Inspiration Hlt Regulatory News (IHC)

3 May 2023

Inspiration Healthcare Group plc

("Inspiration Healthcare", the "Group" or the "Company")

Preliminary Unaudited Results for the year ended 31 January 2023

 A Year of Significant Investment For Long Term Growth

Inspiration Healthcare Group plc (AIM: IHC), the global medical technology company, pioneering best-in-class, specialist neonatal intensive care medical devices, announces its preliminary results for the twelve months ended 31 January 2023 ("FY2023").

2023 Highlights

· Resilient revenues marginally ahead in a year of unprecedented global macro-economic uncertainty

· Domestic sales growth of 13%

· Branded Products sales growth of 8%

· Major investment in new state of the art Manufacturing and Technology Centre

o  very low carbon footprint

o  enhanced customer education facilities

o  increased capacity and capability

o  rationalisation of Group property portfolio underway

· Medical Device Regulation (EU) - Technical Files all submitted

· Increasing inventory to secure long term supply chain and meet customer satisfaction levels

· Project Wave study recruitment complete - analysis underway

· Progressed USA regulatory submissions

· Expanded acute care portfolio with launch of additional distributed products in the UK and Ireland

2023 Financial Highlights

· Group revenue of £41.2m (FY2022: £41.1m)

Adjusted EBITDA1 of £4.0m (FY2022: £6.4m) reflecting a gross margin reduction (44% vs 50%) due to product mix in different territories

· Net cash2 £(3.8)m (FY2022: £9.3m) due to:

o  investment in the Company's Manufacturing and Technology Centre;

o  increased inventories to ensure continuity of supply chain and customer service level;

o  higher debtors driven by strong Q4 revenues; and

o  non-recurring items particularly aborted acquisition costs

· Invoice discounting facility put in place in December 2022 - Facility up to £5m. Total available borrowing facilities, including existing £5m RCF, now £10m

· Proposed final dividend maintained at 0.41p per share (FY2022: 0.41p)

1Earnings before interest, tax, depreciation, amortisation, impairment, share-based payments and non-recurring items

2Cash and cash equivalents, less revolving credit facility and invoice finance borrowings

Post year-end

· Cash generative in Q1 FY2024

· Extension to the SLE6000 ventilator range

Neil Campbell, Chief Executive Officer of Inspiration Healthcare Group plc, said: "Last year we showed resilience and the ability to adapt our plans to maintain revenues despite geo-political and macro-economic uncertainty. Although the growth in the business was not as strong as we had hoped, the investments made during the year, coupled with increasing revenues in Q4 FY2023 and subsequent cash generation in Q1 FY2024, means the Company is well positioned to return to growth within this year. On behalf of the Board and all the team, I would like to thank our shareholders for their continued support and we look forward to an exciting year ahead."

Enquiries:

Chairman's Report

This year I am reporting on a year of significant investment and internal achievements. Despite challenging market conditions that arose during the year we continued to make progress to position the Company for long-term sustainable growth.

The conflict in Ukraine and, consequently, inflation and shifting confidence put significant pressures on healthcare budgets and spending. Coupled with this, we have to also acknowledge that in China, the largest export market for the Group's products in the previous year, the pandemic was still problematic. The authorities determined that the best way to deal with this terrible disease was further lockdowns, making trade with China more difficult than in previous years. This also disrupted supply chains for both logistics and materials sourced.

The Group delivered revenues that were marginally ahead of FY2022 at £41.2m (FY2022: £41.1m), which reflected growth outside of China and Russia, traditionally important markets for the Group. When I look back and see the issues that were thrown at us, (along with many other companies), I am proud that we achieved much and invested in the business to ensure that we are in better shape now than we were a year ago. 

EBITDA, before non-recurring items, was lower than the previous year at £4.0m (FY2022: £6.4m) primarily because of sales mix and its effect on gross margin. Notably we sold more Infusion Therapies Distributed Products into the UK market and less Branded ventilators due to global market uncertainties. This switch was a direct result of the external environment mentioned above.

There was a £13.1m cash outflow in the year resulting in a closing net cash position of £(3.8)m, driven by investment in the new Manufacturing and Technology Centre in Croydon, an increased inventory level to ensure continuity of supply and customer service levels and increased debtors from strong fourth quarter revenues. Higher than planned spend at the Manufacturing and Technology Centre was due to high construction cost inflation, an earlier than expected payment and specification changes. These specification changes will however deliver long-term cost savings. We delivered a positive cash flow position in Q1 FY2024, in line with our plan.

Our new Manufacturing and Technology Centre has enabled us to close our Crawley office at the end of January 2023, and in April 2023 we informed the staff affected that we will be closing our Leicestershire facility. From these closures, we will see additional operational efficiencies. We have identified further initiatives within the business, that will improve our cash-based operating expenses going forward.

It is important to emphasise that, although we are focused strategically on the neonatal intensive care sector, we have always had a broad portfolio which provides resilience to the business. This was demonstrated during the year when slowdown in international sales was offset by increased revenues in our Domestic market.

Investing for Growth

Our most notable investment is in our new Manufacturing and Technology Centre in Croydon, which was the home of SLE Ltd, a company we acquired in 2020. Maintaining the highly skilled workforce was paramount and it was important to find a site suitable for high tech manufacturing, along with the facilities we need as a fully integrated company (including research and development and technology support). Now with approximately 4,200 sq metres (50% more space than the previous Croydon site), the state-of-the-art design allows for more efficient warehousing and laboratories for product development and testing, along with creating a modern working environment for our employees. I am pleased to say that we completed the move in the first half of the year with no accidents and with only one day of lost production. The site is now fully operational and helped us deliver a record month at the end of our financial year.

The Manufacturing and Technology Centre has been developed with the future in mind. We have incorporated a number of energy-saving initiatives; solar panels on the roof help provide hot water and power to our air source heat pumps for heating the buildings, roof lights have been maintained which allow us to use low energy lighting and in the summer months turn off lighting altogether. With the addition of trees and plants that produce no resins or pollens and do not attract aphids, carbon dioxide is naturally processed within the building, reducing the number of air changes needed and hence reducing the energy required for heating and cooling. Numerous other initiatives have been incorporated and we feel that this is a true demonstration of what can be achieved by smaller British manufacturing companies.

Our employees are at the heart of the company and in addition, we have implemented sit/stand desks throughout, modern work benches for manufacturing and technology support, electric charging points for electric cars, open plan break out areas for informal meetings and, of course a safe environment that would minimise disruption in the event of another Covid-19 outbreak, with ultra-violet and HEPA-filtered air handling alongside modern communication facilities that allow for a true clear desk policy.

Ahead of New Regulatory Requirements

Around the end of 2022, the European Commission proposed, and subsequently enacted, to delay the implementation of some aspects of the new Medical Device Regulations, relieving some pressure on the Notified Bodies. The UK Government has also postponed the introduction of regulatory legislation. Our team has been worked hard, mainly in our Research and Development and regulatory groups, updating our technical documentation, writing new reports that are required by the new regulations and finally submitting all our Technical Files to our Notified Body for their review ahead of this deadline. It has been a huge amount of work and was completed before the announcement of the postponement of the deadlines. However, the sooner the files were submitted, the sooner the products would be approved to the latest regulations, and we take comfort in knowing our technical documentation is up-to-date. Bringing the companies together is quite a complex regulatory challenge, aligning quality management systems to work efficiently. This has been helped by the implementation of Trackwise Digital, our new software tool for helping our document management compliance, which has received positive feedback from our Notified Body.

Our market seems to be returning to normal with activity at our biggest trade shows returning close to pre-pandemic levels. We had a strong presence at both shows we attended enabling our international sales and marketing team to meet distributors face-to-face for the first time, in some cases, since pre-Covid. We have been rolling out a number of marketing initiatives around branding, bringing more aligned messages across the three operating companies in the Group and launched a new website that went live at the end of February 2023. 

Strengthened Team

During the year we improved the management of our supply chain, with the critical appointment of Francesca Stenhouse as Head of Procurement and Supply Chain. This role is pivotal in working with our suppliers, including internal and external logistics, to drive efficiencies in our business. The year has been difficult for our suppliers and I thank them for their support during the year. Without their assistance we would not have been able to produce the products we did and, although we invested in component stock, our suppliers helped with their understanding of the situation.

Jon Ballard our Chief Financial Officer, resigned during the year. On behalf of the Board, I would like to thank Jon for his hard work over the past five years and wish him all the very best for the future. Paul Bergin joined the Company as Interim CFO and the recruitment for a new permanent CFO is expected to conclude in the Summer of this year.

Our employees have endured a tough year. I can only thank them all for their support of the company during the last 12 months and we hope that we can all enjoy a better year ahead.

Positioned for Future Growth

Although the external disruptions to supply chain and markets remain, we have been able to adapt to, and cope with, this new environment. We have introduced more resilience into our supply chain and this has helped our ability to ease our customers through these uncertain times with the robust assurance of our quality and excellence of our life saving products.

Following a strong Q4 FY2023, the year has commenced in line with our plans. While uncertainties remain, we are cautiously optimistic that we will return to our usual growth patterns.

The Group's world leading expertise, broad portfolio of best-in-class, specialist products and established customer relationships enables us to address the critical needs of the neonatal intensive care market and help save lives and improve outcomes of premature and sick babies around the world. We have a clear growth strategy focused on maximising in-market sales, geographic and portfolio expansion and strategic M&A and we believe we are well placed to realise our long-term ambition of becoming a world leading provider of innovative medical technology.

Mark Abrahams

Chairman

3 May 2023

Going concern basis

The Group provides essential equipment to the NHS, to private healthcare providers and to distributors who provide the equipment to other healthcare systems internationally. With a focus on neonatal intensive care the use of the Group's products is not something that can be reduced by election or choice.

Although the Group has no information to suggest such a scenario might occur, it has modelled a significant downside scenario based on its main risks, including a significant downturn in forecast revenue of 15%. If such a scenario occurred, the Group would implement procedures to reduce overheads and if necessary, utilise the remaining undrawn Invoice Discounting Facility and Revolving Credit Facility (due for renewal June 2024).

As at 31 March 2023 net cash of the Group was (£2.0m), and there was cash headroom of £8.0m. The Group has access to borrowing facilities of up to £10.0m. Consequently, the Directors believe that the Group has sufficient liquidity to meet obligations as they fall due up to the end of May 2024 and consider it appropriate to prepare the financial statements on the going concern basis.

Operating and Financial Review

I am pleased to report on the Group performance for the financial year ended 31 January 2023 ("FY2023").

REVENUE

Group revenue increased 0.4% to £41.2m (FY2022: £41.1m).

Group Domestic revenue increased by 13% to £19.9m (FY2022: £17.6m) primarily driven by continuing growth in Infusion Therapies, partially offset by the planned exiting of domestic service revenue from distributed ventilation products. Macro-economic uncertainty, particularly in China, as well as the geopolitical consequence of the conflict in Ukraine, resulted in International revenue reducing overall by 9% to £21.3m (FY2022: £23.4m).

It is worth highlighting that 31% of full year revenue was generated in the fourth quarter. This expected increase in our order inflow and subsequent delivery of product was driven by increased Domestic and International capital purchases, particularly of ventilators.

BRANDED PRODUCTS

Branded Products revenue grew 8% to £24.4m (FY2022: £22.5m) driven by the fourth quarter increase in ventilator sales, referred to above, and also due to the planned exit of distributed products following the acquisition of SLE Ltd. This growth was despite the impact of global market uncertainty on certain export markets.

DISTRIBUTED PRODUCTS

Distributed Products revenue was flat year-on-year at £13.6m (FY2022: £13.6m). Continued growth in our Infusion product range was offset by the planned exit from third-party ventilator sales. These third-party ventilators are being replaced with SLE ventilators in the UK and Ireland, contributing to an increase in Branded Products.

TECHNOLOGY SUPPORT

Technology Support revenue reduced 37% to £2.9m (FY2022: £4.6m). This reduction was impacted by the planned exiting of third-party ventilators and the Tecotherm cooling device change of service arrangements related to its end of life. Group total revenue also includes £0.3m of freight (FY2022: £0.4m).

GROSS PROFIT

Gross profit of £18.1m was 12% lower than the prior year (FY2022: £20.6m). With revenue broadly flat, this reflected a gross margin reduction from 50.2% to 43.9%. This reduction was driven by the mix of products in different territories and a lower revenue from Technology Support which is at high margins.

OPERATING PROFIT

The Group reported Adjusted Operating Profit (before non-recurring items) of £1.6m (FY2022: £4.3m).

Administrative expenses were broadly flat year-on-year at £16.5m (FY2022: £16.3m), despite the highly inflationary macro-economic environment.

There were £1.2m of non-recurring items in the year (FY2022: nil), comprising £0.5m of leased property impairment relating to the consolidation of our property portfolio following the move to the new Manufacturing and Technology Centre, £0.5m of aborted acquisition costs and £0.2m of other costs (see note 4).

This resulted in an Operating profit, post non-recurring items, of £0.4m (FY2022: £4.3m).

Adjusted EBITDA reduced to £4.0m (FY2022: £6.4m). With revenue and administrative expenses broadly flat year-on-year, this reduction was primarily driven by the mix of products in different territories. Adjusted EBITDA margin reduced from 15.6% to 9.7%.

Taxation

The Group has recorded a tax credit of £196,000 (FY2022: £271,000).

Earnings Per Share ("EPS")

Basic EPS and diluted EPS were 0.40p per share and 0.39p per share, respectively (FY2022: 6.22p and 6.16p).

Adjusted basic and diluted EPS (before non-recurring items) were 2.99p and 2.95p, respectively (FY2022: 7.11p and 7.04p).

Cash Flow

Net cash (cash and cash equivalents less the Company's Revolving Credit Facility "RCF" and invoice financing facility) was £(3.8)m as at 31 January 2023 (FY2022: £9.3m). The £13.1m decrease in the year was driven by the investment in the new Manufacturing and Technology Centre in Croydon (including an earlier than expected payment), increased inventory levels to ensure continuity of supply chain and customer service level, higher debtors due to strong fourth quarter revenues and non-recurring items.

Net cash flows used in operating activities was a £3.5m outflow (FY2022: £3.6m inflow), with the decrease reflecting the increased working capital level, referred to above, as well as lower profitability.

Cash outflow on investing activities was £8.3m (FY2022: £4.0m) of which £2.0m related to capital development expenditure and the majority of the balance to investment in the new Manufacturing and Technology Centre. There was also £1.3m of financing outflows.

The Group has a £5m RCF in place and during December 2022 entered into an invoice discounting facility of up to £5m. As at 31 January 2023, £4.0m of the RCF and £2.1m of the invoice discounting facility were utilised. Total headroom as at 31 January was £6.2m.

Net Assets

The value of non-current assets as at 31 January 2023 totalled £30.8m (FY2022: £25.1m). The net £5.7m year-on-year increase mostly relates to investment in the new Manufacturing and Technology Centre.

Inventory increased to £9.9m (FY2022: £6.4m) which was impacted by the need to secure components to ensure continuity of supply chain. Trade and other receivables increased by £2.6m to £11.9m (FY2022: £9.3m), reflecting a planned strong fourth quarter order and revenue level. Trade and other payables decreased by £0.8m to £5.8m (FY2022: £6.6m).

Net Assets remained flat at £35.5m as at 31 January 2023.

Dividends

The interim dividend of 0.205p per share (FY2022: 0.205p) was paid on 28 December 2022. The Board is recommending a final dividend of 0.41p per share (FY2022: 0.41p) to make a total dividend for the year of 0.615p per share (FY2021: 0.615p). If approved by shareholders at the AGM, the final dividend will be paid on 28 July 2023 to shareholders on the register on 30 June 2023.

Review of Business and Future Developments

On a Group basis the business review and future prospects are set out in the Chairman's Report above.

Share Price During the Year

The range of market prices during the year from 1 February 2022 to 31 January 2023 was 52p to 113.5p and the mid-market price of the Company's ordinary shares at 31 January 2023 was 52p.

Neil Campbell

Chief Executive Officer

3 May 2023

Consolidated Income Statement

for the year ended 31 January 2023

A Prior Year Adjustment has been made in relation to Deferred Tax and consequently, an adjustment to Income Tax has been made to the Consolidated Income Statement for the year ended 31 January 2022. Please see Note 12 for further detail.

Consolidated Statement of Comprehensive Income

for the year ended 31 January 2023

Consolidated Statement of Financial Position

as at 31 January 2023

A Prior Year Adjustment has been made in relation to Deferred Tax and consequently, adjustments to Goodwill and Deferred Tax have been made in the Consolidated Statement of Financial Position as at 31 January 2022. Please see Note 12 for further detail.

Consolidated Statement of Changes in

Shareholders' Equity

Consolidated Cash Flow Statement

for the year ended 31 January 2023

Notes forming part of the Consolidated Financial Statements

1 Accounting Policies

Inspiration Healthcare Group plc ("Company") is a public limited company incorporated in England and Wales and domiciled in England. The Company's registered address is Unit 2, Satellite Business Village, Crawley, West Sussex, RH10 9NE and the registered company number is 03587944. The Company's ordinary shares are traded on the AIM Market of the London Stock Exchange plc.

The principal activities of Inspiration Healthcare Group plc and its subsidiaries (together, the "Group") continue to be the sale, service and support of critical care equipment to the medical sector including hospitals.

Basis of preparation

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied unless otherwise stated.

The individual financial statements of each entity in the Group are presented in the currency of the primary economic environment in which it operates (the functional currency). The Group Financial Statements are presented in pounds sterling, which is the presentation currency of the Group.

Alternative financial measures

In the reporting of its financial performance, the Group uses certain measures that are not defined under IFRS, the Generally Accepted Accounting Principles (GAAP) under which the Group reports. The Directors believe that these non-GAAP measures assist with the understanding of the performance of the business. These non-GAAP measures are not a substitute for, or superior to, any IFRS measures of performance but they have been included as the Directors consider them to be an important means of comparing performance year-on-year and they include key measures used within the business for assessing performance.

The Group refers to the following alternative financial measures, please refer to the Operating and Financial Review for further information.

· Adjusted EBITDA

· Adjusted Operating Profit

· Adjusted EPS

2 Revenue

The Group derives revenue from the transfer of goods and services over time and at a point in time in the following geographical split:

* Technology Support revenue recognised at a point in time relates to the rental of our AlphaCore5 patient warming equipment.

3 Income tax

* All tax in both FY2023 and FY2022 arose in the UK.

 (c) Factors affecting tax charge for the year

The tax assessed for the year is lower (2022: lower) than the standard rate of corporation tax in the UK 19.00% (2022: 19.00%) as explained below:

The effective tax rate for FY2023 is lower than FY2022. This decrease is largely due to the recognition of previously unrecognised losses. The non-deductible expenses largely relate to aborted acquisition costs incurred in the year.

Budget 2021 announced that the UK corporation tax rate was to increase from 19% to 25% with effect from 1 April 2023. A small profits rate of 19% applies for taxable profits of £50,000 or less and a tapered rate will apply to companies with taxable profits between £50,001 and £249,999. This provision was substantively enacted on 24 May 2021 and the deferred tax balances have been calculated at 25%.

(d) Factors that may affect future tax charges

The Group has gross unrecognised losses estimated at £6,019,271 (FY2022: £6,019,271) which were transferred to the Group due to the reverse acquisition of Inditherm. Brought forward losses transferred to the Group due to the reverse acquisition are potentially available for relief against future trading profits generated from the same trade. See note 11 Deferred Tax, for more information.

4 Non-recurring Items

5 Earnings per ordinary share

Basic earnings per share for the year is calculated by dividing the profit attributable to ordinary shareholders for the year after tax by the weighted average number of shares in issue.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares.

FY2022 earnings per share have been restated as a result of the Prior Year adjustment relating to deferred tax, please see Note 12 for further detail. 

The weighted average number of shares in issue and the diluted weighted average number of shares in issue were as follows:

The basic and diluted earnings per share for the year are as follows:

An adjusted basic earnings per share and an adjusted diluted earnings per share have also been calculated as in the opinion of the Directors this will allow shareholders to gain a clearer understanding of the trading performance of the Group.

6 Dividends

The interim dividend for the year ended 31 January 2023 of 0.205p per share (2021: 0.2p per share) was paid on 28 December 2022. The proposed final dividend of 0.41p per share (2022: 0.4p per share) is subject to approval by shareholders at the AGM and has not been recognised as a liability as at 31 January 2023. If approved, the final dividend will be paid on 28 July 2023 to shareholders on the register on 30 June 2023.

7 Intangible assets