Inspiration Healthcare Group (LSE:IHC) — Full year results briefing

0:00 Good afternoon. Welcome to the INSPIRATION HEALTHCARE GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Raffi Stepanian, CEO. Good afternoon, sir. Good afternoon. Good afternoon, everyone, to this, full year results briefing for INSPIRATION HEALTHCARE GROUP for the financial year 2026, which ended on 01/31/2026.

0:45 Sorry. And I'm here joined by Alan Olby, our chief financial officer, and we will walk through our slides for the day. The agenda today is to go over the highlights of the financial year and then overview of the financial metrics. We will then follow with the business direction that we have taken last year. And this year, short and midterm, focus on each of the businesses segments that we have, and then close with the outlook and take questions from you. So first, the highlights. It has been a turning point for us the past financial years where we achieved a lot of growth in our numbers.

1:43 And you will see in the details that we will share that we grew a lot in the SLE part of the business with one of the largest ever orders for the company, which we delivered and installed. And this was in Central Asia through a humanitarian organization. And on top, we also delivered the first part of the Middle East office order that we have been talking about in the last couple of years. So these were around 9,500,000 of one offs that were added to our numbers, but the encouraging signals here were that also our underlying business grew on top of the these big large orders, and we grew the underlying business by 10%.

2:30 And the growth that we see through our order book and the funnel for the underlying business makes us really positive for the rest of this current financial year as well. To achieve this, we did a lot of efficiency gains in the company, major upholding the production outputs to deliver all those capital equipment that we got orders for. So and we achieved that without adding any new resources. One of the other highlights is that due to the big orders and strict control on sourcing and raw material supply chain, we reduced inventory by 33%, a huge chunk, 4,300,000, and we are continuing to lower it even further this year.

3:26 In the efficiency gains as well, we worked a lot to improve our ERP system, the internal ERP system that we have in the company. We automated a lot of processes and made it easier for us for our teams to work together and also for our customers to build business with us. We also simplified the legal entities, and we are now concentrated on two main legal entities that are doing the business, SLE globally and INSPIRATION HEALTHCARE in The UK and Ireland. A proud moment for us was the achievement of certification for the ISO 14 o o one for environmental management system. And on top of that, we achieved as well the evergreen framework for NHS, which is a very rigorous environmental framework and gives us the opportunity to even be more successful with the NHS supply chain.

4:23 And last but not least, we were working on our brand with the clarification of our strategy last October and focusing on the three brands of the company, SLE, INSPIRATION, and Aeron. We did a lot of rebranding, and we are still ongoing with it and to finalize in the next couple of months. On the product strategy side, the the biggest and the most important by far for us is the entry to US market, and this project is ongoing. There were a lot of rigorous tests that we needed to do on the biocompatibility and cybersecurity side, which which have been done currently, and we are expecting the filing to be mid to late twenty twenty seven and clearance in the first half of twenty twenty eight.

5:13 We have also repositioned and relaunched a device that we have in our portfolio called SME 1,500. This is for sub equity care areas, not intensive care, but more on delivery rooms and level one rooms, and we expect to have a good turnover from this device in the current financial year. Our consumable projects were on track, and we launched them. We will launch them in this year. More to come on that in in the few coming slides. And then we spend a lot of time to clarify our long term strategy from product perspective. We had a highlight back in October when we presented again to the to you.

6:02 And we have currently also identified new technologies that will help accelerate this Mhmm. Road map, and we'll cover that also at the end of this presentation. From organization perspective, we kind of unified all the cultures that were inherent to the group, and we have unified under our focus to help customers and help patients, and we clarified our values that we will use to achieve that, which is around teamwork, accountability, ownership, and continuous improvement in everything that we do. Furthermore, we strengthened the organization with a lot of new additions, regional managers for Asia Pacific, Latin America, and then a general manager for Aaron from the commercial perspective.

6:55 And from global functions perspective, we recruited a medical affairs director and lastly, a director for marketing and product management. And with the focus on all these, hireings and recruitments, we're focused on knowledge and know how of the neonatal space and also clinical expertise, for all these people and, to add to the DNA, of the company that we already have. With that, I pass on to the financials to Alan. Thanks, Rafi. Good afternoon, everybody. So here we have the the highlights of the last financial year, as we said, ended 01/31/2026. And I'm very pleased to show that all of our key financial indicators are, you know, pointing in the right direction. We're really starting to see the impact of the back to basics campaign that started in the prior year and has been the focus of questing for massive of work throughout the last eighteen months.

7:56 In terms of the headlines, the the revenues grew 24% in which is a record for INSPIRATION, obviously, increased by the 9,500,001 off export orders. That helped us to improve gross margins because it was quite a high proportion of capital sales in in those orders. And at the moment, our capital sales help us improving margins. So margins improved by just under 1%, 43.7. Strengthening margins, growing sales, and controlling operating costs have contributed to EBITDA increasing from 200,000 last year to 2,800,000 this year, so a significant step up.

8:42 And that improvement in profitability and not incurring additional one off costs as we had in the prior year meant that our at the operating level, we recorded a negligible operating loss of of naught 100,000 compared to last year's GBP 14,700,000. On the other side of the equation, focusing on working capital and cash flow, we saw a very significant step down in inventory on the back of the revenue growth last year and the improvements in purchasing controls that we put in place. We saw inventory at just under 9,000,000 at the end of the year, a reduction of 33% and ahead of where we'd hoped we might get to. But significant improvement on the year, and there's more to do on inventory in the current year, so we expect to see that falling further.

9:34 All of that working capital improvement as well as the improvement in profitability drove us to a significant operating cash inflow of 7,500,000 compared to an outflow in the prior year. And that's a combination of the the profitability and working capital, not just inventory, but also improvements in credit control, which have also driven down receivables quite significantly over the year. And all of that combined reduced net debt to 5,100,000 at the end of the year, which is the lowest level it's been for the last three years. Turning to the revenue now in a little bit more detail. You can see in the top slide here or the top chart the impact of the SLE business and the growth that we saw from the one off contracts.

10:26 So overall revenues were up 24%, but SLE revenues were up 56% at 31,600,000. And the important message here is that even without the one off contracts, the underlying SLE repeatable business came back to growth at 10%, and that's off the back of the the back to basics, getting closer to our distributors pushing out the SLE business in internationally. INSPIRATION HEALTHCARE, our UK med tech distribution business, saw revenues decline by 11% as a result of destocking within the infusion business. I think we mentioned at the half year that one of the four home care providers in The UK had overstopped during FY '25, which reduced sales throughout much of FY '26.

11:21 And because the infusion business dominates the INSPIRATION HEALTHCARE sales, that led to revenues declining by 11% over the year as a whole. That destocking issue has has now normalized. And as we've gone into the current year, the ordering levels from the infusion business are back to normal, and so we expect to see revenues growing again in that business this year. And then Aeron, which is our pneumatic ventilation business based in Florida, sales at a comparatively low level declined by 13%. We had a very strong year in FY twenty five, which had been ahead of expectations driven by our US distributor building up their rental fleet. And whilst they've continued to sell products this year because the rental fleet had been built, we saw revenues decline slightly. But at the end of the year, we announced a three year contract with one of the leading health care providers in The US with an initial order for a 150 units of the Aeron ventilators.

12:25 That has been delivered in the first three or four months of our current financial year. And so Aeron has had a very fast start to the new year, and we will see strong growth at Eron this year. Looking at the split of revenues, and we've continued to talk about driving up recurring revenues through consumables and service. In the last year, the ratio was 73% capital to 27% service. That was really driven by the significant one off orders. But with the consumables launches that we have coming this year and improvements in our service offering, we're expecting to see that ratio improve and slowly move towards our ambition of having fifty fifty from capital versus recurring revenues.

13:17 The overall income statement here, you can see the revenues and improvement in gross margin as we've already highlighted. In terms of operating expenses, which were up 9% overall, there were some one off commissions paid linked to these one off revenue orders. If you normalize those one off commissions and take out the FX variances, the underlying operating expenses of business were down by 3% year on year, reflecting our controlling of costs and the impact of cost savings that were implemented during the prior year. Some of those have been reinvested in the new recruiting that was highlighted in terms of the operations, but we maintain a very strong focus on keeping costs under control and trying to match those more closely with with the revenues.

14:12 As we said, a small number of nonrecurring items much lower than 12,800,000 last year linked to some severances and dilapidations provision on the old site that SLE exited during last year meant that we had an operating loss of just under £100,000. Finance expenses were down by 13% on the back of the cash generation and the lower average net debt during the year, and that meant we had a loss before tax of of £1,000,000. Looking at the cash flow and and the movement in net debt over the year, here, you can see very strong cash inflows from the EBITDA profitability as well as the working capital benefit where we generated inflows of just over £5,000,000 through a combination of inventory management and improvements in receivables management, credit control.

15:09 That was really a one off gain for last year that will not be repeated this year. We will still see working capital reducing, but at a much lower level in in the current year, and that would be mainly linked to further ongoing inventory optimization. We had £800,000 of tax receipts from three years' worth of R and D tax credits that were filed and caught up with during the year. And then on the debit side, there were nonrecurring costs. The final consideration that was paid for the Aeron acquisition in the prior year, which was paid in the first half of last year, there's nothing further due in relation to the acquisition of Aeron. And then more importantly, investment in r and d and the future product pipeline. There was quite a significant number of projects underway last year linked to the new variants of the SLE 6,000, which will be used for the FDA application.

16:07 And so we saw higher r and d costs last year. And then finally, there's the lease property lease and other interest payments of just over £1,000,000. But overall, net debt at just over 5,000,000 at January 31. And I'll pass you back to Rafi to talk about a bit more on the business. Thanks, Alan. We just wanted here to repeat a couple of slides from the strategic direction that we have provided back in October. Here, there was a a strategic direction regarding the actions and priorities we are taking from back to basics, which is now grayed out to the medium term focus, which was around driving sales and improving profits and long term to be a leader in the markets. And the the box in the middle for which is for last and current calendar years.

17:05 It's the actions that we have taken, and we are on track with the strategy that we have put six six months back in October. Further details later in the slides, but to continue and back in October, we had also clarified the three pillars and the three business segments that we have identified and clarified to the market and internally. And the first being SLE as a leader in neonatal ventilators with a global footprint and with the highest growth potential growing from 20 to 45,000,000 within five years. It had a successful year in fiscal year twenty six, and the pillars and the actions that we need to take there are clear, and I'll I will talk about them also later.

17:53 The middle one is INSPIRATION HEALTHCARE, and this is our UK and Ireland distribution partner company where we are distributing not only our SLE events, but also third party neonatal products. And till now also the infusion segment, infusion therapies with infusion pumps. The major change from October is that what we announced two weeks ago about the infusion segment being moving out to a direct control by MICREL by the end of our financial year. So the numbers there in this slide show the the values of turnover without the infusion products included.

18:39 Here, we have, we want to grow through other third party products that we have launched. One of them is a jet ventilator that we have launched last year, and more we will, we are looking for more, products that we can represent in the marketplace, all revolving around the neonatal care area and being complementary to our current offering of neonatal ventilators and whatever else we are distributing. And then the third column, Aeron, is on track with its strategy, with the with the growth that we are we have planned for it. And in the subsequent three slides, we will talk about each of these different units separately, what happened in 2026 fiscal for financial year, and what will are we focusing on for this current financial year.

19:30 So for SLE, this is the biggest part of our product offering, and it's our core business and core products, our own brand. Sales grew 56% last year, again, driven by those two big projects that we mentioned. Capital grew by 86% showing the reliance on capital sales for that period. Consumables grew 14% and service 4%, and this is where our focus is for the current year to grow both consumables and service. Underlying business grew 10% as we said before, and some of the highlights are that we currently back in, last financial year and also currently in q one of this year, we are the market leader in neonatal ventilators in NHS, supply chain and NHS.

20:22 And this a great testament to the quality of the product and the hard work that our UK team is doing. We have relaunched the SLE 1,500, which is a lower equity product that we had in our portfolio that was not we were not actively promoting. So now we have relaunched it and are looking for opportunities both UK and internationally. And then finally, we want to mention we had a key publication from King's College in UK on Oxygenie, our automated algorithm, showing clear benefits to patients and caregivers, with this algorithm, and we will use that as a platform also to do further research on these further studies and further clinical marketing.

21:13 Priorities for this year for SLE is we want to grow the funnel of opportunities in The Pacific and Latin America, which is already happening, and it's very positive to see. We want to maintain our market position in Middle East and Central Asia where we have already good market share. We want definitely to gain share in Europe, and the first signs of this are appearing with the goods deals and projects that we have been winning in the last three to four months. Big key priority for us is the launch of the consumables range. We already launched one item back in March, and we are launching two more items in October. And with these launches and before even October, we have launched UK focused program on approaching our installed base of ventilators and gaining more share of a consumable business of those ventilators.

22:16 We will launch this also widely more in the international markets, but the main current program is for UK to set us off on a good foot. We are also in the process of launching service as a product, giving more service options to the NHS hospitals, increasing our service revenue. We want to grow the sales of the device, the 1,500 that we launched last year. And then we we will continue the clean on marketing with opinion leaders. We had a a very fruitful meetings with them last year to set our road map, to set the strategy of what are we going to do clinically and on our products, and we are going to continue with them and turning this into a forum for innovation.

23:07 We are progressing through the FDA submission projects with r and d, and it's with the timelines that we explained. And finally, we have we are looking at new technologies, and we have at least one which can be added to the SLE device range and increase and enhance our product offering in the market. More details on this in a few minutes. And I pass on to INSPIRATION, which is the part where we talk about third party products, which we distribute in The UK mostly. As Alan mentioned, sales declined by 11% because the biggest contributor, infusion service, declined by 13% for all the reasons we mentioned.

23:53 However, we maintained the market leading position with the parenteral nutrition, which is home care, mainly where we have more than 50% market share. We are the market leader. And then it was the first full year of the new Ultima pumps in the hospital care area where we had 50% growth. So great performance on the infusion side even though it was declining versus the year prior year because of an overstock stocking by one of our major customers. We launched a new Monsoon jet ventilator in the adult pediatric surgeries. And the more on the negative side, we lost some of the sales of our historical products, which were stopped due to MDR regulations and hence also the related consumables and service. And we are trying to reverse this trend this year with new service offerings and then fulfilling these historical products with more consumables.

24:57 In 2027, as you have heard two weeks ago, we announced that we are moving the infusion therapy units to be controlled by directly by MICREL. The personnel will be transferring on July 1 and the commercial activities, and they will be handled directly by the MICREL UK team. Invoicing will continue through INSPIRATION until end of our current financial year, and we expect minimal impact to our financial performance due to this change. We will have the first full year of monsoon, which we have a very good funnel of opportunities. We are in the process of launching a new transport incubator, which the market was expecting, and it was delayed due again due to MDR clearance delays.

25:52 And then we are continuously looking at potential third parties that we can onboard and represent in The UK. And the focus would be on neonatal space to expand the current solutions that we have in SLE and the third party products that we already have. And lastly, Aaron, sales declined by 13% as Alan mentioned because we were focusing on one exclusive national distributor in The US. And since then, we had moved away from the exclusivity, and you will see in current year priorities that we are looking into different directions. We're looking for more distributors. We are looking into entering the emergency market, which is a much bigger one than the hospital.

26:44 We are looking, and already actioning international sales, which were very minimal till now. And we are doing the sales of Aaron in all over the globe through our existing SLE and INSPIRATION distribution network. And then we are also approaching the the three big purchasing organizations in The US, and we are already in one of them listed. And we have the big order that we almost completely delivered already, and we are looking forward to follow-up orders on that. Also increased consumable sales on that installed base of new installed base of 150 devices.

27:31 And last but not least, we are looking into online sales through our own portal sales portal and also well recognized and huge hospital portals in The US. Now a few slides on the SLE. As it as we highlighted back in October, it it is our biggest growth opportunity, and the details of that were covered already a little bit. But here, again, I want to highlight. And as a conclusion, I mentioned, we started with the back to basics, which we are continuing about efficiency, supply chain inventory, organizational efficiency, etcetera. We continue to do those things, but we have moved on to focusing on the core of the business.

28:26 And this means entering US markets, winning share in Europe, launching our own consumable products, and strengthen the service business. And that will help us to move to the innovate and lead phase of our strategy, which would take us to a leadership market leadership in neonatal ventilation. And to do that, we had presented these slides also in October. The blue stars signify where we are currently present or strong. We are very strong with our SLE 6,000 device in the neonatal ICU. Not so much in the step down units, not so much in transport or delivery rooms, and that's the clinical pathway of an Aeonate.

29:12 In consumables, we are very little presence in any of the care areas, and that's what we are trying to achieve with the launch of our products, and so on and so forth. And to focus on the device level, and we have an opportunity for technology acquisition, and that is explained on the next slide in more details. On the right hand side, you will see the market representation of the neonatal ventilation market. Here, it's a 200,000,000 markets where a quarter of the market is a high frequency market, high frequency devices where SLE have share of 30% or more.

29:57 We are leading manufacturer there and recognized as a gold standard in high frequency. While the non high frequency market is 116,000,000 is more than half of the market, and it is where we have very little share. And this is driven by the by pricing, by size of the unit, and by simplicity of the devices that are being sold in that market. The fact that also we need a market with we need a device with turbine driven to have less reliance on compressed air in the hospital. So we have identified the technology, and we are performing due diligence on it currently to see the fit, the conditions, and how would we integrate it to our offering.

30:51 It will definitely accelerate our strategy by at least three years, so it will provide us a solution that would fit into the step down units and also delivery room units and noninvasive ventilation. It will give us a product with much lesser cost of goods so that we can competitive be competitive in that market segment. And then we are currently assessing that it would also be less risky, a track to the FDA while keeping the timelines as discussed for the SLE 6,000. So we are in the process of doing the due diligence on that, and hopefully, in the next few months, we will have more information to share.

31:39 With that, I pass back to Alan to give us an outlook and the close of the presentation. Thank you. So FY twenty seven, which is our new financial year, has started well. We spoke about air on delivering the large for The US health care provider, which has been over 90% completed in the first few months. We've also shipped the final part of the long delayed Middle Eastern order, and that is in the process of being delivered at the moment, which is good certainly good news. And the order book and opportunity pipeline that we're monitoring for the SLE business gives us quite significant confidence in meeting the expectations for the full year, getting closer to our distributors with our distributor managers out in Asia Pacific and Latin America is is really providing a benefit and uncovering opportunities in those markets for both SLE and and for air on sales internationally.

32:40 The launch of our own branded consumables is on track with the first product launched recently and the other two on track to be ready for the end of q three. And our UK push on that has already started with our key customers in The UK. And the KPIs that we've set ourselves for the service team and function are all very much tracking in the right direction, which would support delivery of our service targets and service growth for this year. And as we also talked about, there will be further working capital reduction, particularly with ongoing inventory reductions. And so that will help with cash generation for the current year. Organizationally, the changes made last year in terms of focusing on the customer, strengthening the leadership team with greater neonatal ventilation experience, as well as the internal goals and KPIs that have been distributed throughout the organization to ensure that everybody is aligned and all working as one team will really help us with focusing on on the priorities for the business overall this year.

33:52 In the medium term, the development team are working on other product enhancements for the s l v 6,000 and, in particular, the FDA project for gaining market access into The US. And there are further consumable launches planned. It's not just about three products this year. There are further consumable that will be added to the SLE range as we go into next year and beyond that, providing additional support for growing our recurring revenues and high margin revenues in in the years to come. And that now concludes the formal part of the presentation. That's great. Thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. Guys, as you can see, we have received a number of questions throughout today's presentation.

34:53 I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. There is a question regard regarding the shift towards consumables and service revenues. What margin profile would we expect from this business as relative to the capital equipment? Initially, during the launch phases launch phase of the consumable programs and I'm when I'm saying initially, it means this financial year, the margins will be in line with our current margins overall as a company. Once we launch our own products, more of our own products, let's say, in October and beyond, the margin would increase by five or 10 points on those particular products versus our current overall company margins.

36:03 There's another question regarding when will customers need to replace the glut of the adult ventilators acquired during COVID. Is there a shelf life after which unused stock needs to be replaced, and you see a resumption of pre COVID demand? Do you expect recent entrance to neonatal revert back to the adult market? Starting from the last question, I wouldn't expect them to revert back to adults because if they are successful in neonatal, they will stay in neonatal. It is our strategy and brand image that we are a dedicated neonatal company. That's how we win with our in the market and with our couple unique selling points. As we as I said, we are known for our high frequency quality and also our oxygen algorithm.

36:59 So that would keep us competitive in the neonatal market regarding adult ventilators and with the when they would be replaced the cycle for this kind of ventilators if in use or if in stock, usually, it's ten years. So if they were bought in 2020, I expect them to be changed by 2030 or further on. Perfect, guys. I think that's all the questions, we've got there. So thank you for answering those. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investor meet company platform. Just before redirecting investors to provide you with their feedback, which now is particularly important to the company, Rafi, could I please just ask you for a few closing comments?

37:48 Thank you. I would like to thank all all of you who joined today, and I think we got another question. I don't know if we want to check it first. That's the same one. No. It's it's a new one. It's for Alan, this one. No. That's a good one. Want to take it? Yeah. Just quickly, there's a there's a question here around at sub 6% and given one off sales in '26 and loss of infusion business going forward, what is management's long term target for EBITDA margin? So, certainly, the one off sales helped growing EBITDA last year. And when the infusion sales come out in FY '28, that will hurt our profitability further because there was a 25% net contribution from the infusion business.

38:44 So we will be growing back EBITDA from a lower level in in FY twenty eight. I think longer term, we're aiming at least 15% EBITDA margin once we get into the outer years of the target, the revenue targets that we've put out there, once we have US market access and we grow SLE to a more reasonable size, there's we have the infrastructure in place to support a much higher revenue number. And so once we get to see more significant revenue growth, we'd expect to see operating leverage drive the EBITDA margin back up to a more normal level for a business of in in our seg segment. I think that's the last question for now.

39:35 Okay then. Back to the closing words. Thank you again for all of you for joining. We thank all our current shareholders and also the ones who are considering to be shareholders. And as you see, we are building the business back, with an inflection point that we have at this moment, focusing on the core business of the neonatal ventilators where of SLU where we are market leading position. We believe in the underlying business, strength. It shows up in our funnel of opportunities and with a with a building of a more efficient and a stronger organization and the leadership team, we are going to continue in our strategy for becoming a leader in that segment and becoming a full comprehensive solution provider to our customers around the world.

40:42 Thank you again, and thank you for the trust that you put in INSPIRATION HEALTHCARE GROUP and our leadership team. That's great. Thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon to you all.