Surgical continues recovery with US demand

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KEYHOLE SURGERY instruments maker ​Surgical Innovations​ said first half revenues are expected to grow by at least 10​ per cent​ ​as the Leeds-based group ​continues its recovery.

​The group’s executive chairman Nigel Rogers told shareholders at the Annual General Meeting in Leeds: “Revenues for the first half of the year are expected to grow by at least 10 per cent compared with the same period last year.

“This has been led by strong growth in demand from our US customers. The level of manufacturing activity continues to increase as a proportion of end-user demand and we are delivering continued improvement in gross margins which are expected to exceed 25 per cent of revenues.”

He said inventory is anticipated to reduce by not less than £500,000 in line with management expectations.

“We are continuing to deliver further strong cash flows and significantly reduced net debt by the end of the half year.

“Our new product ranges have been presented for submission for regulatory approval on time and to budget. These are expected to launch in the second half of the year, complementing the existing range and providing further opportunities for future growth.”

Surgical ​has had a tough couple of years​, but Mr ​Rogers said​ ​2015 was a year of transition. In the first half of the year ​the group was still dealing with the challenges​ and i​n the second half​, it positioned the company for growth.

2015 r​evenues ​rose 36 per cent to £5.5m and the group reduced its pre-tax loss from £9.8m to £2.1m. Adjusted EBITDA for the full year was £240,000, an improvement on the £50,000 loss in 2014.

Surgical lost its way under former management when it failed to sort out a bottle neck in its overseas distribution chain for its medical instruments, which are highly regarded by surgeons.

Surgical specialises in making “resposable” instruments - which contain long lasting reusable parts and cheap throwaway parts that are only used once.

The company became too reliant on other firms launching its products, but Mr Rogers and the new top team are now setting up new partnerships. The company is also investing in product development and research.

Mr Rogers persuaded finance director Melanie Ross, who had been going to leave the company, to stay on in the role. She has also taken on the role of managing director of the trading company.

Ms Ross was brought in by former interim managing director Chris Rea, the entrepreneur behind Rotherham-based mechanical seals maker AESSEAL.

Surgical​ said that​ its net operating loss for ​2015 was £2m following exceptional costs relating to long term debtor provisions, stock provisions, impairment of intangibles and restructuring costs of £1.3m​.

Mr Rogers and Ms Ross have taken a lot of superfluous costs out of the business.

​“The areas that were protected were sales, marketing and core manufacturing skills in Yorkshire,” said Mr Rogers.

​“The business had accumulated a lot of extra costs.”

Ms Ross said: “We had 120 people in 2014 - a lot was temporary labour. Job losses were 35 to 37 people and that took place in late 2014.

“January 2015 took us to a headcount of 48 to 50 people and we gradually started building back up. We now have around 55 people. The hope is to continue to increase our head count.”

​Ms Ross said:​ “The business is very strong in identifying what surgeons need.

“The business has got a very strong history.”

Mr Rogers​ said; ​“We are looking forward to 2016 with confidence where the business is profitable at the EBITDA level and cash generative.”