Res esul ults ts for r the e 6 mont nths hs to 30 Jun une e - - PowerPoint PPT Presentation

Res esul ults ts for r the e 6 mont nths hs to 30 Jun une e 2019 019

September 2019

2

Impor

• rta

tant nt disclai laimer er

The information contained in these slides and the accompanying oral presentation (together, the Presentation) has been prepared Medica Group plc (the “Company”). The Presentation is subject to updating, completion, revision and amendment without notice and as such it may change materially. Neither the Company nor any of the Company's other advisers or representatives, shall have any

• bligation to update, complete, revise, verify or amend the Presentation.

The Presentation is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published in whole or in part for any purpose. By accepting receipt of the Presentation, you agree to be bound by the limitations and restrictions set out in this disclaimer. No undertaking, representation, warranty or other assurance, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained in the Presentation. Neither the Company, nor any of their respective directors, officers, partners, employees, agents, advisers or representatives shall have any responsibility or liability whatsoever (for negligence or otherwise) arising from any use of the Presentation or otherwise arising in connection with the Presentation. Nothing in the Presentation constitutes investment advice or any recommendation regarding the securities of the Company. The Presentation contains certain statements that are or may be deemed to be “forward-looking statements”, which are based on current expectations and projections about current events. These statements typically contain words such as “targets”, “believes”, “intends”, “may”, “will”, “should”, "expects" and "anticipates" and words of similar import. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance.

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Today’s agenda 1. 1. Hi Highligh ghts ts 2. Financial review 3. AI 4. Business strategy and outlook 5. Q&A 6. Appendix

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Fina nanci ncial Highl hlight hts ▪ Continued to deliver strong double-digit organic revenue growth in line with board expectations ▪ Modest reduction in gross profit margin as previously guided ▪ Interim dividend proposed of 0.85p per share ▪ Increased investment to £2.3m (people and technology) to support radiologist output and future double-digit growth Operati ating ng Highl hlights ghts ▪ Strong recruitment boosting reporting capacity ▪ First steps initiated to enable reporting from overseas locations ▪ Further investment in data centre to improve resilience and workflow ▪ Progress developing workflow and artificial intelligence (AI) strategy

H1 H1 2019 highl hligh ghts ts

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Today’s agenda 1. Highlights 2. 2. Financ ancial ial review iew 3. AI 4. Business strategy and outlook 5. Q&A 6. Appendix

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Inco come stateme tement nt

▪ Double digit revenue growth driven primarily by expanding offering with longstanding customers (pre 2017) ▪ Gross margin reflects expected modest price reductions ▪ Significant investment to recruit IT resources and other staff to improve scalability and support future growth ambition ▪ Investment to establish initial overseas reporting and duplicated property costs from head office change

(1) EBITDA is a non-IFRS measure and is calculated as operating profit before depreciation, amortisation, exceptional items, and share based payments. (2) Adjusted operating profit is a non-IFRS measure and is calculated as operating profit before depreciation, amortisation, exceptional items, and share based payments. (3) Adjusted earnings per share is a non-IFRS measure and is calculated as earnings per share before exceptional items (including certain exceptional costs relating to refinancing), share based payments and amortisation in respect of assets acquired on acquisition

H1 2019 £’000s H1 2018 £’000s Change Revenue 21,978 18,592 18.2% Gross profit 10,463 9,091 15.1% Gross profit margin 47.6% 48.9% (1.3)% EBITDA (1) 6,153 5,610 9.7% EBITDA margin 28.0% 30.2% (2.2)% Adjusted Operating profit (2) 5,339 4,990 7.0% Adjusted Operating profit margin 24.3% 26.8% (2.5)% Adjusted EPS (pence) (3) 3.98 3.64 9.5%

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Busines ness s overv ervie iew: w: Deman and cont

• ntinues

inues to grow

• w

INCREA REASIN SING DEMA MAND ANNUAL L GRO ROWTH H IN UK SCAN VOLU LUMES MES CONTINU INUED ED SHORTAGE OF RADIO DIOLOGIS OGISTS NHS UNABLE LE TO MEET NEW CQC STANDARDS GRO ROWTH H IN OUTSOU SOURCIN CING

Mark rket et growth th

▪ Increasing expectations for quicker diagnostic response. CQC instructed standar ards for repor

• rti

ting ng turnar aroun

• und times

es for the first time ▪ Growth in A&E admissions and more conditions requiring diagnostic imaging ▪ More images ges being ng produced uced per scan ▪ Clinic nical al guideline delines evo volving lving to include more diagnostic imaging and imaging earlier in the diagnostic pathway ▪ Move to 7-day working is expected to further drive growth

Radiologis gist t shorta tage e – RCR 2018 18 census us

▪ Increasing radiologist gap from 1,104 consultants currently increasing to 1,867 in five years time ▪ Only 2% of radiolog iology departm tment ents s able le to meet t their eir repor

• rti

ting ng requir uirem ement ents s within contracted staff hours ▪ Estimated 154 trainees will enter UK consultant workforce in 2019, insufficient to meet 379 consultant vacancies reported in 2018 ▪ Current taxation issue for doctors overtime exacerbating pressure, although signals that this will be amended

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▪ Night htHawk wk growth wth ⎻ Strong volume growth from existing client base, predicted price decreases due to contract renegotiation ⎻ Continued service improvements, NH portals and focus on turnaround times ▪ Routin ine e growth

• wth

⎻ Deeper partnership with clients and increased client penetration ⎻ Volume growing faster than the overall rate of UK scans ⎻ Managing demand within portfolio ▪ Clien ient t overvie iew ⎻ Majority of growth from existing clients ⎻ 95% revenue from clients pre 2017

Revenue 1,000s

Revenue growth Volume growth Gross profit H1 2019 Gross profit H1 2018 NightHawk 12.0% 20.0% 48.4% 50.4% Cross Sectional 28.7% 27.9% 52.0% 51.8% Plain Film 4.9% 4.6% 49.1% 49.2%

Servic vice line highli ligh ghts: ts: Mainta ntain in strong rong revenue nue and volum ume growth wth

Servi vice e line ne revenues ues

1,813 5,830 7,683 2,008 6,973 9,293

2,106 8,972 10,409

• 2,000

4,000 6,000 8,000 10,000 12,000 Plain Film Cross Sectional NightHawk H1 2017 H1 2018 H1 2019

2012 56% 2013 17% 2014 9% 2015 5% 2016 8% 2017

• nwards

5%

H1Revenue by joining year

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Busines ness s overv ervie iew: w: repor porter er recr cruiti uiting ng update te

Updat ate on reporter r capacity ▪ 28 net additions in H1 2019 ▪ 390 contracted as at 30 June (December 2018: 362). In total, 414 as at 31 August ▪ Continued progress to recruit reporters: attractiveness of Medica as part of a flexible portfolio of work alongside consultant role ▪ Retention remains high ▪ Projects to drive improved productivity of reporters by reducing administrative tasks ▪ Progress to establish international reporting, however still at early stage due to need to ensure secure data links to overseas reporters and quality control

50 100 150 200 250 300 350 400 450 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19

Medica contracted reporters

Cashflow Cashflow

£000s 000s

Operating Operating activities activities 6 Months 6 Months to to 30 June 30 June 2 0 1 9 6 Months 6 Months to to 30 30 June June 2018 2018 Year Year to to 31 31 December December 2018 2018 Profit before tax 4,658 4,354 9,156 Deprecitaion and amortisation 1,249 1,055 2,141 Share based payments 81 65 135 Net finance costs 135 136 261 Movement in debtors and creditors (1,874) 488 112 Tax paid (1,177) (1,100) (2,172) Net cash inflow from operating activities 3,072 4,998 9,633 Investing activities (2,311) (1,161) (1,591) Interest paid and loan fees (163) (156) (305) Dividends paid to ordinary shareholders (1,667) (1,222) (2,056) Net cash inflow/ (outflow) from financing activities (1,830) (1,378) (3,952) Net Net change change in cash in cash and cash and cash equivalents equivalents Movement Movement in net in net cash cash Cash and cash equivalents, beginning of period 12,588 6,907 6,907 Increase in cash and cash equivalents (1,069) 2,459 5,681 Cash Cash and cash and cash equivalents, equivalents, end end of

• f period

period Source: 1 Audited group accounts under IFRS full year 2018 and unaudited half year

▪

Significant CAPEX investments of £2.3m including £1.3m storage area network (SAN), other data centre equipment and reporter workstations to support future growth

▪

Increase in debtors which has started to unwind

▪

Board has approved interim dividend of 0.85p/ share to be paid in October 2019

▪

Net debt of £0.5m at period end

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(1,069) 2,459 5,681 11,519 9,366 12,588

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Busines ness s Overvi rview w (1): : Inve vest sting ing to deliver r a scala alabl ble e and robust bust platfor form

▪ Technical Review: as a result of new CTO, Marc O’Brien’s review of current systems, the following improvements have been made: – Investment in storage area network (SAN) to improve resilience and scalability at main data centre – Commenced virtualisation of client servers to improve workflow and service management – Developed and implemented a robust, secure and scalable overseas IT solution – Fortification of cyber security program – Projects initiated to improve IT architecture and workflow including use of AI and robotic process automation (RPA) to support service delivery

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Busines ness s Overvi rview w (2): : Inve vest sting ing to deliver r a scala alabl ble e and robust bust platfor form

▪ Overseas Capacity update – Established a subsidiary in Australia – Started reporting for UK Trusts in H1 – Current one full-time radiologist and one part-time. Both UK accredited. – Reporting from UK accredited radiologists working in EU ▪ Continuing to develop NightHawk service with NH3 portal launched in February and increasing specialist neurology capability ▪ Scaling recruitment, deployment and project management teams ▪ Developing reporter management structure including new roster system ▪ Launched PET CT reporting service ▪ Relocated head office premises to new location in Hastings

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Today’s agenda 1. Highlights 2. Financial review 3. 3. AI AI 4. Business strategy and outlook 5. Q&A 6. Appendix

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Artificial ificial Intel ellige igence nce – marke ket t overvie iew

▪ By 2023, 3, foreca cast st to be a g a gap of 31% in the UK radiol

• logy
• gy work

rkfor

• rce*

e* – Forecast for 60% increase in Cross Sectional exams in England by 2024 – No evidence that AI tools will be able to increase effective capacity/productivity by as much as 20%, leaving a large structural driver for our services ▪ AI d developme pment nt in the NHS has been incent ntivi vised sed but progress will be limited whilst the following points are addressed – Safety/Regulation

• Accuracy and validation requirements of data and algorithms
• Technology infrastructure to accept AI data outputs and GDPR compliance
• CE accreditation
• Medical indemnity liability

– Cultural acceptance: particularly concern for Autonomous reporting

* RCR workforce survey 2018

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Develop

• pment

ent of f AI

Productivity Aid Auto Diagnosis Diagnostic Aid Ongoing Ongoing Ongoing

▪ Ensuring study labelling correct ▪ Matching demand to appropriate reader ▪ Identify abnormal image appearances ▪ Automate aspects of image reading (measurements) ▪ Automatically diagnose selected conditions / diseases ▪ Reduce wasted time re- allocating ▪ Increased reporter sessional efficiency ▪ Assist clinical diagnosis ▪ Raise standard of care ▪ Enable clinician to focus

• n important cases

▪ Speed up diagnosis

Application Benefits Timeframe

Now 10 years

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Artificial ificial Intel ellige igence nce

Curre rrent nt posi siti tion n ▪ Client engagement indicates controlled adoption of AI could provide an additional driver for clients to use our services ▪ We are actively engaged with a number of AI companies ▪ Medica current focus is – Workflow Improvement – Clinical Prioritisation Short rt to medium um term m impli plica cati tions

• ns for Medica

ca ▪ Shortlist of providers identified for trial in Q4 2019/Q1 2020 ▪ Selected tools expected to: – Improve operational efficiency, by workflow improvement – Decrease turnaround for targeted abnormal findings through clinical prioritisation ▪ Both benefits and additional costs expected to be limited in next 12-24 months whilst the market matures

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Today’s agenda 1. Highlights 2. Financial review 3. AI 4. 4. Busine ness s strat ateg egy y and outlook

• k

5. Q&A 6. Appendix

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Ou Our current nt strateg tegy

Leveraging aging our core business siness to deliver er growth wth

Opti timising ng the core busi sine ness ss Expandi nding ng int ntern rnati tional nally ly

• 1. International – early steps to establish reporting by UK-

accredited radiologists overseas in Europe/AUS

• 2. Additional services – launched PET/CT reporting.

Specialist services increasing in activity from small base

• 3. Optimising the core – investments to upgrade IT, bolster

reporting capabilities and projects initiated to evaluate use

• f AI and robotics to enhance quality and productivity

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Busines ness s overv ervie iew: w: Curren urrent t grow

• wth

th strat ategy gy

EXPAND REPORTER CAPACITY IMPROVE WORKFLO FLOW W & CAPACITY UTILISATION WIN NEW NIGHTHAWK WK CLIENTS DEEPER PARTNERSHIPS S WITH EXISTING CLIENTS

GROWTH TH ELEMENT EMENTS

Focus s for H2 2019 ▪ The main focus will continue to be on: – Increasing reporting capacity from UK and overseas to deliver a high quality and responsive NightHawk service to customers – Become more integrated with customer demand management and scheduling – Leveraging the investments made to enhance systems, processes and strengthening of the technical and service delivery team – Evaluating the implementation of AI for Medica and its customers

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Summary ary and outloo look

▪ Continued strong double-digit organic revenue growth from core business ▪ Invested in technology and people to continue to develop the platform to support future growth ▪ Ensuring Medica remains an attractive place for reporters to expand their portfolio of work thereby maintaining and expanding our reporting capacity ▪ Focus will be on further strengthening the platform to deliver the core service whilst ensuring that it is scalable to support future growth opportunities ▪ Evolve international strategy and broader diversification of services and opportunities for the group ▪ Board confident in meeting its full year expectations

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Today’s agenda 1. Highlights 2. Financial review 3. AI 4. Business strategy and outlook 5. 5. Q&A 6. Appendix

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Today’s agenda 1. Highlights 2. Financial review 3. AI 4. Business strategy and outlook 5. Q&A 6. 6. Appendix pendix

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What at is telerad radiolo iology? y?

The transmission of patient images, such as X-ray/CT/MRI, from one location to another, for the purpose of interpreting and reporting those images

• 4. Teleradiology

eradiology

• 1. Patient

ient admitt tted d to to hospit ital al ▪ Stroke and head injuries ▪ Cancer screening ▪ Fractures and trauma ▪ Daytime / out of hours

• 2. Scanne

ner ▪ CT (Cross-sectional) ▪ MRI (Cross-sectional) ▪ X-ray (Plain film)

• 3. IT system

▪ RIS/PACS

• 4. Hospital

tal based radiologi

• logist

▪ Network of 400 reporters – based at home and in reporting centres with complete equivalence to the NHS ▪ NightHawk and Routine services ▪ Day/night time; 24/7, 365 days a year

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Custom tomer er embedded integra grated ted reporting

• rting platform

form

The benefits ts of the Medica platf tform rm

▪ Through virtual private network Medica can access client’s own RIS, equivalent to in-house radiologists and the only provider to offer this as standard, giving a number of advantages − Access to patient data data including historical reports − Knowledge of allergy alerts − Ability to recommend/book further referrals − Saves client time selecting files to send to Medica ▪ Medica’s radiologists are available to discuss or clarify reports with the customers ▪ Experienced technical team offering full support 24/7 ▪ Dual data centre and multiple contingency systems providing robust and resilient network ▪ Network linking Medica with its 400+ reporters and 100 hospitals ▪ Network is scalable and has been designed to cope with a trebling in volumes ▪ Supported by in-house technical team ▪ Differentiating NightHawk contingency system – eliminates downtime

An overview of Medica’s reporti ting process ess

RIS/Pic ictur ure Archiving hiving and d Storage age System em (PACS) Medica Server/ PACS Radio iolo logis gist reports direct ctly ly into

• RIS

Reporting ing Infor

• rmat

ation ion System em (RIS) Patie ient nt exam Medica radio iolo logis gist

Custome tomer

Access ess to historic ic scans ans

Supported by 24 hour call centre

Firewa wall ll Firewa wall ll

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Radiologis gist t selecti tion

▪ Strict selection criteria based upon training and experience ▪ Credentialing of radiologists to fully understand their subspecialty expertise and then match with incoming work ▪ Entry quality assurance reporting audit

Delivering ring a high h qual ality ty clinical ical servic vice

Radiologis gist t monito torin ring

▪ Radiology reporting quality audit ▪ Reporting discrepancy notification ▪ Supportive reflective learning process ▪ Annual medical appraisal ▪ ‘Listening’ – multiple and diverse feedback ▪ Formal concerns process – aim at remediation

Clini nica cal protoc tocol

▪ Clinical operating policies and procedures based upon UK national ‘best practice’ and national experience ▪ Advice through specialist clinical advisory group

Learni ning ng organi nisati tion

▪ Structured clinical investigation process ▪ Formal learning and feedback approach with clinical governance committee oversight

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Inves esting ting in strong rong clinic nical al governa ernance nce and quali lity ty control

• ntrol

Highl hly experience rienced d clini nical governa nanc nce e stru ructu ture re

▪ Clinical Advisory Group consisting of 12 members, selected on the basis of their radiological subspecialty expertise and wider clinical skill sets. ▪ Market leading clinical governance strategies and processes

Mark rket et leading ng contr trols s and suppo pport process cess in place

▪ All new radiologists’ initial reporting is audited ▪ Ongoing programme of auditing reporting ▪ Team of seven permanent staff supporting clinical services ▪ Clinical output monitored in fortnightly Clinical Governance Committee meetings ▪ Quarterly meetings of the Medical Advisory Board ▪ Supportive and developmental radiologist management environment ▪ Medica currently delivers external audit for the NHS and independent hospitals, reviewing the performance and advising on remediation of their radiologists

Clini nica cal governa rnanc nce structur ructure

Compa pany y Board Medica cal Advisor isory y Board Clinica cal Govern ernance e Committe ttee Clinica cal Adviso sory y Grou

• up

Ac Accredita ditati tion

• ns:

s:

Clinica cal Audit t Committe ttee Clinica cal Appraisa isal Committe ttee

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Source: 1 Audited group accounts under IFRS full year 2018, unaudited half year figures

Inco come me stateme tement nt

£000 000s 6 Months s to 30 June e 2019 6 Months s to 30 June e 2018 Year r to 31 Decem embe ber r 2018 Reven venue 21,978 18,592 38,969 Cost of sales (11,515) (9,501) (19,883) Gross profit 10,463 9,091 19,086 Administrative expenses (5,640) (4,601) (9,424) Operating profit 4,823 4,490 9,662 Exceptional items (30) (245) Operating profit after exceptional items 4,793 4,490 9,417 Finance income 44 18 68 Finance costs (179) (154) (329) Net finance costs (135) (136) (261) Profi fit befor efore e tax 4,658 4,354 9,156 Analysed ysed as EBITDA 6,153 5,610 11,938 Share based payments (81) (65) (135) Exceptional items (30) (245) Finance costs (179) (154) (329) Finance income 44 18 68 Depreciation (579) (420) (853) Amortisation (670) (635) (1,288) Profit before tax 4,658 4,354 9,156 Income tax charge (777) (807) (1,794) Other her compre rehen hensi sive ve incom

• me

(1) Profi fit and total comprehen ehensi sive ve incom

• me

e attri ribu butable e to the equity y holders ders of the e paren rent 3,880 3,547 7,362 Profi fit per er share re (basi sic and diluted) ed) Basic profit per ordinary share 3.49 3.19 6.62 Diluted profit per ordinary share 3.47 3.18 6.58

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Balan ance sheet

Source: 1 Audited group accounts under IFRS full year 2018, unaudited half year figures

£000 000 6 Months s to 30 June e 2019 6 Months s to 30 June e 2018 Year r to 31 Decem embe ber r 2018 ASS SSETS Non-curr rrent Goodwill 15,948 15,948 15,948 Other intangible assets 7,778 8,780 8,243 Property, plant and equipment 4,055 2,022 1,938 Non-current assets 27,781 26,750 26,129 Curre rent Trade and other receivables 10,616 8,177 8,634 Cash and cash equivalents 11,519 9,366 12,588 Current assets 22,135 17,543 21,222 LIAB ABILITIES Curre rent Trade and other payables (3,832) (3,839) (3,970) Current liabilities (3,832) (3,839) (3,970) Non-curr rrent Liabi bilities es Borrowings and other financial liabilities (12,474) (11,900) (11,912) Deferred tax (976) (1,264) (1,128) Non-current liabilities (13,450) (13,164) (13,040) Net Asset sets 32,634 27,290 30,341 Equity Share capital 222 222 222 Share premium 14,721 14,721 14,721 Retained earnings 17,692 12,347 15,398 Foreign exchange equity (1)

• Tot
• tal equity

32,634 27,290 30,341

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Cashflo hflow

Source: 1 Audited group accounts under IFRS full year 2018, unaudited half year figures

£000 000s 6 Months s to 30 June e 2019 6 Months s to 30 June e 2018 Year r to 31 Decem embe ber r 2018 Opera erating g activi vities es Profit before tax 4,658 4,354 9,156 Adjustments: Depreciation of property plant and equipment 579 420 853 Amortisation of intangible fixed assets 670 635 1,288 Share based payments 81 65 135 Finance income (44) (18) (54) Finance costs 179 168 329 Changes in: Decrease / (Increase) in trade & other receivables (1,982) 34 (424) Increase / (decrease) in trade and other payables 108 454 536 Movement in financial instruments (14) (14) Tax (paid)/received (1,177) (1,100) (2,172) Net cash inflow from operating activities 3,072 4,998 9,633 Invest esting g activi vities es Purchase of property plant and equipment (2,188) (571) (920) Purchase of software intangible assets (167) (608) (725) Interest received 44 18 54 Cash outflow from investing activities (2,311) (1,161) (1,591) Cash flows s from

• m financing

g activi vities es Interest paid and loan fees (163) (156) (305) Dividends paid to ordinary shareholders (1,667) (1,222) (2,056) Net cash inflow/(outflow) from financing activities (1,830) (1,378) (2,361) Net change ge in cash and cash equiva valen ents (1,069) 2,459 5,681 Movem vemen ent in net cash Cash and cash equivalents, beginning of period 12,588 6,907 6,907 Increase in cash and cash equivalents (1,069) 2,459 5,681 Cash and cash equiva valen ents, s, end of peri eriod

• d

11,519 9,366 12,588

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Cross-sec ecti tional

• nal

CT and MR exams CT CT Computerised tomography, a type of scan that makes use of computer processed combinations of many x-rays DXA Dual energy X-ray absorptiometry, a special type of x-ray that measures bone mineral density GMC General Medical Council MR/MRI Magnetic resonance imaging, a scan that uses magnetic fields and radio waves to produce images NICE National Institute for Health and Care Excellence Nigh ghtHa tHawk Out of hours cross sectional reporting PACS CS Picture and Archiving Communications System, a medical imaging technology that allows for economical storage and convenient access to images PET Positron emission tomography Plain in Film X-ray Radiograp

• graphe

her Healthcare professional with qualification to undertake specified radiology reporting Radiologis

• logist

Specialist doctor skilled in the interpretation of radiological images with FRCR qualification or equivalent RC RCR The Royal College of Radiologists RIS Radiology Information System, the electronic system that manages imaging departments Tele leradi radiology

• logy

The interpretation of an image at a site remote from the acquisition of the image

Glossar sary