Annual Report
2018
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.
2018 Financial Highlights
£10.97m
£8.75m
£6.09m
£2.22m
£2.36m
£1.43m
£0.28m
£1.43m
£1.10m
2016
2017
2018
2016
2017
2018
2016
2017
2018
Revenues
+25%
Adjusted ebitda
+6%
Adjusted PBT
+30%
Revenues by Destination
USA
Total Revenue
+3%
2017
2018
£2.07m
£2.12m
United Kingdom
Total Revenue
+42%
2017
2018
£4.34m
£6.16m
Rest of World
SI Brand
+64%
2017
2018
£0.82m
£1.34m
Contents
Strategic Report
Chairmans Statement & Strategy
Operating & Financial review
Governance
Board of Directors
Chairman’s corporate governance statement
Corporate Governance Report
Directors’ 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
1-4
5-8
9-11
12
13-16
17-19
20-23
24
25
26
27
28-54
55
56
57-59
60
More information can be found at
www.sigroupplc.com
Strategic Report
“I am pleased to report that the anticipated sharp
recovery in performance in the second half of the
year has been achieved, and the Group delivered
strong results for the year. The integration of
Elemental Healthcare into the Group has been
completed, paving the way for a new management
structure with additional capacity to take the
Group’s business to the next level.”
Nigel Rogers, Non-Executive Chairman
Financial Overview
Revenue for the year increased by 25% to £10.97m
(2017: £8.75m). Underlying revenue growth of 12%,
which is a like for like comparison of revenue removing
the effect of revenue from the acquisition of £3.4m
(2017: £2.0m), was ahead of the industry average.
Revenue from SI Brand products accounted for a
major part of the increase in revenue, when taking into
consideration the full year effect of the acquisition
of Elemental Healthcare in August 2017. There was
a slow start to the year in the UK NHS, and a hiatus
in the supply of a key distribution product, Cellis,
for much of the year, which has now been resolved.
There were also headwinds from pricing pressure
from customers in some product areas, which were
countered by competitive pricing, resulting in higher
sales volume without sacrificing gross margin.
The resultant growth of Adjusted EBITDA to £2.36m
(2017: £2.22m), an increase of 6.3%, was in line
with the Board’s expectations, and Adjusted Profit
Before Taxation at £1.43m (2017:£1.10m) is ahead as
a consequence of a reduced charge relating to the
amortisation of capitalised development costs.
Cash generation was once again robust, leading to the
closing balance sheet showing net cash of £0.38m
1
after eliminating the net debt position of £0.73m
incurred on the acquisition of Elemental Healthcare
last year. This leaves the Group ideally placed to invest
in further business and product improvements, and to
seek further acquisition opportunities.
Management
It has been more than three years since my
appointment as Executive Chairman in October 2015.
At that time, Surgical Innovations (SI) was very early
in its recovery from a challenging turnaround led by
Melanie Ross, and in need of new direction.
The addition of Elemental Healthcare (Elemental), and
its former owners, David Marsh and Adam Power, to
the combined Group in August 2017 was an essential
first step to building a significantly larger entity.
The combination brought together the design and
manufacturing pedigree of SI and the progressive
commercial ideas and contacts of Elemental.
The time is now appropriate to build on the executive
talent in the business, and enable a positive change
of grip at the helm. As previously announced, at
Group Board level, David Marsh has been appointed
CEO, supported by Melanie Ross as CFO, and Adam
Power as Group Development Director. I look forward
to working closely with David and the team as Non-
Executive Chairman. Melanie will lead the Group’s
acquisition activity in addition to her responsibilities
for Group finance and investor relations.
The SI site at Leeds will be led by a newly appointed
Operations Director, Alex Hogg who will also report
to David, following a suitable handover period from
Melanie.
Brexit Planning
The Board continues to follow progress in Brexit
negotiations, and we have made contingency
arrangements in the event that the UK exits the EU
on 29 March 2019 without reaching an appropriate
withdrawal agreement.
In addition to the measures taken previously, we have
recently announced that all of the Company’s product
certifications have been successfully reassigned from
BSI Notified Body 0086 (UK) to BSI Netherlands Notified
Body 2797. We have received assurances that this will
facilitate uninterrupted regulatory clearance both in
the EU and in the UK as a third country if required. In
addition, we have appointed an EU representative to
give access to simplified customs arrangements and
expect to receive confirmation of Approved Economic
Operator Status before 29 March 2019.
Finally, we have implemented contingency plans to carry
additional inventories of components, sub-assemblies
and distribution products in our UK facilities, whilst
Surgical Innovations Group PLC Annual Report and Accounts 2018 Chairman’s Statement
Current trading and outlook
Revenue for the current year to date is well ahead
of the corresponding period last year. The benefits
of the market share momentum we achieved in the
second half of the year have carried on into 2019,
both from SI Brand products and those of our OEM
partners and we are confident about the outlook for
the full year. Furthermore, we have recently entered
into UK distribution agreements for new product lines,
including the Dexter robot by DistalMotion, due for
launch later this year.
Looking to the future, there are also a number of
exciting projects in the development pipeline. These
comprise not only further line extensions to the Elite
range, but also a range of innovative new devices
offering unique benefits to surgeons which we hope to
begin launching by the end of the year.
Accordingly, we look to the future with confidence and
keen enthusiasm.
shipping buffer stock to our EU distributors. Whilst
there can be no guarantee of a complete success,
we are satisfied that we have taken the necessary
precautions to ensure business continuity. We
anticipate that the additional working capital
investment incurred in inventory will be unwound prior
to reporting our interim results for the six months to 30
June 2019.
We remain hopeful that these precautions are rendered
unnecessary and that, as a minimum, trade with
EU entities will be unaffected for the duration of a
transitional period.
Acquisition activity
We have evaluated a number of potential acquisition
targets during the year, and have taken a select few
that appear to meet our strict criteria forward for
more detailed consideration. Ultimately, none of these
have progressed to an advanced stage for a variety of
sound reasons. We continue to seek businesses which
offer complementary opportunities to accelerate the
rate of growth of the Group’s activities, either through
new products and/or geographies, Indeed, the recent
changes to our management structure are partly
designed to increase potential deal flow and offer
greater flexibility in future integration of one or more
suitable targets, should they arise.
Nigel Rogers
Non-Executive Chairman
11 March 2019
2
Surgical Innovations Group PLC Annual Report and Accounts 2018 Strategy
The Group specialises in the design, manufacture, sale
and distribution of innovative, high quality medical
products, primarily for use in minimally invasive
surgery. Our product and business development is
guided and supported by a key group of nationally
and internationally renowned surgeons across the
spectrum of minimally invasive surgical activity.
We design and manufacture and source our branded
port access systems, surgical instruments and retraction
devices which are sold directly in the UK home market
through our subsidiary, Elemental Healthcare, and
exported widely through a global network of trusted
distribution partners.
Many of our products in this field are based on a
“resposable” concept, in which the products are part
re-usable, part disposable, offering a high quality and
environmentally responsible solution at a cost that is
competitive against fully disposable alternatives.
3
Surgical Innovations Group PLC Annual Report and Accounts 2018 Strategy
Elemental also has exclusive UK distribution for
a select group of specialist products employed in
laparoscopy, bariatric and metabolic surgery, hernia
repair and breast reconstruction.
In addition, we design and develop medical devices
for carefully selected OEM partners, and have also
collaborated with a major UK industrial partner to
provide precision engineering solutions to complex
problems outside the medical arena.
We aim for our brands to be recognised and respected
by healthcare professionals in all major geographical
markets in which we operate. We provide by development,
partnership or acquisition a broad portfolio of cost
effective, procedure specific surgical instruments and
implantable devices that offer reliable solutions to genuine
clinical needs in the operating theatre environment.
4
Surgical Innovations Group PLC Annual Report and Accounts 2018 Operating and Financial Review
Melanie Ross
Chief Financial Officer
The Group considers the key performance indicators of the business to be:
Underlying Revenue
Growth
Adjusted for the effect of
acquisition
Gross Profit Margin
Gross profit / revenue
Adjusted Operating
Margin
Adjusted operating profit /
revenue
Cash conversion
Cash generated from
operations / adjusted operating
profit
2018
12%
42.6%
13.9%
118%
2017
8%
42.5%
13.0%
167%
Target Measure
>8%
>40%
>12%
>85%
Net Cash/(Net Debt)
Cash less debt
£0.38m
(£0.73m)
N/A
Reconciliation of adjusted KPI measures;
EBITDA*
Operating Profit
£0.62m
£0.79m
£0.12m
£1.53m
As reported
Amortisation of intangible acquisition costs
Share based payments
Adjusted Measure
Basic EPS
Profit attributable to shareholders
Add: Share based payments
Add: Amortisation of intangible acquisition costs
Adjusted profit attributable to shareholders
Adjusted EPS
£2.24m
-
£0.12m
£2.36m
EPS
0.09p
£0.73m
£0.12m
£0.79m
£1.6m
0.21p
Profit before
taxation
£0.52m
£0.79m
£0.12m
£1.43m
*EBITDA is defined as earnings before interest,taxation,depreciation and amortisation. EBITDA is calculated as
operating profit of £0.62m adding back depreciation £0.48m and amortisation £1.14m.
Adjusted KPIs are used by the Group to understand underlying performance and exclude items which distort
comparability, as well as being consistent with broker forecasts and measures. The method of adjustments is
consistently applied but may not be comparable with those used by other companies.
5
Surgical Innovations Group PLC Annual Report and Accounts 2018 Melanie Ross
Chief Financial Officer
Revenue and margins
Revenues increased by 25% to £10.97m (2017: £8.75m).
The increase in underlying revenue, adjusted for the
effect of the acquisition of Elemental Healthcare in
£m
SI Brand
Distribution
OEM
Total
2018
6.09
3.04
1.84
10.97
2017
5.35
1.80
1.60
8.75
Revenues from the sale of Surgical Innovations Brand
products increased by 14% during the year, including
the effect of a full year of direct sales in the UK market.
Sales in Continental Europe showed a 12% reduction in
the year, resulting from increased competition in certain
product categories from low cost imports. Measures
have been taken to combat these pressures through
development of lower cost alternatives, and we expect to
recover ground in the current year.
Sales in the US were flat overall, however the 25%
reduction reported in the first half of the year was
countered by a 31% increase in the second half. As in
Europe, this was mainly a result of competitive pressure,
and the actions taken in response were successful. We
expect further progress in the coming year.
SI Brand revenues from the Rest of the World was up by
64%, with the simplification of our sales structure in Asia
and the launch of new products driving strong growth.
OEM revenues grew strongly in the year to £1.84m (2017:
£1.60m), with particularly strong sales in the precision
Adjusted EBITDA
The adjusted EBITDA is a measure of the business
performance. The Group uses this as a proxy for
understanding the underlying performance of the
Group. This measure also excludes the items that
distort comparability including the charge for share
based payments as this is a non-cash expense normally
excluded from market forecasts.
Adjusted EBITDA increased 6% to £2.36m (2017: £2.22m),
mainly as a result of improved gross margin. Operating
profit increased to £0.62m (2017 restated: £0.41m),
increasing adjusted operating margin (before deduction of
exceptional costs and amortisation relating to acquisition
and share based payments) to 13.9% (2017: 13%).
Excluding acquisition related amortisation costs in the
year, operating expenses increased to £3.54m which was
mainly attributable to the full year impact of Elemental
overheads, the full year impact of increasing the regulatory
and quality headcount and an increase in the charge of
Operating and Financial Review
August 2017, was approximately 12%. Gross margins
increased by 0.1% to 42.6% of revenue (2017: 42.5%).
% change
+14%
+69%
+15%
+25%
engineering (non-medical) arena where the initial
production orders under the contract started in 2017
completed in the early part of the year. Further sales of
the device were delivered during the second half, and this
is expected to continue into the first half 2019, with no
current visibility of longer term requirements.
OEM medical revenues were lower than the prior year
due to the impact of a product redesign for a major
customer. As expected, sales were stronger in the second
half of the year following relaunch of the new version. We
expect to experience further growth in the coming year.
Distribution sales grew 69% year on year which reflected
a full year of revenue in the current year, following the
acquisition of Elemental in August 2017. Underlying sales
of distributed products saw a reduction of approximately
19% (comparing the same 5 month periods) as a
consequence of temporary disruption of supply of key
products throughout the year, as previously announced.
share based payments.
Capitalised development costs at 31 December 2018
had increased to £1.27m (2017: £1.23m). Research and
development expenditure continues to be incurred on both
development of new products launched in the year and to
be launched in the coming year, and in projects to underpin
the existing product portfolio.
Capital expenditure on tangible assets continued to reflect
a policy of required replacement only during the year at
£0.09m (2017: £0.25m). Whilst there are no major capex
plans currently in place, there are plans to make several
improvements to the manufacturing facilities in Leeds in
2019, as well as review the suitability of the manufacturing
assets for the Group’s future strategic plans and this may
result in modest increases in expenditure in the year.
Interest on bank and finance lease obligations for 2018
resulted in interest payable of £0.1m (2017: £0.04m)
6
Surgical Innovations Group PLC Annual Report and Accounts 2018 Operating and Financial Review
reflecting the expected increase of the debt finance
undertaken for the acquisition of Elemental Healthcare in
2017. All finance lease obligations ended in the year, but as
these were minimal, costs are expected to be broadly the
same in 2019.
Following a further review of the intangible asset arising
on the acquisition of Elemental Healthcare, which related
to the supplier base, an adjustment was made which
affected the amortisation charges in both the current and
financial year 2017. The intangible asset will still be fully
amortised by 2020 with the charges in each year being:
of 2016, electing to exchange tax losses for cash refunds.
The tax charge on Elemental Healthcare has been relieved
through Group losses. Overall the Group continues to hold
substantial tax losses on which it holds a cautious view,
and consequently the Group has chosen not to recognise
those losses fully. During the year the Group submitted an
enhanced Research and Development claim in respect
of 2017. This claim had not been settled by the year end
and so no refund was recognised in the accounts. This
claim is expected to be significantly less than the claims
recognised in 2017 due to the difference in available
losses to exchange in the comparative period.
Year
2017
2018
2019
2020
Original
Restated
£000’s
£327
£446
£351
£163
£000’s
£498
£788
£351
£163
Due to the change in the value of the intangible asset,
goodwill was revised to £8.18m (previously £8.59m).
This has been subject to an impairment review and the
Directors are satisfied that no impairment charge should
be recorded.
The Group recorded a corporation tax credit of £0.03m
(2017: charge of £0.04m) and a deferred tax credit of
£0.18m (2017: £0.16m). The tax credit represents an
enhanced Research and Development claim in respect
Principal risks and uncertainties
Trade receivables were higher at the year end than 2017
which reflected the strong sales in the final months of
the year. This is due to be collected in line with group
commercial arrangements in the first quarter of 2019.
This was further evidenced by the decrease in stock by the
end of the year to £2.08m (2017: £2.47m). Due to increased
sales demand, stock holdings are expected to increase
from this level in 2019 to ensure safety stocks support
incremental customer requirements. Trade creditors
increased only slightly over the same period, which
reflected the Group’s continued approach towards strong
cost control.
The Group generated cash from operations of £1.65m
(2017: £1.61m) at a conversion rate of operating profit at
118% (2017: 167%) primarily as a result of the working
capital movements described above. The Group closed
the year with net cash balances of £0.38m compared with
opening net debt of £0.73m.
The management of the business and the nature of the Group’s strategy are subject to a number of risks which the
Directors seek to mitigate wherever possible. The principal risks are set out below.
Issue
Funding risk
Risk and description
The Group currently has a mixture of
borrowings comprising a £2.1m loan and a
£0.5m rolling credit facility. The Group remains
dependent upon the support of these funders
and there is a risk that failure in particular
to meet covenants attaching to the rolling
credit facility could have severe financial
consequences for the Group.
Mitigating actions
Liquidity and covenant compliance is
monitored carefully across varying time
horizons to facilitate short term management
and also strategic planning. This monitoring
enables the management team to consider
and to take appropriate actions within
suitable time frames.
Customer
concentration
The Group exports to over thirty countries
and distributors around the world, but
certain distributors are material to the
financial performance and position of the
Group. As disclosed in note 2 to the financial
statements, one customer accounted for
10.7% of revenue in 2018 and the loss, failure
or actions of this customer could have a
severe impact on the Group.
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.
Melanie Ross
Chief Financial Officer
12 March 2018
7
Surgical Innovations Group PLC Annual Report and Accounts 2018 Operating and Financial Review
Foreign
exchange risk
The Group’s functional currency is UK
Sterling; however, it makes significant
purchases in Euros and US Dollars.
The US Dollars are mitigated by US Dollar
sales by creating a natural hedge. The Group
have transferred their Euro customers onto
a Euro based pricing structure in 2018 to
mitigate risk by again, creating a natural
hedge.
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.
Regulatory
approval
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.
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.
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.
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.
Brexit
The Group exports to a number of different
countries with sales to Europe accounting for
12.3% of 2018 revenue. As well as exporting,
the Group imports goods both for re-sale
through Distribution revenue, as well as some
raw materials used in manufacturing.
The Group has successfully reassigned all of
the Company’s product certifications from BSI
Notified Body 0086 (UK) to BSI Netherlands
Notified Body 2797, in order to mitigate any
risk to regulatory clearance both in the EU
and in the UK.
If the UK exits the EU on 29 March 2019
without an appropriate withdrawal
agreement, this would pose risks of delayed
customs clearance which could in turn have a
negative impact on the Group’s supply chain.
In addition to the above, a contingency plan
has been implemented to increase inventory
levels to ensure any delays caused by
increased customs clearance will not impact
the Group’s supply chain.
Any risk to a delay in supply chain as
mentioned above has also been mitigated
by the application of Approved Economic
Operator Status which we expect to have
received ahead of 29 March 2019.
Melanie Ross
Chief Financial Officer
11 March 2019
8
Surgical Innovations Group PLC Annual Report and Accounts 2018 Board of Directors
Nigel Rogers, Non-Executive Chairman
David Marsh, Chief Executive Officer
Melanie Ross, Chief Financial Officer
9
Nigel qualified as a Chartered Accountant in 1983
spending eight years with PwC before moving into
industry. He managed the flotation of Stadium Group
plc (“Stadium”) as Group Finance Director, before
progressing to Group Chief Executive Officer in 2001. He
joined 600 Group plc as Group Chief Executive Officer in
2012 and led the turnaround of the AIM-quoted global
machine tool business (Colchester-Harrison), increasing
strategic focus on the growth of its laser marking
business (Electrox) until April 2015. Nigel has been Non-
Executive Deputy Chairman of Transense Technologies
plc, the AIM-quoted provider of sensor systems, since
July 2015. Nigel was appointed Executive Chairman of
Surgical Innovations Group plc in October 2015.
David has over 25 years’ experience within the medical
industry, 20 of which have been in senior management
positions. David joined Auto Suture (Medtronic ) in 1991
before being appointed Sales Director then General
Manager of SkyMed Ltd. Following the acquisition
of SkyMed by Gyrus David was appointed Managing
Director of the Direct Operations in U.K. Benelux
and Germany, before assuming the position of Vice
President of Sales and Marketing for Europe. As part of
the Gyrus Senior Management team David was involved
in the many acquisitions made by the Company and
led the European integration of the enlarged business.
During his career David has been responsible for the
introduction of a number of key technologies across a
broad spectrum of specialities. In 2006 David was Co-
Founder of Elemental Healthcare Ltd.
Melanie qualified as a Chartered Management
Accountant in 2006 training as a graduate with Corus
before moving on to gain commercial exposure at the
European Headquarters of Fellowes Inc. Melanie
then moved on to Eaton Cooper Lighting & Safety Ltd,
progressing through various roles to Business Partner –
Finance before changing focus and moving to AESSEAL
plc as Business Development Manager. It was her
work here that led to a secondment over to Surgical
Innovations Group plc as a consultant, working with
the incumbent management on a full strategic review.
Melanie transitioned over from AESSEAL in July 2015,
and was appointed Finance Director (and Company
Secretary) of the Group in the August, as well as General
Manager of the main trading subsidiary.
Surgical Innovations Group PLC Annual Report and Accounts 2018 Board of Directors
Adam has over 25 years’ experience managing
companies selling Medical Devices. He has been
responsible for the introduction into the UK of some of
the most innovative solutions for surgical problems in
the past two decades. Adam and his team introduced
the Gastric Band for obesity, the Intuitive daVinci robot
and Endovascular Aneurysm repair, all of which have
become adopted by the NHS. Following the successful
sale of his company, Mantis Surgical, Adam co-founded
Elemental Healthcare with David Marsh in 2006.
Elemental Healthcare has continued this tradition of
innovation and growth, with the launch of a number of
new technologies such as the Endobarrier endoluminal
device for the surgical control of T2 Diabetes and the
continued growth of Elemental’s key suppliers.
Mike, a founder Director of Surgical Innovations Ltd,
became Non-executive Clinical Director in October 2007.
He is an Emeritus Prof of Surgery at the University of
Leeds, and practices as a Consultant Surgeon at the
Nuffield Hospital, Leeds. He has carried out research
and development of laparoscopic surgery and has
demonstrated operative techniques in many countries.
He is past President of the Association of Laparoscopic
Surgeons of Great Britain and Ireland and was also
Tutor in MIS at the Royal College of Surgeons and
Director of the Leeds Institute for Minimally Invasive
Therapy.
After qualifying as a Chartered Accountant in 1984, Paul
moved into the engineering industry which culminated
in leading the private equity-backed management
buyout of BI Engineering Limited, a £60m turnover
group of aerospace and med-tech businesses in the UK
and US. The medical division was subsequently sold to
a US venture capital buyer for in excess of US$200m.
Since 2003, he has owned and led Hardy Transaction
Management Limited, a boutique provider of merger
and acquisition lead advisory services.
Adam Power,
Group Development Director
Professor Mike McMahon,
Non-Executive Clinical Director
Paul Hardy, Non-Executive Director
10
Surgical Innovations Group PLC Annual Report and Accounts 2018 Alistair Taylor, Non-Executive Director
Board of Directors
Alistair is a vastly experienced director in life science
companies with exposure to both pharmaceutical
and med-tech sectors. After forging a successful
career with Beecham Group Limited and Pfizer
Inc., he has gone on to lead a number of public and
private businesses in the medical field in the UK and
internationally, initially as CEO of Biocompatibles plc,
and later as Chairman of Lombard Medical Technology
plc, and Phytopharm plc amongst others.
Charmaine qualified as a Chartered Certified
Accountant in 2012. Beginning her career in finance for
Eville & Jones Ltd whilst qualifying as an Accounting
Technician. Charmaine then progressed in various roles
and moved on to Ellis Fairbank PLC as a Management
Accountant and has been working for Surgical
Innovations as a Financial Controller since 2012, taking
on the role of Company Secretary in 2017.
Charmaine Day, Company Secretary
The Board are mindful of the need to keep skills and experience up to date, each board member actions this through
a combination of courses, continuing professional development through professional bodies, reading and on the job
experience.
11
Surgical Innovations Group PLC Annual Report and Accounts 2018 Chairman’s corporate governance statement
I am pleased to introduce the corporate governance section of our report.
Surgical Innovations Group PLC remains committed to high standards of corporate governance in all of its activities
and reports against the Quoted Companies Alliance Corporate Governance Code, a full version of which is available
at the QCA website http://www.theqca.com. The Board recognises the value of the Code and good governance and
as far as is practicable and appropriate for a public company of the size and nature of Surgical Innovations Group
PLC, adheres to it. The Board regularly reviews guidance from regulatory bodies, supported by its Nominated Adviser,
and responds as appropriate. As a business traded on the Alternative Investment Market of the London Stock
Exchange and operating in markets based on regulatory frameworks, the Group is familiar with the benefits and
challenges associated with maintaining strong and effective governance. In this regard the Board remains focused
on the need for a system of corporate governance which delivers compliance with regulation whilst enhancing
the performance of the Group. This includes recognising the need to manage and mitigate the risks faced by the
business across all of its activities.
The Group operates on the premise that best practice is normal practice striving to ensure that regulatory standards
are met and, where possible, exceeded. The Company sets clear policy and objectives on its expectations on
corporate social responsibility from the Board, to the top of the management team and throughout the organisation.
We are proud of our culture, where all staff feel responsible for making a difference in delivering high standards
within the organisation and to our customers, stakeholders and local communities. To ensure that the business
achieves its objectives we invest in people and the business. We recognise the need for continual development and
improvement in all our standards and measure performance year-on-year.
Each of the Board’s standing Committees (Audit, Nomination and Remuneration) continued to be active during the
year.
As Chairman, one of my principal concerns is to maintain excellent relationships with our shareholders. During the
year I continued to make myself available to shareholders to discuss strategy and governance matters and was
pleased to again have individual meetings with some of the Group’s major shareholders.
The Board has a pro-active investor relations programme and believes in maintaining good communication with
all stakeholders including institutional and private shareholders, analysts and the press. This includes making the
Executive Directors available to meet with institutional shareholders and analysts following the announcement of
interim and final results. The Board receives feedback from these meetings and uses this to refine its approach to
investor relations.
The QCA Code is constructed around ten broad principles which focus on the pursuit of medium to long-term value
for shareholders without stifling the entrepreneurial spirit in which the company was created. These ten principles
are set out from page 13.
As a Company we strive to fulfil these ten broad principles, and our website and this Annual Report and Accounts
cover this.
12
Surgical Innovations Group PLC Annual Report and Accounts 2018 Corporate Governance Report
The group aims to operate to high standards of moral and ethical behaviour. All members of the board fully
support the value and importance of good corporate governance and in our accountability to all of the company’s
stakeholders, including shareholders, employees, customers (including patients and healthcare professionals),
distributors, suppliers, regulators and the wider community.
The corporate governance framework which the group has set out, including board leadership and effectiveness,
remuneration and internal control, is based upon practices which the board believes are proportionate to the risks
inherent to the size and complexity of group operations.
The board considers it appropriate to adopt the principles of the Quoted Companies Alliance Corporate Governance
Code (“the QCA Code”) published in April 2018. The extent of compliance with the ten principles that comprise the
QCA Code, together with an explanation of any areas of non-compliance, and any steps taken or intended to move
towards full compliance, are set out below:
Principle
Establish a strategy and
business model which
promote long term value
for shareholders.
Extent of
current
compliance
Fully compliant
Seek to understand and
meet shareholder needs
and expectations
Fully compliant
Commentary
Group business strategy is summarised in the
Mission Statement approved by the board in
February 2018, entitled “Inspired by surgeons for
the benefit of patients”.
Strategic issues, and the appropriate business
model to exploit opportunities and mitigate risks,
are under continuous review by the board, and
reported periodically.
Key risks and mitigating actions are detailed in
the Principal risks and uncertainties section of the
Annual Report
Regular meetings are held with institutional and
private shareholders, during which structured
feedback is sought and, where considered
appropriate, acted upon.
Shareholder liaison is principally undertaken by
the Non-Executive Chairman, the Chief Executive
Officer and the Chief Financial Officer
Further
disclosure(s)
Go to www.sigroupplc.com
and follow About Us then
Our Business Activities
Strategic Report section
of the Annual Report
Go to www.sigroupplc.com
and follow Investor Centre
then Meetings & Voting
Take into account wider
stakeholder and social
responsibilities and their
implications for long
term success
Fully compliant
Directors and employees adopt a broad view during
decision making to take meaningful account of
the impact of our business on all key stakeholder
groups.
Go to www.sigroupplc.
com and follow About Us
then Corporate Social
Responsibility
The Board recognises that the Company’s long-
term success is reliant on the efforts of its
employees, customers and suppliers and through
maintaining relationships with its regulators.
Feedback from employees, customer groups,
suppliers and others is actively encouraged.
The group operates a system of internal controls
designed (to the extent considered appropriate) to
safeguard group assets and protect the business
from identified risks, including risk to reputation.
Financial risks, including adequacy of funding and
exposure to foreign currencies, are identified and
subject to examination during the annual external
audit process.
Principal Risks and
Uncertainties section of
Annual Report
Fully compliant
Embed effective
risk management,
considering both
opportunities and
threats, throughout the
organisation
13
Surgical Innovations Group PLC Annual Report and Accounts 2018 Maintain the board
as a well-functioning,
balanced team led by the
chair
Fully compliant
Corporate Governance Report
Board section of Annual
Report
The board comprises seven directors; three
non-executive directors, three full time executive
directors, and the Non-Executive Chairman. The
Chairman and two of the non-executive directors
are considered to be fully independent (Alistair
Taylor and Paul Hardy).
The board is supported by appropriate board
committees which are each chaired by one of the
independent non-executive directors.
An annual record of attendance at board meetings
will be included in the Annual Report at the
conclusion of each year.
The Non-Executive Chairman’s responsibilities
approximate to one day per week, other
Executive Directors are expected to work full
time. Non-executive directors are expected to
commit sufficient time to fulfill their role – this
approximates to 2 days per month.
Fully compliant
Ensure that between
them the directors have
the necessary up-to-
date experience, skills
and capabilities
Evaluate board
performance based
on clear and relevant
objectives, seeking
continuous improvement
Partially
compliant
Promote a corporate
culture that is based
on ethical values and
behaviours
Fully compliant
The attendance by the members of the Board at
the meetings is recorded and reviewed annually.
Corporate Governance
section of Annual Report
The board is satisfied that the current composition
provides the required degree of skills, experience,
diversity and capabilities appropriate to the needs
of the business. Steps are taken to challenge the
status quo, and encourage proper consideration
of any dissenting opinion. Board composition and
succession planning are subject to continuous
review taking account of the potential future needs
of the business.
The Board has not taken any specific external
advice on a specific matter, other than in the
normal course of business as an AIM quoted
company. The Directors rely on the Company’s
advisory team to keep their skills up to date
and through attending market updates and
other seminars provided by the advisory team,
the London Stock Exchange plc and other
intermediaries.
Board evaluation has not been carried out as part
of a formal process, although the Chairman has
actively encouraged self-evaluation by all board
members, and feedback on the conduct and
content of board meetings. The board will consider
whether a more structured approach is required in
future.
The board promotes high ethical and moral
standards which are set out in the Mission
Statement. The board and all employees expect
to be judged by, and accountable for, their actions.
The business operates in a highly regulated
environment, which promotes the benefits of high
moral standards and rewards good behaviour over
the long term.
Board section of Annual
Report
Management section of
Chairman’s Statement
Go to www.sigroupplc.com
and follow About Us then
Our Business Activities
14
Surgical Innovations Group PLC Annual Report and Accounts 2018 Fully compliant
The board as a whole share responsibility for
sound governance practices.
Board section of Annual
Report
Corporate Governance Report
Maintain governance
structures and processes
that are fit for purpose
and support good
decision-making by the
board
Corporate Governance
Section of Annual Report
Go to www.sigroupplc.com
and follow Investor Centre
then Meetings & Voting
The Chief Executive Officer reports to the board.
In addition to his collective responsibilities as a
director, he is responsible for the oversight of the
strategic and operating performance of the group
The CFO reports to the Chief Executive Officer.
In addition to her collective responsibilities
as a director, she is primarily responsible all
aspects of financial reporting to the board
and key stakeholders,as well as maintaining
communication with investors and other key
stakeholders.
Details of the audit, remuneration and nomination
committees are set out in the Corporate
Governance section of the website. The Non-
Executive Directors comprise the membership of
each of the committees.
The Board attaches great importance to providing
shareholders with clear and transparent
information on the Group’s activities and strategy.
Details of all shareholder communications are
provided on the Company’s website, including
historical annual reports and governance related
material together with notices of all general
meetings for the last five years. The Company
discloses outcomes of all general meeting votes.
The Company has appointed a professional
Financial Public Relations firm with an office in
London to advise on its communications strategy
and to assist in the drafting and distribution of
regular news and regulatory announcements.
Regular announcements are made regarding the
Company’s investment portfolio as well as other
relevant market and regional news.
The Company lists contact details on its website
and on all announcements released via RNS,
should shareholders wish to communicate with
the Board.
Fully compliant
Communicate how the
company is governed
and is performing by
maintaining a dialogue
with shareholders
and other relevant
stakeholders
15
Surgical Innovations Group PLC Annual Report and Accounts 2018 Board and Committee Meetings
The Board meets on a formal basis regularly, and the members are presented with financial and operational information
in advance of these meetings. During 2018 there were 11 Board Meetings.
No Nomination Committee meetings were held during 2018 – Mike McMahon is Chairman of this committee on the
occasions when it is felt necessary to convene.
Corporate Governance Report
The Directors attended the following meetings in the year to 31 December 2018
Board Meeting
Nigel Rogers
Paul Hardy
Mike McMahon
David Marsh
Adam Power
Melanie Ross
Alistair Taylor
Charmaine Day**
11
10
10
11
10
11
11
4
Remuneration
Committee
2
2
2*
Audit Committee
2
2*
2
2
*Chair of Committee
**Charmaine Day was on maternity leave from May 2018
Audit Committee
The Audit Committee meets as required, but at least twice a year. In addition to reviewing the Annual Report and
Financial Statements and the Interim Report prior to their submission to the Board for approval, it keeps the scope, cost
effectiveness, independence and objectivity of the external auditors under review. This includes monitoring the level of
non-audit fees.
The committee routinely meets for discussion with the external auditors, who attend its meetings, as required.
Remuneration Committee
The Committee is responsible for determination of the remuneration and remuneration policy for the Company’s executive
directors and senior executives.
The committee reviews the performance of the Executive Directors and sets the scale and structure of their remuneration.
The Executives service agreements, and notice periods, are reviewed with due regards to the interests of the shareholders.
The Executive Directors are all currently on rolling 12 month notice periods.
The Remuneration Committee also determine, from time to time, the allocation of share options to employees.
Nominations Committee
The Nominations Committee considers succession planning, reviews the structure, size and composition of the Board and
nominates candidates to fill Board vacancies.
Nigel Rogers
Non-Executive Chairman
11 March 2019
16
Surgical Innovations Group PLC Annual Report and Accounts 2018 Directors’ Report
The Directors present their annual report, together with the audited financial statements, for the year ended 31 December 2018.
Charmaine Day
Company Secretary
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 Brand), along with own label
products through original equipment manufacturer (OEM)
relationships including precision engineering markets
(PE). The Group sells branded products through Elemental
Healthcare Ltd (Distribution) and independent healthcare
distributors across the world.
Getz Bros. & Co. (BVI) Inc.
Ruffer LLP
Healthinvest Partners AB
Mr CWN John
Mr A Power
Mr D Marsh
Cavendish
Unicorn AIM VCT plc
Results and Dividends
The Consolidated statement of comprehensive income
for the year is set out on page 24.
Given the results for the financial year, the Directors do
not recommend the payment of a dividend (2017: £nil).
Substantial shareholdings
Other than the Directors’ own holdings, the Board
has been notified that, as at 31 December 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:
Number of shares ’000 (%)
109,063 (13.9%)
75,600 (9.7%)
39,579 (5.1%)
39,559 (5.1%)
31,307 (4.0%)
31,250 (4.0%)
28,856 (3.7%)
26,645 (3.4%)
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 2018
Beneficial
5,808,711
18,669,129
6,610,000
2,078,354
1,074,266
31,307,302
31,250,000
1 January 2018
Beneficial
6,730,185
18,669,129
5,541,060
1,573,710
1,074,266
31,307,302
31,250,000
Details of Directors’ interests in respect of share options are set out on page 39. There were no other changes in
Directors’ interests between the year end and 11 March 2019. 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.
17
Surgical Innovations Group PLC Annual Report and Accounts 2018 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 Minimally
Invasive Surgery (MIS).
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 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.
Financial risk management policies
The Group’s activities expose it to a variety of financial
risks as set out below with further quantitive analysis
in note 14.
a) Exchange rate 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.
Directors’ Report
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.
Future Developments
The future developments of the Group are discussed in
the strategic report.
Going concern
The Directors have prepared forecasts for the period to
March 2020, 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.
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.
18
Surgical Innovations Group PLC Annual Report and Accounts 2018 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 and;
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
Directors’ Report
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.
Website publication
The directors are responsible for ensuring the annual
report and the financial statements are made available
on a website. Financial statements are published on
the company’s website in accordance with legislation
in the United Kingdom governing the preparation
and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The
maintenance and integrity of the company’s website
is the responsibility of the directors. The directors’
responsibility also extends to the ongoing integrity of
the financial statements contained therein.
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 2019 AGM.
By order of the Board
Charmaine Day
Company Secretary
11 March 2019
19
Surgical Innovations Group PLC Annual Report and Accounts 2018 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 2018 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 2018 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.
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.
•
20
Surgical Innovations Group PLC Annual Report and Accounts 2018 Key audit matters
Key audit matters are those matters that, in our professional judgment, 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.
Auditor’s Report
Key audit matter
How our audit addressed the key audit matter
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
IAS38 ‘Intangible assets’.
Capitalised development costs are disclosed in note
10 to the consolidated financial statements. The
accounting policy for development costs is set out in
note 1(f) and the judgement in applying the policy is set
out in 1(q) of the Group financial statements.
There is a risk that management inappropriately
recognise costs on the balance sheet that should be
expensed in profit or loss if they do not meet the criteria
for recognition. On this basis we have identified this as a
key audit matter.
Inventory provisions
Net inventories are disclosed note 11 to the financial
statements. The accounting policy for inventories is
set out in note 1(h) of the Group financial statements.
The judgement in applying the accounting policy is set
out in note 1(q) of the Group financial statements.
The Group estimates a provision for the net realisable
value of inventory based on the age and condition
of the assets together with expectations of future
usage/sales also utilising historical experience. 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. There is a risk
that the basis on which management estimate the
level of provision is inappropriate and therefore we
identify this as a key audit matter.
21
For a sample of projects, we assessed whether costs had
met the relevant criteria and therefore were appropriately
being capitalised by reviewing approval for expenditure
forms which include specific details on the development
expenditure together with assessing the nature of the
costs incurred and 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 or other relevant
supporting documentation.
We challenged management’s assessment of the viability
of capital projects and the timescales and costs involved
in completing these together with reviewing the market
opportunity and economic benefit that each asset was
expected to deliver.
Where projects were complete, we assessed the revenue
and earning streams being received. Where projects
remained open we reviewed management’s plans
and timescales to completion. This, together with an
assessment of useful economic lives being used, allowed
us to conclude on the carrying value of such projects at
the year-end.
We tested the accuracy of the inventory ageing report
by agreeing a sample of aged inventory items to
the last recorded invoice. We then recalculated the
inventory provision by applying the same methodology
as management to ensure the basis of the provision
calculation was complete and accurate.
We then challenged management’s basis for making
further provision judgments by performing a line by
line review of the units of finished goods held at the
year end compared to sales made in the past three
reporting periods together with future sales plans. We
challenged individual judgments and obtained supporting
information/evidence where appropriate.
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 2018 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.
Auditor’s Report
The materiality for the Group financial statements as a whole was set at £97,000 (2017: £80,000). This was determined
with reference to a benchmark of EBITDA, of which this represents 4% (2017: 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 £90,000 (2017: £80,000). This was determined
with reference to a benchmark of 3% (2017: 3%) of net assets limited to the maximum component materiality set for
the audit of the Group.
Component materiality ranged from £10,000 to £90,000 (2017: £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 65% (2017: 60%) of the above materiality. This has been assessed on criteria such as complexity and
controls 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 (2017: £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.
•
22
Surgical Innovations Group PLC Annual Report and Accounts 2018 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.
Auditor’s 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 by the Parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
the Parent Company financial statements are not in agreement with the accounting records and returns; or
•
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 19 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.
Auditor’s responsibilities for the audit of the financial statements
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.
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).
23
Surgical Innovations Group PLC Annual Report and Accounts 2018 Consolidated statement of comprehensive income
For the year ended 31 December 2018
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
2018
£’000
10,969
(6,297)
4,672
(4,327)
275
2,364
(1,143)
(481)
-
(120)
620
(105)
-
515
210
725
Restated*
2017
£’000
8,752
(5,033)
3,719
(3,334)
25
2,221
(1,021)
(556)
(216)
(18)
410
(39)
-
371
117
488
0.09p
0.09p
0.08p
0.07p
Notes
2
3
3
10
9
3
15
3
5
6
7
8
8
*Refer to note 20
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.
Notes on pages 28 to 54 form part of these financial statements
24
Surgical Innovations Group PLC Annual Report and Accounts 2018
Consolidated statement of changes in equity
For the year ended 31 December 2018
Share
capital
£’000
Share
premium
£’000
Capital
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
£’000
Notes
Balance as at 1 January 2017
5,334
2,339
329
Employee share based payment options
15
-
-
Issue of share capital
Attributable costs for issue of Equity
Total – transactions with owners
Profit and total comprehensive income for the period
restated*
2,492
-
2,492
-
3,717
(225)
3,492
-
-
-
-
-
-
-
-
1,250
-
1,250
-
(2,164)
5,838
18
18
-
-
7,459
(225)
18
488
7,252
488
Balance as at 31 December 2017 restated
7,826
5,831
329
1,250
(1,658)
13,578
Employee share based payment
Total – transactions with owners
Profit and total comprehensive income for the period
15
-
-
-
-
-
-
-
-
-
-
-
-
120
120
725
120
120
725
Balance as at 31 December 2018
7,826
5,831
329
1,250
(813)
14,323
*Refer to note 20.
25
Surgical Innovations Group PLC Annual Report and Accounts 2018 Consolidated balance sheet
At 31 December 2018
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Amount due from associate
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
Deferred tax liabilities
Dilapidation provision
Current liabilities
Trade and other payables
Obligations under finance leases
Accruals
Borrowings
Total liabilities
Total equity and liabilities
Notes
2018
£’000
Restated*
2017
£’000
9
10
7
11
12
12
15
16
16
13
7
21
14
14
13
934
1,328
10,191
10,936
91
62
11,216
12,326
2,083
2,961
79
2,491
2,467
1,964
-
1,709
7,614
6,140
18,830
18,466
7,826
5,831
7,826
5,831
329
329
1,250
1,250
(813)
(1,658)
14,423
13,578
1,820
2,125
98
165
248
165
2,083
2,538
1,556
1,580
-
481
287
16
454
300
2,324
2,350
4,407
4,888
18,830
18,466
*Refer to note 20
The accompanying accounting policies and notes form part of the financial statements.
The consolidated financial statements on pages 28 to 54 were approved by the Board of Directors on 11 March 2019
and were signed on its behalf by:
N F Rogers
Director
M Ross
Director
Company registered number: 2298163
26
Surgical Innovations Group PLC Annual Report and Accounts 2018
Consolidated cash flow statement
For the year ended 31 December 2018
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
Gain on disposal of fixed assets
Foreign exchange
Equity share options issued
Decrease/(Increase) in inventories
(Increase) /decrease in current receivables
Increase/(decrease) in payables
Cash generated from operations
Taxation paid
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 (used in)/generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effective exchange rate fluctuations on cash held
Cash and cash equivalents at end of year
*Refer to note 20
27
2018
£’000
Restated*
2017
£’000
Notes
725
488
7
(210)
(117)
9
10
15
7
9
10
20
20
13
13
14
-
89
-
481
1,143
120
6
48
-
384
(1,027)
48
1,807
(68)
(89)
1,650
(88)
(398)
-
-
-
-
39
8
556
1,021
18
-
29
(32)
(238)
263
(131)
1,904
(206)
(90)
1,608
(250)
(381)
(144)
(7,135)
(431)
(486)
(8,341)
-
(318)
-
(16)
(334)
830
1,709
(48)
2,491
2,500
(75)
5,307
(36)
7,696
963
775
(29)
1,709
Surgical Innovations Group PLC Annual Report and Accounts 2018 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 02298163 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 17.
New standards and amendments to standards adopted in the year
During the year the Group adopted the following standards effective from the 1 January 2018. The Group has 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 has adopted 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 has not had 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 have adopted 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 cost. The Group applied the simplified method of the expected credit loss model when
calculating impairment losses on its financial assets measured at amortised cost, such as trade receivables.
This resulted in greater judgement due to the need to factor in forward looking information when estimating the
appropriate amount of provisions.
In applying IFRS 9 the Group considered the probability of a default occurring over the contractual life of its trade
receivables balances on initial recognition of those assets.
The Group has chosen not to restate comparatives on adoption of IFRS 9 given the immaterial nature of the transitional
impacts and, therefore, these changes have been processed in the current year.
The following new standards, amendments and interpretations are effective for the first time for periods beginning on
28
Surgical Innovations Group PLC Annual Report and Accounts 2018
or after 1 January 2018 but have not had a material effect on the Group and so have not been discussed in detail in the
notes to the financial statements:
Notes to the consolidated financial statements
•
IFRS 2 Share Based Payments (Amendment – Classification and Measurement of Share-Based Payment
Transactions)
IFRS 4 Insurance Contracts (Amendment – Applying IFRS 9 Financial Instruments)
•
• Annual Improvements to IFRSs 2014 – 2016 Cycle (IFRS 1 First-time Adoption of IFRS, IFRS 12 Disclosures of
interest in Other Entities and IAS 28 Investments in Associates and Joint Ventures)
IAS 40 Investment Property (Amendment - Transfers of Investment Property)
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
•
•
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 for IFRS
16.
IFRS 16 ‘Leases’ The standard is effective for periods beginning on or after 1 January 2019 and is EU endorsed.
Leases will be adopted by the Group for the financial year starting on 1 January 2019.The first set of interim accounts
that will be prepared in accordance with IFRS 16 will be 30 June 2019. For leases currently classified as operating
leases, under current accounting requirements the Group does not recognise assets or liabilities, and instead spreads
the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the total
commitment. 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 lease commitment as set out in note 17 and therefore the adoption of the standard
is expected to have a material impact on the Financial Statements of the Group. The Board has decided it will apply the
modified retrospective approach and therefore at the date of initial application an amount equal to the lease liability,
using appropriate incremental borrowing rates, will be recognised as a right of use asset. The portfolio of leases mainly
consists of property along with vehicle leases and IT equipment. For low value and short term leases the Group decided
to apply the recognition exemptions to short term leases of vehicles and low value IT equipment. This will ensure that
there is no immediate impact to net assets on that date.
Assuming the Group’s lease commitments remain at a similar level to those at 31 December 2018 and the incremental
borrowing rate is 6%, the effect of adopting IFRS 16 is expected to result in the recognition of right-of-use assets and
lease liabilities of approximately £1.5 million at 1 January 2019. However, the actual number of leases in existence and
the incremental borrowing rate in force could change and this may result in the actual right-of-use assets and lease
liabilities being higher or lower than this.
Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise
interest on its lease liabilities and amortisation on its right-of-use assets. The overall financial results in the year
ending 31 December 2019 are expected to be adversely impacted by approximately £88,000 due to the front end
loading of interest compared to smooth operating lease rental expenses but this may change due to the number of
leases in existence and the incremental borrowing rate in force at the time of adoption. If the incremental borrowing
rate increased or decreased by 1% the impact of the right-of-use assets and lease liabilities would be approximately
£150,000 and the impact on profit would be £19,000.
(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.
Associates
Where the Group has the power to participate in (but not control) the financial and operating policy decisions of
another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of
financial position at cost. Subsequently associates are accounted for using the equity method, where the Group’s share
of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of
29
Surgical Innovations Group PLC Annual Report and Accounts 2018 profit and loss and other comprehensive income (except for losses in excess of the Group’s investment in the associate
unless there is an obligation to make good those losses).
Notes to the consolidated financial statements
Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of
unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from
these transactions is eliminated against the carrying value of the associate.
Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the
investment is tested for impairment in the same way as other non-financial assets.
(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 classified as a
financial liability 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 (2017: None).
(e) Property, plant and equipment
Property, plant and equipment are stated at the cost of acquisition less any provision for depreciation. Cost includes
expenditure that is directly attributable to the acquisition of the item.
The carrying values of 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
(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
30
Surgical Innovations Group PLC Annual Report and Accounts 2018
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.
Notes to the consolidated financial statements
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 separable 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 judgements and estimates).
(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.
(i)Financial Instruments
Classification and measurement of IFRS9 has changed 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.
Financial Assets
The Group classifies its financial assets as subsequently measured at amortised cost under IFRS 9 if it meets both of the
following criteria:
– Hold to collect business model test – The asset is held within a business model whose objective is to hold the financial
asset in order to collect contractual cash flows; and
– Solely payments of principal and interest (SPPI) contractual cash flow characteristics test – The contractual terms of the
financial asset give rise to cash flows that are SPPI on the principal amount outstanding on a specified date.
Financial assets include:
•
•
•
Trade receivables
Amounts due from associate
Cash and cash equivalents
The measurement of these financial assets held at amortised cost remains unchanged since the introduction of IFRS9 from
the 1 January 2018.
Trade receivables
31
Surgical Innovations Group PLC Annual Report and Accounts 2018 Trade receivables that do not contain a significant financing component and are recognised initially at fair value and thereafter
at amortised costs less provision for impairment.
Notes to the consolidated financial statements
IFRS9 introduces a new impairment model. Under IAS 39, an entity only considers those impairments that arise as a result of
incurred loss events. The effects of possible future loss events cannot be considered, even when they are expected.
IFRS 9 introduces a new expected credit loss (‘ECL’) model which broadens the information that an entity is required to consider
when determining its expectations of impairment. Under this new model, expectations of future events must be taken into
account and this will result in the earlier recognition of larger impairments.
Amount due from associate
Amount due from associate initially recognised at fair value and thereafter at amortised cost.
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
The classification and measurement of financial liabilities in accordance with IFRS 9 Financial Instruments remains largely
unchanged from IAS 39 Financial Instruments: Recognition and Measurement.
Financial liabilities are classified as either:
– Financial liabilities at amortised cost; or
– Financial liabilities as at fair value through profit or loss (FVTPL).
All financial liabilities are measured at amortised cost and include:
•
• Bank borrowings
Trade and other payables
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 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
32
Surgical Innovations Group PLC Annual Report and Accounts 2018 in a transaction which affects neither the taxable profit nor the accounting profit.
Notes to the consolidated financial statements
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 comprises the fair value of the consideration received or receivable for the provision of goods in accordance
with the Group’s primary revenue stream as set out below. Revenue is shown net of Value Added Tax.
Sales of goods SI Brand/OEM/Distribution
Goods are recognised at the point of acceptance by the customer reflecting fulfilment of the sole performance
obligation to the customer. Typically SI Brand and OEM are contracted on FCA incoterms 2010 and therefore control
passes at the point the goods are shipped. In Distribution the goods have to be delivered in order for control to be
passed to the customer.
Contracts with customers are typically fixed price based on agreed amounts and invoiced upon despatch of the goods
in line with the standard term and conditions of the Group. Typically the Group’s standard payment terms are 60 days at
the date of the invoice for SI Brand and OEM and 30 days at the date of invoice for Distribution. There are no long term
contract or financing arrangements in place across the Group.
Assurance type warranties are provided for manufactured goods up to two years from the date of sale. These
warranties do not give rise to a separate performance obligation.
The Group is assessed operationally and financially under three revenue streams. The Directors do not therefore
consider there to be a lower relevant level of revenue disaggregation than that disclosed in Note 2, Segmental
Reporting. There are no material concentrations of revenue by customers.
Provision of services - Precision Engineering
The Group has a limited number of short term projects that relate to precision engineering. Typically within each
contract specific milestones are included for defined phases of work such as the design and build of instruments. Each
phase is considered to be a distinct performance obligation. Once each milestone has been achieved and, as such each
performance obligation satisfied, the Group invoices the customer. Standard payment terms are typically 90 days at
the date of invoice.
33
Surgical Innovations Group PLC Annual Report and Accounts 2018 Revenue is typically recognised for each performance obligation over time using the output method. This is because
the designs and instruments created have no alternative use for the Group. Contracts would require payment to be
received for the time and effort spent by the Group on progressing the contracts in the event of the customer cancelling
the contract prior to completion for any reason other than the Group’s failure to perform its obligations under the
contract.
Notes to the consolidated financial statements
There has been no impact on the Group from the transition to IFRS15 in relation to the provision of precision
engineering services. There are no outstanding performance obligations at the year end (2017: None).
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.
(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 (q).
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 2018 total £1,498,000 (inclusive of Single use product knowledge
transfer) 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 Group have revised the fair value of assets and liabilities of the company and
further identified additional supplier related intangible assets. 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, and the discount
rate applied. Further detail is provided in note10.
34
Surgical Innovations Group PLC Annual Report and Accounts 2018 (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.
Notes to the consolidated financial statements
Inventories
As described in note (g) management performs an impairment review on the net realisable value of inventories.
Provisions are made for obsolete, slow moving or defective items where appropriate. Such provisions are based upon
established future sales and historical experience.
Impairment of Intangibles assets
As described in note (h) previously, the Group is required to test, on an annual basis, whether goodwill is impaired.
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. A reasonable possible change in a key assumption would not
cause the carrying amount of goodwill to exceed the recoverable amount.
(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 an Acquisition; and
“Retained earnings” represents the accumulated profits and losses of the Group less dividends paid.
•
•
•
•
35
Surgical Innovations Group PLC Annual Report and Accounts 2018 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:
Notes to the consolidated financial statements
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.
Year ended 31 December 2018
Revenue
Result
Segment result
Unallocated expenses
Profit from operations
Finance income
Finance costs
Profit before taxation
Tax credit
Profit for the year
SI Brand
£’000
Distribution
£’000
OEM
£’000
Total*
£’000
6,088
3,037
1,844
10,969
1,733
1,059
737
3,529
(2,909)
620
-
(105)
515
210
725
There were no revenues transactions between the segments during the year
Included within the segment/operating results are the following significant non-cash items:
Year ended 31 December 2018
Amortisation and impairment of intangible assets
Additions to intangibles
Additions to tangibles
SI Brand
£’000
Distribution
£’000
230
398
65
788
-
23
OEM
£’000
125
-
-
Total
£’000
1,143
398
88
Unallocated expenses for 2018 include sales and marketing costs (£260,000), research and development costs
(£618,000), central overheads (£908,000), Direct (Elemental Healthcare) sales & marketing overheads (£1,278,000),
share based payments (£120,000) less Other Income (£275,000).
Year ended 31 December 2017 *Restated (refer to note 20)
Revenue
Result
Segment result
Unallocated expenses
Profit from operations
Finance income
Finance costs
Profit before taxation
Tax credit
Profit for the year
There were no revenues transactions between the segments during the year
SI Brand
£’000
Distribution
£’000
OEM
£’000
5,349
1,802
1,601
Total*
£’000
8,752
1,352
831
515
2,698
(2,288)
410
-
(39)
371
117
488
36
Surgical Innovations Group PLC Annual Report and Accounts 2018
Included within the segment results are the following items:
Year ended 31 December 2017 *Restated (refer to note 20)
Amortisation of intangible assets
Additions to intangibles
Additions to tangibles
Notes to the consolidated financial statements
SI Brand
£’000
Distribution
£’000
OEM
£’000
Total
£’000
398
381
245
498
125
1,021
-
5
-
-
381
250
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).
Disaggregation of revenue
The Group has disaggregated revenues in the following table:
Year ended 31 December 2018
SI Brand
£’000
Distribution
£’000
United Kingdom
Europe
US
Rest of World
1,692
1,347
1,704
1,345
6,088
Year ended 31 December 2017
SI Brand
£’000
Distribution
£’000
United Kingdom
Europe
US
Rest of World
1,384
1,527
1,616
822
5,349
3,037
1,844
10,969
OEM
£’000
1,426
-
418
-
Total
£’000
6,155
1,347
2,122
1,345
OEM
£’000
1,151
Total
£’000
4,337
-
1,527
450
2,066
-
822
3,037
-
-
-
1,802
-
-
-
1,802
1,601
8,752
Revenues are allocated geographically on the basis of where revenues were received from and not from the ultimate
final destination of use. During 2018 £1,177,000 (10.7%) of the Group’s revenue depended on one distributor in the SI
Brand segment (2017: £1,238,000 (14.1%)).
Sales of goods were £10,325,000 (2017: £8,560,000) and sales relating to services in the UK were £644,000,
(2017:192,000).
3. Operating profit
The operating profit for the year is stated after charging/(crediting):
Depreciation of owned assets
Depreciation of assets held under finance lease
Amortisation and impairment of capitalised development costs
Amortisation of exclusive supplier agreements
Research and development costs – non capitalised expenditure
Foreign exchange gains / (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
*Refer to note 20
2018
£’000
481
-
355
788
618
Restated*
2017
£’000
553
3
523
498
590
37
(24)
19
29
9
178
-
15
35
-
173
216
All exceptional items within 2017 related to the deal costs on the acquisition of Elemental Healthcare Ltd.
37
Surgical Innovations Group PLC Annual Report and Accounts 2018 Other operating expenses comprised:
Notes to the consolidated financial statements
Sales & marketing
Direct (Elemental Healthcare) sales & marketing overheads
Administrative expenses
Research & Development costs (non capitalised expenditure)
Exceptionals
Share based payments
Amortisation and impairment
Other Income comprised:
Novadaq
2018
£’000
260
1,278
908
618
-
120
1,143
4,327
2018
£’000
275
Restated*
2017
£’000
259
715
515
590
216
18
1,021
3,334
2017
£’000
25
The Group received a £300,000 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 to November 2018.
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
2018
Number
2017
Number
4
28
18
14
12
76
3
34
15
5
6
63
2018
£’000
2,537
241
2017
£’000
1,955
202
74
64
2,852
2,221
38
Surgical Innovations Group PLC Annual Report and Accounts 2018 Directors’ emoluments
Details of Directors’ emoluments for the year are as follows:
Notes to the consolidated financial statements
Executive
M Ross
N F Rogers
A Power
D Marsh
Non-executive
M J McMahon
P Hardy
A Taylor
Total
Salary
and fees
2018
£’000
Bonus
2018
£’000
Benefits
2018
£’000
Total
emoluments
2018
£’000
Total
emoluments
2017
£’000
Pension
contributions
2018
£’000
Pension
contributions
2017
£’000
107
60
122
122
20
20
20
25
-
25
25
-
9
-
11
11
-
-
-
141
60
158
158
20
20
20
158
60
55
55
36
20
20
12
-
3
3
-
-
-
471
75
31
577
404
18
5
-
-
-
-
-
-
5
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 2018 are as follows:
At 1January 2018
Exercised during
year
Granted during
the year
At 31 December
2018
Option price
Date granted
M Ross
M Ross
N Rogers
M McMahon
A Power
D Marsh
4,750,000
3,000,000
1,750,000
1,750,000
6,000,000
6,000,000
-
-
-
-
-
-
-
4,750,000
1.575p
December
20151
-
-
-
-
-
3,000,000
1,750,000
1,750,000
6,000,000
6,000,000
3.25p October 20171
3.25p October 20171
3.25p October 20171
3.25p October 20171
3.25p 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 2.80p (2017: 3.625p) and the range of
market prices during the year was between 2.675p (2017: 3.025p) and 4.05p (2017: 4.625p).
Key management including Non-executive Directors:
Salaries
Social security costs
Pension costs
Share-based payments
Total
Key management comprises of all Board Directors.
39
2018
£’000
502
50
18
61
2017
£’000
351
36
5
8
631
394
Surgical Innovations Group PLC Annual Report and Accounts 2018 5. Finance costs
On finance leases
On bank borrowing
Total
6. Finance income
Interest received
7. Taxation
Current tax (credit)/charge:
Prior year adjustment
Total current tax (credit)/charge
Deferred tax (credit)/charge:
Origination and reversal of temporary timing differences
Changes in tax rates
Previously unrecognised deferred tax
Deferred tax credit during the year
Total tax credit
*refer to note 20
Notes to the consolidated financial statements
2018
£’000
-
105
105
2018
£’000
-
2017
£’000
1
38
39
2017
£’000
-
2018
£’000
Restated*
2017
£’000
(36)
40
5
(31)
-
40
(150)
(95)
-
(29)
(179)
(210)
-
(62)
(157)
(117)
Factors affecting the tax charge for the year
The taxation assessed for the year is lower (2017: lower) than the standard rate of Corporation tax in the UK at
19% (2017: 19%). The differences are explained as follows:
2018
£’000
Profit on ordinary activities before taxation
515
Corporation tax at standard rate of 19% (2017: 19%)
98
Effects of:
Net impact of research and development enhanced expenditure
Expenses not tax deductible
Other movements on intangible assets and accelerated capital allowances
Trading losses not recognised
Deferred tax not previously recognised
Total tax credit for the year
(237)
1
43
(86)
(29)
(210)
*refer to note 20
Deferred taxation
The movement in the deferred taxation (liability)/asset during the year was:
Balance brought forward-(liability)/asset
Acquisition of Intangible in 2017 (note 20)
Consolidated statement of comprehensive income movement during 2017 (restated*)
Consolidated statement of comprehensive income movement during the year
Balance carried forward - (liability)/asset
Restated*
2017
£’000
371
70
(185)
(38)
60
38
(62)
(117)
2018
£’000
(186)
2017
£’000
-
-
-
(343)
157
179
-
(7)
(186)
40
Surgical Innovations Group PLC Annual Report and Accounts 2018
The deferred taxation calculated in the financial statements at 17% (2017: 17%) is set out below:
Notes to the consolidated financial statements
Trade losses
Plant and Equipment
Capitalised development expenditure
Deferred tax asset
Intangibles
Net deferred tax liability
*refer to note 20
2018
£’000
(190)
26
73
(91)
98
7
Restated*
2017
£’000
(141)
79
-
(62)
248
186
At the balance sheet date, the Group has unused tax losses of £21.1 million (2017: £21.5 million) available for offset
against certain future profits. This represents an unrecognized deferred tax asset of £3.4m (2017: £3.5m). The timing
differences has given rise to a deferred tax liability of £197,000 (2017 restated DTL: £327,000).
8. Earnings per ordinary share
Basic earnings per ordinary share
The calculation of basic earnings per ordinary share for the year ended 31 December 2018 was based upon the profit
attributable to ordinary shareholders of £725,000 (2017 restated: £488,000) and a weighted average number of
ordinary shares outstanding for the year ended 31 December 2018 of 782,566,177 (2017: 637,570,475).
Diluted earnings per ordinary share
The calculation of diluted earnings per ordinary share for the year ended 31 December 2018 was based upon the
profit attributable to ordinary shareholders of £725,000 (2017 restated: £488,000) and a weighted average number
of ordinary shares outstanding for the year ended 31 December 2018 of 829,578,416 (2017: 662,157,725).
Adjusted earnings per ordinary share
The calculation of adjusted earnings per ordinary share for the year ended 31 December 2018 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 £1,633,000 (2017: £1,220,000) and a
weighted average number of ordinary shares outstanding for the year ended 31 December 2018 of 637,570,475
(2017: 637,570,475).
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
2018
No. of shares
2017
No. of shares
782,566
637,570
47,012
24,588
829,578
662,158
41
Surgical Innovations Group PLC Annual Report and Accounts 2018 9. Property, plant and equipment
Cost
At 1 January 2017
Acquired as part of a business
combination(note 20)
Additions
At 1 January 2018
Additions
Disposals
Accumulated depreciation
At 1 January 2017
Charge for the year
At 1 January 2018
Charge for the year
Disposals
At 31 December 2018
Net Book amount
At 31 December 2018
At 31 December 2017
At 1 January 2017
Notes to the consolidated financial statements
Plant and
machinery
£’000
3,609
-
Office and
computer
equipment
£’000
1,028
Placed
equipment
£’000
456
26
-
60
3,669
15
(3)
25
-
1,079
51
-
456
-
-
Tooling
£’000
1,462
-
132
1,594
19
-
Improvements
to leasehold
property
£’000
366
29
33
428
3
-
Total
£’000
6,921
55
250
7,226
88
(3)
1,613
3,681
1,130
456
431
7,311
1,218
119
1,337
81
-
2,411
313
2,724
317
(2)
975
35
1,010
54
-
1,418
3,039
1,064
424
32
456
-
-
456
314
57
371
29
-
5,342
556
5,898
481
(2)
400
6,377
195
257
244
642
945
1,198
66
69
53
-
-
32
31
57
52
934
1,328
1,579
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
2018
£’000
2017
£’000
-
-
17
3
Security
At 31 December 2018 and at 31 December 2017, the assets of the Group are subject to a floating charge debenture in
favour of the Group’s banking facilities. At the 31 December 2018 there was no drawdown (2017: £nil) on the rolling
credit facility agreement therefore no liability was held at this point in time.
42
Surgical Innovations Group PLC Annual Report and Accounts 2018 10. Intangible assets
Cost
At 1 January 2017
Additions
Acquired as part of business combination restated
At 1 January 2018
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2017
Charge for the year restated*
Impairment provision
At 1 January 2018
Charge for the year
Impairment provision
At 31 December 2018
Carrying amount
At 31 December 2018
At 31 December 2017 restated*
At 1 January 2017
*refer to note 20
Capitalised
development
costs
£’000
Single use
product
knowledge
transfer
£’000
12,320
381
-
225
-
-
Goodwill
£’000
-
-
8,082
12,701
225
8,180
398
13,099
(10,948)
(522)
(1)
(11,471)
(353)
(2)
(11,826)
1,273
1,230
1,372
-
225
-
-
-
-
-
-
-
225
225
225
Notes to the consolidated financial statements
Exclusive
Supplier
Agreements
£’000
-
-
1,799
1,799
-
1,799
-
(498)
-
(498)
(788)
-
Total
£’000
12,545
381
9,979
22,905
398
23,303
(10,948)
(1,020)
(1)
(11,969)
(1,141)
(2)
(1,286)
(13,112)
-
8,180
-
-
-
-
-
-
-
8,180
8,180
-
513
1,301
-
10,191
10,936
1,597
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 prior year and is related to both the Distribution and SI Brand segments of the Group. Elemental
Healthcare Limited is considered to be a separate cash generating unit 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.
In the current year, the fair value of acquired identifiable intangible assets was finalised and the provisional values were
updated to reflect this. The impact of this has been an increase in the valuation of exclusive supplier agreements by
£512,000 at the acquisition date and a corresponding decrease in goodwill by £414,000 and an increase in deferred tax
liability by £98,000 (refer to note 7). The amortisation for the prior year has been revised to include an additional charge of
£171,000. Further detail is given in note 20.
Single use product knowledge transfer relates to the acquisition and of the single use laparoscopic instrumentation
products of Surgical Dynamics Ltd in 2016. Additional expenditure of £158,000 in relation to this has been included in
Capitalised development costs, these costs are currently not being amortised.
11. Inventories
Raw materials and work in progress
Finished goods
Net Inventory
43
2018
£’000
1,123
960
2017
£’000
1,418
1,049
2,083
2,467
Surgical Innovations Group PLC Annual Report and Accounts 2018 Included in the analysis above are impairment provisions against inventory amounting to £1,282,000 (2017:
£1,874,000), which represents 38.1% (2017: 43.1%) of gross inventory.
Notes to the consolidated financial statements
In 2018 a total of £6,097,000 of inventories was included in profit and loss as an expense within cost of sales (2017:
£5,033,000). Cost of sales included a provision release of £232,000 (2017: £5,000 charge). There was no exceptional
charge in the Administrative expenses relating to relating to the write off of specific inventories for which no future
sale is likely and also the creation of a provision for all other inventory based upon product age (2017: £nil).
Inventories are pledged as securities for bank facilities.
12. Trade and other receivables
Falling due in less than one year
Trade receivables
Prepayments
Amount due from associate*
Other debtors
2018
£’000
2,584
348
79
29
2017
£’000
1,605
329
-
30
3,040
1,964
Of the current trade receivables, £957,601 relates to the top three customers (2017: £511,101). The carrying value of
trade receivables is considered to be a reasonable approximation of fair value.
*Amount due from associate represents development expenses incurred in collaboration with an associated
Company Illuminno Ltd of which Surgical Innovations Group Plc holds 33% shareholding. The value of the investment
is £33 and is not considered material to the Group.
13. Borrowings
Bank loan
Current liabilities
Non-current liabilities
2018
£’000
287
2017
£’000
300
1,820
2,125
2,107
2,425
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 which commenced on 31 October
2017, totalling 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 31 December 2018 the remaining balance of the term loans was £2.2107m. 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 drawndown 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 31 December 2018, no amount was drawndown (2017: £nil).
Changes in liabilities arising from financing activities
At 1 January 2018
Cash flows
Transfer between non-current and current
Interest accruing in the period
At 31 December 2018
Non-
current
loans and
borrowings
Current
loans and
borrowings
Obligations
under
finance
leases
2,125
-
(300)
(5)
1,820
300
(300)
300
(13)
287
16
(16)
-
-
-
Total
2,441
(316)
-
(18)
2,107
44
Surgical Innovations Group PLC Annual Report and Accounts 2018 14. Financial instruments
The financial assets of the Group are categorised as follows:
Notes to the consolidated financial statements
At amortised cost
Trade receivables
Amount due from associate
Cash and cash equivalents
The financial liabilities of the Group are categorised as follows:
At amortised cost
Trade payables
Other payables
Bank borrowings-Current
Bank borrowings-Non current
Trade and other payables
Trade payables
Other payables
Other tax and social security
Other payables
2018
£’000
2,584
79
2,491
5,154
2018
£’000
1,083
317
287
1,820
3,507
2018
£’000
1,083
-
156
317
2017
£’000
1,605
-
1,709
3,314
2017
£’000
1,058
222
300
2,125
3,705
2017
£’000
1,058
99
201
222
1,556
1,580
The Group and Company’s financial liabilities have contractual maturities (including interest payments where
applicable) which are summarised below.
As at 31 December 2018
Trade payables
Other payables
Bank borrowings-Current
Bank borrowings-Non current
As at 31 December 2017
Trade payables
Other payables
Bank borrowings-Current
Bank borrowings-Non current
45
Amounts due in
less than 1 year
£’000
Amounts due in
less than 2-5
years time
£’000
Total financial
liabilities
£’000
1,083
317
382
-
1,782
-
-
2,054
2,054
1,083
317
382
2,054
3,836
Amounts due in
less than 1 year
£’000
Amounts due in
less than 2-5
years time
£’000
Total financial
liabilities
£’000
1,058
317
388
-
1,782
-
-
-
2,382
2,054
1,058
317
388
2,382
3,836
Surgical Innovations Group PLC Annual Report and Accounts 2018 Notes to the consolidated financial statements
14. Financial instruments (continued)
Financial risk management objectives and policies
Overview
The Group has exposure to the following risks arising from financial instruments:
•
•
•
•
Foreign currency sensitivity;
credit risk;
liquidity risk; and
interest rate risk.
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
2018
€’000
261
(175)
86
2017
€’000
-
(129)
(129)
2018
$’000
1,026
2017
$’000
779
(669)
(399)
357
380
The Group has exposure to the movements in the exchange rates in the Euro and Dollar at 31 December 2018.
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 £8,000 (2017: £11,000) against the Euro and
£28,000 (2017: £28,000) 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 (2017: £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 receivables
2018
£’000
2,584
2,584
2017
£’000
1,605
1,605
The Group continually monitors defaults of customers and other counterparties and incorporates this information
into its credit risk controls. In terms of customer concentration the Group does hold some credit risk as disclosed in
note 12.
The Group measure lifetime expected credit losses using the simplified approach at all times using a provision
matrix. The provision matrix is based on the Group’s historical default rates over the expected life of the trade
receivables and is adjusted for forward-looking estimates.
At 31 December 2018 £27,000 (2017: £90,000) of the Group’s trade receivables were past due. A credit loss provision
of £9,000 (2017: £125,000) is held to mitigate the exposure to potential bad and doubtful debts.
46
Surgical Innovations Group PLC Annual Report and Accounts 2018 14. Financial instruments (continued)
The ageing of the Group’s trade receivables is as follows:
As at 31 December 2018
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 a year
Total past due trade receivables
Total receivables not yet past due
Total gross trade receivables
Expected credit loss
Total net trade receivables (note 12)
Notes to the consolidated financial statements
2018
£’000
22
5
-
-
27
2,566
2,593
(9)
2,584
2017
£’000
82
8
-
-
90
1,640
1,730
(125)
1,605
The Group’s management considers that all the above financial assets that are not impaired or past due for each
of the reporting dates under review are of good quality. The ageing profile above is the profile used by management
in reviewing the ledger however it is the expected credit loss model which is used to calculate the provision as 31
December 2018.
As 31 December 2018 the lifetime expected loss provision for trade receivables is as follows:
Expected loss rate
Gross carrying amount £’000
Expected credit loss provision
Current
More than
30 days past
due
More than
60 days past
due
More than
90 days past
due
More than
120 days
past due
Total £’000
0.28%
1,864
5
0.34%
0.95%
0.68%
3.05%
496
1
81
1
125
1
27
1
2,593
9
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected
credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables
are Grouped based on similar credit risk and aging. The expected loss rates are based on the Group’s historical
credit losses experienced over the one year period prior to the period end. The historical loss rates are then adjusted
for current and forward-looking information on macroeconomic factors affecting the Group’s customers.
A reconciliation of the movement in the impairment allowance for receivables under the expected credit loss model
is shown below.
As at 31 December 2018
Provision for bad and doubtful debts as at 31 December 2017 (under IAS39)
Amounts released *
Amounts provided
Expected credit loss provision as at 31 December 2018
*Amount released relates to a specific liability accrued in previous years
£’000
125
(125)
9
9
47
Surgical Innovations Group PLC Annual Report and Accounts 2018 Notes to the consolidated financial statements
14. Financial instruments (continued)
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 2018
Finance lease obligations
Trade and other payables
Bank loans
31 December 2017
Finance lease obligations
Trade and other payables
Bank loans
Interest rate risk analysis
Current
Within 6
Months
£’000
-
1,384
192
1,576
Non-
Current
Over 12
months
£’000
-
-
Within
6 -12
Months
£’000
-
16
190
2,054
206 2,054
Within 6
Months
£’000
Within
6 -12
Months
£’000
Over 12
months
£’000
12
4
-
1,259
21
-
194
194
2,382
1,466
219
2,382
Due to the level of the Group’s borrowings no interest rate swaps or other forms of interest risk management has
been undertaken. The Group regularly reviews its exposure to fluctuations in underlying interest rates and will
take appropriate action if required to minimise any impact on the performance and financial position of the Group.
Further analysis of long-term borrowings is provided in note 13.
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
Current
Non
Current
2018
£’000
2017
£’000
-
-
-
-
2018
£’000
382
2,054
(329)
2,107
16
-
-
16
2017
£’000
388
2,382
(345)
2,425
48
Surgical Innovations Group PLC Annual Report and Accounts 2018 14. Financial instruments (continued)
Summary of financial assets and liabilities by category
Current assets
Cash at bank and in hand
Trade receivables
Amount due from associate
Current liabilities
Trade and other payables: financial liabilities measured at amortised cost
Other short-term financial liabilities measured at amortised cost
Accruals
Borrowings measured at amortised cost
Non-current liabilities
Borrowings measured at amortised cost
Other non-current liabilities measured at amortised cost
Net financial assets and liabilities
Notes to the consolidated financial statements
2018
£’000
2017
£’000
2,491
2,584
79
5,154
1,709
1,605
3,314
1,400
1,280
-
481
287
16
454
300
2,168
2,050
1,820
2,125
-
-
1,820
2,125
1,166
(861)
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:
2018
£’000
2,107
-
2017
£’000
2,425
16
(2,491)
(1,709)
(384)
732
14,423
13,578
14,039
14,310
Bank Loan
Obligations under finance leases
Less: cash and cash equivalents
Net (cash)/debt
Total equity
Total capital
49
Surgical Innovations Group PLC Annual Report and Accounts 2018 15. Share capital
Notes to the consolidated financial statements
2018
£’000
2017
£’000
Authorised, allotted, called up and fully paid 782,566,177
(2017: 782,566,177) ordinary shares of 1p each
7,826
7,826
Shares in issue reconciliation
Opening no of shares in issue
Issued in lieu of remuneration
Issued in relation to acquisition of Elemental Healthcare
Issued in satisfaction of share options exercised
Closing number of shares in issue
Share-based payments
At 31 December 2018, the following share options were outstanding:
2018
782,566,177
-
-
-
782,566,177
2017
533,407,756
1,425,088
245,833,333
1,900,000
782,566,177
Scheme and date of grant
Non-executive unapproved
January 2009
November 2009
Enterprise management
June 2012
June 2012
June 2013
December 2015
October 2017
Other option awards
January 2013
June 2013
October 2017
At
1 January
2018
1,000,000
400,000
620,000
200,000
1,100,000
15,000,00
26,000,000
4,999,998
1,000,000
5,000,000
Number of shares
Exercise dates
Granted
in yr
Exercise
in yr
Lapsed
in yr
At 31
December
2018
Option price
per 1p share
Date from which
option may be
exercised
Date on which
option expires
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
400,000
(60,000)
560,000
200,000
1,100,000
-
-
-
1.5p
1.7p
7.2p
9.0p
5.1p
November 2009
January 2019
November 2009 November 2019
June 2015
June 2022
June 2015
June 2022
June 2016
June 2023
15,000,000
1.575p
December 2018 December 2025
-
26,000,000
3.25p
October 2020
October 2027
-
-
-
4,999,998
1,000,000
6.9p
5.1p
January 2018
January 2023
June 2016
June 2023
5,000,000
3.25p
October 2020
October 2027
50
Surgical Innovations Group PLC Annual Report and Accounts 2018 No share options were granted during the year.
Notes to the consolidated financial statements
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
2018
2017
Average
exercise
price
pence
Options
’000s
3.2
55,320
-
-
-
-
Average
exercise
price
pence
3.0
1.7
3.3
7.2
(60)
1.7
3.2
55,260 3.2
Options
’000s
27,780
(1,900)
31,000
(1,560)
55,320
The weighted average contractual life remaining on the options is 7.4 years.
The weighted average fair value of options granted in prior years was determined using either the Black-Scholes
valuation model or the monte carlo valuation method. The significant inputs into the Black-Scholes 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. Share options issued in 2017 for senior management were based
on performance targets being reached. As such the black-scholes method of calculation was deemed not to be
appropriate to measure the share based payment charge and so the Monte Carlo method was used. The significant
inputs into the model were share price at the date of grant, exercise price as set out above, volatility of 69% and an
expected life over 6 years. A risk free rate of 0.92% was used.
After taking account of leavers, the total share- based payment charge for the year was £120,000 (2017: £18,000).
51
Surgical Innovations Group PLC Annual Report and Accounts 2018 16. Share premium
Balance as at 31 December 2017
Attributable costs incurred in issuing equity
Issue of ordinary share capital
Balance as at 31 December 2018
Notes to the consolidated financial statements
Share
premium
£’000
5,831
-
-
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 2017
Issue of ordinary share capital
Balance as at 31 December 2018
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 an acquisition.
17. Contingent liabilities and financial commitments
These are as follows:
(a) Operating leases
At 31 December 2018 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
2018
£’000
272
809
685
2017
£’000
198
139
13
Leases include property, car leases and photocopiers
The significant increase in operating leases related to the renewal of a property lease. The lease was taken over a
period of 10 years with a 5 year breakout clause.
(b) Operating commitments
At 31 December 2018 the Group had capital commitments totalling £nil (2017: £25,000).
52
Surgical Innovations Group PLC Annual Report and Accounts 2018 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:
Notes to the consolidated financial statements
Getz Healthcare1
Hardy Transaction Management Ltd2
Amounts
invoiced to/(by)
the Group
Amounts
payable/
(receivable)
31 December
2017
Amounts
invoiced to/(by)
the Group
Amounts
payable/
(receivable) 31
December
2018
£’000
2018
£’000
(226)
(9)
-
-
2017
£’000
(406)
(50)
2017
£’006
(101)
-
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 £226,000 for products and at 31 December 2018 there was an amount owing to Surgical Innovations of £9,000. Getz Bros. & Co. Inc. is the ultimate beneficial owner of Getz
Healthcare (Hong Kong) Ltd who is a substantial shareholder representing 13.9% 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
Charges in prior year relate to transactional services in relation to the Acquisition of Elemental Healthcare Ltd, provided by 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 2018 were £74,000 (2017: £64,000). As at 31 December 2018 amounts due to the pension
scheme were £nil (2017: £nil).
53
Surgical Innovations Group PLC Annual Report and Accounts 2018
Notes to the consolidated financial statements
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. The Group has revised and further identified an
asset which has been included in the Exclusive supplier contracts. Use of the identifiable assets acquired, purchase
consideration and goodwill of Elemental Healthcare are as follows:
Assets acquired from Elemental Healthcare 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
Provisional
Fair Value on
acquisition
£’000
Adjusted Fair
value of further
identified asset
£’000
Revised
Fair Value on
acquisition
£’000
1287
512
1,799
-
-
-
-
-
-
-
-
-
(98)
414
(414)
55
544
366
95
130
(758)
(265)
(387)
(41)
(245)
781
8,594
9,375
7,500
1,875
9,375
216
225
441
55
544
366
95
130
(758)
(265)
(387)
(41)
(343)
1,195
8,180
9,375
7,500
1,875
9,375
216
225
441
*As disclosed in last year’s Annual Report, the value of the identifiable net assets of Elemental Healthcare Limited had
only been determined on a provisional basis due to an independent valuation being carried out on intangible assets not
being finalised when the 2017 financial statements were issued. Had the valuation been finalised the 2017 financial
statements would have differed to those previously reported as follows:
increased by £512,000 and an additional deferred tax liability of £98,000 has been recognised. As a result of this this has
given rise to an additional amortisation charge of £171,000 and a deferred tax credit of £33,000 in 2017.
Exclusive supplier contracts have been
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.
21. Dilapidation provision
Provision for Dilapidation as at the year ending 31 December 2017
Amounts released
Amounts provided
Provision for Dilapidation as at 31 December 2018
Dilapidation costs relate to the building lease held by the Group. The 2017 financial statements have been
represented, the provision for dilapidation was previously presented in accruals.
£’000
165
-
-
165
54
Surgical Innovations Group PLC Annual Report and Accounts 2018 Company Balance Sheet
Company Balance Sheet
as at 31 December 2017
Assets
Non-current assets
Investments
Current assets
Other 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
Dilapidation provision
Current liabilities
Trade & other payables
Total liabilities
Total equity & liabilities
Notes
2018
£’000
2017
£’000
2
3
6
4
4
10,374
10,374
2,470
55
2,525
12,899
7,826
5,831
1,250
(2,343)
12,564
165
170
335
3,262
75
3,337
13,711
7,826
5,831
1,250
(1,490)
13,417
165
129
294
12,899
13,711
The loss after tax for the company for the year ended 31 December 2018 was £973,000 (2017: £461,000).
The financial statements on pages 55 to 59 were approved by the Board of Directors on 11 March 2019 and were
signed on its behalf by:
Melanie Ross
Chief Financial Officer
Company registered number: 02298163
55
Surgical Innovations Group PLC Annual Report and Accounts 2018 Statement of changes in equity
for the year ended 31 December 2018
Balance as at 1 January 2017
Employee share-based payment options
Attributable costs for issue of equity
Issue of share capital
Total – transactions with owners
Loss and total comprehensive deficit for the period
Balance as at 31 December 2017
Employee share-based payment
Total – transactions with owners
Loss and total comprehensive deficit for the period
Share
capital
£’000
5,334
Share
premium
£’000
2,339
-
-
2,492
2,492
-
-
(225)
3,717
3,492
-
Merger
Reserve
£’000
-
-
-
1,250
1,250
Retained
earnings
£’000
(1,047)
18
-
-
18
Total
£’000
6,626
18
(225)
7,459
7,252
-
(461)
(461)
7,826
5,831
1,250
(1,490)
13,417
-
-
-
-
-
-
-
-
-
120
120
120
120
(973)
(973)
Balance as at 31 December 2018
7,826
5,831
1,250
(2,343)
12,564
56
Surgical Innovations Group PLC Annual Report and Accounts 2018 Notes to the Company financial statements
as at 31 December 2018
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;
a Cash Flow Statement and related notes;
Disclosures in respect of transactions with wholly owned subsidiaries ;
The effects of new but not yet effective IFRSs;
An additional balance sheet for the beginning of the earliest comparative period following the retrospective
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.
57
Surgical Innovations Group PLC Annual Report and Accounts 2018
2. Investments
At 31 December 2017
At 31 December 2018
Notes to the Company financial statements
£’000
£’000
£’000
Cost
Impairment
Net book Value
10,373
10,373
-
-
10,373
10,373
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
Amounts due from subsidiary undertakings are unsecured, interest free and repayable on demand.
2018
£’000
46
7
2,417
2,470
2017
£’000
10
6
3,246
3,262
58
Surgical Innovations Group PLC Annual Report and Accounts 2018 4.
Current liabilities
Accruals and deferred income
Other creditors
Non-Current liabilities
Dilapidation provision
Notes to the consolidated financial statements
2018
£’000
140
30
170
2017
£’000
95
34
129
165
165
165
165
Dilapidation costs relate to the building lease held by the Group. The 2017 financial statements have been
represented, the provision for dilapidation was previously presented in accruals.
5. Share capital
Allotted, called up and fully paid:
782,566,177, ordinary shares of 1p each (2017: 782,566,177)
6. Transactions with related parties
2018
£’000
2017
£’000
7,826
7,826
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:
Hardy Transaction Management Ltd1
Transactions with related parties during the current and prior year were
as follows:
Amounts
invoiced
to/(by)
the
Group
2018
£’000
Amounts
payable/
(receivable)
31 December
2018
£’000
-
-
Amounts
invoiced
to/(by)
the
Group
2017
£’000
(50)
Amounts
payable/
(receivable)
31
December
2017
£’000
-
1.
Charges in prior year relate to transactional services in relation to the Acquisition of Elemental Healthcare Ltd, provided by 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.
59
Surgical Innovations Group PLC Annual Report and Accounts 2018
Advisers
Company Secretary and registered office
Charmaine Day
Clayton Wood House
6 Clayton Wood Bank
Leeds LS16 6QZ
Registered number
02298163
Nominated adviser
N+1 Singer
1 Batholomew Lane
London
EC2N 2AX
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
60
Surgical Innovations Group PLC Annual Report and Accounts 2018 Surgical Innovations Group plc
Clayton Wood House
6 Clayton Wood Bank
Leeds LS16 6QZ
T. +44 (0) 113 230 7597
F. +44 (0) 113 230 7598
W. www.sigroupplc.com
Reg No. England 02298163
For investor relations enquiries please email:
si@surginno.co.uk
For sales enquiries please email:
sales@surginno.co.uk
For general enquiries please email:
si@surginno.co.uk
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