Last checked at 31 Mar 2010 07:00
| Press Release | 31 March 2010 |
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 2009.
Highlights
| ·; | Revenue increased to £4,511,000 (2009: £4,312,000) |
| ·; | Retained profit at Group level lower at £525,000 (2008: £630,000) due principally to ·; unavoidable third party issues, now resolved, which resulted in delay in the delivery of a major industrial devices order prior to year end and ·; a write down of autologous blood transfusion assets, following a strategic review |
| ·; | EBITDA of core operating company increased by 11% to £1,103,000 (2008: £995,000) |
| ·; | Net cash of £1.4 million generated from operating activities |
| ·; | Continuing and significant investment in new product development in laparoscopic instrumentation |
| ·; | Major investment in state-of-art manufacturing facility and clean room |
| ·; | Employees more than doubled to reflect increased demand for products |
| ·; | Successfully launched Logi™Flex to assist with the accurate placement of gastric bands |
| ·; | New laparoscopic training centre operational during the year and officially opened by Lord Davies of Abersoch, Minister for Trade Investment and Small Business |
| ·; | Largest ever order for industrial devices based on core technology |
| ·; | Negotiations during the year with major US Group Purchasing Organisation (GPO), Premier, successfully concluded in January 2010 |
Doug Liversidge, Non-executive Chairman, commented:
"The Group has addressed the difficult issues and financially they are accounted for within the 2009 results. We are now focused on our core minimally invasive surgery business and developing this outside of the laparoscopic field. With an increased employee base and investment in all areas of the organisation, we are able to meet the challenges of rapid growth within the business experienced in the later months of 2009 and start of 2010.
"With 2010 year-to-date revenues at an all time high and a £2 million short term order book, coupled with new original equipment manufacturer contracts in prospect, the Board is extremely excited about the future for the Group."
- 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 |
| Westhouse Securities Limited |
|
| Tim Feather / Matthew Johnson | Tel: +44 (0) 113 246 2610 |
| tim.feather@westhousesecurities.com | www. westhousesecurities.com |
Media enquiries:
| Abchurch |
|
| Sarah Hollins / Simone Elviss / Quincy Allan | Tel: +44 (0) 20 7398 7710 |
| quincy.allan@abchurch-group.com
| www.abchurch-group.com |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report another year of significant progress during which the Group has substantially scaled up its operations to take full advantage of the opportunities in the global laparoscopic surgery market. Some revenue growth was achieved in 2009, with sales of £4,511,000 (2008: £4,312,000) resulting in retained profits of £525,000 (2008: £630,000). At first glance, the results may seem disappointing, but shareholders should be encouraged by the comments and explanations on both current performance and the outlook given later in the statement. I believe that the current year will show a significant advance in all areas of the business as the investment made starts to produce impressive returns.
The business has undergone a transformation since the move into the new building in April 2008 and particularly in the last 12 months. During this time, the Group has invested £1.3 million in machinery and infrastructure, £1.0 million in product development and more than doubled the total number of employees to approximately 90 people. This demonstrates belief in the Group's strategy of focusing on the core business of minimally invasive surgery (MIS) and flex technology. The Group has seen notable commercial gains in the last month of 2009 and first quarter of 2010, testament to the investment made since moving into our new facility.
Minimally Invasive Surgery
The Group is confident that its MIS business will develop in accordance with its three year plan. Our laparoscopic instrumentation is becoming increasingly accepted as we expand our cost effective product offerings. To complement the laparoscopic business and buoyed by previous successes in technology transfer, we are actively moving into new areas of keyhole surgery. We are currently working with surgeons in the fields of Arthroscopy, Cardiovascular and Veterinary as we look to apply our instrumentation, intellectual property and expertise into these new markets.
US Success
During 2009, the Group reviewed its US operations to maximise the opportunities open to it. I am pleased to announce that we have successfully established a route to market and actively raised the awareness of the Surgical Innovations brand and our product portfolio across America.
The Group's strategy was to separate our YelloPort + ™ laparoscopic port access system from our US Master Dealer, SI USA, enabling us to sell these products directly to distributors and laparoscopic instrument management companies, also known as tray companies. This has been achieved and, as a result, we have now appointed a network of independent distribution partners covering the East Coast, West Coast and Central States.
This has enabled our US Master Dealer to focus their efforts solely on the Logi®Range of resposable instruments, a move which resulted in the signing of two three-year contracts with Premier Purchasing Partners, L.P., the group purchasing unit of Premier, Inc. ("Premier"), one of the largest Group Purchasing Organisations (GPO) in the US. GPOs help hospitals reduce costs by aggregating volume to negotiate favourable purchasing terms with vendors and this agreement provides an opportunity for SI to gain access to their 2,200 member hospitals. This represents a considerable proportion of all US hospitals and provides the Group with significant access to the US laparoscopic instrumentation market, estimated to be worth $150 million per annum. One contract, for our resposable instruments, has already commenced and another, for our reusable instruments, is due to commence in April 2010. The Group is delighted with the current level of instrument business it is now achieving in the US, justifying the approach we have taken.
The Group continues to develop relationships with some of the largest tray companies in the US such as Surgical Service Inc. (SSI), which will see YelloPort +™ placed in their tray systems in hospitals throughout the country. SI's resposable™ concept offers a 'win win' situation for tray companies as it combines both disposal and reusable elements, offering both functionality and cost effectiveness.
International Launch of Logi™Flex
During 2009, we successfully launched Logi™Flex, an articulating instrument designed to assist laparoscopic surgeons with the accurate placement of gastric bands. The device was unveiled at the World Congress of the International Federation for the Surgery of Obesity and Metabolic Disorders (IFSO) and was well received at the event, being described by surgeons as an 'innovative cost effective solution'.
It was clear from the outset that the key market for this instrument is the US, due to the fact that obesity affects more than 60 million US citizens and is the second largest cause of preventable death. It is also estimated that there are 250,000 annual bariatric procedures in the US where the Logi™Flex device can be used. As a consequence, we have submitted a 510K for FDA approval for Logi™Flex and anticipate that this will be received in the second quarter of 2010.
Our Master Dealer is currently preparing a product launch involving both attendance at bariatric exhibitions and obtaining inclusion within the current Premier contracts as soon as FDA approval is received. The Group looks forward to reporting further on this later in the year.
Original Equipment Manufacture (OEM)
The Group plans for SI to achieve substantial growth in scale over the next 12 months and beyond through our OEM partnerships with major medical device companies. It is notable how the development resources of these companies have become stretched as a result of consolidation and the number of products they have to support. SI can offer an effective solution, providing expertise in the design and development of an instrument combined with the manufacturing capability to produce a final device ready for ultimate sale.
The solution proved to be extremely effective in 2009, culminating in negotiations with one of our OEM partners which we expect to result in a major contract in the second quarter of 2010.
Single Port Access (SPA)
To complement the increasing number of single, rather than traditional multi port access systems, we took the strategic decision to concentrate our development focus on the flexible instrumentation required for successful SPA surgery. We have a worldwide reputation for flex technology and this is proving beneficial as we continue to receive interest from a number of leading companies wishing to gain access to this technology.
Licensing
Following our decision to improve our licensed DiamondFlex product, we created new intellectual property with a new innovative flex device. We are in negotiations with our licensee regarding the new technology and the Group looks forward to providing a further update in due course.
Whilst licensing our own IP, we are also in discussions with various companies to license technology into SI. This will result in exclusive manufacturing and sales rights to SI and royalty payments or joint venture arrangements sharing both risk and reward. There has been increased activity in this area as a consequence of SI's enhanced reputation within the medical device sector and is testament to our strategy of in-house manufacturing and design.
Industrial Solutions
We are excited about the growth of the Group's business providing industrial solutions for major international companies. The solutions are based on our core technology developed over the years in our surgical instruments business.
During the year our design team was involved extensively in the development of an industrial solution for one of our key industrial partners. As a result of our efforts we received an order for £616,000, of which £480,000 was due to be invoiced in December 2009. Due to third party technical difficulties, which were outside of our control, we were unable to deliver our contractually completed part of the order prior to the year end. This had a significant impact on the results for the year.
I am however pleased to report that the technical issues have now been resolved and we are scheduled to deliver the completed order in April 2010. Encouragingly, we have received a further order for a new prototype based on the success of the first project. This should result in a substantial device order for delivery in the second half of 2010.
We believe that there is scope to develop and expand the business using our core technology. To maximise this potential and to provide clear differentiated focus, we may relocate this business to a more appropriate geographical setting with close customer proximity.
Autologous Blood Transfusion (ABT)
I indicated in my previous Chairman's statement that difficult issues had to be addressed in 2009, including a decision on our ABT business.
After a strategic review of the opportunities for ABT, the Board concluded that the investment required, both in cash and management time, will be too great to support within the Company, especially given the ever-growing opportunities in the core business.
Therefore the Board has made the decision to look for a purchaser for the ABT business operated under the Haemocell brand or, alternatively, for a joint venture partner. In addition to the know-how, there are attractive tax losses potentially available to a new owner of the business.
Whilst a suitable exit is being sought, the Board have made the decision to write-off all assets relating to the ABT business resulting in a £200,000 reduction in the Group's operating profits.
Employees and Infrastructure
Over the last 12 months the Group has invested £1.3 million in both machinery and infrastructure, £1.0 million in product development and more than doubled the total number of employees to approximately 90 people at a time when other companies have been forced to make redundancies. We have made staff appointments in all areas of the business; production, design, quality, HR and business development.
As part of this investment we commissioned a state-of-the-art 'class 100,000 cleanroom' to improve the efficiency and quality of our manufacturing processes. The enhanced 'cleanroom' resources will give us sufficient capacity to assemble increasing volumes of our own and OEM single use devices. Additionally, it provides a platform to move into the next phase of our manufacturing strategy; bringing plastic injection moulding back in-house during 2010.
In 2009, we invested in the creation of our laparoscopic training centre, which was officially opened by Business Minister, Lord Davies in February 2010. The training centre is ideal for product evaluation as it allows members of the SI design team to view at first hand surgeons using SI prototypes within a simulated clinical environment.
Outlook
The Group has resolved the difficult issues and financially they are accounted for within the 2009 results. We are now focused on our core MIS business and developing this outside of the laparoscopic field. With an employee base of 90 and investment in all areas of the organisation, we are able to meet the challenges of rapid growth within the business experienced in the later months of 2009 and start of 2010.
With 2010 year-to-date revenue at an all time high and a £2 million short term order book, coupled with new OEM contracts in prospect, I am extremely confident about the future for the Group.
To reflect this confidence the Board has decided to apply to the Court to offset the holding company's accumulated losses against the share premium account. If, as we expect, this proposal is ultimately approved by shareholders in general meeting, the Board will be in a position to implement a dividend strategy. We are conscious that SI has over 4,500 shareholders and whilst the primary objective is capital gain, we feel that when appropriate, payment of a dividend will be made to reflect the loyalty of our many private investors.
In conclusion I am extremely proud of the progress being made and, in particular, of Graham Bowland, our Managing Director, who has worked tirelessly and with great commitment, to develop the Company. I am also grateful for the support of my fellow directors and to our loyal and able workforce for their contribution to the Company.
I look forward to reporting on a very exciting period in the development of the Company.
Doug Liversidge
Chairman
30 March 2010
Consolidated statement of comprehensive income
for the year ended 31 December 2009
|
| Note | Headline 2009 £'000 | Non-Recurring costs 2009 £'000 | Total 2009 £'000 | Headline 2008 £'000 | Non-Recurring costs 2008 £'000 | Total 2008 £'000 |
|
|
|
|
|
|
|
|
|
| Revenue |
| 4,541 | - | 4,541 | 4,312 | - | 4,312 |
| Cost of sales |
| (2,447) | (200) | (2,647) | (2,032) | - | (2,032) |
| Gross profit |
| 2,094 | (200) | 1,894 | 2,280 | - | 2,280 |
| Other operating expenses |
| (1,528) | - | (1,528) | (1,485) | - | (1,485) |
| Share based payments |
| (75) | - | (75) | (15) | - | (15) |
| Operating profit |
| 491 | (200) | 291 | 780 | - | 780 |
|
|
|
|
|
|
|
|
|
| Finance costs |
| (40) | - | (40) | (78) | - | (78) |
| Finance income |
| 13 | - | 13 | 118 | - | 118 |
| Profit before tax |
| 464 | (200) | 264 | 820 | - | 820 |
| Taxation |
| 261 | - | 261 | (190) | - | (190) |
| Profit and total comprehensive income for the period attributable to the owners of the parent |
| 725 | (200) | 525 | 630 | - | 630 |
| Earnings per share, total and continuing |
|
|
|
|
|
|
|
| Basic | 1 |
|
| 0.14p |
|
| 0.17p |
| Diluted | 1 |
|
| 0.14p |
|
| 0.17p |
The Consolidated statement of comprehensive income above relates to continuing operations.
Consolidated balance sheet
as at 31 December 2009
|
|
| 2009 | 2008 |
|
|
| £'000 | £'000 |
| Assets |
|
|
|
| Non-current assets |
|
|
|
| Property, plant and equipment |
| 2,056 | 1,343 |
| Intangible assets |
| 2,139 | 1,174 |
| Deferred tax asset |
| 193 | 134 |
|
|
| 4,388 | 2,651 |
| Current assets |
|
|
|
| Inventories |
| 2,047 | 1,716 |
| Trade receivables |
| 2,135 | 3,164 |
| Other current assets |
| 460 | 344 |
| Cash and cash equivalents |
| 2,508 | 3,232 |
|
|
| 7,150 | 8,456 |
| Total assets |
| 11,538 | 11,107 |
| 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 |
| (14,236) | (14,836) |
| Total equity |
| 8,640 | 8,040 |
| Non-current liabilities |
|
|
|
| Obligations under finance leases |
| 511 | 224 |
|
|
| 511 | 224 |
| Current liabilities |
|
|
|
| Bank overdraft and loans |
| 1,123 | 1,537 |
| Trade and other payables |
| 818 | 787 |
| Obligations under finance leases |
| 252 | 177 |
| Current tax liabilities |
| - | 164 |
| Accruals |
| 194 | 178 |
|
|
| 2,387 | 2,843 |
| Total liabilities |
| 2, 898 | 3,067 |
| Total equity and liabilities |
| 11,538 | 11,107 |
Consolidated cash flow statement
for the year ended 31 December 2009
|
| Year ended | Year ended |
|
| 31 December | 31 December |
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Cash flows from operating activities |
|
|
| Operating profit | 291 | 780 |
| Adjustments for: |
|
|
| Depreciation of property, plant and equipment | 345 | 187 |
| Amortisation of intangible assets | 101 | 60 |
| Share based payment | 75 | - |
| Operating cash flows before movement in working capital | 812 | 1,027 |
| (Increase)/decrease in inventories | (331) | 100 |
| Decrease/(Increase) in receivables | 913 | (862) |
| Increase/(decrease) in payables | 47 | (142) |
| Cash generated from operations | 1,441 | 123 |
| Interest paid | (40) | (78) |
| Tax received/(paid) | 38 | (38) |
| Net cash from operating activities | 1,439 | 7 |
| Cash flows from investing activities |
|
|
| Interest received | 13 | 118 |
| Acquisition of non-current assets | (1,517) | (961) |
| Net cash used in investment activities | (1,504) | (843) |
| Cash flows from financing activities |
|
|
| Repayment of bank loans | (6) | (25) |
| Repayment of obligations under finance leases | (245) | (178) |
| Net cash used in financing activities | (251) | (203) |
| Net (decrease) in cash and cash equivalents | (316) | (1,039) |
| Cash and equivalents at beginning of period | 1,701 | 2,740 |
| Cash and cash equivalents at end of period | 1,385 | 1,701 |
| Cash at bank and in hand | 2,508 | 3,232 |
| Bank overdraft | (1,123) | (1,531) |
| Cash and cash equivalents at end of period | 1,385 | 1,701 |
|
|
|
|
Consolidated statement of changes in equity
for the year ended 31 December 2009
|
| Share | Share | Capital | Retained |
|
|
| capital | premium | reserve | earnings | Total |
|
| £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance as at 1 January 2008 | 3,738 | 18,809 | 329 | (15,466) | 7,410 |
|
|
|
|
|
|
|
| Profit and total comprehensive income for the period | - | - | - | 630 | 630 |
| Balance as at 31 December 2008 | 3,738 | 18,809 | 329 | (14,836) | 8,040 |
|
|
|
|
|
|
|
| Employee share based payment options | - | - | - | 75 | 75 |
| Transactions with owners | - | - | - | 75 | 75 |
| Profit and total comprehensive income for the period | - | - | - | 525 | 525 |
| Balance as at 31 December 2009 | 3,738 | 18,809 | 329 | (14,236) | 8,640 |
Notes to the financial statements
1. Earnings per ordinary share
Basic earnings per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31 December 2009 was based upon the profit attributable to ordinary shareholders of £525,000 (2008: £630,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2009 of 373,841,902 (2008: 373,841,902).
Diluted earnings per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31 December 2009 was based upon the profit attributable to ordinary shareholders of £525,000(2008: £630,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2009 of 373,841,902 (2008: 373,841,902). All share options at the financial year end were anti-dilutive.
2. Publication of non-statutory financial statements
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Sections 434 and 435 of the Companies Act 2006.
The consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated balance sheet at 31 December 2009 and the consolidated cash flow statement have been extracted from the Group's financial statements upon which the auditors opinion is unqualified and does not include any statement under section 498(2) or 498(3) of the Companies Act 2006. Those financial statements have not yet been delivered to the Registrar.
The statutory accounts for the year ended 31 December 2008 have been delivered to the registrar, contained an unqualified audit report and did not include a statement under section 237(2) or 237(3) of the Companies Act 1985.
The audited accounts will be posted to all shareholders in due course and will be available on request by contacting the Company Secretary at the Company's Registered Office.
3. Annual Report and AGM
The Annual Report will be available from the Company's website, www.surginnoir.com and posted to shareholders by 22 April 2010. The Annual Report contains notice of the Annual General Meeting of the Company which will be held at 1.00 p.m. on 25 May 2010 at Clayton Wood House, 6 Clayton Wood Bank, Leeds LS16 6QZ.