Inspiration Healthcare Group plc

("Inspiration Healthcare", the "Company" or the "Group")

 

Interim Results

Underlying growth from core neonatal and infusion businesses

 

Inspiration Healthcare Group plc (AIM: IHC), the global medical technology company, announces its unaudited interim results for the six months ended 31 July 2023.

 

Financial highlights

 

·    Revenue £20.4 million (H1 2023: £20.5 million)

o  Neonatal product revenues grew 4% to £16.1 million driven by sales of the SLE6000 ventilator

o  Infusion product revenues were £4.3 million (H1 2023: £4.9 million) due to de-stocking (now ended) by a major customer. Excluding this customer, Infusion revenues grew 18% versus H1 2023

·    Gross Margin improved to 48.6% (H1 2023: 45.1%), driven by increased higher margin ventilator sales

·    Adjusted EBITDA¹ £1.8 million (H1 2023: £2.2 million)

·    Operating Profit before non-recurring items £0.6 million (H1 2023: £1.0 million)

·    Cash generated by operating activities of £3.5 million (H1 2023: cash outflow of £0.5 million)

·    Net debt² reduced to £2.1 million (31 January 2023: £3.8 million)

·    Interim dividend of 0.205p per share, unchanged from H1 2023

 

¹ Earnings before interest, tax, depreciation, share based payments and non-recurring items

² Excluding IFRS16 lease liabilities

 

Operational highlights (including post period)

 

·    Launched extension of SLE6000 range for non-invasive respiratory support

·    Initiated Medical Device Single Audit Program to access Canadian market and reduce the need for individual country audits

·    Streamlining property portfolio to realise operational efficiencies as well as cost savings

·    Strengthened Board with appointments of Alan Olby as CFO and Marlou Janssen as Non-Executive Director

·    Submitted SLE6000 510k application to FDA for US market - post period end

·    Launched US version of LifeStart, our stabilisation platform for babies that have had a difficult birth - post period end

·    Launched new website for improved customer experience

 

Investor presentation

 

The Company will provide a live presentation to investors via the Investor Meet Company platform on Friday, 6 October 2023 at 11am BST. The presentation will give an update on the Company and an overview of the Group's interim results. To register for the presentation, please use this link:

 

https://www.investormeetcompany.com/inspiration-healthcare-group-plc/register-investor

 

Neil Campbell, Chief Executive Officer of Inspiration Healthcare Group plc, commented: "During the first six months we have seen underlying growth in our core neonatal and infusion businesses, driven by continued customer demand for our products. We also delivered significant improvements in our gross margins and operating cash flow placing the Group in a stronger financial position. We have made significant progress with our US expansion strategy, filing for FDA approval of the SLE ventilators and launching a version of LifeStart that is aligned with US user requirements. The headwinds seen in H1 are dissipating and with a strong pipeline of opportunities we are confident of returning to growth in the second half. We would like to take this opportunity to thank our shareholders for their continued support and we look forward to the future with optimism."

 

Enquiries:

 

 

About Inspiration Healthcare

Inspiration Healthcare (AIM: IHC) designs, manufactures and markets pioneering medical technology. Based in the UK, the Company specialises in neonatal intensive care medical devices, which are addressing a critical need to help to save the lives and improve the outcomes of patients, starting with the very first breaths of life.

 

The Company has a broad portfolio of its own products and complementary distributed products, for use in neonatal intensive care designed to support even the most premature babies throughout their hospital stay. Its own branded products range from highly sophisticated capital equipment such as ventilators for life support through to single-use disposables.

 

The Company sells its products directly to hospitals and healthcare providers in the UK and Ireland, where it also distributes a range of advanced medical technologies for infusion therapy.  In the rest of the world the Company has an established network of distribution partners around the world giving access to more than 75 countries.

 

The Company operates from its world-class Manufacturing and Technology Centre in Croydon, South London and from its facility in Hailsham, East Sussex.

 

Further information on Inspiration Healthcare can be found at www.inspirationhealthcaregroup.com

 

 

Chairman's Statement

 

The Group has seen encouraging growth in our core products during the first half, which has been a significant driver in improving margins towards historic levels. Operating cash flow also improved, reducing the level of our net debt and putting the business in a much stronger financial position.

 

Overall Group revenue for the period was flat at £20.4 million, with growth of our core products offset by significant regulatory delays to one of our partners' key products and de-stocking from one of our leading Infusion customers.

 

Our neonatal portfolio consists of our own branded products and complementary distributed products, enabling us to add value to our neonatal customers by supplying a broad range of specialist products. However, for distributed products we are reliant on our partners' supply chain and regulatory pathways. During 2022, one of our partners' products was discontinued. The next generation product was expected to gain European CE marking under the Medical Device Regulations early in 2023. However, due to ongoing regulatory delays and the lead times for delivery and production scheduling this product is now expected to be commercially available during the first half of next year. On a true like-for-like basis excluding the discontinued product, in the period neonatal revenues grew by 11% compared to H1 2023. Sales of our lead product range, the SLE6000 ventilator, grew strongly driven by strong demand in Ireland and Israel and a recovery in China.

 

Our Infusion business sells to a variety of customers including 'homecare providers', which look after NHS patients in the community freeing up hospital beds and improving the quality of life for patients. Unfortunately, one of our major customers over stocked during the previous 12 months and began a stock reduction exercise in H1.  We have worked with the customer to get their stock levels back to more normalised levels and the de-stocking process is now complete and a standard run rate is expected in the second half. Excluding this customer, Infusion revenues grew by 18% compared to H1 2023 as we expanded use of the products into new therapy areas, demonstrating continued underlying growth in sales.

 

Our aim during the first half was to rebuild our margins and return to cash generation. During FY23, we had a cash outflow of approximately £13 million, mainly driven by the £6 million investment in the new Manufacturing and Technology Centre in Croydon and investment in working capital to ensure we had stock of components to maintain timely delivery of our products to customers. I am pleased that during the first half of FY24, we have been cash positive on an operating basis, our capital expenditure has returned to normal levels and our net borrowings have reduced from £3.8 million at 31 January 2023 to £2.1 million at 31 July 2023. We continue to have a Revolving Credit Facility of £5 million and Invoice Discounting facility of up to £5 million giving the Group headroom of almost £8 million to cover cash flow requirements.

 

We have been pleased to welcome two new Board members during the first half. I am delighted that Alan Olby has joined us as Chief Financial Officer, bringing a great deal of experience as CFO in a growing Life Science business in both the public and private markets. Alan has already started to put in new systems and processes to bring about a higher level of rigour to our forecasting and financial management.

 

I am also pleased that we have further strengthened our Board with the appointment of Marlou Janssen. Marlou brings a wealth of Med Tech expertise to the Board and her operational experience in Med Tech, especially in the USA, is second to none. I am sure she will play an important role in our strategic development over the coming years and has already proven insightful and helpful regarding our plans for international growth.

 

Operational Review

 

In March, we launched an extension to our leading range of specialist neonatal ventilators, which facilitate precise, controlled ventilation for critically ill infants. We now have three variants of the SLE6000, which have been specifically designed to meet the different, specialist healthcare needs of the smallest neonates across critical care, high dependency care and non-invasive respiratory support. They all offer new 'non-invasive modes', which allow babies who are less sick to be supported by the ventilator, therefore accessing a large part of the market that was previously closed to the product.

 

The USA has always been an important strategic market for the Company and we remain focused on expanding our USA presence. In August this year, we submitted a 510K application to the FDA for the SLE6000 ventilator. Although there is no guarantee of approval, we hope to launch two variants of the ventilator along with accessories and other complementary products in the second half of 2024. We believe this represents a significant potential commercial opportunity for the Company, given existing ventilators available in the US, size of the market, and the world wide acceptance of the SLE6000 as a specialist neonatal ventilator.

 

Also in the USA, we have recently launched a new version of our LifeStart^TM product, which is more aligned with US user requirements by allowing US manufactured accessories to be added to the platform. LifeStart^TM is a specialist unit that can be used as a stabilisation platform for babies that have experienced a difficult birth. The platform keeps the baby close to its mother/family whilst the clinician determines when to clamp and cut the umbilical cord. We are working with our distributor to build out marketing plans as feedback from the first customers grows.

 

We are continuing to develop products through our R&D team and are currently finalising a new respiratory device which provides non-invasive respiratory support for babies that do not need full intensive care support. The device has been developed alongside one of our partners, who will sell a similar device in the adult market. We expect to launch this product in the second half. Additionally, we are now determining the next phase for Project Wave, after the trial at Brighton and Sussex Universities Hospital NHS Trust showed user and patient acceptance of the product and we can start to look at wider market research to determine pricing and how our commercial launch could be initiated.

 

The Company has commenced the process to be certified under the Medical Device Single Audit Program (MDSAP). This allows a single MDSAP recognised auditing organisation to conduct a regulatory audit of a medical device manufacturer on behalf of all the regulatory authorities participating in the program. It combines various Quality Management requirements from several regulatory jurisdictions including the USA, Europe, Japan, Australia and Canada. As we start to roll out our North America strategy it is important to have the most efficient way of complying with local regulations for the greatest number of products. Our quality management systems have now been audited to these regulations and we look forward to gaining certification, allowing our products to be registered in Canada as well as reducing the need for individual country audits.

 

Our Infusion division made substantial progress during the period. We have invested in extra customer facing employees to build our customer base and expand the use of the products into new therapy areas, which has resulted in initial sales. This diversification is an important part of our future growth strategy and we will continue to launch new products from our partners in this area of our business over the next twelve months.

 

As we have brought the three operating companies together we have created a new website that gives a better user experience to be able to access more information on Group products on one site.  This also has been built to allow future features to be added to give a better user experience for product training along with the potential for e-commerce.

 

In order to bring our teams together at our new Manufacturing and Technology Centre in Croydon, during the first half we took the decision to close our site in Earl Shilton, Leicestershire, where we had an operational base for 15 years. Inevitably this impacted some staff who could not relocate to our Croydon facility, and we are sad to see them leave us but thank them for their hard work and loyalty over the years and wish them well for the future. Our Crawley facility has also now closed, and all our Head Office functions have moved to Croydon, reducing overheads and improving operational efficiency. While these changes resulted in some one-off exceptional charges in the first half, we expect to realise annual cash savings of £0.2 million as a result.

 

Financial Review

 

Revenue for the six months to 31 July 2023 totalled £20.4 million (H1 2023: £20.5 million). Whilst broadly flat at a headline level, this masks an encouraging underlying performance. The neonatal portfolio was held back by the loss of revenue from a distributed product which contributed £1.0 million in H1 2023 as explained above. On a like-for-like basis excluding this distributed product, the neonatal portfolio grew by 11% in the period, driven by sales of the SLE6000 ventilator.

 

Our infusion products delivered revenue of £4.3 million in the period (H1 2023: £4.9 million) a decline of 14% versus last year. However, adjusting for the customer de-stocking during the period, underlying sales grew by 18%, continuing the growth trend seen in FY23.

 

Gross margin improved to 48.6% in the period compared to 45.1% in the same period last year.  This improvement has been down to product mix.  As we commented in FY23, our margins were reduced due to product mix and we expected them to return to historic levels as the mix of products became more favourable, which has been the case. Although mix can vary during the second half, we expect margins to stabilise around their current level.

 

Operating expenses totalled £9.3 million in the period (H1 2023: £8.2 million) reflecting wage inflation increasing employment costs which are the largest category within our overheads, as well as increasing travel expenses with overseas markets re-opening, increased regulatory fees and the impact of exchange rate movements.

 

 

 

Adjusted EBITDA¹Â amounted to £1.8 million, a decrease of 20% over H1 2023 as the increased gross profit was offset by increased in operating expenses. Operating profit for the period was £0.2 million after the inclusion of non-recurring charges of £0.4 million largely resulting from the restructure of operations with the closure of the offices at Earl Shilton and Crawley, which is now complete.

 

Finance costs increased to £0.3 million in the period (H1 2023 £0.2 million) as a result of increases in interest rates and higher average net debt compared to the prior period.

 

Net Debt as at 31 July 2023 was £2.1 million, a net inflow of £1.7 million for the first half. Net Debt has been reduced as a result of EBITDA generation and a focus on reducing working capital. Headroom against the Group's bank facilities (£5 million RCF and £5 million invoice discounting facility) was £7.9 million at 31 July providing significant flexibility to manage working capital flows.

 

Dividend

We confirm that our interim dividend payment will remain at the same level as H2 2023 at 0.205p per share. This will be payable to shareholders on the register on 24 November 2023 and will be paid on 22 December 2023.  The shares will go ex-dividend on 23 November 2023.

 

Outlook

The Company continues to execute its strategy to drive growth through maximising sale of existing products, geographic expansion and R&D investment to broaden its product portfolio and is well positioned to benefit from the growth of the neonatal and infusion markets.

 

With a strong pipeline of opportunities for both neonatal and infusion products, combined with the underlying growth seen in the first half, we are confident in returning to growth in the second half and expect to maintain the improvement in margins for the remainder of the year.

 

 

Mark Abrahams

Chairman

3 October 2023

 

¹Earnings before interest, tax, depreciation, share based payments and non-recurring items