Surgical Innovations Regulatory News (SUN)

29 Apr 2008 07:01

Surgical Innovations Group PLC29 April 2008 Press Release 29 April 2008 Surgical InnovationsTM Group plc ("SI", "the Company" or "the Group") Final Results Surgical InnovationsTM Group plc (AIM: SUN), the designer and manufacturer ofinnovative surgical devices, today reports its final results for the year ended31 December 2007, which have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"). Highlights• Revenue up 7% to £4.77m (2006: £4.46m)• Operating profit of £685,000 (2006: £735,000)• Pre-tax profit up 5% to £731,000 (2006: £696,000)• Basic earnings per share of 0.24p (2006: 0.27p)• Global launch of YelloPortTM Plus as a "resposableTM" port access system• Strong sales growth in SI branded products• Successful fundraising of £4m (before expenses) to aid expansion in the US and to increase SI's device portfolio through both product acquisition and internal development• Reorganisation of the Group into three trading companies Surgical InnovationsTM Limited (minimally invasive surgery (MIS) devices), Haemocell Limited (autologous blood products) and CORE Precision Limited (surgical and industrial solutions for original equipment manufacturer (OEM) partners) Commenting on the outlook, Doug Liversidge, Non-executive Chairman, said: "I am delighted that once again we are able to report improved levels of profitand sales. The domestic and overseas markets in which we operate are growingand we are confident that, with our expanding portfolio of products, we will beable to continue to generate further sales growth throughout the year. Ourconfidence in our future is such that we have just completed a relocation of thebusiness to facilities that provide us with triple the area of floor space andthe capacity by which we can capitalise on this increasing opportunity." For further information:Surgical InnovationsTM Group plcDoug Liversidge CBE, ChairmanGraham Bowland, Finance Director Tel: +44 (0) 113 230 7597graham.bowland@surginno.co.uk www.sigroupplc.com Hanson Westhouse LimitedTim Feather / Matthew Johnson Tel: +44 (0) 113 246 2611tim.feather@hansonwesthouse.com www.hansonwesthouse.com Media enquiries:Abchurch CommunicationsSarah Hollins / Gareth Mead Tel: +44 (0) 20 7398 7700gareth.mead@abchurch-group.com www.abchurch-group.com CHAIRMAN'S STATEMENT I am delighted to report further progress for Surgical InnovationsTM. Onceagain, the Group has achieved record sales and profit whilst implementing arestructuring as part of our strategy for future growth. Group sales grew by 7% to £4.77m (2006: £4.46m). Importantly, sales within ourcore business of devices for Minimally Invasive Surgery (MIS) increased by 7% asthe benefits of our US master dealership with MGM Med Inc., marketing andselling under the name Surgical InnovationsTM US Inc., have begun to have animpact on the Group. Gross margins, which include licence and royalty income from Rolls-Royce forindustrial applications and Cardinal Health for medical devices, rose to 50.2%(2006: 41.9%) for the year. Administrative expenses increased significantly asa consequence of the Group's policy of investing heavily in internationaldevelopment, training and product evaluations. This strategy, together with netinterest receivable of £46,000, has delivered an increase in profit before taxof 5% to £731,000 (2006: £696,000). A net tax credit of £34,000 results inretained profits of £765,000 (2006: £696,000). The confidence we have in the future growth of the Group has led to a recentrelocation of the business. I am pleased to report that we have consolidatedour operations from five individual units totalling 10,000 sq ft to one locationof 32,000 sq ft, which we believe will lead to substantial operational benefitsthrough improved working conditions. This is a major step change for the Groupand the first relocation of the instrument business since trading commenced in1992. This move is part of our strategy for growth, enabling management to dealeffectively with the inevitable challenges to come as we continue to build ourinternational presence. Group Structure During the year the Group was reorganised into three separate trading companies: • Surgical InnovationsTM Limited - MIS devices • CORE Precision Limited - Surgical and Industrial solutions for OEM partners • Haemocell Limited - Autologous Blood Products Dividing the Group into three distinct business operations with separatemanagement structures enables specific focus to be given to each area of thebusiness and I am delighted with the results each has achieved to date. Master Dealerships The Group promotes its devices through a combination of independent specialistdealers and OEM partners. To simplify and provide clarity to the business,master dealer relationships have now been established in the Far East (ACP),Middle East (Tradevco) and the US (Surgical InnovationsTM US Inc.). Byundertaking such a policy we are able to reduce administrative costs yet achievesales coverage in many markets previously beyond the scope of the Group. Withinthe established European market we continue to develop our portfolio ofspecialist distribution partners and we have recently commenced tradingrelationships with distributors in several Eastern European countries where theneed for cost effective devices is even more apparent. Brand Awareness In order to successfully grow the Group within the medical device sector, it iscritical that we develop and promote our own portfolio of products underSurgical InnovationsTM brand names. This policy will lead to an increasedglobal profile, adding future value to the Group. YelloPortTM and LogicTM areestablished brands and during the year substantial investment was made in bothtrademark and intellectual property protection to reinforce brand awareness. YelloPortTM Plus During the year significant investment was made in developing YelloPortTM Plus,a 'resposableTM' port access device that combines reusable main elements anddisposable accessories. The product was launched to critical acclaim andinitial success has already been seen in the US, UK, South Africa and Belgium.2008 should see further growth in sales of YelloPortTM Plus as we roll out theproduct to our global dealer network and continue hospital evaluations in theUS. To widen the application of YelloPortTM Plus we are developing a new rangeof the product for obesity surgery and we expect this to be fully available forthe second half of the year. R&D and New Products One element of our strategy for growth is to create new devices to simplifycurrent laparoscopic procedures and importantly to develop instrumentation forthe next generation of surgical techniques, namely Single-Incision LaparoscopicSurgery (SILS) and Natural Orifice Transluminal Endoscopic Surgery (NOTES). Bystrengthening our surgical expertise with the appointment of Professor MikeMcMahon to the Group Board and the establishment of a Clinical Advisory Board,we are well placed to achieve this objective. Employees In order to develop new and innovative products and most importantly, to bringthem to market quickly, we have recently recruited several talented designers toenhance our development teams in both Surgical InnovationsTM Limited and COREPrecision Limited. As with any design-led business, staff expenditure is asignificant investment and the placing of new shares in 2007 provides us withthe resources to fund this important expansion of our core activities. Placing As highlighted in the Interim Statement in June 2007, the Group raised £4mbefore expenses through the placing of 114 million ordinary shares at 3.5p. Thefunds have been earmarked for our US expansion and product development. Severallicence opportunities have been brought to our attention and we are currentlyreviewing these for acceptability within our current strategy. The cash injection was important and, given today's financial climate,emphasises the importance of taking decisive action when such opportunitiesarise. The proceeds of the fundraising have now underpinned the prospects ofthe Group, supporting organic growth and enabling us to search out new productlicensing and corporate opportunities. Board of Directors I am delighted to welcome to the Board, Professor Mike McMahon, who wasappointed in October 2007 as Non-Executive Clinical Director. Mike was afounder of Surgical InnovationsTM Limited in 1992 and, as one of the world'sleading laparoscopic surgeons, he brings a vast wealth of experience to theBoard. His immediate role is that of Chair of our newly created ClinicalAdvisory Board of eminent surgeons, which provides expertise in all the variousdisciplines of laparoscopic surgery. Outlook We continue to deliver against our strategy for growth, in terms of results andinnovative product development. New procedures in laparoscopic surgery continueto be developed leading to an inevitable and exciting increase in the size ofour market across the globe. The growth in demand for laparoscopic obesity surgery in particular has beenwell publicised and our current and forthcoming product ranges position usfavourably to exploit this trend. We are confident that with expanding markets and our burgeoning portfolio ofproducts, the Group will return further sales growth during the current year. The Board recognises that this growth alone may not itself return increasedshareholder value and it is actively seeking to enhance that value through thepurchase of new product licences, development of industrial applications for ourpatented medical technology and acquisitions of companies with complementaryproducts. Finally, I would like to take this opportunity to thank all Group employees andmy fellow Directors for their continuing support and dedication during a year inwhich challenges were successfully faced and overcome. Doug Liversidge CBEChairman29 April 2008 BUSINESS REVIEW Surgical InnovationsTM Limited Overview Following the reorganisation of the Group during 2007, Surgical InnovationsTMLimited is responsible for the development of the MIS business segment of theGroup. The company is itself divided into three distinct areas of operation, design anddevelopment of instrumentation, manufacturing and sales and marketing. During2007, the company reported revenues of £4.325m and a profit before taxation of£712,000. Revenues primarily result from sales of laparoscopic devices and royalties fromsales of the licensed EndoFlex technology to Cardinal Health. Device sales are derived from three distinct areas, those from our globalnetwork of distributors, those from our OEM partner, Teleflex Medical andfinally those from the equipment managed service companies operating in the US. Throughout 2007 we have placed greater emphasis on growing our own distributionnetwork as well as strengthening our OEM arrangement with Teleflex Medical. Iam delighted that we are collaborating closely with Teleflex on several deviceprojects and this can only help in bringing the two organisations closertogether. Sales to the distribution network continue to increase, £3.267m compared to£1.845m in 2006. This 77% increase has enabled the business to develop theSurgical InnovationsTM brand and particularly the important YelloPortTM andLogicTM product brands on a global scale. With increased exposure of ourinstruments, significant investment was made in trademark and patent protection,this policy will continue apace as new devices come to market. Product Performance Sales of YelloPortTM increased by 5% to £926,000 (2006: £878,000). Strong salesinto Europe in particular accounted for 47% of turnover, again testament to thestrength of the distribution network. UK turnover also increased as we began tosee the benefits of engaging Elemental Healthcare as our UK distributor. A 5% increase in YelloPortTM was an achievement given the emphasis in the secondhalf of the year towards YelloPortTM Plus. During the second half of 2007 salesof YelloPortTM Plus were £644,000 which provides confidence in our ability todevelop a world class port access system. Our focus has been in the US and UKand these markets accounted for 81% of revenues. The strategy has been to rollout the product into these markets first and then move into established Europeanmarkets, followed by the Middle and Far East. We will continue to develop YelloPortTM Plus and new line extensions arecurrently in development with an obesity portfolio of devices planned for fullavailability by the end of June 2008. As a result of reduced OEM business in 2007, sales of resposable scissors fellduring the year, however sales of LogicTM scissors under our own brand rose by67% to £575,000. The US remains a key focus for us and I am delighted that,after initial evaluations and trials, our scissors sales are beginning to gainmomentum in this high volume market. Sales to our current OEM partner alsoincreased in the year by 33% to £423,000 and we are delighted that this businesshas been secured for a further three years by the renewal of this contract. Our QuickRange of fully disposable instruments saw further revenue gains in theyear of 54% and following manufacturing efficiencies, we have been able to bothreduce sales prices whilst maintaining margins. This has allowed us to remainactive in those markets requiring competitively priced disposable devices. Sales and Marketing We continue to embrace new markets and have recently appointed distributors inHungary, Romania and Poland as part of our drive into Eastern Europe.Importantly, we have appointed master distributors in both the Far and MiddleEast to complement our US master dealer. Our UK business continues to developat a tremendous rate and revenues improved to £1.0m from £415,000 following theappointment of Elemental Healthcare as our exclusive distributor. In order to add value to our dealer network, we are undertaking intensiveproduct training with dealer representatives and offering increased in-theatreassistance. This has been possible by the recruitment of clinical specialistswhich has been invaluable with the launch of the YelloPortTM Plus product. Our new enlarged facility will now enable us to hold on-site internationaldistributor meetings and we look forward to being able to bring together all ourdealers to discuss product innovation, market needs and share individualexperiences. Manufacturing Our manufacturing strategy is one of continuing margin and quality improvement.Wherever possible manufacturing processes are carried out in-house andsignificantly more operations are now carried out within our own facilities toimprove gross margins. We have taken established production lines of commodityproducts off-shore in order to maintain our competitiveness in the market.Strict quality procedures have been introduced and resources allocated to ensureproduct quality is maintained to the highest standards. The new building provides us with the opportunity to acquire additional hightech machinery to enhance our precision machine shop environment. Product Development During the year £407,000 of cost was expended on product development deemed tobe of long term commercial success. This level of investment, which represents9.4% of MIS sales, has only been possible with the funds raised during the yearand will bring added value to the Group in terms of added intellectual property,new products, new sources of revenue and profitability. We are already seeingimmediate results with YelloPortTM Plus where sales totalled £644,000 in theyear following a product launch in July 2007. Our talented design team has been increased with the objective to create newdevices and importantly bring them to market in a reduced period of time. Weare extremely conscious of the need to generate intellectual property and thisis a key performance indicator for the design team in the current year. Outlook The opportunities for Surgical InnovationsTM within the laparoscopic fieldremain to be exploited. The sector shows no signs of slow down and, withlaparoscopic surgery being increasingly performed around the world, thepotential for new product development and associated revenue streams isconsiderable. We remain committed to obtaining product licences and further OEMopportunities of our own to enhance this organic growth. Graham BowlandManaging Director29 April 2008 CORE Precision Limited Overview The CORE Precision business model is based upon generating ideas, concepts, andintellectual property internally and outsourcing the detailed development andmanufacturing to our strategic partners. The aim of this model is to deliverrapid growth using a small, but highly skilled internal resource. Following its inception in July 2007, CORE Precision's turnover was £185,000.This comprised sales of design services, prototypes and products, and royaltiesand resulted in a loss before taxation for the six-month period of £7,000. Business Activities CORE Precision is active in four business areas: the design and manufacture ofmedical devices for our OEM partners; licensing; leading edge research anddevelopment and industrial inspection systems. • Design and manufacture of medical devices for our OEM partners During 2007 we successfully undertook design, development and manufacturing projects for major companies such as Gyrus and Olympus. This is an area in which we excel and we are looking forward to further growth during 2008. • Licensing CORE Precision has been engaging with a number of external parties with a view to evaluating the licensing of their intellectual property. These opportunities are at varying stages of development, from the patent stage to a fully developed device. CORE Precision has successfully licensed two devices since its inception: a laparoscopic retraction system and a tissue retrieval system. Both systems represent excellent growth opportunities, with the latter providing a platform to allow us to target the lucrative US tissue retrieval market - a market valued in excess of US$60 million. • Leading edge research and development The field of laparoscopic surgery is changing rapidly. The advent of Natural Orifice Translumenal Endoscopic Surgery (NOTES) and Single Incision Laparoscopic Surgery (SILS) has resulted in the introduction of a dedicated product development team to deliver innovative solutions to this exciting and quickly evolving market. • Industrial Inspection Systems Our industrial business remains an important part of our portfolio. 2007 was another successful year and we completed projects for Rolls-Royce and GE Inspection Technologies. We have continued to develop our capabilities in this sector and are confident that 2008 will produce positive results. Outlook In 2008 we are looking forward to growth in all our business areas. We areconfident our business model will deliver new products rapidly and in a costeffective manner. We have had some early success with our licensing initiativeand look forward to building upon this positive experience in 2008. Thedelivery of leading laparoscopic solutions in the face of a changing market willbe one of our greatest challenges. Nonetheless, we are in no doubt that we cancreate innovative products to address these demanding requirements. In ourindustrial sector we will focus on our strategic partners where we can leveragethe greatest value. Haemocell Limited Financial Performance Haemocell Limited's sales for 2007 were £260,000. Margins remained strong andthe company delivered a profit before taxation of £79,000. Sales The majority of sales are made direct to UK hospitals. It is our intention togrow this business using a nationwide network of agents and distributors and thenew branding is an important part of this sales drive. Internationally, sales have not yet grown to the levels we hoped for, howeverthe drive to reduce manufacturing costs through strategic outsourcing isallowing us to address new opportunities for growth. Manufacturing Haemocell Limited has forged links with a number of low cost manufacturers andwe are leveraging these relationships to deliver high quality products at lowcost. We continue to seek products and partners in countries such as China andare optimistic that we will be able to augment our product range, therebyallowing us to engage in markets around the world. Research and Development Haemocell Limited remains fully committed to developing new and uniqueautologous blood transfusion (ABT) solutions. We are under no illusions interms of the effort required to develop truly innovative products in thissector, but we are confident that, longer term, Haemocell Limited will deliverexciting ABT systems and devices. Outlook This coming year we are looking forward to growth in national and internationalsales with the introduction of high performance, low cost products designed todeliver value to our customers. Longer term, we anticipate new unique ABTsolutions but are cognisant of the long development cycles for such systems. Stuart MoranManaging Director (CORE Precision Limited and Haemocell Limited)29 April 2008 CONSOLIDATED INCOME STATEMENTAs at 31 December 2007 2007 2006 £'000 £'000Revenue 4,770 4,460Cost of sales (2,377) (2,593)Gross profit 2,393 1,867Other operating expenses (1,708) (1,132)Operating profit 685 735Finance costs (50) (39)Finance income 96 -Profit before tax 731 696Taxation 34 -Profit for the period 765 696 Earnings per share, total and continuingBasic 0.24p 0.27pDiluted 0.23p 0.27p CONSOLIDATED BALANCE SHEETAs at 31 December 2007 2007 2006 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 804 784Intangible assets 587 190Deferred tax asset 134 88 1,525 1,062Current assetsInventories 1,816 1,215Trade receivables 2,428 1,417Other current assets 218 224Cash and cash equivalents 3,386 4 7,848 2,860Total assets 9,373 3,922 EQUITY AND LIABILITIESEquity attributable to equity holders of the parent companyShare capital 3,738 2,595Share premium account 18,809 16,106Capital reserve 329 329Retained earnings (15,466) (16,231) 7,410 2,799Non-current liabilitiesBank loans 7 28Obligations under finance leases 40 73 47 101Current liabilitiesBank overdraft and loans 670 80Trade and other payables 992 558Obligations under finance leases 127 164Current tax liabilities 12 -Accruals 115 220 1,916 1,022Total liabilities 1,963 1,123Total equity and liabilities 9,373 3,922 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 £'000 £'000Cash flows from operating activitiesOperating profit 685 735Adjustments for:Depreciation of property, plant and equipment 204 229Amortisation of Intangible assets 10 -Operating cash flows before movement in working 899 964capitalIncrease in inventories (601) (363)Increase in receivables (1,005) (127)Increase in payables 329 187Cash generated from operations (378) 661Interest paid (50) (39)Tax received - 3Net cash (used in)/from operating activities (428) 625Cash flows from investing activitiesInterest received 96 -Acquisition of non-current assets (526) (381)Net cash used in investment activities (430) (381)Cash flows from financing activitiesNet proceeds from share issue 3,846 9Proceeds from bank loans - 66Repayment of bank loans (23) (23)Repayment of obligations under finance leases (175) (152)Net cash from financing activities 3,648 (100)Net increase in cash and cash equivalents 2,790 144Cash and equivalents at beginning of period (50) (194)Cash and cash equivalents at end of period 2,740 (50) Cash at bank and in hand 3,386 4Bank overdraft (646) (54) 2,740 (50) STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2007 Share Share Capital Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000Balance as at 1 January 2006 2,591 16,101 329 (16,927) 2,094Changes in equity for the year to31 December 2006:Profit for the year - - - 696 696Total recognised income and expense - - - 696 696for the yearIssue of share capital 4 5 - - 9Movement in year 4 5 - 696 705Balance as at 31 December 2006 2,595 16,106 329 (16,231) 2,799Changes in equity for the year to31 December 2007:Profit for the year - - - 765 765Total recognised income and expense - - - 765 765for the periodIssue of share capital 1,143 2,857 - - 4,000Issue costs - (154) - - (154)Movement in year 1,143 2,703 - 765 4,611Balance as at 31 December 2007 3,738 18,809 329 (15,466) 7,410 1. Basis of preparation The preliminary announcement has been prepared under the historic costconvention and in accordance with International Financial Reporting Standards(IFRS) as adopted by the European Union. 2. Publication of non-statutory financial statements The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the CompaniesAct1985. The consolidated income statement, the consolidated balance sheet at 31 December2007, the consolidated cash flow statement and the statement of changes inequity have been extracted from the Group's financial statements upon which theauditors opinion is unqualified and does not include any statement under section237 of the Companies Act 1985. Those financial statements have not yet beendelivered to the Registrar. Copies of the financial statements will be posted to shareholders shortly.Additional copies of the financial statements and of this announcement will beavailable at the Company's registered office at Clayton Wood House, 6 ClaytonWood Bank Rise, Leeds, LS16 6QZ. 3. Earnings per ordinary share The earnings per ordinary share has been calculated by dividing the profitattributable to ordinary shareholders for the year ended 31 December 2007 of£765,000 (2006: £696,000) by the weighted average number of ordinary shares inissue during the year of 323,117,832 (2006: 259,300,058) and amounted to 0.24pper share (2006: 0.27p per share). The Group has one category of dilutive potential ordinary shares, those shareoptions granted where the exercise price is less than the average price of theCompany's ordinary shares during the year. The diluted earnings per shareamounted to 0.23p per share (2006: 0.27p per share). This information is provided by RNS The company news service from the London Stock Exchange