MGP.L Regulatory News (MGP)

Medica Group PLC

Results for the year ended 31 December 2020

Resilient financial performance despite the impact of Covid-19 on Elective activity, including NightHawk revenues ahead of 2019 and strong Group cash generation.

Good progress against strategy with advancement of FutureTech, key acquisition of Global Diagnostics Ireland (GDI) and post-period deals with RadMD and Integral Diagnostics.

Well-positioned to support recovery in Elective activity, accelerate growth in Nighthawk and continue to execute on the growth strategy.

Medica Group PLC (LSE:MGP, "Medica", the "Group" or the "Company"), the UK market leader by revenue in the provision of teleradiology services, announces its preliminary results for the year ended 31 December 2020.

Financial highlights

(1) Underlying operating profit is a non-IFRS measure and is calculated as operating profit before exceptional items and one-off costs relating to the GDI acquisition and associated extension to the debt facility, share based payments, intangible amortisation in respect of acquired assets.

(2) Underlying Earnings per share is a non-IFRS measure and is calculated based underlying operating profits less financing costs and taxation

· Delivered sales of £36.8m representing 20.9% revenue decline:

o NightHawk revenues of £23.0m (+4%) demonstrating a strong performance despite headwinds caused by the pandemic and a quick recovery from the impact of Covid-19

o Elective revenues of £12.m (-49%) representing a material impact on volumes as a result of re-prioritisation away from elective procedures in the NHS.

o GDI contributed £1.3m in revenues following its acquisition on 3 November 2020.

· Resilient gross profit margin of 47.4% (2019: 47.8%) due to careful management of both pricing and costs.

· Underlying operating profit of £5.0m, a 55.7% decline, reflecting the Covid-19 impact on revenues and the continued planned investment in the business to best position the Group for recovery and growth in 2021 and beyond.

· Net cash at 31 December 2019 of £4.6m became net debt of £3.9m at 31 December 2020 after taking into account strong positive cash generation through 2020 offset by the impact of the initial consideration of €16m (£14.4m) for the acquisition of GDI.

The Board declared an interim dividend for 2020 of 0.85 pence per share and is now proposing a final dividend for 2020 of 1.70 pence per share which will, if approved, result in total dividends for 2020 of 2.55 pence per share, up 13% on 2018, the last year when a final dividend was declared.

Operational highlights

· Expanded geographic reach and diversified service offering with the completion of acquisition of GDI, a leading teleradiology and managed services provider based in the Republic of Ireland that also manages 50% of Ireland's screening and surveillance programme for diabetic retinopathy.

· Improvement in reporter capacity of 13% during 2020 and an increase in Nighthawk SLA to 98% (from 97% in 2019)

· Became the first UK teleradiology provider to fully implement Augmented Intelligence (AI) into clinical practice with the successful launch of AI tool to detect brain bleeds in acute stroke patients, in collaboration with Qure.ai. Over 50,000 live clinical reports have been completed to date

· Contracted with Sectra to provide the new PACS as the first stage of the Company's ambitious FutureTech programme.

· Focus on operational excellence projects as well as improvement in clinical protocol development for acute trauma and stroke reporting.

· Strengthened management team with the appointment of Richard Jones as Chief Financial Officer and Dr Robert Lavis as Clinical Director.

· Successfully negotiated through the early Covid-19 pandemic by quickly transitioning to a homeworking environment whilst able to improve operational performance metrics with UK customers without needing to furlough staff or take any form of government support.

· Launched an effective pro-bono service for clients to assist in the hospital to homeworking switch during the early stages of the pandemic.

· Launched new corporate brand and company values aligned to the new strategy.

Post period highlights

· Launched an Australian based joint venture called MedX with one of Australia's leading radiology companies, Integral Diagnostics, to grow market access, reporting capacity and expertise.

· Undertook a successful and over-subscribed equity placing and subscription which together raised £16.1m, from new and existing institutions together with the Board and senior management in March 2021.

· Completed the earnings-accretive acquisition of RadMD, an imaging Contract Research Organisation (iCRO) business based in the US, enabling entry into the USD 1 billion global market.

· Completed a refinancing of the group's debt in early May 2021 via a new three year fully flexible £30m RCF facility with a syndicate of three banks on favourable terms

Dr. Stuart Quin, Chief Executive Officer of Medica, commented:

"Medica demonstrated a robust performance during 2020, underpinned by the strength of our NightHawk service and effective cost management, and remains in a strong financial position despite the impact of the Covid-19 pandemic. During the start of 2021, we have experienced a strong NightHawk performance and an increasing improvement in Elective activity, which we expect to continue as the government's accelerated immunisation programme reduces pressure on the NHS/HSE and allows a resumption of elective backlog procedures. During the year, we have also made significant progress executing our strategy announced just over a year ago. This strategy positions the Company for growth beyond the pandemic and brings an improved teleradiology offering for our clients and their patients, diversification into new areas of telemedicine, and expansion of our business model into new countries. I am extremely proud of what our excellent team has achieved during the period and remain confident that we are well-positioned to deliver future growth."

For further information, please contact:

About Medica Group PLC

Medica is the market leader in the UK and Ireland for the provision of teleradiology services, providing outsourced interpretation and reporting of MRI (magnetic resonance imaging), CT (computerised tomography), ultrasound and plain film (x-ray) images. In addition, Medica also offers diabetic retinopathy screening in Ireland.

Medica contracts with the largest pool of consultant radiologists in the UK and Ireland, performing remote access teleradiology across its customer base of more than 100 NHS Trusts in the UK, the Irish HSE, private hospital and insurance groups, as well as diagnostic imaging companies. This enables the Company to offer a fast, responsive service. In addition, Medica operates in Australia and New Zealand through MedX, a 50:50 Joint Venture with Integral Diagnostics Limited Pty.

The Company currently offers two primary services to hospital radiology departments:

· NightHawk - urgent reporting service

· Elective - includes routine cross-sectional reporting on MRI and CT scans, and routine plain film reporting on x-ray images.

These services are underpinned by Medica's bespoke, secure IT platform that provides market-leading linkage between a hospital's Radiology Information System (RIS) and consultant radiologists who contract with the Company. Direct RIS access ensures that where the wider patient medical history is available, it can be reviewed by the consultant as part of every report.

Through its subsidiary, RadMD, in the United States, Medica also provides pharmaceutical and biotech clients and contract research organisations (CROs) with high quality, complex imaging services for international clinical trials. RadMD has gained vast experience in the space, having contributed to over 500 international clinical trials, in all phases of clinical research from proof of concept to phase III and with expertise in oncology, as well as a wider range of therapeutic areas including medical devices, neurology and cardiovascular.

For more information please visit: www.medicagroupplc.com

Chairman's statement

Resilient performance in response to the pandemic

The first quarter of 2020 started positively with continued growth in Medica's core teleradiology reporting business. Growth up until the end of March was 13% ahead of the comparable period in 2019.

However, during the last week of March 2020, the UK government sanctioned a national lockdown. This had a significant and immediate impact on Medica's performance as the NHS focused on Covid-19 related cases and ceased all non-urgent, elective procedures. Additionally, a combination of people being confined to their homes and a reluctance to attend Accident and Emergency (A&E) unless for very critical health issues meant that attendance at A&E fell considerably. Medica's Elective activity fell to c. 5% of the pre-Covid (Jan-Feb 2020) levels in April and the out-of-hours, urgent reporting service (NightHawk) activity reduced by c. 50%.

By May, NightHawk activity had returned to pre-pandemic levels and Elective reporting activity started to increase gradually. Subsequent regional restrictions and 'lockdowns' dampened the recovery in Elective which returned to c. 50% of pre-pandemic activity by year end.

In total, the impact of Covid-19 precipitated a reduction in reported revenue from £46.5m in 2019 to £36.8m in 2020. As a result of the impact on activity, underlying net operating profit fell by £6.3m from £11.3m in 2019 to £5.0m in 2020. Despite this and due to efforts to maximise working capital management and control costs, net cash inflow from operating activities remained strong at £8.6m compared to £9.7m in 2019 due to careful working capital management.

Medica's business model provided a hedge against this negative impact: our radiologists are predominantly consultants so are remunerated on a case-by-case basis, enabling us to easily scale costs in line with activity. Additionally, teleradiology is enabled by remote reporting from workstations based in reporter's homes. Therefore, reporters were already prepared for such a scenario. The office-based operational and technical team also migrated quickly and seamlessly to remote working ensuring that the service was able to operate without being compromised.

Whilst for most of the year the focus of the NHS was on managing the pandemic and not on procurement of services, Medica was able to record a net increase in NightHawk clients over the 12 months. Much of this increase was down to clients returning to Medica due to the difference in quality, clinical governance, breadth and depth of service that differentiates Medica's offering.

Changes to executive and non-executive directors

Medica also continued to make changes to its leadership team and Board to support the company's new strategy and phase of growth. In August, the Company welcomed Richard Jones as Chief Financial Officer and Company Secretary. Earlier this year, Dr Stephen Davies took the decision to retire and will leave Medica at the end of May. I would like to thank Stephen for his contribution to Medica and for the impact that he had of bringing a culture of continuous clinical and quality improvement to the business. Stephen will be replaced by Dr Robert Lavis who joined Medica in 2020 as Clinical Director. The succession plan is being executed successfully and will result in a smooth transition next month as Stephen hands over to Robert.

In April 2021, the board also welcomed Dr Junaid Bajwa as non-executive director. Junaid brings with him a background and experience in the NHS and more recently, leading digital transformation within large IT firms, that will help the company as it continues to grow and diversify into the broader telemedicine arena.

In addition, as announced separately on 11 May, Steve Whittern decided to resign and is therefore not standing for re-election at the 2021 AGM. I would like to thank Steve for his commitment to Medica since IPO, particularly for supporting the previous management team as they made the move from private equity to a fully-fledged listed business. I wish him well for the future. A search process to appoint a replacement Senior Independent Director and Chair of the Audit Committee is well progressed.

Significant progress made to deliver against new strategic priorities

In March 2020, the Company set out its strategic aims for the next five years. Despite the impact of the pandemic and the need for management to focus on provision of the service remotely and under challenging circumstances, I am pleased to report that Medica did not make use of any government funded schemes or furlough any staff and was therefore able to make significant progress with implementation of the new strategic priorities in our core teleradiology business.

Delivering on strategy to expand into new markets and diversify services

In November, Medica acquired Global Diagnostics Ireland Limited (GDI). This acquisition follows Medica's strategy of international expansion and service diversification. Since the acquisition, the team has completed the initial integration of the business and it has been rebranded as Medica Ireland. It is performing as expected and our focus is now on supporting and driving future organic growth.

Further focus on execution of strategy in 2021 and return to growth

As announced in February this year, Medica has launched a 50:50 joint venture with Integral Diagnostics Limited Pty (IDX), one of Australia's leading radiology service companies. This joint venture, MedX, aims to source UK qualified radiologists to report for Medica and, in time, bid jointly for new teleradiology contracts in Australia and New Zealand.

In March 2021, Medica was excited to announce its entry into the international market for the provision of imaging services for clinical trials. The acquisition of US-based RadMD opens up opportunities for Medica to offer a wider range of telemedicine services, expand its customer base to include pharmaceutical, biotech and medical device companies, and provides foundations for Medica in the US market.

Medica aims to continue to expand its geographic reach and diversify its telemedicine services in fast-growing market segments where Medica's experience and expertise can be brought to bear. As laid out in our strategy last year, we intend to focus on new areas of telemedicine, as well as geographical diversification of our core business into new markets.

Every year, I end by thanking our employees and the management team at Medica, as well as our reporters and central services team for playing their part to ensure continued delivery of reporting services throughout the year. However, after 2020 and the continuation of the impact of the pandemic into 2021, it is even more important to pay tribute to their achievements and dedication. It is only at times like these that a team is truly tested and I am proud that they stood up to the challenge and not only managed to deliver a robust financial performance, but also took the opportunity to accelerate development of the business in line with the new strategy.

Progress made in 2020 and so far this year demonstrates that the new management team is delivering on its strategy and the Group has a renewed focus on execution and growth which I am confident will generate benefits for our patients, reporters, employees and shareholders alike.

Roy Davis,

Chairman

10 May 2021

CEO report

Medica has the aspiration to lead the way in telemedicine. Whilst Medica remains the market leader in teleradiology reporting in the UK, in 2020, Medica added market leadership in the Republic of Ireland and in 2021 has already expanded into the clinical trials field via an acquisition in the US and also took the strategic decision to establish a joint venture partnership in the Australian market.

Medica has demonstrated the resilience of its business model in the face of a global pandemic and is now well-placed to support its clients as their elective services recover. A broader range of telemedicine services, coupled with a more international business, will provide Medica with additional opportunities to drive future growth and diversify its revenue base.

Growth impacted by pandemic, but elective procedure backlogs building up

Medica was fast to react to the unfolding pandemic in March 2020. As lockdown loomed, the Company had already tested its home working contingency plans. Whilst Medica reporters by virtue of the systems and processes the Company deploys, are set up to work from home, the central services team is office-based and so needed to react quickly. This shift to remote working was testament to the agile behaviour and 'can do' attitude of the team at Medica and I would like to start my report by recognising the speed at which the team responded to the challenge of Covid-19 and how well they were able to adapt and provide support to clients who in turn can do the same for their patients.

Medica was also fast to assist clients as the Covid-19 outbreaks occurred in hospitals. The Company was able to leverage its installed base of well over 500 workstations to enable radiologists working for our clients to report from home, rather than risk going into the hospital to do so. Over 20,000 reports were allocated by Medica's team on a pro bono basis during the initial Covid-19 outbreak - a service which extended throughout the pandemic into 2021. Medica was also fast to deploy a specialist Covid-19 chest X-ray protocol to enable accurate and rapid reporting. In addition, we liaised with the NHS Nightingale hospitals to provide imaging reporting on standby, but thankfully our services were never required.

Whilst radiology activity reduced across the NHS last year due to a combination of focus on seriously ill patients, staff shortages, a need to socially distance patients and to disinfect scanners between appointments, most procedures for which imaging was requested have been deferred rather than been cancelled.

Based on NHS statistics published in April this year, there are now a total of 4.7 million people waiting for hospital treatment. That number is set to rise to what the NHS Confederation believes could be as many as 6.9m cases by the end of the year as people finally visit a GP. According to the most recent figures, the number of people who have been waiting for at least a year has increased from 1,613 before the pandemic struck to 304,044. This represents an unprecedented demand for NHS imaging services. Medica expects there to be a significant focus on scanning these patients in 2021 to reduce the backlog. This will be dependent on controlling viral epidemiology and increasing immunisation across the population. Once these are under control, then we can expect the NHS to accelerate activities and expand imaging capacity to address the huge demand on its services.

In anticipation of this, the Company continued to recruit radiologists in 2020 for both our NightHawk and Elective reporting work and increased its rostered reporting hours (the Group's revised measure of true radiologist capacity) by 13% YoY. Medica has close relationships with its clients' radiology departments and will ensure that it has sufficient capacity to meet this anticipated demand when it materialises into images that require interpretation.

Progress against strategy

Launch of FutureTech programme - on track to deliver

In March 2020, I announced a new programme that will replace the current PACS, as well as automate and improve many of the currently manual legacy processes involved in allocation and reporting of images. In December 2020, Medica signed a contract with Sectra, an expert in delivering PACS solutions. This ambitious programme will deliver a new PACS in Q1 2022 and is expected to require up to £6 million investment over the period until 2024. This will be the platform upon which Medica can deliver improvements in the automated allocation of cases to reporters and more easily deploy Augmented Intelligence (AI) and Advanced Visualisation solutions to enhance the quality of reporting.

Medica has invested in a dedicated team to deliver the FutureTech programme. Delivery of the new reporting system will improve the experience for reporters and over time, drive operational efficiencies and operating leverage in the business.

Successful pilot and launch of Augmented Intelligence tool to detect brain bleeds in stroke patients.

Also in March 2020, I set out Medica's approach to Augmented Intelligence and announced a partnership with Qure.ai, a leading expert in AI solutions for radiology based in Mumbai. I am pleased to announce that within nine months, Medica has been able to conclude two detailed pilots of the AI algorithm for stroke called "qER" and launch into live clinical practice in December 2020. To date over 50,000 live clinical reports have been completed using this decision support tool and feedback from radiologists and our clients has been overwhelmingly positive. Radiologists are finding that the "qER" tool enhances their own diagnoses, but occasionally, and importantly, highlights evidence of bleeding that is hard to detect by human eye. This tool, the first launched into clinical production by a teleradiology company in the UK, therefore further differentiates Medica's NightHawk service and is another reason for clients to choose Medica to handle their urgent, out-of-hours reporting.

Medica is planning to deploy further AI decision support tools to improve quality and increase efficiency once the first stage of the FutureTech programme has been delivered.

Allied to this is the investment that Medica made in 2020 to revise and roll-out new protocols for reporting stroke and major trauma. Medica has trained its specialist radiologists to report using these best practice protocols and again, these quality improvements have been well received by clinicians and clients.

Entry into Ireland and diversification of service offering

In 2020 and into 2021, Medica accelerated its strategy to internationalise its core business and made progress to diversify the range of telemedicine services it offers.

In November 2020, Medica acquired GDI, the market leader in the nascent, but fast-growing teleradiology market in the Republic of Ireland. This exciting acquisition was conducted during the initial recovery from the first Covid-19 lockdown. Whereas Medica's core Elective reporting business was heavily impacted by the pandemic, GDI's business was less impacted since as well as conducting radiology reporting services, GDI also provides a wider 'managed service' offering which includes scanning patients. This means that GDI is better able to capture reporting activity. Additionally, GDI was successful in negotiating with the HSE (Health Service Executive, the national health service in Ireland)) to manage the costs of service delivery. This is particularly true for the ophthalmic screening service provided by GDI called Global Vision. This service provides 'back of the eye' retinal screening services to diagnose diabetic retinopathy in around half of the Irish population. This represents a new telemedicine service and revenue diversification for Medica.

I am very pleased that the management team of GDI is equally excited by the prospect of joining Medica and with the initial phase of integration complete, the combined team is now focused on driving growth and ensuring sufficient capacity to support the anticipated demand that will come as the backlog of elective cases are managed in Ireland. Integration of the company is advanced and should be completed by the end of the first half of 2021.

Strategic approach to access radiologist capacity and new opportunities in Australia, New Zealand and beyond

In February 2021, Medica established a 50:50 Joint Venture with Integral Diagnostics Limited Pty (IDX); a leading provider of radiology services in Australia and New Zealand that is listed on the Australian stock exchange. This innovative partnership, MedX, will have multiple benefits for both IDX and Medica:

· Working in collaboration with the joint venture, Medica will be better able to source UK certified radiologists to support its growing NightHawk service that remains predominantly supported from the UK during the night-time. This offers more flexibility as Medica grows, but also means that a contingent of urgent out-of-hours reporting is conducted during daytime hours in Australia and New Zealand.

· In time, the joint venture will jointly bid to run teleradiology reporting services in Australia and New Zealand. Clients will benefit from the local knowledge and expertise of IDX coupled with Medica's experience of delivering teleradiology reporting at scale.

· Further, the joint venture aims to target new markets where the expertise of both partners can be leveraged to unlock new opportunities.

Acquisition of RadMD and associated equity fund raising

In March 2021, Medica announced the acquisition of RadMD, a high-quality US based imaging Contract Research Organisation ("iCRO") business based in Conshohocken, Pennsylvania.

The company was established in 2006 by two leading experts in imaging clinical trial design and execution, Dr Richard Patt and Dr Kohkan Shamsi, and the company has growth to become a key quality provider of iCRO services to Pharmaceutical and Biotech clients and to other CRO's. RadMD offers a broad spectrum of imaging clinical research services including the full management of all imaging aspects of clinical trials, expert image review and consulting services with expertise particularly in design of early-stage trials with imaging. Medica and RadMD both focus on providing specialist interpretation of CT, MRI and X-ray images. However, whereas Medica focuses often on highly time sensitive diagnostic reporting of images from patients in hospital, RadMD's radiologists and medical experts read images under strict regulatory protocols as part of multi-phase clinical trial studies. The business also includes an institute focused on the training of clinical trial sites and sponsors

The company has grown rapidly and now counts a wide range of pharmaceutical, biotech, medical device and contract research organisations (CROs) among its clients, with an excellent reputation in the market. The business employs a team of 16 full-time employees, a full-time consultant and 1 part-time employee in the US working alongside more than 250 radiologists specialised in reading scans for clinical trial purposes who are contracted to provide these services as required. Whilst the business covers a range of therapeutic areas including Central Nervous System (CNS), cardiovascular and medical devices, its particular expertise is in early-stage Oncology imaging studies.

Medica will support the Principals, Dr Patt and Dr Shamsi, as well as the wider team at RadMD to build on their success to date by providing more operational and strategic support.

To fund the $16.3m (£11.7m) initial consideration, in March 2021 we completed a 9.9% combined equity placing and direct subscription from the Board and senior management which raised £16.1m gross proceeds with strong existing and new investor support.

New corporate brand and company values aligned with the new company strategy

In September, Medica launched a new corporate identity that reflects the ambition to grow and diversify the business. Alongside this, the team conducted focus groups to establish company-wide values that set out a clear framework in terms of how Medica expects employees to conduct business, interact with stakeholders and harness the creativity and ambition that we have within the company to grow and continually improve. These values are central to how Medica delivers its services and all employees are assessed against their ability to deliver their objectives within a framework that includes the new Company values.

Senior Leadership training programme and alignment of incentives with business strategy

Alongside the actions taken to execute Medica's new strategy, investment was made in 2020 to train our senior management as part of a bespoke "Medica Senior Leadership Training" programme. The first of its kind at Medica, this programme encouraged greater interaction and opportunities for management to grow and develop in their current roles and prepares the ground for individuals to take new opportunities as they arise. In parallel, management incentives and terms have been aligned and revised such that there is strong alignment now across the management team with the new strategy and it is clear how each member of this team can be rewarded for their contribution. Changing culture takes time, but the pandemic accelerated the need for change and this cultural shift is now well under way at Medica.

Outlook

Whilst 2021 started where 2020 left off with strong NightHawk performance and lower Elective activity in the UK and Ireland, we are already starting to see an improvement in Elective as the year progresses and the government's accelerated immunisation programme reduces pressure on the NHS/HSE and allows a resumption of Elective backlog procedures. While the Company is not able to re-initiate full guidance at this time, we are very encouraged by the current trajectory of the recovery and expect to see continued improvement in performance as the year progresses.

Medica's focus in 2021 will be divided between i) ensuring that the UK business is well prepared to support recovery in Elective activity, ii) accelerating growth in NightHawk and continuing to execute on our strategy to integrate, expand and iii) internationalise the new areas of our business.

i) We are seeing a very positive month on month improvement in levels of Elective teleradiology activity. As the NHS in the UK and HSE in Ireland will remain capacity-constrained for some time, Medica does not expect a short-term spike of reporting, but rather expects a sustained period of increased reporting until such time as the backlog of Elective cases is processed.

ii) The focus for NightHawk activity will be to continue to grow the service based on 2020 outturn and capture market share, as well as proactively manage the impact of pricing pressure on gross margin.

iii) Medica continues to focus on delivering robust growth with the aim to double its revenue within five years once the impact of the pandemic subsides. The plan remains to deliver strong organic revenue growth in the core business with increased scalability and operating leverage, with upside potential from new business lines and selective M&A.

Continued focus on new areas of business

Ireland: The strategy for Medica in Ireland is to continue to deliver a flexible model combining low capex equipment, radiographer and sonographer staffing, as well as expanding the teleradiology services offering across both public and private hospitals. Medica will start to utilise its combined network of dual Irish and UK Medical Council certified radiologists to increase the reporting capacity in both markets. In addition, Medica will look to leverage its systems, processes and expertise in the UK to help to drive growth in Ireland, whilst at the same time adapting its business model to take advantage of the expertise and broader range of services delivered in Ireland.

Australia and New Zealand: The focus for 2021 is to leverage the joint venture to access additional reporting capacity during daytime hours in Australia for urgent, out-of-hours reporting in the UK. In addition, Medica will look at expansion into other markets where there are opportunities to leverage its core offering and expertise.

United States: The focus for 2021 is to ensure successful integration of RadMD and develop the team further to manage the fast growth of clinical trial imaging studies.

Despite Covid-19, significant progress has been made in 2020 and early-2021 to underpin the growth of our core teleradiology business in the UK, as well as to diversify and internationalise the business to position Medica to take advantage of opportunities in adjacent markets. I continue to be excited by the future potential of the Company and the markets in which it operates today and could expand into in the future.

This focus and drive to execute on our growth strategy will continue in 2021 alongside existing efforts to focus on underpinning future expansion of the core UK and Ireland teleradiology business, as well as our new entry into the exciting imaging for clinical trials market in the US. In so doing, I fully expect that Medica's profile in the market will continue to evolve over the year in our pursuit to become a leader in international telemedicine services.

I am grateful to the whole team at Medica for their efforts to respond to the pandemic and to position Medica favourably for future growth and expansion. I remain very confident that we will emerge stronger from the pandemic and well-placed to take advantages of the many opportunities that this will bring.

Dr Stuart Quin,

Chief Executive Officer

10 May 2021

Financial Review

Revised segmental analysis

Following the acquisition of GDI during the year, we have made changes to the way we manage and report on Group operations. From 3 November 2020 we report our results in two geographic segments the UK and the Republic of Ireland.

Revenue

In the UK, NightHawk, our urgent out-of-hours reporting service, had a very resilient performance and recovered quickly from the impact of Covid-19 and saw revenues increase 4% from £22.1m in 2019 to £23.0m in 2020. Elective encountered a material impact on volumes during the year as a result of re-prioritisation away from Elective procedures in the NHS, with revenue down 49% from £24.5m to £12.5m.

In Ireland GDI contributed £1.4m in revenues in the period from its acquisition on 3 November 2020 in line with expectations.

Gross Profit and GPM

Gross Profit is stated after the cost of reporting radiologists, internal audit costs required to deliver contractual commitments and other cost of sales such as framework costs. In 2020 Gross Profits reduced by £5.5m from £22.3m in 2019 to £17.5m in 2020 in line with the reduction in revenues. Gross Profit Margin at 47.4% remained in line with 47.8% in 2019.

Underlying Operating Profit

For 2020, consistent with prior years we have reported underlying operating profits that consider the impact of non-underlying and exceptional items to provide a more representative depiction of underlying activity. Underlying operating profits reduced from £11.3m in 2019 to £5.0m in 2020. This reflected both a reduction in revenues, as well as the continued impact of our investment in people and infrastructure to support our growth plans. Operating costs increased £1.1m from £9.2m in 2019 to £10.3m in 2020 largely due to the annualised increase in staff-related costs.

Non-underlying costs and exceptional items

Non-underlying costs after tax including exceptional costs increased by £1.3m from £1.2m in 2019 to £2.5m in 2020. These costs included £0.8m (2019 £nil) relating to the acquisition of GDI, £1.0m (2019 £1.0m) relating to the amortisation of acquired intangible assets, £0.2m (2019 £nil) relating to the write-off of certain assets, £0.2m (2019 £0.2m) relating to share-based payments .and exceptional costs relating to board succession of £0.3m (2019 £0.4m). The income tax credit on these non-underlying costs was £0.1m (2019 £0.3m).

Net finance expense

Finance costs net of finance income were £0.3m for the year (2019: £0.3m). In November 2020, we extended our revolving credit facility (RCF) from £1.0m to £6.0m and drew this down as part payment for the acquisition of GDI. Interest on the RCF is charged at LIBOR +3% and therefore interest costs increased accordingly from November 2020.

Profit before Tax

Underlying profit before tax reduced by £6.3m from £11.0 in 2019 to £4.7m in 2020 reflecting the reduction in revenues and gross profit, as well as the increase in operating costs. Total profit before tax, after taking account of non-underlying and exceptional items reduced by £6.7m from £7.9m in 2019 to £1.2m in 2020.

Taxation

The Group has incurred a tax charge of £0.7m in the year ended 31 December 2020 (2019 £1.7m). The effective rate of tax for 2019 is 19.0%.

Earnings per share

Underlying basic earnings per share (EPS) reduced by 4.9% from 8.13 pence per share in 2019 to 3.47 pence per share in 2020, reflecting the reduction in profits. Total basic EPS, after taking account of non-underlying and exceptional costs reduced by 5.91pence from 7.12 pence in 2019 to 1.21 pence in 2020

Dividends

In 2019, due to uncertainty during the early stages of the Covid-19 pandemic, the Board decided not to declare a final dividend for 2019. Total dividends for 2019 were therefore 0.85 pence per share. In 2020, an interim dividend of 0.85 pence per share was declared and the Board are proposing a final dividend for the year of 1.7 pence per share with the total dividends of 2.55 pence representing a 13% increase on 2018, the last year when a final dividend was declared. The final dividend will be paid on 23rd July 2021 to shareholders on the register as at 24th June 2021.

Capex

Total capex for 2020 was £2.0m in 2020 compared to £2.8m in 2019. This included £1.0m (2019 £0.7m) expenditure on equipment for contracted radiologists reflecting the significant increase in radiologist recruitment in 2020 compared to the prior year. Additionally, £0.9m of intangible assets that were acquired have been included in capex compared to £0.5m in 2019.

Cash and debt at 31 December 2020

Operating cash generation in 2020 reduced slightly from £9.7m in 2019 to £8.6m in 2020 despite the significant reduction in revenues due to careful working capital management and control of costs. Free cashflow, after taking account of capex was £6.6m in 2020 compared to £6.9m in 2019.

After taking account of the acquisition of GDI, gross cash at 31 December 2020 was £13.9m (2019 £16.6m) and net debt was £3.9m (2019 net cash of £4.6m).

Gross bank borrowings at 31 December 2020 were £17.8m (2019 £12m) and included term debt of £12m, in place since the IPO in 2017, together with the RCF which was extended from £1m to £6m of which £5.8m was utilised as at 31 December 2020.

Acquisition of GDI

On 3 November 2020, the Company acquired GDI for an initial consideration including customary adjustments for working capital of €16.8m (£15.1m). The fair value of assets acquired was £11.1m and after taking account of the fair value of the deferred consideration of £3.5m, goodwill of £7.5m was attributed to the acquisition.

Post Balance sheet events

Joint Venture

On 22 February2021 the group announced an equal joint venture (JV) partnership with Integral Diagnostics Limited, a leading provider of medical imaging services across Australia and New Zealand. The joint venture, MedX, aims to provide teleradiology reporting services and increased reporting capacity in Australia, New Zealand, the UK and Ireland. The initial equity investment by both parties into this joint venture was AUD 100,000 each (£50,000). The joint venture will be reported on an equity accounting basis going forward.

Acquisition of RadMD

On 22 March 2021 the group acquired RadMD LLC, a company incorporated in the United States of America. RadMD is a leading Imaging Contract Research Organisation ("iCRO") providing services to the fast-growing clinical trials market. The initial cash consideration paid was $16.3m (£11.7m) with total potential cash consideration after taking account of future potential deferred consideration of up to a maximum of USD 21.7 million (circa £15.6 million).

Equity placing and subscription

On 23 March 2021, a total of £16.1m was successfully raised on the public market through a combined equity placing (£15.6m gross proceeds) and company subscription (£0.5m gross proceeds). Total costs in connection with the fundraise were £0.5m. A total of 11,111,110 Ordinary shares were issued including 10,727,666 Placing Shares and 383,444 subscription shares which represented, in aggregate, approximately 9.98 per cent of the issued ordinary share capital of the Company.

Refinance in May 2021

On 6 May 2021 the group entered into a new three year fully flexible £30m RCF facility with a syndicate of three banks, including previous lenders Lloyds, together with NatWest and Silicon Valley Bank. The facility is extendable for up to two years. Variable interest is calculated on utilised facilities based on leverage with initial interest at Sterling Overnight Index Average (SONIA) + 2% and non-utilisation fees of 35%. Key banking covenants remain the same with maximum net debt to EBITDA of 2.5x and interest cover of 4x.

Richard Jones

Chief Financial Officer

10 May 2021

CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Company Registration 08497963

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2020

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2020

1 Medica Group PLC

Medica Group PLC ("the Company") was incorporated in England and Wales on 22 April 2013 under the Companies Act 2006 (registration number 08497963) and is domiciled in the United Kingdom. Its registered office and principal place of business is One Priory Square, Priory Street, Hastings, East Sussex, TN34 1EA.

The consolidated financial statements of the Group for the year ended 31 December 2020 (including comparatives) comprise the Company and its subsidiaries (together referred to as "the Group"). The Group's principal activity is the provision of teleradiology reporting and is the leading independent provider in both the UK and Ireland.

2 Basis of preparation

The Consolidated financial statements of Medica Group PLC and its subsidiary undertakings (together "the Group") for the 12 months ended 31 December 2020 have been prepared by the directors of Medica Group PLC.

The consolidated financial statements of the Group have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2020 or 2019 but is derived from those accounts using consistent accounting policies. Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies and those for the year to 31 December 2020 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unmodified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

Business combinations are dealt with by the acquisition method. The acquisition method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their provisional fair values which are then finalised within a 12-month period and, which are also used as the basis for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill, which includes intangible assets that do not qualify for separate recognition, represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition.

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Where the settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value using a probability weighted expected value approach. Contingent consideration is classified either as equity or as a financial liability and is recognised at fair value on the acquisition date. Amounts classified as a financial liability are subsequently re-measured to fair value in accordance with IFRS 9 (Financial Instruments), with changes in fair value recognised in the consolidated statement of comprehensive income as an administrative expense.

Directly attributable acquisition costs are expensed as incurred within the consolidated statement of comprehensive income as non-underlying administrative expenses.

Exceptional items are items that are unusual because of their size, nature or incidence and which the directors consider should be disclosed separately to enable a full understanding of the Group's results.

The Group has applied an income statement format which seeks to highlight significant items within Group results for the year such as one-off acquisition costs, and other non-operating costs such as the amortisation of acquired intangibles and share based payments. The Group exercises judgement in assessing the particular items which, by virtue of their scale and nature should be disclosed in the income statement and related notes as non-underlying items. The Group believes that such a presentation is useful for the users of the financial statements in helping to provide a balanced view of, and relevant information on, the Group's underlying financial performance.

A copy of the annual report for the year ended 31 December 2020 will be available at http://www.medicagroupplc.com by 21 May 2021.

3 Going concern

As at 31 December 2020 the group had net cash of £13.9m, a term loan of £12m due for repayment in full in March 2022 and £5.9m RCF also due for repayment in March 2022 Net debt at 31 December 2020 was therefore £3.9m. The Directors have prepared detailed cashflow forecasts for the 21-month period to December 31, 2022. These forecasts indicate that the group has sufficient funds to meet its liabilities as they fall due for at least the next 12 months. In preparing these forecasts the directors have considered the potential for further and prolonged negative impact of COVID-19 going forward following the significant impact on Medica's revenue reported in 2020 due to the impact on Elective volumes and revenue as the NHS focused its efforts away from elective activity to focus on treating patients in the pandemic and also the negative impact on NightHawk volumes and revenue due to the impact of the lockdowns and other restrictions. The Directors have also considered the impact of the recently announced acquisition of RadMD LLC with the associated 9.9% equity placing as well as the refinancing of its existing debt facilities that was completed in early May 2021. The refinancing provided a new 3 year fully flexible £30m RCF facility as set out in Note 22 at which time the term debt was repaid in full and £12m of the new RCF was utilised (see note 31).

The Directors have considered a severe yet plausible downside scenario assuming no improvement in Elective volumes and revenue from current levels, further and material reductions in margins in new and existing NightHawk contracts and increased cost relating to the FutureTech programme. Under these scenarios the forecasts also indicate that the group will have sufficient funds to meet its liabilities as they fall due for at least the next 20 months. The Director's also considered a reverse stress test considering the conditions that would be required for the Group to breach its banking covenants which did not indicate a material uncertainty relating to going concern.

4. Segment reporting

Following the acquisition of GDI during the year, management have made changes to the information they review and the segmental reporting analysis takes a different format to prior years as a result. The comparative information has been restated to be consistent with the current year.

Management prepare and monitor financial information for the Group's the two segments, UK and Ireland on a regular basis. This financial information is reviewed and used by the chief operational decision maker (considered to be the chief executive officer) in managing the operating activities of the Group. IFRS 8 sets out certain thresholds in determining whether reportable operating segments exist, and, following the acquisition of GDI, the two geographical segments exceed these thresholds and are therefore presented accordingly.

The Group incorporated a new subsidiary, Medica Australia Pty Limited during 2019, however this subsidiary does not yet generate any revenue and does not meet the criteria set out in IFRS 8 for disclosure as a reportable operating segment. Its purpose is to service contracts with customers of the Group UK trading subsidiary. These contracts related wholly to UK customers and the figures relating to the Australian entity are included in the UK column. The Group established a further Australian subsidiary, Med-IDX Pty in December 2020 although this subsidiary did not engage in any activity prior to the year end. As set out in note 31, in February 2021 this became a 50:50 joint venture with Integral Diagnostics Limited Pty and this entity will be accounted for under the equity method, as prescribed by IAS 28 para 10 and this entity is therefore not included in the segmental analysis.

Overhead costs included in the income statement of Medica Group PLC as a single entity have been split between the two geographical segments based on activity. No customer accounted for more than 10% of the Group's revenues.

The data in the Ireland column represents the information for Global Diagnostics (Ireland) Limited and Global Retinopathy Screening Limited from their acquisition in November 2020 plus an allocation of centralised costs.

5 Operating profit

The operating profit and the profit before taxation are stated after:

6 Non-underlying items

The costs incurred in respect of Board succession and review for 2020 and 2019 are in relation to the international search and selection process for both the chief executive officer and the non-executive director and, in 2020, for costs incurred in respect of the settlement agreement for the outgoing CFO. These are considered to be one off costs. In 2019 there are also additional costs in relation to a professional Board assessment review.

7 Tax expense

Reconciliation of tax expense:

UK corporation tax is assessed on the profit on ordinary activities for the year and is the same as (2019: same as) the standard rate of corporation tax in the UK of 19.00% (2019: 19.00%). The Finance Act 2016 was enacted so as to reduce the UK's corporation tax rate from 19% to 17% with effect from 1 April 2020. In March 2020 the Chancellor announced that the tax rate would remain at 19%, and this rate has been used to measure deferred tax assets and liabilities where applicable. Subsequent to the year end, in March 2021, the Chancellor announced that the corporation tax rate would increase to 25% in the year 2023, however, this rate had not been substantively enacted at the reporting date and it has not been used in the measurement of deferred tax. There are no expected changes to tax rates in Ireland.

The charge for the year can be reconciled to the loss per the income statement as follows:

8 Earnings per share

Both the basic and diluted profit per share have been calculated using the profit after tax attributable to shareholders of Medica Group PLC as the numerator. The calculation of the basic profit per share is based on the profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

As at 31 December 2020 the directors assessed the potentially dilutive effect of contingently issuable shares, which comprise share options awarded as part of the Performance Share Plan. As at the end of the year there were 3,531,899 (2019: 1,385,877) options outstanding of which 180,772 (2019: 407,702) were considered dilutive. The calculation of diluted earnings per share above takes into consideration the Group's performance against the targets within the Performance Share Plan to date. There were no further instruments that had a potentially dilutive effect.

As set out in Note 31, a placement of ordinary shares occurred after the year end, and this placement would have increased the number of ordinary shares outstanding at the end of the period if that placement had occurred before the balance sheet date.

9 Dividends

¹ In light of the uncertainty surrounding the impact of COVID-19 the Board chose not to propose a final dividend for FY19 A final dividend of 1.7pence per share is proposed for 2020 to be paid in 2021.

10 Intangible assets

At the year ended 31 December 2020, £108,000 (2019: £104,000) of development costs have been capitalised as internally generated software and technology intangibles. These have not been shown separately as they are not deemed to be material to the financial statements.

11 Property, plant and equipment

12 Business combinations

On 2 November 2020 the company acquired 100% of the ordinary share capital of Global Diagnostics (Ireland) Limited and its joint venture Global Retinopathy Screening Limited. It subsequently acquired, on the same day, the remaining 50% interest increasing its total shareholding of Global Retinopathy Screening Limited to 100%. Both companies are incorporated in the Republic of Ireland and their principal activities are discussed in the Strategic Report. The exchange rate used on the date of acquisition was £1/€1.10955. Set out below are the provisional fair values of the assets and liabilities acquired.

13 Equity

Ordinary share capital issued and fully paid

Issue of share capital during the year

On 29 May 2020, 168,536 ordinary shares of 0.2p each were issued for cash at par value.

14 Post balance sheet events

On 22 February 2021 the group announced an equal joint venture (JV) partnership with Integral Diagnostics Limited, a leading provider of medical imaging services across Australia and New Zealand. The joint venture, MedX, aims to provide teleradiology reporting services and increased reporting capacity in Australia, New Zealand, the UK and Ireland. The initial equity investment by both parties into this joint venture was AUD 100,000 each (£50,000).

On 22 March 2021 the group acquired RadMD LLC, a company incorporated in the United States of America, a leading Imaging Contract Research Organisation ("iCRO") providing services to the fast-growing clinical trials market. Total cash consideration payable is up to USD 21.7 million (circa £15.6 million), subject to customary working capital and other adjustments at completion of which $16.3m (£11.7m) was payable at completion. The purchase was concluded so close to the date of signature of these financial statements that the fair values of the assets acquired and liabilities assumed have not yet been finalised. The disclosure, which is a requirement of IFRS 3 'Business Combinations', will be provided in the interim financial statements for the six months ended 30 June 2021.

On 23 March 2021 a total of 10,727,666 Placing Shares have been placed by Investec Bank plc and Liberum Capital Limited at a price of 145 pence per Placing Share. In conjunction with the Placing, all of the directors of the Company, Junaid Bajwa (who was a non-executive director from 1 April 2021) and certain members of the senior management team have agreed to subscribe for 383,444 new Ordinary Shares at the Placing Price which amounts to gross subscription proceeds for the Company of £556,000 in aggregate.

The Placing and Subscription raised, in aggregate, gross proceeds of approximately £16 million for the Company. The New Shares issued under the Fundraise represented, in aggregate, approximately 9.98 per cent. of the existing issued ordinary share capital of the Company. Proceeds of the placing were used to fund the initial cash consideration with the surplus to be used for general working capital purposes and to fund potential future contingent cash consideration.

On 23rd April 2021 the RCF balance of £5.9m was repaid in full. On 5 May 2021 the £12m term debt was also repaid in full as part of a refinance of the Group's debt facilities with £12m of a new £30m RCF drawn down on the same date. The new facility has a three-year term, extendable by up to two years, a margin above SONIA on drawn funds in the range of 2% to 3% depending on leverage and non-utilisation fees of 35%. Security has been granted to the new banking syndicate of three banks comprising Lloyds, Nat West and Silicon Valley Bank over the UK companies and limited security over non-UK entities.

15 Reconciliation of non-IFRS financial KPIs

The Group uses a number of key performance indicators to monitor the performance of its business. This note reconciles these key performance indicators to individual lines in the financial statements.

In the directors' view it is important to consider the underlying performance of the business during the year. Therefore, the directors have used certain Alternative Performance Measures (APMs) which are not IFRS-compliant metrics. The APMs are consistent with those established within the IPO prospectus and the prior year annual report. It is the directors' intention to monitor and reassess the appropriateness of the APMs in future years.