("AMS" or the "Group")

Interim Results for the six months ended 30 June 2017

Winsford, UK, 13 September 2017: Advanced Medical Solutions Group plc (AIM: AMS), the surgical and advanced woundcare specialist company, today announces its unaudited interim results for the six months ended 30 June 2017.

Financial Highlights:

Business Highlights:

·      Group revenues up 17% to £45.9 million and by 8% at constant currency

·      Group streamlined into two Business Units; Branded and OEM, to support strategic initiatives

o  Branded revenues up 26% to £27.3 million (2016 H1: £21.6 million) and by 15% at constant currency

o  OEM revenues up 6% to £18.6 million (2016 H1: £17.5 million) and unchanged at constant currency

·      Continued strong performance with LiquiBand^® topical tissue adhesives, sales up 40% to £13.0 million (2016 H1: £9.3 million) and by 26% at constant currency

o  US revenues up 52% to £9.1 million (2016 H1: £6.0 million), and by 32% at constant currency. US market share by volume increased to 24% (June 2016: 19%)

·      RESORBA^® branded products, up 20% to £10.3 million (2016 H1: £8.6 million) and by 6% at constant currency

·      Antimicrobial dressings up 19% to £9.7 million (2016 H1: £8.1 million) and by 13% at constant currency

Commenting on the interim results, Chris Meredith, CEO of AMS, said:

"The Group has delivered another good set of results and we are confident of meeting Board expectations for the full year.

"Sales of LiquiBand^® are strong in all main markets. All of our brands have made good progress and have shown improved performance as a result of our marketing initiatives.

"We remain optimistic about our organic growth prospects and our innovative R&D pipeline and continue to closely monitor and evaluate acquisition opportunities to capitalise on our strong financial and strategic position."

- End -

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    All items are shown before exceptional items which, in 2017 H1 were £nil (2016 H1: £0.4 million) and before amortisation of acquired intangible assets which, in 2017 H1, were £0.1 million (2016 H1: £0.1 million) as defined in the financial review

3    Operating cash flow is arrived at by taking the operating profit for the period before exceptional items of £nil (2016 H1: £0.4 million) and adjusting it for depreciation, amortisation, working capital movements and other non-cash items

4    Net cash is defined as cash and cash equivalents plus short term investments less financial liabilities and bank loans

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About Advanced Medical Solutions Group plc

AMS is a world-leading independent developer and manufacturer of innovative and technologically advanced products for the global surgical, woundcare and wound closure markets, focused on quality outcomes for patients and value for payers. AMS has a wide range of products which it markets under its brands ActivHeal^®, LiquiBand^® and RESORBA^® as well as supplying under white label.

AMS's products, manufactured out of two sites in the UK, one in the Netherlands, two in Germany and one in the Czech Republic, are sold in 75 countries via a network of multinational or regional partners and distributors, as well as via AMS's own direct sales forces in the UK, Germany, the Czech Republic and Russia. Established in 1991, the Group has approximately 600 employees. For more information please see www.admedsol.com.

Chairman's Statement

AMS continues to perform well across the Group and is set to deliver another year of good growth and strong financial performance.

The Group has reviewed its business structure and has consolidated its Business Units from four to two. The Branded Direct and Branded Distributed Business Units have now been combined into the Branded Business Unit which will focus on selling, marketing and innovation of all AMS branded products, whether sold directly by our sales teams or through our distributors. The OEM and Bulk Business Units have been consolidated within the OEM Business Unit and will focus on the distribution, marketing and innovation of the Group's products that are supplied to our medical device partners under their brands. This new structure will enhance focus, improve marketing efficiencies and support the strategic initiatives of the Group.

The Group's strategic initiatives continue to be:

·      Growing the business by investing in R&D

·      Extending the markets for our existing products

·      Evaluating acquisition opportunities that align with the Group's strategy

Good progress has been made with all of our brands. LiquiBand^® continues to gain market share in the US, now at 24%, gaining 4% since June 2016. Our RESORBA^® brands grew steadily across all territories and ActivHeal^® reversed its decline and grew 9% to £3.1 million (2016 H1: £2.9 million).

We launched a number of new foam product ranges in the first half of 2016 through our OEM partners and, as previously guided, we have seen the effects of last year's pipeline filling this year. Despite this effect, we are pleased to report that, sales in this Business Unit grew 6% at reported currency to £18.6 million (2016 H1: £17.5 million) and were unchanged at constant currency.

The Group continues to deliver a strong financial performance. Revenue increased by 17% to £45.9 million (2016 H1: £39.2 million) and by 8% at constant currency and adjusted profit before tax⁵ increased by 21% to £11.5 million (2016 H1: £9.5 million). Our net cash position 30 June 2017 was £55.2 million (31 December 2016: £51.1 million).

Dividend

The Board intends to pay an interim dividend of 0.35p per share (2016 H1: 0.30p), an increase of 17%, on 27 October 2017 to shareholders on the register at the close of business on 29 September 2017.

Team

On behalf of the Board, I would like to thank all employees for their continued hard work that has helped AMS to prosper as a global medical technology business, as well as our customers, suppliers, business partners and shareholders for their continued support.

Summary

The Group continues to deliver solid results and is trading in line with Board expectations for the year ending 31 December 2017.

Peter Allen

Chairman

5      Adjusted profit before tax is adjusted for exceptional items and amortisation of acquired intangible assets

Chief Executive's Review

I am pleased to report that the Group again performed strongly in the period under review. Following a decision to streamline our Business Units in alignment with our strategic focus, all segment information is presented under the new Business Unit structure and includes a restatement of the prior year values.

Business Review

Branded Business Unit

Branded revenue was 26% higher at £27.3 million (2016 H1: £21.6 million) and 15% higher at constant currency.

LiquiBand^®

LiquiBand^®, our range of medical adhesives based on cyanoacrylate, is our largest brand with sales of £13.0 million (2016 H1: £9.3 million), up 40% on the prior six months and up 26% at constant currency. It is sold in over 50 countries and includes our adhesives that are used to close wounds topically in the Operating Room and Accident and Emergency setting.

The US is our largest market and where we continue to gain market share. We access the market through distributors who are able to target both hospitals and non-hospitals, helping to identify customers and convert opportunities into sales. Sales increased by 52% to £9.1 million and by 32% at constant currency (2016 H1: £6.0 million) with our portfolio of cyanoacrylate formulations successfully addressing the needs of the market. Our overall US market share by volume, now stands at 24%, an increase of 1% since December 2016.

Outside of the US, our direct teams in the UK and Germany have performed well, with reported revenues up 15% to £2.8 million (2016 H1: 2.4 million) and up 12% at constant currency. Sales through our distributors in other territories, have increased 27% to £1.2 million (2016 H1: £0.9 million) and 25% at constant currency.

LiquiBand^® Fix8™

LiquiBand^® Fix8™ is our brand of adhesive and related device that is used internally in hernia mesh fixation procedures. Sales increased by 5% to £0.8 million (2016 H1 £0.8 million) and by 2% at constant currency. Sales growth has been restricted due to design modifications made following surgeon feedback to enhance the device. The updated device is now available and increased surgeon uptake is expected to return next year.

Work is ongoing to broaden the claims on the use of the device for hernia mesh fixation as well as for a number of other laparoscopic surgical applications. Additionally, we are developing a device for hernia mesh fixation for use in open surgery which we expect to launch in the first half of 2018.  

At present, the device is approved for use within Europe and those markets that accept European approval standards. We started the process to get LiquiBand^®Fix8™ approved for use in the US market at the beginning of the year. A Contract Research Organisation (CRO) has been selected following study design and in anticipation of first patient recruitment.

Surgeon response remains extremely positive and the future growth potential of this product is very strong.

RESORBA^®

Our RESORBA^® branded products portfolio is comprised of a comprehensive range of sutures which are used to close wounds and a range of bio-surgical products that include collagens, cellulose and bone substitutes that can be used as haemostats or scaffolds for tissue growth. Sales of RESORBA^® products increased by 20% to £10.3 million (2016 H1: £8.6 million), and by 6% at constant currency.

Within this, sales of sutures increased by 19% to £6.4 million (2016 H1: £5.3 million) and by 5% at constant currency and sales of bio-surgical products increased by 22% to £3.7 million (2016 H1: £3.0 million) and by 8% at constant currency.

Of the £10.3 million sales, £6.5 million (2016 H1: £5.8 million) were in Germany, up 13% on the prior year and 1% at constant currency, while sales outside Germany increased by 34% to £3.8 million (2016 H1: £2.8 million) and 17% at constant currency. We continue to access new markets, in particular Asia Pacific and target specific applications for our RESORBA^® brands.

In R&D we are making good progress towards including a range of different antibiotics that can be incorporated in our bio-surgical range of products. We expect to file for European approval for the first of these in Q2 2018.

ActivHeal^®

ActivHeal^® is our range of high quality woundcare dressings that offer the NHS cost savings.

Sales of ActivHeal^® increased by 9% to £3.1 million (2016 H1: £2.9 million) in the first six months. The Group has enhanced its education and marketing materials as well as broadened its product range with our new antimicrobial and atraumatic foam dressing ranges which launched last year. Further additions to the range, such as our new high performance dressing, are expected to be launched later this year. Overall, we are pleased with the progress that has been made, reversing the decline that was reported at the previous set of results.  

OEM Business unit

Our OEM business supports our partners with a multi-product portfolio of advanced woundcare products and bulk materials. Reported revenue increased 6% to £18.6 million (2016 H1: £17.5 million) and was unchanged at constant currency. As previously reported, our 2016 results included pipeline fill of approximately £1 million relating to the atraumatic foam product launch, which was anticipated to impact reordering in the current year.

Sales of antimicrobial dressings increased by 19% to £9.7 million (2016 H1: £8.1 million) and by 13% at constant currency. Within this, silver alginate products grew by 13% to £8.6 million (2016 H1: £7.6 million) and by 7% at constant currency and the PHMB foam range grew by 116% at reported and constant currency to £1.1 million (2016 H1: £0.5 million). Our PHMB foam range was approved for use in Europe in 2016 and approval for use in the US was expected in 2017. We have now received approval to market our PHMB foam dressings in the US, however, due to claim limitations, we have decided to pause launching in the US until we can market these products with extended claims.

In our non-antimicrobial ranges of products, sales of our base foams were down 27% at reported currency to £3.4 million (2016 H1: £4.6 million) and by 33% at constant currency. Sales were impacted by the pipeline fill of new products in 2016. Sales of our other technologies, which include alginates and gels, increased 15% at reported currency to £5.5 million (2016 H1: £4.8 million) and by 9% at constant currency.

In the latter part of 2016, we also noted a slowdown in activity in the Middle East which impacted one of our partners with significant business in the region.  This trend did not recover in the first half of 2017, however, we continue to believe in the medium and long term potential of this market.

In R&D we are continuing to work on extending our product portfolio. We have developed a range of high performance dressings and atraumatic thin foams which we expect to launch later in the year and we are also developing a range of surgical dressings which are expected to launch in the first half 2018.

Operations and regulatory

With the business continuing to show strong organic growth, we have made investments in our converting capability in our Etten Leur site which is due to complete by the end of this year, as well as improving our packing capability in Nuremberg which is expected to complete in 2018.

In planning for the medium to long term, we have leased two adjacent units at the Winsford site and have also made plans to extend the capacity of the Plymouth facility.

Following the FDA inspection of our Winsford site in June 2016, our Plymouth facility was also inspected by the FDA in April 2017. We were very pleased with the outcome of this audit with no non- conformances raised.

The new European Medical Devices Regulation (MDR) entered into force on 25 May 2017, marking the start of the transition period for manufacturers selling medical devices into Europe. The MDR, which replaces the Medical Devices Directive (MDD) has a transition period of three years and manufacturers have this transition period to update their technical documentation and processes to meet the new requirements. The MDR brings more scrutiny on product safety and performance and stricter requirements on clinical evaluation and post-market clinical follow up. Our notified body BSI is an early adopter of the new standard and we are working with our OEM partners to ensure that we meet the new requirements. We anticipate that, although there will be some additional costs associated with meeting the new requirements, overall, the tighter regulatory standards should prove beneficial for the Group.

Our implementation of Oracle ERP is ongoing in Germany and is expected to complete later this year. It is anticipated that this will bring benefits from better availability of information.

A supplier raw material change has required a process revalidation of some of our more established foam ranges. This process change is now completing and there has been no meaningful impact on sales in H1.

Acquisitions strategy

The Group is actively looking for businesses that meet its acquisition strategy of:

·      licensing or acquiring technology that allows us to leverage our global OEM customer base or branded routes to market,

·      licensing or acquiring additional brands within the woundcare, wound closure or surgical setting that complement our existing range, and

·      geographic expansion through acquiring surgically focused companies with strong direct sales capability and ownership of complementary products

We have an internal team working with advisors to identify, appraise and progress acquisition opportunities.  

Referendum vote to leave the EU

To date, there has been no day-to-day operational impact of the referendum vote to leave the European Union, other than changes to currency exchange rates. In preparation, the Group is investigating the possibility of obtaining Authorised Economic Operator status for its UK trading entities and with a strong footprint in mainland Europe, the Group continues to be well placed to deal with the uncertain outcome of the UK negotiations with the EU.

Summary and outlook

The first half of 2017 has seen another good performance by the Group and we are confident of meeting Board expectations for the full year. With our increasing portfolio of products, strong partners and the opportunities we see from our R&D pipeline, the Board remains optimistic about our prospects and the potential for further growth.

Financial Review

Overview

Revenue increased by 17.3% to £45.9 million (2016 H1: £39.2 million). At constant currency, revenue growth would have been 8.1%.

Amortisation of acquired intangible assets was £0.1 million in the six month period (2016 H1: £0.1 million).

Comparisons with 2016 are made on a pre-exceptional and pre-amortisation of acquired intangible asset cost basis, as we believe that this provides a more relevant representation of the Group's trading performance. To aid comparison, the Group's adjusted income statement is summarised in Table 1 below.

6    Administration expenses exclude exceptional items and amortisation of acquired intangible assets

7    see Note 4 Earnings per share for details of calculation

The gross margin percentage for the Group was 59.9% (2016 H1: 57.4%). This 250bps increase in gross margin was mainly as a result of sales mix and favourable exchange rates

Adjusted operating profit increased by 21.2% to £11.5 million (2016 H1: £9.5 million) and the adjusted operating margin increased by 80bps to 25.1% (2015 H1: 24.3%) due to sales mix and favourable foreign exchange movements. Administration expenses (excluding exceptional items and amortisation of acquired intangible assets) increased by 22%. Of this, approximately 15% was due to foreign exchange effects arising from the translation of costs in Europe and the US arising from the weakness of sterling against both the Euro and the US dollar. The remainder of the increase was due to investment in sales and marketing and increased costs from regulatory and clinical work.

Adjusted diluted earnings per share increased by 16.9% to 4.31p (2016 H1: 3.68p) and diluted earnings per share increased by 23.3% to 4.26p (2016 H1: 3.46p).

The Group generated profit before tax of £11.4 million (2016 H1: £9.0 million) and had net cash of £55.2 million at the half year end (2016 H1: £41.1 million).

The Group has a strong balance sheet enabling financing of further organic growth and acquisitions.

Income Statement

The operational performance of the business units is shown in Table 2 below. The adjusted profit from operations and the adjusted operating margin are shown after excluding exceptional items and amortisation of acquired intangibles.

8    Excludes amortisation of acquired intangible assets

Expenses relating to exceptional items, to non-executive Directors and plc costs are not allocated to business units and are included within unallocated expenses.

Branded

Branded revenues increased by 26.5% to £27.3 million (2016 H1: £21.6 million) and by 14.8% at constant currency, with sales of LiquiBand^® into the US being the main driver of growth.

Adjusted operating margin increased by 50 bps to 29.4% (2016 H1: 28.9%) despite ongoing investment in our sales & marketing teams. R&D expense was 2.2% of revenues (2016 H1: 2.1%) with expenditure in this segment being incurred on projects to improve our formulation and applicators for tissue adhesives, as well as ongoing development of the internal use of tissue adhesives.

OEM

OEM revenues increased by 5.9% to £18.6 million (2016 H1: £17.5 million) at reported currency but were unchanged at constant currency. R&D expense was 4.0% of revenues (2016 H1: 3.8%) with spend being incurred in the development of post-surgical dressings and high performance dressings.

Adjusted operating margin was unchanged at 20.1% (2016 H1: 20.1%).

Geographic breakdown of revenues

The geographic breakdown of Group revenues in 2017 is set out in note 5. Sterling sales represent the largest currency with significant sales also in Euros and US dollars. The Group's policy is to put in place natural hedges where possible and to hedge transactional risk. The Group estimates that a 10% movement in the £:US$ or £:Euro exchange rate would impact Sterling revenues by approximately 4% and 3% respectively and, in the absence of any hedging, this would result in an impact on profit of 2.0% and 0.1% respectively.

Net finance income/costs

Net finance income/costs is comprised of finance income of £50,000 (2016 H1: £57,000) representing interest received on cash balances and finance costs of £50,000 (2016 H1: £55,000) resulting from facility costs.

Profit before tax

Profit before tax for the six months was 26.6% higher at £11.4 million (2016 H1: £9.0 million).

Taxation

The Group's effective rate of tax for the six months was 20.2% (2016 H1: 18.6%). This reflects the blend of profits and tax rates in the countries in which the Group operates and incorporates UK patent box and R&D relief. However, due to its sustained growth, the Group no longer qualifies for SME R&D relief and instead accesses the large company R&D scheme, which is less beneficial and impacts the Group's effective tax rate by approximately 2%, in comparison to 2016. The Group expects its anticipated effective tax rate to be approaching 21% for the full year ending 31 December 2017.

Profit after tax and earnings per share

Adjusted profit after tax increased by 17.7% to £9.2 million (2016 H1: £7.8 million), resulting in a 16.8% increase in adjusted basic earnings per share to 4.37p (2016 H1: 3.74p) and a 16.9% increase in adjusted diluted earnings per share to 4.31p (2016 H1: 3.68p).

Profit after tax increased 24.2% to £9.1 million (2016 H1: £7.3 million), resulting in a 23.3% increase in basic earnings per share to 4.32p (2016 H1: 3.51p) and a 23.3% increase in diluted earnings per share to 4.26p (2016 H1: 3.46p).

Dividend per share

The Board intends to pay an interim dividend of 0.35p per share on 27 October 2017 to shareholders on the register on 29 September 2017. This is an increase of 17% compared with the first half of 2016.

 Cash Flow and Balance Sheet

  Table 3 summarises the Group cash flows.

9    Adjusted EBITDA is earnings before interest, tax, depreciation, intangible asset amortisation, share based payments and exceptional items

The Group had an operating cash flow before exceptional items of £9.1 million (2016 H1: £9.8 million) and a conversion of adjusted operating profit into free cash flow of 42% (2016 H1: 76%). The reduction in cash conversion was due to increased trade debtors, capital expenditure and capitalised R&D and increased tax payments, resulting from historical tax losses being fully utilised.

Working capital increased by £4.4 million. Within this, trade receivables increased by £4.2 million due to timing of sales and the effect of translating balances denominated in Euros and US dollars with debtor days at 53 (2016 H1: 49 days). Inventory decreased by £0.4 million in the first six months with months of supply being 4.1 (2016 H1: 4.4 months). Trade payables decreased £0.6 million, excluding the fair value of forward foreign exchange contracts.

We have invested £2.3 million in fixed assets, software and capitalised R&D in the first six months (2016 H1: £1.3 million), including our Etten Leur converting capability, Nuremberg packing capacity and the Germany ERP project. £0.4 million of R&D spend was capitalised in the period (2016 H1: £0.1 million).

Net taxation of £2.0 million was paid which is in line with the Group's profitability within the tax jurisdictions in which it operates, now that historical tax losses have been fully utilised within the trading businesses. 

The Group paid its final dividend for the year ended 31 December 2016 of £1.3 million on 16 June 2017 (2016 H1: £1.2 million).

The Group had a free cash flow as defined in Table 3 of £4.8 million in the period (2016 H1: £7.2 million), with a net increase in cash equivalents of £4.0 million (2016 H1: £6.9 million increase).

At the end of the period, the Group had net cash¹⁰ of £55.2 million (2016 H1: net cash¹⁰ of £41.1 million).

The Group has a five-year, £30 million, multi-currency, revolving credit facility, obtained in December 2014, with an accordion option under which AMS can request up to an additional £20 million on the same terms.  The facility is provided jointly by HSBC and The Royal Bank of Scotland PLC.  It is unsecured on the assets of the Group and is currently wholly undrawn. 

The movement in net cash during the first half of 2017 is reconciled in Table 4 below:

10  Net cash is defined as cash and cash equivalents plus short term investments less financial liabilities and bank loans

The Group's going concern position is fully described in note 12 and the Group had no borrowings in the period.

Financial Summary

The Group has delivered another good set of results in the period and we are confident of meeting Board expectations for the full year. We remain focused on capitalising on our strong financial and strategic position.