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 2016. Please see the the Annual Remuneration Report, the Audit Committee Report, 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 for 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 during the year have been the design, development and manufacture of specialty medical drug delivery devices and services to the pharmaceutical industry through Bespak and the supply of active pharmaceutical ingredient (API) and finished dose formulation and manufacturing services through Aesica. Our device products now include metered dose inhalers, dry powder devices, actuators, dose counters, disposable auto-injectors, nasal devices and point-of-care diagnostics devices.

Strategic Report

The Strategic Report 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

A description of the Group's principal risks and uncertainties forms part of this Directors' Report.

Product Development and Research Investment

The Group has a programme of continuous investment in its product development activities. During the year, the Group invested £4.5m (FY2015: £8.4m) in research and development expenditure.

Results

Revenue from continuing operations increased by 49.8% to £276.9m. Earnings before tax and special items from continuing operations increased by 42.2% to £32.3m. Earnings before tax after specials increased by 104.0% to £11.2m. Adjusted basic earnings per share from continuing operations increased by 20.5% to 57.6p and basic earnings per share increased by 151.6% to 30.7p.

Dividend

Following a review of performance, prospects and available funding, the directors propose a final dividend for the year of 12.56p per share (FY2015: 11.68p per share) to be paid on 21 October 2016 to shareholders on the register at close of business on 23 September 2016. An interim dividend of 6.75p per share (FY2015: 6.43p restated for rights issue) was paid on 12 February 2016, making a total dividend for the year of 19.31p per share (FY2015: 18.11p).

Post-Balance Sheet Events

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

Directors

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

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 AGM following their appointment and to reappointment thereafter at intervals of no more than three years in accordance with the Company's Articles of Association. Accordingly, Jonathan Glenn will seek reappointment as a director at the forthcoming AGM. In addition, Dr Peter Fellner having now served more than nine years offers himself for re-election until the date of the next AGM. Their biographical details are given within the Board of Directors. Details of Dr Fellner's letter of appointment and Mr Glenn's service agreement can be found within the Annual Remuneration Report and Summary of Remuneration Policy respectively.

At the meeting of the Board held on 9 June 2016, the Board considered the performance and ability of the directors standing for reappointment 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. Accordingly, the Board recommends their reappointment to shareholders.

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 changes in the directors' shareholdings between 30 April 2016 and the date of this report, with the exception of the monthly partnership shares purchased under the Share Incentive Plan for Mr Glenn and Mr Cotton.

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

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 were in place during the year. 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.

ShareholderNumber of
shares
Interest in
issued
shares
Montanaro Asset Management3,906,5007.95%
Schroder Investment Management3,563,7507.26%
OppenheimerFunds Inc2,856,1095.81%
Neptune Investment Management Limited2,570,8985.24%
Legal & General Group plc2,060,2654.19%
Kaupthing Bank1,896,1263.86%
Artemis Investment Management1,893,7813.85%
Polar Capital LLP1,868,7503.80%

Employees

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 introduced the National Living Wage for all of its UK employees on 1 April 2016.

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 receive guidance on achieving their goals. In addition, employees are supported, through sponsorship or a contribution to costs, to study for job-related qualifications.

The Group is committed to achieving the highest levels of quality. Bespak is certified to ISO 13485, which is the internationally recognised standard that details the quality management system and design methodology required to develop and manufacture medical devices. Staff working in Bespak operate within this system and are also trained in the regulatory requirements of pharmaceutical "Good Manufacturing Practice". Bespak holds the appropriate licences from the MHRA to assemble, pack and release commercial pharmaceutical products. Aesica manufacturing sites are licensed to manufacture medicinal products by the appropriate Competent Authority of the country in which they are based and in accordance with EU law. Where sites export products to the United States they are appropriately approved by the US FDA. Any actions requested by Health Authorities as part of routine inspections are closed in accordance with agreed timelines.

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 relevant employees are encouraged to join.

Information about environmental, ethical, 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 and generally their training, career development and promotion.

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 within Note 24. 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).

56,018 (FY2015: 37,783) 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 England and Wales 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 AGM on 3 September 2015, shareholders approved a resolution of the Company permitting it to purchase its own shares up to a maximum of 4,907,498 ordinary shares. This resolution remains valid until the conclusion of this year's AGM. As at 15 June 2016, the directors had not used this authority. A resolution will be proposed at this year's AGM to renew this authority.

The Company's share ownership trust currently holds 301,521 ordinary shares of 10p, each representing 0.61% of the Company's issued share capital.

Issue of Shares

At the 2015 AGM, shareholders approved a resolution to give the directors authority to allot shares up to an aggregate nominal value of £1,635,832 and further shares in accordance with The Investment Association guidelines in connection with a rights issue up to an aggregate nominal amount of £3,271,664. 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 AGM.

A resolution will be proposed at this year's AGM to renew these authorities.

Further explanation of the resolutions will be included with the Notice of AGM, 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.

Greenhouse Gas Emissions

Information on the Group's Greenhouse Gas emissions (as required to be disclosed under the Companies Act 2006 (Strategic Report and Directors' Report Regulations 2013)) is disclosed in our Corporate Responsibility 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 2016 AGM of the Company will be held at the Company's registered office in Hemel Hempstead on 7 September 2016 at 2 pm. 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.

Auditors

KPMG LLP are the Company's auditors having been appointed during the year and a resolution to formally appoint them and to authorise the directors to set their remuneration will be proposed at the AGM.

The Directors' Report above and the Strategic Report have been approved by the Board.

By order of the Board


John Ilett
Company Secretary
15 June 2016