Blackfriar: The tale of a Yorkshire tech firm that is back on track

Three years ago the firm was in deep trouble. Interim results revealed that revenues had more than halved from £3.9m to £1.8m and write-downs saw a dramatic swing to a loss of £3.2m. The group’s cash position was rescued by Chris Rea, who had invested £1.6m in the firm and become a non-executive director.

A further write down of investment in new facility plans (for which the company had secured a £5m Regional Growth Fund Grant) followed after termination of plans to move to the new site. The group wrote down a further £2.6m.

The group announced a strategic review and at the end of September 2014 and CEO Graham Bowland departed. In October 2014, Mr Rea took over as interim managing director and brought in Melanie Ross, who has played a major part in the group’s recovery, as a consultant. Things got worse before they got better. A trading update in October 2014, revealed further exceptional charges of £1.6m - on top of the £2.6m.

By November 2014, CFO Mike Thornton resigned and once again Mr Rea put his money where his mouth is, and a further £1.5m was fundraised by Mr Rea and Getz Bros & Co whilst a restructuring took place.

In May 2015, full year results revealed the full scale of the problem with exceptional items of £8.4m. Revenues nearly halved to £4m and the group reported a whopping pre-tax loss of £9.8m.

Then it was time to bring in the big guns. In August 2015, Ms Ross was appointed as finance director and company secretary.

In October 2015, Mr Rea resigned as interim managing director and was replaced by small cap expert Nigel Rogers who became executive chairman, replacing non-executive chairman Doug Liversidge.

In December 2015, Ms Ross became managing director of the trading business Surgical Innovations. Banking arrangements and new covenants were agreed to stabilise the business.

By March 2016, the first full year results under Ms Ross and Mr Rogers showed improving revenues, which rose 36 per cent to £5.5m and the group moved from an operating loss to a profit. In August 2016, interim results showed further revenue growth and a return to first half operating profits. In November 2016, the group started its acquisition strategy with the purchase of Surgical Dynamics, a laparoscopic instruments business, for £360,000.

Last December, Ms Ross was appointed chief operating officer and in March of this year, 2016 results showed an 11 per cent increase in revenue to £6.1m, a return to profit at the pre-tax level, cash generation of £2.85m and a net cash position of £720,000.

Last month the group completed the acquisition of UK distributor Elemental Healthcare for £9.4m. There was also an equity raise of £5.5m from major UK institutional investors.

Interim results out on Wednesday showed a return to first half pre-tax profits and net cash of £1.16m.

Some tough decisions had to be made including reducing the headcount to remove non-value added activities, radically reducing manufacturing output and switching to a work-down of excess inventory. Ms Ross and Mr Rogers also had to unwind the uneconomic incentives given to the distributors by the previous management which had led to general overstocking.

Mr Rogers’ first actions were to secure Ms Ross’s position for the long-term and move her to a leadership role overseeing the operational changes she’d already implemented.

With Ms Ross focused on the operational side, Mr Rogers focused on the corporate side - rebuilding the board of directors and regularising banking arrangements.

The changes have taken Surgical Innovations from a company on its knees to a successful, growing, cash generative business with strong future growth prospects.

SI went through some tough times and difficult decisions, but it is good to see this Yorkshire tech firm back on track.