REG - Totally PLC - Final Results
10 July 2018
Totally plc
("Totally", "the Company" or "the Group")
Results for the 15-month period ended 31 March 2018
The Board of Totally (AIM: TLY), the provider of a range of out-of-hospital services to the healthcare sector in the UK, is pleased to announce its audited results for the 15-month period ended 31 March 2018.
Operational highlights
• Transformational acquisition of Vocare Limited, leading national specialist provider of urgent care services, in October 2017 as part of stated buy and build strategy
• Major structural and operational improvements since acquisition have led to greater efficiencies and higher standards of patient care, evidenced by results of Care Quality Commission ("CQC") inspections
• Continued work integrating the Group's four complementary subsidiary businesses, generating synergies across the Group
• About Health has retained all NHS contracts during the period whilst adding a number of significant new contracts
• Further new, renewed and extended contracts have been secured post period end across all subsidiary businesses
Financial highlights*
• Revenue £42.5m (12 months ended 31 Dec 2016: £4.0m)
• EBITDA £0.2m (12 months ended 31 Dec 2016: £1.2m loss)
• PBT £2.1m (12 months ended 31 Dec 2016: £1.5m loss)
• Cash of £10.2m as at 31 March 2018 (31 Dec 2016: £1.0m)
* Period under review includes impact of 5 months trading performance from Vocare since its acquisition in October 2017
Chairman's Statement
I am pleased to report a successful outcome for a period of 15 months with significant transformation following the acquisition of Vocare in October 2017. Turnover of £42.5m (2016: £4.0m) and EBITDA of £0.2m (2016: £1.2m loss).
Cash management was very strong and closed the period at £10.2m (2016: £1.0m) with very little cash needed for future earnout payments.
Vocare has provided the Group with a significant foothold into a wide range of NHS outsourced services, a market estimated at £20 billion. The provision of Urgent Care Centres into accident and emergency hospitals linked to GP out of hours' services provides the NHS with an opportunity to outsource these platform service offerings to a single service provider. The strategy is in line with all NHS outsourcing protocols.
The existing core businesses performed well with contract wins announced in all service sectors. The businesses integrated with Vocare and in turn bring both contract fulfilment and overhead savings. The integration of Vocare brought its challenges but more importantly a fantastic base for future profitable growth.
I look forward to bringing opportunities for future earnings enhancing acquisitions to build the Group further.
The Totally team are to be congratulated in what has been a period of significant change.
Bob Holt
Chairman
9 July 2018
Operational Review
2017/18 was a transformational period for Totally during which we completed the acquisition of Vocare and continued building upon the foundations which had already been laid to become a leading provider of 'out of hospital' healthcare.
Premier Physical Healthcare, Optimum Healthcare Solutions and Totally Health are working closely together to merge some of their clinical services, streamline support functions and provide a wider range of services to its commissioners and to the staff already working within Totally.
About Health retained all its NHS contracts during the reporting period and added some excellent new contracts to its portfolio. Exciting plans for expansion are nearing completion, all of which are expected to provide opportunities for growth going forward.
Vocare has provided the Group with a national platform from which to build upon and deliver our unique blend of services to patients efficiently and quickly when needed. Whilst the acquisition process for Vocare took longer than anticipated, we are delighted with the opportunities it now presents to the Group.
Our clinically led teams have supported major change in the overall approach to clinical governance and patient safety to ensure that healthcare regulators observe the positive changes made. Our team is supported better than ever to make the changes necessary to deliver first-class clinical services which meet patients' needs, in clinically safe environments by appropriately trained staff.
Major improvements have already been evidenced by the Care Quality Commission during their inspections. Of the current 22 registrations 3 have yet to be inspected. Of the 19 that have been inspected:
31 Oct 2017
30 Jun 2018
Good
11 (61%)
14 (74%)
Requires Improvement
5 (28%)
4 (21%)
Inadequate
2 (11%)
1 (5%)
Upon review of all of the contracts held by Vocare it became clear that the agreement with Somerset CCG for the delivery of GP Out of Hours had not been operated in a way that was ever going to allow Vocare to achieve the quality required within the financial constraints set. Therefore, the decision was made, and mutually agreed with the commissioner, to hand back this contract. Vocare continue to provide NHS 111 services and the Clinical Assessment Service to Somerset CCG.
Outlook
The Integrated Urgent Care Strategy published by NHS England during August 2017 provides exciting opportunities for Totally and all its subsidiaries. We intend to work together on the provision of innovative approaches to healthcare delivery to support the delivery of the care model described in that strategy.
New strategic partnerships have been established and new work secured along with renewed contracts which are all important for further growth.
The pipeline of new opportunities remains strong and each of these are reviewed by the Totally Business Development team to ensure business growth targets are achieved.
Work continues to ensure we develop cultures across the Totally Group which align with our aspirations to become the partner of choice for the NHS and an employer of choice for healthcare professionals. We are a people driven business and as such it is my personal ambition to ensure we do what we say we will do and deliver on our stated strategy.
None of the above would have been possible without the ongoing support of our shareholders, whom I would like to thank, along with the commitment of everyone who works within Totally plc.
The journey is very exciting for all of us and I look forward to updating everyone further during 2018 and beyond.
The opportunities for Totally to grow, both via organic acquisition and growth via acquisition, are evident and we are confident 2018/19 will allow us to continue our growth trajectory.
Wendy Lawrence
Chief Executive Officer
9 July 2018
Financial Review
The Group now has immense potential to enable patients quicker access to the right care whilst delivering shareholder returns as we continue to drive for a secure footprint of care across the UK.
Although taking longer than anticipated, the acquisition of Vocare completed during the final quarter of 2017. This acquisition occurred following a successful placing and open offer to raise £17.6m (before expenses) at 55p in March 2017.
The acquisition of a business delivering revenues of c£80m has clearly had a positive impact on the Group. The Group posted an EBITDA excluding exceptional costs of £0.2m.
31 Mar 2018
31 Dec 2016
Revenue
£42.5m
£4.0m
Gross profit
£7.0m
£1.4m
EBITDA
£0.2m
(£1.2m)
P/LBT
£2.1m
(£1.5m)
Net assets
£27.3m
£5.1m
Cash
£10.2m
£1.0m
The profit before tax of £2.1m is after an amortisation charge of £1.3m relating to the intangible value of contracts acquired during 2016 and this reporting period.
Exceptional items
£'000
Acquisition related costs
(1,176)
Gain on remeasurement of contingent consideration
6,466
Impairment of development costs
(739)
Other exceptional costs
(43)
4,508
Acquisition costs
The acquisition costs comprise legal, professional and other related expenditure and amounted to £1.2m (2016:£0.5m).
Contingent consideration
The subsidiaries are delivering steady growth; Optimum is now out of earn-out and accordingly the contingent consideration has been released. Premier Physical Healthcare is adapting in response to the changing contract conditions. Any Qualifying Provider (AQP) contracts are being replaced by block contracts which changes the way we receive income. AQP contracts mean no guaranteed activity, high competition and revenue is billed post-delivery. Block contracts, in contrast, allow the provider to be sole supplier of services and secure a monthly cash income of one twelfth of annual contracted activity. Premier Physical Healthcare is positioned well to secure a significant block contract for musculoskeletal care in 2019. It is this opportunity and the synergies being realised through integration with the Optimum physiotherapy resources that support margin growth. Meanwhile, About Health has renewed all existing contracts, successfully bid for new business, and is developing new service offerings which we expect to deliver incremental and recurrent profits during this financial year.
Premier Physical Healthcare
About Health
Optimum Sports Performance
Centre
Vocare
Total 2018
£000
£000
£000
£000
£000
At 1 January 2017
4,215
5,213
231
-
9,659
Additions
-
-
-
1,714
1,714
Paid in the period
(917)
(1,113)
(86)
(262)
(2,378)
Settled in ordinary shares
(231)
-
-
-
(231)
Outstanding loan notes*
(9)
-
-
-
(9)
Revaluation of contingent consideration
(2,405)
(2,897)
(164)
(1,000)
(6,466)
Discount unwind in the period
315
384
19
-
718
At 31 March 2018
968
1,587
-
452
3,007
Premier Physical Healthcare
About Health
Optimum Sports Performance
Centre
Vocare
Total
31 March 2018
Total
31 December 2016
£000
£000
£000
£000
£000
£000
Contingent consideration - current
-
-
-
452
452
1,641
Contingent consideration - non-current
968
1,587
-
-
2,555
8,018
968
1,587
-
452
3,007
9,659
*£62,000 of unsecured loan notes were issued in July 2017 and £53,000 were repaid in cash during the period. The loan notes have a maturity date of 17 July 2019.
The fair value of the contingent consideration has been assessed in accordance with the sale and purchase agreements and by reference to trading performance forecast in the remaining earn-out period. The non-current element of the expected settlement has been discounted using a pre-tax discount rate that reflects the time value of money of 3.5%.
Impairment
As at 31 March 2018 the Directors agreed to write off the development costs relating to the design and construction of the business to consumer service (B2C), My Clinical Coach. Whilst the opportunity for this digital platform and route to market still exists, it is considered prudent by the Board to impair the intangible asset to zero. The impairment charge of £739,000 has been recognised as an exceptional administrative expense in the consolidated statement of comprehensive income.
Acquisition of Vocare
On 24 October 2017, the Company acquired the entire share capital of Vocare Ltd and its wholly owned subsidiaries for a maximum consideration of £11.0m excluding surplus cash acquired. £1.0m of this consideration was contingent on meeting financial performance targets. These targets have not been achieved and accordingly the contingent consideration has been released in the period. Vocare is one of the leading UK specialist providers of urgent care services. The company was acquired as part of the Group's stated 'buy and build strategy' and to bring new and complementary routes to market for the existing healthcare services offered by the Group. Vocare's integrated urgent care services provide synergies with Totally's existing subsidiary businesses and complements its business model of providing preventative and responsive healthcare in 'out of hospital' settings to improve people's health, reduce NHS healthcare reliance, re-admissions and emergency admissions to hospital.
The assets and liabilities as at 24 October 2017 arising from the acquisition were as follows:
Carrying amount
Fair value adjustment
Fair value
£000
£000
£000
Property, plant and equipment
1,045
-
1,045
Computer software
590
-
590
Inventories
94
-
94
Trade receivables and other debtors
8,363
-
8,363
Cash in hand
11,816
-
11,816
Deferred tax assets
182
853
1,035
Trade and other payables
(20,273)
(5,018)
(25,291)
Net assets/(liabilities) acquired
1,817
(4,165)
(2,348)
Goodwill
15,226
Value of contracts
4,624
Total consideration
17,502
Satisfied by:
Cash
12,676
Ordinary shares issued
3,500
Contingent consideration
1,714
Consideration refunded after period end
(388)
17,502
Outflow of cash to acquire subsidiary, net of cash acquired
Cash consideration
12,676
Less: cash balances acquired
(11,816)
Net outflow of cash - investing activities
860
The goodwill is attributable to the knowledge and expertise of the workforce, the expectation of future contracts and the operating synergies that arise from the Group's strengthened market position. Any impairment charges will not be deductible for tax purposes.
Included in the fair value of Vocare, is a £5.0m provision for rectification costs to certain contracts and additional operational costs that existed at the time of acquisition. £2.1m of the provisions were utilised during the period, the remaining balance of £1.8m has been recognised in accruals within current liabilities and £1.1m in accruals within non-current liabilities.
Deferred tax of £0.9m has been recognised on the above provision.
From the date of acquisition, Vocare Limited contributed £33,377,000 of revenue and £785,000 to the Group's profit before tax from continuing operations. If the combination had taken place on 1 April 2017, revenue from continuing operations for the Group would have been £81,224,000 and the Group's profit before tax would have been £1,495,000. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same if the acquisition occurred on 1 April 2017.
The fair value of the 7,306,889 shares issued as part of the consideration paid for Vocare Limited (£3.5m) was based on the published share price on 24 October 2017 of 47.9 pence per share.
Acquisition related costs of £1,176,000 have been recognised as an exceptional administrative expense in the consolidated statement of comprehensive income.
As part of the purchase agreement with the previous owners of Vocare Limited, there were additional cash payments to the previous owners of Vocare Limited as follows:
a) £1,000,000, based on the entity's financial performance for the year ending 31 March 2018.
b) £714,000 for recoverability of employee advances. Employee advances amounting to £262,000 were recovered during the period and paid to the previous owners on 25 January 2018.
As at the acquisition date, the fair value of the contingent consideration was estimated to be £1,714,000. As at 31 March 2018, the key performance indicators of Vocare Limited indicate that the target has not been achieved. The fair value of the contingent consideration has been determined as £452,000 at 31 March 2018.
This is the remaining balance of the employee advances. The remeasurement credit has been recognised through profit or loss. The contingent consideration is classified as another financial liability and is disclosed separately in the Consolidated and Company Statements of Financial Position.
Reconciliation of fair value measurement of the contingent consideration liability is provided below:
£000
As at 1 January 2017
Earn out consideration
1,000
Contingent employee loan advances
714
Amount paid relating to employee loan advances
(262)
Revaluation of contingent consideration
(1,000)
As at 31 March 2018
452
Lisa Barter
Finance Director
9 July 2018
For further information please contact:
Totally plc
020 3866 3335
Wendy Lawrence, Chief Executive
Bob Holt, Chairman
Allenby Capital Limited (Nominated Adviser & Joint Corporate Broker)
020 3328 5656
Nick Athanas
Virginia Bull
Liz Kirchner
Cenkos Securities plc (Joint Corporate Broker)
020 7397 8900
Stephen Keys
Nick Searle
Yellow Jersey PR
0776 932 5254
Georgia Colkin
Joe Burgess
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 31 MARCH 2018
Continuing operations
15 Months to
31 March 2018
£000
12 Months
to 31 December 2016
£000
Revenue
42,535
3,977
Cost of sales
(35,510)
(2,600)
Gross profit
7,025
1,377
Administrative expenses
(6,800)
(2,516)
Employee benefit expense
(42)
(20)
Profit/(loss) before exceptional items
183
(1,159)
Exceptional items
4,508
(494)
Profit/(loss) before interest, tax and depreciation
Depreciation and amortisation
4,691
(1,863)
(1,653)
(669)
Operating profit/(loss)
2,828
(2,322)
Finance income
-
830
Finance costs
(719)
-
Profit/(loss) before taxation
2,109
(1,492)
Income tax
(312)
(24)
Profit/(loss) for the period/year attributable to the equity shareholders of the parent company
1,797
(1,516)
Other comprehensive income/(expense)
-
-
Total comprehensive profit/(loss) for the period/year net of tax attributable to the equity shareholders of the parent company
1,797
(1,516)
15 Months
12 Months
Earnings/(loss) per share
to 31 March
2018
Pence
to 31 December 2016
Pence
From continuing operations:
Basic
3.64
(8.44)
Diluted
3.60
(8.44)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 31 MARCH 2018
Share premium
Retained
Equity
shareholders'
Share capital
account
earnings
deficit
£000
£000
£000
£000
At 1 January 2016
3,055
4,534
(7,097)
492
Total comprehensive loss for the year attributable to owners of the parent
-
-
(1,516)
(1,516)
Issue of share capital
1,002
5,120
-
6,122
Credit on issue of warrants
Share premium cancellation
Deferred shares buy-back
-
-
(2,055)
-
(9,645)
-
25
9,645
2,055
25
-
-
At 1 January 2017
2,002
9
3,112
5,123
Total comprehensive profit for the period attributable to owners of the parent
-
-
1,797
1,797
Issue of share capital
3,977
16,399
-
20,376
Credit on issue of warrants and options
-
-
42
42
At 31 March 2018
5,979
16,408
4,951
27,338
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2018
31 March 2018
31 December 2016
£000
£000
£000
£000
Non-current assets
Intangible assets
31,262
12,669
Property, plant and equipment
Deferred tax
980
646
95
-
32,888
12,764
Current assets
Inventory
78
6
Trade and other receivables
9,706
2,047
Cash and cash equivalents
10,224
998
20,008
3,051
Total assets
52,896
15,815
Current liabilities
Trade and other payables
(21,450)
(922)
Deferred acquisition consideration falling due within one year
(452)
(1,641)
Borrowings
(6)
(62)
(21,908)
(2,625)
Non- current liabilities
Deferred acquisition consideration falling due after more than one year
(2,555)
(8,018)
Trade and other payables
(1,087)
(25)
Borrowings
(8)
(15)
Deferred tax
-
(9)
(3,650)
(8,067)
Total liabilities
(25,558)
(10,692)
Net current (liabilities)/assets
(1,900)
426
Net assets
27,338
5,123
Shareholders' equity
Called up share capital
5,979
2,002
Share premium account
16,408
9
Retained earnings
4,951
3,112
Equity shareholders' funds
27,338
5,123
These financial statements were approved by the Board of Directors on 9 July 2018 and were signed on its behalf by:
Wendy Lawrence Lisa Barter
Director Director
Totally plc
Company registration No: 3870101 (England and Wales)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31 MARCH 2018
31 March 2018
31 December 2016
£000
£000
Cash flows from operating activities
Profit/(loss) for the period/year
1,797
(1,516)
Adjustments for:
- Options and warrants charge
42
25
- Depreciation and amortisation
1,863
669
- Impairment of development costs
739
-
- Tax income recognised in profit or loss
312
24
- Finance income
-
(830)
- Finance costs
718
-
- Revaluation of contingent consideration
(6,466)
-
Movements in working capital:
- Inventories
22
-
- Movement in trade and other receivables
1,092
(503)
- Movement in trade and other payables
(3,321)
(25)
Cash generated from operations
(3,202)
(2,156)
- Income tax paid
(277)
(51)
Net cash flows from operating activities
(3,479)
(2,207)
Cash flow from investing activities
Purchase of property, plant and equipment
(193)
(34)
Additions of intangible assets
(427)
(495)
Acquisition of subsidiaries, net of cash acquired
(860)
(2,756)
Earn-out payment to subsidiaries
(2,378)
-
Accrued preference shares interest paid
(18)
-
Net cash flows from investing activities
(3,876)
(3,285)
Cash outflow before financing
(7,355)
(5,492)
Cash flow from financing activities
Issue of share capital, net
16,646
6,122
Borrowings/invoice discounting
(56)
19
Lease paid
(9)
(10)
Net cash flows from financing activities
16,581
6,131
Net increase in cash and cash equivalents
9,226
639
Cash and cash equivalents at beginning of period
998
359
Cash and cash equivalents at end of period
10,224
998
Notes to the Consolidated Financial Statements
For the 15 month period ended 31 March 2018
1. General information
Totally plc is a public limited company ("Company") incorporated in the United Kingdom under the Companies Act 2006 (registration number 3870101). The Company is domiciled in the United Kingdom and its registered address is Hamilton House, Mabledon Place, London WC1H 9BB. The Company's Ordinary Shares are traded on the AIM market of the London Stock Exchange ("AIM").
The Group's principal activities have been the provision of innovative and consolidatory solutions to the healthcare sector, which are provided by the Group's wholly owned subsidiaries, Totally Health Limited, Premier Physical Healthcare Limited, About Health Limited, Optimum Sports Performance Centre Limited and Vocare Limited.
On 30 October 2017 the Company changed its accounting reference date from 31 December to 31 March.
The Company's principal activity is to act as a holding company for its subsidiaries.
The financial statements for the period ended 31 March 2018 were authorised for issue by the Board of Directors and the Statements of financial position were signed on the Board's behalf by Wendy Lawrence and Lisa Barter on 9 July 2018.
2. Basis of preparation
The financial period represents the 455 days to 31 March 2018, and the prior financial year, 365 days to 31 December 2016. The consolidated financial statements have been prepared on the historical cost basis and are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report in the annual report and accounts. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Finance Director's Review in the annual report and accounts. In addition, the Directors' report in the annual report and accounts include the Company's and the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group has considerable financial resources together with long term contracts with a number of customers and suppliers across different geographic areas within the United Kingdom and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the above reasons.
3. Summary of significant accounting policies
Basis of consolidation
The Group's financial statements include the results of the Company and its subsidiaries, all of which are prepared up to the same date as the parent company.
Subsidiaries
Subsidiaries are all entities over which the Group has the ability to exercise control and are accounted for as subsidiaries. The trading results of subsidiaries acquired or disposed of during the period end are included in the income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions, balances, income and expenditure are eliminated on consolidation.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date irrespective of the extent of any non-controlling interest. The excess of cost of acquisition over the fair values of the Group's share of identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair value of identifiable net assets acquired (i.e. discount on acquisition) is recognised directly in the income statement. All acquisition expenses have been reported within the income statement immediately.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income.
Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used in line with those used by other members of the Group.
Revenue recognition
Revenue is generated by providing clinical health coaching, supporting shared decision making services, software solutions to the healthcare sector, physiotherapy, dermatology and urgent care services. Services are provided through short term and long term contracts.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes.
Clinical health coaching, supporting shared decision making services and software solutions to the healthcare sector
Profit is recognised on contracts, if the final outcome can be assessed with reasonable certainty, by including in the income statement revenue and related costs as contract activity progresses. Revenue is calculated as that proportion of total contract value which costs to date bear to total expected costs for that contract.
Physiotherapy and dermatology services
Revenue represents invoiced sales of services to regional Care Commissioning Groups of the National Health Service. Revenue is recognised in the month when the service is provided, as this is the point when revenue activity can be reliably measured. At this point there is a probable inflow of economic resources to the entity.
Urgent care services
Revenue is recognised as services are provided. Where a contract has only been partially completed at the balance sheet date, revenue represents the fair value of services provided to date based on the stage of completion of the contract activity at the balance sheet date.
Finance income
Finance income comprises of income related to the fair value adjustment of the contingent consideration. This fair value adjustment relates to the net present value of the contingent consideration discounted at 3.5%.
Finance costs
Finance costs comprise the unwinding of the fair value adjustment of the contingent consideration. This was originally discounted at 3.5%. It also includes interest payable on bank overdrafts and bank charges and these are recognised on an accruals basis.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and any recognised impairment in value. Cost comprises the aggregate amount paid to acquire assets and includes costs directly attributable to making the asset capable of operating as intended.
Depreciation is calculated to write down the cost of the assets to their residual values by equal instalments over the estimated useful economic lives as follows:
Motor vehicles
-
3 and 5 years
Computer equipment
-
2 and 5 years
Fixtures and fittings
-
2 to 10 years
Freehold property improvements
-
3 to 10 years
The assets' residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate on an annual basis. An asset is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the period that the asset is derecognised.
Inventories
Inventories are valued at the lower of cost and net realisable value. In general cost is determined on a first in first out basis and includes all direct expenditure and production overheads based on a normal level of activity. Net realisable value is the price at which the stocks can be sold in the normal course of business after allowing for the costs of realisation and where appropriate for the costs of conversion from its existing state to a finished condition.
Goodwill
Goodwill represents the excess of the fair value of the consideration of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is considered to have an indefinite useful life. Goodwill is tested for impairment annually and again whenever indicators of impairment are detected and is carried at cost less any provision for impairment.
Impairment of non-current assets - goodwill
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (CGUs) or groups of CGUs that is expected to benefit from the synergies of the combination. These comprise urgent care and non-urgent care segments and at 31 March 2018 the goodwill allocated to each amounted to £15.226 million and £11.337 million respectively.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.
The value of the goodwill was tested for impairment during the current financial year by means of comparing the recoverable amount of each CGU or group of CGUs with the carrying value of its goodwill.
The calculation of the CGUs value in use is calculated on the cash flows expected to be generated using the latest budget and forecast data. Estimates of sales and costs are based on past experience and expectations of future changes in the market.
Board approved cash flow projections for five years are used and then extrapolated out assuming flat cash flows and discounted at a pre-tax rate of 12 per cent (2017: 3.5 per cent) over a five-year period and then into perpetuity.
Based on the operating performance of the CGUs, an impairment of goodwill of £nil was identified in the current financial year (2017: £nil). The valuations indicate sufficient headroom such that a reasonably possible change to key assumptions would not result in any impairment of goodwill. Sensitivity analysis on the impairment tests for each group of CGU to which goodwill has been allocated has been performed. Management are satisfied that there are no changes to assumptions that would lead to impairment.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Intangible assets other than goodwill - research and development and value of contacts acquired
An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. Such intangible assets are carried at cost less amortisation. Amortisation is charged to 'Administrative expenses' in the Statement of Comprehensive Income on a straight-line basis over the intangible assets' useful economic life.
The amortisation period is typically 1 to 5 years depending on the life of the related asset.
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Development expenditure is capitalised only if all of the following conditions are met:
· development costs can be measured reliably;
· the project is technically and commercially feasible;
· future economic benefits are probable; and
· the Group has sufficient resources available to complete development and use the asset.
The expenditure capitalised includes only (i) the cost of gross direct labour that is directly attributable to preparing the asset for its intended use or (ii) third party costs incurred directly on the development activities above. The Group estimates the proportion of salaries cost that is directly attributable in respect of development costs.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Other research and development expenditure not meeting the above criteria is recognised in the income statement as incurred.
Computer software is measured at cost less accumulated amortisation and accumulated impairment losses. Computer software is amortised over a period of 3 to 4 years straight line.
Intangible Value of Contracts is the discounted expected profitability of contracts acquired on acquisition. The value of these contracts is based on Gross Profit and directly attributable overheads. The contract values are amortised on a straight line basis over the life of the contracts, up to 5 years.
Impairment of non-current assets - other assets
At each balance sheet date, the Group reviews amounts of its intangible fixed assets and property, plant and equipment to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset, which is the higher of its fair value less costs to sell and its value in use, is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit ("CGU") to which the asset belongs. For non-current assets excluding goodwill, the CGU is deemed to be cash generating asset or the trading company whichever is the smaller CGU. For goodwill, the CGU is deemed to be the business acquired.
As a further check, we compare our market capitalisation to the book value of our net assets. Currently the market capitalisation is below the book value of the net assets, but we consider as a board, that the market currently undervalues the Company due to the immaturity of the NHS outsourcing of these type of services and the transformation of the Group.
An impairment charge is recognised in the income statement in the period in which it occurs. Where an impairment loss subsequently reverses due to a change in its original estimate, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods.
Trade and other receivables
Trade receivables, which are generally received by the end of month following terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. Provision is made when it is likely that the balance will not be recovered in full. Balances are written off when the probability of recovery is considered remote.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and short-term deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of cash management are included as components of cash and cash equivalents for the purposes of the cash flow statement.
Trade and other payables
Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are recognised at original cost.
Borrowings
Borrowings are initially recognised at fair value, being proceeds received less directly attributable transaction costs incurred. Borrowings are subsequently measured at amortised cost with any transaction costs amortised to the income statement over the period of the borrowings using the effective inters method.
Foreign currencies transactions
Transactions denominated in foreign currencies are translated at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the period end are translated at the exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.
Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases.
The Group has a short lease on its premises. This is accounted for as an 'operating lease' and the rental charges are charged to the income statement on a straight line basis over the life of the lease. Other operating leases are treated in the same manner.
Exceptional items
Exceptional items are those items that, in the Directors' view, are required to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance.
Share-based payments
The Group provides benefits to employees (including Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions'). The fair value of the employee services rendered is determined by reference to the fair value of the shares awarded or options granted, excluding the impact of any non-market vesting conditions. All share options are valued using an option-pricing model (Black-Scholes). This fair value is charged to the income statement over the vesting period of the share-based payment scheme, with the corresponding increase in equity.
The value of the charge is adjusted in the income statement over the remainder of the vesting period to reflect expected and actual levels of options vesting, with the corresponding adjustment made in equity.
Income taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered or paid to the taxation authorities based on tax rates and laws that are enacted or substantively enacted by the period end date. Deferred income tax is recognised using the balance sheet liability method, providing for temporary differences between the tax bases and the accounting bases of assets and liabilities. Deferred income tax is calculated on an undiscounted basis at the tax rates that are expected to apply in the period when the liability is settled and the asset is realised, based on tax rates and laws enacted or substantively enacted at the period end date.
Deferred income tax liabilities are recognised for all temporary differences, except for an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
Deferred income tax is charged or credited to the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity. Deferred income tax assets and liabilities are offset against each other only when the Company has a legally enforceable right to do so.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilised.
Retirement benefits
The Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the company pays fixed contribution into a separate entity. Contributions payable to the plan are charged to the income statement in the period to which they relate. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Significant accounting judgements, estimates and assumptions
The preparation of financial statements in conformity with IFRSs requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those which are significant to the Group are discussed separately below:
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:
Aggregation of operating segments
Management has determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision Maker for the Group) to make operational decisions on the management of the Group. Following the acquisition of Vocare in October 2017, two operating segments were identified as follows:
• Urgent care
• Other
Management has considered the economic characteristics, similarity of services, customers, sales methods and regulatory environment of its non urgent care services. In doing so it has been concluded that they should be aggregated into one 'Other' segment in the financial statements. This aggregated information provides users the financial information needed to evaluate the business and the environment in which it operates.
Estimates and assumptions
The Group makes judgements, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The resulting accounting estimates calculated using these judgements and assumptions will, by definition, seldom equal the related actual results but are based on historical experience and expectations of future events. The Group's estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision effects both current and future periods.
The estimates and assumptions that have a significant effect on the amounts recognised in the financial statements are as follows:
As detailed in note 19, provisions have been made in respect of rectification costs required for the acquisition during the period. These provisions are based on actual costs incurred after the acquisition date as well as expected future costs after the period end.
Estimates for provisions in relation to clawback of revenue from contracted services have been made based on actual activity against key performance indicator requirements. These amounts can be subject to negotiation. Provisions of £2.5m have been recognised at 31 March 2018.
The estimates in relation to future cash flows and discount rates utilised in the impairment testing of intangible and tangible fixed assets.
Those related to establishing depreciation and amortisation periods.
The Group has estimated the proportion of salaries directly attributable to development costs, which were capitalised during the 15 months period to 31 March 2018 and 12 months to 31 December 2016.
Assessing recoverability of trade receivables and making related provisions where considered necessary. Trade receivables are detailed in note 16 of the financial statements.
The Directors consider actual amounts will not be materially different to estimates made.
Amendments to IFRSs that are mandatorily effective for annual periods beginning on or after 1 January 2017
On 1 January 2017 the Group adopted the following new accounting policies to comply with amendments to IFRS, none of which has had any significant impact on the amounts reported in the financial statements.
• Amendments to IAS 7 Disclosure Initiative;
• Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses; and
• Amendments to IFRS 12 included in Annual Improvements to IFRS Standards 2014-2016 Cycle.
New and revised IFRSs issued that are not mandatorily effective (but allow early application) for the period ending 31 March 2018
Below is a list of new and revised IFRSs that are not yet mandatorily effective (but allow early application) for the period ending 31 March 2018:
• IFRS 9 Financial Instruments;1
• IFRS 15 Revenue from Contracts with Customers and the related Clarifications;1
• IFRS 16 Leases;2
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions;1
• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture;3
• Amendments to IAS 40 Transfers of Investment Property;1
• Annual Improvements to IFRS Standards 2014-2016 Cycle;1
• IFRIC 22 Foreign Currency Transactions and Advance Consideration.1
• Amendments resulting from Annual Improvements 2015-2017 Cycle (remeasurement of previously held interest2
• IFRS 9 Amendments regarding prepayment features with negative compensation and modifications of financial liabilities.2
• IAS 19 Employee Benefits Amendments regarding plan amendments, curtailments or settlements.2
• IAS 28 Investments in Associates and Joint Ventures Amendments regarding long-term interests in associates and joint ventures.2
• IFRS 3 Business combinations - Amendments resulting from Annual Improvements 2015-2017 Cycle (remeasurement of previously held interest).2
• IAS 12 Income Taxes - Amendments resulting from Annual Improvements 2015-2017 Cycle (income tax consequences of dividends).2
1 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.
2 Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted.
3 Effective for annual period beginning on or after a date to be determined.
The Group will adopt the new requirements when effective. The only new standard or amendment
expected to have a material impact on the amounts reported in the financial statements is IFRS 16 Leases.
IFRS 16 introduces significant changes to lessee accounting: it removes the distinction between operating and finance leases under IAS 17 and requires a lessee to recognise a right-of-use asset and a lease liability at lease commencement for all leases, except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.
If a lessee elects not to apply the general requirements of IFRS 16 to short-term leases (i.e. one that does not include a purchase option and has a lease term at commencement date of 12 months or less) and leases of low value assets, the lessee should recognise the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis, similar to the current accounting for operating leases.
As at 31 March 2018, the Group has non-cancellable operating lease commitments of £5,201,000. IAS 17 does not require the recognition of any right-of- use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments in note 25. A preliminary assessment Indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of IFRS 16. The new requirement to recognise a right-of-use asset and a related lease liability is expected to have a significant impact on the amounts recognised in the Group's consolidated financial statements and the Directors are currently assessing its potential impact. It is not practicable to provide a reasonable estimate of the financial effect until the Directors complete the review.
4. Earnings per share
Earnings per share
15 months to
31 March 2018
12 months to
31 December 2016
Weighted average number of shares used in basic earnings per share calculations (continuing operations) (000)
49,356
17,973
Potentially dilutive share options and contingent share consideration
592
-
Weighted average number of shares used in diluted earnings per share calculations (continuing operations) (000)
49,948
17,973
Basic and diluted earnings/(loss) (continuing operations) (£000)
1,797
(1,516)
Basic earnings/(loss) per share (continuing operations) (Pence)
3.64
(8.44)
Diluted earnings/(loss) per share (continuing operations) (Pence)
3.60
(8.44)
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period/year. Diluted earnings/ (loss) per share takes into account the effect of share options in issue.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR LFFVLDFIAIIT
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