Final Results

RNS Number : 7613P

Surgical Innovations Group PLC

31 March 2009

 



Press Release

31 March 2009

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 2008.

Highlights

•	Revenue £4.3 million (2007: £4.8 million)
•	Operating profit increased by 14% to £780,000 (2007: £685,000)
•	Pre-tax profit up increased by 12% to £820,000 (2007: £731,000)
•	Basic earnings per share of 0.17p (2007: 0.24p)
•	Successful transition to new premises, featuring in-house manufacturing facilities enabling more effective and efficient manufacture of products
•	Concluded the initial development of YelloPort Plus port access system, which is poised for global roll out through the current distributor network
•	Established and convened a Clinical Advisory Board to enhance product development
•	Establishment of resposable scissors concept, particularly in US with growing sales

Doug Liversidge, Non-executive Chairman, commented:

'I am pleased we were able to achieve our objectives and return a second half performance that gives the Board confidence for 2009.  Our main objective this year is to develop instrumentation for the next generation of surgical techniques, namely Single Port Access surgery.'

- Ends-

For further information:

Surgical Innovations Group plc
Graham Bowland, Finance Director	Tel: [phone]
[e-mail]	www.surginno.com

Hanson Westhouse Limited
Tim Feather / Matthew Johnson	Tel: [phone]
[e-mail]	www.hansonwesthouse.com

Media enquiries:

Abchurch
Sarah Hollins / Stephanie Cuthbert / Jack Ballantyne	Tel: [phone]
[e-mail]	www.abchurch-group.com

CHAIRMAN'S STATEMENT

Introduction

As highlighted in my interim statement, 2008 was proving to be a challenging year due to the relocation of the business. The Group's objective for the second half of the year was to push forward with our growth plans to ensure we were correctly structured and resourced for 2009, our target year for new product launches.

I am therefore pleased that we were able to achieve our objective and return a second half performance that gives the Board confidence for 2009. Second half sales grew by 48% from the first half of the year, to provide annual sales revenue of £4,312,000 (2007: £4,770,000).  Whilst it is disappointing that we suffered an overall reduction in annual revenue it should be noted that 64% of this reduction relates to non core business. We have made an encouraging start to 2009 and revenues are at their highest levels since formation of the business. 

Our gross margin, for the year which includes royalty income from Cardinal Health on medical devices and the licence fee from Rolls-Royce on industrial products, rose to 53% (2007: 50%). Furthermore, the benefits of our in-house manufacturing and revised product mix resulted in a gross margin of 59% in the second half of the year compared to 44% in the first half. Other operating expenses reduced by £208,000, despite the relocation of the business and the associated increased establishment costs. However, we will need to increase this area of expenditure in the current year to ensure that we are able to provide the appropriate levels of service to our growing customer base and product portfolio.

With net interest receivable of £40,000 we have delivered an increase in pre tax profits of 12% to £820,000 (2007: £731,000). With applicable tax losses within the MIS business now fully utilised, we have a tax charge for the year of £190,000, resulting in retained profits of £630,000 (2007: £765,000).

2008 was a difficult year for the Group and the Board is now looking forward to a period of stability. We have several key objectives for 2009, including the launch of products developed during 2008, a strategic reappraisal of our ABT (Autologous Blood Transfusion) business, and most importantly, a review of our US operations to ensure we maximise the opportunities open to us at this time. Quite frankly, the penetration of our products in the US to date has been below our expectations.

Group Restructure

Following the resignation of Stuart Moran in July 2008 we have restructured the Group to ensure the most efficient use of senior management time and resources. From January 2009 we have been operating with two separate trading companies:

• Surgical Innovations Limited (SI) - design, development, manufacture and sale of devices for both medical and industrial markets. This will include products for both SI and OEM partners  

• Haemocell Limited - autologous blood and associated medical device products 

It is the Board's intention to undertake a reappraisal of the Haemocell business and we will be utilising external resources to develop this strategy. At the end of 2009 we will be in a position to determine whether we remain in this sector and also assess the value of the business.

YelloPort Plus

We have concluded the initial development of our YelloPort Plus port access system and this is now subject to a global roll-out through our current distributor network. As with any new project, following increased usage of the device within the surgical field, there are enhancements and refinements needed and 2008 saw the commencement of these changes. We aim to have these changes completed by June 2009, therefore ensuring the long term success of the device. Sales continued to grow, especially in Europe through our experienced and established distributors. However we have had difficulties in the US, where despite successful product evaluations and investment in clinical support, we have still failed to establish a suitable level of business. We have been in dialogue with our master distributor and await their revised implementation strategy for the product line. YelloPort Plus is the ideal cost effective solution for the US market especially during the current economic downturn where hospitals are looking to save funds on every surgical procedure. It is, therefore, something of a frustration to the Board that we have not seen the returns on our US investment to date and we intend this to be resolved before the end of the current year.

Industrial

The industrial business is centred around the licence agreement with Rolls-Royce and any forthcoming design work, together with an ongoing development project with an international power generation company.  

We have invested our design skills with both companies during the year and look forward to a return on this investment through sales of actual devices derived from the manufactured prototypes. We are confident in the abilities of our design team to deliver working and acceptable solutions to both organisations during 2009.

OEM  

The growth strategy of the business is based upon the distribution of SI branded products through the independent dealer network and the manufacturing of OEM laparoscopic devices. We continue to build relationships with Teleflex Medical, Gyrus, Olympus and Cardinal Health and it is testament to our design and manufacturing skills that we continue to be approached to develop and manufacture products for such highly renowned medical companies.

R&D and New Products

During the year significant investment was made in product development both for the SI distribution network and our OEM partners. We look forward to the imminent European launch of our latest product for obesity surgery together with new instrument technology for a key OEM partner. 

Towards the end of 2008 we began production of two further OEM laparoscopic products. This increase in OEM business is a key part of our overall growth strategy. 

By the end of June 2009 we will have launched improvements to both our resposable YelloPort Plus and disposable Quick range. By the end of the year, the fully reusable Logic range will be redeveloped to provide a more competitive alternative to the current market leaders.  

As previously highlighted, our main objective this year is to develop instrumentation for the next generation of surgical techniques, namely Single Port Access (SPA) surgery. We have already made significant strides in this area and believe we have the technology to deliver commercially viable products in this exciting new development of surgery. 

Clinical Advisory Board (CAB)

To complement and assist our product development programme at the end of 2007 we established a Clinical Advisory Board under the Chairmanship of our eminent founder and non-executive Clinical Director, Professor Mike McMahon. I am delighted to advise that in February 2009 the CAB met for the first time at the new facilities and that the time spent together was a great success. Discussions took place on the Group's development strategy and our move into SPA surgery together with a critical review of our current product portfolio.  

If we are to retain our position as a leading innovator within the laparoscopic sector it is vitally important that we maintain and develop relationships with surgeons. I am most grateful to all members of the CAB for availing us of their valuable time and in particular, Dr. Gary Gecelter for flying over from the US and imparting his extensive knowledge in the SPA surgery field.

Employees

As a consequence of the business relocation we have been able to expand our design and development team and now number a department of twelve out of a current staff level of fifty two. With an in-house manufacturing strategy clearly established, we continue to recruit in this area and in December employed an additional ten colleagues to cope with production requirements. We look forward to the future development of this department with implementation of phases two and three (mill turning and injection moulding) of the manufacturing strategy in 2009 to complement a proposed class 100,000 assembly cleanroom. 

Outlook

Against a reduction in annual revenue I am looking for an immediate return to sales growth in 2009 to complement projected margin improvements through in-house manufacture.

The facilities are now in place, new products are ready for launch and with the current world economic situation, the Group is well placed to take advantage of our established resposable concept. As a company heavily geared to exports, we should continue to benefit from the low value of sterling against the Dollar and Euro. 

Difficult issues need to be addressed in 2009, including our position regarding the ABT business and, most importantly, continuing the challenge of establishing YelloPort Plus in the US market. However, we have made an encouraging start to the new financial year and I look forward to reporting on the interim position later in 2009.

Finally, I would like to take this opportunity to thank all Group employees and my fellow Directors for their continued support and dedication during a year of significant challenges.

Doug Liversidge

Chairman

30 March 2009

CONSOLIDATED INCOME STATEMENT

As at 31 December 2008

		2008	2007
	Notes	£'000	£'000
Revenue		4,312	4,770
Cost of sales		(2,032)	(2,377)
Gross profit		2,280	2,393
Other operating expenses		(1,500)	(1,708)
Operating profit		780	685
Finance costs		(78)	(50)
Finance income		118	96
Profit before tax		820	731
Taxation		(190)	34
Profit for the period		630	765
Earnings per share, total and continuing
Basic	1	0.17p	0.24p
Diluted	1	0.17p	0.23p

The Consolidated income statement above relates to continuing operations

CONSOLIDATED BALANCE SHEET

As at 31 December 2008

		2008	2007
		£'000	£'000
Assets
Non-current assets
Property, plant and equipment		1,343	804
Intangible assets		1,174	587
Deferred tax asset		134	134
		2,651	1,525
Current assets
Inventories		1,716	1,816
Trade receivables		3,164	2,428
Other current assets		344	218
Cash and cash equivalents		3,232	3,386
		8,456	7,848
Total assets		11,107	9,373
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		(14,836)	(15,466)
		8,040	7,410
Non-current liabilities
Bank loans		-	7
Obligations under finance leases		224	40
		224	47
Current liabilities
Bank overdraft and loans		1,537	670
Trade and other payables		787	992
Obligations under finance leases		177	127
Current tax liabilities		164	12
Accruals		178	115
		2,843	1,916
Total liabilities		3,067	1,963
Total equity and liabilities		11,107	9,373

  CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2008

	Year ended	Year ended
	31 December	31 December
	2008	2007
	£'000	£'000
Cash flows from operating activities
Operating profit	780	685
Adjustments for:
Depreciation of property, plant and equipment	187	204
Amortisation of intangible assets	60	10
Operating cash flows before movement in working capital	1,027	899
Decrease / (increase) in inventories	100	(601)
Increase in receivables	(862)	(1,005)
(Decrease) / increase in payables	(142)	329
Cash generated from operations	123	(378)
Interest paid	(78)	(50)
Tax paid	(38)	-
Net cash from / (used in) operating activities	7	(428)
Cash flows from investing activities
Interest received	118	96
Acquisition of non-current assets	(961)	(526)
Net cash used in investment activities	(843)	(430)
Cash flows from financing activities
Net proceeds from share issue	-	3,846
Repayment of bank loans	(25)	(23)
Repayment of obligations under finance leases	(178)	(175)
Net cash used in financing activities	(203)	3,648
Net (decrease) / increase in cash and cash equivalents	(1,039)	2,790
Cash and equivalents at beginning of period	2,740	(50)
Cash and cash equivalents at end of period	1,701	2,740
Cash at bank and in hand	3,232	3,386
Bank overdraft	(1,531)	(646)
Cash and cash equivalents at end of period	1,701	2,740

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

	Share	Share	Capital	Retained
	capital	premium	reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2007	2,595	16,106	329	(16,231)	2,799
Changes in equity for the year to  31 December 2007:
Total recognised income and expense  for the period	-	-	-	765	765
Issue of share capital	1,143	2,857	-	-	4,000
Issue costs	-	(154)	-	-	(154)
Movement in year	1,143	2,703	-	765	4,611
Balance as at 31 December 2007	3,738	18,809	329	(15,466)	7,410
Changes in equity for the year to 31 December 2008:
Total recognised income and expense  for the period	-	-	-	630	630
Balance as at 31 December 2008	3,738	18,809	329	(14,836)	8,040

Notes 

1. Earnings per ordinary share

Basic earnings per ordinary share

The calculation of basic earnings per ordinary share for the year ended 31 December 2008 was based upon the profit attributable to ordinary shareholders of £630,000 (2007: £765,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2008 of 373,841,902 (2007: 323,117,832).

Diluted earnings per ordinary share

The calculation of diluted earnings per ordinary share for the year ended 31 December 2008 was based upon the profit attributable to ordinary shareholders of £630,000 (2007: £765,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2008 of 373,841,902 (2007: 328,326,180).

	2008	2007
Earnings	£'000	£'000
Earnings for the purpose of basic and diluted earnings per ordinary share	630	765

	2008		2007
Weighted average number of ordinary shares	Number		Number
Issued ordinary shares at 1 January	373,841,902		259,556,188
Effect of shares issued in connection with placing	-		63,561,644
Weighted average number of ordinary shares as at 31 December (undiluted)	373,841,902		323,117,832
Dilutive effect of share options in issue	-		5,208,348
Weighted average number of ordinary shares as at 31 December (diluted)	373,841,902		328,326,180
		2008	2007
Basic earnings per share		0.17p	0.24p
Diluted earnings per share		0.17p	0.23p

2.    Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. 

The summarised consolidated income statement, the summarised consolidated balance sheet at 31 December 2008, the summarised consolidated cash flow statement and the statement of changes in equity have been extracted from the Group's statutory financial statements for the year ended 31 December 2008 upon which the auditor's opinion is unqualified and does not include any statement under section 237 of the Companies Act 1985. 

Those financial statements have not yet been delivered to the Registrar of Companies. 

3.    Annual Report and AGM

The Annual Report will be available from the Company's website, www. surginnoir.com and posted to shareholders by 27 April 2009. The Annual Report contains notice of the Annual General Meeting of the Company which will be held at 2.00 p.m. on 20 May 2009 at Clayton Wood House, 6 Clayton Wood Bank, Leeds LS16 6QZ.

 

END

 

 

FR SDMFASSUSESD