1 Our opinion is unmodified

We have audited the financial statements of Consort Medical plc ("the Company") for the year ended 30 April 2018 which comprise the Consolidated and Company Balance Sheet, the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement, the Consolidated and Company Statements of Changes in Equity and the related notes, including the accounting policies in note 1.

In our opinion:

  • the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 30 April 2018 and of the Group's profit for the year then ended;
  • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
  • the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
  • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.

We were appointed as auditor by the directors on 2 November 2015. The period of total uninterrupted engagement is for the three financial years ended 30 April 2018. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.

2 Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

Risks of material misstatementvs 2017
Recurring risksImpairment of Aesica Goodwill
Revenue Recognition
Recoverability of parent Company's investment in Aesica Holdco Limited
THE RISKOUR RESPONSE

Impairment of Aesica Goodwill
(Aesica Goodwill: £113.8m (2017: £111.0m))

Refer to the Audit Committee Report, and the accounting policy and financial disclosure.

Forecast-based valuation
The cash generating units (CGUs) to which goodwill is allocated are assessed for impairment using a discounted cash flow model to calculate a value in use, on an annual basis. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, the valuation of goodwill is one of the key judgemental areas on which our audit focuses.

Our procedures included:
Our sector experience

We assessed and challenged whether there were any internal or external indicators of impairment associated with the goodwill that should have been considered by the directors, based on our knowledge of the Group and the market;

We also challenged the forecasted cash flows used in the discounted cash flow model by evaluating the Group's budgeting procedures upon which the forecasts are based and critically assessing those cash flows in line with our knowledge of the business and the industry.

Benchmarking assumptions
We have evaluated and considered the reasonableness of key assumptions including the discount rate, growth rate, foreign exchange rates, and cash flow forecasts by comparing the assumptions to externally derived data;

Sensitivity analysis
We performed breakeven analysis on the assumptions noted above;

Historical comparisons
We assessed the accuracy of the current year forecasts by considering the accuracy of prior period forecasts; and

Assessing transparency
We assessed the adequacy of the Group's disclosures (see note 14) in respect of impairment testing and considered whether the disclosures reflected the risks inherent in the valuation of goodwill.

Our results
We found the resulting estimate of the recoverable amount of goodwill to be acceptable (2017 result: acceptable).

Revenue recognition
(£311.1m; 2017: £294.0m)

Refer to the Audit Committee Report, and the accounting policy and financial disclosure.

The Group derives its revenues from a range of products and services, Complexity arises due to the large number of bespoke contracts.

Subjective estimate
The Group's revenue is mainly derived from long-term manufacturing agreements. Certain areas of the business are more complex than others based on the type of contracts that are entered and the products supplied. The agreements vary from customer to customer in terms of minimum order quantities and payment mechanisms. The contractual dates do not always align with the Company's financial year and as such, estimation is required in determining pricing and volume thresholds based on customer order estimates or the Company's own past experience. Given the variety of individual contract terms and contractual periods, and that revenue is a material figure in the financial statements, we consider a significant risk exists in relation to the timing and value of revenue to be recognised.

Our procedures included:
Test of details:

We read a sample of revenue contracts for Bespak and Aesica to understand the contractual terms, including delivery quantities, milestones and other performance obligations. We then assessed whether the revenue recognised in respect of those contracts were appropriately accounted for in accordance with those contractual terms.

Control design, observation and operation:
We assessed the effectiveness of controls around inputting information with respect to purchase orders, invoices and delivery documentation into the accounting system and the subsequent reporting of the associated revenue by way of observation.

Expectation vs outcome:
For significant contracts in Bespak and certain contracts in Aesica, we developed an expectation of the revenue to be recognised based on the contractual terms with regards to price, and volumes delivered in the year, and compared to actual revenue; and

Our results
The results of our procedures were satisfactory and we considered the amount of revenue recognised to be acceptable (2017 result: acceptable).

Recoverability of parent Company's investment in Aesica Holdco Limited
(£112.8m; 2017: £112.8m)

Refer to the accounting policies and financial disclosures.

Forecast-based valuation
As stated above, there is a Group risk of impairment of the Aesica Goodwill. In the parent Company's standalone financial statements, this manifests itself as a risk that the carrying amount of the investment in Aesica Holdco Limited is not supported.

The carrying amount of the investment in Aesica Holdco Limited exceeds the net asset value £9.3m (2017: £9.3m) of the subsidiary and as such is at risk of irrecoverability.

The estimated recoverable amount of these balances is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows.

Our procedures included:
Our sector experience

We assessed and challenged whether there were any internal or external indicators of impairment associated with the investment that should have been considered by the directors, based on our knowledge of the Group and the market;

We also challenged the forecasted cash flows used in the discounted cash flow model by evaluating the Group's budgeting procedures upon which the forecasts are based and critically assessing those cash flows in line with our knowledge of the business and the industry.

Benchmarking assumptions
We have evaluated and considered the reasonableness of key assumptions including the discount rate, growth rate, foreign exchange rates, and cash flow forecasts by comparing the assumptions to externally derived data;

Sensitivity analysis
We performed breakeven analysis on the assumptions noted above;

Historical comparisons
We assessed the accuracy of the current year forecasts by considering the accuracy of prior period forecasts; and

Our results:
We found the Company's assessment of the recoverability of the investment in subsidiaries to be acceptable (2017 result: acceptable).

We continue to perform procedures over impairment of customer relationship intangible assets and the Bespak goodwill. Given the level of headroom and the fact that there are no indicators of impairment we have not assessed these as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.

3 Our application of materiality and an overview of the scope of our audit

Overview£1m (2017: £1m)
Materiality: group financial statements as a whole4% (2017: 5%) of normalised group profit before tax
Coverage95% (2017: 90%) of group profit before tax

Materiality for the Group financial statements as a whole was set at £1m (2017: £1m), determined with reference to a benchmark of Group profit before tax, normalised to exclude reorganisation costs of £4.6m and impairment of property, plant and equipment of £4.2m, as disclosed in note 6 (2017: reorganisation costs of £0.5m and advisory and acquisition costs of £0.2m), of which it represents 4% (2017: 5%).

Materiality for the parent Company financial statements as a whole was set at £530k (2017: £650k) determined with reference to a benchmark of net assets and chosen to be lower than materiality for the Group financials as a whole. It represents 0.3% (2017: 0.4%) of the stated benchmark.

We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £50k (2017: £50k), in addition to other identified misstatements that we believe warranted reporting on qualitative grounds.

Of the Group's 27 components (2017: 27 components), we subjected 16 (2017: 15) to audits for group reporting purposes. These accounted for 100% (2017: 93%) of the Group's revenues, 95% (2017: 90%) profit before taxation, and 99% (2017: 96%) of the Group's total assets. For the remaining components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement with these.

The Group audit team instructed the component auditor as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team approved the component materialities, which ranged from £190k to £700k (2017: £281k to £700k), having regard to the mix of size and risk profile of the Group across the components. The work on 2 (2017: 1) of the 16 components was performed by component auditors and the rest by the Group audit team.

The Group audit team held telephone conference meetings with the overseas group reporting component auditors, and also attended the audit clearance meetings. At these meetings, the audit approach, findings and observations reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditors.

4 We have nothing to report on going concern

We are required to report to you if:

  • we have anything material to add or draw attention to in relation to the directors' statement in note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company's use of that basis for a period of at least twelve months from the date of approval of the financial statements
  • the related statement under the Listing Rules set out in Corporate Governance is materially inconsistent with our audit knowledge

We have nothing to report in these respects.

5 We have nothing to report on the other information in the Annual Report

The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Strategic report and directors' report

Based solely on our work on the other information:

  • we have not identified material misstatements in the strategic report and the directors' report;
  • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
  • in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Directors' remuneration report

In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:

  • the directors' confirmation within the viability statement in Corporate Governance that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
  • the Principal Risks & Uncertainties disclosures describing these risks and explaining how they are being managed and mitigated; and
  • the directors' explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Under the Listing Rules we are required to review the viability statement. We have nothing to report in this respect.

Corporate governance disclosures

We are required to report to you if:

  • we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy; or
  • the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report in these respects.

6 We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if, in our opinion:

  • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
  • the parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
  • certain disclosures of directors' remuneration specified by law are not made; or
  • we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

7 Respective responsibilities

Directors' responsibilities

As explained more fully in the Statement of Directors responsiblities, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience, and through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence.

We had regard to laws and regulations in areas that directly affect the financial statements including financial reporting (including related company legislation) and taxation legislation. We considered the extent of compliance with those laws and regulations as part of our procedures on the related financial statement items.

In addition we considered the impact of laws and regulations in the specific areas of health and safety, anti-bribery, employment law, and certain aspects of industry regulations recognising the financial and regulated nature of the group's activities. With the exception of any known or possible non-compliance, and as required by auditing standards, our work in respect of these was limited to enquiry of the directors and other management and inspection of regulatory and legal correspondence.

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the group to component audit teams of relevant laws and regulations identified at group level, with a request to report on any indications of potential existence of non-compliance with relevant laws and regulations (irregularities) in these areas, or other areas directly identified by the component team.

As with any audit, there remained a higher risk of non-detection of non-compliance with relevant laws and regulations (irregularities)/ irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

8 The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's 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 and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Lynton Richmond (Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants
15 Canada Square
London
E14 5GL

13 June 2018