REG - Medica Group PLC - Results for the year ended 31 December 2021
04/04/2022 07:00
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RNS Number : 0609H Medica Group PLC 04 April 2022
Medica Group PLC
Results for the year ended 31 December 2021
Robust recovery in core teleradiology business and strong performance from
acquisitions
Medica Group PLC (LSE: MGP, "Medica", the "Group" or the "Company"), the UK
market leader by revenue in the provision of teleradiology services, announces
its preliminary results for the year ended 31 December 2021.
Financial highlights
Year ended Year ended Change Change Year ended Change
31 December 2021 31 December 2020 £'000s % 31 December 2019 2019 to 2021
£'000s £'000s £'000s %
Revenue 61,913 36,814 25,099 68% 46,542 33%
Gross profit 31,394 17,452 13,942 80% 22,250 41%
Gross profit margin 50.7% 47.4% 3.3 ppt(4) 47.8% 2.9%(4)
Underlying operating profit ¹ 12,078 5,003 7,075 141% 11,297 6.9%
Underlying operating margin 19.5% 13.6% 5.9 ppt(4) 24.2% (4.7%)(4)
Underlying profit before tax 11,472 4,737 6,735 142%
Profit before tax 7,339 2,074 5,264 254%
Underlying basic EPS (pence) (2) 7.83 3.47 4.36 126%
Basic EPS (pence) 4.56 1.21 3.35 277%
Proposed final dividend (pence) 1.79 1.7 5%
Cash and cash equivalents 9,616 13,934 (4,318)
Net Cash/(Debt) (3) 3,877 (3,907) 7,784
(1) Underlying operating profit is a non-IFRS measure and is
calculated as operating profit before exceptional items and one-off costs
relating to the GDI acquisition and associated extension to the debt facility,
share based payments, intangible amortisation in respect of acquired assets.
(2) Underlying Earnings per share is a non-IFRS measure and is
calculated based underlying operating profits less financing costs and
taxation
(3) Net cash/(debt) is a non-IFRS measure and is calculated by
subtracting bank borrowings from cash and cash equivalents
(4) Percentage points movement (ppts)
· Delivered sales of £61.9m, representing 68% and 33% revenue increase
on 2020 and 2019, respectively
o UK revenues rose 33% to £47.1m as a result of a continued strong
performance from NightHawk and a full recovery in Elective scanning activity
by the year end
o Medica Ireland contributed £9.7m in its first full year since acquisition
in November 2020, in-line with expectations, and generated a return on capital
employed (ROCE) in its first full year ahead of the Group target of 15%
o RadMD contributed £5.2m of revenues for the nine-month period since
acquisition in March 2021, broadly in-line with expectations at the time of
purchase
· Increase in gross profit margin to 50.7% (2020: 47.4%) due to mix
effect in UK, cost management and positive impact of acquisitions
· Recovery in underlying operating profit to £12.1m, up 141% from 2020
and 6.9% versus 2019, with underlying operating margins recovering to 19.5%
(2020: 13.6%)
· Net cash at 31 December 2021 of £3.9m, an improvement of £7.8m on
net debt of £3.9m at 31 December 2020
· The Board declared an interim dividend for 2021 of 0.89 pence per
share and is now proposing a final dividend for 2021 of 1.79 pence per share,
which will, if approved, result in total dividends for 2021 of 2.68 pence per
share, up 5% on 2020
Operational highlights
· Effective management of elective scanning capacity and demand as
volumes recovered as COVID-19 restrictions eased
· Continued growth of NightHawk service with net contract wins and
renewals
· Restructured the organisation to create additional management
bandwidth and create new group functions to support future growth
· Reorganised business to integrate support functions and maximise
efficiency
· Established a UK Leadership Team focused on driving growth and
executing strategy
· Successfully deployed Augmented Intelligence solution into Medica's
out-of-hours stroke reporting
· Expanded radiology reporting capacity in the UK by 5%
Acquisitions and Partnerships
· Completed the acquisition and first stage of integration of RadMD in
Philadelphia
· Post-acquisition of RadMD, added new members to the senior team to
drive growth and expand operational capacity
· Completed integration and rebranding of Global Diagnostics Ireland as
Medica Ireland
· Established MedX, a joint venture with Integral Diagnostics Pty in
Australia
Post-period highlights
· Successful launch of new Picture Archive and Communication System
(PACS), Medica's new enterprise imaging and reporting software
system/platform, with multiple experience and functionality improvements for
our radiologists, as first major milestone of the FutureTech programme
· Strong start to the year for NightHawk service through new contract
wins, extensions and re-tenders
· Launch of new service with the leading Irish health insurer in Dublin
· Expanded the team internationally with a General Manager for MedX and
an expansion of reporting capacity outside of the UK
Dr. Stuart Quin, Chief Executive Officer of Medica, commented:
"The year saw Medica continue to deliver on its strategy by diversifying its
offering, broadening geographic reach and investing in new technology. With
these strategic developments - including the acquisition of RadMD in the US,
the creation of a new joint venture in Australia and the successful launch of
Sectra PACS in the UK - as well as favourable market dynamics as customers
seek to reduce the imaging backlog caused by COVID-19, there are strong
foundations in place to support our growth. We look forward to continuing our
momentum through 2022 to consolidate our position as the trusted,
teleradiology partner of choice for healthcare providers".
For further information, please contact:
Medica Group Plc: +44 (0)33 33 111 222
Stuart Quin, Chief Executive Officer
Richard Jones, Chief Financial Officer
FTI Consulting +44 (0)20 3727 1000
Victoria Foster Mitchell
Sam Purewal
Liberum (Joint Broker) +44 (0)20 3100 2000
Phil Walker
Richard Lindley
Numis (Joint Broker) +44 (0)20 7260 1000
Freddie Barnfield
Duncan Monteith
Euan Brown
About Medica Group PLC
Medica is the market leader in the UK and Ireland for the provision of
teleradiology services, providing outsourced interpretation and reporting of
MRI (magnetic resonance imaging), CT (computerised tomography), ultrasound and
plain film (x-ray) images. Medica also offers diabetic retinopathy screening
in Ireland.
Medica contracts with the largest pool of consultant radiologists in the UK
and Ireland, performing remote access teleradiology across its customer base
of more than 100 NHS Trusts in the UK, the Irish HSE, private hospital and
insurance groups, as well as diagnostic imaging companies. This enables the
Company to offer a fast, responsive service. In addition, Medica operates in
Australia and New Zealand through MedX, a 50:50 Joint Venture with Integral
Diagnostics Limited Pty.
The Company currently offers two primary services to hospital radiology
departments:
· NightHawk - urgent reporting service
· Elective - includes routine cross-sectional reporting on MRI and
CT scans, and routine plain film reporting on x-ray images.
These services are underpinned by Medica's bespoke, secure IT platform that
provides market-leading linkage between a hospital's Radiology Information
System (RIS) and consultant radiologists who contract with the Company. Direct
RIS access ensures that where the wider patient medical history is available,
it can be reviewed by the consultant as part of every report.
Through its subsidiary, RadMD, in the United States, Medica also provides
pharmaceutical and biotech clients and contract research organisations (CROs)
with high quality, complex imaging services for international clinical trials.
RadMD has gained vast experience in the space, having contributed to over 500
international clinical trials, in all phases of clinical research from proof
of concept to phase III and with expertise in oncology, as well as a wider
range of therapeutic areas including medical devices, neurology and
cardiovascular.
For more information please visit: www.medicagroupplc.com
(http://www.medicagroupplc.com/)
Chairman's statement
Strong performance in 2021 as our clients recovered and started to process the
backlog of cases requiring imaging that accumulated during the pandemic
Medica has once again demonstrated the resilience of its business model in
2021. Having started the year with further lockdowns in the UK and Ireland,
our team has worked closely with clients to support the return to pre-pandemic
levels of diagnostic reporting, as well as enabling hospitals and clinics to
make initial progress in undertaking priority cases that had been postponed
due to the ongoing COVID-19 pandemic.
I am pleased to report a strong recovery year for Medica resulting in annual
revenue increasing by 68% year-on-year to £61.9m with an improvement in gross
profit margin to 50.7% and operating profit of £12.1m, up 141% from 2020.
This also compares favourably to 2019 with a 33% increase in revenue (2019
£46.5m), 2.9% increase in gross margin (2019 47.8%) and 7% increase in
operating profit (2019 £11.3m) as trading improved and Medica started to book
sales from acquisitions in Ireland and the US. As a result, the Board has
proposed a final dividend of 1.79 pence per share reflecting the strong
performance of the business last year. It is particularly pleasing to deliver
these results during the ongoing pandemic in 2021, without the need to
furlough any employees or receive any government grants, demonstrating the
robust nature of the business.
In addition to the core business, the recent acquisitions of Medica Ireland
(formerly Global Diagnostics Ireland), and RadMD performed strongly in a
challenging year. These acquisitions were completed during a period of
uncertainty due to the impact of COVID-19. However, we were confident that any
short-term trading impact would be alleviated as we emerged from the first
wave of the pandemic. This has been demonstrated and we are confident that
both Medica Ireland and RadMD are well placed for continued strong growth in
2022.
Continued progress made delivering against new strategic priorities and
improving governance
Medica has made significant progress against delivering its strategy and
improving its governance structure, including:
· Exceeded market expectations in terms of profitability and cashflow
due to careful cost management and close client engagement
· Delivered on our stated strategy by expanding into clinical trial
imaging services via the acquisition of RadMD, as well as via a joint venture
to collaborate on opportunities in Australia and New Zealand
· Continuing to improve governance and strategic input to the board by
recruiting two experienced non-executive directors; Barbara Moorhouse (Senior
Independent Non-Executive Director and chair of Audit Committee) and Dr.
Junaid Bajwa (Independent Non-Executive Director and chair of Environment,
Social and Governance (ESG) and Clinical Governance and Quality Committees).
· Developed a comprehensive approach to develop clear ESG metrics that
drive improved business performance
· Established a Clinical Quality and Governance Committee of the Board
to increase oversight of factors that are critical to continuing to
differentiate our service and respond to client needs
Medium term growth potential driven by the pandemic recovery
We ended 2021 in a similar position to 2020 with growing COVID-19 cases due to
the increased transmissibility of the Omicron variant. Whilst it is largely
impossible to predict how the pandemic will continue to run its course in
2022, we are increasingly confident that our clients are now better prepared
to handle COVID-19 cases and to continue to deliver a largely 'business as
usual' service to elective patients. Alongside significant growth potential in
elective reporting, we have seen, and continue to expect to see, a marked
increase in the number of patients attending Accident & Emergency
(A&E) departments requiring imaging procedures to diagnose their
conditions.
Both of these growth drivers in the UK and Ireland will require us to recruit
more reporters across our business. We have had continued success this year in
our ability to attract and retain expert reporters as evidenced by an increase
in total reporter capacity of 5% during 2021. We continue to believe this is
due to the quality of the service we offer and the breadth and depth of work
available for reporters to build their careers and expertise with Medica and
RadMD.
In 2020, we started to accelerate our recruitment of radiologists in Australia
and New Zealand. Through our MedX joint venture in Australia with Integral
Diagnostics, we have continued to recruit in 2021 and, as we seek to fulfil
the demand from our customers, we will be ramping up our efforts in 2022. In
addition, we will look to other regions, for further reporting capacity from
expert General Medical Council (GMC) certified radiologists.
In terms of our clinical trials business, RadMD, the year started slowly as
some pharmaceutical and biotech clients opted to delay the start of trials due
to COVID-19 until more patients were enrolled. However, business performance
improved in H2 2021 as we signed additional contracts with both new and
existing clients, as well as resumed studies put 'on-hold' by the pandemic. As
a result, the majority of the initial deferred element of the contingent
consideration due to the founders of RadMD will be paid in 2022, which is
testament to their and their team's hard work and performance in 2021, with a
small amount of deferred consideration outstanding into 2023. We are also
starting 2022 with an increased pipeline and backlog of opportunities and we
continue to invest in expanding the expert team at RadMD.
Outlook
Whilst we are not yet 'out of the woods' in terms of the impact of COVID-19,
we have confidence that we will be able to support our clients to tackle their
respective backlog of scanning, reporting and clinical trial studies in 2022.
We continue to have a positive outlook on the market and think that the
dynamics are still very favourable for Medica as we observe more and more
reporting capacity pressure in the NHS and Health Safety Executive (HSE) in
Ireland.
Our NightHawk service continues to grow robustly, and we expect to extend and
renew most of these contracts in 2022. Medica is ready to take advantage of
this short- to medium- term market opportunity by expanding the amount of
elective reporting capacity we can provide to our clients by encouraging more
radiologists to report for Medica in the UK and Ireland. Government-led
initiatives in Ireland have already commenced to reduce the backlog of
patients requiring scanning and, in the UK, the NHS has launched its ambitious
Community Diagnostic Hubs programme to conduct more diagnostic imaging outside
of hospitals, which aligns favourably with Medica's core competencies.
Medica is also focussed on continuing to improve our reporting systems as part
of the FutureTech programme, rolling out further Augmented Intelligence ("AI")
solutions, increasing productivity of existing radiologists, as well as
recruiting more reporters overseas and dual-certifying radiologists in UK and
Ireland to support our respective businesses.
Further, we are confident that we are well-positioned to capitalise on the
fast-growing market for imaging services for clinical trials. We expect to
continue to invest in RadMD to underpin growth in the team and systems, as
well as look for opportunities to increase our scale.
The healthcare industry is evolving rapidly and the pandemic has allowed
clients to move at pace and make quick decisions which would have taken longer
pre-pandemic. A dependable, reliable and high-quality provider like Medica,
with an equal willingness to embrace change and look for opportunities, means
we should be well-positioned for growth in the evolving market.
I would like to finish by thanking all our clients for choosing Medica as
their imaging and diagnostics partner for clinical diagnosis and clinical
trials. I would also like to recognise the huge efforts taken by our network
of radiologists, radiographers and specialist doctors around the world who
strive to provide timely and accurate reports for our clients day-in, day-out.
I would like to thank our investors for their confidence in the Company in
these challenging times. Finally, I would like to thank our operational teams
based in UK, Ireland and US who have continued to demonstrate resilience and
progress during what was another tough year across our industry, and I look
forward to continuing the execution of our strategy in 2022.
Roy Davis
Chairman
4 April 2022
CEO report
The strong performance demonstrated in 2021 was again testament to our
excellent team and their ability to execute initiatives across the Group. This
extends not only to our teams working day and night to deliver fast, efficient
and reliable reports for patients, but also to those directly scanning and
screening patients and participating in clinical trials. I am pleased that we
ended 2021 with strong run-rate financial performance bolstered by a recovery
in our Elective business above pre-pandemic levels, significant renewal of
existing NightHawk contracts coupled with new client wins and growth in our
international businesses in Ireland and the US.
The Company has continued to make excellent progress in 2021 and the first
quarter of 2022. This includes:
· Launching our new PACS. This has been a significant project
requiring input from all elements of the team in the UK. This project saw all
of our radiologists, radiographers and specialist doctors (together
"Reporters"), transition to our new provider in a short timeframe with no loss
of service to our clients. We expect that this will have significant benefits
going forward that will drive operating leverage.
· Completing the acquisition of RadMD and immediately strengthening
the team by recruiting an operations director, chief commercial officer and
finance director. We have also expanded the range of customers with whom we
work at RadMD and have entered some exciting new fields with contract wins
· Continuing to deliver our patient-facing ophthalmology screening
and surveillance services in Ireland despite the huge impact of COVID-19 on
staffing levels and patient activity. Our team has continued to receive praise
from the National Screening Service in Ireland for their ongoing ability to
deliver the service despite these obvious challenges
· Being awarded the prestigious "Overall Best Project" for Medica's
delivery of Augmented Intelligence for Stroke patients in the Association of
Project Management annual awards beating many other worthy projects including
some from large FTSE 100 companies
· Expanding our team across the UK, Ireland and the US, as well as
hiring a General Manager to lead our joint venture in Australia; MedX
In September 2021, the Company conducted its first Capital Markets Day event.
This was well-attended and gave us the opportunity to update investors on our
progress against the strategy, as well as showcase our wider team and
projects, such as our FutureTech programme and Augmented Intelligence
approach. It was also an opportunity for investors to meet the heads of our
Irish and US businesses for the first time and to better understand the
significant market opportunities in both countries. At the event, we
reiterated our strategy to investors and devoted time to explain the growth
opportunities in each of our market segments.
Significant progress against our strategic goals
Medica's strategy can be summarised as follows:
1. Be the trusted, go-to partner for healthcare providers with a
reputation for reliability and transparency to enhance patient outcomes
2. Invest in our people and systems to build an engaged and motivated team
3. Be the company of choice for specialist doctors and clinicians wanting
to expand their expertise in telemedicine
4. Deliver profitable, diversified growth underpinned by commitment to ESG
with focus on market-leading clinical governance
Taking each in turn, I am pleased that we have delivered significant progress
in 2021 against each of the drivers of our strategy:
1. Be the trusted, go-to partner for healthcare providers with a reputation
for reliability and transparency to enhance patient outcomes
More customers trusted Medica to deliver services in 2021 than in any previous
year. This trust is underpinned by our reputation for delivering a
high-quality service 24/7. What this means in practice is that whenever
clients choose to send urgent or elective scans to Medica for reporting, we
will ensure that we have the right specialist doctor or clinician available to
report the exam within the timeframe required. Not only this, but our reports
are routinely audited to ensure that they meet the Royal College of
Radiologist standards and so that we can continue to provide helpful feedback
to our experts on their reports.
Where Medica has long-term relationships with clients, it is working more
closely with hospitals to improve communication and information flow such that
Medica is better prepared to manage peaks in demand for its services
particularly around holiday periods, but also in support of local backlog
initiatives. Our systems already support close integration with hospital data,
but often last-minute requests from clients require additional reporting
capacity at short notice. By planning more effectively, we can help support
our clients much better.
This client trust is also evident in the businesses that we have acquired:
RadMD's experienced team is frequently trusted to help to resolve issues with
so-called "rescue studies"; trials that have started but were not designed
correctly and hence are not delivering the expected endpoints. This expert
knowledge developed over many years is one of the key factors in clients'
decisions to work with RadMD and failure to properly plan and execute the
imaging component of clinical trials can result in costly delays to new
therapy approval and, in the worst case, failure to gain new drug approval.
In Ireland, where Medica scans patients as well as reports the digital image,
the strong relationship with clients is also evident. This has been tested
over the last 12 months where we have had to continue to deliver a scanning
and screening service in our radiology, ultrasound and ophthalmology
businesses respectively, despite maintaining social distancing and increasing
the time between scans to sanitise equipment. Over time, these relationships
invariably lead to additional opportunities as Medica is trusted to deliver
one scanning service, but where support is needed to improve the performance
of other services. In this way, Medica can expand its range of services to
meet clients' needs.
NightHawk services continued to grow strongly driven by higher admissions at
A&E departments and a growing requirement for out-of-hours services in
Ireland
Emergency admissions to hospital in England continued to climb in 2021.
According to NHS England data published in January 2022, emergency admission
growth over the previous three months, compared to January 2021, was 9.6%, and
over the last 12 months, compared to the preceding 12 months, was 13.3%. This
correlates with the increase in urgent, out-of-hours exams that have been
reported by Medica in 2021 where we recorded a circa 1% increase in activity
on average each month throughout the year.
Many of our existing contracts were renewed in 2021 demonstrating the fact
that clients continue to trust Medica to deliver an urgent service 24/7. In
addition to continuing to support existing customers, Medica also won new
contracts to deliver out-of-hours reporting services across the UK. As we
enter 2022, the Company has a significant number of new contract opportunities
that are being tendered, as well as renewals of existing client contracts.
In Ireland, Medica was pleased to be selected by several hospitals to provide
out-of-hours reporting services. This market is still nascent in Ireland, but
as we predicted when we acquired Global Diagnostics Ireland, it is
accelerating as hospitals feel the combined pressure of increasing imaging
volumes coupled with a shortage of sub-specialist radiologists available to
report during the night-time.
The UK and Ireland teams have been working closely together to increase
capacity of reporting. One example of such a synergy has been the efforts to
'dual certify' many of our UK radiologists so they are both UK and Irish
Medical Council certified and, therefore, provide a more flexible pool of
reporters. Additionally, as we grow our out-of-hours service in Ireland, the
team is increasingly drawing on both the operational and commercial expertise
of the respective teams.
Elective reporting: confidence increasing as pandemic recovery continues
In 2021 we saw a strong recovery in activity as the impact of the pandemic on
elective activity has abated. Our clients, both in Ireland and in the UK, are
now much better placed to separate COVID-19 related cases from Elective cases.
This is evidenced by the continued increase in month-on-month activity that we
have seen across our portfolio of clients during 2021. Looking ahead into the
medium term, we expect to see an increase in scanning activity as clients get
to grips with record waiting lists for procedures which in turn drives imaging
activity. According to the NHS, this backlog pressure is expected to endure
for at least the next two years. In addition, as noted by the UK Health
Secretary recently, UK waiting times are set to continue to grow and only
likely to recover in 2024 and initiatives to tackle this growing backlog will
also increase the requirement for imaging.
In late 2021, the NHS in England announced those companies that have been
successful in joining the Community Diagnostic Hubs framework and Medica was
delighted to be amongst them. This ambitious project expects to realise around
150 community-based hubs that will offer a range of out-patient diagnostics
including routine Plain Film (PF; X-Ray), Computerised Tomography (CT) and
Magnetic Resonance Imaging (MRI) scanning. Medica is well-placed to offer
reporting services to these hubs and to play a strategic role in supporting
existing and new clients with efficient delivery of imaging in an outpatient,
community setting.
In Ireland, Medica has been successful in winning backlog elective contracts
with the HSE (Irish equivalent of the NHS), as well as providing reporting
services for independent sector clients and insurance companies. Medica was
proud to partner with VHI, Ireland's leading health insurance company, to be
the exclusive provider of imaging diagnostic services across their sites,
including at their new flagship site in Carrickmines in the south of Dublin
which opened in February 2022. We have also partnered with organisations such
as the Children's Health Institute where we have supported them to develop a
bespoke hip screening service for neonates. These are some of the examples of
the creative ways that we are building the organisation in Ireland to support
our clients.
Also in Ireland, we have been proud to continue to be able to deliver our
diabetic retinopathy screening service throughout the period of the pandemic,
working closely with the National Screening Service to ensure that patients
are contacted, screened and appropriately referred for follow up intervention.
This service, now in its tenth year, serves around half of the diabetic
population in Ireland delivering both a surveillance and screening service for
patients.
Acquisition of RadMD, a leader in imaging for clinical trials
In March 2021, we were excited to announce the acquisition of RadMD based
outside Philadelphia in the US. RadMD is a specialist business focused on
design and delivery of the imaging component of clinical trials. The company
operates in the $1 billion market which is growing quickly in response to the
increase in demand for imaging services in therapeutic areas such as oncology
and neurology.
Since the acquisition, we have recruited new members of the senior team to
support the founders, Drs. Richard Patt and Kohkan Shamsi, ahead of expected
growth in the company. This has already had a positive impact on the business
generating additional opportunities with numerous new clients and helping to
bring experts into the team with significant experience in leading operations
for imaging core labs, as well as extensive commercial and finance expertise.
Also since the acquisition, RadMD has grown its combined pipeline and signed
backlog of contracts awaiting commencement by 34% from $40 million to $53.6
million. This is testament to the hard work of the team, but also to the
acceleration of studies, many of which were postponed during the pandemic. We
expect the strong underpinning of orderbook and pipeline coverage to translate
into strong earnings growth throughout 2022 and beyond and are increasing our
capacity in both people and infrastructure accordingly to ensure that we
continue to expand to meet our clients' needs.
MedX joint venture in Australia and New Zealand
In February 2021, Medica formed a joint venture (JV) with Integral Diagnostics
Pty, listed leader in radiology clinics and teleradiology services in
Australia and New Zealand. The initial focus of the partnership is to
accelerate building reporting capacity during the daytime hours in Australia
and New Zealand to report urgent exams in the UK during the night-time. We
have recruited an experienced general manager for the MedX joint venture who
will support the growth in reporting capacity for the respective JV partners,
as well as to develop our wider out-of-hours teleradiology reporting offering
for the Australian and New Zealand markets.
2. Invest in our people and systems to build an engaged and motivated team
Medica has continued to invest in its people despite the impact of the
pandemic on the underlying business. We have also reorganised our business to
create a structure that will provide shared services across the Group enabling
our skilled finance, medical, clinical governance, information technology,
recruitment, and compliance teams to support their colleagues across Medica.
Whilst a new structure was necessary to underpin our future growth strategy,
it also presented the opportunity to promote members of the team into new
roles across the Group or within their country organisations. This included
Sarah Burns, formerly COO, taking on the new role of UK Managing Director and
Kevin Terrins, formerly UK Business Development, assuming the new role of
Group Director of Corporate Development. Kevin will be working closely with me
to drive organic growth across the business and to ensure that we deliver
synergies across our operations.
Further, we have invested in additional resource to support phase two of our
ambitious "FutureTech" programme - the first phase of which went live in
February 2022. We see this as an ongoing programme which will deliver
significant benefits over the next 24 months but will remain a critical
component of our strategy going forward as we deploy further workflow and
Augmented Intelligence solutions.
Outside of the UK, we have also invested in senior operations and commercial
roles in Ireland and the US, as well as a finance director role for RadMD.
Taken together, this represents a significant investment in all our people and
provides the opportunity for long-term career development for all of our
employees at Medica.
FutureTech project delivering on time and on budget
In terms of systems, much of 2021 was spent preparing the groundwork to launch
our new PACS in early 2022. This required significant stakeholder engagement
with our new PACS provider, Sectra, as well as with clients, our radiologists
and clinical teams, our service delivery and IT teams, as well as finance and
compliance functions.
Our FutureTech team was recognised by the Association of Project Management
winning not only the "Best Project in IT", but also the overall prestigious
"Best Project" awards for delivery of our first Augmented Intelligence tool
powered by Qure.ai to assist our doctors in diagnosing intracranial
haemorrhage of patients who have suffered a stroke. This AI tool has supported
improved quality of reporting by reducing the chance that hard to detect brain
bleeds are missed, as well as demonstrating an improvement in the time to
report urgent stroke cases of 13%. These awards pitted Medica against some of
the largest, best-known FTSE 100 companies and we were thrilled that the
delivery of this important project received international recognition. This is
credit not only to our project management team, but also to the many
reporters, technicians and experts across Medica who worked hard to ensure
that our new PACS was ready for deployment by the end of 2021.
In early February 2022, Medica launched its new PACS - the first time in our
history that we have replaced our core reporting system in favour of a
state-of-the-art solution. This project has been managed by a dedicated team
and the first phase was pleasingly delivered slightly ahead of time and
budget. Whilst the Company experienced some temporary reduction in reporting
capacity during the few days of transition to the new PACS as radiologists
familiarised themselves with a new system and Medica calibrated the new PACS
to accommodate the volume of cases reported, the system is now operating as
planned and is starting to deliver expected benefits.
The immediate benefits of the new PACS are multifactorial and include an
improved reporting environment, increased speed of reporting and throughput of
studies and reduced workflow steps for our radiologists and clinical teams.
Going forward, our ambition is to be able to more easily integrate new tools
such as Augmented Intelligence, advanced visualisation and data analytics. The
Company has indicated to investors that it expects the initial planned phases
of the FutureTech programme to be delivered by 2023 and to cost up to £6m.
Once fully deployed, our expectation is that the new systems will not only
deliver an improved reporting environment, enhanced productivity and
functionality, but will also generate operating leverage and increased
scalability to meet demand.
3. Be the company of choice for specialist doctors and clinicians wanting to
expand their expertise in telemedicine
We continue to have the largest network of radiology experts in the UK, and we
are expanding this network into other countries to provide more resilience and
capacity to support our clients. In 2021, we expanded our network in Australia
and New Zealand, as well as in Ireland. We now have an increasing pool of
radiologists that are dual certified to report cases in Ireland and the UK
which provides resilience in our capacity. We have also invested in developing
and growing our radiologist recruitment team and now have a robust team to
manage the relationship with our doctors and clinicians from the first moment
they speak to Medica and throughout the time that they choose to work with us.
In the US, our RadMD business focused on clinical trials, has also widened its
pool of radiologists to support new studies both in the US, but increasingly
in Europe with some studies now starting in Asia.
During 2021, we focused on improving our continuing education programme for
our reporters. We started hosting regular seminars on topics that are relevant
to our radiologists and clinical experts. These seminars count towards the
continuing education that our doctors are required to do as part of their
roles in the NHS. They also allow experts within our network to share their
expertise across a range of diverse topics such as AI tools, cancer reporting
criteria and specialist areas of imaging such as Positron Emission Tomography
(PET-CT) and have been well attended and received.
4. Deliver profitable, diversified growth underpinned by our commitment to ESG
with focus on market-leading clinical governance
At the Capital Markets Day, management reiterated its short to medium
financial and investment targets- which are as follows:
· Group Growth Rate and Revenue Target - Growth of core UK
business at 12-14% and recently acquired US and Irish companies by over 15% in
the short to medium term with an overall target of c.£100m revenues in 3-5
years excluding any non-organic growth
· Target Margins - Gross margins of over 45% and underlying
operating profit margins of over 20% in the short to medium term
· Target Return on Capital Employed (ROCE) - ROCE of at least 15%
within a reasonable period for such opportunities whilst looking to maintain
group ROCE above 20% overall
· Target Cash Conversion - Underlying operating profit to cash
conversion of at least 80%
Commitment to ESG
Medica has significantly revised its approach to measuring and reporting ESG
metrics in 2021. A dedicated sub-committee of the board now develops the
strategy and framework for ESG reporting and assesses progress against our
targets. The sub-committee meets quarterly and is chaired by Non-Executive
Director, Dr. Junaid Bajwa. Our framework focuses on four key areas of our
business that benefit from our commitment to ESG. These areas are aligned to
the Sustainability Accounting Standards Board (SASB) international standards
for healthcare companies.
1. People and Community
2. Responsible Operations
3. Environmental Impact
4. Customer Centricity
Clinical governance
Medica has a commitment to audit up to 2% of Elective plain film and 5% of
Elective cross-sectional (MRI/CT) scans. The Clinical Governance Committee
at Medica chaired by Dr. Robert Lavis, Group Medical Director, meets monthly
to review performance data in terms of audit, regulation and any clinical
matters requiring attention. The members of this committee include expert
radiologists that cover the main disciplines within the clinical service. The
audit process is governed as part of the Clinical Governance and Quality
Committee of the Medica Board, which meets quarterly and is chaired by
Non-Executive Director, Dr. Junaid Bajwa, and establishes the framework to
monitor overall clinical governance across Medica.
The NHS tends not to audit exams unless there are specific clinical reasons to
do so, hence if you are an NHS radiologist, you tend not to receive regular
feedback on the quality of your reporting. Therefore, our radiologists
continually cite the fact that Medica regularly audits a proportion of their
reports as being a differentiator and very useful feedback that they can not
only use to improve the quality of their reporting at Medica, but can also
take with them back into their NHS day jobs.
Diversified growth opportunities
Telepathology reporting
As hospitals make progress with digitising histology and cytology specimens
embedded in glass slides thereby creating a digital image, this presents
Medica with the opportunity to be able to establish a similar remote reporting
service for pathology cases, as well as radiology. 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 the 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. To
do this, Medica will need to integrate pathology reporting applications into
its current PACS reporting system, which it is now able to do with the
migration to Sectra as our partner. Additionally, Medica would need to build a
network of pathologists to be able to remotely report the images in the same
way that we currently provide this service for radiology. This project is
ongoing, and we look forward to being able to provide this service in the
future.
International expansion and continued diversification
· Clinical trials: Medica's entry into the exciting clinical trial
market for medical imaging will continue to be an area of focus in 2022. 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. As we grow, RadMD
will invest in systems to 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 2022.
· New teleradiology and telemedicine markets: In 2020, Medica
entered the Republic of Ireland. We saw the Irish market as having very
similar dynamics to the UK, but not yet at the same level of outsourcing of
key clinical services such as radiology. As we expected, this is changing and
Medica Ireland is well-placed to take advantage of the growth in the market.
During 2022, Medica will continue to evaluate new market opportunities for
teleradiology in Europe and further afield, as well as continue to look at
expanding into new areas of telemedicine. In addition, Medica will look to
build on existing international partnerships to expand its reach into new
markets.
Positive start to 2022
Medica has worked closely with existing customers throughout the past twelve
months to extend existing contracts and sign new contracts to deliver both
out-of-hours (NightHawk) and Elective services. So far this year, we are
seeing strong growth in patients attending A&E and requiring imaging in
both the UK and Ireland. Whilst February 2022 was a challenging month as a
higher-than-usual number of radiologists took annual leave following the
pressures of the pandemic and Medica transitioned to its new PACS system, as
described above, March 2022 performance has returned to plan. We remain
focused on accelerating recruitment of new radiologists whilst continuing to
deliver benefits from the new, enhanced PACS functionality.
Despite the emergence of the Omicron strain in late November 2021, which
peaked in January 2022, the adverse impact on the number of elective cases
being referred to Medica as a result of this was minimal, although this did
impact the availability of reporters in some cases. This demonstrates that the
majority of our clients have been able to successfully resume a level of
scanning not dissimilar from pre-pandemic levels. We now expect clients to
start to operationalise projects to significantly deal with the backlog of
patients working with scans, including extending scanning hours within
hospitals, closer working with independent hospital groups and scanning
companies, as well as making use of central NHS and HSE funding to invest in
upgrading to more efficient, faster throughput scanning equipment.
With strong demand from our customers, we will continue to manage capacity
carefully and explore recruitment options in order to maximise output in the
UK and Ireland. Our focus is on the recruitment of new sub-specialist
radiologists, as well as working closely with our existing reporter network to
improve the overall efficiency through better systems and processes.
In the US, we have continued to see conversion of pipeline projects into
signed contracts and new opportunities materialising in areas allied to our
traditional focus of oncology. The commercial and operations teams are
actively pursuing a broader pipeline of opportunities supported by RadMD's
founders, Drs. Patt and Shamsi. This has seen RadMD work with new customers in
new markets and, with Medica's support, we are also starting to work in areas
such as pathology and in new countries where we see opportunity to expand our
service offering.
Finally, we continue to pursue our 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. I continue to be confident that the quality of our team and the
extensive network of highly-skilled radiologists, radiographers, sonographers
and other specialist medical experts delivering our service, will propel our
future growth.
I would like to close by thanking all of our team including our network of
radiologists, radiographers and specialist doctors who have contributed their
part in what has been a challenging recovery year for Medica and the wider
healthcare sector as we started to emerge from the pandemic. I look forward to
continuing to deliver on our ambitious growth strategy in 2022 and beyond.
Dr Stuart Quin
Chief Executive Officer
4 April 2022
Financial Review
Progress against our strategic financial goals
Strategic financial target¹ Medium term Target Actual FY 2021
Revenue growth rate
UK 12%-14% 33%
Ireland² >15% 27%
US² >15% (2%)
Target Margins
Gross Profit Margin >45% 50.7%
Underlying Net Operating Profit margin 20% 19.5%
Return on Capital Employed
Group >20% 20%
Ireland >15% >15%
US >15% N/A
Group Operating Cash conversion >80% 81%
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.
Revised segmental analysis
Following the acquisition of RadMD in March 2021, we have made further changes
to the way we manage and report on Group operations compared to 2020. For 2021
we have reported our results in three geographic segments; the UK, the
Republic of Ireland and the US reflecting the way we report and manage the
Group. Central PLC costs are allocated across the three segments.
Revenue
Overall revenue increased 68% to £61.9m in 2021 from £36.8m in 2020.
Excluding the impact of acquisitions on 2021 and 2020, on a like-for-like
basis, revenues increased 33%.
UK
In the UK, NightHawk, our urgent out-of-hours reporting service, which started
the year fully recovered from the impact of COVID-19 in 2020 saw revenues
increase 30% to £29.8m in 2021 from £23.0m in 2020. Elective reporting
services, which had been more severely impacted than NightHawk and for longer,
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
38% to £17.3m in 2021 from £12.5m in 2020.
Ireland
Medica Ireland reported its first full year since acquisition in November 2020
and reported £9.7m in revenues in the year compared to £1.3m for the
two-month period from November 2020. This represented strong growth on the run
rate immediately prior to acquisition of €9m (or £7.6m) per year driven
overall by a recovery in the ability to scan and report patients during the
pandemic, as well as the expansion of existing clients and new client
contracts. It was very pleasing to note that the Return On Capital Employed
(ROCE) for Ireland exceeded our target return in its first full year of
operation
US
RadMD, based in the US and focused on imaging services for clinical trials,
was acquired in March 2021. For the 9-month period in 2021 revenues were
£5.2m, on a constant currency basis broadly in line with run-rate revenues at
the time of acquisition. Pipeline and signed contract backlog also increased
34% since acquisition driven by further growth in oncology projects, as well
as penetration of new clinical trial areas.
Gross Profit and Gross Profit Margin (GPM)
Gross Profit is stated after the cost of reporting radiologists, internal
audit costs required to deliver contractual commitments and other cost of
sales such as framework costs in the UK. In 2021, Gross Profit increased by
80% to £31.4m in 2021 from £17.5m in 2020 after taking account of the strong
UK recovery and the positive impact of acquisitions. GPM increased
significantly to 50.7% in 2021 from 47.4% in 2020 as a result of positive
contract negotiations in the UK, careful cost management and the positive mix
impact of higher margins in Ireland and the US.
Underlying Operating Profit
For 2021, 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 £12.1m in 2021 from £5.0m in 2020. This reflected both the
improvement in the UK performance together with the positive impact from the
US and Ireland.
Non-underlying costs
Non-underlying costs after tax increased by £1.4m to £3.9m in 2021 from
£2.5m in 2020. These costs included £0.4m relating to the acquisition of
RadMD, £2.2m (2020 £1.0m) relating to the amortisation of acquired
intangible assets, £0.8m (2020 £0.2m) relating to share-based payments and
other one off legal and professional costs of £0.6m (2020 £0.1 m). The
income tax credit on these non-underlying costs was £0.2m (2020 £0.1m).
In addition, non-underlying finance costs included £0.6m (2020 £nil)
relating to a fair value adjustment on contingent consideration.
Net finance expense
Finance costs net of finance income were £0.5m for the year (2020: £0.3m).
In March 2021 we finalised a new fully flexible £30.0m Revolving Credit
Facility (RCF) and drew down £12.0m of this during H1 2021 to repay the term
debt which had been in place since IPO and also repaid the previous RCF of
£5.6m. Since the initial drawdown, £6m of the RCF was repaid and £6m of the
RCF was drawn on 31 December 2021. The interest costs for the year of £0.5m
represent interest on drawn down balances together with non-utilisation fees
on undrawn amounts.
Profit before Tax
Underlying profit before tax increased by £6.7m to £11.5m in 2021 from
£4.7m in 2020 reflecting the increase in revenues and gross profit,
ostensibly offset by the increase in operating costs. Total profit before tax,
after taking account of non-underlying and exceptional items increased by
£5.2m to £7.3m in 2021 from £2.1m in 2020.
Taxation
The Group has incurred a tax charge of £1.9m in the year ended 31 December
2021 (2020 £0.7m), with tax on underlying profits of £2.1m (2020: £0.9m).
The effective rate of tax for 2021 is 25.5% with the effective tax rate on
underlying profits of 18.1%.
Earnings per share
Underlying basic earnings per share (EPS) increased by 125.6% to 7.83 pence
per share in 2021 from 3.47 pence per share in 2020, reflecting the increase
in profits together with the impact of the increased number of shares in issue
following the placing in March 2021. Total basic EPS, after taking account of
non-underlying and exceptional costs increased by 3.35 pence to 4.56 pence in
2021 from 1.21 pence in 2020.
Dividends
In 2021, an interim dividend of 0.89 pence per share was declared in September
2021 and paid in October 2021. In line with our progressive dividend policy
outlined at the Capital Markets Day last year, the directors are proposing a
final dividend for 2021 of 1.79 pence per share. The final dividend will be
paid on 22 July 2022 to shareholders on the register on 24 June 2022 subject
to approval by shareholders at the 2022 Annual General Meeting (AGM). The
total dividends for 2021 2.68 pence per share represent an increase of 5%%
over 2020.
Capex
Total capex was £2.7m in 2021 compared to £2.0m in 2020. This included:
intangible capex of £0.8m (2020: £0.5m) including expenditure on the Future
Tech programme of £0.7m (2020: £0.1m); tangible capex on infrastructure and
equipment for contracted radiologists of £1.4m (2020 £1.5m) and right of use
asset additions of £0.5m (2020 £nil).
Cash and debt at 31 December 2021
Operating cash generation in 2021 increased strongly to £9.7m in 2021 from
£8.6m in 2020. Free cashflow, after taking account of capex was £7.5m in
2021 compared to £6.6m in 2020. Operating cash conversion remained strong at
81%, and above our target of 80% reflecting in particular good working capital
management in the UK as the business recovered from COVID-19 together with the
positive contribution from acquisitions.
After taking account of the acquisition of RadMD and the associated equity
placing together with strong cash generation throughout the year, gross cash
at 31 December 2021 was ahead of expectations at £9.6m (2020 £13.9m) and net
cash was £3.9m (2020 net debt of £3.9m).
On 6 May 2021 the Group entered into a new three year fully flexible £30m RCF
with a syndicate of three banks, including previous lenders Lloyds, together
with NatWest and Silicon Valley Bank. The facility is extendable for up to two
years. Variable interest is calculated on utilised facilities based on
leverage with initial interest at Sterling Overnight Index Average (SONIA) +
2% and non-utilisation fees of 35%. Key banking covenants remain the same with
maximum net debt to adjusted EBITDA of 2.5x and interest cover of 4x adjusted
EBITDA.
Joint Venture
On 22 February 2021 the Group announced an equal Joint Venture (JV)
partnership with Integral Diagnostics Pty, a leading provider of medical
imaging services across Australia and New Zealand. The JV, MedX, aims to
provide teleradiology reporting services and increased reporting capacity in
Australia, New Zealand, the UK and Ireland. The initial equity investment by
both parties into this JV was AUD 100,000 each (c.£50,000). The joint venture
will be reported on an equity accounting basis going forward.
Return on Capital from acquisitions
2021 was the first full year performance from Medica Ireland which was
acquired in November 2020. After considering underlying operating profits and
assets employed in Ireland, Return on Capital Employed for Ireland in 2021
excluding apportioned head office costs was comfortably ahead of our target
return of 15% which represents a very strong performance in only the first
full year in the Group.
Acquisition of RadMD
On 22 March 2021 the Group acquired RadMD LLC, a company incorporated in the
United States of America. RadMD is a leading Imaging Contract Research
Organisation ("iCRO") providing services to the fast-growing clinical trials
market. The initial cash consideration paid was $16.3m (£11.7m). Deferred
consideration of $4.9m shall be paid in Q2 2022 based on profits for the year
ended 31 December 2021. A further deferred contingent consideration of $0.3m
is expected to be paid in H1 2023 based on profits for the year ended 31
December 2022.
Equity placing and subscription
On 23 March 2021, a total of £16.1m was successfully raised through a
combined equity placing (£15.6m gross proceeds) and subscription (£0.5m
gross proceeds). Total costs in connection with the fundraise were £0.5m. A
total of 11,111,110 Ordinary shares were issued including 10,727,666 Placing
Shares and 383,444 subscription shares which represented, in aggregate,
approximately 9.98 per cent of the issued ordinary share capital of the
Company. At 31 December 2021 total shares in issue were 122,428,836 after also
taking account of shares granted to satisfy share options that vested during
the year.
Richard Jones
Chief Financial Officer
4 April 2022
CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
For the year ended 31 December 2021
31 December 2021 31 December 2020
£000 £000
Underlying Non-Underlying Total Underlying Non-Underlying Total
£'000 (Note 7) £'000 £'000 (Note 7) £'000
£'000 £'000
Revenue 61,913 - 61,913 36,814 - 36,814
Cost of sales (30,519) - (30,519) (19,362) - (19,362)
Gross profit 31,394 - 31,394 17,452 - 17,452
Administration expenses (19,316) (3,540) (22,856) (12,449) (2,309) (14,758)
Operating profit before exceptional items 12,078 (3,540) 8,538 5,003 (2,309) 2,694
Exceptional items - - - - (324) (324)
Operating profit 12,078 (3,540) 8,538 5,003 (2,633) 2,370
Finance income - - - 73 - 73
Finance costs (550) (593) (1,143) (339) (30) (369)
Share of results of joint ventures (56) - (56) - - -
Profit before tax 11,472 (4,133) 7,339 4,737 (2,663) 2,074
Income tax expense (2,079) 207 (1,872) (876) 147 (729)
Profit for the year attributable 9,393 (3,926) 5,467 3,861 (2,516) 1,345
to equity shareholders
Basic profit per ordinary share (pence) 4.56 1.21
Diluted profit per ordinary share (pence) 4.50 1.21
Statement of Comprehensive Income
Profit for the year 5,467 1,345
Other comprehensive income
Items that will be reclassified subsequently to profit or loss
Foreign exchange translation differences (124) -
Total comprehensive income for the year 5,343 1,345
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Company Registration 08497963
31 December 2021 31 December 2020
£000 £000
ASSETS
Non-current assets
Goodwill 30,357 23,473
Other intangible assets 22,399 17,150
Property, plant and equipment 4,521 4,146
Deferred tax 186 163
Investments - -
57,463 44,932
Current assets
Trade and other receivables 14,271 8,333
Cash and cash equivalents 9,616 13,934
23,887 22,267
Total assets 81,350 67,199
LIABILITIES
Current liabilities
Trade and other payables (9,576) (5,803)
Borrowings (5,739) (5,881)
Lease liabilities (280) (299)
Contingent consideration (5,335) (1,753)
Current tax (880) (387)
(21,810) (14,123)
Net current assets 2,077 8,144
Total assets less current liabilities 59,540 53,076
Non-current liabilities
Borrowings - (11,960)
Lease liabilities (814) (475)
Contingent consideration (1,553) (1,778)
Deferred tax (2,270) (2,410)
(4,637) (16,623)
Net assets 54,903 36,453
EQUITY
Issued capital 245 223
Share premium 30,324 14,721
Foreign exchange reserve (122) 2
Retained earnings 24,456 21,507
Total equity 54,903 36,453
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
31 December 2021 31 December 2020
£000 £000
Operating activities
Profit for the year 5,467 1,345
Add back taxation 1,872 729
Profit before tax 7,339 2,074
Adjustments for:
Depreciation 1,672 1,449
Amortisation 2,816 1,429
Loss on disposal of tangible and 55
intangible assets
219
Share based payments 682 210
Social security costs of share-based payment charge 78 -
Foreign exchange (590) -
Finance income - (73)
Finance costs 1,143 369
Share of results of joint ventures 56 -
Changes in:
(Increase)/decrease in trade and (4,725) 4,201
other receivables
Decrease in trade and other payables 2,811 56
Tax paid (1,614) (1,299)
Cash inflow from operating activities 9,723 8,641
Investing activities
Purchase of subsidiary net of cash acquired (11,429) (13,813)
Purchase of property, plant and equipment (1,310) (1,475)
Purchase of software intangibles (763) (533)
Interest received - 73
Cash outflow from investing activities (13,502) (15,748)
Cash flows from financing activities
Repayment of lease liability (407) (152)
Proceeds from borrowings 11,592 5,963
Repayment of borrowings (23,522) (54)
Issue of ordinary share capital 16,162 1
Costs to issue ordinary share capital (537) -
Dividends paid to ordinary shareholders (3,167) (945)
Interest paid (424) (345)
Net cash (outflow)/inflow from financing activities (303) 4,468
Net change in cash and cash equivalents (4,082) (2,639)
Movement in net cash
Cash and cash equivalents, beginning of period 13,934 16,576
Decrease in cash and cash equivalents (4,082) (2,639)
Foreign exchange on cash and cash equivalents (236) (3)
Cash and cash equivalents, end of period 9,616 13,934
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Issued capital Share Translation Retained earnings Total equity
premium
£'000
reserve £'000 £'000
£'000
£'000
At 1 January 2020 222 14,721 - 15,398 30,341
Issue of share capital 1 - - - 1
Dividends paid - - - (945) (945)
Share based payments - - - 210 210
Transactions with owners 1 - - (735) (734)
Profit for the year - - - 1,345 1,345
Other comprehensive income
Foreign exchange translation differences - - - - -
Total comprehensive income for the year - - - 1,345 1,345
At 31 December 2020 223 14,721 2 21,507 36,453
Issue of share capital 22 15,603 - - 15,625
Dividends paid - - - (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
NOTES TO THE FINANCIAL INFORMATION
For the year ended 31 December 2021
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 One Priory Square, Priory Street, Hastings, East Sussex, TN34 1EA.
The consolidated financial information of the Group for the year ended 31
December 2021 (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 2021 or 31 December
2020. The auditors reported on the accounts for the year ended 31 December
2020 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 2021 is not
yet complete. The statutory accounts for the year ended 31 December 2021 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 2021
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.
Business combinations are dealt with by the acquisition method. The
acquisition method involves the recognition at fair value of all identifiable
assets and liabilities, including contingent liabilities of the subsidiary, at
the acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
consolidated statement of financial position at their provisional fair values
which are then finalised within a 12-month period and, which are also used as
the basis for subsequent measurement in accordance with the Group accounting
policies. Goodwill is stated after separating out identifiable intangible
assets.
Profit or loss and other comprehensive income of subsidiaries acquired or
disposed of during the year are recognised from the effective date of
acquisition, or up to the effective date of disposal, as applicable.
Where the settlement of any part of cash consideration is deferred, the
amounts payable in the future are discounted to their present value using a
probability weighted expected value approach. Contingent consideration is
classified either as equity or as a financial liability and is recognised at
fair value on the acquisition date. Amounts classified as a financial
liability are subsequently re-measured to fair value in accordance with IFRS 9
(Financial Instruments), with changes in fair value recognised in the
consolidated statement of comprehensive income as an administrative expense.
Directly attributable acquisition costs are expensed as incurred within the
consolidated statement of comprehensive income as non-underlying
administrative expenses.
Exceptional items are items that are unusual because of their size, nature or
incidence and which the directors consider should be disclosed separately to
enable a full understanding of the Group's results.
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 2021 will be
available at http://www.medicagroupplc.com (http://www.medicagroupplc.com) by
30 April 2021.
3 Revenue
STEP 1 Identifying the contract with the customer
The Group accounts for contracts with customers within the scope of IFRS 15
only when all of the following criteria are met:
1. The Group and the customer have approved the outline contract (in
writing, orally or in accordance with other customary business practices) and
are committed to perform their respective obligations;
2. The Group can identify each party's rights regarding the services to be
transferred;
3. For iCRO contracts, the Group receives a work order for an ongoing and
specific services;
4. The Group can identify the payment terms for services to be
transferred;
5. The contract has commercial substance (i.e. the risk, timing or amount
of the Group's future cash flows is expected to change as a result of the
contract); and
6. It is probable that the Group will collect the consideration to which
it will be entitled in exchange for the services that will be transferred to
the customer. In evaluating whether collectability of an amount of
consideration is probable, the Group considers only the customer's ability and
intention to pay that amount of consideration when it is due.
STEP 2 Identifying the performance obligations
iCRO Revenue
These contracts involve supporting our customers in completing various
clinical trials by assisting with the reviewing of images as well as providing
practical support including training to our customers, just as we do for our
Reader Revenue services.
The iCRO contracts are more complex and detailed in nature and cover more
elements of the clinical trial imaging management than reader services. The
typical length of an iCRO contract is approximately three years.
Within the contracts, there are several distinct performance obligations which
reflect the nature of the particular clinical trial, how advanced the trial
is, and the number of patients and imaging sites. These include study start
up, project management, reader training, independent image reviews, technical
imaging services, study reporting, study close out and end of study imagine
transfer.
STEP 3 Determining the transaction price
iCRO Revenue
Each contract has a detailed schedule of prices for each promise within the
contract. The fees for the various promises have a mix of charging models,
including unit costs (for example: per hour, per scan reviewed, etc), monthly
costs billed each month for a specified period, or fixed costs billed on the
delivery of an item.
Each work order sets out a budget, setting out the expected consideration
under the contract and setting out the expected value of any variable items.
There are performance obligations set out in the work orders which are only
completed at the option of the customer. The budgets allocated against these
performance obligations are equal to the stand-alone selling price of each
option, and therefore no substantive rights are created as a result of Medica
providing these options.
On that basis, the total transaction price is considered to be the total
budgeted costs excluding any optional items.
STEP 4 Allocating the transaction price to the separate performance
obligations
iCRO Revenue
The detailed budget included in each work order sets out the expected costs of
each promise within the contract. The total of the budgeted costs for the
promises included within each performance obligation are considered by Medica
to equal the stand-alone selling price of that performance obligation.
STEP 5 Recognising revenue when performance obligations are satisfied
iCRO Revenue
Medica uses the output method for determining appropriate revenue recognition
for these contracts. As such, items billed per unit eg independent image
reviews, are recognised as that unit is delivered to the customer. Revenue
from monthly cost items eg project management, is recognised over the month in
question, and fixed document items are recognised at a point in time when the
document is delivered to the client.
There are certain exceptions to this for example for startup and closeout
costs. These are performance obligations which are generally present in iCRO
contracts.
Startup is key to the process and there are many inputs to make sure the study
is set up accurately and effectively. The Group typically invoices start-up
costs at the end of the first month of the contract. However, this phase of
work typically extends over additional months and total start up revenues are
therefore collectively recognised over that period of time. Closeout costs
include items such as final study reporting including quality control and
final data transfer that culminate the work of the study. The group typically
invoices close out costs at the end of the month after the delivery of these
elements. However, the performance obligation is typically recognised over the
period of the close out activity.
All revenue recognised in the income statement is from contracts with
customers and no other revenue has been recognised. No provision for expected
credit losses have been recognised on any receivables or contract assets
arising from a contract with a customer as past experience indicates that
expected losses are immaterial reflecting the nature of the customer base.
A disaggregation of revenue in the UK is shown in Note 5 as part of the
segmental analysis. There are no other relevant categories of revenue other
than reporting modalities which are monitored by the directors.
Timing differences, Accrued and Deferred Revenue
USA
In the USA there can be some timing differences between the recognition of
revenue and the trade receivables being recognised. Typically, these relate to
deposits and start up received in advance of work being completed, as well as
work completed to date on fixed-rate deliverables under iCRO contracts which
were not fully completed, delivered to the customer and billed at the
reporting date. These differences result in a liability of deferred revenue
recognised on the statement of financial position in trade and other payables.
There have been no significant judgements regarding the timing of transactions
or price.
Transaction Price
Transaction price is set out in individual contractual agreements and there is
a range of prices based on the types of service offered. There are no variable
pricing considerations for Reader Revenue contracts. The iCRO contracts
contain items which are billed at hourly rates specified in the contracts.
Strictly, this would typically be classed as variable pricing, however, due to
the terms of the contract (discussed above), revenue is recognised as the time
is spent.
No assets were recognised from costs to obtain or fulfil a contract with any
customer.
Contract modifications
Contract modifications which either create new or change existing rights and
obligations are accounted as a separate contract if the scope of the contract
increases because of the addition of promised goods or services that are
distinct and the price of the contract increases by an amount of consideration
that reflects the Group's stand-alone selling prices of the additional
promised services.
4 Going concern
The Directors have prepared cashflow forecasts for a period of 21 months from
the date of approval of these 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 2022 approved budget and
detailed bottom-up forecasts for the following financial year which have
considered realistic downside scenarios including:
· Impacts to volumes and therefore to revenues and profits from a
further "wave" of Covid-19 particularly in the UK and Ireland
· Loss of certain material contracts
· Further material inflationary pressure on operating costs above
current expectation
Under these downside scenarios, individually and cumulatively, and 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 18 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.
5 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.
31 December 31 December
UK Ireland USA 2021 UK Ireland USA 2020
£000 £000 £000
£000 £000 £000 £000 £000
UK NightHawk 29,762 - - 29,762 22,987 - - 22,987
UK Elective 17,292 - - 17,292 12,511 - - 12,511
Ireland - 9,665 9,665 - 1,316 - 1,316
Imaging core labs - - 5,194 5,194 - - - -
Revenue 47,054 9,665 5,194 61,913 35,498 1,316 - 36,814
Cost of sales (23,436) (4,758) (2,325) (30,519) (18,751) (611) - (19,362)
Gross profit 23,618 4,907 2,869 31,394 16,747 705 - 17,452
Operating expenses (13,750) (3,375) (2,191) (19,316) (11,958) (491) - (12,449)
Operating profit 9,868 1,532 678 12,078 4,789 214 - 5,003
Finance income - - - - 73 - - 73
Finance costs (261) (283) (6) (550) (309) (30) - (339)
Share of results of joint ventures (56) - - (56) - - - -
Profit before tax 9,551 1,249 672 11,472 4,553 184 - 4,737
Tax (1,625) (268) (186) (2,079) (830) (46) - (876)
Underlying profit for the period 7,926 981 486 9,393 3,723 138 - 3,861
Non-underlying loss for the period (3,926) (2,516)
Profit for the period 5,467 1,345
UK Ireland USA 31 December UK Ireland USA 31
2021
December
£000 £000 £000
£000 £000 £000 £000 2020
£000
Non-current assets (excluding deferred tax) 25,314 17,885 57,277 26,214 - 44,769
14,078 18,555
Additions to non-current assets 1,907 164 10,457 12,528 2,008 18,744 - 20,752
Total assets less current liabilities 36,651 11,061 11,828 59,540 40,853 12,224 - 53,077
Net assets 35,354 7,924 11,625 54,903 27,540 8,915 - 36,455
6 Operating profit
The operating profit and the profit before taxation are stated after:
2021 2020
£000 £000
Fees payable to the Company's auditor for the audit of the Company's annual 225 99
accounts
Fees payable to the Company's auditor for the audit of subsidiaries 56 -
Total audit fees 281 99
Audit related services:
Interim review 18 14
Total audit related services 18 14
Other assurance services:
Covenant compliance services 3 3
Total non-audit fees 21 17
Total fees paid to Company's auditor 302 116
Operating lease rentals - short term and 90 51
low value leases
Depreciation: property, plant and equipment - owned 1,241 1,259
Depreciation: property, plant and equipment - leased 431 190
Amortisation of intangible fixed assets on acquisition 2,225 1,010
Amortisation of intangible fixed assets on other assets 591 419
Analysis of expenses by nature
The breakdown by nature of cost of sales and operating expenses is as follows:
2021 2020
£000 £000
Amortisation of intangible assets (note 12) 2,816 1,429
Depreciation of property, plant and equipment (note 13) 1,672 1,449
Loss on disposal of tangible and intangible assets 55 219
Operating lease rentals - short term and low value leases 90 51
Staff costs 12,341 7,337
Auditors remuneration 302 116
Radiologist costs 25,181 18,795
Subcontractor costs 2,325 -
IT related costs 2,009 1,287
Other non-underlying items (note 7) 555 870
Other expenses 6,029 2,567
Total cost of sales and operating expenses 53,375 34,120
7 Non-underlying items
2021 2020
£000 £000
Write off of property, plant and equipment and other intangible assets - 219
Amortisation of acquired intangible assets 2,225 1,010
Foreign exchange gain on contingent consideration (173) -
Acquisition costs incurred 173 792
Share based payment charge 682 210
Social security costs on share based payment charge 78 -
One-off Legal and professional fees 555 78
Total non-underlying costs included within operating expenses 3,540 2,309
Costs incurred in respect of board succession and review - 324
Total non-underlying costs included within operating expenses and exceptional 3,540 2,633
items
Acquisition finance costs incurred - 30
Fair value adjustment on contingent consideration 593 -
Total non-underlying costs before tax 4,133 2,663
Income tax (207) (147)
Total non-underlying items after taxation 3,926 2,516
8 Tax expense
Major components of tax expense: 2021 2020
£000 £000
Current tax:
UK current tax expense 1,860 659
Adjustments in respect of prior years (24) 2
Foreign current tax expense 331 39
Total current tax 2,167 700
Deferred tax:
Originations and reversal of temporary differences (594) (142)
Adjustments in respect of prior years 13 60
Effect of rate change 286 111
Total deferred tax (295) 29
Tax expense on ordinary activities 1,872 729
Reconciliation of tax expense:
UK corporation tax is assessed on the profit on ordinary activities for the
year and is the same as (2020: same as) the standard rate of corporation tax
is as follows:
· UK 19% (2020: 19%).
· Ireland 12.5% (2020: 12.5%)
· USA (Federal & state) 26.7% (2020: N/A)
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 (2020: 19%).
The charge for the year can be reconciled to the loss per the income statement
as follows:
Reconciliation of effective tax rate: 2021 2020
£000 £000
Profit on ordinary activities before tax 7,339 2,074
Income tax using the Company's domestic tax rate 19% (2020: 19%) 1,394 394
Effect of:
Expenses not deductible for tax purposes 297 164
Prior year adjustment - current tax (24) 2
Prior year adjustment - deferred tax 13 60
Effect of tax rate change - deferred tax 286 111
Deferred tax not recognised (41) -
Impact of difference in overseas tax rates (53) (2)
Total tax charge for period 1,872 729
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. 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.
2021 2020
£000 £000
Profit for the year attributable to ordinary shareholders 5,467 1,345
Effects of exceptional items net of tax - 262
(see note 7)
Profit for the year before exceptional items attributable to ordinary 5,467 1,607
shareholders
Effects of non-underlying items net of tax 3,926 2,254
(see note 7)
Underlying profit for the period attributable to ordinary shareholders 9,393 3,861
Weighted average number of ordinary shares 119,912,604 111,211,038
Dilutive effect of share options 1,656,675 336,254
Weighted average number of ordinary shares 121,569,279 111,547,292
Basic profit per ordinary share (pence) 4.56p 1.21p
Diluted profit per ordinary share (pence) 4.50p 1.21p
Underlying basic profit per ordinary share (pence) 7.83p 3.47p
Underlying diluted profit per ordinary share (pence) 7.73p 3.46p
As at 31 December 2021 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 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 5,841,660 (2020: 4,617,310) options
outstanding of which 1,656,675 (2020: 336,254) 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 2021.
10 Dividends
2021 2020 2021 2020
pence per share pence per share £000 £000
Interim 2021 dividend paid (2020 interim dividend) 0.89 0.85 1,088 945
Final 2020 dividend paid (2019 final dividend: Nil¹) 1.7 nil¹ 2,079 -
3,167 945
¹ In light of the uncertainty surrounding the impact of COVID-19 the
Board chose not to propose a final dividend for FY19.
A final dividend for 2021 of £2.2m (1.79p per share) is proposed by the
Directors and will be paid on 22 July 2022 to shareholders on the register as
at 24 June 2022.
During the year ended 31 December 2021, dividends totalling £51k (2020:
£15k) were paid to persons discharging management responsibilities including
Directors
.
11 Goodwill
UK Ireland USA Total
£000 £000 £000 £000
Cost
At 31 December 2019(1) 15,948 - - 15,948
Additions (2) - 7,525 - 7,525
At 31 December 2020 15,948 7,525 - 23,473
Additions (see note 14)(3) - - 6,817 6,817
Foreign exchange - (76) 143 67
At 31 December 2021 15,948 7,449 6,960 30,357
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 on acquisition
attributable of £5,816k and £1,709k respectively.
3. US Cash Generating Unit - acquisition of RadMD LLC in March 2021
Goodwill is not amortised but tested annually for impairment. In previous
years a top-down methodology was used to compare the total value of the group
by reference to the market capitalisation plus debt (or less cash) to
determine a current Enterprise Value (EV) and this was then allocated on a
hierarchical basis to the two CGU's at 31 December 2020 (UK and Ireland).
Due to the more complex nature of the group at 31 December 2021 a bottom up
valuation methodology was adopted 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
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:
· WACC of 8.5% (UK), 13.8% (MDI and MV),11.4% (US) which was
determined to represent the best input for each CGU individually
· Baseline forecasts for FY 2022 and FY 2023 consistent with the
forecast model utilised in the going concern review (i.e., the scenario deemed
most likely).
· Additional forecasts to FY 2026 based on the board approved
5-year forecast plan
· Managements key assumption in the forecasts are:
o Ongoing Covid-19 recovery to pre-pandemic levels
o Underlying growth in demand for both elective and out of hours services to
tackle the material backlog in diagnostic procedures
o Expected contract renewals, pricing impacts and potential contract wins
and losses
o Continued decline in availability of GMC registered radiologists
o Continued growth in clinical trials and imaging reporting requirements
associated with such trials
o Inflationary impact on operating costs including employee costs
· Terminal Value calculated using the average of two methodologies:
o EV/EBITDA Multiples at exit based on multiples for each CGU at entry for
recently acquired CGU's and based on an assessment of comparator companies in
respect of the UK business.
o Growth perpetuity model using a 2.25% growth rate.
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 and therefore no indicators of impairment.
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 2022 to commence in early 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 £1,709k to goodwill and £3,492k
to intangible assets. See note 15 for further details.
Management is not currently aware of any reasonably possible changes to key
assumptions that would cause the carrying amount of any of CGUs to exceed
their recoverable amount.
12 Intangible assets
Customer Software Brand Total
relationships and £000 £000
£000 technology
£000
Cost
At 31 December 2019 6,461 6,220 2,317 14,998
Additions - 533 - 533
Transfer from tangible assets - 395 - 395
Disposals - (501) - (501)
Acquisitions through business combinations 10,708 - - 10,708
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
Amortisation
At 31 December 2019 2,874 3,969 771 7,614
Recategorisation from tangible assets - 296 - 296
Charge for the year 571 743 115 1,429
Eliminated in respect of disposals - (356) - (356)
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
Net book value
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 2019 3,587 2,251 1,546 7,384
At 31 December 2021 £493,000 (2020: £108,000) 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.
13 Property, plant and equipment
Leasehold property - right-of-use Leasehold Computer Medical equipment Total
assets improvements equipment £000 £000
£000 £000 £000
Cost
At 31 December 2019 719 - 8,020 - 8,739
Additions - business combinations 335 43 305 1,153 1,836
Additions - separately acquired - - 1,475 - 1,475
Transfer to intangible assets - - (395) - (395)
Disposals - - (1,382) - (1,382)
Foreign exchange (1) - (1) (3) (5)
At 31 December 2020 1,053 43 8,022 1,150 10,268
Additions - business combinations (note 14) 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
Depreciation and impairment
At 31 December 2019 107 - 4,849 - 4,956
Additions - business combinations 224 40 254 807 1,325
Transfer to intangible assets - - (296) - (296)
Charge for the year 158 - 1,261 30 1,449
Disposals - - (1,308) - (1,308)
Foreign exchange (1) - (1) (2) (4)
At 31 December 2020 488 40 4,759 835 6,122
Additions - business combinations (note 14) - - 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
Net book value
At 31 December 2021 987 2 3,339 193 4,521
At 31 December 2020 565 3 3,263 315 4,146
At 31 December 2019 612 - 3,171 - 3,783
All depreciation charges are included within administrative expenses in the
consolidated statement of comprehensive income.
2021 2020
£000 £000
Carrying amount of right-of-use assets included within:
Leasehold property 987 565
Medical equipment 96 269
Carrying value at 31 December 1,083 834
14 Business combinations
On 26 March 2021 the company subscribed for 100% of the ordinary share capital
of Medica US, Inc ("MUSI"), a newly incorporated holding company registered in
the United States of America, which subsequently acquired 100% of the ordinary
share capital of RadMD LLC. The company is incorporated in the United States
of America and their principal activities are the provision of high value
imaging expertise services in the Clinical Trials market referred to as iCRO
services. The acquisition opens opportunities for Medica to offer a wider
range of telemedicine services, expand its customer base to include
pharmaceutical, biotech and medical device companies, and provides foundations
for Medica in the US market.
Total cash consideration payable is up to USD $21.7m (circa £15.6m), subject
to customary working capital and other adjustments at completion of which
$16.3m (£11.8m) was payable at completion. On 17 July 2021 completion
accounts were agreed resulting in a working capital adjustment of $97k which
is receivable from the vendors. This has reduced the consideration by $97k
with an offsetting reduction in the net assets acquired of $97k. Further
working capital adjustments of $25k were identified subsequently which are due
to the vendors. The total of $72k (£53k) will be netted off against
contingent consideration payable in June 2022.
The exchange rate used on the date of acquisition was £1/$1.3778. Set out
below are the provisional fair values of the assets and liabilities acquired.
Fair value Fair value
$000 £000
Intangible assets 10,073 7,311
Property, plant and equipment 255 185
Trade and other receivables 1,644 1,194
Cash and cash equivalents 476 345
Total assets 12,448 9,035
Trade and other payables (1,335) (969)
Lease liabilities (255) (185)
Total liabilities (1,590) (1,154)
Net assets 10,858 7,881
Goodwill 9,392 6,817
Total consideration 20,250 14,698
Satisfied by:
Cash 16,222 11,774
Contingent consideration 4,028 2,924
Total 20,250 14,698
Goodwill
Goodwill arising on the business combination represents the excess of the
acquisition cost over the fair value of the Group's share of the identifiable
net assets of the subsidiary at the acquisition date. Goodwill includes
intangible assets that do not qualify for separate recognition such as the
value of the workforce at the date of acquisition, and encompass the future
economic benefit expected to arise from the acquisition including new customer
relationships and synergies realised by the group.
Acquired receivables
The fair value of acquired trade receivables of $1,604k (£1,164k) is
materially the same as the gross contractual receivable less the best estimate
of contractual cash flows not expected to be collected.
Contingent consideration
If certain pre-determined adjusted EBITDA levels were achieved by RadMD LLC
for the year ended 31 December 2021, additional consideration of up to $5,448k
is payable in the first half of 2022. At, 31 December 2021, a potential
undiscounted amount of $4,920k (£3,350k) additional consideration is expected
to be paid, subject to agreement with the vendors. See note 15 for further
details.
The Securities Purchase Agreement "SPA" was amended in relation to the 2022
earnout clause giving rise to additional consideration payable up to a maximum
of $330k if certain pre-determined 2022 EBITDA levels are achieved by RadMD
LLC. See note 15 for further details.
Contingent consideration is not dependant on the continued employment of the
vendors and therefore it has been recognised as consideration and not
remuneration.
Revenue and profit contribution
From the date of the acquisition to 31 December 2021 RadMD LLC contributed
£5,194k and £856k to the Group's revenues and underlying profit before tax,
respectively. If the acquisition had occurred on 1 January 2021 revenues would
have been £6,363k and underlying profit before tax would have been £682k. In
determining these amounts management have assumed that the deferred revenue
fair value adjustment on conversion to IFRS of £194k arising on acquisition
would have been the same had the acquisition occurred on 1 January 2021.
Acquisition-related costs
Costs related to the acquisition of RadMD amounted to £365k and have been
expensed recognised within non-underlying operating costs (see note 7). These
costs relate to financial and tax due diligence £170k, legal costs £146k and
other tax and accounting services £50k.
Global Diagnostics Ireland Limited
On 2 November 2020 the company acquired Global Diagnostics Ireland Limited.
Set out in note 15 are movements in the contingent consideration since 31
December 2020. Other than the movement in contingent consideration there have
been no changes to the fair values of the assets and liabilities acquired
which were disclosed at 31 December 2020 on a provisional basis which have now
been finalised.
15 Contingent consideration
Global Diagnostics Ireland Limited RadMD LLC
£000 £000
Total
£000
As at 1 January 2020 - - -
Acquired on acquisition 3,540 - 3,540
Foreign exchange (9) - (9)
As at 31 December 2020 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
Amounts due in less than one year 1,866 3,469 5,335
Amounts due in more than one year 1,364 189 1,553
Global Diagnostics Ireland Limited
During the period, 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 during the period relate to a decrease in the liability
relating to foreign exchange revaluation from Euros to GBP of £230k.
As at 31 December, £1,866k of the contingent consideration is payable during
2022 and therefore disclosed under current liabilities on the statement of
financial position. £1,650k of the balance, net of transaction bonuses of
£23k was paid in March 2022 on commencement of the VHI contract discussed in
the Delivery: Ireland section of the strategic report. Total amounts due in
more than one year of £1,364k are payable in the first half of 2023 and are
disclosed under non-current liabilities on the statement of financial
position.
RadMD LLC
On 26 March 2021, the Group acquired RadMD LLC recognising fair value
contingent consideration of £2,924k. Since acquisition there has been an
increase in the fair value estimate of contingent consideration of £664k.
£217k of this is 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 relates to a change in the SPA resulting in
additional contingent consideration based on 2022 EBITDA. £262k of the
movement relates to the fair value movement in relation to the unwinding of
the time value of money. As the events occurred after the acquisition date a
charge has been recognised in the income statement and not taken to goodwill.
Other movements include an increase in the liability relating to foreign
exchange revaluation from USD to GBP of £70k recognised in the foreign
exchange reserve.
£3,469k of contingent consideration is due to be settled in the first half of
2022 and is disclosed under current liabilities on the statement of financial
position. £189k is due to be settled in the first half of 2023 and disclosed
under non-current liabilities on the statement of financial position.
16 Equity
Ordinary share capital issued and fully paid
At 31 December 2021 At 31 December 2020
£000 £000
122,428,836 (2020: 111,279,650) ordinary shares of £0.002 each 245 223
Total ordinary share capital of the Company 245 223
Issue of share capital during the year
On 23 March 2021, 11,111,110 ordinary shares of 0.2p each were issued for cash
at £1.45 per share.
The below shares were issued on the exercise of SAYE options:
On 6 July 2021, 36,477 ordinary shares of 0.2p each were issued for cash at
par value.
On 7 October 2021, 1,066 ordinary shares of 0.2p each were issued for cash at
par value.
On 30 December 2021, 533 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
£15,552k was recognised in share premium on the issue of ordinary shares
during the period, net of £537k of transaction costs. £51k 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.
17 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 year
At 31 December 2021 At 31 December 2020
£000
£000
Reconciliation of underlying operating profit
Operating profit before exceptional items 8,538 2,694
Adjustments for:
Effects of amortisation of acquired intangibles 2,225 1,010
Effects of shared based payments 682 210
Social security costs on share based payment charge 78 -
Write off of property, plant and equipment and other intangible assets - 219
Foreign exchange adjustment on contingent consideration (173) -
Acquisition costs incurred 173 792
One-off legal and professional fees 555 78
Underlying operating profit 12,078 5,003
Underlying operating profit margin 19.5% 13.6%
Reconciliation of underlying profit before tax
Profit for the year 5,467 1,345
Adjustments for:
Non-underlying profits or losses net of tax (see note 7) 3,926 2,516
Underlying profit after tax 9,393 3,861
Income tax charge on underlying expenses 2,079 876
Underlying profit before tax 11,472 4,737
Reconciliation of net debt
Cash and equivalents 9,616 13,934
Borrowings due within one year (5,739) (5,881)
Borrowings due after one year - (11,960)
Net cash / (debt) 3,877 (3,907)
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