Annual Remuneration Report

The following report summarises how the remuneration policy was applied in FY2016 and how the Committee intends to apply the policy for FY2017. The report will be subject to an advisory vote at the AGM in September 2016.

How the Remuneration Policy was implemented for Executive Directors in FY2016

The following information is audited.

Single Total Figure of Remuneration

The following table sets out the single figure for total remuneration for executive directors for the FY2015 and FY2016 financial years:

Salary
£'000
Benefits
£'000
Bonus
£'000
LTIP
£'000
Pension
£'000
Total
£'000
Jonathan GlennFY2016468155786801891,830
FY2015440166497232821,910
Richard CottonFY2016297132644421591,075
FY2015286143104533481,111
  1. These awards are due to vest in June 2016. The shares estimated to vest have been valued based on the latest vesting forecasts and using the average share price during the final quarter of the financial year of £10.16.
  2. Valued using the share price on the dates of vesting of £8.73 and £9.60. Includes adjustments made in relation to the 2011 LTIP and 2011 Deferred Bonus Plan, as disclosed in the FY 2015 Annual Remuneration Report.
  3. Valued using the share price on the date of vesting of £9.13.

Notes to the Table

The following paragraphs set out details of how the numbers included in the single figure table above have been prepared.

Base Salary

The CEO and CFO's salaries (with effect from 1 August 2015) were £472,450 and £307,000 respectively.

Benefits

Benefits include a car allowance, life assurance, private medical insurance and personal health insurance. The CEO also received a fuel card.

Annual Bonus

The following section summarises the annual bonuses paid to the CEO and CFO based on performance delivered in FY2016. In response to shareholder feedback, this year the Committee has sought to provide expanded retrospective disclosure of bonus targets.

The annual bonus opportunity for the CEO and CFO is split between cash and deferred shares, as set out in the table below.

Cash element —
maximum opportunity (% of salary)
Deferred share element —
maximum opportunity (% of salary)
CEO100%50%
CFO75%35%

For 80% of the cash element of the annual bonus, the payout is based on the Company's Profit before Tax ("PBT") performance during the financial year. The remaining 20% of the cash element and 100% of the deferred share element depend on the Committee's assessment of individual performance against strategically important goals at a corporate and personal level.

In addition, for the deferred share element, the following PBT hurdles must be achieved before shares are awarded.

Below Threshold PBTThreshold PBTBelow Target PBTAbove Target PBT
Maximum deferred shares vesting (based on achievement of strategic targets)No deferred shares
may be awarded
CEO — up to
7% of salary
CFO — up to
5% of salary
CEO — up to
29% of salary
CFO — up to
20% of salary
CEO — up to
50% of salary
CFO — up to
35% of salary

This combination of financial performance and personal performance ensures that the overall level of bonus paid is appropriate and reflective of the Company's performance during the year.

The table below shows the PBT performance required in FY 2016 for threshold, target and maximum levels of vesting.

Threshold
25% vests
Target
80% vests
Maximum
100% vests
FY2016
performance
Level of vesting —
80% of cash element
(% of max)
Profit before tax£28.9m£32.1m£33.7m£32.3m82% of element

As the PBT outcome exceeded the target level, a maximum up to 50% of salary for the CEO and 35% for the CFO could be awarded for the deferred share element.

For FY2016, the CEO's objectives were to continue the development of the innovation pipeline, ensure production facilities were ready for key product launches in both Bespak and Aesica and ensure the integration of the Aesica acquisition was completed with particular focus on the business development pipeline of both stand alone and joint opportunities. The CFO's objectives were focused on financial management including treasury, cash and working capital. Assessing and ensuring adequate financial controls in Aesica and management of the closure of the defined benefit pension scheme. During the year, the Group achieved the following strategic goals: award of two new development contracts, one being a combined Bespak/Aesica contract; progress in delivery of development and innovation pipelines; operational delivery around key product launches and products; and completion of the integration of Aesica. The Committee assessed performance against these metrics and determined the following outcomes: personal portion of the cash element — 100% of element (CEO) and 75% of element (CFO); and deferred share element — 76% of maximum (CEO) and 75% of maximum (CFO).

The total bonuses awarded to executive directors were therefore as follows:

RoleTotal
bonus
£'000
Cash
element
£'000
Deferred
share element
(deferred
until June 2019)
£'000
CEO578 (82% of max)401177
CFO264 (79% of max)18480

LTIP Awards — 2013 Awards Vesting based on Performance to FY2016

Long Term Incentive Plan ("LTIP") awards granted in 2013 were subject to Earnings Per Share ("EPS") performance (50% of the award) and Total Shareholder Return ("TSR") compared to the FTSE SmallCap excluding investment trusts and finance, property and insurance companies (50% of the award) in line with the following performance schedule:

TSRVesting
(% of element)
Less than the mean annualised comparator TSR0%
Equal to the mean annualised comparator TSR25%
TSR greater than the lower of: (i) mean annualised comparator TSR +7%; or (ii) upper quartile annualised comparator TSR100%
EPS (aggregate over the three year performance period)1Vesting
(% of element)
Less than 124p0%
124p25%
143.7p100%

1 Adjusted to reflect the acquisition of Aesica. For full details see the FY2015 Annual Remuneration Report.

Cumulative EPS performance delivered over the period was 147.7p, which exceeds the stretch hurdle required for full vesting. As the performance period for the TSR element runs until 18 June 2016, the final level of vesting has not yet been determined. However, based on annualised TSR performance to date of c.19% p.a., the TSR element is also expected to vest in full. Although this award is currently expected to vest at 100% of maximum, this may vary based on actual TSR performance at the end of the performance period.

For the purpose of the single figure table, the value of the awards have been estimated based on the three month average share price during the final quarter of the financial year (£10.16).

Share Awards Granted During FY2016

The table below sets out details of the share awards made to the executive directors during FY2016. Details of these awards were set out in last year's Annual Remuneration Report.

Face value2,3Performance period
 Type of award1Date of grant(£000)(% of salary)TSREPS
Jonathan Glenn
 
LTIP / PSP419–Jun–15456100%19–Jun–15
to 18–Jun–18
1–May–2015
to 18–May–2018
Deferred shares519–Jun–15209 8%n/an/a
 Nil cost options610–Sep–1566n/a6n/an/a
Richard CottonLTIP419–Jun–15297100%19–Jun–15
to 18–Jun–18
1–May–2015
to 18–May–2018
Deferred shares510–Sep–1595 33%n/an/a
  1. All awards are granted in the form of nil cost options.
  2. Dividend equivalents may also accrue in respect of awards which subsequently vest.
  3. The face value of LTIP awards and deferred shares is calculated using the average price of the three days prior to the date of grant of £9.257 (16 June (£9.47), 17 June (£9.17) and 18 June (£9.13)).
  4. On 10 September 2015, under the terms of the relevant plan rules, the LTIP awards granted on 19 June 2015 rolled over into an award of shares under the new PSP so that they became subject to the terms approved by shareholders at the AGM on 10 September 2015. The PSP awards are over the same number of shares and subject to the same performance conditions as the original LTIP awards. Subject to performance, these awards will vest in June 2018. Awards continue to be 50% subject to TSR performance compared to the FTSE SmallCap, excluding investment trusts, finance, property and insurance companies; and 50% subject to EPS performance. For threshold performance, 25% of the award may vest.
  5. Deferred Share awards are not subject to any further performance conditions and vest in June 2018.
  6. This award, granted to Jonathan Glenn on 10 September 2015, relates to adjustments to the 2011 LTIP and 2011 DBP awards vesting in respect of 2015 as disclosed in the FY2015 Annual Remuneration Report.

How the Remuneration Policy will be applied to Executive Directors in FY2017 (unaudited)

Salary and Benefits

It is expected that with effect from 1 August 2016, salaries will be increased by 2.5%, which is in line with the increases awarded to other employees within the Group. Salaries will therefore be as follows: CEO (Jonathan Glenn) — £484,260 and CFO (Richard Cotton) — £314,675.

Benefits for FY2017 will remain unchanged. Following changes to the taxation of pensions in the UK, the retirement benefit for both executive directors can be delivered as a cash supplement.

Annual bonus

The maximum opportunities (as a percentage of base salary) for the executive directors will be the same as the prior year:

  • For the cash portion of the bonus, 80% will continue to be based on underlying PBT (before special items) and 20% will be based on the Committee's assessment of success against personal strategic objectives. Awards under the deferred share element will continue to be subject to the Committee's assessment of performance against the Group's strategic goals, but subject to the achievement of underlying PBT (before special items) performance hurdles.
  • The strategic measures for the bonus have been selected on the basis that they represent areas that are important for the long-term success of the Group.

The Committee considers that this combination of measures provides an appropriate balance of focus on improving financial performance and wider business strategic goals. The Committee considers that when taken together, the cash and deferred elements strengthen the alignment between shareholders' and executive directors' interests, and encourage a longer-term focus on shareholder value, by requiring a three-year deferral of a portion of the annual bonus which is payable in shares.

Note: The performance targets for the FY2017 annual bonus have not been disclosed on a prospective basis as they are considered by the Board to be commercially sensitive as they could reveal details of our budgeting and our strategic goals to competitors. The Committee will seek to provide expanded retrospective disclosure in due course.

Long-term Incentives — Performance Share Plan

Awards to executive directors will remain unchanged at 100% of salary. The awards will continue to be subject to TSR performance (50%) and EPS performance (50%).

TSR will be measured against the TSR performance compared to the FTSE SmallCap, excluding investment trusts, finance, property and insurance companies. In response to shareholder feedback, for 2016 onwards, the Committee has simplified the TSR performance condition so that performance is assessed on a more conventional basis.

Consort's relative TSR performance —
over 3 years following grant date
Vesting
(% of element)
Less than median TSR of the Comparator Group0%
Equal to median TSR of the Comparator Group25%
Equal to upper quartile TSR of the Comparator Group100%

EPS will continue to be measured on a cumulative basis. The targets for 2016 awards are:

Cumulative EPS between
1 May 2016 to 30 April 2019
Vesting
(% of element)
Less than 183.4p0%
183.4p25%
213.7p100%

The Committee believes this combination of measures continues to provide an appropriate balance between measuring performance against the Company's peers and incentivising management to grow earnings for shareholders over the long-term.

Exceptionally, the Committee may make adjustments to the calculation of performance measures (e.g. following a transaction or for currency movements) to ensure performance is measured on a fair and consistent basis.

Clawback

In line with best practice, the Committee has determined that from FY2016, variable incentives will be subject to malus and clawback provisions, as described in the Policy Report.

External Appointments

With the specific approval of the Board in each case, executive directors may accept external appointments as non-executive directors of other companies. The directors are entitled to keep the fees from external appointments.

During the year, Jonathan Glenn accepted the role of non-executive director for Tissue Regenix Group PLC and his pro-rated fees for the year to 30 April 2016 were £6,250.

Statement of Directors' Shareholding and Share Interests (audited section)

Executive directors are expected to accumulate and maintain a significant shareholding. The vesting of awards from the Company's various equity related incentive arrangements can provide a means to develop this shareholding. Only ordinary shares that are beneficially held by the executive director (or their spouses, civil partners, children and stepchildren) count towards the shareholding guideline.

Previously, the expected shareholding was equivalent to one times basic salary, to be built up over a five-year period. Following the 2015 AGM, the shareholding requirement for the CEO has been increased to two times base salary. The CEO and CFO have met their respective shareholding guidelines.

Number of shares counting
towards shareholding guidelines
(as at 30 April)
Value of shares counting
towards shareholding guidelines1
Shareholding guideline
Jonathan Glenn150,523£1,487,167200% of base salary
315% of salary
Richard Cotton49,447£488,536100% of base salary
159% of salary

1 Calculated based on the share price on 30 April 2016 of £9.88.

The beneficial interests of the executive directors on 30 April 2016 (including beneficial interests of their spouses, civil partners, children and stepchildren) in the ordinary shares of the Company are shown below:

SharesLong-term
incentives1
SAYE2CSOP3Deferred bonus shares4Total
20162015201620152016201520162015201620152016
Jonathan Glenn150,52383,832169,020201,6032,1722,64667,01484,669388,729
Richard Cotton49,44723,765109,824129,4782,5632,5635,25228,57818,306190,412
  1. LTIP and PSP awards are structured as nil-cost options and remain subject to performance conditions.
  2. SAYE is the Company's Save As You Earn employee share option scheme. These options are not subject to performance conditions. This is an all-employee share scheme governed by specific tax legislation.
  3. Company Share Option Plan ("CSOP") linked awards were market value options and they were subject to the same performance measures as the LTIP.
  4. Deferred bonus shares are subject to continued employment only.

Between 30 April 2016 and 15 June 2016 Jonathan Glenn and Richard Cotton acquired 31 partnership shares each through payroll deductions under the all-employee Share Incentive Plan. There were no other changes in share interests.

Scheme Interests

The table below provides details of outstanding awards under share incentive plans:

Date of GrantPlan Shares
at 01/05/15
Awarded
during the
Period¹
Exercised
during
period
Lapsed
during
Period
Total Plan
Shares held
at 30/04/16²
Market Price
at date of
Grant³
Earliest date
of exercise
Latest date
of Exercise
Jonathan Glenn
LTIP/PSP19-Jun-201281,891(75,340)(6,551)6.21Jun 15Jul 15
19-Jun-201362,9873,94166,9287.85Jun 16Jul 16
20-Jun-201456,72556,7258.97Jun 17Jul 17
19-Jun-2015449,30849,3089.26Jun 18Jul 18
Deferred Bonus Plan19-Jun-201240,236(40,236)6.21Jun 15Jul 15
19-Jun-201328,1001,79229,8927.85Jun 16Jul 16
20-Jun-201416,33316,3338.97Jun 17Jul 17
19-Jun-201522,58122,5819.26Jun 18Jul 18
10-Jun-201556,880(6,880)9.62Sep 15Oct 15
Richard Cotton
LTIP/PSP25-Jun-201246,130(40,733)(5,397)6.53Jun 15Aug 15
25-Jun-201265,567(3,647)(1,920)6.53Jun 15Aug 15
19-Jun-201340,9102,55843,4687.85Jun 16Jul 16
20-Jun-201436,87136,8718.97Jun 17Jul 17
10-Jun-2015432,04332,0439.26Jun 18Jul 18
CSOP25-Jun-20125,252(5,252)6.537Jun 15Aug 15
Deferred Bonus Plan19-Jun-201310,98669911,6857.85Jun 16Jul 16
20-Jun-20147,3207,3208.97Jun 17Jul 17
19-Jun-201510,27210,2729.26Jun 18Jul 18
  1. For awards granted in prior years, this relates to dividend equivalent shares.
  2. None of the plan shares held at the year-end have vested as at 15 June 2016.
  3. Calculated using the three day average share price prior to the date of grant.
  4. As set out in the Share Awards Granted During FY2016, 2015 awards were originally granted in June 2015 under the terms of the 2005 LTIP. Following shareholder approval of the 2015 PSP, they were replaced with equivalent awards under the new plan. The PSP awards are over the same number of shares and subject to the same performance conditions as the original LTIP awards. The share price is therefore the three day average prior to the original date of grant (19 June 2015).
  5. Certain awards were adjusted following the rights issue to fund the acquisition of Aesica. Full disclosure is provided in the FY2015 Annual Remuneration Report.
  6. LTIP award made to partially fund the exercise price of the linked CSOP granted on the same date.
  7. Exercise price adjusted following the rights issue in line with HMRC requirements to £5.7117.

At 30 April 2016, there were 301,521 shares in the Company's share ownership trust (2015: 417,276).

Further disclosures — in line with the relevant regulations, the following information is unaudited

Change in Remuneration of the CEO between FY2015 and FY2016

The table below illustrates the percentage change in salary, benefits and annual bonus for the CEO compared to other Group employees (including other senior executives) between FY2015 and FY2016 on a consistent basis. To remove the impact of the acquisition of Aesica, only employees who were employed by the Group in FY2015 and FY2016 have been included in the calculation.

% change
in salary
% change
in benefits
% change
in annual
bonus
CEO6.4%1(4.6%)(11.0%)
All Group employees3.3%2.5%5.8%
  1. The majority of the increase granted to the CEO at the time of the Aesica acquisition in December 2014 falls into the FY2016 period, due to the timing of the award and the year end of the Company. The actual annual increase given in FY2016 was 3.5% (which moved the base salary from £456,450 to £472,450 as disclosed in the FY2015 Annual Remuneration Report), which was in line with the average for the rest of the Group's employees for FY2016.

Historic TSR Performance and the Remuneration Outcomes for the CEO

The graph compares the TSR (based on a notional investment of £100) of Consort Medical against the FTSE Healthcare Sector and the FTSE SmallCap for a seven-year period, calculated on a spot basis. The FTSE Healthcare Sector has been chosen due to sector relevance, whilst the FTSE SmallCap has been chosen so as to provide a wider market comparator constituting companies of an appropriate size.

The table below illustrates the CEO single figure for total remuneration, annual bonus payout and LTIP vesting as a percentage of maximum opportunity for the same seven-year period.

FY2010FY2011FY2012FY2013FY2014FY2015FY2016
CEO single figure of remuneration (£'000's)7338721,0411,8611,6191,9101,830
Annual bonus payout (% of maximum)100%79%96%83%67%98%82%
LTIP vesting (% of maximum)0%0%0%100%100%92%100%

Relative Importance of Spend on Pay

The table below illustrates the year-on-year change in total remuneration compared to distributions to shareholders and profit before tax for FY2016 and FY2015.

Distributions
to shareholders
Total
employee pay
PBT before
special items
FY20168,99985,83332,259
FY20157,01153,66822,691
% change28.4%59.9%42.2%

Total employee pay includes wages and salaries, social security costs, pension costs and share-based payments for employees in continuing operations. Further details are provided in note 4 to the accounts. The increase primarily reflects the enlarged Group following the acquisition of Aesica. Staff costs increased by £32.2m to £85.8m in FY2016 (FY2015: £53.7m).

During FY2015, distributions to shareholders included an aggregate dividend of £3,880,979.97 paid on 24 October 2014 and £3,128,592.82 paid on 13 February 2015. For FY2016, distributions to shareholders included an aggregate dividend of £5,702,989.60 paid on 23 October 2015 and £3,295,944.61 paid on 12 February 2016. It is proposed that a dividend of 12.56p per share be paid on 21 October 2016. Further details are provided in note 12 to the accounts.

PBT before special items has been shown in the table above as it forms the basis on which the cash portion of the bonus is calculated.

Remuneration of non-executive directors (audited)

Fees Paid to non-executive directors in FY2016

The following table sets out the single figure of remuneration for non-executive directors for FY2015 and FY2016:

Fees paid in
respect of
FY2016
£
Fees paid in
respect of
FY2015
£
Dr Peter Fellner (Chairman)130,000130,000
Steve Crummett46,00046,000
Dr William Jenkins53,50053,500
Ian Nicholson43,50043,500
Dr Andrew Hosty38,50030,948
Charlotta Ginman38,5008,342

The fees for the Chairman and non-executive directors remain unchanged since 1 May 2013. It is intended that a review of fees will be undertaken during the year to determine whether any changes to the current levels are required.

Shares held by non-executive directors at 30 April 2016 (audited)

Non-executive directors are not paid in shares nor are there formal shareholding guidelines; however, they are encouraged to hold shares in the Company.

The beneficial interests of non-executive directors on 30 April 2016 (including the benefits interests of their spouses, civil partners, children and stepchildren) in the ordinary shares of the Company are shown below:

Shares owned
outright at
30 April 2016
Shares owned
outright at
30 April 2015
Dr Peter Fellner (Chairman)6,5006,500
Steve Crummett1,000
Dr William Jenkins1,6251,625
Ian Nicholson1,0001,000
Dr Andrew Hosty1,5791,579
Charlotta Ginman948

There have been no changes in share interests between 30 April 2016 and 15 June 2016.

None of the directors had a material interest at any time during FY2016 in any contract of significance, other than a service contract, with the Company or any of its subsidiaries.

Non-executive Director Letters of Appointment (unaudited)

The following table provides details of the non-executive directors' service contracts:

NameEffective date of
appointment
Expiry of
appointment
Dr Peter Fellner14 November 200514 November 2016
Dr William Jenkins6 May 20095 May 2018
Steve Crummett13 June 201212 June 2018
Ian Nicholson13 June 201212 June 2018
Dr Andrew Hosty14 July 201413 July 2017
Charlotta Ginman11 February 201510 February 2018

The Remuneration Committee

Role

The Remuneration Committee's principal role is to determine and make recommendations to the Board regarding the policy for the remuneration of the Chairman, the CEO, the executive directors, the Company Secretary and other members of the senior executive management of the Group. It also determines the policy for, and scope of, pension arrangements and approves the design of performance-related pay schemes, sets the targets for such schemes, and approves payments under such schemes.

The Committee reviews the design of all share incentive plans for the approval of the Board and the shareholders. It determines each year whether awards will be made and, if so, the overall amount of such awards, the individual awards to be made to executive directors and other senior executives, and the performance targets to be used. The terms of reference of the Remuneration Committee are published on the Company's website.

Activities during the Year

The Remuneration Committee met four times during the year. Details of attendance at the meetings are shown in the Corporate Governance. The key matters discussed at these meetings included:

  • Changes to the provision of the retirement benefit following changes to the taxation of pensions in the UK
  • Shareholder feedback on the structure of remuneration
  • Remuneration of executive directors and senior executives
  • Determining bonus payouts and setting bonus targets
  • Determining LTIP award vesting and consideration of LTIP performance criteria
  • Granting of share awards and setting performance targets for awards
  • Amendment to the Terms of the 2015 Performance Share Plan
  • Committee terms of reference and
  • Directors' Remuneration Report

In discussing the above matters, the Remuneration Committee considered the remuneration policies of the Company as a whole.

Members

The Remuneration Committee comprises the following independent non-executive directors:

NameRemuneration Committee position
Dr William JenkinsChairman (since 1 March 2013)
Steve CrummettMember (since 6 November 2012)
Dr Andrew HostyMember (since 14 July 2014)

Advisers

The Chairman, the CEO, the Director of Human Resources, and the Company Secretary were invited to attend some or all of the meetings to provide advice to the Committee. They did not attend when any matter related to their own remuneration was discussed.

During the period, the Committee has received advice from its independent remuneration advisers, Deloitte LLP ("Deloitte"). Deloitte were appointed by the Committee. The Remuneration Committee considers that the advice provided by Deloitte is objective and independent. Deloitte is a founding member of the Remuneration Consultants Group and adheres to its Code in relation to executive remuneration consulting in the UK. The Committee is comfortable that the Deloitte LLP engagement partner and team that provide remuneration advice to the Committee do not have connections with Consort Medical that may impair their independence.

Separate teams within Deloitte also provided the Company with advice on the valuation of share awards for IFRS2 purposes and in connection with the Company's risks and controls. Total fees for advice provided to the Committee during the year under review amounted to £36,600.

The Committee also received advice in relation to its share schemes from the Company's lawyers, Eversheds LLP.

Shareholder Voting

The table below sets out the results of the vote on the 2015 Remuneration Policy and Annual Remuneration Report at the 2015 AGM held on 3 September 2015:

Remuneration policyAnnual Remuneration Report
Votes%Votes%
Votes in favour38,315,70694.9324,390,01372.70
Votes against2,046,9155.079,157,23927.30
Total votes40,362,621100.0033,547,252100.00
Votes withheld1,444,4648,259,833

The voting at the AGM indicated that, overall, shareholders remained supportive of our overall remuneration structure —this was demonstrated by the voting in respect of our future Remuneration Policy and new Performance Share Plan which received 94% and 98% support respectively. Although the majority of our shareholders also voted in favour of our Annual Remuneration Report, selected shareholders voiced unease regarding certain elements, in particular annual bonus target disclosure and the operation of the TSR performance measure of the PSP. The Committee actively responded to both of these points and the actions taken are discussed in greater detail in the Chairman's Letter.

The Annual Remuneration Report was approved by the Board and signed on its behalf.

Dr William Jenkins
Chairman of the Remuneration Committee
15 June 2016