Medica Group
Annual Report 2016

Plain-text annual report

Focused on delIVeRInG QuAlItY Results ANNUAL REPORT AND ACCOUNTS 2016 REGISTERED COMPANY NUMBER 08497963 MEDICA GROUP PLC tHe leAdInG Independent uK pRoVIdeR oF RAdIoloGY RepoRtInG 1.3m REPORTS A YEAR Overview Highlights At a glance Strategic report Chairman’s statement Investment case In focus – clinical governance Business model Our strategy Chief Executive’s review Financial review 01 02 04 06 08 10 12 14 18 Governance Board of Directors Report of the Directors Statement of Directors’ Responsibilities Statement on Corporate Governance Directors’ Remuneration Report Report of the independent auditor to the members of Medica Group PLC 22 24 26 27 29 31 Financial statements Consolidated income statement and consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the financial statements Company statement of financial position Company statement of changes in equity Notes to the financial statements continued Company information 35 36 37 38 39 58 59 60 62 v AnnuAl RepoRt And Accounts 2016 Overview strategic Report Governance Financial statements HIGHLIGHTS A YeAR oF stRonG GRoWtH FINANCIAL 28.3% 49.8% 92%* 28.5%** REvENUE INCREASE GROSS PROFIT MARGIN CASH CONvERSION ADJUSTED OPERATING PROFIT MARGIN OPERATIONAL HIGHLIGHTS — total number of reported body parts increased by 16.2%, from 1.17m in 2015 to 1.35m in 2016 • nightHawk volume increased by 32.6% • cross-sectional volume increased by 48.7% • plain film volume increased by 3.4% — Recruitment has been strong throughout 2016, with the total number of radiologists (including radiographers and rheumatologists) contracting with Medica standing at 248 as at december 2016. this represents a net increase of 58 year-on-year — Medica provided services to 99 nHs trusts and private providers in 2016 (2015: 92) * eBItdA cash conversion is detailed in note 30 ** Adjusted operating profit margin is detailed in note 30 www.medicagroup.co.uk Visit us for our latest news and developments 01 AnnuAl RepoRt And Accounts 2016 AT A GLANCE MedIcA Is tHe lARGest teleRAdIoloGY pRoVIdeR BY ReVenue In tHe uK WHAT IS TELERADIOLOGY? WHAT WE DO Medica provides outsourced interpretation and reporting on MRI, CT and plain film images. The Company currently offers three primary services to hospital radiology departments: NightHawk, an out-of-hours service, routine cross-sectional (Routine CS) reporting on MRI and CT scans, and routine plain film (Routine PF) reporting on x-ray images. Primary services: NightHawk out-of-hours emergency ct and MR reporting in less than an hour. Routine CS/PF Routine teleradiology reporting of cross-sectional and plain film images. Other services include: DayHawk Fast day-time reporting (<60 minutes). Colonography sub-speciality ‘virtual colonoscopy’ service. DXA Flexible reporting by uK rheumatologists. Radiographer reporting Quality assured radiographer plain film reporting service. Audit Highly experienced and robust external auditing service. Mammography sub-speciality symptomatic breast reporting. teleradiology is the electronic transmission of radiological patient images, including plain film x-rays (pF), computerised tomography (ct) scans and magnetic resonance imaging (MRI) scans, from one location to another, for the purposes of diagnostic interpretation and reporting. through teleradiology, images can be transmitted from the hospital setting, where the images are created, to a radiologist who can review and report on the images remotely. In the case of Medica, these are consultant Radiologists specialising in the relevant field, who typically report on the image from their own home or from one of Medica’s dedicated reporting centres. teleradiology improves patient care by enabling radiologists to provide their services remotely, thereby facilitating the rapid availability of trained specialists 24 hours a day, 365 days a year. 24/7 365 RAPID AvAILABILITY OF TRAINED SPECIALISTS 02 AnnuAl RepoRt And Accounts 2016 Overview strategic Report Governance Financial statements HOW WE DO IT Hospitals Patient Booking/ Reporting System (RIS) Patient Scan Image Store (PACS) t r o p p u S e v i t a r t s i i n m d A d n a l a c i n h c e T r u o H 4 2 Radiologist reports directly into hospital RIS Secure Medica Firewall Medica Group Current and Historic Images Medica Radiologist (Home Office/Hub) Medica Server/ PACS 03 AnnuAl RepoRt And Accounts 2016 Medica has a bespoke IT platform that provides market-leading linkage between a hospital’s Radiology Information System (RIS) and Consultant Radiologists who contract with Medica. this link to the hospital RIs is a key advantage Medica has over competitors in the teleradiology market. this unique linkage offers Medica’s contracted radiologists equivalence to nHs in-house reporting by providing the same radiology history and previous images that an in-house radiologist would have access to. What this means direct access to the hospital’s RIs system and thus to a patients’ historical clinical records allows Medica radiologists to give the most complete and accurate reports adhering to the highest standards, in the same way that the hospital-based radiologist does. Among other benefits, Medica offers hospital radiology departments the ability to manage their workflow more efficiently and flexibly, and provides rapid access to specialist consultant Radiologists, who may not be available to that hospital at the relevant time, or at all. t r o p p u S d n a k r o w e m a r F e c n a n r e v o G l a c i n i l C CHAIRMAN'S STATEMENT posItIVe posItIon FoR FutuRe GRoWtH RoY dAVIs CHAIRMAN I am pleased to provide my inaugural chairman’s statement and the first for Medica Group plc as a public company. 04 AnnuAl RepoRt And Accounts 2016 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements market experience with experience of the nHs. I have been extremely impressed by the progress of the Group over the past year and I am very excited to join the Group as chairman. I believe we are well positioned to create value for all shareholders going forward by delivering high levels of service to our clients and helping to improve patient outcomes. ROY DAvIS chairman 248 RADIOLOGISTS CONTRACTING WITH MEDICA In 2016, Medica achieved a highly impressive set of results and is now well placed as a public company to continue delivering high quality services to its customers. the Group saw growth across all three of its main teleradiology offerings as more clients seek a quality solution for dealing with increased demands for reporting against a backdrop of a lack of in-house reporting capacity to meet these increased demands in a timely manner. the number of radiologists contracting with Medica also continued to grow throughout the year, and stood at a total of 248 at the year end. this financial performance demonstrates the strength of our proven operating model, which delivers a quality client offering through our high standards of clinical governance and bespoke technology. In March 2017, Medica successfully listed on the Main Market of the london stock exchange, raising gross proceeds of £15m for the company, which were used to pay down the net debt of the Group to approximately £10m. this provides the company with a strong platform from which to pursue further organic growth and capitalise on growth opportunities to generate long-term value for shareholders. the Board intends to adopt a progressive dividend policy for the company from Admission, which will seek to maximise shareholder value and reflect Medica’s strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in the Group’s long-term growth. As set out in its Ipo prospectus, the Board expects to announce its first dividend as a public company later in the year, representing an interim dividend for the period ended 30 June 2017. the executive management and the whole team showed commendable commitment and dedication to the Group throughout 2016. the Board believes that attracting, motivating and retaining employees of the right calibre is vital to the continued success of the Group. As part of the Ipo, the executive directors have received long-term share-based incentive options to align their remuneration with the financial performance of the Group and its shareholders. In addition, as part of the Ipo, employees of the Group were able to participate in the offer, pursuant to which shares totalling a value of £203,288 were taken up. As part of the Ipo process, the company has also added a strong non- executive Board which blends public 05 AnnuAl RepoRt And Accounts 2016 INvESTMENT CASE A coMpellInG pRoposItIon to clIents And RAdIoloGIsts providing a sound foundation for sustainable, profitable growth lARGe pool oF consultAnt RAdIoloGIsts Medica contracts with 248 uK consultant Radiologists, enabling us to provide increased capacity for our customers and a breadth of specialisms that an individual customer may not be able to employ. stRonG clInIcAl GoVeRnAnce We have established a highly experienced, market leading clinical governance function. the quality of our own internal clinical oversight has led to some customers approaching us to audit their own internal radiology departments. see more on page 09 eXpeRIenced teAM the senior management team has been with the business for an average of more than five years and includes a previous president of the British Institute of Radiology. see more on page 22 RoBust & scAlABle tecHnIcAl plAtFoRM We have invested in our bespoke It platform to provide a robust and secure connection with hospital radiology systems that can deliver a simple and quick service with enhanced functionality, ultimately improving patient outcomes, and providing a bespoke linkage between our customers and Medica Radiologists. our It and services platform gives us the scope to continue growth in existing service lines, but also the ability to service different customer groups and to add new service lines. 06 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements <22mins AvERAGE NIGHTHAWK TURN AROUND TIME FAVouRABle MAcRo MARKet dYnAMIcs the number of scans is increasing, underpinned by the drive for early diagnosis and preventative healthcare. the shortage of radiologist capacity in hospitals is supporting the trend towards outsourcing, as is the increasing cultural acceptance of teleradiology. stRonG FInAncIAl peRFoRMAnce Medica has enjoyed strong growth in recent years, and this continued throughout 2016, with Group revenues growing by 28.3% to £28.5m (2015: £22.2m) and eBItdA growing by 35.5% to £9.2m (2015: £6.8m). see more on page 18 cAsH GeneRAtIon the Group continues to deliver strong cash generation with operating cash flow before tax and exceptional costs 29.9% higher in 2016 at £8.5m (2015: £6.5m) due to an increase in eBItdA and efficient use of working capital, offset by expansionary capex incurred in order to deploy additional radiologists and new customers. All of this resulted in eBItdA cash flow conversion of 92% (2015: 96%). HIGH leVels oF RepeAt ReVenues over 80% of revenue in the financial year ended 31 december 2016 was derived from customers who had worked with Medica for more than three years, with strong revenue growth even from customers who have worked with Medica for over five years. 07 AnnuAl RepoRt And Accounts 2016 IN FOCUS clInIcAl GoVeRnAnce Focused on delivering quality results THE BENEFITS Highly experienced clinical governance structure Market leading controls and support process in place — strong leadership from Medical director and clinical Advisory Group consisting of five members, including past presidents of the British Institute of Radiology (BIR). — clinical support comprising seven members of clinical services and Quality and 12 clinical speciality leads. Stringent clinical selection and recruitment established and stringent clinical selection and recruitment process in line with GMc standards for the recruitment of doctors. All Medica Radiologists are required to: — be on the GMc specialist Register for clinical Radiology — have a minimum of two years in an nHs consultant post. clinical support and Audit providing Quality Assurance, Quality control and clinical education — All new radiologists’ initial reporting is audited. — ongoing programme of auditing reporting: • 10% of cross-sectional per radiologist • 2% of plain film per radiologist — clinical output monitored in regular clinical Governance meetings. — developed radiologist management and response to concerns policy and learning and development support tools. — the quality of our clinical Governance function has led to customers approaching us to audit their own internal radiology departments. 08 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements dR stepHen dAVIes MEDICAL DIRECTOR STATEMENT FROM THE MEDICAL DIRECTOR DR STEPHEN DAvIES Medica Group clinical Governance is built on the pillars of Recruitment/selection, continuous Quality Assurance through the clinical Audit process, and the third pillar of a detailed Radiologist Management programme that includes a Response to concerns. the overarching aim is to ensure the production of a high quality report, delivered by an appropriately skilled radiologist in the correct time frame, which ultimately has a positive influence on patient management. the clinical governance processes are widely recognised as being of a high standard and are supported by a team of radiologists who are experienced in clinical governance. the policy and process is updated in line with evolving guidance from nHs england and the GMc. While clinical governance by its nature deals with clinical concerns, Medica balances that with creating a supportive and developmental environment in which to practise. We receive good feedback from our radiologists who appreciate the positive management and support. 09 AnnuAl RepoRt And Accounts 2016 BUSINESS MODEL cReAtInG VAlue We use our resources and sources of competitive advantage to create value that is shared with our stakeholders INPUTS WHAT WE DO Resources Our people and expertise: A dedicated and skilled team of over 80 staff, 248 consultant Radiologists and a healthy recruitment pipeline. Technology: Bespoke It platform that provides market-leading linkage between a hospital’s Radiology Information system (RIs) and consultant Radiologists who contract with Medica. Relationships: We are a respected partner to clients including the nHs, private hospital groups and diagnostic imaging firms. We are the uK market leader by revenue in the provision of teleradiology services, i.e. the outsourced interpretation and reporting on radiology images. Routine: Routine teleradiology reporting of cross-sectional and plain film images. NightHawk: out-of-hours emergency ct and MR reporting in less than an hour. ROUTINE CS 37% OF REvENUES ROUTINE PF 14% OF REvENUES NIGHTHAWK 47 % OF REvENUES services added more recently: DayHawk: Fast day- time reporting (<60 minutes) Mammography: sub-speciality symptomatic breast reporting CT colonography: sub-speciality ‘virtual colonoscopy’ service DXA: Flexible reporting by uK specialist rheumatologists Radiographer reporting: Quality assured radiographer plain film reporting service +100 ORGANISATIONS CONNECTED TO THAT CAN USE OUR TELERADIOLOGY SERvICES +1.3m EXAMINATIONS PER YEAR Reinvestment 10 AnnuAl RepoRt And Accounts 2016 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements HOW WE CREATE vALUE OUTCOMES What sets us apart: — our scale and breadth of speciality interests — our link to the hospital RIs system allows Medica’s contracted Radiographers not only to view the scan in question, but also to see a patient’s radiology history, including previous scans Our clients: timely turnaround, including out-of- hours, assisting hospitals to manage workloads across a wide range of subspecialist expertise, and helping patient outcomes via the rapid availability of trained specialists 24 hours per day, 365 days per year. — We contract with the largest pool of consultant Radiologists outside of the nHs, all of whom have a minimum of two years’ experience Our radiologists: Attractive and flexible terms, with ability to work from home and to focus on speciality interests. — our average turnaround time is believed to be considerably shorter than the industry average (including in-house radiology departments) — strong clinical governance HOW WE WILL MAXIMISE vALUE CREATION Our strategy: — drive core services — develop new service lines — Grow non-nHs — offer clinical audit — Radiographer reporting see more on page 12 Reinvestment 11 AnnuAl RepoRt And Accounts 2016 OUR STRATEGY MAXIMIsInG VAlue FoR ouR stAKeHoldeRs through a clear set of strategic priorities The Directors have to date focused on building a platform that can deliver a high quality Teleradiology service to the Group’s core customer base of NHS hospitals, centred on its NightHawk and Routine offerings. the Group’s core strategy is to continue to grow its business by adding additional Medica Radiologist capacity, maintaining the highest clinical standards and continuing to win new work for its existing service lines. Having invested in the Group’s It and services platform, both in terms of the technical and clinical aspects and the ongoing recruitment of Medica Radiologists, the directors believe that the business can continue to grow strongly within its existing service lines, including the Radiographer Reporting service, as well as some of the speciality services that have recently been launched, such as mammography and dXA, a scan often used in diagnosing osteoporosis. In addition, the directors believe that there are a number of growth opportunities that the Group can pursue, many of which are a logical extension of its existing platform and feature in the directors’ current business plan. Diversification Beyond the opportunities listed opposite, there are other areas of growth that the directors believe Medica would be well-placed to take advantage of, but are considered longer-term opportunities and would likely require additional expertise to augment that already in place and, in some circumstances, may be better achieved through acquisition. these opportunities would include reporting on the output from clinical trials, telepathology and international expansion of the Group’s existing teleradiology service. 1 2 DRIvE CORE SERvICES DEvELOP NEW REPORTING LINES to date we have focused on building a platform that can deliver a high quality teleradiology service to our core customer base of nHs hospitals, centred on our nightHawk and Routine propositions. there are a number of diagnostic reporting services such as pet ct and cardiology which we currently do not undertake, but which the platform is enabled to do and which could be provided to existing and new customers. once these services have been piloted with a small group of customers and patients, in order to be in a strong position to commence operational roll-out, we will first look to invest in recruiting the right clinical lead to provide internal expertise, in line with our strategy of providing a high quality, clinician-led service. Progress 29% Progress +02 REvENUE GROWTH IN CORE SERvICES IN 2016 SERvICES PILOTED IN 2016 12 AnnuAl RepoRt And Accounts 2016 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements 3 GROW NON-NHS 4 5 OFFER CLINICAL AUDIT RADIOGRAPHER REPORTING Although most of our revenues are derived from nHs trusts, there are opportunities to grow revenue with private hospital groups and independent diagnostic imaging companies, utilising our capacity as our Medica Radiologist base continues to grow. We have a strong clinical Governance structure, including an internal audit function focused on maintaining the high clinical standard and service standards of Medica Radiologists. Having been approached by customers to audit their own in-house radiology departments, we see a clear opportunity to market this service to existing and new clients. We launched our Radiographer Reporting service, which utilises highly skilled and qualified radiographers to conduct plain Film reporting, in August 2016, and have received strong interest from a number of existing clients. We believe we are well-positioned to benefit from the growth opportunity arising from Radiographer Reporting, underpinned by our reputation for clinical excellence. Progress Progress Progress +06 +3,000 +07% NEW NON-NHS HOSPITALS IN LAST 12 MONTHS SERvICES AUDITED EXTERNALLY IN 2016 OF PLAIN FILM REPORTS CONDUCTED BY RADIOGRAPHERS IN LAST QUARTER OF 2016 13 AnnuAl RepoRt And Accounts 2016 CHIEF EXECUTIvE’S REvIEW AnotHeR YeAR oF stRonG GRoWtH BuIlt on A sustAInABle plAtFoRM. JoHn GRAHAM CHIEF EXECUTIvE I am delighted to present my first chief executive’s Review statement as a publicly listed company following our listing on the Main Market of the london stock exchange in March 2017. 14 14 AnnuAl RepoRt And Accounts 2016 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements Medica is the uK market leader by revenue in the provision of teleradiology services. the Group currently has one business segment of teleradiology offering three primary services to hospital radiology departments: nightHawk, Routine cross-sectional (Routine cs) and Routine plain film (Routine pF). nightHawk is an out-of-hours emergency reporting service which is focused on delivering accurate reports within fast turnaround times and represents our largest revenue contributor. nightHawk typically provides reporting on ct scans. the second and third key service offerings, Routine cs and Routine pF, are designed to assist hospital radiology departments in managing their demand/supply imbalance for less urgent daytime reporting on examinations. Routine cs covers a combination of ct and MRI scans (both forms of cross-sectional scan) while Routine pF covers plain film examinations and both services typically have a 48 hour turnaround time. Overview of performance in 2016 this has been another strong year of double-digit growth for Medica. the Group has successfully grown organically year-on-year through the continued successful deployment of new clients, of which the pipeline remains strong, as well as by increasing the revenue generated from existing customers, which has been the main driver of revenue growth in the year. the Group has been particularly successful in growing the revenue generated from customers new to teleradiology based on its high quality service offering. As at 31 december 2016, Medica was servicing more than half of the 190 nHs Acute trusts in england and scotland (covering more than 100 nHs hospitals). Volumes have grown significantly in the year, with nightHawk and Routine cs in particular seeing scan volumes increase by 32.6% and 48.7%, respectively. this growth in volume is being driven by an increasing number of nHs trusts partnering with Medica to deal with the increased number of scans. the Group’s ability to continue to grow its revenue is directly related to its ability to handle increasing volumes of reporting, which in turn is partly driven by volumes requested by customers and partly by the number of Medica Radiologists the Group contracts with. the Group contracted with 248 radiologists as at 31 december 2016. Recruitment is undertaken through a variety of means. Word of mouth recommendations from existing Medica reporters who contract with the Group is a significant recruitment tool. In addition, the Group maintains a presence at many specialist and national events and maintains a database of candidates for recruitment. the Group’s ability to attract high quality reporters is key to its ongoing success, and there are a number of reasons why radiologists want to join Medica, ranging from the flexibility of working hours and the location where they can work from; the opportunity to report on greater volumes of scans in their areas of specialism; and being part of an organisation that has a strong clinical support structure. since January 2013, the Group has been able to grow its number of Medica Radiologists from 101 in January 2013 to 248 as at 31 december 2016. the attractions of the Group will allow it to contract with further Medica Radiologists to support the growth in the business. Medica’s recruitment pipeline remains stronger than ever. the Group’s It network, which has received significant investment, also allows the business to manage significantly higher volumes. the Group embeds itself within the systems of its customers, allowing for an automated process of accessing images from clients’ picture Archiving communications systems (pAcs), reporting on examinations with the full Radiology Information system (RIs) history, and entering the results directly back into clients’ RIs systems. Business model Medica provides teleradiology services to nHs trusts and other customers which contract with Medica either by way of a direct contractual arrangement (which is the case for customers generating the majority of the Group’s revenue for the financial year ended 31 december 2016) or via one of the framework agreements established by third-party procurement teams on behalf of the nHs. the contracts and 15 AnnuAl RepoRt And Accounts 2016 framework agreements are typically for three years and such agreements mainly govern the price of a specific service and agreed minimum performance levels; for example, the turnaround time of scans being reported by the Group. the direct contracts or framework agreements do not state any guaranteed minimum volumes. However, once a customer starts to outsource some of its radiology reporting, in the Group’s experience it is rare that it withdraws from doing so, recognising the benefit of having both in-house and teleradiology reporting available. customers may use the Group for one or more services, and over time as Medica has demonstrated its service offering, customers often expand the number of Medica’s services they utilise. In a small number of cases, Medica has entered into a direct contract under which a customer has primarily used Medica’s services in order to address a one-off issue such as reducing a backlog of examinations. While some of these customers do not currently use the Group’s services on an ongoing basis, the infrastructure remains in place and the Group would be able to reactivate the services it has previously provided to these customers quickly and without incurring significant costs. the Group typically charges its customers on a ‘per scan type, per body part’ basis. A scan may be made up of images of multiple body parts, with each body part being charged separately. the Group’s operating model provides good visibility over gross margin as the per scan type, per body part methodology applied to its customers is consistent with how the Group pays its radiologists. cost of sales primarily consists of fees paid to Medica Radiologists for reporting and the costs of internal clinical audit. Gross margin across each service line is similar as higher priced scans have commensurably higher radiologist costs. Medica has developed a scalable platform for the delivery of teleradiology and other services. this is demonstrated by the increase in the adjusted operating profit margin from 26.6% in 2015 to 28.5% in 2016. CHIEF EXECUTIvE’S REvIEW contInued Service lines the Group currently operates one business segment of teleradiology with three main service lines, all of which have grown in 2016 as Medica continues to deliver a high quality clinical service supported by the efficient use of technology. NightHawk nightHawk scan volumes increased by 32.6% during the year. Medica’s nightHawk service is an out-of-hours service to hospital emergency departments, offering ‘always on’ support 24 hours a day, 365 days a year. timely and accurate reporting of images is the most critical aspect of emergency teleradiology. to achieve this, Medica has invested heavily in its technical platform and this has enabled the achievement of an average turnaround time of 22 minutes, which compares favourably with a typical contracted service level turnaround time of 60 minutes; the Group’s average turnaround time for nightHawk reports is believed by the directors to be considerably shorter than the industry average. With A&e admissions increasing and a trend towards greater use of diagnostic imaging to deliver better patient outcomes, out-of-hours diagnostic imaging has been growing strongly. It is normal for A&e departments to experience spikes and lulls in activity and so staffing to an adequate level is challenging. some departments utilise ‘on-call’ radiologists, whereby the radiologist on duty is required to wake up during the night, attend the hospital and report potentially on only one scan. the standard working arrangements in the nHs is for compensatory time for ‘on call’ duties to be paid back, either immediately following the duty or by regular sessional allowance. either method reduces the daytime radiologist reporting capacity available to the trust. nightHawk enables its clients to better utilise their in-house radiology resources by reducing or removing entirely the need for on-call radiologists to deal with emergency care needs, through instead facilitating access to highly experienced, uK-based Medica Radiologists able to turn around completed reports within a short period of time of a scan being received by Medica. through nightHawk, a busy hospital has access to a greater consultant Radiologist resource, helping it manage peaks in demand out of hours, and during quiet periods the on-call radiologist’s time is not wasted, which is much more efficient for the hospital. For the Medica Radiologist, their time is better utilised as they can provide cover across a number of other nightHawk customers, more efficiently managing the peaks and troughs in demand across the customer base and helping to ensure a steady flow of work for the individual. Additionally, through the panel of consultant Radiologists to whom Medica is able to provide access, the Group has been able to facilitate the development of specialisms in emergency reporting. Most recently, Medica has launched reporting services for multiple trauma patients. Routine cross-sectional and Routine plain film Routine cross-sectional scan volumes increased by 48.7% during the year, while Routine plain film scan volumes increased by 3.4%. the Group’s Routine service offering is split into two distinct services: Routine cs and Routine pF. they are both designed to assist hospitals in managing their ordinary course daytime capacity and turnaround times. Again, the services are provided on a 24 hours a day, 365 days a year basis. the turnaround time under the service level agreements with the Group’s customers is typically 48 hours, but Medica can offer shorter turnaround times, including same-day turnaround times, if required. the growth in the number of examinations, particularly cross- sectional, is being driven by factors such as an enhanced ability to 16 AnnuAl RepoRt And Accounts 2016 achieve early diagnosis and provide preventative care, to seek reinforcement of diagnosis and care decisions and to use diagnostic imaging across a broader range of conditions. combined with the general shortage of daytime reporting capacity within the nHs, there is an increasing need for hospitals to outsource some of their reporting needs. In addition, hospitals increasingly need reporting from experts in particular fields within the general discipline of radiology; for example, specialist neuro-radiologists or paediatric radiologists, and this increasing need for specialist reporting is making it more difficult for hospitals to resource their radiology departments to the optimum level. cross-sectional imaging, which comprises ct and MRI scans, is growing much faster than pF and is of higher value per unit. As a consequence, Medica has prioritised growing cross-sectional volumes through its Routine cs offering over Routine pF, preferentially utilising Medica Radiologists’ capacity to report on these scans, instead of pF images. during this time, the Group has had to actively manage the pF business, in terms of balancing clients’ needs versus its own reporting capacity and in some cases, declining larger volume work where it considered that the Group did not have sufficient capacity to provide such reporting. As the teleradiology market has developed, Medica launched a new service in August 2016, Radiographer Reporting, utilising highly skilled and qualified radiographers, in addition to Medica Radiologists, to conduct pF reporting. the Group initially recruited two Advanced practitioner Radiographers, with five more having joined by the end of 2016 and with several more in the recruitment pipeline at varying stages of deployment. Medica’s deployment of Advanced practitioner Radiographers for pF reporting is focused on areas where radiographers are already widely utilised for this purpose in the nHs. underpinned by the Group’s reputation for clinical excellence, the service has now been introduced by a overview Strategic Report Governance Financial statements Clinical governance As the provider of a highly skilled clinical service, Medica places clinical governance and quality control at the heart of its service offering. the Group has established a Medical Advisory Board (MAB) and a separate clinical Advisory Group (cAG). the clinical governance processes and outputs are overseen by the clinical Governance committee. the cAG consists of five members, including two past presidents of the British Institute of Radiology. these members comprise the Group’s Medical director, dr stephen davies; the Associate Medical director, the clinical audit lead; a nightHawk lead; and a pet ct/Mammography lead. the cAG’s role is to review radiologist performance and in doing so, strive for continuous improvement in the standard of reporting of Medica Radiologists. An example of this is the regular sharing of case studies among the entire radiologist reporting group, detailing complex cases and acting as learning tools for Medica Radiologists. there are also a number of clinical speciality leads within the Group, who specialise in a particular field of radiology, and who help the Group maintain best-in-class service. Outlook looking forward to 2017, the year has begun well, with trading in line with the Board’s expectations. Medica has secured a number of new client contracts that are expected to commence in the coming weeks and months and a healthy pipeline of prospects. the pipeline for recruiting radiologists in the new financial year also continues to be strong. JOHN GRAHAM chief executive officer 27 April 2017 number of clients. the introduction of Radiographer plain Film Reporting allows more Medica Radiologist capacity to be focused on cross- sectional reporting. the directors believe that the Group is now well-positioned to tackle the excess plain Film reporting demand seen in recent years by utilising Reporting Radiographers. As a result, Radiographer plain Film reporting represents a growth opportunity for the company and an enhancement of the support we are able to offer our customers. Strategy the directors have to date focused on building a platform that can deliver a high quality teleradiology service to the Group’s core customer base of nHs hospitals, centred on its nightHawk and Routine offerings. the Group’s core strategy is to continue to grow its business by adding additional Medica reporting capacity, maintaining the highest clinical standards and continuing to win new work for its existing service lines. Having invested in the Group’s It and services platform, both in terms of the technical and clinical aspects and the ongoing recruitment of Medica Radiologists, the directors believe that the business can continue to grow strongly within its existing service lines, including the Radiographer Reporting service, as well as some of the speciality services that have recently been launched, such as mammography and dXA. In addition, the Board believes that there are a number of growth opportunities that the Group can pursue, many of which are a logical extension of its existing platform and feature in the Group’s current business plan. the Board considers these opportunities as follows: • Expansion into new reporting lines. there are a number of diagnostic reporting services such as cardiology which the Group currently does not undertake but which the platform is able to facilitate and which could be provided to existing and new customers. once these services have been piloted with a small group of customers and patients, in order to be in a strong position to commence operational roll-out, the Group will first look to invest in recruiting the right clinical lead to provide internal expertise, in line with its strategy of providing a high quality, clinician-led service. • Non-NHS. currently substantially all of the Group’s revenues are derived from nHs trusts. However, there are opportunities to grow further revenue with the private hospital groups and independent diagnostic imaging companies, utilising capacity within the Group as its Medica Radiologist base continues to grow. • Clinical audit. the Group has a strong clinical governance structure, including an internal audit function focused on maintaining the high clinical and service standards of Medica Radiologists. Having been approached by customers to audit their own in-house radiology departments, there is a clear opportunity to market this service to existing and new clients. • Radiographer reporting. Medica has already launched its Radiographer Reporting service, which utilises highly skilled and qualified radiographers to conduct pF reporting. Although a relatively recently launched service, the directors believe that the Group is well-positioned to benefit from the growth opportunity arising from Radiographer Reporting, underpinned by the Group’s reputation for clinical excellence. Beyond the opportunities listed above, there are other areas of growth that the directors believe Medica would be well-placed to take advantage of, but are considered longer-term opportunities and would likely require additional expertise to augment those already in place and, in some circumstances, may be better achieved through acquisition. 17 AnnuAl RepoRt And Accounts 2016 FINANCIAL REvIEW posItIVe posItIon FoR FutuRe GRoWtH tonY lee CHIEF FINANCIAL OFFICER Medica has enjoyed strong growth in recent years which has continued throughout 2016. 18 AnnuAl RepoRt And Accounts 2016 AnnuAl RepoRt And Accounts 2016 overview Strategic Report Governance Financial statements A review of the business during the year, its strategy and business model, future developments, and its position at the year-end is included within the chairman and chief executive’s reviews on pages 4 and 14-19. Both these reports form an integral part of the strategic report. Revenue growth has also been supported through the continued strength of our ability to recruit and retain radiologists. Medica added an additional net 58 reporters in 2016 and at 31 december 2016, there were a total of 248 with whom Medica contracted a record high for the company. Trading results Medica has enjoyed strong growth in recent years, and this continued throughout 2016, with Group revenues growing by 28.3% to £28.5m (2015: £22.2m) and adjusted operating profit growing by 37.6% to £8.1m (2015: £5.9m). Revenue Revenue has increased across all three service lines, driven by an increase in the number of scans which Medica has reported upon. • nightHawk revenues increased to £13.5m, a 26.6% increase from 2015 revenue of £10.7m. the increase in volumes and revenue was due to continued growth in existing clients’ emergency service requirements as the number of A&e admissions and the proportion of patients requiring a scan both increase and trusts expand the scope of the services they procure, as well as new client wins. • Routine cross-sectional revenues increased to £10.5m, a 43.6% increase from 2015 revenue of £7.3m. similarly to nightHawk, growth has been driven primarily through existing customers as their scan volumes increased and Medica enhanced its partnership with trusts reporting a greater quantity and proportion of their work, as well as new customer wins. • plain Film revenues increased to £3.9m, a 6.1% increase from 2015 revenue of £3.7m. during the period, plain Film volumes were actively managed so as to focus on the faster growing Routine cross- sectional service. Gross margins Gross profit margin for the year was 49.8% (2015: 50.7%). Gross profit margin edged down in the year as expected. there are a number of contributing factors with the main reason being the replacement of older contracts with older pricing from three or more years ago often through migration to framework agreements. the reduction in average price has been more than compensated by increases in volume. the company looks to achieve a similar gross margin across each of its service lines. In 2016, the gross margins for each service line were as follows: • nightHawk: 51.7% • Routine cross-sectional: 53.1% 51.9% • Routine plain Film: the only costs included within cost of sales relate to the costs of paying Medica’s Radiologists and internal clinical audit costs. Internal clinical audit costs which can be significant are not included within the individual service line gross profit figures above. Adjusted operating profit Adjusted operating profit for the year grew to £8.1m, a 37.6% increase from 2015 levels of £5.9m. this was accompanied by an increase in the adjusted operating profit margin from 26.6% in 2015 to 28.5% in 2016. this growth in adjusted operating profit and margin demonstrates the operational leverage in the business as volumes continue to grow. 19 AnnuAl RepoRt And Accounts 2016 Net finance expense Finance costs were £2.2m for the year (2015: £3.0m). the Group refinanced its existing debt facility at listing post the year end, with the net proceeds of the Ipo used to pay net debt down to approximately £10m, reducing its bank debt and repaying loan notes from cBpe, the majority owners of Medica prior to the Ipo, in full. Taxation the Group has incurred a tax charge of £1.0m in the year ended 31 december 2016, compared with £0.4m in the year ended 31 december 2015. Dividends the Board intends to adopt a progressive dividend policy from Ipo for the company, which will seek to maximise shareholder value and reflect its strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in the Group’s long-term growth. the Board intends to pay the dividend in an approximate one-third (interim dividend) and two-thirds (final dividend) split and expects the company’s first dividend as a listed company to be an interim dividend for the period ended 30 June 2017. Cash flow the Group continues to deliver strong cash generation with operating cash flow before tax and exceptional Ipo costs 29.9% higher at £8.5m (2015: £6.5m) due to an increase in eBItdA and efficient use of working capital, offset by expansionary capex incurred in order to deploy additional radiologists and new customers. All of this resulted in eBItdA cash flow conversion of 92% (2015: 96%). cash flow from operating activities increased by 18.9% to £6.8m (2015: £5.7m). capex for the year was £1.2m (2015: £1.5m) as the business continued to invest in its infrastructure to support volume growth and to improve its efficiency and service offering. FINANCIAL REvIEW contInued Net debt As at year-end, the company had net debt of £22m. post year-end, the company used the net proceeds of the Ipo to fund the repayment of the £6.9m of outstanding loan notes held by cBpe as well as contributing to the repayment of £8.6m of the Group’s outstanding indebtedness under the Group’s existing term loan and revolving credit facilities, which the directors believe will result in an appropriate level of gearing going forward, given the size of the Group and the company’s status as a listed company. Following this repayment, the company had net debt of approximately £10m. on 7 March 2017, the company and its subsidiaries entered into a new facilities agreement (the “new Facilities”) for the purpose of refinancing that part of the facilities that were not repaid out of the proceeds of the offer. under the new Facilities, up to £13m in aggregate is available to the Group under a £12m term loan facility and a £1m revolving credit facility. Both facilities will mature on 6 March 2022, being the fifth anniversary of entry into the new Facilities. Interest is payable under the new Facilities at the rate of lIBoR + 1.75. Intangible assets As at the year-end, total intangible assets were £25.3m (31 december 2015: £26.0m): the Group’s intangible assets are the goodwill of £15.9m and other intangible assets from the acquisition by Medica Group of Medica Reporting limited in May 2013. In addition, there is a small proportion, which at the year-end was £0.6m (year ended 31 december 2015: £0.4m), in relation to purchased software and certain capitalised development software and licences. Property plant and equipment: As at the year end, total value of property, plant and equipment was £1.8m (31 december 2015: £1.9m). property, plant and equipment primarily relate to computer equipment, the majority of which is the servers installed with customers, radiologists’ workstations and infrastructure technology. the growth in property, plant and equipment reflects the net increase, i.e. after depreciation, of additional capital expenditure for new customers and new radiologists and software for new projects. Working capital the Group’s working capital is based on the timing difference between receipt of payment from its customers and the payment by the Group to Medica Radiologists of their reporting charges. current assets mainly comprise trade receivables, with a small element of prepayments, and cash. trade receivables have grown with the business and primarily relate to the revenues to be collected from customers. current liabilities mainly comprise trade payables (mainly the payments due to radiologists), the portion of current debt repayable in the next 12 month period, and corporation tax. Key Performance Indicators (KPIs) the Board reviews the Group’s KpIs at least monthly. these include clinical and operational performance measurements as well as financial KpIs. the key operational KpIs include turnaround times and clinical audit results. the Board monitors the levels of clinical audit and the Group has consistently exceeded its 10% target for auditing cross-sectional and emergency reports in 2016. the key financial KpI is eBItdA which was £9.2m for the year to 31 december 2016 (£6.8m for the year to 31 december 2015). 20 AnnuAl RepoRt And Accounts 2016 Principal risks and uncertainties there are potential risks and uncertainties which could impact the Group’s performance and these are considered by the Board on a regular basis. the Board robustly considers the risks of all significant business decisions, changes in the external environment and in the Group’s operations. the key risks affecting the business are as follows: Retaining and growing reporting capacity the performance of the Group depends on its ability to grow its reporting capacity and any reduction in reporting capacity or any increase in reporting costs could negatively impact the Group’s business, results of operations, financial condition or prospects. If the Group’s costs increase, its results of operations and financial condition could be materially adversely affected. the Group has and continues to invest in its recruitment activities with a dedicated recruitment team and a presence at radiology events across the uK. the reputation of Medica’s clinical governance and word of mouth is a key part of recruitment strategy. Retention policy is based on providing a comprehensive support structure to Medica Radiologists from all parts of the business. Reputational risk Quality deficiencies or other issues affecting the Group’s accreditations and registrations could adversely impact Medica’s reputation and ability to market its services effectively and could have a negative impact on the Group’s business, results of operations, financial condition and prospects. the Group has and continues to invest significant resources in its clinical governance structure and processes and maintains all relevant accreditations. overview Strategic Report Governance Financial statements Employees At 31 december 2016, the Group had 81 full time employees and four part time staff of which 62 were male and 23 were female. of the senior members of management, all five were male. this report was approved by the Board on 27 April 2017 and signed on its behalf. A L LEE chief Financial officer 27 April 2017 Competition risk significant competition could adversely affect the Group’s business, financial condition and prospects. the Group focuses on providing a high quality, value for money service and maintains close communication with clients through its account management team. Technology risk the Group’s business could be disrupted if its information systems fail or if its databases are destroyed or damaged. the Group has invested significantly in its It platform and has an in-house team that maintains and improves performance of the It systems. Social, community and human rights issues Medica is committed to the principles of responsible business; this is achieved by acting in an ethical manner, developing positive relationships with suppliers, and recruiting and retaining successful and responsible employees. the Group has a formal equal opportunities policy to ensure no employee or applicant is discriminated against. Financial risk management the directors have outlined the key financial risks facing the business and have discussed the processes in place to mitigate these risks, in note 24. Failure to retain key management the Group’s executive management team is critical to its continued performance. As noted in the remuneration report, the Group has policies in place to retain and motivate key management. Industry risk Future changes in healthcare regulation are difficult to predict and may constrain the Group or require it to materially alter the way in which it operates. the Group monitors changes in regulation on an ongoing basis. Operating risk the Group currently derives substantially all of its revenue from the nHs through nHs trusts and the reduction of such revenue could adversely impact the Group’s business, results of operations and financial condition. the Group’s revenue from nHs trusts is not subject to any minimum purchase commitment and any reduction in demand for the Group’s services could have a material adverse effect on its business, results of operations and financial condition. the Group focuses on providing a high quality, value for money service and maintains close communication with clients through its account management team. Data protection risk the Group is subject to regulations relating to personal information. Any failure to adequately protect its customers’ patients’ personal data could expose the Group to liability. the Group minimises the amount of data it holds, maintains the Iso 27001 accreditation and carries out regular tests on its data security systems. 21 AnnuAl RepoRt And Accounts 2016 BOARD OF DIRECTORS ROY DAvIS Independent Chairman JOHN GRAHAM Chief Executive Officer Roy is the company’s chairman. Roy served as the chief executive officer of optos plc, a leading opthalmology medical device business, from 2008 until June 2016 when he stepped down following that company’s acquisition by nikon. Before joining optos, he served from 2007 as chief executive officer of Gyrus Group plc, a leading medical device company, prior to its acquisition by the olympus corporation of Japan in 2008, having previously served as chief operating officer of Gyrus from 2003. John joined Medica as chief executive in July 2011. John brings a wealth of experience from his previous healthcare role as Managing director of Allied Respiratory, a subsidiary of Allied Healthcare group, where he turned a loss-making business into a successful company before leading the sale of Allied Respiratory to Air liquide. He subsequently remained with Air liquide, managing the standalone Allied Respiratory business and then leading the integration of their uK acquisitions. prior to this, Roy was ceo of nteRA, a nanotechnology company, and spent almost ten years with Arthur d little, the global management consulting company, where he was Vice president and Global Head of its operations management business. He has also held senior positions with tricom, Reuters and Molex. Roy holds a mechanical engineering degree from the university of southampton and an MBA from the london Business school. prior to his time with Allied Respiratory, John held various chief executive and senior operational positions on the boards of both public and private companies in sectors including consumer products, manufacturing and distribution. TONY LEE Chief Financial Officer DR STEPHEN DAvIES MA, FRCP, FRCR Medical Director and Responsible Officer tony lee joined Medica in 2009 and became Finance director and company secretary in 2013. prior to joining the Group, he was an accounts manager at sellens French chartered Accountants where he worked for nine years. tony is an FccA and has a politics degree from lancaster university. stephen joined Medica in May 2013 as Medical director. He has responsibility for clinical Governance and oversight of the clinical strategy, and is the Group’s Responsible officer under the GMc designated Body scheme. stephen was an nHs consultant Radiologist at cwm taf university Health Board from 1991 until 2016. stephen undertook pre-clinical studies at cambridge and his clinical studies at the Royal london Hospital. He is a past president of both the British Institute of Radiology and the uK Radiology congress. In october 2015, he was awarded the distinguished service Medal by the British Institute of Radiology. He has had educational leadership positions as Associate dean in the university of Wales and with the Royal college of Radiologists. 22 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial statements STEvE WHITTERN Senior Independent Non-Executive Director PROFESSOR MIKE BEWICK Independent Non-Executive Director steve currently serves as Finance director of dignity plc, the Ftse 250 provider of funeral-related services. He joined dignity in 1999 from KpMG and was appointed Finance director at the beginning of 2009, having spent the previous two years as Financial controller, being responsible for the Group’s finance function. during his time with dignity, steve has led various leveraged refinancings and returns of capital as well as managing the debt and equity funding for a £58 million acquisition in 2013. He is an FcA and holds a mathematics degree from Warwick university. Having started his career in hospital medicine (specialising in oncology), Mike became a General practitioner in 1989 and was a partner in a local Gp practice in cumbria for 20 years until 2009. Alongside his general practice, he developed an interest in education and assessment and became a senior examiner and chair of Assessment at the Royal college of General practitioners. In 2008, he was recruited to be the Medical director for the cumbria primary care trust, subsequently serving as Regional Managing director for nHs england, and in 2013 became the national deputy Medical director for nHs england, reporting to sir Bruce Keogh. Mike took early retirement from the nHs in 2015. He undertook his pre-clinical and clinical studies at st Mary’s Hospital Medical school, london. ANAND JAIN Non-Executive Director Anand joined Medica in May 2013 as a non-executive director and has supported the business in formulating and executing its strategy. He is a partner in cBpe capital and a member of its investment committee. since joining cBpe capital in 2007, he has been involved in numerous investments, but has a particular focus on businesses in the healthcare and pharmaceutical sector. prior to joining cBpe capital, Anand qualified as a chartered accountant with Arthur Andersen in 2000, thereafter spending seven years in the corporate Finance department of Arthur Andersen and then deloitte. He has a degree in mathematics from the university of nottingham. 23 AnnuAl RepoRt And Accounts 2016 REPORT OF THE DIRECTORS the directors are pleased to present their report to shareholders and the audited financial statements for the year ended 31 december 2016. Principal activity and business model the principal activity and business model are set out in the chief executive’s review on page 15. Results and dividends the results for 2016 are set out in the financial statements on pages 35 to 61. the directors do not propose payment of a dividend for 2016. Review of the period A comprehensive analysis of the Group’s progress and development is set out in the chairman’s statement, chief executive’s review and strategic report on pages 5, 14-17 and 18-21. this analysis includes comments on the position of the Group at the end of the financial period. Significant events after the year-end • completed successful Initial public offering (Ipo) on the Main Market of the london stock exchange in March 2017, raising £15m, before expenses • net proceeds from the Ipo were used to pay down net debt and cover Ipo-related transaction costs • note 28 of the accounts provides more detail on the events after the balance sheet date, including the Ipo and repayment of debt. Directors’ Insurance An insurance policy is maintained by the company which insures the directors of the company against certain liabilities arising in the conduct of their duties. there is no cover against fraudulent or dishonest actions. Capital structure the company’s share capital is divided into 1,455,000 ordinary shares of £0.10 each with voting rights. note 28 explains the changes to the capital structure after the balance sheet date. Significant shareholdings As at 31 december 2016 and 24 April 2017, the directors were aware of the following interests in 3% or more of the voting rights of the issued ordinary share capital. these shareholdings are as notified to the company through a tR-1 as per the listing rules. As at 31 december 2016 As at 24 April 2017 cBpe nominees limited 1,200,000 82.50% 12,220,551 11.00% number of ordinary shares in issue held percentage of ordinary shares in issue number of ordinary shares in issue held percentage of ordinary shares in issue dr s G davies J M Graham K p terrins M J Wells old Mutual plc schroders plc BlackRock, Inc. liontrust Investment partners llp Hargreave Hale limited strategic equity capital plc the Independent Investment trust plc 45,000 3.09% 1,546,392 1.39% 105,000 7.22% 3,608,248 3.25% 45,000 3.09% 1,546,392 45,000 3.09% 1,546,392 1.39% 1.39% – – – – – – – – – – – – – 12,745,524 11.47% 10,197,495 9.18% 7,227,222 6.50% 5,699,147 5.13% 5,660,161 5.09% 5,028,038 4.53% – 4,000,000 3.60% on 15 March 2017 there was a subdivision of the ordinary share capital and an issue of bonus shares to existing shareholders. on 21 March upon admission to the london stock exchange there was an additional issue of shares resulting in the dilution of the existing shareholder’s interests. please see note 28 post Balance sheet events for details. 24 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial statements Related party transactions details of all related party transactions are set out in note 26 to the Financial statements. Corporate governance the directors’ statement on corporate Governance is set out on pages 27 to 28 and forms part of this report. Going concern assessment the consolidated financial statements have been prepared on the going concern basis on the assumption that the Group continues in existence for the foreseeable future. the directors of Medica Group plc have assessed the current financial position of the Group, along with future cash flow requirements, to determine if the Group has the financial resources to continue as a going concern for a period of at least 12 months from the approval of the accounts. Future outlook the strategy of the business is set out in the chief executive’s review on page 14 to 17. Annual General Meeting Medica’s Annual General Meeting is scheduled to take place in June 2017. Directors the directors who served during the year were as follows: dr s G davies J M Graham A Jain A l lee K p terrins M J Wells All six of the above directors are male. Resigned 1 March 2017 Resigned 1 March 2017 Auditors the auditors Grant thornton uK llp, will be proposed for reappointment in accordance with section 485 of the companies Act 2006. this report was approved by the Board on 27 April 2017 and signed on its behalf. A L LEE chief Financial officer 27 April 2017 25 AnnuAl RepoRt And Accounts 2016 STATEMENT OF DIRECTORS’ RESPONSIBILITIES the directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance with applicable law and regulations. company law requires the directors to prepare Group and parent financial statements for each financial year. under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting standards (IFRss) as adopted by the european union and have elected to prepare the parent company financial statements in accordance with united Kingdom Generally Accepted Accounting practice (united Kingdom Accounting standards and and applicable laws, including FRs 101 “Reduced disclosure Framework”). 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 and profit or loss of the company and group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRss and uK Accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. the directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements and the Remuneration report comply with the companies Act 2006 and Article 4 of the IAs Regulation. they are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. the directors confirm that: • so far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware; and • the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company’s auditor is aware of that information. the directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit committee, the directors consider the annual report and the financial statements, taken as a whole, provides the information necessary to assess the company’s performance, business model and strategy and is fair, balanced and understandable. the directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. legislation in the united Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. to the best of our knowledge: • the Group financial statements, prepared in accordance with IFRss as adopted by the european union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; • the parent company financial statements, prepared in accordance with united Kingdom Generally Accepted Accounting practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company; and • the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. J. M. GRAHAM chief executive officer 27 April 2017 26 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial statements STATEMENT ON CORPORATE GOvERNANCE the year to 31 december 2016 was prior to the company’s admission to the Main Market of the london stock exchange and therefore the company was not required to comply with the requirements of the code and did not apply the code voluntarily. Statement on Corporate Governance the Board is committed to high standards of corporate governance and to maintaining a sound framework for the control and management of the Group. Following Admission, the company intends to comply with the uK corporate Governance code to the extent applicable to and appropriate for companies of the company’s size and nature and will report to shareholders on such compliance in accordance with the listing Rules. It is the company’s current intention that each of the directors will stand for re-election on a rotating basis, with one third of directors retiring and standing for re-election every three years. All of the directors will retire and stand for re-election at the first Annual General Meeting held after Admission. the statement set out below describes how the Group intends to apply certain of the principles identified in the code. The Board constitution and procedures the Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the Group’s business, strategy and development, principal terms of agreements for the Group’s banking arrangements, annual business plan and budget monitoring, risk management strategy, approval of acquisitions, changes to the Group’s management and controls structure, financial reporting to shareholders, dividend policy, approving employee share incentives, appointments to the Board and its committees, policies relating to the directors’ remuneration and service, any alterations to the company’s share capital, approval of all circulars and announcements. the Board is also responsible for ensuring the maintenance of a sound system of internal controls and risk management (including financial, operational and compliance controls) and for reviewing the overall effectiveness of systems in place as well as for the approval of any changes to the capital, corporate and/or management structure of the Group. the Board will establish a procedure during the coming year to evaluate its own performance, its committees and individual directors. those procedures and results will be reported upon in the 2017 Annual Report. Board operation the uK corporate Governance code recommends that at least half the board of directors of a uK listed company, excluding the chairman, should comprise non-executive directors determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, this judgement. In the case of smaller companies (being companies outside the Ftse 350), the uK corporate Governance code recommends that the listed company should have at least two independent non-executive directors. the company regards Roy davis, steve Whittern and professor Mike Bewick, each of whom has been recruited in connection with the company’s initial public offering and has had no prior association with the Group, as “independent non-executive directors” within the meaning of the uK corporate Governance code and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. Senior independent director the uK corporate Governance code also recommends that the board of directors of a company with a premium listing on the official list should appoint one of the independent non-executive directors to be the senior independent director to provide a sounding board for the chairman and to serve as an intermediary for the other directors when necessary. the senior independent director has an important role on the Board in leading on corporate governance issues and being available to shareholders if they have concerns which contact through the normal channels of the chairman, chief executive officer or other executive directors has failed to resolve or for which such contact is inappropriate. steve Whittern has been appointed as the company’s senior Independent director. Board Committees As envisaged by the uK corporate Governance code, the Board has established the following committees: an Audit committee, a Remuneration committee and a nomination committee, each of which is described in further detail below. Audit Committee the Audit committee’s terms of reference are available on the Group’s website. the Audit committee assists the Board in discharging its responsibilities with regard to financial reporting, external and internal controls, including reviewing and monitoring the integrity of the Group’s annual and interim financial statements, reviewing and monitoring the extent of the non-audit work undertaken by the Group’s external auditors, advising on the appointment of such external auditors, overseeing the Group’s relationship with its external auditors, reviewing the effectiveness of the external audit process, and reviewing the effectiveness of the Group’s internal control and review function. the ultimate responsibility for reviewing and approving the Annual Report and Accounts and the half-yearly reports remains with the Board. the Audit committee will give due consideration to laws and regulations, the provisions of the 27 AnnuAl RepoRt And Accounts 2016 STATEMENT ON CORPORATE GOvERNANCE contInued uK corporate Governance code and the requirements of the listing Rules. the uK corporate Governance code, as it applies to the company, recommends that an audit committee should comprise at least two members who are independent non-executive directors (other than the chairman) and that at least one member should have recent and relevant financial experience. the Audit committee will be chaired by steve Whittern, and its other members will be Roy davis and professor Mike Bewick. the directors consider that steve Whittern has recent and relevant financial experience. the Audit committee will meet up to four times per year in the ordinary course at times driven by the company’s reporting cycle and otherwise as circumstances require. the Audit committee met in April 2017 to discuss the key risks/considerations in respect of this year’s Annual Report, those risks being revenue recognition and the transition to IFRs. the Audit committee reviews the scope and effectiveness of the audit process and monitors the auditors’ independence and objectivity. It makes recommendations in relation to the appointment of the external auditors, including their remuneration and the provision by them of any non-audit services. Grant thornton uK llp were first appointed as auditors of the company during the financial period commencing on 31 december 2013. the Audit committee reviews arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. the Audit committee’s objective is to ensure arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. during the next 12 months the Audit committee will consider the requirement for a Group internal audit function. Remuneration Committee the Remuneration committee will assist the Board in determining its responsibilities in relation to remuneration, including making recommendations to the Board on the company’s policy on executive remuneration (including setting the over-arching principles, parameters and governance framework of the Group’s remuneration policy) and determining the individual remuneration and benefits packages of each of the executive directors and the company secretary. the Remuneration committee will also ensure compliance with the uK corporate Governance code in relation to remuneration wherever possible. the uK corporate Governance code, as it will apply to the company on Admission, provides that a remuneration committee should comprise at least two members who are independent non-executive directors. the Remuneration committee will be chaired by professor Mike Bewick, and its other members will be Roy davis and steve Whittern. the Remuneration committee will meet up to three times per year in the ordinary course and otherwise as circumstances require.  responsible for identifying and nominating candidates to fill Board vacancies; evaluating the structure and composition of the Board with regard to the balance of skills, Board diversity, knowledge and experience and making recommendations accordingly; reviewing the time requirements of non-executive directors; giving full consideration to succession planning; and reviewing the leadership of the Group. the uK corporate Governance code, as it will apply to the company on Admission, provides that a nomination committee should comprise a majority of members who are independent non-executive directors. the nomination committee will be chaired by Roy davis, and its other members will be steve Whittern, professor Mike Bewick and John Graham. the nomination committee will meet once a year in the ordinary course and otherwise as circumstances require. viability statement In accordance with provision c.2.2 of the uK corporate Governance code, the directors have assessed the viability of the company over a three year period to 31 december 2019. the directors believe this period to be appropriate as the Group’s strategic review considered by the Board encompasses this period. In making their assessment, the directors have considered the Group’s current financial position and performance, cash flow projections, including future capital expenditure, in relation to the availability of finance and funding facilities and have considered these factors in relation to the principal risks and uncertainties which are included in the directors’ report. during the year to 31 december 2016, the Board carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. the directors believe that the Group is well placed to manage its business risks successfully, having taken into account the Group’s principal risks and uncertainties. Accordingly, the Board believes that, taking into account the Group’s current position, and subject to the principal risks faced by the business, the Group will be able to continue in operation and to meet its liabilities as they fall due for the period up to 31 december 2019. the directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy. Summary In presenting this report, and having monitored, reviewed or approved all shareholder communications since the date of Medica’s admission, the Board is confident that it has presented a balanced and understandable assessment of Medica’s position and prospects. By order of the Board Nomination Committee the function of the nomination committee is to provide a formal, rigorous and transparent procedure for the appointment of new directors to the Board. In carrying out its duties, the nomination committee is primarily A L LEE company secretary 27 April 2017 28 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial statements DIRECTORS’ REMUNERATION REPORT the company’s approach to remuneration reflects its culture and supports the delivery of its business strategy. the aim of the remuneration strategy is to attract, retain and motivate the best talent to help ensure continued growth and success as the company enters its next stage of its development, operating in a listed company environment. Remuneration levels for the executive directors and senior managers have been set at a level that are considered by the Remuneration committee to be appropriate for the size and nature of the business. performance-related pay will form a significant part of the remuneration package of the executive directors and senior managers and will be based on performance targets, as relevant. the Remuneration committee has taken specialist, independent advice, in order to ensure that the policies and remuneration structure are appropriate for the listed company environment and reflects current best practice. the approach to executive directors’ remuneration aims to align their interests with the long-term interests of shareholders. Furthermore it aims to support a high performance culture with appropriate reward for superior performance, without creating incentives that will encourage excessive risk-taking or unsustainable company performance. the company intends to implement this policy, via a remuneration framework which combines annual salary, benefits, pension, an annual bonus plan (including a portion which may be deferred into shares under the deferred bonus plan (dBp)) and share-based awards under the performance share place (psp). Annual salary the executive directors’ salary is positioned to reflect each individual’s professional experience and level of responsibility in their role and will be effective from the date of Admission. the Remuneration committee considers that base salaries remain significantly below market levels, and this will be factored into discussion on the levels of variable remuneration as well as being factored into future salary increases. salaries will typically be reviewed on an annual basis. the committee will consider increasing salaries over time subject to strong personal and company performance and considering levels of salaries in the market. Annual bonus plan and deferred bonus plan (DBP) the annual bonus plan is designed to reward performance against selected financial performance measures, linked to Group strategy. For executive directors, the annual bonus opportunity for the financial year ending on 31 december 2017 will be based on achievement of targets which have not been finalised but will be linked to the Group’s KpIs. It is intended that the maximum annual bonus opportunity for executive directors for the financial year ending 31 december 2017 will be 100% of annual salary. For executive directors, it is expected that not more than 75% of any annual bonus will be payable in cash and the balance will be made in the form of a dBp award over shares, which will then vest after a period not expected to be less than two years, subject to continued employment. cash bonuses will be subject to clawback provisions as will dBp awards, as set out in the rules of the annual bonus plan and dBp. the level of deferral and period for deferral may change in relation to future financial years. Performance share plan (PSP) It is intended that the awards granted to executive directors under the psp will vest after a three-year period, subject to continued employment and the achievement of performance measures. For initial awards made on the date of Admission, the awards will vest as to 50% depending on growth in earnings per share and 50% depending on growth in absolute total shareholder return over the performance period. Alternative performance targets may be imposed in relation to future awards. Awards granted to executive directors under the psp on the date of Admission will be granted in respect of 150% of base salary. the Remuneration committee regards this as necessary to incentivise executive directors while base salaries remain below market levels. these initial awards will also be subject to a further two-year holding period after the end of the performance period. psp awards will be subject to the clawback provisions, as set out in the rules of the psp. Share ownership guidelines executive directors will be subject to a shareholding guideline of 100% of salary. this policy is intended to align the interests of executive directors and those of shareholders. executive directors will have five years during which to build up the required ordinary shareholding after commencing employment. the share ownership guidelines were kept under review by the Remuneration committee. 29 AnnuAl RepoRt And Accounts 2016 DIRECTORS’ REMUNERATION REPORT contInued Audited information for the year ended 31 December 2016 the figures below are the single total figures of remuneration in respect of qualifying services for 2016 dr s G davies J M Graham K p terrins A l lee M J Wells 2016 salary £ 124,667 165,000 2016 Bonus £ – – 2016 pension contribution £ 2016 Aggregate emoluments £ 2015 Aggregate emoluments £ – 124,667 130,000 11,550 176,550 206,550 100,000 4,000 6,000 110,000 128,000 75,000 – 4,500 79,500 91,500 100,000 4,000 6,000 110,000 128,000 during the year, £43,500 was paid to cBpe nominees limited for the services of A Jain. Non-Executive Directors the non-executive directors were appointed on 1 March 2017 and therefore did not receive any remuneration in the year to 31 december 2016. Directors’ interests As at 31 december 2016 and 24 April 2017, the interests of the directors in the issued ordinary share capital were as follows: dr s G davies J M Graham A l lee K p terrins M J Wells A Jain G davis s Whittern prof. M Bewick As at 31 december 2016 As at 24 April 2017 number of ordinary shares in issue held percentage of ordinary shares in issue number of ordinary shares in issue held percentage of ordinary shares in issue 45,000 3.09% 1,546,392 105,000 7.22% 3,608,248 15,000 1.03% 515,464 45,000 3.09% 1,546,392 45,000 3.09% 1,546,392 – – – – – – – – – 37,037 37,037 14,815 1.39% 3.25% 0.46% 1.39% 1.39% – 0.03% 0.03% 0.01% on 15 March 2017 there was a subdivision of the ordinary share capital and an issue of bonus shares to existing shareholders. on 21 March upon admission to the london stock exchange there was an additional issue of shares resulting in the dilution of the existing shareholder’s interests. please see note 28 post Balance sheet events for details. other transactions that occurred with directors during the year are detailed in note 26 of the accounts under Related party transactions. M BEWICK chairman of the Remuneration committee 27 April 2017 30 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial statements REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF MEDICA GROUP PLC Our opinion on the financial statements is unmodified In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 december 2016 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting standards (IFRss) as adopted by the european union; • the parent company financial statements have been properly prepared in accordance with applicable law and united Kingdom Accounting standards (united Kingdom Generally Accepted Accounting practice) including FRs 101 ‘Reduced disclosure Framework’; and • the financial statements have been prepared in accordance with the requirements of the companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAs Regulation. Whom we are reporting to 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. What we have audited Medica Group plc’s financial statements for the year ended 31 december 2016 comprise the consolidated Income statement and consolidated statement of comprehensive Income, the consolidated and parent company statements of Financial position, the consolidated statement of cash Flows, the consolidated and parent company statements of changes in equity and the related notes. the financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRss as adopted by the european union. the financial reporting framework that has been applied in the preparation of the parent company financial statements is united Kingdom Generally Accepted Accounting practice including FRs 101 ‘Reduced disclosure Framework’. Overview of our audit approach • Key audit risks were identified as revenue recognition and adoption of IFRs as adopted by the european union; • overall Group materiality: £461,000 which represents 5.0% of the Group’s earnings before interest, taxes, depreciation, and amortisation (‘eBItdA’) excluding exceptional items; and • We performed full scope audit procedures over all Group entities at the sole operating location in the united Kingdom. 31 AnnuAl RepoRt And Accounts 2016 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF MEDICA GROUP PLC contInued Our assessment of risk In arriving at our opinions set out in this report, we highlight the following risks that, in our judgement, had the greatest effect on our audit: Audit risk Revenue recognition Refer to note 3.2 on page 40 and the paragraph entitled ‘Audit committee’ on page 27 within the directors’ statement on corporate Governance. Revenue is recognised throughout the Group as the fair value of consideration receivable in respect of the provision of services in relation to the completion of radiology reports. Revenue is recognised at the point that the radiology report is submitted to the hospital’s RIs (Radiology Information system) and, as such, revenue is recognised once the service has been provided. determining the amount of revenue to be recognised requires little significant management judgement or estimates, due to the stage of completion being final at the time the report is submitted. However, due to the volume of transactions that occur during the year, we identified revenue recognition as a significant risk. How we responded to the risk our audit work included, but was not restricted to: • testing certain key controls within the picture Archiving and communications system (‘pAcs’), in order to ascertain the validity and reliability of the data provided; • considering the appropriateness of the Group’s revenue recognition policy in light of the requirements of IFRs and testing a sample of revenue items to verify they were recorded in line with that policy; • selecting a sample of revenue items to determine the existence and occurrence of that revenue by agreeing each item to an underlying customer contract or relationship and to pAcs data; • agreeing revenues to contracted amounts and reconciling differences to underlying correspondence with the customer; • selecting a sample of year end receivables and obtaining directly confirmations from the customers; and • where a confirmation response was not received, conducting alternative procedures to gain comfort over the existence of year end receivables. Adoption of IFRss as adopted by the european union our audit work included, but was not restricted to: • assessing the credentials and reviewing the work performed by external parties who were contracted to assist with the transition; • performing a detailed assessment of the Group accounts under the new financial reporting framework to ensure presentation and disclosure is in accordance with IFRss as adopted by the european union; • considering, based on our knowledge whether all uK GAAp to IFRss as adopted by the european union differences had been addressed and considered; • considering in conjunction with our internal valuation expert, the valuation methodology, techniques and estimates utilised to determine the fair value of the resulting intangible assets; and • considering and recomputing the resulting deferred tax adjustments arising as a result of the recognition and amortisation of the intangible assets. Refer to note 2.4 on page 40 and the paragraph entitled ‘Audit committee’ on page 27 within the directors’ statement on corporate Governance. As part of its listing on the london stock exchange, the Group has transitioned to IFRss as adopted by the european union. As disclosed in note 2.4 the first set of financial statements prepared by the Group under IFRs were those included in the company’s listing prospectus. the listing prospectus contains the full transitionary disclosures required by IFRs 1. under the transition to IFRss as adopted by the european union, as a result of the acquisition of Medica Reporting limited on 2 May 2013, various intangible assets acquired were required to be identified, valued, recognised and amortised over their estimated economic lives. under IFRs 3, the remaining goodwill balance is not amortised and is instead reviewed annually for impairment. In addition certain acquisition costs which were capitalised under uK GAAp cannot be capitalised under IFRs 3. under IFRss as adopted by the european union, deferred tax is recognised on timing differences, whereas under the Group’s previous financial reporting framework, uK GAAp, deferred tax is only recognised on temporary differences. As a result of the main areas identified above, and that as the IFRs transition which is fully disclosed within the listing prospectus was not subject to statutory audit, we determined the adoption of IFRss as adopted by the european union, including the identification and valuation of acquired intangibles and their associated deferred tax impact, to be a significant risk. 32 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial statements Our application of materiality and an overview of the scope of our audit Materiality We define materiality as the magnitude of a misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. We determined materiality for the Group financial statements as a whole to be £461,000, which represents 5% of the Group’s earnings before interest, taxes, depreciation and amortisation (‘eBItdA’) excluding exceptional items. this benchmark is considered the most appropriate because this is a key performance measure used by the Board of directors to report to investors on the financial performance of the Group. Materiality for the current year is higher than the level that we determined for the year ended 31 december 2015, reflecting the increase in the Group’s eBItdA in the year ended 31 december 2016. We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality for the audit of the Group financial statements. We also determine a lower level of specific materiality for certain areas such as directors’ remuneration and related party transactions. We determined the threshold at which we will communicate misstatements to the Audit committee to be £23,000. In addition, we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. Overview of the scope of our audit A description of the generic scope of an audit of financial statements is provided on the Financial Reporting council’s website at www.frc.org.uk/auditscopeprivate. We conducted our audit in accordance with International standards on Auditing (IsAs) (uK and Ireland). our responsibilities under those standards are further described in the ‘Responsibilities for the financial statements and the audit’ section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with the Auditing practices Board’s ethical standards for auditors, and we have fulfilled our other ethical responsibilities in accordance with those ethical standards. As all Group operations are based in the uK and subject to statutory audit, all components of the Group were subjected to a comprehensive audit approach. our audit approach was based on a thorough understanding of the Group’s business and is risk based, and in particular included: • undertaking an interim visit in october 2016 to evaluate the Group’s internal control environment, including It systems and controls; • at this visit, we performed an evaluation of the design effectiveness of controls over key financial statement risk identified as part of our risk assessment, reviewed the accounts production process and performed certain transactional procedures for the first nine months of the year in advance of the year end; • at the final audit visit, we undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls over individual systems and the management of specific risks; and • the scope of the current year audit has remained consistent with the scope of that of the prior year. Other reporting required by regulation Our opinions on other matters prescribed by the Companies Act 2006 are unmodified In our opinion, the part of the directors’ Remuneration Report to be audited has been properly prepared in accordance with the companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic Report and the Report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic Report and the Report of the directors have been prepared in accordance with applicable legal requirements. Matter on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the Group and parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic Report or the Report of the directors. 33 AnnuAl RepoRt And Accounts 2016 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF MEDICA GROUP PLC contInued 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 and the part of the directors’ Remuneration Report to be audited 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. Under the Listing Rules, we are required to review: • the directors’ statements in relation to going concern and longer-term viability, set out on pages 25 and 28; and • the part of the corporate Governance statement relating to the company’s compliance with the provisions of the uK corporate Governance code specified for our review. Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or • otherwise misleading. In particular, we are required to report to you if: • we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable; or • the annual report does not appropriately disclose those matters that were communicated to the Audit committee which we consider should have been disclosed. We have nothing to report in respect of any of the above matters. We also confirm that we do not have anything material to add or to draw attention to in relation to: • the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity; • the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated; • the directors’ statement in the financial statements about whether they have considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and • the directors’ explanation in the annual report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider 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. Responsibilities for the financial statements and the audit What the Directors are responsible for: As explained more fully in the statement of directors’ Responsibilities set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. What we are responsible for: our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International standards on Auditing (uK and Ireland). those standards require us to comply with the Auditing practices Board’s ethical standards for Auditors. JONATHAN MAILE BSC (HONS) FCA senior statutory Auditor for and on behalf of Grant thornton uK llp statutory Auditor, chartered Accountants Gatwick 27 April 2017 34 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED STATEMENT OF COMPREHENSIvE INCOME For the year ended 31 december 2016 Revenue cost of sales Gross profit Administration expenses operating profit other expenses – exceptional items operating profit after exceptional items Finance income Finance costs Profit before tax Analysed as EBITDA exceptional items Finance costs Finance income depreciation Amortisation Profit before tax Income tax charge Profit attributable to equity holders of the parent Statement of Comprehensive Income Profit for the year other comprehensive income 31 December 2016 £000 31 december 2015 £000 note 22,238 28,522 (14,313) (10,962) 14,209 11,276 (6,993) (6,241) 7,216 5,035 (757) – 6,459 5,035 10 (2,181) 19 (2,970) 4,288 2,084 9,229 6,811 (757) – (2,181) (2,970) 10 (883) (1,130) 19 (795) (981) 4,288 2,084 6 7 8 9 6 7 9 8 15 14 10 (971) (398) 3,317 1,686 3,317 1,686 – – Total comprehensive profit for the year attributable to owners of the parent 3,317 1,686 Profit per share (basic and diluted) Basic and diluted profit per ordinary share (pence) All transactions arise from continuing operations. 11 3.32p 1.69p 35 AnnuAl RepoRt And Accounts 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION COMPANY REGISTRATION 08497963 As at 31 december 2016 Non-current assets Goodwill other intangible assets property, plant and equipment Current assets trade and other receivables cash and cash equivalents Current liabilities trade and other payables Borrowings derivative financial instruments Non-current liabilities Borrowings and other financial liabilities derivative financial instruments deferred tax Net assets Equity share capital share premium Retained profit Total equity At 31 December 2016 £000 At 31 december 2015 £000 note 13 14 15 17 18 19 23 15,948 15,948 9,402 10,094 1,835 1,929 27,185 27,971 6,073 4,713 10,786 4,333 2,085 6,418 (3,283) (2,036) (1,362) (1,522) (52) – (4,697) (3,558) 20 (25,369) (25,972) 24 23 – (22) (1,596) (1,845) (26,965) (27,839) 6,309 2,992 21 21 21 146 1,309 4,854 6,309 146 1,309 1,537 2,992 the financial statements on pages 35 to 61 were authorised for issue by the Board of directors on 27 April 2017 and were signed on its behalf by: J M GRAHAM Director A L LEE Director 36 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 december 2016 12 months ended 31 December 2016 £ 12 months ended 31 december 2015 £ 4,288 2,084 883 1,130 (10) 795 981 (19) 2,181 2,970 (1,740) (633) 949 30 343 – (924) (812) 6,787 5,709 (789) (1,267) (438) (214) 10 8 (1,217) (1,473) 13,600 – (15,626) (1,322) (916) (1,990) (2,942) (3,312) 2,628 924 2,085 1,161 2,628 924 4,713 2,085 Operating activities profit before tax Adjustments for: depreciation Amortisation Finance income Finance costs Changes in: (Increase) in trade and other receivables Increase in trade and other payables Movement of derivative financial instruments tax paid cash inflow from operating activities Investing activities purchase of property, plant and equipment purchase of software intangibles Interest received cash outflow from investing activities Cash flows from financing activities loan finance raised Repayment of borrowings Interest paid net cash outflow from financing Net change in cash and cash equivalents Movement in net cash cash and cash equivalents, beginning of period Increase in cash and cash equivalents Cash and cash equivalents, end of period 37 AnnuAl RepoRt And Accounts 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 december 2016 At 31 December 2014 transactions with owners profit and total comprehensive income for the period At 31 December 2015 transactions with owners profit and total comprehensive income for the period At 31 December 2016 share capital £000 share premium £000 Retained earnings £000 total equity £000 146 1,309 (149) 1,306 – – – – 146 1,309 – 1,686 1,537 – 1,686 2,992 – – – – – – 3,317 3,317 146 1,309 4,854 6,309 38 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 december 2016 Medica Group PLC 1 Medica Group plc (“the company”) was incorporated in england and Wales on 22 April 2013 under the companies Act 2006 (registration number 08497963) and is domiciled in the united Kingdom. Its registered office and principal place of business is Havelock place, Havelock Road, Hastings, east sussex, tn34 1BG. the consolidated financial statements of the Group for the year ended 31 december 2016 (including comparatives) comprise the company and its subsidiaries (together referred to as “the Group”). the Group’s principal activity is the provision of teleradiology reporting and is the leading independent provider in the uK. the Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the chairman’s and chief executive’s Reports on pages 5 and 14-17. In addition, note 24 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk. Basis of preparation 2 2.1. Basis of preparation the consolidated financial statements of Medica Group plc and its subsidiary undertakings (together “the Group”) for the 12 months ended 31 december 2016 have been prepared by the directors of Medica Group plc. the consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting standards (“IFRs”) and IFRIc interpretations as adopted by the european union (eu) and the companies Act 2006 applicable to companies reporting under IFRs. the preparation of consolidated financial statements in conformity with IFRs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. the areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4 to the financial statements. the consolidated financial statements are presented in £ (sterling), the presentational and functional currency of the company, rounded to the nearest £’000. 2.2. Going concern the directors of Medica Group plc have assessed the current financial position of the Group, along with future cash flow requirements to determine if the Group has the financial resources to continue as a going concern for a period of at least 12 months from the approval of the accounts. As a result of this review the directors of Medica Group plc have concluded that it is appropriate that Medica Group plc be considered a going concern. For this reason, they have adopted the going concern basis in preparing the financial statements. the financial statements do not include any adjustments that would result in the going concern basis of preparation being inappropriate. 2.3. Adoption of new and revised standards new and amended standards issued in the year have not had a significant impact on the financial statements. At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IAsB and adopted by the eu but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. • IFRs 9 ‘Financial Instruments’, effective 1 January 2018. • IFRs 15 ‘Revenue from contracts with customers’, effective date 1 January 2018. • IFRs 16 ‘leases’, effective date 1 January 2019 (not yet adopted by the eu). • disclosure initiative (Amendment to IAs 7) (effective 1 January 2017). • disclosure initiative (Amendment to IAs 1) (effective 1 January 2016). these standards are yet to be subject to a detailed review. IFRs 9 will impact both the measurement and disclosure of financial instruments and IFRs 15 may have an impact on revenue recognition and related disclosures. IFRs 16 will impact the measurement and disclosure of lease liabilities, and the liabilities shown on the Group’s balance sheet. Beyond this, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed. A number of IFRs and IFRIc interpretations are also currently in issue which are not relevant for the Group’s activities and which have not therefore been adopted in preparing these financial statements. 39 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 2.4. First-time adoption of IFRS the consolidated financial statements are prepared in accordance with IFRs using the measurement basis specified by IFRs for each type of asset, liability, income and expense. the measurement bases are more fully described in the accounting policies in note 3. the date of transition to IFRs was 22 April 2013 (the date of incorporation of the Group). the first set of financial statements prepared by the Group under IFRs were included within the company’s prospectus relating to its admission to the london stock exchange on 16 March 2017. the prospectus can be obtained from the company’s website at www.medicagroup.co.uk. Summary of accounting policies 3 these accounting policies have been used throughout all periods presented in the financial statements, except where the Group has applied certain accounting policies and exemptions upon transition to IFRs. 3.1. Basis of consolidation the Group financial statements consolidate those of the parent company and all of its subsidiary undertakings drawn up to 31 december 2016. All subsidiaries have the same reporting date and use accounting policies consistent with those of the parent company. Medica Group plc (“the Group”) controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the entity. subsidiaries are fully consolidated from the date on which control is transferred to the Group. unrealised gains and losses on transactions between Group companies are eliminated. Where recognised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Business combinations are dealt with by the acquisition method. the acquisition method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. on initial recognition, the assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. 3.2. Revenue Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts and sales related taxes. Revenue is recognised when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, the costs incurred or to be incurred can be measured reliably and when the criteria for each of the Group’s different activities have been met. Radiology image submissions: the service is deemed to have been provided, and subsequent turnover recognised, when the company submits its radiology report to the customer. 3.3. Interest income/Interest expense Interest income and expenses are reported on an accrual basis using the effective interest method. 3.4. Segment reporting IFRs 8 requires operating segments to be identified on the same basis as is used internally for the review of performance and allocation of resources by the Group chief executive (chief operating decision maker – codM). the Board has reviewed the Group and all revenues are functional activities of teleradiology reporting and these activities take place on an integrated basis. the senior executive team reviews the financial information on an integrated basis for the Group as a whole. 3.5. Leasing Management applies judgement in considering the substance of a lease agreement and whether it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation to the economic life of the asset, the present value of the minimum lease payments in relation to the asset’s fair value, and whether the Group obtains ownership of the asset at the end of the lease term. 40 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements 3.5. Leasing continued Operating leases All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. 3.6. Property, plant and equipment property, plant and equipment are stated at historical cost less accumulated depreciation and impairment. depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by equal annual instalments over their expected useful lives less estimated residual values, using the straight-line method. the rates generally applicable are: computer equipment leasehold improvements – – 25% per annum over the life of the lease term the gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. the assets’ residual value and useful lives are reviewed, and adjusted if required, at each balance sheet date. the carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount is greater than its estimated recoverable amount. 3.7. Impairment of property, plant and equipment At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment 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). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs of disposal 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. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant assets are carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 41 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued Summary of accounting policies continued 3 3.8. Goodwill and other intangible assets An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. the asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights. Intangible assets acquired as part of a business combination, are shown at fair value at the date of the acquisition less accumulated amortisation. Amortisation is charged on a straight-line basis through the profit or loss. the rates applicable, which represent the directors’ best estimate of the useful economic life, are: • customer relationships – 15 years • software and technology – 10 years • Brands – 10 years Internal development costs expenditure on the research phase of projects to develop new projects is recognised as an expense as incurred. costs that are directly attributable to a project’s development phase are recognised as intangible assets, provided they meet the following recognition requirements: • the development costs can be measured reliably • the project is technically and commercially feasible • the Group intends to and has sufficient resources to complete the project • the Group has the ability to use or sell the software • the software will generate probable future economic benefits. development costs not meeting these criteria for capitalisation are expensed as incurred. directly attributable costs include employee costs incurred on software development along with an appropriate portion of relevant overheads and borrowing costs. 3.9. Impairment of intangible assets Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but tested annually for impairment. Impairment losses in respect of goodwill cannot be subsequently reversed. At each balance sheet date, the Group performs an annual impairment review of goodwill and any intangible assets with an indefinite useful economic life. the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher 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/cash-generating unit. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount. 3.10. Taxation tax expenses recognised in profit or loss comprise the sum of the tax currently payable and deferred tax not recognised in other comprehensive income or directly in equity. Current tax the tax currently payable is based on taxable profit for the year. taxable profit differs from profit as reported in the 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’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 42 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements 3.10. Taxation continued Deferred tax deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability method. deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be recognised. such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to recognise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. the carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset recognised based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. the measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 3.11. Financial instruments Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted for transaction costs, except for those carried at fair value through profit or loss which are measured initially at fair value. subsequent measurement of financial assets and financial liabilities is described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. An exchange between an existing borrower and lender of debt instruments with substantially different terms shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. similarly, substantial modification of the terms of an existing financial liability shall be accounted for as an extinguishment of the original liability and the recognition of a financial liability. A substantial modification of terms occurs when the discounted present value of the cash flows under the new terms is at least 10% different from the discounted present value of the remaining cash flows of the original facility. please note that the refinancing of the bank loans in note 20 do not meet the definition of a substantial modification. the only types of financial assets held by the Group are loans, receivables and derivative financial instruments. Loans and receivables loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. discounting is omitted where the effect of discounting is immaterial. the Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of the counterparty and other shared credit risk characteristics. the impairment loss estimate is then based on recent historical counterparty default rates for each identified group. 43 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 3.11. Financial instruments continued Derivative financial instruments the Group utilises interest rate swaps, derivative financial instruments are recognised at fair value at the end of the year with changes in fair value recognised in the income statement. Classification and subsequent measurement of financial liabilities the Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are measured subsequently at amortised cost using the effective interest method except for derivatives. the only derivatives held by the Group are interest rate swaps which have been included at fair value. Financial liabilities designated at FVtpl, which are carried subsequently at fair value with gains or losses recognised in profit or loss. please see note 23 for the fair value hierarchy. 3.12. Equity, reserves and dividend payments share capital represents the nominal value of shares that have been issued. share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Retained earnings include all current and prior period retained profits or losses. dividend distributions payable to equity shareholders are included in ‘other liabilities’ when the dividends have been approved in a general meeting prior to the reporting date. the directors did not recommend payment of any dividends during the periods. 3.13. Exceptional items exceptional items are items that are unusual because of their size, nature or incidence and which the directors consider should be disclosed separately to enable a full understanding of the Group’s results. 3.14. Employee benefits short-term employee benefits and contributions to defined contribution plans are recognised as an expense in the period in which they are incurred. Critical accounting judgements and key sources of estimation uncertainty 4 the preparation of financial statements under IFRs requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. the estimates and assumptions which have a risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below. 4.1. Key sources of estimation uncertainty Intangible assets and impairment the Group recognises the intangible assets acquired as part of business combinations at fair value at the date of acquisition. the determination of these fair values is determined by experts engaged by management and based upon management’s and the directors’ judgement and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and selection of an appropriate discount rate. Furthermore, management must estimate the expected useful lives of intangible assets and charge amortisation on these assets accordingly. At the reporting date no impairments to other intangible assets were recognised in the period. Fair value measurement Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. this involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case management uses the best information available. estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date (see note 23). 4.2. Matters of judgement Deferred taxation deferred tax liabilities have been recognised which are contingent and dependent upon future trading performance, (see note 16). 44 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements Segment reporting 5 Management prepare and monitor financial information for the Group’s three primary service lines (Routine cross- sectional, Routine plain Film and nightHawk) on a regular basis. this financial information is reviewed and used by the chief operational decisions maker (considered to be the chief executive officer) in managing the operating activities of the Group. IFRs 8 sets out certain thresholds in determining whether reportable operating segments exist, and all of the three primary service lines exceed these thresholds. However, IFRs 8 permits the aggregation of operating segments where these services lines are similar in nature, service delivery processes, types or classes of customers, and regulatory factors. Management consider it is most appropriate to aggregate the three service lines into one teleradiology operating segment due to the similarities in respect of these factors. As a result all teleradiology activities are presented as one operating segment Medica Group plc has identified only one geographic area, the uK. As a result of this and there being only one operating segment as described above, no analysis has been provided. no customer accounted for more than 10% of the Group’s revenues. the Group identified four revenue streams, nightHawk, Routine cross-sectional, Routine plain Film and other. the analysis of revenue by each stream is detailed below. nightHawk Routine cross-sectional Routine plain Film other 6 Operating profit and profit before taxation the operating loss and the loss before taxation are stated after: Fees payable to the company’s auditor for the audit of the company’s annual accounts the audit of the company’s subsidiaries pursuant to legislation total audit fees taxation compliance services other assurance services* total non-audit fees total fees paid to company’s auditor operating lease rentals – land and buildings depreciation: property, plant and equipment Amortisation of intangible fixed assets on acquisition Amortisation of intangible fixed assets on other assets 2016 £000 2015 £000 13,536 10,692 10,508 3,876 602 7,320 3,652 574 28,522 22,238 2016 £000 53 2 55 – 218 218 273 52 883 870 260 2015 £000 21 2 23 7 6 13 36 52 795 870 121 * this amount reflects work undertaken to 31 december 2016. A further £112,500 was incurred between 1 January 2017 and the date of the company’s listing on 21 March 2017. 45 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 7 Exceptional items costs incurred in respect of Initial public offering 2016 £000 757 757 2015 £000 – – the above costs were incurred in respect of the company’s refinancing and listing on the stock exchange in March 2017. Although some of the costs are allowable for corporation tax purposes, a large proportion of the costs are deemed capital in nature and therefore are not allowable for tax purposes; however, the tax effect is not considered material by the directors. Additional costs in respect of the Initial public offering were incurred between January 2017 and March 2017 which will be treated as exceptional items in the 31 december 2017 accounts. the costs of these exceptional items will be financed through the funds raised through the offering and therefore are not expected to have any negative impact upon the cash flow of the Group. Management identified a portion of the exceptional Ipo costs as relating to the issue of new shares and subsequently £47,000 has been treated as a prepayment at the reporting date and is to be recognised in equity in 2017. 8 Finance income Interest on cash and cash equivalents Fair value movement on derivative financial instruments 9 Finance costs Bank interest Amortisation of loan arrangement fees Interest on secured loan notes Fair value movement on derivative financial instruments 10 Tax expense Major components of tax expense: Current tax: uK current tax expense prior year adjustment total current tax Deferred tax: originations and reversal of temporary differences effect of rate change total deferred tax Tax expense on ordinary activities 46 AnnuAl RepoRt And Accounts 2016 2016 £000 2015 £000 10 – 10 2016 £000 978 291 882 30 9 10 19 2015 £000 490 192 2,288 – 2,181 2,970 2016 £000 2015 £000 1,214 6 1,220 718 – 718 (189) (60) (174) (146) (249) (320) 971 398 overview strategic Report Governance Financial Statements 10 Tax expense continued Reconciliation of tax expense: uK corporation tax is assessed on the profit on ordinary activities for the year and is lower than (2015: higher than) the standard rate of corporation tax in the uK of 20% (2015: 20.25%). the charge for the year can be reconciled to the loss per the income statement as follows: Reconciliation of effective tax rate: profit on ordinary activities before tax 2016 £000 2015 £000 4,288 2,084 Income tax using the company’s domestic tax rate 20.00% (2015: 20.25%) 858 422 effect of: expenses not deductible for tax purposes prior year adjustment – current tax effect of tax rate change – deferred tax total tax credit for period 167 6 (60) 971 122 – (146) 398 Earnings per share 11 Both the basic and diluted profit per share have been calculated using the profit after tax attributable to shareholders of Medica Group plc as the numerator, i.e. no adjustments to profits were necessary in 2015 or 2016. the calculation of the basic profit per share is based on the profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. there are no dilutive instruments and hence diluted earnings per share is identical to standard earning per share. profit for the year attributable to ordinary shareholders exceptional items profit for the year before exceptional items attributable to ordinary shareholders Refinance costs Amortisation of acquired intangibles Adjusted profit for the period attributable to ordinary shareholders 2016 £000 3,317 757 4,074 39 870 4,983 2015 £000 1,686 – 1,686 – 870 2,556 Weighted average number of ordinary shares Basic and diluted profit per ordinary share (pence) Basic and diluted profit per ordinary share before exceptional items (pence) Adjusted basic and diluted profit per ordinary share (pence) 100,000,002 100,000,002 3.32p 4.07p 4.98p 1.69p 1.69p 2.56p on 15 March 2017, the subdivision of the 1,455,000 ordinary shares of £0.10 each was approved so that each ordinary share of £0.10 each was sub-divided into 50 ordinary shares of 0.2p and by way of a bonus issue the company allotted 27,250,002 ordinary shares of 0.2p each at nominal value to its existing shareholders pro rata to their existing shareholdings. the weighted average number of ordinary shares after these transactions amounted to 100,000,002 and in accordance with IAs33 the earnings per share calculations have been retrospectively adjusted. 47 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 12 Directors and employees the average number of persons (including directors) employed by the Group during the years were: clinical Governance Business development & recruitment service delivery & nightHawk It, deployment and development directors Finance the aggregate cost of these employees was: Wages and salaries social security costs pension contributions directors’ emoluments paid during the period and included in the above figures were: emoluments 2016 Number 2015 number 7 10 40 15 5 5 82 7 8 33 13 5 4 70 2016 £000 2015 £000 2,693 2,479 251 104 240 71 3,048 2,790 2016 £000 573 2015 £000 656 the highest paid director received emoluments totalling £165,000 (2015: £195,000). the value of the company’s contribution paid to a defined contribution pension scheme in respect of the highest paid director amounted to £11,550 (2015: £11,550). Key management of the Group are the executive members of Medica Group plc’s Board of directors. Key management personnel remuneration includes the following expenses: salaries including bonuses social security costs pensions emoluments 2016 £000 573 85 28 686 2015 £000 656 85 28 769 during the year retirement benefits were accruing to four directors (2015: four) in respect of defined contribution pension schemes. 48 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements 13 Goodwill Cost At 31 december 2014 and december 2015 Additions At 31 december 2015 and december 2016 Goodwill £000 total £000 15,948 15,948 – – 15,948 15,948 Goodwill is not amortised, but tested annually for impairment. the directors have not assessed goodwill for impairment through a value in use calculation, and have instead done so by reference to fair value as indicated by the proceeds generated by the listing of the company in March 2017. there is only one cash-generating unit and the goodwill relates entirely to the acquisition of Medica Reporting limited (MRl) in 2013, and MRl accounts for all of the Group’s revenue and operating activity (other than finance charges relating to the bank loans and loan notes which are recorded in intermediate parent entities). the fair value of the Group as indicated by the listing is c.£150m, providing substantial headroom over the carrying amount of goodwill. 14 Intangible assets Cost At 31 december 2014 Additions At 31 december 2015 Additions At 31 December 2016 Amortisation At 31 december 2014 charge for the year At 31 december 2015 charge for the year At 31 December 2016 Net book value At 31 December 2016 At 31 december 2015 At 31 december 2014 customer relationships £000 software and technology £000 Brand £000 total £000 6,461 – 6,461 3,708 214 3,922 2,317 12,486 – 214 2,317 12,700 – 438 – 438 6,461 4,360 2,317 13,138 719 431 1,150 431 1,581 713 434 1,147 583 1,730 193 116 309 116 425 1,625 981 2,606 1,130 3,736 4,880 5,311 5,742 2,630 2,775 2,995 1,892 9,402 2,008 10,094 2,124 10,861 Amortisation has been included in administrative expenses in the consolidated statement of comprehensive income and the estimated remaining useful life of each class of asset at 31 december 2016 was as follows: customer relationships software and technology Brand 12 years 7 years 17 years At the year ended 31 december 2016, £116,000 of development costs have been capitalised as internally generated software and technology intangibles. these have not been shown separately as they are not deemed to be material to the financial statements. 49 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 15 Property, plant and equipment Cost At 31 december 2014 Additions At 31 december 2015 Additions At 31 December 2016 Depreciation and impairment At 31 december 2014 charge for the year At 31 december 2015 charge for the year At 31 December 2016 Net book value At 31 December 2016 At 31 december 2015 At 31 december 2014 leasehold improvements £000 computer equipment £000 80 17 97 – 97 5 21 26 23 49 48 71 75 2,109 1,250 3,359 789 4,148 727 774 1,501 860 2,361 1,787 1,858 1,382 total £000 2,189 1,267 3,456 789 4,245 732 795 1,527 883 2,410 1,835 1,929 1,457 All depreciation charges are included within administrative expenses in the consolidated statement of comprehensive income. As referred to in note 20, all assets have been pledged as security for the Group’s borrowings and are subject to a fixed and floating charge. 16 Deferred taxation assets and liabilities deferred tax included in the statement of financial position is as follows: Deferred tax liabilities Accelerated capital allowances deferred tax on intangible assets Reconciliation of movement in deferred tax As at 1 January 2015 Recognised in the income statement As at 31 December 2015 Recognised in the income statement As at 31 December 2016 50 AnnuAl RepoRt And Accounts 2016 2016 £000 2015 £000 19 1,577 1,596 50 1,795 1,845 depreciation in excess of capital allowances £000 2,165 (320) 1,845 (249) 1,596 total £000 2,165 (320) 1,845 (249) 1,596 overview strategic Report Governance Financial Statements 17 Trade and other receivables trade receivables prepayments and accrued income 2016 £000 2015 £000 5,622 4,018 451 315 6,073 4,333 All trade receivable amounts are short term. All of the Group’s trade and other receivables have been reviewed for indicators of impairment. the carrying value is considered a fair approximation of their fair value. the Group’s management considers that all the above financial assets are of good credit quality. In addition, some of the unimpaired trade receivables of the Group are past due as at the reporting date. the age of financial assets past due, but not impaired, is as follows: More than three months but not more than six months More than six months but not more than one year More than one year 18 Trade and other payables trade payables corporation tax other taxation and social security Accruals 2016 £000 106 – – 106 2016 £000 1,567 617 81 1,018 2015 £000 440 77 24 541 2015 £000 1,281 320 71 364 3,283 2,036 All amounts are short term and the directors consider that the carrying value of trade and other payables are considered to be a reasonable approximation of fair value. the average credit period taken for trade purchases was 40 days (2015 – 43 days). 19 Borrowings due within one year Bank loans 2016 £000 1,362 1,362 2015 £000 1,522 1,522 51 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 20 Borrowings due in more than one year 20.1. Borrowings due in more than one year secured loan notes and accrued interest thereon, net of debt issuance costs (cBpe loan notes) 6,686 19,244 2016 £000 2015 £000 Bank loans 18,683 6,728 25,369 25,972 20.2. Maturity of the Group’s non-derivative financial liabilities (including interest payments where applicable) Maturity of debt: due within one year due between 2-5 years Maturity of debt: due within one year due between 2-5 years secured loan notes and accrued interest thereon 2015 £000 Bank loan 2015 £000 1,522 – 6,728 19,244 Secured loan notes and accrued interest thereon 2016 £000 Bank loan 2016 £000 1,362 – 18,683 6,686 the above amounts reflect the contractual undiscounted cash flows, which may differ from the carrying values of the liabilities at the reporting date. on 29 January 2016, the Group extended the terms of its two existing loan facilities by six months. this extension did not result in a significant modification of the existing two loans. In addition, the Group raised £13.1m (net of associated fees) under two new loan terms under the same revised facility agreement. on the same day, the Group repaid loan note interest and capital of £13.5m. the bank loans continue to be secured by way of a fixed and floating charge over all of the assets of the Group. post refinancing the amount guaranteed amounted to £22,152,000 (previously 2015, 2014 the amount so guaranteed was limited to £12,000,000). Interest accrues quarterly on the principal amount of the loan notes outstanding and unpaid interest is rolled up and compounded at the end of each quarter. the principal amount outstanding, together with any interest accrued, was repaid after the year-end; see note 28. 52 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements 21 Equity Ordinary share capital issued and fully paid 1,2000,000 A ordinary shares of £0.10 255,000 ordinary shares of £0.10 Total ordinary share capital of the Company At 31 December 2016 £000 At 31 december 2015 £000 120 26 146 120 26 146 Rights attributable to issued shares Any profits which the company determines to distribute in any financial year shall be paid on the A ordinary shares and ordinary share pari passu as if they were all shares of the same class. every holder of an A ordinary share and ordinary share is entitled to one vote and has one vote for every share for which they are a holder other than when a resolution solely relates to the appointment of an investment director on which holders of the ordinary shares are not entitled to vote. on a return of capital on liquidation, capital reduction or otherwise, the surplus assets of the company remaining after the payment of its liabilities shall be applied in distributing the balance of such assets amongst the holders of the A ordinary shares and ordinary shares pari passu as if they were all shares of the same class in proportion to the amounts paid up or credited as paid up on the A ordinary shares and ordinary shares held by them respectively. Voting rights the holders of ordinary shares are entitled to receive notice of and attend and vote at any general meeting of the company. Share premium proceeds received in addition to the nominal value of the shares issued during the year have been included in share premium. Retained earnings Retained earnings include current and prior period retained profit and losses. 22 Undertakings included in the financial statements the consolidated financial statements include: Medica Reporting services limited ordinary england & Wales Medica Reporting Finance limited ordinary england & Wales 100% Holding company 100% Holding company class of share held country of incorporation proportion held nature of business Medica Reporting limited ordinary england & Wales 100% 23 Financial instruments Categories of financial instruments Financial assets loans and receivables cash and bank balances Financial liabilities at amortised cost trade and other payables Borrowings within one year Borrowings due in more than one year Financial liabilities at fair value through profit and loss derivatives teleradiology reporting As at 31 December 2016 £000 As at 31 december 2015 £000 5,622 4,713 10,335 4,018 2,085 6,103 (1,567) (1,281) (1,362) (1,522) (25,369) (25,972) (28,298) (28,775) (52) (22) A description of the Group’s financial instrument risks, including risk management objectives and policies, is given in note 24. 53 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 23.1. Fair value measurement of financial instruments the methods used to measure financial assets and liabilities reported at fair value are described below. Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of fair value hierarchy. the three levels are defined based on the observability of significant inputs to the measurement as follows: level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities. level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). the fair values of interest rate swaps are categorised within level 2 of the fair value hierarchy. the Group’s interest rate swaps are not traded in active markets. these have been fair valued using observable interest rates corresponding to the maturity of the contract. outstanding derivatives at the reporting date are included under the appropriate format heading depending on the nature of the derivative. 24 Financial instruments risk 24.1. Risk management objectives and policies the Group is exposed to various risks in relation to financial instruments. the Group’s financial assets and liabilities by category are summarised in note 23. the Group’s financial instruments (other than derivatives) comprise cash and liquid resources and various items, such as trade receivables and trade payables that arise directly from its operations. the main purpose of these financial instruments is to raise finance for the Group’s operations. the principal financial risks faced by the Group are liquidity, credit and interest rate risks. the Group is not exposed to transactional foreign currency risks, as all of its activities are based in the uK. the Group’s risk management is coordinated at its headquarters, in close cooperation with the Board of directors, and focuses on actively securing the Group’s short to medium-term cash flows by minimising the exposure to volatile financial markets. long-term financial investments are managed to generate lasting returns. the Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. the most significant financial risks to which the Group is exposed are described below. Credit risk the Group’s principal financial assets are cash and cash equivalents and trade and other receivables. the Group has no significant credit risk. the maximum exposure to credit risk is that shown within the balance sheet. All amounts are short term and management consider the amounts to be of good credit quality. For a summary of financial assets past due, but not impaired, please see note 17. Liquidity/funding risk the Group’s funding strategy is to ensure a mix of funding sources offering flexibility and cost effectiveness to match the requirements of the Group. operating subsidiaries are financed by retained profits. the Group manages liquidity risk by maintaining adequate reserves and agreed committed banking facilities. For a summary of non-derivative financial liabilities that have contractual maturities (including interest payment where applicable) please see note 20. Interest rate risk the Group holds the majority of its cash and cash equivalents in corporate current accounts. these accounts offer a competitive interest rate with the advantage of quick access to the funds. All loans and borrowings bear a fixed rate of interest. to mitigate the Group’s exposure to interest rate risk, an interest-rate swap contract has been entered into. the agreement secured a fixed rate of interest of 1.08% and the agreement terminated on 31 March 2017. the bank loans and loan notes were repaid in full from the proceeds raised through the successful Initial public offering on 21 March 2017. Capital risk management the Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders and to maintain a capital structure that optimises the cost of capital. the Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. 54 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements the capital structure of the Group consists of debt, which includes loans, other borrowings and the loan notes disclosed in notes 19 and 20; cash and cash equivalents as disclosed in the statement of financial position; and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity. the gearing ratios at the end of the reporting periods were as follows: debt due within one year debt due in more than one year cash and bank balances net debt total equity total capital net debt to total capital 2016 £000 2015 £000 1,362 1,522 25,369 25,972 (4,713) (2,085) 22,018 25,409 6,309 2,992 28,327 28,401 78% 89% debt is defined as long and short-term borrowings (excluding derivatives). equity includes all capital and reserves of the Group that are managed as capital. Sensitivity analysis the business had total gross debt of £26.7m as at 31 december 2016. of this, £6.7m was in loan notes which were at a fixed rate of 12% per annum and therefore did not represent an interest rate risk. these were repaid in full in March 2017 (see note 28 concerning events after the reporting period for further information). the remaining £20m in bank loans is at a variable interest rate and therefore represents a potential risk that the fair value of the Group’s future cash flows may fluctuate because of changes in market interest rates. Interest rate swap arrangements were used throughout the year ending 31 december 2016 and as at that date, which had the effect of fixing £14.1m of bank loans at an approximate fixed interest rate 4% per annum. the effect of changes in market interest rates does not have a material effect on valuation of the interest rate swaps themselves. Accordingly, the amount of debt outstanding as at 31 december 2016 considered to be exposed to interest rate risk was limited to £5.9m. A sensitivity analysis based upon this amount has been prepared and is presented below. At 31 december 2016, if interest rates had been 100 basis points higher, with all other variables held constant, post-tax profit for the year and total equity would have been reduced by £60,000, arising as a result of higher interest expense on variable borrowings. 25 Financial commitments the Group leases an office building under an operating lease. the present value of future minimum rentals payable under non-cancellable operating leases are as follows: less than one year Between 2 and 5 years over 5 years At 31 December 2016 £000 At 31 december 2015 £000 52 143 – 195 52 195 – 247 26 Transactions with Directors and other related parties the Group’s related parties include key management personnel. In addition, on 2 May 2013 Medica Group plc issued £18,360,000 in loan notes to cBpe nominees ltd, the Group’s ultimate parent undertaking at 31 december 2016. In accordance with the terms of the loan note dated 2 May 2013, interest accrues quarterly on the principal amount of the loan notes outstanding and unpaid interest is rolled up and compounded at the end of each quarter. the principal amount outstanding, together with any interest accrued but unpaid was repaid post year end see note 28. 55 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued Transactions with Directors and other related parties continued 26 At 31 december 2016, the amount owing, including unpaid interest was £6,686,000 (31 december 2015: £19,244,000), and interest charges of £882,000 (31 december 2015: £2,288,000), had been recognised in the consolidated statement of comprehensive income (see note 28 for details of repayment post year-end). Included in administrative costs are £43,500 (2015: £35,750) in respect of fees payable to cBpe nominees limited for services of the Investor director to the Group. Key management personnel (which the Group defines as the Board of directors) remuneration is disclosed in note 12. 27 Controlling party At 31 december 2016, the company’s ultimate parent undertaking was cBpe nominees ltd, a private company limited by shares, accounts of which can be obtained from cBpe capital llp, 2 George Yard, london, ec3V 9dH. At the date of approval of these accounts, there was no overall controlling party of the Group, following the admission of the company’s ordinary shares onto the premium listing segment of the official list and to trading on the london stock exchange’s Main Market for listed securities on 21 March 2017. (see note 28 below). 28 Post balance sheet events the principal events since 31 december 2016 relate to the admission of the Group to the Main Market of the london stock exchange on 21 March 2017. on 28 February 2017, the entire amount standing to the credit of the company’s share premium account, being £1,309,000, was cancelled and £1,309,000 was credited to a newly created capital reduction reserve on the company’s statement of Financial position. this exercise was completed in order to facilitate the reregistration of the company as a public limited company by ensuring that a minimum level of distributable reserves existed at the reregistration date. on 1 March 2017, Medica Reporting Group limited was reregistered at companies House as Medica Group plc. on 15 March 2017, the subdivision of the 1,455,000 A ordinary shares and ordinary shares of £0.10 each was approved so that each ordinary share of £0.10 each was sub-divided into 50 ordinary shares of 0.2p and by way of a bonus issue the company allotted 27,250,002 ordinary shares of 0.2p each at nominal value to its existing shareholders pro rata to their existing shareholdings. on 16 March 2017, an offer prospectus was published in which the selling shareholders offered 78,865,979 existing shares, in aggregate, for sale and the company offered 11,111,112 new shares for subscription. the new shares rank pari passu in all respects with the existing shares and carry the right to receive all dividends and distributions. on 21 March 2017, Medica Group plc was admitted to the premium listing segment of the official list and to trading on the london stock exchange’s Main Market for listed securities. the total number of shares in issue at Admission was 111,111,114 shares of 0.2p each. the new shares issue raised £15m and these funds were used fund costs of the Initial public offering, to repay cBpe loan notes in full and to reduce the Group’s bank debt to £12m, leaving a net debt position on Admission of approximately £10m. the bank debt is a five-year term loan which is repayable in full at the end of the term. Interest is paid quarterly at 1.75% above base rate. on 21 March 2017, the Group made an equity settled share based payment award to certain executive directors under a performance share plan whereby the executives directors will be issued with 866,665 ordinary shares after a vesting period of three years dependent on the achievement of targets set by the Remuneration committee. the share based payments will be accounted for in accordance with IFRs 2, whereby the fair value of the share Based payment awards will be measured at the grant date and recognised in the income statement over the vesting period, with a reassessment of the number of awards expected to vest to be made at each reporting date. consequently the potential shares described above could have a dilutive effect on potential earnings per share. 29 First-time adoption reconciliations the consolidated financial statements are prepared in accordance with IFRs using the measurement basis specified by IFRs for each type of asset, liability, income and expense. the measurement bases are more fully described in the accounting policies in note 3. the date of transition to IFRs was 22 April 2013 (the date of incorporation of the Group). the first set of financial statements prepared by the Group under IFRs were included within the company’s prospectus relating to its admission to the london stock exchange on 16 March 2017. the prospectus can be obtained from the company’s website at www.medicagroup.co.uk. 56 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements 30 Reconciliation of non-IFRS financial KPIs the Group uses a number of key performance indicators to monitor the performance of its business. this note reconciles these key performance indicators to individual lines in the financial statements. 31 December 2016 £000 31 december 2015 £000 7,216 5,035 870 39 870 – 8,125 5,905 28.5% 26.6% 3,317 1,686 870 757 39 870 – – 4,983 2,556 971 398 5,954 2,954 6,787 5,709 924 757 812 – 8,468 6,521 9,229 91.8% 6,818 95.6% 4,713 2,085 (1,362) (1,522) (25,369) (25,972) (22,018) (25,409) Reconciliation of adjusted operating profit operating profit Adjustments for: Amortisation of acquired intangibles Refinance costs Adjusted operating profit Adjusted operating profit margin Reconciliation of adjusted profit before tax profit for the year Adjustments for: Amortisation of acquired intangibles exceptional items Refinance costs Adjusted profit after tax Income tax charge Adjusted profit before tax Reconciliation of EBITDA cash conversion percentage cash inflow from operating activities Adjustments for: tax paid exceptional items eBItdA conversion rate Reconciliation of net debt cash and equivalents Borrowings due within one year Borrowings due after one year net debt 57 AnnuAl RepoRt And Accounts 2016 COMPANY STATEMENT OF FINANCIAL POSITION COMPANY REGISTRATION 08497963 As at 31 december 2016 Fixed asset investments Investments in subsidiaries Current assets debtors Creditors: amounts falling due within one year Total assets less current liabilities Net assets Capital and reserves called up share capital share premium account profit and loss account Total equity parent company profit/(loss) for the year At December 2016 £000 At december 2015 £000 note 32 1,455 1,455 – – – – 1,455 1,455 1,455 1,455 33 21 146 146 1,309 1,309 – – 1,455 1,455 – – the financial statements on pages 58-61 were approved and authorised for issue by the Board of directors on 27 April 2017 and were signed on its behalf by: J M GRAHAM Director A L LEE Director 58 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 december 2016 At 31 December 2014 transactions with owners Result and total comprehensive income for the year At 31 December 2015 transactions with owners Result and total comprehensive income for the year At 31 December 2016 share capital £000 share premium £000 total equity £000 146 1,309 1,455 146 1,309 1,455 – – – 146 1,309 1,455 – – – – – – 146 1,262 1,408 59 AnnuAl RepoRt And Accounts 2016 NOTES TO THE FINANCIAL STATEMENTS contInued 31 Accounting policies the financial statements have been prepared in accordance with applicable accounting standards including Financial Reporting standard 101. the Financial Reporting standard Applicable in the uK and Republic of Ireland (FRs 101) and the companies Act 2006. the financial statements have been prepared on a going concern basis under the historical cost convention, modified to include certain items at fair value. the financial statements are prepared in sterling which is the functional currency of the company. Exemptions the directors have taken advantage of the exemption available under section 408 of the companies Act 2006 and not presented a profit and loss account for the company alone. In addition, the directors have taken exemption from providing a cash flow statement and financial instruments disclosures as these are provided within the Group accounts. the company has taken advantage of exemption, under the terms of Financial Reporting standard 101 ‘the Financial Reporting standard applicable in the uK and Republic of Ireland’, not to disclose related party transactions with wholly owned subsidiaries within the Group. this is the first year in which the financial statements have been prepared under FRs 101, there were no adjustments required on transition. Going concern the directors of Medica Group plc have assessed the current financial position of the Group, along with future cash flow requirements, to determine if the Group has the financial resources to continue as a going concern for the foreseeable future. the directors of Medica Group plc have concluded that it is appropriate that Medica Group plc be considered a going concern. For this reason, they have adopted the going concern basis in preparing the financial statements. the financial statements do not include any adjustments that would result in the going concern basis of preparation being inappropriate. Investments Investments are recognised initially at fair value which is normally the transaction price excluding transaction costs. subsequently, they are measured at cost less impairment. Share capital and reserves share capital represents the nominal value of shares that have been issued. share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Retained earnings include all current and prior period retained profits or losses. they also include charges related to share-based employee remuneration. dividend distributions payable to equity shareholders are included in ‘other liabilities’ when the dividends have been approved in a general meeting prior to the reporting date. Significant judgements and estimates the Group is required to test, at least annually, whether investments have suffered any impairment. the recoverable amount is determined based on value in use calculations. the use of this method requires the estimation of future cash flows attributable to the acquired cash-generating unit and the choice of a suitable discount rate in order to calculate the present value of these cash flows. Actual outcomes could vary. 60 AnnuAl RepoRt And Accounts 2016 overview strategic Report Governance Financial Statements NOTES TO THE FINANCIAL STATEMENTS contInued Investments in subsidiaries and associates 32 Investments At 31 december 2015 Additions Impairment At 31 december 2016 2016 £000 1,455 – – 1,455 Investments are tested annually for impairment with the recoverable amount being determined from value in use calculations. Investments have been assessed for impairment and the Board has reviewed the funds successfully raised through the Initial public offering on 21 March 2017, which valued the company in excess of £150m. Given the valuation, the Board is comfortable that the investments are not impaired. At 31 december 2016, the company had the following subsidiary undertakings. Medica Reporting services limited ordinary england & Wales Medica Reporting Finance limited ordinary england & Wales 100% Holding company 100% Holding company class of share held country of incorporation proportion held nature of business Medica Reporting limited ordinary england & Wales 100% 33 Capital and reserves 1,2000,000 A ordinary shares of £0.10 255,000 ordinary shares of £0.10 Total ordinary share capital of the Company teleradiology reporting At 31 December 2016 £000 At 31 december 2015 £000 120 26 146 120 26 146 Rights attributable to issued shares Any profits which the company determines to distribute in any financial year shall be paid on the A ordinary shares and ordinary share pari passu as if they were all shares of the same class. every holder of an A ordinary share and ordinary share is entitled to one vote and has one vote for every share for which they are a holder other than when a resolution solely relates to the appointment of an investment director, on which holders of the ordinary shares are not entitled to vote. on a return of capital on liquidation, capital reduction or otherwise, the surplus assets of the company remaining after the payment of its liabilities shall be applied in distributing the balance of such assets amongst the holders of the A ordinary shares and ordinary shares pari passu as if they were all shares of the same class in proportion to the amounts paid up or credited as paid up on the A ordinary shares and ordinary shares held by them respectively. 34 Post balance sheet events see note 28 of the Group accounts for an explanation of the post balance sheet events. 35 Transition to FRS101 the financial statements have been prepared in accordance with applicable accounting standards including Financial Reporting standard 101. the company previously prepared its financial statements in accordance with FRs102 and the date of transition to FRs 101 was 1 January 2014. there were no material adjustments required in respect of the transition to FRs 101. 61 AnnuAl RepoRt And Accounts 2016 COMPANY INFORMATION The Board of Directors G davis – appointed 1 March 2017 s Whittern – appointed 1 March 2017 professor M Bewick – appointed 1 March 2017 A Jain J M Graham dr s G davies A l lee Company Secretary A l lee Registered office Independent auditors Medica Group plc Fifth Floor Havelock place Havelock Road Hastings east sussex tn34 1BG Grant thornton uK llp chartered Accountants & statutory Auditors the explorer Building Fleming Way Gatwick West sussex RH10 9Gt Registered Company number 08497963 62 AnnuAl RepoRt And Accounts 2016 medicagroup.co.uk Medica Reporting Limited Fifth Floor Havelock Place Havelock Road Hastings East Sussex TN34 1BG t: 033 33 111 222 

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