EMIS.L Regulatory News (EMIS)

1 September 2017

EMIS Group plc

("EMIS Group" or "the Group")

Half year results for the six months ended 30 June 2017

EMIS Group plc (AIM: EMIS.L), the UK leader in connected healthcare software and services, today announces its unaudited results for the six months ended 30 June 2017.

Financial highlights

1 Excludes exceptional items, the capitalisation and amortisation of development costs, and the amortisation of acquired intangibles. Earnings per share calculations also adjust for the related tax and non-controlling interest impact. The exceptional item excluded in 2017 H1 relates to a £2.5m charge in respect of the Group's reorganisation programme (2016 H1: £2.2m).

2 Stated after deduction of the cash impact of exceptional items of £2.7m (2016 H1: £1.8m) and of capitalised development costs of £2.1m (2016 H1: £2.9m).

Operational highlights - H1 results in line with the Board's expectations

· Continued growth in recurring revenue, with profit progress held back by investment in future growth opportunities

· Strong market share positions maintained across the Group

· Internal reorganisation plan ongoing

· Good revenue visibility and order book, and a developing pipeline

Primary, Community & Acute Care - solid financial performance

· Market leading position within the UK primary care market maintained with 56% market share (31 December 2016: 55%)

· EMIS Web primary care roll-out programme progressing as planned in Northern Ireland

· Engaged in procurement in Scotland and Wales primary care

· Further increase in Child, Community & Mental Health (CCMH) market share to 18% (31 December 2016: 16%)

· Overall NHS funding pressure continues, with specific challenges in Acute Care

Community Pharmacy - profitability and market share maintained

· Market leading 37% share of the combined supermarket and independent market maintained (31 December 2016: 37%)

· 284 sites live at the end of the period on ProScript Connect, the Group's next generation pharmacy dispensary management product

· Celesio contract roll-out beginning in H2 2017 through to 2019, adding significant momentum and market share gain

Specialist & Care - improving performance in line with expectations

· Specialist & Care successfully implemented five new contracts, increasing services market share to 26% (31 December 2016: 18%)

· Results affected by contract implementation costs but operational focus expected to drive improved financial performance in 2018

Patient - investment progressing

· Investment in enhanced online user experience progressing well, with website upgraded in August 2017

· New management team now in place

· Continued investment in technology upgrades over the coming period

Current trading & outlook - in line with the Board's expectations

· 84% recurring revenue supports strong visibility

· Internal reorganisation measures expected to benefit second half performance

· Positive long-term growth opportunities despite challenging market environment

Andy Thorburn, Chief Executive Officer of EMIS Group, said:

"EMIS Group has again reported a solid underlying financial performance in the first half, despite a challenging political and economic environment for the NHS. The Board's outlook for the full year remains unchanged, with strong recurring revenues, growing market shares, a good order book and a developing pipeline.

"The extensive work already undertaken to reorganise the business, bringing together Primary Care, CCMH and Acute Care, has improved efficiency and better aligned the Group and its customers. Further planned reorganisation in the second half of the year will drive greater internal accountability and consolidate the financial performance benefits of the restructuring."

There will be an analyst meeting today at 9.30am at Numis Securities, 10 Paternoster Square, London EC4M 7LT. Please contact Charlie Barker at MHP Communications on 0203 128 8540, emis@mhpc.com, for details.

Enquiries:

For further information, contact:

EMIS Group plc Tel: 0113 380 3000

Andy Thorburn, CEO

Peter Southby, CFO

www.emisgroupplc.com

@EMISGroup

Numis Securities Limited (Nominated Adviser & Broker) Tel: 020 7260 1000

Oliver Hardy/Simon Willis/James Black

MHP Communications Tel: 020 3128 8540

Reg Hoare/Giles Robinson/Charlie Barker

emis@mhpc.com

Notes to Editors

EMIS Group is the UK leader in connected healthcare software and services. Its solutions are widely used across every major UK healthcare setting from primary, community & acute care, to high street pharmacies and specialist care services. EMIS Group helps healthcare professionals in over 10,000 organisations share vital information, facilitating better, more efficient healthcare and supporting longer and healthier lives.

EMIS Group serves the following healthcare markets under the EMIS Health brand:

• Primary, Community & Acute Care, as the UK leader in clinical management systems for healthcare providers and commissioners. EMIS Health products, including the flagship EMIS Web, hold over 40 million patient records and are used by more than 100,000 professionals in nearly 6,000 healthcare organisations.

• Community Pharmacy, with the UK's single most used integrated community pharmacy and retail system.

• Specialist Care, as England's leading provider of diabetic eye screening software and other ophthalmology-related solutions.

These markets are also supported by other EMIS Group businesses:

• under the Patient brand, the UK's leading independent provider of patient-centric medical and wellbeing information and related transactional services.

• under the Egton brand, providing specialist ICT infrastructure, hardware and engineering services, and non-clinical software into health and social care.

• under the EMIS Care brand, providing healthcare screening programmes such as diabetic eye screening.

CHIEF EXECUTIVE OFFICER'S OVERVIEW

The half year results were in line with the Board's expectations as the Group continued to benefit from growing recurring revenue, strong market shares, a good order book and a developing pipeline. This was achieved despite the uncertainty created by the General Election and the ongoing slower rate of contract awards in larger NHS procurements. The Group's previously announced internal reorganisation programme has been expanded, with the cost-savings from the programme providing benefit from the second half onwards.

NHS England has been progressing the 44 locally based Sustainability and Transformation Partnerships (STPs) announced last year to transform healthcare services, bringing together NHS and local authorities around the needs of local people. These have been underpinned by Local Digital Roadmaps to merge health and social care records across the STP areas. While funding challenges and political events have delayed IT investment by STPs, EMIS Group continues to work with key STPs and remains confident that its integrated healthcare technology will be an attractive proposition in this emerging market.

In June 2017, Simon Stevens (Chief Executive of NHS England) announced funding of up to £450m over four years to support, initially, eight localities (STPs or parts of STPs) to create Accountable Care Systems. These will provide joined-up and better coordinated care, breaking down the barriers between GPs and hospitals, between physical and mental healthcare, and between social care and the NHS, controlled through a unitary budget. In anticipation of this, EMIS Group has been investing in its integrated and interoperable EMIS Web platform to underpin these new models of care. EMIS Health is already embedded in many of these localities as the provider of primary care, community, acute and community pharmacy solutions.

Since becoming CEO in May 2017, I continue to be encouraged by the dedication of our people to delivering ever better digital technology and patient information. I believe this commitment and the existing strong market shares we have achieved provide a firm base for the Group to generate good levels of organic growth to complement selected acquisitions in the years ahead.

OPERATIONAL REVIEW

A leading provider of connected UK healthcare software and services, EMIS Group has again maintained or grown its strong market shares across healthcare, further aligning the Group with the NHS's ongoing connected care strategy in the UK.

In furthering that ambition, the Group has been reshaping itself internally to anticipate the NHS's sharing of back-office functions and the acceleration in the creation of 'new models of care'. In particular, the Group's Primary, Community and Acute Care businesses have come together under common leadership in 2017. While this and other organisational changes now underway have resulted in a number of colleagues leaving the business, the Group is now leaner and better-focussed on delivering effective results for its key customers and markets.

The Group's increasing capacity to pool resources was a major factor in its strongly supportive response to the NHS cyber attack in May. While EMIS Web remained available to customers and no internal systems were compromised in the incident, many staff worked over the weekend and long hours in the following days to give customers the support they needed to get them back up and running as quickly as possible across all parts of the NHS.

Primary, Community & Acute Care - revenue down 3%, adjusted operating profit up 5%

EMIS Health - Primary Care (EHPC)

The Group delivered another solid performance in EHPC despite a tightening of some discretionary revenue streams available under the GP Systems of Choice (GPSoC) framework in England following the commencement of the latest two-year call off period on 1 January 2017. EHPC's UK market share increased slightly to 56% (31 December 2016: 55%), demonstrating continued customer loyalty, with almost three-quarters of the Group's English GP practices having been EMIS Health users for over a decade. The number of Clinical Commissioning Groups (CCGs) using EMIS Web exclusively in all GP practices in their area rose to 57 (over a quarter of all CCGs) by the end of the period, providing the platform for local health organisations to share primary care and other healthcare data with one another in a seamless way.

In Northern Ireland, the implementation of EMIS Web for primary care is progressing well with 23 practices live at the end of the period. In Scotland, the formal process for the procurement of EMIS Web has now begun. In Wales, discussions are ongoing for renewal of the primary care framework agreement, with the current call off periods expiring in 2019 and 2020.

EMIS Health - Child, Community & Mental Health (CCMH)

The Group's CCMH team again grew its market share to 18% (31 December 2016: 16%) despite there being fewer procurements in the period, securing two new contracts during the first half while implementing a number of new contracts won in 2016. The pipeline of CCMH opportunities continues to develop and the Group is confident of securing further market share gains.

Of the 57 CCGs where EMIS Health is the sole supplier in primary care, 40 are areas where EMIS Health also has a strong presence in CCMH, thereby supporting the Group's unique connected care proposition.

EMIS Health - Acute Care (EHAC)

EHAC's performance continued to be affected by a difficult acute care market, where NHS funding pressure was exacerbated by uncertainty caused by the General Election. As a result of less non-recurring implementation work, revenues reduced by 14% on the comparative period. The NHS environment remains very difficult to predict, especially in larger procurements, though there are some encouraging signs that funds for the Global Digital Exemplar (GDE) and Fast Follower programmes are beginning to be released.

Announced in 2016, the GDE programme is intended to act as a catalyst for 16 NHS acute trusts (£10m per annum per trust for three years) and six mental health trusts to deliver paperless hospitals integrated with primary and community services by 2020. As one of a number of GDE projects the Group is working with, EHAC continues to work closely with University Hospital Southampton in developing bespoke solutions to help towards this goal.

There has also continued to be a steady flow of smaller contract awards. The first orders have been received for EHAC's newly developed hospital electronic prescribing product, which shares data held in primary care (EMIS Web) to create a continuous patient prescribing record. In Jersey, which is already using EMIS Web, additional services have been procured including order communications and messaging services, together with consultancy services in support of the island's Digital Health record initiative.

Wins in other areas include orders for hospital pharmacy systems, bed management and emergency care. In emergency care specifically, the new Emergency Care Data Set, due for implementation in October 2017, is driving uptake of upgrades of EHAC's unscheduled care product, Symphony, and product management services to help trusts in preparing for the change.

During the period a new Child Protection Information Service module was launched which integrates Symphony with the NHS Spine (its internal IT network). This new module gives emergency care departments access to the child protection register, which is vital in identifying potential abuse cases. It has already generated significant interest, including a number of orders, with the scope to extend to other hospital departments such as paediatric wards.

Egton - Non-clinical ICT solutions and services

The Group's Egton business continued to grow during the period, providing a range of software, hardware and services, including health administration, compliance software and GP practice websites. The Carista social care product, acquired in late 2016, has performed well and is being integrated into the EMIS Health framework. There has also been good progress in rolling out CCG-funded NHS WiFi, with over 500 GP practices now using Egton's solution and a strong sales pipeline to grow the installed base following release of the next round of funding in July 2017.

Community Pharmacy - revenue up 5%, adjusted operating profit up 16%

EMIS Health - Community Pharmacy (EHCP)

EHCP made good progress in preparing for the roll-out of ProScript Connect, its next generation pharmacy dispensary management product, into the Celesio estate. The roll-out is expected to start shortly and to continue through to 2019, ultimately increasing the Group's market share significantly from 37% to close to 50%.

ProScript Connect is now being deployed into EHCP's independent estate, with a total of 284 sites live by the end of the period. EHCP's total estate size was 5,120 sites at 30 June 2017 (31 December 2016: 5,091 sites), having secured a number of new contracts in the period, including Midcounties Co-operative (33 sites).

NHS policy changes have created significant funding pressure in community pharmacy through a reduction of over 7% in NHS fees. This has resulted in pharmacies looking to offer new services direct to patients, and through NHS partnerships, to remain sustainable.

EMIS Group remains in an ideal position to support pharmacies in delivering these services using existing technology platforms, and is developing commercial and technical models following the piloting of EMIS Web for community pharmacy. This will enable pharmacies to generate new revenue streams from diversifying into extended primary care services such as smoking cessation, influenza injections and monitoring of long-term conditions.

Specialist & Care - revenue up 19%, adjusted operating loss of £0.1m

EMIS Health - Specialist & Care (EHS&C)

EHS&C performed in line with expectations in the period, with EMIS Care successfully implementing five new diabetic eye screening contracts won during 2016. These wins significantly increased EMIS Care's market share to 26% (31 December 2016: 18%), further strengthening its position as the market leader in outsourced diabetic eye screening and ophthalmology imaging services.

The new management team appointed in late 2016 has delivered this high level of new programme implementations while simultaneously making significant progress in improving the operational performance of the business. For existing programmes, 11% more patients were screened in the period.

As the cost base and operational practices of the programmes are further improved, the profit profile is expected to be enhanced. As part of the turnaround plan, the business gave twelve months' notice on one unprofitable screening contract in the period, which will improve profitability from the second half of 2018. Where there is no reasonable prospect of delivering a profitable outcome over the typical five-year lifecycle of a contract, the Group may decide to withdraw from further contracts where necessary.

EMIS Health Specialist was not selected as a partner for Public Health England's national screening platform, which was intended to achieve standardised local programme operation through common IT system design and core functionality. It remains unclear how the commissioners intend to take the process forward with their preferred supplier as, while the approach intended to begin with diabetic eye screening, the platform is designed to encompass all systematic screening services and is therefore complicated. There is nonetheless a risk of customer attrition for EMIS Health Specialist over time but as yet no customers have given notice to leave.

Patient - revenue up 42%, adjusted operating loss of £0.3m

Patient.info is the UK's leading independent provider of medical and wellbeing information to consumers. With increasing pressure on NHS resources, Jeremy Hunt, Secretary of State for Health, has been at the forefront of exploring and promoting self-care models underpinned by digital technology. Patient already delivers connected services direct to patients and is well placed to expand the support it provides to consumers through its evolving online digital platform.

The business plan announced earlier this year to grow the publishing/media business and to expand into e-commerce platform clinical services has begun to be executed, with a number of management team appointments made in the period. The business is on track to deliver the key milestones of fully responsive, multi-device user experiences for both Patient.info and Patient Access by the end of the year. Having launched a new website in August 2017, it is continuing to explore the commercial models for the diverse range of opportunities it has to join up patients and providers. Despite a negative impact on traffic as a result of search changes made by Google during the period, the number of unique monthly visitors to Patient.info grew to an average of 17.2m (2016 H1: 14.7m), slightly lower than the seasonal high of 18.3m reported in December 2016.

The expected short-term increase in cost in Patient to deliver these opportunities will be lower than previously announced. This is principally as a result of securing more cost-effective development channels, including using internal resource (in particular developers in India) wherever possible.

BOARD CHANGES

As previously announced, Andy Thorburn joined the Group as CEO on 1 May 2017, following the retirement of former CEO Chris Spencer.

Andy was previously Group COO of Digicel, the Caribbean and South Pacific based communications and entertainment provider, where he was responsible for driving significant growth in revenues and profitability, both organically and via M&A. Prior to this, he was CEO of Digicel Caribbean and Central America and CEO of Digicel Jamaica, and held senior management positions across the software industry at INTEC Plc, Chronicle Solutions Ltd and a number of Benchmark Capital Portfolio companies (including Kalido Inc and Orchestria Ltd).

During the period, the Board also appointed David Sides as an additional independent non-executive director with effect from 1 January 2017.

SUMMARY AND OUTLOOK

EMIS Group has again reported a solid underlying financial performance in the first half, despite a challenging political and economic environment for the NHS. The Board's outlook for the full year remains unchanged, with strong recurring revenues, growing market shares, a good order book and a developing pipeline.

The extensive work already undertaken to reorganise the business, bringing together Primary Care, CCMH and Acute Care, has improved efficiency and better aligned the Group and its customers. Further reorganisation in the second half of the year will drive greater internal accountability and consolidate the financial performance benefits of the restructuring.

FINANCIAL REVIEW 

As expected, the Group's overall financial performance for the half year ended 30 June 2017 was at a similar level to the comparative period, with a balance of underlying growth and investment in future opportunities.

Financial summary

Group revenue increased by 1% to £79.2m (2016 H1: £78.7m). This reflects the ongoing challenging NHS spending environment, and includes £0.5m from the December 2016 acquisition of Intrelate (the mobile social care software provider, which was integrated within Egton). Despite a reduction in project-related revenue, particularly in Acute Care, recurring revenue nonetheless grew by 4% to £66.8m (2016 H1: £64.0m), representing 84% of the Group's total revenue.

Adjusted operating profit for the period was £17.5m (2016 H1: £17.7m), with the benefits of the cost-saving measures that the Group has taken over the past 18 months broadly offset by increased investment in the Patient business and programme start-up costs in EMIS Care.

Segmental performance

The Primary, Community & Acute Care business saw revenue reduce overall as a result of lower levels of activity in Acute and a reduction of some discretionary revenue streams under GPSoC in England, including the revenue related to funded hosting assets. However, recurring revenues continued to grow and the business overall reported an increase in profit as a result of tight cost control.

Performance in the Community Pharmacy division reflected steady progress as the roll-out of its new ProScript Connect product gathered momentum.

Specialist & Care delivered results in line with expectations, with the implementation of new contracts driving revenue growth, but with increasing costs compared to the comparative period.

In Patient, investment in developing the future business model is now underway, resulting in a small loss of £0.3m in the period, as expected.

Revenue

Revenue is analysed in the following categories:

· licences, which increased to £27.4m (2016 H1: £26.8m), due to growth in the Group's estates, including CCMH;

· maintenance and software support, which grew to £20.6m (2016 H1: £18.9m);

· other support services, where revenues were higher at £16.1m (2016 H1: £14.7m), with increased EMIS Care revenues;

· training, consultancy and implementation, which fell to £5.5m (2016 H1: £7.6m), reflecting lower levels of activity in Acute Care;

· hosting, which reduced to £5.6m (2016 H1: £6.4m), as a result of lower levels of income in respect of contract assets (offset by lower depreciation); and

· hardware revenues, which were lower at £4.0m (2016 H1: £4.3m), with less hardware purchasing taking place in the NHS.

Profitability and dividend

The adjusted operating margin was broadly unchanged at 22.1% (2016 H1: 22.5%) as a consequence of tight cost control, including the previously announced reorganisation programme. The programme, which resulted in an exceptional charge of £2.5m in the first half, is expected to deliver a cost-saving of £3.5m in 2017, rising to over £4.5m on an annual basis, and has directly reduced headcount by over 100 people, with further reorganisation taking place in the second half of the year.

The Group employed 1,877 staff at 30 June 2017, a reduction from 1,922 at 31 December 2016, despite the addition of 67 staff with the new EMIS Care programmes.

Adjusted operating profit for the period was £17.5m (2016 H1: £17.7m). This is before accounting for the one-off costs incurred in the reorganisation and cost reduction programmes. After accounting for this charge, for the capitalisation and amortisation of development costs, and for the amortisation of acquired intangibles, operating profit was £10.5m (2016 H1: £12.1m).

The tax charge for the period was £2.1m (2016 H1: £2.4m), representing an effective rate of tax of 19.2% (2016 H1: 19.6%).

Adjusted basic and diluted EPS were unchanged at 22.2p and 22.1p respectively (2016 H1: 22.2p and 22.1p respectively). As a result of the exceptional charge and a reducing level of development cost capitalisation, the reported basic and diluted EPS were both lower at 13.1p (2016 H1: 14.9p and 14.8p respectively).

The Board remains positive on the outlook for the Group and has therefore resolved to increase the interim dividend by 10% to 12.9p (2016 H1: 11.7p) per share, payable on 27 October 2017 to shareholders on the register at the close of business on 22 September 2017.

Cash flow, net cash and financing

Net cash generated from operations (after deducting capitalised development costs) increased by 1% to £26.0m (2016 H1: £25.7m). Net cash generated from operations is stated after deducting the £2.7m cash cost of the exceptional charges. On an adjusted basis, adding back this cost, cash flow from operations increased by 4% to £28.7m (2016 H1: £27.5m). Net capital expenditure excluding capitalised development costs increased to £3.6m (2016 H1: £2.9m), including £1.1m of NHS funded hosting assets and £0.9m of programme assets in EMIS Care. After finance costs, tax, dividends and Employee Benefit Trust transactions, the Group ended the period with net cash of £10.5m (31 December 2016: net debt of £0.4m; 2016 H1: net cash of £0.7m).

The Group has successfully concluded its scheduled refinancing, securing a new revolving credit facility with Barclays and Lloyds at a reduced cost. The facility is for an initial £30m over a three-year period, with an accordion arrangement to increase it to up to £60m and further options to extend it up to a maximum of five years.

Group statement of comprehensive income

for the six months ended 30 June 2017

1 Including reorganisation/cost reduction programme costs of £2,468,000 (2016 H1: £2,141,000; 2016 FY: £3,387,000).

2 Including contract asset depreciation of £682,000 (2016 H1: £1,251,000; 2016 FY: £1,955,000), reorganisation/cost reduction programme costs of £60,000 (2016 H1: £11,000; 2016 FY: £243,000), and, for 2016 FY only, including goodwill impairment of £4,616,000.

3 Excluding amortisation of computer software used internally of £525,000 (2016 H1: £447,000; 2016 FY: £919,000).

4 The reorganisation/cost reduction programme costs relate to redundancy and restructuring costs.

Group balance sheet

as at 30 June 2017

Group statement of cash flows

for the six months ended 30 June 2017

1 Group cash and cash equivalents comprise cash of £10,484,000 (2016 H1: £4,568,000; 2016 FY: £4,303,000) and a bank overdraft of £nil (2016 H1: £nil; 2016 FY: £2,782,000).

Group statement of changes in equity

for the six months ended 30 June 2017

Notes to the half year financial statements

1. General information

The financial statements for the six months ended 30 June 2017 and the six months ended 30 June 2016 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2016 were approved by the Board of Directors on 15 March 2017 and delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

These condensed half year financial statements were approved for issue by the Board of Directors on 31 August 2017.

2. Basis of preparation

These condensed half year financial statements for the half year ended 30 June 2017 have been prepared in accordance with the AIM Rules for Companies, comply with IAS 34 'Interim Financial Reporting' as adopted by the European Union and should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The Group is profitable and it is anticipated that this will continue. There is a high and continuing level of recurring revenue and high cash conversion is anticipated for the foreseeable future. The Group's existing significant cash resources and banking facilities provide additional comfort that it will continue to be able to meet its cash flow obligations.

Accordingly, after careful enquiry and review of available financial information, the Directors have formed the conclusion that the Group has adequate resources to continue to operate for the foreseeable future and that it is therefore appropriate to continue to adopt the going concern basis of accounting in the preparation of these consolidated half year financial statements.

The financial information is presented in sterling, which is the functional currency of EMIS Group. All financial information presented has been rounded to the nearest thousand.

3. Accounting policies

The accounting policies used in preparing these half year financial statements are those the Group expects to apply in its financial statements for the year ending 31 December 2017 and are consistent with those disclosed in the Group's annual report and accounts for the year ended 31 December 2016.

IFRS 15 'Revenue from Contracts with Customers' is effective from 1 January 2018. The Group has completed its initial assessment and does not anticipate any material differences between the Group's current revenue recognition policy and the requirements of IFRS 15.

Current taxes on income in the half year period are accrued using the tax rates that would be applicable to expected total annual profits. Deferred taxes on income are calculated based on the standard rates that are enacted as at the balance sheet date.

4. Critical accounting estimates and judgements

Accounting estimates and judgements are based on past experience and expectations relating to and evaluation of future events and are believed to be reasonable at the time of making. Due to the inherent uncertainty involved in making these estimates and judgements, actual future outcomes can be different.

The 2016 Group annual report and accounts includes details of the critical estimates, assumptions and judgements made at that time in arriving at the amounts recognised in those financial statements, which have a significant risk of causing a material adjustment to the carrying values of assets and liabilities within the subsequent financial year.

The critical accounting estimates and judgements made in these condensed consolidated half year financial statements do not differ materially from those applied within the 2016 Group annual report and accounts.

5. Principal risks and uncertainties

The 2016 Group annual report and accounts describes the principal risks and uncertainties that could impact the Group's performance. These relate to healthcare structure and procurement changes, product integration and interoperability, software development and hosting, recruitment and retention, information governance and cyber security, and clinical safety. These remain unchanged since the annual report was published and, accordingly, are valid for these half year financial statements. The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

6. Financial risk management

The Group's activities expose it to financial risks including credit risk, liquidity risk, interest rate risk and price risk.

These condensed consolidated half year financial statements do not include all financial risk management information and disclosures required in the annual financial statements and therefore should be read in conjunction with the 2016 Group annual report and accounts.

The Group does not engage in significant levels of hedging activity and holds no material derivative financial instruments. Carrying value approximates to fair value for all financial instruments. During 2017, there has not been any significant change in business or economic circumstances that affects the fair value of the Group's financial assets and financial liabilities, any reclassification of financial assets or liabilities, nor any changes in any of the Group's risk management policies. Accordingly, the Directors, having reviewed IFRS 13 'Fair Value Measurement' and IAS 34 'Interim Financial Reporting', are of the opinion that no additional disclosure is required.

7. Forward-looking statements

Certain statements in this half year report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

8. Segmental reporting

IFRS 8 'Operating Segments' provides for segmental information disclosure on the basis of information reported internally to the chief operating decision-maker for decision-making purposes. The Group considers that this role is performed by the main Board.

As previously announced, the Directors have revised the segmental information in 2017 to represent better the Group's present structure and activities, and the markets being served. The Group has four operating segments, all involved with the supply and support of connected healthcare software and services:

· Primary, Community & Acute Care;

· Community Pharmacy;

· Specialist & Care; and

· Patient.

Each operating segment is assessed by the Board based on a measure of adjusted operating profit. This measurement basis excludes exceptional items, the effect of capitalisation and amortisation of development costs, and the amortisation of acquired intangible assets, as the Board considers this to provide the best measure of underlying performance. Group operating expenses, finance income and finance costs are not allocated to segments, as group and financing activities are not segment-specific.

Revenue excludes intra-group transactions on normal commercial terms from the Primary, Community & Acute Care segment to the Community Pharmacy segment totalling £2,373,000 (2016 H1: £2,405,000) and from the Primary, Community & Acute Care segment to the Specialist & Care segment totalling £90,000 (2016 H1: £131,000).

Revenue of approximately £56,435,000 (2016 H1: £56,246,000) is derived from the NHS and related bodies. Revenue of £3,157,000 (2016 H1: £3,343,000) is derived from customers outside the United Kingdom.

9. Revenue

Revenue is analysed as follows:

10. Income tax expense

The tax expense recognised reflects management estimates of the tax charge for the period and has been calculated using the estimated average tax rate of UK corporation tax for the financial year of 19.25% (2016: 20%) and, in relation to deferred tax, at an estimated average future rate of 18.4% (2016 H1: 18.9%).

11. Earnings per share (EPS)

The calculation of basic and diluted EPS is based on the following earnings and numbers of shares:

12. Dividends

In relation to the 2016 financial year, an interim dividend of 11.7p was paid on 28 October 2016 amounting to £7,350,000 followed by a final dividend of 11.7p on 3 May 2017 amounting to £7,355,000.

For 2017, the Directors are proposing an interim dividend of 12.9p, which will be payable on 27 October 2017 to shareholders on the register at 22 September 2017. This interim dividend, which will amount to approximately £8,121,000, has not been recognised as a liability in these half year financial statements.

13. Other intangible assets

14. Change in net debt