Surgical Innovations Group (LSE:SUN) — Interim results for the six months ended 30 June 2026

0:00 Good afternoon, and welcome to the SURGICAL INNOVATIONS GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Please just simply type in your questions and press send. Before we begin, I'd like to submit the following poll. And then I'll hand you over to David Marsh, CEO. Good afternoon, sir. Good afternoon. Good afternoon, everybody. Before we start on the presentation, I would just like to make an introduction. As you will all have read on Monday, this will be my last press investor presentation as I'm retiring from the role of CEO. I'd like to introduce, Alex Warnock, who is, as of tomorrow, taking over my role, and will be driving the strategy of the business, over the next couple of years. So, Alex, if you'd like to say a few words?

0:51 Thanks, David. Thanks for the introduction. Good afternoon, everybody. I'm sure you'll understand that at this point, day minus one, don't have too much to to say at this point, but I'm really excited about the opportunity and I will have more to share once once I get up to speed and get my feet on the table in the coming weeks and months. Great. You're welcome on board. Thank you. Okay. If we move on to the presentation, I'll take you through the first couple of slides, and then David Anderson will step in and give you an overview of the the financial sides. So in the last presentation, in March, we talked about the focus on the fundamentals of the business and that continues.

1:39 And as we look at the things that we've achieved, which is the majority of this slide. So just to give you an overview of where we were in the first half of the year, revenues were just over 6,000,000, so broadly flat on last year, and there were a number of reasons for that. But we did see exceptionally strong growth in our APAC business driven by the Japanese, market. The UK third party sales, the distribution products that we sell, we saw strong growth in that, and that will continue into the second half of the year as well. The challenge we saw is around SI branded products, and that was impacted, by our business in The US, and sort of our European, market as well as as well as some challenges in India. So we've had a couple of headwinds from that perspective.

2:29 And also, you know, sort of the ongoing strikes in the in the NHS and in the Spanish market as well have caused us a few problems as they have impacted elective surgery. And just to give you some flavor around that, there are a 171,000, appointments outpatient appointments and surgeries canceled in two year in the two years that these strikes have been going on in The UK. So you can see the impact that that will have on our business as it, you know, directly, impacts, elective surgery. The OEM business is in in better shape. So we have two key partners for OEM, and we're seeing, particularly strong sales from our relationship with STERIS.

3:14 You know, they have they're proving to be a really good partner, and, you know, we we expect that business to grow as a strong order book in the second half of the year. And whilst margins reduced, compared to the year end, in 2025, we have seen them improve on, the 26% in the full year for '25. I think that's the other way around, isn't it, Tanya? This is down to a shift in product mix, and also the, price increases that we have in that h two twenty twenty six as we go forward. So the NHS supply chain, for example, new n y s three, we're seeing better pricing, that will come through on that, and we're seeing some positive price increases in our distribution network.

4:05 But I think the the the biggest thing that we need to stress in, the first half of the year is the MDR certification. And then whilst this underscores our commitment, to to quality and compliance, What it allows is for the business to to move more rapidly on new product development. It reduces some of the, bandwidth restrictions that we've had in our r and d team and our regulatory team and allows us to focus on developing new product opportunities. And I'll discuss those a little bit later. So we talked about focusing on the on focusing on the fundamentals. And, you know, we're building on that positive progress that we had in the first half of the year. MDR certification achieved, and I'll probably bang on a little bit about MDR certification and the importance for the business.

5:04 We leverage our experience and relationships within the NHS, particularly within the, supply chain, and we were awarded a place on the MIS three framework, which went live in August, this year. And that will allow us to continue to grow our business within the NHS, but also to achieve a higher price as well. The strong momentum in APAC has continued, and, you know, we expect to see that continue into the second half of the year. That's particularly around Japan, but we've got some other opportunities coming down the line as well. We're enhancing the sort of the distribution network and the the products that we're able to drive through there. So we're going to be launching a number of productions in the second half of the year, in quarter four in, in particular.

5:53 And as those products, we can drive the opportunities through the through the network that we have. And the sustainability messaging continues to resonate. It's helping us, win new accounts. It's helping us have a different dialogue with health care providers. And an example of that is in Austria. We're working with our partners there, and there's a five hospital group that are converting to, Yellowport Plus based on the sustainability messaging. So we've converted one hospital. We're about to convert the second one. And then throughout, 2027, we'll convert the remainder remainder of those hospitals. They do do significant volumes of laparoscopic surgery. So we see this as a real opportunity to get our European business back on track and into growth.

6:46 The investment in sales structure, that's that's continued. We now have a full team back in The UK. We've increased resource internationally, and we're seeing the benefits of those. And we're driving the, international distributors sales efforts by adding additional resource, increasing the footprint that we have there, and enhancing some of the product opportunities, as I mentioned earlier, that MDR allows us to do. The US continues to be a sort of a bit of a problem child for us, but we have a new strategy in place. We're looking at building a network of dealers, and we're expecting to go live with those during quarter quarter four. So that will start driving revenue into 2025.

7:36 And then, of course, there's restructuring of the management. I took the decision that, it it was good a good timing for me to step down as CEO, and Alex to step in and assume that role. I'll remain in the company as a nonexec, and I'll do everything I I can do to help Alex transition, and push the business forward. So this is the road map we set out in March, April time around focusing on the fundamentals, and we're gonna continue with that plan. So it's about driving sales. You know, that's the important part of the business now is to having invested in sales, is to leverage every opportunity we have, and we continue to do that.

8:27 Increasing the profitability of the company, that's key focus. So it's about improving operational efficiency. It's about improving margins, reducing stock, sorry, reducing costs, and we're driving down costs. And it's, you know, a constant review of everything we do to look for opportunities for efficiency. An important part of, the business is improving working capital. We're doing that by a number of, a number of ways, reducing inventory, managing creditor in day to day, and it's managing our supply chain as well to make sure that we can maximize the the the terms that we get, and ensuring the prices pricing is is competitive too.

9:12 And this all forms part of developing a vision and strategy and, you know, sort of we we have that in place, and Alex will in enhance that and develop his own strategies around that to to make sure we deliver that on on all of the commitments that we're making there. So part of that, focusing on fundamentals is to drive the sales. So we're continuing to improve the sales organization. We have completed the failed sales sales coverage, and we're now looking at the other areas of that in so improving the geographical footprint that we have. We're looking currently, we're working on registration in a number of countries.

9:58 And whilst that's been slower than we would have liked, we expect that to speed up. And in 2027, we we should be adding a number of significant countries to that to our footprint. We're continuing to develop our sustainability programs and work with our dealer network to to drive those initiatives to see if we can capitalize on the the growing demand for sustainable solutions in health care. And we're seeing that as a real positive for us. It allows us to have a different conversation with health care providers other than just around pricing. And then and part of the strategy is to to drive, additional revenue through third party products. So we have a good dealer network, particularly within Europe, and we're building a portfolio of third party products that we can put through our network and drive additional revenue.

10:56 So from a UK perspective, elemental health care has a really strong reputation in the market, particularly within the NHS, and we're developing better relationships with the private health care providers. And we're seeing that, you know, help us drive business. We're continuing to strengthen those relationships, and that allows us to be able to attract new technologies and new third party products. And we'll see in quarter four and into next year that we can add, products that already have an existing revenue within The UK, so and allowing us to accelerate some growth. I talked about the The US and the and the challenges that we have there, but we have a good strategy going forward. It will be a network of, independent distributors, We're working very closely with those, and it will allow us initially to increase our footprint from covering about eight states to about 22 states. So we should, going forward into 2027, have the opportunity to grow the business going forward.

12:04 And it's a it's a you know, we talked about high margin opportunities. So we're looking at some of the third party products where we have opportunity to to grow margins. Some of the new product development we have, we believe we can obtain obtain a higher margin and drive that business, as well as increasing our importance to our partners around the world. And we're sort of diversing diversifying some of the products offering we have. So it's it's about looking how we can improve our, existing portfolio of products, how we can add to that, and how we can expand on the, SI branded products that we have as well. So some of that now we've got MDR is working with, third party manufacturers for developing a a portfolio of SI branded products that we can sell around the world.

13:03 So profitability, increasing profitability, obviously, key key metric for the business. This is around delivering on efficiency and driving the efficiency of not not just the facility that we have in in Lakes, but it's every aspect of the business in driving efficiency through sales, driving efficiency through all of the operations. And I think, again, MDR will allow us to, to to focus on some of the internal structures within the business, and and drive that. We're looking at, higher higher margin products and higher margin markets as well. You know, so Japan is a really strong market for us, and we get a really good, margin through those products. We're also implementing price increases across our network where we can, to to deliver better margin and outcome for the business.

14:01 And then key to it as well is driving costs down. So there are some projects that we've talked about over the last eighteen months or so that are now being delivered and will take some significant cost out of our own, manufactured product. And there's reduced overheads, costs as well. So we've looked at, the structure of the manufacturing business and how we can reduce that overhead cost around that. So in the clean room, for example, we've taken some heads out. And by cross training sort of all parts of the business, it means that we can utilize people from different parts of the business when there's a capacity issue in another part, and that seems to be working really well.

14:50 So improving working capital, we talked about reducing inventories. We've talked about managing suppliers, and those are ongoing. So when we when we look at our inventory levels, we've reduced that to 1,700,000,000 already this this year from a starting point of about 2,200,000. So we're managing that much more effectively. And we're, we're also managing our cash really tightly. That's ongoing and will remain ongoing, you know, sort of it's a key part of the business. And the finance team has done a really good job around managing those, managing the cash effectively. We talked earlier about man improving the supply chain management and, you know, sort of what does that mean? That's sort of building relationships with suppliers to improve terms, to improve pricing around that, to look at different opportunities that we have, to change suppliers if we need to and making sure we're getting really good value from all of our suppliers.

15:56 And, you know, so that's that's about moving to a a leaner supply chain. So making sure that, you know, the supplies we have are working in our interests as much as their own. So executing this sort of the the the strategy is so, you know, as as we develop the strategy and, you know, sort of, when Alex comes on board, he will sort of look at this more closely and adjust it to to be more relevant for the business. But this is, you know, ongoing. You know, we continue to to develop the the strategy. We're focusing on the important parts of the business, the customer, the core competencies within the business.

16:46 So, you know, so this is a work in progress and will continue to be work in progress for the for the coming years as we you know, the business improves, you know, that that would always be looking for opportunities to improve further. And then it's what focusing on the key drivers of of the business and where we can obtain growth. So, you know, sort of I talked about our NHS relationships. You know, that's really important, that we continue to grow those. It allows us to attract new distribution products, for The UK market. It improves our sales channel as well. You know, we're strengthening those with new dealers. We're strengthening what we're doing in US, and we're we have some really good initiatives going on with our our dealer network.

17:37 We're trying to sort of make sure that we're not reliant on one or two markets. Obviously, The UK is always going to be crucial to us. But when you look at our dealer network, you know, we have a number of key distribution partners, and we need to spread that risk out further as well, and by going into new markets as well and developing that business. New products are always the lifeblood of any company, and we're looking at opportunities, as I said earlier, about working with third party manufacturing companies to improve our portfolio, to improve our pricing, and, you know, to drive the business. And then there are things around clinical leadership as well, you know, sort of we can develop products and opportunities blind, but we need to have clinical inputs. And we're working closer with some of the key hospitals around The UK, and also looking to develop relationships with some of the, universities.

18:31 You know, we've worked more recently with, Leeds University around materials, but there's but there's a number of opportunities that we can we can work there. And, of course, The US remains a commercial a key commercial strategy for us. And by developing the network of dealers, I think we we will be able to grow that business significantly over the coming years. But this is my favorite slide. I love talking about new products. So this what MDR has done has allowed us to, to bring some of the the products that we've had in the pipeline for a while to market. They're going to be so for example, we've launched the LogiTube Lux in Europe and The UK. That's our recent launch, and we expect that to develop revenue in q four and beyond.

19:27 We're about to launch the LogicGrasp and LogicDissect in q four. I think it will be the end of November that those products launched in in the marketplace, and we're already building initial stocking orders from our network of dealers. And that will sort of enhance our range on the lodging range of instruments. So it's just adding some of that range of products that we can put through our, sales channels, and make us more important to those, to those dealers. The yellow port balloon port, that that that's this is, a line enhancement, but it's a key line enhancement for us. So it's about port fixation to stop the the trailing car slipping out of the patients during surgery.

20:14 It's a key, request from our, clinicians that use our product that we develop something around port fixation, and this is something that we've done in partnership with a third party manufacturer. And we're looking to add to a five millimeter version, in about 2027 as well. And then further down the line on that, we're developing some technologies which we think are quite, will be quite smart around port fix fixation as well. So we're not standing still having bought products to market. We're not standing still and, you know, just waiting for, you know, the the sales to grow. We're looking at initiatives that we can improve the product portfolio all of the time. And then I've talked over the last eighteen months or so about some cost down project projects, and this is an example of one.

21:06 So the yellow port plus universal valve is a key product for us. We we sell 10,000 plus a month. The first part of that project produced the cost saving of £1.50 per device, and we're seeing that fit through now into margin. And the second part is an additional pound, of saving. And that's done through redesigning manufacturing process, materials, and also a redesign of the product. And that project will move on to other parts of the business as well. So I will now pass you over to David Hansen that will take you through the, summary of the financial review.

21:53 Thank you, David. Good afternoon, everybody. A number of these, David's already touched on in terms of revenue and gross margin. The adjusted EBITDA, small profit for the period, and in terms of operating a small operating loss for the period. Cash operating cash flow generated cash in the period of just over $2.02 200,000 as opposed to using cash in in this period. And then net debt is on the same number as at the year end. Next slide, please. Thank you. Just breaking out the revenue analysis, which really mirrored or pictorially represents what David was talking about earlier. A small reduction in the SI brand, the headwind of growth in APAC with, sort of the tailwind of growth in APAC with a headwind of issues in terms of The US and other parts, distribution increasing some more annuals of OEM, again, just pictorially representing what David talked about earlier.

22:52 Next slide, please. Thank you. In terms of operating expenses, so an increase in the sales and marketing expense that reflects the investment in that team that was concluded towards the end of twenty twenty five. 15 people in the sales team now, 15 people at the end of twenty twenty five, and that's really what's driving that increase in the sales marketing, our investment in that team to generate the revenues coming forward. Admin expenses down through cost reductions and and of operating matters, and then research and compliance broadly similar. Our head count at the moment is 93 people in the business. We started the period with 92 people in the business. And then in terms of the balance sheet, again, as mentioned earlier, our inventory has come down from 2.2 to 1.7, which is a nice reduction. We're targeting and continue to target that revenue that inventory at 1,500,000.

23:49 In terms of collection days and payables, our collection days are holding steady sub sixty days, and our payable days are sub 40. And the profile of that data is very good. We have hardly any debt which is overdue. It's a really good neat profile picture. In terms of borrowings, we paid down the last installment of the CBILS bill, 150,000 in the period, so that has gone. And in terms of the we continue to draw down our invoice for just financing facility, although the amount that was drawn down reduced from December to the end of June. And our net debt is broadly similar to what we had at the end of December. Thank you, David. Back to you. Thank you.

24:36 So just in summary, the investment in the sales is beginning to deliver a clear momentum in The UK and across our key markets. And part of that is the sustainability messaging continues to drive opportunities as I described, one particular one in Australia, which is a significant opportunity. MDR certification has transformed the business. It's allowing us to be far more flexible, more rapid in developing opportunities in terms of new products and working bringing sort of SI branded products in from other suppliers, and that that will allow us to continue to drive the business. And, you know, the parts of that is leveraging our our distribution network to drive the opportunities.

25:24 You know, we've already added a number of third party products into into that network. We're looking at opportunities to further enhance that. And so it's maximizing, you know, our our our sales channels to the full and and being able to drive sales. Being awarded our place on the MIS three framework, as I said, that went live in August. And that's that's a really important network framework for us to be on. It allows us to drive not only SI branded products through it, but also third party products. It allows us to add new products to the framework agreement as we develop them and as we take on additional third party products.

26:12 And it emphasizes the the amazing relationship that we actually have with supply chain. So we're we've been on this now for for I think this is the third iteration of the the framework agreement for minimally invasive surgery. And we are one of the key companies that they look to when there's a shortfall from other, suppliers. So outstanding rep, relationships, and we continue to leverage that. We're driving our margin improvement, cost down projects, price increases through the supply chain and through our dealer network, and we're driving operational efficiencies throughout the business. So we'll see that continue to improve during the rest of this year and into next year.

27:04 So that concludes the presentation. So far, we'll go to questions. Thank you, David David and Alex. That's great, guys. Thank you for updating investors today. Could you please remind investors to submit your questions just by using the q and a tab situated on the right hand corner of your screen? And for your reference, a recording of today's presentation will be available in the investor me company platform shortly after the meeting has ended. As you can see, we have received a number of questions during today's presentation. Alice, at this point, if I could just hand back to you to read out the questions, give those to the team where appropriate, and I'll pick up from you at the end. Thanks, Charlie. So we've had three questions, I said two of which I think we've largely covered. The first one was, can you elaborate any further on The UK sales organizational changes? Okay. So not not so much changes, just investments in the team. So we had during 2025, we had a much smaller team.

28:03 I think we were going through the year with about four people. We'd lost some to a competitor competitor, and we decided about this time last year to reinvest. And then so the sales we we recruited in end of twenty five and into '20, six, and we have now certain sales territories. We have a, a field sales manager, which is a key role because we want people that are going to be working with the sales team, developing them, and helping them sort of capitalize and close, the big deals. So it's it's from that perspective, it's a very similar structure to what we've always had. We've just expanded it, in terms of numbers. Thanks, David. The next question, is your American strategy still using the consolidated distributor network?

28:55 I'm I'm not sure what they meant by consolidated dealer network. What we're doing is we're working with so we have a a new guy in the international business who's very experienced in The US, and he's working with our existing dealer to identify, train, and bring on board a number of new dealers, primarily at this stage for scissors, but also for yellow port products going forward. So it's it's a it will be a all of the dealers are well established in their marketplace. They're well established in minimally invasive surgery, so they tick all the boxes that we need. And so we're very confident that we've got the right strategy and the right partners in place.

29:43 Thank you. There was a question on the NHS supply chain framework, but I think that was covered in the summary slide. And the next one, how does your part reusable, part disposable approach compare with alternatives on cost, clinical performance and environmental impact? Okay. So one of my favorite topics is so the sustainability messaging is is key for the business. So our part reusable, part disposable, we've got the term disposable. We've trademarked that term. So what does it mean for us? So all health care providers are targeted with reducing, their c o two footprint, their plastic waste.

30:29 And there's a significant volume of plastic waste in the operating room. So what this does, it allows us to speak with hospitals about reducing that c o two footprint, that plastic waste. And we estimate that compared to single use items, we can reduce that by 70%. So it allows us to have a dialogue with health care providers about sustainability rather than your opening gambit is how much does it cost and how much can I save? So we can go in and we clearly demonstrate, and we've got this environmental calculator that the hospitals can use compared what they're currently using to SI branded products, and it will demonstrate that there is a 70% reduction.

31:20 And this is not just, you know, sort of based on us saying that. This is a clinical paper that was published in the Royal College of, Surgeons Journal that backs up everything that we've said about our sustainability credentials. And when you so the the other part of the question was around quality and around price. So we estimate that we are one of the most competitive providers in the marketplace. We compete with the likes of Ethicon, Medtronic, and also Applied Medical. And so we have to make sure that we can compete with them whilst not being able to bundle products that those big companies are able to do.

32:10 And this is a really good strategy for us to be able to do it. But, ultimately, at the end of the day, price is important. Sustainability is important. But if the product is no good, if the quality is poor, you won't sell it. And I would argue that our product, the quality of our product is significantly better than anything else on the market. The reusable elements to our product, you know, the cannula for our trocars have made a peak. It's high quality material. It's machined high quality machining to develop the product. And the trocars, again, are made out of high quality materials.

32:56 They have to be to be able to withstand the reprocessing of them. And then our valves are they're made from a high quality plastic. They're made the silicon the design of the silicon valves, we believe, is better than anything else on the market. And so we tick the boxes that we need to tick. We tick pricing. We tick sustainability, and we definitely tick quality as well. Excellent. Thank you. And the last question, what needs to happen to move from broadly breakeven to consistently profitable? Well, I think I think it's all the things we've laid out in this presentation. It's it's about, increasing, our product offering. It's about increasing the, the margins that we make on those those products by price increases that we've got through MIS three, and through our dealer network.

33:52 It's it's about working internally to reduce the cost of the manufacturing, to reduce the cost of materials, and make sure we're maximizing those benefits. It's it's about looking at the structure of the business, you know, on a on a daily basis. And, you know, this will be one of Alex's first tasks, I I expect, that he will be looking at where, you know, where we've got ability to improve efficiencies within the business and and drive. And I think we're on the road to that. I think these focusing on fundamentals has given us the ability to to look at all aspects of the business, and drive cost out of it where we can. So, you know, sort of going forward, I'm confident that, you know, although I I I won't be driving that part of the business, I think I'm confident we will, you know, sort of grow the business. It will continue to to do well and and, you know, sort of 2027 will be a really positive year for the business.

34:56 Thank you. That's all the questions. I'll pass back to Charlie. Thank you, guys, for updating investors today. Before we ask investors to share their feedback, which I know is particularly important to the company, David, can I please just ask you for some closing comments? Of course. Yeah. So I I think as I said, to in answer to that question, I think the company's going to be well placed to start, improving sales, to start improving margins, and to drive the business forward. I think Alex is the perfect person to come in and start to drive that business. His expertise, will sort of improve all aspects of the business. And so I leave the company in good hands. I'd like to say thank you to everybody for supporting the business throughout my tenure as CEO.

35:43 Look forward to seeing you in other, you know, in other venues rather than online at IMC platform because this is my last one. So thank you very much, everybody, and goodbye. Thank you to the team once again. Could I please ask investors not to close this session? It should now be automatically redirected for your feedback. On behalf of the management team of SURGICAL INNOVATIONS GROUP PLC, we would like to thank you for attending today's presentation, and good afternoon.