Date: Thursday 25 Sep 2014
LONDON (ShareCast) - It was a disappointing first half performance for Surgical Innovations Group, which blamed a significant drop in profit on an impairment charge resulting from its decision to focus on sustainable long-term growth in its SI brand business.
The impairment charge related to its balance sheet original equipment manafacturer (OEM) asset values, which the medical technology group said were a direct consequence of its new focus.
It comes after the group warned earlier this month that both its full year revenue and profit will be "significantly below market expectations".
First half revenue slumped 54.5% from £3.88m to £1.77m, although it said the prior year's figure had included £1m-worth of delayed revenue. The rest of the reduction was largely attributed its continued reduction of OEM revenues and its strategic decision to reduce inventories within the customer supply chain.
"With demand from our international OEM products consistently weakening, the board made the strategic decision to develop only OEM products that would add value to the SI brand," it explained.
"In light of this and our first half performance, the board has performed an impairment review of all capitalised development costs recorded in the balance sheet as intangible assets resulting in a non-cash impairment charge of £1.74m."
The operating loss for the period totalled £3.18m, against a profit of £0.62m in the comparable period. Pre-tax profit declined by £3.79m, resulting in a loss of £3.23m, compared to a profit of £0.57m a year earlier.
Year-on-year, SI Brand sales slumped 60%, while OEM sales fell 46%.
Looking ahead, the group said it was committed to reducing its working capital and that it was confident it could lower its inventory levels through 2015 whilst maintaining improvements in stock availability.
"Once inventory levels are appropriately reduced and the overall cost base is rationalised, we expect to see improved profitability," it said.
The news prompted the group's share price to slide 10.24% to 2.81p, taking it to a 51% drop for the year-to-date.
