Last checked at 31 Mar 2009 07:00
| Press Release | 31 March 2009 |
Surgical Innovations™ Group plc
("SI", "the Company" or "the Group")
Final Results
Surgical Innovations™ Group plc (AIM: SUN), the designer and manufacturer of innovative surgical devices, today reports its final results for the year ended 31 December 2008.
Highlights
| • | Revenue £4.3 million (2007: £4.8 million) |
| • | Operating profit increased by 14% to £780,000 (2007: £685,000) |
| • | Pre-tax profit up increased by 12% to £820,000 (2007: £731,000) |
| • | Basic earnings per share of 0.17p (2007: 0.24p) |
| • | Successful transition to new premises, featuring in-house manufacturing facilities enabling more effective and efficient manufacture of products |
| • | Concluded the initial development of YelloPort Plus port access system, which is poised for global roll out through the current distributor network |
| • | Established and convened a Clinical Advisory Board to enhance product development |
| • | Establishment of resposable scissors concept, particularly in US with growing sales |
Doug Liversidge, Non-executive Chairman, commented:
"I am pleased we were able to achieve our objectives and return a second half performance that gives the Board confidence for 2009. Our main objective this year is to develop instrumentation for the next generation of surgical techniques, namely Single Port Access surgery."
- Ends-
For further information:
| Surgical Innovations Group plc | |
| Graham Bowland, Finance Director | Tel: +44 (0) 113 230 7597 |
| graham.bowland@surginno.co.uk | www.surginno.com |
| Hanson Westhouse Limited | |
| Tim Feather / Matthew Johnson | Tel: +44 (0) 113 246 2610 |
| tim.feather@hansonwesthouse.com | www.hansonwesthouse.com |
Media enquiries:
| Abchurch | |
| Sarah Hollins / Stephanie Cuthbert / Jack Ballantyne | Tel: +44 (0) 20 7398 7714 |
| jack.ballantyne@abchurch-group.com | www.abchurch-group.com |
CHAIRMAN'S STATEMENT
Introduction
As highlighted in my interim statement, 2008 was proving to be a challenging year due to the relocation of the business. The Group's objective for the second half of the year was to push forward with our growth plans to ensure we were correctly structured and resourced for 2009, our target year for new product launches.
I am therefore pleased that we were able to achieve our objective and return a second half performance that gives the Board confidence for 2009. Second half sales grew by 48% from the first half of the year, to provide annual sales revenue of £4,312,000 (2007: £4,770,000). Whilst it is disappointing that we suffered an overall reduction in annual revenue it should be noted that 64% of this reduction relates to non core business. We have made an encouraging start to 2009 and revenues are at their highest levels since formation of the business.
Our gross margin, for the year which includes royalty income from Cardinal Health on medical devices and the licence fee from Rolls-Royce on industrial products, rose to 53% (2007: 50%). Furthermore, the benefits of our in-house manufacturing and revised product mix resulted in a gross margin of 59% in the second half of the year compared to 44% in the first half. Other operating expenses reduced by £208,000, despite the relocation of the business and the associated increased establishment costs. However, we will need to increase this area of expenditure in the current year to ensure that we are able to provide the appropriate levels of service to our growing customer base and product portfolio.
With net interest receivable of £40,000 we have delivered an increase in pre tax profits of 12% to £820,000 (2007: £731,000). With applicable tax losses within the MIS business now fully utilised, we have a tax charge for the year of £190,000, resulting in retained profits of £630,000 (2007: £765,000).
2008 was a difficult year for the Group and the Board is now looking forward to a period of stability. We have several key objectives for 2009, including the launch of products developed during 2008, a strategic reappraisal of our ABT (Autologous Blood Transfusion) business, and most importantly, a review of our US operations to ensure we maximise the opportunities open to us at this time. Quite frankly, the penetration of our products in the US to date has been below our expectations.
Group Restructure
Following the resignation of Stuart Moran in July 2008 we have restructured the Group to ensure the most efficient use of senior management time and resources. From January 2009 we have been operating with two separate trading companies:
Surgical Innovations Limited (SI) - design, development, manufacture and sale of devices for both medical and industrial markets. This will include products for both SI and OEM partners
Haemocell Limited - autologous blood and associated medical device products
It is the Board's intention to undertake a reappraisal of the Haemocell business and we will be utilising external resources to develop this strategy. At the end of 2009 we will be in a position to determine whether we remain in this sector and also assess the value of the business.
YelloPort Plus
We have concluded the initial development of our YelloPort Plus port access system and this is now subject to a global roll-out through our current distributor network. As with any new project, following increased usage of the device within the surgical field, there are enhancements and refinements needed and 2008 saw the commencement of these changes. We aim to have these changes completed by June 2009, therefore ensuring the long term success of the device. Sales continued to grow, especially in Europe through our experienced and established distributors. However we have had difficulties in the US, where despite successful product evaluations and investment in clinical support, we have still failed to establish a suitable level of business. We have been in dialogue with our master distributor and await their revised implementation strategy for the product line. YelloPort Plus is the ideal cost effective solution for the US market especially during the current economic downturn where hospitals are looking to save funds on every surgical procedure. It is, therefore, something of a frustration to the Board that we have not seen the returns on our US investment to date and we intend this to be resolved before the end of the current year.
Industrial
The industrial business is centred around the licence agreement with Rolls-Royce and any forthcoming design work, together with an ongoing development project with an international power generation company.
We have invested our design skills with both companies during the year and look forward to a return on this investment through sales of actual devices derived from the manufactured prototypes. We are confident in the abilities of our design team to deliver working and acceptable solutions to both organisations during 2009.
OEM
The growth strategy of the business is based upon the distribution of SI branded products through the independent dealer network and the manufacturing of OEM laparoscopic devices. We continue to build relationships with Teleflex Medical, Gyrus, Olympus and Cardinal Health and it is testament to our design and manufacturing skills that we continue to be approached to develop and manufacture products for such highly renowned medical companies.
R&D and New Products
During the year significant investment was made in product development both for the SI distribution network and our OEM partners. We look forward to the imminent European launch of our latest product for obesity surgery together with new instrument technology for a key OEM partner.
Towards the end of 2008 we began production of two further OEM laparoscopic products. This increase in OEM business is a key part of our overall growth strategy.
By the end of June 2009 we will have launched improvements to both our resposable YelloPort Plus and disposable Quick range. By the end of the year, the fully reusable Logic range will be redeveloped to provide a more competitive alternative to the current market leaders.
As previously highlighted, our main objective this year is to develop instrumentation for the next generation of surgical techniques, namely Single Port Access (SPA) surgery. We have already made significant strides in this area and believe we have the technology to deliver commercially viable products in this exciting new development of surgery.
Clinical Advisory Board (CAB)
To complement and assist our product development programme at the end of 2007 we established a Clinical Advisory Board under the Chairmanship of our eminent founder and non-executive Clinical Director, Professor Mike McMahon. I am delighted to advise that in February 2009 the CAB met for the first time at the new facilities and that the time spent together was a great success. Discussions took place on the Group's development strategy and our move into SPA surgery together with a critical review of our current product portfolio.
If we are to retain our position as a leading innovator within the laparoscopic sector it is vitally important that we maintain and develop relationships with surgeons. I am most grateful to all members of the CAB for availing us of their valuable time and in particular, Dr. Gary Gecelter for flying over from the US and imparting his extensive knowledge in the SPA surgery field.
Employees
As a consequence of the business relocation we have been able to expand our design and development team and now number a department of twelve out of a current staff level of fifty two. With an in-house manufacturing strategy clearly established, we continue to recruit in this area and in December employed an additional ten colleagues to cope with production requirements. We look forward to the future development of this department with implementation of phases two and three (mill turning and injection moulding) of the manufacturing strategy in 2009 to complement a proposed class 100,000 assembly cleanroom.
Outlook
Against a reduction in annual revenue I am looking for an immediate return to sales growth in 2009 to complement projected margin improvements through in-house manufacture.
The facilities are now in place, new products are ready for launch and with the current world economic situation, the Group is well placed to take advantage of our established resposable concept. As a company heavily geared to exports, we should continue to benefit from the low value of sterling against the Dollar and Euro.
Difficult issues need to be addressed in 2009, including our position regarding the ABT business and, most importantly, continuing the challenge of establishing YelloPort Plus in the US market. However, we have made an encouraging start to the new financial year and I look forward to reporting on the interim position later in 2009.
Finally, I would like to take this opportunity to thank all Group employees and my fellow Directors for their continued support and dedication during a year of significant challenges.
Doug Liversidge
Chairman
30 March 2009
CONSOLIDATED INCOME STATEMENT
As at 31 December 2008
| 2008 | 2007 | ||
| Notes | £'000 | £'000 | |
| Revenue | 4,312 | 4,770 | |
| Cost of sales | (2,032) | (2,377) | |
| Gross profit | 2,280 | 2,393 | |
| Other operating expenses | (1,500) | (1,708) | |
| Operating profit | 780 | 685 | |
| Finance costs | (78) | (50) | |
| Finance income | 118 | 96 | |
| Profit before tax | 820 | 731 | |
| Taxation | (190) | 34 | |
| Profit for the period | 630 | 765 | |
| Earnings per share, total and continuing | |||
| Basic | 1 | 0.17p | 0.24p |
| Diluted | 1 | 0.17p | 0.23p |
The Consolidated income statement above relates to continuing operations
CONSOLIDATED BALANCE SHEET
As at 31 December 2008
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 1,343 | 804 | |
| Intangible assets | 1,174 | 587 | |
| Deferred tax asset | 134 | 134 | |
| 2,651 | 1,525 | ||
| Current assets | |||
| Inventories | 1,716 | 1,816 | |
| Trade receivables | 3,164 | 2,428 | |
| Other current assets | 344 | 218 | |
| Cash and cash equivalents | 3,232 | 3,386 | |
| 8,456 | 7,848 | ||
| Total assets | 11,107 | 9,373 | |
| Equity and liabilities | |||
| Equity attributable to equity holders of the parent company | |||
| Share capital | 3,738 | 3,738 | |
| Share premium account | 18,809 | 18,809 | |
| Capital reserve | 329 | 329 | |
| Retained earnings | (14,836) | (15,466) | |
| 8,040 | 7,410 | ||
| Non-current liabilities | |||
| Bank loans | - | 7 | |
| Obligations under finance leases | 224 | 40 | |
| 224 | 47 | ||
| Current liabilities | |||
| Bank overdraft and loans | 1,537 | 670 | |
| Trade and other payables | 787 | 992 | |
| Obligations under finance leases | 177 | 127 | |
| Current tax liabilities | 164 | 12 | |
| Accruals | 178 | 115 | |
| 2,843 | 1,916 | ||
| Total liabilities | 3,067 | 1,963 | |
| Total equity and liabilities | 11,107 | 9,373 |
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2008
| Year ended | Year ended | |
| 31 December | 31 December | |
|
| 2008 | 2007 |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Operating profit | 780 | 685 |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 187 | 204 |
| Amortisation of intangible assets | 60 | 10 |
| Operating cash flows before movement in working capital | 1,027 | 899 |
| Decrease / (increase) in inventories | 100 | (601) |
| Increase in receivables | (862) | (1,005) |
| (Decrease) / increase in payables | (142) | 329 |
| Cash generated from operations | 123 | (378) |
| Interest paid | (78) | (50) |
| Tax paid | (38) | - |
| Net cash from / (used in) operating activities | 7 | (428) |
| Cash flows from investing activities | ||
| Interest received | 118 | 96 |
| Acquisition of non-current assets | (961) | (526) |
| Net cash used in investment activities | (843) | (430) |
| Cash flows from financing activities | ||
| Net proceeds from share issue | - | 3,846 |
| Repayment of bank loans | (25) | (23) |
| Repayment of obligations under finance leases | (178) | (175) |
| Net cash used in financing activities | (203) | 3,648 |
| Net (decrease) / increase in cash and cash equivalents | (1,039) | 2,790 |
| Cash and equivalents at beginning of period | 2,740 | (50) |
| Cash and cash equivalents at end of period | 1,701 | 2,740 |
| Cash at bank and in hand | 3,232 | 3,386 |
| Bank overdraft | (1,531) | (646) |
| Cash and cash equivalents at end of period | 1,701 | 2,740 |
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2008
| Share | Share | Capital | Retained | ||
| capital | premium | reserve | earnings | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Balance as at 1 January 2007 | 2,595 | 16,106 | 329 | (16,231) | 2,799 |
| Changes in equity for the year to 31 December 2007: | |||||
| Total recognised income and expense for the period | - | - | - | 765 | 765 |
| Issue of share capital | 1,143 | 2,857 | - | - | 4,000 |
| Issue costs | - | (154) | - | - | (154) |
| Movement in year | 1,143 | 2,703 | - | 765 | 4,611 |
| Balance as at 31 December 2007 | 3,738 | 18,809 | 329 | (15,466) | 7,410 |
| Changes in equity for the year to 31 December 2008: | |||||
| Total recognised income and expense for the period | - | - | - | 630 | 630 |
| Balance as at 31 December 2008 | 3,738 | 18,809 | 329 | (14,836) | 8,040 |
Notes
1. Earnings per ordinary share
Basic earnings per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31 December 2008 was based upon the profit attributable to ordinary shareholders of £630,000 (2007: £765,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2008 of 373,841,902 (2007: 323,117,832).
Diluted earnings per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31 December 2008 was based upon the profit attributable to ordinary shareholders of £630,000 (2007: £765,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2008 of 373,841,902 (2007: 328,326,180).
| 2008 | 2007 | |
| Earnings | £'000 | £'000 |
| Earnings for the purpose of basic and diluted earnings per ordinary share | 630 | 765 |
| 2008 | 2007 | ||
| Weighted average number of ordinary shares | Number | Number | |
| Issued ordinary shares at 1 January | 373,841,902 | 259,556,188 | |
| Effect of shares issued in connection with placing | - | 63,561,644 | |
| Weighted average number of ordinary shares as at 31 December (undiluted) | 373,841,902 | 323,117,832 | |
| Dilutive effect of share options in issue | - | 5,208,348 | |
| Weighted average number of ordinary shares as at 31 December (diluted) | 373,841,902 | 328,326,180 | |
| 2008 | 2007 | ||
| Basic earnings per share | 0.17p | 0.24p | |
| Diluted earnings per share | 0.17p | 0.23p | |
2. Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The summarised consolidated income statement, the summarised consolidated balance sheet at 31 December 2008, the summarised consolidated cash flow statement and the statement of changes in equity have been extracted from the Group's statutory financial statements for the year ended 31 December 2008 upon which the auditor's opinion is unqualified and does not include any statement under section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the Registrar of Companies.
3. Annual Report and AGM
The Annual Report will be available from the Company's website, www. surginnoir.com and posted to shareholders by 27 April 2009. The Annual Report contains notice of the Annual General Meeting of the Company which will be held at 2.00 p.m. on 20 May 2009 at Clayton Wood House, 6 Clayton Wood Bank, Leeds LS16 6QZ.