Brexit uncertainty hits Yorkshire medical firm

Keyhole surgery instruments maker Surgical Innovations has warned that profits will fall this year as a result of Brexit uncertainty and NHS funding pressures.

Surgeons use Surgicals products in a laparoscopic cholecystectomy operation
Surgeons use Surgicals products in a laparoscopic cholecystectomy operation

The Leeds-based company said modest revenue growth in the first quarter of 2019 did not continue into the second quarter, with orders in the UK and EU markets lower than expected.

The firm said the disruption to order patterns caused by Brexit uncertainties has made visibility of true demand more difficult than normal.

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Surgical said this volatility is likely to continue “until Brexit matters are resolved”.

The Brexit effect was made clearer by the fact that revenues in export markets outside the EU remain unaffected, especially the US where growth has been strong.

The company said that UK demand has also been muted by the level of activity in the NHS.

It said that whilst a funding crisis was largely avoided last winter, hospitals are carrying out a reduced level of elective procedures.

Last month The British Medical Association (BMA) reported that more than 20,000 elective cases were cancelled during the last quarter of 2018. The BMA said there were 4.3 million people waiting for treatment, with a 20 per cent increase in those waiting over 18 weeks.

In a trading update Surgical said: “Whilst our UK distribution business continues to have success in winning new accounts in the NHS, the overall volume of UK activity is a continuing concern, especially in the current political climate.“

Surgical said that regulatory approvals are becoming increasingly challenging to achieve and provide a formidable barrier to prospective new entrants.

The firm said revenue growth in the second half is unlikely to counter the relatively weaker second quarter to date.

It said full year revenue expectations will now exceed last year by a more modest rate of growth than previously anticipated.

Whilst margins are expected to remain in line, overheads will reflect the investment in additional resources. As a result, adjusted pre-tax profit is expected to be below the level achieved in 2018. The group said it currently holds net cash and continues to be cash generative.

“The directors recognise that the impact of the above external market factors on the group is disappointing,” the firm said.

“However, as significant shareholders in the group we continue to look to the future with confidence.”

Analyst Chris Glasper at N+1 Singer said: "Clearly today’s announcement is a setback to the company’s strategy towards delivering £100m plusof value to shareholders, but we maintain our positive fundamental view and expect investments made in 2019 will materially add value over the medium term as well as potential upside in the non-medical division and through M&A."