Final Results
Press Release 10 April 2006
Surgical Innovations Group plc
("Surgical" or "the Group")
Preliminary Results
Surgical Innovations Group plc ("AIM: SUN"), the designer and manufacturer of
innovative surgical devices, today announces its Preliminary Results for the
year ended 31 December 2005.
Highlights
• Turnover increased by 33% to £4.02m (2004: £3.03m)
• Operating profit increased by 66% from £401,000 (2004: £242,000)
• Pre-tax profits doubled to £352,000 (2004: £174,000)
• Record order book of £745,000
• Net cash inflow from operating activities increased to £279,000 (2004: £
130,000)
• Earnings per share doubled to 0.16p (2004: 0.08p)
• Ten-year licensing agreement with Rolls-Royce plc worth up to £800,000
• £535,000 in industrial design project fees generated by Product Development
division
• Business restructured into two new divisions: Instruments and Product
Development
Commenting on the results, Doug Liversidge, Non-executive Chairman, said: "We
have made substantial progress during the year. With the restructuring of the
company and the growth plans in place for both divisions, we are well placed to
achieve our objectives of once again delivering improved profitability and
enhanced shareholder value."
- Ends -
For further information:
Surgical Innovations Group plc
Doug Liversidge CBE, Chairman Tel: +44 (0) 779 889 2918
Graham Bowland, Finance Director Tel: +44 (0) 771 561 2063
graham.bowland@surginno.co.uk www.sigroupplc.com
Westhouse Securities
Tim Feather Tel: +44 (0) 161 838 9140
tim.feather@westhousesecurities.com www.westhousesecurities.com
Media enquiries:
Abchurch
Sarah Hollins / Justin Heath Tel: +44 (0) 113 203 1341
sarah.hollins@abchurch-group.com www.abchurch-group.com
Chairman's Statement
Financial and Operational Review
I am delighted to report yet another year of increased sales and profit growth
- the seventh in succession.
Group turnover increased to £4.02 million in 2005 (2004: £3.03 million), an
increase of 33% which resulted in a doubling of pre-tax profit to £352,000,
compared with £174,000 in the previous year.
Within the turnover figure there are product development fees of £535,000
(2004: £nil). These reflect our entry into an exciting new area of industrial
design, where we have already applied our advanced surgical device technology
to the aero engine maintenance field through a relationship with Rolls-Royce
plc. We are very proud of this relationship where our design expertise has been
recognised through a ten-year licensing agreement. Over the period of the
agreement we will receive up to £800,000 for licensing fees and access to
technology, of which £200,000 was received in the year. This is in addition to
any ongoing product development fees that may arise through this collaboration.
We have also written-off the total costs of negotiating and implementing the
licensing arrangement which were £103,000.
The Group has increased its product development capability through the
recruitment of highly talented young graduates. We have invested in leading
edge technology, enabling the team to respond efficiently and effectively to
future design projects.
Royalties from the licensing of EndoFlex to Cardinal Health improved to £
281,000 from £231,000 in the previous year. This is a testament to the
uniqueness of the design, with EndoFlex still widely regarded as the world's
leading retraction and tissue mobilisation device.
We continue to invest in the development of new devices for Minimally Invasive
Surgery (MIS) - our core competency. This has contributed to overall MIS sales
of £2,677,000 and we are confident that we can build upon this performance at a
substantially increased rate. Our investment in developing relationships with
our strategic partners and international distributors provides a solid
foundation for future growth in this area.
Our laparoscopic port access system, YelloPort, continues to gain acceptance
with leading international surgeons. We firmly believe that our continuous
product development programme will further increase our market share. In the
current year our efforts to develop the US market for YelloPort have resulted
in direct distribution to hospitals, in addition to increased sales through
Equipment Managed Service companies.
Sales of our laparoscopic scissors have increased considerably over the past
year and continue to do so. The quality of the product coupled with its
innovative design is enabling us, through our relationships with Aesculap and
Teleflex Medical, to make substantial inroads into this lucrative market.
Cash generation of £279,000 from all operating activities has enabled us to
repay £68,000 of the 6.5% convertible loan notes and reduce our finance lease
debt. However, based on our anticipated growth for 2006, our record order book
of £745,000, and an increased leasing facility from our bankers, the Board has
entered into a significant capital expenditure programme. This should result in
improved production efficiencies and increased margins.
Outlook
We have made substantial progress during the year and are optimistic that the
growth in sales and profitability will continue. We are determined to achieve
full recognition of Surgical Innovations within the investment community and a
valuation that genuinely reflects the development of the Group.
Finally I wish to thank, on your behalf, my Board colleagues and all employees
for their dedication and commitment during a year in which we doubled the
Group's pre-tax profits.
Doug Liversidge CBE
7 April 2006
Executive Review
2005 was our seventh consecutive year of growth in both turnover and operating
profit. Importantly, it included our initial venture into the arena of
industrial design with the signing of a ten-year agreement with Rolls-Royce
plc. The Group continues to benefit from the strength of our medical devices
and our design capabilities.
Business Restructuring
We have restructured the business to create two divisions: Instruments and
Product Development, allowing us to deliver our energy and drive in a focused
manner and providing a clear measure of profitability in the respective areas.
The new structure is already yielding benefits, such as increased instrument
sales and the rapid delivery of new products. We firmly believe that we have
established a structure for growth that will result in enhanced profitability
for the Group.
In 2005 we focused on improving the efficiency of our manufacturing facilities,
analysing the flow of products around the site and eliminating waste from the
production processes. This reorganisation has already delivered significant
improvements in efficiency and in our overall manufacturing capacity.
Capital Investment Programme
This manufacturing review has been coupled with a substantial investment
programme. At Surgical Innovations, we firmly believe that the quality of our
products is paramount: our investment programme is designed to ensure that our
products maintain their respective positions in the market while continuing to
be supplied at competitive prices.
A new clean room, associated packaging equipment, and the £140,000 year-end
commitment to cutting-edge Computer Numerically Controlled (CNC) machine tools
are part of this exciting capital investment programme. We have also increased
our manufacturing floor space by using an off-site storage facility.
Furthermore, we have taken the opportunity to upgrade our IT systems by
installing a new business management system, server, and the latest version of
our industry-leading three-dimensional Computer Aided Design (CAD) system.
Instrument Division
Sales of our devices for Minimally Invasive Surgery (MIS), at £2,677,000,
firmly establish MIS as our core business activity.
The second half of 2005 produced strong growth with sales in MIS of £1,684,000,
a significant improvement on first half sales of £993,000. This sharp increase
provides high expectations for 2006, as we anticipate added benefits from the
continual investment in our product portfolio and international distributor
network.
Sales of YelloPort totalled £572,000. Importantly, Rest of World sales
increased by 45%. This is a creditable performance and we are delighted with
our success in developing a new positioning of the product in the market.
YelloPort is now promoted as a 'resposable' system: a mixture of both reusable
and disposable items which offers a quality, innovative and cost effective
solution - ideal for the surgeon and hospital finance administrator alike.
YelloPort continues to gain popularity amongst leading, influential
laparoscopic surgeons. This is an important phase in the development of the
product amongst the surgical community: to achieve increased market share, it
is vital that YelloPort gains credibility within this community as an equal
against equivalent products from the dominant US medical device companies.
We are therefore delighted that we have been able to enter the US market in the
current year through a combination of direct sales, distribution, and equipment
managed service business. The latter is based upon a business model whereby
major healthcare companies provide hospitals with fully-serviced procedure
trays on a charge-by-use basis, which significantly reduces hospital overhead
costs. YelloPort in its 'resposable' format is ideally suited to this marketing
concept.
Within our Logic range of instrumentation, sales of single use scissors
increased by 3% to £1,219,000 despite an increasing number of low-cost
alternatives in the market. This performance can be attributed to our
ever-strengthening relationships with our main strategic partners, Aesculap and
Teleflex Medical. Our investment in design, tooling and machinery has enabled
us to maintain our exceptionally high standards at a competitive price,
ensuring that in the current year, like-for-like sales of single use scissors
are significantly higher than in 2005.
It is particularly satisfying to report that we have opened up new markets for
our laparoscopic scissors in Australia, Iran and Israel following visits to
these countries.
During 2005 we saw initial sales of our fully disposable Quick range of
instruments. In the laparoscopic market, it is always difficult to gain
acceptance of a product line within a short period of time and so we are
encouraged by the initial level of business and positive feedback received to
date. Our intention is to focus our efforts on the UK market through direct
sales, and elsewhere through our existing collaboration with Aesculap. We
continue to review the product and have a planned strategy of improvement and
broadening of the range during 2006 and 2007.
Our main brands of YelloPort and Logic are now well-established and continue to
attract critical acclaim. Building upon this, we are embarking on a major
development initiative with YelloPort to strengthen the product's suitability
for surgeons moving away from single use port access systems. This is extremely
important if we are to make significant inroads into the US market, which
annually undertakes in excess of 700,000 laparoscopic gall bladder procedures,
worth approximately £100million in predominately single use laparoscopic ports.
The US is naturally an important area for Surgical Innovations; however, our
strategy is to also develop our presence in markets such as India and China
where laparoscopic surgery is undertaken routinely. There is an opportunity for
our instrumentation to be used in obesity surgery in these markets: in China, a
quarter of all adults are obese and half of all new obesity-related diabetes
cases result from India and China.
The demand for laparoscopic surgery is escalating with the majority of
countries now undertaking this type of surgery on a routine basis. More and
more procedures, previously confined to complex open surgery, are being
performed laparoscopically in such areas as colorectal cancer surgery, urology
- including kidney transplants - and paediatric surgery, where the benefits of
minimally invasive techniques on children are self-evident.
With this continual rise in the annual number of performed cases and with
Surgical Innovations at the forefront of instrumentation development, we are
well placed to meet future demands.
Product Development Division
2005 was an excellent year for the Group's product development team. Finalising
the collaboration agreement with Rolls-Royce plc was a major success. We will
receive up to £800,000 over the ten-year period of the agreement for licensing
fees and access to technology. During the year we received the first tranche of
these fees, totalling £200,000, as well as successfully completing a number of
development projects that generated design and manufacturing fees of £535,000.
Completing the agreement and securing the subsequent business with Rolls-Royce
plc required a substantial investment in management time and £103,000 of costs
were attributed to this activity.
The adaptation of our world-class `keyhole' surgical instrument technology,
EndoFlex, to meet the demands of aero engine inspection was an exciting
challenge. Based upon the experience gained in this area, we have established a
new product offering, EndoFlex Industrial, which provides the user with Paths
to Precision: a unique technology which helps to access challenging, complex
spaces with the minimum of downtime. We are now rolling out this business model
and are targeting the industrial gearbox, oil and gas, aerospace and nuclear
industries.
Ever cognisant of the need to increase our presence in these competitive
markets, we are honing our marketing strategies; for example, we are exhibiting
at a number of highly focused trade congresses.
The technology transfer into these new markets has been profitable and
exciting, but this has not been at the expense of our core business: MIS
instrumentation. The team has developed a number of new products plus several
significant improvements to our existing product ranges. In the current year we
have mapped out an ambitious product development programme, including the
development of a second-generation YelloPort port access system. This new
product range is aimed at the lucrative US market, where our competitors
primarily supply high performance, single use devices.
The new divisional structure has brought a new degree of focus which is now
allowing us to look further ahead. We are examining longer term development
projects with much larger sales potential and, in order to fund such
development activities, we are fully exploring the research and development
funding opportunities available to us through our Regional Development Agency,
Yorkshire Forward.
During this current year we will see developments in a number of new markets as
well as significant additions to our MIS portfolio. The Group's Product
Development division is poised for successful growth.
Licensing
Royalty income from sales of EndoFlex amounted to £281,000. Cardinal Health,
which acquired the licence in April 2004, has taken an aggressive view on
defending its licensed intellectual property and together we were successful in
an action against an infringement of the EndoFlex patent, at a cost of £53,000.
We continue to develop our relationship with Cardinal Health and are confident
that this will lead to further product development and international market
opportunities.
Autologous Blood Transfusion
We have continued to concentrate our efforts on the UK post-operative market.
We continue to see gains in our market share with a 55% increase in turnover to
£172,000. The opportunities for growth will be further enhanced as we begin to
experience planned cost savings in the manufacturing process of the product.
People
The progress of Surgical Innovations has been outstanding and could not have
been achieved without the total involvement and dedication of our work
colleagues. In 2005 and the current year we have made significant investments
in ensuring that the creativity of our staff is harnessed, that they are well
trained, and that the culture of the business is appropriate to meet our growth
expectations, leading to this year's improved performance. We remain committed
to this focus on training and personal development as part of our strategy for
success.
Summary
The trading year was a remarkable one for Surgical Innovations, with an
operating profit increase of 66%.
With the restructuring of the company and the growth plans in place for both
divisions, we believe we are well placed to achieve our objectives of once
again delivering improved profitability and enhanced shareholder value.
Consolidated Profit and Loss Account
For the year ended 31 December 2005
2005 2004
Notes £'000 £'000
Turnover 4,018 3,032
Cost of sales (2,295) (1,432)
Gross profit 1,723 1,600
Administrative expenses (1,322) (1,358)
Operating profit 401 242
Interest payable (49) (68)
Profit on ordinary activities before taxation 352 174
Tax on profit on ordinary activities 50 38
Retained profit 402 212
Earnings per ordinary share 2 0.16p 0.08p
Consolidated Balance Sheet
As at 31 December 2005
2005 2004
£'000 £'000 £'000 £'000
Fixed assets
Tangible assets 668 811
Current assets
Stocks 852 881
Debtors 1,605 1,215
Cash at bank 25 1
2,482 2,097
Creditors: amounts falling due (940) (1,043)
within one year
Net current assets 1,542 1,054
Total assets less current 2,210 1,865
liabilities
Creditors: amounts falling due (116) (215)
after more than one year
Net assets 2,094 1,650
Capital and reserves
Called up share capital 2,591 2,580
Share premium account 16,101 16,070
Capital reserve 329 329
Accumulated losses (16,927) (17,329)
(497) (930)
Shareholders' funds 2,094 1,650
Consolidated Cash Flow Statement
For the year ended 31 December 2005
Notes 2005 2004
£'000 £'000 £'000 £'000
Net cash inflow from operating 3 279 130
activities
Returns on investments and
servicing of finance
Interest payable on finance (22) (29)
leases
Interest payable on bank (24) (32)
overdrafts
Interest payable on (3) (7)
convertible loan notes
Net cash outflow from returns (49) (68)
on investments and servicing
of finance
Taxation - 18
Capital Expenditure: purchases (64) (21)
of tangible fixed assets
Net cash inflow before 166 59
financing
Financing
Issue of share capital - 21
Receipts from borrowings - 22
Capital repayments under bank (9) (7)
loans
Capital repayments under (109) (96)
finance leases
Redemption repayments of (68) -
convertible loan notes
Net cash outflow from (186) (60)
financing
Decrease in cash 4 (20) (1)
Notes
For the year ended 31 December 2005
1. Accounting policies
The principal accounting policies which remain unchanged from the
previous year, are as follows:
a) Basis of accounting
The financial statements have been prepared under the
historical cost basis of accounting and under United Kingdom
Generally Accepted Accounting Practice.
b) Basis of consolidation
The Group financial statements consolidate those of the Company
and of its subsidiary undertakings drawn up to 31 December
2005. The results of subsidiaries accounted for under the
acquisition accounting method are included in the consolidated
profit and loss account from the date of their acquisition. The
results of subsidiaries, accounted for under the merger
accounting method, are included in the consolidated profit and
loss account as if they had always been part of the Group.
Intra-Group sales and results are eliminated on consolidation
and all sales and results relate to external transactions only.
2. Earnings per ordinary share
The earnings per ordinary share has been calculated by dividing the
profit attributable to ordinary shareholders for the year ended 31
December 2005 of £402,000 (2004 : £212,000) by the weighted average
number of ordinary shares in issue during the year of 258,612,616
(2004 : 256,955,941) and amounted to 0.16p per share (2004 : 0.08p
per share).
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 year.
The dilution has no effect on basic earnings per share.
3. Reconciliation of operating profit to net cash inflow from
operating activities
2005 2004
£'000 £'000
Operating profit 401 242
Depreciation of tangible fixed assets 216 203
Decrease/(increase) in stocks 29 (160)
(Increase)/decrease in debtors (340) 50
Decrease in creditors (27) (205)
Net cash inflow from operating activities 279 130
4. Reconciliation of net cash flow to movement in net debt
2005 2004
£'000 £'000
Decrease in cash in the year (20) (1)
Cash outflow from finance leases and 118 103
loans
Cash outflow from loan note redemption 68 -
Change in net debt resulting from cash 166 102
flows
New finance leases and loans (9) (101)
Issue of shares on conversion of loan 42 -
notes
Movement in net debt 199 1
Net debt at beginning of year (639) (640)
Net debt at end of year (440) (639)
5. Analysis of changes in net debt
At 1 January Cash flow Non-cash At 31 December
2005
2005 changes
£'000 £'000 £'000 £'000
Cash at bank and 1 24 - 25
in hand
Bank overdrafts (175) (44) - (219)
(20)
Bank loan (20) 9 - (11)
Finance leases (335) 109 (9) (235)
118
Convertible loan (110) 68 42 -
notes
(639) 166 33 (440)
6. The Annual General Meeting of the Company will be held at the
Weetwood Hall Hotel and Conference Centre, Otley Road, Far
Headingley, Leeds LS16 5PS at 1.00pm on 27 June 2006.
7. The foregoing statements do not constitute the Group's statutory
accounts. The Group's statutory accounts, on which the Group's
auditors, Grant Thornton UK LLP, have given an unqualified opinion in
accordance with Section 235 of the Companies Act 1985, are to be
delivered to the Registrar of Companies and will be posted to
shareholders shortly. Additional copies of the annual report and of
this announcement will be available at the Company's registered
office: Clayton Park, Clayton Wood Rise, Leeds, LS16 6RF.
Latest directors dealings
- 8 minutes ago Rathbones Group
- 36 minutes ago The Artisanal Spirits Company
- 50 minutes ago Tritax Eurobox (EUR)
- 1 hour ago Videndum
- 1 hour ago Legal & General Group