Surgical Innovations Regulatory News (SUN)

Surgical Innovations Group plc

("SI" or "the Group")

Interim Results

Surgical Innovations Group plc (AIM: SUN), the designer and manufacturer of innovative medical devices for minimally invasive surgery ("MIS"), is pleased to announce its interim results for the six months ended 30 June 2011.

Financial highlights

·; Revenues of £3.20 million (H1 2010: £3.57 million)

·; Operating profit of £514,000 (H1 2010: £781,000)

·; Pre-tax profit of £474,000 (H1 2010: £766,000)

·; £1.36 million invested in manufacturing, research and development during the period

·; Gross margins in core MIS business increased to 42% (H1 2010: 35%)

·; Net cash of £594,000 generated from operating activities

·; Basic earnings per share of 0.12p (H1 2010: 0.18p)

Operational highlights

·; Current trading is encouraging with strong customer demand across the business

·; SI branded products up 29% to £2.05 million (H1 2010: £1.59 million)

·; Strong demand from OEM partners for R&D expertise

·; Increased penetration of Resposable® products will result in increased demand for high margin disposable parts going forward

·; Development of 3mm instrument range and devices for hip arthroscopy underway

·; Two major new product launches to take place in second half of the year: Pretzel-Flex™ and Optical Trocar for YelloPort+plus®

Graham Bowland, Chief Executive Officer of the Group, said:

"This has been an encouraging start to the year with good progress across the business, and with significant growth in SI branded products.  However, revenues at the half year were lower on a like-for-like basis primarily because of the lack of repeat orders from the industrial business, which had a significant one-off impact on the prior period in 2010, as well as a smaller temporary reduction in OEM revenues, due to the phasing of larger orders.

"We have made considerable progress in the first half putting in place a number of initiatives and long-term plans to ensure that we have a regular flow of new products to bring to market including the Pretzel-Flex™ laparoscopic retractor and, more recently, the development and pre-supply agreement for a novel device for internal application of adhesives and sealants. The Group has also continued to invest heavily in its infrastructure and people in anticipation of expected growth into 2012 and 2013.

"Current trading and customer demand across the business is encouraging, with strong demand in SI branded products and a significant improvement in OEM sales."

Enquiries:

Surgical Innovations Group plc

Doug Liversidge, Chairman

Graham Bowland, Chief Executive Officer Tel: +44 (0) 113 230 7597

graham.bowland@surginno.co.uk www.surginno.com

Seymour Pierce Limited

Freddy Crossley/Sarah Jacobs Tel: +44 (0) 20 7107 8000

Corporate Broking

Marianne Woods www.seymourpierce.com

Media enquiries and for analyst meeting:

The Communications Portfolio

Ariane Comstive/Caolan Mahon Tel: +44 (0) 20 7536 2028/2029

ariane.comstive@communications-portfolio.co.uk Mob: +44 (0) 7785 922 354

Chairman's statement

I am pleased to report that good progress has been made in the first half of the year particularly the underlying core business where customer demand has been strong. The revenues at the half year were lower on a like-for-like basis primarily because of the lack of repeat orders from the industrial business, which had a significant one off impact on the prior period in 2010, as well as a smaller temporary reduction in OEM revenues, due to the phasing of larger orders.

Pre-tax profit was £474,000 (H1 2010: £766,000) on revenues of £3.20 million (H1 2010: £3.57 million). Gross margins rose in the core business to 42% (H1 2010: 35%) as a result of increased revenues from higher margin SI branded products.

Sales of SI branded products increased 29% to £2.05 million (H1 2010: £1.59 million). New markets were established during the period in Australasia and Saudi Arabia, as well as the engagement of a new distributor in South Africa and becoming, from July 2011, the sole supplier of Resposable® laparoscopic ports to Life Group, one of South Africa's largest health insurers.

The presence of the SI Brand in the US has continued to grow both with the Group's flagship Resposable® product YelloPort+plus® as well as the Logi®Range and LogiCut® product ranges.

As previously described, our strategy for the sales of YelloPort+plus® in the US benefits from being distributed via serviced tray companies and, to this end, we signed a four-year contract for its inclusion in Mediflex's Laparo-Logix™ procedure pack in February 2011.

Furthermore a five-year extension to the distributor agreement was recently signed with SI US Inc., the Group's exclusive US Master Distributor. Under this agreement SI US will distribute the Logi®Range and LogiCut® product range together with the reusable line and has been granted first refusal to all future SI branded products over the next five years.

Revenues for the OEM business were lower at £1.15 million (H1 2010: £1.34 million). This was the result of a temporary reduction in revenues from a large OEM customer, which was largely offset by revenues from other new OEM customers.

In addition I am delighted to report positive clinical feedback and progress for another key OEM partner, following the launch of their instrument range in the first half of 2011. We anticipate increased revenues throughout the lifecycle of this product range and significant investment has been made in the manufacturing area to ensure our ability to deal with anticipated demand.

The recent announcement of an agreement with CareFusion for the Group's second generation retractor, Pretzel-Flex™, is a real milestone for SI. Pretzel-Flex™ is an innovative advanced version of SI's 'gold standard' reusable retractor EndoFlex® which is widely used by surgeons to reposition large organs such as the liver to gain access to other organs during surgery. The predetermined shape of the product gives it much greater strength than its predecessor. This has become necessary as livers in particular have become larger as a result of the increasing obesity problem. With over 250,000 procedures taking place in the US alone that require an effective retractor we are anticipating that Pretzel-Flex™ will become the device of choice for many laparoscopic surgeons in the future. Its comparative greater strength to its predecessor is also allowing us to develop both Resposable® and 3mm versions of the instrument.

Utilising the strength of our product development team within the MIS environment we have been able to attract interest from several major OEM organisations. Earlier this month we entered into an agreement with Advanced Medical Solutions Group plc ("AMS") to develop a laparoscopic applicator to deliver accurately individual drops of adhesive or sealant internally within the body. We believe that together we will have an advantage in the deployment of glues for use within the laparoscopic field, which is currently served by sutures, staples and tacks.  With the launch of the product expected in 2013, SI will manufacture the delivery device and own the intellectual property in return for granting AMS worldwide exclusive rights to the device for a period of ten years.

Investment in manufacturing, research and development has remained strong with £1.36 million invested during the period. The Group continues to develop a number of new products and improvements to existing products. There has been concerted efforts in developing a 3mm instrument range which has received excellent clinical feedback and we are currently in the latter stages of the development of a new Optical Trocar for YelloPort+plus® which is due for launch in November this year.

Following the appointment of arthroscopy specialist, Mr. Jon Conroy to the Clinical Advisory Board in January this year, we are currently working on adapting our port and flex technology to this rapidly growing market.

Revenue from the industrial business has returned to historic levels as expected. We continue to engage with industrial partners to explore opportunities where our IP can be adapted to industrial applications. However, it is difficult to predict the timing and value of these projects at present.

Outlook

With the extensive work being carried out in the US, anticipated product launches, existing sales commitments from our OEM customers and distributors, and increased penetration of our products, we remain very confident about our expected growth into 2012 and 2013. Current trading is encouraging with strong customer demand in SI branded products and a significant improvement in OEM sales.

I would like to thank our staff for all their hard work and commitment, and look forward to updating shareholders on our progress over the next few months.

Doug Liversidge CBE

Chairman

14 September 2011

Unaudited consolidated statement of comprehensive income

For the six months ended 30 June 2011

Unaudited consolidated interim balance sheet

as at 30 June 2011

Unaudited consolidated interim cash flow statement

for the six months ended 30 June 2011

Unaudited consolidated interim statement of changes in equity

for the six months ended 30 June 2011

1. Basis of preparation of interim financial information

The interim financial information was approved by the Board of Directors on 14 September 2011. The financial information set out in the interim report is unaudited.

The interim financial statements have been prepared in accordance with the AIM Rules for Companies and on a basis consistent with the accounting policies and methods of computation as published by the Group in its annual report for the year ended 31 December 2010, which is available on the Group's website.

The Group has chosen not to adopt IAS 34 Interim Financial Statements in preparing these interim financial statements and therefore the interim financial information is not in full compliance with International Financial Reporting Standards.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2010 have been extracted from the statutory financial statements which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Sections 498(2) and 498(3) of the Companies Act 2006.

2. Segmental Reporting

For management purposes the Group is organised into three business segments, SI Brand, OEM and Industrial. These revenue streams are the basis on which the Group reports its segment information.

Segment results, assets and liabilities include assets directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and liabilities and head office expenses.

These operating segments are monitored and strategic decisions are made on the basis of adjusted segment operating results.

Business Segments

The principal activities of the SI Brand business unit are the research, development, manufacture and distribution of SI branded minimally invasive devices.

The principal activities of the OEM business unit is the research, development, manufacture and distribution of minimally invasive devices for third party medical device companies through either own label or co-branding.

The principal activities of the industrial business unit is the research, development, manufacture and sale of minimally invasive technology products for industrial application.

The following segmental analysis has been produced to provide a reconciliation between the information used by the key decision maker within the business and the information as it is presented under International Financial Reporting Standards.

Segment assets consist primarily of Property, Plant and Equipment, Intangible Assets, Inventories and Trade and Other Receivables. Assets are not allocated to a segment primarily consisting of Tangible Fixed Assets, Prepayments and Accrued Income and Cash and Cash Equivalents.

Liabilities are not capable of allocation to individual segments.

Revenues are allocated geographically on the basis of where revenues were received from and not from the ultimate final destination of use.

3. Taxation

The charge for current tax is based on the results for the period as adjusted for items which are non-assessable or disallowed and any adjustment to tax payable in respect of previous years. It is calculated using the estimated effective rate for the period, based on the mainstream rate of 27% and on a basis consistent with that to be used in the full year.

4. Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during each period.

The Group has one category of dilutive potential ordinary shares, those share options granted where the exercise price is less than the average price of the Company's ordinary shares during the period.

Earnings attributable to ordinary shareholders used in the calculation of basic and diluted earnings per share is as follows:

- Ends -