Chairman's Statement

“We remain confident about the future growth prospects of the business as our existing SI branded products continue to gain international clinical recognition.”

 

Doug Liversidge CBE, Chairman

 

 

Summary of Chairman’s statement

 

The majority of sales continue
to come from our higher
margin SI branded products
which now represent 70% of
overall revenues (2011: 62%).

 

The US remains our largest
opportunity and now accounts
for 28.1% of total revenue.

 

Increasing YelloPort+plus™
cannula sales provides the
platform for longer term high
margin revenues from the
disposable elements.

 

 

 

 

 

chairman

 

 

 

Results

We have made good progress throughout
the year and the second half was particularly
strong, with substantially improved trading
across both SI Brand and OEM segments
against the first half. As a result we saw a
considerable increase in contracted orders
in the second half of £5.62 million, which
represented an 85% improvement on our first
half performance (H1 2012: £3.02 million).

However, as explained in our February trading
update, £1 million of these orders will be
recognised as revenue in the first week of the
financial year ending 31 December 2013. If the
additional orders had have been recognised in
the year under review I am confident that we
would have seen strong double digit growth in
revenues, adjusted EBITDA and pre-tax profits
for that period. Whilst it is frustrating that
the tremendous efforts of the team at the end
of the year are not being recognised in this
financial year it does mean that we will start
the current financial year with a sound platform
to build on.

 

As a result of the recognition discussed above,
Revenue for the period was £7.64 million
(2011: £7.60 million) and Adjusted EBITDA
(excluding exceptional items) was ahead of the
previous year at £2.89 million (2011: £2.83 million).

 

The majority of sales continue to come
from our higher margin SI branded products
where we saw revenues increase by 12.9%
to £5.33 million (2011: £4.73 million). Again we
experienced particularly strong sales in the final
quarter of the year and this growth was driven
by our flagship Resposable® products. SI branded
products now represent 70% of overall revenues
(2011: 62%). OEM sales for the year decreased
21.5% to £2.20 million (2011: £2.81 million),
reflecting our policy to focus purely on our
strategic OEM partners whilst allocating
resources to promotion of the SI branded
products. The Industrial business continues
to operate at historic levels with sales of
£101,000 (2011: £70,000).

 

We continue our focus on the development
of US opportunities as we further increase
revenue streams in this important market.
Direct sales to the US increased by nearly 22%
to £2.15 million (2011: £1.76 million) and now
account for 28.1% of total revenue (2011: 23.2%).

 

An important measure of our performance
is the growth in sales of the higher margin
consumable element of our Resposable®
products. Total sales of these SI branded
consumables increased by 6.7% to £3.17 million
(2011: £2.97 million) which now represents 59%
of SI Brand sales (2011: 63%). There is a clear
correlation between long-term valve sales and
the number of reusable cannulas in the market.

 

I am delighted to report that YelloPort+plus™
cannula sales increased to 10,124 units
(2011: 5,272 units) and this provides the platform
for longer-term high margin revenues from
the disposable elements.

 

Gross profit increased by 7.3% to £3.86 million
(2011: £3.60 million) with Gross margins improving
to 50.5% (2011: 47.3%). Due to the exceptional
items and increased amortisation and depreciation
costs, operating profit reduced to £1.32 million
(2011: £1.77 million). As a result profit before tax
was £1.23 million (2011: £1.71 million). Earnings
per share adjusted for exceptional items and
deferred tax adjustments decreased to 0.35p
(2011: 0.44p).

 

Cash flow and investment

The Group generated net cash from operating
activities of £612,000 (2011: £1.78 million)
which reduced due to an increase in working
capital of £1.96 million arising primarily as a
result of significant sales in December 2012.

 

As expected, investment in capitalised intangible
and tangible assets reduced during the year
to £1.98 million (2011: £2.84 million).

 

At 31 December our net debt stood at £2.63
million (2011: £1.11 million). In addition to existing
finance lease facilities, the Group secured a
£2 million overdraft facility from HSBC and at
31 December 2012, £1.42 million of this facility
was utilised.

 

Dividend

The Board maintains the belief that at this stage
in the Group’s development it would be more
appropriate to continue its focus on strong
inward investment and does not intend to pay
a dividend for the year ended 31 December 2012.

 

Regional Growth Fund (RGF)

In 2012 we announced Government approval
to our final bid for RGF monies of £5.05 million.
These funds are specifically allocated to our
capital expansion strategy comprising a new
R&D and training facility within the Leeds City
Region. We are aware that any capital build
programme must be in the best interests of
Surgical Innovations and we are in the process
of working with our professional advisers on
both site location and specification. I will be
providing further updates over the course
of the year as the project progresses.

 

Outlook

Trading in the period since the year end has
been encouraging and is in line with our
expectations for the first quarter.

 

Our strategy of focused innovation and product
development within new growth areas of
laparoscopy, fluid delivery and 3mm ultra-MIS,
coupled with our move into new therapeutic
markets such as hip arthroscopy, ensures that
we remain at the forefront of MIS. It also provides
a solid platform from which we have a growing
pipeline of new products to be launched, which
will drive additional growth in the coming year
and beyond.

 

We remain confident about the future growth
prospects of the business as our existing SI
branded products continue to gain international
clinical recognition. The US remains our largest
opportunity where we have established multiple
routes to market. Continued investment in
developing these routes will provide quicker
and easier access to this key market for both
current and future products. We expect to see
a regular flow of new products throughout the
year, which will help to drive future revenues,
as well as the development of new and existing
relationships with our strategic OEM partners,
whilst retaining our primary strategic objective
of growing our SI Brand.

 

I would like to thank the Board and staff for
their hard work in 2012 and their undoubted
contribution to the strong performance of the
business, particularly in the second half of the
year. We start 2013 well positioned to take full
advantage of the opportunities that are available
to us and I look forward to reporting on the
continuing success of the Group over the
coming year.

 

 

Doug Liversidge CBE
Chairman
8 April 2013