REG - Surgical Innovations - Half Yearly Report <Origin Href="QuoteRef">SUNU.L</Origin>

Surgical InnovationsAnnouncement

30/09/2015 07:03

RNS Number : 6306A
Surgical Innovations Group PLC
30 September 2015
Surgical Innovations Group plc
("SI" or the "Group" or the "Company")
Unaudited Interim Results for the six months ended 30 June 2015
Surgical Innovations Group plc (AIM: SUN), a designer and manufacturer of innovative medical technology in minimally invasive surgery, today announces its unaudited interim results for the six months ended 30 June 2015.
Summary
 Revenue of 2.60 million (H1 2014: 1.77 million)
 EBITDA, adjusted to exclude exceptional items, of (48,000) (H1 2014: 38,000)
 Gross margin of 8.4% (H1 2014: 47.3%) due to aggressive destocking exercise to release cash
 Exceptional items of 1.29 million relating to long term debtor provisions, stock provisions, impairment of Intangibles and further restructuring
 A further 500,000 of convertible loan notes issued to Chris Rea and Getz Bros. providing additional working capital
 Renegotiation of the covenants relating to the 3 million term loan provided by Yorkshire Bank
 Cash balance at 30 June 2015 of 1.46 million
Doug Liversidge, Non-Executive Chairman, commented: 
"Over the six months, the focus has been on cash generation and margin improvement with the result that the Company is now in a stable situation and has a much reduced cost base. We are now moving into the second phase of the recovery and, whilst still keeping tight control on costs we have recommenced product development.
"The outlook remains challenging, particularly in respect of profitability, and we expect that the full benefits of all the changes of the last year will not be felt until 2017."
Enquiries:
Surgical Innovations Group plc
0113 230 7597
Doug Liversidge (Non-Executive Chairman)

Melanie Ross (Finance Director)



W H Ireland Limited (Nominated Adviser and Broker)
0113 394 6600
Tim Feather

Liam Gribben


Chairman's statement
This report covers the first full six months following the reorganisation of management and the injection of capital into the Company during the second half of 2014.
Over the six months, the focus has been on cash generation and margin improvement with the result that the Company is now in a stable situation and has a much reduced cost base. We are now moving into the second phase of the recovery and, whilst still keeping tight control on costs we have recommenced product development.
Financial review
Revenue for the period was up by 47.1% to 2.60 million (H1 2014: 1.77 million). A major factor in the increase relates to SI Branded Sales which increased by 81.1% from 1.17 million to 2.12 million.
The reported operating loss for the period was 1.83 million (H1 2014: loss of 3.18 million) however the prior half year included 2.61 million of exceptional items compared to 1.30 million in 2015. EBITDA, adjusted to exclude exceptional items, decreased by 86,000 to a loss of 48,000 (H1 2014: 38,000). The exceptional items in 2015 related to further debtor and stock provisions, impairment on Intangibles and restructuring costs. 
As a consequence of the increase in revenue and the exceptional items, the reported loss before tax improved to 1.91 million (H1 2014: loss of 3.23 million). Excluding exceptional items, the loss before tax was marginally lower than the prior period at 612,000 (H1 2014: loss of 619,000). Basic loss per share was 0.39p (H1 2014: earnings per share of 0.65p).
The loss in the first half is largely a result of the gross margin which was 8.36% (H1 2014: 47.31%). The focus has been on cash generation, including through a process of substantially reducing inventory levels. This had had a positive impact on cash, but destocking in this way has a direct, negative impact on profitability as recoveries through manufacturing are reduced.
During the period the Group generated cash from operations of 598,000 (H1 2015: 257,000) which was impacted significantly by reduced inventories of 953,000 (H1 2014: increase of 1.47 million) and an increase in cash from trade payables of 686,000 largely due to cost savings (H1 2014: 252,000). 
Current trading and outlook
As previously announced, the financial performance for 2014 was extremely disappointing. Whilst 2015 is showing some signs of improvement, the outlook remains challenging, particularly in respect of profitability and we expect that the full benefits of the actions of the past twelve months will not be felt until 2017.
Doug Liversidge CBE
Chairman
30 September 2015
Unaudited consolidated income statement
for the six months ended 30 June 2015


Unaudited
Unaudited
Audited


six months
six months 
Year


ended
ended
Ended


30 June
30 June 
31 December


2015
2014
2014

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

Share
Share
Capital
Retained


capital
premium
Reserve
earnings
Total

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

Unaudited
Unaudited
Audited

30 June
30 June 
31 December

2015
2014
2014

'000
'000
'000
Assets
Non-current assets
Property, plant and equipment
1,949
2,475
2,234
Intangible assets
1,476
5,933
1,999
Deferred tax asset
-
2
-
Trade receivables
-
2,150
518
3,425
10,560
4,751
Current assets
Inventories
2,865
4,127
4,303
Trade receivables
809
3,007
1,281
Other current assets
319
199
261
Cash and cash equivalents
1,457
1,311
678
5,450
8,644
6,523
Total assets
8,875
19,204
11,274
Equity and liabilities
Equity attributable to equity holders of the parent company
Share capital
4,851
4,442
4,851
Share premium account
1,634
1,509
1,634
Capital reserve
329
329
329
Retained earnings
 (2,776)
7,232
(695)
Total equity
4,038
13,512
6,119
Non-current liabilities
Borrowings
3,976
2,972
3,471
Obligations under finance leases
168
366
256
Deferred income - government grant
-
131
-

4,144
3,469
3,727
Current liabilities


Trade and other payables
157
1,386
779
Deferred income - government grant*
 151
 -
-
Obligations under finance leases
230
328
282
Accruals
155
509
367
693
2,223
1,428
Total liabilities
4,837
5,692
5,155
Total equity and liabilities
8,875
19,204
11,274
*Deferred Income moved to Current liabilities from Non-Current Liabilities
Unaudited consolidated cash flow statement
for the six months ended 30 June 2015

Unaudited
Unaudited
Audited

six months
six months 
year

ended
ended
ended

30 June
30 June 
31 December

2015
2014
2014

'000
'000
'000
Cash flows from operating activities
Operating (loss)/profit
(1,828)
(3,182)
 (9,783)
Adjustments for:

Exceptional item
1,331
2,606
8,218
Depreciation of property, plant and equipment
251
224
555
Amortisation of intangible assets
235
390
788
Share-based payment charge
-
80
88
Grant income
(37)
-
-
Loss on disposal of fixed assets
-
-
3
Operating cash flows before movement in working capital
(48)
118
(131)
(Increase)/decrease in inventories
953
(1,457)
(1,945)
(Increase)/decrease in non-current receivables
-
(26)
269
(Increase)/decrease in current receivables
437
1,702
2,117
(Decrease)/increase in trade and other payables
(686)
(252)
(996)
Cash generated from operations
656
85
(686)
Taxation received
-
268
384
Interest paid
(58)
(96)
(183)
Net cash generated from operating activities
598
257
(485)
Cash flows from investing activities
Payments to acquire property, plant and equipment
(43)
(114)
(343)
Acquisition of intangible assets
(157)
(718)
(1,258)
Net cash used in investing activities
(200)
(832)
(1,601)
Cash flows from financing activities
Issue of Loan Notes 2017
500
500
Cash received from issue of shares
-
1,578
2,112
Cash received from government grant
37
102
102
New bank loan
-
3,000
3,000
Repayment of obligations under finance leases
(157)
(210)
(366)
Net cash used in financing activities
380
4,470
5,348
Net increase in cash and cash equivalents
779
3,895
3,262
(Net overdraft)/cash and cash equivalents at beginning of period
678
(2,584)
(2,584)
Net cash and cash equivalents/(net overdraft) at end of period
1,457
1,311
678
Analysis of net borrowings:
Cash at bank and in hand
(1,457)
(1,311)
(678)
Bank loan
Loan notes 2017
2,976
1,000
2,972
2,971
1000
Obligations under finance leases
399
694
538
Net borrowings at end of period
2,918
2,355
3,831
Notes to the Interim Financial Information
1. Basis of preparation of interim financial information
The interim financial information was approved by the Board of Directors on 29 September 2015. The financial information set out in the interim report is unaudited.
The interim financial information has been prepared in accordance with the AIM Rules for Companies and on a basis consistent with the accounting policies and methods of computation as published by the Group in its annual report for the year ended 31 December 2014, which is available on the Group's website.
The Group has chosen not to adopt IAS 34 Interim Financial Statements in preparing these interim financial statements and therefore the interim financial information is not in full compliance with International Financial Reporting Standards as adopted for use in the European Union.
The financial information set out in this interim report does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The figures for the year ended 31 December 2014 have been extracted from the statutory financial statements which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under sections 498(2) and 498(3) of the Companies Act 2006.
2. Segmental reporting
Information reported to the Board and for the purpose of assessing performance and making investment decisions is organised into three operating segments. The Group's operating segments under IFRS 8 are as follows: 
SI Brand - the research, development, manufacture and distribution of SI branded minimally invasive devices.
OEM - the research, development, manufacture and distribution of minimally invasive devices for third party medical device companies through either own label or co-branding.
Industrial - the research, development, manufacture and sale of minimally invasive technology products for industrial application.
The measure of profit or loss for each reportable segment is gross margin less attributable amortisation of goodwill.
Assets and working capital are monitored on a Group basis, with no separate disclosure of asset by segment made in the management accounts, and hence no separate asset disclosure is provided here. The following segmental analysis has been produced to provide reconciliation between the information used by the key decision makers within the business and the information as it is presented under IFRS.
Six months ended 30 June 2015 (unaudited)
SI Brand
OEM
Industrial
Total

'000
'000
'000
'000
Revenue
2,119
478
-
2,597
Result




Segment result
357
95
-
452
Exceptional items



(1,294)
Unallocated expenses 



(986)
Loss from operations



(1,828)
Finance costs



(80)
Finance income



2
Loss before taxation



(1,906)
Tax



-
Loss for the period



(1,906)
Included within the segment/operating results are the following significant non-cash items:

SI Brand
OEM
Industrial
Total
Six months ended 30 June 2015 (unaudited)
'000
'000
'000
'000
Amortisation of intangible assets
155
81
-
235
Six months ended 30 June 2014 (unaudited)
SI Brand
OEM
Industrial
Total

'000
'000
'000
'000
Revenue
1,170
457
138
1,765
Result




Segment result
Exceptional items
212
136
124
472
(2,606)
Unallocated expenses



(1,048)
Loss from operations



(3,182)
Finance costs



(68)
Finance income



25
Loss before taxation



(3,225)
Tax



564
Loss for the period



(2,661)
Included within the segment/operating results are the following significant non-cash items:

SI Brand
OEM
Industrial
Total
Six months ended 30 June 2014 (unaudited)
'000
'000
'000
'000
Amortisation of intangible assets
327
36
-
363
Year ended 31 December 2014 (audited)
SI Brand
OEM
Industrial
Total

'000
'000
'000
'000
Revenue
2,949
818
262
4,029
Result




Segment result
261
(105)
242
398
Unallocated expenses



(10,181)
Profit from operations



(9,783)
Finance income



137
Finance costs



(183)
Loss before taxation



(9,829)
Tax



372
Loss for the period



(9,457)
Included within the segment/operating results are the following significant non-cash items:

SI Brand
OEM
Industrial
Total
Year ended 31 December 2014 (audited)
'000
'000
'000
'000
Amortisation of intangible assets
664
124
-
788
Unallocated expenses include those costs that cannot be split between segments and which are not separately analysed in the management accounts including concept department, sales and marketing, and head office overheads.
Geographical analysis

Unaudited 
Unaudited
Audited

six months
six months
year

ended
ended
ended

30 June 
30 June
31 December

2015
2014
2014

'000
'000
'000
United Kingdom
771
772
1,524
Europe
680
572
1,303
US
758
279
785
Rest of World
388
141
417
2,597
1,765
4,029
Revenues are allocated geographically on the basis of where revenues were received from and not from the ultimate final destination of use.
3. Taxation
Due to the additional unrecognised tax losses, we are not recognising a deferred tax asset. The recoverability of the deferred tax asset is dependent on future taxable profits in excess of those arising from the reversal of deferred tax liabilities. The recognition of the deferred tax assets is based upon the estimate of future availability of suitable profits. Certain deferred tax assets and liabilities have been offset.
4. Earnings per share

Unaudited
Unaudited
Audited

six months
six months
year

ended
ended
ended

30 June
30 June 
31 December 

2015
2014 
2014 
Earnings per share
Basic
(0.39)p
(0.65)p
0.20p
Diluted
(0.39)p
(0.65)p
0.20p
Adjusted earnings per share
Basic
(0.13)p
(0.01)p
0.25p
Diluted
(0.13)p
(0.01)p
0.24p
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue. Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the diluted weighted average number of shares in issue. Adjusted earnings per share is calculated by dividing adjusted earnings attributable to ordinary shareholders as set out below by the weighted average number of shares in issue.
The Group has one category of dilutive potential ordinary shares being share options issued to Directors and employees. The impact of dilutive potential ordinary shares on the calculation of weighted average number of shares is set out below.

Unaudited
Unaudited
Audited

six months
six months
year

ended
ended
ended

30 June
30 June 
31 December 

2015
2014 
2014

'000s
'000s
'000s
Weighted average number of ordinary shares
485,064
409,528
431,454
Dilutive effect of share options in issue
-
5,316
-
Diluted weighted average number of ordinary shares
485,064
414,844
431,454
Earnings attributable to ordinary shareholders used in the calculation of basic and diluted earnings per share together with a reconciliation to adjusted earnings attributable to ordinary shareholders is as follows:

Unaudited
Unaudited
Audited

six months
six months
year

ended
ended
ended

30 June
30 June 
31 December 

2015
2014
2014 

'000
'000
'000
Profit for the period
(1,906)
(2,661)
(9,457)
Exceptional items
1,294
2,606
8,388
Adjusted profit for the period
(612)
(55)
(1,069)
Adjusted earnings per share has been calculated so as to exclude the impact of exceptional items and a one-off deferred tax adjustment in prior periods which are one-off in nature and thus have a distortive impact on the ordinary calculation of earnings per share.
5. Related Party Transaction
As previously advised in the annual report for 2014, in accordance with the November 2014 fundraising, we received the additional 500,000 of loan note funding during March 2015, 250,000 each from Mr C J Rea and Getz Bros and Co (BVI) Inc.
The principal amount of the loan notes, together with accrued interest, is due for repayment on 17 November 2017. The interest accruing on the loan notes is 3% per annum until 17 November 2015 and 7.5 % per annum thereafter.
6. Interim Report
This interim report is available at www.sigroupplc.com.

This information is provided by RNS
The company news service from the London Stock Exchange
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