Interim Results

Consort Medical plc

6 December 2016

Interim results

Strong underlying1 performance with 13%2 increase in EPS3

Significant new pipeline contracts increase confidence in longer term outlook

Consort Medical plc (LSE: CSRT) ("Consort", "Consort Medical" or the "Group"), a leading, global, single source drug and delivery device company, today announces its interim results for the six months ended 31 October 2016.

Financial Highlights

1 Underlying - H1 FY2017 less H1 FY2016 at constant exchange rates. 2 CER - at constant exchange rates. 3 Before special items of £6.5m - special items relate to amortisation of acquired intangible assets (H1 FY2016: amortisation of acquired intangible assets £6.5m and integration costs £4.0m).

· Group revenue increases to £144.9m from £135.5m - growth of 2.0% underlying1, 6.9% reported

o Bespak underlying1 revenue growth 4.3% and EBIT growth of 5.7%

o Aesica underlying1 revenue growth 0.5% and EBIT growth of 14.1%

· Improvement in Aesica operational performance increases operating margin 160 bps to 7.8% - on course for double digit margins goal

· 13% growth in Adjusted basic EPS at constant exchange rates reflecting operational leverage and performance

· Strong underlying1 cash generation partially offset by currency headwinds and special items cashflow

· Interim Dividend increased 5% to 7.09p, reflecting the Board's confidence in the Group's prospects

Operational Highlights

· Landmark deal for Bespak with first full development agreement for Syrina® / Vapoursoft® device application with a leading Global Biopharma. Development pipeline expands to 16

· Launch of second Bespak injectable device with UCB Cimzia®

· Rapidly expanding Bespak Innovation funnel, with 11 early stage development / feasibility programmes

· Aesica an early provider in serialisation services, growing service offering to pharma clients

Jon Glenn, Chief Executive Officer of Consort Medical, commented:

"Consort has continued to deliver strong underlying1 growth in earnings whilst adding further important contract wins that build our pipeline momentum. In particular, the recent landmark master development agreement for Syrina® / VapourSoft® and the launch of UCB's Cimzia® autoinjector underpin our longer term growth prospects.

We continue to focus on the organic development of our business, and will continue to consider further inorganic opportunities - whether adding a competency or geographic opportunity - where they present a compelling case for enhancing sustainable shareholder value. With a robust financial position and a strong development pipeline, the Board remains highly confident of Consort's future prospects."

Enquiries: 

Notes:

1. Foreign Exchange Rates

a. Period end exchange rates 31 Oct 2016: EUR1.11: GBP1.0; USD1.22: GBP1.0.

b. Average exchange rate 1 May 2016 to 31 Oct 2016: EUR1.20: GBP1.0; USD1.34: GBP1.0.

c. Period end exchange rates 31 Oct 2015: EUR1.40: GBP1.0; USD1.54: GBP1.0.

d. Average exchange rate 1 May 2015 to 31 Oct 2015: EUR1.39: GBP1.0; USD1.55: GBP1.0.

e. Period end exchange rates 30 April 2016: EUR1.28: GBP1.0; USD1.46: GBP1.0.

f. Average exchange rates 1 May 2015 to 30 April 2016: EUR1.36: GBP1.0; USD1.50: GBP1.0.

Consort Medical plc is a leading, global, single source pharma services drug and delivery device company. We are at the leading edge of innovation and we are committed to investing in patient, clinician and customer driven innovation to create new treatments, new markets and new opportunities.

Our businesses

Bespak is a global market leader in the manufacture of drug delivery devices for pharmaceutical partner companies, including respiratory, nasal, injectables and ocular products, and the manufacture of devices for the point of care diagnostics market. www.bespak.com.

Aesica is a leading provider of finished dose and active pharmaceutical ingredient (API) development and manufacturing services to pharmaceutical partners. www.aesica-pharma.com.

We employ c.2,000 people globally of which c.1,400 are located in the UK. We have UK facilities in King's Lynn, Cambridge, Nelson, Milton Keynes, Cramlington, Queenborough and Hemel Hempstead, German facilities in Monheim and Zwickau and a facility in Pianezza, Italy. Consort Medical is a public company quoted on the premium list of the London Stock Exchange (LSE: CSRT). www.consortmedical.com.

1 Underlying - H1 FY2017 less H1 FY2016 at constant exchange rates.

Consort Medical plc

Group Interim Results

During the first half Consort delivered a strong underlying1 performance from both businesses, in particular our further operational improvements in Aesica translated into an enhanced operating margin. In addition, a number of important business development milestones have added to the Group's future growth prospects, especially the landmark master development agreement for Syrina® / VapourSoft® and the launch of UCB's Cimzia® autoinjector.

Financial Performance

Revenue increased by £9.4m (6.9%) to £144.9m (H1 FY2016: £135.5m) with Bespak delivering sustained growth of 4.3% to £58.9m (H1 FY2016: £56.5m), and Aesica growing 8.8% to £86.0m (H1 FY2016: £79.1m) - an increase of 0.5% at constant exchange rates. Revenue strengthening attributable to the weakness of sterling against the Euro is £6.5m or 8.3%.

EBIT before special items increased by 14.7% to £18.9m (H1 FY2016: £16.5m). This included 5.7% growth from Bespak to £12.2m (H1 FY2016: £11.5m). Bespak EBIT margin increased by 30bps to 20.7%. Aesica EBIT increased 35.8% to £6.7m - an increase of 14.0% at constant exchange rates - with EBIT margin growing 160bps to 7.8% reflecting continuing improvements to operating performance.

Special items before taxation amounted to £6.5m in the year (H1 FY2016: £10.5m), comprising amortisation of acquired intangibles (H1 FY2016: amortisation of acquired intangible assets £6.5m and integration costs £4.0m).

Finance costs were £2.3m (H1 FY2016: £2.4m), with Earnings before tax and special items increasing by 18.0% to £16.6m (H1 FY2016: £14.1m) - an increase of 10.7% at constant exchange rates. Adjusted basic EPS increased by 21.7% to 28.6p per share (H1 FY2016: 23.5p) - an increase of 13.0% at constant exchange rates. Basic EPS increased by 66.2% to 20.1p per share (H1 FY2016: 12.1p).

Cash generated from operations decreased by £9.2m to £10.1m (H1 FY2016: £19.3m). EBITDA before special items grew £3.6m (16.9%) to £25.2m (H1 FY2016: £21.5m). Bespak EBITDA grew 7.8% to £15.2m, with Aesica's EBITDA growing 34.1% to £10.0m - an increase of 21.5% at constant exchange rates. Trade working capital increased £3.9m to £55.7m (H1 FY2016: £51.8m) including the impact of sterling depreciation against the euro, which represents 19.5% of sales (H1 FY2016: 19.4% of proforma sales). Capital expenditure reduced £2.1m to £6.2m (H1 FY2016: £8.3m).

The Group balance sheet closed with a net debt position of £106.8m (FY2016: £97.0m), representing gearing of 1.91x Net Debt: EBITDA, comfortably within the banking facility covenant (maximum 3.0x). Interest cover was 15.79x against a covenant minimum of 3.0x. The Group has comfortable cash resource availability, with total committed facilities of £171.2m, of which £124.1m was drawn at 31 October 2016.

The Board is declaring an increased interim dividend per share of 7.09p (H1 FY2016: 6.75p), an increase of 5%. Payment will be on 17 February 2017 to holders on the register on the record date of 20 January 2017.

Further commentary on the financial results is contained in the Bespak and Aesica business reviews below.

1 Underlying - H1 FY2017 less H1 FY2016 at constant exchange rates.

Bespak Business Review

Operations

1 Underlying - H1 FY2017 less H1 FY2016 at constant exchange rates. 2 Before special items

Bespak has a well-established and diverse core business of products in volume manufacturing and a strong pipeline of innovative products entailing respiratory, nasal, ocular and injectable drug delivery, as well as point of care diagnostics. Once again, the business has performed strongly in the first half with increased demand for its core products as well as winning new development opportunities and contracts.

Revenue grew 4.3% to £58.9m. The Non-respiratory sales have now grown to over 25% of Bespak's turnover - Injectables sales were particularly strong again in both product sales and service revenue. Across the business service revenue continues to be strong, reflecting the extent of and additions to the Development and Innovation pipelines.

The strong revenue performance translated to EBIT growth, which increased 5.7% to £12.2m, as EBIT margin increased 30bps to 20.7%.

In October 2016, Bespak exhibited alongside Aesica at the CPHI exhibition in Barcelona. This was the second time both companies have shared a major industry exhibition platform, and the event drew increased interest in the joint services offering of device and drug.

Product Development

In line with our strategy we have assembled a full and broad product development pipeline of organic growth opportunities, which will add to the strength of the core business going forwards. Successful conversion of these opportunities will provide progressive revenue and profit growth, in both contract manufacturing and products with our own proprietary IP and across a range of therapeutic areas, including commercial drug handling.

Our published development portfolio provides an update on the key business development projects in the business. We guide that for inclusion in the published portfolio, projects must have a reasonable expectation of success, though timescales are difficult to predict, and be expected to produce peak annual sales of at least £3m per annum.

In the period, UCB received regulatory approval from the EMA for INJ 570, an autoinjector for UCB's Cimzia®, and the drug has been successfully launched in the UK market. Further launches are planned in the near term.

We also added two new projects to our development and manufacturing portfolio. These include one respiratory project and one injectable:

· SYR075 is a significant new master development agreement for our proprietary Vapoursoft® Syrina® autoinjector technology with a leading global biopharmaceutical company. Initially there is a single drug / device combination, but the agreement allows for the addition of others, and contains outline terms for commercial supply.

· VAL100 is a significant new commercial supply agreement for Bespak's proprietary respiratory devices with AstraZeneca AB. This is a multi-year agreement for the scale-up and supply of Bespak's proprietary pressurised metered dose inhaler (pMDI) valves and actuators. These will subsequently be assembled with AstraZeneca's Bevespi Aerosphere® (glycopyrrolate and formoterol fumarate) inhalation aerosol indicated for the long-term, maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease (COPD), including chronic bronchitis and/or emphysema. AstraZeneca announced that its device was approved by the US Food and Drug Administration on 25 April 2016.

With the addition of these two new programmes, the portfolio has grown to 16 live programmes. The status of the major programmes currently in our development pipeline is listed below.

DPI = Dry Powder Inhaler, MDI = Metered Dose Inhaler, POC = Point of Care, IDC = Integrated Dose Counter

Innovation

The Innovation team continues to be highly active on a number of fronts. The team has now grown to 32 people (21 as at H1 FY2016) at its own dedicated facilities in Cambridge, and we plan to grow this further during the current financial year.

The commercial and innovation teams continue to generate very strong interest in our new technology platforms on a range of opportunities. The Innovation funnel has progressed broadly during the period across a number of therapeutic areas and technologies. These development and feasibility programmes cover a range of therapeutic areas and are all in partnership with biotech and pharmaceutical companies that complement our current customer portfolio in our core business - this is again indicative of the strength and success of our innovation drive and strategy to broaden and diversify our product and customer base.

Syrina®, Lila® & Lapas® Update

Vapoursoft® powered Syrina® auto-injectors, Vapoursoft® powered Lapas® auto-injectors, and our Lila MixTM and DuoTM technologies have continued to generate widespread interest as innovative and novel drug delivery systems and devices, with several biotech and pharmaceutical companies initiating feasibility and development programmes for their injectable drug portfolios.

This rapidly expanding Innovation funnel currently has an active schedule of five early stage development programmes, six feasibility programmes, and a further five programmes awaiting initiation.

Launch of Bespak's Syrina® AR 2.25 Auto-injector

In October 2016 Bespak unveiled its Syrina® AR 2.25 auto‑injector. This innovative auto-injector is the latest addition to the VapourSoft® -powered Syrina® range and is suitable for delivering volumes of up to 2.0ml using a standard 2.25ml pre-filled syringe. The Syrina® AR 2.25 provides patients with a fully-automatic two-step, compact device for the self-administration of viscous drug formulations.

Using Bespak's proven proprietary VapourSoft® compact energy source, Syrina® AR 2.25 is able to deliver 2.0 ml of viscous drug solutions smoothly and safely in less than 15 seconds. Designed with a hidden needle, Syrina® AR 2.25 offers automatic needle insertion and retraction, as well as drug delivery with a single push-on-skin operation. Syrina® AR 2.25 has been tailored specifically for higher viscosities while still enabling the safe use of glass syringes.

Using VapourSoft® at its core allows a compact design and, with quiet operation, provides a discrete solution for patients. Syrina® AR 2.25 is clinical trial ready, enabling a fast track implementation process once paired with a specific drug formulation.

Aesica Business Review

Operations

1 Underlying - H1 FY2017 less H1 FY2016 at constant exchange rates. 2 Before special items

Aesica revenue grew 0.5% to £86.0m, at constant exchange rates. EBIT grew strongly, by 14.1% to £6.7m at constant exchange rates, reflecting the continued improvement in its operating performance, with operating margin increasing 160bps to 7.8%.

We are now routinely supplying commercial product using the first semi-continuous processing line and technology installed at the Queenborough site and are in discussion with a range of pharma customers looking to access the equipment for development activities.

Aesica has moved from validation to routine commercial supply of S+flurbiprofen to a leading Japanese pharmaceutical company to provide the active ingredient for an anti-inflammatory formulation.

Business Development and Innovation

A changing regulatory requirement within the pharmaceutical industry is for product to be uniquely identified to the individual pack level. This process is known in the industry as serialisation. Aesica has been a very early provider of serialisation services to the industry for countries such as China and Latin America and is well advanced in developing the service to take on customers for the next wave of countries adopting serialisation including the EU.

The business has identified a number of attractive business development opportunities with pharma companies looking to outsource oral products and has seen growth in demand for its liquid formulation services at the Pianezza site. One continued growth area is around the manufacture and supply of anaesthetic product for both human and veterinary use.

The Aesica commercial team is focused on a growing number of formulation development and manufacturing opportunities, including a number of early leads for drug formulation and device combinations, as well as packaging opportunities.

Other Financial

Special Items

Special items are those items which the Group considers to be non-repetitive or are not a part of the underlying performance of the business, and often where a material income statement cost or credit is incurred in one year to deliver a future benefit. In H1 FY2017 special items amounted to £6.5m comprising amortisation of acquired intangible assets (H1 FY2016: amortisation of acquired intangible assets £6.5m and integration costs £4.0m).

Pensions

The IAS 19 pension valuation at 31 October 2016 was a total deficit of £43.3m (30 April 2016: £27.2m). The bulk of the increase in the deficit arises primarily from the significant decline in bond yields following the EU referendum which has increased the liabilities, in particular of the Bespak scheme. Deficit recovery contributions of £1.5m per annum are being made to the Bespak scheme. The next triennial actuarial valuation will take place at 30 April 2017.

Tax

The effective tax rate on EBT before special items is 16.1% (H1 2016: 18.9%). The reduction in the rate from last year follows the approval and launch of UCB's Cimzia® autoinjector (INJ570), where historic development losses in the Medical House (ASI) Ltd. have now been recognised as a tax asset.

Principal risks and uncertainties

The principal risks and uncertainties deemed relevant for the remainder of the financial year are considered in note 14 to the financial statements.

People

As announced in August, Richard Cotton (CFO) is leaving the Group following these results to join Dechra Pharmaceuticals plc as CFO. As announced on 25 November 2016, the Board has appointed Paul Hayes to succeed Richard. Paul is currently CFO of The Vitec Group plc, and is serving his notice there until the end of April 2017 when he will join Consort. In the meantime, the Group has appointed David Tilston to act as Interim CFO until Paul joins. David is a seasoned Interim CFO, with experience in both public and private companies.

The Board would like to thank Richard for his contribution, commitment and hard work during a time of significant change and growth at the Group, and to wish him well as he embarks on the next stage of his career.

Outlook

Consort has continued to deliver strong underlying1 growth in earnings whilst adding further important contract wins that build our pipeline momentum.

In particular, the recent landmark master development agreement for Syrina® / VapourSoft® and the launch of UCB's Cimzia® autoinjector further evidence our longer term growth prospects.

We continue to focus on the organic development of our business, and will continue to consider further inorganic opportunities - whether adding a competency or geographic opportunity - where they present a compelling case for enhancing sustainable shareholder value. With a robust financial position and a strong development pipeline, the Board remains highly confident of Consort's future prospects.

1 Underlying - H1 FY2017 less H1 FY2016 at constant exchange rates.

Statement of directors' responsibilities

The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Consort Medical plc are listed in the Consort Medical plc Annual Report for the year ended 30 April 2016. A list of current directors is maintained on the Consort Medical plc website: www.consortmedical.com.

By order of the Board

Richard Cotton

Chief Financial Officer

5 December 2016

Independent review report to Consort Medical plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2016 which comprises the consolidated Income Statement, consolidated Statement of Comprehensive Income, consolidated Balance Sheet, consolidated Statement of Changes in Shareholders' Equity, consolidated Cash Flow Statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Lynton Richmond

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London E14 5GL

5 December 2016

*Restated (see note 17)

Condensed Consolidated Statement of Changes in Shareholders' Equity

Condensed Consolidated Cash Flow Statement

For the half year ended 31 October 2016

Notes to the accounts

1. Basis of preparation

The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Breakspear Park, Breakspear Way, Hemel Hempstead, Herts HP2 4TZ. The Company is listed on the London Stock Exchange.

This condensed consolidated interim financial information was approved for issue on 5 December 2016.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 April 2016 were approved by the Board of directors on 15 June 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

This condensed consolidated interim financial information has been reviewed by the Group's auditor, not audited - see Independent Review Report.

This condensed consolidated interim financial information for the six months ended 31 October 2016 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34, 'Interim financial reporting', as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 April 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 April 2016, as described in those annual financial statements except where disclosed otherwise in this note. Taxes on income in the interim periods are accrued using the estimated tax rate that would be applicable to expected total annual earnings. The Balance Sheet as at 31 October 2015 has been retrospectively restated - see note 17 for further details.

Critical accounting estimates and judgments

The preparation of interim financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing this condensed consolidated interim financial information, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 April 2016, with the exception of changes in estimates required in determining the provision for income taxes.

Going concern

The directors have, at the time of approving the interim financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future as the Group has net debt of £106.8m at 31 October 2016 (H1 FY2016: £95.3m) and total banking facilities (using period end exchange rates) of £171.2m of which £47.1m is undrawn at 31 October 2016 and available up to September 2019. Thus they continue to adopt the going concern basis of accounting in preparing the interim financial statements.

Non-GAAP performance measures

The directors believe that the 'adjusted' profit and earnings per share measures provide additional useful information for shareholders on the underlying performance of the business. These measures are consistent with how business performance is measured internally. The adjusted profit before tax measure is not a recognised profit measure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.

Notes to the accounts (continued)

1. Basis of preparation (continued)

Further details on the special items can be found in note 3.

New standards, amendments and interpretations

The following accounting standards and amendments are effective for the year commencing 1 May 2016 but are not expected to have a material impact on the Group:

· Amendments to IFRS 10, IFRS 12 and IAS 28

· Amendments to IFRS 11, IFRS 14, IAS 1, IAS 16 and IAS 38, IAS 16 and IAS 41, IAS 27

· Amendments to IFRS 5, IFRS 7, IAS 19, IAS 34 - Annual Improvements

The following accounting standards relevant to the Group have not been early adopted as the Group carries out an assessment of their potential impact:

· IFRS 9 Financial Instruments

· IFRS15 Revenue from Contracts with Customers

· IAS 7 - Disclosure Initiative

· IAS 12 - Recognition of Deferred Tax Assets for Unrealised losses

· IFRS 2 - Classification and Measurement of Share Based Payment Transactions

· Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4

· IFRS 16 - Leases

2. Segmental information

The Group's operating segments are determined with reference to the information which is supplied to the Executive Committee in order for it to allocate the Group's resources and to monitor the performance of the Group. Following the acquisition of Aesica Holdco Limited ("Aesica") on 12 November 2014, that information analyses the Group between two divisions, Bespak and Aesica. Prior to this acquisition, the Group only had one operating segment. The Executive Committee assesses the performance of the operating segments based on a measure of adjusted operating profit which excludes the impact of special items from the operating segments. Special items are analysed in note 3.

Consequently, the segment information provided to the Executive Committee for both of these reportable segments for the period ended 31 October 2016 is as follows:

Notes to the accounts (continued)

2. Segmental information (continued)

The Group's operating locations are based in the United Kingdom and Europe, with the Group also making sales in the USA and the rest of the world.

· Acquisition-related expenses in the prior year to 30 April 2016 include advisory costs in respect of the Bespak pension scheme and in evaluation of potential transactions.

· Integration costs in the prior year are in relation to restructuring activity following the completion of the integration programme at Aesica; mainly employee and property or move related in nature.

· Amortisation of acquired intangible assets represents the charge for other intangible assets within Aesica (acquired in 2014) of £6.1m and £0.4m in relation to The Medical House acquired in 2009.

· A special tax item of £1.1m was recognised in the prior year as a result of the recognition of deferred tax on capital losses.

· A special tax item of £1.0m was recognised in the prior year as a capital allowance review was carried out in the year which resulted in assets being reclassified from non-qualifying to qualifying.

Notes to the accounts (continued)

3. Special items (continued)

· A special tax item of £0.5m was recognised in the prior year as the impact of a number of prior year adjustments made.

· A special tax item of £0.5m also arises in the current period (H1 FY2016: £1.1m, FY2016: £1.1m) in respect of a significant tax credit as the Group's deferred tax assets and liabilities were revalued using the lower rate of UK Corporate Tax of 17% from 1 April 2020 (reduced from 18%).

Special items from discontinued operations are described in note 15.

Special tax items above are described further in note 3.

Notes to the accounts (continued)

Notes to the accounts (continued)

The directors are proposing an interim dividend for the year ending 30 April 2017 of 7.09p per share which will absorb an estimated £3.5 million of shareholders' equity. It will be paid on 17 February 2017 to shareholders who are on the register on 20 January 2017.

8. Capital expenditure

In the period there were additions to property, plant and equipment of £5.7 million (H1 FY2016: £9.3 million). Capital commitments contracted for but not provided for by the Group amounted to £5.4 million (H1 FY2016: £6.5 million).

9. Financial assets and liabilities

The following table sets out the classification of the Group's financial assets and liabilities. Receivables and payables have been included to the extent that they are classified as financial assets and liabilities in accordance with IAS 32, Financial Instruments: Presentation. Provisions have been included where there is a contractual obligation to settle in cash.

* The directors consider that the carrying value of amounts of these financial assets and liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values.

Notes to the accounts (continued)

9. Financial assets and liabilities (continued)

All financial liabilities have a contractual maturity date that is less than 12 months from the balance sheet date. The equity investments in Atlas Genetics Limited and Precision Ocular Limited are unquoted investments and therefore held at cost, less any provision for impairment as their fair value cannot be measured reliably in the absence of an active market.

Interest bearing loans and borrowings includes a borrowing of £37.4m at 31 October 2016 (H1 FY2016: £27.3m) which has been designated as a hedge of the net investments in the two subsidiaries in Germany and Italy, Aesica Pharmaceuticals GmbH. and Aesica Pharmaceuticals S.r.l. This borrowing is being used to hedge the Group's exposure to the euro exchange risk on these investments. Gains or losses on the retranslation of this borrowing are transferred to OCI to offset any gains or losses on translation of the net investments in the subsidiaries.