Surgical setback following profits warning

Surgical Innovations' sterile assembly room
Surgical Innovations' sterile assembly room
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Keyhole surgery instruments maker Surgical Innovations, the firm that was awarded a £5m ​Government grant to build a ​state-of-the-art clinical training centre in Leeds, has issued a profits warning saying that full year results will fall significantly short of market expectations.

The Leeds-based company is seen as a key player in the creation of a new medical park for Yorkshire, but yesterday the group’s shares tumbled 31 per cent as the market reacted badly to what is the group’s second profit warning in under a year.

The company, which is building a 58,000 sq ft facility at Thorpe Park in Leeds, said a reduction in OEM revenues, slower than expected US sales and a decision to reduce​ inventories would hit ​full-year revenue and profit. OEM stands for original equipment manufacturer​ ​(manufacturers that make products for other​ ​companies to sell under their own brand name)​.​

Surgical said that in light of current trading, the board has decided the group should focus on growing the SI Brand, cash conversion and OEM products that add value to the Surgical Innovations (SI) brand.

​As a result, ​Surgical said it has​ ​undertaken a review of all OEM assets, which resulted in an exceptional ​non-cash ​impairment charge of £2.2m.

The​ profits warning comes less than a week before the company was due to announce results.​ ​The group​ said it will provide further details alongside ​the​ interim results on Thursday.​​

Analyst Mike Mitchell at Panmure Gordon said: “On the back of this morning’s announcement, we place our recommendation​ ​and forecasts under review.

​“​The combined impact of the continued reductions in OEM revenues and slower-than-anticipated revenues from its US dealer network means full-year performance will be significantly below market expectations​.”

Dr Mitchell had previously estimated the company would make a full-year profit of £900,000.

The news that the group is taking an impairment charge of £2.2m, albeit non cash, raises the possibility that the group could announce a half-year loss.

“With this morning’s announcement our increased concerns over the delivery of the revised business model mean we are prompted to place our recommendation and forecasts under review,” said Dr Mitchell.

​“​There are clearly plenty of moving parts for the business and much for the company to deal with in terms of balancing its international and OEM strategy.

“However, such i​ssues are not insurmountable, as evidenced by other UK-based healthcare/​medtech companies with both US and international sales strategies. That SI has failed to make progress in this regard remains an issue.”