TIDMSUN
RNS Number : 1366I
Surgical Innovations Group PLC
31 March 2020
Surgical Innovations Group plc
("SI" or the "Group")
Final Results
Audited results for the year ended 31 December 2019
and update on the effects of Covid-19 pandemic
Surgical Innovations Group plc (AIM: SUN), the designer,
manufacturer and distributor of innovative medical technology for
minimally invasive surgery, reports financial results for the year
ended 31 December 2019 in line with expectations and provides an
update on the effects of the Covid-19 pandemic.
Revenues in the second half of the year were up by approximately
10% compared with the first half, and gross margins, adjusted
pre-tax profits and cash conversion were within target range. In
October 2019, the Group repaid GBP1.0m of its term loan early, and
the net cash* balance at the year-end was GBP0.47m (2018:
GBP0.38m).
Financial Highlights:
-- Revenues of GBP10.73m (2018: GBP10.97m)
-- Gross margin within target range at 40.4% (2018: 42.6%)
-- Impairment of goodwill (GBP1.63m) and intangible development costs (GBP0.63m)
-- Adjusted** PBT of GBP0.38m (2018: GBP1.43m), reported loss
before taxation GBP2.60m (2018: PBT of GBP0.52m)
-- Adjusted** EPS of 0.05p (2018: 0.21p), reported EPS of negative 0.33p (2018: positive 0.09p)
-- Cash conversion of adjusted operating profit of 127% (2018: 118%)
-- Closing net cash* of GBP0.47m (2018: GBP0.38m)
* Net cash comprises cash and cash equivalents of GBP1.28m less
bank indebtedness of GBP0.81m.
** Adjusted operating margin, PBT & EPS stated before
deduction of exceptional costs, impairment of intangibles &
amortisation relating to acquisition, and share based payment
costs.
Effects of Covid-19 pandemic
The Board anticipate significant short-term reductions in
revenues in the current year as a result of the Covid-19 pandemic,
as elective surgery in the UK and several other territories has
been, or is expected to be, suspended. The Group has diverse
geographical dispersion of markets, and has been assured of support
from a number of key customers to maintain activity during this
downturn.
Management have taken decisive action to protect the welfare of
employees, whilst continuing to meet the needs of our customers in
the UK and overseas. Production activity has been condensed to
match visible demand, and appropriate measures taken to reduce
operating costs and manage immediate cash flows. We will continue
to take all steps possible in these challenging circumstances, and
ensure that all support mechanisms available to our company from
outside agencies are accessed, in order to preserve value and
capability, and ameliorate the impact on the business, its
workforce and our customers and partners.
Our bankers have moved extremely quickly in providing short-term
relief from capital repayments and covenant compliance, and stand
willing to support our immediate liquidity. In addition, we have
received expressions of support from selected institutional
shareholders.
Accordingly, the Directors have concluded that it continues to
be appropriate to prepare the Annual Report and Accounts on a going
concern basis, whilst acknowledging the material uncertainty that
now exists and has been explained in this announcement and the
annual report and accounts.
Chairman of SI, Nigel Rogers, said:
"Our product ranges are becoming increasingly recognised as a
key part of a sustainable approach to surgery, and this offers
significant medium term growth potential. Our business has net cash
and is operationally sound. We have strong partnerships with the
NHS, our major distributors, OEM customers and key vendors, based
on mutual co-operation and shared success.
"Accordingly, the Board remain confident that, following an
inevitable period of serious disruption requiring careful
navigation, there continues to be strong recovery and growth
drivers within our market, indicating that the medium to long term
outlook is positive."
A copy of this announcement, the investor presentation of these
results and the Annual Report and Accounts are all being made
available shortly on the Group's website:
https://www.sigroupplc.com/
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
For further information please contact:
Surgical Innovations Group plc www.sigroupplc.com
Nigel Rogers, Chairman Tel: 0113 230 7597
David Marsh, CEO
N+1 Singer (NOMAD & Broker) Tel: 020 7496 3000
Aubrey Powell (Corporate Finance)
Rachel Hayes (Corporate Broking)
Walbrook PR (Financial PR & Investor Tel: 020 7933 8780 or si@walbrookpr.com
Relations)
Paul McManus Mob: 07980 541 893
Lianne Cawthorne Mob: 07584 391 303
Notes for editors:
About Surgical Innovations Group plc
Strategy
The Group specialises in the design, manufacture, sale and
distribution of innovative, high quality medical products,
primarily for use in minimally invasive surgery. Our product and
business development is guided and supported by a key group of
nationally and internationally renowned surgeons across the
spectrum of minimally invasive surgical activity.
We design and manufacture and source our branded port access
systems, surgical instruments and retraction devices which are sold
directly in the UK home market through our subsidiary, Elemental
Healthcare, and exported widely through a global network of trusted
distribution partners. Many of our products in this field are based
on a "resposable" concept, in which the products are part
re-usable, part disposable, offering a high quality and
environmentally responsible solution at a cost that is competitive
against fully disposable alternatives.
Elemental also has exclusive UK distribution for a select group
of specialist products employed in laparoscopy, bariatric and
metabolic surgery, hernia repair and breast reconstruction.
In addition, we design and develop medical devices for carefully
selected OEM partners, and have also collaborated with a major UK
industrial partner to provide precision engineering solutions to
complex problems outside the medical arena.
We aim for our brands to be recognised and respected by
healthcare professionals in all major geographical markets in which
we operate and provide by development, partnership or acquisition a
broad portfolio of cost effective, procedure specific surgical
instruments and implantable devices that offer reliable solutions
to genuine clinical needs in the operating theatre environment.
Operations and management
The Group currently employs approximately 100 people across two
sites in the UK. Product design, engineering and manufacturing are
carried out at the SI site in Yorkshire. Commercial activities
including marketing, UK distribution and international sales and
marketing are based at Elemental Healthcare in Berkshire.
Further information
Further details of the Group's businesses are available on
websites:
www.sigroupplc.com
www.surginno.com , and
www.elementalhealthcare.co.uk
Investors and others can register to receive regular updates by
email at si@walbrookpr.com
Surgical Innovations Group plc
Strategic Report
For the year ended 31 December 2019
Chairman's Statement
I am pleased to report improved results in the second half of
what turned out to be a more challenging year than we had
anticipated. Management were faced with some difficult conditions
and uncertainties, mostly in relation to planning for Brexit,
building up the regulatory resource to meet an ever increasing
burden, and a continuation of funding and resource constraints in
the NHS. Much has been achieved towards building strong foundations
for a return to growth, and we believe that the environmental and
economic credentials of many of our products are winning acceptance
to a degree not previously experienced.
The results for the year were in line with the Board's
expectations, and since the year end we have continued to be cash
generative. In the final quarter of 2019, the Group concluded
agreements to extend important contractual relationships, including
the manufacture of the Fix-8 device for Advanced Medical Solutions
plc until June 2024, and the exclusive UK distribution of the
Dexter robot for Distalmotion SA until October 2022.
Subsequent to the year-end, we currently face unprecedented
uncertainty as a consequence of the Covid-19 pandemic and its
effects on elective surgery, and are planning for the short-term
disruption to our business to be severe. We have a highly capable
management team and a committed workforce, who are quickly
adjusting to these extraordinary challenges, and dealing with
problems promptly and effectively as they arise. In addition, our
key trading partners, bankers and selected institutional
shareholders are already providing indications of support, and the
Board believes that Government measures already announced will make
a significant difference in alleviating the worst effects of the
sudden downturn.
Financial Overview
Revenue for the second half of the year was 10% higher than the
first half, and the total for the full year reduced marginally to
GBP10.73m (2018: GBP10.97m).
Market conditions continued to be challenging in the UK for much
of the year, with NHS waiting lists for elective surgery increasing
in both quantum and duration. Sales in Asia Pacific showed a
decline, although this was largely due to unusually high revenues
in 2018 relating to changes in route to market. This weakness was
partly offset by growth in USA and Rest of World regions. European
sales fell slightly, although to a lesser extent than expected
given delays in the availability of fully disposable products due
to continuing regulatory bottlenecks.
Gross margin for the year held within target range at 40.4%
(2018: 42.6%), although a controlled de-stocking exercise commenced
in the final quarter of the year following the reduced risk of a
no-deal Brexit. This affected the overall result by around 2% as a
consequence of reduced factory output. Other income in 2018 related
to compensation for the early termination of a distribution
contract and was non-recurring.
Operating expenses, excluding depreciation and amortisation,
impairment of intangibles, exceptional costs and share based
payments, increased by approximately GBP0.35m, resulting in
Adjusted EBITDA* of GBP1.45m (2018: GBP2.36m), and Adjusted PBT* of
GBP0.38m (2018: GBP1.43m).
Exceptional items relate to payments made to a former Director
in relation to termination, and abortive acquisition costs
totalling GBP0.18m (2018: nil).
Transition to IFRS 16 has been applied using the "modified
retrospective" transition approach. As a result the comparative
information is not on a like-for-like basis in respect of the
treatment of leases. The adoption of IFRS 16 leads to an increase
in cost of GBP0.04m for the year to 31 December 2019, reflecting
depreciation and interest charges of GBP0.28m being GBP0.04m higher
than the lease expenses which would have been recorded prior to the
adoption of the new standard. At EBITDA level, the adoption of IFRS
16 gives a benefit of GBP0.25m being the elimination of the rental
charges.
Cash conversion was good, leading to net cash at the year-end of
GBP0.47m (2018: GBP0.38m).
*Reconciliation of adjusted KPI measures included in the
Operating and Financial Review below.
Brexit Planning
During the year, the business executed contingency arrangements
to de-risk in the event that the UK exited the EU on 29 March 2019
without reaching an appropriate withdrawal agreement, only to
repeat the exercise in October.
The additional working capital investment incurred in inventory
was largely unwound by the end of the year. There continues to be
some uncertainty regarding the conduct of trade with EU member
states following the end of the transitional period, although there
is a reasonable expectation that medical devices will be traded
with minimal regulatory divergence or delays.
Coronavirus
The speed and extent to which the Covid-19 pandemic has taken
hold in Europe and North America greatly exceeds what might have
been expected earlier this month. Whilst there is no evidence at
present of any significant delays or other disruption to the supply
chain for components or distribution products into the UK, we must
anticipate that these are likely to become problematic, and we are
working closely with our key vendors to optimise deliveries based
on latest forecasts. Management are continuing to monitor security
of supply of critical items very closely.
The anticipated effect of more widespread coronavirus infection
in key end user markets is now becoming more apparent, as hospitals
rightly free up capacity to cope with seriously ill patients. These
necessary actions will inevitably lead to delays and cancelation of
routine surgical procedures such as those announced in the NHS over
the last week. Management have devised a series of mitigating
actions, designed to preserve cash resources, maintain delivery of
essential products to our customers and distributors, and protect
our workforce from the health risks and economic impact. We will
continue to take all steps possible in these challenging
circumstances, and ensure that all support mechanisms available to
our company from outside agencies are accessed, in order to
preserve value and capability, and ameliorate the impact on
business, its partners and customers, and our workforce.
Further commentary to the these uncertainties are set out in the
section entitled 'Principal risks and uncertainties' in the
Operating and Financial review.
Environmental and economic considerations
Despite the current climate outlined above, senior management,
procurement and clinicians within our customer base are becoming
increasingly aware that our resposable product ranges (which are
part re-usable, part disposable) offer a dramatic reduction in
clinical waste, are cost effective when compared with expensive
fully disposable alternatives, and have a very low impact on the
environment. The NHS has actively encouraged suppliers to join a
national campaign to turn the tide on plastic waste. Our resposable
product ranges were recently showcased at the NHS Sustainability
Campaign roadshow in Manchester, where recognition was acknowledged
of their suitability as a key part of the 'For a Greener NHS'
agenda. We firmly believe that such initiatives will become more
widespread once normality is restored, and will present a major
opportunity to significantly increase our market share in the UK
and internationally. There has been a similar reaction to the
compelling business case surrounding both sustainability and
economy through distribution partners in some of our key markets,
notably the US and Japan, where evaluations and planning for market
roll out are underway, albeit the launch timing of which is
uncertain due to the pandemic.
Acquisition activity
Management have rightly maintained primary focus on optimising
the commercial and operational aspects of current business streams
over acquisition activity during the year. Although a select number
of targets have been evaluated and not progressed, we will continue
to seek businesses which offer complementary opportunities to
accelerate the rate of growth of the Group's activities, either
through new products and/or geographies. Understandably, however,
we do not expect any significant activity to be likely in coming
months.
People
Following changes in Board structure last year, there have been
a number of key appointments to the senior management team, each of
whom have made a significant contribution to the strengthening of
the business. On behalf of the Board, I recognise that the success
of the Group relies upon the dedication and professionalism of all
of our people, and applaud their enduring commitment. Current
events are testing their resilience beyond a level seen before, and
the Board is both proud and grateful for the progress being made in
such adversity.
Going Concern and funding
Prior to the substantial impact of Covid-19 on the entire
business community, the Directors had carried out an evaluation of
financial forecasts, sensitised to reflect a rational judgement of
the level of inherent risk. This exercise concluded that adequate
financial resources were available to ensure that the Company could
meet its obligations for a twelve month period with reasonable
certainty. It has subsequently become clear that there will need to
be reliance upon outside agencies including the UK Government,
Yorkshire Bank and possibly others, to ensure that these conditions
continue to apply.
This fundamental uncertainty will be common, in varying degrees,
to almost all businesses in every sector. It is premature to be
able to determine with precision the level of support that may
ultimately be required, as events are moving rapidly. Our bankers
have moved extremely quickly in providing short-term relief from
capital repayments and covenant compliance, and stand willing to
support our immediate liquidity requirements. These actions are an
important precursor to enabling access to funding through the
Coronavirus Business Interruption Loan Scheme in coming weeks.
Furthermore, the announcements by the Chancellor of the Exchequer
on 20 March 2020 relating to various forms of government assistance
will provide substantial help. In addition, we have received
expressions of support from some of our key trading partners and
institutional shareholders.
Accordingly, the directors conclude that it continues to be
appropriate to prepare the Annual Report and Accounts on a going
concern basis, whilst acknowledging the material uncertainty that
now exists and has been explained in this statement and further
described in the principal risks and uncertainties, the directors
report and in the financial statements disclosure note 21.
Current trading and outlook
UK revenues in the current year to date have started to show
signs of a slowdown in elective surgery within the NHS, although
other key markets are not yet showing any similar effects. This
will undoubtedly accelerate rapidly as the impact of the pandemic
is fully recognised, and we are preparing to respond to these
unprecedented conditions.
Our product ranges are becoming increasingly recognised as a key
part of a sustainable approach to surgery, and this offers
significant medium term growth potential. Our business is
unleveraged and operationally sound. We have strong partnerships
with our major distributors, OEM customers and key vendors, based
upon mutual cooperation and shared success.
Accordingly, the Board remain confident that, following an
inevitable period of serious disruption requiring careful
navigation, there continues to be strong recovery and growth
drivers within our business, indicating that the medium to long
term outlook is positive.
Nigel Rogers
Chairman
31 March 2020
Operating and Financial Review
Key Performance Indicators
The Group considers the key performance indicators of the
business to be:
2019 2018 Target Measure
Underlying Revenue Adjusted for the effect
Growth of acquisition -2.2% 12.0% >8%
-------------------------- ---------- ---------- ----------------
Gross Profit Margin Gross profit / revenue 40.4% 42.6% >40%
-------------------------- ---------- ---------- ----------------
Adjusted Operating Adjusted operating
Margin profit / revenue 5.0% 13.9% >12%
-------------------------- ---------- ---------- ----------------
Cash generated from
operations / adjusted
Cash conversion operating profit 127% 118% >85%
-------------------------- ---------- ---------- ----------------
Net Cash/(Net Debt) Cash less debt GBP0.47m GBP0.38m N/A
-------------------------- ---------- ---------- ----------------
Reconciliation of adjusted KPI/ measures
EBITDA* Operating Profit Profit before
taxation
As reported GBP1.08m GBP(2.44)m GBP(2.60)m
---------- ------------------ ---------------
Amortisation of intangible - GBP0.35m GBP0.35m
acquisition costs
---------- ------------------ ---------------
Impairment of product development - GBP0.63m GBP0.63m
intangibles
---------- ------------------ ---------------
Impairment of Goodwill - GBP1.63m GBP1.63m
---------- ------------------ ---------------
Share based payments GBP0.19m GBP0.19m GBP0.19m
---------- ------------------ ---------------
Exceptional items GBP0.18m GBP0.18m GBP0.18m
---------- ------------------ ---------------
Adjusted Measure GBP1.45m GBP0.54m GBP0.38m
---------- ------------------ ---------------
Earnings Per Share EPS
Basic EPS (0.33)p
------------
Loss attributable to shareholders (GBP2.62m)
------------
Add: Share based payments GBP0.19m
------------
Add: Amortisation of intangible GBP0.35m
acquisition costs
------------
Add: Exceptionals GBP0.18m
------------
Add: Impairment of product development GBP0.63m
intangibles
------------
Add: Impairment of Goodwill GBP1.63m
------------
Adjusted profit attributable to GBP0.36m
shareholders
------------
Adjusted EPS 0.05p
------------
*EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation (including impairment). EBITDA is
calculated as operating profit of GBP(2.44)m adding back
depreciation GBP0.62m, amortisation GBP0.64m and impairment
GBP2.25m.
Use of adjusted measures
Adjusted KPIs are used by the Group to understand underlying
performance and exclude items which distort comparability, as well
as being consistent with broker forecasts and measures. The method
of adjustment is consistently applied but may not be comparable
with those used by other companies.
Adjusted measures do not take precedence over the IFRS measures.
The company has elected to apply IFRS16 using the modified
retrospective approach. The accounts are not restated and IFRS
figures and Adjusted profit measures are not comparable to the
prior year. At EBITDA level, the adoption of IFRS 16 gives a
benefit of GBP0.25m being the elimination of the rental
charges.
Revenue and margins
Revenues reduced by 2% to GBP10.73m (2018: GBP10.97m). Gross
margins remained within target range at 40.4% of revenue (2018:
42.6%) with the slight reduction attributable to reduced factory
activity in the final two months of the year to facilitate modest
de-stocking.
GBPm 2019 2018 % change
SIBrand 5.84 6.09 - 4%
======= ======= ==================================
Distribution 3.10 3.04 +2%
======= ======= ==================================
O E M 1.79 1.84 - 3%
======= ======= ==================================
Total 10.73 10.97 - 2%
======= ======= ==================================
Revenues from the sale of Surgical Innovations Brand products
reduced by 4% during the year overall. Market conditions showed no
significant improvement in the UK, however there is clear evidence
of political will to provide more favourable long term funding for
health and social care in coming years. Sales in Continental Europe
steadied after declining in the prior year, as distributors began
to make headway introducing YelloPort Elite , our next generation
Resposable(R) port access system for use in minimally invasive
surgery (MIS), to replace fully disposable competitor products.
SI Brand sales in the US grew by 9%, mostly as a result of
significant gains in market share for surgical scissors. YelloPort
Elite will launch fully in the US market in the current year
following FDA approval last year.
SI Brand revenues from the APAC region showed a reduction,
although this was largely a consequence of timing differences
resulting from structural changes to our distribution arrangements.
Strong growth is anticipated in the current year, led by Japan. SI
brand sales in the Rest of the World was up by 17%. SI brand is
experiencing strong growth in South Africa where a new distributor
was appointed at the end of 2019 and is anticipated in the Middle
East where three new distributors have been appointed.
OEM revenues showed a small reduction in the year, with both
precision engineering (non-medical) and medical virtually
unchanged. We anticipate growth in medical OEM sales in the current
year, but at this early stage have no visibility of further
precision engineering revenues.
Distribution sales grew by 2% year on year which reflected a
continuation of constrained activity levels in the NHS, especially
for elective procedures. We are expecting an improvement in the
hospital bed situation over the course of 2020 which will allow
more elective operations as a consequence of increased funding. The
drive for a more sustainable healthcare system, encapsulated in the
Greener NHS agenda, is very beneficial for the range of
distribution products and the Group is engaged at the highest
levels of the NHS in encouraging the adoption of its Resposable(R)
distribution products.
Adjusted EBITDA
The adjusted EBITDA is a measure of the business performance.
The Group uses this as a proxy for understanding the underlying
performance of the Group. This measure also excludes the items that
distort comparability including the charge for share based payments
as this is a non-cash expense normally excluded from market
forecasts.
Adjusted EBITDA decreased to GBP1.45m (2018: GBP2.36m), mainly
as a result of additional operating overheads to strengthen the
operational capabilities of the business, and particularly to meet
the regulatory demands of transition from the EU Medical Device
Directive to Medical Device Regulation 2017/745. The reported
operating result was a loss of (GBP2.44m) (2018: profit of
GBP0.62m), with an adjusted operating profit of GBP0.54m (2018:
GBP1.53m), before deduction of exceptional costs, amortisation
relating to acquisition, impairment of intangible assets and share
based payments, and an adjusted operating margin of 5.0% (2018:
13.9%).
Capital expenditure on tangible assets continued to reflect a
policy of required replacement only during the year at GBP0.20m
(2018: GBP0.09m) set against a depreciation charge of GBP0.42m
(2018: GBP0.48m). Whilst there are no major capex plans currently
in place, several improvements to the manufacturing facilities were
implemented in Leeds in 2019 and further modest expenditure is
expected this year.
Interest on bank and finance lease obligations for 2019 resulted
in net interest payable of GBP0.16m (2018: GBP0.11m). During the
year the company repaid GBP0.30m of bank indebtedness in accordance
with the original repayment schedule, and also prepaid a further
GBP1.0m on the 31 October not due until July 2022.
Following an impairment review of the goodwill arising on the
acquisition of Elemental Healthcare, an impairment charge of
GBP1.63m was recongnised in the period. The trading environment in
the UK market has become more challenging during 2019, due to both
a progressive tightening of NHS funding for elective surgery as
well as the extended time taken to rebuild the distribution sales
of Cellis branded products. A number of the latter were due for
imminent launch, which has been delayed. Accordingly, the Directors
have adopted a cautious approach to forecasting future net inflows
for this cash generating unit.
Subsequent to the year end, the potential effects of the
Covid-19 outbreak and consequential impact on the availability of
NHS resources may have a further and more significant impact on the
Directors' view of short to medium term cash flows. This has not
yet been quantified, as there is insufficient data on which to base
such a judgement. Nevertheless, it is recognised by the Directors
that further impairment is likely to be necessary in 2020,
therefore a non-adjusting post balance sheet event has been
recognised. The financial effect of this adjustment cannot be
estimated.
Development expenditure was tested for impairment and given the
resource contraints, complexity of developing a device and
regulatory challenges, particually in relation to the Medical
Devices Regulation (MDR) transition, an impairment of GBP0.63m
(2018:nil) has been recognised.
The Group recorded a corporation tax credit of GBP0.001m (2018:
credit of GBP0.03m) and a deferred tax charge of GBP0.02m (2018:
credit GBP0.18m). The tax credit represents an enhanced Research
and Development claim in respect of 2017, electing to exchange tax
losses for cash refunds. The tax charge on Elemental Healthcare has
been relieved through Group losses. Overall the Group continues to
hold substantial tax losses on which it holds a cautious view, and
consequently the Group has chosen not to recognise those losses
fully. During the year the Group submitted an enhanced Research and
Development claim in respect of 2018. This claim has been offset
against taxable profits during 2018.
Trade receivables were lower at the year end than 2018,
reflected by a timing difference relating to changes in route to
market in the f inal months of the prior year. Inventories were
higher at GBP2.9m compared to GBP2.0m in 2018. Stock holdings
increased during 2019 to ensure safety stocks supported incremental
customer requirements; however, as revenue expectations
subsequently decreased, stock holdings were affected. A controlled
de-stocking exercise commenced in the final quarter of the year and
will continue throughout 2020. Trade creditors decreased only
slightly over the same period, which reflected the Group's
continued approach towards managing working capital.
The Group generated cash from operations of GBP0.59m (2018:
GBP1.65m) at a conversion rate of adjusted operating profit at 128%
(2018: 118%) primarily as a result of the working capital movements
described above. The Group closed the year with net cash balances
of GBP0.47m compared with opening net cash of GBP0.38m.
Transition to IFRS16
The adoption of this new Standard has resulted in the Group
recognising a right-of-use asset and related liability in
connection with all former operating leases with the exception of
those identified as low-value or having a remaining lease term of
less than 12 months from the date of initial application.
The new standard has been applied using the "modified
retrospective" transition approach. There is no adjustment to the
opening balance of retained earnings for the current period however
reclassifications arising from the new standard have been
recognised in the opening balances as at 1 January 2019. Prior
periods have not been restated, as permitted under the specific
transitional provisions in the standard.
Prior to the adoption of IFRS 16 rental payments were charged to
the income statement on a straight-line basis, under IFRS 16 rental
charges in the income statement are replaced with depreciation on
the right-of-use asset and interest charges on the lease liability.
The adoption of IFRS 16 therefore gives rise to a net cost of
GBP0.04m in the twelve months to 31 December 2019, reflecting
depreciation and interest charges of GBP0.28m being GBP0.04m higher
than the net rental charges which would have been incurred prior to
the adoption of the new standard. At EBITDA level, the adoption of
IFRS 16 gives a benefit of GBP0.25m being the elimination of the
rental charges.
Amount due from associate
In 2020, an agreement , subject to contract, will allow all the
costs incurred via the amount due from associate, Illuminno Ltd
GBP0.17m (2018: GBP0.08m) to be re-imbursed to the Group and once
legally binding, the costs in Illuminno Ltd will be transferred on
the balance sheet as intangible product development costs.
Principal risks and uncertainties
The management of the business and the nature of the Group's
strategy are subject to a number of risks which the Directors seek
to mitigate wherever possible. The principal risks are set out
below.
Issue Indication of risk on Risk and description M iti gating actions
prior year
Funding risk Remains the same The Group currently has a Liquidity and covenant
mixture of borrowings compliance is monitored
comprising a GBP0.8m loan carefully across varying
and a GBP0.5m rolling time horizons to facilitate
credit facility. The Group short term management and
remains dependent upon the also strategic planning.
support of these funders This monitoring enables the
and there is management
a risk that failure, in team to consider and to
particular to meet take appropriate actions
covenants attaching to the within suitable time
rolling credit facility, frames.
could have severe financial
consequences for the Group. In March 2020, the funder
agreed to convert the
existing loan with a three
year committed
Revolving Credit Facility
("RCF") with additional
headroom, a facility limit
of GBP1m, and
less stringent covenants
than the current
facilities. This agreement
was made with credit
approval and full knowledge
of the considerable
challenge presented by
Covid-19. In the event,
the company decided not to
proceed with this change,
and instead agreed with the
funder to
accept a temporary waiver
of all covenants at 31
March 2020, and relief from
the capital repayment
of GBP75,000 due in March
2020.
The funder has indicated
that they are not aware
of any reason why the offer
to convert to RCF at a
later date would not be
made available,
but that fresh credit
approval would be required.
Furthermore, the funder has
confirmed that
they are supportive of
acting as a conduit to
channel additional
liquidity to the company
under the auspices of the
Coronavirus Business
Interruption Loan Scheme
which the company
considers may offer
advantages over the
proposed move to the RCF.
Finally, the company has
received an unsolicited
indication of support from
a substantial
institutional shareholder,
although this is not
binding at this early
stage, and no proposal
has been formulated.
============================ ============================ ============================
Covid-19 and business Increased The recent escalation in All government guidance has
interruption the spread of Covid-19 in been monitored closely and
the UK poses a threat to followed immediately by
the continuation advisory notices
of business operations if to all employees, and
there is a widespread provision of the
infection in any of our appropriate guidance and
facilities or amongst cleaning materials to
the workforce. minimise
any effect.
Where staff members or
their close contacts have
presented with symptoms
they have been asked
to self-isolate away from
company premises and inform
us quickly of any contact
with other
employees which may be
cause for concern.
Recent government
information also provides
for relief from a
substantial portion of the
wage
costs of any staff members
on sick leave, in
self-isolation, or
furloughed due to a
diminution
in their current workload
as a consequence of
Covid-19.
Management have devised a
series of mitigating
actions, designed to
preserve cash resources
and maintain delivery of
essential products to our
customers and distributors.
============================ ============================ ============================
C ustomer concentration Remains the same The Group exports to over The majority of
thirty countries and distributors, including the
distributors around the most significant, are well
world, but certain established and their
distributors are material relationship with the Group
to the financial spans many years. Credit
performance and position of levels and cash collection
the Group. As disclosed is closely
in note 2 to the financial monitored by management,
statements, one customer and issues are quickly
accounted for 11.4% of elevated both within the
revenue in 2019 Group and with the
and the loss, failure or distributor.
actions of this customer
could have a severe impact
on the Group.
============================ ============================ ============================
Fore i gn ex change risk Remains the same The Group's functional The Group monitors currency
currency is UK Sterling; exposures on an on-going
however, it makes basis and enters into
significant purchases in forward currency
Euros and US Dollars. arrangements where
considered appropriate to
The US Dollars are mitigate the risk of
mitigated by US Dollar material adverse movements
sales by creating a natural in exchange rates impacting
hedge. The Group upon the business. Euro and
transferred US Dollar cash balances are
their Euro customers onto a monitored
Euro based pricing regularly and spot rate
structure in 2018 to sales into sterling are
mitigate risk by again, conducted when significant
creating a natural hedge. currency deposits
have accumulated. The
accounting policy for
foreign exchange is
disclosed in accountancy
policy
1d.
============================ ============================ ============================
Regulatory approval Remains the same As an international The Group has a dedicated
business, a significant Quality department which
proportion of the Group's assists product development
products require teams with
registration support as required to
from national or federal minimise the risk of
regulatory bodies prior to regulatory approval not
being offered for sale. The being obtained on new
majority of products and ensures that
our major product lines the Group operates
have FDA approval in the US processes and procedures
and we are therefore necessary to maintain
subject to their relevant regulatory
audit and inspection of our approvals.
manufacturing facilities.
Whilst there is no
There is no guarantee that guarantee that this will be
any product developed by sufficient, the Group has
the Group will obtain and invested in people
maintain national with the appropriate
registration or that the experience and skills in
Group will always pass this area which mitigates
regulatory audit of its this risk significantly.
manufacturing processes.
Failure to do so could have
severe consequences upon
the Group's ability to sell
products
in the relevant country.
============================ ============================ ============================
Brexit Reduced The Group exports to a The Group has successfully
number of different reassigned all of the
countries with sales to Company's product
Europe accounting for 11.9% certifications from BSI
of 2019 revenue. As well as Notified Body 0086 (UK) to
exporting, the Group BSI Netherlands Notified
imports goods both for Body 2797, in order to
re-sale through mitigate any risk
Distribution to regulatory clearance
revenue, as well as some both in the EU and in the
raw materials used in UK.
manufacturing.
Any risk to a delay in
Although the UK has now supply chain has also been
exited the EU, the current mitigated by the successful
trade rules remain in place application
until the of Approved Economic
end of the transition Operator Status, which we
period on 1 January 2021. received in March 2019.
Dependent on the
arrangements made between In addition to the above, a
the UK and EU following contingency plan has been
this period, this could implemented to increase
pose risks of delayed inventory levels
customs clearance which to ensure any delays caused
could in turn have a by increased customs
negative impact on the clearance will not impact
Group's supply chain. the Group's supply
chain.
============================ ============================ ============================
Key: Risk levels on prior year
Increased Risk increased on prior year
Remains the same Existing risk remains at the same
level from prior year
-----------------------------------
Reduced Risk has reduced from prior year
-----------------------------------
G oing con c ern
The Directors have prepared forecasts for the period to March
2021. Prior to the substantial impact of Covid-19 on the entire
business community, the directors had carried out an evaluation of
financial forecasts, sensitised to reflect a rational judgement of
the level of inherent risk. This exercise concluded that adequate
financial resources were available to ensure that the Company could
meets its obligations for a twelve month period with reasonable
certainty. It has subsequently become clear that there will need to
be reliance upon outside agencies including the UK Government,
Yorkshire Bank and possibly others, to ensure that these conditions
continue to apply.
As at period end, the Group had access to banking facilities,
which comprised a committed GBP0.5m revolving credit facility. Hire
purchase agreements are utilised where required. The revolving
credit facility of GBP0.5m may be used towards meeting the Group's
general working capital and other commitments. It is subject to
compliance with financial covenants which measure the ratio of
cashflow to debt service and EBITDA. In March 2020, the funder
agreed to convert the existing loan facility into a three year
committed Revolving Credit Facility ("RCF") with additional
headroom,a facility limit of GBP1m, and less stringent covenants
than the current facilities. This agreement was made with credit
approval and full knowledge of the considerable challenge presented
by Covid-19. In the event, the company decided not to proceed with
this change, and instead agreed with the funder to accept a
temporary waiver of all covenants at 31 March 2020, and relief from
the capital repayment of GBP75,000 due in March 2020.
The funder has indicated that, while they are not aware of any
reason why the offer to convert all debt to RCF at a later date
would not be made available, a fresh credit approval would be
required. Furthermore, the funder has confirmed that they are
supportive of acting as a conduit to channel additional liquidity
to the company under the auspices of the Coronavirus Business
Interruption Loan Scheme, which the company considers may offer
advantages over the lender-proposed move to the RCF.
Finally, the company has received an unsolicited indication of
funding support from a substantial institutional shareholder,
although this is not binding at this early stage, and no proposal
has been formulated.
Fundamental uncertainty will be common in varying degrees to
almost all businesses in every sector at the present time. It is
premature to be able to determine with precision the level of
support that may ultimately be required as events are moving
rapidly. Our bankers have moved extremely quickly in providing
short-term relief from capital repayments and covenant compliance,
and stand willing to support our immediate liquidity requirements.
These actions are an important precursor to enabling access to
funding through the Coronavirus Business Interruption Loan Scheme
in coming weeks. Furthermore, the announcements by the Chancellor
of the Exchequer on 20 March 2020 relating to various forms of
government assistance will provide substantial help. In addition,
we have received expressions of support from some of our key
trading partners and institutional shareholders.
Based on the forecasts, the Board has a reasonable expectation
that the Company and the Group have adequate resources and support
to continue in operational existence for the foreseeable future,
considered to be at least 12 months for the date of approval from
the financial statements, whilst acknowledging that there are
material uncertainties that do exist in preparing these financial
statements.
David Marsh
Chief Executive Officer
31 March 2020
Con solidated statem ent of comprehensi ve income
fo r they ear en ded 31 Dece m ber 2 0 19
20 19 20 18
Notes GBP '0 GBP '0
00 00
------------------------------------------------------ ------- ---------------- ---------------
Rev enue 2 10,733 10,969
Cost of s a les (6,400) (6,297)
====================================================== ======= ================ ===============
G ross profit 4,333 4,672
O ther ope r ati ng e x pens es (6,817) (4,327)
Other Income - 275
A djusted EBITDA 1,446 2,364
Amorti sa t ion of i nta n gi b le assets 4 (642) (1,141)
Impairment of intangible assets 4 (2,253) (2)
Depre c iati on of ta n gi b le a s s e ts (618) (481)
E x cep ti o nal ite ms (184) -
Share based payments (188) (120)
------------------------------------------------------ ------- ---------------- ---------------
O perating (loss) / profit (2,439) 620
Fina n ce c o sts (162) (105)
Fina n ce in c o me 5 -
====================================================== ======= ================ ===============
(Loss) / Profit b efore ta xation (2,596) 515
T a x a tion (charge) / credit (23) 210
====================================================== ======= ================ ===============
(Loss) / Profit a nd total comprehensive
Income (2,619) 725
====================================================== ======= ================ ===============
(Loss) / Earnings per share, total and continuing
Bas ic 3 (0.33p) 0.09p
Diluted 3 (0.33p) 0.09p
Adjusted earnings per share 3 0.05p 0.21p
------------------------------------------------------ ------- ---------------- ---------------
The Consolidated statement of comprehensive income above relates
to continuing operations.
Adjusted EBITDA is defined as earnings before interest,
taxation, depreciation, amortisation, impairment, share based
payments and exceptional items.
Profit and total comprehensive income relate wholly to the
owners of the parent Company.
Con solidated statem ent of changes in equ i ty
fo r the y ear en ded 31 Dece m ber 2 0 19
Share Share Capital Merger Retained
capital premium reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------------- ------------------- --------- --------- ---------- ---------
Balance as at 1 January 2018 7,826 5,831 329 1,250 (1,658) 13,578
Employee sharebased payment - - - - 120 120
Total - transactions with owners - - - - 120 120
Profit and total comprehensive
income for the period - - - - 725 725
----------------------------------- -------------- ------------------- --------- --------- ---------- ---------
Balance as at 31 December 2018 7,826 5,831 329 1,250 (813) 14,423
Employee sharebased payment - - - - 188 188
Issue of share capital 127 73 - - - 200
Total - transactions with owners 127 73 - - 188 388
Loss and total comprehensive
income for the period - - - - (2,619) (2,619)
----------------------------------- -------------- ------------------- --------- --------- ---------- ---------
Balance as at 31 December 2019 7,953 5,904 329 1,250 (3,244) 12,192
----------------------------------- -------------- ------------------- --------- --------- ---------- ---------
Con solidated balance sheet
A t 31 Dece m b er 20 19
20 19 2018
Notes GBP '0 GBP '0
00 00
======================================== ======= ============= ==============
A sse ts
Non-current a ssets
Property, p l ant and eq u ip m ent 718 934
Right of use assets 1,241 -
Intan g ib le a ss ets 4 7,613 10,191
Deferred tax asset - 91
9,572 11,216
======================================== ======= ============= ==============
Curr ent asse ts
In v entori es 2,925 2,083
T rade and other rec e i v abl es 2,359 2,961
Amount due from associate 173 79
Cashat b a nk a nd in h and 1,282 2,491
======================================== ======= ============= ==============
6,739 7,614
======================================== ======= ============= ==============
Totala ssets 16,311 18,830
======================================== ======= ============= ==============
Equity and liabiliti es
Equity attributable to equity holders
of the p arent compa ny
Sharecap ital 7,953 7,826
Share p r em i um a c co u nt 5,904 5,831
Capital re s erve 329 329
Merger reserve 1,250 1,250
Retain ed e arni n gs (3,244) (813)
======================================== ======= ============= ==============
Total e qui ty 12,192 14,423
======================================== ======= ============= ==============
Non-current l i abiliti es
Borro w ings 5 515 1,820
Deferred tax liabi l iti es 31 98
Dilapidation provision 165 165
Lease liability 7 1,086 -
======================================== ======= ============= ==============
1,797 2,083
======================================== ======= ============= ==============
Curr ent liabi lities
T rade and other pa y ab l es 6 1,518 1,556
Accru als 317 481
Borrowings 5 297 287
Lease liability 7 190 -
======================================== ======= ============= ==============
2,322 2,324
======================================== ======= ============= ==============
Total li abiliti es 4,119 4,407
======================================== ======= ============= ==============
Total e qui ty and liabili ties 16,311 18,830
---------------------------------------- ------- ------------- --------------
T h e acc o m p an y ing a c co u nti ng pol i c i es a nd n
otes fo rm p art of the f in a nc i al sta t em e nts.
T h e consolidated financial statements were approved by the
Board of Directors on 30 March 2020 and were signed on its behalf
by Nigel Rogers and David Marsh
Con solidated cashf l ow statement
fo r the y ear en ded 31 Dece m ber 2 0 19
2019 2018
Notes GBP'000 GBP'000
------------------------------------------- ------- --------- ---------
Cashflo ws from operating a ctivities
Profit after tax for the year (2,619) 725
Adju stm e nts for:
Taxation 23 (210)
Finance income (5) -
Finance costs 162 89
Depre c iati on of pro perty, p l ant
and e qu i pm e nt 415 481
Amorti sa t ion and impairment of i
nta n gi b le a s s ets 4 2,895 1,143
Depreciation ROU assets 7 203
Share-b a s ed pa ym ent cha r ge 188 120
Gain on disposal of fixed assets 1 6
Foreign exchange (56) 48
(Increase)/decrease ini n v entories (842) 384
Decre a se/(increase) in trade and other
rec e i v abl es 508 (1,027)
(Decre a se)/increase in pa y a bles (203) 48
------------------------------------------- ------- --------- ---------
Cash generat ed from operations 670 1,807
T a x a tion paid 1 (68)
Interest received 5
Intere st p aid (82) (89)
------------------------------------------- ------- --------- ---------
Net cash g enerated from ope r ating
activities 594 1,650
------------------------------------------- ------- --------- ---------
Pa y men ts to ac q uire pro p erty,
plant and eq u i p ment (199) (88)
Acqu i si t ion of i n t a n gi b le
a s s e ts 4 (317) (398)
Net cash used in investment activities (516) (486)
------------------------------------------- ------- --------- ---------
Repayment of bank loan 5 (1,300) (318)
Net proceeds from issue of share capital 201 -
Lease liabilities 7 (244)
Repa y ment of o bl i ga t io ns u nd
er fi n an ce l e as es - (16)
------------------------------------------- ------- --------- ---------
Net cash used in fin anc ing a ctivities (1,343) (334)
------------------------------------------- ------- --------- ---------
Net (decrease)/increase in cash and
cash equivalents (1,265) 830
Cash a nd ca sh e q ui v al e nts at
begi n ni ng of y ear 2,491 1,709
Effective exchange rate fluctuations
on cash held 56 (48)
------------------------------------------- ------- --------- ---------
Cash and cash equivalents at end of
year 1,282 2,491
=========================================== ======= ========= =========
Notes to the consolidated f inancial statem ents
1 . Group a c counting policies under IFRS
(a) Basis of prep aration
Surgical Innovations Group PLC (the "Company") is a public AIM
listed company incorporated, domiciled and registered in England in
the UK. The registered number is 02298163 and the registered
address is Clayton Wood House, 6 Clayton Wood Bank, Leeds, LS16
6QZ.
These financial statements have been prepared on the basis of
the International Financial Reporting Standards (IFRS) accounting
policies set out below. The financial statements have been prepared
in accordance with IFRS as adopted for use by the European Union,
including IFRIC interpretations, and in line with those provisions
of the Companies Act 2006 applicable to companies reporting under
IFRS. The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process
of applying the Group's accounting policies. The financial
statements have been prepared under the historical cost convention,
are presented in Sterling and are rounded to the nearest
thousand.
The financial information set out in this preliminary
announcement does not constitute the Company's Consolidated
Financial Statements for the financial years ended 31 December 2019
or 31 December 2018 but are derived from those Financial
Statements. Statutory Financial Statements for 2018 have been
delivered to the Registrar of Companies and those for 2019 will be
delivered following the company's AGM. The auditors, BDO LLP, have
reported on those financial statements. Their report for 2018 was
unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under Section 498(2) or (3) of the Companies Act 2006 in
respect of the financial statements for 2018.
The report of the auditor for the year ended 31 December 2019
was:
-- unqualified;
-- did include a reference to a matter (Covid-19) to which the
auditor drew attention by way of a Material uncertainty related to
Going Concern without qualifying their report; and,
-- did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The Statutory accounts will be available on the Company's
website at www.sigroupplc.com with effect from 31 March 2020 and
will be posted to selected shareholders at the end of April.
Shareholders wishing to request a copy can contact the Company's
registered office.
Going concern
The Directors have considered the available cash resources of
the Group and its current forecasts and has a reasonable
expectation that the Group have adequate resources and support to
continue in operational existence for the foreseeable future,
considered to be at least 12 months for the date of approval from
the financial statements, whilst acknowledging that there are
material uncertainties that do exist in preparing these financial
statements.Further details of the Directors' assessment are
provided in the Chairman's Statement, the Operating and Financial
Review and Directors' report. The Directors draw attention to this
extensive disclosure which indicates the current uncertainty in
respect of the Covid-19 global pandemic. This event or condition
indicates that a material uncertainty exists that may cast
significant doubt on the Company's ability to continue as a Going
Concern.
New standards and amendments to standards adopted in the
year
During the year the Group adopted the following standard
effective from the 1 January 2019. The Group has applied this
standard in the preparation of the financial statements, and has
not adopted any new or amended standards early:
IFRS 16 'Leases' The standard is effective for periods beginning
on or after 1 January 2019 and is EU endorsed.
Leases has been adopted by the Group for the financial year
starting on 1 January 2019 (see note 7). The new standard has been
applied using the "modified retrospective" transition approach.
The Group has material operating lease commitment as set out in
note 7 and therefore the adoption of the standard is has a material
impact on the Financial Statements of the Group.
There is no adjustment to the opening balance of retained
earnings for the current period however reclassifications arising
from the new standard have been recognised in the opening balances
as at 1 January 2019. Prior periods have not been restated, as
permitted under the specific transitional provisions in the
standard. Accordingly the Group is not required to present a third
statement of financial position as at that date.
Other new amended standards and interpretations issued by the
IASB that apply to the financial statements do not impact the group
as they are either not relevant to the group's activities or
require accounting which is consistent with the group's current
accounting policies.
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective and in
some cases have not yet been adopted by the EU. The Directors do
not expect that the adoption of these standards will have a
material impact on the financial statements of the Group in future
periods.
2 . Segm ental r eporting
Inform ati on re ported to the Board, as Chief Operating
Decision Makers, a nd for the purp o se of a s s es s ing perfo r
ma n ce and m a k i ng in v e stm ent d e c is i o ns is organised
into t hree ope r ati ngs eg m en t s.
T h e Group's ope r ati ng s e g m e nts u nder IFRS 8 a re as f
o llo w s:
SIBrand - the re sea r ch, de v el o pm e nt, m anufa ctu re
a nd d i stri buti on of SI bran d ed mi n im a lly
in v a si ve de v ic es
O E M - The re sea r ch, de v el o pm e nt, m anufa ctu re
a nd d i stri buti on of min i m a lly in v a si ve
de v i ces for third party med i c al de v i ce co
m pa n ies th r ough eith er o wn la b el or c o -
b r andi ng. This now incorporates Precision Engineering,
the re sea r c h,de v el o pm e nt, m anufa ctu re
a nd s ale of m in i m al ly in v asi ve t ec h no
l ogy pro d uc ts for precision engineering applications
Distribution - Distribution of specialist medical products sold through
Elemental Healthcare Ltd
T h e me a sure of profit or l o ss f or e a ch re porta ble se
g m e nt is gro ss m argin l e ss amortization of pro du ct de v e
l o p ment c o sts. Asse ts a nd w orki ng c api t al a re mo n
itored on a Group b a s i s, w ith no s e para te d i s c l o sure
of as s et by s eg m ent ma de in the man a ge m ent a c cou nts,
and h ence no se p arate a s set d i sc lo sure is pro v id ed he r
e. T he f o l l o w ing se g me ntal anal ys is h as been prod u
ced to p r o v ide a re c on c il i ation betw e en t he i nfo r
mati on used by the chief operating d e c i si on m a k er w ithin
t he b u si n e ss a nd t he info r mati on as it is pre se nted u
nder IFRS.
S I Br Distribution OEM T o ta
Y e a r e n d ed 31 De ce m ber 20 a nd GBP'000 GBP '0 l*
19 GBP '0 00 GBP'0 00
00
======================================= =========== ============== ========= ===========
Rev enue 5,840 3,101 1,792 10,733
======================================= =========== ============== ========= ===========
Result
Segment re sult 1,510 (792) 720 1,438
Unall o ca t ed e x pens es (3,977)
======================================= =========== ============== ========= ===========
(Loss) from operations (2,439)
Fina n ce in c o me 5
Fina n ce c o sts (162)
======================================= =========== ============== ========= ===========
(Loss) b efore ta xation (2,596)
T a x charge 23
======================================= =========== ============== ========= ===========
(Loss) for the y ear (2,619)
--------------------------------------- ----------- -------------- --------- -----------
*There were no revenues transactions between the segments during the
year
Inc l uded w ithin t he s eg m ent/o perati ng re s u lts are t he
f o llo w i ng s ign ifi c ant no n - c a sh i t e m s:
S IBr Distribution OEM T o ta
Y e a r e n d ed 31 De ce m ber 20 a nd GBP '0 GBP '0 l
19 GBP '0 00 00 GBP '0
00 00
======================================= =========== ============== ========= ===========
Amorti sa t ion of i nta n gi b le a
s s ets 291 351 - 642
Impairment of i nta n gi b le a s s
ets 628 1,625 2,253
Additions to intangibles 317 - - 317
Additions to tangibles 189 10 - 199
======================================= =========== ============== ========= ===========
Unall o ca t ed e x pens es f or 2 0 19 i n clu de s a l es a nd
m ark eti ng c os ts (GBP 293,0 0 0), r es e arch and de v elo p me
nt c o s ts (GBP922,000), centr al o v e r hea ds (GBP1,004, 00 0),
Direct (Elemental Healthcare) sales & marketing overheads
(GBP1,427,000), share based payments (GBP188,000), exceptionals
(GBP184,000), less Right Of Use (GBP41,000).
S IBr Distribution OEM T o ta
Y e a r e n d ed 31 De ce m ber 2018 a nd GBP'000 GBP '0 l*
GBP '0 00 GBP '0
00 00
========================================= ========= ============== ========= =========
Rev enue 6,088 3,037 1,844 10,969
========================================= ========= ============== ========= =========
Result
Segment re sult 1,733 1,059 737 3,529
Unall o ca t ed e x pens es (2,909)
========================================= ========= ============== ========= =========
Profit from operations 620
Fina n ce in c o me -
Fina n ce c o sts (105)
========================================= ========= ============== ========= =========
Profit b efore ta xation 515
T a x credit 210
========================================= ========= ============== ========= =========
Profit for the y ear 725
========================================= ========= ============== ========= =========
* There were no revenues transactions between the segments
during the year
Inc l uded w ithin t he s eg m ent re
s u lts are t he f o llo w i ng i t
e m s:
S IBr Distribution OEM T o ta
Y e a re n d ed31De ce m ber2018 a nd GBP '0 GBP '0 l
GBP '0 00 00 GBP '0
00 00
========================================== ========= ============== ========= =========
Amorti sa t ion of i nta n gi b le a
s s ets 230 788 125 1,143
Additions to intangibles 398 - - 398
Additions to tangibles 65 23 - 88
========================================== ========= ============== ========= =========
Unall o ca t ed e x pens es f or 2 0 18 i n clu de s a l es a nd
m ark eti ng c os ts (GBP 260,0 0 0), r es e arch and de v elo p me
nt c o s ts (GBP618,000), centr al o v e r hea ds (GBP908, 00 0),
Direct (Elemental Healthcare) sales & marketing overheads
(GBP1,278,000), share based payments (GBP120,000) less Other Income
(GBP275,000).
Disaggregation of revenue
The Group has disaggregated revenues in the following table:
Y e a r e n d ed 31 De ce m ber S IBr Distribution OEM T o ta
20 19 a nd GBP '0 GBP '0 l
GBP '0 00 00 GBP '0
00 00
================================== ========= ============== ========= =========
United Kingdom 1,613 3,101 1,497 6,211
Europe 1,283 - - 1,283
US 1,852 - 295 2,147
Rest of World 636 - - 636
APAC 456 - - 456
---------------------------------- --------- -------------- --------- ---------
5,840 3,101 1,792 10,733
================================== ========= ============== ========= =========
Y e a r e n d ed 31 De ce m ber S IBr Distribution OEM T o ta
20 18 a nd GBP '0 GBP '0 l
GBP '0 00 00 GBP '0
00 00
================================== ========= ============== ========= =========
United Kingdom 1,692 3,037 1,426 6,155
Europe 1,347 - - 1,347
US 1,704 - 418 2,122
Rest of World 560 - - 560
APAC 785 - - 785
---------------------------------- --------- -------------- --------- ---------
6,088 3,037 1,844 10,969
================================== ========= ============== ========= =========
Rev enues are a ll o ca t ed g eog r aph i ca l ly on t he b a s
is of w here re v enu es w ere re c ei v ed f rom a nd not from the
ul t i m ate f i n al des t ina t ion of u se. During 2019
GBP1,226,0 00 (11.4%) of t he Group's re v e n ue d epe n ded on
one distributor in the SI Bra nd se g ment (2018: GBP1,177,000
(10.7%)).
Sales of goods were GBP10,374,000 (2018: GBP10,325,000) and
sales relating to services in the UK were GBP359,000, (2018:
GBP644,000).
3 . Earnin gs per ordina ryshare
Basic e arnings per ordinary share
T h e ca l cul ati on of ba s ic earn i n gs p er ord inary s
hare for t he y ear e n ded 31 De ce m ber 20 19 w as based up on
the (loss)/profit att r i b utab le to ord inary s hare h ol d ers
of ( GBP2,619 ,000) (2018: GBP725,000) a nd a w eig hted a v erage
n u mb er of ordi n ary s hares outs t an d ing f or t he y ear e
nd e`d 31 De ce m ber 2 0 19 of 789,845,629 ( 20 18: 782
,566,177).
Diluted e arnings per ordi n a ry share
T h e ca l cul ati on of di l uted earni ngs per o r din ary sha
re for t he y ear end ed 31 Dec e m ber 2 019 w as ba s ed u pon t
he (loss)/profit attri b uta b le to ord inary s hare h olde rs of
( GBP 2,619,000) (2018: GBP725,000) a nd a w eighted a v erage n u
mber of ordin ary sha r es o utstan d ing f or the y ear end ed 31
De c em b er 2019 of 891,313,476 (2018: 829,578,416). The anti
dilutive effect of unexcercised shares options has not been taken
into account and therefore the diluted earnings per share is equal
to the basic earnings per share.
Adjusted e arnings per ordi n a ry share
T h e ca l cul ati on of adjusted earni ngs per o r din ary sha
re for t he y ear end ed 31 Dec e m ber 2 019 w as ba s ed u pon t
he adjusted profit attri b uta b le to ord inary s hare h olde rs
(profit before exceptional and amortisations and impairment costs
relating to the acquisition of Elemental Heathcare, impairment of
capitalised development costs and share based payments) of
GBP355,000 (2018: GBP1,633,000) a nd a w eighted a v erage n u mber
of ordin ary sha r es o utstan d ing f or the y ear end ed 31 De c
em b er 2019 of 789,845,629 (2018:782,566,177).
No. of sh a r es used in calc ulat i on of e ar
nings p er o r dina ry s h a re ('0 00 s)
20 19 2018
No. of No. of Shares
Shares
===================================================== =========== ================
Bas ic ea r ni n gs p er s hare 789,846 782,566
Diluti ve eff e ct of une x erc i sed s hare o pti
o ns (101,467) 47,012
===================================================== =========== ================
Diluted ea r nin gs p er s hare 891,313 829,578
===================================================== =========== ================
4. Intangible assets
Capitalised Single use Exclusive
development product Goodwill Supplier Total
costs knowledge Agreements
transfer
GBP'000 GBP,000 GBP'000 GBP'000 GBP'000
Cost
At 1 J anuary 2 018 12,701 225 8,180 1,799 22,905
Additi ons 398 - - - 398
At 1 J anuary2 019 13,099 225 8,180 1,799 23,303
Additi ons 317 - - - 317
A t 31 December 2 0 19 13,416 225 8,180 1,799 23,620
======================== ============== ===================== ================ ================== ===============
A cc umulated a mortis
ation
At 1 J anuary 2 018 (11,471) - - (498) (11,969)
Charge f or t he y ear (353) - - (788) (1,141)
Impairment provision (2) - - - (2)
At 1 J anuary 2 019 (11,826) - - (1,286) (13,112)
Charge f or t he y ear (291) - - (351) (642)
Imp a irm e nt p r o v
is i on (403) (225) (1,625) - (2,253)
======================== ============== ===================== ================ ================== ===============
A t 31 December 2 0 19 (12,520) (225) (1,625) (1,637) (16,007)
======================== ============== ===================== ================ ================== ===============
Carr ying amount
A t 31 December 2 0 19 896 - 6,555 162 7,613
======================== ============== ===================== ================ ================== ===============
At 31 De ce m ber 2
018 1,273 225 8,180 513 10,191
======================== ============== ===================== ================ ================== ===============
At 1 January 2018 1,230 225 8,180 1,301 10,936
======================== ============== ===================== ================ ================== ===============
Goodwill and intangibles are allocated to the cash generating
unit (CGU) that is expected to benefit from the use of the
asset.
Capitalised development costs
Capitalised development costs represent expenditure incurred in
developing new products that fulfil the requirements met for
capitalisation as set out in paragraph 57 of IAS38. These costs are
amortised over the future commercial life of the product,
commencing on the sale of the first commercial item, up to a
maximum product life cycle of ten years, and taking account of
expected market conditions and penetration.
An impairment review is carried out annually, due to the
complexity of a device and regulatory challenges, particularly in
relation to the Medical Device Regulation, transition an impairment
of GBP0.24m has been recognised.
Single use product knowledge transfer
Single use product knowledge transfer relates to the acquisition
and of the single use laparoscopic instrumentation products of
Surgical Dynamics Ltd in 2016. Additional expenditure of GBP168,000
in relation to this has been included in Capitalised development
costs.
An impairment review is carried out annually, due to the
constraints on funding the project was a low priority during
2019.With further expenditure on hold a subsequent review was taken
and concluded that, with the continued pressure on resources and no
likelihood of making significant progress without the required
investment, the project has been closed. The impairment for this
project combining the Single Use product knowledge transfer and
additional expenditure on capitalised development is GBP0.40m.
Goodwill
The Group tests goodwill at each reporting date for impairment
and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The recoverable amount of a
cash generating unit (CGU) is determined based on value in use
calculations. These calculations use post-tax cash flow projections
based on five year financial budgets approved by management. Cash
flows beyond the five year period are extrapolated using estimated
long term growth rates.
An impairment review is carried out annually for goodwill.
Goodwill arose on the acquisition of Elemental Healthcare Limited
in 2017 and is related to both the Distribution and SI Brand
segments of the Group. Elemental Healthcare Limited is considered
to be a separate CGU of the Group whose recoverable amount has been
calculated on a value in use basis by reference to discounted
future cash flows over a five year period plus a terminal value.
Principal assumptions underlying this calculation are the growth
rate into perpetuity of 2% (2018: 1.5%) and a pre-tax discount rate
of 15% (2018: 15%) applied to anticipated cash flows. In addition
the value in use calculation assumes a gross profit margin of 40.6%
(2018:48.8%) using past experience of sales made and future sales
that were expected at the reporting date based on anticipated
market conditions.
The trading environment in the UK market became more challenging
during 2019, due to a progressive tightening of NHS funding for
elective surgery, and the extended time taken to rebuild the
distribution sales of Cellis branded products, including those due
for imminent launch which have been delayed. Accordingly, the
directors have adopted a cautious approach to forecasting future
net inflows for this CGU.
On this basis, the recoverable amount of the cash-generating
unit does not exceed its carrying value and in view of this excess,
the Directors consider the impairment calculation to be unduly
sensitive to changes to the above assumptions, and are of the
opinion that a provision for impairment is required of
GBP1.63m.
Subsequent to the year end, the potential effects of the
Covid-19 outbreak and consequential impact on the availability of
NHS resources, may have a further and more significant impact on
the directors view of short to medium term cash flows. This has not
been quantified, and there is not yet sufficient experience to make
such a judgement. Nevertheless, it is recognised by the dir ectors
that further impairment is likely to be necessary in the following
year, therefore a non-adjusting post balance sheet event has been
recognised (note 8 .
In the longer term, the directors remain confident that: (1)
Elemental Healthcare has a robust role as a key vendor to the NHS
for a range of elective procedures; (2) gains in market share are
likely as a result of the environmental and cost advantages of key
products; and (3) a growing backlog of elective procedures will be
adequately funded and carried out once the current challenges in
the NHS have been overcome. Whilst it will not be appropriate in
future to re-instate goodwill that has been impaired as a result of
current market conditions, the directors continue to place
significant value on the business and operations of Elemental as an
integral part of the group strategy.
5. Borrowings 2019 20 18
Bank Loan GBP'000 GBP '000
========================== ========= ==========
Current liabilities 297 287
Non-current liabilities 515 1,820
========================== ========= ==========
Lease liabilities
========================== ========= ==========
Current liabilities 190 -
========= ==========
Non-current liabilities 1,086 -
========================== ========= ==========
2,088 2,107
========================== ========= ==========
Bank loan
The sterling bank loan provided by Yorkshire Bank on 1 August
2017 for a five year term was split into two loan agreements A and
B. Loan A of GBP1.5m is subject to quarterly payments of GBP0.075m
which commenced on 31 October 2017, totaling repayments GBP0.3m per
annum at an interest rate of LIBOR plus 3% per annum. Loan B of
GBP1m is interest only at a rate of LIBOR plus 3.5% per annum with
a repayment in full by the termination date of 31 July 2022. On 31
December 2019 the remaining balance of the term loans was
GBP0.812m. The bank has made available a Revolving Credit Facility
(RCF) of up to GBP0.5m for working capital and other purposes.
The RCF and loan agreements are subject to compliance with
financial covenants which measure cash flow to debt service and
EBITDA, interest cover and leverage.If the RCF is drawndown the
rate of interest applicable to each loan for its interest period
will be LIBOR plus 2.8% per annum and itwill be secured by a
floating charge over the assets of the Group. At 31 December 2019,
no amount was drawndown (2018: GBPnil).
During 2019 the Board elected to repay GBP1.0m of term Loan B in
advance of the due date, from available cash resources.
Changes in liabilities arising Non-current Current Obligations Total
from financing activities loans and loans and under finance
borrowings borrowings leases
At 1 January 2019 1,820 287 - 2,107
------------- ------------- ---------------- ---------
Cash flows (1,000) (300) - (1,300)
------------- ------------- ---------------- ---------
Transfer between non-current
and current (300) 300 - -
------------- ------------- ---------------- ---------
Interest accruing in the period (5) 10 - 5
------------- ------------- ---------------- ---------
At 31 December 2019 515 297 - 812
------------- ------------- ---------------- ---------
In March 2020, the funder agreed to convert the existing loan
with a three year committed Revolving Credit Facility ("RCF") with
additional headroom ,a facility limit of GBP1m, and less stringent
covenants than the current facilities. This agreement was made with
credit approval and full knowledge of the considerable challenge
presented by Covid-19. In the event, the company decided not to
proceed with this change, and instead agreed with the funder to
accept a temporary waiver of all covenants described below at 31
March 2020, and relief from the capital repayment of GBP75,000 due
in March 2020.
In respect of the borrowing facilities in place at the reporting
date, the group is required to comply with the following financial
covenants at each quarter end in respect of the prior 12 month
period:
- Cash flow to debt service ratio of no less than 1.25:1
- Interest cover ratio of no less than 4:1
- Leverage ratio of no greater than 2:1
6. Trade and other payables
2019 2018
GBP'000 GBP'000
================================ =========== ===========
T rade payables 1,026 1,083
Corporation tax payable - -
Other tax and social security 173 156
Other payables 319 317
================================ =========== ===========
1,518 1,556
================================ =========== ===========
7 . Contingent liabi lities and financ i al commit ments
T hes e areasfo l lo w s:
(a) Transition to IFRS16
This note explains the impact of the adoption of IFRS 16
'Leases' on the Group's financial statements and disclosesthe new
accounting policy that has been applied from 1 January 2019.IFRS 16
replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4
'Determining whether an Arrangement contains a lease', SIC 15
'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance
of Transactions Involving the Legal Form of a Lease').
The adoption of this new Standard has resulted in the Group
recognising a right-of-use asset and related liability in
connection with all former operating leases with the exception of
those identified as low-value or having a remaining lease term of
less than 12 months from the date of initial application.
The new standard has been applied using the "modified
retrospective" transition approach. There is no adjustment to the
opening balance of retained earnings for the current period however
reclassifications arising from the new standard have been
recognised in the opening balances as at 1 January 2019. Prior
periods have not been restated, as permitted under the specific
transitional provisions in the standard.
For contracts in place at 1 January 2019, the Group has elected
to apply the definition of a lease from IAS 17 and IFRIC 4 and has
not applied IFRS 16 to arrangements that were previously not
identified as leases under IAS 17 and IFRIC 4.
The Group has elected to measure the right-of-use assets at 1
January 2019 at an amount equal to the lease liability, adjusted
for any prepaid or accrued lease payments that existed at the date
of transition. The liabilities weremeasured at the present value of
the remaining lease payments, discounted at an incremental
borrowing rate of 6%.
On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for
leases of low-value assets, the Group has applied the optional
exemption to not recognise right-of use assets but to account for
the lease expense on a straight-line basis over the remaining lease
term.
The Group has benefited from the use of hindsight for
determining the lease term when considering options to extend and
terminate leases.
The following is a reconciliation of total operating lease
commitments at 31 December 2018 (as disclosed in the financial
statements to 31 December 2018) to the lease liabilities recognised
at 1 January 2019:
GBP'000
Total operating lease commitments disclosed at 31 December
2018 1,766
---------
Recognition exemptions at 1 January 2019: leases less
than 12 months or low value (42)
---------
Leases committed to at 31 December 2018 but not commenced -
at 1 January 2019
---------
Commitments not meeting the definition of a right of -
use asset
---------
Operating lease liabilities before discounting 1,724
---------
Discounting effects using incremental borrowing rates
as at 1 January 2019 (330)
---------
Operating lease liabilities after discounting as at
1 Janaury 2019 1,394
---------
Of which are:
---------
Current lease liabilities 162
---------
Non-current lease liabilities 1,232
---------
At 1 January 2019 the recognised right-of-use assets all relate
to Property and Car leases. Instead of performing an impairment
review on the right-of-use assets at the date of initial
application, the Group has relied on its historic assessment as to
whether leases were onerous immediately before the date of initial
application of IFRS 16. This assessment did not identifyany onerous
lease contracts requiring an adjustment to the right-of-use asset
at the date of initial application. The adoption of IFRS 16 has
impacted the following items:
Impact on the statement of financial position
As at 1 January As at 31 December
2019 2019
Assets Liabilities Assets Liabiities
----------------- ------------------- -------------------- --------------------
GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------------- -------------------- --------------------
Right of use assets and lease
liabilites 1,394 1,394 1,241 1,276
----------------- ------------------- -------------------- --------------------
Of which are:
----------------- ------------------- -------------------- --------------------
Current lease liabilites 162 190
----------------- ------------------- -------------------- --------------------
Non-Current lease liabilites 1,232 1,086
----------------- ------------------- -------------------- --------------------
Impact on Equity - (35)
----------------- ------------------- -------------------- --------------------
Total impact on statement of
financial
position 1,394 1,394 1,241 1,241
----------------- ------------------- -------------------- --------------------
The adoption of IFRS 16 on 1 January 2019 had a nil impact on
the net assets of the Group due to applying the modified
retrospective approach. As at 31 December 2019 lease liabilities of
GBP1.3m do not match the value of the right-of-use assets due to
the depreciation charge in the period being lower than the lease
repayments (net of interest charges).
A reconciliation of the value of right-of-use assets and lease
liabilities from 1 January 2019 to 31 December 2019 is presented
below:
Right of use assets Property Plant IT equipment Car leases Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------- ----------------- ------------ ---------
Right of use assets and lease
liabilities as at 1 January
2019: 1,249 - 11 134 1,394
---------- --------- ----------------- ------------ ---------
Additions - 17 - 33 50
---------- --------- ----------------- ------------ ---------
Disposals - - - - -
---------- --------- ----------------- ------------ ---------
Depreciation (144) (3) (4) (52) (203)
---------- --------- ----------------- ------------ ---------
Right of use assets and lease
liabilities as at 31 December
2019 1,105 14 7 115 1,241
---------- --------- ----------------- ------------ ---------
Impact on Income statement: 12 months
to 31 December
-----------------
GBP'000
-----------------
Other operating expenses 41
-----------------
Impact on EBITDA 245
-----------------
Depreciation (203)
-----------------
Finance costs (77)
-----------------
Impact on profit before tax (35)
-----------------
Prior to the adoption of IFRS 16 rental payments were charged to
the income statement on a straight-line basis, under IFRS 16 rental
charges in the income statement are replaced with depreciation on
the right-of-use asset and interest charges on the lease liability.
The adoption of IFRS 16 therefore gives rise to a net cost of
GBP35,000 in the twelve months to 31 December 2019, reflecting
depreciation and interest charges of GBP280,000 being GBP35,000
higher than the net rental charges which would have been incurred
prior to the adoption of the new standard. At EBITDA level, the
adoption of IFRS 16 gives a benefit of GBP245,000 being the
elimination of the rental charges.
At the date of transition a provision for dilapadations had
already been recognised in relation to property lease. On
transition to IFRS16 no amendment to this provision has been
recognsed and no additional amount recorded within the right of use
asset.
(b) Capital com mitm ents
At 31 De ce m ber 2 0 19 the Group h ad c api t al co m mi t m e
nts totali n g GBP 7,000 (20 18: GBP nil)
8. Post balance sheet events
A non-adjusting post balance sheet event has been recognised
with the anticipated financial effect of more widespread
coronavirus infection having significant impact on the Group in
relation to the following accounting treatments:
Goodwill impairment
Subsequent to the year end, the potential effects of the
Covid-19 outbreak and consequential impact on the availability of
NHS resources, may have a further and more significant impact on
the directors view of short to medium term cash flows. This has not
been quantified, and there is not yet sufficient experience to make
such a judgement. Nevertheless, it is recognised by the directors
that further impairment is likely to be necessary in the year
ending 31 December2020. The financial effect of this adjustment
cannot be estimated.
Going concern and funding
Management have to make judgements on various uncertain future
outcomes of events or conditions, consideration when determing
whether or not the Group can prepare its financial statements on
the going concern bases:
The degree of uncertainty associated with the outcome of
Coronavirus increases significantly the further into the future.
Management will assess all available information and will
continually assess the situation.
The nature and condition of the Group and the degree to which
its is affected by external factors affect the judgement regarding
the outcome of Coronavirus. key end user markets is now becoming
more apparent, as hospitals rightly free up capacity to cope with
seriously ill patients. These necessary actions will inevitably
lead to delays and cancelation of routine surgical procedures such
as those announced in the NHS over the last week. Management have
devised a series of mitigating actions, designed to preserve cash
resources, maintain delivery of essential products to our customers
and distributors, and protect our workforce from the health risks
and economic impact.
Any judgement anout the future is based on information at the
time at which the judgement is made. Subsequent events may result
in outcomes that are inconisistent with judgements that were
reasonable at the time they were made. Management will continually
assess the information available at the time of publication.
The directors had carried out an evaluation of financial
forecasts, sensitised to reflect a rational judgement of the level
of inherent risk. This exercise concluded that adequate financial
resources were available to ensure that the Company could meets its
obligations for a twelve month period with reasonable certainty. It
has subsequently become clear that there will need to be reliance
upon outside agencies including the UK Government, Yorkshire Bank,
and possibly others to ensure that these conditions continue to
apply. The financial effect of further funding cannot be
estimated.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SDDEDSESSEED
(END) Dow Jones Newswires
March 31, 2020 02:00 ET (06:00 GMT)
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