REG - Surgical Innovations - Final Results
23/03/2022 07:00
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RNS Number : 6710F Surgical Innovations Group PLC 23 March 2022
Surgical Innovations Group plc
("Surgical Innovations", or the "Group")
Final Results
Audited results for the year ended 31 December 2021
Surgical Innovations Group plc (AIM: SUN), the designer, manufacturer and
distributor of innovative
technology for minimally invasive surgery, reports its audited financial
results for the year ended 31 December 2021.
The Group has continued to show resilience despite the ongoing effects of the
global pandemic, with periods of strong recovery between each successive wave
of Covid. Annual revenues were well ahead of the prior year, and matched
pre-pandemic levels by the final quarter. This has been sustained into the
current year. We anticipate further progress from the adoption of our
innovative Resposable ™ technology which is demonstrated to reduce waste and
costs in elective surgery.
Commercial and operational highlights:
· Major markets rebounding from global pandemic
· Increasing levels of hospital evaluations and conversion to
Resposable™ products
· Leveraging strong relationships with major commercial partners for
greater product penetration and access to innovative developments such as
robotic surgery
· Investment in sales & marketing teams to take advantage of
pent-up demand
· Capex on equipment to build and enhance manufacturing capabilities
· Regulatory progress on track towards Medical Device Regulation (MDR)
certification by May 2023
Financial highlights:
· Revenues increased by 44% in 2021 to £9.13m (2020: £6.33m) and
amounted to 85% of the comparable pre-pandemic period in 2019 (£10.73m)(1)
· Underlying gross margin (before net manufacturing cost) slightly
lower but remained within target range at 42.3% (2020: 44.4%)
· Adjusted EBITDA(2) profit of £0.50m (2020: loss of £0.66m, 2019: £
1.45m(1))
· Adjusted Operating loss before tax(2) of £0.33m (2020: loss of
£1.61m, 2019: £0.38m(1))
· Adjusted EPS amounted to a loss(2) of 0.022p per share (2020: loss of
0.19p; 2019: earnings of 0.05p) per share(1)
· Inventory levels optimised due to supply chain issues; net cash used
in operations managed at £0.43m (2020: net cash generated of £1.04m)
· Net cash(3) at end of period of £1.76m (as at 31 Dec 2020: £3.10m)
Current trading and outlook:
· Impact of Omicron Covid-19 variant less severe than anticipated
despite healthcare staff shortages in some markets
· Revenue for the first two months of the current year is approximately
40% higher than the corresponding periods of 2021 and slightly ahead of
pre-pandemic levels of 2019
· The Group continues to trade profitably at the level of adjusted
EBITDA, supported by further growth in new product development and sales and
marketing investment
· Debt refinancing completed March 2022 to provide additional headroom
and flexibility for future investment
1. Comparative information is shown for the year ended 31 December
2020, except where otherwise stated. Further comparative information for the
year ended 31 December 2019 has been included to provide a pre-pandemic
benchmark for trading.
2. Adjusted EBITDA, adjusted operating (loss)/ profit tax and Adjusted
EPS are stated before deducting non-recurring exceptional costs of £0.08m
(2020:£0.11m, 2019:£0.18m), impairment of intangible costs of £0.15m
(2020:£0.18m,2019:£0.63m), amortisation of intangible acquisition costs
£nil (2020:£0.16m, 2019:£0.35m), goodwill impairment of £nil
(2020:£1.13m, 2019:£1.63m) and share based payment costs of £0.03m
(2020:£0.12m,2019:£0.19m).
3. Net cash equals cash less bank debt only.
Chairman of Surgical Innovations, Nigel Rogers said:
"Trading in the first two months of the current year is approximately 40%
higher than the corresponding periods of 2021 and slightly ahead of
pre-pandemic levels of 2019. This would indicate a more normalised level of
trading for the rest of the year with the return of elective surgery.
"Despite the Omicron Covid-19 variant causing healthcare staff shortages in
some markets, the impact has been less severe than anticipated. The UK market
continues to be strong and is trending ahead of pre-pandemic levels and, as
patient waiting lists continue to rise, it is likely that this momentum will
continue. Demand in the European and the Rest of the World markets is steadily
increasing but remains more muted. However, both the US and APAC markets
continue to grow significantly ahead of pre-pandemic levels.
"In addition, we are committed to enhancing and expanding our product
portfolio through new product launches, investing in sales and marketing to
drive our sustainability messaging, and developing key partnerships, all of
which will further support the expansion of revenue in 2022 and beyond."
For further information please contact:
Surgical Innovations Group plc www sigroupplc com (http://www.sigroupplc.com/)
David Marsh, CEO Tel: 0113 230 7597
Charmaine Day, CFO
Singer Capital Markets (Nominated Adviser & Broker) Tel: 020 7496 3000
Aubrey Powell / Rachel Hayes
Walbrook PR (Financial PR & Investor Relations) Tel: 020 7933 8780 or si@walbrookpr.com
Paul McManus / Lianne Applegarth Mob: 07980 541 893 / 07584 391 303
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 reusable, 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.
Further information
Further details of the Group's businesses and products are available on the
following websites:
www.sigroupplc.com (http://www.sigroupplc.com)
www.surginno.com (http://www.surginno.com)
www.elementalhealthcare.co.uk (http://www.elementalhealthcare.co.uk)
To receive regular updates by email, please contact si@walbrookpr.com
Surgical Innovations Group plc
Chairman's Statement
For the year ended 31 December 2021
I am pleased to report that the Group has demonstrated resilience in another
challenging year, and is well positioned to benefit strongly from the recovery
expected in 2022.
Market Overview
Global healthcare provision suffered from the continuing effects of the
coronavirus pandemic, with consequent delays in diagnosis and treatment of
many conditions, especially those requiring elective surgery. Following a
steady reduction in global case numbers from a peak in the early part of the
year, the Delta variant emerged in May 2021 and by November it had spread to
more than 179 countries. Its effects were most pronounced in the UK
healthcare market over the early summer period, before becoming dominant in
Europe by July, with the US and Japanese markets affected a few weeks later.
Markets were generally beginning to normalise into the autumn period, only to
be hit once more by the emergence of the Omicron variant in November spreading
very rapidly and causing further disruption. By the end of 2021, there were
approximately six million patients on the NHS waiting list for consultant-led
elective care, an increase of almost 50% during the pandemic. This statistic
is widely believed to underestimate the backlog, as it does not capture the
large number of potential patients awaiting diagnosis or referral.
These pressures have temporarily suppressed the demand for many of the
products the company supplies to UK hospitals and via overseas distribution.
On each occasion that Covid caseloads have diminished, there has been a rapid
recovery in demand with a consequent uplift in revenues, with associated
challenges in managing inventory and manufacturing planning. As the effects
of the Omicron wave recede, and with almost two thirds of the world's
population having received at least one dose of approved vaccine, we
anticipate a strong recovery in healthcare provision in 2022 in all major
markets and a return to a new normality.
Despite these abnormal market fluctuations, there has been a positive
underlying trend in new business wins, mostly as a consequence of the
demonstrable sustainability advantages of our Resposable™ product ranges.
Sustainability continues to be a key growth driver and this has continued in
2022 with successful evaluations with some major accounts, this is against a
backdrop where hospital evaluations understandably have taken longer to
complete due to the stop/start nature of elective surgery.
Financial Overview
Revenues recovered to 85% of the level achieved in 2019 (hereinafter
"pre-pandemic levels") at £9.13m, an increase of 44% compared with the prior
year (2020: £6.33m). There was marked improvement in the second half of the
year, and especially in the final quarter where sales were at pre-pandemic
levels.
Underlying trading margins were within target range of 40-45% of revenues,
although the under-recovery of factory overheads at reduced activity levels
reduced the reported gross margin to 34.3%, much improved on the 2020 level of
20.1%. As revenues and factory activity levels normalise, it continues to be
a realistic goal to fully recover factory overheads without diluting reported
margins.
Operating expenses were kept under control, such that the Group delivered a
positive Adjusted EBITDA(1) of £0.50m compared with a loss of £0.33m in 2020
and an Adjusted EBITDA(1) of £1.45m pre-pandemic. The Adjusted Loss Before
Taxation(1) amounted to £0.33m compared with £1.61m in 2020 and a profit of
£0.38m pre-pandemic. Adjusted Earnings Per Share(1) amounted to a loss of
0.022 pence (2020: 0.19p; 2019: earnings of 0.05p).
The strong recovery in revenues towards the end of the year prompted a managed
reflation of working capital with an increase in trade receivables and
inventory of £1.24m in the year (with £0.81m in the second half of the year)
to £1.40m and £2.97m respectively. These end-of-year amounts are comparable
with pre-pandemic levels (2019: £1.95m and £2.93m respectively) and are
considered sufficient to support the ongoing needs of the business into 2022.
Net cash at the end of the year amounted to £1.76m (as at 31 December 2020:
£3.10m).
Since the end of the year, the Group has agreed re-arranged borrowing
facilities with its principal bankers, replacing the existing facility of
£2.3m with a combined invoice discounting and CBIL loan facility of £2.5m.
Financial headroom as at 31 December 2021 was £4.06m, compared with £5.78m
at 31 December 2020. The directors are satisfied that this reduced headroom
is appropriate given the significantly lower risk environment and the
increased level of working capital available in the ordinary course of
business.
1. Reconciliation to adjusted KPI measures included in the Operating
and Financial Review
Board and management structure
The Board was pleased to announce the appointment of Charmaine Day FCCA as
Chief Financial Officer in November 2021, following two years during which she
had taken responsibility for all financial aspects of the management of the
Group, and four years as Company Secretary.
At around this time, the directors undertook a review to determine the
appropriate board structure to fulfill the future strategic and governance
needs of the business. The review concluded that the board should be reduced
to five directors, comprising three non-executive directors (including an
independent chair and senior independent director), and two executive
directors, being the Chief Executive Officer (CEO) and the CFO. As part of
this planned process, Adam Power stepped down from the Board on 31 December
2021, and I take this opportunity to express our sincere thanks for his major
contribution to the Company's performance in recent years.
Alistair Taylor had also signaled his intention to step down from the board at
the same time, but regretfully, Alistair passed away on 12 December 2021.
The directors are grateful for his involvement since joining the board in
2016, and were saddened to hear of his passing. The composition of the
non-executive complement of the Board remains under review, and further
evolution is anticipated by the end of 2022.
Of equal importance to the future of the Group was to continue building a
strong executive management team comprising the CEO, CFO and senior heads of
operations, sales and regulatory affairs. This complement is now complete,
and the Board has every confidence that our leadership team has the skills,
experience and capacity to lead the business to the next level of success.
Strategy and Development
The Group specialises in the design, manufacture, sale and distribution of
innovative, high quality medical products, primarily for use in minimally
invasive surgery. 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. We
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.
New Product Development
New product development has been a key focus for the business during 2021 and
the first new product, YelloPort™Elite 5mm ('access device'), was launched
in February 2022 and the Optical Trocar for this device will be available in
Q2. The access device was successfully developed in collaboration with CMR
Surgical (CMR), the first partnership with them. The device is designed to
function effectively with robotic instrumentation and will provide
opportunities as the utilisation of robotics continues to grow. The access
device also dovetails with specific market requirements in the USA and Japan.
The project with CMR provides an opportunity to develop greater partnerships
in robotic surgery and utilise our existing expertise in access devices,
instrumentation and flex technology.
In addition, a range of LogiGrasp and Dissect are anticipated to be launched
in Q3 which will enhance the Logi Range of instrumentation.
Third Party Relationships
Our growing relationship with CMR has obviously impacted the strategic
partnership with DistalMotion and we are supporting them as they move to a
direct sales model in the UK. The recent acquisition of Venclose by Beckton
Dickerson and the uncertainty around the future direction of this product has
allowed us to direct our resources in more productive product areas.
Our existing 3rd Party partnerships with Microline and Peters Surgical have
been fortified by reciprocal agreements in the USA and India respectively.
Current trading and outlook
Trading in the first two months of the current year is approximately 40%
higher than the corresponding periods of 2021 and slightly ahead of
pre-pandemic levels of 2019. This would indicate a more normalised level of
trading for the rest of the year with the return of elective surgery.
Despite the Omicron Covid-19 variant causing healthcare staff shortages in
some markets, the impact has been less severe than anticipated. The UK
market continues to be strong and is trending ahead of pre-pandemic levels
and, as patient waiting lists continue to rise, it is likely that this
momentum will continue. Demand in the European and the Rest of the World
markets is steadily increasing but remains more muted. However, both the US
and APAC markets continue to grow significantly ahead of pre-pandemic levels.
In addition, we are committed to enhancing and expanding our product portfolio
through the new product launches, investing in sales and marketing to drive
our sustainability messaging, and developing key partnerships, all of which
will support the further expansion of revenue in 2022 and beyond.
Nigel Rogers
Chairman
23 March 2022
Operating and Financial Review
Operational overview
Regulatory
Transition to Medical Device Regulation (EU) 2017/745 (MDR) remains the key
priority for the business and the Group continues to be on track for
completion in March 2023. The MDR process has required significant
investment in people and process impacting all areas of the business.
However, whilst it is clear that these regulatory requirements will continue
to be part of the medical device landscape, it will raise the bar to market
entry providing an opportunity to those with the regulatory expertise to
navigate MDR. The controlled progress on MDR and regulatory approvals
validates the investment in people made in QA/RA during 2019 and 2020 and we
have continued to invest in the current year.
Sales and Marketing
The Executive team was further strengthened in July 2021 with the appointment
of Damian Donnelly as Group Sales and Marketing Director. Damian joined the
Company with excellent industry experience and a very strong marketing
pedigree. The Executive team is well supported by the next layer of
management who have responded very positively to the challenges faced over the
last year.
As global markets reopen the Group has responded to the opportunity this
presents by further investment in sales and marketing resources. The
appointment of two International Sales Managers will allow us to consolidate
the 2021 initiatives in key markets and provide the bandwidth to open
strategic new markets. The UK team has been strengthened by the appointment
of a National Accounts Manager to focus on the Private/NHS waiting list
initiative work, as well as improving communication with the NHS Supply
Chain. A new Marketing Manager and Marketing Communications Assistant will
further finesse our sustainability messaging for UK and global markets.
Manufacturing and facility investment
Capital expenditure, highlighted in September, to improve manufacturing
efficiency and operational capacity is well underway with the first CNC Lathe
being installed and commissioned in February 2022. Additional injection
moulding capacity is being built to allow us to bring more production in-house
and manage the anticipated increase in volumes of both YelloPort™ Elite and
YelloPort™ Elite 5mm.
Supply chain
Supply chain logistics remain a challenge for most organisations and has
necessitated the additional inventory at year end to ensure that we were well
placed to meet any increase in demand. Inflationary pressures on the cost of
raw materials and distribution products have also been challenging, however
mitigating action has been taken to offset these effects through cost
reduction activity and increases in selling prices.
Financial overview
As global healthcare providers return to normal activity levels following the
Covid-19 pandemic and to understand the nature of this impact, the board
references the financial year ending 2019 as a comparative period being the
last pre-pandemic year as a measure of recovery.
Revenue
Overall revenues increased by 44.2% in 2021 to £9.13m. This compares with the
full year revenues of £6.3m in 2020 and £10.7m in 2019 as a pre-pandemic
comparative. Sales of £4.91m in the second half of the year were 16.4%
higher than the first half of the year in 2021 (2021 H1: £4.21m) and at 87.6%
of relatively normal levels in the second half of the year based on the
comparative 2019 period (2019 H2: £5.63m).
Revenues from the sale of Surgical Innovations Brand products increased by
41.1% to £4.81m (2020: £3.41m) during the year and compared to 2019 are at
82.4% of normal relative levels (2019: £5.84m), however revenues for the
second half year decreased by 5.7% from the first half of the year mainly from
the US and APAC regions.
At the start of the year, the UK market saw a number of NHS trusts reduce or
postpone elective surgery during the second wave of the pandemic. In the
second half of the year recovery was stronger, increasing by 24% from the
first half. With the continued backlog of patients on waiting lists and
the NHS's fulfilment of the 'Net-Zero' obligations on sustainability, the
SI Branded Resposable® range is well positioned for further recovery and
future growth.
Revenues from the US in the first half continued to be strong despite the
pandemic, with substantial stocking orders in the first quarter. Sales
activity levels in hospitals continued to return to normal as the US team made
progress with significant general procurement organisations ("GPOs") and
healthcare providers as operating rooms ("OR") become accessible. New
evaluations continued but there have been some states where access remains
restricted as a result of Covid challenges. Overall US SI branded sales
increased by 51.1% from 2020 which was at 71.9% of the comparative
pre-pandemic levels (2021: £1.33m; 2020: £0.88m; 2019: £1.85m). The
distribution agreements signed at the beginning of the year have had a slower
start than anticipated, but are set to provide a significant opportunity for
growth.
SI Brand revenues from the APAC region, similarly to the US, showed
a strong start to the year with substantial stocking orders in the first
quarter. APAC sales increased by 8.8% from 2020, however this region has seen
significant growth since 2019 (2021: £0.74m, 2020: £0.68m, 2019: £0.46m).
SI Brand sales in the Rest of the World were up by 52.2% from 2020, but
remained relatively low at 54.7% of pre-pandemic levels; this region is
typically made up of tender-based business and this market has
been impeded by the pandemic (2021: £0.35m, 2020: £0.23m, 2019: £0.64m).
Total OEM revenues nearly doubled from 2020 by 96.7% (2021: £1.20m; 2020:
£0.61m; 2019: £1.79m). With our key OEM partners in the medical sector
experiencing similar pressures to those in our own portfolio, there was a slow
start to the year, and the significant orders for non-medical products
delivered in 2018 and 2019 were not repeated this year. In the second half of
the year the recovery improved significantly against the first and saw revenue
levels at similar levels to the 2019 comparative period (2021 HY2: £0.75m,
2019 HY2: £0.79m). This level of activity has continued into early 2022 and
is anticipated to grow further in 2023.
Distribution sales increased by 35.1% from 2020 and are now back at 2019
levels (2021: £3.12m, 2020: £2.31m, 2019: £3.10m). Despite the slower
start to the UK distribution market, the revenue levels have fully recovered
as anticipated and this has continued into early 2022 despite the concerns of
the Omicron variant. The product portfolio has a wider range which meets the
increased demands of other specialisms such as Bariatric surgery.
Margins
Underlying gross margins (before net manufacturing costs) remained within
target range at 42.3% (2020: 44.4%) with reportable direct gross profit
margin also improved but still below target at 34.3% (2020: 20.1%). The direct
gross margin is still being affected by the increased net manufacturing costs,
driven by overall reduced levels of factory output and, in particular, the
additional challenges with increasing costs of people and the reduction of
available skilled labour resource affecting overall capacity.
Analysis of gross margin
The Group has disaggregated margins in the following table:
2021 2020
£'000
£'000
Revenue 9,126 6,329
Cost of Sales (5,268) (3,519)
Underlying Gross Margin 3,858 2,810
Underlying Gross Margin % 42.28% 44.39%
Net Cost of Manufacturing(1) (727) (1,538)
Contribution Margin 3,131 1,272
Contribution Margin % 34.31% 20.10%
1. Underlying net cost of manufacturing with the government support of
the CJRS scheme of £2,000 (2020: £270,000) allocated in other income added
back to adjust the net costs of Manufacturing to £725,000 (2020: £1,148,000)
results in an underlying contribution margin of 34.33% (2020: 26.26%).
Use of adjusted measures
Adjusted KPIs are used by the Board to understand underlying performance and
exclude items which distort comparability, as well as being consistent with
broker forecasts and measures. The method of adjustments are consistently
applied but are not defined in International Financial Reporting Standards
(IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted
Accounting Principles) measures. Accordingly, the relevant IFRS measures are
also presented where appropriate.
Key Performance Indicators ("KPIs")
The Group considers the key performance indicators of the business to be:
2021 2020 Target Measure
Underlying Gross Profit Margin Gross profit (before net manufacturing cost)/ revenue 42.3% 44.4% >40%
Direct Gross Profit Margin Gross profit / revenue 34.3% 20.1% >40%
Net Cash/(Net Debt)(1) Cash less debt £1.76m £3.10m N/A
1. Net debt comprised of bank borrowings (£1.8m), excluding leases
under the adoption of IFRS16.
Reconciliation of adjusted KPI / measures
EBITDA(2) Loss before taxation
As stated £0.39m £(0.59)m
Impairment of product development intangibles - £0.15m
Share based payments £0.03m £0.03m
Exceptional items £0.08m £0.08m
Adjusted Measure £ 0.50m £(0.33)m
2. EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation (including impairment). EBITDA is calculated as
operating loss of £(0.46)m adding back depreciation £0.45m, amortisation
£0.25m and impairment £0.15m.
Earnings per share EPS
Basic EPS (0.049)p
Loss attributable to shareholders £(0.46)m
Add: Share based payments £0.03m
Add: Exceptionals £0.08m
Add: Impairment of product development intangibles £0.15m
Adjusted profit attributable to shareholders £(0.20)m
Adjusted EPS (0.022)p
Adjusted EBITDA
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 significantly increased in 2021 to a profit of £0.50m in line
with expectations (2020 loss of: £0.66m), mainly as a result of the recovery
from pandemic. Operating expenses were lower in the first half of the year
due to reduced sales and marketing costs, this increased by 23.6% in the
second half of the year (2021HY: £1.62m, 2021HY2: £2.00m). With the focus
to gradually increase UK sales heads back to normal levels as revenue recovers
and increase headcount in regulatory with MDR (Medical Device Regulation)
certification due in May 2023.
Exceptional items relate to employee termination payments and relocations
costs amounting to £78,000 (inclusive of NI and legal fees).
Capital expenditure on tangible assets increased with the investment into new
tooling for the new product launch set for early 2022 (2021: £0.21m, 2020
£0.04m) set against a depreciation charge of £0.26m excluding Right of use
assets (2020: £0.35m). Capex plans continued to be reviewed with the
intention to improve the manufacturing facilities as a continuation of the
improvements that were started in 2019. The Group has committed to an
additional £0.16m on a new CNC lathe due in February 2022 with a new
injection moulder to follow shortly after.
Investment into new product development has increased significantly as part of
the strategy announced alongside the fundraise in 2020. Cash into
development expenditure was £0.45m (2020: £0.13m). Capitalised development
expenditure was tested for impairment. Management has reviewed the remainder
of costs for the Illuminated devices and with the focus on advancing new
products under MDD (the Medical Device Directive) instead of MDR, the project
timeframe had been pushed out into 2024. This reflects how the commercial
market landscape has changed and may continue to change. With the delayed
timeframe for completion, it was decided that the nature of these costs
provide no future economic benefit, and an impairment of £0.15m has therefore
been recognised.
A review of the goodwill arising on the acquisition of Elemental Healthcare
was tested for further impairment. The trading environment in the UK market
was significantly impacted by the pandemic throughout 2020 and this continued
into 2021, which impacted the cumulative impairment by £2.76m. In the
second half of 2021 the UK market showed strong signs of recovery, and this
has continued into early 2022. With greater visibility on the outlook, the
Directors anticipate improved forecasting of future net inflows on this CGU
and, on this basis, the recoverable amount of the cash-generating unit would
exceed its carrying value by £2.94m.
Inventory holdings increased significantly throughout the year by £0.80m to
£2.96m (2020: £2.17m). Starting the year with minimal inventory levels and
a planned reflation (2021HY1: £2.36m), moving into the second half of the
year the Group was impacted by UK and international supply chain issues.
Inventory levels were optimised in order to manage lead times, inflationary
pressures on minimum order quantities and increased activity. Safety stock
levels continue to be reviewed and monitored in the current year in order to
support customer requirements and generate cash as the working capital cycle
stabilises.
Trade receivables were higher at the year-end £1.4m (2020: £0.96m), affected
by the increased revenue, with negligible bad debts or overdue balances.
Trade creditors increased over the same period, which reflected the Group's
optimisation of working capital (2021: £1.09m; 2020: £0.75m).
Net cash used in operations was £0.43m (2020 generated from: £1.04m),
primarily as a result of the increased optimisation of working capital
movements described above. The Group closed the year with net cash balances
of £1.76m (excluding leases) compared with opening net cash of £3.10m.
Bank borrowings of £1.88m comprising of £1.50m Coronavirus Business
Interruption Loan Scheme (CBILS) and the existing loan facilities £0.38m
resulted in interest obligations of £0.07m (2020: £0.07m). Both loans were
due to be repaid in May 2022. In March 2022 the board refinanced the
existing debt including the additional undrawn revolving credit facility of
£0.5m and replaced it with an invoice discounting facility of £1.00m and in
addition extended the CBILS loan to May 2026. At the time of audit sign off
on the approval of the accounts, the CBILS extension was complete, and the
invoice discounting agreement was credit approved and progressing. The
refinance provides greater flexibility than the existing debt and continues to
provide ample headroom for the Group.
The Group recorded a corporation tax credit of £0.13m (2020: credit of £nil)
and a deferred tax credit of £nil (2020: credit £0.03m). 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 2020 amounting to £0.13m. This claim has
been paid in the current year and therefore has not been recognised in the
2021 accounts.
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 Change vs. prior year Risk and description Mitigating actions
Funding risk At same level The Group currently has a mixture of borrowings comprising a £0.38m loan, Liquidity and covenant compliance is monitored carefully across varying time
£0.5m rolling credit facility and £1.5m CBILS arrangement. The Group remains horizons to facilitate short term management and also strategic planning. This
dependent upon the support of these funders and there is a risk that failure monitoring enables the management team to consider and to take appropriate
in particular to meet covenants attaching to the rolling credit facility could actions within suitable time frames.
have financial consequences for the Group.
In aggregate total borrowing at 31 December 2021 was £1.88m (2020: £2.18m).
Financial covenants were amended to reflect the current trading in September
2021 to a £3m gross cash balance, this will continue to be tested on a
monthly basis until the term of the loan which at the point of refinance.
In March 2022 the board refinanced the existing debt including the additional
undrawn revolving credit facility of £0.5m and replaced it with an invoice
discounting facility of £1m and in addition extended the CBILS loan to May
2026. The refinance provides greater flexibility than the existing debt and
continues to provide ample headroom for the Group. At the time of audit sign
off on the approval of the accounts, the CBILS extension was complete, and the
invoice discounting agreement was credit approved and progressing.
The bank continue to be a supportive stakeholder.
Covid-19 and business interruption Reduced The escalation in the spread of Covid-19 and various variants in the UK poses All government guidance has been monitored closely and followed immediately by
a threat to the continuation of business operations if there is a widespread advisory notices to all employees, and provision of the appropriate guidance
infection in any of our facilities or amongst the workforce. and cleaning materials to minimise any effect.
Where staff members have presented symptoms and tested positive either by
lateral flow or PCR, they have been asked to immediately self-isolate and
inform us quickly of any contact with other employees which may be cause for
concern. There is also a risk of further reduction in elective surgery either
by reduced levels of surgery or being postponed. Whilst the various variant
waves in the pandemic continue, management continues to monitor closely the
rapidly changing environment and has devised a series of mitigating actions,
designed to maintain delivery of essential products to our customers and
distributors. The majority of the workforce can work from home if necessary to
safeguard other employees.
Customer concentration At The Group exports to over thirty countries and distributors around the world, The majority of distributors, including the most significant, are well
same level but certain distributors are material to the financial performance and established and their relationship with the Group spans many years. Credit
position of the Group. As disclosed in note 2 to the financial statements, one levels and cash collection is closely monitored by management, and issues are
customer accounted for 11.5% of revenue in 2021 and the loss, failure or quickly elevated both within the Group and with the distributor.
actions of this customer could have a severe impact on the Group.
Issue Change vs prior year Risk and description Mitigating actions
Foreign At same level The Group's functional currency is UK Sterling; however, it makes significant The Group monitors currency exposures on an on-
purchases in Euros and US Dollars.
exchange risk
going basis and enters into forward currency arrangements where considered
appropriate to mitigate the risk of material adverse movements in exchange
rates impacting upon the business. Euro and US Dollar cash balances are
The US Dollars and Euros are generally mitigated by US Dollar sales by monitored regularly and spot rate sales into sterling are conducted when
creating a natural hedge. significant currency deposits have accumulated. The accounting policy for
foreign exchange is disclosed in accounting policy 1d.
Regulatory Increased As an international business a significant proportion of the Group's products The Group has a dedicated Compliance department which assists product
require registration from national or federal regulatory bodies prior to being development teams with support as required to minimise the risk of regulatory
approval offered for sale. The majority of our major product lines have FDA approval in approval not being obtained on new products and ensures that the Group
the US and we are therefore subject to their audit and inspection of our operates processes and procedures necessary to maintain relevant regulatory
manufacturing facilities. approvals.
There is no guarantee that any product developed by the Group will obtain and
maintain national registration or that the Group will always pass regulatory Whilst there is no guarantee that this will be sufficient, the Group has
audit of its manufacturing processes. Failure to do so could have severe invested in people with the appropriate experience and skills in this area
consequences upon the Group's ability to sell products in the relevant which mitigates this risk significantly.
country.
We have increased resource into the regulatory team and continue to do in 2022
The Group has till May 2023 to transition the current product portfolio to to ensure internal deadlines are met.
fall under the Medical Device Regulations (MDR), currently held under Medical
Device Directive (MDD). Time constraints of BSI, the notified body in the UK,
are outside of our control.
Brexit At same level The Group exports to a number of different countries with sales to Europe The Group has successfully reassigned all of the Company's product
accounting for 11.7% of 2021 revenue. As well as exporting, the Group imports certifications from BSI Notified Body 0086 (UK) to BSI Netherlands Notified
goods both for re-sale through Distribution revenue, as well as some raw Body 2797, in order to mitigate any risk to regulatory clearance both in the
materials used in manufacturing. EU and in the UK.
The current trade rules transitioned on 1 January 2021. Transitional Any risk from a delay in supply chain has also been mitigated by the
arrangements made between the UK and EU have caused some delay to Customs successful application of Approved Economic Operator Status, which we received
clearances due to paperwork provided by the couriers which has since been in March 2019.
resolved.
In addition to the above management will continue to monitor closely and
mitigate where possible the impact on the supply chain.
The Group continues to have delays in supply chain and inflationary pressures
partly driven by Brexit but also Covid.
Going concern
The Directors have prepared forecasts for the period to March 2023 based on an
evaluation of financial forecasts, sensitised to reflect a rational judgement
of the level of inherent risk.
At the 31 December 2021, bank borrowings for the Group were £1.88m comprising
of £1.50m Coronavirus Business Interruption Loan Scheme (CBILS) and the
existing loan facilities of £0.38m which resulted in interest obligations of
£0.07m. Financial covenants have been complied with in full and have
continued to be tested on a monthly basis. Both loans were due to be repaid
in May 2022. In addition, the Group had access to a committed undrawn £0.50m
revolving credit facility. Net Cash as at the 31 December 2021 was £1.76m,
giving an overall headroom of £4.14m.
In March 2022 the Group refinanced the existing debt, including the additional
undrawn revolving credit facility of £0.5m. The debt was replaced with an
invoice discounting facility of £1.0m and an extension of the CBILS loan of
£1.5m just over four years till May 2026. At the time of audit sign-off on
the approval of the accounts, the CBILS extension was complete, and the
invoice discounting agreement was credit approved and progressing. The
refinancing provides greater flexibility for further investment in terms of
covenant testing than the prior debt and continues to provide ample headroom
for the Group. Covenant information is provided at note 6. Financial
headroom as at 31 December 2021 was £4.06m.
The Group has significant investment plans for capital expenditure on plant
and machinery circa £0.6m in the next twelve months. Decisions to take
additional finance in the form of hire purchase or use of the existing debt to
finance projects will impact both the cash and the covenant testing and the
decisions to utilise such funding will very much depend on the performance of
the business.
The Board is satisfied that there is ample headroom including testing any
sensitivities under reasonably possible scenarios, and the Directors conclude
that it continues to be appropriate to prepare the Annual Report and Accounts
on a going concern basis.
Consolidated statement of comprehensive income
for the year ended 31 December 2021
2021 2020
£'000 £'000
Revenue 2 9,126 6,329
Cost of sales 2 (5,995) (5,057)
Gross profit 3,131 1,272
Other operating expenses 2 (3,611) (5,063)
Other Income 3 25 621
Operating loss (455) (3,170)
Finance costs (130) (138)
Finance income - 1
Loss before taxation (585) (3,307)
Taxation credit 129 31
Loss and total comprehensive Income (456) (3,276)
(Loss) per share, total and continuing
Basic 4 (0.05p) (0.33p)
Diluted 4 (0.05p) (0.33p)
The Consolidated statement of comprehensive income above relates to continuing
operations.
Loss and total comprehensive income relate wholly to the owners of the parent
Company.
Consolidated statement of changes in equity
for the year ended 31 December 2021
Share Share Capital Merger Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 January 2020 7,953 5,904 329 1,250 (3,244) 12,192
Share based payment - - - - 116 116
Issue of share capital 1,375 825 - - - 2,200
Equity based placing fees - (142) - - - (142)
Total - transactions with owners 1,375 683 - - 116 2,174
Loss and total comprehensive income for the period - - - - (3,276) (3,276)
Balance as at 31 December 2020 9,328 6,587 329 1,250 (6,404) 11,090
Share based payment - - - - 30 30
Total - transactions with owners - - - - 30 30
Loss and total comprehensive income for the period - - - - (456) (456)
Balance as at 31 December 2021 9,328 6,587 329 1,250 (6,830) 10,664
Consolidated balance sheet
at 31 December 2021
2021
2020
£'000 £'000
Assets
Non-current assets
Property, plant and equipment 366 412
Right of use assets 832 1,030
Intangible assets 5 6,216 6,173
7,414 7,615
Current assets
Inventories 2,965 2,167
Trade and other receivables 1,695 1,283
Cash at bank and in hand 3,644 5,278
8,304 8,728
Total assets 15,718 16,343
Equity and liabilities
Equity attributable to equity holders of the parent company
Share capital 8 9,328 9,328
Share premium account 6,587 6,587
Capital reserve 329 329
Merger reserve 1,250 1,250
Retained earnings (6,830) (6,404)
Total equity 10,664 11,090
Non-current liabilities
Borrowings 6 - 1,879
Deferred tax liabilities - -
Dilapidation provision 165 165
Lease liability 750 907
915 2,951
Current liabilities
Trade and other payables 7 1,614 1,449
Accruals 488 369
Borrowings 1,880 298
Lease liability 157 186
4,139 2,302
Total liabilities 5,054 5,253
Total equity and liabilities 15,718 16,343
Consolidated cash flow statement
for the year ended 31 December 2021
2021 2020
£'000 £'000
Cash flows from operating activities
Loss after tax for the year (456) (3,276)
Adjustments for:
Taxation (129) (31)
Finance income - (1)
Finance costs 130 138
Other Income-CBILS interest grant 3 (23) (27)
Depreciation of property, plant and equipment 258 348
Amortisation and impairment of intangible assets 5 402 1,726
Depreciation Right of Use assets 187 211
Share-based payment charge 30 116
Foreign exchange 12 42
(Increase)/decrease in inventories (802) 758
(Increase)/decrease in trade and other receivables (412) 1,076
Increase/(decrease) in payables 7 276 (10)
Cash (used in)/generated from operations (527) 1,070
Taxation received 129 -
Interest paid (35) (28)
Net cash (used in)/generated from operating activities (433) 1,042
Cash flows from investing activities
Payments to acquire property, plant and equipment (212) (42)
Acquisition of intangible assets (445) (113)
Net cash used in investing activities (657) (155)
Repayment of bank loan (300) (150)
Proceeds from CBILS 6 - 1,500
Net proceeds from issue of share capital 8 - 2,052
Repayment of lease liabilities (232) (251)
Net cash (used in)/generated from financing activities (532) 3,151
Net (decrease)/increase in cash and cash equivalents (1,622) 4,038
Cash and cash equivalents at beginning of year 5,278 1,282
Effective exchange rate fluctuations on cash held (12) (42)
Cash and cash equivalents at end of year 3,644 5,278
Notes to the consolidated financial statements
1. Group accounting policies under IFRS
(a) Basis of preparation
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.
The consolidated financial statements have been prepared in accordance with
the requirements of the Companies Act 2006' with 'UK-adopted international
accounting standards 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.
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 cash 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. Further details of the Directors'
assessment are provided in the Chairman's Statement, the Operating and
Financial Review and Directors' report and disclosed in note (p) of the
financial statements.
2. Segmental reporting
Information reported to the Board, as Chief Operating Decision Makers, 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. As well as
Precision Engineering, this includes the research, development, manufacture
and sale of minimally invasive technology products for precision engineering
applications
Distribution - Distribution of specialist medical products sold through Elemental Healthcare
Ltd
The measure of profit or loss for each reportable segment is gross margin less
amortisation of product development costs. 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 a
reconciliation between the information used by the chief operating decision
maker within the business and the information as it is presented under IFRS.
SI Brand Distribution OEM Total*
£'000
£'000
Year ended 31 December 2021 £'000 £'000
Revenue 4,813 3,116 1,197 9,126
Expenses (3,770) (1,837) (790) (6,397)
Result
Segment result 1,043 1,279 407 2,729
Unallocated expenses (3,209)
Other Income 25
(Loss) from operations (455)
Finance income -
Finance costs (130)
(Loss) before taxation (585)
Tax credit 129
(Loss) for the year (456)
*There were no revenues transactions between the segments during the year
Included within the segment/operating results are the following significant
non-cash items:
SI Brand Distribution OEM Total
Year ended 31 December 2021 £'000 £'000 £'000 £'000
Amortisation of intangible assets 257 - - 257
Impairment of intangible assets 145 - - 145
Unallocated expenses for 2021 include sales and marketing costs (£246,000),
research expenses (£973,000), central overheads (£797,000), Direct
(Elemental Healthcare) sales & marketing overheads (£1,085,000), share
based payments (£30,000), exceptionals (£78,000) note 3.
SI Brand Distribution OEM Total*
£'000
£'000
Year ended 31 December 2020 £'000 £'000
Revenue 3,410 2,311 608 6,329
Expenses (3,681) (2,703) (399) (6,783)
Result
Segment result (271) (392) 209 (454)
Unallocated expenses (3,337)
Other income 621
(Loss) from operations (3,170)
Finance income 1
Finance costs (138)
(Loss) before taxation (3,307)
Tax charge 31
(Loss) for the year (3,276)
*There were no revenues transactions between the segments during the year
Included within the segment results are the following items:
SI Brand Distribution OEM Total
Year ended 31 December 2020 £'000 £'000 £'000 £'000
Amortisation of intangible assets 250 162 - 412
Impairment of intangible assets 182 1,132 - 1,314
Unallocated expenses for 2020 include sales and marketing costs (£185,000),
research expenses (£1,099,000), central overheads (£790,000), Direct
(Elemental Healthcare) sales & marketing overheads (£1,039,000), share
based payments (£116,000), exceptionals (£108,000) Note 3.
Analysis of gross margin
The Group has disaggregated margins in the following table:
2021 2020
£'000
£'000
Revenue 9,126 6,329
Cost of Sales (5,268) (3,519)
Underlying Gross Margin 3,858 2,810
Underlying Gross Margin % 42.28% 44.39%
Net Cost of Manufacturing* (727) (1,538)
Contribution Margin 3,131 1,272
Contribution Margin % 34.31% 20.10%
*Underlying net cost of manufacturing with the government support of the CJRS
scheme of £2,000 (2020: £270,000) allocated in other income added back to
adjust the net costs of Manufacturing to £725,000 (2020: £1,148,000) results
in an underlying contribution margin of 34.33% (2020:26.26%).
Disaggregation of revenue
The Group has disaggregated revenues in the following table:
Year ended 31 December 2021 SI Brand Distribution OEM Total
£'000 £'000 £'000 £'000
United Kingdom 1,306 3,116 1,008 5,430
Europe 1,075 - - 1,075
US 1,333 - 189 1,522
APAC(1) 743 - - 743
Rest of World 356 - - 356
4,813 3,116 1,197 9,126
Year ended 31 December 2020 SI Brand Distribution OEM Total
£'000 £'000 £'000 £'000
United Kingdom 889 2,311 457 3,657
Europe 726 - - 726
US 882 - 151 1,033
APAC(1) 681 - - 681
Rest of World 232 - - 232
3,410 2,311 608 6,329
1. Asia-Pacific
Revenues are allocated geographically on the basis of where revenues were
received from and not from the ultimate final
destination of use. During 2021 £1,050,000 (11.5%) of the Group's revenue
depended on one distributor in the SI Brand segment (2020: £708,000 (11.2%)).
Sales of goods were £9,062,000 (2020: £6,307,000) and sales relating to
services in the UK were £64,000 (2020: £22,000).
3. Other Income comprised:
2021 2020
£'000 £'000
CJRS 2 594
CBILS-Interest free (12mths) 23 27
25 621
Other Income disclosed above relates to amounts received from the Coronavirus
Job Retention Scheme (CJRS). As part of the response to the COVID-19
pandemic the government introduced the CJRS. This allowed all employees on a
PAYE scheme to designate some or all employees as 'furloughed workers'. The
Group accessed this Government support in order to continue paying part of the
furloughed employees' salaries and at the same time protecting them from
potential redundancy.
The Group claimed £2,000 through CJRS during 2021 (2020: £594,000).
4. Earnings per ordinary share
Basic earnings per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31
December 2021 was based upon the loss attributable to ordinary shareholders of
(£456,000) (2020:(£3,276,000)) and a weighted average number of ordinary
shares outstanding for the year ended 31 December 2021 of 936,564,122 (2020:
834,762,898).
Diluted earnings per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31
December 2021 was based upon the loss attributable to ordinary shareholders of
(£456,000) (2020: (£3,276,000)) and a weighted average number of ordinary
shares outstanding for the year ended 31 December 2021 of 938,784,384 (2020:
836,824,355). The anti-dilutive effect of unexercised shares options has not
been taken into account, and therefore the diluted earnings per share is equal
to the basic earnings per share.
Adjusted earnings per ordinary share
The calculation of adjusted earnings per ordinary share for the year ended 31
December 2021 was based upon the adjusted (loss)/profit attributable to
ordinary shareholders (profit before exceptional and amortisation and
impairment costs relating to the acquisition of Elemental Healthcare,
impairment of capitalised development costs and share based payments) of
(£203,000) (2020: £1,576,000) and a weighted average number of ordinary
shares outstanding for the year ended 31 December 2021 of 936,564,122 (2020:
834,762,898).
No. of shares used in calculation of earnings per ordinary share ('000s)
2021 2020
No. of Shares No. of Shares
Basic earnings per share 936,564 834,763
Dilutive effect of unexercised share options 2,220 2,061
Diluted earnings per 938,784 836,824
share
5. Intangible assets Capitalised development costs Single use product knowledge transfer Exclusive Supplier Agreements
Goodwill Total
£'000 £,000 £'000 £'000 £'000
Cost
At 1 January 2020 13,416 225 8,180 1,799 23,620
Additions 113 - - - 113
Reclassification of investment in associate* 173 - - - 173
At 1 January 2021 13,702 225 8,180 1,799 23,906
Additions 445 - - - 445
At 31 December 2021 14,147 225 8,180 1,799 24,351
Accumulated amortisation
At 1 January 2020 (12,520) (225) (1,625) (1,637) (16,007)
Charge for the year (250) - - (162) (412)
Impairment provision (182) (225) (1,132) - (1,314)
At 1 January 2021 (12,952) (225) (2,757) (1,799) (17,733)
Charge for the year (257) - - - (257)
Impairment provision* (145) - - - (145)
At 31 December 2021 (13,354) (225) (2.757) (1,799) (18,135)
Carrying amount
At 31 December 2021 793 - 5,423 - 6,216
At 31 December 2020 750 - 5,423 - 6,173
At 1 January 2020 896 - 6,555 162 7,613
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.
Capitalised development expenditure was tested for impairment. Management have
reviewed further costs for the Illuminated devices and with the focus on
advancing new products through on MDD (Medical Device Directive) instead of
MDR, the project timeframe had been pushed out into 2024. A consideration of
how the market landscape has changed and will continue to change with the
delayed timeframe for completion it was decided that the nature of these costs
provide no future economic benefit, an impairment of £0.15m has been
recognised.
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 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
1.5% (2020:1.5%) and a pre-tax discount rate of 13.2% (2020:15%) applied to
anticipated cash flows. In addition, the value in use calculation assumes a
gross profit margin of 39.5% (2020:40.6%) 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 was significantly impacted by the
pandemic throughout 2020 and continued into 2021, which impacted the
cumulative impairment by £2.7m. In the second half of 2021 the UK market
showed strong signs of recovery and this has continued into early 2022. With
greater visibility on the outlook the directors anticipate improved
forecasting of future net inflows on this CGU and on this basis, the
recoverable amount of the cash-generating unit exceeds its carrying value by
£2.9m.
6. Borrowings
2021 2020
Bank Loan £'000 £'000
Current liabilities 1,880 298
Non-current liabilities - 1,879
Lease liabilities
Current liabilities 157 186
Non-current liabilities 750 907
2,787 3,270
Bank loan
The bank loans provided by Yorkshire Bank consist of the following as at 31
December 2021:
· Loan A- £0.38m of the existing loan taken out over a 5 year
period dating back to August 2017. Interest rate is 3% plus fixed margin
(margin since October 2021, it was originally based on LIBOR rates) and
repayable on a quarterly basis at £0.075m.
· RCF-A undrawn Revolving Credit Facility (RCF) of up to £0.5m for
working capital and other purposes. If the RCF is drawn down the rate of
interest applicable to each loan for its interest period will be 2.8% per plus
a fixed margin per annum (margin since October 2021 it was originally based on
LIBOR rates) and it will be secured by a floating charge over the assets of
the Group.
· CBILS-£1.5m Coronavirus Business Interruption Loan Scheme
(CBILS) taken out in May 2020 on interest only payable monthly which was
interest free for the first twelve months at 2.28% thereafter.
· Covenants 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 period end in respect of the prior 12-month period:
EBITDA in respect of:
§ the 12 month period expiring on 31 March 2021 shall not
§ less than nil
§ the 12 month period expiring on 30 June 2021 shall not
§ be less than £200,000.
Gross cash:
§ Should not be less than £3.00m at the end of each month from September
2021 to the end of March 2022 at the point of refinance.
.
In March 2022, the Group refinanced the existing debt with Yorkshire bank
consisting of the following:
· Invoice Discounting facility £1.0m across the Group, to replace
loan A and the RCF, 2.5% on margin with a maximum of nominal administration
fee of a maximum of £0.018m if not utilised.( At the time of audit sign off
on the approval of the accounts, the CBILS extension was complete, and the
invoice discounting agreement was credit approved and progressing.)
· Extension to the CBILS of £1.5m repayable in May 2026, Interest
rate of 2.94% repayable monthly. Monthly installments are £0.029m.
· Covenants attached to the CBILS comprise of EBITDA to debt
servicing costs minimum 1.25x. First test 30 June 2022 (last 6 months), then
September 22 (9 months), then rolling 12m afterwards.
Changes in liabilities arising from financing activities Non-current loans and borrowings Current loans and borrowings Obligations under finance leases Total
At 1 January 2021 1,879 298 - 2,177
Cash flows - (350) - (350)
Transfer between non-current and current (1,879) 1,879 - -
Interest accruing in the period - 53 - 53
At 31 December 2021 - 1,880 - 1,880
7. Trade and other payables 2021 2020
£'000
£'000
Trade payables 1,090 749
Corporation tax payable - -
Other tax and social security 230 164
Other payables 294 294
3
Deferred creditors - 242
1,614 1,449
The Group and Company's financial liabilities have contractual maturities
(including interest payments where applicable) which are summarised below.
Amounts due in Amounts due in Amounts due in
less than 1 2-5 years 5-10 years Total financial liabilities
year
As at 31 December 2021
£'000
£'000 £'000 £'000
Trade payables 1,090 - - 1,090
Other payables 294 - - 294
Bank borrowings-Current 1,904 - - 1,904
Bank borrowings-Non-current - - - -
3,288 - - 3,288
Amounts due in Amounts due in Amounts due in
less than 1 2-5 years 5-10 years Total financial liabilities
year
As at 31 December 2020
£'000
£'000 £'000 £'000
Trade payables 749 - - 749
Other payables 294 - - 294
Deferred creditors 242 - - 242
Bank borrowings-Current 354 - - 354
Bank borrowings-Non-current - 1,904 - 1,904
1,639 1,904 - 3,543
8. Share Capital
Shares in issue reconciliation (Authorised, allotted, called up and fully
paid)
2021 2020
Opening no of shares in issue 932,816,177 795,316,177
Issued in satisfaction of share options exercised - -
Issued in relation to fundraising* - 137,500,000
Closing number of shares in issue 932,816,177 932,816,177
*During September 2020 the Company raised equity of £2.05m (net of associated
costs) to provide investment capital and additional financial headroom.
9. Capital commitments
At 31 December 2021 the Group had capital commitments totaling £17,400 for a
further down payment on tooling and £157,500 for plant and machinery (2020:
nil).
Additional plant and machinery was ordered in March 2022 approximately
totaling £300,000.
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