Company Announcements

                                                                                                                28 September 2022

EMIS Group plc

("EMIS Group" or "the Group")

Half year results for the six months ended 30 June 2022

"A positive first half with strong underlying organic growth."

EMIS Group plc (AIM: EMIS.L), the UK leader in connected healthcare software and systems, today announces its unaudited results for the six months ended 30 June 2022.

Financial highlights

¹   For an explanation of the alternative performance measures used in this report, please refer to the appendix.

Strong H1 results - in line with the Board's expectations

·    A positive H1 with revenue and adjusted operating profit ahead of 2021 H1 with organic growth supplemented by encouraging contributions from two in-period acquisitions

·    Continue to build on strong foundations with recurring revenue increasing by 9%, representing 82% of total revenue

·    Cash flow returned to a more normal level following one-off working capital factors in 2021 H1

·    Interim dividend maintained consistent with the terms of the proposed acquisition of the Group by Bidco, an affiliate of Optum UK and a wholly-owned subsidiary of UnitedHealth Group as announced on 17 June 2022 ("the Proposed Acquisition")

Operational highlights - performing well and investing for the future

·    The Group continues to perform well with good visibility and high levels of recurring revenue

·    Continued strength of relationships with NHS customers alongside accelerating investment in the technology and cloud refresh strategy in EMIS Health

·    Good performance in EMIS Enterprise including from Pinnacle and H1 acquisitions Edenbridge and FourteenFish

·    Strong underlying organic growth driven by increased momentum in EMIS-X Analytics

Outlook - consistent delivery of revenue growth

·    Focussed on delivering consistent revenue growth in line with our business plan

·    The Group remains well placed for growth with a technology strategy that is in alignment with NHS policy

Recommended acquisition of EMIS Group

·    On 17 June 2022, the terms of a recommended all cash offer pursuant to which a wholly‐owned subsidiary of UnitedHealth Group will acquire the entire issued and to be issued ordinary share capital of EMIS was announced, to be implemented by means of a Court-sanctioned scheme of arrangement

·    The process is moving forwards well, subject to Court approvals and the satisfaction (or, where applicable, the waiver) of the remaining scheme conditions

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

"It has been a positive first half of the year with good performance from the business. Our focus remains on developing our technology strategy in alignment with healthcare policy and market trends, most notably in the areas of connected care and data and analytics. Our strategy will address the needs of the healthcare sector as it moves further into the digital future and we look forward with confidence."

A video recording of the half year results presentation will be available on the Group's website from 8.00am today, at www.emisgroupplc.com/investors.

Enquiries:

For further information, contact:

MHP Communications                                                                              Tel: 020 3128 8567

Reg Hoare/Ollie Hoare/Matthew Taylor/Pauline Guenot                             emis@mhpc.com           

Numis Securities Limited (nominated adviser and broker)                    Tel: 020 7260 1000

Josh Hughes/Simon Willis/James Black

* Information for investors can be found on the Group's website at

www.emisgroupplc.com/investors.

Notes to editors

EMIS Group is the UK leader in connected healthcare software and systems. Its solutions are widely used across every major UK healthcare setting. EMIS Group's aim is to join up healthcare through innovative technology, helping to deliver better health outcomes to the UK population, supporting longer and healthier lives.

EMIS Group has two core business segments: EMIS Health and EMIS Enterprise.

EMIS Health is a supplier of innovative integrated care technology to the NHS, including primary, community, acute and social care.

EMIS Enterprise is focussed on growth in the business-to-business technology sector within the healthcare market, including management of medicines, partner businesses, patient-facing services and analytics. 

LEI: 213800K474ZZK76NX913

CHIEF EXECUTIVE OFFICER'S OVERVIEW

It has been a positive first half of the year, with progress in line with the Board's expectations. The business continues to perform well with good visibility and high levels of recurring revenue.

In EMIS Health, we continued to support our NHS customers while accelerating investment in our technology and cloud refresh strategy. As expected, revenue growth was slightly held back by a planned reduction in lower margin resale partner activities but profit was unchanged. The business is expected to benefit from a number of digitisation contracts, secured for delivery in the coming months.

There was a good performance in EMIS Enterprise, with encouraging contributions from Edenbridge and FourteenFish, the two acquisitions completed in the period, adding to strong underlying organic growth in the first half. This performance continues to be supported by Pinnacle's key role in the Covid-19 vaccination programme and growth continues in the areas of partners, analytics, patient-facing services and pharmacy.

The Group retains a strong balance sheet position with net cash at 30 June 2022 of £53.6m (30 June 2021: £48.0m), having spent £20.4m on acquisition consideration in the period.

Our ESG strategy

Our focus in the first half of the year has been on continuing to embed strong ESG principles into the organisation both at strategic and operational level as we work towards our target to become carbon neutral by 2030.

Becoming an employer of choice

We continue to make good progress towards our ambition of becoming an employer of choice by 2025. Initiatives implemented in the first half of 2022 continue to focus on attracting and retaining the best talent, through developing great leadership, building our external profile and delivering high levels of staff engagement.

Connected care strategy

EMIS continues to invest in its development roadmap in alignment with UK healthcare strategy to develop intelligent and interoperable patient, clinical and pharmacy point of care systems.

During the first half of the year we have seen our interoperable technology being put to use by customers, such as Primary Care Networks managing patient care on a locality-wide basis using EMIS software; GP practices triaging patients to community pharmacists where appropriate, booking appointments using our systems; and more hospital emergency departments adopting our software giving them the capacity to connect with other providers, such as 111 services.

Enabling the NHS's vision of data-driven healthcare

The vital role of actionable insight provided by data to the future of the UK's healthcare service is becoming increasingly clear. The EMIS-X Analytics suite of cloud-based tools enables the NHS, research and life sciences market and academia to carry out meaningful healthcare research at scale.

During the period we released EMIS Recruit, our first platform that links the life sciences industry with GPs and their patients. With only 31% of UK clinical trials meeting enrolment goals, we have developed the technological link between the research and life sciences industry, clinicians and the UK public to enable efficient recruitment into trials, helping to facilitate positive change to UK health and wellbeing.

Recommended acquisition of EMIS Group Plc by Bordeaux UK Holdings II Limited (BidCo)

On 17 June 2022, the Boards of Bordeaux and EMIS announced that they had reached agreement on the terms of a recommended all cash offer pursuant to which Bordeaux, an affiliate of Optum UK and a wholly‐owned subsidiary of UnitedHealth Group, will acquire the entire issued and to be issued ordinary share capital of EMIS.

The process is moving forwards well, with all resolutions approved by the requisite majorities at both the Court Meeting and the General Meeting held on 9 August, with 99.5% voting in favour of the proposal. A notification has been made and accepted under the NS&I Act and the Secretary of State has confirmed that no further action will be taken in relation to the acquisition.

Subject to the Scheme receiving the sanction of the Court, the filing of the Court Order with the Registrar of Companies and the satisfaction of or, where applicable, the waiver of the other Conditions, the Scheme is expected to become effective by the end of 2022.

Summary and outlook

EMIS continues to focus on making positive change to UK healthcare through integrated technology systems that enable the NHS transformation agenda to come to life.

More and more healthcare organisations are using EMIS technology to deliver truly integrated care and we continue to develop technology aligned with NHS policy for integrated healthcare and meaningful, actionable insight through data.

We remain well placed for growth with our technology strategy providing the platform for future success.

FINANCIAL REVIEW

The Group performed well in the period with revenue, recurring revenue, adjusted operating profit and margin all higher compared to the comparative period. Reported operating profit and margin were slightly lower than the comparative period primarily due to exceptional costs incurred in the period relating to the technology transformation programme and to corporate transaction costs.

Group revenue increased by 5% to £87.3m (2021 H1: £83.5m), including revenue of £1.6m from the Edenbridge and FourteenFish acquisitions completed during the period. Recurring revenue grew by 9% to £71.8m (2021 H1: £65.8m), representing 82% (2021 H1: 79%) of the Group's total revenue.

Adjusted operating profit for the period was £22.4m (2021 H1: £20.0m), with strong growth in recurring revenue partly offset by lower non-recurring revenues, higher staff costs and increased operating expenses. With a similar level of development costs capitalised, and £4.3m of one-off exceptional costs, reported operating profit reduced to £15.3m (2021 H1: £16.3m).

Segmental performance

In EMIS Health, revenue was lower at £51.3m (2021 H1: £54.3m) principally due to a reduction in non-recurring hardware sales and a planned reduction in lower margin resale partner activities. This higher quality revenue mix and tight cost control resulted in an unchanged adjusted operating profit of £12.5m. Reported divisional operating profit was higher at £11.8m (2021 H1: £10.6m) due to an increase in the level of capitalised development costs and lower amortisation in respect of acquired software.

In EMIS Enterprise, revenue increased by 23% to £35.9m (2021 H1: £29.3m) driven by strong growth in the areas of analytics and partners in particular, with encouraging contributions from the two acquisitions completed in the period. Adjusted operating profit increased by 28% to £10.7m (2021 H1: £8.4m) and reported operating profit also increased to £8.5m (2021 H1: £6.6m).

Revenue

The analysis of revenue is summarised below with full segmental revenue analysis set out in note 9.

·   software subscription and support revenue increased to £56.3m (2021 H1: £50.9m), reflecting higher revenue from the Group's existing customers, the benefit of acquisitions, and continued strong revenues from supporting the Covid-19 vaccination programme;

·   interface and connectivity charges increased to £13.3m (2021 H1: £12.1m), as a result of higher levels of on-boarding within the partner programme;

·   other services revenue was higher at £8.5m (2021 H1: £7.9m), principally due to increased growth in analytics;

·   hardware and related services revenue reduced to £4.5m (2021 H1: £6.4m), following a planned reduction in lower margin resale partner activities; and

·   perpetual licences, training, consultancy and implementation revenue was lower at £4.6m (2021 H1: £6.2m), with a reduction in set-up revenues in relation to the NHS Covid-19 vaccination programme as expected.

Profitability and dividend

Adjusted operating profit increased by 12% to £22.4m (2021 H1: £20.0m) with the adjusted operating margin increasing to 25.7% (2021 H1: 24.0%), reflecting the stronger sales mix.

The Group employed 1,451 staff at 30 June 2022, with the increase from 1,429 at 31 December 2021 principally due to the addition of staff of the businesses acquired during the period. Other operating expenses increased with additional costs associated with the Group's investment in technology.

Taking into account exceptional costs, a similar level of capitalisation of development costs and slightly lower amortisation charges, reported operating profit was lower at £15.3m (2021 H1: £16.3m).

The tax charge for the period was £3.2m (2021 H1: £3.3m), representing an effective rate of tax before share of result of joint venture and associate and non-deductible exceptional costs of 19.0% (2021 H1: 19.1%).

Adjusted basic and diluted EPS both increased by 14% to 29.1p and 28.9p respectively (2021 H1: 25.6p and 25.3p). The reported basic and diluted EPS were both lower at 19.4p and 19.2p respectively (2021 H1: 20.8p and 20.6p).

The Board has carefully considered the strong trading performance of the Group, together with the consistent underlying growth of the Group and its future prospects, and has declared an unchanged interim dividend of 17.6p per share (2021 H1: 17.6p), payable on 3 November 2022 to shareholders on the register at the close of business on 7 October 2022, with an ex-dividend date of 6 October 2022. This is consistent with the terms of the Proposed Acquisition of the Group previously announced.

Cash flow, net cash and financing

Cash generated from operations was £28.4m (2021 H1: £17.0m), with the weaker comparative period affected by one off adverse working capital movements. Adjusted cash from operations, stated after deducting capitalised development costs and adjusting for the cash impact of exceptional items, increased to £27.4m (2021 H1: £14.9m).

Gross capital expenditure on property, plant and equipment and purchased software excluding capitalised development costs remained tightly controlled at £1.3m (2021 H1: £1.6m).

The Group paid the final instalment of £2.0m of deferred consideration in respect of the 2020 Pinnacle acquisition and net cash consideration of £18.4m to acquire the Edenbridge and FourteenFish businesses in the period.

After finance costs, lease payments, tax, transactions in own shares, and dividends, the Group ended the period with net cash of £53.6m (31 December 2021: £64.0m; 2021 H1: £48.0m).

As at 30 June 2022, the Group had available undrawn bank facilities of £30.0m in place until December 2024. An accordion arrangement is in place to increase the quantum up to £60.0m if required.

Group statement of comprehensive income

for the six months ended 30 June 2022

1     Excluding amortisation of computer software used internally of £229,000 (2021 H1: £582,000; 2021 FY: £1,138,000).

Group balance sheet

as at 30 June 2022

Group statement of cash flows

for the six months ended 30 June 2022

Group statement of changes in equity

for the six months ended 30 June 2022

Notes to the half year financial statements

1. General information

The financial statements for the six months ended 30 June 2022 and the six months ended 30 June 2021 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2021 were approved by the Board of Directors on 16 March 2022 and delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

These condensed half year financial statements were approved for issue by the Board of Directors on 27 September 2022.

2. Basis of preparation

These condensed half year financial statements for the half year ended 30 June 2022 have been prepared in accordance with the AIM Rules for Companies, comply with IAS 34 Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended 31 December 2021, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ("adopted IFRS").

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

Going concern

The Group is profitable and cash generative and it is anticipated that this will continue. There is a high and continuing level of recurring revenue and high cash conversion.

The Directors have prepared cash flow forecasts covering a period of at least twelve months from the date of approval of these condensed half year financial statements. These forecasts, including consideration of reasonably possible downside scenarios linked to the principal risks and uncertainties set out in the strategic report of the Group's annual report and accounts for the year ended 31 December 2021, show that the Group will continue to operate with significant cash reserves and would not need to utilise the bank facility in place under any of the scenarios considered. Based on this assessment the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for at least twelve months from the date of approval of these half year financial statements and therefore continue to adopt the going concern basis of accounting in preparing these condensed half year financial statements.

3. Accounting policies

The accounting policies applied in these half year financial statements are the same as those applied in the Group's annual report and accounts for the year ended 31 December 2021.

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

4. Critical accounting judgements and key sources of estimation uncertainty

In preparing the 2022 half year financial statements no significant judgements, apart from those involving estimations, have been made in the process of applying the Group's accounting policies. The key sources of estimation uncertainty are the same as those described in the 2021 Group annual report and accounts.

5. Principal risks and uncertainties

The 2021 Group annual report and accounts describes the principal risks and uncertainties that could impact the Group's performance. These risks relate to healthcare structure and procurement changes, technology and software development, people and culture, information governance and cyber security, and clinical safety. These remain unchanged since the annual report was published and are not expected to change for the remaining six months of the financial year. The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

6. Financial risk management

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

These condensed consolidated half year financial statements do not include all financial risk management information and disclosures required in the annual financial statements and therefore should be read in conjunction with the 2021 Group annual report and accounts.

7. Forward-looking statements

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

8. Segmental reporting

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

The Directors have presented segmental information to reflect the Group's structure, activities and the markets being served. The Group has two operating and reportable segments, both involved with the supply and support of connected healthcare software and systems:

•     EMIS Health; and

•     EMIS Enterprise.

Each operating segment is assessed by the Board based on an adjusted measure of operating profit, as defined in the appendix. Group operating expenses, finance income and costs, cash and cash equivalents, and current and deferred taxes are not allocated to segments, as income tax, group and financing activities are not segment-specific.

Revenue of £58,231,000 (2021 H1: £54,173,000) is derived from the NHS and related bodies. Revenue of £1,609,000 (2021 H1: £1,765,000) is derived from customers outside the United Kingdom.

9. Revenue analysis

Revenue is analysed as follows:

10. Income tax expense

The tax expense recognised reflects management estimates of the tax charge for the period and has been calculated using the estimated average tax rate of UK corporation tax for the financial year of 19% (2021: 19%).

On 23 September 2022, the UK Government announced that the planned UK corporation tax main rate increase from 19% to 25% from 1 April 2023 will not take place as planned. Deferred tax balances have been calculated at 25%, being the rate substantively enacted at the balance sheet date. If a rate of 19% had been used to calculate deferred tax balances, the net deferred tax liability would be reduced by £596,000, with a corresponding one-off deferred tax credit.

11. Earnings per share (EPS)

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

12. Dividends

In relation to the 2021 financial year, an interim dividend of 17.6p was paid on 4 November 2021 amounting to £11,080,000, followed by a final dividend of 17.6p on 17 May 2022 amounting to £11,085,000.

For the 2022 financial year, the Directors are proposing an interim dividend of 17.6p, which will be payable on 3 November 2022 to shareholders on the register at 7 October 2022. This interim dividend, which will amount to approximately £11,143,000, has not been recognised as a liability in these half year financial statements.

13. Exceptional costs

During the period the following costs were incurred in delivering the technology transformation programme as the Group transitions to the cloud and in relation to corporate transaction costs, including the recommended acquisition of EMIS Group Plc by Bordeaux UK Holdings II Limited. These costs have been classified as exceptional owing to their one-off nature:

14. Other intangible assets

15. Other financial liabilities

The liabilities in respect of Edenbridge are payable based on the achievement of specified revenue and product delivery targets. Estimated fair value has been measured based on the expected future amounts payable, as the impact of discounting is not material.

In respect of the FourteenFish and Edenbridge contingent acquisition consideration, payments of £251,000 and £1,500,000 respectively were made during July 2022.

In respect of the Pinnacle contingent acquisition consideration, a payment of £2,000,000 was made during the period following the achievement of specified profit targets.

16. Business Combinations

On 14 January 2022, the Group completed the acquisition of 100% of the share capital of Edenbridge Healthcare Limited, a leading provider of business intelligence tools for GP practices, federations and commissioners. It expands the Group's capabilities in the growing analytics markets by providing real time insight to support GP practice access, efficiency, transformation and workforce planning. EMIS Group acquired the business for £4,000,000 in cash paid from the Group's existing cash resources, with further cash consideration of up to £6,000,000 payable on the attainment of certain performance targets.

On 1 March 2022 the Group completed the acquisition of 100% of the share capital of FourteenFish Limited, bringing a specialist knowledge of GP medical appraisals and training into the business. FourteenFish is the chosen training system of the Royal College of General Practitioners (RCGP) and strengthens the Group's training proposition. The Group acquired the business for £15,849,000 in cash paid from the Group's existing resources.

The provisional fair values of the net assets acquired, consideration paid and goodwill arising on the transactions are shown in the table below:

Goodwill relates principally to the experienced staff within the business.

Fair values of assets and liabilities represent the best estimate of the fair values at the date of acquisition. The acquired software was measured at fair value using a multi period excess earnings valuation technique, which considers the present value of the net cash flows expected to be generated (excluding any cash flows related to contributory assets).

The post-acquisition contribution of the acquired businesses to Group revenue and adjusted operating profit was £1,638,000 and £640,000 respectively. Had the acquisitions occurred on 1 January 2022, the Group's revenue and adjusted operating profit for the period would have been £87,735,000 and £22,597,000 respectively.

In relation to the acquisitions, costs of £291,000 have been expensed in the statement of comprehensive income.

Appendix: Alternative performance measures (APMs)

This report contains certain financial measures (APMs) that are not defined or recognised under IFRS but are presented to provide readers with additional financial information that is evaluated by management and investors in assessing the performance of the Group.

This additional information presented is not uniformly defined by all companies and may not be comparable with similarly titled measures and disclosures by other companies. These measures are unaudited and should not be viewed in isolation or as an alternative to those measures that are derived in accordance with IFRS.

Recurring revenue

Recurring revenue is the revenue that annually repeats either under contractual arrangement or by predictable customer habit. It highlights how much of the Group's total revenue is secured and anticipated to repeat in future periods, providing a measure of the financial strength of the Group. It is a measure that is well understood by the Group's investor and analyst community and is used for internal performance reporting.

Adjusted operating profit, adjusted operating margin, and adjusted earnings per share

Adjusted operating profit is operating profit from continuing operations excluding exceptional items, the effect of capitalisation and amortisation of development costs, and the amortisation of acquired intangible assets. The same adjustments are also made in determining the adjusted operating margin of the Group and its segments and in determining adjusted earnings per share (EPS). The EPS calculation further adjusts for the related tax effect of the operating profit adjustments.

The Board considers this adjusted measure of operating profit to provide the best metric of assessing underlying performance, as:

•     it excludes exceptional items (items are only classified as exceptional due to their nature or size);

•     it excludes any one-off goodwill impairment;

•     by expensing capitalised development costs (and also excluding the impact of the amortisation of these costs) it reflects the underlying in-year cash cost of development of software for external sale, as development is considered to be a core ongoing operating function of the business; and

•     it excludes the amortisation of acquired intangibles arising from business combinations which varies year on year dependent on the timing and size of any acquisitions. This is consistent with the treatment of the amortisation of the Group's software developed for external sale.

These metrics are used internally for reporting business unit performance and in determining management and executive remuneration. They are commonly used by other software companies, and are also well understood by the Group's investor and analyst community.

A reconciliation of adjusted earnings used in the adjusted EPS calculations is shown below:

Adjusted cash generated from operations

The Group's adjusted cash generated from operations adjusts for development costs capitalised and the cash costs of exceptional items, consistent with the adjusted operating profit metric used by the Group. This provides a meaningful metric for the underlying cash the Group generates having accounted for the cash cost of all development expenditure and adding back the cash cost of non-recurring exceptional items.

Net cash/(debt)

The Group uses net cash/(debt), defined as cash and cash equivalents less total borrowings (excluding IFRS 16 lease liabilities), as a supplementary measure in evaluating its liquidity, as it indicates the level of cash available to the Group and provides an indicator of the overall balance sheet strength. It is used in the calculation of the leverage ratio under its bank facility arrangements. For the six months ended 30 June 2022 the Group was in a net cash position, with no borrowings.