Annual Report
2017
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.
2017 Financial Highlights
£8.75m
£6.09m
2016
2017
Revenues
+44%
£m
7
6
5
4
3
2
1
0
2016
2017
SI Branded Sales Revenue
+15%
Precision
Engineering
OEM
SI Brand
45
40
35
30
25
20
15
10
5
0
£2.22m
£1.43m
2015
2016
2017
2016
2017
Gross Margin
42.5%
Adjusted EBITDA
+55%
£m
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016
2017
Adjusted PBT
+266%
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
10-13
14
15
16
17
18-41
42
43
44-47
48
More information can be found at
www.sigroupplc.com
Strategic Report
Nigel Rogers
Executive Chairman
Chairman’s Statement
Financial Overview
Revenue for the year increased by 44% to £8.75m
(2016: £6.09m). Underlying organic growth at constant
rates of foreign exchange was approximately 8%, with
a modest gain arising on foreign exchange contributing
approximately 3%. Revenues from SI branded products
increased by 15% to £5.35m (2016: £4.66m), aided
by the move to direct sales in the UK following the
acquisition of Elemental Healthcare. Gross margins
continued to strengthen to 42.5% (2016: 33.8%) as a
consequence of enhanced end-to-end margin on home
sales and operational gearing.
The Group delivered a 55% increase in Adjusted
EBITDA (stated before exceptional costs and
amortisation relating to acquisition, and share
based payment costs) to £2.22m (2016: £1.43m). The
adjusted operating margin was 13.0% (2016: 8.1%),
and adjusted profit before taxation amounted to
£1.10m (Reported PBT: £0.54m, 2016: £0.28m).
The net profit and total comprehensive income for the
year amounted to £0.63m, (2016: £0.72m), resulting in
net earnings per share of 0.10p (2016: 0.15p). Adjusted
basic earnings per share (being Profit after tax stated
before exceptional costs and amortisation relating to
acquisition, and share based payment costs divided
by weighted average number of shares) amounted to
0.19p, an increase of 26.7% over the prior year.
At the end of the year, the Group had net borrowings
(cash balances net of loan and financing
commitments) of £0.73m (2016: net cash of £0.72m).
The Group had aggregate available borrowing facilities
of £3.00m, of which £2.50m was drawn down in
consideration of the acquisition, and remains in
compliance with all financial covenants.
I am pleased to report on a year of positive progress for
Surgical Innovations Group plc, with strong financial
results and the transformational acquisition of
Elemental Healthcare Limited providing an exciting
platform for the future.
Strategy
The Group specialises in the design, manufacture, sale
and distribution of innovative, high quality medical
products, primarily for use in minimally invasive
surgery. Our product and business development is
guided and supported by a key group of nationally
and internationally renowned surgeons across the
spectrum of minimally invasive surgical activity.
We design, manufacture and source our branded port
access systems, surgical instruments and retraction
devices which are sold directly in the UK home market
through Elemental Healthcare, and exported widely
through a global network of trusted distribution
partners. Many of our products in this field are based
on a “resposable” concept, in which the products are
part re-usable, part disposable, offering a high-quality
solution at a cost that is competitive against fully
disposable alternatives, and significantly reduces
clinical waste.
Elemental Healthcare also has exclusive UK
distribution rights to a select group of specialist
products employed in laparoscopy, bariatric
and metabolic surgery, hernia repair and breast
reconstruction.
In addition, we design and develop medical devices
for carefully selected OEM partners, and have also
collaborated with a major UK industrial partner to
provide precision engineering solutions to complex
problems outside the medical arena.
We aim to provide a broad portfolio of products, which
are either developed in-house or through partnerships
and further acquisition activity.
1
Surgical Innovations Group PLC Annual Report and Accounts 2017 Chairman’s Statement
final quarter of the year following the acquisition of
Novadaq Technologies, Inc by Stryker Corporation.
Following termination, Elemental Healthcare has
received payment in lieu of notice which is sufficient to
compensate for the effect of any profit foregone to the
end of 2018. Since the end of the year, a new three year
agreement has been signed with Bariatric Solutions
GmbH for the exclusive UK distribution of devices for
the treatment of obesity, and a three year extension
has been signed with Microline Surgical Inc. for the
exclusive UK distribution of a complementary range of
instruments for minimally invasive surgery.
Current Trading and Outlook
Total revenue for the current year to date is well ahead
of the corresponding period last year as expected,
although on a like-for-like basis (adjusting for the
effect of acquisition) revenue has been affected
by constraints experienced in NHS hospitals in
the UK. It was widely reported during January that
winter illnesses caused most UK hospitals to reach
abnormally high capacity levels, resulting in the
cancellation of many elective surgical procedures.
There are now clear signs of a return to a more normal
level of activity, however we have experienced some
modest headwinds in the first quarter.
Meanwhile, there are further opportunities to enhance
the scope of our UK distribution business, and our
international business has started the year on a
more positive note. Accordingly, we remain optimistic
that the prospects for the year as a whole remain
consistent with our earlier expectations.
Looking to the future, we continue to anticipate
numerous opportunities to enhance the depth and
range of products we offer through our internal
development programme, and through further
corporate activity
Acquisition of Elemental Healthcare Limited
On 1 August 2017, we completed the acquisition
of Elemental Healthcare, a leading distributor of
innovative medical products to the NHS and UK
private hospitals from its two principals, Adam
Power and David Marsh. These products span a
range of specialised clinical disciplines covering
laparoscopy (including SI branded products), bariatric
and metabolic surgery, hernia repair, and breast and
abdominal wall reconstruction.
In the most recent set of published financial
statements for the year ended 31 March 2017,
Elemental Healthcare reported revenues of £6.5m and
an adjusted operating profit of £1.10m (stated before
exceptional non recurring bad debt costs and directors
remuneration).
Consideration for the transaction amounted to a gross
amount of £9.38m including a payment to settle a
liability of the vendors. On a net basis consideration
paid was £9.14m including the issue of shares to the
vendors of £1.88m at 3p per share. The remainder of
the consideration and costs associated with the deal
were financed by an institutional placing of £5.50m
(before costs) at a price of 3p per share, and a new £3m
facility with Yorkshire Bank of five years duration.
The integration of Elemental Healthcare into the
Group has now been fully implemented, with all
commercial and marketing activity coming under the
new operation, led by David Marsh and Adam Power.
A programme of meetings and visits to all major
overseas distributors has been carried out, and plans
for future growth agreed.
The acquisition has been well received by third
party manufacturers served in the UK by Elemental
Healthcare. One distribution agreement was
terminated in accordance with its terms during the
Nigel Rogers
Executive Chairman
12 March 2018
2
Surgical Innovations Group PLC Annual Report and Accounts 2017 Operating and Financial Review
Melanie Ross
Chief Operating Officer and Chief Financial Officer
Overview
Following the acquisition of Elemental Healthcare
on 1 August 2017, Group sales grew 44% to £8.75m
(2016: £6.09m) and adjusted EBITDA increased 55% to
£2.22m (2016: £1.43m) with £1.73m of that being on a
like-for-like basis.
Profit before tax, amortisation of intangible assets
created on the acquisition of Elemental Healthcare,
exceptional items and share based payments
(“adjusted profit before tax”) increased 266% to
£1.10m (2016: £0.30m). On the same basis, diluted EPS
increased 26.7% to 0.19p (2016: 0.15p).
The acquisition of Elemental Healthcare was partly
financed through a new £2.5m term loan of which
£2.42m remained outstanding at the year end and
the Company had available cash resources of £1.71m
(2016: £0.78m). Leverage at 31 December 2017 was
comfortably below the bank covenant of two times
adjusted EBITDA at 1.11.
Revenue
Revenue increased 44% to £8.75m (2016: £6.09m).
The acquisition of Elemental Healthcare delivered
£2.49m of sales representing 23% of the total group
turnover (after intercompany sales elimination) with
the remaining portfolio of SI Branded product and
OEM sales performing strongly and delivering a sales
increase of 11% to £6.73m (2016: £6.09m). Through the
new board appointments, the Group has restructured
its commercial activities to best utilise the commercial
skills of the new directors.
£m
2017
2016
%Change
5.35
SI Brand
Distribution 1.80
1.60
OEM*
8.75
Total
4.66
-
1.43
6.09
+15%
-
+12%
+44%
*PE has been incorporated into OEM
3
Surgical Innovations branded sales performed strongly
in the year with like-for-like growth of 10%. The
strongest area of growth was in the UK home market
with sales up 39% to £1.16m (2016: £0.84m). Europe
also performed strongly and the US achieved growth of
6% in the year.
Through the acquisition of Elemental Healthcare,
the Group now also has the exclusive distribution
rights to a range of premium medical devices which
further complement the laparoscopic range of ports
and instrumentation within the Surgical Innovations
Branded portfolio. These products offer a wider field of
use including bariatric and metabolic surgery, breast
and abdominal wall reconstruction and abdominal
hernia repair.
OEM (including Precision Engineering) grew strongly in
the year to £1.60m (2016: £1.43m), particularly with our
partners in the US for whom we manufacture device
components, typically valves or instrumentation. Sales
of the Fix8 device for Advanced Medical Solutions
Group plc continued to grow year on year, despite end
user sales being restricted due to product enhancing
design modifications currently being made to the
existing product. The Group undertook two further
Precision Engineering projects in the period with the
second project expected to complete in HY1 2018.
Group sales were enhanced by approximately £0.15m
due to movements in foreign exchange in the year,
predominantly US dollar, although the effect on
operating profit was largely offset by the effect of
some purchases denominated in both Euros and US
dollars. The exposure to foreign exchange movements
has altered following acquisition due to Elemental
Healthcare making purchases in both US Dollars and
Euros, as well as sterling. It is expected that a natural
hedge will occur for US Dollar sales and purchases
and the Group has made steps to move European
distributors of SI branded products to Euro price lists
in Q2 2018 to offset the Euro mismatch risk.
Surgical Innovations Group PLC Annual Report and Accounts 2017 Adjusted EBITDA
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
distorts comparability.
Year
2017
2018
2019
2020
Operating and Financial Review
£000’s
£327
£446
£351
£163
Adjusted EBITDA increased 55% to £2.22m (2016:
£1.43m) as the impact of 44% revenue growth and
a 8.7% uplift in gross margin was partially offset by
increases in operating costs. Operating profit increased
to £0.58m (2016: £0.47m), increasing adjusted
operating margin (before deduction of exceptionals and
amortisation relating to acquisition and share based
payments) to 13.0% (2016: 8.1%)
Gross margin improved to 42.5% in the year as like-for-
like business continued to show improvements on the
prior year, primarily through increased manufacturing
recoveries. Following the acquisition, the addition of the
Elemental Healthcare sales for the latter five months of
the year also improved the overall margin.
Excluding exceptional items in the year, operating
expenses increased to £2.62m with the inclusion of
the sales and administration costs associated with
Elemental Healthcare. On a like-for-like basis, operating
costs would have been £1.91m (2016: £1.59m), resulting
from a decrease in capitalised R&D expense (as more
time was allocated to regulatory compliance in the
year), an increased amortisation charge as a full year
of costs associated with Yelloport Elite were included
and headcount additions in R&D and Quality. Following
several months of preparation and review the Group
successfully completed its transition over to a new
regulatory notified body in March 2018.
Capitalised development costs at 31 December 2017
had decreased to £1.45m (2016: £1.60m). Research and
development expenditure continues to be incurred, and
a portion has been capitalised in respect of specifically
identifiable products amounting to £0.38m (2016:
£0.44m). 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 £0.25m (2016: £0.26m) and there are no major
capex plans currently under consideration.
Interest on bank and finance lease obligations for 2017
resulted in interest payable of £0.04m (2016: £0.19m).
As the acquisition of Elemental Healthcare was partly
debt funded, it is expected that finance costs will
increase in 2018, partially offset by interest on positive
cash balances.
There were £1.29m of intangible assets created on the
acquisition of Elemental Healthcare relating to the
supplier base, which will be fully amortised by 2020 with
the charges in the year being:
Goodwill of £8.59m has been recognised in the
accounts which will be subject to an impairment
review annually.
The group recorded a corporation tax charge of £0.08m
(2016: credit of £0.44m) and a deferred tax credit of
£0.12m (2016: £nil). The tax charge represents tax
on Elemental Healthcare activities relating to post
integration trading but overall the group continues
to hold substantial tax losses on which it holds a
cautious view. The Group have chosen not to recognise
those losses fully. During the year the Group submitted
enhanced Research and Development claims in
respect of 2016, electing to exchange tax losses for
cash refunds. This claim had not been settled by year
end and so no refund was recognised in the accounts.
This claim is expected to be significantly less than the
claims recognised in 2016 of £0.44m which related to
2014 and 2015 due to the difference in available losses
to exchange in the comparative periods.
The build-up of trade payables and trade receivables
in 2017 were as a result of the acquisition of Elemental
Healthcare. Trade receivables increased to £1.61m
(2016: £1.10m) and payables to £1.58m (2016: £0.34m).
Inventory increased to £2.47m (2016: £1.50m) in
part due to the additional inventory relating to the
acquisition but also as a strategic stock build of new
products to satisfy ongoing demand. This mainly
related to the Yelloport Elite range of products.
The Group generated cash from operations of £1.61m
(2016: £2.40m) primarily as a result of the working
capital movements described above. Cash used in
investment was £8.34m (2016: £0.78m) resulting in a
cash outflow before financing of £6.73m (2016: inflow
of £2.00m).
The consideration for Elemental Healthcare was
a gross amount of £9.38m including an amount
payable to settle a liability of the vendors. The net
consideration was £9.14m. This was funded by
proceeds from the issues of new ordinary shares of
£5m, new term loans of £2.5m and the issue of £1.88m
of shares in the company to the vendors.
4
Surgical Innovations Group PLC Annual Report and Accounts 2017 Principal risks and uncertainties
All principal risks and uncertainties are on page 8 in
the Director’s report.
The group uses several financial measures as
performance indicators of which Adjusted EBITDA is
considered to be the key measure as discussed above.
Operating and Financial Review
Melanie Ross
Chief Financial Officer
12 March 2018
5
Surgical Innovations Group PLC Annual Report and Accounts 2017 Directors’ Report
Charmaine Day
Company Secretary
The Directors present their annual report, together with the audited financial statements, for the year ended 31 December 2017.
Principal 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. On the 1 August 2017 the Group
acquired its UK healthcare distributor, Elemental Healthcare Ltd, whose principal activities are the sale of a range of
healthcare products directly into the NHS and private Hospitals (Distribution).
Results and Dividends
The Consolidated statement of comprehensive income for the year is set out on page 14.
Given the results for the financial year, the Directors do not recommend the payment of a dividend (2016: £nil).
Directors
The names of the current Directors, and of those who served during the year, were as follows:
N F Rogers (Chair)
M J McMahon
M Ross
P Hardy
A Taylor
D Marsh
(appointed 1 August 2017)
A Power
(appointed 1 August 2017)
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
P Hardy
M J McMahon
N F Rogers
M Ross
A Taylor
A Power
D Marsh
31 December 2017
Beneficial
6,730,185
18,669,129
5,541,060
1,573,710
1,074,266
31,307,302
31,250,000
1 January 2017
Beneficial
3,561,474
18,171,396
3,471,317
605,714
672,906
-
-
Details of Directors’ interests in respect of share options are set out on page 37. There were no other changes in
Directors’ interests between the year end and 12 March 2018. 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 2018, 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.
Ruffer LLP
Healthinvest Partners AB
Mr CWN John
Marlborough
Mr A Power
Mr D Marsh
Unicorn AIM VCT plc
Cavendish
Number of shares (%)
101,793,402 (13.0%)
75,500,000 (9.6%)
39,578,576 (5.1%)
39,559,124 (5.1%)
38,550,000 (4.9%)
31,307,302 (4.0%)
31,250,000 (4.0%)
26,645,116 (3.4%)
23,685,660 (3.0%)
6
Surgical Innovations Group PLC Annual Report and Accounts 2017 Share issue’s
As at the 31 December 2017 790,425 ordinary shares at 1p were issued during the year ended 31 December 2017 in
satisfaction of directors remunerations set out in note 4.
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 with further quantitive analysis in note
14.
a) Financial risk: The principal financial risk exposure relates to importing and exporting goods in US Dollars and
importing goods in Euros.
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
borrowings which are at floating rates of interest.
Financial risk management policies
The financial risk and management policies are in note 14 on page 35.
Future Developments
The future developments of the Group are discussed in the strategic report.
7
Surgical Innovations Group PLC Annual Report and Accounts 2017 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.
Directors’ Report
Issue
Funding risk
Risk and description
The Group currently has a mixture of
borrowings comprising a £2.5m loan, a
£0.5m rolling credit facility, and £0.02m
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.
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 14.1% of revenue in 2017
and the loss, failure or actions of this
customer could have a severe impact on
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.
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.
Foreign exchange risk
Regulatory approval
The Group’s functional currency is UK
Sterling, However it makes significant
purchases in Euros and US Dollars.
The US Dollars are however mitigated
by US Dollar sales by creating a natural
hedge, however no such hedge currently
exists for Euros as minimal sales are
made in this currency.
The Group are looking to mitigate this risk
by transferring their Euro customers onto
a Euro based pricing structure which is
currently set up in sterling.
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 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 2017 Going concern
The Directors have prepared forecasts for the period to March 2019, which demonstrate a positive cashflow. The
Group have access to banking facilities, which comprise of a committed £0.5m revolving credit facility. Hire purchase
agreements are utilised where required. The commitment of the revolving credit facility of £0.5m 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 August 2017.
Directors’ Report
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, considered to be at least 12 months for the
date of approval from the financial statements. 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.
The Directors of the Company who held office at the date of approval of this Annual Report as set out above each
confirm that:
•
•
so far as each Director is aware, there is no relevant audit information of which the Company’s auditors are
unaware; and
each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware
of any relevant audit information and to establish that the Company’s auditors are aware of that information.
Auditor
BDO LLP was appointed as auditor in January 2018 and a resolution for their re-appointment as independent auditor
will be proposed at the 2018 AGM.
By order of the Board
Charmaine Day
Company Secretary
12 March 2018
9
Surgical Innovations Group PLC Annual Report and Accounts 2017 Independent auditor’s report to the members of Surgical
Innovations Group Plc
Opinion
We have audited the financial statements of Surgical Innovations Group plc (the ‘Parent Company) and its
subsidiaries (the ‘Group’) for the year ended 31 December 2017 which comprise the consolidated statement of
comprehensive income, the consolidated and company statements of changes in equity, the consolidated and
company balance sheets, the consolidated cash flow statement and the notes to the financial statements,
including a summary of significant accounting policies.
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 European Union. The
financial reporting framework that has been applied in the preparation of the Parent Company financial statements
is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting
Practice) including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally
Accepted Accounting Practice).
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 2017 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
European Union;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of the Group and the Parent Company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company
and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to
you where:
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis
of accounting for a period of at least twelve months from the date when the financial statements are authorised
for issue.
•
10
Surgical Innovations Group PLC Annual Report and Accounts 2017 Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Acquisition of Elemental Healthcare Limited
The Group acquired Elemental Healthcare Limited on 1
August 2017.
The accounting for acquisitions under IFRS3 can be
complex and requires significant judgement.
The recognition and valuation of assets and liabilities
acquired, such as customer relationships and
other intangible assets, is inherently complex and
judgemental.
As a result there is a risk of material misstatement to
the fair value allocated to assets and liabilities acquired
including intangible assets.
Management have engaged a third party to assist with
the valuation of intangible assets acquired.
Management have assessed whether there is any
indication of impairment at the year-end.
The disclosure of the business combination is set out in
Note 20 of the consolidated financial statements.
Capitalisation of development costs
The Group carries out internal research and
development projects with judgement being applied
by management to identify when the expenditure
meets the criteria for capitalisation under the
requirements of paragraph 57 of IAS38.
At 31 December 2017 the carrying value of
development costs as disclosed in note 10 to the
consolidated financial statements was £1,265,000
and the additions during the year totalled £281,000.
Inventory provisions
The Group had net inventories of £2,467,000 as at 31
December 2017 as disclosed note 11 to the financial
statements. The accounting policy for inventories is
set out in note 1(h) to the Group financial statements.
The Group estimates a provision for the net realisable
value of inventory based on the age of the assets.
Where necessary further specific adjustments are
made for other slow-moving or obsolete items on a
line by line basis.
There is significant management judgement in the
estimation of inventory provisioning.
11
We obtained and understood the sale and purchase
agreement (SPA) to confirm that, consistent with IFRS3
an appropriate accounting treatment has been applied
and the disclosures made in the financial statements are
accurate and complete.
We confirmed cash consideration as stated in the SPA to
bank statements. The fair value of the shares issued as
part of the consideration has been assessed by reference
to the share certificates issued and the company’s share
price at the date of the transaction.
In assessing the fair value of the assets acquired we
consulted with our internal valuation specialists in
relation to the identification of intangible assets and the
valuation methodology used to calculate the exclusive
supplier contracts.
We have assessed whether there are any indicators
of impairment at the year-end regarding any of the
intangible or other assets recognised on acquisition.
For a sample of projects, we obtained copies of approval
forms to assess whether costs had met the criteria within
paragraph 57 and therefore were appropriately being
capitalised.
We evaluated the nature and type of the development
expenditure capitalised and confirmed the accuracy
of personnel and other directly attributable expenses,
on a sample basis, to supporting timesheets and other
relevant supporting documentation.
We evaluated management’s basis for the inventory
provisions and the methodology applied to identify
inventory requiring a provision.
We performed a recalculation of the inventory provision
by applying the same judgements as management to the
aged stock report. We tested the accuracy of the ageing
report by agreeing a sample of aged inventory items to the
last recorded invoice.
We reviewed the specific provisions made for slow moving
and obsolete items by reference to new product launches
that have superseded certain stock lines.
On a sample basis we tested the net realisable value of
inventory lines to recent selling prices.
Surgical Innovations Group PLC Annual Report and Accounts 2017 Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including
omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality,
we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect
on the financial statements as a whole.
The materiality for the Group financial statements as a whole was set at £90,000. This was determined with reference
to a benchmark of EBITDA adjusted for the direct acquisition costs, of which this represents 4%, which we consider to
be one of the principal considerations for members of the Parent Company in assessing the financial performance of
the business.
The materiality for the Parent Company financial statements was set at £80,000. This was determined with reference
to a benchmark of 3% of net assets limited to the component materiality set for the audit of the Group.
Component materiality ranged from £10,000 to £80,000.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a
lower materiality level, performance materiality, to determine the extent of testing needed. Performance materiality
has been set at 60% of the above materiality. This has been assessed on criteria such as complexity and controls of
the Group and Parent Company and the fact that this is our first year as auditors of the Group and Parent Company.
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of
£2,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative
grounds.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material misstatement in the financial statements at the Group
level.
Financial information relating to the Parent Company and all subsidiaries of the Group was subject to full scope audit
by the Group audit team. There are four components within the Group, including the Parent Company.
Other information
The directors are responsible for the other information. The other information comprises the information included in
the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether there is a material misstatement in the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
•
12
Surgical Innovations Group PLC Annual Report and Accounts 2017 Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in
the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us
to report to you if, in our opinion:
•
adequate accounting records have not been kept, 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.
Responsibilities of directors
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, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s
report.
Mark Langford (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Leeds
United Kingdom
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
12 March 2018
13
Surgical Innovations Group PLC Annual Report and Accounts 2017 Consolidated statement of comprehensive income
For the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Other operating expenses
Other Income
Adjusted EBITDA
Amortisation and impairment of intangible assets
Depreciation of tangible assets
Exceptional items
Share based payments
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation credit
Profit and total comprehensive income
Earnings per share, total and continuing
Basic
Diluted
Notes
2
3
3
2017
£’000
2016
£’000
8,752 6,089
(5,033)
(4,029)
3,719
2,060
(3,163)
(1,591)
25
-
2,221
1,431
10
(850)
(429)
9
3
3
5
6
7
8
8
(556)
(510)
(216)
-
(18)
(23)
581
469
(39)
-
(192)
1
542
278
84 438
626
716
0.10p
0.10p
0.15p
0.15p
The Consolidated statement of comprehensive income above relates to continuing operations.
Adjusted EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, share based payments
and exceptional items.
Profit and total comprehensive income relate wholly to the owners of the parent Company.
14
Surgical Innovations Group PLC Annual Report and Accounts 2017
Consolidated statement of changes in equity
For the year ended 31 December 2017
Share
capital
£’000
Share
premium
£’000
Capital
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
£’000
Notes
Balance as at 1 January 2016
Employee share-based payment options
Issue of share capital
Total – transactions with owners
Profit and total comprehensive income for the period
4,863
1,641
329
-
471
471
-
-
698
698
-
-
-
-
-
-
-
-
-
-
(2903)
3,930
23
-
23
1,169
23
1,192
716
716
Balance as at 31 December 2016
Employee share-based payment
Issue of share capital
Attributable costs for issue of Equity
Total – transactions with owners
Profit and total comprehensive income for the period
5,334
2,339
329
- (2,164)
5,838
15
-
-
15/16/20 2,492
3,717
20
(225)
2,492
3,492
-
-
-
-
-
-
-
-
18 18
1,250
-
1,250
-
-
-
7,459
(225)
18
626
7,252
626
Balance as at 31 December 2017
7,826
5,831
329
1,250
(1,520)
13,716
15
Surgical Innovations Group PLC Annual Report and Accounts 2017 Consolidated balance sheet
At 31 December 2017
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Current assets
Inventories
Trade receivables and 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
Merger 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
Borrowings
Total liabilities
Total equity and liabilities
Notes
2017
£’000
2016
£’000
9
10
7
11
12
15
16
1,328
11,009
62
12,399
2,467
1,964
1,709
1,579
1,597
-
3,176
1,496
1,387
775
6,140
3,658
18,539
6,834
7,826
5,831
329
5,334
2,339
329
16
1,250
-
(1,520)
(2,164)
13,716
5,838
13
14
7
14
14
13
2,125
-
-
8
183 -
2,308
8
1,580
16
619
300
337
45
606
-
2,515
988
4,823
996
18,539
6,834
The accompanying accounting policies and notes form part of the financial statements.
The consolidated financial statements on pages 14 to 41 were approved by the Board of Directors on 12 March 2018
and were signed on its behalf by:
N F Rogers
Director
M Ross
Director
Company registered number: 2298163
16
Surgical Innovations Group PLC Annual Report and Accounts 2017
Consolidated cash flow statement
For the year ended 31 December 2017
Cash flows from operating activities
Profit after tax for the year
Adjustments for:
Taxation
Finance income
Finance costs
Non-cash exceptional items
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Share-based payment charge
Grant income
Foreign exchange
Equity share options issued
(Increase) / decrease in inventories
Decrease in current receivables
Increase / (decrease) in payables
Cash generated from operations
Taxation (paid) / received
Interest paid
Net cash generated from operating activities
Payments to acquire property, plant and equipment
Acquisition of intangible assets
Consideration for Surgical Dynamics assets and laparascopic business
Acquisition of Elemental Healthcare net of cash acquired
Deal costs
Net cash used in investment activities
New bank borrowings
Repayment of bank loan
Net proceeds from issue of share capital
Repayment of obligations under finance leases
Net cash generated from / (used in) financing activities
Net increase / (decrease) 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
17
Notes
2017
£’000
2016
£’000
626
716
7
(84)
(438)
9
10
7
9
10
20
20
13
13
14
-
39
8
556
850
18
-
29
(32)
(238)
263
(131)
1,904
(206)
(90)
(1)
192
-
510
429
23
(10)
65
-
797
178
(61)
2,400
531
(86)
1,608
2,845
(250)
(381)
(144)
(7,135)
(431)
(161)
(440)
(182)
-
-
(8,341)
(783)
2,500
-
(75)
(2,000)
5,307
(36)
-
(198)
7,696
(2,198)
963
775
(29)
1,709
(136)
976
(65)
775
Surgical Innovations Group PLC Annual Report and Accounts 2017 Notes to the consolidated financial statements
1. Group accounting policies under IFRS
(a) Basis of preparation
Surgical Innovations Group PLC (the “Company”) is a public AIM listed company incorporated, domiciled and registered
in England in the UK. The registered number is 2298163 and the registered address is Clayton wood house, 6 Clayton
wood bank, Leeds, LS16 6QZ.
These financial statements have been prepared on the basis of the International Financial Reporting Standards (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.
New standards and amendments to standards adopted in the year
During the year the group adopted the amendment to IAS7 which requires changes in liabilities arising from financing
activities to be disclosed (to the extent necessary) from: (i) changes from financing cash flows; (ii) changes arising from
obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv)
changes in fair values; and (v) other changes.
The additional disclosure in relation to this change has been included within note 14 to the financial statements.
Standards issued but not yet effective
As of the date of authorisation of these financial statements, the following standards were in issue but not yet
effective. The Group has not applied these standards in the preparation of the financial statements, and has not
adopted any new or amended standards early:
IFRS 15, ‘Revenues from Contracts with Customers’ is effective for periods beginning on or after 1 January 2018. IFRS
15 introduces a five-step approach to the timing of revenue recognition based on performance obligations in customer
contracts. The Group will adopt IFRS 15 - Revenue from Contracts with Customers for the financial year starting 1
January 2018, applying the fully retrospective method of transition. With the exception of the additional disclosure
requirements, the new standard is not expected to have a material impact on the Group’s Financial Statements.
IFRS 9 ‘Financial instruments’ replaces IAS 39 ‘Financial instruments: Recognition and Measurement’. The standard is
effective for accounting periods beginning on or after 1 January 2018. The standard covers three elements:
• Classification and measurement: Changes to a more principle based approach to classify financial assets as either
held at amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss,
dependent on the business model and cash flow characteristics of the financial asset;
•
Impairment: Moves to an impairment model based on expected credit losses based on a three stage approach; and
• Hedge accounting: The IFRS 9 hedge accounting requirements are designed to allow hedge accounting to be more
closely aligned with the Group’s underlying risk management. A new International Accounting Standards Board
(IASB) project is in progress to develop an approach to better reflect dynamic risk management in entities’ financial
statements.
The Group will adopt IFRS 9 - Financial Instruments for the financial year starting 1 January 2018. The Group
does not hold complex financial instruments and therefore the majority of changes to the standard do not change
the existing accounting for assets or liabilities held. All financial assets liabilities will continue to be measured
at amortised costs. The Directors have considered the impact of IFRS 9 and concluded that the measurement
of impairment of trade receivables will change with the use of the expected loss model assessment. A formal
assessment of the impact of using the expected loss model is ongoing.
•
18
Surgical Innovations Group PLC Annual Report and Accounts 2017 A number of new standards and amendments to standards and interpretations have been issued but are not yet
effective and in some cases have not yet been adopted by the EU. The Directors do not expect that the adoption of
these standards will have a material impact on the financial statements of the Group in future periods, except that
IFRS 16 will have an impact on the recognition of operating leases as finance leases.
IFRS 16 – Leases will be adopted by the Group for the financial year starting on 1 January 2019. The impact of the new
standard will be to bring operating lease arrangements on balance sheet, with a right of use asset and corresponding
financial liability recognised on transition. The Group has material operating leases and therefore the adoption of the
standard is expected to have a material impact on the Financial Statements of the Group. A formal assessment of the
impact of this standard has not yet been made.
(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.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated.
(c) Business combinations
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 fair
values 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.
(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. The Group does use
forward contracts in relation to foreign exchange but at the year end had no outstanding contracts (2016: None).
(e) Property, plant and equipment
Property, plant and equipment are stated at the cost of acquisition less any provision for depreciation. Cost includes
expend iture that is directly attributable to the acquisition of the item.
The carrying values of property, 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
10-20% per annum
10–20% per annum
33.3% per annum
Over the remaining term of the lease
19
Surgical Innovations Group PLC Annual Report and Accounts 2017
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.
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. Goodwill is 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:
Capitalised development costs
-
Single use product knowledge transfer -
-
Exclusive supplier agreements
5-10 years
5 years
3 years
Single use product knowledge transfer
Single use product knowledge transfer relates to manufacturing know how and expertise to benefit the Group’s
business in the medium term, not only by completing the product design but by enhancing production techniques. This
will be amortised over the life cycle of the product design.
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.
•
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.
Intangible assets acquired on business combination
Intangible assets are recognised on business combinations if they are seperable from the acquired entity or give rise to
other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation
techniques (see section related to critical estimates and judgements)
(g) Impairment of non-financial assets (excluding inventories)
For goodwill an impairment review is carried out annually. Impairment reviews are carried out on other intangible
assets and plant and equipment where there are indicators 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.
20
Surgical Innovations Group PLC Annual Report and Accounts 2017
(i)Financial Instruments
The Group classifies all financial assets as loans and receivables and measures them at amortised cost. The Group
classifies all financial liabilities as other financial liabilities and measures them at amortised cost.
Financial assets include:
•
•
Trade and other receivables
Cash and cash equivalents
Trade and other receivables
Trade and other 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.
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.
Financial liabilities include:
•
•
Trade and other payables
Borrowings
Trade and other payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest rate.
Borrowings
Borrowings, which comprised bank loans and in the prior year 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.
Fees paid on the arrangement of the loan facilities and revolving credit facilities are recognised as transaction costs
over the life of the agreement.
(j) 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.
(k) 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.
(l) 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.
21
Surgical Innovations Group PLC Annual Report and Accounts 2017 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.
(m) 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.
(n) Income recognition
Revenue - Sales of goods SI brand/OEM/Distribution
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. Amounts received in advance on projects are recorded within deferred income and where services
are rendered and recorded within revenue before being invoiced amounts are recorded as deferred income.
Interest income
Interest income is recognised using the effective interest rate method,
Other income
Other income relates to amounts recorded in relation to compensation for the termination of a supplier agreement. The
conditions of the termination agreed with the supplier provide ongoing obligations to the Group for the total amount
of compensation. On this basis the income received for compensation is spread over the period to which the ongoing
obligations relate. Other income not yet recognised in profit and loss is included within deferred income.
(o) 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.
22
Surgical Innovations Group PLC Annual Report and Accounts 2017 (p) 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. 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 2017 total £1,455,000 and any further impairment identified in future
periods could have a material impact on the Group’s results.
Intangible assets acquired on a business combination
On 1st August 2017 the Group acquired 100% of the share capital of Elemental Healthcare Limited. As disclosed
in note 20 to the financial statements the value of identifiable fair value of assets and liabilities of the company
have been prepared on a provisional basis. The Directors engaged a third party valuation specialist to assist in the
identification and valuation of separable intangible assets. Significant judgements include the continuation and
renewal of supplier arrangements, the expected future revenue and margin profile, the internal rate of return and the
contributory assets charges applied in an excess earnings model.
(q) 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 (g) previously, the Group is required to test, on an annual basis, whether goodwill has suffered any
impairment. The recoverable amount is determined based on a value in use calculation for the one cash generating
unit that has goodwill. The use of this method requires the estimation of future cash flows and the determination of a
discount rate in order to calculate the present value of the cash flows.
Future cash flows are estimated based on operating margins using past experience and future expectations in the
light of anticipated economic and market conditions. Discount rates are based on the Group’s WACC adjusted to reflect
management’s assessment of specific risks related to the cash generating unit. Growth rates beyond the first five
years are based on economic data pertaining to the relevant region, which is the UK. The discount rate and growth rates
used are disclosed in note 10 to the financial statements.
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 2017, £511,101 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.
23
Surgical Innovations Group PLC Annual Report and Accounts 2017 (r) 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 share issues;
“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;
“Merger reserve” represents the excess over the nominal value of the fair value consideration attributed to equity
shares issued as part of a Acqusition; and
“Retained earnings” represents the accumulated profits and losses of the Group less dividends paid.
•
•
•
24
Surgical Innovations Group PLC Annual Report and Accounts 2017 2. Segmental reporting
Information reported to the Board, as Chief Operating Decision Makers,and for the purpose of assessing
performance and making investment decisions is organised into three operating segments. The Group’s operating
segments under IFRS 8 are as follows:
SI Brand
OEM
–
–
Distribution
_
the research, development, manufacture and distribution of SI branded minimally invasive devices
the research, development, manufacture and distribution of minimally invasive devices
for third party medical device companies through either own label or co-branding. This
now incorporates Precision Engineering, the research, development, manufacture and sale of
minimally invasive technology products for precision engineering applications
distribution of specialist medical products sold through Elemental Healthcare Ltd
The measure of profit or loss for each reportable segment is gross margin less amortisation of product development
costs. Assets and working capital are monitored on a Group basis, with no separate disclosure of asset by segment
made in the management accounts, and hence no separate asset disclosure is provided here. The following
segmental analysis has been produced to provide a reconciliation between the information used by the chief
operating decision maker within the business and the information as it is presented under IFRS.
For the year ended 31 December 2017
Revenue
Result
Segment result
Unallocated expenses
Profit from operations
Finance income
Finance costs
Profit before taxation
Tax charge
Profit for the year
SI Brand
£’000
Distribution
£’000
5,349
1,802
OEM*
£’000
1,601
Total
£’000
8,752
1,352
1,002
515
2,869
(2,288)
581
-
(39)
542
84
626
Included within the segment/operating results are the following significant non-cash items:
For the year ended 31 December 2017
Amortisation and impairment of intangible assets
Additions to intangibles
Additions to tangibles
SI Brand
£’000
Distribution
£’000
398
381
245
327
-
5
OEM
£’000
125
-
-
Total
£’000
850
381
250
*Precision Engineering revenue has now been incorporated into OEM for presentation purposes, 2017: £192,000
(2016: 206,000)
Unallocated expenses for 2017 include sales and marketing costs (£259,000), research and development costs
(£590,000), central overheads (£515,000), exceptionals (£216,000), Direct (Elemental Healthcare) sales & marketing
overheads (£715,000), share based payments (£18,000) less Other Income (£25,000).
Year ended 31 December 2016
Revenue
Result
Segment result
Unallocated expenses
Profit from operations
Finance income
Finance costs
Profit before taxation
Tax credit
Profit for the year
25
SI Brand
£’000
OEM
£’000
Total
£’000
4,664
1,425
6,089
1,210
421
1,631
(1,162)
469
1
(192)
278
438
716
Surgical Innovations Group PLC Annual Report and Accounts 2017
Included within the segment results are the following items:
For the year ended 31 December 2016
Amortisation of intangible assets
Additions to intangibles
Additions to tangibles
SI Brand
£’000
Distribution
£’000
304
665
262
-
-
-
OEM
£’000
125
-
-
Total
£’000
429
665
262
Unallocated expenses for 2016 include sales and marketing costs (£253,000), research and development costs
(£478,000) and central overheads (£415,000).
Geographical analysis of revenues
United Kingdom
Europe
US
Rest of World
2017
£’000
4,337
1,527
2,066
822
8,752
2016
£’000
1,920
1,287
1,876
1,006
6,089
Revenues are allocated geographically on the basis of where revenues were received from and not from the ultimate
final destination of use. During 2017 £1,238,000 (14.1%) of the Group’s revenue depended on one distributor in the SI
Brand segment (2016: £1,235,000 (20.3%)).
UK revenue of £4,337,000 relates to SI Branded products of £2,535,000 (58.5%) and Distribution of £1,802,000
(42.5%).
Sales of goods were £8,560,000 (2016: £5,863,000) and sales relating to services in the UK were £192,000,
(2016:206,000).
3. Operating profit
The operating profit for the year is stated after charging:
Depreciation of owned assets
Depreciation of assets held under finance lease
Amortisation and impairment 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
– fees payable to the Company’s auditor for the non audit fees relating to tax services
Operating lease rentals:
– land and buildings
Exceptional items – acquisition expenses (all within Other operating expenses):
2017
£’000
553
3
850
590
2016
£’000
444
66
429
478
(24)
(79)
15
35
6
27
-
18
173
153
216 -
Exceptional items for 2017: £216,000 (2016: £nil). All exceptional items within the year relate the deal costs of the
acquisition of Elemental Healthcare Ltd.
26
Surgical Innovations Group PLC Annual Report and Accounts 2017 Other operating expenses comprised:
Sales & marketing
Direct (Elemental Healthcare) sales & marketing overheads
Administrative expenses
Research & Development costs
Exceptionals
Share based payments
Amortisation and impairment
Other Income comprised:
Novadaq
2017
£’000
259
715
515
590
216
18
850
2016
£’000
253
-
408
478
-
23
429
3,163
1,591
2017
£’000
25
2016
£’000
-
The Group received £300k (post year-end) settlement from Novadaq, this represented the expected margin for 12
months of selling their products. Due to the lock out period the Group have recognised this compensation payment
over the 12 months from December 2017.
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
Sales
Administration
The costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Pension costs
2017
Number
2016
Number
3
33
15
6
13
70
2
36
10
3
4
55
2017
£’000
1,955
202
2016
£’000
1,427
118
64
41
2,221
1,586
27
Surgical Innovations Group PLC Annual Report and Accounts 2017 Directors’ emoluments
Details of Directors’ emoluments for the year are as follows:
Executive
M Ross1
N F Rogers2
A Power
D Marsh
Non-executive
M J McMahon3
P Hardy
A Taylor
Total
Salary
and fees
2017
£’000
Bonus
2017
£’000
Benefits
2017
£’000
Total
emoluments
2017
£’000
Total
emoluments
2016
£’000
Pension
contributions
2017
£’000
Pension
contributions
2016
£’000
100
60
51
51
36
20
20
53
-
-
-
-
5
-
4
4
-
-
-
158
60
55
55
36
20
20
167
59
-
-
20
20
20
5
-
-
-
-
-
-
338
53
13
404
286
5
4
-
-
-
-
-
-
4
1.
2.
3.
M Ross has elected to take 50% of her bonus in shares.
N F Rogers; £30,000 of the 2017 remuneration noted above was satisfied by shares (2016: £27,500)
M McMahon; £20,000 of the 2017 remuneration noted above was satisfied by shares (2016: £20,000)
Benefits received consist of the provision of motor cars and related expenses, 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.
Directors’ share options
Details of the share options held by Directors serving at 31 December 2017 are as follows:
At 1January 2017
Exercised during
year
Granted during
the year
At 31 December
2017
Option price
Date granted
M Ross
M Ross
N Rogers
M McMahon
A Power
D Marsh
4,750,000
-
-
-
-
-
-
-
-
-
-
-
-
-
4,750,000
1.575p
December
20151
3,000,000
1,750,000
1,750,000
4,000,000
4,000,000
3,000,000
1,750,000
1,750,000
4,000,000
4,000,000
3.6p October 20171
3.6p
October 20171
3.6p
October 20171
3.6p October 20171
3.6p October 20171
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 3.625p (2016: 4.25p) and the range of
market prices during the year was between 3.025p (2016: 1.23p) and 4.625p (2016: 4.25p).
Key management including Non-executive Directors:
Salaries
Social security costs
Pension costs
Share-based payments
Total
Key management comprises of all Board Directors.
2017
£’000
327
36
22
8
2016
£’000
194
21
10
8
393
233
28
Surgical Innovations Group PLC Annual Report and Accounts 2017 5. Finance costs
On finance leases
On bank borrowing
Total
6. Finance income
Interest received
7. Taxation
Current tax charge
Deferred tax credit
Total tax credit
2017
£’000
1
38
39
2017
£’000
-
2016
£’000
7
185
192
2016
£’000
1
2017
£’000
2016
£’000
40
(438)
(124)
-
(84)
(438)
Factors affecting the tax charge for the year
The taxation assessed for the year is lower (2016: lower) than the standard rate of Corporation tax in the UK at 19%
(2016: 20%). The differences are explained as follows:
Profit on ordinary activities before taxation
Corporation tax at standard rate of 19% (2016: 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
Losses surrendered for Group relief
Deferred tax credit
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
Acquisition of Intangible (note 20)
Consolidated statement of comprehensive income movement during the year
Balance carried forward - (liability)/asset
The deferred taxation calculated in the financial statements at 17% (2016: 17%) is set out below:
Trade losses
Plant and Equipment
Deferred tax asset
Intangibles
Net deferred tax liability
29
2017
£’000
2016
£’000
542
278
103
56
(185)
(593)
6
122
-
38
(1)
39
-
61
(44)
-
(124)
-
(84)
(438)
2017
£’000
-
245
(124)
(121)
2016
£’000
-
-
-
2017
£’000
2016
£’000
(141)
(112)
79
112
(62)
-
183
-
121
-
Surgical Innovations Group PLC Annual Report and Accounts 2017
The following is the analysis of unprovided deferred tax balances:
Deferred tax assets
Deferred tax liabilities
Net unrecognised deferred tax assets
2017
£’000
2016
£’000
3,523 3,573
-
-
3,523 3,573
At the balance sheet date, the Group has unused tax losses of £21.5 million (2016: £21.6 million) available for offset
against certain future profits. The timing differences has given rise to a deferred tax liability of £262,000 (2016 DTL:
£112,000).
8. Earnings per ordinary share
Basic earnings per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31 December 2017 was based upon the profit
attributable to ordinary shareholders of £626,000 (2016: £716,000) and a weighted average number of ordinary
shares outstanding for the year ended 31 December 2017 of 637,570,475 (2016: 487,924,227).
Diluted earnings per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31 December 2017 was based upon the
profit attributable to ordinary shareholders of £626,000 (2016: £716,000) and a weighted average number of
ordinary shares outstanding for the year ended 31 December 2017 of 662,157,725 (2016: 494,001,073).
Adjusted earnings per ordinary
The calculation of adjusted earnings per ordinary share for the year ended 31 December 2017 was based upon the
adjusted profit attributable to ordinary shareholders (profit before exceptional and amortisations costs relating to
the acquisition of Elemental Healthcare and share based payments) of £1,187,000 (2016: £739,000) and a weighted
average number of ordinary shares outstanding for the year ended 31 December 2017 of 637,570,475 (2016:
487,924,227).
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
2017
No. of shares
2016
No. of shares
637,570
487,924
24,588 6,077
662,158 494,001
30
Surgical Innovations Group PLC Annual Report and Accounts 2017 9. Property, plant and equipment
Cost
At 1 January 2016
Additions
At 1 January 2017
Acquired as part of a business
combination (note 20)
Additions
Accumulated depreciation
At 1 January 2016
Charge for the year
At 1 January 2017
Charge for the year
At 31 December 2017
Net Book amount
At 31 December 2017
At 31 December 2016
At 1 January 2016
Plant and
machinery
£’000
3,515
94
3,609
-
60
Office and
computer
equipment
£’000
992
36
1,028
26
25
Placed
equipment
£’000
Improvements
to leasehold
property
£’000
456
-
456
-
-
366
-
366
29
33
3,669
1,079
456
428
2,111
300
2,411
313
926
49
975
382
42
424
275
39
314
35
32
57
2,724
1,010
456
371
Tooling
£’000
1,330
132
1,462
-
132
1,594
1,138
80
1,218
119
1,337
257
244
192
945
1,198
1,404
69
53
68
-
32
74
57
52
91
Total
£’000
6,659
262
6,921
55
250
7,226
4,832
510
5,342
556
5,898
1,328
1,579
1,827
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
2017
£’000
2016
£’000
17
3
339
66
Security
At 31 December 2017 and at 31 December 2016, the assets of the Group are subject to a floating charge debenture
in favour of the Group’s banking facilities. At the 31 December 2017 there was no drawdown on the rolling credit
facility agreement therefore no liability was held at this point in time.
31
Surgical Innovations Group PLC Annual Report and Accounts 2017 10. Intangible assets
Cost
At 1 January 2016
Additions
At 1 January 2017
Additions
Capitalised
development
costs
£’000
11,880
440
12,320
381
Acquired as part of business combination (note 20)
-
Single use
product
knowledge
transfer
£’000
-
225
225
-
-
At 31 December 2017
Accumulated amortisation
At 1 January 2016
Charge for the year
Impairment provision
At 1 January 2017
Charge for the year
Impairment provision
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
At 1 January 2016
12,701
225
(10,519)
(429)
-
(10,948)
(522)
(1)
(11,471)
1,230
1,372
1,361
-
-
-
-
-
-
-
225
225
-
Exclusive
Supplier
Agreements
£’000
-
-
-
-
1,287
1,287
-
-
-
-
(327)
-
Total
£’000
11,880
665
12,545
381
9,881
22,807
(10,519)
(429)
-
(10,948)
(849)
(1)
(327)
(11,798)
Goodwill
£’000
-
-
-
-
8,594
8,594
-
-
-
-
-
-
-
8,594
-
-
960
-
-
11,009
1,597
1,361
Capitalised development costs represent expenditure incurred in developing new products that fulfil the
requirements met for capitalisation as set out in paragraph 57 of IAS38. These costs are amortised over the future
commercial life of the product, commencing on the sale of the first commercial item, up to a maximum product life
cycle of ten years, and taking account of expected market conditions and penetration.
An impairment review is carried out annually for goodwill. Goodwill arose on the acquisition of Elemental Healthcare
Limited during the current year. Elemental Healthcare Limited is considered to be a separate cash generating unit
of the group whose recoverable amount has been calculated on a value in use basis by reference to discounted
future cash flows over a five year period plus a terminal value. Principal assumptions underlying this calculation are
the growth rate into perpetuity of 2% and a pre-tax discount rate of 15% applied to anticipated cash flows. On this
basis, the recoverable amount of the cash-generating unit exceeds its carrying value and in view of this excess, the
Directors do not consider the impairment calculation to be unduly sensitive to changes to the above assumptions,
and are of the opinion that no provision for impairment is required.
Single use product knowledge transfer relates to the acquisition and of the single use laparoscopic
instrumentmentation products of Surgical Dynamics Ltd in the prior year.
11. Inventories
Raw materials and work in progress
Finished goods
Net Inventory
2017
£’000
1,418
1,049
2,467
2016
£’000
1,021
475
1,496
Included in the analysis above are impairment provisions against inventory amounting to £1,874,000 (2016:
£1,651,000), which represents 43.1% (2016: 52.5%) of gross inventory.
In 2017 a total of £5,033,000 of inventories was included in profit and loss as an expense within cost of sales (2016:
£4,029,000). Cost of sales included an amount of £5,000 resulting from the write down of inventories (2016:
£165,000). There was no exceptional charge in the Administrative expenses relating to relating to the write off of
specific inventories fo r which no future sale is likely and also the creation of a provision for all other inventory based
upon product age (2016: £nil).
Inventories are pledged as securities for bank facilities.
32
Surgical Innovations Group PLC Annual Report and Accounts 2017 12. Trade and other receivables
Falling due in less than one year
Trade receivables
Prepayments and accrued income
Other debtors
2017
£’000
1,605
329
30
2016
£’000
1,098
216
73
1,964
1,387
Of the current trade receivables, £511,101 relates to the top three customers (2016: £591,405). 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
2017
£’000
119
18
(12)
125
2016
£’000
130
4
(15)
119
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
Current liabilities
Non-current liabilities
2017
£’000
2016
£’000
82
164
8
-
-
4
-
-
2017
£’000
300
2,125
2,425
2016
£’000
-
-
-
Bank loan
The sterling bank loan provided by Yorkshire Bank on 1 August 2017 for a five year term was split into two loan
agreements A and B. Loan A of £1.5m is subject to quarterly payments of £0.075m commencing on 31 October 2017,
totaling repayments £0.3m per annum at an interest rate of LIBOR plus 3% per annum. Loan B of £1m is interest
only at a rate of LIBOR plus 3.5% per annum with a repayment in full by the termination date of 31 July 2022.On the
31 December 2017 the remaining balance of the term loans was £2.425m. The bank has made available a Revolving
Credit Facility (RCF) of up to £0.5m for working capital and other purposes.
The RCF and loan agreements are subject to compliance with financial covenants which measure cash flow to debt
service and EBITDA, interest cover and leverage. If the RCF is 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 floating charge over the assets
of the Group. At the 31 December 2017, no amount was drawndown.
33
Surgical Innovations Group PLC Annual Report and Accounts 2017 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:
Financial assets
Financial liabilities
Short-term exposure
2017
€’000
-
(129)
(129)
2016
€’000
-
(1)
(1)
2017
$’000
779
(399)
380
2016
$’000
454
(11)
443
The Group has exposure to the movements in the exchange rates in the Euro and Dollar at 31 December 2017. 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 £11,000 (2016: £nil) against the Euro and £28,000
(2016: £19,000) against the Dollar.
The Group gives consideration to the use of forward currency contracts to reduce foreign currency exposure. No
forward currency contracts were in place at the balance sheet date (2016: £nil).
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
2017
£’000
1,964
1,964
2016
£’000
1,387
1,387
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 2017
Finance lease obligations
Trade and other payables
Bank loans
Current
Within 6
Months
£’000
12
1,178
194
1,384
Non-
Current
Over 12
months
£’000
Within
6 -12
Months
£’000
4
-
21
-
194 2,382
219 2,382
34
Surgical Innovations Group PLC Annual Report and Accounts 2017 14. Financial instruments (continued)
31 December 2016
Finance lease obligations
Trade and other payables
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
Gross bank loan payments not later than one year
Later than one year but not more than five years
Future finance charges
Present value of bank borrowings
Trade and other payables
Trade payables
Corporation tax payable
Other tax and social security
Other payables
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
2017
£’000
2016
£’000
16
-
-
16
2017
£’000
388
2,382
(345)
2,425
39
16
(2)
53
2016
£’000
-
-
-
-
2017
£’000
2016
£’000
1,058
237
99
201
222
-
49
51
1,580
337
Changes in liabilities arising from financing activities
At 1 January 2017
Cash flows
Transfer between non-current and current
Interest accruing in the period
At 31 December 2017
Summary of financial assets and liabilities by category
Non-current
loans and
borrowings
Current
loans and
borrowings
Obligations
under finance
leases
-
2,167
(75)
33
2,125
-
220
75
5
300
53
(38)
1
16
Total
53
2,349
-
39
2,441
Current assets
Cash at bank and in hand
Trade receivables
Current liabilities
Trade payables: financial liabilities measured at amortised cost
Other short-term financial liabilities measured at amortised cost
Accruals
Borrowings measured at amortised cost
35
2017
£’000
2016
£’000
1,709
1,605
3,314
775
1,387
2,162
1,280
16
619
300
2,215
337
45
606
-
988
Surgical Innovations Group PLC Annual Report and Accounts 2017 Non-current liabilities
Borrowings measured at amortised cost
Other non-current liabilities measured at amortised cost
Net financial assets and liabilities
2,125
-
2,125
-
8
8
(771)
1,772
Fair value
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:
Bank loan
Obligations under finance leases
Less: cash and cash equivalents
Net (cash)/debt
Total equity
Total capital
2017
£’000
2,425
16
(1,709)
732
13,716
14,448
2016
£’000
53
-
(775)
(722)
5,838
5,116
36
Surgical Innovations Group PLC Annual Report and Accounts 2017 15. Share capital
Authorised, allotted, called up and fully paid 782,566,177
(2016: 533,407,756) ordinary shares of 1p each
Shares in issue reconciliation
Opening no of shares in issue
Issued in lieu of remuneration
Issued in relation to loan note
Issued in relation to acquisition of Elemental Healthcare
Issued in satisfaction of share options exercised
Closing number of shares in issue
2017
£’000
2016
£’000
7,826
5,334
2016
486,275,710
2,872,868
44,259,178
533,407,756
2017
533,407,756
1,425,088
-
245,833,333
1,900,000
782,566,177
All shares allotted in the period were ordinary shares of 1p each with a total nominal value of £2,492,000.
At 31 December 2017, the following share options were outstanding:
Number of shares
Exercise dates
Granted
in yr
Exercise
in yr
Lapsed
in yr
At 31
December
2017
Option price
per 1p share
Date from which
option may be
exercised
Date on which
option expires
-
-
-
-
-
-
-
(1,500,000)
(1,500,000)
-
-
(400,000)
-
-
1,000,000
1.7p
1.5p
November 2009 November 2017
November 2009
January 2019
400,000
1.7p
November 2009 November 2019
-
-
-
-
-
-
-
-
(30,000)
650,000
-
200,000
(30,000)
1,070,000
7.2p
9.0p
5.1p
June 2015
June 2022
June 2015
June 2022
June 2016
June 2023
(2,000,000)
13,000,000
1.575p
December 2018 December 2025
-
26,000,000
3.6p
October 2020
October 2027
-
-
-
4,999,998
1,000,000
5,000,000
6.9p
5.1p
3.6p
January 2018
January 2023
June 2016
June 2023
October 2020
October 2027
Scheme and date of grant
Non-executive unapproved
November 2007
January 2009
November 2009
Enterprise management
June 2012
June 2012
June 2013
At
1 January
2017
3,000,000
1,000,000
800,000
680,000
200,000
1,100,000
December 2015
15,000,000
October 2017
26,000,000
Other option awards
January 2013
June 2013
October 2017
4,999,998
1,000,000
-
-
5,000,000
37
Surgical Innovations Group PLC Annual Report and Accounts 2017
Share-based payments
Share options were granted during the year to certain employees, and in prior period 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:
At 1 January
Exercised
Granted
Lapsed
At 31 December
2017
2016
Average
exercise
price
pence
3.0
1.7
3.6
Options
’000s
27,780
(1,900)
31,000
Average
exercise
price
pence
3.2
-
-
1.7
(1,560)
(1.7)
3.4
55,320 3.0
Options
’000s
29,840
-
-
(2,060)
27,780
Out of the 55,319,998 options (2016: 27,779,998), 4,800,000 (2015: 4,800,000) options were exercisable at an average
exercise price of 1.7p (2015: 1.7p). The weighted average contractual life remaining on the options is 8.5 years.
The weighted average fair value of options granted in the current year were 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 leavers, the total share- based payment charge for the year was £18,000 (2016: £23,000).
38
Surgical Innovations Group PLC Annual Report and Accounts 2017 16. Share premium
Balance as at 31 December 2016
Attributable costs incurred in issuing equity
Issue of ordinary share capital
Balance as at 31 December 2017
Share
premium
£’000
2,339
(225)
3,717
5,831
Share premium comprises the cumulative difference between the net proceeds and nominal value of the Company’s
issued equity share capital.
Merger Reserve
Balance as at 31 December 2016
Issue of ordinary share capital
Balance as at 31 December 2017
Merger
reserves
£’000
-
1,250
1,250
Merger reserve represents the excess over the nominal value of the fair value consideration attributed to equity
shares issued as part of a Acqusition.
17. Contingent liabilities and financial commitments
These are as follows:
(a) Operating leases
At 31 December 2017 the Group had future aggregate minimum lease payments under non-cancellable operating
leases as follows:
Within one year
One to five years
Greater than five years
Leases include property, car leases and photocopiers
(b) Operating commitments
At 31 December 2017 the Group had capital commitments totaling £25,000 (2016: £68,000).
2017
£’000
198
139
13
2016
£’000
175
71
-
39
Surgical Innovations Group PLC Annual Report and Accounts 2017 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:
Getz Healthcare1
Hardy Transaction Management Ltd2
Amounts
invoiced to/(by)
the Group
2017
£’000
Amounts
payable/
(receivable)
31 December
2017
£’000
Amounts
invoiced to/
(by) the Group
2016
£’000
Amounts
payable/
(receivable)
31 December
2016
£’006
(406)
(101)
(50)
-
(270)
(20)
(69)
-
Transactions with related parties during the current and prior year were as follows:
1.
Getz Healthcare (Hong Kong) Ltd formally known as ACP acts as the master distributor for Surgical Innovations in the Far East. During the year Surgical Innovations invoiced ACP £406,000
for products and at 31 December 2017 there was an amount owing to Surgical Innovations of £101,000. Getz Bros. & Co. Inc. is the ultimate beneficial owner of Getz Healthcare (Hong Kong)
Ltd who is a substantial shareholder representing 13.0% interest in the Group. The registered address is:
Getz Healthcare (Hong Kong) Ltd
Unit 2-3, 11F, No 1 Hung To Road
Kwun Tong
Kowloon
Hong Kong
2.
During the year, Hardy Transaction Management Ltd provided transactional services in relation to the Acquisition. Charges in prior year relate wholly to director’s fees and advisory fees for
P Hardy, a non executive director of Surgical Innovations Group plc, and were paid to Hardy Transaction 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.
19. Pensions
The Company currently operates a defined contribution Group personal pension plan for the benefit of employees.
Company contributions in 2017 were £64,000 (2016: £39,000).
40
Surgical Innovations Group PLC Annual Report and Accounts 2017
20. Acquisition
On the 1st August 2017, the Group acquired 100% of the equity of Elemental Healthcare Ltd for a total investment of
£9,375,000. The main reason for the acquisition was to add a direct route to market in the UK, as well as a range of
complementary devices and instrumentation which Elemental have exclusive distribution rights to. The acquisition
was also earnings enhancing with the business being profitable and cash generative.
Book values were not adjusted for fair value changes apart from a separable intangible asset (Exclusive supplier
contracts) and its associated deferred tax being identified and valued. Details of the provisional assessment of the
fair value of the identifiable assets acquired, purchase consideration and goodwill of Elemental Healthcare are as
follows:
Assets acquired from Surgical Dynamics Ltd:
Exclusive supplier contracts
Property, plant & Equipment
Inventory
Trade debtors
Other debtors, prepayments and accrued income
Cash in hand
Trade creditors
Corp tax
Other creditors, taxes & social security
Accruals
Deferred tax liability
FV identifiable assets
Goodwill recognised
Acquisition-date fair value of the total consideration transferred
Representing:
Cash
Shares issued
Acquisition costs expensed to profit or loss
Acquisition costs expensed to share premium attributable to equity
Total Acquisition costs
Out of the £441,000, £431,000 was paid by the year ending 31 December 2017.
Provisional
Fair Value on
acquisition
£’000
1,287
55
544
366
95
130
(758)
(29)
(387)
(41)
(245)
1,017
8,594
9,139
7,264
1,875
9,139
216
225
441
The acquired business contributed revenues of £2.49m and profit after tax of £0.4m to the group for the year to 31
December 2017. The results of the Group would have been approximately, revenue of £11.79m and profit after tax of
£1m if the acquisition had been made on 1 January 2017.
The goodwill represents substantial synergies and cross selling opportunities for combining the business to the
Group, as well as the inherent value of the assembled workforce.
41
Surgical Innovations Group PLC Annual Report and Accounts 2017 Company Balance Sheet
Company Balance Sheet
as at 31 December 2017
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
Merger reserve
Retained earnings
Total Equity
Non-current liabilities
Loan notes
Current liabilities
Trade & other payables
Total liabilities
Total equity & liabilities
Notes
2017
£’000
2016
£’000
2
3
6
5
4
10,374
1,018
3,262
75
3,338
13,711
7,826
5,831
1,250
(1,490)
13,417
-
294
294
13,711
5,399
344
5,743
6,761
5,334
2,339
-
(1,047)
6,626
-
135
135
6,761
The loss after tax for the company for the year ended 31 December 2017 was £461,000 (2016: loss £203,000).
The financial statements on pages 42 to 47 were approved by the Board of Directors on 12 March 2018 and were
signed on its behalf by:
Melanie Ross
Chief Operating Officer
Company registered number: 2298163
42
Surgical Innovations Group PLC Annual Report and Accounts 2017 Statement of changes in equity
for the year ended 31 December 2017
Balance as at 1 January 2016
Employee share-based payment options
Exercise of share options
Issue of share capital
Total – transactions with owners
Share
capital
£’000
4,863
Share
premium
£’000
1,641
-
-
471
471
-
-
698
698
-
Merger
Reserve
£’000
-
-
-
-
-
-
-
-
1,250
1,250
Retained
earnings
£’000
(867)
23
-
-
23
Total
£’000
5,637
23
-
1,169
1,192
(203)
(203)
(1,047)
6,626
18
-
18
18
(225)
7,459
7,252
-
(461)
(461)
Loss and total comprehensive deficit for the period
-
Balance as at 31 December 2016
Employee share-based payment
Attributable costs for issue of equity
Issue of share capital
Total – transactions with owners
Loss and total comprehensive deficit for the period
5,334
2,339
-
2,492
2,492
-
-
(225)
3,717
3,492
-
Balance as at 31 December 2017
7,826
5,831
1,250
(1,490)
13,417
43
Surgical Innovations Group PLC Annual Report and Accounts 2017 Notes to the Company financial statements
as at 31 December 2017
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.
44
Surgical Innovations Group PLC Annual Report and Accounts 2017 2. Investments
Cost
At 31 December 2016
Investments acquired in the year
At 31 December 2017
£’000
£’000
£’000
Cost
Impairment
Net book Value
1,018
9,672
10,690
-
-
-
1,018
9,672
10,690
The trading subsidiaries of the Group comprise:
Company
Description of shares held
Nature of business
Country of incorporation
and operation
Surgical Innovations
Limited
Ordinary £1 shares
Haemocell Limited
Ordinary £1 shares
Elemental Healthcare Ltd
Ordinary £1 shares
Design and manufacture of
minimally invasive devices
Design and manufacture of
autologous blood products
Distribution of innovative
Medical products
Great Britain
Great Britain
Great Britain
Proportion
Held
100%
100%
100%
All subsidiaries are included in the consolidated financial statements of the Group. The registered address for all the
above Subsidiaries are held at Clayton wood house, 6 Clayton wood bank, Leeds, LS16 6QZ.
3. Receivables
Prepayments and accrued income
Other debtors
Amounts due from subsidiary undertakings
All amounts receivable are within one year
2017
£’000
10
6
3,246
3,262
2016
£’000
9
13
5,377
5,399
Amounts due from subsidiary undertakings are unsecured, interest free and repayable on demand.
45
Surgical Innovations Group PLC Annual Report and Accounts 2017 4. Current liabilities
Accruals and deferred income
Other creditors
5. Share capital
Allotted, called up and fully paid:
782,566,177, ordinary shares of 1p each (2016: 533,407,756)
2017
£’000
260
34
294
2016
£’000
115
20
135
2017
£’000
2016
£’000
7,826
5,334
During the year the following ordinary shares of 1p were issued in respect of cash consideration as follows:
• 820,845 issued at 3.575p in lieu of remuneration
• 202,654 issued at 3.625p in lieu of remuneration
• 198,830 issued at 3.675p in lieu of remuneration
• 202,759 issued at 3.625p in lieu of remuneration
•
•
•
•
62,500,000 issued at 3p in relation to acquisition of EHL Ltd
147,647,432 issued at 3p per share, equity raise for acquisition of EHL Ltd (vendor placing)
35,685,901 issued at 3p per share, equity raise for acquisition of EHL Ltd (subscription monies)
1,900,000 issued at 1.7p in satisfaction of share options exercised
46
Surgical Innovations Group PLC Annual Report and Accounts 2017 6. 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 2017
£’000
Amounts
payable/
(receivable)
31 December
2017
£’000
Amounts
invoiced
to (by) the
Group 2016
£’000
Amounts
payable/
(receivable)
31
December
2016
£’000
Hardy Transaction Management Ltd1
(50)
-
(20)
-
Transactions with related parties during the current and prior year were as follows:
1.
During the year, Hardy Transaction Management Ltd provided transactional services in relation to the Acquisition. Charges in prior year relate wholly to director’s fees and advisory
fees for P Hardy, a non executive director of Surgical Innovations Group plc, and were paid to Hardy Transaction 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.
47
Surgical Innovations Group PLC Annual Report and Accounts 2017
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
BDO LLP
Central Square
29 wellington street
Leeds LS1 4DL
Registrars
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen B63 3DA
Bankers
Yorkshire Bank
1st Floor
94-96 Briggate
Leeds LS1 6NP
48
Surgical Innovations Group PLC Annual Report and Accounts 2017 If you have any questions,
please get in touch:
si@surginno.co.uk
+44(0)113 230 7597
www.sigroupplc.com