatively low capital requirements, a capital-related metric was not considered appropriate. Following the second round of consultation, the committee was satisfied that shareholders were collectively in support of the exceptional LTIP awards. Single total figure of remuneration for Executive Directors The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 31 December 2019 and the prior year: Base salary Taxable benefits1 Pension2 Annual bonus3 Share schemes4 Total Andy Thorburn £’000 Peter Southby £’000 2019 400 32 60 252 73 817 2018 400 28 60 434 — 922 2019 265 18 40 167 32 522 2018 254 18 38 275 1 586 1 Taxable benefits consist primarily of a car allowance or company car, private medical insurance, business travel and subsistence (where taxable). 2 During the year the Executive Directors received 15% of base salary as employer contributions. At the request of Peter Southby £30,000 (2018: £28,000) of employer pension contributions were commuted to a cash payment in accordance with the remuneration policy. 3 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 2019 can be found in the annual report on remuneration on page 64. 4 The amounts shown reflect the value of matching shares awarded under the SIP, the value of the free share award made under the SIP and the value of the 2017 LTIPs that will vest on the third anniversary of the date of the grant for the award made in April 2017 and on 1 May 2020 for the awards made to Andy Thorburn on 1 May 2017 and 4 September 2017. Further details can be found on page 64. Annual report and accounts 2019 63 EMIS Group plc Directors’ remuneration report 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 2019 and the prior year: Mike O’Leary Robin Taylor1 Andy McKeon Kevin Boyd2 David Sides3 Jen Byrne4 1 Robin Taylor retired from the Board on 8 May 2019. 2 Kevin Boyd became Chair of the audit committee on 8 May 2019. 3 David Sides resigned from the Board on 22 August 2019. 4 Jen Byrne was appointed to the Board on 8 May 2019. Fees £’000 2019 2018 105 17 49 47 38 28 90 45 45 40 40 — Incentive outcomes for the year ended 31 December 2019 Bonus During the year ended 31 December 2019, 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 stretch performance to achieve maximum bonus. The targets set for 2019 were as follows: • 0% of salary if the Group adjusted profit was below £38.5m; • 50% of salary if the Group adjusted profit was or exceeded £38.5m; and • if the Group adjusted profit was greater than £38.5m then the bonus would increase pro rata to Group adjusted profit up to a maximum of 100% at £41.5m. As the reported Group adjusted profit for the year was £39.3m, the committee determined that a bonus of 63% of salary was achieved under this incentive. Long-term incentive awards vesting and exercised For the LTIP awards granted on 21 April 2017 and the awards made to Andy Thorburn on 1 May 2017 and 4 September 2017, there were two elements. The first, based on EPS growth over the three years to 31 December 2019 and with a weighting of 80% of the award, was not met. The second element, based on TSR performance with a weighting of 20% of the award was partly met, resulting in a 50.8% vesting of this element. Overall therefore, 10.2% of the total award will vest on the third anniversary for the award made in April 2017 and on 1 May 2020 for the awards made to Andy Thorburn on 1 May 2017 and 4 September 2017, subject to continued employment. Scheme interests awarded in 2019 Long Term Incentive Plan In 2019, the following awards were granted under the LTIP: Executive Director Andy Thorburn Peter Southby Date of grant Awards made during the year Market price at date of award Normal vesting date Ordinary annual award 24 April 2019 53,475 1,122p 24 April 2022 Exceptional award (four-year performance period) Exceptional award (five-year performance period) 24 June 2019 66,225 1,208p 24 June 2023 24 June 2019 66,225 1,208p 24 June 2024 Ordinary annual award 24 April 2019 23,610 1,122p 24 April 2022 Exceptional award (four-year performance period) Exceptional award (five-year performance period) 24 June 2019 21,930 1,208p 24 June 2023 24 June 2019 27,412 1,208p 24 June 2024 Face value at date of award £’000 600 800 800 265 265 331 64 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Performance conditions for 2019 awards The ordinary annual awards granted in April 2019 include two performance targets. 80% of the award is subject to a performance target based on the Company’s compound annual EPS growth and 20% of the award is subject to a performance target comparing the Company’s TSR against the FTSE SmallCap. Both performance targets are measured over three financial years, 2019 to 2021. Performance targets for the exceptional June awards are measured over four years and five years (2019 to 2022 and 2019 to 2023) respectively with a performance target related to very stretching levels of EPS growth. Between 2014 and 2018 EPS growth of circa 5% per annum was achieved. For the two exceptional awards to vest in full that growth would need to treble to 15% per annum over the full five years, excluding the accretive element of any acquisitions or buybacks. If the share price followed the growth in EPS, the Group would double in value over this period. Ordinary annual award Performance level Below base target Base target Maximum target Exceptional award (four-year performance period) Performance level Below base target Base target Maximum target Exceptional award (five-year performance period) Performance level Below base target Base target Maximum target EPS growth % award to vest TSR % award to vest Below 5% p.a. 5% p.a. 10% p.a. 0% 20% 80% Below median Equal to median Upper quartile 0% 5% 20% EPS growth % award to vest Below 7% p.a. 7% p.a. 12% p.a. 0% 0% 100% EPS growth % award to vest Below 10% p.a. 10% p.a. 15% p.a. 0% 0% 100% To the extent that base target is exceeded, the percentage of award shares vesting increases pro rata between the base target and maximum target. SIP awards During the year under review, Peter Southby was awarded matching shares under the SIP as a result of his own personal contributions in acquiring partnership shares. The value of these was less than £1,000. There were no performance conditions attached to the SIP awards. Peter Southby participates 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. In April 2019, Andy Thorburn and Peter Southby received a free share award under the SIP, both receiving 63 shares. The value of these was less than £1,000. Executive Directors participate in the SIP on the same terms as other employees. Ad hoc payments There were no ad hoc payments to any Directors for the year ended 31 December 2019. Payments to past Directors There were no payments to past Directors for the year ended 31 December 2019. 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 2018 and 31 December 2019. 2019 2018 % change 1 Includes £4.2m of exceptional staff costs. 2 Restated further to the sale of the Specialist & Care business. Total employee expenditure £74.9m1 £69.6m2 8% Distributions to shareholders £19.7m £17.9m 10% Annual report and accounts 2019 65 EMIS Group plc Directors’ remuneration report continued TSR performance 500 450 400 350 300 250 200 150 100 50 0 EMIS Group total shareholder return (since IPO) FTSE SmallCap Index Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 The graph above compares the value of £100 invested in EMIS Group plc shares, including reinvested dividends, with the FTSE SmallCap Index since 26 March 2010, which is the date of the Group’s 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. Historical Chief Executive Officer pay The table below details the Chief Executive Officer’s single total figure of remuneration and incentive outcomes over the same financial period: Andy Thorburn (from 1 May 2017) Chief Executive Officer single figure (£‘000) Annual bonus (% of max) LTIP vesting (% of max) Chris Spencer (retired 30 April 2017) Chief Executive Officer single figure (£‘000) Annual bonus (% of max) LTIP vesting (% of max) 2015 n/a n/a n/a 388 0% 51% 2016 n/a n/a n/a 607 0% 48% 2017 358 0% n/a 238 0% 0% 2018 922 72% n/a n/a n/a n/a 2019 817 63% 10% n/a n/a n/a 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 2019 were as follows: Director Andy Thorburn1 Peter Southby2 Mike O’Leary Robin Taylor3 Andy McKeon Kevin Boyd Jen Byrne David Sides3 Ordinary shares at 31 December 2019 Ordinary shares at 31 December 2018 30,079 23,857 1,000 1,800 3,626 7,000 — 2,000 22,787 20,638 1,000 1,800 3,626 7,000 — 2,000 1 Includes free shares awarded under the SIP which may be subject to forfeiture under certain circumstances. 2 Includes matching shares and free shares awarded under the SIP which may be subject to forfeiture under certain circumstances. 3 Shares held at the date of resignation. Since the year end SIP shares have continued to be awarded each month, for which monthly Regulatory Information Service announcements have been made. This has resulted in Peter Southby holding an additional 55 shares, which include matching shares awarded under the SIP which may be subject to forfeiture in certain circumstances. 66 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Implementation of remuneration policy for 2020 The letter from the Chair of the remuneration committee on pages 58 and 59 includes further detail. Base salary The base salaries for the Executive Directors in 2020 are set out in the table below. Executive Director Andy Thorburn Peter Southby Base salary from 1 January 2019 to 31 March 2020 Base salary from 1 April 2020 to 31 December 2020 Percentage increase £400,000 £264,915 £412,000 £272,862 3% 3% Pension For 2020, Executive Directors will continue to receive a contribution equivalent to 15% of base salary. Annual bonus The maximum bonus opportunity will be 100% of salary, with target set at 50% of base salary. The specific targets are deemed commercially sensitive but will be published retrospectively in the annual report and accounts for 2020. 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 it to form the opinion that either 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; and • the requirement to invest at least 40% of any net bonus payment in shares of the Company until the minimum shareholding level relevant to the Executive Director is met. LTIP In line with the proposals included in the Directors’ remuneration report, which was approved by shareholders at the AGM in May 2019, an award will be made in April 2020 and will equate to 150% of salary for the Chief Executive Officer and 100% of salary for the Chief Financial Officer. The threshold vesting for EPS performance is 5% for this award. The performance metrics will be 75% based on EPS growth over the performance period and 25% based on relative TSR performance against the FTSE SmallCap as follows: 2020 award Below base target Base target Maximum target EPS growth % award to vest TSR % award to vest Below 5% p.a. 5% p.a. 10% p.a. 0% 18.75% 75.00% Below median Equal to median Upper quartile 0% 6.25% 25.00% Following the end of the performance period, and the vesting of any awards, a “holding period” applies such that the full vesting plus holding period is five years. Executive Directors are subject to the requirement to retain shares after the holding period to add to their beneficial shareholding until the minimum shareholding level relevant to the Executive Director is met. LTIP awards are subject to clawback as explained in the policy. SIP Executive Directors, subject to eligibility, will be able to continue to participate in the SIP on the same basis as in 2019. Chair and Non-executive Director fees Fee levels for the Chair and Non-executive Directors are subject to annual review taking into account appropriate comparators and the level of time commitment required. Following consideration in 2018 by the Chair and Executive Directors in relation to Non-executive Directors’ fees, it was determined that increases be made in 2019 and 2020 to the Non-executive Director fee and committee Chair fees. Therefore, as set out in the 2018 annual report and accounts, for 2020 the Non-executive fee will be £45,000 and the committee Chair fee £8,000. In 2018, it was also agreed by the Board (excluding the Chair) to increase the Chair’s fee to £120,000. However, as explained in the Chair’s letter, the level of fee was reviewed in light of the appointment of a new Chair with main market experience. The Board has appointed Patrick De Smedt, whose fee will be £160,000 from appointment as Chair. Annual report and accounts 2019 67 EMIS Group plc Directors’ report The section contains the remaining matters on which the Directors are required to report each year. 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; • Rx Systems Limited trading as EMIS Health Community Pharmacy; and • Patient Platform Limited, carrying on the business of Patient.info and Patient Access. EMIS Group is the UK leader in connected healthcare software and systems. Its solutions are widely used across every major UK healthcare setting. EMIS Group’s aim is to join up healthcare through innovative technology, helping healthcare professionals to deliver better, more efficient healthcare to the UK population, supporting longer and healthier lives. • Balance sheet leverage and return of excess capital – we will maintain an appropriate balance sheet, consistent with our investment requirements and mindful of the preferences of all our shareholders and our customers. While we are prepared to take on additional debt if circumstances warrant, we aim to return excess capital to shareholders when appropriate. Dividends Subject to shareholder approval at the AGM on 6 May 2020, the Board proposes paying a final dividend of 15.6p per ordinary share (2019: 14.2p) on 11 May 2020 to shareholders on the register at the close of business on 14 April 2020. This would make a total dividend of 31.2p per ordinary share for 2019 (2018: 28.4p). Directors The Directors of the Company who served during the year ended 31 December 2019 and subsequently are as follows: Mike O’Leary Chair EMIS Group has two core business segments: EMIS Health and EMIS Enterprise. Patrick De Smedt1 Independent Non-executive Director and Chair designate EMIS Health is a supplier of innovative integrated care technology to the NHS market, including primary, community, acute and social care. EMIS Enterprise is focussed on growth in the B2B technology sector within the healthcare market, including management of medicines, partner businesses, patient-facing services and UK healthcare blockchain. Andy Thorburn Chief Executive Officer Peter Southby Chief Financial Officer EMIS Group’s brands include: • EMIS Health, supplying innovative and essential technology to 10,000 healthcare organisations, in the number one or number two market positions in each of its major markets; • Patient, the UK’s leading independent provider of patient-centric medical and wellbeing information and related transactional services; and • Egton, providing specialist ICT infrastructure, hardware and engineering services, and non-clinical software into health and social care. The Company is incorporated in England and Wales and domiciled in the UK, Company number 06553923. The address of its Registered Office is Fulford Grange, Micklefield Lane, Rawdon, Leeds LS19 6BA. 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. At the current time, this is demonstrated by significant investment in the major EMIS-X and Patient technology platforms. • Regular returns to shareholders – we pay a regular dividend to shareholders, representing typically 40% to 50% of underlying adjusted earnings and have increased the proposed full year dividend for 2019 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. Robin Taylor2 Senior Independent Non-executive Director Kevin Boyd Independent Non-executive Director Andy McKeon3 Senior Independent Non-executive Director Jen Byrne4 Independent Non-executive Director David Sides5 Independent Non-executive Director 1 Patrick De Smedt was appointed to the Board on 1 January 2020. 2 Robin Taylor retired from the Board on 8 May 2019. 3 Andy McKeon became the Senior Independent Director on 8 May 2019. 4 Jen Byrne was appointed to the Board on 8 May 2019. 5 David Sides resigned from the Board on 22 August 2019. Re-election of Directors Directors are subject to annual re-election in line with best practice. Jen Byrne and Patrick De Smedt will stand for election at the AGM on 6 May 2020. Mike O’Leary will not be standing for re-election as he will retire at the AGM on 6 May 2020. Details of Directors’ remuneration and interests in the share capital of the Company are given in the annual report on remuneration on pages 63 to 67. Details of Directors’ service agreements are included in the remuneration policy on the Group’s website. 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. 68 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Substantial interests in shares The Company has been notified of the following substantial interests in 3% or more in its ordinary shares: Liontrust Asset Management Octopus Investments M&G Investment Management Invesco Evenlode Investment Heronbridge Investment Management NFU Mutual MN Services Primestone Capital Acadian Asset Management 31 December 2019 % 29 February 2020 % 11.01 7.72 6.23 4.92 4.56 4.07 3.97 3.57 3.26 3.41 11.07 7.74 6.17 4.83 4.56 4.13 3.28 3.57 3.26 3.06 Research and development Research and development expenditure in the year amounted to £20.7m (2018: £18.7m) of which £7.4m (2018: £5.8m) was capitalised. Share capital As at 31 December 2019 and 17 March 2020, the Company had 63,311,396 (31 December 2018: 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 EBT to hold shares in the Company to facilitate share-based emolument payments and the Group SIP. As at 31 December 2019 the EBT held 512,231 (2018: 290,084) 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 28 to the financial statements. The rules of the LTIP and CSOP set out the consequences in the event of a change of control. Further information is given in the Directors’ remuneration policy, which can be found on the Group’s website. Purchase of own shares The Directors' authority to make purchases of the Company’s shares on its behalf is given by resolution of the shareholders annually at the Company’s AGM. There were no share buybacks during the year. However in May 2019 the EMIS Group plc Employee Benefit Trust (the EBT) acquired 305,000 shares for a total consideration of £3.6m. 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. The Company maintains Directors’ and officers’ liabilities insurance to provide appropriate cover for any legal action brought against its Directors. Employees The Group’s policy is to ensure adequate provision for the welfare, 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, belief, sexual orientation, disability and marital status. All employees are treated fairly and equally. 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. For further information on our people see pages 38 to 40. Ethical business practices The Group has a zero tolerance approach to bribery and corruption and is committed to ensuring that it has effective processes and procedures in place to counter the risk of bribery and corruption. A formal anti-bribery policy is in place and training for all employees is undertaken annually. The policy is reviewed on a regular basis by the audit committee. The Group has a comprehensive code of ethics and standards of business conduct document, which provides instruction and guidance to employees on expected behaviour when dealing with a wide range of stakeholders. The Group has a whistleblowing policy, which is reviewed annually by the audit committee, and an associated reporting hotline operated by an external provider. All employees are required to acknowledge receipt of these three policies and to confirm that they have read and understood them. Modern Slavery Act The Group is committed to conducting business responsibly. It seeks to ensure that its supply chains operate to those same high standards, including in relation to employment practices, workplace conditions and, more specifically, the prevention of forced, bonded and trafficked labour. This is upheld through the Group’s policies and processes, and is fully supported by the Board. The steps taken to help manage the risks outlined by the legislation are detailed in our modern slavery statement which is published annually on our website and can be found at www.emisgroupplc.com/investors/corporate-governance. Annual report and accounts 2019 69 EMIS Group plc Directors’ report continued Political donations No political donations were made in 2019 (2018: £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 2 to 41. A commentary on the revenue, trading results and cash flows is provided in the financial review on pages 34 to 37. 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 also high levels of cash conversion expected for the foreseeable future. The Group has in place a £30m revolving credit facility with Barclays and Lloyds, with an accordion arrangement to increase it up to £60m if required, through to 30 June 2021. During the year the Group extended the Barclays share of the facility to 30 June 2022, comprising of a £15m revolving credit facility with an accordion arrangement to increase this to £30m. 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 two 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. AGM notice The notice convening the AGM to be held on 6 May 2020, together with an explanation of the resolutions to be proposed at the meeting, is contained in a separate circular to shareholders and on the Group’s website at www.emisgroupplc.com/investors/annual-general-meeting. 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. 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 The Company’s statement on corporate governance can be found on pages 45 to 50 of this annual report and accounts. The corporate governance statement forms part of this Directors’ report and is incorporated into it by cross-reference. By order of the Board Christine Benson Company Secretary 17 March 2020 70 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Viability statement The Directors have voluntarily adopted provision 31 of the Code, assessing the prospects of the Group. The Directors have taken into account the Group’s current position and business model and have assessed the potential impact of the principal risks and uncertainties facing the Group. The Directors have determined that the four-year accounting period to 31 December 2023 constitutes an appropriate period over which to assess the Group’s prospects and viability. This is the period focussed on by the Board during its strategic planning process and is consistent with typical contract lengths across much of the Group (three to five years). It is aligned with the Group’s goodwill and other intangible impairment testing and the majority of the period is also covered by the Group’s funding facilities, which currently extend to 30 June 2022. While the formal assessment period extends to December 2023, the Board considers that the Group’s longer-term prospects are likely to be positive beyond this time horizon as a result of its investment in innovation, increasing market demand for its products, market growth, strong competitive positions and contractual visibility. For the purpose of making this viability statement, the Board has taken into account its ongoing 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 medium-term strategic plan, the first year of which represents the Group’s annual operating budget, together with the ability of the Group to raise finance and undertake mitigating actions to avoid the occurrence or reduce the impact of the principal risks. In assessing viability, enhanced modelling and stress testing are performed, using severe but plausible scenarios on the financial impact of risks materialising in the following areas: healthcare structure and procurement; software (product) development; people and culture; information governance and cyber security; and clinical safety. Further details on each of these are set out on pages 26 to 29. In addition, while the Board does not consider Brexit to be a principal risk, it has nonetheless modelled a scenario where the Group’s revenues are reduced as a consequence of a general economic slowdown in the coming years. It has also considered the possible impact of the emerging risk of coronavirus. 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. In the event of these scenarios arising, various options are available to the Group in order to maintain liquidity, including: utilisation of undrawn debt facility; reduction to cost base; reduction to future investment capital expenditure; and amendment to dividend policy. The Directors have made their viability assessment based on the following key assumptions: • the political environment in which the NHS exists will not result in major structural change to the market in which the Group operates; and • funding for the business will continue to be available in all plausible market conditions. Taking into account the Group’s current position and principal risks and uncertainties, the Directors confirm that they 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 31 December 2023. EMIS Group plc Annual report and accounts 2019 71 Statement of Directors’ responsibilities in respect of the annual report and the financial statements The Directors are responsible for preparing the annual report and the Group and parent company 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 the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and they 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, relevant and reliable; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; The Directors have decided to prepare voluntarily a Directors’ remuneration report in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 made under the Companies Act 2006, as if those requirements applied to the Company. The Directors have also decided to prepare voluntarily a corporate governance statement as if the Company were required to comply with the Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in relation to those matters. Under applicable law and regulations, the Directors are also responsible for preparing a strategic report and a Directors’ report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. • assess the Group and parent company’s ability to continue as a On behalf of the Board Andy Thorburn Chief Executive Officer 17 March 2020 Peter Southby Chief Financial Officer 17 March 2020 going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. 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 are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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. 72 EMIS Group plc Annual report and accounts 2019 GOVERNANCE Independent auditor’s report to the members of EMIS Group plc 1. Our opinion is unmodified We have audited the financial statements of EMIS Group plc (“the Company”) for the year ended 31 December 2019 which comprise the Group statement of comprehensive income, the Group and parent company balance sheets, the Group and parent company statements of cash flows, the Group and parent company statements of changes in equity, and the related notes, including the accounting policies in note 1. 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 2019 and of the Group’s profit for the year then ended; Overview Materiality: Group financial statements as a whole Coverage Key audit matters Recurring risks • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. £1.6m (2018: £1.4m) 4.9% (2018:5.1%) of Group profit before tax and exceptional items (defined as reorganisation costs and service level reporting charges) 91% (2018: 96%) of Group profit before tax and exceptional items vs 2018 Valuation of financial liability in respect of a put option over a non controlling interest in Dovetail Digital New risk Revenue recognition New EMIS Group plc Annual report and accounts 2019 73 Independent auditor’s report continued to the members of EMIS Group plc 2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, are shown in the table below. Valuation of financial liability in respect of a put option over a non controlling interest in Dovetail Digital Group and Parent Company (£2.7m; 2018: £2.4m) Refer to page 51 (Audit Committee Report), page 87 (accounting policy) and page 101 (financial disclosures) Revenue recognition (£159.5m; 2018: £149.7m) Refer to page 84 (accounting policy) and page 90 (financial disclosures) The risk Subjective valuation The Group acquired Dovetail Digital in 2018. As part of the acquisition, there is a put option in place over the remaining non-controlling interest and a financial liability has been recognised for the expected future payments under the put option which are dependent on the entity achieving future profits. The effect of this matter is that as part of our risk assessment, we determined that the liability in relation to the put option following the acquisition of Dovetail Digital includes a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (notes 2 and 26) disclose the sensitivity estimated by the Group. Processing error Revenue consists of fees earned on the sale of software and associated services. There are a high number of contracts and transactions and the process of recording accrued and deferred revenue is manual in nature. The effect of this matter is that we have to spend a significant proportion of audit effort on this balance which is the most material number in the Consolidated Income Statement, and therefore we have recorded as a new key audit matter. Our response Our procedures included: • Methodology choice: Assessing whether the Group’s valuation of the put option was performed in accordance with relevant accounting standards and acceptable valuation practice; • Evaluating assumptions: Challenging the revenue and cost forecasts and discount rate assumptions that are used by the Group to determine the value of the financial liability in respect of the put option, using our knowledge of the business and industry; • Sensitivity analysis: Assessing the sensitivity of the valuation of the liability to changes in key assumptions; and • Assessing transparency: Considering the adequacy of the Group’s disclosures, including sensitivity analysis, in respect of the assumptions inherent in the valuation of financial liability in respect of the put option. Our procedures included: • Tests of detail: Using computer assisted audit techniques to analyse the entire population of material revenue streams to focus on unexpected revenue transactions or transactions with unusual attributes and assessed whether these postings were appropriate; • Expectation vs outcome: For customers with bespoke contracts, obtaining these contracts and forming an expectation of the revenue to be recognised in the period, comparing this to the actual; • Tests of details: Assessing the appropriateness of deferred and accrued income at the year end with reference to the prior year and our knowledge of the billing pattern of each revenue stream; and • Assessing transparency: Considering the adequacy of the Group’s disclosures, in respect of the revenue recognition policies and revenue streams. In the prior year we had recoverability of parent Company’s investment in subsidiaries as a Key Audit Matter in the parent Company. We continue to perform procedures over the recoverability of parent Company investments but we have changed the parent Company Key Audit Matter to the valuation of the put option over a non controlling interest in Dovetail Digital as this is where we spent a higher proportion of audit effort. 74 EMIS Group plc Annual report and accounts 2019 FINANCIAL STATEMENTS 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £1.6m (2018: £1.4m), determined with reference to a benchmark of profit before tax, normalised to exclude exceptional items (defined as reorganisation costs in FY19 and service level reporting charges in FY18), of which it represents 4.9% (2018: 5.1%). The Group team performed procedures on the items excluded from normalised Group profit before tax. Materiality for the parent Company financial statements as a whole was set at £1.2m (2018: £1.05m), determined with reference to a benchmark of parent Company net assets, of which it represents 1.3% (2018: 1.0%). We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.08m, in addition to other identified misstatements that warranted reporting on qualitative grounds. Of the Group’s 19 (2018: 21) reporting components. we subjected 9 (2018: 12) to full scope audits for Group purposes. The components within the scope of our work accounted for the percentages illustrated opposite. The percentages for Group profit before tax were calculated based on the total profits and losses that made up Group profit before tax. The Group team approved the component materialities which ranged from £1.36m to £0.02m, having regard to the mix of size and risk profile of the Group across the components. The work on all components subject to full scope audits for Group purposes, including the audit of the parent Company, was performed by the Group team. Profit before tax and exceptional items £32.4m (2018: £27.5m) 95+5+I Profit before tax and exceptional items Group materiality Group materiality £1.6m (2018: £1.4m) £1.6m Whole financial statements materiality (2018: £1.4m) £1.36m Range of materiality at 9 components (£1.36m-£0.02m) (2018: £1.05m to £0.04m) £0.08m Misstatements reported to the audit committee (2018: £0.07m) GROUP REVENUE 97 92 (2018: 97%) 92% I97+ 92+ I99+ 99+ GROUP TOTAL ASSETS 99% (2018: 99%) 99 99 GROUP PROFIT BEFORE TAX 96 90 (2018: 96%) 90% GROUP PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS I96+ 90+ I96+ 91+ 91% (2018: 96%) 96 91 Full scope for group audit purposes 2019 Full scope for group audit purposes 2018 Residual components EMIS Group plc Annual report and accounts 2019 75 8 + 3 + I 1 + 1 + I 10 + 4 + I 9 + 4 + I Independent auditor’s report continued to the members of EMIS Group plc 4. We have nothing to report on going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Group and the Company will continue in operation. In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model, including the impact of Brexit and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period. We evaluated those risks and concluded that they were not significant enough to require us to perform additional audit procedures. Based on this work, we are required to report to you if we have anything material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects, and we did not identify going concern as a key audit matter. 5. We have nothing to report on the other information in the annual report The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and directors’ report Based solely on our work on the other information: • we have not identified material misstatements in the strategic report and the directors’ report; • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and • in our opinion those reports have been prepared in accordance with the Companies Act 2006. Disclosures of principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to: • the directors’ confirmation within the viability statement page 71 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; • the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and • the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they 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 of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Company’s longer-term viability. 76 EMIS Group plc Annual report and accounts 2019 FINANCIAL STATEMENTS Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. 8. The purpose of our audit work and to whom we owe our responsibilities 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. Hugh Harvie (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Sovereign Square Sovereign Street Leeds LS1 4DA 17 March 2020 5. We have nothing to report on the other information in the annual report continued Corporate governance disclosures We are required to report to you if: • we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or • the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have nothing to report in these respects. 6. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required 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. We have nothing to report in these respects 7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 72, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. EMIS Group plc Annual report and accounts 2019 77 Group statement of comprehensive income for the year ended 31 December 2019 Continuing operations 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 Reorganisation costs4 Service level reporting credit5 Operating profit Finance income Finance costs Share of result of joint venture and associate Profit before taxation Income tax expense Profit for the period from continuing operations Profit from discontinued operation, net of tax Profit for the period 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 Basic diluted Basic - continuing operations Basic diluted - continuing operations Adjusted Adjusted diluted Notes 2019 £’000 2018 6 £’000 5 159,507 149,710 10 15 10, 15 15 7 8 9 18, 19 11 6 (607) (14,800) (67,519) (27,599) (6,822) (15,333) 39,273 7,363 (14,449) (5,360) — 26,827 97 (595) 742 27,071 (5,022) (369) (13,867) (63,722) (21,942) (5,535) (16,595) 35,890 5,782 (15,649) — 1,657 27,680 64 (244) 615 28,115 (5,355) 22,049 22,760 476 862 22,525 23,622 (182) (182) (40) (40) 22,343 23,582 22,476 (133) 22,343 22,670 912 23,582 Pence 36.0 35.8 35.3 35.1 51.4 51.1 Pence 36.1 36.0 34.7 34.6 45.1 45.0 12 12 12 12 12 12 1 Including exceptional reorganisation costs of £4,160,000 (2018: £nil). 2 Including exceptional reorganisation costs of £1,200,000 (2018: £nil), and an exceptional service level reporting credit of £nil (2018: £1,657,000). 3 Excluding amortisation of computer software used internally of £884,000 (2018: £946,000). 4 The reorganisation costs in 2019 relate to redundancy and restructuring costs, including property exit costs. 5 The service level reporting credit relates to a provision release of £1,657,000 in 2018 in respect of the 2017 NHS Digital reporting issue. 6 The Group statement of comprehensive income (and related notes) for 2018 has been re-presented to show the results of the Specialist & Care business as a discontinued operation, following its disposal on 2 April 2019. The notes on pages 82 to 106 are an integral part of these consolidated financial statements. 78 EMIS Group plc Annual report and accounts 2019 FINANCIAL STATEMENTS Group and parent company balance sheets as at 31 December 2019 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Amounts owed by subsidiary companies Investment in joint venture and associate Current assets Inventories Trade and other receivables Property asset held for sale Cash and cash equivalents Amounts owed by subsidiary companies Total assets Current liabilities Trade and other payables Deferred income Current tax liabilities Other financial liability Lease liabilities Amounts owed to subsidiary companies Non-current liabilities Deferred tax liability Other financial liabilities Lease liabilities 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 2019 £’000 2018 £’000 2019 £’000 2018 £’000 14 15 16 17 18, 19 47,969 34,376 18,399 — — 345 51,958 44,849 21,000 — — 113 — 2,211 — 96,813 13,726 — — 2,953 — 109,555 — — 101,089 117,920 112,750 112,508 20 22 26 25 26 27 27 657 33,047 2,475 31,099 — 67,278 1,264 36,223 — 15,620 — — 6,047 — 20,852 — — 3,336 — 790 17,324 53,107 26,899 21,450 168,367 171,027 139,649 133,958 (23,437) (28,820) (2,323) (480) (640) — (24,958) (34,170) (29) (1,012) — — (1,297) — — (480) — (38,252) (936) — — (1,012) — (14,050) (55,700) (60,169) (40,029) (15,998) (1,467) (3,708) (3,294) (4,293) (3,906) — — (3,708) — — (3,906) — (8,469) (8,199) (3,708) (3,906) (64,169) (68,368) (43,737) (19,904) 104,198 102,659 95,912 114,054 633 51,045 (5,021) 57,118 147 633 51,045 (1,913) 51,884 611 103,922 276 102,260 399 104,198 102,659 633 51,045 — 43,703 531 95,912 — 95,912 633 51,045 — 61,563 813 114,054 — 114,054 The notes on pages 82 to 106 are an integral part of these consolidated financial statements. The financial statements on pages 78 to 106 were approved by the Board of Directors and authorised for issue on 17 March 2020 and are signed on its behalf by: Andy Thorburn Chief Executive Officer Peter Southby Chief Financial Officer Company number 06553923 (England and Wales) EMIS Group plc Annual report and accounts 2019 79 Group and parent company statements of cash flows for the year ended 31 December 2019 Adjusted cash generated from operations Development costs capitalised Cash cost of exceptional items Cash generated from operations Finance costs Finance income Tax paid Notes 31 Group Company 2019 £’000 46,332 7,363 (3,636) 50,059 (186) 93 (4,466) 2018 £’000 54,469 5,782 (10,378) 49,873 (247) 33 (5,830) 2019 £’000 (617) — — (617) (125) 259 — 2018 £’000 (510) — — (510) (169) 149 — Net cash generated from/(used in) operating activities 45,500 43,829 (483) (530) 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 companies Dividends received Business combination Acquisition of associate Disposal of discontinued operation, net of cash disposed of Net cash (used in)/generated from investing activities Cash flows from financing activities Transactions in own shares held in trust Payment of lease liabilities Deferred contingent consideration Dividends paid Non-controlling interest dividend paid Acquisition of non-controlling interest (Increase)/decrease in loan to Employee Benefit Trust Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 6 13 (4,983) 151 (7,363) (773) — 700 — (190) 6,203 (6,205) 178 (5,782) (780) — 600 (1,402) — — — — — — 29,369 — — (190) 13,665 — — — — (27,359) 54,959 (1,851) — — (6,255) (13,391) 42,844 25,749 (3,069) (940) (1,012) (18,745) — — — 306 — — (17,070) (4,000) (8,045) — — — (1,012) (18,745) — — (2,542) — — — (17,070) — (8,045) 9 (23,766) (28,809) (22,299) (25,106) 15,479 15,620 31,099 1,629 13,991 20,062 790 15,620 20,852 113 677 790 The notes on pages 82 to 106 are an integral part of these consolidated financial statements. 80 EMIS Group plc Annual report and accounts 2019 FINANCIAL STATEMENTS Group and parent company statements of changes in equity for the year ended 31 December 2019 Group At 1 January 2018 Profit for the year Changes in ownership interest Non-controlling interest acquisition Acquisition of subsidiary with non-controlling interest Transactions with owners Share acquisitions less sales Share-based payments Deferred tax in relation to share-based payments Dividends paid (note 13) Option over non-controlling interest (note 26) Contingent acquisition consideration Other comprehensive income Currency translation differences At 31 December 2018 Adjustment on initial application of IFRS 16 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 13) Option over non-controlling interest (note 26) Other comprehensive income Currency translation differences Share capital £’000 633 — — — — — — — — — — 633 — — — — — — — — Share Own shares premium held in trust £’000 £’000 51,045 — (2,293) — — — — — — — — — — — — 380 — — — — — — Retained earnings £’000 51,289 22,710 (5,842) — — 766 31 (17,070) — — 51,045 — — — — — — — — (1,913) — — (3,108) — — — — 51,884 (125) 22,658 — 1,290 156 (18,745) — — — At 31 December 2019 633 51,045 (5,021) 57,118 — (40) Other reserve £’000 2,057 — Non- controlling interest £’000 Total equity £’000 5,283 912 108,014 23,622 — — (2,203) 407 (8,045) 407 — — — — (2,406) 1,000 611 — — — — — — (282) (182) 147 Retained earnings £’000 24,067 53,800 766 (17,070) — — 61,563 (405) 1,290 (18,745) — — — — (4,000) — — — 399 — (133) 10 — — — — — 380 766 31 (21,070) (2,406) 1,000 (40) 102,659 (125) 22,525 (3,098) 1,290 156 (18,745) (282) (182) 276 104,198 Other reserve £’000 2,219 — — — (2,406) 1,000 813 — — — (282) Total equity £’000 77,964 53,800 766 (17,070) (2,406) 1,000 114,054 (405) 1,290 (18,745) (282) Share capital £’000 633 — — — — — 633 — — — — Share premium £’000 51,045 — — — — — 51,045 — — — — Company At 1 January 2018 Profit for the year Transactions with owners Share-based payments Dividends paid (note 13) Option over non-controlling interest (note 26) Contingent acquisition consideration At 31 December 2018 Loss for the year Transactions with owners Share-based payments Dividends paid (note 13) Option over non-controlling interest (note 26) At 31 December 2019 633 51,045 43,703 531 95,912 The notes on pages 82 to 106 are an integral part of these consolidated financial statements. EMIS Group plc Annual report and accounts 2019 81 Notes to the financial statements for the year ended 31 December 2019 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 of the Group and Parent company 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 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. Further details on these alternative performance measures (APMs) are provided on page 22. 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. The Directors have prepared cash flow forecasts covering a period of more than twelve months from the date of approval of these financial statements. These forecasts, including consideration of reasonably possible downside scenarios linked to the principal risks and uncertainties set out in the strategic report, show that the Group will continue to operate within the facility in place (see note 23). Based on this assessment the Directors have a reasonable expectation that the Group and Company have adequate resources to continue existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the annual financial statements. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates and judgements 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 critical accounting judgements and key sources of estimation uncertainty in the 2019 financial statements are set out 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 loss of the parent company for the year was £405,000 (2018: profit of £53,800,000). 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, amendments or interpretations in these financial statements: • IFRS 16 Leases • IFRIC 23 Uncertainty over Income Tax Treatments • Amendments to IAS 19: Plan Amendment, Curtailment or Settlement • Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures • Amendments to IFRS 9: Prepayments Features with Negative Compensation • Annual Improvements to IFRS Standards 2015-2017 Cycle With the exception of IFRS 16, none of these have had a material impact on the financial statements. Further details are set out below. IFRS 16 Leases The Group has adopted IFRS 16 Leases from 1 January 2019, replacing IAS 17, using the modified retrospective approach. The cumulative effect of initial application is recognised in retained earnings at 1 January 2019 and accordingly comparative information presented for 2018 has not been restated. IFRS 16 has introduced a single on-balance sheet accounting model for lessees. As a result the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets, and lease liabilities representing its obligation to make lease payments. The Group is not a lessor. The Group presents lease liabilities on the face of the Group balance sheet. The carrying amounts of right-of-use assets are set out below. Balance as at 1 January 2019 Balance as at 31 December 2019 Land and buildings £’000 2,541 2,671 Fixtures, fittings and equipment £’000 78 46 Motor vehicles £’000 912 854 Total £’000 3,531 3,571 On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below. Right-of-use assets presented in property, plant and equipment (note 16) Deferred lease incentives derecognised Lease liabilities Retained earnings 82 EMIS Group plc Annual report and accounts 2019 1 January 2019 £’000 3,531 128 (3,784) (125) FINANCIAL STATEMENTS 1. Summary of significant accounting policies continued 1.3 Changes in accounting policy and disclosure continued (a) New and amended standards adopted by the Group continued IFRS 16 Leases continued At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at an incremental borrowing rate which reflects the characteristics of the underlying lease, at 1 January 2019. The weighted average rate applied is 5.0%. Right-of-use assets are measured at either their carrying amount as if IFRS 16 has been applied since the commencement date or an amount equal to the lease liability. This approach has been applied for all leases unless the lease term is twelve months or fewer or the underlying asset has a low value (less than £4,000). For leases of low value assets, the Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The table below reconciles the Group’s operating lease commitment at 31 December 2018, under IAS 17, to the lease liability initially recognised under IFRS 16. Operating lease commitment at 31 December 2018 as disclosed in the Group’s consolidated financial statements Discounted using the incremental borrowing rate at 1 January 2019 – Recognition exemption for leases of low value assets – Recognition exemption for leases with less than twelve months of lease term at transition Lease liabilities recognised as at 1 January 2019 1 January 2019 £’000 5,734 4,824 (10) (1,030) 3,784 In relation to those leases under IFRS 16, the Group now recognises depreciation and interest costs, instead of an operating lease expense. During the period ended 31 December 2019, this amounted to £886,000 of depreciation charges and £181,000 of interest costs from these leases. Had IAS 17 continued to be applied, the overall impact on the Group statement of comprehensive income would not have been materially different. (b) Adopted IFRS not yet applied A number of new standards, amendments or interpretations have been issued but are not mandatory for the year ended 31 December 2019 and consequently have not been applied by the Group in these financial statements. These standards are not expected to have a material impact on the Group's results. • IFRS 17 Insurance Contracts • Amendments to References to the Conceptual Framework in IFRS Standards (effective date 1 January 2020) • Amendments to IFRS 3: Definition of a Business • Amendments to IAS 1 and IAS 8: Definition of Material (effective date 1 January 2020) • Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 1.4 Basis of consolidation The Group financial statements consolidate those of the Company and of its subsidiary undertakings drawn up to 31 December 2019. Subsidiaries Subsidiaries are entities over which the Company has power, to which the Company has exposure or rights to variable returns and where the Company has 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. EMIS Group plc Annual report and accounts 2019 83 1. Summary of significant accounting policies continued 1.4 Basis of consolidation continued Joint ventures and associates 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. An associate is an entity in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Investments in joint ventures and associates are recognised in the Group financial statements using the equity method of accounting and initially carried on the balance sheet at cost, including any transaction costs. 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. 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 segments, has been identified as the main Board. 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 (or as) control of goods or services passes to the customer in accordance with when distinct performance obligations are met, and at the amount to which the Group expects to be entitled. Specific criteria in respect of the Group’s revenue categories are described below: • Revenue from subscription fees that contain a right to access software (non-perpetual licences), maintenance and software support and other support services is recognised on a straight-line basis as performance obligations are met over the period of supply. Software fees that form part of long-term software installation contracts (principally within Acute Care) are spread over the implementation phase of these contracts (in line with the period over which the service is provided). Advertising revenues generated in the Patient business are recognised as advertisements are displayed. • Revenue from training, consultancy and system implementations, and revenue from granting a right of use of software (perpetual licences), is recognised at the point in time that delivery to a customer has occurred with no significant vendor obligations remaining and where the collection of the resulting receivable is considered probable. For long-term software installation contracts (principally within Acute Care), revenue is recognised according to the stage of completion which is measured based on delivery of certain milestones with observable acceptance criteria. • In determining whether a right of use or a right of access to software has been granted the Group considers whether the contract requires, or the customer reasonably expects that the Group will undertake activities that significantly affect the software to which the customer has rights, whether those activities would impact the customer, and whether those activities would result in a transfer of a service to the customer as they occur. If all these criteria are met, the Group deems there to have been a grant of a right of access to software and revenue is therefore recognised over the period of supply. • Revenue from hardware sales is recognised at the point in time when ownership passes. Where invoices are raised in advance of the performance obligations being satisfied, these are recorded on the balance sheet as deferred income. This deferred income relates predominantly to services which are recognised on a straight-line basis over the period of supply. These services are typically invoiced at the beginning of the provision of service and the associated revenue is recognised over this period. These are captured within current liabilities on the basis that they are expected to be recognised in revenue over the next twelve months. 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 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. 84 84 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 1. Summary of significant accounting policies continued 1.7 Intangible assets continued (b) Computer software developed for external sale continued 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. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. The estimated useful life for development expenditure is generally between four and six 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 16.67–33% 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 current tax 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. 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. EMIS Group plc EMIS Group plc Annual report and accounts 2019 85 85 Annual report and accounts 2019 1. Summary of significant accounting policies continued 1.10 Taxation continued 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 deferred tax assets and liabilities are expected to be realised or settled. 1.11 Share-based payments The Group operates both equity-settled and cash-settled share schemes for certain employees. The cost of share-based payments is initially measured at fair value at the date of grant, factoring in the impact of any market-based performance conditions. Non-market-based and service-based vesting conditions are not taken into account when estimating fair value, but are factors in determining the number of share options that will eventually vest. The fair values are measured using the Black Scholes and Monte Carlo models. After initial measurement, fair values in relation to equity-settled schemes are not remeasured. Fair values in relation to cash-settled schemes are remeasured each reporting date and on settlement. The cost of share-based payments 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 or liabilities for equity-settled or cash-settled schemes respectively, 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. 1.12 Retirement benefit costs Contributions payable by the Group during the period into its defined contribution pension plans are recognised in the Group statement of comprehensive income. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the balance sheet. 1.13 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. 1.14 Exceptional items Exceptional items are items of income and expense which are material and, due to their nature or size, are presented separately on the face of the income statement in order to provide a better understanding of the Group’s financial performance. Exceptional items are excluded from the Group’s alternative performance measures (APMs), as defined on page 22. 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 27). 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 expected credit losses. A provision for expected credit losses is established using the simplified approach under IFRS 9. Specific provisions are made against high-risk trade receivable balances, where balances are in dispute or where doubt exists about the customer’s ability to pay. 86 86 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 1. Summary of significant accounting policies continued 1.17 Financial instruments continued (a) Financial assets continued Investments Investments in subsidiaries, joint ventures and associates 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. Assets held for sale Non-current assets are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated. (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. Contingent acquisition consideration Consideration payable as part of the acquisition cost of a business combination is recognised at estimated fair value at the acquisition date. Subsequent changes in the measurement of cash-settled consideration are recognised in the statement of comprehensive income. Equity-settled consideration is not remeasured and subsequent settlement is accounted for in equity. Put option arrangements The potential cash payments related to put options issued by the Group over the non-controlling interest of subsidiary companies acquired are measured at estimated fair value and accounted for as financial liabilities. Subsequent to initial recognition, any changes to the carrying amount of non-controlling interest put option liabilities are recognised through equity. 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. 2. Critical accounting judgements and key sources of estimation uncertainty In preparing the 2019 financial statements no significant judgements have been made in the process of applying the Group’s accounting policies, other than those involving estimations, that could have a material effect on the amounts recognised in the financial statements. The source of estimation uncertainty at 31 December 2019 that has a significant risk of resulting in a material change to the carrying value of assets within the next year is with regard to the valuation of the put option liability relating to the acquisition of Dovetail Digital Limited. A further source of estimation uncertainty is with regard to capitalised development costs. Dovetail put option liability On 31 October 2018 the Group acquired 90% of the share capital of Dovetail Digital Limited (Dovetail), a leading early stage UK technology business specialising in blockchain software for the healthcare market. A financial liability of £2,688,000 has been recognised for the put option in place over the 10% of share capital not owned by the Group. The value at which the liability could potentially be settled ranges from £nil to £40,000,000 based on the Dovetail operating profit. For every 1% increase in the relevant year operating profit there will be a 1% increase in the financial liability. The put option is exercisable in 2026 (provided the Group has not exercised the related call option between 2023 and 2025), on an exercise price based on a multiple of operating profit for the preceding year. The estimate of the put liability is therefore dependent on the future financial performance of Dovetail, specifically future revenues and costs. Judgement has been exercised in recognising a non-controlling interest, with the Group having applied the present-access method, on the basis that the non-controlling shareholders continue to have present access to the returns associated with their underlying ownership interests. Carrying amount of computer software developed for external sale Computer software developed for external sale is a significant intangible asset, with a net book value of £14,422,000 at 31 December 2019 (with the largest carrying values relating to the Group’s EMIS-X and ProScript Connect products). Estimates are required with regard to when to commence the amortisation of capitalised development costs and also the period of time over which economic benefits are generated from it. If the useful economic life of all computer software developed for external sale was reduced by one year the current year amortisation charge would increase by £1,502,000. Products/software development projects are unique, with eligibility for capitalisation separately considered for each. Typically amortisation commences when the software has been installed and is available for use, and the asset is then amortised over the period for which software is expected to be used by the customers and markets it serves. The following is no longer considered to be a key source of estimation uncertainty. EMIS Group plc EMIS Group plc Annual report and accounts 2019 87 87 Annual report and accounts 2019 2. Critical accounting judgements and key sources of estimation uncertainty continued Business combinations On 31 October 2018 the Group acquired 90% of the share capital of Dovetail Digital Limited, a leading early stage UK technology business specialising in blockchain software for the healthcare market. Estimates are required with regard to determining, and allocating, the fair value of consideration. This is no longer considered to be a source of estimation uncertainty that could result in a material charge to the fair value of consideration as this was dealt with in the 2018 Annual Report and Accounts and there have been no subsequent revisions to the acquisition accounting. 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 a 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 and audit committee. 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 these parties, which, in addition to the normal credit management processes, assist 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 and has a formal treasury policy in place covering the maximum amount of cash to be placed with any one institution and their minimum credit rating. 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. Details of the Group’s borrowings and the maturity profile of the Group’s financial liabilities are disclosed in notes 23 and 24. Interest rate risk The Group has limited exposure to interest rate risk with no borrowings at 31 December 2019. The Group has an undrawn £30,000,000 credit facility in place, further details of which are disclosed in note 23. The Group’s current assets include cash and cash equivalents at the year end amounting to £31,099,000, on which interest received is subject to fluctuations in market rates. 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 assumed; • 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 with no 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, other reserves related to merger reliefs taken under UK law, equity-settled contingent acquisition consideration, and a put option over the purchase of non-controlling interest. 88 88 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 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. As previously announced, the Directors have revised the segmental information in 2019 to represent better the Group’s structure, activities and the markets being served. The Group has two operating and reportable segments, both involved with the supply and support of connected healthcare software and systems: • EMIS Health; and • EMIS Enterprise. Each operating segment is assessed by the Board based on an adjusted measure of operating profit, as defined on page 22. Group operating expenses, finance income and costs, cash and cash equivalents, and current and deferred tax are not allocated to segments, as income tax, Group and financing activities are not segment specific. The previously reported Specialist & Care operating segment has been classified as a discontinued operation following its sale on 2 April 2019 (see note 6) and therefore the information presented below relates to continuing operations only. The previously reported Patient operating segment is now included within the EMIS Enterprise operating segment. Segmental information Segmental result Revenue Segmental operating profit as reported internally Development costs capitalised Amortisation of development costs Amortisation of acquired intangible assets Reorganisation costs Service level reporting credit Segmental operating profit Group operating expenses Operating profit Net finance costs Share of result of joint venture 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 2019 EMIS Health £’000 EMIS Enterprise £’000 Total £’000 EMIS Health £’000 2018 EMIS Enterprise £’000 Total £’000 100,858 58,649 159,507 99,302 50,408 149,710 23,268 6,216 (5,500) (3,813) (4,135) — 17,511 1,147 (1,632) (3,504) (1,225) — 40,779 7,363 (7,132) (7,317) (5,360) — 25,197 2,968 (7,287) (3,348) — 1,657 12,784 2,814 (2,160) (2,854) — — 37,981 5,782 (9,447) (6,202) — 1,657 16,036 12,297 28,333 19,187 10,584 29,771 (1,506) 26,827 (498) 742 27,071 (2,091) 27,680 (180) 615 28,115 40,719 53,646 13,169 28,699 53,888 82,345 39,869 56,793 13,083 32,749 52,952 89,542 94,365 41,868 136,233 96,662 45,832 142,494 690 345 31,099 168,367 559 113 15,620 158,786 Segmental liabilities as reported internally 33,758 25,319 59,077 35,394 23,369 58,763 Group liabilities 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 5,092 64,169 4,897 6,822 773 884 5,257 64,020 4,726 5,535 780 946 4,285 5,018 538 653 441 517 242 293 4,422 6,160 569 619 475 662 204 265 EMIS Group plc EMIS Group plc Annual report and accounts 2019 89 89 Annual report and accounts 2019 4. Operating segments continued Segmental information continued As at 31 December 2018 there were segmental assets of £12,241,000 and segmental liabilities of £4,348,000 attributable to discontinued operations. Revenue excludes intra-Group transactions on normal commercial terms from the EMIS Health segment to the EMIS Enterprise segment totalling £4,442,000 (2018: £4,856,000). Revenue of £98,994,000 (2018: £99,414,000) is derived from the NHS and related bodies. Revenue of £5,022,000 (2018: £8,427,000) is derived from customers outside the UK. Non-current assets held outside the UK total £1,079,000 (2018: £923,000). 5. Revenue Revenue is analysed as follows: Software and software licences Maintenance and software support Other support services Training, consultancy and implementation Hosting Hardware 2019 EMIS Health £’000 EMIS Enterprise £’000 37,449 30,391 6,973 8,829 13,448 3,768 29,104 8,924 10,412 6,814 232 3,163 Total £’000 66,553 39,315 17,385 15,643 13,680 6,931 EMIS Health £’000 36,889 31,190 6,213 8,333 11,723 4,954 2018 EMIS Enterprise £’000 25,227 8,606 10,668 3,333 185 2,389 Total £’000 62,116 39,796 16,881 11,666 11,908 7,343 100,858 58,649 159,507 99,302 50,408 149,710 6. Discontinued operation Following the disposal of the Specialist & Care business on 2 April 2019, it has been treated as a discontinued operation. The comparative consolidated statement of comprehensive income has been re-presented to show the discontinued operation separately from continuing operations. The results of the discontinued operation are as follows: 2019 £’000 5,180 (5,011) 169 (32) 137 728 (389) 476 0.8p 0.8p 2018 £’000 20,360 (19,305) 1,055 (193) 862 — — 862 1.4p 1.4p 1,628 (45) 1,583 2,591 (571) 2,020 Revenue Costs Results from operating activities Income tax Results from operating activities, net of tax Gain on sale of discontinued operation Disposal-related costs Profit from discontinued operation, net of tax Earnings per share Basic Diluted Cash flows from discontinued operations Net cash generated from operating activities Net cash used in investing activities Net increase in cash and cash equivalents 90 90 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 6. Discontinued operation continued The effect of the disposal on the financial position and cash flow of the Group is shown below: Goodwill Other intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Current tax liabilities Lease liabilities Deferred tax liabilities Net assets disposed of Initial consideration received, settled in cash Cash and cash equivalents disposed of Directly attributable fees Net cash inflow 7. 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 – Depreciation of leased assets Amortisation of intangible assets: – Computer software used internally – Computer software developed for external sale – Arising on business combinations Exceptional reorganisation costs: - Staff costs - Impairment loss - Other property costs Exceptional service level reporting credit Operating lease rentals: – Land and buildings – Plant, machinery and motor vehicles 2019 £’000 3,989 3,111 2,298 5,848 7,462 (7,968) (63) (820) (531) 13,326 14,054 (7,462) (389) 6,203 2019 £’000 2018 £’000 20,697 18,674 (7,363) — (5,782) (137) 5,936 886 884 7,132 7,317 4,160 254 946 — 473 337 6,259 — 946 9,447 6,202 — — — (1,657) 905 908 The total research and development cost shown above of £20,697,000 (2018: £18,674,000) principally relates to relevant staff and directly related costs. Software development costs amounting to £7,363,000 (2018: £5,782,000) have been capitalised in accordance with the criteria set out in IAS 38. The exceptional reorganisation costs relate to the business reorganisation into two segments, undertaken and completed during 2019. 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 – All other services (including interim review) 2019 £’000 39 153 19 211 2018 £’000 49 143 18 210 EMIS Group plc EMIS Group plc Annual report and accounts 2019 91 91 Annual report and accounts 2019 8. Finance income Bank interest Foreign currency gain 9. Finance costs Interest payable and bank fees Interest on lease liabilities Amortisation of bank loan issue costs Foreign exchange loss 10. 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 Relating to continuing operations Relating to discontinued operation Staff costs were: Wages and salaries Social security costs Pension costs – defined contribution plans Share Incentive Plan (note 28) Share option expense (note 28) Dealt with as follows: Charged in Group statement of comprehensive income: - continuing operations - discontinued operation Capitalised in the development of software for external sale Capitalised in respect of computer software used internally 92 92 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 2019 £’000 97 — 97 2019 £’000 150 181 96 168 595 2018 £’000 33 31 64 2018 £’000 161 — 83 — 244 2019 Number 2018 Number 138 1,037 369 122 1,666 1,575 91 1,666 2019 £’000 66,650 6,792 2,652 93 1,290 77,477 67,519 2,595 7,363 — 77,477 246 1,042 447 289 2,024 1,667 357 2,024 2018 £’000 68,805 7,021 3,256 78 766 79,926 63,722 10,285 5,782 137 79,926 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 11. Income tax expense Income tax: – UK current year tax charge – Overseas current year tax charge – Adjustment in respect of prior years Total current tax Deferred tax: – UK current year – Adjustment in respect of prior years 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 19% (2018: 19%) Tax effects of: – Expenses not allowable in determining taxable profit – Adjustment in respect of prior years – Joint venture reported net of tax – Effect of overseas tax rates – Deferred tax rate change Tax charge for the year 2019 £’000 7,305 199 (370) 7,134 (2,456) 344 (2,112) 5,022 2018 £’000 7,827 37 609 8,473 (2,655) (463) (3,118) 5,355 27,071 5,143 28,115 5,342 31 (26) (141) 15 — 31 146 (117) (7) (40) 5,022 5,355 The total current year tax charge includes a credit of £1,018,000 (2018: charge of £315,000) in respect of exceptional items. The UK government announced that the planned UK corporation tax main rate reduction from 19% to 17% from 1 April 2020 will not take place as planned. Deferred tax balances have been calculated at 17%, being the rate substantively enacted at the balance sheet date. The impact of re-calculating at a 19% rate would be to increase the deferred tax liability by £234,000. 12. Earnings per share (EPS) The calculation of basic and diluted EPS is based on the following earnings and numbers of shares: Earnings Profit for the period Total comprehensive income attributable to non-controlling interest Basic earnings attributable to equity holders Profit from discontinued operation, net of tax Basic earnings from continuing operations attributable to equity holders Reorganisation costs Service level reporting credit 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 2019 £’000 22,525 133 22,658 (476) 22,182 5,360 — (7,363) 14,449 (2,319) 2018 £’000 23,622 (912) 22,710 (862) 21,848 — (1,657) (5,782) 15,649 (1,624) 32,309 28,434 2019 Number ‘000 63,311 (425) 62,886 378 63,264 2018 Number ‘000 63,311 (320) 62,991 140 63,131 EMIS Group plc EMIS Group plc Annual report and accounts 2019 93 93 Annual report and accounts 2019 12. Earnings per share (EPS) continued EPS Basic Basic diluted Basic - continuing operations Basic diluted - continuing operations Adjusted Adjusted diluted 13. Dividends Final dividend for the year ended 31 December 2017 of 12.9p Interim dividend for the year ended 31 December 2018 of 14.2p Final dividend for the year ended 31 December 2018 of 14.2p Interim dividend for the year ended 31 December 2019 of 15.6p 2019 Pence 36.0 35.8 35.3 35.1 51.4 51.1 2019 £’000 — — 8,950 9,795 2018 Pence 36.1 36.0 34.7 34.6 45.1 45.0 2018 £’000 8,124 8,946 — — 18,745 17,070 A final dividend for the year ended 31 December 2019 of 15.6p amounting to approximately £9,798,000 will be proposed at the Annual General Meeting on 6 May 2020. If approved, this dividend will be paid on 11 May 2020 to shareholders on the register on 14 April 2020. 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 ending 31 December 2020. 14. Goodwill Group Cost At 1 January 2018 Acquisition of business At 31 December 2018 Disposal of business At 31 December 2019 Accumulated impairment losses At 1 January 2018 and 31 December 2018 Disposal of business At 31 December 2019 Net book value At 31 December 2019 At 31 December 2018 At 1 January 2018 EMIS Health £’000 EMIS Discontinued Operation £’000 Enterprise £’000 Total Group £’000 41,810 — 41,810 — 20,720 1,622 22,342 — 8,605 — 8,605 (8,605) 71,135 1,622 72,757 (8,605) 41,810 22,342 — 64,152 8,825 — 8,825 7,358 — 7,358 4,616 (4,616) 20,799 (4,616) — 16,183 32,985 32,985 32,985 14,984 14,984 13,362 — 3,989 3,989 47,969 51,958 50,336 Impairment tests for goodwill Goodwill relates predominantly to the value of synergies arising from business combinations and the experience of staff within acquired businesses. Goodwill is allocated to the Group’s cash-generating units (CGUs) that are expected to benefit from that combination based on the relative carrying values of other acquired intangible assets. Following the reorganisation of the Group into two new segments (see note 4) and the disposal of the Specialist & Care business (see note 6) the Group has revised its CGU determination in order to better represent the Group’s structure. 94 94 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 14. Goodwill continued The carrying amount of goodwill is allocated to CGUs as follows: Primary, Community & Egton Acute NHS EMIS Health Community Pharmacy Acute Medicines Management Dovetail EMIS Enterprise Discontinued operation 2019 £’000 21,857 11,128 32,985 6,756 6,606 1,622 14,984 — 47,969 2018 £’000 21,857 11,128 32,985 6,756 6,606 1,622 14,984 3,989 51,958 Each allocation of goodwill 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 goodwill has been calculated using pre-tax cash flows from internal budgets for the year ending 31 December 2020 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% (2018: 3.5%) until 31 December 2024 and then 1% into perpetuity (2018: 1%) for all CGUs except Dovetail, which is based on management forecasts of annual double digit growth to 2024 followed by 1% growth into perpetuity. The pre-tax cash flows have been discounted back to 31 December 2019 using a discount rate of between 10.1% and 13.1% (2018: 10.1% to 11.1%). The exercise has confirmed that there has been no impairment in any CGU. The key assumptions underpinning the forecasts in the value in use calculation are revenue growth and operating margins. Sensitivity analysis has been performed on the key assumptions which indicated that no reasonably possible change to these would cause an impairment. 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. 15. Other intangible assets Group Cost At 1 January 2018 Additions Acquisition of business At 31 December 2018 Additions Disposal of business At 31 December 2019 Accumulated amortisation and impairment At 1 January 2018 Charged in period - continuing Charged in period - discontinued At 31 December 2018 Charged in period - continuing Charged in period - discontinued Disposal of business At 31 December 2019 Net book value At 31 December 2019 At 31 December 2018 At 1 January 2018 Computer software Computer software used developed for Computer software acquired on business external sale combinations £’000 £’000 Customer relationships £’000 internally £’000 6,245 780 — 7,025 773 — 44,953 5,782 — 50,735 7,363 — 36,320 — 5,032 41,352 — (1,011) 36,304 — — 36,304 — (5,320) Total £’000 123,822 6,562 5,032 135,416 8,136 (6,331) 7,798 58,098 40,341 30,984 137,221 3,337 946 — 4,283 884 — — 27,097 9,447 — 36,544 7,132 — — 23,629 3,621 126 27,376 4,589 32 (716) 19,251 2,581 532 22,364 2,728 133 (2,504) 73,314 16,595 658 90,567 15,333 165 (3,220) 5,167 43,676 31,281 22,721 102,845 2,631 2,742 2,908 14,422 14,191 17,856 9,060 13,976 12,691 8,263 13,940 17,053 34,376 44,849 50,508 EMIS Group plc EMIS Group plc Annual report and accounts 2019 95 95 Annual report and accounts 2019 15. Other intangible assets continued 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 four years. At 31 December 2019 software acquired on business combinations had a remaining amortisation period of two years for Ascribe and four years for Dovetail Digital Limited. Customer relationships have a remaining amortisation period of four years with the exception of Indigo 4 Systems (five years). Company intangible assets comprise computer software developed for external sale with a cost of £3,729,000 (2018: £3,729,000; 2017: £3,729,000) and accumulated amortisation of £1,518,000 (2018: £776,000; 2017: £164,000). 16. Property, plant and equipment Group Cost At 1 January 2018 Additions Acquisition of business Disposals Effect of movements in exchange rates At 31 December 2018 Recognition of right-of-use asset on initial application of IFRS 16 (note 1.3(a)) Adjusted balance as at 1 January 2019 Additions Disposals Reclassification to asset held for sale Effect of movements in exchange rates At 31 December 2019 Accumulated depreciation and impairment At 1 January 2018 Charged in period – continuing Charged in period – discontinued Acquisition of business On disposals Effect of movements in exchange rates At 31 December 2018 Recognition of right-of-use asset on initial application of IFRS 16 (note 1.3(a)) Adjusted balance as at 1 January 2019 Charged in period – continuing Charged in period – discontinued On disposals Impairment loss Reclassification to asset held for sale Effect of movements in exchange rates At 31 December 2019 Net book value At 31 December 2019 At 31 December 2018 At 1 January 2018 Land and buildings £’000 Computer equipment £’000 Fixtures. fittings and equipment £’000 Motor vehicles £’000 Total £’000 11,885 213 — — — 12,098 2,859 14,957 1,915 (2,697) (3,204) (155) 42,786 4,168 8 (47) (27) 46,888 — 46,888 3,018 (32,986) — (26) 6,584 792 — (2) 2 7,376 78 7,454 1,383 (4,643) (540) (1) 939 124 — (734) 2 331 912 1,243 468 (211) — — 62,194 5,297 8 (783) (23) 66,693 3,849 70,542 6,784 (40,537) (3,744) (182) 10,816 16,894 3,653 1,500 32,863 1,877 341 — — — — 2,218 318 2,536 725 — (1,248) 254 (762) 5 34,862 4,191 151 — (46) 1 39,159 — 39,159 4,712 37 (32,349) — — (4) 2,922 853 499 — (1) — 4,273 — 4,273 827 124 (3,392) — (507) (1) 496 150 74 — (677) — 43 — 43 558 18 (544) — — — 40,157 5,535 724 — (724) 1 45,693 318 46,011 6,822 179 (37,533) 254 (1,269) — 1,510 11,555 1,324 75 14,464 9,306 9,880 10,008 5,339 7,729 7,924 2,329 3,103 3,662 1,425 288 443 18,399 21,000 22,037 At 31 December 2019, the net carrying amount of assets held for sale was £2,475,000 (2018: nil). 96 96 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 17. Investments Company At 1 January 2018 Acquisition of business Acquisition of non-controlling interest Capital contribution At 31 December 2018 Disposal of investment in subsidiary Acquisition of investment (see note 19) At 31 December 2019 £’000 67,404 5,363 8,045 28,743 109,555 (12,932) 190 96,813 The undertakings whose results and financial position are consolidated within the Group financial statements at 31 December 2019 are as follows: ASC Computer Software (NZ) Limited ASC Computer Software PTY Limited Ascribe Group Limited Ascribe Holdings Limited Ascribe Limited Ascribe Limited (Kenya)1 Digital Healthcare Limited (disposed of on 2 April 2019) Dovetail Digital Limited Egton Limited1 Egton Medical Information Systems Limited EMIS Health Community Pharmacy Limited1 EMIS Health India Private Limited EMIS Health Limited1 Footman Walker Associates Limited1 Healthcare Gateway Limited Indigo 4 Systems Limited1 (dissolved 8 January 2019) Medical Imaging UK Limited (disposed of on 2 April 2019) MIDRSS Limited (disposed of on 2 April 2019) Patient Platform Limited Protechnic Exeter Limited1 Rx Systems Limited Scroll Bidco Limited 1 Dormant. 2 Held directly by EMIS Group plc. % of issued ordinary incorporation shares held Country of New Zealand Australia England & Wales England & Wales England & Wales Kenya England & Wales England & Wales England & Wales England & Wales England & Wales India England & Wales England & Wales England & Wales England & Wales England & Wales Republic of Ireland England & Wales England & Wales England & Wales England & Wales 100 100 100 2 100 100 100 100 2 90 2 100 2 100 2 100 2 100 2 100 2 100 50 100 100 2 100 2 100 2 100 100 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 and Ascribe Holdings Limited which are all holding companies. All undertakings incorporated in England, with the exception of Healthcare Gateway Limited, have a Registered Office of Fulford Grange, Micklefield Lane, Rawdon, Leeds LS19 6BA. The Registered Office of Healthcare Gateway Limited is Unit 3 Rawdon Park, Green Lane, Leeds LS19 7BA. Other Registered Offices are as follows: ASC Computer Software (NZ) Limited, Suite 6035, 17b Farnham Street, Parnell, Auckland 1052, New Zealand; ASC Computer Software PTY Limited, Level 22, 567 Collins Street, Melbourne, Victoria, Australia 3000; Ascribe Limited (Kenya), PO Box 40296 – 00100, Nairobi, Kenya; and 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. EMIS Group plc EMIS Group plc Annual report and accounts 2019 97 97 Annual report and accounts 2019 18. Investment in joint venture Healthcare Gateway Limited (HGL) is a joint venture 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 2019 the Group was owed £nil (2018: £34,000). 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 Group’s interest in net assets of investee at end of year 2019 £’000 4,153 1,829 1,483 2018 £’000 3,628 1,518 1,231 1,489 (1,330) 2,484 (2,257) 159 113 742 (700) 155 227 98 615 (600) 113 19. Investment in associate On 20 May 2019 EMIS Group plc acquired a 10% shareholding in Adheradata Limited (Adhera), a privately owned organisation offering a complete dispensing business management solution. The acquisition is in line with the Group’s strategy of identifying sustainable long-term market opportunities delivering connected healthcare systems. The acquisition of Adhera has been accounted for as an associate because the Group has determined that it has significant influence due to meaningful representation on its board of directors. The following table analyses the carrying amount and share of profit of Adhera: Carrying amount of investment in associate Share of profit from continuing operations 20. Trade and other receivables Trade receivables and other receivables Accrued income Prepayments Loan to Employee Benefit Trust 2019 £’000 190 — 2018 £’000 — — Group Company 2019 £’000 17,960 9,608 5,479 — 2018 £’000 19,683 10,418 6,122 — 33,047 36,223 2019 £’000 122 — 533 5,392 6,047 2018 £’000 — — 486 2,850 3,336 Prepayments include unamortised bank fees of £84,000 (2018: £138,000). The loan to the Employee Benefit Trust is non-interest bearing and is repayable on demand. 98 98 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 21. Credit quality of financial assets The amounts of the maximum exposure to credit risk at the reporting date are as follows: Trade receivables and other receivables Cash at bank No collateral security is held. Trade receivables 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 2019 £’000 17,960 31,099 2018 £’000 19,683 15,620 49,059 35,303 2019 £’000 122 20,852 20,974 2018 £’000 — 790 790 Group 2019 £’000 7,821 4,316 5,823 2018 £’000 11,873 3,981 3,829 17,960 19,683 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 Gross carrying amount Impairment provision Net carrying amount Group 2019 £’000 13,604 1,946 3,053 18,603 2018 £’000 13,147 4,360 3,438 20,945 (643) (1,262) 17,960 19,683 During the year a provision for impairment of £341,000 was created (2018: £624,000), utilisation of the provision amounted to £865,000 (2018: £59,000) and £95,000 (2018: £nil) of provision was disposed of. 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: Aa3 A1 A3 Baa1 Baa2 Baa3 22. Trade and other payables Trade payables Accrued expenses Other tax and social security Group 2019 £’000 1,830 14,864 13,281 811 313 — 31,099 Group Company 2019 £’000 4,380 13,160 5,897 23,437 2018 £’000 2,388 14,604 7,966 24,958 2019 £’000 135 1,162 — 1,297 2018 £’000 1,702 12,306 21 — 1,584 7 15,620 2018 £’000 64 872 — 936 EMIS Group plc EMIS Group plc Annual report and accounts 2019 99 99 Annual report and accounts 2019 23. Borrowings At 31 December 2019, the Group had available undrawn bank facilities of £30,000,000 committed until June 2021, reducing to £15,000,000 for the twelve-month period ending 30 June 2022. An accordion arrangement is in place to increase the quantum up to £60,000,000, reducing to £30,000,000 for the twelve-month period ending 30 June 2022. Unamortised bank fees of £84,000 (2018: £138,000) have been presented within prepayments in trade and other receivables. The financial covenants in place for these facilities are adjusted EBITA interest cover and net debt to adjusted EBITDA leverage. All covenants were comfortably met during the year and are projected to be met for the remaining period of the facilities. 24. Liquidity risk The following are the contractual maturities of the Group’s financial liabilities, including estimated interest payments: Carrying amount £’000 Contractual cash flow £’000 Less than 1 year £’000 1–2 years £’000 2–5 years £’000 More than 5 years £’000 At 31 December 2019 Trade and other payables due within one year Contingent acquisition consideration Option over non-controlling interest Lease Liabilities At 31 December 2018 Trade and other payables due within one year Contingent acquisition consideration Option over non-controlling interest 25. Deferred tax Group At 1 January 2018 Credited to statement of comprehensive income Credited to equity Acquisition of business Effect of movements in exchange rates At 31 December 2018 Credited to statement of comprehensive income - continuing operations Credited to statement of comprehensive income - discontinued operation Credited to equity Disposal of discontinued operation Effect of movements in exchange rates At 31 December 2019 23,437 1,500 2,688 3,934 23,437 1,500 5,854 5,418 23,437 480 — 870 31,559 36,209 24,787 24,958 2,512 2,406 24,958 2,512 5,926 24,958 1,012 — 29,876 33,396 25,970 — 1,020 — 678 1,698 — 480 — 480 — — — 1,230 1,230 — 1,020 — 1,020 Property, plant and equipment £’000 Intangible assets £’000 Other temporary differences £’000 929 50 — — — 979 160 — — (18) — (8,070) 3,153 — (884) — (5,801) 1,750 31 — 549 — 1,121 (3,471) 407 90 31 — 1 529 202 — 156 — (4) 883 — — 5,854 2,640 8,494 — — 5,926 5,926 Total £’000 (6,734) 3,293 31 (884) 1 (4,293) 2,112 31 156 531 (4) (1,467) Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (before offset) for financial reporting purposes: Deferred tax liabilities Deferred tax assets 100 100 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 2019 £’000 (3,471) 2,004 2018 £’000 (5,801) 1,508 (1,467) (4,293) FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 26. Other financial liabilities Company and Group Current Contingent acquisition consideration Total Non-current Contingent acquisition consideration Option over non-controlling interest Total 2019 £’000 480 480 1,020 2,688 3,708 2018 £’000 1,012 1,012 1,500 2,406 3,906 The current and non-current contingent consideration liabilities are both cash-settled liabilities arising from the prior year acquisition of Dovetail Lab, payable upon the achievement of specified revenue targets. The possible minimum and maximum undiscounted amounts of contingent consideration payable in cash are £nil and £1,500,000 respectively. Estimated fair value has been measured based on the future amounts payable, as the impact of discounting is not significant. During the year a payment of £1,012,000 was made, and a liability of £480,000 was reclassified from non-current to current. A non-current financial liability of £2,688,000 (2018: £2,406,000) has been recognised in relation to a put option in place over the 10% of Dovetail Lab’s share capital not currently owned by EMIS Group plc. The put option has been measured at the present value of expected future cash flows and is exercisable in 2026 (provided the Group has not exercised the related call option between 2023 and 2025), on an exercise price based on a multiple of operating profit for the preceding year. The expected future payment has been discounted to present value using a risk-adjusted discount rate that reflects the expected maturity profile of the consideration being discounted. The significant unobservable inputs are future operating profit and the risk-adjusted discount rate. The carrying value would increase/(decrease) if expected future operating profits were higher/(lower), or if the risk-adjusted discount rate were lower/(higher). The movement in the liability in the year relates primarily to the unwinding of discounting. 27. Share capital and share premium Company and Group At 1 January 2018, 31 December 2018 and 31 December 2019 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 2019 the EMIS Group plc Employee Benefit Trust held 512,231 shares in the Company (2018: 290,084 shares). During the year the Employee Benefit Trust purchased 309,647 shares, representing 0.5% 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 87,500 shares, representing 0.1% of the issued share capital of the Company, for total consideration of £462,000. The maximum number of shares held by the Employee Benefit Trust during the year was 536,337, representing 0.8% of the issued share capital of the Company. EMIS Group plc EMIS Group plc Annual report and accounts 2019 101 101 Annual report and accounts 2019 28. Share-based payments At 31 December 2019 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 18 October 2013 15 October 2014 28 April 2015 27 April 2016 21 April 2017 20 April 2018 24 April 2019 At 1 January 2018 5,715 7,458 30,794 31,159 70,890 — — Granted Lapsed Exercised — — — — — 106,359 — (2,286) — (30,794) (8,240) (19,182) — — (3,429) (1,356) — — — — — At 1 January 2019 — 6,102 — 22,919 51,708 106,359 — Granted Lapsed Exercised At 31 December 2019 — — — — — — 83,500 — — — (22,919) (14,178) (39,555) (12,692) — (6,102) — — — — — — — — — 37,530 66,804 70,808 146,016 106,359 (60,502) (4,785) 187,088 83,500 (89,344) (6,102) 175,142 Weighted average exercise price 896p 853p 900p 679p 876p 1,122p 947p 656p 972p Unapproved Option Scheme 27 April 2016 Weighted average exercise price EMIS Group LTIP 1 May 2014 28 April 2015 27 April 2016 21 April 2017 1 May 2017 4 September 2017 20 April 2018 6 November 2018 3 April 2019 24 April 2019 24 June 2019 9 September 2019 2,317 2,317 970p 14,590 135,498 141,890 174,615 44,518 21,953 — — — — — — — — — (772) (772) 970p — — — 1,545 1,545 970p — — — (1,545) (1,545) 970p — — — (135,498) (4,254) — (4,685) — — — — — (9,076) 294,119 — 162,861 — — — — — — — — (14,590) — — — — — — — — — — — — — 137,636 169,930 44,518 21,953 285,043 162,861 — — — — — — — — — — — — 22,643 335,733 439,781 21,061 — — (137,636) (39,465) — — (52,772) (5,866) — (31,557) — — — — — — — — — — — — — — — — — — — — — — — 130,465 44,518 21,953 232,271 156,995 22,643 304,176 439,781 21,061 Weighted average exercise price 0p 0p 0p 0p 0p 0p 0p 0p 0p 533,064 456,980 (153,513) (14,590) 821,941 819,218 (267,296) — 1,373,863 The number of vested options which had not been exercised at 31 December 2019 was nil (2018: 6,102). The weighted average share price at the date of exercise for share options exercised in 2019 was £10.84 (2018: £8.77). 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 and the Unapproved Option Scheme, and at nil-cost under the LTIP scheme. Performance conditions apply to all outstanding awards. 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 103. The fair values of options are determined using the Black Scholes model, with the impact of any market based performance conditions determined using a Monte Carlo simulation. 102 102 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 28. 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 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 18 Oct 2013 Oct 2016– Oct 2018 656p 656p 35% 3 1.40% 2.20% 141p 2011 Share Option Plan 15 Oct 2014 Oct 2017– Oct 2019 737p 737p 35% 3 2.37% 2.33% 164p 28 April 2015 April 2018– April 2020 901p 901p 26% 3 2.37% 2.03% 152p 27 April 2016 April 2019– April 2021 970p 970p 30% 3 2.37% 2.19% 190p 21 April 2017 April 2020– April 2022 899p 899p 30% 3 2.37% 2.73% 164p 20 April 2018 April 2021– April 2022 853p 853p 33% 3 2.62% 3.05% 175p 24 April 2019 April 2022– April 2023 1,122p 1,122p 25% 3 0.82% 2.66% 158p Unapproved Option Scheme 27 April 2016 April 2019–April 2021 970p 970p 30% 3 2.37% 2.19% 190p EMIS Group LTIP 1 May 2014 May 2017– May 2024 635p 0p 35% 3 21 April 2017 April 2020– April 2027 899p 0p 30% 3 27 April 2016 April 2019– April 2026 970p 0p 30% 3 28 April 2015 April 2018– April 2025 908p 0p 26% 3 9 Sept 2019 April 2022– April 2029 1,122p 0p 24% 2.5 2.37% 2.37% 2.37% 2.37% 2.37% 2.37% 2.62% 2.62% 2.62% 0.82% 0.60% 0.63% 0.33% 2.52% 2.03% 2.19% 2.71% 2.71% 2.69% 3.05% 2.98% 2.75% 2.66% 2.47% 2.47% 2.66% 831p 1,024p 1,036p 1,095p 1,068p 1,046p 779p 589p 24 June 24 June 24 April 2019 2019 2019 June June April 2024– 2023– 2022– June June April 2029 2029 2029 1,122p 1,208p 1,208p 0p 24% 5 3 April 6 Nov 2019 2018 April May 2021– 2021– April May 2028 2028 909p 1,082p 0p 25% 2 20 April 2018 May 2021– May 2028 853p 0p 33% 3 4 Sept 2017 May 2020– May 2027 914p 0p 30% 3 1 May 2017 May 2020– May 2027 934p 0p 30% 3 0p 24% 4 0p 25% 3 0p 33% 2.5 908p 854p 843p 836p 836p 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 six months' service. Those joining contribute a maximum of the lower of £1,800 a year or 10% of salary. These contributions are 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 £587,000 (2018: £78,000). EMIS Group plc EMIS Group plc Annual report and accounts 2019 103 103 Annual report and accounts 2019 29. Leases The Group leases property, office equipment and motor vehicles. Leases for vehicles typically run for a period of 4 years, property leases for between 2 and 15 years, and office equipment for between 5 and 6 years. Some property leases contain extension options or break clauses exercisable by the Group and not by the lessors. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant change in circumstances. The Group does not have any leases that were previously classified as a finance lease under IAS 17. Right-of-use assets recognised on the Group balance sheet in respect of leases are as follows: At 1 January 2019 Depreciation charge for the year Disposal of business Additions to right-of-use assets Effect of movement in exchange rates At 31 December 2019 Liabilities recognised on the Group balance sheet in respect of leases are as follows: At 1 January 2019 Additions in respect of new leases Payments Interest expense Disposals of business Effect of movement in exchange rates At 31 December 2019 Amounts recognised in the statement of comprehensive income are set out below: 2019 leases under IFRS 16 Interest on lease liabilities Expenses relating to short-term leases Expenses relating to leases of low value 2018 operating leases under IAS 17 Lease expense Total cash outflow for leases Land and buildings £’000 Fixtures, fittings and equipment £’000 2,541 (360) (820) 1,419 (141) 2,639 78 (32) — — 46 Motor vehicles £’000 912 (494) — 468 — 886 Total £’000 3,531 (886) (820) 1,887 (141) 3,571 £’000 3,784 1,887 (940) 181 (820) (158) 3,934 Total £’000 181 804 6 1,813 2019 £’000 1,750 30. Capital commitments At 31 December 2019 the Group had capital commitments principally in respect of computer equipment amounting to £277,000 (2018: £1,097,000). 104 104 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS 31. Cash generated from operations Profit/(loss) before taxation Finance income Finance costs Share of result of joint venture Gain on sale of investment in subsidiary Dividends received Operating profit/(loss) Operating profit of discontinued operation Adjustment for non-cash items Amortisation of intangible assets Depreciation of property, plant and equipment Impairment loss on remeasurement of property asset held for sale Loss/(Profit) on disposal of property, plant and equipment Share-based payments Release of provision Operating cash flow before changes in working capital Changes in working capital Decrease in inventory (Increase)/decrease in trade and other receivables Increase in trade and other payables (Decrease)/Increase in deferred income Decrease in provision Cash generated from/(used in) operations Group Company 2019 £’000 27,071 (97) 595 (742) — — 2018 £’000 28,115 (64) 244 (615) — — 2019 £’000 (684) (259) 181 — (732) — 26,827 162 27,680 1,060 (1,494) — 17,253 6,259 — (119) 766 (1,657) 742 — — — — — 2018 £’000 53,534 (150) 171 — — (54,959) (1,404) — 612 — — — — — 51,242 (752) (792) 369 2,199 5,264 330 (9,531) — (226) 361 — — (617) — (33) 315 — — (510) 50,059 49,873 15,498 7,001 254 544 1,290 — 51,576 607 (316) 2,623 (4,431) — 32. Pension commitments Pension contributions of £2,652,000 (2018: £3,256,000) represent contributions paid on behalf of employees by the Group to various defined contribution schemes. 33. Related party transactions Key management compensation Key management includes Executive and Non-executive Directors and members of the Group Executive Team. The compensation paid or payable to key management for employee services is shown below: Key management Salaries and other short-term employee benefits Share-based payments Termination payments Post-retirement benefits Directors’ emoluments Aggregate emoluments Pension costs – defined contribution plans 2019 £’000 3,895 982 570 192 5,639 2019 £’000 1,442 70 1,512 2018 £’000 4,251 472 — 169 4,892 2018 £’000 1,692 70 1,762 EMIS Group plc EMIS Group plc Annual report and accounts 2019 105 105 Annual report and accounts 2019 33. Related party transactions continued Key management compensation continued Retirement benefits are accruing to two (2018: two) Directors under defined contribution personal pension schemes. Highest paid Director Aggregate emoluments Pension costs – defined contribution plans 2019 £’000 684 60 744 2018 £’000 862 60 922 The remuneration of the Directors of EMIS Group plc is set out in detail in the Directors’ remuneration report on pages 63 to 67. Other related party transactions Transactions between the Group and: 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 2019 £’000 2018 £’000 140 — — 795 34 2 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 2019 totalled £13,726,000 (2018: £17,324,000). Amounts owed by the Company at 31 December 2019 totalled £38,252,000 (2018: £14,050,000). The Company and certain subsidiary undertakings have given guarantees in support of the Group’s banking facility, a revolving credit facility of £25,000,000 and an overdraft facility of £5,000,000. 34. Subsequent event On 9 March 2020 the Group completed the acquisition of Pinnacle Health Partnership LLP and Pinnacle Systems Management Ltd – owners and operators of the widely-used PharmOutcomes platform, a secure, web-based service management solution used by more than 11,000 community pharmacies to record and manage nationally and locally commissioned patient services such as flu vaccinations, the Community Pharmacist Consultation Service and hospital discharge referral management. It allows local and national level analysis and reporting on the effectiveness of commissioned services, helping to improve the evidence base for community pharmacy services. EMIS Group is acquiring the business on a cash and debt free basis for £3,000,000 in cash with up to £4,000,000 of further consideration payable in cash on the attainment of certain performance targets in 2020 and 2021. The Group is undertaking an exercise to establish the fair value of the net assets acquired, however due to the timing of the acquisition the results of this have not been included in these financial statements. 106 106 EMIS Group plc EMIS Group plc Annual report and accounts 2019 Annual report and accounts 2019 FINANCIAL STATEMENTSNotes to the financial statements continuedfor the year ended 31 December 2019FINANCIAL STATEMENTS Five-year Group financial summary Revenue Recurring revenue1 Reported operating profit Adjusted operating profit1 Profit before tax Earnings per share – basic Earnings per share – adjusted1 Dividends payable to Company’s shareholders in respect of year Dividends per ordinary share Total equity Reported cash generated from operations Adjusted cash generated from operations1 Net cash/(debt) Average number of employees 1 The Group’s alternative performance measures (APMs) are defined on page 22. 2019 £’000 159,507 124,969 26,827 39,273 27,071 36.0p 51.4p 19,593 31.2p 2018 £’000 170,070 140,681 28,740 37,608 2017 £’000 160,354 133,537 10,640 37,406 29,170 10,937 36.1p 47.4p 17,896 28.4p 12.8p 47.2p 16,245 25.8p 2016 £’000 2015 £’000 158,712 128,483 155,898 123,027 23,539 38,753 25,333 30.4p 49.4p 14,705 23.4p 11,430 36,553 10,932 7.2p 45.3p 13,307 21.2p 104,198 102,659 108,014 114,142 107,046 50,059 46,332 31,099 1,666 49,873 54,469 15,620 48,834 49,652 13,991 43,657 41,073 (430) 42,711 36,528 (9,109) 2,024 1,906 1,875 1,863 EMIS Group plc EMIS Group plc Annual report and accounts 2019 107 107 Annual report and accounts 2019 Shareholder information Internet The Group’s investor page 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/financial-reporting-and-presentations. The maintenance and integrity of the website is the responsibility of the Directors. The auditor does not consider these matters. 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 Link Asset Services, The Registry, 34 Beckenham Road, Beckenham BR3 4TU, tel. 0371 664 0300; calls are charged at the standard geographic rate and will vary by provider. If you are outside the UK, please call +44 371 664 0300. Calls outside the UK 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.signalshares.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. 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 report any suspicious telephone calls to the Financial Conduct Authority (FCA) by visiting its website (www.fca.org.uk/scamsmart/resources) or contacting the FCA on 0800 111 6768. 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 Link Asset Services, whose details are opposite. 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/shareholder-information. 108 EMIS Group plc Annual report and accounts 2019 FINANCIAL STATEMENTS Board Executive Directors Andy Thorburn – Chief Executive Officer Peter Southby – Chief Financial Officer Non-executive Directors Mike O’Leary – Chair Patrick De Smedt - Independent Non-executive Director and Chair designate Kevin Boyd – Independent Non-executive Director Andy McKeon – Senior Independent Non-executive Director Jen Byrne – Independent Non-executive Director Company Secretary Christine Benson Company number 06553923 (England and Wales) Registered office Fulford Grange Micklefield Lane Rawdon Leeds LS19 6BA 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 Registrar Link Asset Services The Registry 34 Beckenham Road Beckenham BR3 4TU Financial PR MHP Communications 60 Great Portland Street London, W1W 7RT Tax adviser Deloitte LLP 1 City Square Leeds LS1 2AL Remuneration adviser Mercer Limited 1 Tower Place West Tower Place London EC3R 5BU Legal advisers to the Company Pinsent Masons LLP 1 Park Row Leeds LS1 5AB Schofield Sweeney LLP Church Bank Bradford BD1 4DY DAC Beachcroft LLP St Pauls House 23 Park Square South Leeds LS1 2ND CBP002523 E M I S G r o u p p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 9 EMIS Group plc Registered Office Fulford Grange Micklefield Lane Rawdon Leeds LS19 6BA Tel: 0113 380 3000 www.emisgroupplc.com