Surgical Innovations : Annual Results 2018

12 March 2019

Surgical Innovations Group plc

("SI" or the "Group")

Final Results

Audited results for the year ended 31 December 2018

Second half recovery delivered

Surgical Innovations Group plc (AIM: SUN), the designer, manufacturer and distributor of innovative medical technology for minimally invasive surgery, reports a strong second half and financial results for the year ended 31 December 2018 in line with market expectations.

First half results had been constrained by reduced activity levels in NHS surgery and by the temporary loss of CE mark on a key supplier's product. However, the strong rebound expected in the second half has been delivered. The Group now looks forward to further progress in 2019 under the leadership of newly appointed CEO, David Marsh.

Financial Highlights:

• • Revenues up 25% to £10.97m (2017: £8.75m)

• • Underlying organic sales growth (excluding 2017 Elemental acquisition) of 12%

• • Gross margin steady at 42.6% (2017: 42.5%)

• • Adjusted* EBITDA up 6% to £2.36m, (2017: £2.22m)

• • Adjusted* operating margin up to 13.9% (2017: 13.0%)

• • Adjusted* PBT up 30% to £1.43m (2017: £1.10m), reported PBT up 40.5% to £0.52m (2017: £0.37m)

• • Adjusted* Basic EPS up 10.5% to 0.21 pence (2017: 0.19 pence), reported EPS of 0.09 pence (2017: 0.08 pence)

• • Cash generated from operations of £1.65m (2017: £1.61m)

• • Closing net cash of £0.38m (2017: net debt of £0.73m)

* Adjusted for exceptional costs, amortisation relating to acquisition, and share based payment costs.

Chairman, Nigel Rogers, said: "I am pleased to report that the anticipated sharp recovery in performance in the second half of the year has been achieved, and the Group delivered strong results for the year. The market share momentum we achieved in the second half of the year has carried on into 2019, and we are confident about the outlook for the full year.

"The integration of Elemental Healthcare into the Group has been completed, paving the way for a new management structure with additional capacity to take the Group's business to the next level.

"We have made contingency arrangements in the event that the UK exits the EU on 29 March 2019 without reaching an appropriate withdrawal agreement, although we remain hopeful that these precautions will be rendered unnecessary."

For further information please contact:

Surgical Innovations Group plc Nigel Rogers, Chairman

www.sigroupplc.com

Tel: [phone]

David Marsh, CEO Melanie Ross, CFO

N+1 Singer (NOMAD & Broker)

Tel: [phone]

Richard Lindley

Rachel Hayes

Walbrook PR (Financial PR & Investor Relations)

Tel: [phone] [e-mail]

Paul McManus

Lianne Cawthorne

Mob: [phone] Mob: [phone]

Notes for editors:

Strategy

The Group specialises in the design, manufacture, sale and distribution of innovative, high quality medical products, primarily for use in minimally invasive surgery. Our product and business development is guided and supported by a key group of nationally and internationally renowned surgeons across the spectrum of minimally invasive surgical activity.

We design and manufacture and source our branded port access systems, surgical instruments and retraction devices which are sold directly in the UK home market through our subsidiary, Elemental Healthcare, and exported widely through a global network of trusted distribution partners. Many of our products in this field are based on a "resposable" concept, in which the products are part re-usable, part disposable, offering a high quality and

environmentally responsible solution at a cost that is competitive against fully disposable alternatives.

Elemental also has exclusive UK distribution for a select group of specialist products employed in laparoscopy, bariatric and metabolic surgery, hernia repair and breast reconstruction.

In addition, we design and develop medical devices for carefully selected OEM partners, and have also collaborated with a major UK industrial partner to provide precision engineering solutions to complex problems outside the medical arena.

We aim for our brands to be recognised and respected by healthcare professionals in all major geographical markets in which we operate. We provide by development, partnership or acquisition a broad portfolio of cost effective, procedure specific surgical instruments and implantable devices that offer reliable solutions to genuine clinical needs in the operating theatre environment.

Operations and management

The Group currently employs approximately 100 people across two sites in the UK. Product design, engineering and manufacturing are carried out at the SI site in Yorkshire. Commercial activities including marketing, UK distribution and international sales and marketing are based at Elemental Healthcare in Berkshire.

The integration of Elemental Healthcare (acquired by the Group on 1 August 2017) is now complete. David Marsh, a founder director of Elemental, was appointed CEO in March 2019, and is supported by Melanie Ross (CFO) and Adam Power (Group Development Director).

Further information

Further details of the Group's businesses are available on websites:

www.sigroupplc.comwww.surginno.com, andwww.elementalhealthcare.co.uk

Investors and others can register to receive regular updates by email [e-mail]

Chairman's Statement

I am pleased to report that the anticipated sharp recovery in performance in the second half of the year has been achieved, and the Group delivered strong results for the year. The integration of Elemental Healthcare into the Group has been completed, paving the way for a new management structure with additional capacity to take the

Group's business to the next level.

Financial Overview

Revenue for the year increased by 25% to £10.97m (2017: £8.75m). Underlying revenue growth of 12%, which is a like for like comparison of revenue removing the effect of revenue from the acquisition of £3.4m (2017: £2.0m), was ahead of the industry average.

Revenue from SI Brand products accounted for a major part of the increase in revenue, when taking into consideration the full year effect of the acquisition of Elemental Healthcare in August 2017. There was a slow start to the year in the UK NHS, and a hiatus in the supply of a key distribution product, Cellis, for much of the year, which has now been resolved. There were also headwinds from pricing pressure from customers in some product areas, which were countered by competitive pricing, resulting in higher sales volume without sacrificing gross margin.

The resultant growth of Adjusted EBITDA to £2.36m (2017: £2.22m), an increase of 6.3%, was in line with the Board's expectations, and Adjusted Profit Before Taxation at £1.43m (2017: £1.10m) is ahead as a consequence of a reduced charge relating to the amortisation of capitalised development costs.

Cash generation was once again robust, leading to the closing balance sheet showing net cash of £0.38m after eliminating the net debt position of £0.73m incurred on the acquisition of Elemental Healthcare last year. This leaves the Group ideally placed to invest in further business and product improvements, and to seek further acquisition opportunities.

Management

It has been more than three years since my appointment as Executive Chairman in October 2015. At that time, Surgical Innovations (SI) was very early in its recovery from a challenging turnaround led by Melanie Ross, and in need of new direction.

The addition of Elemental Healthcare (Elemental), and its former owners, David Marsh and Adam Power, to the combined Group in August 2017 was an essential first step to building a significantly larger entity. The combination brought together the design and manufacturing pedigree of SI and the progressive commercial ideas and contacts of Elemental.

The time is now appropriate to build on the executive talent in the business, and enable a positive change of grip at the helm. As previously announced, at Group Board level, David Marsh has been appointed CEO, supported by Melanie Ross as CFO, and Adam Power as Group Development Director. I look forward to working closely with

David and the team as Non-Executive Chairman. Melanie will lead the Group's acquisition activity in addition to her responsibilities for Group finance and investor relations.

The SI site at Leeds will be led by a newly appointed Operations Director, Alex Hogg who will also report to David, following a suitable handover period from Melanie.

Brexit Planning

The Board continues to follow progress in Brexit negotiations, and we have made contingency arrangements in the event that the UK exits the EU on 29 March 2019 without reaching an appropriate withdrawal agreement.

In addition to the measures taken previously, we have recently announced that all of the Company's product certifications have been successfully reassigned from BSI Notified Body 0086 (UK) to BSI Netherlands Notified Body

2797. We have received assurances that this will facilitate uninterrupted regulatory clearance both in the EU and in the UK as a third country if required. In addition, we have appointed an EU representative to give access to simplified customs arrangements and expect to receive confirmation of Approved Economic Operator Status before 29 March 2019.

Finally, we have implemented contingency plans to carry additional inventories of components, sub-assemblies and distribution products in our UK facilities, whilst shipping buffer stock to our EU distributors. Whilst there can be no guarantee of a complete success, we are satisfied that we have taken the necessary precautions to ensure business continuity. We anticipate that the additional working capital investment incurred in inventory will be unwound prior to reporting our interim results for the six months to 30 June 2019.

We remain hopeful that these precautions are rendered unnecessary and that, as a minimum, trade with EU entities will be unaffected for the duration of a transitional period.

Acquisition activity

We have evaluated a number of potential acquisition targets during the year, and have taken a select few that appear to meet our strict criteria forward for more detailed consideration. Ultimately, none of these have progressed to an advanced stage for a variety of sound reasons. We continue to seek businesses which offer complementary opportunities to accelerate the rate of growth of the Group's activities, either through new products and/or geographies. Indeed, the recent changes to our management structure are partly designed to increase potential deal flow and offer greater flexibility in future integration of one or more suitable targets, should they arise.

Current trading and outlook

Revenue for the current year to date is well ahead of the corresponding period last year. The benefits of the market share momentum we achieved in the second half of the year have carried on into 2019, both from SI Brand products and those of our OEM partners and we are confident about the outlook for the full year. Furthermore, we have recently entered into UK distribution agreements for new product lines, including the Dexter robot by DistalMotion, due for launch later this year.

Looking to the future, there are also a number of exciting projects in the development pipeline. These comprise not only further line extensions to the Elite range, but also a range of innovative new devices offering unique benefits to surgeons which we hope to begin launching by the end of the year.

Accordingly, we look to the future with confidence and keen enthusiasm.

Nigel Rogers

Non-Executive Chairman

12 March 2019

Operating and Financial Review

The Group considers the key performance indicators of the business to be:

2018	2017	Target Measure
Underlying Revenue Growth	Adjusted for the effect of acquisition	12%	8%	>8%
Gross Profit Margin	Gross profit / revenue	42.6%	42.5%	>40%
Adjusted Operating Margin	Adjusted operating profit / revenue	13.9%	13.0%	>12%
Cash conversion	Cash generated from operations / adjusted operating profit	118%	167%	>85%
Net Cash/(Net Debt)	Cash less debt	£0.38m	(£0.73m)	N/A

Reconciliation of adjusted KPI measures;

EBITDA*	Operating Profit	Profit before taxation
As reported	£2.24m	£0.62m	£0.52m
Amortisation of intangible acquisition costs	-	£0.79m	£0.79m
Share based payments	£0.12m	£0.12m	£0.12m
Adjusted Measure	£2.36m	£1.53m	£1.43m

*EBITDA is defined as earnings before interest, taxation, depreciation and amortisation. EBITDA is calculated as operating profit of £0.62m adding back depreciation £0.48m and amortisation £1.14m.

EPS
Basic EPS	0.09p
Profit attributable to shareholders	£0.73m
Add: Share based payments	£0.12m
Add: Amortisation of intangible acquisition costs	£0.79m
Adjusted profit attributable to shareholders	£1.64m
Adjusted EPS	0.21p

Adjusted KPIs are used by the Group to understand underlying performance and exclude items which distort comparability, as well as being consistent with broker forecasts and measures. The method of adjustments is consistently applied but may not be comparable with those used by other companies.

Revenue and margins

Revenues increased by 25% to £10.97m (2017: £8.75m). The increase in underlying revenue, adjusted for the effect of the acquisition of Elemental Healthcare in August 2017, was approximately 12%. Gross margins increased by 0.1% to 42.6% of revenue (2017: 42.5%).

£m	2018	2017	% change
SI Brand	6.09	5.35	+14%
Distribution	3.04	1.80	+69%
OEM	1.84	1.60	+1659%
Total	10.97	8.75	+25%