Results for the year ended 31 December 2022

RNS Number : 5454U

Medica Group PLC

29 March 2023

 

Medica Group PLC

Results for the year ended 31 December 2022

Continued growth in acute services, Ireland and the US, alongside strong recovery in UK Elective revenue, delivered performance in line with revised expectations

Medica Group PLC (LSE:MGP, "Medica", the "Group" or the "Company"), an international provider of high-quality telemedicine services, announces its preliminary results for the year ended 31 December 2022.

Financial highlights

	Year ended 31 December 2022 £'000s	Year ended 31 December 2021 £'000s	Change £'000s	Change %
Revenue	76,979	61,913	15,066	24%
Gross profit	37,183	31,394	5,789	18%
Gross profit margin	48.3%	50.7%	n/a	(2.4)5
Underlying operating profit¹	13,643	12,078	1,565	13%
Underlying operating margin	17.7%	19.5%	n/a	(1.8)5
Underlying profit before tax ²	12,904	11,472	1,432	12%
Profit before tax	8,641	7,339	1,302	18%
Underlying basic EPS (pence) ³	8.75	7.83	0.92	12%
Basic EPS (pence)	5.88	4.56	1.32	29%
Proposed final dividend (pence)	1.88	1.79	0.09	5%
Cash and cash equivalents	11,004	9,616	1,388	14%
Net Cash/(Debt) 4	786	3,877	(3,091)	(80)%

(1) Underlying operating profit is a non-IFRS measure and is calculated as operating profit before exceptional items, share-based payments, and one-off costs including deal fees .

(2) Underlying profit before tax is a non-IFRS measure and is calculated as profit before tax before exceptional items, share based payments and amortisation in respect of assets acquired on acquisition and other one-off costs including deal fees

(3) Underlying Earnings per share is a non-IFRS measure and is calculated based on underlying operating profit less financing costs and taxation

(4) Net cash/(debt) is a non-IFRS measure and is calculated by subtracting bank borrowings from cash and cash equivalents

(5) Percentage point movement (ppts)

· Delivered sales of £77.0 million representing 24% revenue increase on 2021

o  UK revenues increased by 15% to £54.0 million as a result of continued strong performance from Acute services including NightHawk ("NH") and a full recovery in Elective reporting capacity with record performance in Q4 2022

o  Medica Ireland extended the strong results reported in the first half, with overall revenue of £12.5 million up by 30% compared to 2021

o  RadMD performed ahead of expectations delivering £10.4 million of revenue and closed the year with a combined risk-adjusted pipeline and order book of over $63 million up from $54m at the end of 2021

· Gross profit margin remained resilient at 48.3% although, as expected, was lower than 2021 (50.7%) due to a large number of contracts successfully renewed in year at current market pricing, but gross profit margin remains ahead of 2019 (47.8%)

· Like-for-Like (LFL) revenues, excluding RadMD which was acquired in 2021, increased by 17%

· Reported adjusted net operating profit of £13.6 million up from £12.1 million in 2021, with underlying net operating margin at 17.7% compared to 19.5% in 2021

· Net cash at 31 December 2022 of £0.8 million

· Earlier in 2022, the Board declared an interim dividend of 0.93 pence per share and is now proposing a final dividend for 2022 of 1.88 pence per share which will, if approved, result in total dividends for 2022 of 2.81 pence per share, up 5% on 2021

Operational highlights

· Strong recovery in UK Elective volumes from September onwards as radiologist availability returned to normal levels (following a period of reduced capacity in Q2 and Q3 primarily caused by annual leave accrued during the pandemic). This resulted in a record month of reporting in September 2022

· Continued growth in Acute services in the UK through the year due to the positive impact of increased volumes from existing clients extending the hours of our NightHawk service and using more urgent and same-day reporting during daytime hours, together with the positive impact of new contracts commenced during the year

· Reported a 16% increase in net rostered reporting hours supported by adding new overseas reporting functionality to our reporting platform in Q4, accelerating recruitment of radiologists in other geographies

· Reached first major milestone of FutureTech programme with launch of the new PACS in February delivering experience and functionality improvements for our radiologists

· Record number of new reporting contracts won in Ireland with the addition of six new hospital clients

o  Medica Ireland now has contracts across all seven hospital groups; and

o  5 additional hospitals added to our HSE Hospital ultrasound waiting list management portfolio

o  Now providing out-of-hours services at 15 of the 25 HSE hospitals

· Medica Ireland supported 'go-live' at the new Carrickmines clinic of VHI, Ireland's largest healthcare insurer in south Dublin; higher-than-expected demand post-launch has required increased staff and hours of service

· Medica Vision reduced significant post-pandemic Diabetic Retinopathy screening backlog in Ireland to zero patients by the end of the year which was a significant achievement

· RadMD demonstrated strong conversion of pipeline and backlog to revenue whilst bringing more diversification into the pipeline, including sizeable clients with potential for strong account growth in 2023 and subsequent years

Post-period highlights

· New contract wins across the business underpinning strong start to the year

· Completion of a small UK acquisition that delivers radiologist training internationally; complements our existing UK business and offers opportunities for our network of reporters to continue their professional development while also supporting potential new international radiologist hires

· Completion of small bolt-on acquisition in the US to provide expanded radiologist reader capacity and medical expertise for RadMD to support growth ambitions

· First new contract win for Medica's Australian joint venture, MedX, and growing pipeline of opportunities for international teleradiology, particularly in the Middle East.

Dr. Stuart Quin, Chief Executive Officer of Medica, commented:

"Against a market backdrop in which demand for Medica's services is higher than ever, we are pleased to report a period of double-digit growth underpinned by the expansion of our acute services, new contract wins, the continued strong performance of Medica Ireland and RadMD, and the recovery of Elective capacity after some mid-year capacity constraints.

"We are committed to continuing investment in our people and systems in 2023. With our new PACS system and changes to our platform, we are in a strong position to onboard radiologists and deliver a best-in-class experience for our reporters. Our recent UK acquisition reinforces our commitment to radiologist training and development globally. We will also continue to evaluate business development opportunities that provide scale for our fast-growing US business, as demonstrated early in 2023 through our bolt-on acquisition to provide additional radiologist reader capacity.

"Following the progress we have made over the last year, Medica remains well-positioned for continued growth and is on track to deliver on the strategic and financial targets we presented to the market in September 2021. "

For further information, please contact:

Medica Group Plc: Stuart Quin, Chief Executive Officer Richard Jones, Chief Financial Officer	[phone]
FTI Consulting Victoria Foster Mitchell Sam Purewal	[phone]
Liberum (Joint Broker) Phil Walker Richard Lindley	[phone]
Numis (Joint Broker) Freddie Barnfield Duncan Monteith Euan Brown	[phone]

About Medica Group PLC

Medica (LSE:MGP) is an international provider of high-quality telemedicine services. It is the market leader in teleradiology in the UK and Ireland, working with more than 100 NHS Trusts and HSE hospitals in Ireland, in addition to private hospitals, insurance groups and diagnostic imaging companies. Its network of consultant radiologists, radiographers and specialist doctors interpret and report MRI, CT, ultrasound and X-ray images on behalf of healthcare providers, using Medica's bespoke, secure technology platform for fast and responsive delivery. The company's core services include NightHawk, an urgent, out-of-hours offering available to clients 24/7 with dedicated pathways for stroke and major trauma, and Elective, for routine reporting.

In Ireland, Medica carries out patient scanning, as well as reporting, and runs a diabetic retinopathy screening programme for the National Screening Service. Through its US business, RadMD, Medica provides global pharmaceutical and biotech companies, as well as contract research organisations with specialist imaging services for clinical trials. 

For more information, please visit:  www.medicagroupplc.com  

Chairman's statement

Good performance characterised by continued client expansion and strong growth from recent acquisitions

I am pleased to report a positive year of continued growth for Medica Group resulting in annual revenue increasing by 24% to £77.0 million with a resilient gross profit margin of 48.3% and underlying operating profit of £13.6 million, up 13% from 2021. As a result, the Board is pleased to announce that it has declared a final dividend of 1.88 pence per share reflecting the strong performance of the business last year.

It has been a challenging time for clients in the markets in which we operate. In the UK, the impact of the pandemic was still apparent, particularly in the first half of 2022 when clients prioritised urgent elective procedures and radiologists were required to dedicate more time to supporting their own hospitals. This fact, combined with the overhang of outstanding annual leave resulting from the pandemic, meant that we saw some periods of capacity constraint. However, these market dynamics meant that demand for our services increased throughout 2022 and, aided by the recruitment of more reporters in the second half of the year and a resumption in normal hours of reporting across our existing network, Medica was able to help service this demand. Whilst overall Elective activity was reduced compared with our initial projections for the year, our NightHawk and broader Acute service performed consistently throughout the year with annual revenue growth of 12%. This strong performance meant that overall Medica derived 62% of its total UK revenue from acute reporting, up from 47% in 2019 pre-pandemic. Elective capacity recovered strongly in Q4 2022 delivering 20% increase year-on-year.

I am pleased that our acquisitions in Ireland and the US performed very well during the year. The Irish healthcare market in many respects reflected the same challenges as the UK, although our breadth of services, including ultrasound and X-ray scan and report, as well as diabetic retinopathy screening, meant that we were able to grow revenue at over 30% year-on-year, reflecting the value of our diversification strategy. Similarly, Medica's clinical trial imaging services business based in Pennsylvania also expanded, taking on some notable new clients, as well as supporting existing clients with important new therapy launches. RadMD continued to diversify away from pure reader services into end-to-end imaging core lab services which will support an expansion of gross margin. Further, RadMD closed the year with a strong risk-adjusted pipeline and order book that underpins 75% of 2023 revenue. The pipeline is also increasingly diversified with significant new large biotech client wins, as well as extensions to existing client relationships.

Leadership development and strategy execution

During 2022, Medica focused on the development of senior leadership roles across the business. This included internal promotions to Managing Director for Sarah Burns and Kim Scanlan in the UK and US respectively and the appointment of Fiona Carr as our first Director of Human Resources. We have also successfully nurtured our own talent which has resulted in other senior internal promotions across the company. I am proud that as we start 2023, four out of the nine roles in the executive team are now held by women, which is up from only one in 2019, which I believe better represents the wider business as well as bringing a diversity of thinking to key decisions. As well as HR, Medica has also invested in the development of its senior medical team with appointments in radiologist audit, training and development and quality and governance amongst the changes. Medica continues to invest in its medical expertise and our recent Care Quality Commission inspection, which gave a highly positive review of our services, is testament to our continued focus on quality. Furthermore, our recent UK acquisition of a highly respected radiologist training specialist in this space is evidence of further commitment to ensure that radiologists working for Medica continue to feel valued and are provided with essential skills that can be taken back into their NHS day jobs.

In 2022, we also made progress with our respective technology platforms across the business. This included ongoing developments in our FutureTech programme in the UK which is focused on developing an enhanced reporting environment for our radiologists and radiographers including those reporting from overseas in India, Australia, New Zealand and beyond. We also made progress in Ireland working with the Health Service Executive to improve access to scans and in the US, with our first image upload platform ready for beta testing. Since 2019 we have recognised the need to invest in technology to support our operations and to offer greater functionality for our radiologists be they reporting urgent cases overnight or clinical trial images during the daytime.

Medica remains well positioned for growth in 2023

The outlook for our business remains strong with ongoing demand underpinning continued double-digit growth in the medium term. Therefore, our focus continues to be on meeting this demand by increasing reporting capacity and enabling greater productivity for radiologists, radiographers and other specialist doctors who choose to work with Medica. To do this, we will continue to expand the reach of our reporting network, as well as continue to accelerate recruitment of radiologist consultants in the UK and Ireland. We are already starting to grow our international reporting presence by expanding into India to provide capacity for both our teleradiology and clinical trial reading businesses and to support MedX, our joint venture in Australia.

As we look to the remainder of 2023 and beyond, we continue to evaluate options for both new avenues of organic growth and M&A in support of our strategy including two small acquisitions completed already this year. Our focus remains on growing international scale in our US clinical trials business, RadMD, as well as looking at new areas of telemedicine such as digital pathology into which we can expand. In this respect, I am hopeful that 2023 will continue to be an exciting year for Medica and I would personally like to thank all of our talented team across Medica, including over 700 radiologists with whom we work regularly, as well as our partners, Board and investors for their ongoing support for the business strategy.

Roy Davis

Chairman

29 March 2023

CEO report

In 2022, Medica's clients faced the challenge of dealing with substantial backlogs in elective procedures and the resumption of clinical trial testing. I am pleased that we have been able to play a vital role in supporting them throughout this time and deliver a strong period of double-digit growth while continuing to execute against our strategy.

Waiting lists for diagnosis requiring imaging in the UK and Ireland remain at all-time highs and we expect demand will continue to grow for our services over the medium term as governments continue to fund investment into scanning capacity. Given Medica's scale and having the largest network of radiologists in the UK, I am proud that in 2022 we continued to work in close collaboration with our clients to be as responsive as we can to deliver high quality, fast and reliable reporting services.

Continued progress against our strategic goals

As set out below we continued to deliver against our core strategic objectives focused on our technology, people and service offering. 

1.  Be the trusted, go-to partner for healthcare providers with a reputation for reliability and transparency to enhance patient outcomes

Acute services (UK) - Most service procurement exercises were deferred in 2020 and early 2021 until after the pandemic had abated. During 2022, Medica successfully renewed many of its existing NightHawk contracts, as well as winning a net positive number of new contracts. Combined with the renewal success in 2021, this means that over 60% of NightHawk contracts renewed by value in the 18 months prior to period end, with the balance expected to renew in future years as they reach the end of their existing term. Since contracts typically run for three years with the option of a two-year extension, this provides strong revenue visibility and growth potential.

Medica has increasingly benefited from the high demand for acute services not only during the night, but also during the day. As busy radiologists are required to do more complex and time-consuming procedures during the daytime in their hospitals, Medica is being trusted by clients to fulfil more urgent requests during normal daytime hours, as well as many hospitals asking Medica to extend the hours classified as NightHawk. These dynamics together drove revenue growth at over 1% month-on-month throughout 2022 which is expected to continue in 2023 and beyond as demand builds and both the complexity and number of scans per patient continue to grow.

In terms of performance, Medica continued to provide a reliable, safe and trusted service, delivering against our Service Level Agreement (SLA) of exams reported within 60 minutes at 92% of urgent exams within SLA against a target of 90% and continuing to focus on delivering reports within 30 minutes and suspected stroke reports within 20 minutes. To continue to offer high service quality as our offering grows, Medica's strategy is to expand the reach of our recruitment network to support sub-specialist reporting 24/7 from countries where there is a time-zone benefit, as well as continue to recruit radiologist consultants in the UK. To this end, Medica has started to report using UK General Medical Council certified radiologists based in India. Our new systems have supported this change and we expect that we will expand to other jurisdictions in 2023, Medica reported a 16% increase in net rostered reporting hours year-on-year which is our measure of total radiologist capacity growth.

Acute services (Ireland) - Medica expanded the number of clients using its out-of-hours, NightHawk reporting services, from seven to 15 over the course of 2022 which is up from five clients when Medica acquired the company in 2020. Not only did Medica expand the number of clients, but it also expanded the hours of operation at many of the existing clients. This underlines Medica's investment thesis at the time of acquisition where we expected the Irish market opportunity to grow rapidly and shift towards a greater demand for out-of-hours urgent reporting of CT scans in particular. Medica is now present in all seven hospital clusters across the Republic of Ireland which positions us well for continued expansion. During 2022, Medica Ireland doubled the number of radiologists reporting to support this growth and we have built a strong pipeline to continue to build our capacity into 2023 and beyond.

Elective services (UK) - as the NHS prioritises the reduction in waiting time lists, demand for Elective radiology reporting services remains high with continued unmet demand across the market. The level of outsourcing of reporting is correlated with NHS scanning capacity and hence Medica works closely with clients to plan capacity needs on a weekly basis, As described above, our strategy is to expand recruitment of new radiologists, radiographers and specialist doctors in the UK and internationally as well as help reporters to improve their productivity by improving our technology platform.

Elective and screening services (Ireland) - Medica Ireland continued its expansion across the HSE with the addition of six new hospital clients including 5 additional hospitals added to our HSE Hospital ultrasound waiting list management portfolio. Medica continues to be well positioned in the Irish market as the go-to provider of teleradiology services having expanded the number of hospitals to which it is providing services from 19 in 2020 to 33 in 2022. Alongside close partnership with the HSE, Medica is also proud to have supported Ireland's largest healthcare insurer, VHI, with the launch of its flagship clinic in Carrickmines in south Dublin. This contract grew ahead of expectations in 2022 which required Medica to accelerate the recruitment of radiographers and sonographers to support the demand.

Medica Vision, our diabetic retinopathy screening service was proud to report that by the end of 2022, had zero backlog remaining post Covid. We are pleased with this impressive result which sets the company apart from other providers across the UK and Ireland.

Clinical trial imaging services (US and International) - Medica's clinical trial business recorded another strong year of growth in 2022 with revenues of £10.4 million for the first full year post-acquisition. Importantly, underpinning sustainable strong growth were new contract wins with a number of sizeable new pharma and biotech companies, as well as a continued shift from providing radiologist reader services towards full imaging contract research services (2022 represented 70% of sales up from 65% in 2021). Following a period of investment post-acquisition, operating margins are not yet at target levels, however strong revenue growth is expected to be delivered in the medium term. RadMD reported strong conversion of its signed order book to revenue and a combined risk-adjusted pipeline and order book of over $63 million as at 31 December 2022. This means that RadMD started 2023 with a revenue underpin of over 75% for the year.

MedX joint venture - international teleradiology reporting -  In 2022, Medica's joint venture with Integral Diagnostics Pty (IDX), an Australian listed leader in radiology clinics and teleradiology services, focused on international business development, leveraging the expertise of both parent teleradiology companies. MedX was successful in winning its first out-of-hours contract and is now exploring strategic partnerships in the Middle East and more widely overseas. As Medica expands its focus on reporting, training and development of radiologists outside the UK, this will also help to develop our network of international radiologists for MedX.

2. Invest in our people and systems to build an engaged and motivated team

People development and engaged team - Medica continues to invest in its people and grow the size of its operational and clinical team in the UK, Ireland and US to support growth. In 2022, we established an HR team in-house comprising an experienced Director of HR and two managers to support payroll and HR processes across the Group.

Our focus remains on 'growing our own' staff. Examples of this include on-the-job training for sonographers and radiographers in Ireland which we are looking to expand in 2023 and clear career path management for our operations and clinical governance teams in the UK. In the US, RadMD made a series of internal promotions in the Project Management and Operations teams, as well as hiring experts to bolster our clinical expertise.

In terms of the development of our team, we continue to invest in resources to support our reporting radiologists, radiographers and specialist doctors to ensure that they can be as productive as possible during the time that they spend with us. This has seen us increase the size of our Reporter Relationship Management team to support rostering of shifts and to manage ongoing relationships with reporters.

Medica responded to the increased cost of living pressures incurred by our employees by delivering a second annual pay increase of an average of 2.5% in October 2022, in addition to an average of 3.0% in April 2022. Further, Medica issued a one-off payment to all staff in July 2022 which proportionally benefited those on lower incomes. Neither the October salary increase, nor the one-off payment applied to senior management. This helped to continue to ensure that we have an engaged and motivated team during what was a tough inflationary environment. Medica continues to proactively and regularly benchmark salaries and to make annual adjustments where necessary.

Medica also introduced a new Restricted Stock Unit scheme which rewarded eligible employees with a simple option incentive that vested after three years of employment. These will be awarded annually and are a meaningful incentive and retention mechanism for employees.

Systems investment - 2022 marked a significant step forward in the development of our new reporting system in the UK. Our FutureTech programme delivered on its first major milestone of a new Picture Archiving and Communication System (PACS) which was launched in February. Throughout 2022, we continued to make changes to our systems to support radiologist productivity. This also included the development of a new application to enable Medica reporters overseas to improve the speed and access to data to at least an equivalent level to colleagues based and reporting in the UK. This will enable Medica to increase overseas reporting capacity which will deliver not only additional revenue growth but will also be margin enhancing as radiologists reporting from overseas will spend more time reporting during daytime hours, rather than during the night-time when a premium fee rate needs to be paid. The next phase of FutureTech will be to further improve the reporting environment for radiologists by streamlining workflows and aiming to increase the productivity of reporting during sessions.

During 2022, Medica invested in a new image transfer platform for its clinical trials business, RadMD. This proprietary platform has been developed in house and is expected to deliver a bespoke environment for clients to upload and transfer imaging data to RadMD, as well as a more cost-effective solution for the company.

Finally, Medica invested in the first phase of a new Enterprise Resource Planning (ERP) system which was delivered on time and on budget in Q4 2022. The initial focus is to improve financial reporting across the three business lines with additional functionality planned for 2023 and 2024.

3. Be the company of choice for specialist doctors and clinicians wanting to expand their expertise in telemedicine

Clinical governance, training and development

Medica was proud to have successfully passed a Care Quality Commission inspection and continued to be rated overall "Good" with two areas where we scored "Outstanding" including clinical governance and leadership of the service. Medica continues to lead the way in the market in terms of offering a consistently high quality and reliable service to clients and we have made progress in many areas during 2022.

Medica continued to invest in its seminar series in 2022 which provided regular in-depth expert lectures on topics relevant to radiology reporting. Additionally, Medica has focused on making clinical improvements to our service including reducing interruptions to reporting during NightHawk shifts by up to 50% by improved management of so-called justification calls which a hospital needs to make to a radiologist where a protocol is not in place before embarking on administering ionising radiation to patients with acute conditions. Not only does this increase quality by reducing interruptions to reporting, but it also thereby increases the number of cases that a radiologist can report on an hourly basis. This project, led by our Medical Director Dr. Robert Lavis, has not only delivered quality improvements, but also enabled Medica to take on additional hospitals without having to increase the number of radiologists due to the productivity gains delivered.

In 2022, Medica recruited a new clinical lead and radiologists in India, as well as in Australia and New Zealand. As the company increases its focus on international reporting, Medica was excited to welcome the acquisition of Jane Chandler Associates (JCA) in January 2023. JCA is an internationally recognised provider of radiologist training courses that meet international continuing professional development and training qualifications. Whilst the majority of courses are still provided in the UK for UK-certified radiologists, over the past few years, JCA has expanded to offer courses to radiologists based in Asia. Medica's strategy is to support the continued growth and expansion of the business into new markets which will both accelerate revenue growth and offer exciting training and development opportunities for our international network of radiologists in Medica UK, Ireland and RadMD in the US, as well as our joint venture, MedX.

Improvement in radiologist enrolment and onboarding

During 2022, Medica focused on improving the time taken to onboard a radiologist from initial interview through to deployment of a workstation at their home and training to be ready to start reporting by over 50%. This has the combined benefit of reducing the time before the reporter starts receiving work from us, but also providing Medica with additional reporting capacity sooner.

4. Deliver profitable, diversified growth underpinned by our commitment to ESG with focus on market-leading clinical governance

In 2022 Medica delivered total revenue growth of 24%, with 30% of total revenue coming from non-UK operations. This translated into a 13% increase in underlying operating profits despite continued investment to support future growth. Progress against financial targets is summarised in the Financial Review.

Commitment to ESG

In 2021, Medica significantly revised its approach to measuring and reporting ESG metrics. Our framework focuses on four key areas of our business that benefit from our commitment to ESG. These areas are aligned to the SASB (Sustainability Accounting Standards Board) international standards for healthcare companies.

1. People and Community

2. Responsible Operations

3. Environmental Impact

4. Customer Centricity

A detailed ESG report will be provided in our annual report. In summary, Medica has made good progress introducing further green travel initiatives including incentivising employees to use other modes of transport to the office, for example by introducing a 'cycle to work' scheme and has also improved recycling of redundant IT equipment. Further, Medica has taken steps to start to report on diversity and inclusion within the wider business. Further, the business has focused on improving our reporter experience through the delivery of our FutureTech programme. 

Diversified growth opportunities

Telepathology reporting

Medica is well-placed to take advantage of the growth in reporting of digital pathology cases. Histology specimens embedded in glass slides can be digitised to create an image that can be reported remotely by pathologists in much the same way as Medica's core teleradiology business transfers digital radiology images to radiologists. This not only presents a new market opportunity for Medica, but importantly it offers existing clients an integrated service that focuses on broader diagnosis of a patient's condition. The best example is diagnosis of cancer which requires often both analysis of tissue or individual cells, as well as radiological examination of the tumour in situ. These data, taken together, would provide an integrated report for the oncologist and medical team in the hospital.

Medica is planning to launch a digital pathology reporting service in the second half of 2023. This will require integration of pathology reporting applications into our current PACS reporting system. Additionally, Medica is in the process of building a network of pathologists to be able to remotely report the images in the same way that we currently provide this service for radiology. It is expected that Medica will be able to build on its existing network of clients to grow this exciting new business line.

Expansion of imaging contract research services

Further expansion of Medica's RadMD clinical trial business which provides medical imaging services for pharma and biotech clients, will continue to be an area of focus in 2023. The nature of the market is such that it provides services to clinical trials operating across the globe. RadMD's customers are also international and increasingly we are growing our customer base outside of the US into Europe and Asia where there is a fast-growing life sciences market. The fast growth of the business will generate operating synergies across our customer base and enable the company to benefit from the scale effects that growth brings. Medica will continue to expand both the range of services and therapeutic areas covered, as well as the international footprint of clients during 2023. Already this year, we have acquired a reader services business called VoxelMetrix that has worked with Medica for many years. This brings not only an established network of clinical trial readers, but also a leading radiologist expert in clinical trials who will support the ongoing growth and development of RadMD's services.

Post-period update and outlook

In the UK, 2023 has started well with new contract wins, contract extensions and service deployments. Whilst 2021/22 saw over 60% of our NightHawk contract pipeline being renewed, there are still contracts that will be renewed this year, as well as significant opportunities to win new contracts, and to extend the provision of services under both new and existing contracts.

In Ireland, we have launched two new hospital contracts for out-of-hours reporting already this year and we continue to expand services within our existing network of hospitals

In the US, RadMD continues to focus on winning new contracts for oncology trials, as well as new therapy areas. RadMD has a risk-adjusted pipeline and signed order book of over $63m which is expected to convert to revenue over the coming three years. This visibility underpins over 75% of anticipated revenue for 2023. Meanwhile, the team continues to focus on developing new client relationships in the US, Europe and Asia, as well as winning additional contracts from existing clients.

Medica has already completed two small acquisitions this year in the UK and US strengthening our commitment to training and development of radiologists whilst also boosting our reading capacity for clinical trials. We will continue to evaluate opportunities to expand its range of services, particularly in the US to support our clinical trials business RadMD.

The focus for 2023 remains to increase the capacity for reporting in both our UK and Ireland businesses. To do this, we need to continue to expand the number of radiologists working for Medica as well as ensuring that the time radiologists, radiographers and specialist doctors choose to work with us is as seamless and productive as possible. To this end, we continue to focus on the development of our FutureTech platform in the UK and to enhance our systems to improve the overall reporting experience. Further, our focus on international recruitment across Europe, India, Australasia and other regions will help to build capacity, particularly for our NightHawk reporting service.

Medica will also continue to pursue its organic growth strategy to further diversify our remote reporting services into areas such as telepathology, and to expand the scale and breadth of our telemedicine services via potential acquisitions.

Medica holds the leading position in the market and is ideally placed to support our clients to reduce backlogs, as well as capitalise on the growth in funding for clinical trials. We have made significant progress since 2019 to diversify its service offering and to invest in its team and I am excited to continue building on these foundations to ensure that we remain a trusted, go-to partner across our services and geographies. I would like to thank all our employees for their continued support for our ambitious growth strategy and continue to be excited by the opportunities that lie ahead for Medica Group.

Stuart Quin

Chief Executive Officer

29 March 2023

Financial Review

Progress against our strategic financial goals

Strategic financial target¹	Medium term Target	Actual FY 2022
Revenue growth rate
UK	12%-14%	15%
Ireland	>15%	30 %
US²	>15%	63%
Target Margins
Gross Profit Margin	>45%	48%
Underlying Net Operating Profit margin	20%	18%
Return on Capital Employed³
Group	>20%	20%
Ireland	>15%	20%
US	>15%	14%
Group Operating Cash conversion	>80%	64%

¹ Non-GAAP unaudited operational performance measures as set out in the CMD presentation in September 2021

² YoY comparison including periods pre-acquisition

³ Defined as underlying operating profit (excluding PLC costs) divided by total assets less current liabilities and long-term debt.

Revenue

Overall revenue increased 24% to £77.0m in 2022 from £61.9m in 2021. Excluding the impact of acquisitions on 2022 and 2021, on a like-for-like basis, revenues increased 17%.

UK

Acute services including NightHawk and day-time urgent reporting services, as well as Same-Day reporting increased revenues by 12% to £33.3m in 2022 from £29.8m in 2021.  Elective reporting services, which had been more severely impacted than NightHawk and for longer due to the impact of COVID and in-year capacity constraints, recovered steadily throughout the year and ended the year at its highest ever run-rate driven by a backlog of scanning demand in the NHS. Revenues increased by 20% to £20.7m in 2022 from £17.3m in 2021.

Ireland

Revenues increased 30% to £12.5m in 2022 from £9.7m in 2021 as a result of the positive impact of a number of new contract wins together with strong growth from the existing business. Return of Capital Employed (ROCE) at 20% continued to track above our 15% target for acquisitions.

US

RadMD, based in the US and focused on imaging services for clinical trials, was acquired in March 2021. Total Revenue in 2022 was £10.4m, up 100% compared to the nine-month period in 2021 and over 63% on a like for like basis assuming it had been owned for the whole of 2021. The strong growth in the year was attributed to a strong conversion of a larger pipeline into signed contracts and sustained conversion of the orderbook to recognised revenue.

Gross Profit and Gross Profit Margin (GPM)

Gross Profit is stated after the cost of reporters, internal audit costs required to deliver contractual commitments and other cost of sales such as framework costs in the UK. In 2022, Gross Profit increased by £5.8m or 18% to £37.2m in 2022 from £31.4m in 2021.  As expected, particularly following the large number of UK contract renewals together with the impact of a change in mix from Ireland and the US, overall GPM reduced by 2.4 ppts to 48.3% in 2022.

Underlying Operating Profit

For 2022, consistent with prior years we have reported underlying operating profits that consider the impact of non-underlying items to provide a more representative depiction of underlying activity. Underlying operating profits increased to £13.6m in 2022 from £12.1m 2021. Underlying profit margin reduced from 19.5% to 17.7% due to the impact of the increased mix of US and Ireland at lower margins and continued investment to support future growth.

Non-underlying costs

Non-underlying costs after tax decreased by £0.4m to £3.5m in 2022 from £3.9m in 2021. These costs included £2.4m (2021: £2.2m) relating to the amortisation of acquired intangible assets, £1.8m (2021: £0.8m) relating to share-based payments, £0.3m relating to implementation of accounting system, £0.2m relating to alignment of depreciation policies on implementation of new accounting software system and £0.3m (2021: £0.6m) relating to one off legal and professional costs.

In addition, non-underlying costs included finance costs of £0.2m (2021: £0.6m) relating to a fair value adjustment on contingent consideration and finance income of £1.1m relating to foreign exchange gains on acquisition related loans.

The income tax credit on total non-underlying costs was £0.8m (2021 £0.2m).

Net finance expense

Finance costs net of finance income were £0.6m for the year (2021: £0.5m). During the year, an additional £4.4m of the revolving credit facility was drawn down to fund deferred consideration payments made in respect of a previous acquisition. The interest costs for the year of £0.6m represent interest on drawn down balances together with non-utilisation fees on undrawn amounts.

Profit before Tax

Underlying profit before tax increased by £1.4m to £12.9m in 2022 from £11.5m in 2021 reflecting the increase in revenues and gross profit, offset by the increase in operating costs. Total profit before tax, after taking account of non-underlying and exceptional items increased by £1.3m to £8.6m in 2022 from £7.3m in 2021 (23.1%).

Taxation

The Group has incurred a tax charge of £1.4m in the year ended 31 December 2022 (2021 £1.9m), with tax on underlying profits of £2.2m (2021: £2.1m). The effective rate of tax for 2022 is 16.7% with the effective tax rate on underlying profits of 17.0%.

Earnings per share

Underlying basic earnings per share (EPS) increased by 12% to 8.75 pence per share in 2022 from 7.83 pence per share in 2021, reflecting the increase in profits. Basic EPS, after taking account of non-underlying and exceptional costs increased by 29% to 5.88 pence in 2022 from 4.56 pence in 2021.

Dividends

In 2022, an interim dividend of 0.93 pence per share was declared in September 2022 and paid in November 2022. In line with our progressive dividend policy, the directors are proposing a final dividend for 2022 of 1.88 pence per share. The final dividend will be paid on 21 July 2023 to shareholders on the register on 23 June 2023 subject to approval by shareholders at the 2023 Annual General Meeting (AGM). The total dividends for 2022 of 2.81 pence per share represent an increase of 5% over 2021.

Capex

Total capex was £3.2m in 2022 compared to £2.7m in 2021. This included: intangible capex of £1.1m (2021: £0.8m), tangible capex on infrastructure and equipment for contracted radiologists of £1.8m (2021 £1.4m) and right-of-use asset additions of £0.2m (2021 £0.5m).

Cash and debt at 31 December 2022

Operating cash generation in 2022 reduced to £8.7m in 2022 from £9.7m in 2021 after taking account of an increase in debtors in December 2022 which reversed in early 2023. Operating cash conversion therefore reduced to 64% compared to 81% in 2021 albeit cash generation is expected to return to normal levels in 2023.

After taking account of deferred consideration payments relating to the acquisitions of Global Diagnostics Ireland and RadMD of £5.8m, gross cash at 31 December 2022 was £11.0m (2021 £9.6m) and net cash was £0.8m (2021 £3.9m).

Joint Venture

During the year £0.2m was invested into Med-IDX Pty (MedX), the 50/50 JV with Integral Diagnostics Pty.

Post Balance Sheet Events

On 5^th January 2023, the Company issued and allotted 200,000 shares of 0.2 pence each in the capital of the Company to the to the trustee of the Company's Employee Benefit Trust and these shares will be used to satisfy future awards and options vesting in the Medica Group PLC Performance Share Plan 2017.Following Admission, the Company had 122,633,635 ordinary shares in issue.

On 27 January 2023, RadMD LLC, a Delaware Limited Liability Company that is a subsidiary of the Company, acquired the assets of VoxelMetrics LLC, a North Carolina Limited Liability Company engaged in the management of radiology readers for clinical trials. The acquisition expands the network of radiology readers across the US, further increasing reporting capacity to support our clients. The initial consideration paid for the assets of VoxelMetrics LLC was $2.6m. At the date the financial statements were authorised for issue, all information in respect of the acquisition was not available and therefore disclosures required under IFRS 3 will be made in subsequent statements.

On 3 February 2023, the Company acquired the entire issued share capital of JCA Seminars Limited, an international radiologist training and continuing professional development company based in the UK. This acquisition diversifies the offering to our customers whilst increasing the value of the service offered. The initial consideration paid was £1.4m. At the date the financial statements were authorised for issue, all information in respect of the acquisition was not available and therefore disclosures required under IFRS 3 will be made in subsequent statements.

Richard Jones

Chief Financial Officer

29 March 2023

Consolidated income statement and consolidated statement of comprehensive income

		31 December 2022 £000			31 December 2021 £000
	Note	Underlying £'000	Non-Underlying (Note 6) £'000	Total £'000	Underlying £'000	Non-Underlying (Note 6) £'000	Total £'000
Revenue		76,979	-	76,979	61,913	-	61,913
Cost of sales		(39,796)	-	(39,796)	(30,519)	-	(30,519)
Gross profit		37,183	-	37,183	31,394	-	31,394
Administration expenses		(23,540)	(5,188)	(28,728)	(19,316)	(3,540)	(22,856)
Operating profit		13,643	(5,188)	8,455	12,078	(3,540)	8,538
Finance costs		(627)	(213)	(840)	(550)	(593)	(1,143)
Finance income		-	1,138	1,138	-	-	-
Share of results of joint ventures		(112)	-	(112)	(56)	-	(56)
Profit before tax		12,904	(4,263)	8,641	11,472	(4,133)	7,339
Income tax expense	7	(2,196)	755	(1,441)	(2,079)	207	(1,872)
Profit for the year attributable to equity shareholders		10,708	(3,508)	7,200	9,393	(3,926)	5,467
Basic profit per ordinary share (pence)	8			5.88			4.56
Diluted profit per ordinary share (pence)	8			5.83			4.5
Statement of Comprehensive Income
Profit for the year				7,200			5,467
Other comprehensive income
Items that will be reclassified subsequently to profit or loss
Foreign exchange translation differences				590			(124)
Total comprehensive income for the year				7,790			5,343

For the year ended 31 December 2022

Consolidated statement of financial position

Company Registration 08497963

	Note	31 December 2022 £000	31 December 2021 £000
ASSETS
Non-current assets
Goodwill	10	31,117	30,357
Other intangible assets	11	21,185	22,399
Property, plant and equipment	12	4,531	4,521
Deferred tax		556	186
Investments		57	-
		57,446	57,463
Current assets
Trade and other receivables		17,794	14,271
Cash and cash equivalents		11,004	9,616
		28,798	23,887
Total assets		86,244	81,350
LIABILITIES
Current liabilities
Trade and other payables		(9,865)	(9,576)
Borrowings		(4,516)	(5,739)
Lease liabilities		(253)	(280)
Contingent consideration	13	(1,550)	(5,335)
Current tax		(1,039)	(880)
		(17,223)	(21,810)
Net current assets		11,575	2,077
Total assets less current liabilities		69,021	59,540

Non-current liabilities		31 December 2022 £000	31 December 2021 £000
Borrowings		(5,702)	-
Lease liabilities		(701)	(814)
Contingent consideration		-	(1,553)
Deferred tax		(1,531)	(2,270)
		(7,934)	(4,637)
Net assets		61,087	54,903
EQUITY
Issued capital	14	245	245
Share premium	14	30,330	30,324
Foreign exchange reserve		468	(122)
Retained earnings	14	30,044	24,456
Total equity		61,087	54,903

Consolidated statement of cash flows

	31 December 2022 £000	31 December 2021 £000
Operating activities
Profit for the year	7,200	5,467
Add back taxation	1,441	1,872
Profit before tax	8,641	7,339
Adjustments for:
Depreciation	1,920	1,672
Amortisation	2,991	2,816
Loss on disposal of tangible and intangible assets	29	55
Share based payments	1,698	682
Social security costs of share-based payment charge	92	78
Fair value movement on contingent consideration	(1,017)	-
Foreign exchange	(252)	(590)
Finance costs	840	1,143
Finance income	(1,138)	-
Share of results of joint ventures	112	56
Changes in:
Increase in trade and other receivables	(1,325)	(4,725)
Decrease in trade and other payables	(1,925)	2,811
Tax paid	(1,923)	(1,614)
Cash inflow from operating activities	8,743	9,723
Investing activities
Purchase of subsidiary net of cash acquired	-	(11,429)
Purchase of property, plant and equipment	(1,771)	(1,310)
Purchase of software intangibles	(1,138)	(763)
Contingent consideration paid net of transaction related costs	(4,761)	-
Additional investment in joint ventures	(169)	-
Interest received	-	-
Cash outflow from investing activities	(7,839)	(13,502)

For the year ended 31 December 2022

	31 December 2022 £000	31 December 2021 £000
Cash flows from financing activities
Repayment of lease liability	(333)	(407)
Proceeds from borrowings	8,317	11,592
Repayment of borrowings	(4,000)	(23,522)
Issue of ordinary share capital	6	16,162
Costs to issue ordinary share capital	-	(537)
Dividends paid to ordinary shareholders	(3,328)	(3,167)
Interest paid	(350)	(424)
Net cash inflow/(outflow) from financing activities	312	(303)
Net change in cash and cash equivalents	1,216	(4,082)
Movement in net cash
Cash and cash equivalents, beginning of period	9,616	13,934
Increase/(decrease) in cash and cash equivalents	1,216	(4,082)
Foreign exchange on cash and cash equivalents	172	(236)
Cash and cash equivalents, end of period	11,004	9,616

Consolidated statement of changes in equity

	Note	Issued capital £'000	Share premium £'000	Translation reserve £'000	Retained earnings £'000	Total equity £'000
At 1 January 2021		223	14,721	2	21,507	36,453
Issue of share capital		22	15,603	-	-	15,625
Dividends paid	9	-	-	-	(3,167)	(3,167)
Share based payments		-	-	-	682	682
Deferred tax on share based payments		-	-	-	(33)	(33)
Transactions with owners		22	15,603	-	(2,518)	13,107
Profit for the year		-	-	-	5,467	5,467
Other comprehensive income
Foreign exchange translation differences		-	-	(124)	-	(124)
Total comprehensive income for the year		-	-	(124)	5,467	5,343
At 31 December 2021		245	30,324	(122)	24,456	54,903
Issue of share capital		-	6	-	-	6
Dividends paid	9	-	-	-	(3,328)	(3,328)
Share based payments		-	-	-	1,698	1,698
Deferred tax on share based payments		-	-	-	18	18
Transactions with owners		-	6	-	(1,612)	(1,606)
Profit for the year		-	-	-	7,200	7,200
Other comprehensive income
Foreign exchange translation differences		-	-	590	-	590
Total comprehensive income for the year		-	-	590	7,200	7,790
At 31 December 2022		245	30,330	468	30,044	61,087

For the year ended 31 December 2022

Notes to the financial information

For the year ended 31 December 2022

1 Medica Group PLC

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 6^th floor, One Priory Square, Priory Street, Hastings, East Sussex, TN34 1EA.

The consolidated financial information of the Group for the year ended 31 December 2022 (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 both the UK and Ireland.

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2022 or 31 December 2021. The auditors reported on the accounts for the year ended 31 December 2021 and their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The audit of the statutory accounts for the year ended 31 December 2022 is not yet complete. The statutory accounts for the year ended 31 December 2022 will be finalised based on the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

2 Basis of preparation

The Consolidated financial information of Medica Group PLC and its subsidiary undertakings (together "the Group") for the 12 months ended 31 December 2022 have been prepared by the directors of Medica Group PLC.

The consolidated financial information of the Group have been prepared in accordance with UK-adopted International Accounting Standards

The Group has applied an income statement format which seeks to highlight significant items within Group results for the year such as one-off acquisition costs, and other non-operating costs such as the amortisation of acquired intangibles and share based payments. The Group exercises judgement in assessing the particular items which, by virtue of their scale and nature should be disclosed in the income statement and related notes as non-underlying items. The Group believes that such a presentation is useful for the users of the financial information in helping to provide a balanced view of, and relevant information on, the Group's underlying financial performance

A copy of the annual report for the year ended 31 December 2022 will be available at http://www.medicagroupplc.com by 30 April 2022.

3 Going concern

The Directors have prepared cashflow forecasts for a period of 21 months from the date of approval of the financial statements (the forecast period). These indicate that the Group will have sufficient funds to meet its liabilities as they fall due, and will continue to comply with its loan covenants, throughout the forecast period.

The forecasts have been prepared by reference to the 2023 approved budget and detailed bottom-up forecasts for the following financial year which have considered realistic downside scenarios including:

· Impact of reduced revenue from consideration of reduced radiologist availability

· Loss of certain material contracts

· Further material inflationary pressure on operating costs more than current expectations

Under these downside scenarios, individually and even in the implausible cumulative scenario, excluding any potential mitigating actions that could be taken, management conclude that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 21 months from the date of approval of the financial statements and the Board have therefore determined it is appropriate to adopt the going concern basis in preparing the financial statements.

4 Segment reporting

Management prepare and monitor financial information for the Group's three key geographies, UK, Ireland and the US. This financial information is reviewed and used by the Chief Operational Decision Maker (considered to be the CEO) in managing the operating activities of the Group.

In the UK, Medica generates revenues via two key service lines, Nighthawk (urgent and quick turnaround services) and Elective. In Ireland revenues are generated from tele-radiology, managed services, and a contract with the National Screening Service to deliver Ophthalmology services. In the US revenues are generated from providing radiology reporting to Pharma customers directly as full service iCRO services and indirectly via Contract Research Organisations (CRO's) as reader only services. These activities are collectively referred to as imaging core lab services.

	UK £000		Ireland £000		USA £000		31 December 2022 £000				UK £000		Ireland £000		USA £000			31 December 2021 £000
UK NightHawk	33,330		-		-		33,330				29,762		-		-			29,762
UK Elective	20,708		-		-		20,708				17,292		-		-			17,292
Ireland	-		12,549				12,549				-		9,665					9,665
Imaging core labs	-		-		10,392		10,392				-		-		5,194			5,194
Revenue	54,038		12,549		10,392		76,979				47,054		9,665		5,194			61,913
Cost of sales	(28,354)		(6,684)		(4,758)		(39,796)				(23,436)		(4,758)		(2,325)			(30,519)
Gross profit	25,684		5,865		5,634		37,183				23,618		4,907		2,869			31,394
Operating expenses	(14,933)		(3,793)		(4,814)		(23,540)				(13,750)		(3,375)		(2,191)			(19,316)
Operating profit	10,751		2,072		820		13,643				9,868		1,532		678			12,078
Finance costs	(127)		(265)		(235)		(627)				(261)		(283)		(6)			(550)
Share of results of joint ventures	(112)		-		-		(112)				(56)		-		-			(56)
Profit before tax	10,512		1,807		585		12,904				9,551		1,249		672			11,472
Tax	(1,662)		(293)		(241)		(2,196)				(1,625)		(268)		(186)			(2,079)
Underlying profit for the period	8,850		1,514		344		10,708				7,926		981		486			9,393
Non-underlying loss for the period							(3,508)											(3,926)
Profit for the period							7,200											5,467
		UK £000		Ireland £000		USA £000		31 December 2022 £000				UK £000		Ireland £000		USA £000	31 December 2021 £000
Non-current assets (excluding deferred tax)		24,698		17,049		15,143		56,890				25,314		17,885		14,078	57,277
Additions to non-current assets		2,428		310		171		2,909				1,907		164		10,457	12,528
Total assets less current liabilities		39,359		15,487		14,175		69,021				36,651		11,061		11,828	59,540
Net assets		38,199		11,231		11,657		61,087				35,354		7,924		11,625	54,903

5 Operating profit

	2022 £000	2021 £000
Fees payable to the Company's auditor for the audit of the Company's annual accounts	236	225
Fees payable to the Company's auditor for the audit of subsidiaries	79	57
Total audit fees	315	282
Audit related services:
Interim review	-	18
Total audit related services	-	18

The operating profit and the profit before taxation are stated after:

Other assurance services:
Covenant compliance services	3	3
Total non-audit fees	3	21
Total fees paid to Company's auditor	318	303
	2022 £000	2021 £000
Operating lease rentals - short term and low value leases	187	90
Depreciation: property, plant and equipment - owned	1,582	1,241
Depreciation: property, plant and equipment - leased	338	431
Amortisation of intangible fixed assets on acquisition	2,397	2,225
Amortisation of intangible fixed assets on other assets	594	591

Analysis of expenses by nature

	2022 £000	2021 £000
Amortisation of intangible assets (note 11)	2,991	2,816
Depreciation of property, plant and equipment (note 12)	1,920	1,672
Loss on disposal of tangible and intangible assets	29	55
Operating lease rentals - short term and low value leases	187	90
Staff costs	17,260	12,341
Auditors remuneration	318	302
Legal and professional fees	1,465	712
Self-employed clinical specialists	34,973	27,506
Other direct costs	2,276	1,215
IT related costs	3,512	2,009
Travel and accommodation costs	582	212
Other non-underlying items (see note 6)	571	49
Other expenses	2,440	4,396
Total cost of sales and operating expenses	68,524	53,375

The breakdown by nature of cost of sales and operating expenses is as follows:

6 Non-underlying items

	2022 £000	2021 £000
Amortisation of acquired intangible assets	2,397	2,225
Foreign exchange gain on contingent consideration	14	(173)
Acquisition costs incurred	5	173
Share based payment charge	1,698	682
Social security costs on share based payment charge	92	78
Group restructuring costs	74	-
Depreciation adjustment to align to group accounting policies	173	-
New service development costs	132	-
Implementation of accounting software	254	-
One-off Legal and professional fees	349	555
Total non-underlying costs included within operating expenses	5,188	3,540
FX on acquisition related loans	(1,138)	-
Fair value adjustment on contingent consideration	213	593
Total non-underlying costs before tax	4,263	4,133
Income tax	(755)	(207)
Total non-underlying items after taxation	3,508	3,926

Major components of tax expense:	2022 £000	2021 £000
Current tax:
UK current tax expense	1,733	1,860
Adjustments in respect of prior years	(52)	(24)
Foreign current tax expense	423	331
Total current tax	2,104	2,167
Deferred tax:
Originations and reversal of temporary differences	(531)	(594)
Adjustments in respect of prior years	(154)	13
Effect of rate change	22	286
Total deferred tax	(663)	(295)
Tax expense on ordinary activities	1,441	1,872

7 Tax expense

Reconciliation of tax expense:

UK corporation tax is assessed on the profit on ordinary activities for the year and is the same as (2021: same as) the standard rate of corporation tax is as follows:

· UK   19%   (2021: 19%).

· Ireland  12.5%   (2021: 12.5%)

· USA (Federal & state)  25.54% (2021: 26.7%)

Changes to UK corporation tax rates were substantively enacted by the Finance Bill 2021 on 24 May 2021. These included an increase of the corporation tax rate to 25% from 1 April 2023. As this change was substantively enacted at the balance sheet date, deferred tax is recognised at a rate of 25% in the current year (2021: 25%).

The charge for the year can be reconciled to the loss per the income statement as follows:

Reconciliation of effective tax rate:	2022 £000	2021 £000
Profit on ordinary activities before tax	8,641	7,339
Income tax using the Company's domestic tax rate 19% (2021: 19%)	1,642	1,394
Effect of:
Expenses not deductible for tax purposes	19	297
Share based payments	85	-
Prior year adjustment - current and deferred tax	(206)	(11)
Effect of tax rate change - deferred tax	3	286
Deferred tax not recognised	(1)	(41)
Impact of difference in overseas tax rates	(135)	(53)
Other	34	-
Total tax charge for period	1,441	1,872

8 Earnings per share

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. 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.

	2022 £000	2021 £000
Profit for the year attributable to ordinary shareholders	7,200	5,467
Effects of non-underlying items net of tax (see note 6)	3,508	3,926
Underlying profit for the period attributable to ordinary shareholders	10,708	9,393
Weighted average number of ordinary shares	122,431,211	119,912,604
Dilutive effect of share options	1,169,542	1,656,675
Diluted weighted average number of ordinary shares	123,600,753	121,569,279
Basic profit per ordinary share (pence)	5.88p	4.56p
Diluted profit per ordinary share (pence)	5.83p	4.50p
Underlying basic profit per ordinary share (pence)	8.75p	7.83p
Underlying diluted profit per ordinary share (pence)	8.66p	7.73p

As at 31 December 2022 the directors assessed the potentially dilutive effect of contingently issuable shares, which comprise share options awarded under the Performance Share Plan (PSP), options under the Restricted Stock Unit Plan (RSU), options under the Deferred Bonus Plan (DBP), options under the Company Share Option Plan (CSOP) and options under the Save as You Earn plan (SAYE).

As at the end of the year there were 7,002,542 (2021: 5,841,660) options outstanding of which 1,169,542 (2021: 1,656,675) were considered dilutive. The calculation of diluted earnings per share above takes into consideration the Group's performance against the targets within the Performance Share Plan to 31 December 2022.

 9 Dividends

	2022 pence per share	2021 pence per share		2022 £000	2021 £000
Interim 2022 dividend paid (2021 interim dividend)	0.93	0.89		1,138	1,088
Final 2021 dividend paid (2020 final dividend)	1.79	1.7		2,190	2,079
				3,328	3,167

A final dividend for 2022 of £2.3m (1.88p per share) is proposed by the Directors and will be paid on 21 July 2023 to shareholders on the register as at 23 June 2023.

During the year ended 31 December 2022, dividends totalling £56k (2021: £51k) were paid to persons discharging management responsibilities including Directors.

10 Goodwill

	UK1 £000		Ireland2 £000		USA3 £000		Total £000
Cost
At 31 December 2020	15,948		7,525		-		23,473
Additions3	-		-		6,817		6,817
Foreign exchange	-		(76)		143		67
At 31 December 2021	15,948		7,449		6,960		30,357
Foreign exchange	-		(47)		807		760
At 31 December 2022	15,948		7,402		7,767		31,117

1.  UK Cash Generating Unit - acquisition of Medica Reporting Limited in 2013

2.  Ireland Cash Generating Units - acquisition of Global Diagnostics Ireland and Medica Vision Ireland in November 2020. Goodwill split £5,721k and £1,681k respectively.

3.  US Cash Generating Unit - acquisition of RadMD LLC in March 2021

Goodwill is not amortised but tested annually for impairment. Consistent with the prior year, a bottom up valuation methodology was employed using a discounted cash flow (DCF) approach based on the future expected cashflows of each identified CGU based on the smallest identifiable unit where separate cashflows could be identified.

The CGUs were as follows:

· The UK trading business representing UK tele-radiology

· Medical Diagnostics Ireland (MDI) representing tele-radiology and managed services

· Medical Vision Ireland (MV) being the unit managing the Irish diabetic retinopathy screening contract

· The US business covering imaging core lab services (tele-radiology) to pharma and CRO clients (RAD)

The recoverable amount of each CGU mentioned above was based on value in use which was calculated using DCF methodology with the following key inputs:

· Country and sector specific WACC of 12.3% (MRL), 12.4% (MDI and MVI),15.3% (RAD) which was determined to represent the best input for each CGU individually.

· Baseline forecasts for FY 2023 based on the Board approved budget.

· Additional forecasts to FY 2026 based on the board approved long range plan

· Managements key assumptions in the forecasts which have been derived from past experience, market data and management's expectations of future growth rates in the business are:

Revenue drivers

o  For all CGU's: Expected contract renewals, expected pricing changes and potential contract wins and losses

o  For MRL, Underlying growth in demand for both elective and out of hours services to tackle the material backlog in diagnostic procedures together with anticipated growth in radiologist capacity.

o  For MDI: Anticipated growth in contracted base, particularly focused on growth in NightHawk type CT on call contracts

o  For MVI: Based on the renewal terms proposed with the National Screening Service in Ireland pending contract renewal.

o  For RAD: Continued growth in clinical trials and imaging reporting requirements associated with such trials based on the existing orderbook and pipeline

Cost drivers

o  Inflationary impact on operating costs including employee costs together with the annualised impact of prior year headcount changes for FY 2023

· Terminal Value calculated using EV/EBITDA Multiples at exit based on multiples for each CGU at entry for MDI, MVI and RAD and based on an assessment of comparator companies in respect of MRL.

The recoverable amount of each CGU is then compared to the carrying amount of each CGU, including goodwill and acquired intangible assets allocated to each unit to consider indication of impairment. There is sufficient headroom in all CGU's therefore no indicators of impairment have been identified.

The estimate of the recoverable amount for Medica Vision Ireland is dependent on the successful retender for the diabetic retinopathy screening contract which is currently expected in quarter two of 2023. If the contract was lost or the outcome of the re-tender was a material reduction in overall value there would be an impairment of up to £1,681k to goodwill and £2,958k to intangible assets.

Management is not currently aware of any other reasonably possible changes to key assumptions that would cause the carrying amount of any of CGUs to exceed their recoverable amounts

 11 Intangible assets

	Customer relationships £000	Software and technology £000	Brand £000	Total £000
Cost
At 31 December 2020	17,169	6,647	2,317	26,133
Additions	-	763	-	763
Disposals	-	(97)	-	(97)
Acquisitions through business combinations	6,612	-	699	7,311
Foreign exchange	29	-	15	44
At 31 December 2021	23,810	7,313	3,031	34,154
Additions	-	1,138	-	1,138
Disposals	-	(1,792)	-	(1,792)
Acquisitions through business combinations	-	-	-	-
Foreign exchange	667	-	78	745
At 31 December 2022	24,477	6,659	3,109	34,245
Amortisation
At 31 December 2020	3,445	4,652	886	8,983
Charge for the year	1,752	914	150	2,816
Eliminated in respect of disposals	-	(42)	-	(42)
Foreign exchange	(2)	-	-	(2)
At 31 December 2021	5,195	5,524	1,036	11,755
Charge for the year	1,910	919	162	2,991
Eliminated in respect of disposals	-	(1,786)	-	(1,786)
Foreign exchange	93	-	7	100
At 31 December 2022	7,198	4,657	1,205	13,060
Net book value
At 31 December 2022	17,279	2,002	1,904	21,185
At 31 December 2021	18,615	1,789	1,995	22,399
At 31 December 2020	13,724	1,995	1,431	17,150

At 31 December 2022 £256,000 (2021: £493,000) 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.

 12 Property, plant and equipment

	Leasehold property - right of use asset £000	Leasehold improvements £000	Computer equipment £000	Medical equipment £000	Total £000
Cost
At 31 December 2020	1,053	43	8,022	1,150	10,268
Additions - business combinations	185	-	96	-	281
Additions - separately acquired	543	-	1,286	74	1,903
Disposals	-	-	(68)	-	(68)
Foreign exchange	(34)	(3)	(23)	(75)	(135)
At 31 December 2021	1,747	40	9,313	1,149	12,249
Additions - separately acquired	237	-	1,759	35	2,031
Disposals	(505)	-	(76)	-	(581)
Foreign exchange	47	3	49	61	160
At 31 December 2022	1,526	43	11,045	1,245	13,859
Depreciation and impairment
At 31 December 2020	488	40	4,759	835	6,122
Additions - business combinations	-	-	96	-	96
Charge for the year	291	1	1,200	180	1,672
Disposals	-	-	(65)	-	(65)
Foreign exchange	(19)	(3)	(16)	(59)	(97)
At 31 December 2021	760	38	5,974	956	7,728
Charge for the year	284	1	1,562	73	1,920
Disposals	(366)	-	(53)	-	(419)
Foreign exchange	10	2	33	54	99
At 31 December 2022	688	41	7,516	1,083	9,328
Net book value
At 31 December 2022	838	2	3,529	162	4,531
At 31 December 2021	987	2	3,339	193	4,521
At 31 December 2020	565	3	3,263	315	4,146

All depreciation charges are included within administrative expenses in the consolidated statement of comprehensive income.

 Property, plant and equipment (continued)

	2022 £000	2021 £000
Carrying amount of right-of-use assets included within:
Leasehold property	838	987
Medical equipment	97	96
Carrying value at 31 December	935	1,083

 13 Contingent consideration

	Global Diagnostics Ireland Limited £000	RadMD LLC £000	Total £000
As at 1 January 2021	3,531	-	3,531
Acquired on acquisition	-	2,924	2,924
Fair value adjustment	(71)	664	593
Foreign exchange	(230)	70	(160)
As at 31 December 2021	3,230	3,658	6,888
Fair value adjustment	91	122	213
Amounts paid	(1,843)	(4,051)	(5,894)
Foreign exchange	72	271	343
As at 31 December 2022	1,550	-	1,550
Amounts due in less than one year	1,550	-	1,550
Amounts due in more than one year	-	-	-

Global Diagnostics Ireland Limited

Contingent consideration reduced by £1,680k during the period mainly driven by payments of £1,673k and £170k on commencement of a new contract and extension of the NSS contract respectively. Transaction bonuses of £23k and legal costs of £18k were offset against these payments.

The balance increased by a £91k fair value movement in relation to the unwinding of the time value of money and £72k relating to foreign exchange revaluation from Euros to GBP. £42k of the foreign exchange arises on consolidation of the Global Diagnostics Ireland and been recognised in the foreign exchange reserve.

During the last quarter of 2022 the NSS retendered the contract held by MVI with the decision expected in quarter two of 2023. Due to the delay in the tender process the contract was extended for a further three months. No changes in the fair value estimate of contingent consideration were made following Management's reviewed of the probability weighted expected future values under the various possible outcome of the future contract events.

The balance on 31 December 2022 of £1,550k is disclosed under current liabilities on the statement of financial position. £176k of this was paid in January 2023 and the remaining balance is payable in the first half of 2023.

During the prior year, the NSS extended a contract held by MVI by a further 12 months and confirmed the retender of the contract in 2022 triggering a review of the probability weighted expected future values under the various possible outcome of the future contract events. This resulted in a decrease of £147k in the fair value estimate of contingent consideration. This was offset by an increase of £76k due to the fair value movement in relation to the unwinding of the time value of money. Other movements related to a decrease in the liability relating to foreign exchange revaluation from Euros to GBP of £230k.

RadMD LLC

Contingent consideration reduced by £3,658k during the period mainly driven by a payment of £4,051k relating to the finalisation of the earnout based on adjusted 2021 EBITDA. £75k of completion adjustments were offset against this in the amount paid amount to the vendors. Contingent consideration increased for fair value movements of £122k and £271k due to foreign exchange revaluation from USD to GBP which has been recognised in the foreign exchange reserve.

Fair value movements consist of an increase of £145k due to a higher adjusted 2021 EBITDA than originally estimated resulting in a higher payment of contingent consideration. As the events occurred after the acquisition date a charge has been recognised in the income statement and not taken to goodwill. There was also a fair value decrease of £223k relating to the 2022 earnout for which the target 2022 EBITDA was not achieved and is not payable. The balance also increased by £200k due to the fair value movement in relation to the unwinding of the time value of money.

In the prior year there was an increase in the fair value estimate of contingent consideration of £664k. £217k of this was due to a higher expected adjusted 2021 EBITDA than originally estimated resulting in a higher-than-expected payment subject to agreement with the vendors. £185k related to a change in the SPA resulting in additional contingent consideration based on 2022 EBITDA. £262k of the movement related to the fair value movement for unwinding of the time value of money. As the events occurred after the acquisition date a charge was recognised in the income statement and not taken to goodwill. Other movements included an increase in the liability relating to foreign exchange revaluation from USD to GBP of £70k recognised in the foreign exchange reserve.

14 Equity

	At 31 December 2022 £000	At 31 December 2021 £000
122,433,635 (2021: 122,428,836) ordinary shares of £0.002 each	245	245
Total ordinary share capital of the Company	245	245

Ordinary share capital issued and fully paid

Issue of share capital during the year

The below shares were issued on the exercise of SAYE options:

On 1 July 2022, 3,999 ordinary shares of 0.2p each were issued for cash at par value.

On 15 July 2022, 800 ordinary shares of 0.2p each were issued for cash at par value.

Rights attributable to issued shares

Any profits which the Company determines to distribute in any financial year shall be paid on the ordinary shares. Every holder of an ordinary share and ordinary share is entitled to one vote and has one vote for every share for which they are a holder.

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 ordinary shares.

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

£6K was recognised in share premium on the issue on ordinary shares for the exercise of SAYE options.

Retained profit

Retained earnings include current and prior period retained profit and losses and the cumulative amount of exchange differences recognised through other comprehensive income.

15 Reconciliation of non-IFRS financial KPIs

The Group uses several key performance indicators to monitor the performance of its business. This note reconciles these key performance indicators to individual lines in the financial information.

In the directors' view it is important to consider the underlying performance of the business during the year. Therefore, the directors have used certain Alternative Performance Measures (APMs) which are not IFRS-compliant metrics. The APMs are consistent with those established within the IPO prospectus and the prior year annual report. It is the directors' intention to monitor and reassess the appropriateness of the APMs in future years.

	At 31 December 2022 £000	At 31 December 2021 £000
Reconciliation of underlying operating profit
Operating profit before non-underlying costs	8,455	8,538
Adjustments for:
Effects of amortisation of acquired intangibles	2,397	2,225
Effects of shared based payments	1,698	682
Social security costs on share based payment charge	92	78
Foreign exchange adjustment on contingent consideration	14	(173)
Acquisition costs incurred	5	173
Group restructuring costs	74	-
Depreciation adjustment to align to group accounting policies	173	-
New service development costs	132	-
Implementation of accounting software	254	-
One-off legal and professional fees	349	555
Underlying operating profit	13,643	12,078
Underlying operating profit margin	17.7%	19.5%
Reconciliation of underlying profit before tax
Profit for the year	7,200	5,467
Adjustments for:
Non-underlying profits or losses net of tax (see note 6)	3,508	3,926
Underlying profit after tax	10,708	9,393
Income tax charge on underlying expenses	2,196	2,079
Underlying profit before tax	12,904	11,472
Reconciliation of net debt
Cash and equivalents	11,004	9,616
Borrowings due within one year	(4,516)	(5,739)
Borrowings due after one year	(5,702)	-
Net cash / (debt)	786	3,877

16 Post balance sheet events

On 5th January 2023, the Company issued and allotted 200,000 shares of 0.2 pence each in the capital of the Company to the trustee of the Company's Employee Benefit Trust and these shares will be used to satisfy future awards and options vesting in the Medica Group PLC Performance Share Plan 2017. Following Admission, the Company had 122,633,635 ordinary shares in issue.

On 27 January 2023, RadMD LLC, a Delaware limited liability company that is a subsidiary of the Company, acquired the assets of VoxelMetrics LLC, a North Carolina Limited Liability company engaged in the management of radiology readers for clinical trials. The acquisition expands the network of radiology readers across the US, further increasing reporting capacity to support our clients. The initial consideration paid for the assets of VoxelMetrics LLC was $2.6m. At the date the financial statements were authorised for issue, all information in respect of the acquisition was not available and therefore disclosures required under IFRS 3 will be made in subsequent financial statements.

On 3 February 2023, the Company acquired the entire issued share capital of JCA Seminars Limited, an international radiologist training company based in the UK. This acquisition diversifies the offering to our customers whilst increasing the value of the service offered. The initial consideration paid was £1.4m. At the date the financial statements were authorised for issue, all information in respect of the acquisition was not available and therefore disclosures required under IFRS 3 will be made in subsequent financial statements.

 

END

 

 

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