Final Results - Year Ended 31 December 1999

Surgical Innovations Group PLC 28 March 2000 SURGICAL INNOVATIONS GROUP PLC Preliminary Results for the year ended 31st December 1999 Surgical Innovations Group plc, the AIM listed provider of healthcare products primarily for the operating theatre, has announced its preliminary results for the year ended December 31st 1999. Highlights * Loss for the year reduced to £694,000 (1998: £1.07m). * Turnover is reduced due to the disruptions encountered with blood products but profitability is increased in overall margins from 48.6% to 56.7% due to strict financial control. * Decision to capitalise on research and development expertise with the creation of a new division, ION Product Solutions, offering design and manufacturing services to other healthcare companies. * The licence agreement with Genzyme USA performed well with a sharp increase in royalties. * Further products added to UK distribution. * Conversion of loan notes - 94 % now converted strengthening the balance sheet. * Additional license agreement with Genzyme France to design and manufacture a new range of devices for minimally invasive surgery. * F4 range launched in Autumn has been well received. Commenting on the results, Douglas Liversidge Chairman said: ' I have long believed that the future for British Industry lies in its inherent skills in innovation and design. Surgical Innovations has great strengths in its innovative talent and because of its extensive contacts within the surgical arena and an ability to react in a timely and effective manner it is well placed to develop strongly in this area.' The financial information set out in the preliminary announcement does not constitute Statutory Accounts as defined in Section 240 of the Companies Act 1985. The financial information has been extracted from the Group's 1999 Statutory Financial Statements upon which the Auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. For further information: Surgical Innovations Group plc Citigate Dewe Rogerson Ian Lomas - Managing Director Keeley Middleton/Grace Marriner Tel: 0113 230 7597 Tel : 0113 297 9899 SURGICAL INNOVATIONS GROUP PLC Chairman's Statement In December last year it was announced that Brian Long would be stepping down as Chairman of your Company and that I would be taking over the role. I was Chairman of Surgical Innovations Ltd before the merger and have been a non- executive Director of the merged company since. I am delighted to take the role as Chairman of what I know is an exciting and innovative company. One of my first actions as Chairman has been to institute a full strategic review of the four areas of activity of your Company. In looking to the future it is essential that we concentrate on those aspects of our business that give an opportunity for long-term growth and profitability. It is your Board's intention to implement the positive outcomes from this review as soon as is practicable and I will keep you updated of any changes that we may make. Financial results The results for the year show a reduction of £378,000 in the loss for the year £694,000 (1998: £1.07m) despite turnover being down at £1.3m, a reduction of £400,000 from the previous year at £1.7m. The increase in profitability is twofold: a reduction in administrative expenses of £397,000 due to strict financial control and an increase in overall margins from 48.6% to 56.7%. The reduction in turnover is attributable in the main to the disruptions encountered with the blood products, which we have reported in previous statements. The minimally invasive surgical products, which we have licensed to Genzyme have helped margins through the royalties we receive but also contribute to the top line reduction in turnover. Tight cost controls and increased profitability remain priorities as we go forward. Summary of Financial Results Year to Year to 31/12/99 31/12/98 Turnover 1,255 1,669 Gross margin 712 811 Overheads before exceptional items (1,333) (1,730) Exceptional costs - (399) Exceptional income - 269 Operating Loss (621) (1,049) Net Loss for the Year (694) (1,072) Report on operations Following the merger and the creation in the year of a new division, the Group now has four main business areas. Surgical Innovations Limited This division concentrates on the development of innovative medical devices for sale by our direct sales force and international distributor network. The licence agreement with Genzyme in the USA for two of our minimally invasive products continues to develop well with sales in North America showing a sharp increase as evidenced by recent rises in royalties received. The agreement signed with Genzyme France in August last year for a port access device' is also going well and we are pleased to announce that Genzyme France have forecast sales well ahead of their original estimates and recently doubled their order with us. We will start to see the benefit of this additional business during our current financial year. In addition to this, we have since reached a further agreement with Genzyme France to design and manufacture a new range of devices for minimally invasive surgery centred on the prevention of post operative adhesion formation. The F4 range of hand held instruments for minimally invasive surgery, which was launched in the autumn, has had a very favourable response. Recent evaluations of the product have been carried out in the UK, Europe and Australia with positive results and customer orders are now being processed. In October the Company won the Gold Award at the PRW Awards for Excellence' for the design of this range. The awards are held only once every three years and Surgical Innovations beat hundreds of nominations from a broad spectrum of industries. Previous winners of the award, such as Glaxo Welcome's multi- dose powder inhaler, have gone on to become market leaders in their field. ION Product Solutions In December last year we announced the creation of a new division, ION Product Solutions, which offers design and manufacturing services to other healthcare companies. R&D has always been the main driving force behind the Group's success and the Company has taken the decision to capitalise further on its R&D in-depth expertise, to become the premier fast track provider of medical device solutions. The division has been well received in the market. We have been encouraged by the speed at which potential contracts with global players in the medical device sector have come through and we anticipate that the benefits of this new division will contribute to Group profitability in the current financial year. Haemocell Disruptions to our blood products have had a disappointing effect on turnover in the period reported. However, I can report that the post-operative system, which was introduced in June, has been well received and began to contribute to Group turnover in the second half. The intra-operative system, which was on restricted supply until September last year, has also been well received but the increased cost of supplies and the strong pound are reducing profit margins in international markets. UK Distribution This division markets our own and third party products aimed at the operating theatre. The Group has sole UK distributorship agreements for the third party products. Since our year-end we have added a further three products, expanding our range in the minimally invasive surgical market. We have also enlarged our sales force to support this increasing portfolio. Conversion of loan notes In February 2000 we announced that at the request of the holder of more than 75% of the Company's 6.5% Convertible Unsecured Loan Notes 2005 (the 'Loan Notes'), the Company had agreed to alter the conversion period applicable to the Loan Notes for the current calendar year. The major loan note holder has recently completed the conversion of all of their loan notes and at this time 94% of all loan notes have been converted. The major benefit of this conversion will be seen during the current financial year. Firstly, the Company will save in excess of £120,000 per annum in loan note interest payments in each of the next five years. Secondly, both Company and Consolidated Balance Sheets will be strengthened substantially with the removal of £1,864,000 of long-term debt and subsequent conversion into £497,000 of additional share capital and a £1,367,000 increase in share premium reserve. Whilst the number of shares in issue will increase from 204m to 253m it is the Board's belief that shareholder dilution will be more than offset by the benefits resulting from the loan note conversions. Strategic plans and prospects I have long believed that the future for British Industry lies in its inherent skills in innovation and design. Surgical Innovations is an excellent example of such a company. Your Company has great strengths in its innovative talent and because of Its extensive contacts within the surgical arena and an ability to react in a timely and effective manner it is well placed to develop strongly in this area. The problems with our blood products have prevented us from taking any positive steps in the acquisition field. The strategic review now in hand will give a clear guide on our future direction and I look forward to reporting to you on progress in the near future. A special thank you also to all our staff and my fellow Directors whose effort and diligence is central to the continued success of the Company. D B Liversidge 28th March 2000 SURGICAL INNOVATIONS GROUP PLC Consolidated profit and loss account 31 December 31 December 1999 1998 £'000 £'000 Turnover (including licence fees) 1,255 1,669 Cost of sales (543) (858) Gross profit 712 811 Administrative expenses before (1,333) (1,730) exceptional items Exceptional administrative expenses - (399) Administrative expenses (1,333) (2,129) Exceptional other operating income - 269 Operating loss (621) (1,049) Interest receivable 49 71 Interest payable (122) (94) Loss for the year (694) (1,072) Loss per ordinary share (0.3p) (0.5p) SURGICAL INNOVATIONS GROUP PLC Consolidated balance sheet 31 December 31 December 1999 1999 £'000 £'000 £'000 £'000 Fixed assets Tangible assets 312 323 Current assets Stocks 349 362 Debtors 377 307 Cash at bank 767 1,369 1,493 2,038 Creditors: amounts falling due (601) (459) within one year Net current assets 892 1,579 Total assets less current 1,204 1,902 liabilities Creditors: amounts falling due after more than one year: Convertible debt (1,966) (1,961) Other - (9) Net assets (762) (68) Capital and reserves Called up shared capital 2,040 2,040 Share premium account 14,654 14,654 Capital reserve 329 329 Accumulated losses (17,785) (17,091) (2,802) (2,108) Equity shareholders' funds (762) (68) As at the 27th March 2000, £1,864,000 of Convertible debt had been converted into £497,000 of Called up share capital and a £1,367,000 increase in Share premium reserve, thereby creating a net asset position. SURGICAL INNOVATIONS GROUP PLC Consolidated cash flow 31 December 31 December 1999 1998 £'000 £'000 £'000 £'000 Net cash outflow from operating (372) (1,025) activities Returns on investments and servicing of finance Interest received 49 71 Interest paid (116) (85) Interest element of finance lease (1) (9) rentals Net cash outflow from returns on investments and servicing of finance (68) (23) Capital expenditure Purchase of tangible fixed assets (117) (107) Sale of tangible fixed assets 7 10 Net cash outflow from capital (110) (97) expenditure Net cash outflow before financing (550) (1,145) Financing Issue of ordinary shares - 2 Issue of debt - 2,000 Expenses paid in connection with debt - (26) issue Principal repayments under finance (81) (130) leases and loans Net cash (outflow)/inflow from (81) (1,846) financing (Decrease)/increase in cash (631) 701

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