Inspiration Hlt Regulatory News (IHC)

FORMATTING AMENDMENT

The 'Final Results' announcement released on 21 April 2020 at 7am under RNS No 2704K has been reformatted.

All material details remain unchanged.

The full text is shown below.

21 April 2020

Inspiration Healthcare Group plc

("Inspiration Healthcare" or the "Group")

Unaudited Preliminary Results for the year ended 31 January 2020

Inspiration Healthcare Group plc (AIM: IHC), the global medical technology company, today announces its unaudited preliminary results for the twelve months ended 31 January 2020 ("FY2020").

Financial highlights:

· 15% revenue growth to £17.8m including contribution from Viomedex1, above original forecasts

· 12% revenue growth on like-for-like basis, above original forecasts

· Revenue from Inspiration Branded products up 12%

· Gross margin improved from 45.5% to 48.2%

· Operating Profit (before exceptional items) up 24% to £1.5m

· EBITDA2 increased 29% to £2.1m; EBITDA2 margin up to 12% (FY2019:11%)

· Profit before tax £1.1m (FY2019: £1.2m) after exceptional items

· Viomedex2 performed in line with financial expectations for the four months from acquisition

· Strong cash position at £4.5m

1 On 24 September 2019 the Group acquired the entire issued share capital of Vio Holdings Limited, the holding company of Viomedex Limited (together "Viomedex"). Viomedex designs, manufactures and supplies single-use respiratory products and sterile medical consumables, principally for the respiratory care market.

2 Earnings before interest, tax depreciation, amortisation, share based payments and exceptional items, including the impact of Viomedex1 but on a basis consistent with prior year which is before applying IFRS 16, Leases (see note 13 for analysis of the impact of IFRS 16)

All figures reported in these Preliminary Results include the impact of Viomedex where relevant unless otherwise stated.

Operational highlights:

Progress made on all three major elements of our strategic growth plan:

Organic growth:

· Large order for Hypothermia workstations in Sri Lanka, record order for Poland Patient Warming Systems shipped.

· Launched specialist neonatal patient warming controller 'CosyTherm2'

· Received Queens Award for Enterprise: International Trade

· CE marking of Inspiration Healthcare products extended to May 2024

Investment in disruptive technologies:

· Prototypes finalised for Project Wave device and undergoing final testing prior to submission for clinical trial.

· Patents granted for Project Wave1

Acquisitions:

· First acquisition - Viomedex, completed in September 2019

· Oversubscribed for our first fundraise with additional cash taken to support future business development

1 Project Wave Intellectual Property is used under licence.

Neil Campbell, Chief Executive Officer, said today: "FY2020 has been a very successful year and I am particularly delighted to report progress on all three of the major elements of our strategy: double digit revenue growth, advancement of Project Wave and completing our first acquisition in Viomedex. Whilst being acutely aware of the nearer term uncertainties in the economy arising from Covid-19, I am confident that our approach in developing novel technology such as Project Wave, acquiring small to medium size businesses and the organic growth of our core business will continue to add value to our Group over the coming years."

Chairman's Report

I am pleased to be introducing this year's annual result which outlines the Group's strong performance including record revenue resulting in double-digit growth. This result was better than our initial expectations, despite the external challenges we had to overcome.

Group revenues for the year ended 31 January 2020 ("FY2020") rose to record levels after a flat year previously and totalled £17.8 million for the year, up from £15.5 million in FY2019. This included a first-time revenue contribution of £0.4 million from the acquisition of Viomedex. On a like-for-like basis, the Inspiration business grew by 12% from the previous year which was a pleasing outcome given the backdrop of Brexit uncertainty and the ongoing regulatory challenges facing the global industry.

We comfortably exceeded our expectations this year by achieving an operating profit before exceptional items of £1.5 million for the Group in FY2020 compared to £1.2 million for FY2019. EBITDA1 grew by 28% to £2.1 million for the year (FY2019: £1.65 million). This was achieved through the growth in revenue and improving overall gross margins from 45.5% to 48.2%. Underlying Diluted Earnings per Share2 ("EPS") increased from 3.4p to 3.6p.

A key event in the year was the successful acquisition of Vio Holdings Ltd (referred to as "Viomedex" or "Viomedex acquisition"), a company that owned our key supplier Viomedex Ltd and was of strategic importance for us to develop our leading position in the Neonatal Intensive Care sector. The consideration of £3.25 million3 was funded through a share placement raising £4.25 million and we thank our shareholders for supporting this. The additional cash raised (£0.9 million net of costs) will be used to strengthen the Company's balance sheet to support the continued growth of the business.

Viomedex already supplies key products to the Group, allowing us to gain cost leadership and retain manufacturing margins, they also have a number of products for Neonatal Intensive Care that we can put through our distribution network and drive revenue growth in future years. For the part of the year they were under our ownership, Viomedex performed in line with expectations. Our teams are working well on the integration to ensure that we achieve all the synergies from the acquisition that we identified in our planning.

Our Research and Development team have been mainly focused on progressing Project Wave, our novel respiratory support device, which we believe can disrupt the market in future years. During the year, we also launched a range extension of our Patient Warming System, a CosyTherm2 controller specifically designed for neonatal intensive care and I'm pleased to report that this was well received by existing customers and has opened up new sales opportunities.

Our international markets continue to reward us. At the beginning of the year we shipped our largest ever order of Patient Warming Systems with our new AlphaCore5 product to Poland. We also won a large order from Sri Lanka for our Hypothermia workstations opening up a new market for us.

Every year I am proud of the way our employees go about their business, the enthusiasm they show towards the markets we serve and the dedication they display towards the patients our products treat is truly inspiring. Across the Group, whether it is one of our 'per diem homecare nurses' visiting a sick patient, or the Quality Engineers ensuring the products we supply conform to systems, processes and the quality we insist upon, everyone plays an integral part to our success and on behalf of the Board, I thank them yet again for their hard work in delivering an outstanding year for the Group.

Outlook 

Looking forward, our Inspiration Branded products will create new opportunities for us on an international stage against a background of ever-increasing new regulations which will continue to present a challenge. At the same time, we will explore all ways to maximise the success of the products we have developed recently, as we look to gain regulatory clearance for these products in further target markets.

We remain confident that the new challenges that we will face as a consequence of Brexit and the transition to the Medical Device Regulation can be overcome with minimum disruption and that we will build on our successes. With one successful acquisition behind us, we continue to identify further acquisition targets that will support our growth ambitions in our targeted sector of Neonatal Intensive Care.

While there is considerable uncertainty in the world over the impact of Covid-19 on the economy as a whole, most of the Group's own branded products are sold to neonatal intensive care units around the world and their use is not something that can be reduced by election or choice. Consequently, demand for the Group's own branded products is likely to continue during the period of the Covid-19 virus outbreak and beyond.

The Group is engaged directly in the provision of critical care equipment and services to the UK's NHS, at this time proactively sourcing ventilators to supply to the NHS under our framework agreement with NHS Supply Chain. In addition, we have been providing market and sector expertise to the 'Ventilator Challenge UK' consortium one of the many consortia that took up the Prime Minister's challenge of trying to scale the UK supply of ventilators. We were also contracted through Cabinet Office to extend our own 24/7 helpline to include any 'UK Ventilator Challenge' ventilators.

Whilst we recognise that there is an advantage to staff to be furloughed (for childcare or voluntary work), as a company with a proud tradition of generating our own cash and being financially self-sufficient, we have not had the need to utilise the UK Government's Coronavirus Job Retention Scheme. We have already taken many mitigating actions both to support our customers and employees, the majority of whom are working from home with full access to the Group's systems. For our colleagues who work in production and logistics roles, where home working is not practical, we introduced revised shift patterns and strict safety, hygiene and social distancing measures. With our strong balance sheet, clear purpose, intensive care expertise and the commitment, loyalty and determination of our employees we believe the Group is well placed to not only trade through this period of uncertainty but to make a valuable contribution to the response to this pandemic.

As a result of all activities associated with the pandemic, we expect that the incremental increase in revenues will at least offset any short-term operational impacts.

We continue to invest in all three strategic areas of our business: organic growth, disruptive technologies and future acquisitions. Whilst we are subject to a number of factors which are outside of our control, particularly in the supply chain but also the indirect effects of the wider economic impact of Covid-19, we have started the current year well and despite the uncertainties we expect to build on our success of last year and again achieve strong revenue growth.

Mark Abrahams

Chairman

21 April 2020

1 Earnings before interest, tax depreciation, amortisation, share based payments and exceptional items, including the impact of Viomedex and on a basis consistent with the prior year which is before applying IFRS 16, Leases.

2 Underlying Diluted EPS - adjusted for exceptional items, deferred tax charge on intangible assets recognised on the acquisition of Vio Holdings Limited and significant prior year tax amendments.

3 Deferred Consideration Shares amounting to £750,000 originally anticipated to be part of the consideration were not issued as the conditions as set out in the sale and purchase agreement were, in the opinion of the Board having taken legal advice, not met.

Going Concern

The Group provides critical care equipment to the NHS, to NHS suppliers and to distributors who provide the equipment to other healthcare systems internationally. With a focus on neonatal intensive care the use of the Group's products is not something that can reduced by election or choice and consequently demand for the Group's products is likely to continue or increase in a situation like the Covid-19 virus outbreak. Although the Group has no information to suggest such a scenario might occur the Group have modelled a significant downside scenario based on the main risks to the Group associated with Covid-19.

Based on the above, available funds of £4.5 million at 31 March 2020 and the ability to implement some mitigating actions identified by the Board in response to a significant Covid-19 trading downturn, the Board believes that the Group has sufficient liquidity to meet obligations as they fall due for at least twelve months from 21 April 2020. Consequently, the financial statements have been prepared on a going concern basis.

Operating and Financial Review

Group revenue for the year ended 31 January 2020 ("FY2020") increased 15% to £17.8 million (FY2019: £15.5 million) with the inclusion of Viomedex Limited, the subsidiary of Vio Holdings Limited which the Group acquired on 24 September 2019. On a like-for-like basis excluding Viomedex, Group revenue grew by 12%.

EBITDA1 increased by 28% to £2.1 million (FY2019: £1.65 million). Operating profit and operating margin, before exceptional items, were £1.5 million (FY2019: £1.2 million) and 8.6% (FY2019: 7.8%) respectively. In this review both EBITDA1 and operating profit are stated before the impact of adopting IFRS 16 - Leases, which has been adopted for the first time in FY2020, for greater ease of comparison to prior year (see section below).

Profit after tax was £0.7 million, lower than FY2019 (£1.1 million) due principally to exceptional items of £0.4 million and an increased deferred tax charge. Diluted EPS was 2.2p per share (FY2019: 3.6p). Underlying diluted EPS2 increased by 6% to 3.6p per share (FY2019: 3.4p).

Acquisition of Vio Holdings Limited

The acquisition of Vio Holdings Limited and its subsidiary Viomedex Limited (together "Viomedex") was completed on 24 September 2019. The acquired entities have been consolidated into the Group Financial Statements from the date of acquisition to the year ended 31 January 2020 the impact of which is deemed immaterial to the Group.

The consideration was £3.25 million, split between £3.0 million cash and £0.25 million in shares issued to the vendors. The acquisition was funded through a share placement raising £4.25 million. After costs the net additional cash raised of £0.9 million will be used to strengthen the Company's balance sheet to support the continued growth of the Group's business. Deferred Consideration Shares amounting to £750,000 originally anticipated to be part of the consideration were not issued as the conditions as set out in the sale and purchase agreement were, in the opinion of the Board having taken legal advice, not met.

Impact of IFRS 16

IFRS 16 - Leases has been adopted for the first time this financial year. The new standard has been implemented using the modified retrospective approach which does not require restatement of comparative years. The adoption impacts operating profit, profit attributable to owners of the parent company, EBITDA1, non-current assets and both current and non-current liabilities. EBITDA and Operating Profit (before exceptional items) after adoption of IFRS16 were £2.3 million and £1.5 million, respectively. See the table below for a reconciliation of these figures pre and post adoption of IFRS 16.

Revenue

At £17.8 million (FY2019: £15.5 million), Group revenue exceeded our original forecast, an increase of 15% with the inclusion of Viomedex. Organic revenue growth increased by 12% on a like-for-like basis. As in prior years, revenues were weighted towards the second half ("H2") which accounted for £9.3 million (FY2019: £8.1 million) or 54% of full year revenues on a like-for-like basis.

Our international revenue grew by 12.3% to £6.0 million, with particularly strong growth in Europe (up 29%) due mainly to increased sales of our AlphaCore5 Patient Warming System, primarily into the neonatal critical care market. Our continued track record for international growth was recognised during the year through being awarded the Queen's Award for Enterprise: International Trade.

Domestic revenue increased by 16%, largely due to an increase in Home Healthcare products - see below for more information.

Revenue from Inspiration Branded products increased 12% year-on-year to £8.1m (FY2019: £7.2m) and accounted for 45% of revenue (FY2019: 46%). Revenue from new products launched in the last 3 years accounted for 15% of revenue (FY2019: 9%). Revenue from our Distributed Products was up by 19% to 7.6m and accounted for 43% of revenue. The growth was mainly as a result of strong performance in the Micrel Distributed Product range.

Market Sectors

Critical Care £11.4 million, + 7% year-on-year

Our Critical Care sector increased by 7%, largely due to the increased sales of our AlphaCore5 Patient Warming System placed into the neonatal critical care market as mentioned above. Building on the success of the Patient Warming System, the Cosytherm2 controller was launched which is specifically designed for neonatal care.

Operating Theatre £1.7 million, +1% year-on-year

Revenue from operating theatre is in line with both prior year and expectations.

Home Healthcare £4.6 million, +50% year-on-year

Growth in revenue of our Distributed Product range of parenteral feeding products was particularly strong during the year. We were able to capitalise on certain opportunities in the market during the year which are outlined below.

The Home Healthcare sector benefited from unprecedented demand for parenteral feeding products from Micrel. One of the largest UK homecare providers who look after patients had a problem in supplying the 'food' due to regulatory issues. Working with Micrel a solution was found that allowed patients to get the nutrition they needed and led to a significant increase in revenues in this sector. Conversely, products from another of our principals suffered due to regulatory issues and this limited growth in both our Critical Care and Operating Theatre sectors.

Gross Profit

Gross Profit of £8.6 million (FY2019: £7.0 million) increased by 22% due to both a year-on-year increase in revenue and an improved gross margin which increased from 45.5% to 48.2%. Gross margins primarily benefited from a combination of a year-on-year increase in service revenue and the acquisition of Viomedex (£0.4 million), eliminating manufacturer margins on a number of Group products.

Operating Expenses

Operating expenses including exceptional items amounted to £7.4 million, £7.1 million excluding exceptional items (FY2019: £5.8 million). The year-on-year increase is primarily due a number of factors being: the full year impact of the prior year investment in the management team, increased investment in headcount during the year, a year-on-year increase in both commission and bonus expense related to the growth in both revenue and operating profit, as well as £0.2 million from the inclusion of Viomedex.

Exceptional Items

The Group presents certain items as exceptional items that are non-recurring and significant. These relate to items which, in the Board's judgement, need to be disclosed by virtue of their size and incidence in order to obtain a more meaningful understanding of the financial information.

The exceptional items reported for FY2020, totalling £0.4 million, primarily consist of £0.2 million relating to the acquisition of Viomedex and £0.1 million relating to the impairment of the Group's investment in Neuroprotexeon Limited. See notes 3 and 8 for further information.

EBITDA1

EBITDA1 amounted to £2.1 million, an increase of £0.5 million over the prior year mainly due to increased gross profit. EBITDA1 margin improved from 10.7% to 11.9%. EBITDA1 is stated before the impact of IFRS 16 - Leases which has been adopted for the first time. EBITDA1 amounted to £2.27 million including the impact of IFRS 16 - Leases.

1EBITDA Reconciliation

1 Earnings before interest, tax depreciation, amortisation, share based payments and exceptional items, including the impact of Viomedex and on a basis consistent with the prior year which is before applying IFRS 16, Leases

Operating Profit

Operating profit before exceptional items increased by £0.3 million to £1.5 million, with the higher year-on-year increase in gross profit offsetting the increase in operating expenses.

Taxation

The Group has recorded a tax charge of £393,000 (FY2019: £116,000), including a deferred tax charge of £117,000 relating to intangible assets recognised on the acquisition of Viomedex in accordance with IAS12. The effective tax rate in FY2020 was 35% due primarily to deferred tax and impairments which are not deductible from taxable profits. For more detail see note 4.

Profit after tax

Profit after tax decreased by £0.4 million to £0.7 million (FY2019: £1.1 million) for reasons mentioned above. Since its acquisition Viomedex contributed £0.1 million to the Group's profit after tax.

Earnings Per Share

EPS (basic) was 2.2p per share (FY2019: 3.6p); diluted EPS (allowing for the weighted average of shares issued in relation to the acquisition of Viomedex, plus share options outstanding) was 2.2p per share (FY2019: 3.6p). Underlying diluted EPS2 was 3.6p per share, up 6% on FY2019 3.4p. The year-on-year increase is due mainly to the improved growth in operating profit as set out above.

2EPS Reconciliation

Cash flow

Cash and cash equivalents as at 31 January 2020 amounted to £4.5 million, an increase of £2.0 million over the year. Net cash generated from operating activities was £1.5 million, £0.6 million higher than in FY2019. Investing activities totalled £3.6 million (FY2019: £0.4 million), of which £3.25 million related to the acquisition of Viomedex. The remaining £0.35 million consisting of capitalised development expenditure and the purchase of property, plant and equipment. Investing activities are offset by financing activities of £4.1 million (net of direct share issue costs) relating mainly to the proceeds obtained from the Group's fund raise in relation to the acquisition of Viomedex.

Net Assets

The value of non-current assets as 31 January 2020 totalled £4.7 million (FY2019: £1.8 million). The year-on-year increase of £2.9 million relates mainly to: a £2.5 million addition of goodwill and intangible assets on the acquisition of Viomedex; the addition of a £0.5 million right of use asset on implementation of IFRS 16; and the £(0.1) million impairment of the Group's 8.6% fully diluted holding in Neuroprotexeon Limited ("NPXe"). For more information on the impairment in NPXe see note 8.

Inventory increased to £3.1 million (FY2019: 0.7 million) as a result of Brexit contingency planning, £0.7 million acquired on the purchase of Viomedex and a one-time £1.4 million purchase (approximately 24 months' supply) of the Group's Tecotherm product delivered just before year end. The Tecotherm product is manufactured by the Group's German developer and licensed to the Group. Rather than bring the existing Tecotherm product in-line with the new European regulations the developer has taken the decision to focus its resources on the next generation device for which the Group has first refusal to take the licence. Given the switch in focus the Group decided to secure supply of the existing product. Payment for the inventory is spread over a period that is equivalent to what would have been a normal buying pattern and should closely match inventory utilisation.

Trade and other receivables increased to £4.2 million (FY2019: £3.1 million) due primarily to a £0.8 million increase in trade debtors driven by the increase in revenue and £0.2 million acquired on the purchase of Viomedex. Trade and other payables increased by £2.5 million to £4.7 million (FY2019: £2.2 million) reflecting £1.4 million included within trade creditors due to the one-off purchase of Tecotherm inventory mentioned above, £0.3 million acquired on the purchase of Viomedex and an increased commission and bonus accruals.

Net Assets increased by £5.2 million or 95% to £10.7 million inclusive of the cash raised from the share placement on the acquisition of Viomedex.

Review of Business and Future Developments

On a Group basis the business review and future prospects are set out in the Chairman's Report above. The Board believes that overall this statement is fair, balanced and understandable.

Share Price during the Year

The range of market prices during the year 1 February 2019 to 31 January 2020 was 52.0p to 70.0p and the mid-market price of the Company's shares at 31 January 2020 was 64.5p.

Mike Briant

Chief Financial Officer

21 April 2020

Consolidated Income Statement

for the year ended 31 January 2020

Consolidated Statement of Comprehensive Income

for the year ended 31 January 2020

The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the Company profit and loss account.

Consolidated and Company Statements of Financial Position

as at 31 January 2020

The Company's profit for the year ended 31 January 2020 is £465,000 (2019: £761,000)

Consolidated and Company Statements of Changes in

Shareholders' Equity

Consolidated Cash Flow Statement

for the year ended 31 January 2020

Notes forming part of the Financial Statements

1 Accounting Policies

Inspiration Healthcare Group plc (the Company) is a public limited company incorporated in England and Wales and domiciled in England. The Company's registered address is Unit 2, Satellite Business Village, Crawley, West Sussex, RH10 9NE and the registered company number is 03587944. The Company's ordinary shares are traded on the AIM Market of the London Stock Exchange plc.

The principal activities of Inspiration Healthcare Group plc and its subsidiaries (together, the "Group") continue to be the sale, service and support of critical care equipment to the medical sector including hospitals.

Basis of preparation

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied unless otherwise stated.

There is no ultimate controlling party.

The individual financial statements of each entity in the Group are presented in the currency of the primary economic environment in which it operates (the functional currency). The Group financial statements are presented in pounds sterling, which is the presentation currency of the Group.

Significant changes in the current year

The financial position and performance of the group was particularly affected by the following events and transactions during the year:

· The adoption of IFRS 16, Leases under the modified retrospective approach from 1 February 2019, see note 13.

· The acquisition of Vio Holdings Limited and its subsidiary, Viomedex Limited, on 24 September 2019 (see note 12), which resulted in an increase in property, plant and equipment and the recognition of goodwill, other intangible assets and net working capital.

Going concern basis

The Group provides critical care equipment to the NHS, to NHS suppliers and to distributors who provide the equipment to other healthcare systems internationally. With a focus on neonatal intensive care the use of the Group's products is not something that can reduced by election or choice and consequently demand for the Group's products is likely to continue or increase in a situation like the Covid-19 virus outbreak. Although the Group has no information to suggest such a scenario might occur the Group have modelled a significant downside scenario based on the main risks to the Group associated with Covid-19.

Based on the above, available funds of £4.5 million at 31 March 2020 and the ability to implement some mitigating actions identified by the Board in response to a significant Covid-19 trading downturn, the Directors believe that the Group has sufficient liquidity to meet obligations as they fall due for at least twelve months from 21 April 2020 and, therefore, consider it appropriate to prepare the financial statements on the going concern basis. Further information on the Group's cash resources is given in note 9.

Alternative financial measures

In the reporting of its financial performance, the Group uses certain measures that are not defined under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group reports. The Directors believe that these non-GAAP measures assist with the understanding of the performance of the business. These non-GAAP measures are not a substitute for, or superior to, any IFRS measures of performance but they have been included as the Directors consider them to be an important means of comparing performance year-on-year and they include key measures used within the business for assessing performance.

2 Revenue

The Group derives revenue from the transfer of goods and services over time and at a point in time in the following geographical split:

Geographical analysis of revenue for the years ended 31 January 2020 and 31 January 2019 is as follows:

3 Exceptional items

The group presents certain items as non-recurring and significant. These relate to items which, in management's judgement, need to be disclosed by virtue of their size and nature in order to obtain a more meaningful understanding of the financial information. These are all included within operating expenses in the Consolidated Statement of Comprehensive Income.

Exceptional items relating to the acquisition of Vio Holdings Limited and subsidiary undertakings relate principally to legal fees of £100k, professional services of £40k, stamp duty of £26K and dual running costs of £25k.

Other acquisition exceptional items relate to the exploration of additional potential acquisitions during the year.

The investment in Neuroprotexeon Limited has been impaired in full due to Neuroprotexeon filing a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware, see note 8.

4 Income tax

* All tax in both 2020 and 2019 arose in the UK.

(c)  Factors affecting tax charge for the year

The tax assessed for the year is higher (2019: lower) than the standard rate of corporation tax in the UK 19.00% (2019: 19.00%) as explained below:

The effective tax rate for FY2020 is higher than FY2019. The largest factors impacting the increased effective tax rate are the charge relating to intangibles arising on the acquisition of Vio Holdings Limited, the non-deductible impairment (see note 8) and the value of R&D tax credits. The value of R&D tax credits depends upon the level of expenditure incurred in research and development on qualifying projects, which may vary from year to year.

In the Spring Budget 2020, the Government announced that from 1 April 2020 the corporation tax rate would remain at 19% (rather than reducing to 17%, as previously enacted). This new law was substantively enacted on 17 March 2020. As the proposal to keep the rate at 19% had not been substantively enacted at the balance sheet date, its effects are not included in these financial statements. However, it is likely that the overall effect of the change, had it been substantively enacted by the balance sheet date, would be to increase the tax expense by £27,000, to increase the deferred tax liability by £27,000.

(d) Factors that may affect future tax charges

The Group has gross unused losses estimated at £7,596,000. Brought forward losses transferred to the Group due to the reverse acquisition amount to £7,596,000 and are potentially available for relief against future trading profits generated from the same trade

5 Earnings per ordinary share

Basic earnings per share for the year is calculated by dividing the profit attributable to ordinary shareholders for the year after tax by the weighted average number of shares in issue.

Basic diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares.

The weighted average number of shares in issue and the diluted weighted average number of shares in issue were as follows:

£3.0m of the £4.25m proceeds from the 7,327,500 shares issued during the year was used to fund the acquisition and related expenses of Vio Holdings Limited and subsidiary Viomedex Limited, see note 12. These have been prorated for the time they have been in place.

The basic and diluted earnings per share for the year are as follows:

An underlying earnings per share and an underlying diluted earnings per share have also been calculated as in the opinion of the Directors this will allow shareholders to gain a clearer understanding of the trading performance of the Group.

6 Intangible assets

All intangible assets have finite useful lives except goodwill.

Intangible assets are amortised on a straight line basis and the amortisation is included within Operating expenses within the Group's Consolidated Income Statement.

Software costs relating to the ERP system are held at cost £328,000 (2019: £328,000), net book value £57,000 (2019: £112,000) and have a remaining economic life of 1 year.

Intangible assets acquired within the year are held at cost and relate to the following:

· customer contacts/relationships - cost £360,000 (2019: £nil), net book value £324,000 (2019: nil) and have a remaining economic life of 4.6 years

· Tradename - cost £58,000 (2019: £nil), net book value £55,000 (2019: nil) and have a remaining economic life of 6.6 years

· Technology - cost £74,000 (2019: £nil), net book value £70,000 (2019: nil) and have a remaining economic life of 6.6 years.

The carrying value of development costs have been reduced to the recoverable amount through recognition of an impairment charge which is included in operating expenses in the Group's Consolidated Income Statement. The recoverable amount is arrived at by comparing the year end net book value to the expected future discounted cash flows of each development project.

The impairment for the year of £72,000 (2019: nil) relates to 1 project for which the year-end net book value exceeded the expected future discounted cash flows.

7 Right of use assets

The balance sheet shows the following amounts relating to leases:

The Consolidated Income Statement shows the following amounts relating to leases:

The total cash outflow for leases during the year was £149,000 (2019: 168,000).

In the previous year, the Group only recognised operating leases under IAS 17, 'Leases'. No lease assets or liabilities were recognised.

For adjustments recognised on adoption of IFRS 16 on 1 February 2019, refer to note 13.

8 Investments

The Group is an investor in Neuroprotexeon Limited, a drug device technology company which is pioneering the use of the inert gas, Xenon, as a neuro-protectant.

The Group has a holding of 8.6% on a fully diluted basis taking into account share options and loan conversion rights of other investors) at 31 January 2020.

Neuroprotexeon has filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. Neuroprotexeon has also filed a motion seeking authorisation to pursue an auction and sale process under Section 363 of the U.S. Bankruptcy Code

The Board has considered the value of the investment and concluded to fully impair.

9 Cash and cash equivalents

Cash and cash equivalents comprise solely of cash at bank and cash in hand held by the Group.

The carrying amounts of the Group's cash and cash equivalents are denominated in the following currencies:

The Group currently use three banks; Royal Bank of Scotland plc, HSBC Bank plc and Bank of Scotland. Moody's give long-term ratings of A2 for Royal Bank of Scotland plc and Aa3 for both HSBC Bank plc and Bank of Scotland plc as at 31 January 2020.

10 Lease Liabilities

In the previous year, the group only recognised lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17 for which there were none.

For adjustments recognised on adoption of IFRS 16 on 1 February 2019, refer to note 13.

11 Note to the Consolidated Statement of Cash Flows

12 Business combinations

On 24 September 2019, the Group acquired 100% of the share capital of Vio Holdings Limited and its subsidiary company Viomedex Limited for £3.25 million on a cash and debt free basis. Viomedex Limited designs, manufacturers and supplies disposable healthcare products in the respiratory care market worldwide.

As a result of the acquisition, the group is expected to benefit from both revenue and cost synergies while the acquired manufacturing capability will allow the Group to improve gross margins.

Details of the purchase consideration, the net assets acquired and goodwill are as follows:

The cash consideration was raised via the issue of new ordinary shares.

The fair value of the 385,802 ordinary shares issued as part of the consideration paid for Vio Holdings Limited was based on a weighted average share price of 64.8p per share over the 30 days to 2 September 2019. Issue costs of £250,000 which were directly attributable to the issue of the shares have been netted off against share premium

Deferred Consideration Shares amounting to £750,000 were not issued as the conditions to be achieved per the sale and purchase agreement were, in the opinion of the Board having taken legal advice, not met. We have received notice from the previous shareholders of Viomedex that the non-issue of the Deferred Consideration Shares is disputed. If the full Deferred Consideration Shares had been issued then the total purchase consideration would have been £4 million.

The assets and liabilities recognised as a result of the acquisition are as follows:

The goodwill is not deductible for tax purposes.

The fair value of trade and other receivables is £239,000 and includes trade receivables with a fair value of £181,000. The gross contractual amount for trade receivables due is £181,000.

The acquired business contributed revenues of £354,000 and profit after tax of £134,000 to the group for the period from 24 September 2019 to 31 January 2020. If the acquisition had occurred on 1 February 2019, consolidated pro-forma revenue and profit for the year ended 31 January 2020 would have been £1,127,000 and £454,000 respectively. These amounts have been calculated using the entities' results and adjusting them for differences in the accounting policies between the group and the subsidiary.

Acquisition related costs of £217,000 have been charged to exceptional items in the consolidated income statement for the year ended 31 January 2020.

There were no acquisitions in the year ended 31 January 2019.

13 Changes in accounting policies