18 September 2024

 

 

Advanced Medical Solutions Group plc

("AMS" or the "Group")

 

Interim results for the six months ended 30 June 2024

 

~ H1 delivering high quality growth alongside transformative Peters Surgical acquisition ~

 

~ Current trading in line, FY expectations reiterated ~

 

Winsford, UK, 18 September 2024: Advanced Medical Solutions Group plc (AIM: AMS), the world-leading specialist in tissue-healing technologies, today announces its unaudited interim results for the six months ended 30 June 2024 (the "Period").

 

Financial Highlights:

 

	H1 2024	H1 2023	Reported change	Change at constant currency¹
Revenue (£ million)	68.0	63.1	+8%	+10%
Adjusted Measures
Adjusted² profit before tax (£ million)	14.8	13.8	+8%
Adjusted² profit before tax margin %	21.8%	21.8%	0.0pp
Adjusted² diluted earnings per share (p)	5.35	4.97	+8%
Reported Measures
Profit before tax (£ million)	5.7	11.8	-52%
Profit before tax margin %	8.4%	18.7%	-10.3pp
Diluted earnings per share (p)	1.92	4.06	-53%
Net operating cash flow (£ million)	7.0	4.1	+68%
Net cash3 (£ million)	55.6	69.1	-20%
Interim dividend per share (p)	0.77p	0.70p	+10%

 

 

 

Business Highlights (including post period end):

 

Operational

 

·      Robust financial performance in line with expectations, with strong organic growth in the Period driven by the Surgical business, with particularly strong growth from US LiquiBand^®.

 

·      The transformative acquisition of Peters Surgical, completed 1 July 2024, a leading global provider of specialty surgical sutures, mechanical haemostasis and internal cyanoacrylate devices, substantially strengthens AMS's position as a leading global surgical supplier; with the integration of the business progressing well.

 

·      The acquisition of Syntacoll GmbH ("Syntacoll"), completed 1 March 2024, a specialist manufacturer of drug-eluting collagens, strengthens the Group's existing Biosurgical business.

 

·      The Board has completed a strategic review of the Woundcare Business Unit and has concluded that profitability of the Unit can be improved by focusing on higher margin business and reducing investment in certain areas.

 

 

Financial

 

·      Revenue increased by 8% to £68.0 million and by 10% at constant currency (2023 H1: £63.1 million) driven by growth across all categories in the Surgical Business Unit, partly offset by challenges in the Woundcare Business Unit.

 

·      Surgical revenues increased by 23% to £48.4 million (2023 H1: £39.4 million) and by 27% at constant currency, with double-digit growth in all product categories.

 

·      US LiquiBand^® grew by 54% at constant currency, due to significant momentum from the success of AMS's 2023 renegotiation of distribution agreements with key partners, an element of partner stock rebuild and in comparison to a weak prior period.

 

·      Significant US launch orders were also received in the Period for LIQUIFIX^TM with repeat orders expected in H1 2025, following a longer than anticipated Group Purchasing Organisations ("GPOs") approval process.

 

·      Woundcare revenues decreased by 17%, at both reported currency and constant currency, to £19.5 million (2023 H1: £23.7 million) due to the previously reported declining Organogenesis royalty and weak demand, in particular within exudate management, which included the cessation of certain low margin business.

 

·      Gross margins reduced to 54.3% (2023 H1: 56.5%) due to the previously reported reduction in Organogenesis royalty income stream, weakness in the Woundcare Business Unit and the addition of Syntacoll which currently operates at a lower margin.

 

·      Adjusted profit before tax increased by 8% to £14.8 million (2023 H1: £13.8 million) with adjusted profit before tax margin remaining constant at 21.8% (2023 H1: 21.8%). Reported profit before tax declined to £5.7 million (2023 H1: £11.8 million) as a result of significant acquisition-related exceptional items incurred in the period.

 

·      Net cash³ decreased to £55.6 million from a year-end position of £60.2 million (2023 H1: £69.1 million) following the acquisition of assets of Syntacoll, and contingent consideration for Connexicon Medical Ltd ("Connexicon") following positive achievement of Research & Development milestones. Additional working capital has also been required to support Surgical growth. Post period end (as at 1 July), following the completion of the Peter's Surgical acquisition, the Company's net debt position was £ 56.2 million.

 

·      Given the Board's continued confidence in the future, the interim dividend is increased 10% to 0.77p per share (2023 H1: 0.70p)

 

Outlook

·      Outlook remains unchanged and the Board anticipates that revenue and adjusted profit will be in line with its expectations.

 

Commenting on the interim results Chris Meredith, CEO of AMS, said: "We are delighted with the progress made so far this year, having completed the acquisitions of Peters Surgical and Syntacoll and now being able to report such a strong first half performance from the AMS Surgical business unit. Since the completion of the Peters Surgical deal in July, integration has been progressing well, and the business is proving to be an excellent fit culturally and strategically. Whilst Woundcare has continued to struggle, we believe we have a pathway to improving its profitability. We feel confident that our enlarged portfolio, greater geographic reach, the synergies that we believe can be established over the next three years, combined with the revitalised momentum established in the legacy AMS Surgical business has set us on a very strong trajectory for growth in the long-term."

- End -

 

 

Notes

1    Constant currency adjusts for the effect of currency movements by re-translating the current period's performance at the previous period's exchange rates

2     Adjusted profit before tax is shown before exceptional items which, in 2024 H1, were £7.5 million expense (2023 H1: £nil); amortisation of acquired intangible assets which, in 2024 H1, were £2.5 million (2023 H1: £2.4 million) and a £0.9 million credit for movement in long-term acquisition liabilities (2023 H1: credit of £0.4 million) as defined in the financial review. Adjusted operating margin is shown before amortisation of acquired intangible assets

3    Net cash consisted of £134.9 million of cash and cash equivalents (2023 H1: £69.1 million) and £79.3 million of debt (2023 H1: £nil debt. The majority of the cash as at 30 June was paid out on 1 July to acquire Peters Surgical.

 

 

 

 

 

 

 

 

 

 For further information, please visit www.admedsol.com or contact:

 

Advanced Medical Solutions Group plc	Tel: +44 (0) 1606 545508
Chris Meredith, Chief Executive Officer Eddie Johnson, Chief Financial Officer Michael King, Investor Relations
ICR Consilium	Tel: +44 (0) 20 3709 5700
Mary-Jane Elliott / Lucy Featherstone	AMS@consilium-comms.com
Investec Bank PLC (NOMAD & Broker)	Tel: +44 (0) 20 7597 5970
Gary Clarence / David Anderson
HSBC Bank plc (Broker)	Tel: 44 (0) 20 7991 8888
Joe Weaving / Stephanie Cornish

 

 

 

About Advanced Medical Solutions Group plc

AMS is a world-leading independent developer and manufacturer of innovative tissue-healing technology, focused on quality outcomes for patients and value for payers. AMS has a wide range of surgical products including tissue adhesives, sutures, haemostats, internal fixation devices and internal sealants, which it markets under its brands LiquiBand®, RESORBA®, LiquiBandFix8®, LIQUIFIX™, Peters Surgical, Ifabond, Vitalitec and Seal-G®. AMS also supplies wound care dressings such as silver alginates, alginates and foams through its ActivHeal® brand as well as under white label. Since 2019, the Group has made seven acquisitions: Sealantis, an Israeli developer of innovative internal sealants, Biomatlante, a French developer and manufacturer of surgical biomaterials, Raleigh, a leading UK coater and converter of woundcare and bio-diagnostics materials, AFS Medical, an Austrian specialist surgical business, Connexicon, an Irish tissue adhesives specialist, Syntacoll, a German specialist in collagen-based absorbable surgical implants and Peters Surgical, a global provider of specialty surgical sutures, mechanical haemostasis and internal cyanoacrylate devices.

 

AMS's products, manufactured in the UK, Germany, France, the Netherlands, Thailand, India, the Czech Republic and Israel, are sold globally via a network of multinational or regional partners and distributors, as well as via AMS's own direct sales forces in the UK, Germany, Austria, France, Poland, Benelux, India, the Czech Republic and Russia. The Group has R&D innovation hubs in the UK, Ireland, Germany, France and Israel. Established in 1991, the Group has more than 1,500 employees. For more information, please see www.admedsol.com.

 

Chief Executive's Review

 

Summary and Outlook

A number of strategic initiatives, new product launches and key acquisitions have been implemented over the past 12 months that the Board believes will transform AMS into a significantly larger, more competitive business with greater scope to generate stronger and more sustainable growth in the long-term. The interim results to the end of June 2024 confirm that many of these initiatives are already working well and delivering growth. 

 

 

Surgical Business Unit

 

The Surgical Business Unit includes tissue adhesives, sutures, biosurgical devices and internal fixation devices marketed under the AMS brands LiquiBand^®, RESORBA^®, LiquiBandFix8^® and LIQUIFIX^TM. Revenue increased by 23% on a reported basis and 27% on a constant currency basis in the Period to £48.4 million (2023 H1: £39.4 million).

 

Surgical Business Unit	2024 H1 £ million	2023 H1 £ million	Reported Growth	Growth at constant currency
Advanced Closure	21.8	17.0	28%	30%
Internal Fixation and Sealants	3.8	2.2	75%	79%
Traditional Closure	10.4	9.4	11%	17%
Biosurgical Devices	9.5	8.3	15%	18%
Other Distributed Products	3.0	2.5	19%	22%
TOTAL	48.4	39.4	23%	27%

 

Advanced Closure

LiquiBand^® is a range of topical skin adhesives, incorporating medical grade cyanoacrylate in combination with purpose-built applicators. These products are used to close and protect a broad variety of surgical and traumatic wounds.

 

Advanced Closure	2024 H1 £ million	2023 H1 £ million	Reported Growth	Growth at constant currency
Americas	13.8	9.2	50%	54%
UK/Germany	4.1	4.0	0%	1%
ROW	3.2	3.4	-6%	-5%
Connexicon	0.7	0.4	81%	86%
TOTAL	21.8	17.0	28%	30%

 

LiquiBand^® revenues increased by 28% to £21.8 million (2023 H1: £17.0 million) and 30% at constant currency, predominately due to the successful implementation of the new US marketing strategy, which involved AMS taking over direct sales control for one key distribution channel, as well as other important renegotiations with its other partners. The success of this strategy, supported by partner stock rebuild, has resulted in US revenues of £13.8 million (2023 H1: £9.2 million) in the first half; growth of 50% on a reported basis and 54% at constant currency, compared to the weak prior period which saw higher than expected levels of destocking. This strategy has been further enhanced by Connexicon securing its FDA approvals in July 2024, providing the opportunity for further product exclusivity for our marketing partners and greater commitment from all parties.

 

US FDA approval granted in July for the majority of the Connexicon portfolio triggered €3m of earn-out payments in July relating to the approval.

 

Outside the US, end user demand for LiquiBand^® remains strong, however phasing of customer orders, including the NHS supply chain, has meant this underlying demand has not been reflected in reported revenue growth during the Period.

 

The Chinese approval process for Connexicon Indermil^® has begun following completion of clinical trial recruitment. It is anticipated that approval will be obtained by 2026 which would represent AMS's first tissue adhesive approval in this very significant market. 

 

Internal Fixation and Sealants

AMS's hernia mesh fixation device, sold under the LiquiBandFix8^® brand ex-US and as LIQUIFIX^TM in the US, secures meshes inside the body with accurately delivered individual drops of cyanoacrylate adhesive instead of traditional tacks and staples. Revenues increased by 75% on a reported basis to £3.8 million (2023 H1: £2.2 million) and 79% on a constant currency basis.

 

The US launch of LIQUIFIX^TM is progressing well with significant launch orders received. The GPO approval process has proven to be more prolonged than anticipated and consequently limited orders are expected in the second half of 2024. Progress has been made in two major US GPOs, with approval in Premier GPO, leveraging our distribution partners existing Premier mesh approvals, and pending approval in HealthTrust GPO from 1 November. Following the HealthTrust GPO approval, significant orders are anticipated from H1 2025.

 

SEAL-G^® MIST is a novel, internal, biological sealant used to seal tissue to reduce leakage of fluid during internal surgery. Following a non-randomised clinical study of 160 gastrointestinal (GI) surgery patients in 2023, AMS has progressed with a 60-patient clinical study for pancreatic surgery, which is a high-risk procedure with higher leakage rates and thus a lower patient population to demonstrate results. This study is underway with 29 procedures completed and positive initial feedback.

 

In 2023, a key component required to connect the laparoscopic device to an external gas supply was discontinued by the supplier, restricting commercialisation and limiting our activities to just critical clinical work and KOL surgeon evaluations. With no short-term solution, AMS is progressing with its development of the next generation laparoscopic device that does not need a gas supply connection and has developed a working prototype.

 

Traditional Closure

RESORBA^® branded Absorbable and Non-absorbable Suture ranges are used in general surgery and a wide range of surgical specialties including dental and ophthalmic surgery. Revenue increased by 11% to £10.4 million (2023 H1: £9.4 million) and by 17% at constant currency with ongoing growth primarily in our core European markets. Customer appetite for suture conversions has significantly increased and greater investment in inventory has allowed commercial demand to be met and increased AMS's ability to win new customers.

 

Biosurgical Devices    

The Biosurgical Devices category comprises antibiotic-loaded collagen sponges, collagen membranes and cones, oxidised cellulose, synthetic bone substitutes and bio-absorbable screws. Revenue increased by 15% to £9.5 million (2023 H1: £8.3 million) and by 18% at constant currency, including a £1 million contribution from the acquisition of the Syntacoll assets from administration in March 2024. The assets were purchased for €1 million, and came on-line in May 2024, significantly enhancing AMS's Biosurgical capabilities in the development, manufacture and regulatory approval of drug-loaded collagens. These capabilities are expected to accelerate AMS's US approval pathway for the combined collagen portfolio to open substantial new high margin US biosurgical opportunities.

 

End user demand for AMS's collagen products remains strong but technical and manufacturing issues at the Nuremburg facility in the Period restricted the Group's ability to fulfil all customer orders. Expertise acquired with the Syntacoll assets has already started to address some of these issues and, with the addition of the new facility, AMS expects to have significant capacity headroom against forecasted future demand.

 

Other Distributed Products      

The Other Distributed products category comprises products distributed through AFS Medical in Austria, including minimally invasive access ports and laparoscopic instruments. This category excludes sales of LiquiBandFix8^® which are recorded within the Internal Fixation and Sealants category. Revenue increased by 19% on a reported basis and 22% on a constant currency basis to £3.0 million (2023 H1: £2.5 million).

 

Peters Surgical

AMS completed the acquisition of Peters Surgical in July 2024. Consideration consisted of an initial cash payment of €132.5 million, on a normalised cash free, debt free basis, and an earnout of up to €8.9 million payable in FY25 and FY26 on delivery of regulatory, gross margin, inventory and tax milestones. Two US approvals are required to trigger the regulatory milestone, one of which has already been achieved in Q3 2024. It is anticipated that the second approval, that would trigger the earnout, will follow in late 2024 or early 2025. Peters Surgical increased revenues by 6% to €85.2 million in the last 12 months to the end of the Period.

 

Excellent progress has been made since the recent completion, confirming the excellent cultural and strategic fit between both companies.

 

A dedicated integration team has been established to maximise and deliver significant operational synergies, which the Board is confident will be £10 million p.a. from FY27 from Peters Surgical and Syntacoll. Optimisation of the operational functions of both businesses is subject to regulatory approval timelines and is expected to take approximately three years to complete.

 

The commercial integration of both businesses is also underway and is on track.

 

 

 

Woundcare Business Unit

The Woundcare Business Unit is comprised of the Group's multi-product portfolio of advanced woundcare dressings sold under its partners' brands and the ActivHeal^® label, plus a portfolio of specialist medical bulk materials and multi-layer woundcare products.

Business Unit revenue decreased by 17% in the Period to £19.5 million (2023 H1: £23.7 million) on a reported and constant currency basis.

Woundcare Business Unit	2024 H1 £ million	2023 H1 £ million	Reported Growth	Growth at constant currency
Infection and Exudate Management	17.2	19.9	-13%	-13%
Other Woundcare	2.3	3.8	-39%	-38%
TOTAL	19.5	23.7	-17%	-17%

 

Infection and Exudate Management

Infection and Exudate Management revenue decreased by 13% on both a reported and constant currency basis to £17.2 million (2023 H1: £19.9 million). Ongoing challenging market conditions continue to impact the business including pricing pressure, low-cost competition and reimbursement issues, but the first half performance was also impacted by adverse phasing of orders during the Period. The ordering pattern anticipated during the rest of the year is expected to result in a stronger second half.

 

Other Woundcare

Other Woundcare comprises royalties, fees and woundcare sealants. Revenue reduced by 39% at reported currency and by 38% at constant currency to £2.3 million (2023 H1: £3.8 million) as a result of lower royalty income from the Group's licensing arrangement with Organogenesis, as announced in September 2023.

 

Woundcare strategy

With the Group's increased focus on Surgical products and as the challenging Woundcare market conditions persist, the Board has performed a strategic review of the Woundcare Business Unit which included assessing its growth prospects, investment requirements and gross margins by customer and product. Following this review, the Board has concluded that shareholder value can be best optimised through various initiatives, including focusing on higher margin business and reducing investment in certain areas, that will improve future profitability of the Unit.

 

Regulatory

AMS continues to make good progress in meeting the requirements for the new Medical Devices Regulation (MDR) and is well placed to obtain certifications for all its products well before the extended 2027/2028 deadlines.

 

Environmental, Social & Governance

AMS continues to make positive progress on its ESG activities, building on the foundations reported in its FY23 Annual report. It is now working on aligning these with the considerable CSR program already established in the Peters Surgical group. This alignment will include combining emissions data for the two businesses and rebasing the initial carbon footprint for the enlarged group, progressing its Pathway to Net Zero, which has a commitment date of 2045.

 

Stakeholders

On behalf of the Board, I would like to thank the Group's committed staff, partners and other stakeholders, without whose help and commitment the achievements during the Period would not have been possible.

 

Outlook

The strong underlying trend in AMS's Surgical business has continued in Q3 whilst the Peters Surgical business performed in line with expectations in the first half of 2024 and is expected to make a positive contribution to the group from its acquisition in July 2024. The outlook for the Group for the full year 2024 remains unchanged and the Board anticipates that revenue and adjusted profit will be in line with its expectations.

 

 

Financial Review

 

IFRS reporting

To provide the clearest possible insight into our performance, the Group uses alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate. AMS uses such measures consistently at the half-year and full-year and reconciles them as appropriate. The measures used in this statement include constant currency revenue growth, adjusted operating margin and profit, adjusted profit before tax and adjusted earnings per share, allowing the impacts of exchange rate volatility, exceptional items, amortisation and the movement in long-term acquisition liabilities to be separately identified. Net cash is an additional non-GAAP measure used.

 

Overview

Completion of the Peters Surgical acquisition in July 2024 transforms the Group going forwards, adding significant revenue, profit and scale whilst reducing our net cash position. In the last 12 months to the end of the Period, Peters Surgical reported revenue of €85.2 million and adjusted EBITDA of €13.6 million. To fund the acquisition the Group obtained £90 million of borrowing facilities from its banks as discussed in further detail below.

 

During the period, revenue increased by 8% at reported currency to £68.0 million (2023 H1: £63.1 million) and increased by 10% at constant currency, as summarised in the Chief Executive's Review.

 

Gross profit increased to £36.9 million (2023 H1: £35.7 million) but gross margin decreased to 54.3% (2023 H1: 56.5%) due to adverse product mix in Woundcare including the reduced royalty income from Organogenesis.

 

Administration expenses, before exceptional items, remained constant at £25.0 million (2023 H1: £25.0 million) although it includes the effect of favourable foreign exchange movements which added £2 million of benefit versus the prior period. The Group has increased investment in the sales and marketing team to support growth, in particular in the Surgical business unit whilst the acquisition of Connexicon in H1 2023 has added £0.2 million of annualised operating costs.

 

Exceptional items totalling £7.5 million (2023 H1: £nil) have been incurred in the period as a result of the acquisition of Peters Surgical and Syntacoll. Given the significance of these costs in the period, in comparison to costs incurred for acquisitions in previous periods, they have been disclosed separately. Exceptional costs incurred in relation to Peters Surgical include deal advisory fees, due diligence fees such as legal, accounting and tax amongst others as well as hedging costs to ensure protection against movement in the euro rate on the purchase price between March 2024 when the Group agreed to acquire Peters Surgical and June when FDI approval for the transaction was received. Exceptional items relating to Syntacoll include legal costs, termination payments to staff not retained and operating costs for an idle period when the site was not yet operational. The site recommenced operations at the end of May.

 

As the investment required to comply with the Medical Device Regulation ("MDR") nears completion, the Group has been able to reduce the regulatory element of its R&D spend and consequently total investment in R&D has reduced to £5.6 million (2023 H1: £6.0 million), representing 8.2% (2023 H1: 9.5%) of revenue. The reduction from the prior period also reflects the inclusion in FY23 of the final stages of the US PMA for LIQUIFIX™. As shown in the table below, elements of this cost are capitalised and amortised over 5 to 10 years.

 

	H1 2024	H1 2023
	£'000	£'000
Total investment in Research and Development, Regulatory and Clinical	5,593	5,972
Of which:
Charged to the profit and loss account	3,448	2,926
Capitalised, to be amortised over 5-10 years	2,145	3,046

 

Amortisation of acquired intangible assets increased to £2.5 million (2023 H1: £2.4 million) due to the annualised impact of the prior period Connexicon acquisition.

 

Adjusted operating profit, which excludes amortisation of acquired intangibles and exceptional items, increased by 9% to £14.0 million (2023 H1: £12.8 million) whilst the adjusted operating margin increased by 20 bps to 20.5% (2023 H1: 20.3%) due to the improved performance of the Surgical business unit.

 

Movement in long-term acquisition liabilities of Sealantis, AFS & Connexicon resulted in a net credit of £0.9 million (2023 H1: £0.4 million credit), as a result of a reduction in the Connexicon earn-out.

 

The Group delivered increased adjusted profit before tax of £14.8 million (2023 H1: £13.8 million), despite the Woundcare headwind. Reported profit before tax was £5.7 million (2023 H1: £11.8 million) as a result of the significant exceptional items incurred in the period.

 

Reconciliation of profit before tax to adjusted profit before tax
	H1 2024	H1 2023
	£'000	£'000
Profit before tax	5,695	11,768
Amortisation of acquired intangibles	2,468	2,402
Exceptional items	7,544	-
Movement in long-term acquisition liabilities	(895)	(404)
Adjusted profit before tax	14,812	13,766

 

The Group's effective corporation tax rate, reflecting the blended tax rates in the countries where we operate and including UK patent box relief, increased to 26.7% (2023 H1: 24.1%) with the main driver behind the increase being acquisition costs, some of which are not tax deductible, and the annualised impact of the UK Corporation tax rate increase to 25%, effective 1^st April 2023. These are partly offset by lower profits in Germany as a result of the reduced Organogenesis royalty. The tax rate in Germany is higher than the Group's average tax rate and therefore a lower proportion of profit in Germany reduces the Group's effective tax rate.

 

Adjusted diluted earnings per share increased by 8% to 5.35p (2023 H1: 4.97p) whilst adjusted basic earnings per share also increased by 8% to 5.44p (2023 H1: 5.04p). Diluted earnings per share reduced by 53% to 1.92p (2023 H1: 4.06p) as a result of the significant exceptional items incurred in the period and basic earnings per share reduced by 53% to 1.95p (2023 H1: 4.12p).

 

The Board intends to pay an interim dividend of 0.77p per share on 25 October 2024 to shareholders on the register at the close of business on 27 September 2024. This is a 10% increase on the interim dividend paid in respect of the first half of 2023 reflecting the Board's ongoing confidence in the future growth in the Group.

 

 

Operating result by business segment
Six months ended 30 June 2024	Surgical	Woundcare
	£'000	£'000
Revenue	48,439	19,547
Segment operating profit	11,375	776
Amortisation of acquired intangibles	1,998	470
Adjusted segment operating profit4	13,373	1,246
Adjusted operating margin4	27.6%	6.4%
Six months ended 30 June 2023
Revenue	39,411	23,677
Segment operating profit	8,164	2,860
Amortisation of acquired intangibles	1,931	471
Adjusted segment operating profit4	10,095	3,331
Adjusted operating margin4	25.6%	14.1%

 

⁴ Adjusted for amortisation of acquired intangible assets and exceptional items

 

Table is reconciled to statutory information in note 5 of the financial information.

 

 

 

Surgical

Surgical revenues increased by 23% to £48.4 million (2023 H1: £39.4 million) at reported currency and increased by 27% at constant currency. Adjusted operating margin increased by 200 bps to 27.6% (2023 H1: 25.6%) due to improved sales mix following the new US Marketing strategy for LiquiBand^®.

 

Woundcare

Woundcare revenues decreased by 17% to £19.5 million (2023 H1: £23.7 million) at reported currency and constant currency. Adjusted operating margin decreased by 770 bps to 6.4% (2023 H1: 14.1%) predominately due to adverse product mix and lower royalty income from Organogenesis.

 

Currency

The Group hedges significant currency transaction exposure by using forward contracts and aims to hedge approximately 80% of its estimated transactional exposure for the next 18 months. In the first half of the year, approximately one third of sales were invoiced in Euros and approximately one third were invoiced in US Dollars. Sales in Czech Koruna & Russian Ruble are immaterial for the purpose of hedging. The acquisition of Peters Surgical will add further USD and Euro cash flows as well as additional currencies including Thai Baht and Indian Rupees. The impact of this is being considered and risk management plans will be implemented as appropriate although the net risk is unlikely to be material.

 

The Group estimates that a 10% movement in the £:US$ or £:€ exchange rate will impact Sterling revenues by approximately 3.0% and 3.6% respectively and in the absence of any hedging this would have an impact on the Group operating margin of 2.1% and 0.3% percentage points respectively. Given the increased cost base in Euro currency following the latest acquisitions across Europe, the Euro currency transaction exposure has a minimal impact on Group Operating Margin, and hence the Group has decided to only hedge US Dollar currency transaction exposure over the next 18 months.

 

Cash Flow

Adjusted net cash inflow from operating activities has increased by 160% due to increased operating profit when excluding the impact of exceptional items. Net cash inflow from operating activities increased by 68% to £7.0 million (2023 H1: £4.1 million) despite reduced operating profit due to the timing of certain payables items, in particular acquisition related costs which were incurred but not paid at the end of the period. Additional information on working capital movements is explained below.

 

Reconciliation of Net cash inflow from operating activities to Adjusted net cash inflow from operating activities
	(Unaudited)	(unaudited)
	Six months ended	Six months ended
	30 June 2024	30 June 2023
Net cash inflow from operating activities	6,962	4,149
Add back exceptional items	3,841	-
Adjusted net cash inflow from operating activities	10,803	4,149

 

 

 

At the end of the Period, net cash had reduced to £55.6 million from £60.2 million at year-end (2023 H1: £69.1 million) due to acquisition related payments including €1m for the acquisition of Syntacoll assets; earn-out payments of €3m for achievement of Connexicon Research & Development milestones and €0.5 million for the achievement of AFS' FY23 EBITDA target. Additional working capital has also impacted cash as a result of increased levels of Inventory and Receivables. Net cash includes £79.3 million debt (2023 H1: £nil debt) obtained at the end of the period ahead of completing the Peters acquisition.

 

In the first half of 2024, receivables increased by £2.9 million (2023 H1: £3.2 million increase) due to increased sales volumes, particularly within the US. Debtor days increased to 47 from 45 days at year-end (2023 H1: 41 days) due to higher levels of US sales in the period which are typically on longer payment terms.

 

Total payables increased by £1.3 million (2023 H1: £4.0 million increase) due to significant acquisition related activity within the period, some of which is to be paid post-period end increasing the payables position. This was partially offset by the reduction in payables following Connexicon & AFS earn-out related payments. Creditor days increased slightly to 37 days from 35 days at year-end and was in line with previous HY reporting (2023 H1: 37 days).

 

Inventory levels increased by £2.5 million (2023 H1: £3.9 million increase) following the acquisition of Syntacoll assets, increasing our capabilities in the Collagen market. Inventory cover for the period has increased to 7.3 months of supply in comparison to 7.1 months at year-end (2023 H1: 6.7 months) with the Group choosing to maintain higher than historical levels of Inventory  in order to remain resilient to supply chain risks and fulfil growing commercial demand.

 

In the Period, the Group invested £3.8 million in capital equipment, R&D and regulatory costs, a reduction from the prior period (2023 H1: £4.8 million) which reflects the reducing levels of investment required for MDR. The prior period also included investment in the LIQUIFIX^TM PMA approval which was received in July 2023. The current period includes investment in packaging automation in Germany to improve production efficiency, investment in Information Systems including hardware and continued progress on Medical Device Regulation compliance.

 

Tax payments increased to £2.9 million (2023 H1: £1.4 million) which is £1.4 million higher than tax in the income statement, mainly due to timing of payments on account.

 

In June 2024, the Group paid its final dividend for the year ended 31 December 2023 of £3.6 million (2023 H1: £3.3 million).

 

The Group utilised £80 million of funding from its two banks, NatWest and HSBC, who, as a syndicate, have arranged a new debt facility in the period to fund part of the cash consideration for the post period end acquisition of Peters Surgical. As part of the borrowing arrangement, fees of £0.7 million were deducted from the £80 million loan. The facility is up to £90 million potential borrowing comprised of Facility A, a £60 million term loan facility with £5 million of annual repayments commencing 1^st July 2025 and Facility B, a £30 million multi-currency revolving credit facility, of which £20 million has been drawn down at 30 June 2024. 

 

£10 million of funding in the revolving credit facility remains available in future if required. The interest rate on both facilities for the first year is based on SONIA plus 1.75% margin. Following the first year, the margin can vary based on the Groups net leverage. The minimum margin is 1.50% per annum based on a net leverage of less than 1.5:1.0 but greater than 1.0:1.0, and the maximum margin is 2.50% per annum based on a net leverage of more than 2.5:1.0.

 

The loan has covenants in place meaning the group needs to comply with the following financial conditions: a) Interest cover in respect of any relevant period shall not be less than 4.0:1.0 and b) Net leverage in respect of each relevant period shall not exceed 3.0:1.0.

 

Interest cover is calculated as a ratio of Adjusted EBITDA to Net Finance Charge in respect of any relevant period. Net leverage is calculated as a ratio of Total Net Debt on the last day of that relevant period to Adjusted EBITDA in respect of that relevant period.

 

Post period-end, on 1^st July 2024, the Group completed the acquisition of Peters Surgical with consideration consisting of an initial cash payment of €132.5 million.