Surgical Innovations Group (LSE:SUN) — Full year results for the year ended 31 December 2021

0:01 Good afternoon, ladies and gentlemen, and welcome to the Surgical Innovations Group PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. We'll notify you by email when they are ready for your review. Before we begin, we would like to submit the following poll. And if you would give that your kind attention, I'm sure the company would be most grateful. It gives me great pleasure to hand over to Charmaine Day, CFO, and David Marsh, CEO. Good afternoon. Good afternoon, everybody, and welcome.

0:46 Gonna run you through performance for 2021 and then some outlook of 2022 as we come to the end of the first quarter. So on the first slide, this is a company overview, and this is really for aimed at investors that are new to the business. But I'm sure most of you are are familiar with the company and have a good understanding. But in a nutshell, we are a med tech company with expertise in design and manufacturing aimed at the minimally invasive surgical sector. The one thing that you will notice on this slide in the top right hand corner is that we are actually 30 years old this month, And so it's, quite an achievement when you consider the challenges that the company has faced over the years, and particularly in the last two years as we've, managed the challenges of COVID and, emerged from that in financially a very strong position.

1:41 And so to that end, I will hand you over to Charmaine to run you through the last year's results and, an overview of, the first quarter. Charmaine, over to you. Thank you, David. Good afternoon, everybody. So I'm gonna talk you through the financial highlights in the table, and go through in detail, the information on each slide. So I'll just give you a bit more background to to why the numbers are the numbers. So overall revenues for the year were 9,130,000, 44% upon 2020. And if we look at those 2019 levels as a comparative normal, normalized trading, we're about 85%. When we look at underlying gross margin, and this is just, excluding the net manufacturing costs, and I'll talk about that in more detail, we just kinda look at the really the direct cost of sales, and we are within that target range of 42%, although slightly lower than the the previous two years.

2:40 Moving down the income statement, profitable adjusted EBITDA of 500,000, comparing that to a loss of 660,000, which is significant increase from the previous year and then an adjusted loss of $330,000 which was a significant improvement on those 2020 numbers. In terms of net cash for the period, we ended the year at $1,760,000 and we had an overall headroom of 4,060,000, including the bank debt. The movement in the cash over the period from the 3.1 to the 1.76 is essentially made up of cash used in operations of about 4,430,000. And the rest is really r and d investment and CapEx coming to about 660,000, and we'll we'll talk about that in greater detail.

3:29 Okay. Moving on to the revenue analysis. So the the first slide really just looks at the the segment and what that looks like in terms of the previous years in the in there. We've ignored the the the 2020 numbers really don't necessarily show much in those details. But if we kinda look at the the SI branded product at SI the sorry. The green section of 4,800,000 in those 2021 numbers, you can kind of come really compare that to the pre pandemic levels of twenty nineteen, and we're trending around 82% on that particular revenue stream. In terms of the distribution business, which is the area highlighted in gray, we're at 3,100,000 for the year end.

4:21 And this segment has really fully recovered, and we're now back to those 2019 levels. The OEM business, which is the bit in blue, at 1,200,000. There was a very slow start to the beginning of year, but the increased activity in the second half, and then the momentum really has continued into this year as well, and we'll we'll see some more orders coming through for that. And as we moved into 2022, we did anticipate a spike in revenue with the Omnicron variant, and we weren't really sure what it was gonna be trending at. However, the trending the trading as such has continued at similar levels to Q4. And the first two months really are showing that we're slightly ahead of those pre pandemic levels of 2019.

5:09 Okay, looking at the next slide, it really is just a summary and analysis by territory. And I know David talks about this in more detail. So I'm just kinda really gonna give you an overview of where our revenue stream comes from in terms of geographical locations. So most of our revenue, if you can see from the green section, comes from The UK market. So between 60 to 68%, The US market around 17 to 24%, Europe around 12 to 14%, and the APAC region, is growing around five to 8%, and more so going forward. But David will touch in more detail on on the next, slides when he comes to his. So if you look at the margin analysis, and we talked about this at the beginning in the highlights.

5:56 So we really look at the underlying gross margin to start with, and that direct cost of sales and what that is trending at. So if we're looking further down into that table, you've got an area called net manufacturing costs. And we've separated this out from that reported gross margin just to see what's going on within the business. So the net manufacturing costs essentially is the overall overheads that haven't been recovered into the cost of sales as such. And this is generally down to the factory output. We've been working at reduced levels. I mean, although significantly improved since 2020, and it will continue to improve. But there has been challenges around manufacturing in terms of recruiting skilled labor resource, which is affecting capacity, combined with increasing costs that everybody is seeing on both people and raw materials.

6:53 However, we have managed to mitigate some of these costs. So we've increased our sales prices by seven and a half percent in most areas. And then we've implemented cost reduction activities to drive efficiencies. And there's also some new plant and machinery coming into the factory, which will also drive those efficiencies as well. So the overall contribution margin at the bottom, which is the direct reported gross margin in the statutory accounts is at 34% for 2021. And we would expect this to increase as a factory sorry. We would expect the output to increase as the revenue increases. So that should go back to the the 40 to 45%, which we expect once those revenue levels go back up again. K. Moving on to operating expenses.

7:45 I've just really pulled out the adjusted operating expenses, and this takes out the impairment of intangibles and goodwill calculation, share based payments, and exceptional items. Essentially, items that are not really useful for comparative purposes. So if you look at 2020 and 2021, you can see that significantly reduced from 2019. However, in the second half of twenty twenty one, we have started to increase costs back to normal levels in terms of sales and marketing expenditure, increasing the the amount of headcount in that particular area. And David will talk in more detail on the structure of the sales and marketing team going forward. And we're seeing that more so in the current year as well. We'll expect more expense in that particular area.

8:34 In addition to that, we've increased the headcount in our regulatory team as we move towards the MDR certification, and we will see those costs increase in terms of validation work going forward as well. In summary, what we're really we're expecting to see going forward into 2022 is the cost base was probably gonna be at similar level to the 2019 numbers to support the future growth of the business. So looking at the net result of the income statement. So we talked about in this highlights, such as a recap, so profitable adjusted EBITDA with a small operating loss gradually getting back to those 2019 numbers. If we do look forward into the current year and beyond, the increased cost base and the additional inflation pressures is becoming more challenging.

9:22 So in the past, when we looked at maybe around 2019, so we looked at a breakeven level of business around 9 to 10,000,000 in terms of revenue. It's now looking around 11,000,000 going forward. Just the increased cost is just becoming more challenging, but we do expect future growth. The financial position of the business. I'm just gonna talk through the several areas. I'll start from the top in terms of the tangible assets. So as I talked before about investing in capital equipment, we haven't necessarily done this for a long time. And although the levels at point 2,000,000, what we spent in the year is actually quite considerable compared to previous years, it is quite minor still.

10:09 This was mostly relating to kind of tooling really on the new product development projects that David will talk about, but we have further commitment going into 2022 with new machines coming in, the last couple of months with some further commitment coming down the line. And, David will talk in more detail on those ones. In terms of investment in r and d, so the actual capitalized development cost that we spent in the year was about 450,000. We would expect similar levels going forward 2022 and 2023. The other thing to note on the balance sheet, so it's really looking at that working capital movement. So the increase in trade receivables and inventories of about 1,240,000 on the prior year have impacted the working capital requirements by about naught naught 930,000.

11:00 Receivables have increased just to due to down to sales activity, and the inventories were elevated in order to mitigate the price increases and just generally manage lead times as well as increased activity with those supply chain issues that we've we've seen. And we've come into the current year as well, continuing to have supply chain issues, and I'm hoping that that's gonna normalize throughout the year and hopefully reduce those inventory levels at some point. But we do feel that that actually those inventory levels as we stand today are sufficient to support the needs of the business. Overall, that has been impacting the adjusted net cash position. The adjusted net cash just excludes those IFRS 16 lease liabilities and just really just takes up that bank debt.

11:47 And and we ended the year on that 1,760,000. The cash flow statement is at the end of the presentation if you do need further information. So within the current month, we we've done a bank debt refinance. So the current loans, which sits in at 1,880,000 with an undrawn RCF of 500,000 have been refinanced. They were due back to be repaid in May this year. So what we've done is we've taken the existing loan of naught 380,000 and the undrawn RCF facility, and we replaced that with a a 1,000,000 invoice discounting facility. And in addition to the remainder of the loans, 1,500,000 was relating to a CBILLS loan, which we took out during the pandemic for 1,500,000, which was now extended over four years. So that is now due to be repaid in May 2026.

12:42 The reason for the change in the structure of the actual loan, it just gives us more flexibility for investment projects going forward, relaxed covenant notes, just really looking at an EBITDA to debt service rather than a cash flow to debt service. It just gives us more flexibility going forward for further investment within the business. On that note, I'm gonna pass you over to David, who's gonna take you through to the operational and commercial slides. Thank you, Charmaine. So if we look at the operational and commercial highlights, we've talked a lot in in previous meetings about the actions that the company has taken during the pandemic and during the hiatus in manufacturing, to position ourselves as, elective surgery comes back. We're in a really strong position to be able to take advantage of the pent up demand that has been created by the lack of elective surgery. And all of the actions that we've taken so far have proved to to have been beneficial to the business. And we've seen that with the as resumption in elective surgery has happened that we had strong sales in quarter four, and that's moved into quarter one this year. And we have a strong order book for quarter two as well. So all of that activity has has paid off and put us in a good position.

14:05 But we haven't stopped there, the evolution of the business has continued. So we are now looking at when we have restructured the sales and marketing team and redirected the focus, and I'll touch on that in greater detail later. Charmaine also talked about the ongoing investment in our manufacturing capacity. And there's I I have a slide that will detail some of the plant that we are bringing in and and the reasons behind that. And then we have a number of exciting opportunities around the the opportunity to grow into new geographical areas. Some of that is on the back of our partnerships with CMR and MicroLine and PETER Surgical.

14:50 And so there there are some really exciting options there some of the new product developments as well that we have with launches in quarter two and quarter three this year. So we have an exciting pipeline. And we've also as you will have noticed from the announcement on Monday, we've also leveraged our expertise to build partnerships within the robotics sector as well, and that's a really exciting opportunity for us. And then going back to, Charmaine's presentation where she talked about the ongoing investment in MDR, that's a business critical function for us, and we've continued to invest in that in terms of people and in terms of the validation, work that needs needs doing. So if we look at the market, overview, this slide is there to give you an overview of our global footprint, really.

15:41 Obviously, The UK business is our our strong domestic market. 48% of our overall business comes from The UK, and that includes the distribution products that we have from third parties. We have good markets in The US and in APAC and The EU. And, of course, our OEM business is is important to us, and we we value the the partnerships we have there. And moving forward, we expect that to continue to grow. So if we narrow down a little bit and look at some of the key markets, The UK, as I said, is our strongest market. That's naturally the case. It's our domestic market. And we showed a strong recovery in quarter one, back above pre pandemic levels. Sorry. Above in quarter four last year, and that's continued into quarter one twenty twenty two. And we see, you know, sort of that continuing as we move forward into quarter two as well.

16:42 We talked about the ongoing evolution of the business, and part of that was the refocus of the sales strategy. And that meant reviewing what we had in our portfolio and deciding what areas and the bandwidth that we had to to focus in key areas. So we took the decision that subsequent to the acquisition of then closed by Beck and Dickinson, we decided to to drop that product and allow them to take that direct. And our partnership with CMR surgical meant that we couldn't really continue with our distal motion relationship as well. And so we continue to work with Distal Motion as they move to a direct model in The UK. Sustainability continues to drive all aspects of our, SI branded product, both in The UK and abroad. And we see the the marketing nuancing now becoming more finessed.

17:36 You will be you will recall that I've banged the drum for sustainability in health care for a long time and that we we have been drivers in in that with a number of key partners. And now the NHS has bought into that sustainability. We're nuancing the messaging as to as opposed to sort of pointing the figure finger and telling them that they needed to take into account reducing plastic and c o two emissions. We are now working with them along the lines of they understand they have to change, and we are the partners that will help them change. So it's it's a slight nuance thing in the messaging, and we're seeing that that we're really benefiting in that, particularly in terms of the number of evaluations that we have in progress or plan for the rest of this year.

18:22 At the last time we spoke, I talked about the number of evaluations that we had, and we converted, four or five of those evaluations. But we did struggle, in in following them all through because of the stop start nature of of surgery. But they're still in the pipeline, and some of them are still in progress we speak today. So we haven't lost any bit any of those evaluations. We're just we've had to to sort of elongate the the pipeline, if you like. I'll talk in more detail about the additional resource that we've put in place to to focus on the private sector and and the supply chain, because that's an important area for us moving forward. But some of the challenges that we face today and and potential challenges that we face around NHS staffing levels. So there are over a 100,000 vacancies in the NHS.

19:15 And in addition, when the Omnichrom variant was would've had its peak, we were seeing that there was an impact on elective surgery, albeit small, where staff went off sick and they we there wasn't enough people to do the surgery. And in addition to that, we we see a challenge with the supply chain logistics and the potential for back order from some of our third party suppliers. If we move to The USA, so we had a strong h one in '21 as Adler, in particular, restocked their their shelves. And then we saw a more normalized ordering patterns in half two. Interestingly, where we got away likely in The UK, there was an impact of Omnicron, particularly at the end of last year and early into quarter one.

20:09 And again, you know, where staff were going off sick, they were reporting a reduction in staffing levels of about 50%. We have seen recovery in February, and that continues in March as well. And on the back of that, Adler have won a major GPO and hospital group, and we should see the benefits of that in terms of our scissor business going throughout the rest of the year. MicroLine, as you know, sell our access system, and that has as we've seen in The UK, that has proved challenging in the in the COVID world as stop start nature of surgery sort of has hindered those evaluations. But they are making good progress, and the launch of the yellow port elite five millimeter will certainly give them the opportunity to focus, because the product is is partially aimed at the The US markets where they have a larger diameter instruments.

21:04 So it we we see that as a real opportunity in, quarter two and beyond. The EU has been slower recovery compared to The UK, and we're still seeing some countries, particularly France, where they are, activity is impacted by COVID, and that sales team are are struggling to get access to the OR. Order patterns are slowly returning to normal, and we do see that overall, elective surgery is beginning to return to normal, and we expect that to continue throughout the rest of the year. We hope that the launch of the the new products that I'll be talking about later will also give us a real a uplift in in opportunity there. So our APAC region continues to do well.

21:51 That is primarily Japan. They very similar to The US, they had a strong start to last year with restocking orders, and then that leveled off in the second half of the year. We are seeing probably for the first time that COVID is impacting Japan, and they have controlled access to the OR for their sales team. So that is a bit of a a lag behind what we see in The UK and now we're seeing in The US. The our Japanese dealer, AMCO, previously sold a range of reusable instruments, and they they dropped that range in favor of the logic reusable instruments that we manufacture. And they've placed our initial stocking order, And we're very excited about that opportunity for us moving forward.

22:40 The launch of the yellow port elite five millimeter, that that will be in q three, that's pending registration, which is well on the way. So we're we're looking forward to that opportunity, particularly as the optical trocar will be available. And it's our understanding that in Japan, thirty to forty percent of laparoscopic cases utilize a five mil camera system, and therefore they they like the optical port to go with that. And then the LOGICAL DICECT and the LOGICRASP range, which will be launched in quarter four, quarter three, quarter four will again, that's primarily being developed on the back of the requirements in Japan and The US, and we see that as a real opportunity for us. Moving on to the rest of the world.

23:29 So you can split this really into two. We have Israel and and Canada, which continue to build business, albeit at at at some slightly lower levels in 2019. But that that's consistent business coming from those two countries. The rest is really The Middle East, and that remains challenging. And visibility of where we're at with the tenders is somewhat limited, and we we we're we're struggling to get really good information out of that region. We do think with conversations with our dealers out there that some some of the new product development that we have may be an opportunity to relaunch. And to that end, we're holding a joint APAC and rest of the world's dealer meeting planned for late quarter three.

24:18 So our OEM business is remains important to us. We saw a very quiet beginning of twenty twenty one, but bounced back in quarter four, and we have a strong order book for 2022. And some of that is on the back of our existing relationship with AMS, which continues to thrive. But we have some new partners, CMR, SURGICAL, as you will know. That's the access device, and we're very excited about the proposition we have there. And then BD, it's not necessarily a new relationship as such, but a new owner. So Care Fusion used to buy the fast clamp from us was acquired by Beck and Dickinson, and they continue to purchase the fast clamp, albeit at much higher levels than we've had for a number of years.

25:09 In terms of sales and marketing, we to to prepare ourselves for the resumption in activity, we have started to rebuild sales teams that we lost some sales teams during the COVID period as they went on to other projects. And we've rebuilt the UK team, back to eight territories, and then we've added in a national account manager. And the purpose of this is that as the NHS becomes more reliant on the private sector to deal with the black backlog of surgery, we need to build better relationships with that private sector. And that is proving beneficial already as we have much better relationships now with all of the key private health care providers.

25:56 It also helps us build a much closer relationship with the NHS supply chain. So the the NHS supply chain have a team of salespeople that actively promote sustainable and cost effective devices and look to where NHS trust can save money. And so we're working much closer with them as we move forward, and that's part of this national account role. So a really important role for the business. We've reinvested in our international sales team. We have one dedicated for Europe who fortunately speaks seven languages. And so co traveling with our dealer sales team will be much more beneficial and is a is a much better proposition for us. And then the second international sales manager will be working in The US, primarily in The US and APAC.

26:47 And they would be spending much of their time co traveling with the sales teams in those regions and developing sales strategies with our our distributors in those countries. So it's a really positive step there. In addition, we have appointed an international marketing manager, and we are and sort of he is beginning to provide that nuancing of messaging. And that's really important for us as we promote our sustainability messaging across the globe. And we are beginning to see traction, and it's quite interesting that the French government have recently publicized a a paper looking at the reduction in in plastics across a number of industries. And our distributor with the help of our marketing manager is using that to leverage in health care to leverage our sustainability messaging.

27:40 We also have a had a product manager on board, and she remains with the business, and we're appointing marketing communications. So I would hope that you would see on social media platforms, LinkedIn, etcetera, that you will see a much higher profile from surgical innovations going forward, as as we promote our sustainability messaging more effectively as well. So in terms of geographical expansion, we've always made a key, strategy to strengthen our partnerships with our with our global stakeholders around the world. And whether that be, companies like MicroLine who have supplied our UK business for a number of decades now, or whether that is sort of, other companies that we are now collaborating with and and can utilize their networks to expand into different ways. We are seeing real benefits from these partnerships and the close relationships that we have.

28:42 So you're all you're all aware about MicroLine and the reciprocal agreement we have now in The US for Yellowport. And we see that as a real positive for 2022 as that ongoing training with our sales team, rebuild that business in in The US. So that's a real, key market for us going forward. We also have an opportunity in India, which has come from a number of strands, really. So the the conversation around India started with CMR surgical, who have a strong base in in India and were looking for us to build a distribution pipeline for the disposable items. And so looking around, we saw that Peter Surgical, who again supply The UK team, have a direct business in India, and we're now working with them to sell the full portfolio from SI, and registration should be complete on that at the end of April. And so in the second half of the year, we we should see strong growth from that area.

29:46 And then utilizing our collaboration with CMR Surgical a bit further provides the potential for us to move into other key strategic markets. For example, they have a very strong dealer in Brazil, where we have nothing in South America. And this opens the opportunity for us to work closely with them and their dealer network in in South America and some parts of Eastern Europe. And so we we see these, partnerships as as key to, allowing us to spread our our global reach, if you like. So in terms of new product pipeline, so the initial focus was to to look at products that we could get approved on the medical device directive, the MDD, the existing certification that we have.

30:33 And that has allowed us to bring out a range of line extension products. So the elite five millimeter access device and the optical trocars to go with that, which will be launched in quarter two of this year. And then in the second half of the year, we have the logic dissect and the logic grasp, which will con complete the instrument range, logic instrument range, which now is dominated by the logic scissor. And so we see that as a real opportunity for for the rest of the year. And then as we move beyond the MDR, and we're looking we're already starting work on the next generation of access device, particularly looking at sort of improvements we can make around materials and sustainability around the valve technology, and then sort of other nuances around port access devices like fixation and closure.

31:27 So we have an exciting pipeline coming going forward beyond 2022. And some of this. There might be a a slight hiatus as we adopt to the MDR, but we see, you know, sort of that as an ongoing mission, really. In terms of the robotic opportunities, so, again, the announcement, on Monday, announced the launch of the yellow portal leak five millimeter. And this represents our first collaboration with, CMR surgical. They came to us, looking for an access device to function effectively with their specialist robotic instruments, which are have a larger diameter than a normal five millimeter. And so we were able to work with them around the functionality of their instrumentation, which, you know, sort of the the rested part of the instruments can cause trauma to the valve. And so we had to work with a special, you know, a special development to ensure that that the valve wasn't torn apart by the instrumentation.

32:32 And that device was started that started as a design and manufacturer agreement, has now moved on, and we've launched that product, and we see that as a real opportunity. So the relationship is based around the fact that when CMR place sell a robot into a hospital, they will also sell them the hardware for the elite trocar. And then the local dealer will sell them the single use items. So it's a it's a bit of a win win for us. We we sell the disposables, we sell the hardware to CMR, and then we sell the and then it gives us an opportunity to broaden our portfolio offering in each of those accounts. And so this is a real opportunity that we've got, and we're further exploring development opportunities as well around our expertise of access devices, instrumentation, particularly scissor blades, and then also our flex technology as well. So we see this as a as a major opportunity on our o OEM business.

33:36 This regulatory update so the the MDR is is really a core focus for the business, and it consumes time from all of the functions of the business. So r and d, manufacturing, production engineering, finance, sales, and marketing, all all have an input into our MDR process, and it is it is mission critical for the business. We expect to complete this by March 2023, and we're our pathway we're well on our track on our pathway for classification. So class one devices are already have already transitioned. Class two a and two b are on track for submissions later this year with a full conversion, a technical audit for completion by March 2023.

34:23 The upside of this increased cost and, regular regulatory, process is that it raises the bar to market entry, and we are already seeing companies that don't have the same capabilities within their QARA departments dropping out to the market or dropping product ranges. And so it is a real opportunity for us. On top of all the the MDR process, we, of course, have a demanding program of audits with MDSAP, FDA, and BSI throughout 2022 and beyond. And those those continue to come, but we deal with them effectively as they as they arrive. In terms of CapEx investment, I think Charmaine alluded to the fact that we've, because of the the situation of the business, we we haven't invested as heavily in in, plant machinery as perhaps we should. We've changed that now, and we have installed our first new lathe, CNC lathe, which is is commissioned and functioning.

35:31 We have a new injection molder on order, which is due in the second half of the year. And we are seeing some some extension of delivery times on on some of this plant as well. So it's it's important we're ahead of the game and get our orders in promptly. And the reason for these investments are around increasing the the general capacity of the facility and the flexibility, particularly as new products come online. So it enables us to bring manufacturing in house more often. It enables us to have that capacity as we increase sales going forward. And then there are some plant that we need as part of our MDR process, and the automated cleaning line is an example of that that that we will need to put into place as part of our MDR process.

36:23 So overall, we're looking to invest between 600 and 800,000 over the next two years, and that it may sort of top 1,000,000 depending on some of the MDR requirements as well. So just in summary, so the we've continued to make organizational changes. We've continued to invest in the business, particularly in key functions and implants, and that leaves the business in a really strong position to take, advantage of as elective surgery resumes. We see our SI branded products gaining market share. So, you know, if you consider take The UK market for example. The UK market, the NHS is not back at pre pandemic levels of elective surgery, but our business is back at pre pandemic levels.

37:09 So we are winning new business, and that is on the back of sustainability. We've talked about our exciting pipeline of products and the partnerships that we we have and allowing us to to open access to new markets. So overall, the the, position for the company is really strong, and we're we're really excited about 2022. We have talked about the challenges that we face, but all of the changes that we've made and the people that we've bought into the business and the strategies that we have in place, allow us to face these challenges head on. And we see, you know, in the regulatory side that we're up you know, we're on track. We see people development, although recruitment of people does, is proving to be an ongoing problem.

37:54 And we we're meeting the the supply chain challenges. You know, we adapt the business to to react to the the situation that we we face. And we see that our business will continue to grow now back to pre pandemic levels by the end of this year and beyond. And so, you know, so we we remain very, very positive for the for the business. So that that concludes the the presentation, and we'll address questions now. That's great, David Charmaine. Thank you very much indeed for updating investors this afternoon. Ladies, gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. I just want the company to take a few moments to review those questions submitted already. 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 your Investor Meet company dashboard.

38:44 David, Charmaine, don't know if you want to bring your cameras just back up. If in fact, if I may, I'll bring up yours, David. Oops, there we go. Perfect. Now we did receive another number of pre submitted questions from investors. So before perhaps addressing those that have come in during the meeting itself, I could start with these. The first one reads as follows. Please, can you talk to us about the Adler MicroLine partnerships in The US? What progress can you share with us? Have management and directors actively considered putting boots on the ground for a period of time to really help ramp up stay sales? As you previously discussed and shareholders aware that The US is a really massive opportunity, and we're keen to really hear more about this accelerated push and if we can drive sales there. Yeah. Absolutely. I think I answered some of that during the presentation, but I'll recap. So, we we have two dealers in in The US, Adler, who sell us our logic out scissor range, and our reusable instruments, and, and then MicroLine who sell our access devices.

39:46 So Adler are continuing to they took over last year the whole of The US. They only had 11 states prior to that, and they now have all 52 states. And they work for a consortium or they work with a consortium of like minded distribution companies. And that business is going really well. They've, you know, sort of despite the challenges of COVID and the challenges of lockdown, they have partnered up with a number of major GPOs and hospital groups, and we will see those benefits. Unfortunately, I can't share the names of them because they're commercially sensitive, and I'm sure you'll understand that. But they're they're they're really, you know, so they're they're really excited about their opportunities for growth. And then on our access devices, MicroLine, who are a long term partner of the company, they took on the, yellow port access device during last year.

40:42 Like The UK, they struggled with some of their evaluations in getting them to completion because of the stop stop nature of elective surgery. But they're really beginning to motor now, and we're beginning to see them winning a small number of accounts. But they've been, soft pedaling until the yellow port elite five millimeter was available, and that product will be launched in The US in, April at our national sales meeting. Now I think the question asked about, boots on the on the ground in in America, and that's it's certainly something we've talked a lot about and in conjunction with both Adler and MicroLine. And, our new nationals international sales manager who will focus on The US will be spending a significant proportion of his life, in their co traveling with their sales teams, working with their marketing teams.

41:32 And it is something which we are actively considering is is how we drive those sales. At the moment, both Adler and MicroLine feel that they have the capacity to drive it forward, but it's something we're keeping a very close eye on and will, at some point, you know, where where where we're constantly reviewing it. And if necessary, we would we would consider putting, you know, boots on the ground, if you like. Thanks. That's great. Again, I know you may have touched on certain items, but please can you talk to us about the YellowPort CMR Global deal that you announced the other day? Can you give us an indication about how material this might be, how many units, price point, etcetera, how often it's used? So any other additional color that you can give? Yeah. Of course. So, again, a a lot of this is commercially sensitive, not from our point of view, but from CMR's point of view. But what I what I can tell you is that, and this is with all companies, not just with CMR Surgical, is that they they look at, putting, for for each robot that is sold into a hospital, they look at somewhere between a hundred and fifty and two hundred and fifty cases per robot per year.

42:43 And so if you look at that from our business model, we would look at that being four trunk cars that are being used. So that's four valves, two fives, two tens is is the normal, but it it may be a different mix. And that would give you a cost per case of around about 40 30 to 40 pounds depending on the the size of the the the access device. And so you can see the potential there is is quite significant just on the robotic side. But as you move into the the whole of the hospital, you know, sort of the robot robotic cases are a small number of their total laparoscopic cases, and having a footprint in the hospital is really important to then roll out the rest of the SI portfolio.

43:28 And so we can see that as a a massive opportunity for us. We are very much in early days. We've we've just got our first order from CMR, which is not, insubstantial. And we we see this as an ongoing project and relationship with them. So I think we will be better placed to put valuations, on on this relationship going, you know, sort of probably towards this time next year, once we've seen how quickly they are taking market share. They're certainly very aggressive in sales process of of, installing robots in the hospitals, and we see that as a as a major opportunity for us. Thank you very much indeed, David.

44:13 I don't think there's presentation at the moment without the word inflation referenced in it, but we had a pre submitted question really around inflation and how really it's either impacting you or how you're able to mitigate inflation. Are you able to put up prices, etcetera? Well, we we we have had a price rise at the beginning of the year. We put our our own prices up by seven and a half percent. That was sort of it was generally across the board, but, of course, we're subject to the contracts we have in place, for example, with the supply chain. And, of course, our distribution partners have contracts in place, and so we've worked with them to to find a way to mitigate the the increase in cost. That's effectively with both sharing some other pain on the the cost increases that we're seeing.

44:59 In terms of average cost hitting the the business, it's it's impossible to to give you an average cost. We're seeing some raw materials sort of doubling, quadrupling in price. We're seeing from the same supplier other raw materials not going up at all. And so it's it's we're we're managing this on an ongoing basis because we do see that, you know, sort of raw material we buy today when we go to buy it tomorrow will have gone up in price. And so this is an ongoing and a sort of a very live situation that we manage very closely, and we anticipate that we may look to a second price increase later in the year. Fortunately, we're seeing that the bigger companies like J and J and Medtronic are indicating or putting their prices up as well.

45:49 So that does make life a little bit easier for us. That's great. And then I guess finally final pre submitted questions. Do you expect to return to pre COVID revenue levels in the new financial year? Obviously, exceptions, disasters, etcetera happening, but your thoughts around that really. Yeah. I I yeah. We do. And, you know, so we we see the business in The UK already returning to pre COVID levels. We see that happening in in The US and some of our key markets, and we expect that to continue. I guess, you know, sort of as as I sort of often, wax lyrical about since I've been CEO, I've dealt with Brexit, pandemic, and, of course, now we look like, a war in in Eastern Europe, which is, you know, so I I don't think there's a textbook that that gives you the the ability to manage those. But, you know, we we we are confident about the business. We don't see major impact from from what's going on in Ukraine at the moment, but, obviously, there there may be some supply chain issues.

46:52 There may be some raw material cost issues as a consequence of that and, of course, energy costs as well. But some we do see the sales from a sales perspective, we see activity in hospitals beginning to return to some level of of normality and sort of we we we believe that that that will reflect in ourselves this year with growth next year. That's great. Thank you very much indeed. Well, look, that takes care of all the pre submitted questions. So thank you for those that sent in advance of today's meeting. If I could draw your attention to the Q and A tab, you received a few questions from investors during your presentation. I think you've definitely touched on some of these subjects throughout. But if you could add any deep meaning or color to them, that'd be great. And if I could ask you to read out any questions and give a response, I'll pick up from you at the end. Thank you. Okay. So the first one is, can you talk about any supply chain issues you have experienced and what steps you've taken to address them?

47:45 So we have touched on this, but just to clarify, sort of Charmaine mentioned about sort of the inventory levels we're carrying, which are are higher than we would normally like, and part of that is because of long lead times. Part of that is to obtain better pricing for raw materials. And so we we manage the situation as a as an ongoing basis so that we can be proactive as well as reactive as things change. It's it it we are hoping that sort of things will level out, you know, once sort of energy costs level out a bit, you know, even if they level out at a high level, at least stability gives us the ability to plan more more effectively. So, you know, supply chain issues as we flagged throughout the presentation are something that we keep a close eye on, and we do everything we can to mitigate those risks.

48:43 The next question is what does the pipeline look like for new products and what is planned for 2022? I did touch on that. So it was a we've got a raft of new products that we can bring through under the MDP and, you know, sort of there's already one product launched, the yellow quarterly five mil. We've got the optical coming in quarter two and the logic range of instruments in the second half of the year. And the final question here is how are you progressing with the transition to MDD and what are the implications if you do not complete within the required timelines? So an interesting one. We we did talk about the the progress, and we are making good pro progression on that.

49:31 We don't see that there will be any any hiccups. We believe that some our pathway is is consistent, and we are addressing all the requirements of MDR. I guess our biggest challenge on this is the bandwidth that companies like BSI have because, of course, you know, they are under severe pressure from the entire medical world driving to MDR. And that, I suspect, would be the only thing that may result in us not completing in time. There are actions that we can take to mitigate that. I'd rather not address them publicly, but we we, you know, we have a plan b if that was required. But it would only be for a short time, and it would only be for our European business.

50:22 But, you know, we don't see that being a challenge, at this stage. We are we are making good progress, and, you know, everything is is in line with where we should be at this stage. That's great. David, I I think you've and Charmaine, you've taken all the questions that we have from investors today. So thank you very much. And perfect timing as we we come up to the hour. If we do receive any further questions, obviously, David, Charmaine, we'll make those available to you post today's meeting. I know investor feedback is particularly important to you both, and I'll shortly redirect investors to provide you with their thoughts and expectations. But before doing so, I wondered if I may, David, just ask you for a few closing comments, and then I'll redirect investors to give you feedback. Of course. So I I I think that the message that I would like you to take away from here is that the business has recovered really well.

51:11 It's planned for a resumption of elective surgery, and we are now well placed to take advantage of the backlog of of surgery that had been built up over the the last two years. We've invested in all of the key functions of the business, and we're seeing the benefits of those in terms of our MDR transition. You know, so our team our QA RA team is really effective, they work really well, and that's transitioning really well. We're seeing new product development coming through the pipeline, and it will be a consistent pipeline of of new products as we move forward into the era of MDR. And we we've sort of started this or we finished last year with a very strong quarter four. We've continued that into into quarter one, and we have a strong order book going forward. So I think the message is really positive.

52:06 We will be back at pre pandemic levels and by the end of this year. And, you know, sort of, I think the future for the business now is really optimistic, You know? So we've got a good team in place and all the way through the company. And so, you know, sort of we're addressing the challenges we meet head on, and we find ourselves very positive about the outlook. That's great. David Charmaine, thank you very much indeed once again for updating investors this afternoon. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations? This only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of SURGICAL INNOVATIONS GROUP PLC, we'd like to thank you for attending today's webinar.

52:51 Concludes today's session. Good afternoon.