TIDMSUN
RNS Number : 1415O
Surgical Innovations Group PLC
28 May 2020
Surgical Innovations Group plc
(the "Company" or the "Group")
Update on current trading and extension to banking
facilities
Surgical Innovations Group plc (AIM: SUN), the designer,
manufacturer and distributor of innovative technology for minimally
invasive surgery, provides an update on current trading, the steps
taken to mitigate the short-term commercial effects of the Covid-19
pandemic, and the agreement of extended banking facilities.
The Company is well positioned with stable finances, broad
international markets, and product ranges which are increasingly
being recognised as ideally suited to the sustainability agenda and
demands of a post-Covid world.
In the final results announcement released on 31 March 2020, the
Board indicated short-term reductions in revenues in the current
year as a result of the Covid-19 pandemic, due to the suspension of
elective surgery in the UK and several other major geographical
markets. As expected, the impact was experienced from March, and
aggregate revenues in the first quarter of 2020 were approximately
25% below the level achieved in the prior year. A further reduction
to approximately 70% below the prior year level was experienced in
April and is likely to continue in the second quarter.
Stable financial position
The Company responded quickly to meet this challenging
environment by implement ing strict spending controls in order to
preserve cash , whilst also focusing on timely collection of
receivables and deferral of non-essential payables by renegotiating
terms. Once the Government Coronavirus Job Retention Scheme was
announced on 20 March, an initial 50% of the workforce was
furloughed with effect from 1 April. In addition, the Company
implemented short-term salary reductions for all personnel above
the furlough threshold, up to an upper limit of 50% for Board
directors. A small manufacturing team continued to function,
focusing on key products to build a 3-month buffer stock which
enables us to support our customer requirements, and also to have
the flexibility when planning a phased restart as the crisis eases.
By 1 May, with sufficient inventory of key products in hand, the
Company furloughed all but 15% of the workforce, with those
remaining undertaking essential operational and financial
projects.
On 1 May 2020, these cash conservation measures resulted in
aggregate cash balances maintained by the Group of approximately
GBP1.65m (1 January 2020: GBP1.28m), and all significant payables
remaining within agreed terms. Aggregate cash at the end of May is
expected to be at a similar level, and the Board considers that the
Group has sufficient liquidity to maintain its full commercial and
operational capabilities, despite substantially reduced demand, for
several months. To further protect the availability of cash
resources, the Company has agreed with its bankers to suspend
normal capital repayments of GBP0.075m per quarter under the
existing loan facility of GBP0.75m until 31 October 2020, and to
maintain the flexibility of the existing GBP0.50m revolving credit
facility. In addition, the Company has agreed a new facility of
GBP1.50m under the Coronavirus Business Interruption Loan Scheme.
In aggregate, these facilities offer available financial headroom
of approximately GBP3.65m and are repayable in May 2022. Financial
covenants will continue to be tested on a quarterly basis with
ample headroom at drawdown. The Board is satisfied that this
provides the appropriate platform from which to benefit from the
anticipated recovery in demand.
U.K. and international market perspective
In the UK market, NHS hospitals are at an early stage of
normalisation following the peak rate of Covid-19 infection in
recent weeks. Operating theatres which had been converted to
provide emergency critical care are being returned to normal use,
with the initial focus on treating urgent cases, especially cancer
related. Early signs are positive that elective cases may
recommence in August, and caseloads may return to pre-Covid levels
in the final quarter of the year. Our internal financial forecasts,
used for banking and planning purposes, are more cautious. This
reflects the significant challenges which may be encountered in
accessing hospitals to provide sales and technical support in
surgery.
Despite these challenges, there are also encouraging signs that
additional hospital capacity will be retained to make inroads into
the significant backlog of elective cases that has built up, partly
as a consequence of Covid-19. A recent study by the University of
Birmingham concluded that some 28m elective surgeries will have
been cancelled or postponed worldwide in a twelve week period
(including approximately 0.5m in the UK alone), and recommended
that Governments should mitigate against this major burden on
patients by developing recovery plans and implementing strategies
to safely restore surgical activity.* On 29 April 2 020, Simon
Stevens, CEO NHS England, recommended to all chief executives of
NHS trusts and foundation trusts that, over the subsequent six
weeks, hospitals should restart routine elective procedures where
capacity allows.**
Dialogue within our distribution base suggests that some
territories are recovering at a faster rate than the UK, including
Japan, Canada and Israel. The picture in Continental Europe
presents regional differences, but is broadly consistent with our
home market. Our largest export market in the US has official
guidance in place regarding a phased restoration of elective
surgery, but practice also varies across regional boundaries. The
southern states appear to be returning to elective cases more
rapidly than either the East or West coasts. Although signs in the
US are encouraging, the risk of a return to hospital restrictions
due to a second wave are considered significant.
Sustainable products for a post-Covid green agenda
Prior to the Covid-19 pandemic, there was clear evidence of
market share gains within the NHS as a consequence of the
sustainability advantages that our resposable products offer over
fully disposable alternatives. This work has continued despite
current restrictions, and we are encouraged by feedback from senior
management, clinicians, theatre staff and procurement that there is
further potential for significant new business wins.
Operationally, we are planning for a restart of manufacturing
operations at Leeds during the third quarter, whilst maintaining
strict Health & Safety guidelines to keep our keep people safe
at work and, where possible, allowing staff to continue working
from home. Detailed planning is completed, however the start date
and rate of increase can be flexed to accommodate the most up to
date information on actual and likely future demand. The recent
hiatus in production has been used to strengthen and simplify
internal business processes, and optimise our operational
capabilities after restart. Importantly, communication and morale
amongst our workforce has been excellent and we applaud their
pragmatism and positivity.
Summary
During this period of continuing uncertainty, we consider it
premature to reinstate earnings guidance for the current and
subsequent financial years. Looking to the future, however, the
Board is confident that robust measures have been successfully
implemented to protect and strengthen our core capabilities. We
therefore believe that the business will emerge from the crisis
well prepared to support our worldwide customers in their efforts
to catch up with the substantial backlog in cases, whilst offering
sustainable products that meet the growing demands of a green
agenda.
* Elective surgery cancellations due to the COVID-19 pandemic:
global predictive modelling to inform surgical recovery plans.
Author: Mr Aneel Bhangu, NIHR Global Health Research Unit on Global
Surgery, Heritage Building, University of Birmingham, England
**
https://www.england.nhs.uk/coronavirus/wp-content/uploads/sites/52/2020/04/second-phase-of-nhs-response-to-covid-19-letter-to-chief-execs-29-april-2020.pdf
For further information please contact:
Surgical Innovations Group plc www.sigroupplc.com
Nigel Rogers, Chairman Tel: 0113 230 7597
David Marsh, CEO
N+1 Singer (NOMAD & Broker) Tel: 020 7496 3000
Aubrey Powell (Corporate Finance)
Rachel Hayes (Corporate Broking)
Walbrook PR (Financial PR & Investor Tel: 020 7933 8780 or si@walbrookpr.com
Relations)
Paul McManus / Lianne Cawthorne Mob: 07980 541 893 / 07584 391 303
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