Half Yearly Report

RNS Number : 6306A

Surgical Innovations Group PLC

30 September 2015

 



Surgical Innovations Group plc

("SI" or the "Group" or the "Company")

Unaudited Interim Results for the six months ended 30 June 2015

Surgical Innovations Group plc (AIM: SUN), a designer and manufacturer of innovative medical technology in minimally invasive surgery, today announces its unaudited interim results for the six months ended 30 June 2015.

Summary

●     Revenue of £2.60 million (H1 2014: £1.77 million)

●     EBITDA, adjusted to exclude exceptional items, of (£48,000) (H1 2014: £38,000)

●     Gross margin of 8.4% (H1 2014: 47.3%) due to aggressive destocking exercise to release cash

●     Exceptional items of £1.29 million relating to long term debtor provisions, stock provisions, impairment of Intangibles and further restructuring

●     A further £500,000 of convertible loan notes issued to Chris Rea and Getz Bros. providing additional working capital

●     Renegotiation of the covenants relating to the £3 million term loan provided by Yorkshire Bank

●     Cash balance at 30 June 2015 of £1.46 million

Doug Liversidge, Non-Executive Chairman, commented:

"Over the six months, the focus has been on cash generation and margin improvement with the result that the Company is now in a stable situation and has a much reduced cost base.  We are now moving into the second phase of the recovery and, whilst still keeping tight control on costs we have recommenced product development.

"The outlook remains challenging, particularly in respect of profitability, and we expect that the full benefits of all the changes of the last year will not be felt until 2017."

Enquiries:

Surgical Innovations Group plc	0113 230 7597
Doug Liversidge (Non-Executive Chairman)
Melanie Ross (Finance Director)
W H Ireland Limited (Nominated Adviser and Broker)	0113 394 6600
Tim Feather
Liam Gribben

Chairman's statement

This report covers the first full six months following the reorganisation of management and the injection of capital into the Company during the second half of 2014.

Over the six months, the focus has been on cash generation and margin improvement with the result that the Company is now in a stable situation and has a much reduced cost base.  We are now moving into the second phase of the recovery and, whilst still keeping tight control on costs we have recommenced product development.

Financial review

Revenue for the period was up by 47.1% to £2.60 million (H1 2014: £1.77 million).  A major factor in the increase relates to SI Branded Sales which increased by 81.1% from £1.17 million to £2.12 million.

The reported operating loss for the period was £1.83 million (H1 2014: loss of £3.18 million) however the prior half year included £2.61 million of exceptional items compared to £1.30 million in 2015.  EBITDA, adjusted to exclude exceptional items, decreased by £86,000 to a loss of £48,000 (H1 2014: £38,000).  The exceptional items in 2015 related to further debtor and stock provisions, impairment on Intangibles and restructuring costs. 

As a consequence of the increase in revenue and the exceptional items, the reported loss before tax improved to £1.91 million (H1 2014: loss of £3.23 million).  Excluding exceptional items, the loss before tax was marginally lower than the prior period at £612,000 (H1 2014: loss of £619,000).  Basic loss per share was 0.39p (H1 2014: earnings per share of 0.65p).

The loss in the first half is largely a result of the gross margin which was 8.36% (H1 2014: 47.31%).  The focus has been on cash generation, including through a process of substantially reducing inventory levels.  This had had a positive impact on cash, but destocking in this way has a direct, negative impact on profitability as recoveries through manufacturing are reduced.

During the period the Group generated cash from operations of £598,000 (H1 2015: £257,000) which was impacted significantly by reduced inventories of £953,000 (H1 2014: increase of £1.47 million) and an increase in cash from trade payables of £686,000 largely due to cost savings (H1 2014: £252,000). 

Current trading and outlook

As previously announced, the financial performance for 2014 was extremely disappointing.  Whilst 2015 is showing some signs of improvement, the outlook remains challenging, particularly in respect of profitability and we expect that the full benefits of the actions of the past twelve months will not be felt until 2017.

Doug Liversidge CBE

Chairman

30 September 2015

Unaudited consolidated income statement

for the six months ended 30 June 2015

		Unaudited	Unaudited	Audited
		six months	six months	Year
		ended	ended	Ended
		30 June	30 June	31 December
		2015	2014	2014
	Notes	£'000	£'000	£'000
Revenue	2	2,597	1,765	4,029
Cost of sales		(2,380)	(930)	(2,843)
Gross profit		217	835	1,186
Other operating expenses		(2,045)	(4,017)	(10,969)
EBITDA *		(48)	38	(52)
Depreciation and amortisation		(486)	(614)	(1,343)
Exceptional items		(1,294)	(2,606)	(8,388)
Operating loss		(1,828)	(3,182)	(9,783)
Finance costs		(80)	(68)	(183)
Finance income		2	25	137
Loss before taxation		(1,906)	(3,225)	(9,829)
Taxation credit	3	-	564	372
Loss and total comprehensive income for the period attributable to the owners of the parent		(1,906)	(2,661)	(9,457)
Loss per share
Basic	4	(0.39)p	(0.65)p	(2.19)p
Diluted	4	(0.39)p	(0.65)p	(2.19)p

* EBITDA is earnings before interest, depreciation, amortisation and exceptional items.

Unaudited consolidated statement of changes in equity

for the six months ended 30 June 2015

	Share	Share	Capital	Retained
	capital	premium	Reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2015	4,851	1,634	329	(695)	6,119
Issue of shares	-	-	-	-	-
Employee share-based payment options	-	-	-	(175)	(175)
Total - Transaction with owners	4,851	1,634	329	(870)	5,944
Profit and total comprehensive income for the period	-	-	-	(1,906)	(1,906)
Unaudited balance as at 30 June 2015	4,851	1,634	329	(2,776)	4,038

Unaudited consolidated balance sheet

as at 30 June 2015

	Unaudited	Unaudited	Audited
	30 June	30 June	31 December
	2015	2014	2014
	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	1,949	2,475	2,234
Intangible assets	1,476	5,933	1,999
Deferred tax asset	-	2	-
Trade receivables	-	2,150	518
	3,425	10,560	4,751
Current assets
Inventories	2,865	4,127	4,303
Trade receivables	809	3,007	1,281
Other current assets	319	199	261
Cash and cash equivalents	1,457	1,311	678
	5,450	8,644	6,523
Total assets	8,875	19,204	11,274
Equity and liabilities
Equity attributable to equity holders of the parent company
Share capital	4,851	4,442	4,851
Share premium account	1,634	1,509	1,634
Capital reserve	329	329	329
Retained earnings	(2,776)	7,232	(695)
Total equity	4,038	13,512	6,119
Non-current liabilities
Borrowings	3,976	2,972	3,471
Obligations under finance leases	168	366	256
Deferred income - government grant	-	131	-
	4,144	3,469	3,727
Current liabilities
Trade and other payables	157	1,386	779
Deferred income - government grant*	151	-	-
Obligations under finance leases	230	328	282
Accruals	155	509	367
	693	2,223	1,428
Total liabilities	4,837	5,692	5,155
Total equity and liabilities	8,875	19,204	11,274

*Deferred Income moved to Current liabilities from Non-Current Liabilities

Unaudited consolidated cash flow statement

for the six months ended 30 June 2015

	Unaudited	Unaudited	Audited
	six months	six months	year
	ended	ended	ended
	30 June	30 June	31 December
	2015	2014	2014
	£'000	£'000	£'000
Cash flows from operating activities
Operating (loss)/profit	(1,828)	(3,182)	(9,783)
Adjustments for:
Exceptional item	1,331	2,606	8,218
Depreciation of property, plant and equipment	251	224	555
Amortisation of intangible assets	235	390	788
Share-based payment charge	-	80	88
Grant income	(37)	-	-
Loss on disposal of fixed assets	-	-	3
Operating cash flows before movement in working capital	(48)	118	(131)
(Increase)/decrease in inventories	953	(1,457)	(1,945)
(Increase)/decrease in non-current receivables	-	(26)	269
(Increase)/decrease in current receivables	437	1,702	2,117
(Decrease)/increase in trade and other payables	(686)	(252)	(996)
Cash generated from operations	656	85	(686)
Taxation received	-	268	384
Interest paid	(58)	(96)	(183)
Net cash generated from operating activities	598	257	(485)
Cash flows from investing activities
Payments to acquire property, plant and equipment	(43)	(114)	(343)
Acquisition of intangible assets	(157)	(718)	(1,258)
Net cash used in investing activities	(200)	(832)	(1,601)
Cash flows from financing activities Issue of Loan Notes 2017	500		500
Cash received from issue of shares	-	1,578	2,112
Cash received from government grant	37	102	102
New bank loan	-	3,000	3,000
Repayment of obligations under finance leases	(157)	(210)	(366)
Net cash used in financing activities	380	4,470	5,348
Net increase in cash and cash equivalents	779	3,895	3,262
(Net overdraft)/cash and cash equivalents at beginning of period	678	(2,584)	(2,584)
Net cash and cash equivalents/(net overdraft) at end of period	1,457	1,311	678
Analysis of net borrowings:
Cash at bank and in hand	(1,457)	(1,311)	(678)
Bank loan Loan notes 2017	2,976 1,000	2,972	2,971 1000
Obligations under finance leases	399	694	538
Net borrowings at end of period	2,918	2,355	3,831

Notes to the Interim Financial Information

1.      Basis of preparation of interim financial information

The interim financial information was approved by the Board of Directors on 29 September 2015.  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 2014, 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 statements and therefore the interim financial information is not in full compliance with International Financial Reporting 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 defined in section 434 of the Companies Act 2006.  The figures for the year ended 31 December 2014 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.

2.      Segmental reporting

Information reported to the Board and for the purpose of assessing performance and making investment decisions is organised into three operating segments.  The Group's operating segments under IFRS 8 are as follows:

SI Brand - the research, development, manufacture and distribution of SI branded minimally invasive devices.

OEM - the research, development, manufacture and distribution of minimally invasive devices for third party medical device companies through either own label or co-branding.

Industrial - the research, development, manufacture and sale of minimally invasive technology products for industrial application.

The measure of profit or loss for each reportable segment is gross margin less attributable amortisation of goodwill.

Assets and working capital are monitored on a Group basis, with no separate disclosure of asset by segment made in the management accounts, and hence no separate asset disclosure is provided here.  The following segmental analysis has been produced to provide reconciliation between the information used by the key decision makers within the business and the information as it is presented under IFRS.

Six months ended 30 June 2015 (unaudited)	SI Brand	OEM	Industrial	Total
	£'000	£'000	£'000	£'000
Revenue	2,119	478	-	2,597
Result
Segment result	357	95	-	452
Exceptional items				(1,294)
Unallocated expenses				(986)
Loss from operations				(1,828)
Finance costs				(80)
Finance income				2
Loss before taxation				(1,906)
Tax				-
Loss for the period				(1,906)

Included within the segment/operating results are the following significant non-cash items:

	SI Brand	OEM	Industrial	Total
Six months ended 30 June 2015 (unaudited)	£'000	£'000	£'000	£'000
Amortisation of intangible assets	155	81	-	235

Six months ended 30 June 2014 (unaudited)	SI Brand	OEM	Industrial	Total
	£'000	£'000	£'000	£'000
Revenue	1,170	457	138	1,765
Result
Segment result Exceptional items	212	136	124	472 (2,606)
Unallocated expenses				(1,048)
Loss from operations				(3,182)
Finance costs				(68)
Finance income				25
Loss before taxation				(3,225)
Tax				564
Loss for the period				(2,661)

Included within the segment/operating results are the following significant non-cash items:

	SI Brand	OEM	Industrial	Total
Six months ended 30 June 2014 (unaudited)	£'000	£'000	£'000	£'000
Amortisation of intangible assets	327	36	-	363

Year ended 31 December 2014 (audited)	SI Brand	OEM	Industrial	Total
	£'000	£'000	£'000	£'000
Revenue	2,949	818	262	4,029
Result
Segment result	261	(105)	242	398
Unallocated expenses				(10,181)
Profit from operations				(9,783)
Finance income				137
Finance costs				(183)
Loss before taxation				(9,829)
Tax				372
Loss for the period				(9,457)

Included within the segment/operating results are the following significant non-cash items:

	SI Brand	OEM	Industrial	Total
Year ended 31 December 2014 (audited)	£'000	£'000	£'000	£'000
Amortisation of intangible assets	664	124	-	788

Unallocated expenses include those costs that cannot be split between segments and which are not separately analysed in the management accounts including concept department, sales and marketing, and head office overheads.

Geographical analysis

	Unaudited	Unaudited	Audited
	six months	six months	year
	ended	ended	ended
	30 June	30 June	31 December
	2015	2014	2014
	£'000	£'000	£'000
United Kingdom	771	772	1,524
Europe	680	572	1,303
US	758	279	785
Rest of World	388	141	417
	2,597	1,765	4,029

Revenues are allocated geographically on the basis of where revenues were received from and not from the ultimate final destination of use.

3.      Taxation

Due to the additional unrecognised tax losses, we are not recognising a deferred tax asset. The recoverability of the deferred tax asset is dependent on future taxable profits in excess of those arising from the reversal of deferred tax liabilities. The recognition of the deferred tax assets is based upon the estimate of future availability of suitable profits. Certain deferred tax assets and liabilities have been offset.

4.      Earnings per share

	Unaudited	Unaudited	Audited
	six months	six months	year
	ended	ended	ended
	30 June	30 June	31 December
	2015	2014	2014
Earnings per share
Basic	(0.39)p	(0.65)p	0.20p
Diluted	(0.39)p	(0.65)p	0.20p
Adjusted earnings per share
Basic	(0.13)p	(0.01)p	0.25p
Diluted	(0.13)p	(0.01)p	0.24p

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 adjusted earnings attributable to ordinary shareholders as set out below by the weighted average number of shares in issue.

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.

	Unaudited	Unaudited	Audited
	six months	six months	year
	ended	ended	ended
	30 June	30 June	31 December
	2015	2014	2014
	'000s	'000s	'000s
Weighted average number of ordinary shares	485,064	409,528	431,454
Dilutive effect of share options in issue	-	5,316	-
Diluted weighted average number of ordinary shares	485,064	414,844	431,454

Earnings attributable to ordinary shareholders used in the calculation of basic and diluted earnings per share together with a reconciliation to adjusted earnings attributable to ordinary shareholders is as follows:

	Unaudited	Unaudited	Audited
	six months	six months	year
	ended	ended	ended
	30 June	30 June	31 December
	2015	2014	2014
	£'000	£'000	£'000
Profit for the period	(1,906)	(2,661)	(9,457)
Exceptional items	1,294	2,606	8,388
Adjusted profit for the period	(612)	(55)	(1,069)

Adjusted earnings per share has been calculated so as to exclude the impact of exceptional items and a one-off deferred tax adjustment in prior periods which are one-off in nature and thus have a distortive impact on the ordinary calculation of earnings per share.

5.      Related Party Transaction

As previously advised in the annual report for 2014, in accordance with the November 2014 fundraising, we received the additional £500,000 of loan note funding during March 2015, £250,000 each from Mr C J Rea and Getz Bros and Co (BVI) Inc.

The principal amount of the loan notes, together with accrued interest, is due for repayment on 17 November 2017. The interest accruing on the loan notes is 3% per annum until 17 November 2015 and 7.5 % per annum thereafter.

6.      Interim Report

This interim report is available at www.sigroupplc.com.

 

END

 

 

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