Final Results
Surgical Innovations Group PLC
30 April 2007
Press Release 30 April 2007
Surgical Innovations Group plc
('Surgical Innovations' or 'the Group')
Final Results
Surgical Innovations Group plc ('Surgical Innovations' or the 'Group') (AIM:
SUN), the designer and manufacturer of innovative surgical devices, today
reports its final results for the twelve months ended 31 December 2006.
Highlights
• Eighth successive year of record sales, profit and earnings per share
• Pre-tax profits increased substantially, up 98% to £696,000 (2005: £352,000)
• Revenue up by 11% to £4.46 million (2005: £4.02 million)
• Basic earnings per share (EPS) increased by 69% to 0.27p (2005: 0.16p)
• Significant growth in sales of Minimally Invasive Surgery devices (up by 36%)
• US sales focus aided by additional patent clearance and FDA approval
• R&D expenditure increased by 18% to £292,000 (2005: £248,000), representing a
significant investment in the Group's future product range
• Simplification strategy implemented, improving production efficiencies for
2007 and beyond
• Significant contracts already signed in 2007 with Teleflex Medical and
Elemental Healthcare
Commenting on the outlook, Doug Liversidge, Non-executive Chairman, said: 'After
our eighth successive year of record performance, we approach 2007 and beyond
with both enthusiasm and excitement. Fuelled by an ever-strengthening innovation
and intellectual property base, combined with significant new distribution
agreements, the Group looks forward to achieving further improvements in
operating margins and continued business growth.'
- ends -
For further information:
Surgical Innovations Group plc
Graham Bowland, Joint Managing Director Tel: +44 (0) 113 230 7597
graham.bowland@surginno.co.uk www.sigroupplc.com
Hanson Westhouse Limited
Tim Feather / Matthew Johnson Tel: +44 (0) 113 246 2610
tim.feather@hansonwesthouse.com www.hansonwesthouse.com
Media enquiries:
Abchurch
Justin Heath / Gareth Mead Tel: +44 (0) 20 7398 7700
gareth.mead@abchurch-group.com www.abchurch-group.com
CHAIRMAN'S STATEMENT
Introduction
I am delighted to be able to report another year of excellent progress for
Surgical Innovations Group Plc (the Group). For the eighth successive year the
Group achieved a record level of sales, profit and earnings per share (EPS).
The Group's reported sales revenue grew by 11% to £4.46m (2005: £4.02m).
Significantly, sales within our core business of Minimally Invasive Surgery
(MIS) devices rose by 36%. This has encouraged your Board to invest additional
resources in potentially lucrative internal development projects for new
surgical devices.
Importantly, we have been able to deliver an improvement in our MIS operating
margins as a result of our focus on manufacturing processes relating to our
strategic product lines.
The Board has taken the view to capitalise £190,000, of research and development
costs, net of specific grants, as they fulfil the requirements of the relevant
accounting standards.
As a result, pre-tax profits have increased by 98% to £696,000 (2005: £352,000)
which translates into basic EPS growth of 69% to 0.27p (2005: 0.16p).
Business Review
Instrument Division revenue increased by 36% to £3.65m (2005: £2.68m). This
performance is testament to our key product lines; the YelloPort port access
system and the Logic single use scissors range. We are currently focusing our
efforts on the United States laparoscopic market and substantial work has been
undertaken during the year to establish clear routes to market.
Product Development Division revenue totalled £313,000 (2005: £535,000). This
income was generated from clients in both the medical device and industrial
sectors. New customers were secured building upon our success with Rolls-Royce
in 2005. This type of work from external customers can be extremely profitable,
although it remains unpredictable, usually driven by urgent customer needs.
Therefore, we took the decision to invest heavily in the year in internal MIS
product development. Our aim is to build upon our international network of MIS
distributors, with its high demand and enthusiasm for new innovative products.
Royalties from the licensing of EndoFlex to Cardinal Health totalled £249,000, a
decrease of 11% on last year (2005: £281,000). After allowing for adverse
currency exchange rates during 2006, the actual sales value of our licensed
products fell by only 2%. We worked closely with Cardinal Health during the year
to develop an international presence for EndoFlex, utilising our established
distribution partners with a view to sustaining future royalty income. In
addition, we continue to receive a licence fee from Rolls Royce whilst exploring
arrangements for future licence fees and development work from other industrial
companies where our technology may have possible applications.
Our Autologous Blood business was adversely affected during the year by changes
to our external manufacturing arrangements. I am pleased to report that we have
now resolved these issues and we are actively seeking partners to develop a
coherent strategy for both our intra operative and post operative product lines.
Overall the Group has enjoyed a successful year, laying a further platform for
growth in profitability and new product development.
Product Development
2006 saw a renewed focus on the development of devices to complement our
existing MIS product portfolio. During the year our expenditure on research and
development, before government grants of £46,000, increased by 18% to £292,000
(2005: £248,000), representing 6.5% of sales (2005: 6.2%).
The creation of intellectual property is a key element of our investment in
product development. I am delighted that we successfully filed patents on
technology intrinsic to one of our products positioned for launch in 2007. Our
current patent portfolio has enabled us to generate over £2.7m in royalties and
licence fees. It is our intention to aggressively grow and defend our
intellectual property portfolio.
Board of Directors
Our Group Board has worked diligently as a team during the year, and
importantly, the level of support provided by the Non-executives to the
Executive Directors continues to develop in line with the growth of the
business. The Operations Board is now well established and has significant
levels of expertise in all areas of operation of the business.
Employees
The Group is committed to the development and retention of its high calibre
staff, which we believe is the key to achieving the Group's ambitious growth
plans. I am delighted to report that we have recently recruited an experienced
clinical specialist to oversee forthcoming product launches in the United States
and our other overseas markets.
I would like to take this opportunity to thank all staff for their dedication
and support during the year in which we again continued to provide high quality
innovative devices to the surgical profession.
Outlook
Our immediate plans focus on the launch of our products developed during 2006.
The United States is a key market for us and with US Food and Drug
Administration (FDA) approval now received, together with patent clearance, we
are well placed to establish a presence in this dynamic and growing market.
Although I have to report that Aesculap has decided not to renew its OEM
scissors contract with us, such a situation is always a possibility with this
type of business and plans are in hand to mitigate the effects. We recently
signed a £1.15m three year extension to our contract with Teleflex Medical for
distribution of our products in Europe. Furthermore, as part of a review of our
distribution arrangements, we have appointed Elemental Healthcare, through a
£1.74m four year contract, as our distributor in the UK. Negotiations are also
underway with regard to establishing a master dealer for all our business in the
Far East and Indian sub continent, where we believe there is a major opportunity
for our products.
We approach 2007 and beyond with both enthusiasm and excitement. We look
forward to achieving further improvements in our operating margins and the
continuation of growth in the business.
Doug Liversidge CBE
Non-executive Chairman
April 2007
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2006
2006 2005
Notes £'000 £'000
Turnover 4,460 4,018
Cost of sales (2,593) (2,295)
Gross profit 1,867 1,723
Administrative expenses (1,132) (1,322)
Operating profit 735 401
Interest payable (39) (49)
Profit on ordinary activities before taxation 696 352
Tax on profit on ordinary activities - 50
Retained profit 696 402
Basic and diluted earnings per ordinary share 2 0.27p 0.16p
CONSOLIDATED BALANCE SHEET
As at 31 December 2006
2006 2005
Notes £'000 £'000 £'000 £'000
Fixed assets
Tangible fixed assets 784 668
Intangible fixed assets 190 -
974 668
Current assets
Stocks 1,215 852
Debtors 1,729 1,605
Cash at bank 4 25
2,948 2,482
Creditors: amounts falling due within one (1,022) (940)
year
Net current assets 1,926 1,542
Total assets less current liabilities 2,900 2,210
Creditors: amounts falling due after more (101) (116)
than one year
Net assets 2,799 2,094
Capital and reserves
Called up share capital 2,595 2,591
Share premium account 16,106 16,101
Capital reserve 329 329
Accumulated losses (16,231) (16,927)
204 (497)
Shareholders' funds 2,799 2,094
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2006
2006 2005
Notes £'000 £'000 £'000 £'000
Net cash inflow from operating 3 661 279
activities
Returns on investments and
servicing of finance
Interest payable on finance (22) (22)
leases
Interest payable on bank (17) (24)
overdrafts
Interest payable on convertible - (3)
loan notes
Net cash outflow from returns on (39) (49)
investments and servicing of finance
Taxation 3 -
Capital expenditure - purchases of tangible fixed (191) (64)
assets
- purchases of intangible fixed (190) -
assets
Net cash outflow from capital (381) (64)
expenditure
Net cash inflow before financing 244 166
Financing
Issue of share capital 9 -
Receipts from borrowings 66 -
Capital repayments under bank (23) (9)
loans
Capital repayments under finance (152) (109)
leases
Redemption repayments of - (68)
convertible loan notes
Net cash outflow from financing (100) (186)
Increase/(decrease) in cash 4 144 (20)
NOTES TO THE FINANCIAL STATEMENTS
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.
FRS20 has been adopted for the first time this year.
(b) Basis of consolidation
The Group financial statements consolidate those of the Company and of its
subsidiary undertakings drawn up to 31 December 2006. 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 2006 of
£696,000 (2005: £402,000) by the weighted average number of ordinary shares in
issue during the year of 259,300,058 (2005: 258,612,616) and amounted to 0.27p
per share (2005: 0.16p 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
2006 2005
£'000 £'000
Operating profit 735 401
Depreciation of tangible fixed assets 229 216
(Increase)/decrease in stocks (363) 29
Increase in debtors (127) (340)
Increase/(decrease) in creditors 187 (27)
Net cash inflow from operating activities 661 279
4. Reconciliation of net cash flow to movement in net debt
2006 2005
£'000 £'000
Increase/(decrease) in cash in the year 144 (20)
Cash outflow from finance leases and loans 109 118
Cash outflow from loan note redemption - 68
Change in net debt resulting from cash flows 253 166
New finance leases (154) (9)
Issue of shares on conversion of loan notes - 42
Movement in net debt 99 199
Net debt at beginning of year (440) (639)
Net debt at end of year (341) (440)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5. Analysis of changes in net debt
At At
1 January Non-cash 31 December
2006 Cash flow changes 2006
£'000 £'000 £'000 £'000
Cash at bank and in hand 25 (21) - 4
Bank overdrafts (219) 165 - (54)
Bank loan (11) (43) - (54)
Finance leases (235) 152 (154) (237)
(440) 253 (154) (341)
6. The foregoing statements do not constitute the Group's statutory accounts.
The Group's statutory accounts, on which the Group's auditor, Grant Thornton
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
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