Financial Review

Consort Medical delivered strong financial performance in the year with the organic revenue growth translating strongly into growth in operating margin, EBITDA and adjusted EPS.

Photography inset:Richard Cotton

Consort Medical delivered strong financial performance in the year, with the organic revenue growth translating strongly into growth in operating margin, EBITDA and adjusted EPS. As expected, the year saw significant investment for future growth as expected, with expanded capital expenditure to facilitate major development programmes, including the DEV200 Nicoventures programme, and further expansion of our Innovation Team resources in Cambridge. We expect further significant investment in the coming months to complete the Nicoventures investment; provide the additional plant and equipment to facilitate the DEV610 commercial supply; and the extension of the Chiesi NEXThaler® contract. These commitments can be met comfortably from the Group's existing financial resources.

Income Statement1

Revenue grew 5.2% to £100.0m (FY2013: £95.0m). Operating profit before special items increased by £0.7m (4.0%) to £18.8m (FY2013: £18.1m). Profit before tax before special items increased by £1.6m (10.1%) to £17.5m (FY2013: £15.9m). Profit before tax after special items increased by £1.7m (12.1%) to £16.1m (FY2013: £14.4m). Profit after tax before special items increased by £1.1m (8.9%) to £13.9m (FY2013: £12.8m).

Adjusted EPS increased by 8.5% to 48.3p per share (FY2013: 44.5p). Basic EPS increased by 25.1% to 47.4p per share (FY2013: 37.9p).



Adjusted earnings per share


Profit before tax and specials


Revenue by product type 2014 (%)

Revenue by product type 2014

Revenue by product type 2013 (%)

Revenue by product type 2013


The tax charge before special items was £3.6m resulting in an effective rate of 20.6% (FY2013: 19.7%), as set out in note 10 to the financial statements. The tax credit on special items was £1.1m (FY2013: tax charge £0.4m). The total tax charge was £2.5m (FY2013: £3.5m).

In the year legislation was enacted to allow UK companies to elect for the Research and Development Expenditure Credit (RDEC) on qualifying expenditure incurred since 1 April 2013, instead of the existing super-deduction rules. The Group elected to adopt the RDEC regime and an R&D tax credit of £0.3m was realised through EBIT in the period.

The Group is evaluating the provisions of the UK Government's Patent Box regime and its potential applicability to the Bespak business and, as a result of the uncertainty that exists, has not currently assumed any benefit that may arise.

1 Financial performance metrics relate to continuing operations unless stated otherwise.


The Board is proposing a final dividend per share of 13.35p (FY2013: 12.71p) such that the total dividend for the period amounts to 20.70p (FY2013: 19.71p) as set out in note 12 to the financial statements. The final dividend will be paid on 24 October 2014 to shareholders on the register on 19 September 2014. Dividend cover, based on earnings before special items, was 2.35 times (FY2013: 2.8 times).

Special Items from Continuing Operations

Special items from continuing operations of £0.3m include £0.8m of amortisation of intangible assets created on the acquisition of The Medical House in 2009 and £0.6m of acquisition related expenses offset by a related tax credit of £1.1m. The application of the lower tax rate to deferred tax liabilities (23% to 20%) creates a £0.9 million credit in tax treated as special. See note 6 to the financial statements.

Discontinued Operations

On 15 February 2013, Consort Medical completed the sale of King Systems to Ambu A/S, the results of which are reported within discontinued operations. At the time of sale, contingent consideration mechanisms were agreed as a central element of the value realisation from the disposal. The first of these was a £5.9m (US$10.0m) lump sum payment upon the launch of the King Vision next generation blade. This was received in May 2014 following successful product launch. A further US$2.3m expected was received on 4 June 2014 representing the amount due in respect of the FY2014 King Vision sales.

At 30 April 2014 the contingent consideration had a fair value of £11.2m as described in note 26. The special item in discontinued operations in the Income Statement of £0.7m represents the movement in fair value of this receivable of £0.5m due to foreign exchange, the re-phasing of sales assumptions partially offset by unwinding of the discount, and share-based payment charges of £0.2m.

In the prior year the Group reported revenue from discontinued operations of £34.5m and profit before tax and special items from discontinued operations of £3.4m reflecting the trading results of King Systems prior to disposal.

Investment in Atlas Genetics Ltd

In April 2014, the Group made a further investment of £0.4m in Atlas Genetics Ltd. This was the third tranche of the funding. The Group previously invested £1.2m in February 2011, £1.4m in July 2011 and £1.1m in July 2013. The Group's total investment to date now stands at £4.1m as set out in note 16 to the financial statements. The Group now holds 17.4% of the equity, or 15.5% on a fully diluted basis. The other equity partners include Novartis Venture Funds, Johnson & Johnson Development Corporation, Life Science Partners and BB Biotech Ventures.

Substantial progress has been made in the last year in the Point-of-Care card development — in conjunction with Bespak — and with the development of the card reader and assay tests.

Bespak has retained its long-term manufacturing rights to the disposable card used in the Atlas system and continues with an arm's length development contract to design for manufacture and scale up production of the disposable card. The Group will continue to account for Atlas as an equity investment in the accounts of Consort Medical.

Inorganic Investment

Following the sale of King Systems in February 2013, the Group has significant cash resources available to invest in relevant and value enhancing investments and acquisitions. Such acquisitions would be appraised against strict criteria for closeness of strategic fit, availability, integration, valuation and the potential for value-creation.

Balance Sheet

The Group continues to have significant available cash resources with year-end net cash at £25.8m (FY2013: net cash £37.0m), with headroom of £73.3m under its undrawn banking facility, and a further £25.0m available under the accordion facility. Gross assets were £143.7m (FY2013: £142.5m). The pension deficit decreased to £2.1m (FY2013: £11.8m) and is reviewed separately below. Provisions fell from £2.6m at the beginning of the period to £2.4m at 30 April 2014 following the Group's exit from its onerous property lease as described in note 6, net of an increase in Employee Benefit provisions for share based payments.

Cash Flow, Financing and Liquidity2

Cash generated from operations decreased by £5.8m to £19.2m (FY2013: £25.0m). EBITDA before special items increased by £0.4m (2.0%) to £24.4m (FY2013: £23.9m). Working capital3 increased by £4.0m to £24.1m (FY2013: £20.1m) mainly due to lower capital expenditure creditors related to timing of major programme investments.

Capital expenditure of £16.3m (FY2013: £6.9m) was higher than the previous year as major programme investments were commissioned and installed. The ongoing investment required for this programme and the DEV610 programme can be met comfortably from the Group's existing financial resources.

The Group's principal bank facilities continue to be with the Royal Bank of Scotland (RBS) and HSBC in the form of two revolving credit facilities (RCFs). The first RCF is for US$56m (undrawn at 30 April 2014) and the second RCF is for £40m (also undrawn at 30 April 2014). These facilities total £73.3m and will both expire in November 2016. Margins are between 2–3% over LIBOR depending upon the ratio of net debt to EBITDA prevailing at the time. A non-utilisation fee of 40% of the interest margin on the undrawn balance applies.

Under the terms of the refinancing, the Group also has a £25m "accordion" facility, by which further facilities may be made available by RBS and HSBC under the current terms to support significant investment or acquisition opportunities which may arise.

The Group maintains levels of sterling cash sufficient to meet imminent obligations and to be a reserve in case of an adverse event. These funds are invested with a range of reputable financial institutions approved by the Board.

Group cash flow


2 Cash flow performance metrics relate to continuing operations only and are before any cash paid relating to special items.

3 Working capital is defined as the total of inventory, trade and other receivables and trade and other payables.

Revenue by customer 2014 (%)

Revenue by customer 2014

Revenue by customer 2013 (%)

Revenue by customer 2013

With net cash on the balance sheet, the Group clearly remains comfortably within both its headroom and its covenants. Taking into account the cash balances available, the total headroom at the period end was £99.1m (FY2013: £113.0m).

Foreign Currency Exposure

The Group monitors its foreign currency exposures carefully and seeks to mitigate all material transactional exposures. The Group currently has low exposure to movements in the Euro and US dollar movements. Where necessary we buy or sell forward currency to protect current period transactions.

Pension Scheme

Bespak operates a defined benefit pension scheme in the UK that is closed to new employees, who are eligible to join a defined contribution pension scheme (see note 21 to the financial statements).

As at 30 April 2014, the IAS19 deficit was £2.1m compared with £11.8m as at 30 April 2013. The movement was primarily as a result of favourable movements in discount rates and a review of other assumptions.

The Group completed its last triennial actuarial revaluation of the pension scheme as at 30 April 2011, at which point the pension scheme was in a small actuarial surplus. The next triennial actuarial valuation takes place as at 30 April 2014 and is currently in progress. Since the last triennial valuation in 2011, prevailing discount rates have worsened, and it is expected that the revaluation may have worsened on this basis.

Risk Management

The Group considers effective risk management to be a high priority. Specific risk management activities are reviewed in the Principal Risks & Uncertainties section. We are pleased to report that the Group incurred no material financial or business losses despite the riskier economic and business environment.

Richard Cotton
Chief Financial Officer