Annual Report
2016
Surgeon-led solutions
for minimally invasive surgery
About Us
Surgical Innovations Group Plc specialises in the
design and manufacture of creative solutions for use in
minimally invasive surgery (MIS) and industrial markets.
Our pioneering products are developed in close collaboration with
international surgeons to ensure they meet patients’ needs and remain at
the forefront of innovation.
2016 Financial Highlights
Bank
Financial Leases
Covertible Load
2
1
0
-1
-2
-3
-4
2014
2015
2016
7
6
5
4
3
2
1
0
2015
2016
Precision
Engineering
OEM
SI Brand
Net Cash Position
£0.72m
SI Branded Revenue Growth (£m)
+11%
6.09
5.47
2015
2016
Revenues
£6.09m
Target Range
45
40
35
30
25
20
15
10
5
0
15H1
15H2
16H1
16H2
Gross Margin
34%
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Target Range
2014
2015
2016
Net Inventory
£1.5m
Contents
Strategic Report
Chairman’s Statement
Strategy report and Operating & Financial review
Director’s Report
Financial Statements
Independent auditor’s report
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated balance sheet
Consolidated cash flow statement
Notes to the consolidated financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Shareholder information
Advisers
1-2
3-5
6-9
10
11
12
13
14
15-34
35
36
37-40
41
More information can be found at
www.sigroupplc.com
Strategic Report
Nigel Rogers
Executive Chairman
Chairman’s Statement
Financial Overview
The Group is pleased to report strong results in
2016, with profitability ahead of market year-end
expectations. The Group returned to profitability at the
pre-tax level and increased cash generation, resulting
in a positive cash position at the year-end.
Robust top line growth has been achieved by
leveraging the strong relationships with distributors,
as well as fostering associations in new territories.
Gross margins improved considerably in the year,
following a strong second half in 2015.This resulted
from a return to normal manufacturing output as stock
levels regularised. Cost control has been a key focus,
enabling the business to deliver improved profitability
and cash generation during the year.
In the final quarter of the year, the bank debt put
in place at the end of 2014 was repaid. This was
considerably earlier than the November 2017 due date.
The loan note holders also converted the notes into
shares during this period. The strong cash generation
of the Group meant that the business closed the
financial year with net cash of £0.72m (2015: net debt
of £2.26m).
Brand identity, innovation and global reach
The SI Brand was further enhanced in the year by the
much-anticipated launch of the YelloportTM Elite range,
a new port access system utilising universal seal
technology giving significantly improved performance
for surgeons and theatre staff. The Group remains
focused on innovation and development of its portfolio
of products, brand recognition and the identification
of as yet unmet clinical needs in order to drive the
product roadmap effectively.
The distribution network has continued to expand in
2016 with the addition of five new territories. There
are more potential distributors in the pipeline who are
currently going through the required regulatory and
compliance processes in order to join our distribution
network in the coming year.
1
Revenue increased by 11% to £6.09m (2015: £5.47m),
with growth in branded product sales up by 11% to
£4.66m (2015: £4.18m) and Precision Engineering also
generating significantly increased activity with revenue
of £0.21m (2015: £0.05m). Reported gross margins
have continued to show substantial improvement as
a result of operational gearing and foreign exchange
gains.
Adjusted EBITDA for the full year (being profit
before taking account of exceptional costs, interest,
depreciation, amortisation and taxation) amounted
to £1.41m, showing strong growth against £0.24m in
2015. The net operating profit for the year was £0.47m
(2015: loss of £1.98m). There were no exceptional
costs in the year (2015: £1.29m). The net profit and
total comprehensive income for the year amounted to
£0.72m (2015: loss of £2.03m), after a taxation credit of
£0.44m (2015: £0.09m), resulting in earnings per share
of 0.15p (2015: loss of 0.42p).
At the end of the year, the Group had returned
to a positive cash position of £0.72m (2015: net
indebtedness of £2.26m).The Group had available
cash resources of £0.78m with additional headroom of
£1.3m of unused facilities, and was in compliance with
all financial covenants.
People
SI has continued to invest in our people and
their training. Amongst other initiatives we have
undertaken in 2016 is a year-long programme of
lean manufacturing training for all employees which
is already delivering improvements throughout
the business. Employee numbers have increased,
predominantly strengthening manufacturing,
assembly and production engineering which all reflect
the increased manufacturing output.
Surgical Innovations Group PLC Annual Report and Accounts 2016 Current Trading Outlook
Trading results for the first two months of the current
year have shown further increases in revenue and
profitability compared with the corresponding period
last year.
The overall market for minimally invasive surgical
products is cost competitive, however it is also forecast
to grow at an annual rate of 6.5% in the medium term.
We continue to seek opportunities to exceed this rate
of revenue growth by increased market share through
product range development, high levels of customer
service and opening new sales territories.
We also continue to evaluate further opportunities to
enhance our product range and market penetration
by forging strategic partnerships, including potential
acquisition of carefully selected complementary
businesses.
Nigel Rogers
Executive Chairman
14 March 2017
Financial Overview
People
Chairman’s Statement
2
Surgical Innovations Group PLC Annual Report and Accounts 2016 Strategy
Whilst the Group’s core strategy remains the sale
of branded laparoscopic instrumentation, we have
recently seen a shift away from the sole development
and manufacture of these devices in-house
and reached out to selected partners who have
demonstrated the ability to work with SI to offer novel
solutions in areas of instrumentation where SI has
not traditionally operated. One of the first products
to come out of this new direction was launched in
early 2017. This has enabled SI to begin offering a
range of ligation products to complement the existing
product portfolio. We are conscious of the fact that
the reputation of the Group is built upon our ability
to offer surgeons instruments of high quality at
reasonable prices. We are now in an era when there is
increasing pressure on the costs of healthcare leading
to ever more careful scrutiny of prices by purchasing
authorities worldwide. Our strategy is to concentrate
on the development or acquisition of instruments
that surgeons tell us that they need and to introduce
efficiency and innovation into the manufacturing
process to enable us to provide them at competitive
prices.
In November 2016, the Group completed the
acquisition of the laparoscopic instruments business
and related assets of Surgical Dynamics Limited.
This transaction brought not only new products
to the SI portfolio but also specialist production
processes including metal injection moulding of device
components. The assets have now been transferred
into the SI site and machining trials are underway.
The Group has continued to foster excellent
relationships with our distribution network, engaging
our partners through involvement in product
development, supporting them in end user trials
and gathering with them at several conferences and
exhibitions throughout the year. This included a new
product launch conference at the Medica trade show
in Germany in the last quarter of the 2016 which
garnered strong positive feedback on both the new
products emerging from SI as well as our performance
as a partner. The Group recognises the value in this
feedback and relationship and will continue to exceed
our customers’ expectations in 2017.
The Group continues to work closely with strategic
partnerships on OEM projects which challenge our
Design and Development teams and complement the
core competencies that the Group demonstrates.
The greater emphasis placed on new product
introduction culminated in the launch of the Yelloport®
Elite range in the final quarter of 2016, this will be
followed by further additions to this range in Q2 2017
as well as two more projects launching before the end
of H1. The Group is excited to be able to offer these
products to the market and remains committed to
expanding the portfolio of products available further in
2017 and beyond.
The Group has continued to deliver against a backdrop
of a challenging economic climate, but by offering
consistently high customer service levels, excellent
products and being adaptable in the face of market
and customer feedback, the Board believes the
business is well placed to continue to deliver value to
the shareholder base.
3
Surgical Innovations Group PLC Annual Report and Accounts 2016 Operating and Financial Review
Melanie Ross
Chief Operating Officer and Chief Financial Officer
Overview
Group revenues increased by 11% to £6.09m (2015:
£5.47m) demonstrating the ongoing focus of the
organisation in improving and expanding its distributor
relationships.
£m
2016
2015
%Change
SI Brand
OEM
PE
Total
4.66
1.22
0.21
6.09
4.18
1.24
0.05
5.47
+11%
-2%
+320%
+11%
SI Brand
SI Brand sales rose by 11 % to £4.66m (2015: £4.18m)
with the strongest growth areas being sales to the US
and Rest of the World.
Strong growth in the US has come both from the
success of the additional distributor engaged at the
beginning of the fiscal year, the continued efforts of
the incumbent distributor and from gains in exchange
as the US dollar moved more favorably against the
Sterling.
OEM
OEM sales remained broadly in line with the prior
year at £1.22m (2015: £1.24m). Although underlying
sales from continuing relationships continue to grow
strongly, these were offset by agreements which ended
by mutual consent in 2015 and were not repeated in
2016. Although impacting the overall turnover of the
OEM business negatively in the period, the conclusion
of these agreements delivered an margin uplift as the
non-repeated sales were low or no margin business.
Precision Engineering
The Group undertook further precision engineering
projects in the period adding £0.21m to turnover (2015:
£0.05m). Revenue from this segment is unpredictable,
but the Group remains interested in this field and
continues to work with new and existing partners to
identify innovative projects on which to collaborate.
Gross Margin
Gross margin improved significantly, reaching 33.8%
(2015: 14.0%) overall in the year, but delivering 41%
in the second half, demonstrating that the production
was more in line with demand as the stock levels
normalised somewhat in comparison to the over
stocking in prior years.
Operating Expenses
Excluding exceptional items in the prior year, operating
expenses increased to £1.59m (2015: £1.45m),
resulting from an increase in headcount and annual
performance related bonus costs.
Adjusted EBITDA and operating loss
The adjusted EBITDA is a key performance measure
of the business. The Group uses this as a proxy for
understanding the underlying performance of the
Group. This measure also excludes the items that
distort comparability.
The Group achieved a positive adjusted EBITDA of
£1.41m for 2016, against a comparable adjusted
EBITDA (before exceptional items) of £0.24m in 2015.
Operating profit for the year was £0.47m (2015: loss
of £1.98m), reflecting the trade of the Group and there
were no exceptional items in the year (2015: £1.29m).
Finance costs
Interest on bank and finance lease obligations for 2016
resulted in interest payable of £0.19m (2015: £0.15m).
Due to the payback of the loan and the conversion of
the loan notes in the final quarter of 2016, the finance
costs going forward will be much reduced.
Taxation
The Group recorded a corporation tax credit of £0.44m
(2015: £0.09m) and a deferred tax credit of £nil (2015:
£nil). In overall terms the Group has substantial tax
losses on which it continues to take a cautious view.
Consequently the losses have not been recognised and
result in an overall effective rate of tax of 157.7% credit
(2015: 4.3% credit). During 2016 the Group submitted
enhanced Research and Development claims in
respect of 2014 and 2015, electing to exchange tax
losses for cash refunds totalling £0.44m which were
received in June and December 2016.
4
Surgical Innovations Group PLC Annual Report and Accounts 2016 Operating and Financial Review
Cash flow, financing and net debt
The Group generated cash from operations of £2.40m
(2015: £1.58m) primarily as a result of the working
capital movements described above. Cash used in
investment was £0.78m (2015: £0.45m) resulting in a
cash inflow before financing of £2.00m (2015: £1.06m).
This inflow was utilised by the business to facilitate
early repayment of the term loan put in place in
2014. This loan was originally due for repayment in
November 2017, but the business was in a position to
repay this debt early and so in conjunction with the
bank, transitioned to a rolling credit facility of £1.30m
to be drawn down as the business requires. None of
this facility had been drawn down by the year-end.
At 31 December 2016, total gross indebtedness was
£0.05m (2015: £3.24m) and the Company had available
cash resources of £0.78m (2015: £0.98m).
Melanie Ross
Chief Financial Officer
14 March 2017
Intangible and tangible assets
Capitalised development costs at 31 December 2016
increased slightly to £1.47m (2015: £1.36m) reflecting
the focus placed on new product development, whilst
controlling those costs appropriately. Research and
development expenditure continues to be incurred,
and a portion has been capitalised in respect of
specifically identifiable products amounting to £0.44m
(2015: £0.27m). These products are due for launch in
the current year.
Capital expenditure on tangible assets continued to
reflect a policy of required replacement only during the
year at £0.16m (2015: £0.17m) and there are no major
capex plans currently under consideration.
In addition during the period the Group acquired
certain trade and assets of Surgical Dynamics Limited
for £0.36m, which included intangible assets of
£0.23m being recognised.
Working capital
Working capital further reduced by £0.97m to £2.04m
(2015: £3.01m). The continued focus on cash and
rebalancing the business drove the stock reduction
by a further 22% to £1.50m (2015: £1.92m), whilst
current trade receivables reduced to £1.10m (2015:
£1.30m), despite 11% growth in turnover. Trade
creditors reduced to £0.34m (2015: £0.41m) as the
business focused on reducing costs and harnessing
its increased buying power to negotiate better terms
as manufacturing activity increased. This is expected
to increase in 2017 in line with the rise in spending on
materials to support increased manufacturing activity
as new products are brought online and additional
stock holding is required, though not to the levels seen
in previous years.
5
Surgical Innovations Group PLC Annual Report and Accounts 2016 Directors’ Report
Charmaine Day
Company Secretary
The Directors present their annual report, together with the audited financial statements, for the year ended 31
December 2016.
Principle Activities
The Company is the holding Company of a Group whose principal activities in the year involved the design,
development, manufacture and sale of devices for use in minimally invasive surgery (SI) and precision engineering
markets (PE). The Group sells branded products through independent healthcare distributors across the world and
own label products through original equipment manufacturer (OEM) relationships.
Results and Dividends
The Consolidated statement of comprehensive income for the year is set out on page 11.
Given the results for the financial year, the Directors do not recommend the payment of a dividend.
Directors
The names of the current Directors, and of those who served during the year, were as follows:
N F Rogers (Chair)
D B Liversidge (resigned 20 January 2016)
M J McMahon
M Ross
P Hardy (appointed 20 January 2016)
A Taylor (appointed 20 January 2016)
Directors’ interests
The interests in the share capital of the Company of those Directors in office at the end of the year were as follows
Ordinary shares of 1p each
31 December 2016 Beneficial
1 January 2016 Beneficial
P Hardy
M J McMahon
N F Rogers
M Ross
A Taylor
3,561,474
18,171,396
3,471,317
605,714
672,906
-
17,618,511
1,605,714
605,714
-
Details of Directors interests in respect of share options are set out on page 24. There were no other changes in
Directors interests between the year end and 14 March 2017. Other than as disclosed in note 18, no Director has an
interest in any material contract, other than contracts of service and employment, to which the Group was a party.
Substantial shareholdings
Other than the Directors’ own holdings, the Board has been notified that, as at 1 March 2017, the following
shareholders on the Company’s share register held interests of 3% or more of the issued ordinary share capital of
the Company:
Getz Bros. & Co. (BVI) Inc.
Mr C W N John
Unicorn Asset Management
Hargreaves Lansdown Asset Management
TD Direct Investing
Northern Trust
Marlborough
Number of shares (%)
81,496,696 (15.28%)
37,462,124 (7.00%)
26,645,116 (5.00%)
21,206,272 (3.98%)
19,661,740 (3.69%)
17,142,857 (3.21%)
16,000,000 (3.00%)
Share issues
As at the 31 December 2016 2,872,868 ordinary shares at 1p were issued over the course of the year in satisfaction
of directors remunerations set out in note 4.
6
Surgical Innovations Group PLC Annual Report and Accounts 2016 Research and development
The Group’s activities in this area have focused principally on the continuing development of innovative instruments
for use in the field of MIS.
Directors’ Report
Employees
The commitment and ability of our employees are key factors in achieving the Group’s objectives. Employment
policies are based on the provision of appropriate training, whilst annual personal appraisals support skill and
career development. The Board encourages management feedback at all levels to facilitate the development of
the Group’s business. The Group seeks to keep its employees informed on all matters affecting them by regular
management and departmental meetings.
It is the Group’s policy to give full and fair consideration to all applications for employment from disabled persons
having regard to their particular aptitudes and abilities and to encourage the training and career development of
all personnel employed by the Group, including disabled persons. Should an employee become disabled, the Group
would, where practicable, seek to continue the employment and arrange appropriate training.
Corporate governance
The Directors support the underlying principles of the UK Corporate Governance Code, notwithstanding that
the Group is not required to comply with all of the Code’s recommendations. The Board recognises its overall
responsibility for the Group’s systems of internal control and their effective operation and it has sought to comply
with those provisions of the Code judged appropriate for the current size and nature of the Group, being the
establishment of an Audit Committee, a Remuneration Committee and a Nominations Committee.
Formally constituted Audit, Remuneration and Nominations committees, with membership comprising all Non-
Executive Directors, continue to operate and are active in the conduct of internal financial control, executive
performance and Board appointments respectively.
Financial risk
The Group’s activities expose it to a variety of financial risks as set out below:
a) Financial risk: The principal financial risk exposure relates to exporting goods in US Dollars. Further quantitative
analysis is provided in note 14 to the Consolidated financial statements.
b) Credit risk: The Group is exposed to credit risk through offering extended credit terms to those customers
operating in markets where extended payment terms are themselves taken by local government and state
organisations. The Group is also exposed to credit risk through customer concentration. Both of these aspects of
credit risk are managed through constant review and personal knowledge of the customer concerned. Payment
plans are agreed and monitored in all such cases to minimise credit risk.
c) Liquidity risk: The Group manages its liquidity needs by carefully monitoring all scheduled cash outflows. Liquidity
needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of
a rolling 13 week projection. Longer-term needs are monitored as part of the Group’s regular rolling monthly re-
forecasting process. Funding for long-term liquidity is secured by an adequate amount of committed credit both
through working capital and asset finance facilities.
d) Interest rate cash flow risk: The Group has both interest-bearing assets and interest-bearing liabilities. Interest-
bearing assets include only cash and cash equivalents which are held on deposit at both fixed and floating rates.
Interest-bearing liabilities include hire-purchase liabilities which are at fixed interest rates, and also bank and other
borrowings which are at both fixed and floating rates of interest.
7
Surgical Innovations Group PLC Annual Report and Accounts 2016 Directors’ Report
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
Funding risk
Risk and description
The Group currently has a mixture of
borrowings comprising a £1.30m rolling
credit facility, and £0.05m of equipment
finance liabilities. The Group remains
dependent upon the support of these
funders and there is a risk that failure in
particular to meet covenants attaching
to the rolling credit facility could have
severe financial consequences for the
Group.
Mitigating actions
Liquidity and covenant compliance
is monitored carefully across varying
time horizons to facilitate short term
management and also strategic
planning. This monitoring enables the
management team to consider and
to take appropriate actions within
suitable time frames.
Customer concentration The Group exports to over thirty countries
and distributors around the world, but
certain distributors are material to the
financial performance and position of
the Group. As disclosed in note 2 to the
financial statements, one customer
accounted for 20.3% of revenue in 2016
and the loss, failure or actions of this
customer could have a severe impact on
the Group.
Foreign exchange risk
Regulatory approval
The Group’s functional currency is UK
Sterling, however it receives significant
export income in US Dollars. Whilst the
Group makes some purchases in this
currency, it does not create a natural
hedge of the foreign exchange risk.
Accordingly, the financial position and
performance of the business is exposed
to movements in US Dollar rates which it
is unable to control.
As an international business a significant
proportion of the Group’s products
require registration from national or
federal regulatory bodies prior to being
offered for sale. The majority of our
major product lines have FDA approval
in the US and we are therefore subject
to their audit and inspection of our
manufacturing facilities. There is no
guarantee that any product developed
by the Group will obtain and maintain
national registration or that the Group
will always pass regulatory audit of its
manufacturing processes. Failure to do
so could have severe consequences upon
the Group’s ability to sell products in the
relevant country.
The majority of distributors, including
the most significant, are well
established and their relationship
with the Group spans many years.
Credit levels and cash collection is
closely monitored by management,
and issues are quickly elevated
both within the Group and with the
distributor.
The Group monitors currency
exposures on an on- going basis
and enters into forward currency
arrangements where considered
appropriate to mitigate the risk of
material adverse movements in
exchange rates impacting upon the
business. Euro and US Dollar cash
balances are monitored regularly
and spot rate sales into sterling are
conducted when significant currency
deposits have accumulated. The
accounting policy for foreign exchange
is disclosed in accountancy policy 1d.
The Group has a dedicated Quality
department which assists product
development teams with support
as required to minimise the risk
of regulatory approval not being
obtained on new products and
ensures that the Group operates
processes and procedures necessary
to maintain relevant regulatory
approvals.
Whilst there is no guarantee that
this will be sufficient, the Group
has invested in people with the
appropriate experience and skills in
this area which mitigates this risk
significantly.
8
Surgical Innovations Group PLC Annual Report and Accounts 2016 Directors’ Report
Going concern
The Directors have prepared forecasts for the period to March 2018, which demonstrate a positive cashflow.
The Group have access to banking facilities, which comprise of a committed £1.3m revolving credit facility. Hire
purchase agreements are utilised where required. The commitment of the revolving credit facility of £1.3m may
be used towards meeting the Group’s general working capital and other commitments. It is subject to compliance
with financial covenants which measure the ratio of cashflow to debt service and EBITDA starting quarterly from
December 2016.
Based on the forecasts, the Board has a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. The Board has also concluded that there
are no material uncertainties and that the going concern basis should be adopted in preparing these financial
statements.
Directors’ responsibilities statement
The directors are responsible for preparing the Annual Report, the Directors’ Report and the group and parent
company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial
year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the group financial
statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the
parent company financial statements in accordance with UK Accounting Standards and applicable law (UK
Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework.
Under company law the directors must not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period.
In preparing each of the group and parent company financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and estimates that are reasonable and prudent;
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted
by the EU;
for the parent Company financial statements, state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the financial statements
•
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the
parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Auditor
KPMG LLP was appointed as auditor at the AGM in June 2016 and a resolution for their re-appointment as
independent auditor will be proposed at the 2017 AGM.
By order of the Board
Charmaine Day
Company Secretary
14 March 2017
9
Surgical Innovations Group PLC Annual Report and Accounts 2016 Independent auditor’s report to the members of Surgical
Innovations Group Plc
We have audited the financial statements of Surgical Innovations Group plc for the year ended 31 December 2016
set out in pages 11 to 40. The financial reporting framework that has been applied in the preparation of the group
financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
EU. The financial reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), including
FRS 101 Reduced Disclosure Framework.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s
members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 9, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 31 December 2016 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
the parent company financial statements have been properly prepared in accordance with UK Generally
Accepted Accounting Practice;
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year is
consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from
reading the Strategic report and the Directors’ report:
• we have not identified material misstatements in those reports; and
•
in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to
you if, in our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
•
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Matthew Wilcox (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
14 March 2017
10
Surgical Innovations Group PLC Annual Report and Accounts 2016 Consolidated statement of comprehensive income
For the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Other operating expenses
Adjusted EBITDA
Exceptional items
Amortisation of intangible assets
Depreciation of tangible assets
Operating profit/(loss)
Finance costs
Finance income
Profit/(loss) before taxation
Taxation credit
Profit/(loss) and total comprehensive deficit
Profit/(loss) per share, total and continuing
Basic
Diluted
Note
2
3
3
5
6
7
8
8
2016
£’000
2015
£’000
6,089
5,468
(4,029)
(4,704)
2,060
764
(1,591)
(2,739)
1,408
242
-
(1,290)
(429)
(510)
(426)
(501)
469
(1,975)
(192)
(153)
1
3
278
(2,125)
438
92
716
(2,033)
0.15p
(0.42)p
0.14p
(0.42)p
The Consolidated statement of comprehensive income above relates to continuing operations.
Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation and exceptional items.
11
Surgical Innovations Group PLC Annual Report and Accounts 2016 Consolidated statement of changes in equity
For the year ended 31 December 2016
Balance as at 1 January 2015
Employee share-based payment options
Equity placing for cash proceeds
Total – transactions with owners
Loss and total comprehensive income for the period
Balance as at 31 December 2015
Employee share-based payment
Equity issues
Total – transactions with owners
Profit and total comprehensive income for the period
Share
Capital
£’000
Share
Premium
£’000
Capital
Reserve
£’000
Retained
earnings
£’000
Total
£’000
4,851
1,634
329
(695)
6,119
-
12
12
-
-
7
7
-
-
-
-
-
(175)
(175)
-
19
(175)
(156)
(2,033)
(2,033)
4,863
1,641
329
(2,903)
3,930
-
471
471
-
-
698
698
-
-
-
-
-
23
23
-
1,169
23
1,192
716
716
Balance as at 31 December 2016
5,334
2,339
329
(2,164)
5,838
12
Surgical Innovations Group PLC Annual Report and Accounts 2016 Consolidated balance sheet
At 31 December 2016
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Inventories
Trade receivables
Other current assets
Cash at bank and in hand
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent company
Share capital
Share premium account
Capital reserve
Retained earnings
Total equity
Non-current liabilities
Borrowings
Obligations under finance leases
Deferred tax liabilities
Current liabilities
Trade and other payables
Obligations under finance leases
Accruals
Total liabilities
Total equity and liabilities
Note
2016
£’000
2015
£’000
9
10
11
12
12
15
16
13
14
7
14
1,579
1,597
3,176
1,496
1,098
289
775
3,658
6,834
1,827
1,361
3,188
1,916
1,301
389
976
4,582
7,770
5,334
2,339
329
4,863
1,641
329
(2,164)
(2,903)
5,838
3,930
-
8
2,982
62
-
-
8
3,044
337
45
606
408
196
192
988
796
996
3,840
6,834
7,770
The accompanying accounting policies and notes form part of the financial statements.
The consolidated financial statements on pages 11 to 34 were approved by the Board of Directors on 14 March 2017
and were signed on its behalf by:
N F Rogers
Director
M Ross
Director
Company registered number: 2298163
13
Surgical Innovations Group PLC Annual Report and Accounts 2016
Consolidated cash flow statement
For the year ended 31 December 2016
Cash flows from operating activities
Operating profit/(loss)
Adjustments for:
Non-cash exceptional items
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payment charge
Grant income
Foreign exchange
Decrease in inventories
Decrease in current receivables
Decrease in payables
Cash generated from operations
Taxation received
Interest paid
Net cash generated from operating activities
Payments to acquire property, plant and equipment
Acquisition of intangible assets
Acquisition of Surgical Dynamics assets and laparoscopic business
Net cash used in investment activities
Conversion of Loan Notes 2017
Repayment bank loan
Cash received from issue of shares
Repayment of obligations under finance leases
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effective exchange rate fluctuations on cash held
Cash and cash equivalents at end of year
2016
£’000
2015
£’000
469
(1,975)
-
1,152
510
429
23
(10)
65
797
178
(61)
2,400
531
(86)
501
426
-
(50)
6
1,586
472
(538)
1,580
-
(68)
2,845
1,512
(161)
(440)
(182)
(783)
(172)
(275)
-
(447)
-
500
(2,000)
(1,000)
-
(198)
(2,198)
(136)
976
(65)
775
19
(280)
(761)
304
678
(6)
976
14
Surgical Innovations Group PLC Annual Report and Accounts 2016 Notes to the consolidated financial statements
1. Group accounting policies under IFRS
(a) Basis of preparation
These financial statements have been prepared on the basis of the IFRS accounting policies set out below. The
financial statements have been prepared in accordance with IFRS as adopted for use by the European Union,
including IFRIC interpretations, and in line with those provisions of the Companies Act 2006 applicable to companies
reporting under IFRS. 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.
The Directors have considered the available cash resources of the Group and its current forecasts and are satisfied
that the Group has adequate resources to continue in operational existence and that there are no material
uncertainties casting doubt over the going concern status of the Group. Accordingly, the financial statements are
prepared on a going concern basis. Further details of the Directors’ assessment are provided in the Directors’ report
on page 9.
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements.
Their adoption is not expected to have a material effect on the financial statements:
•
•
•
IFRS 9 Financial Instruments (effective date 1 January 2018).
IFRS 15 Revenue from Contract with Customers (effective date 1 January 2018).
IFRS 16 Leases (effective date 1 January 2019).
(b) Consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date
is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control commences until the date that control ceases.
Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even
if doing so causes the non-controlling interests to have a deficit balance.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are
eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(c) Business combinations
All business combinations are accounted for by applying the acquisition method. Business combinations are
accounted for using the acquisition method as at the acquisition date, which is the date on which control is
transferred to the Group.
The Group measures goodwill at the acquisition date as:
the fair value of the consideration transferred; less the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
Costs related to the acquisition are expensed as incurred. Any contingent consideration payable is recognised at
fair value at the acquisition date. Any subsequent changes to the fair value of the contingent consideration are
recognised in profit or loss.
15
Surgical Innovations Group PLC Annual Report and Accounts 2016 (d) Foreign currency translation
Transactions and balances
Foreign currency transactions are translated into the functional currency of Sterling using the exchange rates
prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the Consolidated statement of comprehensive income.
(e) Property, plant and equipment
Property, plant and equipment are stated at the cost of acquisition less any provision for depreciation. Cost includes
expenditure that is directly attributable to the acquisition of the item.
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable.
The assets residual values, useful lives and depreciation methods are reviewed at each financial year end and
adjusted where the expected asset utilisation differs significantly from the depreciation method applied.
Depreciation is charged so as to write off the cost of property, plant and equipment less estimated residual value
over their estimated useful economic lives at the following rates:
Office and computer equipment
Plant and machinery
Tooling
Placed equipment
Leasehold improvements
–
–
–
–
–
10–33% per annum
10% per annum
10–20% per annum
33.3% per annum
Over the remaining term of the lease
Placed equipment relates to equipment placed in clinical settings to generate a stream of recurring revenue from
the single use element of the equipment.
(f) Intangible assets and goodwill
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units
and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the carrying
amount of goodwill is included in the carrying amount of the investment in the investee.
Other intangible assets
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as
incurred. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation
and accumulated impairment losses.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are
systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the
date they are available for use. The estimated useful lives are as follows:
Patents and trademarks
Capitalised development costs
Single use product knowledge transfer
-
-
-
5 years
5 years
5 years
Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred. Development
expenditure arising from the Group’s development activities is capitalised and amortised over the life of the product
only if the Group can demonstrate the following:
•
•
•
•
•
the technical feasibility of completing the intangible asset so it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
that it is probable that the asset created will generate future economic benefits;
there is the availability of adequate technical, financial and other resources to complete the development and to
use or sell the intangible asset; and
the development cost of the asset can be measured reliably.
•
16
Surgical Innovations Group PLC Annual Report and Accounts 2016
Where no intangible asset can be recognised, development expenditure is recognised as an expense in the period in
which it is incurred. Capitalised development costs are amortised over the life of the product within other operating
expenses, which is usually between five and ten years.
(g) Impairment of non-financial assets
Impairment reviews are carried out on capitalised development assets annually and where there is a specific
indicator of impairment. An asset’s carrying amount is written down immediately to its recoverable amount if the
asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of
an asset’s fair value less costs to sell and its value in use.
(h) Inventories
Inventories are stated at the lower of cost (using weighted average) and net realisable value. Cost is the purchase
cost, including transport, for raw materials, together with a proportion of manufacturing overheads based on normal
levels of activity, for finished goods.
Net realisable value is based on estimated normal selling price, less further costs expected to be incurred
to completion and sale. Impairment provisions are made for obsolete, slow moving or defective items where
appropriate. Such provisions are based upon established future sales and historical experience.
(i) Trade receivables
Trade receivables are recognised initially at fair value and thereafter at amortised costs less provision for
impairment. A provision for impairment of trade receivables is established when there is objective evidence that
the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount
of the provision is the difference between the asset’s carrying amount and the present value of estimated future
cash flows. The amount of the loss is recognised in the Consolidated statement of comprehensive income, as are
subsequent recoveries of amounts previously written off.
(j) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call at banks and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on the balance sheet.
(k) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest rate.
(l) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from proceeds.
(m) Exceptional items
Exceptional items are costs or group of costs which are non-recurring in nature which the Directors believe should
be separately identified in the financial statements to enable the reader to properly understand the underlying
trading performance of the business.
(n) Income tax
The charge for current tax is based on the results for the period as adjusted for items which are non-assessable or
disallowed and any adjustment to tax payable in respect of previous years. It is calculated using rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising
from differences between the carrying amount of assets and liabilities in the financial statements and the
corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised
for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of
goodwill (or negative goodwill) or from the initial recognition (other than in business combination) of other assets
and liabilities in a transaction which affects neither the taxable profit nor the accounting profit.
17
Surgical Innovations Group PLC Annual Report and Accounts 2016 Tax benefits are not recognised unless the tax positions are probable of being sustained. Once considered to
be probable, management reviews each material tax benefit to assess whether a deferred tax asset should be
recognised, based on the ability under tax statute to recover those tax losses and through the assessment of
probable future taxable profits against which those tax losses can be recovered.
Deferred tax is calculated at the rates that are enacted or substantively enacted at the balance sheet date. Deferred
tax is charged or credited in the Consolidated statement of comprehensive income, except when it relates to items
credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority
and the Group intends to settle its current tax assets and liabilities on a net basis. Information as to the calculation
of the income tax expense is included in note 7.
(o) Employee benefits
Pension obligations
The Group provides pension benefits to its employees through contributions to defined contribution Group
personal pension policies. The amounts charged to the Consolidated statement of comprehensive income are the
contributions payable in the period.
Share-based compensation
The Group issues equity settled share options to Directors and employees which are measured at fair value and
recognised as an expense in the Consolidated statement of comprehensive income with a corresponding increase
in profit and loss reserve. The fair value of the employee services received in exchange for the grant of the options
is treated as remuneration in respect of the individual. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the options granted.
The fair values of these payments are measured at the dates of grant and are recognised over the period during
which employees become unconditionally entitled to the awards which is usually the vesting period. At each balance
sheet date, the Group revises its estimate of the number of options that are expected to vest. It recognises the
impact of the revision to original estimates, if any, in the Consolidated statement of comprehensive income, with a
corresponding adjustment to retained earnings.
(p) Borrowings
Borrowings, which comprised bank loans and potentially convertible fixed rate unsecured loan notes (“Loan Notes”),
are initially recognised at fair value, net of transaction costs incurred. Borrowings were subsequently carried
at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the effective interest method. Loan
Notes, which are potentially convertible subject to shareholder approval, are classified as liabilities.
Fees paid on the arrangement of the loan facilities and revolving credit facilities are recognised as transaction costs
over the life of the agreement.
(q) Income recognition
Revenue - Sales of goods SI brand/OEM
Revenue is the total amount receivable by the Group for the supply of goods and services, excluding VAT and trade
discounts.
Revenue is recorded for the sale of goods when the significant risks and rewards of ownership are transferred
to customers. Under our standard terms and conditions of sale, this arises when goods are despatched to the
customer.
Revenue - Provision of services Precision Engineering
Project based revenue is accounted for using the percentage of completion method, estimated contract revenues
are accrued based on the ratio of costs incurred to date, to the total estimated costs, taking into account the level of
physical completion.
Interest income
Interest income is recognised using the effective interest rate method.
18
Surgical Innovations Group PLC Annual Report and Accounts 2016 Other income
Government grants are recognised in the Consolidated statement of comprehensive income so as to match them
with the expenditure towards which they are intended to contribute.
(r) Leases
Where the Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an
asset, the lease is treated as a finance lease. The asset is recorded in the balance sheet at fair value as property,
plant and equipment and is depreciated over its estimated useful life or the term of the lease, whichever is the
shorter. Future instalments under such leases, net of finance charges, are included in liabilities. Rentals under
operating leases are charged on a straight-line basis over the lease term. Lease incentives, comprising rent free
periods, are amortised over the period of the lease.
(s) Significant management judgement in applying accounting policies
The following are significant management judgements made in applying the accounting policies of the Group that
have the most significant effect on the financial statements. Critical estimation uncertainties are described in note
(t).
Internally generated research and development assets
Management monitors the progress of internal research and development projects using the accounting system and
through timesheet records. Judgement is required in determining and distinguishing the research phase from the
development phase. Research costs are incurred during the concept phase of the project which is fully expensed in
the period. Prior to the commencement of the product development phase, it is Group policy that capital expenditure
approval is obtained from the appropriate level; this enables the Group to ensure that projects are financially viable
after taking account of the cost of development. Costs incurred subsequent to this are recognised as an intangible
asset when all relevant criteria are met.
Management performs an impairment review of capitalised development assets annually. The impairment review
includes a significant degree of judgement, in particular determining the revenue streams relevant to a particular
project. Many of the Group’s products operate in conjunction with each other, particularly where the Resposable®
concept applies. Accordingly, management aggregates together certain cash generating units as the product’s
revenues are linked and certain development assets when looking at overall recoverability of the costs held in the
consolidated balance sheet. Capitalised development costs at 31 December 2016 total £1,372,000 and any further
impairment identified in future periods could have a material impact on the Group’s results.
(t) Estimation uncertainty
When preparing the financial statements management determines a number of estimates and assumptions about
recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the
estimates and assumptions made by the Group and will seldom equal the estimated results. Information about
significant estimates and assumptions that have the most significant effect on recognition and measurement of
assets, liabilities, income and expenses are discussed below.
Impairment
As described in note (s) previously, an impairment test is performed annually to assess the carrying amount of
product development assets held in the Group’s balance sheet. The impairment test performed compared the
amount at which the asset is carried with the recoverable amount of the asset. To determine the recoverable
amount, the Group estimates the total cashflows associated with the future revenue stream of the product (or group
of products) and the associated margin, and discounts this to present value at the Group’s weighted average cost of
capital (WACC), adjusted to product and related risks.
In the process of estimating future revenue and margin the Group makes assumptions about future operating
results and these estimates may vary significantly with actual results. Whilst a reduction of 10% in projected gross
margins and revenue streams would not give rise to any further impairment, it should be noted that the success of
individual products will also have a bearing on any future test.
Useful lives of depreciable assets
The Group reviews the useful life of depreciable assets at each reporting date. At 31 December 2016 the Directors
assessed that the useful lives represent the expected utilisation of the assets by the Group. Actual results, however,
may vary due to technical obsolescence or changing customer requirements particularly for plant, machinery and
tooling.
19
Surgical Innovations Group PLC Annual Report and Accounts 2016 Inventories
Inventories are measured at the lower of cost and net realisable value. However, the Group is exposed to inventory
obsolescence caused through changing customer requirements or technological changes.
Management perform a comprehensive review of inventory on a line-by-line basis and recorded the provision based
on the age of inventory.
Trade receivables
The Group provides, in certain agreed situations, products on extended credit terms in order to establish a presence
in an export market. The Directors constantly review the likelihood of realisation of these receivables and make
provision based on their best estimates of when the full value of the receivable will not be recoverable. As disclosed
in note 12, the top three customers in trade receivables totaled, as at the 31 December 2016, £591,405 which
highlights that a major customer failing could have a material impact on the Group. However none of these three
top customers are on extended credit terms. A material impact on the Group. However none of these three top
customers are on extended credit terms.
(u) Equity
Equity includes the elements listed below:
•
•
“Share capital” represents the nominal value of equity shares;
“Share premium” represents the excess over nominal value of the fair value of consideration received for equity
shares, net of expenses of the share issue;
“Capital reserve” represents the excess over nominal value of the fair value consideration attributed to equity
shares issued in part settlement for subsidiary company shares acquired; and
“Retained earnings” represents the accumulated profits and losses of the Group.
•
•
20
Surgical Innovations Group PLC Annual Report and Accounts 2016 2. Segmental reporting
Information reported to the Board and for the purpose of assessing performance and making investment decisions
is organised into three operating segments. The Group’s operating segments under IFRS 8 are as follows:
SI Brand
OEM
PE
–
–
–
the research, development, manufacture and distribution of SI branded minimally
invasive devices
the research, development, manufacture and distribution of minimally invasive devic-
es for third party medical device companies through either own label or co-branding
(Precision Engineering formerly Industrial), the research, development, manufacture
and sale of minimally invasive technology products for precision engineering appli-
cations
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.
For the year ended 31 December 2016
Revenue
Result
Segment result
Unallocated expenses
Profit from operations
Finance income
Finance costs
Profit before taxation
Tax credit
Loss for the year
SI Brand
£’000
OEM
£’000
PE
£’000
Total
£’000
4,664
1,219
206
6,089
1,210
285
136
1,631
(1,162)
469
1
(192)
278
438
716
Included within the segment/operating results are the following significant non-cash items:
For the year ended 31 December 2016
Amortisation of intangible assets
SI Brand
£’000
304
OEM
£’000
125
PE
£’000
-
Total
£’000
429
Unallocated expenses for 2016 include sales and marketing costs (£253,000), research and development costs
(£478,000) and central overheads (£415,000).
For the year ended 31 December 2015
Revenue
Result
Segment result
Unallocated expenses
Profit from operations
Finance income
Finance costs
Profit before taxation
Tax credit
Loss for the year
SI Brand
£’000
OEM
£’000
PE
£’000
Total
£’000
4,175
1,243
50
5,468
282
6
50
338
(2,313)
(1,975)
3
(153)
(2,125)
92
(2,033)
Included within the segment/operating results are the following significant non-cash items:
For the year ended 31 December 2015
Amortisation of intangible assets
SI Brand
£’000
282
OEM
£’000
144
PE
£’000
-
Total
£’000
426
Unallocated expenses for 2015 include exceptional items (£1,290,000), sales and marketing costs (£222,000),
research and development costs (£541,000) and central overheads (£260,000).
21
Surgical Innovations Group PLC Annual Report and Accounts 2016 Geographical analysis of revenues
United Kingdom
Europe
US
Rest of World
2016
£’000
1,920
1,287
1,876
1,006
6,089
2015
£’000
1,922
1,286
1,539
721
5,468
Revenues are allocated geographically on the basis of where revenues were received from and not from the ultimate
final destination of use. During 2016 £1,235,000 (20.3%) of the Group’s revenue depended on one customer in the SI
Brand segment (2015: £1,140,000 (20.8%)).
Sales of goods during 2016 were £5,883,000, with the exception of sales relating to services in the UK for £206,000.
3. Operating profit / (loss)
The profit for the year is stated after charging:
Depreciation of owned assets
Depreciation of assets held under finance lease
Amortisation of capitalised development costs
Research and development costs – non capitalised expenditure
Foreign exchange losses
Auditor’s remuneration:
– fees payable to the Company’s auditor for the audit of the Company’s annual financial
statements
– fees payable to the Company’s auditor for the audit of the subsidiary undertakings
2016
£’000
444
66
429
478
(79)
6
27
2015
£’000
353
148
426
541
(16)
5
25
– fees payable to the Company’s auditor for the non audit fees relating to tax services
18
8
Operating lease rentals:
– land and buildings
Exceptional items (all within Other operating expenses):
– Impairment of intangible assets - development costs
– Additional stock provisions
– Impairment of all costs incurred in connection with RGF project
– Provisions recorded against short term trade debtors
– Provisions recorded against long term trade debtors
– Restructuring costs
– Impairment of Fixed Assets
– Share based payment credit
Exceptional items for 2016: nil, (2015: £1.290m)
Other operating expenses comprised:
Distribution costs
Administrative expenses
Other expenses (including exceptional items)
153
152
-
-
-
487
802
8
-
(197)
-
-
-
-
147
141
77
(175)
2016
£’000
253
415
923
1,591
2015
£’000
222
260
2,257
2,739
22
Surgical Innovations Group PLC Annual Report and Accounts 2016 4. Employees and Directors’ emoluments
The average monthly number of employees (including Executive Directors) employed by the Group during the year
was as follows:
Directors
Production
Development
Administration
The costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Pension costs
Directors’ emoluments
Details of Directors’ emoluments for the year are as follows:
2016
Number
2015
Number
2
36
10
7
55
1
30
10
8
49
2016
£’000
1,427
118
41
2015
£’000
1,248
112
48
1,586
1,408
Executive
M Ross1
N F Rogers2
M R Thornton3
Non-executive
M J McMahon4
P Hardy4
A Taylor4
Total
Salary
and fees
2016
£’000
Bonus
2016
£’000
Benefits
2016
£’000
Total
emoluments
2016
£’000
Total
emoluments
2015
£’000
Pension
contributions
2016
£’000
Pension
contributions
2015
£’000
80
59
-
20
20
20
85
2
-
-
-
-
-
167
59
-
20
20
20
50
25
60
-
-
-
199
85
2
286
135
4
-
-
-
-
-
4
2
-
3
-
-
-
5
1.
2.
3.
4.
M Ross has elected to take 50% of her bonus in shares.
N F Rogers was appointed as Executive Chairman from 28 October 2015; £27,500 of the 2016 remuneration noted above was satisfied by shares..
M R Thornton resigned from the Group on 5th August 2015
The Non-executive directors fees were satisfied in shares.
Benefits received consist of the provision of motor cars and private health insurance. Pension contributions
represent payments made to defined contribution schemes. Non-executive Directors are not entitled to retirement
benefits. Remuneration of the Non-executive Directors is determined by the Board. At 31 December 2016, £9,800
(2015: £9,800) was owed to the Company by M J McMahon.
23
Surgical Innovations Group PLC Annual Report and Accounts 2016 Directors’ share options
Details of the share options held by Directors serving at 31 December 2016 are as follows:
At 1January 2016
Exercised during
year
Lapsed during
the year
At 31 December
2016
Option price
Date granted
M Ross
4,750,000
-
-
1.575p
December
20151
1.
Share options are exercisable between three and ten years from the date of the grant.
The market price of the Company’s shares at the end of the financial year was 4.25p (2015: 1.625p) and the range of
market prices during the year was between 1.23p (2015: 1.1p) and 4.25p (2015: 2.5p).
Key management including Non-executive Directors:
Salaries
Social security costs
Pension costs
Share-based payments
Redundancy
Total
5. Finance costs
On finance leases
On net borrowing
Total
6. Finance income
Interest received
2016
£’000
194
21
10
8
-
233
2016
£’000
7
185
192
2015
£’000
148
21
9
-
40
218
2015
£’000
18
135
153
2016
£’000
1
2015
£’000
3
24
Surgical Innovations Group PLC Annual Report and Accounts 2016 7. Taxation
Current tax credit
Deferred tax credit / (charge)
Total tax credit
2016
£’000
(438)
-
(438)
2015
£’000
(92)
-
(92)
Factors affecting the tax charge for the year
The taxation assessed for the year is lower than the standard rate of Corporation tax in the UK at 20% (2015: 20%).
The differences are explained as follows:
Profit/(loss) on ordinary activities before taxation
Corporation tax at standard rate of 20% (2015: 20%)
Effects of:
Net impact of research and development enhanced expenditure
Expenses not tax deductible
Other movements on intangible assets and accelerated capital allowances
Deductions on exercise of share options
Trading losses not recognised
Total tax credit for the year
Deferred taxation
The movement in the deferred taxation (liability)/asset during the year was:
Balance brought forward-(liability)/asset
Consolidated statement of comprehensive income movement during the year
Balance carried forward-(liability)/asset
The deferred taxation calculated in the financial statements at 17% (2015: 18%) is set out below:
Trade losses
Fixed asset timing differences
The following is the analysis of unprovided deferred tax balances:
Deferred tax assets
Deferred tax liabilities
Net unrecognised deferred tax assets
2016
£’000
2015
£’000
278
(2,125)
56
(425)
(593)
(257)
(1)
39
-
61
(55)
145
-
500
(438)
(92)
2016
£’000
2015
£’000
-
-
-
-
-
-
2016
£’000
2015
£’000
(112)
(120)
112
120
-
-
2016
£’000
3,573
-
3,573
2015
£’000
4,180
-
4,180
At the balance sheet date, the Group has unused tax losses of £21.6 million (2015: £21.5 million) available for offset
against certain future profits. The timing differences in fixed assets has given rise to a deferred tax liability of
£112,000 (2015 DTL: £120,000) in addition a deferred tax asset relating to brought forward losses has been used to
offset this liability. No deferred tax asset has been recognised in respect of the remaining £21.0 million (2015: £20.3
million).
25
Surgical Innovations Group PLC Annual Report and Accounts 2016
8. Earnings per ordinary share
Basic earnings per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31 December 2016 was based upon the profit
attributable to ordinary shareholders of £716,000 (2015: loss of £2,033,000) and a weighted average number of
ordinary shares outstanding for the year ended 31 December 2016 of 487,924,227 (2015: 485,070,920).
Diluted earnings per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31 December 2016 was based upon the
profit attributable to ordinary shareholders of £716,000 (2015: loss of £2,033,000) and a weighted average number
of ordinary shares outstanding for the year ended 31 December 2016 of 494,001,073 (2015: 485,070,920).
No. of shares used in calculation of earnings per ordinary share (’000s)
Basic earnings per share
Dilutive effect of unexercised share options
Diluted earnings per share
2016
No. of shares
2015
No. of shares
487,924
485,071
6,077
-
494,001
485,071
26
Surgical Innovations Group PLC Annual Report and Accounts 2016 9. Property, plant and equipment
Cost
At 1 January 2015
Additions
At 1 January 2016
Additions
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Charge for the year
Impairment
On disposals
At 1 January 2016
Charge for the year
Impairment
On disposals
At 31 December 2016
Net Book amount
At 31 December 2016
At 31 December 2015
Tooling
£’000
1,258
72
1,330
132
1,462
980
81
77
-
1,138
80
-
-
1,218
Office and
computer
equipment
£’000
Placed
equipment
£’000
Improvements
to leasehold
property
£’000
Plant and
machinery
£’000
3,490
25
3,515
938
54
992
435
21
456
94
36
-
3,609
1,028
456
Total
£’000
6,487
172
6,659
262
6,921
366
-
366
-
366
1,808
303
-
-
2,111
300
-
-
2,411
884
42
-
-
926
49
-
-
975
345
37
-
-
382
42
-
-
424
237
4,254
38
-
-
501
77
-
275
4,832
39
-
-
510
-
-
314
5,342
244
192
1,198
1,404
53
66
32
74
52
91
1,579
1,827
The fair value of the related laparoscopic instrument assets acquired from Surgical Dynamics Ltd amounted to
£100,000 of which £87,000 related to Plant & Machinery and £13,000 of Tooling.
Leased plant and equipment
The Group leases plant and machinery under a number of finance lease arrangements. The carrying amount and
depreciation charge for such assets are disclosed below:
Plant and machinery
Net book value
Depreciation charge for the year
Security
2016
£’000
2015
£’000
339
66
829
148
At 31 December 2016 and at 31 December 2015, the assets of the Group are subject to a fixed and floating charge
debenture in favour of the Group’s banking facilities. At the 31 December 2016 there was no drawdown on the rolling
credit facility agreement therefore no liability was held at this point in time.
27
Surgical Innovations Group PLC Annual Report and Accounts 2016 10. Intangible assets
Cost
At 1 January 2015
Additions
At 1 January 2016
Additions
At 31 December 2016
Accumulated amortisation
At 1 January 2015
Charge for the year
Impairment provision
At 1 January 2016
Charge for the year
Impairment provision
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015
Capitalised
development
costs
£’000
Single use
product
knowledge
transfer
£’000
11,605
275
11,880
440
12,320
(9,606)
(426)
(487)
(10,519)
(429)
-
(10,948)
-
-
-
225
225
-
-
-
-
-
-
-
Total
£’000
11,605
275
11,880
665
12,545
(9,606)
(426)
(487)
(10,519)
(429)
-
(10,948)
1,372
1,361
225
-
1,597
1,361
Capitalised development costs represent expenditure incurred in developing new products that fulfil the
requirements of IAS 38. 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.
There was no impairment charge for 2016 (2015: £487,000).
The impairment charge recorded in the prior year financial statements was determined by comparing value in use
with the carrying amount, as there is no reliable assessment of fair value less cost to sell available. Value in use was
determined by applying a pre-tax discount rate of 15% to anticipated revenue streams.
Single use product knowledge transfer relates to the acquisition of the single use laparoscopic instrumentmentation
products of Surgical Dynamics Ltd.
11. Inventories
Raw materials and work in progress
Finished goods
Net Inventory
2016
£’000
1,021
475
2015
£’000
994
922
1,496
1,916
Included in the analysis above are impairment provisions against inventory amounting to £1,651,000 (2015:
£2,023,000), which represents 52.5% (2015: 51.4%) of gross inventory
In 2016 a total of £4,047,000 of inventories was included in profit and loss as an expense within cost of sales (2015:
£4,704,000). Cost of sales included an amount of £163,000 resulting from the write down of inventories (2015:
£159,000). There was no exceptional charge in the Administrative expenses relating to relating to the write off of
specific inventories for which no future sale is likely and also the creation of a provision for all other inventory based
upon product age (2015: £802,000).
Inventories are pledged as securities for bank facilities.
28
Surgical Innovations Group PLC Annual Report and Accounts 2016 12. Trade and other receivables
Falling due in less than one year
Trade receivables
Prepayments and accrued income
Corporation Tax recoverable
Other debtors
2016
£’000
1,098
216
-
73
2015
£’000
1,301
189
-
200
1,387
1,690
Of the current trade receivables, £591,405 relates to the top three customers (2015: £711,731). All of the Group’s
trade and other receivables have been reviewed for indicators of impairment. The movement of the impairment
provision is shown below:
Trade receivable impairment provision at the beginning of the year
Charge for the year
Reversals
Trade receivable impairment provision at the end of the year
2016
£’000
130
4
(15)
119
2015
£’000
375
-
(245)
130
The carrying value of trade receivables is considered a reasonable approximation to fair value. In addition some of
the unimpaired trade receivables are past due at the reporting date. The age of financial assets past due but not
impaired is shown below:
Not more than three months
More than three months but not more than six months
More than six months but not more than one year
More than one year
13. Borrowings
Bank loan
Loan notes 2017
Bank loan
2016
£’000
164
2015
£’000
91
4
-
-
6
-
2
2016
£’000
-
-
-
2015
£’000
1,982
1,000
2,982
The sterling bank loan provided by Yorkshire Bank on 17 November 2014, which was due to be repaid November 2017
was subject to quarterly payments of £0.1m, totaling £0.3m in the year. On the 22 December 2016 the remaining
balance of the term loan of £1.70m was repaid from available cash resources, and the bank has made available a
Revolving Credit Facility (RCF) of up to £1.30m for working capital and other purposes until 31 March 2020.
The RCF is subject to compliance with financial covenants which measure cash flow to debt service and EBITDA. If
the bank loan is drawdown 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 fixed and floating charge over the assets of the Group. At the 31 December
2016, no amount was drawndown.
Loan notes 2017
On the 21 December 2016 all of the outstanding unsecured fixed rate convertible loan notes (“Loan Notes”)
amounting to £1.00m, together with accrued interest of £0.11m were converted into 44,259,178 ordinary shares of 1p
each at a conversion price of 2.5p per share. The Loan Notes were originally created on 17 November 2014 and were
repayable on 17 November 2017 unless converted into equity at an earlier date.
29
Surgical Innovations Group PLC Annual Report and Accounts 2016 14. Financial instruments
The Group is exposed to market risk through its use of financial instruments. The Group’s risk management is co-
ordinated by the Directors who focus actively on securing the Group’s short to medium-term cash flows through
regular review of all the operating activities of the business. Long-term financial investments are managed to
generate lasting returns. The Group does not actively engage in the trading of financial assets for speculative
purposes nor does it write options. The most significant financial risks to which the Group is exposed are described
in the following sections.
Foreign currency sensitivity
Exposures to currency exchange rates arise from the Group’s overseas sales and purchases, most of which are
denominated in Euros and Dollars. To mitigate the Group’s exposure to foreign currency risk, cash flows in Euros and
Dollars are monitored on an ongoing basis. Foreign currency denominated financial assets and liabilities are set out
below:
2016
€’000
2015
€’000
2016
$’000
2015
$’000
Financial assets
Financial liabilities
Short-term exposure
-
(1)
(1)
49
-
49
454
(11)
443
607
-
607
The Group has exposure to the movements in the exchange rates in the Euro and Dollar at 31 December 2016. An
analysis of the effect of a reasonable possible movement in exchange rates shows that a movement of 5% in the
exchange rate could result in foreign currency gains or losses of £nil (2015: £2,000) against the Euro and £19,000
(2015: £22,000) against the Dollar.
The Group gives consideration to the use of forward currency contracts to reduce foreign currency exposure.
Credit risk analysis
The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance
sheet date, which are set out below:
Trade and other receivables
2016
£’000
1,098
1,098
2015
£’000
1,301
1,301
The Group continually monitors defaults of customers and other counterparties and incorporates this information
into its credit risk controls.
Management considers that all of the above financial assets that are not impaired for each of the reporting dates
under review are of good credit quality, including those that are past due. In respect of trade and other receivables
that are not impaired, the Group does have some credit risk through customer concentration as disclosed in note 12.
Liquidity risk analysis
The Group manages its liquidity needs by carefully monitoring all scheduled cash outflows. Liquidity needs are
monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 13-
week projection. Longer-term needs are monitored as part of the Group’s regular rolling monthly re-forecasting
process.
Funding for long-term liquidity is additionally secured by an adequate amount of committed credit both through
asset finance facilities and loans. Further analysis of long-term borrowings is provided in note 13.
The Group’s liabilities have contractual cash flows which are summarised below:
31 December 2016
Finance lease obligations
Trade and other payables
Current
Non-
Current
Within 6
Months
£’000
23
318
341
Within
6 -12
Months
£’000
22
19
41
Over 12
months
£’000
8
-
8
30
Surgical Innovations Group PLC Annual Report and Accounts 2016 14. Financial instruments (continued)
Current
Non-
Current
31 December 2015
Finance lease obligations
Trade and other payables
Bank loans
Loan notes 2017
Maturity profile of borrowings
Gross lease payments not later than one year
Later than one year but not more than five years
Future finance charges
Present value of finance lease liabilities
Summary of financial assets and liabilities by category
Current assets
Cash at bank and in hand
Trade and other receivables
Current liabilities
Trade payables: financial liabilities measured at amortised cost
Other short-term financial liabilities measured at amortised cost
Non-current liabilities
Borrowings measured at amortised cost
Other non-current liabilities measured at amortised cost
Net financial assets and liabilities
Fair value
Within 6
Months
£’000
130
408
245
-
783
Within
6 -12
Months
£’000
85
-
235
Over 12
months
£’000
43
-
1,627
-
1,175
320
2,845
2016
£’000
39
16
(2)
53
2015
£’000
212
55
(9)
258
2016
£’000
2015
£’000
775
1,098
1,873
976
1,301
2,277
337
45
408
196
382
604
-
2,982
8
62
8
3,044
1,483
(1,371)
Management is of the opinion that the carrying value of financial assets and liabilities equates to their fair value.
Capital management
The Group’s capital management objectives are:
•
•
to ensure its ability to continue as a going concern; and
to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may
issue new shares or sell assets to reduce debt. Historically, the Group has primarily been funded through cash reserves
and hire purchase financing and accordingly no target for gearing levels has been set. Capital as monitored by the
Group for the reporting periods under review is summarised as follows:
Total borrowings
Less: cash and cash equivalents
Net (cash)/debt
Total equity
Total capital
31
2016
£’000
53
(775)
(722)
5,838
5,116
2015
£’000
3,240
(976)
2,264
3,930
6,194
Surgical Innovations Group PLC Annual Report and Accounts 2016 15. Share capital
Allotted, called up and fully paid 533,407,756
2016
£’000
2015
£’000
(2015: 486,275,710) ordinary shares of 1p each
5,334
4,863
At 31 December 2016, the following share options were outstanding:
Number of shares
Exercise dates
Exercise
in yr
Lapsed
At 31
December
2016
Option price
per 1p share
Date from which
option may be
exercised
Date on which
option expires
-
-
-
-
-
-
-
-
-
-
3,000,000
1,000,000
1.7p
November 2009
November 2017
1.5p
November 2009
January 2019
800,000
1.7p
November 2009
November 2019
(30,000)
680,000
200,000
7.2p
9.0p
June 2015
June 2022
June 2015
June 2022
(30,000)
1,100,000
5.1p
June 2016
June 2023
(2,000,000)
15,000,000
1.575p
December 2018
December 2025
-
-
4,999,998
1,000,000
6.9p
5.1p
January 2018
January 2023
June 2016
June 2023
At
1 January
2016
3,000,000
1,000,000
800,000
710,000
200,000
1,130,000
17,000,000
4,999,998
1,000,000
Scheme and date of grant
Non-executive unapproved
November 2007
January 2009
November 2009
Enterprise management
June 2012
June 2012
June 2013
December 2015
Other option awards
January 2013
June 2013
Share-based payments
Share options were granted during prior periods to certain employees, distributors and members of the Clinical
Advisory Board. The exercise price of the granted options is equal to market price at grant. For employees, options
are conditional upon completing a three year service period from the date of grant. For distributors and members of
the Clinical Advisory Board, options are conditional on the completion of appropriate objectives.
Movements in the number of share options outstanding and their related weighted average exercise price are as
follows:
31 December 2015
At 1 January
Exercised
Granted
Lapsed
At 31 December
2016
2015
Average
exercise
price
pence
3.2
-
-
Options
’000s
29,840
-
-
Average
exercise
price
pence
4.5
-
1.575
(1.7)
(2,030)
(4.1)
3.0
27,810
3.2
Options
’000s
17,930
-
17,000
(5,090)
29,840
Out of the 27,779,998 options (2015: 29,839,998), 4,800,000 (2015: 4,800,000) options were exercisable at an average
exercise price of 1.7p (2015: 1.7p).
The weighted average fair value of options granted in prior periods was determined using the Black-Scholes
valuation model. The significant inputs into the model were share price at the date of grant, exercise price as set out
above, volatility of 40%, an expected option life varying between three and five years and an annual risk-free interest
rate of 2.5%. Volatility was calculated with reference to statistical analysis of the historic daily share price. After
taking account of estimated leavers, the total share- based payment charge for the year was £23,000 (2015: credit of
£175,000).
32
Surgical Innovations Group PLC Annual Report and Accounts 2016 16. Share premium
Balance as at 31 December 2015
Issue of ordinary share capital
Balance as at 31 December 2016
Share
premium
£’000
1,641
698
2,339
Share premium comprises the cumulative difference between the net proceeds and nominal value of the Company’s
issued equity share capital.
17. Contingent liabilities and financial commitments
These are as follows:
(a) Contingent liabilities
There were no contingent liabilities at 31 December 2016 (2015: £nil).
(b) Operating leases
At 31 December 2016 the Group had future aggregate minimum lease payments under non-cancellable operating
leases as follows:
Within one year
One to five years
(c) Capital commitments
2016
£’000
175
71
2015
£’000
192
235
At 31 December 2016 the Group had capital commitments totaling £68,000 (2015: £nil).
18. Transactions with related parties
The Group have identified a list of related parties and a summary of the transactions during the year, along with
outstanding amounts at the balance sheet date is as follows:
ACP1
Hardy Transaction Management Ltd2
Amounts
invoiced to/(by)
the Group
2016
£’000
(270)
(20)
Amounts
payable/
(receivable)
31 December
2016
£’000
(69)
-
Amounts
invoiced to/
(by) the Group
2015
£’000
(267)
-
Amounts
payable/
(receivable)
31 December
2015
£’000
(78)
-
Transactions with related parties during the current and prior year were as follows:
1.
ACP acts as the master distributor for Surgical Innovations in the Far East. During the year Surgical Innovations invoiced ACP £270,000 for products and at 31 December 2016 there
was an amount owing to Surgical Innovations of £69,000. Getz Bros. & Co. Inc. is the ultimate beneficial owner of ACP. The registered address is:
Aisa Cardiovascular Products (ACP)
Unit 2-3, 11F, No 1 Hung To Road
Kwun Tong
Kowloon
Hong kong
2.
Director’s fees and advisory fees for P Hardy are paid to Hardy Transactions Management Ltd. The registered address is:
Hardy Transaction Management Ltd
Suite One Sixth Floor
St James House
Vicar Lane
Sheffield
S1 2EX
Registered in England & Wales: 04887548
There is no controlling party of Surgical Innovations Group Plc.
33
Surgical Innovations Group PLC Annual Report and Accounts 2016
19. Pensions
The Company currently operates a defined contribution Group personal pension plan for the benefit of employees.
Company contributions in 2016 were £39,000 (2015: £48,000).
20. Acquisition
On the 7th November 2016, the Group acquired the laparoscopic instruments business and related assets of
Surgical Dynamics Ltd for a cash consideration of £359,000. As at the year ending 31 December 2016 £182,000 had
been paid to Surgical Dynamics, with the remainder of the consideration payable in 2017.
Effect of acquisition
The acquisition had the following effect on the Company’s assets and liabilities:
Assets acquired from Surgical Dynamics Ltd:
Plant & Machinery
Tooling
Inventory
Single use knowledge transfer
Net identifiable assets
Total consideration
Goodwill recognised
Recognised
Fair Value on
acquisition
£’000
87
13
34
225
359
359
-
34
Surgical Innovations Group PLC Annual Report and Accounts 2016 Company Balance Sheet
Company Balance Sheet
as at 31 December 2016
Assets
Non-Current Assets
Investments
Current assets
Trade receivables
Cash at bank
Total Assets
Equity & Liabilities
Equity attributable to equity holders of the company
Share Capital
Share Premium Account
Retained Earnings
Total Equity
Non-Current Liabilities
Loan Notes
Current Liabilities
Trade & Other payables
Total Liabilities
Total Equity & Liabilities
Notes
2016
£’000
2015
£’000
2
3
6
5
4
1,018
1,018
5,399
344
5,743
6,761
5,334
2,339
(1,047)
6,626
4,779
909
5,688
6,706
4,863
1,641
(867)
5,637
-
1,000
135
135
6,761
79
1,079
6,706
The financial statements on pages 35 to 40 were approved by the Board of Directors on 14 March 2017 and were
signed on its behalf by:
Melanie Ross
Chief Operating Officer
Company registered number: 2298163
35
Surgical Innovations Group PLC Annual Report and Accounts 2016 Statement of changes in equity
for the year ended 31 December 2016
Balance as at 1 January 2015
Employee share-based payment options1
Exercise of share options
Equity placing for cash proceeds
Total – transactions with owners
Profit and total comprehensive income for the period
Balance as at 31 December 2015
Employee share-based payment
Equity Issues
Total – transactions with owners
Loss and total comprehensive deficit for the period
Balance as at 31 December 2016
1.
Employee shared based payment credit was credited as an Exceptional item in 2015.
Share
capital
£’000
4,851
Share
premium
£’000
Retained
earnings
£’000
1,634
(702)
Total
£’000
5,783
-
-
12
12
-
4,863
-
471
471
-
-
-
7
7
-
-
698
698
-
(175)
(175)
-
-
-
19
(175)
(156)
10
23
-
23
10
5,637
23
1,169
1,192
(203)
(203)
1,641
(867)
5,334
2,339
(1,047)
6,626
36
Surgical Innovations Group PLC Annual Report and Accounts 2016 Notes to the Company financial statements
as at 31 December 2016
1. Accounting policies
(a) Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework (“FRS 101”). The amendments to FRS 101 issued in July 2015 and effective immediately have
been applied.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure
requirements of International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes
amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage
of the FRS 101 disclosure exemptions has been taken.
In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the
following disclosures
• Comparative period reconciliations for share capital;
•
• Disclosures in respect of transactions with wholly owned subsidiaries ;
•
• An additional balance sheet for the beginning of the earliest comparative period following the retrospective
The effects of new but not yet effective IFRSs;
a Cash Flow Statement and related notes;
change in accounting policy
• Disclosures in respect of the compensation of Key Management Personnel; and
• Disclosures of transactions with a management entity that provides key management personnel services to the
company.
As the consolidated financial statements of Surgical Innovations Group PLC include the equivalent disclosures, the
Company has also taken the exemptions under FRS 101 available in respect of the following disclosures
•
IFRS 2 Share Based Payments in respect of group settled share based payments
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial
statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods
presented in these financial statements.
The company has adopted the following IFRSs in these financial statements:
The definition of a ‘related party’ is extended to include a management entity that provides key management
personnel services to the reporting entity, either directly or through a group entity.
The financial statements are prepared on the historical cost basis.
(b) Investment in subsidiary undertakings
The Company’s investment in subsidiary undertakings is stated at cost less any provision for impairment.
(c) Share-based transactions
Share-based payment arrangements in which the Company receives goods or services as consideration for its own
equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the
equity instruments are obtained by the Company.
The grant date fair value of share-based payments awards granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period in which the employees become unconditionally
entitled to the awards. The fair value of the awards granted is measured using an option valuation model, taking into
account the terms and conditions upon which the awards were granted. The amount recognised as an expense is
adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are
expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards
that do meet the related service and non-market performance conditions at the vesting date. For share-based
payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to
reflect such conditions and there is no true-up for differences between expected and actual outcomes.
37
Surgical Innovations Group PLC Annual Report and Accounts 2016 (c) Borrowings
Borrowings, which comprise potentially convertible fixed rate unsecured loan notes (“Loan Notes”), are initially
recognised at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the
income statement over the period of the borrowings using the effective interest method. Loan Notes, which are
potentially convertible subject to shareholder approval, are classified as liabilities. Fees paid on the establishment
of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of
the facility will be drawn down.
2. Investments
Company
Cost
At 31 December 2016 and 1 January 2016
Provision for diminution in value
At 31 December 2016 and 1 January 2016
Net book value at 31 December 2016 and 1 January 2016
The principal trading subsidiaries of the Group comprise:
£’000
1,018
-
1,018
Company
Description of shares held
Nature of business
Country of incorporation
and operation
Surgical Innovations
Limited
Ordinary £1 shares
Haemocell Limited
Ordinary £1 shares
Design and manufacture of
minimally invasive devices
Design and manufacture of
autologous blood products
Great Britain
Great Britain
Proportion
Held
100%
100%
3. Receivables
Prepayments and accrued income
Other debtors
Amounts due from subsidiary undertakings
Amounts due from subsidiary undertakings are unsecured, interest free and repayable on demand.
2016
£’000
9
13
5,377
5,399
2015
£’000
4
13
4,762
4,779
38
Surgical Innovations Group PLC Annual Report and Accounts 2016 4. Current liabilities
Accruals and deferred income
Other creditors
5. Non-current liabilities
Loan notes 2017
Loan notes 2017
2016
£’000
115
20
135
2015
£’000
70
9
79
2016
£’000
-
-
2015
£’000
1,000
1,000
On the 21 December 2016 all of the outstanding unsecured fixed rate convertible loan notes (“Loan Notes”)
amounting to £1.00m, together with accrued interest of £0.11m were converted into 44,259,178 ordinary shares of 1p
each at a conversion price of 2.5p per share. The Loan Notes were originally created on 17 November 2014 and were
repayable on 17 November 2017 unless converted into equity at an earlier date.
6. Share capital
Allotted, called up and fully paid:
2016
£’000
2015
£’000
533,407,756, ordinary shares of 1p each (2015: 486,275,710)
5,334
4,863
During the year the following ordinary shares of 1p were issued in respect of cash consideration as follows:
•
•
•
•
•
811,644 issued at 1.825p in lieu of remuneration
905,660 issued at 1.7p in lieu of remuneration
688,421 issued at 2.375p in lieu of remuneration
467,143 issued at 3.5p in lieu of remuneration
44,259,178 issued at a conversion price of 2.5p per share for the loan notes and accrued interest.
39
Surgical Innovations Group PLC Annual Report and Accounts 2016 7. Loss for the financial year of Surgical Innovations Group plc
The loss for the financial year dealt with in the financial statements of the holding company, Surgical Innovations
Group plc, was £481,000 (2015: a profit of: £10,000).
As permitted by Section 408 of the Companies Act 2006, the profit and loss account has not been included in these
financial statements.
8. Transactions with related parties
The Group have identified a list of related parties and a summary of the transactions during the year, along with
outstanding amounts at the balance sheet date is as follows:
Amounts
invoiced
to/(by) the
Group 2016
£’000
Amounts
payable/
(receivable)
31 December
2016
£’000
Amounts
invoiced
to (by) the
Group 2015
£’000
Amounts
payable/
(receivable)
31
December
2015
£’000
Hardy Transaction Management Ltd1
(20)
-
-
-
Transactions with related parties during the current and prior year were as
follows:
1.
Director’s fees and advisory fees for P Hardy are paid to Hardy Transactions Management Ltd. The registered address is:
Hardy Transaction Management Ltd
Suite One Sixth Floor
St James House
Vicar Lane
Sheffield
S1 2EX
Registered in England & Wales: 04887548
In these financial statements, the company has applied the exemption available under FRS 101 in respect of the
following disclosures.
• Disclosures in respect of transactions with wholly owned subsidiaries.
40
Surgical Innovations Group PLC Annual Report and Accounts 2016
Advisers
Company Secretary and registered office
Charmaine Day
Clayton Wood House
6 Clayton Wood Bank
Leeds LS16 6QZ
Registered number
2298163
Nominated adviser
W H Ireland Limited
Royal House
28 Sovereign Street
Leeds LS1 4BJ
Solicitors
Nabarro LLP
1 South Quay
Victoria Quays
Sheffield S2 5SY
Auditor
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds LS1 4DA
Registrars
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen B63 3DA
Bankers
Yorkshire Bank
1st Floor
94-96 Briggate
Leeds LS1 6NP
41
Surgical Innovations Group PLC Annual Report and Accounts 2016 42
Surgical Innovations Group PLC Annual Report and Accounts 2016 43
Surgical Innovations Group PLC Annual Report and Accounts 2016 44
Surgical Innovations Group PLC Annual Report and Accounts 2016 If you have any questions,
please get in touch:
si@surginno.co.uk
+44(0)113 230 7597
www.sigroupplc.com