Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Consort Medical plc for the year ended 30 April 2017.
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 2017 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.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement, in decreasing order of audit significance, that had the greatest effect on our audit were as follows (unchanged from 2016):
|Risks of material misstatement||vs 2016|
|Recurring risks||Valuation of Goodwill and Intangible Assets|
|The risk||Our response|
Valuation of Goodwill and Intangibles Assets
(Goodwill: £126m (2016: £122.6m))
(Intangible Assets: £56.2m (2016: £67.3m))
Refer to the Audit Committee Report, notes 1 and 14.
Valuation of Goodwill and Intangible Assets
Goodwill and customer relationship intangible assets are directly linked as they arise from past acquisitions. These are assessed for indicators of impairment and tested for impairment if such indicators are identified. The cash generating units 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 and customer relationships is one of the key judgmental areas on which our audit focused.
Our procedures included:
Our sector experience
We assessed and challenged whether there were any internal or external indicators of impairment that should have been considered by the directors, associated with the goodwill and finite life intangible assets, based on our knowledge of the Group and the market;
We used our own valuation specialists to assist us in evaluating the discount rate and we considered the reasonableness of other key assumptions including, growth rate, foreign exchange rates, and cash flow forecasts;
We performed breakeven analysis on the assumptions noted above;
We challenged the forecast used in the discounted cash flow model by evaluating the Group's budgeting procedures upon which the forecasts are based. We assessed the accuracy of the current year forecasts by considering the accuracy of prior period forecasts; and
We assessed the adequacy of the Group's disclosures (see notes 14 and 15) in respect of impairment testing and considered whether the disclosures reflected the risks inherent in the valuation of goodwill and intangible assets.
(£294.0m; (2016: £276.9m))
Refer to the Audit Committee Report, notes 1 and 2.
Completeness, existence and accuracy of revenue recognition
The Group's revenue is mainly derived from long-term manufacturing agreements. The agreements vary from customer to customer in terms of minimum order quantities, performance obligations or milestone deliverables and payment mechanisms. Given the variety of individual contract terms, 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:|
Control design, observation and performance:
Testing the design, implementation and operating effectiveness of the controls over the revenue process
Expectation vs outcome:
For a sample of significant contracts in Bespak, 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
Test of details:
We read a sample of revenue contracts for Bespak and Aesica to determine whether the amounts recognized in revenue were in line with the contractual terms with regards timing and value taking into consideration delivery quantities, milestones and other performance obligations.
We obtained a sample of invoices raised and related delivery documentation around the year end to assess whether revenue had been recorded in the appropriate period with respect to those invoices. We examined a sample of credit notes raised after the period end to determine whether revenue had been recorded in the appropriate accounting period.
3. Our application of materiality and an overview of the scope of our audit
|Materiality: Group financial statements as a whole||£1m (2016: £1m)|
5% (2016: 5%) of normalised Group profit before tax
|Coverage||90% (2016: 99%) of Group profit before tax|
Materiality for the Group financial statements as a whole was set at £1m (2016: £1m) and determined with reference to a benchmark of Group profit before tax as disclosed on the face of the Income Statement, of which it represents 5% (2016: 5%).
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £50k (2016: £50k), in addition to other identified misstatements that we believe warranted reporting on qualitative grounds.
Of the Group's 27 components (2016: 27 components), we subjected 15 (2016: 15) to audits for Group reporting purposes. These accounted for over 93% (2016: 94%) of the Group's revenues, 90% (2016: 99%) profit before taxation, and 96% (2016: 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 component materialities ranged from £281k to £700k (2016: £2k to £730k), having regard to the mix of size and risk profile of the Group across the components. The work on 1 (2016: 1) of the 15 components was performed by component auditors and the rest by the Group team.
The Group team held telephone conference meetings with the overseas Group reporting component auditor, and also attended the audit clearance meeting. 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 auditor. The Group team also reviewed the audit work papers for significant areas prepared by the component auditor.
The components within the scope of our work accounted for the following percentages of the Group's results:
|Number of components||Group revenue||Group profit before tax||Group total|
|Audits for Group reporting purposes||15||93%||90%||96%|
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
- the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
- the information given in the Strategic Report and the Directors' Report for the financial year is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic Report and the Directors' Report:
- we have not identified material misstatements in those reports; and
- in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
5. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
- the directors' statement on Viability, concerning the principal risks, their management, and, based on that, the directors' assessment and expectations of the Group's continuing in operation over the three years to 2020; or
- the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.
6. We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
- we have identified material inconsistencies between the knowledge we acquired during our 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 Audit Committee Report does not appropriately address matters communicated by us to the audit committee.
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.
Under the Listing Rules we are required to review:
- the directors' statements, in relation to going concern and longer-term viability; and
- the part of the Corporate Governance Statement relating to the Company's compliance with the 11 provisions of the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company's members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
Lynton Richmond(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
15 Canada Square
14 June 2017