Surgical Innovations Group (LSE:SUN) — Half-year Results

0:02 Good afternoon ladies and gentlemen. Welcome to the SURGICAL INNOVATIONS GROUP PLC Half Year Results Investor Presentation. Throughout this 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 in the right hand corner of your screen. Click Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself, but the company review all questions submitted today and publish responsibly where it is appropriate to do so. These will be available via our Investor Meet company dashboard and we notify you once they're ready for your review.

0:32 I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to David Marsh, CEO and Charmaine Day, CFO of Surgical Innovations Group PLC. Good afternoon. Good afternoon. Sorry, I was having a problem clearing the poll from the screen. Good afternoon, everybody. Thank you for joining our presentation for our interim results. Charmaine and I will dovetail each other's presentations. I will start with a brief overview of our operational landscape and then Charmaine will move into the financial details and then I'll finish off with some more detail about the market conditions that we find and some of the projects that we have ongoing.

1:29 So the operational highlights. To give you an overview of where we see the market very loosely on this slide, and then I'll go into more detail later. So we are seeing healthcare providers return towards normal pre pandemic activity levels. That's quite a bold statement at the moment with a lot of hospitalisations that are going on, and so some explanation around that. We see at the end of August that activity was between sort of 7580% normal levels, and we see in some markets that it's moving faster back and in others it's dropping away again, UK being one of those. This is by no means going to be a straight line trajectory to pre pandemic levels, and we anticipate that this winter is going to be challenging for a lot of healthcare markets around the world.

2:20 In our previous meeting, we talked a lot about some of the operational and regulatory processes that we've been working on to streamline, and we're seeing the benefits now within the organisation of those streamlined processes, and I'll touch on more detail again later. We've always talked about the importance of working closely with our key partners around the world, particularly in our international markets, but also in The UK as well, and we've spent a lot of time improving those relationships, working with sales teams around the world, retraining them, providing them with marketing mechanisms that they can use when they're in accounts and to develop the business. We are beginning to see a lot of success around that, and one of our key markets you will have noticed from the announcements we've made, we've reorganised our US market, and we're very confident with what we've got there going forward.

3:19 Some of the marketing initiatives I mentioned earlier are around the environmental sustainability of our products, and they are beginning to resonate across the globe. The UK has been really successful in the messaging and we're now transitioning that to some of our key markets and seeing the benefits. You'll be aware that my former business partner and

3:42 Director of Surgical Innovation, Adam Power, made the decision to step away from the business at the end of this year, although he will be staying on as a non exec, and so we've made the appointment of a new sales and marketing director, a chap who we've poached from the competition Applied Medical. Damian Donnelly joined us at the beginning of July and has been already beginning to make an impact on the business. He has excellent relationships with some of the key procurement chains both in The UK and around the world as well, so we're looking forward to the impact that Damian will make in the coming months and years. And then finally on this slide, we have the relocation of the elemental business to Leeds, and I will touch on more details of the reasons why we're doing that and the effect on the business that we see, which will be a positive effect going into next year.

4:37 So for now I'll hand you over to Charmaine to run you through the numbers and then I'll come back a bit later and put some meat on the bones of this slide for you. Charmaine? Thank you, David. So I'm just going to kind of touch on some of the financial highlights of the table and go through those in more detail as we go through each slide. So overall, the revenues for the first half of the year were £4,220,000 which was 63 percent up on the prior year comparable. And if we look at that pre pandemic set for the same period, it was around 83%. And the direct margins, the direct gross margins were slightly lower at 42.4%, but they are within our target range of 40 to 45% and I'll talk about that in more detail later.

5:23 And then in terms of moving down to the bottom line, we've kind of really come a significant way back to being profitable at that adjusted EBITDA level of 210,000 compared to 460,000 loss in the prior period. And if you have a look at the adjusted operating loss as well, quite a smaller loss compared to the prior period of 150,000 compared to 870,000 loss. And in terms of cash and where we came from last year, we spent a lot of time last year preserving cash and we generated over 1,000,000 in operations, but as kind of productivity has increased, it was expected that we would have to reflate the working capital, but we had a very kind of planned approach amongst this and we managed to preserve the net cash balance of 2,660,000.

6:14 Okay, so if you look at the revenue in more detail, so the table at the bottom kind of looks at where we are in the first half of the year and kind of going into that year to date position against where we were in those pre pandemic levels of 2019. So the gray line shows an average percentage. So if you look at the first half of the year, we're averaging around 83% and then as we came into July and August, we're average over the three percent, albeit I mean these periods were quite seasonally low as a comparative, but as a year to date average is around eighty eight percent, which is showing really good signs of encouraging recovery. The underlying sales, if you kind of look at the monthly pattern, it is very varied and it, you know, we talk a lot about a stop start variability in the slides and how that's, you know, continuing over the coming months as well with expected hospital cases increases, But we would expect to see an increase going into 2022 coming back to those pre pandemic levels.

7:20 The graph on the right hand side shows how we kind of look at this on a segment point of view and it's just looking at those half year numbers. So our SI branded product, which is around 60% of our business, was at 2,500,000, which is around 95% of those pre pandemic levels. And just to kind of recap that SI branded product is access devices, laparoscopic instruments, all in the minimally invasive procedures. And then if you look at the distribution business, which is UK based, that is around 87% at 1,300,000. And there is some access devices, laparoscopic instruments within that arena, but, we've got other applications in reconstruction and coming down the line, we've got some robotics as well.

8:06 And then the OEM business is slightly behind target, we're at 440,000 there, 44% of those pre pandemic levels. The majority of that is in The UK and that is mainly the fixate applicator sold through AMS. And I know they've released their results yesterday as well, and they are experiencing similar pressures to us in The UK market.

8:32 Just to kind of note as well in that 2019 number, we had some industrial work included in that number, but it's not necessarily going to be repeated in the near future and David will kind of briefly touch on that in his slides.

8:48 In terms of looking at that revenue by territory and looking at what kind of geographical split, so we've got two graphs on this page. So the graph on the left shows how we're kind of progressing back to those normal pre pandemic levels and the percentage against that, and the graph on the right hand side shows the revenue and how our overall revenue is made up in terms of territories. So to kind of give you an overview of what's going on, so in The UK, which is around 50 to 60% of our revenue, Those pre pandemic levels are sitting around 72% at the moment, but that's including the OEM business and the distribution as well. So if you wanted to look at the SI branded products alone, it's around 84% and we will continue to improve on that as we go throughout the end of the year and also towards 2022 as we come through the backlog.

9:44 And then if you look at the APAC region, which stands out the most, it's at two thirty five percent of pre pandemic levels and since we took on this new distributor, mainly Japan, it has significantly grown since 2019 and revenues have doubled up to 410,000. There was a large stock in order place at the beginning of the year, but they continue to gain market share and continue to place orders and they now make up around 10% of our revenue, if you can see on the table on the right hand side. In The US market, we're around 93% similar to Japan, they did place a substantial stocking order in the first half, but sales activity continues in most states caveated by some stuff that's going on at the moment, which David will touch on. But looking at the graph on the right hand side, you can see The US market has gone from around just less than 17% heading up to 19% and we expect to see this grown into 2022 with our new dealers.

10:41 In terms of the European market, around eighty nine percent, elective surgeries still at reduced levels. Again, we've seen that stop start pattern, repeat in different countries at different times. Okay, if we move on to the gross margin and have a look at that in further detail. We kind of split this up really just to kind of give you an underlying picture of what's going on within the business and I think the net manufacturing costs at the bottom there are misleading in terms of the gross margin. So we're just going to talk to you in terms of where that gross margin is going. So the underlying gross margin and the direct cost of sales is around 42.4 percent, which is slightly lower than the previous periods.

11:30 And that is mainly down to product mix. So our SI branded products typically, we have a margin of around 60% to 65% and then the reconstruction products sold within the distribution business, they are around a similar level as well and obviously that has reduced due to the fact that the cancer treatments have been taken precedent. So in terms of margin, we're losing those higher margin products, but we're also seeing higher volumes on the lower margin products as well, but we are offsetting this with a price increase coming into October. But overall, we are content with that target margin, which is between 40% to 45%. And if you look at those net manufacturing costs, as we kind of came out at the end of last manufacturing quite significantly.

12:19 We kind of depleted our stock and used a lot of our stock. As the year started, we started to plan a gradual increase in activity within the manufacturing. It So was a very slow start to the year, but we kind of brought that back online and we're now seeing improvements in the overhead recoveries coming through the factory and that would expect to see that into the second half as well and continue to improve. In terms of operating expenses, so the table on the left hand side just kind of gives you a walk of where we are. So I've taken out the adjusted items. The adjusted items basically relate to goodwill impairment and share based payments.

13:07 So the focus really is on those cash items and where we've moved. So in the middle, we've got a movement of four thirty ks going from 2020 H1 to 2021 H1. So what is that made up of? So we've got a natural reduction in the sales heads, so we lost three to four sales heads towards the tail end of last year, combined with, you know, restricted travel and marketing expenses. And if you go back to 2020, we probably had January to March of kind of a normal level of life, So we continue to travel and have those marketing costs within there. So there has been some savings made in the first half of this year. That said, we have recruited for these heads, so they're now in place, albeit I think another one starts in October.

13:58 So we would expect to see about 80% of those costs out of that $4.30 ks to come back in the second half, combined with the additional sales and marketing director, just kind of running alongside Adam at the moment. So we've had additional overheads at this point in time. In terms of looking at that net result, I'll move on to the next slide. So I did talk about where we were in terms of adjusted EBITDA and adjusted operating loss. And I think the graph on the left hand side, it really just shows a really good picture of where we were in 2019 and where we've kind of got to last year and how we significantly impacted last year and where we are now, to be honest. So what does the outlook look like going forward?

14:45 So we've got the adjusted EBITDA profit about 210,000. We anticipate that in the second half of the year, it will be at similar levels, albeit with some additional costs in there that I talked about on the previous slide, so a similar level. And then as we kind of look at those adjusted operating losses, you know, we are significantly a lot less than where we used to be and I don't think it would take much to get back to that positive number going forward, especially as we go into 2022.

15:18 I'm just going to talk about the financial position and where we are. So we talked about cash and where we were in terms of working capital. Cash from operations, we used 170,000 and as I said before, that's very conservative numbers. We had adjusted net cash of 2,660,000 and we still have a financial headroom of about 3,160,000 and that's including a 500,000 RCF facility, which we haven't drawn down. And then if we talk about, you know, what does that mean going forward as in going into the second half of the year and the following next twelve months, I suppose. So we talked about a phased investment in terms of capital expenditure. If you look at the table on the left hand side, we've got the tangible assets on there, but the majority of those assets are right of use assets. So they are an IFRS 16 adjustment.

16:09 So underlying the actual fixed assets underneath that is quite a small number. So it is time to kind of invest in the business. So we're kind of anticipating to spend around 600,000 over the next twelve months in around four pieces of plant and machinery going forward. And we talked about in our results announcement about some refurbishment. So it is kind of in early stage talks with the landlord at the moment. We intend to do a refurb between, it's going to probably take twelve to twenty four months, if not longer, but a lot of those costs are structural costs within the building. So we are in talks with the landlord to discuss that further. So in terms of numbers and budgets, we're not quite there yet.

16:56 So I'm going to hand you back over to David and he's going to take you through a bit more about the trading environment and outlook. Thank you, Charmaine. So if we look at current trading position and where we see the trading environment, Charmaine mentioned about some strong stocking orders in Japan and The US in quarter one, and that really buoyed the business in Q1. And then we saw a very sharp recovery for The UK business in quarter two, as elective surgery resumed. We're seeing sort of that continue to a degree throughout the rest of the world and I'll touch on individual areas later on.

17:45 What we are seeing, despite numbers, you you'll see numbers ticking up in The UK at the moment of hospitalisation, but we are seeing healthcare providers being better prepared for Covid and I think you know if we do enter into a third wave, we will see that the NHS, whilst it may have subdued capacity for elective surgery, it won't be anywhere near as bad as the first wave where they just put a full brake on and everything stopped. Throughout this year, all markets have been working really hard. The sales teams have been really effective and we are seeing evaluations and conversions across the globe. The UK has been particularly successful, but so has Japan and The US, and we expect that to continue in the second half, albeit at suppressed levels if Covid kicks back in again.

18:36 All of these evaluations have been driven on the back of our sustainability messaging. The UK, as I mentioned earlier, has been particularly successful and we're beginning to see those as we take the messaging into our global partners, we're beginning to see success there, and again I'll touch on details later.

18:57 For The UK, the sales team are seeing improving access to the operating room. At the end of August, we estimated that activity was around about eighty percent of pre COVID levels. We are beginning to see that level off in September as hospitalisations increase and priority is obviously given to cancer treatment. The good news for us is that our devices are used in cancer treatment when they're doing laparoscopic procedures. We're completely out of the game there. In terms of conversions during the first half of the year, we've converted a total of 11 accounts so far this year, five of which are SI brand. And we see that we've got a strong pipeline going into the second half of the year with 23 evaluations to be completed.

19:51 I'm being brutally honest, I suspect that some of those evaluations will be pushed back into 2022 now as we're seeing some slowdown in activities. But it's encouraging to see that despite all of the conditions that we find that the UK team are using sustainability to drive evaluations and conversions as we go forward. Again, I've made a sort of, we've made an active policy to go out and improve our relationships with all of our key stakeholders. And as you'll know from the initial acquisition of Elemental, MicroLine is a key player in all of that. And we have renewed that agreement for a further three years. So that's the second time since the acquisition that we've renewed that agreement.

20:41 And you'll know from our US business that we've strengthened that relationship further. We've also signed a new exclusive agreement with a company called Ventlose for the RF treatment of varicose veins, and I'll touch on that in greater detail when we look at the third party products. I would like to draw your attention to the slide at the top right hand side, which shows US sales against COVID hospitalizations. And you can see that sort of there's a direct correlation or an inverse correlation, I should say, between COVID hospitalizations and our sales. And the reason I've put this graph on there is to show first that in the second wave, the business didn't die down as badly as the first wave, which shows that healthcare providers are beginning to manage it.

21:30 Secondly, the bounce back of our business is quite rapid once numbers of COVID patients drop away. And that's a testament to the resilience of our business going forward.

21:43 If we look at The US, so to give you a background on where we are there, Adler, who have been a long term partner of ours in The US, they have taken on our nationwide coverage for our instrument business, so scissors, graspers dissectors, the FAST clamp and the pretzel flex instruments. And they are working with a consortium of affiliated companies similar to themselves. They have all now been trained by marketing team and are active. They've converted 15 accounts in The US so far this year and we expect many more in the second half of the year. They have ongoing activity with some of the GPOs and healthcare providers.

22:28 This has slowed down somewhat as those healthcare providers focus on treating Covid patients, but we still are building really good relationships in that area, and that will definitely pay dividend in 2022. So MicroLine Surgical, our partners in The UK are now our partners in The US, and their team have taken on the access devices, so the yellow port trocars, that complement the rest of their portfolio. So their sales team have been trained, it's a direct sales team, and MicroLine have commissioned their sales team on Yellowport to the extent that they will only receive commission if they reach their Yellowport targets. So we're really positive and delighted with the support that we've got there. It's still early days, but they are developing a pipeline of evaluations and we expect that to really impact going into 2022.

23:22 However, like the rest of our state, they face the same challenges. There are currently six states that have postponed or reduced elective surgery and we expect access to the OR to be restricted in many states going forward as they come to terms with vaccination programmes and the like, and the re emergence of Covid in some states.

23:46 From an APAC point of view, so Japan, which had relatively escaped unscathed during the 2020 sort of peaks and troughs, is experiencing some reduction in elective surgery and some limited access to the OR, but we are beginning to see that relax. So in Japan, they talk about a conversion as a surgeon conversion because it's primarily a private healthcare system. They convert surgeons within the hospitals rather than necessarily a whole hospital. So these are quantified in a slightly different way, but it's still good news. You've got 28 conversions in the first half of the year and a further scheduled 31 in the second half of the year. Again, these may be slightly delayed because of COVID, but we anticipate maintaining a strong pipeline.

24:47 In Europe, again, it's the same story everywhere really. Elective surgery is intermittently interrupted, it's very stop start and we use that term a lot in this presentation and in meetings in house. We are seeing some countries coming back a bit quicker and they restart elective surgery and then there's a slight uptick in Covid patients and it slows down again. That's why we're cautious in our outlook in general. However, there are some positives coming across in Europe. Our sustainability messaging is particularly strong in Benelux. We spent a long time working with them and explaining to them how it's worked in The UK and they've picked that up and run with it, and we're beginning to see a number of evaluations there.

25:36 And also in France as well, and it's anticipated that we will spread this messaging out into the rest of Europe. We really feel that this is an opportunity for our partners to differentiate surgical innovations from the competition. If we take a look at the OEM business, we've broken out the difference between the industrial and the medical, and you can see the industrial side has really disappeared as a consequence of Covid. You'll be familiar with the fact that we make an inspection device for jet engines and with the suppressed travel, the demand for that has dropped away and we don't really anticipate seeing any recovery in that until the tail end of next year or beyond.

26:26 But the medical device side of our OEM business continues. Primarily it's with AMS, we do projects with Gyris and Advanced Surgical Concepts in Ireland, and that business is still ticking along. They have faced the same challenges that we have faced, sort of if elective surgery is cancelled they're not going to be using their devices, but we are seeing a strong bounce back and new forecasts from AMS in H2 look very positive for us. We have also some significant opportunities with robotic companies, and I'll touch on those a little bit later. We have one very close collaboration with a UK robotic company and we're continuing to work with and speak with some others as well.

27:18 So the sustainability agenda. We continue to launch initiatives during H1. We saw the Green Surgery Challenge being launched, and that's an initiative to help operating rooms develop strategies for reducing plastic waste in the OR. We've done that in conjunction with the Royal College of Surgeons and the Centre for Sustainable Healthcare. In addition, we've, had a seminar, in conjunction with the Royal College of Surgeons around sustainability in surgery, This was primarily surgical innovations products versus single use products, and that was on the back of the publication from our friends in Brighton.

28:06 That has validated all of the data that we had originally put out in marketing, and we can now use that much more effectively in marketing campaigns, in business meetings and business cases. And we're taking that one step further. We're awaiting a publication of a case study in the North East Of England, which is around cost savings. And so all of these are helping us build a real drive for the sustainability messaging that we can then take out into the rest of the world as well. So the benefit of this to us as an organisation is that we see that it changes the way that we speak to procurement departments and hospitals in general. So in the past it would be you would knock on the door of procurement, you would have a conversation around what you do and then it would come down to pricing.

28:56 Now we're going in at a much higher level, we're talking to the sustainability teams, we're talking to the business manager teams, and we're talking to procurement. So we're coming at it from a different approach, and it's much more related to around how we can help them reach their sustainability targeting. What we're seeing is that SURGICAL INNOVATIONS is now being seen at the forefront of this and we're driving green initiatives. And so hospitals are approaching us to ask us how we can help them meet their goals.

29:33 We've talked a lot about operational improvements and there are a number of key projects underway at the moment. One of those is the integration of Elemental Healthcare into the Leeds facility. Timing makes sense, with Adam stepping away from the business it means that there would be no senior manager at that facility, and it allows us to integrate the business and gain operational efficiencies. There will be a nominal headcount reduction from a fully manned elemental. Those head counts are already in place really, because as people have left the business during last year, we haven't replaced them because business has been suppressed. But we see a real opportunity of operational efficiencies around regulatory, We have a regulatory team in Leeds and they can cope with the regulatory requirements of Elemental.

30:26 We have inventory management, so we're holding two sets of inventory. This can be consolidated into one and we see that there are a lot of duplications in terms of the distribution chain agreements that we have and we believe that there will be cost savings there. We also have capacity at the Leeds facility, and part of the refurb programme will allow us to develop training workshops and training rooms that we can bring the sales team in, but we can also bring clinical teams in and talk about our sustainability messaging. So we think that now is a good time to integrate those businesses further and make sure that we consolidate the business and we remove that gap between sales and marketing and the rest of the functions of the business.

31:17 In terms of the facilities upgrades, so Charmaine mentioned about our investment in the manufacturing capacity. So the plan, stage one, is to invest in the new injection moulding capacity and also CNC capacity on the workshop floor. A number of reasons behind this, so as we develop the Elite range of products, at the moment a percentage of that is being manufactured off-site and we would like to bring that in so that we've got control of manufacturing. We can also benefit from the recoveries for that product, and it will allow us to take away one of the pinch points that if at the moment we have one injection moulding machine, if that goes down then we would have some challenges to meet capacity.

32:08 And then sort of in phase two, we're looking at a blade grinder, so scissors are obviously a key part of our business. The current blade grinder we have is about twenty five years old, and whilst it operates really efficiently, if that goes down that would cause a considerable challenge for us. We also are looking to invest in an upgraded version which will provide some efficiencies as well. As part of MDR, we have to revalidate our cleaning line, and as it stands at the moment, I'm not sure that it is up to spec, and so we would look to automate this cleaning line. As a product comes off from the machine shop or going into the clean room, it needs to be cleaned and we need to have a proper process in place for that. So these are investments that the business really needs to make.

33:06 Then of course there's the facility improvements as well. The facility as it stands at the moment hasn't really had any investment for a number of years and in some cases looking a little bit tired. So we're looking to improve that and making it a more user friendly place to work. A lot of those investments are around infrastructure which we're in negotiations with the landlord to pick up the costs of those, and so we will be coming back over the coming months and years and update you on progress made around that.

33:40 In terms of new product development, we talked last time about splitting it out into two phases. They are running in parallel, phase one are the projects that we can get under MDD, and they are quicker wins for us. So they focus around line extensions and allow us to capitalise on some of the market opportunities as we go into The US more effectively with access devices. So if you look at the device at the top right hand side, that is a five millimeters yellow port Elite, and that is a line extension from the current 10 millimeters. The valve has been re engineered to cope with this and is an optical trocar to allow surgeons to visualise as they penetrate the abdominal wall. The reason for this product being developed is that in The US they primarily use optical trocars and in Japan as well, and we see this as a real opportunity to capitalise on those markets.

34:38 The two slides below that are for the Logi range of instruments to complement our Logi cut scissors. Currently have that range, but they're really expensive to make, and so we've taken a good forty-fifty percent of the cost out of that by using metal injection moulding. That's currently done, is outsourced, but it gives us a considerable saving on the jaw configurations and the ability to enhance that, and so we see that as a really positive project. Both these projects, they were due to be launched sort of around about now, but we've had some delays in tooling and being able to get tooling, which has proved to be a bit of a challenge.

35:25 So we mentioned earlier about partnering with a robotic company, and we are developing an access device which is in principle the same as the five millimeters YellowPort Elite. It does have a few nuances to cater for their unique instrumentation and by working with them that has allowed us, you know, they have paid for a lot of the development costs for this five ml product, so we're really pleased with that.

35:54 In terms of future development, the projects under the NDR pathway, so these are going to be a little bit delayed, and pushed down the road because of MDR, and we anticipate those products coming into the market in, 2023. So the Illumino range

36:17 that we have talked about on a number of occasions are close to design freeze. We're exploring some sustainability options around that, and also we're exploring a partnership option with a company that already manufactures illuminated devices, so that may speed things through for us. In terms of future opportunities, we're looking at a number of areas, ligating devices and energy devices being some of those, and we're also looking at collaborations both in robotics. So we're having a number of conversations with robotic companies about their instrumentation, and we're also, which is quite exciting, is we're talking to a number of early stage conversations with universities that have some projects and seeing how they would fit in with Surgical Innovation's portfolio and whether we can add any value to those projects.

37:10 Coming back to third party opportunities, I talked about the agreement with Venclose, so this is an RF treatment for varicose veins. We estimate that that market is worth about £6,000,000 in The UK and there's only one like for like competitor in that particular arena of RF treatment. So this device has been developed by the engineers that developed the original device that competitors have, so they've improved it and there's some significant improvements in the functionality of the product as well. So we're building a discrete team, we've poached the sales director from the competition, which is Medtronic, and so he knows the market inside out and he knows where the end users are of this product. So we're very excited about this opportunity and we start selling in The UK in early October.

38:09 We also have signed a new three year extension to our distribution agreement with Distal Motion. That is a payback for all of the work that we've done with them. We clearly see that the robotic business progress is being slowed as the NHS focuses on COVID, but we are in discussions with two trusts at the moment, mid stage procurement cycle. One of those you could probably push into late stage, and we expect progress during quarter four on that. And to date, we have trained 15 surgeons on on Dexter, and we're expecting to send six more out before the year end. So in summary, rather than go through these lines because I'm conscious to have time for questions, we do see that activity is resuming close or moving back to pre pandemic levels, but as I did say earlier, this is not a straight line trajectory.

39:12 There are going to be bumps in the road and I think we're currently in the middle of a bit of a bump as we see hospitalisations for COVID patients increase. But we continue to work to strengthen the business so that we're ready when we come out of this Covid pandemic that we're in a really good position. We've extended distribution agreements both internationally and in The UK. We have put in place some operational and regulatory improvements and we continue to see those impact the business in a very positive way. We've strengthened the senior management team with the appointment of Damian and I think he will bring a lot to the business. He's got some fresh ideas and I mentioned that he has really good relationships with procurement organisations and that will really benefit us as we go forward.

40:03 Our planning around NPD is really strong. We've got a good pipeline of products coming out in the next three and six months and new projects coming online all of the time. We continue to invest in the plant and the facility in general, and more importantly in people, sort of the team that have seen the company through these challenges. So I'm really proud of what they've achieved and they deserve full credit for the position that we're in today. And we're continuing to enhance our relationships around the world. The US is a much more effective route to market and we see that as a real positive for 2022.

40:49 We expect hospital activity to continue. As I say, it won't be an overnight thing, but we see that going as activity continues, we see ourselves in a really good position. We're not losing business, we're gaining new business all the time, and as healthcare providers return to normal activity, we are well placed to take advantage of that. So that concludes our presentation for you. We're very happy to take questions, and I'll hand back to the chair. Fantastic, David, Jean May. Thank you so much indeed for your presentation. Ladies and gentlemen, do please continue to submit your Okay, so we have a number of pre submitted questions.

41:36 The first one was congratulations on the results, thank you for that. A few questions. In the AGM, you said that there were three further accounts that were close to being secured. Can you provide an update on that? I think I've kind of touched on that with the five accounts that have been converted, and so these hospitals are in a position as elective surgery continues, they are ordering as we speak and we're seeing them to continue to reorder, but it is at suppressed levels from where we would like to be. The next question is, please can you talk to us about the business environment right now? Again, I think I've covered that, sort of we are seeing that there is a return to activity.

42:28 We're not seeing anywhere near the suppression of activity that we've seen in 2020, and whilst we think September is leveling out a little bit and there is a slight increase in COVID hospitalization, it remains to be seen how much that continues to impact the business, but we do feel that overall we are in a good place. Question three was what is your biggest opportunity and challenge you face right now? Biggest opportunity is the rebound of elective surgery and our sustainability messaging. We see those going hand in hand and we think we positioned ourselves in a really good position to take advantage of any uptick in surgery.

43:19 The biggest challenge we face is clearly it's COVID and sort of how that makes it difficult to see the outlook going forward. Outside of COVID I would say, regulatory challenges are always going to be our biggest challenge. There are so many unknowns around that and we're working our way through those. Question four was please can you talk to us specifically around surgical robots, your distribution deals with these and what you are seeing in the market? I would note that if anything there seems be a significant pickup in demand to use technology to help tackle the waiting list crisis we face. That's a really good question, the second part of that. So we talked about the fact that we've re signed a new distribution agreement with Distal Motion for the DEXTER robot and we see that being positive.

44:16 I think a lot of the positivity around that is going to end up being in 2022, although we are still hopeful that we will we will see the placement of the first robots in UK during Q4. In the marketplace, we are seeing a lot of activity from companies like Cambridge Medical Robots. They're a little bit ahead of us in the game, and they seem to be doing a good job. I think we can compete effectively with Cambridge Medical, and you know, we see them as probably our biggest competitor. The bit about the pick up in demand for use of technology, I think that's absolutely right and that's the way that the NHS is going to deal with the waiting list crisis that we face.

45:04 I think in terms of we're not seeing that coming through at the moment, sort of there are robots being placed in The UK, there are particularly in orthopaedics we're seeing some increase in technology, But generally the NHS is focusing on the day to day, it's focusing on managing COVID patients, it's focusing on getting activity back to normal. And I think we will see this use of technology grow substantially in 2022. But I'm not entirely convinced that it's going to impact us in 2021 at the moment. And then some further questions that have been posted. What are the catalysts driving US and APAC revenues?

45:49 And what are you targeting these markets to grow as a percentage of sales? I think to address the second part first, targeting these markets as a percentage of sales at the moment is really tricky because they are going in and out of Covid situations like The UK market is, like the European market is. But in terms of the catalysts that are driving that, so we're seeing The United States is an interesting market. You have sort of on the East And West Coast you have those that are more susceptible to the green argument and sustainability and then in the Mid West, the Middle Belt Of America, not so much. And so, we are seeing that cost is driving a lot, you know, the cost benefits of our product are driving sales in some areas, but the sustainability really driving it and we're seeing that messaging in Japan as well, where we thought for a while that it would be a primarily single use market, but they definitely driving the sustainability argument and they are benefiting from that in quite a big way.

47:00 Who are you directly competing against and are you looking to grow further organically or would you consider M and A? So we continue to compete against some of the biggest medical device businesses in the world, so Covidien, also Medtronic now, Johnson and Johnson and Applied Medical. And we are looking to grow our business organically. I mean, sort of all of the opportunities that I'm talking to you about today are organic opportunities. We do continue to look at M and A activity and sort of different interesting companies come across our desk on a regular basis. And if we find the right one, then we would, clearly we would engage in the conversation with our investors around how we would progress with that.

47:52 But we do, we're certainly not adverse to M and A opportunity. Any Brexit impact on supply chain or sales? Not directly. We did see at the beginning of the year that there were some issues getting products through customs. We work very closely with we only have a small amount of supply chain coming in from Europe and that seems to have leveled its way at the moment, so we think we're okay there. Interestingly, we had more challenges getting with customs in The US at the beginning of the year and that seemed to be because US were more challenging than customs.

48:43 And so, what we are seeing is across the board on our supply chain is raw material costs increasing and we're looking to ways of passing these on to end users. Are putting prices up in October and sort of to be honest, they have been accepted more readily than I thought. New questions just come up. Could you talk to us again about US distribution and the feedback you're hearing from the partners? It seems that this is such a large opportunity here. It's just whether this is going to be successfully implemented. The US alone seems like it could be a game changer for The US. Yeah, clearly. I mean, the access market in The US is estimated to be worth about $500,000,000 a year and that's just for access devices.

49:36 We are sort of not even a measurable share of that at the moment and the opportunities are huge. The Adler agreement, we've worked with Adler for a number of years they have been a successful partner for us in the 11 states that they covered historically. We've now expanded that nationwide and as I said, they've converted 15 accounts already so far this year and we're seeing activity increasing on a day by day basis. All of this is caveated by the fact that sort of at any point, if there's an uptick in COVID in the state, they will reduce the amount of elective surgery that goes on. In terms of the access devices, we have every confidence in our partnership with MicroLine. We've worked with MicroLine for so many years now.

50:34 Sort of my personal relationship with them stems back to 1995. This is an ongoing relationship. I have every confidence in their ability to drive sales and we are in conversation with MicroLine about how we can aid that, whether that's putting sort of some SI feet on the streets, if you like, in The US to help drive those sales and we're having those conversations ongoing. So you're absolutely right, we see The US as a key strand for our organic growth of the business and we will continue to work with them going forward. David, Charmaine, I think that concludes the question so far. I think you've answered every single question, so thank you very much indeed.

51:22 And of course any further questions come in. Just picking up on your previous response, if you do decide to raise money in the future, will you make sure that retail investors get an opportunity to participate, not get diluted? I'm not entirely sure how we will answer that question at this stage. It's the intention that we would like everybody to participate in M and A activity that we have, but we have no immediate plans at the moment and so the scope and range of that, we will obviously come back to you with a more definitive answer in time. David, Charmaine, thank you so much indeed. You've covered off all the questions. Any further questions? No further questions, so thank you very much That's it.

52:08 In terms of wrapping up, what I would like to say is that firstly, thank you for your support. It is very much appreciated and very much appreciated that you joined these conversations so we can update you on the business. We still face challenging circumstances with COVID. We are seeing that there is an uptick in The UK and an uptick in Japan and an uptick in The US, but healthcare providers are getting more savvy in the way that they deal with COVID patients and COVID patients don't seem to be staying in hospital as long which is good. And we believe that the measures that we have taken and continue to take in the business place us in a very good position. So, we have maintained our customer base throughout this period.

52:58 We have increased that customer base with new conversions in all key markets. And now we, as elective surgery returns, we are well placed to take advantage of that. And I think the message is that we see that healthcare providers are going to have to get back to pre pandemic levels and above to work through the backlog and we are well placed to take advantage of that. So, I think the future going forward is we're very optimistic about it. The only caveat to all of this of course is COVID and so we don't have a crystal ball to see how this winter will play out. But I would like to wish everybody that you stay healthy and away from COVID and that all of our manufacturing team and our sales team stay away from COVID as well. And we can continue to progress the business.