Unaudited Results for year ended 31 December 2016

RNS Number : 1304C

Medica Group PLC

11 April 2017

 

11 April 2017

Preliminary Announcement of Unaudited Results for Medica Group PLC for the year ended 31 December 2016

Delivered 28.3% revenue growth; increased adjusted operating profit by 37.6% whilst continuing to

 invest in future growth

Medica Group PLC (LSE:MGP, "Medica" or the "Company", the UK market leader by revenue in the provision of Teleradiology services by revenue, today announces its maiden unaudited results, as a listed company, for the year ended 31 December 2016.

	2016	2015	% change
Revenue (£m)	28.5	22.2	28.3%
Gross profit (£m)	14.2	11.3	26.0%
Gross profit margin (%)	49.8%	50.7%
EBITDA (£m) (1)	9.2	6.8	35.4%
Adjusted operating profit (£m) (2)	8.1	5.9	37.6%
Adjusted profit before tax (£m) (3)	6.0	3.0	98.9%
EBITDA cash conversion (%) (4)	92%	96%

(1)   EBITDA is a non-IFRS measure and is calculated as operating profit before depreciation, amortisation, exceptional items, and exceptional costs.

(2)   Adjusted operating profit is a non-IFRS measure and is calculated as operating profit before exceptional items, certain exceptional costs relating to refinancing and amortisation in respect of assets acquired on acquisition.

(3)   Adjusted profit before tax is a non-IFRS measure and is calculated as operating profit before exceptional items (including certain exceptional costs relating to refinancing) and amortisation in respect of assets acquired on acquisition.

(4)   EBITDA cash conversion % is calculated as Cash Flows from Operating activities pre-exceptional items and pre tax payments divided by EBITDA

For reconciliation of these measures to the financial statements, see note 13

Financial highlights

·      Delivered 28.3% revenue growth

o  NightHawk continued to perform well, with revenue increasing by 26.6%

o  Routine Cross-Sectional also saw significant growth, with revenue increasing by 43.5%

o  Routine Plain Film grew by 6.1%

·      Gross profit margin of 49.8% (50.7% in 2015)

·      Adjusted operating profit increased by 37.6%, whilst the adjusted operating profit margin also increased to 28.5% (2015: 26.6%) demonstrating operational leverage of the platform

·      EBITDA cash conversion of 92% (2015: 96%)

Operational highlights

·      Total number of reported body parts increased by 16.2%, from 1.17m in 2015 to 1.35m in 2016

o  NightHawk reported body parts increased by 32.6%

o  Cross-Sectional reported body parts increased by 48.7%

o  Plain Film reported body parts 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)

Post-period highlights

·      Completed successful Initial Public Offering on the Main Market of the London Stock Exchange in March 2017, raising £15m for the Company, before expenses

·      Net proceeds from the IPO were used to pay down net debt to approximately £10m and cover IPO-related transaction costs. 

·      The Company is trading in line with the Board's expectations in 2017

John Graham, Chief Executive Officer of Medica, commented:

"Medica continued to see strong demand for our services during the year, with revenues from Nighthawk and Cross-Sectional increasing significantly. Our strong track record of delivering organic growth has allowed us to continue to invest in building a scalable platform from which to meet this increased demand. We have grown our customer base to 99 NHS trusts and private healthcare providers, and recruited a net 58 new Radiologists to our team, which is the largest cohort of consultant radiologists outside of the NHS. Our market leading platform and reputation for high quality clinical governance positions us to take advantage of the many growth opportunities we have identified as we look to further expand our offering. The Board's outlook is positive for the year ahead."

For further information, please contact:  

Medica Group:	[phone]
John Graham, Chief Executive Officer
Tony Lee, Chief Financial Officer
Investec Bank plc	[phone]
Sara Hale Daniel Adams
Henry Reast Edward Thomas David Herring
FTI Consulting	[phone]
Brett Pollard
Ben Atwell
Victoria Foster Mitchell
Robert Winder

Chairman's Statement

I am pleased to provide my inaugural Chairman's statement and the first for Medica Group PLC as a public company.

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 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 have shown 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 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

Chief Executive Review

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.

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 represented 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 System ("PACS"), reporting on examinations with the full Radiology Information System ("RIS") history, and entering the results directly back into the clients RIS system.

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 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 back-log 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 and the Group has demonstrated that it can increase the volume of reports without a corresponding increase in administrative costs. This is demonstrated by the increase in the adjusted operating profit margin from 26.6% in 2015 to 28.5% in 2016.

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 or PF image 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, whilst Routine Plain Film scan volumes increased by 3.4% during the year.

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 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 has 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 launched this service in August 2016, initially recruiting 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 focussed 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 seven clients.  The introduction of Radiographer Plain Film Reporting allows more Medica Radiologist capacity to be focussed 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 consider 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 focussed 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, 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.

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 amongst 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

CEO

Financial Review

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: £22.2) 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.

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 which Medica contracted with, a record high for the Company.

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%
·	Routine Plain Film:	51.9%

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 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.

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 private equity 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 to £0.4m in the year ended 31 December 2016.

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.

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 £6.9 million of outstanding loan notes held by CBPE as well as contributing to the repayment of £8.6 million 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 £10 million.

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 £13 million in aggregate is available to the Group under a £12 million term loan facility and a £1 million 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 per cent.

Intangible assets

As at the year end, total intangible assets were £25.3m (31 December 2015: £26.0):  The Group's intangible assets is 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: £0.4 million), 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.

Tony Lee

Finance Director

Unaudited Consolidated Income Statement

For the year ended 31 December 2016

			31	31
	Note		December  2016	December 2015
			£000	£000
Revenue			28,522	22,238
Cost of sales			(14,313)	(10,962)
Gross profit			14,209	11,276
Administration expenses			(6,993)	(6,241)
Operating profit			7,216	5,035
Other expenses - exceptional items	6		(757)	-
Operating profit after exceptional items			6,459	5,035
Finance income			10	19
Finance costs	7		(2,181)	(2,970)
Profit before tax			4,288	2,084
Analysed as
EBITDA			9,229	6,811
Exceptional items	6		(757)	-
Finance costs	7		(2,181)	(2,970)
Finance income			10	19
Depreciation			(883)	(795)
Amortisation			(1,130)	(981)
Profit before tax			4,288	2,084
Income tax charge	8		(971)	(398)
Profit attributable to equity holders of the parent			3,317	1,686
Statement of Comprehensive Income
Profit for the year			3,317	1,686
Other comprehensive income			-	-
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)		9	3.32p	1.69p

All transactions arise from continuing operations. 

Unaudited Consolidated Balance Sheet

For the year ended 31 December 2016

		At 31 December	At 31 December
		2016	2015
		£000	£000
Non-current assets
Goodwill		15,948	15,948
Other intangible assets		9,402	10,094
Property, plant and equipment		1,835	1,929
		27,185	27,971
Current assets
Trade and other receivables		6,073	4,333
Cash and cash equivalents		4,713	2,085
		10,786	6,418
Current liabilities
Trade and other payables		(3,283)	(2,036)
Borrowings		(1,362)	(1,522)
Derivative financial instruments		(52)	-
		(4,697)	(3,558)
Non-current Liabilities
Borrowings and other financial liabilities		(25,369)	(25,972)
Derivative financial instruments		-	(22)
Deferred tax		(1,596)	(1,845)
		(26,965)	(27,839)
Net Assets		6,309	2,992
Equity
Share capital		146	146
Share premium account		1,309	1,309
Retained profit		4,854	1,537
Total equity		6,309	2,992

Unaudited Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

		Share Capital	Share premium	Retained earnings	Total Equity
		£000	£000	£000	£000
At 31 December 2014		146	1,309	(149)	1,306
Profit and total comprehensive income for the period			-	1,686	1,686
At 31 December 2015		146	1,309	1,537	2,992
Profit and total comprehensive income for the period			-	3,317	3,317
At 31 December 2016		146	1,309	4,854	6,309

Unaudited Consolidated Cash Flow Statement

For the year ended 31 December 2016

	12 Months	12 Months
	ended 31 December  2016	ended 31  December 2015
Operating activities	£	£
Profit before tax	4,288	2,084
Adjustments for :
Depreciation	883	795
Amortisation	1,130	981
Finance income	(10)	(19)
Finance costs	2,181	2,970
Changes in:
(Increase) in trade and other receivables	(1,740)	(633)
Increase in trade and other payables	949	343
Movement of derivative financial instruments	30	-
Tax (paid)	(924)	(812)
Cash inflow from operating activities	6,787	5,709
Investing activities
Purchase of property plant and equipment	(789)	(1,267)
Purchase of software intangibles	(438)	(214)
Interest received	10	8
Cash outflow from investing activities	(1,217)	(1,473)
Cash flows from financing activities
Loan finance raised	13,600	-
Repayment of borrowings	(15,626)	(1,322)
Interest paid	(916)	(1,990)
Net cash outflow from financing	(2,942)	(3,312)
Net change in cash and cash equivalents	2,628	924
Movement in net cash
Cash and cash equivalents, beginning of period	2,085	1,161
Increase in cash and cash equivalents	2,628	924
		-
Cash and cash equivalents, end of period	4,713	2,085

Notes to the accounts

1.   General Information

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.

2.   Accounting Policies

The unaudited financial information has been prepared using the recognition and measurement principles of International Financial Reporting Standards ("IFRS") and IFRIC interpretations as adopted by the European Union (EU).

This announcement does not itself contain sufficient information to comply with IFRSs.

This set of unaudited financial information has been prepared in accordance with the accounting policies set out in the Group's Prospectus, relating to its admission to the London Stock Exchange of 16 March 2017.  The prospectus can be obtained from the Company's website at www.medicagroup.co.uk.

The unaudited financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2016, or the year ended 31 December 2015.  Statutory accounts for the year ended 31 December 2015 have been delivered to the Registrar of Companies and those for the year to 31 December 2016 will be delivered once approved by the Board.  The audit report for year ended 31 December 2015 did not contain statements under s498(2) or (3) of the Companies Act 2006.  The auditors have not yet reported upon the accounts for the year ended 31 December 2016.

The consolidated financial statements are presented in Sterling, the presentational and functional currency of the Company, rounded to the nearest £'000.

3.         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 twelve 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.

4.         Critical accounting judgements and key sources of estimation uncertainty

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.

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.

Matters of judgement

Deferred taxation

          Deferred tax liabilities have been recognised which are contingent and dependent upon future trading performance.

5.         Segment reporting

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.

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.

			2016	2015
			£000	£000
	NightHawk		13,536	10,692
	Routine Cross-Sectional		10,508	7,320
	Routine Plain Film		3,876	3,652
	Other		602	574
			28,522	22,238

6.         Exceptional items

		2016	2015
		£000	£000
Costs incurred in respect of Initial public offering		757	-
		757	-

The above costs were incurred in respect of the Company's refinancing and listing on the London 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 Board.  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 2017 financial results.  The costs of these exceptional items have been 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.

7.         Finance costs

		2016	2015
		£000	£000
Bank interest		978	490
Amortisation of loan arrangement fees		291	192
Interest on secured loan notes		882	2,288
Fair value movement on derivative financial instruments		30	-
		2,181	2,970

8.         Tax expense

Major components of tax expense:	2016	2015
Current tax:	£000	£000
UK current tax expense	1,214	718
Prior year adjustment	6	-
Total current tax	1,220	718
Deferred Tax:
Originations and reversal of temporary differences	(189)	(174)
Effect of rate change	(60)	(146)
Total deferred tax	(249)	(320)
Tax expense on ordinary activities	971	398

Reconciliation of tax expense:

UK corporation tax is assessed on the profit on ordinary activities for the year 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:	2016	2015
	£000	£000
Profit on ordinary activities before tax	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	167	122
Prior year adjustment  - current tax	6	-
Effect of tax rate change - deferred tax	(60)	(146)
Total tax credit for period	971	398

9.         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, 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.

	2016	2015
	£000	£000
Profit for the year attributable to ordinary shareholders	3,317	1,686
Exceptional items	757	-
Profit for the year before exceptional items attributable to ordinary shareholders	4,074	1,686
Refinance costs	39	-
Amortisation of acquired intangibles	870	870
Adjusted profit for the period attributable to ordinary shareholders	4,983	2,556
Weighted average number of ordinary shares	100,000,002	100,000,002
Basic and diluted profit per ordinary share (pence)	3.32p	1.69p
Basic and diluted profit per ordinary share before exceptional items (pence)	4.07p	1.69p
Adjusted basic and diluted earnings per ordinary share (pence)	4.98p	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.

10.        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, is repayable in full on Maturity on 30 November 2018.

On 29 January 2016 the Group repaid £13.5m CBPE loan notes.

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 11 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.

11.        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 Limited, 2 George Yard, London, EC3V 9DH. At the date of approval of this preliminary announcement, 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.

12.        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 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 dependant 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.

13.  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.

	12 Months	12 Months
	ended 31 December  2016	ended 31  December 2015
Reconciliation of Adjusted Operating Profit	£	£
Operating profit	7,216	5,035
Adjustments for:
Amortisation of acquired intangibles	870	870
Refinance costs	39	-
Adjusted Operating profit	8,125	5,905
Adjusted Operating profit margin	28.5%	26.6%
Reconciliation of Adjusted Profit Before Tax
Profit for the year	3,317	1,686
Adjustments for:
Amortisation of acquired intangibles	870	870
Exceptional items	757	-
Refinance costs	39	-
Adjusted profit after tax	4,983	2,556
Income tax charge	971	398
Adjusted Profit before Tax	5,954	2,954

Reconciliation of EBITDA cash conversion percentage
Cash inflow from operating activities	6,787	5,709
Adjustments for :
Tax paid	924	812
Exceptional items	757	-
	8,468	6,521
EBITDA	9,229	6,818
Conversion rate	91.8%	95.6%
Reconciliation of Net debt
Cash and equivalents	4,713	2,085
Borrowings due within one year	(1,362)	(1,522)
Borrowings due after one year	(25,369)	(25,972)
Net Debt	(22,018)	(25,409)

 

END

 

 

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