Investment to hold back earnings at surgical firm

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Keyhole surgery toolmaker Surgical Innovations said 2013 earnings will be “significantly below” the previous year’s results following investment in its manufacturing operations.

The Leeds-based group said investment to streamline its operations in the second half, plus the adverse impact of the US dollar exchange rate, would lead to annual earnings coming in well below 2012’s £2.9m figure.

The company said total revenues for the year to December 31 will be £8.6m, a 13 per cent increase on the previous year.

The group said its strategy for long term growth is the development of the SI Brand within the lucrative US market, underpinned by the appointment last May of an SI President of US Sales and Operations, Rick Barnett.

Surgical reported a 75 per cent increase in sales to the US of SI Branded products, through multiple new routes to market.

Chief executive Graham Bowland said this demonstrated its potential for growth and vindicated the high level of initial investment required.

Overall, SI Branded product revenues have grown by 23 per cent driven by the demand for its “resposable” instruments.

These instruments consist of a long-lasting reusable element and cheap throwaway parts that are only used once.

Analyst Mike Mitchell at Panmure Gordon said: “This year-end update, while reflecting the strategic emphasis on the SI Brand, also demonstrates a disappointing second half, primarily impacted by problems in manufacturing process flows.

“The resolution of these issues has contributed both to a reduced top-line against our expectations and reduced margins.

“Our initial view is for 2013 pre-tax profits in the region of £1.0m, down from the previous estimate of £1.8m.

“We are downgrading our target price to 5p, from 7.6p, and move from Buy to Hold.”

Mr Bowland said the group’s “resposable” instruments can save £300 per operation – which could offer the NHS savings of tens of millions of pounds.

The group’s YelloPort keyhole surgery device is a resposable system that is used in gall bladder removal, hernia operations, rectal cases, gynaecology and obesity surgery.

Amy De-Balsi.

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