TIDMSUN
RNS Number : 4155T
Surgical Innovations Group PLC
25 March 2021
Surgical Innovations Group plc
("SI", the "Group" or "the Company")
Final Results
Audited results for the year ended 31 December 2020
Surgical Innovations Group plc (AIM: SUN), the designer,
manufacturer and distributor of innovative medical technology for
minimally invasive surgery, reports its audited financial results
for the year ended 31 December 2020.
Trading in the second half of the year recovered sharply,
demonstrating the resilience of the underlying business. The
immediate outlook continues to be affected by the ongoing wave of
the Covid-19 pandemic in many territories. Looking further ahead,
the increasing focus on sustainable healthcare and the reduction of
plastic waste in a surgical environment present exciting growth
prospects in the second half of 2021, especially in the light of
pent-up demand for elective surgery.
Operational highlights:
-- Protected core skills and capabilities throughout pandemic
-- Streamlined and improved operational and regulatory processes
-- Reinforced international distribution partnerships
-- Broad international engagement provides diversification of risk effects
-- Environmentally sustainable product ranges gaining market share in UK and overseas
-- Successful UK launch of Cellis Breast Pocket range in Q4
Financial highlights:
-- Revenues reduced by 41% to GBP6.33m (2019: GBP10.73m) with low point passed in May 2020
-- Second half revenue up 44% over first half at GBP3.74m (H1: GBP2.59m)
-- Underlying gross margin (before net manufacturing cost) up 110bps at 44.4% (2019: 43.3%)
-- Adjusted EBITDA(1) loss of GBP0.66m, (2019: GBP1.45m profit)
-- Adjusted operating loss before tax(1) of GBP1.61m (2020: GBP0.38m profit)
-- Adjusted loss per share of 0.19p (2019: earnings of 0.05p)
-- Raised GBP2.05m of equity (net of costs) to bolster cash resources
-- Cash generated from operations GBP1.07m (2019: GBP0.67m)
-- Net cash(2) at end of period of GBP3.10m (2019:
GBP0.47mIncreased financial headroom(3) to GBP5.78m (2019:
GBP1.78m)
1 Adjusted EBITDA and adjusted operating (loss)/ profit are
stated before deducting non-recurring exceptional costs of
GBP0.11m
(2019: GBP0.18m), amortisation and impairment of intangibles
(including acquisition costs) of GBP1.47m (2019: GBP0.98m) and
share based payment costs of GBP0.12m (2019: GBP0.19m).
2 Net cash equals cash less bank debt excluding IFRS16 lease obligations
3 Cash plus available headroom under revolving credit facility
Post period highlights:
-- Group revenue in first two months is 11% ahead of comparable period in the prior year
-- Dexter robot obtained CE mark to facilitate UK distribution in 2021
-- Launch of the Green Surgery Challenge by the Centre for Sustainable Healthcare in the UK
-- Signed new agreements to expand product ranges and routes
into US market, with Adler and Microline
-- Company well positioned to benefit from increased backlog in
elective surgery cases across all markets
Chairman of SI, Nigel Rogers, said:
" Trading in the first two months of the current year continues
to be constrained by the effects of the Covid-19 pandemic. Despite
this, group revenue is 11% ahead of the corresponding period last
year; a period in which our key markets were largely unaffected.
This indicates the continuing resilience of the business, however,
given the continued uncertainty of the global pandemic, we will
look to reinstate guidance at a later date when there is greater
clarity on the timing of the expected recovery in elective surgery
from our partners and customers.
"Whilst the UK market is unsurprisingly down by almost a third
compared with last year, key international markets are showing
strong growth, especially in the US and Japan. European demand is
more muted, and likely to remain so at least through the first half
of the year. Encouragingly, whilst demand in the UK has been
suppressed, we are beginning to see early-stage signs that the UK
market is recovering and expect this to sharply improve in the
second quarter, with momentum building through the year as the
backlog of elective surgery cases is tackled. We also expect to
outperform the UK market due to new business wins during the
downturn.
"Since the beginning of 2021, we have completed several key
partnership agreements to expand our reach in the US market and
secure a broader range of products for UK distribution. We have
also made continued progress in developing the sustainability
message, and in product development, where we expect to extend the
SI branded range through the launch of a number of new products in
the second half of the year.
"Accordingly, having demonstrated strength and resilience
throughout 2020, the Group is now ideally positioned to build
exciting growth as markets continue to recover."
For further information please contact:
Surgical Innovations Group plc www.sigroupplc.com
David Marsh, CEO Tel: +44 (0)113 230 7597
Charmaine Day, Co Sec & GFC
Walbrook PR (Financial PR & Investor Tel: +44 (0)20 7933 8780 or si@walbrookpr.com
Relations)
Paul McManus / Lianne Cawthorne Mob: +44 (0)7980 541 893 / +44 (0)7584
391 303
N+1 Singer (NOMAD &Broker) +44 (0)20 7496 3000
Aubrey Powell / Rachel Hayes
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. 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.
Operations
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, a wholly owned
subsidiary based 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
Chairman's Statement
For the year ended 31 December 2020
I am pleased to report that the Company has withstood the
immensely testing pressures presented by the global Covid-19
pandemic, and will soon emerge from this most difficult period
ready to recover quickly. This will be driven by the need for our
customers and global distribution partners to meet the backlog of
surgical treatment that has accumulated.
Financial Overview
Revenue for the year was 41% lower than in the prior year at
GBP6.33m (2019: GBP10.73m) as a consequence of the effects of the
Covid-19 pandemic, which had an adverse impact on the level of
elective surgery carried out in all major markets and across all
product areas. These effects were evident from early in the year
and reached a low point in May, recovering strongly in the third
quarter until the resurgence of a second wave of infections at the
end of the year.
Revenue for the second half of the year was 44% higher than the
first half at GBP3.74m (H1: GBP2.59m), although still approximately
one third below the level achieved in the second half of 2019 at
GBP5.63m. Market conditions in the UK reflected the obvious
pressures on the NHS, and waiting lists for elective surgery
continued to increase to unprecedented levels, leading to a
reduction in revenues of over 40% in the second half of the year.
Similar effects were experienced in European markets and the US. On
a more positive note, sales in Asia Pacific increased by almost 50%
in the second half of the year, primarily arising from additional
market share gained in Japan where healthcare workloads were
especially well managed. Revenue in other territories, where our
business is mostly driven by healthcare tender activity, was also
sharply reduced.
Underlying gross profit margin (before net manufacturing costs)
for the year increased by 110 basis points to reach 44.4% (2019:
43.3%), however there was a significant reduction in factory
activity levels due to the pandemic, leading to an under-recovery
of overheads. This resulted in a reported gross margin of 20.1%
against a prior year figure of 40.3%.
Operating expenses, excluding depreciation and amortisation,
impairment of intangibles, exceptional costs and share based
payments, reduced by GBP0.34m to GBP2.55m (2019: GBP2.89m), and the
Group benefited from UK Government Coronavirus Job Retention Scheme
relief of GBP0.59m included in other income. As a result, Adjusted
EBITDA amounted to a loss of GBP0.66m (2019 profit of GBP1.45m),
and the adjusted Loss Before Taxation(1) was GBP1.61m (2019: profit
of GBP0.38m). These results were also much improved in the second
half of the year over the first, however, with adjusted EBITDA(1)
of GBP0.2m (H1: loss of GBP0.46m) and adjusted Loss Before
Taxation(1) of GBP0.68m (H1: loss of GBP0.93m).
Exceptional items relate to employee termination payments,
listing fees and costs associated with accessing the Coronavirus
Business Interruption Loan Scheme (CBILS) totalling GBP0.11m (2019
GBP0.18m). In addition to these exceptional costs, there were
further non-cash, non-recurring costs totalling GBP0.2m (2019:
GBPnil) arising from events directly attributable to the Covid
pandemic. These comprised (i) GBP0.12m of additional inventory
provisions following a re-assessment of the commercial viability of
certain elements of the product portfolio, which were discontinued
prematurely to generate efficiency and regulatory cost savings, and
(ii) holiday pay accrued amounting to GBP0.08m arising whilst
employees were furloughed during year, and hence were unable to
take holidays on the normal cycle. It is anticipated that these
holidays will be taken in 2021, rather than being settled in
cash.
1 Reconciliation of adjusted KPI measures included in the
Operating and Financial Review
Following an impairment review of the goodwill arising on the
acquisition of Elemental Healthcare, an impairment charge of
GBP1.44m was recognised in June 2020 as a result on the initial
impact on the pandemic; in the second half of the year the trading
forecast has improved resulting in a reversal of GBP0.31m giving a
total impairment of GBP1.13m at the year-end (2019: GBP1.63m). The
trading environment continues to be impacted in the current year
and therefore the Directors have adopted a cautious approach to
forecasting future net inflows for this cash generating unit.
Development expenditure was tested for impairment. Management
have reviewed the initial costs for the Illuminno project (which
were previously recognised as an Investment in an associated
company). The development changes implemented and the direction of
the portfolio mean that the nature of these costs now provide no
future economic benefit, and an impairment of GBP0.18m has
therefore been recognised.
The Group recorded a corporation tax credit of GBPnil (2019:
credit of GBP0.001m) and a deferred tax credit of GBP0.03m (2019:
charge GBP0.02m). 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 2019 amounting to GBP0.13m.
This claim has been paid in the current year and therefore will not
be recognised in 2020.
Adjusted net earnings per share amounted to a loss of 0.19p
(2019: 0.05p). The net total comprehensive income for the year
amounted to a loss of GBP3.28m (2019: loss of GBP2.60m).
The Company has taken sensible precautions to protect the
availability of cash resources and generated GBP1.04m of cash from
operations despite market conditions (2019: GBP0.59m). The Company
also negotiated an agreement to reschedule the repayment terms and
financial covenants on existing term loan facilities and drew down
an additional GBP1.5m under the CBILS in March 2020. These
facilities are repayable in May 2022. In September 2020, the
Company also successfully raised GBP2.05m of additional equity (net
of costs of GBP0.15m) in a share placing with new and existing
holders.
At 31 December 2020, the Group had available cash balances of
GBP5.28m (2019: GBP1.28m), net cash resources (taking into account
bank loans outstanding) of GBP3.10m (2019: GBP0.47m), and financial
headroom (comprising net cash plus undrawn facilities) of GBP5.78m
(2019: GBP1.78m). Financial covenants have been complied with in
full and will continue to be tested on a quarterly basis. The Board
is satisfied that these resources provide the appropriate platform
from which to benefit from the anticipated recovery in demand in
coming months, and accordingly, the directors conclude that it
continues to be appropriate to prepare the Annual Report and
Accounts on a going concern basis.
Operational and Regulatory activity
The pandemic has presented numerous disruptions to the business,
both revenue and operationally, however the Company has effectively
utilised this period to bring significant improvements to a number
of key operating functions. A detailed internal review of products
processes and regulatory compliance procedure was conducted to
enable the Company to simplify and streamline in a number of key
areas, promote more efficient working practices now activity is
rebuilding and accelerate the introduction of new product going
forward.
The Company has highlighted on a number of occasions the
investment made in QA/RA to ensure that the demands of moving to
Medical Devices Regulatory (MDR) and the new UKCA mark are
satisfied. This investment has proved invaluable as an exhaustive
programme of audits during lockdown and beyond has been managed
effectively, resulting in the renewal of CE and Medical Device
Single Audit Program (MDSAP) certification. In addition, the team
has supported Advanced Medical Solutions plc as the Fix8 device
progresses to approval for use in the US market. Crucial work on
planning for the transition to MDR framework is on track and the
streamlining of our Quality Management System will allow for faster
delivery of new products. Under normal circumstances, implementing
the upgrading of facilities can pose significant challenges,
however the pause in normal activity allowed completion of the
assembly room refurbishment and the on-going complex upgrade to the
Clean Room facility.
Furthermore, the hiatus allowed the Company to bring forward
plans to make of a number of end of life SKU's obsolete, to focus
sales and marketing activity on the introduction of new products
and line extensions. The coming year will see the introduction of a
number of new products that will enhance selling opportunities in
key markets.
Our "sustainability in surgery" messaging continues to resonate
in key markets post Covid-19, none more so than the UK with the NHS
and governing medical bodies endorsing the drive for a more
sustainable healthcare system. During the break in elective
surgery, the Elemental team has been working closely with a number
of large NHS Trusts to plan product evaluations based on the
reduction of plastic waste. The evaluation process recommenced in
August 2020, following the first lockdown, and has continued to be
rolled out to a number of hospitals in at least five large NHS
Trusts. Clearly the second wave has impacted the speed of the
evaluations, but to date the outlook remains promising. Assuming
these evaluations conclude positively, transition to the relevant
product ranges is expected to take place during the first half of
2021. The Green Surgery Challenge, an initiative between the
Company, Centre for Sustainable Healthcare ('CSH'), and the Royal
Colleges of Surgeons in both England and Scotland was launched in
early 2021, providing a unique platform for our portfolio of
resposable devices to deliver their sustainability credentials.
Additional sustainability-driven evaluations are ongoing with three
major US general procurement organisations (GPOs), and the
messaging is reaching an ever receptive audience around the
globe.
Since the end of the period, in the UK we have experienced a
return to growth in the number of surgeries, initially for cancer
and life-threatening conditions. More recently, the UK is managing
the gradual return to elective surgery both in the NHS and the
co-opted private sector, evidenced by the increasing sales of our
procedure kits for Laparoscopic Cholecystectomy (Gallbladder
removal) and Hernia Repair.
The expected growth in elective surgery since the year end has
clearly been impacted by the second wave, however the NHS has
maintained a higher level of non COVID activity, especially
compared to the initial wave in March/April last year. We
anticipate a rapid return to normal activity over the coming year,
especially as it appears that the second wave is now in decline in
the UK and the effects of the vaccine programme are beginning to
become apparent.
In April 2020, Meccellis was awarded CE certification for its
new Cellis Breast Pocket matrix, an innovative porcine collagen
matrix used in breast reconstruction and distributed exclusively in
the UK by Elemental Healthcare. The initial evaluations at three UK
hospitals took place in the summer and went well, with the surgeons
commenting positively on the handling and cosmetic results. The
full UK market launch of Cellis Breast Pocket commenced in Q4, and
although the number of cases remains lower than anticipated as a
consequence of the second wave, the product has been very well
accepted by surgeons.
Internationally our key partners are reporting a similar picture
to the UK, seeing a managed resumption in elective surgery during
the final quarter. It seems that healthcare systems around the
globe are adapting to the emerging spikes of Covid-19 by providing
designated treatment pathways to manage patients suffering from
Coronavirus within a hospital, such that elective procedures can
continue elsewhere in safety.
In addition to the resumption of growth driven by the
sustainability credentials of our products and third-party products
such as the Cellis Breast Pocket described above, we have also
identified a number of new product development opportunities for
internal work-up. Each of these represents a response to customer
needs which have been shared with us, or to distributor or OEM
feedback. In each case, plans have been developed to enable
Surgical Innovations to meet a broader range of product needs for
its customers' and partners'.
Robotics continues to be an area of surgery that is generating
much innovation and is providing an opportunity for Elemental to
leverage its strong relationships with UK key opinion leaders to
introduce the Dexter robot, manufactured by Swiss Company,
DistalMotion. The Dexter received CE certification in December 2020
and provides a business model that overcomes the budgetary
obstacles of capital expenditure in the NHS.
Additionally, the Company's expertise in the development of
laparoscopic instrumentation is further highlighted by the
partnerships in the field of Surgical Robotics, where it is aiding
key players in this market to find solutions for accessing the
abdominal cavity. Our industry partners have recognised the
expertise we bring to the relationship and we are currently working
with a number of key players in the sector.
Business development and our international network
During the year we have worked closely with our international
distribution partners to maintain timely supply of our products to
healthcare providers despite the difficulties experienced in
anticipating demand levels. This process has cemented our
relationships, which will provide mutual benefits as trading begins
to normalise this year.
The APAC region showed strong growth throughout the pandemic and
this has continued into the current year. Japan, in particular, has
continued to show strong growth and we remain confident that the
planned line extensions will offer further opportunity in this
market.
We have also carried out a root and branch review of our routes
to market in the United States, the world's largest market for
healthcare products. In December 2020, we announced a new
nationwide distribution agreement with Adler Instrument Company
Inc. for our full range of handheld surgical instruments. The
agreement has five years duration commencing on 1 February 2021 and
brings a significant increase in the number of surgical territory
managers promoting SI-branded products across the US.
Following the year end in February 2021, we announced the
signature of a new five-year distribution agreement with Microline
Surgical Inc. to introduce our YelloPort+Plus and YelloPort Elite
Access Devices to the US market following FDA approval gained in
late 2019. These ranges are highly complementary to those of
Microline Surgical Inc. which are distributed exclusively in the UK
though a longstanding relationship with Elemental Healthcare, which
has recently been extended for a further three years.
Brexit
Detailed preparations were made in advance of the expiry of the
transitional period on 31 December 2020, securing the necessary
registrations and documentation required to provide the best
assurance possible to avoid disruption. This has been kept to a
minimum, although the demands of additional paperwork and possible
supply and delivery delays will continue to be a factor in the
early part of the current year.
People
The challenges presented by the Covid-19 pandemic are not only
economic, as these extend to critical issues of health, safety and
well-being of our people. Their spirit, determination and
professionalism have been exemplary, and have facilitated business
continuity and high levels of customer service through some
difficult times. On behalf of the Board and shareholders, I once
again express our sincere thanks and hope that a return to more
normal times is not too far away. The Company would also like to
recognise the efforts and sacrifices of all the NHS and Key Workers
for their contribution in caring for us all during the
pandemic.
Current trading and outlook
Trading in the first two months of the current year continues to
be constrained by the effects of the Covid-19 pandemic. Despite
this, group revenue is 11% ahead of the corresponding period last
year; a period in which our key markets were largely unaffected.
This indicates the continuing resilience of the business, however,
given the continued uncertainty of the global pandemic, we will
look to reinstate guidance at a later date when there is greater
clarity on the timing of the expected recovery in elective surgery
from our partners and customers.
Whilst the UK market is unsurprisingly down by almost a third
compared with last year, key international markets are showing
strong growth, especially in the US and Japan. European demand is
more muted, and likely to remain so at least through the first half
of the year. Encouragingly, whilst demand in the UK has been
suppressed we are beginning to see early-stage signs that the UK
market is recovering and expect this to sharply improve in the
second quarter, with momentum building through the year as the
backlog of elective surgery cases is tackled. We also expect to
outperform the UK market due to a number of new business wins
during the downturn.
Since the beginning of 2021, we have completed several key
partnership agreements to expand our reach in the US market and
secure a broader range of products for UK distribution. We have
also made continued progress in developing the sustainability
message, and in product development, where we expect to extend the
SI branded range through the launch of a number of new products in
the second half of the year.
Accordingly, having demonstrated strength and resilience
throughout 2020, the Group is now ideally positioned to build
exciting growth as markets continue to recover.
Nigel Rogers
Chairman
24 March 2021
Operating and Financial Review
Key Performance Indicators ("KPIs")
The Group considers the key performance indicators of the
business to be:
2020 2019 Target Measure
Gross profit (before
Underlying Gross net manufacturing
Profit Margin cost)/ revenue 44.4% 43.3% >40%
------------------------ --------- --------- ---------------
Direct Gross Profit
Margin Gross profit / revenue 20.1% 40.4% >40%
------------------------ --------- --------- ---------------
Net Cash)(1) /(Net Cash less debt GBP3.10m GBP0.47m N/A
Debt)
------------------------ --------- --------- ---------------
1 Net debt comprised of bank borrowings (GBP2.18m), excluding
leases under the adoption of IFRS16.
Reconciliation of adjusted KPI / measures;
EBITDA Loss before
(2) taxation
As stated GBP(0.89)m GBP(3.31)m
------------ ------------
Amortisation of intangible - GBP0.16m
acquisition costs
------------ ------------
Impairment of product - GBP0.18m
development intangibles
------------ ------------
Impairment of Goodwill - GBP1.13m
------------ ------------
Share based payments GBP0.12m GBP0.12m
------------ ------------
Exceptional items GBP0.11m GBP0.11m
------------ ------------
Adjusted Measure GBP (0.66)m GBP (1.61)m
------------ ------------
Earnings per share EPS
Basic EPS (0.39)p
-----------
Loss attributable to shareholders (GBP3.28)m
-----------
Add: Share based payments GBP0.12m
-----------
Add: Amortisation of intangible GBP0.16m
acquisition costs
-----------
Add: Exceptionals GBP0.11m
-----------
Add: Impairment of product development GBP0.18m
intangibles
-----------
Add: Impairment of Goodwill GBP1.13m
-----------
Adjusted profit attributable to GBP(1.58)m
shareholders
-----------
Adjusted EPS (0.19)p
-----------
2 EBITDA is defined as earnings before interest, taxation,
depreciation and amortisation (including impairment). EBITDA is
calculated as operating loss of GBP(3.17)m adding back depreciation
GBP0.56m, amortisation GBP0.41m and impairment GBP1.31m.
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 adjustments is consistently applied but may not be comparable
with those used by other companies.
Revenue and margins
Revenues reduced by 41% in 2020 to GBP6.33m (2019: GBP10.73m).
Despite revenues reaching a low point in May during the first wave,
the second half of the year recovered in line with management
expectations increasing by 44% from the first half of the year,
which was 66% of sales in the same prior year comparative period
(2019: HY2:5.63m). Direct gross margins (before net manufacturing)
remained within target range at 44.4% (2019: 43.3%) with the
reportable gross margin at 20.1% (2019:40.4%) attributable to
reduced factory activity during the majority of the year with full
production recommencing in October.
Sales by product type
GBPm 2020 2019 % change
SI Brand 3.41 5.84 - 42%
====== ====== ==========
Distribution 2.31 3.10 -25%
====== ====== ==========
OEM 0.61 1.79 - 66%
====== ====== ==========
Total 6.33 10.73 - 41%
====== ====== ==========
Sales by geography and product type
GBPm HY1 2020 HY2 2020 % change
SI Brand:
========== ========== ==========
UK 0.41 0.48 17%
========== ========== ==========
US 0.29 0.59 103%
========== ========== ==========
EUR 0.30 0.43 43%
========== ========== ==========
APAC 0.32 0.36 13%
========== ========== ==========
ROW 0.12 0.11 -1%
========== ========== ==========
Total 1.44 1.97 37%
========== ========== ==========
Distribution (UK) 0.84 1.47 75%
========== ========== ==========
OEM Brand:
========== ========== ==========
UK 0.26 0.20 -23%
========== ========== ==========
US 0.05 0.10 100%
========== ========== ==========
0.31 0.30 -3%
========== ========== ==========
Total revenue 2.59 3.74 44%
========== ========== ==========
Revenues from the sale of Surgical Innovations Brand products
reduced by 42% during the year overall, however revenues for the
second half year increased by 37% from the first half of the year.
Whilst the UK market has been impacted by the COVID-19 pandemic the
NHS has shown resilience and the impact on revenue has been less
severe than the initial wave. The NHS's fulfilment of the
'Net-Zero' obligations on sustainability will align well with our
Resposable(R) SI branded range. Sales in Continental Europe were
slower to recover, however towards the end of the year order values
increased by 43% from the first half of the year and continued to
be consistent.
SI Brand sales in the US despite the pandemic suffered a
reduction of 52% overall, however US sales have remained strong,
increasing to 103% from the first half of the year. The agreement
with Adler Instruments brings a significant increase in the number
of surgical territory managers which will promote the SI branded
scissor sales providing a route to market. In addition, the
distribution agreement with Microline for the Resposable trocar
range will provide a significant opportunity for growth.
SI Brand revenues from the APAC region showed a strong increase
of 49%, mostly led by Japan. Further growth is still anticipated in
the current year. SI brand sales in the Rest of the World was down
by 63%; typically made up of tender based business this market has
been impeded by the pandemic.
OEM revenues overall reduced by 66%, predominantly affected by
the UK market with both precision engineering (non-medical in the
travel industry) and medical both impacted by the pandemic. We
anticipate a slower return to growth in medical OEM sales in the
current year, but at this early stage have no visibility of further
precision engineering revenues.
Distribution sales lowered by 25% year on year despite a
continuation of constrained activity levels in the NHS, especially
for elective procedures. The revenue increased by 75% in the second
half of the year compared to the first and continues to be at
similar levels in the current year, showing improved pathways for
treating patients. As the Covid vaccination program is rolled out
across the UK we anticipate growth in this market.
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 decreased in 2020 to a loss of
(GBP0.66m) (2019: GBP1.45m), mainly as a result of the pandemic.
The Group took immediate precautions to preserve the cash in the
business, which meant that the majority of the employees were
placed on furlough, with a gradual phased return as operations came
back online whilst maintaining a small team to support key product
lines and customers, and the benefit of this scheme are reported in
Other Income amounting to GBP0.59m (2019: GBPNil). In addition, the
Company implemented short-term salary reductions for all personnel
above the furlough threshold, up to an upper limit of 50% for
Non-Exec Board directors, resulting in a further reduction in
operating costs of approximately GBP0.16m (2019: GBPNil). The group
does not intend to use the furlough scheme for further support to
the same level in the current year.
Exceptional items relate to employee termination payments,
listing fees and costs associated with accessing the Coronavirus
Business Interruption Loan Scheme (CBILS) totalling GBP0.11m (2019
GBP0.18m). In addition to these exceptional costs, there were
further non-cash, non-recurring costs totalling GBP0.2m (2019:
GBPnil) arising from events directly attributable to the Covid
pandemic. These comprised (i) GBP0.12m of additional inventory
provisions following a re-assessment of the commercial viability of
certain elements of the product portfolio, which were discontinued
prematurely to generate efficiency and regulatory cost savings, and
(ii) holiday pay accrued amounting to GBP0.08m arising whilst
employees were furloughed during the year, and hence were unable to
take holidays on the normal cycle.
Capital expenditure on tangible assets remained significantly
low due to cash preservation, with only GBP0.04m in additions
(2019: GBP0.20m) set against a depreciation charge of GBP0.35m
excluding Right of use assets (2019: GBP0.42m). Capex plans are
currently being reviewed intended to improve the manufacturing
facilities as a continuation of the improvements that were started
in 2019.
Interest on bank and finance lease obligations for 2020 resulted
in net interest payable of GBP0.14m (2019: GBP0.16m). In May 2020
the Company agreed with its bankers to suspend normal capital
repayments totalling GBP0.15m to be repaid at the end of the term,
which is now 31 May 2022. In addition the bank waivered the March
covenant and provided less restrictive covenants until July 2021.
The flexibility of the existing GBP0.50m revolving credit facility
was maintained and in addition, the Company has agreed a new
facility of GBP1.50m under the Coronavirus Business Interruption
Loan Scheme (CBILS). The CBILS arrangement is interest free until
May 2021 and repayable at the end of the term in May 2022, which is
in line with the existing loan facilities. In aggregate total
borrowing at the 31 December 2020 stood at GBP2.18m (2019:
GBP0.81m).
Following an impairment review of the goodwill arising on the
acquisition of Elemental Healthcare, an impairment charge of
GBP1.44m was recognised in June 2020 as a result on the initial
impact on the pandemic; in the second half of the year the trading
forecast have improved resulting in a reversal of GBP0.31m giving a
total impairment of GBP1.13m at the year end (2019: GBP1.63m). The
trading environment continues to be impacted in the current year
and therefore the Directors have adopted a cautious approach to
forecasting future net inflows for this cash generating unit.
Development expenditure was tested for impairment. Management
have reviewed the initial costs for the Illuminno project
(transferred from Investment in associate), and given the
development changes implemented and the direction of the portfolio
it was decided that the nature of these costs provide no future
economic benefit, an impairment of GBP0.18m has been
recognised.
The Group recorded a corporation tax credit of GBPnil (2019:
credit of GBP0.001m) and a deferred tax credit of GBP0.03m (2019:
charge GBP0.02m). 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 2019 amounting to GBP0.13m.
This claim has been paid in the current year and therefore will not
be recognised in 2020.
Trade receivables were significantly lower at the year-end
GBP0.96m (2019: GBP1.95), affected by the impact on revenue, with
negligible bad debts or overdue balances. Inventories were notably
lower at GBP2.05m compared to GBP2.93m in 2019.
Stock holdings were driven down throughout the year with minimal
inventory build required until production recommenced in October.
Safety stock levels continue to be monitored in the current year in
order to support incremental customer requirements. During the year
the Group's management re-evaluated the product portfolio, with a
view to streamlining the current product range to allow both
efficiency and regulatory cost savings. In addition, a slow-moving
inventory provision specifically caused by the pandemic has also
been recognised, subsequently resulting in an impairment of
inventory of GBP0.12m charged to cost of sales as a non-recurring
item.
Trade creditors decreased over the same period, which reflected
the Group's continued approach towards managing working capital.
The Group took advantage of the ability to defer payments during
the pandemic. Alternative payment arrangements were agreed with
major creditors mainly in relation to PAYE, VAT and rent, some of
which has been paid back during the year.
Deferred creditors balance at the year end totalled GBP0.24m
(2019: nil); this balance will be cleared in the current year.
The Group generated net cash from operations of GBP1.04m (2019:
GBP0.59m) primarily as a result of the working capital movements
described above. In September 2020, the Group raised equity of
GBP2.05m (net of associated costs) to provide investment capital
and additional financial headroom. The Group closed the year with
net cash balances of GBP3.10m, compared with opening net cash of
GBP0.47m.
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 Risk and description Mitigating actions
of risk
on prior
year
Funding risk Risk has The Group currently has Liquidity and covenant compliance
reduced a mixture of borrowings is monitored carefully across varying
from prior comprising a GBP0.68m time horizons to facilitate short
year loan, GBP0.5m rolling term management and also strategic
credit facility and GBP1.5m planning. This monitoring enables
CBILS arrangement. The the management team to consider
Group remains dependent and to take appropriate actions
upon the support of these within suitable time frames.
funders and there is a
risk that failure in particular In May 2020, the Company agreed
to meet covenants attaching with its bankers to suspend normal
to the rolling credit capital repayments totaling GBP0.15m
facility could have financial to be repaid at the end of the
consequences for the Group. term which is now 31 May 2022,
in addition the bank provided less
restrictive covenants until July
2021. The flexibility of the existing
GBP0.50m revolving credit facility
was maintained and in addition,
the Company has agreed a new facility
of GBP1.50m under the Coronavirus
Business Interruption Loan Scheme
(CBILS). The CBILS arrangement
is interest free until May 2021
repayable at the end of the term
in May 2022, which is in line with
the existing loan facilities.
In aggregate total borrowing at
31 December 2020 was GBP2.18m (2019:
GBP0.81m). Financial covenants
will continue to be tested on a
quarterly basis.
In addition, during September 2020
the Company raised equity of GBP2.05m
(net of associated costs) to provide
investment capital and additional
financial headroom.
The bank continue to be a supportive
stakeholder.
============= ================================= ===========================================
Covid-19 and Risk has The escalation in the All government guidance has been
business interruption reduced spread of Covid-19 in monitored closely and followed
from prior the UK poses a threat immediately by advisory notices
year to the continuation of to all employees, and provision
business operations if of the appropriate guidance and
there is a widespread cleaning materials to minimise
infection in any of our any effect.
facilities or amongst
the workforce. 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.
The government continues to be
supportive and schemes provided
could be used to relieve 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.
There is also a risk of further
delay of elective surgery whilst
the waves in the pandemic continue.
Management continue to monitor
closely the rapidly changing environment
and have devised a series of mitigating
actions, designed to preserve cash
resources and maintain delivery
of essential products to our customers
and distributors. The majority
of the workforce that can work
from home continue to do so until
further notice to safeguard other
employees.
============= ================================= ===========================================
Customer concentration Existing The Group exports to over The majority of distributors, including
risk remains thirty countries and the mostly significant, are well
at the distributors around the established and their relationship
same level world, but certain distributors with the Group spans many years.
from prior are material to the financial Credit levels and cash collection
year performance and position is closely monitored by management,
of the Group. As disclosed and issues are quickly elevated
in note 2 to the financial both within the Group and with
statements, one customer the distributor.
accounted for 11.2% of
revenue in 2020 and the
loss, failure or actions
of this customer could
have a severe impact on
the Group.
============= ================================= ===========================================
Issue Indication Risk and description Mitigating actions
of risk
on prior
year
Foreign exchange Existing The Group's functional currency The Group monitors currency
risk risk remains is UK Sterling; however, it exposures on an on-
at the makes significant purchases going basis and enters into
same level in Euros and US Dollars. forward currency arrangements
from prior where considered appropriate
year The US Dollars are mitigated to mitigate the risk of material
by US Dollar sales by creating adverse movements in exchange
a natural hedge. The Group rates impacting upon the business.
transferred their Euro customers Euro and US Dollar cash balances
onto a Euro based pricing are monitored regularly and
structure in 2018 to mitigate spot rate sales into sterling
risk by again, creating a are conducted when significant
natural hedge. currency deposits have accumulated.
The accounting policy for
foreign exchange is disclosed
in accounting policy 1d.
============= ======================================= =====================================
Regulatory Existing As an international business The Group has a dedicated
approval risk remains a significant proportion of Compliance department which
at the the Group's products require assists product development
same level registration from national teams with support as required
from prior or federal regulatory bodies to minimise the risk of regulatory
year prior to being offered for approval not being obtained
sale. The majority of our on new products and ensures
major product lines have FDA that the Group operates processes
approval in the US and we and procedures necessary to
are therefore subject to their maintain relevant regulatory
audit and inspection of our approvals.
manufacturing facilities.
Whilst there is no guarantee
There is no guarantee that that this will be sufficient,
any product developed by the the Group has invested in
Group will obtain and maintain people with the appropriate
national registration or that experience and skills in this
the Group will always pass area which mitigates this
regulatory audit of its manufacturing risk significantly.
processes. Failure to do so
could have severe consequences
upon the Group's ability to
sell products in the relevant
country.
============= ======================================= =====================================
Brexit Existing The Group exports to a number The Group has successfully
risk remains of different countries with reassigned all of the Company's
at the sales to Europe accounting product certifications from
same level for 11.4% of 2020 revenue. BSI Notified Body 0086 (UK)
from prior As well as exporting, the to BSI Netherlands Notified
year Group imports goods both for Body 2797, in order to mitigate
re-sale through Distribution any risk to regulatory clearance
revenue, as well as some raw both in the EU and in the
materials used in manufacturing. UK.
The current trade rules transitioned Any risk to a delay in supply
on 1 January 2021. Transitional chain has also been mitigated
arrangements made between by the successful application
the UK and EU have caused of Approved Economic Operator
some delay to Customs clearances Status, which we received
due to paperwork provided in March 2019.
by the couriers.
In addition to the above
management will continue to
monitor closely and mitigate
where possible the impact
on the supply chain, and in
particular the exports.
============= ======================================= =====================================
Going concern
The Directors have prepared forecasts for the period to March
2022 based on an evaluation of financial forecasts, sensitised to
reflect a rational judgement of the level of inherent risk.
As at the start of the period, the Group had access to banking
facilities, which comprised a committed GBP0.50m revolving credit
facility. The revolving credit facility of GBP0.50m may be used
towards meeting the Group's general working capital and other
commitments. It is subject to compliance with financial covenants
disclosed in the financial statement note 13. In May 2020 the
Company agreed with its bankers to suspend normal capital
repayments totaling GBP0.15m to be repaid at the end of the term
which is now 31 May 2022, in addition the bank provided less
restrictive covenants until July 2021. The flexibility of the
existing GBP0.50m revolving credit facility was maintained and in
addition, the Company has agreed a new facility of GBP1.50m under
the Coronavirus Business Interruption Loan Scheme (CBILS). The
CBILS arrangement is interest free until May 2021 repayable at the
end of the term in May 2022, which is in line with the existing
loan facilities. Hire purchase agreements are utilised where
required.
The Group generated cash from operations of GBP1.04m (2019:
GBP0.59m) primarily as a result of the working capital movements
described in the operating and financial review. In September 2020,
the Group raised equity of GBP2.05m (net of associated costs) to
provide investment capital and additional financial headroom.
At 31 December 2020, the Group had available cash balances
(excluding the unused GBP0.5m revolving credit facility) of
GBP5.28m (2019: GBP1.28m), net cash resources (taking into account
bank loans outstanding) of GBP2.18m (2019: GBP0.47m), and financial
headroom (comprising net cash plus undrawn facilities) of GBP5.78m
(2019: GBP1.78m). Financial covenants have been complied with in
full and will continue to be tested on a quarterly basis. The Board
is satisfied that these resources provide the appropriate platform
from which to benefit from the anticipated recovery in demand in
coming months, and accordingly, the directors conclude that it
continues to be appropriate to prepare the Annual Report and
Accounts on a going concern basis.
Charmaine Day
Group Financial Controller
24 March 2021
Con solidated statem ent of comprehensi ve income
fo r the y ear en ded 31 Dece m ber 2 0 20
20 20 2019
GBP '0 00 GBP '0 00
-------------------------------------- ------------------ -------------------
Rev enue 2 6,329 10,733
Cost of s a les 2 (5,057) (6,400)
--------------------------------------- ------------------ -------------------
G ross profit 1,272 4,333
O ther ope r ati ng e x pens es 2 (5,063) (6,772)
Other Income 3 621 -
O perating loss (3,170) (2,439)
Fina n ce c o sts (138) (162)
Fina n ce in c o me 1 5
--------------------------------------- ------------------ -------------------
Loss b efore ta xation (3,307) (2,596)
T a x a tion credit / (charge) 31 (23)
--------------------------------------- ------------------ -------------------
Loss a nd total comprehensive Income (3,276) (2,619)
--------------------------------------- ------------------ -------------------
(Loss) / Earnings per share, total
and continuing
Bas ic 4 (0.39p) (0.33p)
Diluted 4 (0.39p) (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.
Con solidated statem ent of changes in equ i ty
fo r the y ear en ded 31 Dece m ber 2 0 20
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 2019 7,826 5,831 329 1,250 (813) 14,423
Employee share based 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
Employee share based payment - - - - 116 116
Issue of share capital 8 1,375 825 - - - 2,200
Equity based placing fees 8 (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
----------------------------- ------------ ----------------- ------- ------- -------- -------
Con solidated balance sheet
a t 31 Dece m b er 20 20
2020 2019
GBP GBP '0
'0 00 00
===================================================== ============ ==============
A sse ts
Non-current a ssets
Property, p l ant and eq u ip m ent 412 718
Right of use assets 1,030 1,241
Intan g ib le a ss ets 4 6 173 7,613
7,615 9,572
===================================================== ============ ==============
Curr ent asse ts
In v entori es 2,167 2,925
T rade and other rec e i v abl es 1,283 2,359
Amount due from associate 5 - 173
Cash at b a nk a nd in h and 5,278 1,282
===================================================== ============ ==============
8,728 6,739
===================================================== ============ ==============
Total a ssets 16,343 16,311
===================================================== ============ ==============
Equity and liabiliti es
Equity attributable to equity holders of the p arent
compa ny
Share cap ital 8 9,328 7,953
Share p r em i um a c co u nt 6,587 5,904
Capital re s erve 329 329
Merger reserve 1,250 1,250
Retain ed e arni n gs (6,404) (3,244)
===================================================== ============ ==============
Total e qui ty 11,090 12,192
===================================================== ============ ==============
Non-current l i abiliti es
Borro w ings 6 1,879 515
Deferred tax liabi l iti es - 31
Dilapidation provision 165 165
Lease liability 907 1,086
===================================================== ============ ==============
2,951 1,797
===================================================== ============ ==============
Curr ent liabi lities
T rade and other pa y ab l es 7 1,449 1,518
Accru als 369 317
Borrowings 298 297
Lease liability 186 190
===================================================== ============ ==============
2,302 2,322
===================================================== ============ ==============
Total li abiliti es 5,253 4,119
===================================================== ============ ==============
Total e qui ty and liabili ties 16,343 16,311
----------------------------------------------------- ------------ --------------
Con solidated cash f l ow statement
fo r the y ear en ded 31 Dece m ber 2 0 20
2020 2019
GBP'000 GBP'000
----------------------------------------------------- ------------ -------
Cash flo ws from operating a ctivities
Loss after tax for the year (3,276) (2,619)
Adju stm e nts for:
Taxation (31) 23
Finance income (1) (5)
Finance costs 138 162
Other Income-CBILS interest grant 3 (27) -
Depre c iati on of pro perty, p l ant and e qu i
pm e nt 348 415
Amorti sa t ion and impairment of i nta n gi b le
a s s ets 5 1,726 2,895
Depreciation Right of Use assets 211 203
Share-b a s ed pa ym ent cha r ge 116 188
Gain on disposal of fixed assets - 1
Foreign exchange 42 (56)
Decrease/ (increase) in i n v entories 758 (842)
Decre a se in trade and other rec e i v abl es 1,076 508
Decre a se in pa y a bles 7 (10) (203)
----------------------------------------------------- ------------ -------
Cash generat ed from operations 1,070 670
T a x a tion paid - 1
Interest received - 5
Intere st p aid (28) (82)
----------------------------------------------------- ------------ -------
Net cash g enerated from ope r ating activities 1,042 594
----------------------------------------------------- ------------ -------
Cash flo ws from inv esting a ctivities
Pa y men ts to ac q uire pro p erty, plant and eq
u i p ment (42) (199)
Acqu i si t ion of i n t a n gi b le a s s e ts (113) (317)
Net cash used in investment activities (155) (516)
----------------------------------------------------- ------------ -------
Repayment of bank loan (150) (1,300)
Proceeds from CBILS 6 1,500 -
Net proceeds from issue of share capital 8 2,052 201
Repayment of lease liabilities (251) (244)
Net cash generated from/(used in) fin anc ing a
ctivities 3,151 (1,343)
----------------------------------------------------- ------------ -------
Net increase/(decrease) in cash and cash equivalents 4,038 (1,265)
Cash a nd ca sh e q ui v al e nts at begi n ni ng
of y ear 1,282 2,491
Effective exchange rate fluctuations on cash held (42) 56
----------------------------------------------------- ------------ -------
Cash and cash equivalents at end of year 5,278 1,282
===================================================== ============ =======
Notes to the consolidat ed 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 consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006. 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.
New standards and amendments to standards adopted in the
year
IFRS 16 COVID-19-Related Rent Concessions Amendment
As a result of the coronavirus (COVID-19) pandemic, rent
concessions have been granted to lessees. Such concessions might
take a variety of forms, including payment holidays and deferral of
lease payments. On 28 May 2020, the IASB published an amendment to
IFRS 16 that provides an optional practical expedient for lessees
from assessing whether a rent concession related to COVID-19 is a
lease modification. Lessees can elect to account for such rent
concessions in the same way as they would if they were not lease
modifications. In many cases, this will result in accounting for
the concession as variable lease payments in the period(s) in which
the event or condition that triggers the reduced payment
occurs.
2 . Segm ental r eporting
Inform ati on re ported to the Bo ard, 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 ng s eg m en t s. T he Group's ope r ati ng s
e g m e nts u nder IFRS 8 a re as f o llo w s:
SI Brand - 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 a l 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 a m orti sati on 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 Distribution OEM T o
Y e a r e n d ed 31 De ce m ber 20 20 Br a GBP'000 GBP ta l*
nd '0 00 GBP
GBP '0 00
'0 00
========================================================== ========= ============ ====== ========
Rev enue 3,410 2,311 608 6,329
========================================================== ========= ============ ====== ========
Result
Segment re sult (271) (392) 209 (454)
Unall o ca t ed e x pens es (3,337)
Other Income 621
---------------------------------------------------------- --------- ------------ ------ --------
(Loss) from operations (3,170)
Fina n ce in c o me 1
Fina n ce c o sts (138)
========================================================== ========= ============ ====== ========
(Loss) b efore ta xation (3,307)
T a x credit 31
========================================================== ========= ============ ====== ========
(Loss) for the y ear (3,276)
---------------------------------------------------------- --------- ------------ ------ --------
*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 I Distribution OEM T o
Y e a r e n d ed 31 De ce m ber 20 20 Br a GBP '0 GBP ta l
nd 00 '0 00 GBP
GBP '0 00
'0 00
========================================================== ========= ============ ====== ========
Amorti sa t ion of i nta n gi b le a s s ets 250 162 - 412
Impairment of i nta n gi b le a s s ets 182 1,132 - 1,314
Additions to intangibles 113 - - 113
Unall o ca t ed e x pens es f or 2 0 20 i n clu de s a l es a nd
m ark eti ng c os ts (GBP 185,0 0 0), r es e arch and de v elo p me
nt c o s ts (GBP1,099,000), centr al o v e r hea ds (GBP790, 00 0),
Direct (Elemental Healthcare) sales & marketing overheads
(GBP1,039,000), share based payments (GBP116,000), exceptionals
(GBP108,000) note 3.
S I Br Distribution OEM T o
Y e a r e n d ed 31 De ce m ber 2019 a nd GBP'000 GBP ta l*
GBP '0 '0 00 GBP
00 '0 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 (3,877)
======================================= ======= ============ ====== ========
(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 re s u lts are
t he f o llo w i ng i t e m s:
S I Br Distribution OEM T o
Y e a r e n d ed 31 De ce m ber 2019 a nd GBP '0 GBP ta l
GBP '0 00 '0 00 GBP
00 '0 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
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 (GBP904, 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).
Disaggregation of gross margin
The Group has disaggregated margins
in the following table:
2020 2019
GBP'000 GBP'000
-------------------------------------- --------- ----------------
Revenue 6,329 10,733
Cost of Sales (3,519) (6,082)
Underlying Gross Margin 2,810 4,651
Underlying Gross Margin % 44.39% 43.33%
Net Cost of Manufacturing* (1,538) (318)
---------------------------------------- --------- ----------------
Contribution Margin 1,272 4,333
---------------------------------------- --------- ----------------
Contribution Margin % 20.10% 40.37%
---------------------------------------- --------- ----------------
*Underlying net cost of manufacturing with the government
support of the CJRS scheme of GBP270,000 allocated in other Income
and non-recurring costs in note 3 of GBP120,000 added back to
adjust the net costs of Manufacturing to GBP1,148,000 results in an
underlying contribution margin of 26.26%.
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 2020 S I Br Distribution OEM T o
a nd GBP '0 GBP ta l
GBP '0 00 '0 00 GBP
00 '0 00
===================================== ============ ============ ====== ======
United Kingdom 889 2,311 457 3,657
Europe 726 - - 726
US 882 - 151 1,033
APAC 681 - - 681
Rest of World 232 - - 232
------------------------------------- ------------ ------------ ------ ------
3,410 2,311 608 6,329
===================================== ============ ============ ====== ======
Y e a r e n d ed 31 De ce m ber 20 19 S I Br Distribution OEM T o
a nd GBP '0 GBP ta l
GBP '0 00 '0 00 GBP
00 '0 00
====================================== ============ ============ ====== ========
United Kingdom 1,613 3,101 1,497 6,211
Europe 1,283 - - 1,283
US 1,852 - 295 2,147
APAC 456 - - 456
Rest of World 636 - - 636
-------------------------------------- ------------ ------------ ------ --------
5,840 3,101 1,792 10,733
====================================== ============ ============ ====== ========
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 io n of u se. During 2020 GBP708,0 00 (11.2%) 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 (2019: GBP1,226,000 (11.4%)).
Sales of goods were GBP6,307,000 (2019: GBP10,374,000) and sales
relating to services in the UK were GBP22,000 (2019:
GBP359,000).
3. Other Income comprised:
2020 2019
GBP'000 GBP'000
CJRS 594 -
CBILS-Interest free (12mths) 27 -
----------------------------- ------- ----------------
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 during April to November 2020 in order to
continue paying part of the furloughed employees' salaries and at
the same time protecting them from potential redundancy.
The Group claimed GBP594,000 through CJRS during 2020,
GBP270,000 of the GBP594,000 claimed related to manufacturing
employees and the remainder of the GBP324,000 related to various
departments in other operating expenses.
4. Earnin gs per ordina ry share
Basic e arnings per ordinary share
T h e ca l cul ati on of ba s ic earn i n gs p er o rd inary s
hare for t he y ear e n ded 31 De ce m ber 20 20 w as based up on
the loss att r i b utab le to ord inary s hare h ol d ers of (
GBP3,276,000 ) (2019:( GBP2,619 ,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 ed 31 De ce m ber 2 0 20 of 834,762,898 ( 20 19: 789,845,629).
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 2 020 w as ba s ed u pon t
he loss attri b uta b le to ord inary s hare h olde rs of ( GBP
3,276,000) (2019: ( GBP 2,619,000)) a n d 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 2020 of 836,824,355 (2019: 891,313,476). 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 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 2 020 w as ba s ed u pon t
he adjusted (loss)/profit attri b uta b le to ord inary s hare h
olde rs (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 ( GBP1,576,000) (2019: GBP355,000) a n d 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 2020 of 834,762,898 (2019:
789,845,629).
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 20 2019
No. of No. of
Shares Shares
======================================================== ====================== ===========================
Bas ic ea r ni n gs p er s hare 834,763 789,846
Diluti ve eff e ct of une x erc i sed s hare o pti
o ns 2,061 101,467
======================================================== ====================== ===========================
Diluted ea r nin gs p er s hare 836,824 891,313
======================================================== ====================== ===========================
5. Intangible assets Capitalised Single Exclusive
development use product Goodwill Supplier Total
costs knowledge Agreements
transfer
GBP'000 GBP,000 GBP'000 GBP'000 GBP'000
Cost
At 1 J anuary 2 019 13,099 225 8,180 1,799 23,303
Additi ons 317 - - - 317
At 1 J anuary 2 020 13,416 225 8,180 1,799 23,620
Additi ons 113 - - - 113
Reclassification of
investment
in associate* 173 - - - 173
A t 31 December 2 0 20 13,702 225 8,180 1,799 23,906
=========================== ====================== ================ ============== ================ =============
A cc umulated a mortis
ation
At 1 J anuary 2 019 (11,826) - - (1,286) (13,112)
Charge f or t he y ear (291) - - (351) (642)
Impairment provision (403) (225) (1,625) - (2,253)
At 1 J anuary 2 020 (12,520) (225) (1,625) (1,637) (16,007)
Charge f or t he y ear (250) - - (162) (412)
Imp a irm e nt p r o v is i
on* (182) - (1,132) - (1,314)
=========================== ====================== ================ ============== ================ =============
A t 31 December 2 0 20 (12,952) (225) (2,757) (1,799) (17,733)
=========================== ====================== ================ ============== ================ =============
Carr ying amount
A t 31 December 2 0 20 750 - 5,423 - 6,173
=========================== ====================== ================ ============== ================ =============
At 31 De ce m ber 2 019 896 - 6,555 162 7,613
=========================== ====================== ================ ============== ================ =============
At 1 January 2019 1,273 225 8,180 513 10,191
=========================== ====================== ================ ============== ================ =============
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.
Investment in associate
The reclassification of Amount due from associate represents
development expenses incurred in collaboration with an associated
Company Illuminno Ltd of which Surgical Innovations Group Plc holds
33% shareholding. The value of the investment is GBP33 and is not
considered material to the Group. In 2020, an agreement, subject to
contract, has allowed the costs in Illuminno Ltd to be transferred
on the balance sheet as intangible product development costs.
During the year management did a further review and given the
development changes implemented and the direction of the portfolio
it was decided that the nature of these costs provide no future
economic benefit, an impairment of GBP0.18m has been recognised,
Additional expenditure for the Illuminno portfolio consisting of
GBP0.15m has been capitalised and continues to be a viable
development project.
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% (2019:1.5%) and a pre-tax discount
rate of 15% (2019:15%) applied to anticipated cash flows. In
addition, the value in use calculation assumes a gross profit
margin of 40.6% (2019:40.6%) 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 has been significantly
impacted by the pandemic throughout 2020, continuing into 2021,
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. In June 2020 a
provision for impairment was recognised totaling GBP1.44m due the
impact of the pandemic, but upon improvement in trading forecasts
in the second half of the year the directors are of the opinion
that a reversal of GBP0.31m is required, therefore the impact on
impairment at the year end is GBP1.13m. (2019: GBP1.63m). If the
pre-tax discount rate increased the impact on the impairment would
be approximately a further GBP0.58m and if rate decreased the
impairment would go down by GBP0.71m.
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. The directors continue to place
significant value on the business and operations of Elemental as an
integral part of the group strategy.
6. Borrowings 2020 20 19
Bank Loan GBP'000 GBP
'000
======================== ======= ==========
Current liabilities 298 297
Non-current liabilities 1,879 515
======================== ======= ==========
Lease liabilities
======================== ======= ==========
Current liabilities 186 190
Non-current liabilities 907 1,086
------------------------ ------- ----------
3,270 2,088
======================== ======= ==========
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. During
2019 the Board elected to repay GBP1.0m of term loan B in advance
of the due date, from available cash resources. On 31 December 2020
the remaining balance of the term loans was GBP0.68m. 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 drawn down the
rate of interest applicable to each loan for its interest period
will be LIBOR plus 2.8% per annum and it will be secured by a
floating charge over the assets of the Group. At 31 December 2020,
no amount was drawn down (2019: GBPnil).
In May 2020 the Company agreed with its bankers to suspend
normal capital repayments totaling GBP0.15m to be repaid at the end
of the term which is now 31 May 2022, in addition the bank waived
the March covenant and provided less restrictive covenants until
July 2021. The flexibility of the existing GBP0.50m revolving
credit facility was maintained and in addition, the Company has
agreed a new facility of GBP1.50m under the Coronavirus Business
Interruption Loan Scheme (CBILS). The CBILS arrangement is interest
free until May 2021 repayable at the end of the term in May 2022,
which is in line with the existing loan facilities.
In aggregate total borrowing at the 31 December 2020 was
GBP2.18m (2019: GBP0.81m). Financial covenants will continue to be
tested on a quarterly basis.
Changes in liabilities arising from financing Non-current Current Obligations Total
activities loans and loans and under
borrowings borrowings finance
leases
At 1 January 2020 515 297 - 812
------------ ------------ ------------ ------
Cash flows 1,500 (150) - 1,350
------------ ------------ ------------ ------
Transfer between non-current and current (150) 150 - -
------------ ------------ ------------ ------
Interest accruing in the period 14 1 - 15
------------ ------------ ------------ ------
At 31 December 2020 1,879 298 - 2,177
------------ ------------ ------------ ------
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:
EBITDA in respect of:
(i) the 3 month period expiring on 30 June 2020 shall not
exceed
a negative amount greater than -GBP775,000;
(ii) the 6 month period expiring on 30 September 2020 shall
not
exceed a negative amount greater than -GBP1,379,000;
(iii) the 9 month period expiring on 31 December 2020 shall
not
exceed a negative amount greater than -GBP1,379,000;
7.Trade and 2020 2019
other payables GBP'000 GBP'000
=============== ============================================================================================== ==========
T rade payables 749 1,026
Corporation tax - -
payable
Other tax and
social
security 164 173
Other payables 294 319
3
Deferred
creditors 242 -
=============== ============================================================================================== ==========
1,449 1,518
=============== ============================================================================================== ==========
Deferred creditors within 2020 relates to tax and social
security (GBP88,000), VAT (GBP70,000), Rent and Rates (GBP58,000),
Admin expenses (GBP26,000). All deferred creditors are payable
within 12 months.
The Group and Company's financial liabilities have contractual
maturities (including interest payments where applicable) which are
summarised below.
Amounts Amounts Amounts
due in due in due in
=============================== ========== ========= ========== ===============
less than 2-5 years 5-10 years Total financial
As at 31 December 2020 1 year liabilities
GBP'000 GBP'000 GBP'000 GBP'000
=============================== ========== ========= ========== ===============
T rade payables 749 - - 749
Other payables 294 - - 294
Deferred creditors 242 - - 242
Lease liabilities-Current 235 - - 235
Lease liabilities -Non-current - 725 371 1,096
Bank borrowings-Current 354 - - 354
Bank borrowings-Non-current - 1,904 - 1,904
=============================== ========== ========= ========== ===============
1,874 2,629 371 4,874
=============================== ========== ========= ========== ===============
Amounts Amounts Amounts
due in due in due in
=============================== ========== ========= ========== ============
less than 2-5 years 5-10 years Total
As at 31 December 2019 1 year financial
GBP'000 GBP'000 GBP'000 liabilities
GBP'000
=============================== ========== ========= ========== ============
T rade payables 1,026 - - 1,026
Other payables 319 - - 319
Lease liabilities-Current 250 - - 250
Lease liabilities -Non-current - 785 547 1,332
Bank borrowings-Current 328 - - 328
Bank borrowings-Non-current - 546 - 546
=============================== ========== ========= ========== ============
1,923 1,331 547 3,801
=============================== ========== ========= ========== ============
8. Share Capital
Shares in issue reconciliation (Authorised, allott ed, ca l led
up a nd f ully p aid)
2020 2019
Opening no of shares in issue 795,316,177 782,566,177
------------- -------------
Issued in satisfaction of share options exercised - 12,750,000
------------- -------------
Issued in relation to fundraising* 137,500,000
------------- -------------
Closing number of shares in issue 932,816,177 795,316,177
------------- -------------
*During September 2020 the Company raised equity of GBP2.05m
(net of associated costs) to provide investment capital and
additional financial headroom.
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