Interim Results. For the six months ended 30 June 2017

Transcription

1 Interim Results For the six months ended 30 June 2017 Strong growth, improved margins, increased net cash......transformational acquisition & strengthened executive board......ambitious and confident... Nigel Rogers Executive Chairman Melanie Ross COO & CFO September 2017

2 What we do 1 Surgical Innovations Group plc specialises in the design, manufacture and sale of innovative devices for use in minimally invasive surgery (MIS). We are guided and supported by a key group of nationally and internationally renowned surgeons across the spectrum of minimally invasive surgical activity. SI Branded Products Surgical Innovations Limited ( SI ) designs, manufactures and sources port access systems, surgical instruments and retraction devices which are sold directly in the UK home market through newly acquired fellow subsidiary, Elemental Healthcare Ltd, and exported widely through a global network of trusted distribution partners. UK distribution Elemental Healthcare also has exclusive UK distribution of a select group of specialist products in laparoscopy, bariatric, hernia repair and breast reconstruction. OEM SI designs and develops medical devices for carefully selected OEM partners, including Advanced Medical Solutions plc. Precision Engineering - The Group has collaborated with a major UK industrial partner to provide precision engineering solutions to complex problems outside the medical arena.

3 Highlights 2 Revenue growth of 14.1% - led by success in UK and OEM segments Improved margins at gross and operating levels (38.0% and 8.9% of sales respectively) Strong cash conversion - increased net cash to exceed 1m NPI programme timetable affected by constraints in regulatory framework Full market launch of YelloPort Elite in Q2 Further Elite products now launching in 2017 Q4/2018 Q1 Transformational acquisition of Elemental Healthcare completed on 1 August 2017 Strengthened board experienced commercial and development leadership Enhanced organic growth prospects and M&A bandwidth

4 Financials Income Statement H1 2016H Revenue Cost of sales (2.15) (2.23) (4.03) Gross profit GP % 38.0% 26.6% 33.8% Other operating expenses (1.01) (0.78) (1.59) EBITDA Amortisation of intangible assets (0.26) (0.21) (0.43) Depreciation (0.27) (0.26) (0.51) Operating profit Net finance costs (0.01) (0.09) (0.19) Net profit/(loss) before taxation 0.30 (0.06) 0.28 Taxation credit Profit attributable to shareholders Earnings per share 0.06p 0.05p 0.15p 14.1% revenue growth Gross margin improved and on target Opex increase reflects additional regulatory & NPI spend EBITDA up 66% on 2016H1 Operating margin 8.9% vs 2016 full year 7.7% R&D tax credits for 2014 and 2015 claims EPS up 20% on 2016H1

5 Financials Operating Expenses H1 2016H1 Central overheads, sales & marketing (0.17) (0.15) Development costs incurred (0.43) (0.30) R&D overhead (0.16) (0.15) Development costs capitalised Amortisation of intangible assets (0.26) (0.21) Net development costs (0.62) (0.46) Plc costs (0.22) (0.17) Operating expenses (1.01) (0.78)

6 Financials Cash flows H1 2016H Cash flows from operating activities Operating profit Depreciation & amortisation Other (0.01) Operating cash flows before movements in working capital Inventories (0.23) Receivables Payables (0.06) Cash generated from operations Taxation received Interest paid (net) - (0.05) (0.09) Net cash generated from operations Operating cash conversion : EBITDA 102%, 2016 full year 202%

7 6 Financials Cash flows (continued) 2017H1 2016H Net cash generated from operations Cash flows from investing activities (0.42) (0.25) (0.78) Capex on tangible FA (0.11) (0.05) (0.16) Capitalised development costs (0.21) (0.20) (0.44) Acquisition of SD assets and Laparoscopic (0.10) - (0.18) business Cash flows from financing activities (0.02) (0.31) (2.20) Bank loans repaid - (0.20) (2.00) Repayment of lease obligations/other (0.02) (0.11) (0.20) Net increase/(decrease) in cash & equivalents (0.13)

8 Financials Balance Sheet 7 Jun 2017 Dec 2016 Jun 2016 Tangible fixed assets Intangible assets Total non-current assets Inventories Trade receivables Other current assets Trade & other payables (0.39) (0.34) (0.42) Accruals & deferred income (0.48) (0.61) (0.38) Total working capital Cash & equivalents Bank borrowings - - (1.79) Convertible loan notes - - (1.00) Finance lease obligations (0.03) (0.05) (0.14) Total net cash/ (indebtedness) (0.72) Net assets/total equity

9 Regulatory framework - I 8 The industry wide pressures: Increased incidence of claims, litigation and adverse media coverage Added complexity of globalised supply chains Ever growing range, variety and innovation in techniques, devices and instrumentation The MHRA regulatory response: Greater vigilance, audit frequency and intrusiveness of approach More scepticism in retrospective reviews of previously acceptable products and practices Redefinition of OBL to virtual manufacturing in March 2017 on-shoring the regulatory burden The unintended consequences: Underperformance of routine tasks by Notified Bodies increased backlog and resource shortages Chaotic environment for those previously employing former OBL business model Delays to NPI programmes of established manufacturers Closure of Notified Bodies to new business or new clients Market shortage of NPI, quality and regulatory personnel

10 Regulatory framework - II 9 Impacts on our business: Increased resource in quality and regulatory support functions Challenges in retaining and developing key skills of core team Increased incidence and thoroughness of external audit visits, even for long established products & processes Uncontrollable delays in regulatory pathway for submission and approval of new or improved products Our response and approach: We are well placed to meet the additional challenges Changed Notified Body for CE marking in 2017 H1 Passed comprehensive FDA audit in July 2017 There have been short term adverse effects, which are likely to prevail in 2017 H2 Overall, increased regulatory barriers to entry enhance our market position as a high quality provider Well placed to succeed relative to many smaller, less well resourced competitors

11 Acquisition of Elemental Healthcare 10 Acquired 100% of equity from vendor directors for 9.14m on 1 August 2017 Adam Power & David Marsh join board, retaining 1.88m in shares (4% of enlarged each) 5.5m equity raise to new & existing holders at 3.0p (>1.6x oversubscribed) New 3.0m five year term banking facilities from Yorkshire Bank Unaudited revenues for year ended 31 March 2017 of 6.5m, EBIT margin 17% Represented historic multiple of 8.5x EBIT Earnings enhancing without synergies Integration well advanced Strong support of all key stakeholder groups assured

12 Elemental Healthcare Additional Areas of Clinical Activity 11 Bariatric/Obesity Surgery Gastric Band Surgical Instruments & Retraction Hernia Repair Mesh Repair Glue fixation Plastic and Reconstructive Surgery Abdominal & Breast Reconstruction biological mesh Breast Reconstruction glue

13 Elemental Sales by Hospital Sector 12 18% Private 82% NHS

14 Enlarged Group - Integration 13 Board of Directors Governance, Investor relations, Strategy, M&A SI (Leeds) Corporate HQ Finance Design/development Manufacturing Regulatory/quality Export logistics Split functions Product road map Customer service Purchasing/sourcing Administration Elemental (Hungerford) Sales & marketing Market development Web & social media UK distribution

15 Enlarged Group - Strategy 14 SI Group will comprise growing, dynamic businesses that provide innovative high-quality products, predominantly for Minimally Invasive Surgery We view ourselves as partners with our distributors, our customers, our employees and our suppliers to achieve the best patient outcomes at an affordable cost We aim for our brands to be recognised and respected by healthcare professionals in all major geographical markets

16 Enlarged group growth opportunities 15 Board level leadership of business development pathway Experienced commercial leadership to provide guidance and support to distributors Breadth of product offer and impetus to NPI planning and execution Enhanced access to innovation within clinical and academic communities Expansion within existing niche product areas Controlled growth of geographic footprint Wider field of vision in identification of M&A opportunities Additional top-level management capacity for execution & integration of future deals Ambitious plans for the future, and confident of ability to deliver

17 Appendices 16

18 Board of Directors 17 Nigel Rogers (Executive Chairman) FCA, 20+ years as FD/CEO/NED/Chair of various AIM-listed businesses, including SDM, SIXH and TRT. Melanie Ross (COO/CFO) member of CIMA, previously at AESSEAL plc and Eaton Cooper Lighting & Safety Adam Power (Group Development Director) pedigree in medical sales and new product introductions to UK market. 10 years owner/director of Elemental David Marsh (Group Commercial Director) strong track record in medical sales and M&A with Sky & Gyrus, before co-founding Elemental in Prof. Mike McMahon (NED and Clinical Lead) founder/director, leading Laparoscopic Surgeon Paul Hardy (NED) Chartered Accountant led successful MBO of BI Engineering Ltd (Medtech/aerospace group) and subsequent exit. Now principal at HTML, boutique lead advisory M&A firm Alistair Taylor (NED) strong pedigree in medical sales. Experienced director in life sciences sector, previously with Beecham, Pfizer & Biocompatibles Plc and others

19 SI revenues by segment () Precision Engineering OEM SI Brand H1 2017H1

20 SI revenues by destination() RoW Europe UK US H1 2017H1

21 Major shareholders 20 As at the 8 September 2017 % of enlarged Getz Bros 13.0% Directors 12.2% Ruffer LLP 9.8% CWN John 5.1% HealthInvest Partners AB 5.1% Unicorn AIM VCT plc 3.4%

22 Pro-Forma Income Statement SI/EHL 21 SI 12/2016 Elemental 03/2017 Integration Combined Pro-Forma Revenue (0.89) Cost of sales (4.03) (3.76) 0.89 (6.90) Gross profit Other operating expenses (1.59) **(1.67) 0.00 (3.26) EBITDA Amortisation of intangible assets (0.43) (0.43) Depreciation (0.51) (0.04) 0.00 (0.55) Operating profit Net finance costs *(0.03) 0.00 (0.13) (0.15) Profit before taxation (0.13) 1.42 Taxation credit/(charge) *0.20 (0.20) Profit for year *0.64 **0.90 (0.13) 1.42 * Statutory figures normalised to reflect loan conversion in December 2016 and prior year element of tax credit ** Management accounts normalised to reflect non-recurring bad debt cost and directors remuneration

23 Pro-Forma Balance Sheet SI/EHL 22 SI 12/2016 Elemental 03/2017 Transaction Combined Pro-Forma Tangible fixed assets Intangible assets Total non-current assets Inventories Trade receivables Other current assets Trade & other payables (0.34) (1.04) (1.38) Accruals & deferred income (0.61) (0.07) (0.68) Total working capital Cash & equivalents Bank loan - (0.06) (2.50) (2.56) Finance lease obligations (0.05) 0.00 (0.05) Tax/other - (0.40) (0.40) Total net cash/(debt) 0.72 (0.30) (2.50) (2.08) Net assets/total equity

24 Pro-forma segmentation SI/EHL 23 By segment By destination SI Brand UK UK Distribution US OEM EU Prec Eng RoW