Surgical Innovations Regulatory News (SUN)

27 Sep 2007 07:02

Surgical Innovations Group PLC27 September 2007 Press Release 27 September 2007 Surgical Innovations Group plc ("SI", "the Company" or "the Group") Interim Results Surgical Innovations Group plc (AIM: SUN), the designer and manufacturer ofinnovative surgical devices, today reports its interim results for the sixmonths ended 30 June 2007, which have been prepared in accordance withInternational Financial Reporting Standards ("IFRS"). Highlights • Revenue of £1.949m (2006: £2.120m) • Operating profit of £134,000 (2006: £199,000) • Pre-tax profit of £118,000 (2006: £182,000) • Basic earnings per share of 0.07p (2006: 0.07p) • Signing of $20m contract in the USA with MGM Med Inc. for five year exclusive rights to SI's products and brand name • Global launch of YelloPort + Plus TM as a "resposable TM" port access system • Strong growth in SI branded products • Successful fund raising of £4m (before expenses) to aid expansion in the US and to increase SI's device portfolio through both product acquisition and internal development • Restructuring of the Group into three trading companies Surgical Innovations 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: "This interim period has seen significant investment made in all areas of thebusiness as we successfully addressed the loss of the Aesculap contract. I amdelighted that our focus on high quality, yet cost effective, solutions for thelaparoscopic market has enabled us to secure a platform for substantial growthin the United States, resulting in the recently signed contract with MGM MedInc. "Having recently visited our strategic partners in the US, I am convinced thatmajor opportunities exist for the Group for the remainder of this year andbeyond." - ends - For further information: Surgical Innovations Group plcDoug Liversidge CBE, Chairman Tel: +44 (0) 779 889 2918Graham Bowland, Finance Director Tel: +44 (0) 113 230 7597 graham.bowland@surginno.co.uk www.sigroupplc.com Hanson WesthouseTim Feather Tel: +44 (0) 113 246 2611tim.feather@hansonwesthouse.com www.hansonwesthouse.com Media enquiries:AbchurchSarah Hollins / Justin Heath / Gareth Mead Tel: +44 (0) 20 7398 7700gareth.mead@abchurch-group.com www.abchurch-group.com Chairman's Statement I am pleased to report that, for the six months to 30 June 2007, the Group madean operating profit of £134,000 (2006: £199,000) on turnover of £1.949m (2006:£2.120m). After net interest payable of £16,000 and a deferred tax credit of£64,000, the retained profit for the period was £182,000 (2006: £182,000). We started 2007 with the challenge of replacing the Aesculap scissors contract.Whilst this was a significant proportion of our revenue, it did not contributeto the growth and awareness of the SI brand. Therefore, I am delighted toreport that in the first six months of the year we have increased sales of ourown products to substantially offset the shortfall. Without doubt this positiveoutcome is testament to the strength of our product portfolio and globaldistribution network. In order to reduce the dependence on OEM sales in the future, the Boardinstigated a strategy of marketing our own branded product range in the USmarket. Initially we have launched our improved port access system, YelloPort +PlusTM, a 'resposableTM' device, combining reusable main elements and disposableaccessories. In addition, we have invested in clinical support to key UShospitals, enabling extensive product evaluations to take place. We believe 'resposableTM' devices are proving to be more cost effective than their fullydisposable counterparts, thereby giving us a competitive advantage. Our efforts to date have been rewarded with the recent signing of a five year$20m contract with MGM Med Inc. which is now SI's master dealer in the US.Importantly, the agreement allows MGM Med Inc. to use the SI brand which hasenabled it to market and sell under Surgical Innovations US Inc. We look forward to a sustained period of growth in the US through ourrelationship with MGM Med Inc. and, with a secure route to market, we areinvesting further in internal product development to create a continuous supplyof innovative MIS devices. To fulfil our strategic objectives and ultimately improve shareholder value, weembarked upon a fundraising immediately after the announcement of our finalresults in April 2007. The placing raised £4m before expenses through theplacing of 114 million shares at 3.5p and, importantly, this established asignificant institutional presence within our shareholder base. The funds have been earmarked primarily for our US expansion and to aid productdevelopment, which will take the form of increased internal development, thepurchase of product licences and/or corporate acquisitions. In the past the Group has developed routes to market through a mix of bothsmaller specialist distributors and larger medical companies. We are consciousthat this distribution network is a valuable intangible asset that requiresconstant investment through a continuous supply of new products and clinicalsupport. The Directors are confident that the decisions taken this year willprovide support consistent with our strong reputation within the MIS sector. Our product development team has been successful over recent years in drivingtechnology transfer opportunities within the industrial sector, primarily withRolls-Royce. Relationships have also been developed with world-class medicaldevice companies to provide technical solutions to their specific devicerequirements. In order to provide focus to this area of our business, we haveformed CORE Precision Limited, a wholly owned subsidiary, to complement theother trading companies within the Group, Surgical Innovations Limited andHaemocell Limited. CORE Precision provides major surgical and industrial companies with OEM brandedsolutions. CORE leverages its patented technology and team of talented designengineers, to provide a valuable service to larger companies which lackexpertise, flexibility, and/or speed to market. Moving forward, the Group will continue its rapid roll-out programme ofYelloPort + PlusTM through aggressive marketing and innovative product lineextensions, which we are protecting through the filing of worldwide patents.New products, within our MIS business, are planned for the start of next yearand we continue to develop our alliances with Teleflex Medical and CardinalHealthcare, both major international healthcare companies. Significant management time and resource has been utilised on planning forlong-term growth and we anticipate that this will continue to yield sustainedincreases in our market share and resulting profitability. Doug Liversidge CBEChairman27 September 2007 CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTFor the six months ended 30 June 2007 Unaudited Unaudited Unaudited 6 months 6 months 12 months to 30 June to 30 June 2006 to 31 December 2007 £'000 2006 Notes £'000 £'000 Revenue 1,949 2,120 4,460Cost of sales (1,084) (1,202) (2,593)Gross profit 865 918 1,867Other operating expenses (731) (719) (1,132)Operating profit 134 199 735Finance costs (21) (17) (39)Finance income 5 - -Profit before tax 118 182 696Taxation 2 64 - -Profit for the period 182 182 696 Earnings per shareBasic 3 0.07p 0.07p 0.27pDiluted 3 0.07p 0.07p 0.27p CONDENSED CONSOLIDATED INTERIM BALANCE SHEETAs at 30 June 2007 Unaudited Unaudited Unaudited 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 810 759 755Other intangible assets 417 32 219Deferred tax asset 152 88 88 1,379 879 1,062 Current assetsInventories 1,486 908 1,215Trade receivables 1,580 1,406 1,417Other current assets 241 216 224Cash and cash equivalents 3,192 8 4 6,499 2,538 2,860 Total assets 7,878 3,417 3,922 EQUITY AND LIABILITIESEquity attributable to equity holders of theparent companyShare capital 3,738 2,591 2,595Share premium account 18,809 16,101 16,106Capital reserve 329 329 329Retained earnings (16,049) (16,745) (16,231) 6,827 2,276 2,799 Non-current liabilitiesBank loans 18 38 28Obligations under finance leases 73 135 73 91 173 101 Current liabilitiesBank overdraft and loans 24 30 80Trade and other payables 598 634 558Obligations under finance leases 179 190 164Provisions 159 114 220 960 968 1,022 Total liabilities 1,051 1,141 1,123 TOTAL EQUITY AND LIABILITIES 7,878 3,417 3,922 CONDENSED CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2007 Unaudited 6 Unaudited Unaudited months 6 months 12 months to to to 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Cash flows from operating activitiesProfit before tax 118 182 696Adjustments for:Depreciation of property, plant and equipment 86 152 226Amortisation of intangible assets 3 - 3Net finance expense 16 17 39 Operating cash flows before movement in workingcapital 223 351 964Increase in inventories (271) (56) (363)Increase in trade and other receivables (180) (108) (127)(Decrease)/Increase in trade and other payables (21) 158 187 Cash used in operations (249) 345 661Interest paid (21) (17) (39)Tax received - 3 3 Net cash used in operating activities (270) 331 625 Cash flows from investing activitiesInterest received 5 - -Acquisition of property, plant and equipment (34) (90) (159)Acquisition of intangibles (201) (32) (222) Net cash used in investment activities (230) (122) (381) Cash flows from financing activitiesNet proceeds on issues of shares 3,846 - 9Net borrowings (12) 57 43Repayment of obligations under finance leases (92) (64) (152) Net cash from financing activities 3,742 (7) (100) Net increase in cash and cash equivalents 3,242 202 144 Cash and equivalents at beginning of period (50) (194) (194) Cash and cash equivalents at end of period 3,192 8 (50) Bank balances and cash 3,192 8 (50) STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2007 Share Share Capital Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 Balance as at 1 January 2006 2,591 16,101 329 (16,927) 2,094 Changes in equity for the six months to 30 June 2006: Profit for the period - - - 182 182 Total recognised income and expense for the period - - - 182 182 Movement in period - - - 182 182 Unaudited Balance as at 30 June 2006 2,591 16,101 329 (16,745) 2,276 Changes in equity for the six months to31 December 2006: Profit for the period - - - 514 514 Total recognised income and expense for the period - - - 514 514 Issue of share capital 4 5 - - 9 Movement in period 4 5 - 514 523 Unaudited Balance as at 31 December 2006 2,595 16,106 329 (16,231) 2,799 Changes in equity for the six months to30 June 2007: Profit for the period - - - 182 182 Total recognised income and expense for the period - - - 182 182 Issue of share capital 1,143 2,857 - - 4,000Issue costs - (154) - - (154) Movement in period 1,143 2,703 - 182 4,028 Unaudited Balance as at 30 June 2007 3,738 18,809 329 (16,049) 6,827 Notes to the interim reportfor the six months ended 30 June 2007 1. General The next annual financial statements of the Group will be prepared in accordancewith European Union endorsed International Financial Reporting Standards ("IFRS"), International Financial Reporting Interpretation Committee ("IFRIC")interpretations and the Companies Act 1985 applicable to companies reportingunder IFRS. The interim accounts have been prepared in accordance with the accountingpolicies the Group has adopted from 1 January 2007. Appendix 1 to this report contains the Group's statement of the transition toIFRS, which describes the impact of changing the accounting policies from UnitedKingdom Generally Accepted Accounting Policies ("UK GAAP") to IFRS on theGroup's equity, net income and cash flows as well as providing each of thereconciliations required by IFRS 1 "First time adoption of InternationalFinancial Reporting Standards" ("IFRS 1"). The Group has made use of the exemptions under IFRS 1 in preparing theseaccounts and these are set out in Appendix 1. The results for the financial year ended 31 December 2006 are not the Group'sstatutory accounts for the financial year. Those accounts, which received anunqualified auditors' report and which have been delivered to the Registrar ofCompanies, were prepared under UK GAAP and in accordance with the Companies Act1985. The interim accounts for the six months ended 30 June 2007 and 30 June 2006contained within this statement do not constitute statutory accounts. The interim accounts, comprising the financial information for the six monthsended 30 June 2007 and the restated financial information for the year ended 31December 2006 and six months ended 30 June 2006, were approved by the Board ofDirectors on 26 September 2007 and are unaudited. 2. Taxation No tax charge has been incorporated into the consolidated accounts for theperiod ended 30 June 2007, due to the availability of tax losses within theGroup to offset taxable profits. A deferred tax asset has been recognised based on profit forecasts for theperiod to 31 December 2008. The recoverability of the deferred tax asset is dependent on future taxableprofits in excess of those arising from the reversal of deferred taxliabilities. 3. Earnings per share Unaudited Unaudited Unaudited six months six months year ended to 30 June 2007 to 30 June 2006 31 December 2006Earnings per share (pence)Basic and diluted 0.07 0.07 0.27 Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue duringeach period. The Company 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 dilution has no effect on basicearnings per share. Weighted average number of shares: Unaudited Unaudited Unaudited six months six months year ended to 30 June 2007 to 30 June 2006 31 December 2006 For basic earnings per share 272,184,444 259,151,188 259,300,058 Earnings attributable to ordinary shareholders used in the calculation of basicand diluted earnings per share is as follows: Unaudited Unaudited Unaudited six months six months year ended to 30 June 2007 to 30 June 2006 31 December 2006 £'000 £'000 £'000 Profit for the period 182 182 696 Appendix 1 - transition to IFRS Introduction Surgical Innovations Group plc prepared its 2006 consolidated financialstatements in accordance with applicable United Kingdom Accounting Standards (UKGAAP) and the Companies Act 1985. With effect from 1 January 2007, the Group will prepare its consolidatedfinancial statements in accordance with IFRS. The transition date for thepurposes of adopting IFRS is 1 January 2006. Surgical Innovations Group plc presents below the effects of the transition toIFRS and the accounting policies and transitional exemptions or choices it hasapplied in adopting IFRS. Transition effects IFRS 1 permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. SurgicalInnovations Group plc will take the following exemption: - Business combinations: The accounting for business combinations need not be restated under IFRS 3 "Business combinations", as restatement of acquisitions prior to the date of transition is not required. Accordingly the investments as stated under IFRS will be the same as that previously reported under UK GAAP. Overview of impact The move from UK GAAP to IFRS does not affect the Group's strategy or commercialdecisions, nor does it significantly change the consolidated income statement orcash flow statement. Impact of IFRS on the consolidated income statement IFRS has resulted in minor presentational changes, although there is no impacton the Group's results. Impact of IFRS on the consolidated balance sheet Intangible assets Under IAS 38 "Intangible assets", computer software is classified as anintangible asset. The effect is to transfer the net book value of such assetsfrom tangible to intangible assets. At 1 January 2006 this amounted to £nil, at30 June 2006 to £32,000 and at 31 December 2006 to £29,000. Impact of IFRS on the consolidated cash flow statement IFRS has resulted in minor presentational changes, although there is no impacton the net cash flows of the Group. Group accounting policies under IFRS 1. Basis of preparation These interim accounts have been prepared, for the first time, on the basis ofthe IFRS accounting policies set out below. The disclosures required by IFRS 1concerning the transition from UK GAAP are included in this statement. In preparing the Group's 2007 interim accounts, management has amended certainaccounting, valuation and consolidation methods applied in the UK GAAP financialstatements to comply with IFRS. The comparative figures in respect of 2006 wererestated to reflect these adjustments, except as described in the accountingpolicies. The financial statements have been prepared in accordance with IFRS as adoptedfor use in the European Union, including IFRIC interpretations and in line withthose provisions of the Companies Act 1985 applicable to companies reportingunder IFRS. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Group's accountingpolicies. 2. Consolidation Subsidiaries The Group financial statements consolidate those of the Company and of itssubsidiary undertakings. The results of subsidiaries accounted for under theacquisition accounting method are included in the consolidated profit and lossaccount from the date of their acquisition. The results of subsidiaries,accounted for under the merger accounting method, are included in theconsolidated profit and loss account as if they had always been part of theGroup. Intra-Group sales and results are eliminated on consolidation and allsales and results relate to external transactions only. 3. Foreign currency translation Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. 4. Property, plant and equipment Tangible fixed assets are stated at the cost of acquisition less any provisionfor depreciation. Cost includes expenditure that is directly attributable to theacquisition of the items. The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Depreciation is charged so as to write off the cost of tangible fixed assetsless estimated residual value over their estimated useful economic lives at thefollowing rates: Office and computer equipment 20% per annum on costPlant and machinery 10 - 25% per annum on costTooling 20% per annum on costPlaced equipment 33.3% per annum on cost Tooling developed for the Group's own products is only depreciated when broughtinto use. Placed equipment relates to equipment placed in clinical settings to generate astream of disposables revenue. Utilisation of such equipment is measured andprovision made where appropriate for impairment. 5. Intangible assets a) Research and development Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Development expenditure arising from the Group's development activities iscapitalised and amortised over the life of the product only if the Group candemonstrate the following: - the technical feasibility of completing the intangible asset so it will be available for use or sale; - the intention to complete the intangible asset and use or sell it; - the ability to use or sell the intangible asset; - that it is probable that the asset created will generate future economic benefits; - there is the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and - the development cost of the asset can be measured reliably. Where no intangible asset can be recognised, development expenditure isrecognised as an expense in the period in which it is incurred. Capitaliseddevelopment costs are amortised over the life of the product, which is usuallyno more than 10 years. b) Computer software Acquired computer software is capitalised on the basis of the costs incurred toacquire and bring to use the specific software. These costs are amortised overtheir estimated useful lives (5 years). Costs associated with developing or maintaining computer software programmes arerecognised as an expense as incurred. Costs that are directly associated withthe development of identifiable and unique software products controlled by theGroup, and that will probably generate economic benefits exceeding costs beyondone year, are recognised as intangible assets. 6. Impairment of non-financial assets An asset's carrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimated recoverable amount.The recoverable amount is the higher of an asset's fair value less costs to selland its value in use. 7. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is the purchase cost, including transport, for raw materials, together witha proportion of manufacturing overheads based on normal levels of activity, forwork in progress and finished goods. Net realisable value is based on estimated normal selling price, less furthercosts expected to be incurred to completion and sale. Provision is made forobsolete, slow-moving or defective items where appropriate. 8. Trade receivables Trade receivables are recognised at amortised costs, less provision forimpairment. A provision for impairment of trade receivables is established whenthere is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of estimated future cash flows. The amount of the loss isrecognised in the income statement, as are subsequent recoveries of amountspreviously written-off. 9. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held on call at banksand bank overdrafts. Bank overdrafts are shown within borrowings in currentliabilities on the balance sheet. 10. Trade payables Trade payables are recognised initially at fair value and subsequently measuredat amortised cost using the effective interest rate. 11. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from proceeds. 12. Deferred income tax Deferred tax is recognised in respect of all timing differences that haveoriginated but which have not reversed at the balance sheet date wheretransactions or events have occurred at that date that will result in anobligation to pay more or a right to pay less or to receive more tax. Deferred tax assets are recognised to the extent that they are regarded asrecoverable. Assets are regarded as recoverable when it is regarded as morelikely than not there will be suitable taxable profits from which the futurereversal of the underlying timing differences can be deducted. 13. Employee benefits Pension obligations The Group provides pension benefits to its employees through contributions todefined contribution Group personal pension policies. The amounts charged to theincome statement are the contributions payable in the period. Share-based compensation The Group issues share options to certain employees which are measured at fairvalue and recognised as an expense in the income statement with a correspondingincrease in profit and loss reserve. The fair value of the employee servicesreceived in exchange for the grant of the options is recognised as an expense.The total amount to be expensed over the vesting period is determined byreference to the fair value of the options granted. The fair values of these payments are measured at the dates of grant and arerecognised over the period during which employees become unconditionallyentitled to the awards. At each balance sheet date, the Group revises itsestimate of the number of options that are expected to vest. It recognises theimpact of the revision to original estimates, if any, in the income statement,with a corresponding adjustment to retained earnings. 14. Income recognition Revenue Revenue is the total amount receivable by the Group for the supply of goods andservices, excluding VAT and trade discounts. It also includes Royalty Incomederived from agreements with other parties for them to manufacture anddistribute products. Such Royalty Income is recognised in the same period asthe licensee makes the related sale. Design contracts As soon as the outcome of a design contract can be estimated reliably, contractrevenue and expenses are recognised in the income statement in proportion to thestage of completion of the contract. The stage of completion is assessed byreference to milestones of work performed. An expected loss on the contract isrecognised immediately in the income statement. Interest income Interest income is accounted for on a receivable basis. Government grants Government grants are recognised in the consolidated income statement so as tomatch them with the expenditure towards which they are intended to contribute.To the extent that the grants received are intended as a specific reductionagainst certain assets, they are recognised in the consolidated income statementover the expected useful life of the related assets. 15. Leases Rentals under operating leases are charged on a straight-line basis over thelease term. 16. Related party disclosures In accordance with IAS 24 "Related party transactions", the Company disclosesdetails, if any, of material transactions between the reporting entity andrelated parties. This information is provided by RNS The company news service from the London Stock Exchange