Final Results

Quantum Pharma Plc

("Quantum" or the "Group")

Final Results

Quantum Pharma Plc (AIM: QP.), the growing, service-led niche pharmaceutical developer, manufacturer and supplier to the health and care sectors, today announces its final results for the year ended 31 January 2016.

Highlights

1 The 2016 EPS has basic weighted average number of shares of 125.0 million (2015: 54.5 million) due to the timing of the AIM flotation.

Operational Highlights

Post year end:

Andrew Scaife, Chief Executive Officer of Quantum Pharma, commented: "During the past year, we have made progress in developing several key aspects of Quantum Pharma's business, to put in place a strong platform from which the Group can deliver its strategy. We have improved the Group's infrastructure and management, and reviewed and significantly improved our processes around monitoring and delivery of the product pipeline, in addition to receiving external validation of its potential value. I am excited about the potential of the product pipeline and am pleased that, since the year end, we have received marketing authorisations or approvals to launch three new licensed products with five product lines into the UK market.

"Although it is early in the year, trading performance in the first quarter of the current financial year has been strong. As the product pipeline converts our financial performance for the current financial year remains second half weighted. The pipeline of products due to launch this financial year are currently on track, and as such we are confident in the outlook for the year."

A copy of the final results presentation given by Andrew Scaife (Chief Executive Officer) and Chris Rigg (Chief Financial Officer) will be released later this morning on Tuesday, 10 May 2016 on the Group's website at http://ir.quantumpharmagroup.com/content/investor/presentations.asp 

For further information:

Notes to Editors

Quantum Pharma Plc is a service-led, niche pharmaceutical developer, manufacturer and supplier to the retail pharmacy, pharmaceutical wholesaler, hospital, homecare and care home markets. Quantum Pharma operates through three divisions, offering a portfolio of innovative and complementary products and services.

Specials comprises four business units (Quantum Pharmaceutical, UL Medicines, NuPharm and Quantum Aseptics Services), which manufacture, procure and supply unlicensed medicines (specials) and special obtains. In response to a request from a prescriber for a bespoke medicine or special product to optimise patient treatment, the division manufactures, procures and supplies bespoke specials; batch made specials; aseptically prepared sterile intravenous medicines; imported medicines and special obtain products. With an expansive portfolio of products, Quantum is a trusted partner to the majority of large retail pharmacy chains in the UK, as well as pharmaceutical wholesalers, hospitals, independent pharmacies and dispensing doctors. The division offers an unrivalled and constantly expanding range of products. It has a customer-focused, service-driven business model, which provides shorter lead times than any of its competitors.

Niche Pharmaceuticals comprises three business units (Colonis, Lamda and PERN Consumer Products) which develop and commercialise niche pharmaceuticals. This division is a product development and commercialisation business focusing on taking niche drugs through the regulatory pathway to achieve regulated status (licensed product or medical device). The division uses the excellent visibility of trends in the UK pharmacy and hospital markets through our Specials and Medication Adherence divisions to allow early identification of the market opportunity to take products from unlicensed (special) status to licensed status. The division has a growing portfolio and pipeline of products that fit this unlicensed to licensed pathway, as well as complementary generic, generic plus or medical devices intended to meet unmet patient needs across a number of therapeutic areas.

Medication Adherence comprises two business units (Biodose® and Biodose Services®) which provide products and services to enhance the likelihood of a patient adhering to a medication regime, patient-focused homecare services and services to pharmaceutical companies. It owns Biodose®, the only medication delivery system on the market that accommodates both liquid and solid doses. Biodose Connect™ takes patient safety and adherence to the next level by enabling remote monitoring of adherence to medication regimes. The division also operates a range of specialist patient-focused homecare services to the NHS, private clinics and pharmaceutical companies across the UK and provides the Group with exposure to the homecare and supported living sectors of the care pathway complementing the focus of the remainder of the Group.

For further information, please visit www.quantumpharmaplc.com.

Chairman's Statement

On behalf of the Board, I am pleased to introduce Quantum Pharma's second Annual Report and Accounts since the Group's admission to AIM in December 2014. The Group has made good progress in the financial year ended 31 January 2016, notwithstanding the delays in our product pipeline.

Strategy

Quantum Pharma's strategy is to leverage its market-leading position in the production and supply of unlicensed medicines (specials) and special obtains in the UK, its growing international network and associated market access as a platform to become the leading, service-orientated, niche pharmaceutical business in the UK and beyond.

Quantum's real-time knowledge of the specials and homecare markets, combined with the product development and regulatory pathway expertise in our Niche Pharmaceuticals division, enables the Group to track shifts in demand for products across the community pharmacy and hospital pharmacy markets and to identify which products will be best suited to be taken through the development pathway to achieve regulated product status (product licence or medical device) and commercialised.

Our Progress

The Group is continuing to make good progress on delivery of its strategy and this continues to be achieved through a mixture of strong organic growth and selective strategic acquisitions.

During the financial year, the Group organised its operations into three divisions; Specials, Niche Pharmaceuticals and Medication Adherence. All three divisions have made solid progress which is covered in more detail in the CEO's Review.

The Group has worked hard to put in place strong infrastructure to facilitate the delivery of its long term growth strategy. The acquisitions of Lamda and NuPharm during the financial year significantly enhanced the Group's product pipeline and its development and manufacturing infrastructure.

Lamda is a full service contract development specialist, with an emphasis on formulation and analytical measurement and regulatory process assistance for customers in the UK and Europe. The acquisition provides the Group with in-house product development capability and expertise underpinning the delivery of our product pipeline.

NuPharm is a business that complements the existing manufacturing capabilities within the Group and offers unique, low volume, batch manufacturing services. It provides a good platform to drive growth and improve margin across the Specials division, as well as giving the Group the ability to manufacture certain of its licensed products in due course. Good progress is being made to upgrade the facility, and we continue to work with the MHRA in relation to the manufacturing restrictions in place at the time of the acquisition.

During the financial year, it became evident that the product pipeline within the Niche Pharmaceuticals division was delivering at a slower rate than anticipated. The Board undertook a commercial and operational review aimed at improving the efficiency and consistency of pipeline delivery. The review included an external evaluation of the market potential of the pipeline that corroborated our internal market estimations of the size of the opportunity. I am pleased to report that the programme of actions, resulting from the review, have now been successfully implemented across the Niche Pharmaceuticals division and these are discussed further in the CEO's Review.

There has been a substantial strengthening of the Niche Pharmaceuticals division, with a number of new hires made, all with significant pharmaceutical experience. One of these, Nicola Massey joined in November 2015 as Managing Director of the division. Nicola brings more than 25 years of leadership experience in the pharmaceutical sector, managing cross-functional teams to deliver successful product launches across the UK and Europe.

As a result of the operational and structural changes, the Board has greater visibility and increased confidence that we will execute the delivery and commercialisation of the pipeline with a high degree of consistency. This product pipeline now represents an enhanced revenue opportunity in the medium term, having significantly increased in size and value during the financial year.

Corporate Governance

Quantum Pharma values corporate governance highly and the Board believes that effective corporate governance is integral to the delivery of the Group's corporate strategy, to the generation of shareholder value and to the safeguarding of the long-term interests of our stakeholders.

As Chairman, I am responsible for the leadership of the Board and for ensuring its effectiveness in all aspects of this role. The Board is responsible for the Group's strategic development, monitoring and achievement of its business objectives, oversight of risk and maintaining a system of effective corporate governance.

Dividend

Subject to shareholder approval at the Annual General Meeting on 12 July 2016, the Board proposes to pay a final dividend of 1.0 pence per ordinary share. This brings the total dividend for the financial year to 1.5 pence per ordinary share.

Our employees and stakeholders

We rely on the skills, experience and commitment of our team to drive the business forward. Their enthusiasm, innovation and perseverance remain key assets of the Group and are critical for its future success. On behalf of the Board, I would like to thank all of our employees, customers, suppliers, business partners and stakeholders for their continued support over the last year.

I would like to thank Martin Such, who resigned from his position as Chief Financial Officer earlier this year, for his seven years of service and extend a welcome to Chris Rigg, who joined the Group in November 2015 and was promoted to Chief Financial Officer in March 2016.

Quantum Pharma is in a strong position to take advantage of the significant opportunities available to it and the Board looks forward to the forthcoming year and beyond with optimism.

John Clarke

Non-Executive Chairman

9 May 2016

CEO's Review

During the past year, we have made progress in developing several key aspects of Quantum Pharma's business and putting in place a strong platform from which the Group can deliver its strategy. We have improved the Group's infrastructure and management, as well as reassessing and significantly improving our processes around monitoring and delivery of the product pipeline, in addition to receiving external validation of its potential value. I am excited about the potential of the product pipeline and am pleased that since the year end, we have received marketing authorisations for three new licensed products across five product lines into the UK market.

Although there have been challenges with the timing of delivery of the pipeline during the period, the Group has significantly increased the size and value of its product pipeline. It has a growing portfolio of new products and services in development, which we anticipate will be commercialised over the coming months and years. The investment in product development during the period was £6.4 million (2015: £3.1 million) in support of this expanding pipeline.

The acquisitions of Lamda and NuPharm were strategically important for the Group, and we have spent time during the period integrating them with our existing businesses. The acquisition of Lamda increased our product pipeline and provides the Group with in-house development capabilities and access to new geographical markets. NuPharm is a niche manufacturer and supplier of specials, licensed products and clinical trial products which provides the Group with enhanced manufacturing capabilities, access to a new customer base and the ability to manufacture batch made specials and regulated products for third parties.

In order to provide increased focus upon the Group's operations and drive synergies, we simplified the Group's structure into three distinct divisions; Specials (comprising Quantum Pharmaceutical, UL Medicines, NuPharm and Quantum Aseptic Services); Niche Pharmaceuticals (comprising Colonis, Lamda and PERN Consumer Products); and Medication Adherence (comprising Protomed (who own Biodose®) and Biodose Services®).

The Group also secured new banking facilities with Royal Bank of Scotland and Lloyds Bank, comprising a term loan of £25 million and a revolving credit facility of £10 million to fund further product development, working capital requirements, in-licensing of products and further acquisitions.

The Group has continued to expand its markets and now supplies development, aseptic compounding and homecare services to several blue chip pharmaceutical companies and has expanded its geographical markets.

We have made senior appointments across the Group to focus the divisions and to manage our growing portfolio of products and services. These include the appointment, of Chris Rigg as the Group's Chief Financial Officer after the period end and the appointment of Nicola Massey as the Managing Director of the Niche Pharmaceuticals division.

Quantum Pharma's divisions are now well integrated and we are starting to see the benefits of working together. We will use this forward momentum to continue Quantum Pharma's expansion and development as a leading provider of niche pharmaceuticals and services.

Results

The Group delivered record results for 2016 showing good growth across all three divisions, delivering a 13% increase in revenue to £70.0 million (2015: £61.7 million) and a 4% increase in adjusted EBITDA to £12.7 million (2015: £12.2 million). Profit before tax increased 464% to £6.2 million (2015: £1.1 million), primarily driven by the reduction in finance expenses following the repayment of debt on the Group's admission to AIM in December 2014 and basic EPS increased 246% to 4.5 pence (2015: 1.3 pence).

Divisional review

Specials division

Our Specials division comprises four business units, which manufacture, procure and supply unlicensed medicines (specials) and special obtains.

Despite experiencing some volume pressure in the first half of the financial year, turnover in the Specials division grew to £54.4 million (2015: £52.1 million). Adjusted EBITDA for the year was £10.9 million (2015: £12.7 million). On an underlying basis, after accounting for provision releases, the division delivered a broadly flat underlying performance compared with the prior year.

During the first six months of the year there was volume pressure across the specials market, but this has since stabilised and the Group is now seeing volume growth across its customer base. Our growth in the division will come through organic growth with existing customers, operational efficiencies, broadening our range and deeper penetration into hospitals. Our Specials business continues to be well placed in the market and management believes that we are outperforming our competition.

NuPharm complements the Group well and offers unique manufacturing services to third parties in the UK in addition to providing the opportunity for the Group to increase efficiencies and drive operational growth in the medium term. At the time of acquisition in July 2015, NuPharm was under manufacturing restrictions from the MHRA.

Since we acquired the business, we have worked to significantly upgrade the facility significantly, overhaul NuPharm's systems, invest in new equipment and resources, strengthen and develop the management team and to implement the Group's high standards and procedures. This resulted in an investment in NuPharm during the period in order to enhance its capabilities to support the wider Group into the future. We are working closely with the MHRA, initially to continue to increase the number of products which NuPharm are able to manufacture and then to seek to release the manufacturing restrictions. It is expected that NuPharm will make a positive contribution to Group profitability in the second half of the current financial year.

We continue to deliver on our strategy of signing exclusive deals with our customers. Post period end, we renewed our exclusive contract with the UK's leading pharmaceutical wholesaler, AAH Pharmaceuticals, to supply Specials and Special Obtains for a further five years. AAH serves the growing number of Lloyds Pharmacy and other pharmacies in the Celesio UK Group. The division has contracts with three of the four largest national pharmacy chains as well as having accounts with nearly all UK hospital trusts.

Also post period end, in March 2016, we entered into a licence and royalty agreement with Moorfields NHS Foundation Trust (trading as Moorfields Pharmaceuticals) exclusively to develop, manufacture and sell a range of aseptic and batch-made Moorfields branded ophthalmic specials. The agreement is for five years and the first products should be launched during the current financial year. This partnership with Moorfields Pharmaceuticals provides the opportunity to work closely with a leading institution with expertise in this specific therapeutic area.

Earlier this month we entered into a new contract for a large pharmaceutical company to compound and distribute a cancer treatment. This is our first business to business agreement in aseptics and we are exploring other similar opportunities.

Niche Pharmaceuticals division

Our Niche Pharmaceuticals division comprises three business units, which develop and commercialise niche pharmaceuticals.

The division moved in to its product delivery phase, resulting in a 126% increase in revenue of £4.3 million (2015: £1.9 million) and a 133% increase in adjusted EBITDA to £2.1 million (2015: £0.9 million). This was driven by the successful launch of new products, out-licensing deals and third party development projects.

During the period we made a number of changes to both processes and personnel (including the appointment of a Managing Director of the division) to address some of the challenges experienced with the timing of delivery of products from the product pipeline. We are confident that these challenges are now resolved and the division has moved into the delivery phase.

We launched the first two products in our Mucodis® branded range of unique, cost effective and patented range of medical devices for the treatment of some of the side effects of oncology treatment - Mucodis® Oromucosal Spray and Mucodis® Mouthwash. These products both prevent and treat oral mucositis, a debilitating and painful side effect associated with cancer treatment. Their cost to the NHS is highly competitive versus other products in this area. The response from clinical teams at hospitals has been extremely positive, and their own use in their units has provided positive patient feedback. We are in the market access phase and are gaining permission in hospitals for the product to be purchased for use. By the end of the summer, we expect to have gained permissions in hospitals covering 35% of the patients diagnosed with cancer each year. The next launches in the Mucodis® range are anticipated in the coming months.

After a slower than anticipated start for Aviticol® 20 000IU capsules, which was largely due to the need to convert existing users of nutritional supplements and, to a lesser extent, 2 competing licensed products, the recent uptake has been positive. In particular, post period, we have seen strong uptake as a result of agreements with Clinical Commissioning Groups ('CCG's') which will be further strengthened as a result of the receipt of marketing authorisations for Aviticol® 800IU capsules, colecalciferol 800IU capsules, Aviticol® 1000IU capsules, colecalciferol 1000IU capsules and the launch of ergocalciferol 50 000IU capsules. The 1000IU capsules and the 50 000IU capsules are both the first Unlicensed-to-Licensed developments of their type and will be launched via cease and desist notices, meaning suppliers of unlicensed specials will have to withdraw from this market. We now have UK marketing authorisations for four different strengths of Vitamin D products with seven product lines.

We signed a €1.5 million out-licensing agreement for Aviticol® 20 000IU capsules with a major German pharmaceutical company in October 2015. This type of out-licensing deal forms an integral part of the Group's business plan and model for the division. Lamda also contributed a number of out-licensing deals across Europe during the period, which provide fixed licensing fees and future royalty income. The Group continues to pursue further out-licensing opportunities for products in its pipeline.

The product pipeline currently has in excess of 60 products, with over 20 of these submitted to the MHRA and other authorities and over 40 in pre-registration development or assessment. The next phase of launches of licensed pharmaceuticals from our product pipeline is anticipated over the coming months.

During the final quarter of the year, we undertook a commercial and operational review to assess how effectively the division was being managed.  A key outcome of this process has been to focus responsibility for new product identification, market assessment and product commercialisation (including all sales and marketing authorisation holder responsibilities) at Colonis. To support this, Colonis has relocated to Basingstoke, an area with a high concentration of skilled pharma staff, and recruited a number of new staff with the requisite skills and background. Lamda, which has experience of successfully completing over 100 development projects for third parties, is now focused on in-house product development, regulatory submissions and the securing of the licence and/or medical device status, in addition it has retained some capacity for third party development.

Opportunities are continually being identified by the Group product development team, utilising market knowledge and intelligence from the Specials and Medication Adherence divisions, to continue to grow the product pipeline.

Medication Adherence division

Our Medication Adherence division comprises two business units, which provide products and services designed to enhance the likelihood of a patient adhering to a medication regime, patient-focused homecare services and services to pharmaceutical companies.

The division delivered good growth during the period that saw turnover increase by 47% to £11.3 million (2015 : £7.7 million) as a result of growth in our specialist homecare offering and an adjusted EBITDA contribution of £0.4 million, after an add back of £0.8 million losses relating to the divestment of the care home operation (2015: £1.1 million loss).

The division has performed well across the board, narrowing its losses, winning significant homecare contracts and making strong progress in the development of, and pilots utilising, Biodose Connect™.

Much of the growth in this division has come from the expanding specialist homecare offering, which delivers medicine to patients at home. This offering initially focused on the fertility market, but as planned, we have expanded into other markets and are now working directly with the NHS in several therapeutic areas. Recent months have seen further significant tender and contract wins where we have been added to the approved homecare suppliers for two large pharmaceutical companies.

Our strategy is to continue to find opportunities for specialist homecare services which add value to the Group and in particular will provide ideas for our product pipeline. The homecare contracts, which are lower margin than other activities across the Group, involve the purchase and delivery of high value medicines for which we receive a dispensing and delivery fee. As such, the contracts are expected to significantly increase the turnover of the Group, with a more modest contribution to profitability but to provide ideas for the product pipeline which, if and when realised, will provide high margin for the Group.

During the financial year we made a strategic decision to dispose of our non-core business of dispensing services to care homes to allow us to focus on our growing homecare service and Biodose Connect™ commercialisation.

Biodose Connect™, the Group's innovative telemedicine technology, a unique application of our Biodose® product, allows the patient, carer, doctor or pharmacist to be alerted if medicines are not taken as prescribed, by permitting remote monitoring of whether medicines are being taken. We remain on course to begin commercialisation during the first half of 2016. Official validation testing to obtain class 1 medical device status has commenced, and once this is received, the Group will advance its commercialisation strategy. Commercial private pay launches have been agreed with a national pharmacy chain and two regional pharmacy chains. Advanced discussions are on-going with primary care providers, private medical groups and pharmaceutical companies.

Trading Update and Outlook

We are confident that the delays in our product pipeline have been resolved and that it will be delivered over the course of the next few years in line with expectations. This includes a significant number of product launches during the current financial year.

Trading performance in the first quarter of the current financial year has been strong. As the product pipeline converts our financial performance for the current financial year remains second half weighted. All of the products due to launch this financial year are currently on track, and as such we are confident in the outlook for the year.

Andrew Scaife

Chief Executive Officer

9 May 2016

Financial Review

The financial year to January 2016 was the first full financial year of trading on AIM, following the Group's admission in December 2014. The Group completed and integrated two strategic acquisitions during the year and established new divisional reporting structures, alongside continuing to invest in converting its product pipeline. The Group has delivered growth in revenue, operating profit, adjusted EBITDA and EPS. The focus for the year ahead is profit generation from the product pipeline and the management of cash and debt.

Key Performance Indicators (KPIs)

The Group uses seven primary measures to monitor overall performance. 2016 saw positive trends across the majority of these KPIs:

Revenue

All divisions recorded sales growth in the year and as a consequence Group revenue rose by 13% in the year to £70.0 million (2015: £61.7 million). Growth in the Specials division was driven in part by increased demand in the hospital sector. The Niche Pharmaceuticals division saw growth through the launch of two products from our Mucodis® range, the out-licensing of Aviticol® and the acquisition of Lamda. The Medication Adherence division has shown strong growth of 47% to £11.3 million (2015: £7.7 million). Following a strategic decision to focus on the homecare market, the Group divested its business of dispensing services to care homes in January 2016.

Gross Profit

The reduction in gross margin to 37% (2015: 42%) has resulted in a relatively flat gross profit of £26.2 million (2015: £25.9 million) despite the 13% increase in Group revenue. This reduction in margin is primarily attributable to lower margin homecare contracts and the release of certain provisions in the Specials division in the prior year. On an underlying basis the margin in the core Specials business remains stable.

Operating Profit

Operating profit has increased 5% to £7.0 million (2015: £6.7 million) as a result of the increase in gross profit. The distribution and administrative cost base of the Group continues to be well controlled and has remained stable, whilst supporting the Group deliver the current year growth.

Adjusted EBITDA

Adjusted EBITDA rose 4% in the year to £12.7 million (2015: £12.2 million), after adjusting for £3.8 million of non-recurring costs that include £1.5 million payment of deferred consideration for the Lamda acquisition (which accounting rules require to be treated as remuneration), £0.8 million loss relating to the divestment of the care home operation from the Medication Adherence division and £1.5 million of deal and other one-off costs (2015: £4.5 million of non-recurring costs that include £4.0 million one-off costs which related to restructuring and IPO related activities and £2.1 million share-based payment charges net of a one-off loan release £1.6 million).

Profit before tax

Profit before tax has significantly increased by 464% to £6.2 million (2015: £1.1 million). This is after a financial interest expenses of £0.9 million (2015: £5.7 million), which reflects debt reduction following the Group's AIM admission in December 2014.

Earnings Per Share

Basic EPS has increased by 246% to 4.5 pence (2015: 1.3 pence).

Operating Cash Flow

Net cash inflow from operating activities was £7.0 million (2015: outflow £7.2 million), driven primarily by an increase in operating cash flow after working capital movements to £7.6 million (2015: £2.9 million) and a £10.2 million reduction in interest paid, following the significant repayment of £59.9 million of borrowings in the previous financial year.

Acquisitions, Investment and Funding

During the year the Group invested £21.0 million, comprising £12.1 million for the two strategic acquisitions, Lamda and NuPharm, £6.4 million in development expenditure and £2.1 million of property, plant and equipment. The consideration payable to Lamda comprises three elements - €4.7 million on acquisition of the shares in April 2015 and two instalments of €2.5 million on the first and second anniversary of the transaction in April 2016 (paid) and April 2017 respectively.

Following completion accounts adjustments, a total of £8.8 million was paid to acquire the shares of NuPharm in July 2015. A further £4 million is payable in earn out monies, should the business achieve required targets by July 2017. The Directors do not believe that a material sum will be payable under these arrangements.

During the period the Group's development expenditure increased to £6.4 million (2015: £3.1 million) predominantly due to increases in the number of products moving through the development process and the additional products acquired through the acquisition of Lamda.

Net Debt

As at 31 January 2016, net debt was £24.6 million (2015: £9.0 million) comprising borrowings of £28.8 million (2015: £14.9 million) and cash and cash equivalents of £4.2 million (2015: £5.9 million).

With a number of product launches expected in the second half of the financial year, a key focus for the Group over the coming months is the management of net debt to enable continued investment in the product pipeline until cash generation exceeds product development expenditure.

Banking

During the year the Group agreed new banking facilities with RBS and Lloyds that has increased our overall facility from a £15 million term loan, to a £25 million term loan plus £10 million revolving credit facility, in order to better support the cash generation profile of the business and the ongoing investment in product development. We now have facilities that provide the Group with greater operational flexibility to support delivery of the development pipeline.

Dividend

The Board is pleased to recommend a final dividend of 1.0 pence per ordinary share (2015: 0.25 pence) bringing the total dividend for the financial year to 1.5 pence per ordinary share. Subject to shareholder approval this final dividend will be paid on 7 November 2016 to shareholders on the register as at 21 October 2016. The ex-dividend date will be 20 October 2016.

Chris Rigg

Chief Financial Officer

9 May 2016

Consolidated Income Statement

for year ended 31 January 2016

Consolidated Statement of Comprehensive Income

for year ended 31 January 2016

Consolidated Balance Sheet

at 31 January 2016

Consolidated Balance Sheet (continued)

at 31 January 2016

These financial statements were approved by the board of directors on 9 May 2016 and were signed on its behalf by:

C Rigg

Director

Company registered number: 9269818

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity (continued)

Consolidated Cash Flow Statement

for year ended 31 January 2016

Notes

1 Basis of preparation and status of financial information

The financial information set out above has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (Adopted IFRSs).

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 January 2016 or 2015. Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report (iii) did not contain a statement under s498 (2) or (3) of the Companies Act 2006.

These results were approved by the Board of Directors on 9 May 2016.

2 Acquisitions of subsidiaries

Acquisitions in the current period

Lamda

In April 2015 the Group acquired the entire share capital of Lamda Laboratories SA, Lamda Pharma SA and Lamda UK Limited ('Lamda') for consideration, settled in cash of £3,416,000 (€4,700,000). Deferred consideration of £3,700,000 (€5,000,000) is payable in two equal instalments 12 and 24 months after the date of completion. The amounts payable as deferred consideration are contingent on the continued employment of Mr G Liolios.

The arrangement to pay the deferred consideration has been accounted for separate to the business combination, as remuneration, as the payments are contingent on the continued employment of Mr Liolios. The £3,700,000 is to be charged evenly over the 24 month performance period. The charge in the current year is £1,461,000.

Lamda provide a fully outsourced research and development service to companies looking to license medical products from its state of the art development laboratories near Athens, Greece. £382,000 of expenses relating to the acquisition were charged to the Consolidated Income Statement in accordance with IFRS 3.

The resulting goodwill totalling £2,731,000 has been capitalised and is subject to an annual impairment review by management. Goodwill is attributed to Lamda's knowledge and expertise in the research and development of products and the synergies provided to the rest of the Group.

The fair value of the net assets acquired in respect of the Lamda Group, and consideration payable, were as follows:

In the period since acquisition the subsidiary contributed a net operating profit of £363,000, prior to a £1,461,000 charge for deferred consideration, as noted above, resulting in an overall net loss of £1,098,000.

If the acquisition had occurred on 1 February 2015, Group revenue would have been an estimated £70,458,000 and profit after tax would have been an estimated £5,559,000.

NuPharm

In July 2015 the Group acquired the entire share capital of NuPharm Group Limited and its wholly owned trading subsidiary NuPharm Laboratories Limited ("NuPharm") for consideration (including expenses), settled in cash of £8,837,000 and contingent consideration of up to £4,000,000 payable 24 months from the date of acquisition.

The contingent consideration is subject to certain performance criteria being achieved. The amount payable ranges from £nil to a maximum of £4,000,000. The directors have estimated those contingent amounts at a fair value of £250,000.

NuPharm is a UK based, outsourced manufacturer for batch made specials and niche licensed pharmaceutical products. In addition it has product development expertise and is a clinical trials product manufacturer.

£372,000 of expenses relating to the acquisition were charged to the Consolidated Income Statement in accordance with IFRS 3. The resulting goodwill totalling £9,609,000 has been capitalised and is subject to an annual impairment review by management. Goodwill is attributed to NuPharm's expertise in batch manufacturing and the synergies this provides the Group.

The fair value of the net assets acquired in respect of the NuPharm Group, and consideration payable, were as follows:

In the period since acquisition the subsidiary contributed a net operating loss of £14,000.

If the acquisition had occurred on 1 February 2015, Group revenue would have been an estimated £71,006,000 and profit after tax would have been an estimated £5,282,000.

3 Segmental reporting

The following analysis by segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Board of Directors (the Chief Operating Decision Maker as defined by IFRS 8) to assess performance and make strategic decisions about allocation of resources.

During the year the Group has streamlined its reporting structure into three clear divisions; Specials, Niche Pharmaceuticals and Medication Adherence and information is reported to the Board of Directors in this manner. The segmental information presented below replicates this structure and prior year comparatives have been restated.

The sectors distinguished as operating segments are Specials, Niche Pharmaceuticals and Medication Adherence. A short description of these sectors is as follows:

These segments have separate management teams and offer different products and services. These operating segments are reportable segments. The segment results, as reported to the Board of Directors, are calculated under the principles of IFRS. Performance is measured on the basis of Adjusted EBITDA which comprises the segment result before non cash items (amortisation, depreciation and share based payments) and other items that are excluded when the Board assess performance. This includes 'One-off costs, as termed in the tables below, deferred consideration treated as remuneration (see note 2), and the losses of the Care Home operation, divested from the Medication Adherence division in the current year. A reconciliation between Adjusted EBITDA and Profit before tax is included in the tables below:

31 January 2016

Unallocated net assets include trade and other payables (£0.4 million), bank term loans (£28.8 million) and net intra-group loan receivables (£40.1 million).

31 January 2015

Unallocated net assets, cash and cash equivalents (£1.9 million), bank term loan (£14.8 million) and net intra-group loan receivables (£35.1 million).

In all periods revenue is generated almost entirely in the UK. In the year ended 31 January 2016 one (2015: two) customers accounted for 24% of revenue (2015: 34%).

4 Earnings per share