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
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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
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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
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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
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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
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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
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r
F
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a
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c
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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.
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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
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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.
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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.
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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.
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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.
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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
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AnnuAl RepoRt And Accounts 2016
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overview
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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
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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
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overview
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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
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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
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AnnuAl RepoRt And Accounts 2016
AnnuAl RepoRt And Accounts 2016
overview
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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
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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