Med tech firm offsets reduction of NHS surgical procedures with acquisition

Leeds-based Surgical Innovations has seen revenues rise due to its acquisition of UK distributor Elemental Healthcare last year, offsetting a reduction in NHS surgical work; but overall profitability has suffered.

The designer and manufacturer of medical equipment for key hole surgery, listed on the AIM, saw revenues rise 52% in the six months to  30 June 2018. Revenues increased to £5.28m (2017H1: £3.47m), which it said was predominantly through the additional revenues relating to Elemental Healthcare acquired in August 2017 for £9.4m.

However, pre-tax profits dropped from £301,000 in the same period last year to £94,000 this year. 

Surgical Innovations, which has a 32,000 sq ft head office in Leeds, said: “Market conditions in the UK were challenging. In the first quarter of the year, NHS hospitals carried out a substantially reduced number of elective surgical procedures following the winter capacity crisis and ongoing spending constraints. This pressure eased somewhat in the second quarter, although activity has only recently returned to a more normalised level.” 

Revenues from the US in the first half reduced by 25% to £79,000. Surgical added: “Although much of this reduction was a result of timing differences in distributor stocking, and we anticipate a return to growth for the full year. Revenues from Europe held steady in the period at £73,000 (2017H1: £71,000).  There was strong growth of 76% in the rest of the world sales to £6,000m (2017H1: £38,000). 

Surgical said: “UK Distribution sales amounted to £1.51m (2017H1: £nil), and were held back in part by spending constraints in the NHS. This was exacerbated by a disruption to the supply of CELLIS breast and abdominal wall products arising from regulatory delays in re-approval on a change of notified body by the manufacturer announced in May. All current products, together with an innovative new range, were re-certified in August and will come back on-stream in the last quarter of the year.”

Speaking to TheBusinessDesk.com this morning, COO and CFO Melanie Ross said there had been a loss from the top-line due to less of the firm’s products being in the marketplace this year. She added that the listed firm had bolstered its cash position by de-stocking. She added that the firm had a strong pipeline of products, including accessories, and it was especially looking to concentrate on the US markets in the remainder of the year.

Ross added: “It’s fair to say it has been a difficult year overall following the winter crisis and the funding cuts.” She said the decline had been “exacerbated” by the issues arising from the manufacturer supply issues in May but expected revenues in that area to improve by 2019.

Executive Chairman of SI, Nigel Rogers, said: “The Group has emerged from a challenging period with improved financial results, a strong balance sheet, and net indebtedness incurred in the Elemental acquisition last year fully eliminated. We have implemented measures to strengthen important distribution relationships, and support the development of our international business through an expanded core range of branded products and a competitive pricing model. This is supplemented by close partnerships with our key OEM customers, who are well positioned to generate further growth.

“Our UK distribution business continues to fulfil a vital role in the direct sale of branded products in our home market, and is also building a valuable portfolio of specialised products that offer substantial advantages to surgeons, healthcare professionals and patients. The ability to obtain detailed first-hand knowledge of the reception of our product ranges from a large cohort of surgeons, who offer suggestions for improvements to existing products and ideas for innovation, is proving to be a valuable asset.

“With these initiatives in process, we continue to look forward to the second half of the year and beyond with confidence.”