Surgical Innovations Group plc
("Surgical Innovations",
the "Group" or the "Company")
Half-year Report
Interim results for the six months ended 30
June 2024
Surgical Innovations Group plc (AIM: SUN), the
designer, manufacturer and distributor of innovative medical
technology for minimally invasive surgery, reports its unaudited
financial results for the six-month period ended 30 June 2024
("2024 H1").
Commercial and
Operational Highlights
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Surgical Innovations ("SI") branded products saw
strong growth across all key markets as sustainability continues to
resonate with healthcare providers.
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Strong OEM sales performance, as supply chain issues
were resolved and backorder position cleared.
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Enhanced sustainability training and marketing
positively impacting key markets, especially in Europe and
Canada.
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Transition to EU Medical Device Regulation ("MDR")
remains on track; cost burden beginning to reduce.
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Operational improvement plan implemented to reduce
costs and improve margins, with benefits expected to begin to be
realised in the second half.
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Inventory reduction programme initiated to return
working capital towards normalised levels.
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New UK distribution expanded contract signed with
Apsen Surgical and a new contract signed with Cipher Surgical, both
providing continuing and new revenue streams.
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Financial
Highlights
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Revenues increased 9.3% on prior year to £6.2m (2023
H1: £5.7m)
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Gross profit margin of 32.9% (2023 FY: 28.7%; 2023
H1: 33.0%). Gross margins have recovered from weaker margins
experienced in 2023 H2 of 24.9%
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Adjusted EBITDA1 profit of £0.2m (2023
H1: £0.1m)
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Adjusted operating loss1 of £0.1m (2023
H1: £0.3m loss)
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Adjusted EPS amounted to a loss1 of
0.020p per share (2023 H1: 0.037p loss)
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Net debt2 at end of period of £0.5m (as
at 31 Dec 2023: £0.4m net cash)
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Gross cash headroom at the end of the period of
£1.2m (as at 31 Dec 2023: £2.2m)
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1 Adjusted EBITDA, adjusted
operating (loss)/ profit and adjusted EPS are stated before
deducting non-recurring exceptional costs of £0.30m (2023 H1:
£0.01) and share based payment costs of nil (2023 H1
£0.02m).
2 Net debt is presented
Pre-IFRS 16 and equals cash less bank debt
Current Trading and
Outlook
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Challenges persist in the UK market with changes in
the NHS Supply Chain ("NHSSC") inventory management and industrial
action impacting purchasing patterns; however, new product
introductions and the operational restructuring enables the Group
to offset these headwinds.
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Sales of SI-branded products in key markets remains
strong, further supported by the enhanced training and marketing
provided to partners.
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OEM sales expected to normalise in H2.
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LogiTube presents significant global opportunities,
with plans to roll it out to key international markets in H2.
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Operational restructuring through H1 and into H2
will improve efficiencies and drive margin growth towards the
year-end and into 2025.
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Inventory reduction will improve working capital
towards the end of 2024.
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Improvements to processes and structure are expected
to drive the Group's future profitability from 2025 onwards.
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Jonathan Glenn,
Chairman of Surgical Innovations Group Plc, said:
"I am pleased with the progress Surgical
Innovations has made over the first half of this financial year. We
have continued to grow revenues and have delivered an adjusted
EBITDA profit in the period.
"The operational
plan implemented is expected to deliver cost benefits in the second
half of the year and positions the business for increased
profitability in 2025. The strength of SI-branded products remains
robust, though challenges in the UK market are likely to persist
over the near term. However, additional new product introductions
and the realignment of the sales structure are anticipated to
improve the UK business. In the first half, OEM sales were boosted
by the clearing of backorders and will return to more normalised
levels in the second half. Modest revenue and margin improvements
are expected to materialise in Q4 and continue into
2025.
Investor
briefing
David Marsh, Chief Executive Officer, and Chris
Martin, Chief Financial Officer, will provide a live presentation
relating to the interim results via the Investor Meet Company
platform on the new date of
Monday 14 October 2024 at
4:00 p.m. BST.
The presentation is open to all existing and
potential shareholders. Questions can be submitted pre-event via
your Investor Meet Company dashboard up until 9:00 a.m. the day
before the meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for
free and add to meet Surgical
Innovations Group plc via:
https://www.investormeetcompany.com/surgical-innovations-group-plc/register-investor
Investors who already follow
Surgical Innovations Group
plc on the Investor Meet Company
platform will automatically be invited.
For further
information please contact:
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Surgical Innovations
Group Plc
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www.sigroupplc.com
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David Marsh, CEO
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Tel: +44 (0)113 230 7597
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Chris Martin, CFO
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Walbrook
PR
(Financial PR & Investor Relations)
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Tel: +44 (0)20 7933 8780 or si@walbrookpr.com
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Paul McManus / Charlotte Edgar
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Mob: +44 (0)7980 541 893 / +44 (0)7884 664 686
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Singer Capital
Markets
(Nominated Adviser
& Broker)
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+44 (0)20 7496 3000
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Alex Bond / Oliver Platts
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About Surgical
Innovations Group plc
Strategy
The Group specialises in the design, manufacture,
sale and distribution of innovative, high quality medical products,
primarily for use in minimally invasive surgery. Our product and
business development is guided and supported by a key group of
nationally and internationally renowned surgeons across the
spectrum of minimally invasive surgical activity.
We design, manufacture and source our branded port
access systems, surgical instruments and retraction devices which
are sold directly in the UK home market through our subsidiary,
Elemental Healthcare ("Elemental"), and exported widely through a
global network of trusted distribution partners. Many of our
products in this field are based on a "resposable" concept, in
which the products are part reusable, part disposable, offering a
high quality and environmentally responsible solution at a cost
that is competitive against fully disposable alternatives.
Elemental also has exclusive UK distribution for a
select group of specialist products employed in laparoscopy,
bariatric and metabolic surgery, hernia repair and breast
reconstruction.
In addition, we design and develop medical devices
for carefully selected OEM partners. We have a number of long-term
relationships with key partners including the design, development
and manufacture of the FIX8 device for Advanced Medical Solutions
plc ("AMS") and more recently for a new collaboration with robotic
surgery company, CMR Surgical Limited ("CMR"), to design and
develop an access device for their unique instrumentation.
We aim for our brands to be recognised and respected
by healthcare professionals in all major geographical markets in
which we operate and provide, by development, partnership or
acquisition, a broad portfolio of cost effective, procedure
specific surgical instruments and implantable devices that offer
reliable solutions to genuine clinical needs in the operating
theatre environment.
Operations
The Group currently employs approximately 80 people
across one site in Leeds in the UK. Elemental was acquired by the
Group on 1 August 2017 and provides direct sales representation in
the UK home market and a range of third-party products for UK
distribution. Elemental was originally based in Berkshire and was
successfully relocated in 2021, with all operations now located at
the Leeds site.
Further
information
Further details of the Group's businesses are
available on the following websites:
www.sigroupplc.com
www.surginno.com
www.elementalhealthcare.co.uk
Investors and others can register to receive regular
updates by emailing si@walbrookpr.com
Surgical Innovations
Group plc
Chairman's
Statement
For the six-month
period ended 30 June 2024
Market and Financial
Overview
Trading in the first half of the year increased 9%
to £6.17m (2023 H1: £5.65m). This was predominantly as a result of
strong SI-branded and OEM sales, however the UK saw an overall drop
in revenue with some significant headwinds especially in the early
part of 2024.
In Europe, Canada and the UK, our investment in
training and the development of marketing tools to promote the
sustainability message has proven successful, resulting in strong
sales growth in these regions. In Europe, this effort has led to an
impressive underlying sales increase of 28%, driving revenue to
£0.89m in 2024 H1, up from £0.69m in 2023 H1.
The USA has seen a 15% increase bringing revenue to
£0.63m in 2024 H1, up from £0.55m in the same period the previous
year. This growth has been primarily driven by sales of scissors
and instruments, with access devices beginning to gain
traction.
APAC revenues showed modest growth of 2% over the
previous year, reaching £0.54m. In 2024 H1, purchasing slowed due
to stocking orders in India and Japan in 2023. However, this trend
has normalized in 2024 H2, with India in particular, seeing some
significant account conversions to drive disposable sales.
The UK faced a challenging start to the year, with
H1 revenues falling 8% to £2.74m. Sales were adversely affected by
NHS industrial action and changes in NHSSC inventory management.
Additionally, the shift away from lower-margin, time consuming
products has allowed focus on key distribution and SI branded
devices. SI Branded products grew 17% to £1.02m up from
£0.87m in H1 2023.
ROW has experienced robust growth, up 23% from the
previous year, with sales of £0.28m, largely driven by our new
Canadian partner who has embraced our sustainability messaging.
Significant account conversions are planned for H2 and are expected
to further support growth in this region.
OEM revenues increased by 63%, reaching £1.1m,
primarily due to clearing backorders. Increasing supply chain and
labour costs have impacted margins. Revenues from OEM are expected
to normalise in H2.
Commercial or underlying margins of 34.4% have
reduced in H1 by 3.5% compared to 2023 FY margins (2023 H1: 40.53%,
2023 FY: 37.87%). This reflects significant inflationary increases
in material costs. While commercial margins have declined, the
reported gross margin of 32.9%, which includes the net cost of
manufacturing, is in line with 2023 H1 and has improved by 4.2% on
the 2023 FY margins (2023 H1: 33.0%; 2023 FY: 28.7%). This is the
result of operational improvements in efficiency and manning levels
and less disruption within our supply chain.
A number of customer price increases have been
implemented in H1 with further rises planned in H2 as fixed term
customer agreements are renewed. This, together with continuing
operational improvements, will help maintain gross margins in
H2.
Other operating expenses increased to £2.47m (2023
H1: £2.17m). The increase is due to one-off costs relating to a
restructuring programme across the business. Excluding the effect
of non-recurring items, operating expenses were on a par with 2023
H1 at £2.16m. Other operating expenses in 2024 H2 are expected to
reduce from 2024 H1 as the benefits from the re-structure begin to
be fully realised.
The Group generated an
adjusted EBITDA profit for the period of £0.19m (2023 H1: £0.09m).
The full effect of the savings from the restructuring, actions on
price and further operational efficiencies will deliver improved
profitability in H2.
Adjusted operating loss before tax for the period
(before non-recurring items and share based payment charges) was
£0.13m (2023 H1: £0.28m loss). The reported net loss before
taxation amounted to £0.49m against a net loss of £0.37m in 2023
H1.
There was no reported tax charge/credit in the
period (2023 H1: nil). In terms of deferred tax, the Group
continues to hold substantial corporation tax losses on which
management takes a cautious view, and consequently, the Group does
not recognise a corresponding deferred tax asset.
Adjusted net earnings per share amounted to a loss
of £0.020p (2023 H1: £0.037p loss). The net total comprehensive
income for the period amounted to a loss of £0.49m (2023 H1: loss
of £0.37m).
For the first half of 2024, cash used in operations
was £0.49m (2023 FY: £0.26m generated, 2023 H1: £0.07m used). The
outflow of £0.49m, however, does include £0.30m of non-recurring
costs relating to the restructure. After continued investment into
R&D of £0.16m (2023 FY: £0.40m, 2023 H1: £0.12m), capital
expenditure of £0.04m (2023 FY: £0.28m, 2023 H1: £0.18m) and the
financing costs of the existing bank loan and lease liabilities,
the Group had available cash balances of £1.23m (31 Dec 2023:
£2.21m).
The Directors have considered the available cash
resources of the Group and the current internal anticipated
forecasts and have a reasonable expectation that the Group have
adequate resources. The Group is expected to continue to generate
cash from operations over the next 12 months as the Group benefits
from a lower cost base following restructuring, continues to
improve operational efficiencies and reduce inventory. This will
therefore provide ample support to continue in operational
existence for the foreseeable future, considered to be at least 12
months from the date of approval of the financial statements. The
covenant test for the period ending 30 June 2024 has been
passed.
Market
Outlook
The UK faced a challenging start to the year,
primarily due to the NHSSC shifting to a 'Just-in-Time' model,
which led to reduced inventory levels and lower purchasing
activity. Purchasing levels have now normalised. Additionally,
ongoing industrial action by junior doctors impacted the volume of
elective surgery.
The strategic decision to withdraw from the
low-margin, time-intensive synthetic hernia mesh business, allowing
for a greater focus on own branded products and higher margin
third-party opportunities has impacted sales. However, this has
allowed the sales team to refocus on SI-Branded product resulting
in significant revenue growth of 17%, rising from £0.87m in 2023 H1
to £1.02m in 2024 H1.
Elemental has expanded its portfolio by adding
several third-party suppliers, some of which already generate
revenue in the UK. While this is expected to have a modest impact
on revenue in 2024, the effect will be more pronounced in 2025.
Additionally, there is a pipeline of new third-party opportunities
set for introduction in 2024 Q4 which, should the Company convert,
will further contribute to revenue growth in 2025.
Sustainability messaging initiatives continue to
drive sales across key markets, supported by ongoing investments in
sales support, marketing, training, and the ongoing development of
the financial and environmental calculator. These tools have proven
highly effective in fostering growth. The increase in SI-branded
product sales is largely driven by a strong focus on
sustainability; this focus continues in H2 and significant account
conversions in key markets will continue to drive growth into
2025.
The rollout of LogiTube is accelerating in the
second half of the year, with key market launches in Europe,
Canada, the Middle East, and Australia. Additionally, the rapid
development of the Yelloport Elite XL cannula is enabling deeper
penetration into the bariatric market, particularly for gastric
bypass and gastric sleeve procedures. The cost-down project
highlighted at YE 2023 continues to progress focusing on both
material and design changes to improve manufacturing
efficiencies.
Operational and
Regulatory Activities
An operational improvement plan has been implemented
to enhance manufacturing efficiency, reduce costs, and improve
margins. The restructuring process is now complete, and the
benefits are expected to be realised throughout the second half of
the year, with a significant boost to profitability anticipated in
2025.
The new CFO brings extensive manufacturing expertise
to the company, enhancing reporting accuracy and cost management.
With a focus on improving financial control, the business is
actively implementing cost controls to drive greater operational
efficiency.
The regulatory pathway for the EU Medical Device
Regulation ("MDR") remains on track, despite the transition
deadline to MDR being revised, which has shifted the notified
body's focus to more immediate priorities. The Company's Quality
Management System, technical files, and microbiology data have been
made MDR-compliant, successfully audited by BSI, and fully
approved. Progress continues on the product technical files, with
two out of three approved for MDR, while the final file is
currently under clinical review. Additionally, the UKCA mark has
been obtained, and the Medical Device Single Audit Program
("MDSAP") audit has been successfully completed.
Current Trading and
Outlook
The operational plan implemented is expected to
deliver cost benefits in the second half of the year and positions
the business for increased profitability in 2025. The strength of
SI-branded products remains robust, though challenges in the UK
market are likely to persist over the near term. However,
additional new product introductions and the restructuring of
the organisation, already implemented, are anticipated to improve
the performance of the business going forward.
Jonathan
Glenn
Chairman
30 September
2024
The interim financial information was approved by
the Board of Directors on 27 September 2024. The financial
information set out in the interim report is unaudited.
The interim financial information has 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 2023, 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 state-
ments and therefore the interim financial information is not in
full compliance with International Financial Re- porting Standards
as adopted for use in the European Union.
The financial information set out in this interim
report does not constitute statutory financial statements as de-
fined in section 434 of the Companies Act 2006. The figures for the
year ended 31 December 2023 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.
The Directors have considered the available cash
resources of the Group and the current internal anticipated
forecasts and have a reasonable expectation that the Group have
adequate resources. The Group is expected to continue to generate
cash from operations over the next 12 months as the Group benefits
from a lower cost base following restructuring, continues to
improve operational efficiencies and reduce inventory. This will
therefore provide ample support to continue in operational
existence for the foreseeable future, considered to be at least 12
months from the date of approval of the financial statements.
Underlying gross margin (excluding net costs of
manufacturing) is an adjusted KPI measure. Nets costs of
Manufacturing are overheads that have not been effectively absorbed
due to reduced productivity.
Adjusted KPIs are used by the Board to understand
underlying performance and exclude items which distort
comparability. The method of adjustments is consistently applied
but are not defined in International Financial Reporting Standards
(IFRS) and, therefore, are considered to be non-GAAP (Generally
Accepted Accounting Principles) measures. Accordingly, the relevant
IFRS measures are also presented where appropriate.
Revenues are allocated geographically on the basis
of where revenues were received from and not from the ultimate
final destination of use.
There was no reported tax charge/credit in the
period.
Overall, the Group continues to hold substantial tax
losses on which it holds a cautious view and consequently the Group
has chosen not to recognise those losses fully.
Basic earnings per share is calculated by dividing
the earnings attributable to ordinary shareholders by the weighted
average number of shares in issue. Diluted earnings per share is
calculated by dividing the earnings attributable to ordinary
shareholders by the diluted weighted average number of shares in
issue. Adjusted Earnings per share is calculated by dividing the
adjusted earnings attributable to ordinary shareholders (profit
before non-recurring costs, amortisation, impairment costs and
share based payments) by the weighted average number of shares in
issue.
The anti-dilutive effect of unexercised shares
options has not been taken into account and therefore the diluted
earnings per share is equal to the basic earnings per share.
The Group has one category of dilutive potential
ordinary shares being share options issued to Directors and
employees. The impact of dilutive potential ordinary shares on the
calculation of weighted average number of shares is set out
below.