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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Surgical Innovations Group Plc | LSE:SUN | London | Ordinary Share | GB0004016704 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.50 | 0.40 | 0.60 | 0.50 | 0.50 | 0.50 | 1,031,433 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Surgical,med Instr,apparatus | 11.34M | 264k | 0.0003 | 16.67 | 4.66M |
From Apr 2022 to Apr 2024
TIDMSUN
RNS Number : 5376U
Surgical Innovations Group PLC
29 March 2023
Surgical Innovations Group plc
("Surgical Innovations", the "Company" or the "Group")
Final Results
Audited results for the year ended 31 December 2022
Surgical Innovations Group plc (AIM: SUN), the designer, manufacturer and distributor of innovative technology for minimally invasive surgery, reports its audited financial results for the year ended 31 December 2022. During the year, the business achieved a strong recovery with sales up 24.3% year-on-year exceeding pre-pandemic levels. The return to profitability positions the Group well to deliver robust organic growth in 2023 and beyond.
Financial highlights:
-- Revenues increased by 24.3% in 2022 to GBP11.34m (2021: GBP9.13m) and 6% ahead of the comparable pre-pandemic period in 2019 (GBP10.73m)(1)
-- Underlying gross margin (before net manufacturing cost) slightly higher and within target range at 42.5% (2021: 42.3%)
-- Adjusted EBITDA(2) profit of GBP0.70m (2021: GBP0.50m) -- Adjusted operating profit before tax(2) of GBP0.01m (2021: loss of GBP0.33m) -- Adjusted EPS(2) amounted to a profit of 0.036p per share (2021: loss of 0.022p) -- Net cash generated from operations GBP0.48m (2021: net cash used in operations GBP0.43m)
-- Increased investment activities GBP1.24m (2021: GBP0.66m) and higher inventory holdings reflecting ongoing supply chain issues
-- Net cash(3) at end of period of GBP0.99m (as at 31 Dec 2021: GBP1.76m) with additional undrawn headroom of a GBP1.0m invoice discounting facility
Commercial and operational highlights:
-- Strong sales in UK, Japan and key EU markets -- Investment in sales and marketing team driving commercial opportunity -- Geographical expansion into India and Germany gaining traction -- Ongoing capex investments driving efficiencies and cost reductions through manufacturing
-- Regulatory investment in people and processes position the Company for early MDR transition in 2023
-- Continued investment into new product development, with launch of YelloPort Elite(TM) 5mm and a new Optical trocar
Current trading and outlook:
-- Revenues in the current year to date for SI brand and Distribution sales are 9.2% ahead of the corresponding period last year
-- The forward order book is strong, notwithstanding some deferral of Q1 revenue into Q2 due to longer lead times in sourcing certain OEM components
-- The Group is expected to continue to trade profitably at the level of adjusted EBITDA supported by the continual investment in operations during 2023
1. Comparative information is shown for the year ended 31 December 2021, except where otherwise stated. Further comparative information for the year ended 31 December 2019 has been included to provide a pre-pandemic benchmark for trading.
2. Adjusted EBITDA, adjusted operating profit/(loss) before tax and Adjusted EPS are stated before deducting non-recurring/ exceptional costs of GBP0.03m (2021: GBP0.08m), impairment of intangible costs of GBPnil (2021: GBP0.15m) and share based payment costs of GBP0.04m (2021: GBP0.03m).
3. Net cash equals cash less bank debt only.
Chairman of Surgical Innovations, Nigel Rogers said: "Whilst the backlog of patients requiring treatment in the UK continues to increase, standing at 7.2m in December 2022, sales remain strong. Revenue in the current year to date for SI brand and Distribution sales are 9.2% ahead of corresponding period last year and the future order book is looking positive going into Q2. There is a similar picture globally however the unique selling proposition of our product portfolio, which are high performing, sustainable and cost-effective solutions, leave us well placed to address this pent-up demand and make a positive impact on the environment.
"New geographical markets are providing some significant prospects for the forthcoming year. In India, where registration was obtained earlier this year, evaluations with key surgeons in a group of Delhi based hospitals are progressing well. A new partner in Germany has seen the conversion of a new account with further evaluations scheduled. In the US the partnership with Microline is seeing progress with a number of hospital conversions and again further evaluations are underway. The Company continues to work with key partners to strengthen the overall growth opportunities.
" Given the multiple factors driving improved prospects for growth, the Board has increased confidence in not only the outlook for 2023 but also the longer-term growth trajectory for the Group . "
For further information please contact:
Hot Features
Premium
Surgical Innovations Group plc www sigroupplc com
David Marsh, CEO Tel: 0113 230 7597
Charmaine Day, CFO
Singer Capital Markets (Nominated Tel: 020 7496 3000
Adviser & Broker)
Aubrey Powell / Oliver Platts
Walbrook PR (Financial PR & Investor Tel: 020 7933 8780 or si@walbrookpr.com
Relations)
Paul McManus / Lianne Applegarth Mob: 07980 541 893 / 07584 391
303
About Surgical Innovations Group plc
Strategy
The Group specialises in the design, manufacture, sale and distribution of innovative, high quality medical products, primarily for use in minimally invasive surgery. Our product and business development is guided and supported by a key group of nationally and internationally renowned surgeons across the spectrum of minimally invasive surgical activity.
We design and manufacture and source our branded port access systems, surgical instruments and retraction devices which are sold directly in the UK home market through our subsidiary, Elemental Healthcare, and exported widely through a global network of trusted distribution partners. Many of our products in this field are based on a "resposable" concept, in which the products are part reusable, part disposable, offering a high quality and environmentally responsible solution at a cost that is competitive against fully disposable alternatives.
Elemental also has exclusive UK distribution for a select group of specialist products employed in laparoscopy, bariatric and metabolic surgery, hernia repair and breast reconstruction.
In addition, we design and develop medical devices for carefully selected OEM partners and have also collaborated with a major UK industrial partner to provide precision engineering solutions to complex problems outside the medical arena.
We aim for our brands to be recognised and respected by healthcare professionals in all major geographical markets in which we operate and provide by development, partnership or acquisition a broad portfolio of cost effective, procedure specific surgical instruments and implantable devices that offer reliable solutions to genuine clinical needs in the operating theatre environment.
Further information
Further details of the Group's businesses and products are available on the following websites:
www.sigroupplc.com
www.surginno.com
www.elementalhealthcare.co.uk
To receive regular updates by email, please contact si@walbrookpr.com
Surgical Innovations Group plc
Chairman's Statement
For the year ended 31 December 2022
I am pleased to report that the Group has achieved a strong recovery during 2022, delivering sales which exceeded pre-pandemic levels and are slightly ahead of market expectations, providing a return to profitability in the second half of the year. Opportunities have been created to win new business despite the challenges of recent events, particularly as the sustainability benefits of our products are becoming more widely recognised. The improving market environment is gathering pace as healthcare providers around the world are returning to normalised levels of activity and planning to address backlogs in surgery, and we are well positioned to deliver robust organic growth in 2023 and beyond.
Market Overview
Global healthcare markets are gradually returning to pre-pandemic levels of elective surgery, and are now striving to reduce the increasing backlog of patients requiring treatment by increasing capacity. In the UK market, the process of recovery has been hampered by staff shortages, industrial action and difficulties discharging patients due to restricted social care provision. Despite the combined effect of these factors SI brand and Distribution products have achieved revenue growth over the prior year of 30%. This highlights our success in gaining market share through new hospital conversions based on the quality and sustainability benefits our products deliver to customers.
The rates of recovery in the volume of patients treated across our international markets have been variable, but we enter 2023 in more normalised market conditions in all of our key markets.
Supply chain challenges have continued to impact the Company's ability to deliver some key products on time. Whilst this has had only minimal impact on ongoing business, in some new markets the launch of key products was delayed, slowing overall growth as a consequence. This has also affected input costs, and it has been necessary to pass an equitable proportion of these on in selling prices. Order backlogs were largely cleared by the end of the financial year, as a result of robust actions to address component shortages including elevated levels of safety stock. Sporadic issues continue to arise, however, and vigilance coupled with contingency planning continue to be important in mitigating the impacts of these issues.
Financial Overview
Revenues for the year exceeded market expectations at GBP11.34m, an increase of more than 20% versus the prior year (2021: GBP9.13m) and 6% ahead of the pre-pandemic reference year (2019: GBP10.73m). Sales continued to strengthen in the second half of the year, being 10% higher than the first half (2022 H1: GBP5.41m).
Underlying trading margins(1) were within target range at 42.5% (2021: 42.3%) of revenues, despite inflationary cost pressures. Mitigating these costs and passing them on where possible has been a key focus throughout the year. Supply chain disruption continued to present challenges in the second half of the year and across the industry, but these were overcome by maintaining adequate buffer inventories, and consequently customer back orders were managed down to normal levels by the end of the year. Inventories remain above normalised levels to provide ongoing protection, although it is anticipated that supply chain pressures will abate and reductions in inventory will be achievable during 2023.
Operating expenses were kept under control, but intentionally increased to GBP3.88m (2021: GBP3.61m) predominantly due to the increased investment into high-calibre sales and marketing and regulatory headcount. Overall, the Group delivered a positive adjusted EBITDA(1) of approximately GBP0.70m in line with market expectations (2021: GBP0.50m), and a return to overall profitability in the second half of the year. This resulted in a modest adjusted profit before tax(1) for the full year of GBP0.01m compared with a loss of GBP0.33m in 2021. Adjusted Earnings Per Share(1) amounted to 0.036 pence (2021: loss of 0.022 pence).
The Group generated cash from operations for the full year which, in addition to targeted recruitment also supported further capital expenditure investment of GBP0.66m (2021: GBP0.21m). Product innovation continues to be an essential strategic pillar, total investment in research expenses during the year was 10.3% of revenue. The closing net cash(1) balances of the Group stood at GBP0.99m at 31 December 2022 (31 December 2021: GBP1.76m), with available gross cash resources at 31 December 2022 of GBP3.20m (31 December 2021: GBP4.06m) including an undrawn invoice discounting facility of GBP1.0m.
1. Reconciliation to adjusted KPI measures included in the Operating and Financial Review
Strategy and Development
The Group specialises in the design, manufacture, sale and distribution of innovative, high quality medical products, primarily for use in minimally invasive surgery. We design and manufacture and source our branded port access systems, surgical instruments and retraction devices which are sold directly in the UK home market through our subsidiary, Elemental Healthcare, and exported widely through a global network of trusted distribution partners. Many of our products in this field are based on a "resposable" concept, in which the products are part re-usable, part disposable, offering a high quality and environmentally responsible solution at a cost that is competitive against fully disposable alternatives.
Elemental also has exclusive UK distribution for a select group of specialist products employed in laparoscopy, bariatric and metabolic surgery, hernia repair and breast reconstruction. In addition, we design and develop medical devices for carefully selected OEM partners and have also collaborated with a major UK industrial partner to provide precision engineering solutions to complex problems outside the medical arena.
We aim for our brands to be recognised and respected by healthcare professionals in all major geographical markets in which we operate. Through internal development, partnership or acquisition, we provide 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.
The senior leadership team has carried out activities to clarify and focus our understanding of our vision, mission and strategic pillars in order to achieve our objectives. This strengthens the attainment of long-term sustainable growth and promotes the delivery of value to all stakeholders. Cultural values are important in propagating shared goals and behaviours of the business and as we move into 2023 there will be further updates on progress in this regard.
Regulatory and new product development
The Company has made significant advances to obtaining MDR approval with one of the three product categories already receiving certification along with the key Quality Management System (QMS), with another product group to be imminently approved. The QMS approval was vital to allow the Company to continue new product development and plans to launch a range of instruments to complement the Logi(TM) Resposable(R) portfolio are in place for Q4 2023. The decision by the EU to extend the transition time for MDR is only applicable for companies who are on the pathway for MDR and this further raises the barrier to entry for not only new entrants but also many existing medtech competitors.
In addition to the extension of the Logi(TM) Resposable (TM) portfolio there are a number of projects focused on improving both manufacturing efficiencies, expanding overall capacity and reducing costs. This initiative has been enabled by the ongoing investment programme in plant and tooling. Further investment in manufacturing and regulatory is planned for the coming year, providing opportunities to further support the growth, improve the efficiencies, and overall enhance the profitability of the business.
Current trading and outlook
Whilst the backlog of patients requiring treatment in the UK continues to increase, standing at 7.2m in December 2022, sales remain strong. Revenue in the current year to date for SI brand and Distribution sales are 9.2% ahead of corresponding period last year and the future order book is looking positive going into Q2. There is a similar picture globally however the unique selling proposition of our product portfolio, which are high performing, sustainable and cost-effective solutions, leave us well placed to address this pent-up demand and make a positive impact on the environment.
The launch of the new YelloPort Elite(TM) 5mm in Q2 2022, designed in a collaboration with CMR Medical, alongside the introduction of the Optical trocar provides increased opportunity in USA, Japan and India where there is a significant requirement for an Optical 5mm trocar. The planned launch of the additions to the Logi(TM) range were delayed as a consequence of the MDR process and will now be launched later in the year. In addition, a number of cost down R&D projects will provide the opportunity for margin improvement throughout 2023 and into next year.
New geographical markets are providing some significant prospects for the forthcoming year. In India, where registration was obtained earlier this year, evaluations with key surgeons in a group of Delhi based hospitals are progressing well. A new partner in Germany has seen the conversion of a new account with further evaluations scheduled. In the US the partnership with Microline is seeing progress with a number of hospital conversions and again further evaluations are underway. The Company continues to work with key partners to strengthen the overall growth opportunities.
Given the multiple factors driving improved prospects for growth, the Board has increased confidence in not only the outlook for 2023 but also the longer-term growth trajectory for the Group.
Nigel Rogers
Non-Executive Chairman
28 March 2023
Operating and Financial Review
Operational overview
People
In the first half of the year there were challenges in retaining key skilled manufacturing personnel, with employee turnover at its highest level for a number of years, combined with the well publicised challenges of attracting new staff. To address these issues, the Company introduced a number of initiatives, with the trial implementation of a four-day working week which started at the beginning of August, being the most significant. The trial is supported by the UK pilot programme and has been carefully managed to ensure five-day continuity of service and support. The scheme is set to benefit from improved productivity levels from improved employee wellbeing. Efficiency initiatives are also being rolled out to ensure that the trial remains operationally effective. In addition, financial packages were increased to be comparable with market rates which have been exacerbated by the current inflationary pressures. Since the trial has started, there have been successful hires and employee turnover has lowered. The trial has been extended for a further two months and will be continually reviewed.
Supply chain
Supply chain disruptions continued throughout 2022 but have started to ease; lead times on materials and parts needed for new machinery have been lengthier than historical norms. As a consequence, this has impacted manufacturing efficiencies and delayed sales orders. Inventory holdings have remained at higher levels to alleviate the pressure. Investment in new skilled labour and plant and machinery have allowed some of the manufacturing processes to be brought back in house which will improve both efficiency and capacity. The supply chain and people challenges remain but are under better control and it is anticipated that these obstacles will gradually recede through 2023.
Regulatory
The regulatory pathway continues to be on track with the EU Medical Device Regulation (MDR), and additional resource towards the end of the year has been brought in to support the process. In August, the Company successfully completed a quality management system (QMS) audit. The regulatory environment continues to be fluid, including a recent change to the deadlines for most of the Company's competitors to achieve certification under MDR from 2024 until 2028. The Company has, however, been quicker to adapt to the changing landscape and remains well placed to achieve MDR during 2023.
Financial overview
Revenue
The board reviews the revenue in terms of year-on-year growth and with to reference to the 2019 financial year as a pre-pandemic comparative period, which provides a measure of the revenue recovery since the effects of Covid-19 on the Company's operating markets.
The Group recorded strong revenue growth in 2022, increasing by 24.3% to GBP11.34m. This compares with the full year revenues of GBP9.1m in 2021, GBP6.3m in 2020 and GBP10.7m in 2019 as a pre-pandemic comparative.
Revenues from the sale of Surgical Innovations Brand (SI Brand) products increased by 15.6% to GBP5.56m (2021: GBP4.81m) and recovered to 95.2% of pre-pandemic levels (2019: GBP5.84m).
Distribution sales represent third party products that complement the portfolio of manufactured products. This segment represents 37.2% of the revenue for 2022 (2021: 34.1%, 2019: 28.9%). This represents growth of 30.2% compared to 2019.
The UK distribution sales had a strong finish to the year GBP4.04m (2021: GBP3.12m) with sales up 13.1% in the second half of the year (2022H1: GBP1.90m, 2022H2: GBP2.15m).
The robust revenue growth in the second half of the year was predominantly UK led. New hospital conversions were underpinned by the Company's sustainability strategy and led to annual sales for the UK (excluding OEM) which at GBP5.72m were up 30% (2021: GBP4.42m) and 20% above pre-pandemic levels (2019: GBP4.72m).
The more pronounced level of sales growth seen in the second half has continued into the current year, with new business wins contributing to year-on-year growth.
OEM sales grew overall to GBP1.73m, up 45% (2021: GBP1.20m) and are now very close to pre-pandemic levels (2019: GBP1.79m). The underlying drivers of growth have been an expansion of both new and existing relationships.
SI brand revenues for Europe were up 28% to GBP1.38m (2021: GBP1.08m) and were 7.4% ahead of those achieved in 2019. Investment in supporting the dealer network has improved distributor relations helping them to grow their territories.
Revenues from the US (excluding OEM) are slightly down year-on-year to GBP1.24m (2021: GBP1.33m) and are not yet back to the level seen in 2019 (GBP1.85m). Restricted hospital access affected evaluations at the beginning of the year with increases in US activity in the second half of the year.
Further investment into supporting the dealer network through additional sales training, and the new product launches will improve the revenue growth in 2023.
The APAC region continues to generate strong revenue growth to GBP0.93m, a 24.6% increase on 2022 (2021 GBP0.74m) and surpassing levels seen in 2019 (2019: GBP0.46m). We continue to work closely with our Japanese distributor as they gain market share. The focus on sustainability continues to gain traction here also, initial stocking orders have been placed for launching the Logic reusable instrument range.
Margins
Commercial or underlying margins remained within target range at 42.5%, a reduction from the reported numbers in the first half of the year (2022H1: 45.3%). A review was undertaken to analyse the overhead absorption rate. As operating expenses have increased with inflationary pressures the overhead rate has been uplifted reflecting this cost pressure. In addition, pressures from material suppliers continue and both are mitigated and passed on where possible.
The reported gross margin of 34.6% (2021: 34.3%) which includes the net cost of manufacturing, reflects the operational challenges the business has experienced over the course of the year, shortage of skilled labour and extended supply chain lead times on both material and new plant and equipment have hampered manufacturing productivity and therefore costs were under-recovered.
Analysis of gross
margin
The Group has
disaggregated margins
in the following
table:
2022 2021
GBP'000 GBP'000
------------------------------ --------- ----------------
Revenue 11,340 9,126
Cost of Sales (6,525) (5,268)
Underlying Gross
Margin 4,815 3,858
Underlying Gross
Margin % 42.5% 42.3%
Net Cost of Manufacturing(2) (893) (727)
------------------------------- --------- ----------------
Contribution Margin 3,922 3,131
------------------------------- --------- ----------------
Contribution Margin
% 34.6% 34.3%
2.Underlying net cost of manufacturing with the Government support of the CJRS scheme of GBP2,000 in 2021 allocated in other income added back to adjust the net costs of Manufacturing to GBP725,000 results in an underlying contribution margin of 34.33%.
Use of adjusted measures
Adjusted KPIs are used by the Board to understand underlying performance and exclude items which distort comparability, as well as being consistent with broker forecasts and measures. The method of adjustments are consistently applied but are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate.
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 increased in 2022 to GBP0.70m due to the increased sales activity and was in line with expectations (2021: GBP0.50m).
Operating expenses increased to GBP3.88m (2021: GBP3.61m) predominately due to the increased investment into sales and marketing to drive the sales activity and regulatory heads to undertake the challenges with the MDR (Medical Device Regulation) transition. Inflationary pressures and the ability to attract and retain key employees also affected the incremental overheads throughout 2022 as the Group aligned with market rates and compensation packages were reviewed accordingly.
Other expensed/non-recurring items relate to employee termination payments amounting to GBP32,000 (inclusive of NI and legal fees).
CAPEX Investment
Capital expenditure on tangible assets increased with the investment into improving the manufacturing facilities GBP0.12m as well as the capacity and capabilities, with a new Laser Welder, a financed Citizen L32 Lathe and an Injection Moulder, totaling GBP0.55m. Property, plant and equipment additions were GBP0.66m (2021: GBP0.21m) set against a depreciation charge of GBP0.17m excluding Right of use assets (2021: GBP0.26m).
In addition, there is continual investment into new tooling of GBP0.08m (included in additions above) with a further committed spend of GBP0.07m which will improve efficiencies in 2023.
The Group continues to review CAPEX plans and will continue to strengthen its investment plans in 2023, expected to be around GBP0.5m which is anticipated to include GBP0.08m of committed spend on deposits for larger items of plant and machinery due to be delivered in 2024 circa GBP0.5m for a replacement Grinder and an additional Lathe.
Investment into new product development has continued as part of the strategy and the Group successfully launched the YelloPort(TM) 5mm Elite and Optical Trocar during the year. Cash into development expenditure was GBP0.42m (2021: GBP0.45m). Development expenditure was tested for impairment, it was decided that the current projects all continue to provide economic benefit and therefore no impairment was recognised (2021: GBP0.15m).
In addition to the product launches the research and development team have played a pivotal role in the work undertaken for MDR which impacts the amount of time spent on capitalised projects and increases the cost of research expenses.
A review of the goodwill arising on the acquisition of Elemental Healthcare was tested for further impairment. The trading environment in the UK market was significantly impacted by the pandemic throughout 2020 and this continued into 2021, which impacted the cumulative impairment by GBP2.76m. In the second half of 2021 the UK market showed strong signs of recovery, and this has continued into 2022. With greater visibility on the outlook the Directors anticipate improved forecasting of future net inflows on this cash generating unit (CGU) and on this basis, the recoverable amount of the CGU exceeds its carrying value by GBP4.5m.
Inventory holdings remain at higher levels, increasing throughout the year by GBP0.20m to GBP3.16m (2021: GBP2.97m). Continued disruption in supply chain with extended lead times have compounded the need to retain higher Inventory levels. This level of holding will be frequently reviewed throughout 2023.
Trade receivables were higher at the year-end GBP1.76m (2021: GBP1.4m), affected by the increased revenue, with negligible bad debts or overdue balances. Trade creditors increased over the same period, which reflected the Group's optimisation of working capital (2022: GBP1.42m, 2021: GBP1.09m).
Net cash generated from operations was GBP0.49m (2021 used in: GBP0.43m) reflecting the improvement in the profitability of the business. The Group closed the year with net cash balances of GBP0.99m (excluding leases) compared with opening net cash of GBP1.76m. The movement being impacted by a combination of the increased investment activities GBP1.08m (2021: GBP0.66m) and refinancing of the bank borrowings GBP0.96m (2021: GBP0.53m).
In March 2022 the Board refinanced the existing debt including the additional undrawn revolving credit facility of GBP0.5m and replaced it with an invoice discounting facility of GBP1.00m and in addition extended the CBILS loan of GBP1.5m to May 2026. The refinance provides greater flexibility than the existing debt and continues to provide ample headroom for the Group. Total bank borrowings as of 31 December 2022 were GBP1.21m, in addition GBP0.1m was used to purchase a new Lathe on a finance lease in early 2022. The Group continues to have access to the GBP1m invoice discounting facility which remains undrawn at the date of this announcement.
The Group recorded a corporation tax credit of GBP0.32m relating to an enhanced Research and Development claim in respect of 2020 and 2021 (2021: credit of GBP0.13 relating to 2019 ) and a deferred tax credit of GBPnil (2021: GBPnil). The tax charge on Elemental Healthcare this year 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.
Key Performance Indicators ("KPIs")
The Group considers the key performance indicators of the business to be:
2022 2021 Target Measure
Gross profit (before
Underlying Gross net manufacturing
Profit Margin cost)/ revenue 42.5% 42.3% >40%
------------------------ --------- --------- ---------------
Direct Gross Profit
Margin Gross profit / revenue 34.6% 34.3% >40%
------------------------ --------- --------- ---------------
Net Cash/(Net Debt)(1) Cash less debt GBP0.99m GBP1.76m N/A
------------------------ --------- --------- ---------------
1. Net debt comprised of bank borrowings GBP1.21m (2021: GBP1.8m), excluding leases under the adoption of IFRS16.
Reconciliation of adjusted KPI / measures;
EBITDA(2) Profit before
taxation
As stated GBP0.63m GBP(0.06)m
---------- --------------
Share based payments GBP0.04m GBP0.04m
---------- --------------
Other expense/non-recurring GBP0.03m GBP0.03m
items
---------- --------------
Adjusted Measure GBP 0.70m GBP 0.01m
---------- --------------
2. EBITDA is defined as earnings before interest, taxation, depreciation and amortisation (including impairment). EBITDA is calculated as operating profit of GBP0.04m adding back depreciation GBP0.36m, amortisation GBP0.23m and impairment GBPnil.
Earnings per share EPS
Basic EPS 0.028p
----------
Profit attributable to shareholders GBP0.26m
----------
Add: Share based payments GBP0.04m
----------
Add: other expense/non-recurring items GBP0.03m
----------
Adjusted profit attributable to shareholders GBP0.33m
----------
Adjusted EPS 0.036p
----------
Principal risks and uncertainties
The management of the business and the nature of the Group's strategy are subject to a number of risks which the Directors seek to mitigate wherever possible. The principal risks are set out below.
Issue Change Risk and description Mitigating actions
vs.
prior
year
Funding At same The Group currently has Liquidity and covenant compliance
risk level a mixture of borrowings is monitored carefully across
comprising a balance of varying time horizons to facilitate
GBP1.20m CBILS arrangement, short term management and also
a small finance lease strategic planning. This monitoring
of GBP0.1m to fund capex enables the management team to
along with additional consider and to take appropriate
headroom of an undrawn actions within suitable time
GBP1.0m invoice discounting frames.
facility. The Group remains
dependent upon the support
of these funders and there In March 2022 the Board refinanced
is a risk that failure the existing debt including the
in particular to meet additional undrawn revolving
covenants attaching to credit facility of GBP0.5m and
the CBILS could have financial replaced it with an invoice discounting
consequences for the Group. facility of GBP1m and in addition
extended the CBILS loan to May
2026. The refinance provides
greater flexibility than the
existing debt and continues to
provide ample headroom for the
Group. In aggregate total borrowing
at 31 December 2022 was GBP1.31m
(2021: GBP1.88m). The invoice
discounting facility remains
undrawn to date.
The bank continue to be a supportive
stakeholder.
========= ================================= =========================================
Shortage Increased In the early part of the The Board reviewed the compensation
of skilled year the Group has struggled and other benefits throughout
labour to attract and retain the year to ensure salaries were
key skilled personnel. competitive to market rates.
In addition, the Company joined
the 4-day week UK trial in August
2022 for a period of 6- months.
The Group has continued to extend
this trial further in 2023.
Overall, the additional package
and benefits have allowed the
business to attract key staff
and continues to retain employees,
with staff turnover rates decreasing.
========= ================================= =========================================
Customer At The Group exports to The majority of distributors,
concentration same over thirty countries including the most significant,
level and distributors around are well established and their
the world, but certain relationship with the Group spans
distributors are material many years. Credit levels and
to the financial performance cash collection is closely monitored
and position of the Group. by management, and issues are
As disclosed in note 2 quickly elevated both within
to the financial statements, the Group and with the distributor.
one customer accounted
for 8.2% of revenue in
2022 and the loss, failure
or actions of this customer
could have a severe impact
on the Group.
========= ================================= =========================================
Foreign At same The Group's functional The Group monitors currency exposures
exchange level currency is UK Sterling; on an on-
risk however, it makes significant going basis and enters into forward
purchases in Euros and currency arrangements where considered
US Dollars. appropriate to mitigate the risk
of material adverse movements
The US Dollars and Euros in exchange rates impacting upon
are generally mitigated the business. Euro and US Dollar
by US Dollar sales by cash balances are monitored regularly
creating a natural hedge. and spot rate sales into sterling
are conducted when significant
currency deposits have accumulated.
The accounting policy for foreign
exchange is disclosed in accounting
policy 1d in the Annual Report.
========= ================================= =========================================
Regulatory At same As an international business The Group has a dedicated Compliance
approval level a significant proportion department which assists product
of the Group's products development teams with support
require registration from as required to minimise the risk
national or federal regulatory of regulatory approval not being
bodies prior to being obtained on new products and
offered for sale. The ensures that the Group operates
majority of our major processes and procedures necessary
product lines have FDA to maintain relevant regulatory
approval in the US and approvals.
we are therefore subject
to their audit and inspection Whilst there is no guarantee
of our manufacturing facilities. that this will be sufficient,
the Group has invested in people
with the appropriate experience
There is no guarantee and skills in this area which
that any product developed mitigates this risk significantly.
by the Group will obtain
and maintain national We have increased resource into
registration or that the the regulatory team and continued
Group will always pass throughout 2022 to ensure internal
regulatory audit of its deadlines are met.
manufacturing processes.
Failure to do so could MDR transitions are well underway,
have severe consequences and we are actively working with
upon the Group's ability our Notified Body regarding the
to sell products in the extension to current MDD certificates
relevant country. recently approved by the EU.
The Group has untill March
2023 to transition the
current product portfolio
to fall under the Medical
Device Regulations (MDR),
currently held under Medical
Device Directive (MDD).
Time constraints of BSI
the notified body are
out of our control.
========= ================================= =========================================
Economic Increased Current wider economic As part of the recruitment and
factors factors are impacting retention strategy the Group
inflationary rates. The reviewed the market rates and
cost of living across compensated employees accordingly
the UK during 2022 has during 2022. Additional benefits
increased sharply. The have also been implemented; this
annual inflation reached will be continually reviewed
11.1% in October 2022, throughout 2023.
a 41 year high, before
easing in subsequent months Energy bill have been less affected
to 9.2% in February 2023. due to a fixed rate deal; however,
this will come to end in July
The pressures on employment 2023. The Group are constantly
costs, energy and raw reviewing the current tariffs.
materials have impacted Energy rates are reducing but
the business and continue will be expected to be at least
to do so in 2023. double the rate of the existing
tariff.
Supply chain delays in
raw materials, finished Raw material purchases are reviewed,
goods and plant and equipment and economies of scale are applied.
have impacted the business Supply chain increases are passed
during 2022, this has on where possible to the customer.
eased in the second half Margins are reviewed on a continual
of the year but has continued basis.
to impact the business
albeit to a lesser extent Inventory levels remain high
in 2023. to mitigate the supply chain
delays.
========= ================================= =========================================
Going concern
The Directors have prepared forecasts for the period to March 2024 based on an evaluation of financial forecasts, sensitised to reflect a rational judgement of the level of inherent risk.
In March 2022 the Group refinanced the existing debt, this included the additional undrawn revolving credit facility of GBP0.5m. The debt was replaced with an invoice discounting facility of GBP1.0m and an extension of the CBILS loan of GBP1.5m repayable over four years till May 2026. The refinancing provides greater flexibility for further investment in terms of covenant testing than the prior debt and continues to provide ample headroom for the Group. (Covenant information is provided at disclosure note 13 to the financial statements in the Annual Report). Financial headroom as at 31 December 2022 was GBP3.2m with the invoice discounting facility remaining undrawn.
The Group continues investment in capital expenditure predominantly on plant and machinery circa GBP0.35m in the next twelve months. Decisions to take additional finance in the form of hire purchase or use of the existing debt to finance the projects will impact both the cash and the covenant testing and the decisions to utilise such funding will very much depend on the performance of the business.
The Board is satisfied that there is ample headroom including testing any sensitivities under reasonably possible scenarios, and the Directors conclude that it continues to be appropriate to prepare the Annual Report and Accounts on a going concern basis.
Con solidated statem ent of comprehensi ve income
fo r the y ear en ded 31 Dece m ber 2 0 22
20 22 2021
GBP '0 00 GBP '0 00
---------------------------------------- ------------------ -------------------
Rev enue 2 11,340 9,126
Cost of s a les 2 (7,418) (5,995)
========================================= ================== ===================
G ross profit 3,922 3,131
O ther ope r ati ng e x pens
es 2 (3,881) (3,611)
Other Income - 25
O perating profit / (loss) 41 (455)
Fina n ce c o sts (98) (130)
Fina n ce in c o me - -
========================================= ================== ===================
Loss b efore ta xation (57) (585)
T a x a tion credit 321 129
========================================= ================== ===================
Profit/(Loss) a nd total comprehensive
Income 264 (456) ========================================= ================== =================== Profit/(loss) per share, total and continuing Bas ic 0.03p (0.05p) Diluted 3 0.03p (0.05p)
The Consolidated statement of comprehensive income above relates to continuing operations.
Profit/(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 22
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 2021 9,328 6,587 329 1,250 (6,404) 11,090
Share based payment - - - - 30 30
Total - transactions with owners - - - - 30 30
Loss and total comprehensive
income for the period - - - - (456) (456)
---------------------------------- ------------ ----------------- ------- ------- -------- -------
Balance as at 31 December
2021 9,328 6,587 329 1,250 (6,830) 10,664
Share based payment - - - - 35 35
Total - transactions with owners - - - - 35 35
Profit and total comprehensive
income for the period - - - - 264 264
---------------------------------- ------------ ----------------- ------- ------- -------- -------
Balance as at 31 December
2022 9,328 6,587 329 1,250 (6,531) 10,963
---------------------------------- ------------ ----------------- ------- ------- -------- -------
Con solidated balance sheet
a t 31 Dece m b er 20 22
2022 2021
GBP GBP '0
'0 00 00
============================================= ============ ==============
A sse ts
Non-current a ssets
Property, p l ant and eq u ip m ent 858 366
Right of use assets 918 832
Intan g ib le a ss ets 4 6,403 6,216
8,179 7,414
============================================= ============ ==============
Curr ent asse ts
In v entori es 3,162 2,965
T rade and other rec e i v abl es 2,055 1,695
Cash at b a nk a nd in h and 2,199 3,644
============================================= ============ ==============
7,416 8,304
============================================= ============ ==============
Total a ssets 15,595 15,718
============================================= ============ ==============
Equity and liabiliti es
Equity attributable to equity holders of the
p arent compa ny
Share cap ital 7 9,328 9,328
Share p r em i um a c co u nt 6,587 6,587
Capital re s erve 329 329
Merger reserve 1,250 1,250
Retain ed e arni n gs (6,531) (6,830)
============================================= ============ ==============
Total e qui ty 10,963 10,664
============================================= ============ ==============
Non-current l i abiliti es
Borro w ings 5 825 -
Dilapidation provision 165 165
Lease liability 722 750
============================================= ============ ==============
1,712 915
============================================= ============ ==============
Curr ent liabi lities
T rade and other pa y ab l es 6 1,886 1,614
Accru als 420 488
Borrowings 382 1,880
Lease liability 232 157
============================================= ============ ==============
2,920 4,139
============================================= ============ ==============
Total li abiliti es 4,632 5,054
============================================= ============ ==============
Total e qui ty and liabili ties 15,595 15,718
--------------------------------------------- ------------ --------------
Con solidated cash f l ow statement
fo r the y ear en ded 31 Dece m ber 2 0 22
2022 2021
GBP'000 GBP'000
-------------------------------------------------- ------------ -------
Cash flo ws from operating a ctivities
Profit/(Loss) after tax for the year 264 (456)
Adju stm e nts for:
Taxation (321) (129)
Finance income - -
Finance costs 98 130
Other Income-CBILS interest grant - (23)
Depre c iati on of pro perty, p l ant and e qu i
pm e nt 167 258
Amorti sa t ion and impairment of i nta n gi b le
a s s ets 4 232 402
Depreciation Right of Use assets 188 187
Share-b a s ed pa ym ent cha r ge 35 30
Foreign exchange (82) 12
Increase in i n v entories (197) (802)
Increase in trade and other rec e i v abl es (360) (412)
Increase in pa y a bles 6 204 276
-------------------------------------------------- ------------ -------
Cash generat ed/ (used in) from operations 228 (527)
T a x a tion received 321 129
Intere st p aid (63) (35)
-------------------------------------------------- ------------ -------
Net cash g enerated/ (used in) from ope r ating
activities 486 (433)
-------------------------------------------------- ------------ -------
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 (659) (212)
Acqu i si t ion of i n t a n gi b le a s s e ts (419) (445)
Net cash used in investing activities (1,078) (657)
-------------------------------------------------- ------------ -------
Repayment of bank loan (375) (300)
Repayment of CBILS 5 (294) -
Repayment of lease liabilities (266) (232)
Net cash used in fin anc ing a ctivities (935) (532)
-------------------------------------------------- ------------ -------
Net decrease in cash and cash equivalents (1,527) (1,622)
Cash a nd ca sh e q ui v al e nts at begi n ni ng
of y ear 3,644 5,278
Effective exchange rate fluctuations on cash held 82 (12)
-------------------------------------------------- ------------ -------
Cash and cash equivalents at end of year 2,199 3,644
================================================== ============ =======
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.
The consolidated financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and UK-adopted international accounting standards. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The financial statements have been prepared under the historical cost convention, are presented in Sterling and are rounded to the nearest thousand.
Going concern
The Directors have considered the available cash resources of the Group and its current forecasts and have a reasonable expectation that the Group has 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 1.(p) of the financial statements in the Annual Report.
2. Segmental reporting
Information reported to the Board, as Chief Operating Decision Makers, and for the purpose of assessing performance and making investment decisions is organised into three operating segments. The Group's operating segments under IFRS 8 are as follows:
SI Brand - the research, development, manufacture and distribution
of SI branded minimally invasive devices
OEM - the research, development, manufacture and distribution
of minimally invasive devices for third party
medical device companies through either own label or
co-branding. As well as Precision Engineering, this
includes the research, development, manufacture and
sale of minimally invasive technology products for
precision engineering applications
Distribution - Distribution of specialist medical products sold through
Elemental Healthcare Ltd
The measure of profit or loss for each reportable segment is gross margin less amortisation of product development costs. Assets and working capital are monitored on a Group basis, with no separate disclosure of asset by segment made in the management accounts, and hence no separate asset disclosure is provided here. The following segmental analysis has been produced to provide a reconciliation between the information used by the chief operating decision maker within the business and the information as it is presented under IFRS.
S I Distribution OEM T o
Y e a r e n d ed 31 De ce m ber 20 22 Br a GBP'000 GBP ta l*
nd '0 00 GBP
GBP '0 00
'0 00
================================================ =========== ============ ======= =========
Rev enue 5,557 4,044 1,739 11,340
Expenses (4,223) (2,410) (1,017) (7,650)
------------------------------------------------ ----------- ------------ ------- ---------
Result
Segment re sult 1,334 1,634 722 3,690
Unall o ca t ed e x pens es (3,649)
Other Income -
------------------------------------------------ ----------- ------------ ------- ---------
Profit from operations 41
Fina n ce in c o me -
Fina n ce c o sts (98)
================================================ =========== ============ ======= =========
(Loss) b efore ta xation (57)
T a x credit 321
================================================ =========== ============ ======= =========
*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 22 Br a GBP GBP ta l
nd '0 00 '0 00 GBP
GBP '0 00
'0 00
================================================ =========== ============ ======= =========
Amorti sa t ion of i nta n gi b le a s s ets 232 - - 232
Impairment of i nta n gi b le a s s ets - - - -
------------------------------------------------ ----------- ------------ ------- ---------
Unallocated expenses for 2022 include sales and marketing costs (GBP577,000), research and development costs (GBP1,164,000), central overheads (GBP745,000), Direct (Elemental Healthcare) sales & marketing overheads (GBP1,096,000), share based payments (GBP35,000), Other expensed/Non recurring (GBP32,000) note 3 to the financial statements in the Annual Report and Accounts.
S I Distribution OEM T o
Y e a r e n d ed 31 De ce m ber 2021 Br a GBP'000 GBP ta l*
nd '0 00 GBP
GBP '0 00
'0 00
======================================= ======== ============ ====== =============
Rev enue 4,813 3,116 1,197 9,126
Expenses (3,770) (1,837) (790) (6,397)
--------------------------------------- -------- ------------ ------ -------------
Result
Segment re sult 1,043 1,279 407 2,729
Unall o ca t ed e x pens es (3,209)
Other income 25
======================================= ======== ============ ====== =============
(Loss) from operations (455)
Fina n ce in c o me -
Fina n ce c o sts (130)
======================================= ======== ============ ====== =============
(Loss) b efore ta xation (585)
T a x charge 129
(Loss) for the year (456)
======================================= ======== ============ ====== =============
*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 2021 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 257 - - 257
Impairment of i nta n gi b le a s s ets 145 - - 145
------------------------------------------------ ---------- ------------ ------ ------
Unallocated expenses for 2021 include sales and marketing costs (GBP246,000), research and development costs (GBP973,000), central overheads (GBP797,000), Direct (Elemental Healthcare) sales & marketing overheads (GBP1,085,000), share based payments (GBP30,000), Other expenses/non-recurring (GBP78,000) are as set out in Note 3 of the notes to the financial statements in the Annual Report and Accounts.
Disaggregation of revenue
Y e a r e n d ed 31 De ce m ber 2022 S I Br Distribution OEM T o
a nd GBP '0 GBP ta l
GBP '0 00 '0 GBP
00 00 '0 00
===================================== ============== ============ ===== ======
United Kingdom 1,683 4,044 1,315 7,042
Europe 1,377 - - 1,377
US 1,240 - 424 1,664
APAC(1) 926 - - 926
Rest of World 331 - - 331
------------------------------------- -------------- ------------ ----- ------
5,557 4,044 1,739 11,340
===================================== ============== ============ ===== ======
Y e a r e n d ed 31 De ce m ber 20 21 S I Br Distribution OEM T o
a nd GBP '0 GBP ta l
GBP '0 00 '0 GBP
00 00 '0 00
====================================== ============== ============ ===== ======
United Kingdom 1,306 3,116 1,008 5,430
Europe 1,075 - - 1,075
US 1,333 - 189 1,522
APAC(1) 743 - - 743
Rest of World 356 - - 356
-------------------------------------- -------------- ------------ ----- ------
4,813 3,116 1,197 9,126
====================================== ============== ============ ===== ======
The Group has disaggregated revenues in the following table:
1. Asia-Pacific
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 2022 GBP933,000 (8.2%) of t he Group's re v e n ue d epe n ded on one distributor in the OEM se g ment (2021: GBP901,000 (9.9%), and GBP921,000 (8.1%) in the SI Brand segment ( 2021: GBP1,050,000 (11.5%).
Sales of goods were GBP11,306,000 (2021: GBP9,062,000) and sales relating to services in the UK were GBP34,000 (2021: GBP64,000).
3. Earnings per ordinary share
Basic profit/(loss) per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31 December 2022 was based upon the profit attributable to ordinary shareholders of GBP264,000 (2021: loss of GBP456,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2022 of 932,816,177 (2021: 936,564,122).
Diluted profit/(loss) per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31 December 2022 was based upon the profit attributable to ordinary shareholders of GBP264,000 (2021: loss of GBP456,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2022 of 935,945,943 (2021: 938,784,384).
Adjusted profit/(loss) per ordinary share
The calculation of adjusted earnings per ordinary share for the year ended 31 December 2022 was based upon the adjusted profit attributable to ordinary shareholders (profit before non-recurring costs and amortisation and impairment costs relating to the acquisition of Elemental Healthcare, impairment of capitalised development costs and share based payments) of GBP331,000 (2021: loss of GBP203,000) and a weighted average number of ordinary shares outstanding for the year ended 31 December 2022 of 932,816,177 (2021: 936,564,122).
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 22 2021
No. of No. of
Shares Shares
=================================================== ====================== ===========================
Bas ic ea r ni n gs p er s hare 932,816 936,564
Diluti ve eff e ct of une x erc i sed s hare o pti
o ns 3,129 2,220
=================================================== ====================== ===========================
Diluted ea r nin gs p er s hare 935,945 938,784
=================================================== ====================== ===========================
4. 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 2 021 13,702 225 8,180 1,799 23,906
Additi ons 445 - - - 445
At 1 J anuary 2 022 14,147 225 8,180 1,799 24,351
Additi ons 419 - - - 419
A t 31 December 2 0 22 14,566 225 8,180 1,799 24,770
=========================== ====================== ================ ============== ================ =============
A cc umulated a mortis
ation
At 1 J anuary 2 021 (12,952) (225) (2,757) (1,799) (17,733)
Charge f or t he y ear (257) - - - (257)
Impairment provision* (145) - - - (145)
At 1 J anuary 2 022 (13,354) (225) (2,757) (1,799) (18,135)
Charge f or t he y ear (232) - - - (232)
Imp a irm e nt p r o v is i - - - - -
on*
=========================== ====================== ================ ============== ================ =============
A t 31 December 2 0 22 (13,586) (225) (2,757) (1,799) (18,367)
=========================== ====================== ================ ============== ================ =============
Carr ying amount
A t 31 December 2 0 22 980 - 5,423 - 6,403
=========================== ====================== ================ ============== ================ =============
At 31 De ce m ber 2 021 793 - 5,423 - 6,216
=========================== ====================== ================ ============== ================ =============
At 1 January 2021 750 - 5,423 - 6,173
=========================== ====================== ================ ============== ================ =============
Goodwill and intangibles are allocated to the cash generating unit (CGU) that is expected to benefit from the use of the asset.
Capitalised development costs
Capitalised development costs represent expenditure incurred in developing new products that fulfil the requirements met for capitalisation as set out in paragraph 57 of IAS38. These costs are amortised over the future commercial life of the product, commencing on the sale of the first commercial item, up to a maximum product life cycle of ten years, and taking account of expected market conditions and penetration.
Capitalised development expenditure was tested for impairment, it was decided that the current projects all continue to provide future economic benefit and therefore no impairment was recognised (2021: GBP0.15m).
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 cash-generating unit (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% (2021:1.5%) and a pre-tax discount rate of 15.7% (2021:13.2%) applied to anticipated cash flows. In addition, the value in use calculation assumes a gross profit margin of 43.3% (2021:39.5%) using past experience of sales made and future sales that were expected at the reporting date based on anticipated market conditions.
The trading environment in the UK market was significantly impacted by the pandemic throughout 2020 and this continued into 2021, which impacted the cumulative impairment by GBP2.7m. In the second half of 2021 the UK market showed strong signs of recovery and this has continued into 2022. With greater visibility on the outlook the directors anticipate improved forecasting of future net inflows on this CGU and on this basis, the recoverable amount of the CGU exceeds its carrying value by GBP4.5m.
5. Borrowings 2022 20 21
Bank Loan GBP'000 GBP '000
======================== ======= =============
Current liabilities 382 1,880
Non-current liabilities 825 -
======================== ======= =============
Lease liabilities
======================== ======= =============
Current liabilities 232 157
Non-current liabilities 722 750
------------------------ ------- -------------
2,161 2,787
======================== ======= =============
In March 2022, the Group refinanced its existing debt with Yorkshire bank consisting of the following:
-- Extension to the CBILS of GBP1.5m repayable in May 2026, interest is calculated at rate of 2.94% repayable monthly over the Bank of England base rate. Monthly installments are GBP0.029m.
-- Covenants attached to the CBILS comprise of EBITDA to debt servicing costs at a minimum of 1.25x. First test 30 June 2022 (last 6 months), then September 22 (9 months), then rolling 12-month basis afterwards.
-- Additional headroom with an Invoice Discounting facility of GBP1.0m across the Group, which replaced loan A and the RCF; 2.5% on margin with a maximum of nominal administration fee of a maximum of GBP0.018m if not utilised. As at the date of this announcement this facility remains undrawn.
Changes in liabilities arising from financing Non-current Current Total
activities loans and loans and
borrowings borrowings
At 1 January 2021 1,879 298 2,177
--------------------------- ------------------- -------
Cash flows - (350) (350)
--------------------------- ------------------- -------
Transfer between non-current and current (1,879) 1,879 -
--------------------------- ------------------- -------
Interest accruing in the period - 53 53
--------------------------- ------------------- -------
At 31 December 2021 - 1,880 1,880
--------------------------- ------------------- -------
Cash flows for repayment of bank loan - (304) (304)
--------------------------- ------------------- -------
Cash flows for refinance-CBILS (294) (294)
--------------------------- ------------------- -------
Transfer between non-current and current 825 (825) -
--------------------------- ------------------- -------
Interest paid in the period - (57) (57)
--------------------------- ------------------- -------
Interest accrued in the period (18) (18)
--------------------------- ------------------- -------
At 31 December 2022 825 382 1,207
--------------------------- ------------------- -------
6.Trade 2022 2021
and other GBP'000 GBP'000
payables
============ ============================================================================================== ==========
T rade
payables 1,420 1,090
Other tax
and social
security 172 230
Other
payables 294 294
1,886 1,614
============ ============================================================================================== ==========
The Group and Company's financial liabilities have contractual maturities (including interest payments where applicable) which are summarised below.
Amounts due Amounts Amounts
in due in due in
As at 31 December Less than 1 2-5 years 5-10 years Total financial
2022 year liabilities
GBP'000 GBP'000 GBP'000 GBP'000
T rade payables 1,420 - - 1,420
Other payables 294 - - 294
Bank borrowings-Current 382 - - 382
Bank borrowings-Non-current - 825 - 825
------------------------------ --- ------------ ---------- ----------- ----------------
2,096 825 - 2,921
---- ------------ ---------- ----------- ----------------
Amounts due Amounts Amounts
in due in due in
As at 31 December Less than 1 2-5 years 5-10 years Total financial
2021 year liabilities
GBP'000 GBP'000 GBP'000 GBP'000
T rade payables 1,090 - - 1,090
Other payables 294 - - 294
Bank borrowings-Current 1,904 - - 1,904
Bank borrowings-Non-current - - - -
------------------------------ --- ------------ ---------- ----------- ----------------
3,288 - - 3,288
---- ------------ ---------- ----------- ----------------
7. Share Capital
Shares in issue reconciliation (Authorised, allotted, called up and fully paid)
2022 2021
Opening no of shares in issue 932,816,177 932,816,177
------------- -------------
Issued in satisfaction of share options - -
exercised
------------- -------------
Closing number of shares in issue 932,816,177 932,816,177
------------- -------------
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