Directors' Report

The directors are pleased to present their annual report on the affairs of the Group, together with the audited financial statements, for the year ended 30 April 2011. Please view The Remuneration Report, the Corporate Governance Report and the Corporate Responsibility Review.

The Annual Report has been prepared for, and only for, the members of the Company, as a body, and no other persons. The Group, its directors, employees, agents or advisers, do not accept or assume responsibility to any person to whom this document is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed. By their nature, the statements concerning the risks and uncertainties facing the Group in this annual report involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this annual report and the Group undertakes no obligation to update these forward-looking statements. Nothing in this annual report should be construed as a profit forecast.

Principal activities of the Group

The principal activities of the Group are the design, development and manufacture of specialty medical drug delivery devices and services to the pharmaceutical industry through its Bespak division and disposable airway management products for critical care settings in hospitals and pre-hospital settings through its King Systems division. Our products include metered dose inhalers, dry powder devices, actuators, compliance aids, disposable autoinjectors, needle-free reusable jet injectors, disposable facemasks, breathing circuits, laryngeal tubes and video laryngoscopes.

Business review

The Group operates through two divisions: Bespak which comprises a respiratory and an injectables business; and King Systems, a US based anaesthesia products business. This review includes a balanced and comprehensive analysis of the development and performance of the business of the Group and a description of the main trends and factors likely to affect the future development, performance or position of the business at the end of the year, using key performance indicators where appropriate.

Principal risks and uncertainties

The Group has identified the following factors as principal risks to the successful operation of the business and has identified the steps it takes to manage those risks:

Reliance upon key customers

The Bespak division has a degree of reliance on a small number of key customers but continues to take steps to diversify its customer base. There are significant barriers to entry in terms of high-volume manufacture in a regulated environment and also in bespoke company intellectual property and know-how. Customers are unable to quickly transfer business between suppliers and are often committed by long-term contracts. Good progress continues to be made in entering new markets for Bespak which is expected to expand the customer base over time.

Increasing cost pressures and commoditisation of markets

The Group has experienced no significant evidence of commoditisation of its core products. Their specialist use, regulatory restrictions and, often, extensive intellectual property, has tended to prevent new entrants to the market. Nevertheless, cost pressure is increasing in both divisions. In Bespak this is addressed by the introduction of new products at the beginning of their lifecycle and supported by strong intellectual property. The division also intends to move further up the value chain, offering services such as drug handling and final packaging. The King Systems division is addressing cost pressures by implementation of a manufacturing transformation programme to add unit cost efficiency and through the introduction of higher value products such as the King Vision video laryngoscope.

Supply chain delay or interruption

The Group works in partnership with key suppliers to manage the risks of delay or interruptions to supply. Commercial risk registers identify key elements of the supply chain and put in place mitigating actions, including additional capacity and strategic stocks, to minimise the risk of delay or interruption in supply. The Group has a continuity plan in the event of disruption and generally has terms in supplier contracts to ensure continuity of supply. Some products are dual sourced.

Delay to the transformation programme

The transformation programme at King Systems involves significant change for the organisation and the efficient commissioning of new manufacturing technologies. The Executive Committee reviews progress regularly and the Director of Group Operations has a key role in ensuring that deadlines are met. The programme has been subject to regular scrutiny and risk assessment. A programme of inventory building along with parallel running of processes helps to reduce risk.

Maintenance and improvement of product quality

The Group operates in highly regulated markets with strict manufacturing and product quality requirements and expectations. Any deterioration in the quality of the Group’s products or manufacturing processes could lead to a reduction in revenues or fines imposed by the regulatory authorities. The Group mitigates this risk through the implementation of rigorous quality assurance processes, training of its workforce and ongoing liaison with its customers, suppliers and regulatory bodies.

Misallocation of capital

The Group is in a strong financial position which could be jeopardised by a poor use of capital for Mergers & Acquisitions (M&A) or investment. The Board reviews and approves all material investments by the Group, which are all subject to extensive risk assessment. Major capital programmes are, where possible, underwritten by customer contracts. The M&A risk is managed by the management team who have extensive experience in M&A and who make, where appropriate, full use of advisors during any due diligence process.

Regulatory risk

The operations of the Group are subject to various regulatory requirements which confer a degree of protection as well as an element of risk, in particular to delivering growth. A strong compliance regime is in force and regular reviews and audits take place, not only by regulatory authorities such as the FDA, but also by customers. The Bespak Division is ISO13485 accredited. The Group considers its long history of operating within a strong regulatory environment as a core competence and has dedicated teams to ensure compliance.

Development risk

The Group is developing a range of products at any time, including novel devices for customers, new anaesthesia products, new valves, autoinjectors and an integrated dose counter, any of which may fail in clinical trials. The Group follows rigorous processes and, where possible, is developing the technology as a platform for multiple programmes to reduce the exposure to any individual trial. Development and industrialisation of medical devices is regarded as a core competence of the Group. Delay is the more likely outcome of a programme rather than outright failure.

Employee retention

The unexpected departure of key employees could put at risk the business operations. The Group’s employment policies and remuneration and benefits packages are designed to attract and retain staff. There is also investment in training and development of staff to this end.

Pension risk

Among the Group’s pension schemes is a defined benefit scheme. The liability of the Company under this scheme is subject to risks associated with the value of investments and returns derived from the investments and also from increases in life expectancy. The Company works closely with the trustees of the defined benefit scheme to manage the volatility of liabilities and to spread risk from investments. It also makes regular payments into the scheme to reduce the pension deficit.

Business continuity

The Group has a programme of commercial insurance covering key risks such as product liability, product recall and business interruption. The Group has business continuity plans in place.

Financial risk management

The Group is exposed to a variety of financial risks.

  • Credit risk – the Group has implemented policies that require appropriate credit checks on potential customers before sales over a certain limit are agreed. Credit limits and outstanding receivables are reviewed monthly and action taken if a new risk is identified. The Group has an excellent record on collection of receivables. The Group monitors the level of cash held with financial institutions and the credit rating of those institutions in order to manage credit risk on cash balances.
  • Interest rate risk – the Group is subject to interest rate risk on its revolving bank facility, the terms of which are reviewed by the Board on a regular basis. The Group’s policy is to convert a large portion of its floating rate debt into fixed rate using interest rate swaps. At the end of the financial year over 90% of the Group’s debt was at a fixed rate of interest. Consequently, the impact of any foreseeable rise in interest rates on existing borrowing would not be material.
  • Currency risk – the Group is a sterling denominated Group that receives some of its income and incurs some of its costs in US dollars. It has hedging agreements in place to minimise currency fluctuation.
  • Liquidity risk – the Group has strong cash flows and good earnings visibility ensures that its margins are sufficient to exceed normal operating costs and its major operating subsidiaries are cash-generative. Current borrowing levels can comfortably be supported by forecast cash flows.
  • Price risk – Bespak division is not materially exposed to commodity price risk. King Systems seeks to manage fluctuations in raw material prices where possible.

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Product development and research investment

The Group has a programme of continuous investment in its product development activities. During the year, the Group invested £3.8m (2010: £4.4m) in research and development expenditure. In accordance with IAS 38, ‘Intangible Assets’, the Group has capitalised £0.35m relating to the King Vision device.

Key Performance Indicators, results and dividends

The financial key performance indicators are revenue from products and services, EBITDA, operating profit, profit before tax, earnings per share (all before special items) and operating cash flow.

Revenues increased by 7% to £126.8m. Operating profit increased by 10% to £20.5m. Profit before tax increased by 3% to £17.37m. Basic earnings per share increased by 7% to 45.5p and EBITDA increased by 5% to £27.0m.

The directors propose a final dividend for the year of 12.1p per share (2010: 12.1p per share) to be paid on 28 October 2011 to shareholders on the register at close of business on 23 September 2011. An interim dividend of 7.0p per share (2010: 7.0p) was paid on 22 February 2011, making a total dividend for the year of 19.1p per share (2010: 19.1p).

Post-balance sheet events

There have been no adjusting or non-adjusting post-balance sheet events.

Future developments

Details of future developments are set out in the Chief Executive’s Review.


The names of the directors as at the date of this Report, together with brief biographical descriptions, appear in Board of Directors.

Mr Higgins was appointed an executive director on 1 January 2011 and Dr Drummond was appointed as a non-executive director on 9 February 2011.

In accordance with section 992 of the Companies Act 2006, the directors disclose that rules regarding the appointment of directors are contained in the Company’s Articles of Association, which may only be amended with shareholder approval in accordance with the relevant legislation. The powers given to the directors are contained in the Articles and include, subject to relevant legislation and authority being given to the directors by shareholders in general meeting, authorisation for the Company to issue and buy back its own shares. The Company annually seeks the authority of shareholders for the exercise by the directors of these powers.

All directors are subject to appointment at the next Annual General Meeting following their appointment and to re-appointment thereafter at intervals of no more than three years in accordance with the Company’s Articles of Association. The current Articles require that one third of the directors, or the number nearest to one third, are to retire from office by rotation. Accordingly, Mr Higgins and Dr Drummond seek appointment and Mr Woolrych and Dr Jenkins seek re-appointment as directors at the forthcoming Annual General Meeting.

Mr Kennedy will retire and not seek reappointment as a director at the Annual General Meeting.

Biographical details of the directors seeking re-appointment can be viewed here. At a meeting of the Board held on 14 June 2011 the Board considered the performance and ability of the directors standing for re-appointment at the forthcoming Annual General Meeting. Each director concerned was considered to be an effective member of the Board and to demonstrate the requisite level of commitment. Hence, the Board recommends their re-appointment to shareholders.

Details of the unexpired terms of the service contracts and arrangements of the directors standing for re-appointment can be found in The Remuneration Report and in the Corporate Governance Report.

Directors’ remuneration

The Remuneration Report, includes information regarding directors’ service contracts, appointment arrangements and interests in share options.

Directors and their interests

Details of the interests of the directors and their families in the ordinary share capital of the Company, as required to be disclosed in accordance with Rule 3 of the Disclosure and Transparency Rules of the Financial Services Authority (the ‘DTRs’), are given in the Remuneration Report. There were no other changes in the directors’ shareholdings between 30 April 2011 and the date of this report.

The Board has agreed procedures for considering and where appropriate authorising directors situational conflicts. None of the directors had any interest during or at the end of the year in any contract of significance in relation to the business of the Company or its subsidiary undertakings.

Directors’ indemnities

During the year the Company has entered into qualifying third-party indemnity arrangements for the benefit of all its directors in a form and scope which comply with the requirements of the Companies Act 2006. These arrangements remain in effect as at the date of this report.

Directors’ and officers’ liability insurance

Insurance cover is in force in respect of the personal liabilities which may be incurred by directors and officers of the Group in the course of their service with the Group.

Major shareholdings

As at the date of this report, the Company has received notification from the following institutions of their and their clients’ interests which represent 3% or more of the voting rights of the issued share capital of the Company (in accordance with Rule 5 of the DTRs). The number of shares and the percentage interests are as disclosed at the date on which the interests were notified to the Company.

  • Shareholder

    Number of shares

    Interest in issued shares

  • Schroder Investment Management



  • Montanaro Asset Management



  • M&G Investment Management



  • Artemis Investment Management



  • Kaupthing Bank



  • Aviva Investors Global Services



  • Legal & General Assurance (Pensions Management)



  • BlackRock Group



Payment policy

It is Group policy to agree payment terms individually with suppliers and to abide by these terms subject to satisfactory performance of the relevant transaction. The Group’s average creditor payment period at 30 April 2011 was 44 days (2010: 45 days) and that of the Company was 30 days (2010: 30 days).


The Group is an equal opportunities employer. It is committed to giving fair and equal treatment to all employees and job applicants in terms of recruitment, pay conditions, promotions, training and all employment matters regardless of their race, sex, ethnic background or religious beliefs, sexual orientation or disabilities. An equal opportunities policy is in force which aims to ensure that all employees are selected, trained, compensated, promoted and transferred solely on the strength of their ability, skills, qualifications and merit. The Group also believes that all employees have a right to work in an environment free from discrimination and bullying.

The Group is committed to maximising the level of employee involvement in its business at all levels. Appropriate training is given to enable employees to perform their jobs more competently and to develop their skills and competencies to their full potential. The performance review system allows employees to discuss career opportunities and development and to review guidance on achieving their goals. In addition, employees are encouraged, through sponsorship or a contribution to costs, to study for job-related qualifications.

The Group is committed to achieving the highest levels of quality. The Bespak Division operates to the internationally recognised medical device standard ISO13485. Staff work within a defined quality system and are trained in ‘Good Manufacturing Practice’.

The Group takes a proactive approach to consultation with employees on a variety of work-related issues through the use of consultative forums whose members are elected by staff. Regular briefings are given to staff to keep them informed of matters concerning the business, including financial and economic factors affecting the Group.

The Group operates share option schemes, performance-related bonus schemes and the Company share incentive plan, which employees are encouraged to join.

Information about environmental, social and community matters is set out in the Corporate Responsibility Review.

Disability policy

The Group gives full and fair consideration to applications for employment from disabled persons. Opportunities also exist for employees of the Group who become disabled to continue in their employment or to be considered for other open positions in the Group.

Charitable and political contributions

During the year the Group made donations to charitable organisations of £60,784 (2010: £54,758). Of the total, £38,178 (2010: £18,872) was donated to local and educational charities and community development programmes, and £22,606 (2010: £35,886) to healthcare-related charities.

The Company’s policy is that no contribution or expenditure is made to or on behalf of any political party. No such contribution or expenditure was made during the year or the prior year.

Significant agreements – change of control

There are a number of significant agreements containing provisions that take effect (including provisions permitting counterparties to terminate agreements) upon a change of control of the Company. These include both commercial and bank loan facilities agreements. Maintaining strong relationships with all counterparties is an important element in the risk management of the business and to help safeguard the Company’s interests to help mitigate against any impact resulting from any change of control of the Company should it occur.

Share capital and control

Details of the Company’s issued share capital are set out in Financial Statements. All of the Company’s issued share capital comprises ordinary 10p shares which are fully paid up and rank equally in all respects.

The ordinary shares are listed on the Official List of the London Stock Exchange and are included in the techMARK index. In addition, the Company has entered into a Level 1 American Depositary Receipt (ADR) programme with the Bank of New York Mellon, under which the Company’s shares are traded on the over-the-counter market in the form of American Depositary Shares (ADS).

1,867 (2010 – no shares issued) new shares were issued during the year under the Company’s SAYE Scheme. No new ordinary shares have been allotted under the Company’s share option schemes since the end of the year and up to the date of this report.

Rights attaching to shares

The rights attaching to the Company’s ordinary shares, in addition to those conferred by law, are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House in the UK or from the Company Secretary. The holders of ordinary shares are entitled to receive the Company’s reports and accounts, to attend and speak at general meetings of the Company, to appoint proxies and to exercise voting rights and to participation in any distribution of income or capital.

Transfers of shares

There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to them save where the Company has exercised its rights to suspend their voting rights or to prohibit their transfer following the omission of their holder or any person interested in them to provide the Company with information requested by it in accordance with Part 22 of the Companies Act 2006 or where their holder is precluded from exercising voting rights by the Financial Services Authority Listing Rules or the City Code on Takeovers and Mergers. None of the shares carry any special rights with regard to the control of the Company.

The directors may refuse to register a transfer of ordinary shares where such transfer documents are not lodged by acceptable means or proof of title is required.

Purchase of own shares

At the Annual General Meeting on 15 September 2010 shareholders approved a resolution of the Company permitting it to purchase its own shares up to a maximum of 2,894,392 ordinary shares. This resolution remains valid until the conclusion of this year’s Annual General Meeting. As at 15 June 2011 the directors had not used this authority. A resolution will be proposed at this year’s Annual General Meeting to renew this authority.

During the year the Company’s share ownership trust purchased 65,267 ordinary shares on 9 July 2010 at a price of 380p each; 51,290 ordinary shares on 21 October 2010 at a price of 483.566p each and 44,687 ordinary shares on 28 March 2011 at a price of 555p each. The Company’s share ownership trust currently holds 231,914 ordinary shares of 10p each representing 0.8% of the Company’s issued share capital.

Issue of shares

At the 2010 Annual General Meeting, shareholders approved a resolution to give the directors authority to allot shares up to an aggregate nominal value of £955,150. In addition, shareholders approved a resolution giving the directors a limited power to allot shares for cash in other circumstances. These resolutions remain valid until the conclusion of this year’s Annual General Meeting.

A resolution will be proposed at this year’s Annual General Meeting to renew these authorities.

Further explanation of the resolutions will be included with the Notice of Annual General Meeting, which will be circulated to shareholders separately.

Share schemes

A description of the share schemes operated by the Company is set out in the Remuneration Report.

Disclosure of information to auditors

In the case of each director, so far as each is aware, there is no relevant audit information of which the Company’s auditors are unaware. Each director has taken all the steps he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Annual General Meeting

The 2011 Annual General Meeting of the Company will be held at the Company’s registered office, Breakspear Park, Breakspear Way, Hemel Hempstead on 1 September 2011 at 2.00pm. Details of the resolutions to be proposed, together with the Notice of Meeting, are being sent to shareholders separately and will be posted on the Company’s website.

Corporate Governance

The main features of the Group’s internal controls and risk management systems in relation to the process for preparing consolidated financial statements can be found in the Corporate Governance Report. The Corporate Governance Report forms part of this Directors’ Report and is incorporated into it by cross-reference.


PricewaterhouseCoopers LLP are the Company’s auditors and a resolution to re-appoint them and to authorise the directors to set their remuneration will be proposed at the Annual General Meeting.

Statement of directors’ responsibilities

The directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • make judgements and accounting estimates that are reasonable and prudent;
  • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed in Board of Directors confirm that, to the best of their knowledge:

  • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
  • the Directors’ Report and divisional Operating Reviews for Bespak and King Systems include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

John Slater
Company Secretary
15 June 2011