Inspiration Healthcare : Interim Report 2023

3 May 2023

Inspiration Healthcare Group plc

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

Preliminary Unaudited Results for the year ended 31 January 2023

A Year of Significant Investment For Long Term Growth

Inspiration Healthcare Group plc (AIM: IHC), the global medical technology company, pioneering best-in-class, specialist neonatal intensive care medical devices, announces its preliminary results for the twelve months ended 31 January 2023 ("FY2023").

2023 Highlights

• Resilient revenues marginally ahead in a year of unprecedented global macro-economic uncertainty
• Domestic sales growth of 13%
• Branded Products sales growth of 8%
• Major investment in new state of the art Manufacturing and Technology Centre

1. very low carbon footprint

• 1. enhanced customer education facilities o increased capacity and capability
     o rationalisation of Group property portfolio underway
• Medical Device Regulation (EU) - Technical Files all submitted
• Increasing inventory to secure long term supply chain and meet customer satisfaction levels
• Project Wave study recruitment complete - analysis underway
• Progressed USA regulatory submissions
• Expanded acute care portfolio with launch of additional distributed products in the UK and Ireland

2023 Financial Highlights

• Group revenue of £41.2m (FY2022: £41.1m)

Adjusted EBITDA1 of £4.0m (FY2022: £6.4m) reflecting a gross margin reduction (44% vs 50%) due to product mix in different territories

• Net cash2 £(3.8)m (FY2022: £9.3m) due to:

1. investment in the Company's Manufacturing and Technology Centre;

1. increased inventories to ensure continuity of supply chain and customer service level; o higher debtors driven by strong Q4 revenues; and
   o non-recurring items particularly aborted acquisition costs

• Invoice discounting facility put in place in December 2022 - Facility up to £5m. Total available borrowing facilities, including existing £5m RCF, now £10m

• Proposed final dividend maintained at 0.41p per share (FY2022: 0.41p)

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

2Cash and cash equivalents, less revolving credit facility and invoice finance borrowings

Post year-end

• Cash generative in Q1 FY2024

• Extension to the SLE6000 ventilator range

Neil Campbell, Chief Executive Officer of Inspiration Healthcare Group plc, said: "Last year we showed resilience and the ability to adapt our plans to maintain revenues despite geo-politicaland macro-economicuncertainty. Although the growth in the business was not as strong as we had hoped, the investments made during the year, coupled with increasing revenues in Q4 FY2023 and subsequent cash generation in Q1 FY2024, means the Company is well positioned to return to growth within this year. On behalf of the Board and all the team, I would like to thank our shareholders for their continued support and we look forward to an exciting year ahead."

Enquiries:
Inspiration Healthcare Group plc	Tel: [phone]
Neil Campbell, Chief Executive Officer
Paul Bergin, Interim Chief Financial Officer
Cenkos Securities plc (Nominated Adviser & Broker)	Tel: [phone]
Stephen Keys, Katy Birkin, Dan Hodkinson
Walbrook PR Ltd (Media and Investor Relations)	Tel: [phone]
	[e-mail]
Anna Dunphy	Mob: [phone]
Stephanie Cuthbert	Mob: [phone]

Chairman's Report

This year I am reporting on a year of significant investment and internal achievements. Despite challenging market conditions that arose during the year we continued to make progress to position the Company for long- term sustainable growth.

The conflict in Ukraine and, consequently, inflation and shifting confidence put significant pressures on healthcare budgets and spending. Coupled with this, we have to also acknowledge that in China, the largest export market for the Group's products in the previous year, the pandemic was still problematic. The authorities determined that the best way to deal with this terrible disease was further lockdowns, making trade with China more difficult than in previous years. This also disrupted supply chains for both logistics and materials sourced.

The Group delivered revenues that were marginally ahead of FY2022 at £41.2m (FY2022: £41.1m), which reflected growth outside of China and Russia, traditionally important markets for the Group. When I look back and see the issues that were thrown at us, (along with many other companies), I am proud that we achieved much and invested in the business to ensure that we are in better shape now than we were a year ago.

EBITDA, before non-recurring items, was lower than the previous year at £4.0m (FY2022: £6.4m) primarily because of sales mix and its effect on gross margin. Notably we sold more Infusion Therapies Distributed Products into the UK market and less Branded ventilators due to global market uncertainties. This switch was a direct result of the external environment mentioned above.

There was a £13.1m cash outflow in the year resulting in a closing net cash position of £(3.8)m, driven by investment in the new Manufacturing and Technology Centre in Croydon, an increased inventory level to ensure continuity of supply and customer service levels and increased debtors from strong fourth quarter revenues. Higher than planned spend at the Manufacturing and Technology Centre was due to high construction cost inflation, an earlier than expected payment and specification changes. These specification changes will however deliver long-term cost savings. We delivered a positive cash flow position in Q1 FY2024, in line with our plan.

Our new Manufacturing and Technology Centre has enabled us to close our Crawley office at the end of January 2023, and in April 2023 we informed the staff affected that we will be closing our Leicestershire facility. From these closures, we will see additional operational efficiencies. We have identified further initiatives within the business, that will improve our cash-based operating expenses going forward.

It is important to emphasise that, although we are focused strategically on the neonatal intensive care sector, we have always had a broad portfolio which provides resilience to the business. This was demonstrated during the year when slowdown in international sales was offset by increased revenues in our Domestic market.

Investing for Growth

Our most notable investment is in our new Manufacturing and Technology Centre in Croydon, which was the home of SLE Ltd, a company we acquired in 2020. Maintaining the highly skilled workforce was paramount and it was important to find a site suitable for high tech manufacturing, along with the facilities we need as a fully integrated company (including research and development and technology support). Now with approximately 4,200 sq metres (50% more space than the previous Croydon site), the state-of-the-art design allows for more efficient warehousing and laboratories for product development and testing, along with creating a modern working environment for our employees. I am pleased to say that we completed the move in the first half of the year with no accidents and with only one day of lost production. The site is now fully operational and helped us deliver a record month at the end of our financial year.

The Manufacturing and Technology Centre has been developed with the future in mind. We have incorporated a number of energy-saving initiatives; solar panels on the roof help provide hot water and power to our air source heat pumps for heating the buildings, roof lights have been maintained which allow us to use low energy lighting and in the summer months turn off lighting altogether. With the addition of trees and plants that produce no resins or pollens and do not attract aphids, carbon dioxide is naturally processed within the building, reducing the number of air changes needed and hence reducing the energy required for heating and cooling. Numerous other initiatives have been incorporated and we feel that this is a true demonstration of what can be achieved by smaller British manufacturing companies.

Our employees are at the heart of the company and in addition, we have implemented sit/stand desks throughout, modern work benches for manufacturing and technology support, electric charging points for electric cars, open plan break out areas for informal meetings and, of course a safe environment that would minimise disruption in the event of another Covid-19 outbreak, with ultra-violet and HEPA-filtered air handling alongside modern communication facilities that allow for a true clear desk policy.

Ahead of New Regulatory Requirements

Around the end of 2022, the European Commission proposed, and subsequently enacted, to delay the implementation of some aspects of the new Medical Device Regulations, relieving some pressure on the Notified Bodies. The UK Government has also postponed the introduction of regulatory legislation. Our team has been worked hard, mainly in our Research and Development and regulatory groups, updating our technical documentation, writing new reports that are required by the new regulations and finally submitting all our Technical Files to our Notified Body for their review ahead of this deadline. It has been a huge amount of work and was completed before the announcement of the postponement of the deadlines. However, the sooner the files were submitted, the sooner the products would be approved to the latest regulations, and we take comfort in knowing our technical documentation is up-to-date. Bringing the companies together is quite a complex regulatory challenge, aligning quality management systems to work efficiently. This has been helped by the implementation of Trackwise Digital, our new software tool for helping our document management compliance, which has received positive feedback from our Notified Body.

Our market seems to be returning to normal with activity at our biggest trade shows returning close to pre- pandemic levels. We had a strong presence at both shows we attended enabling our international sales and marketing team to meet distributors face-to-face for the first time, in some cases, since pre-Covid. We have been rolling out a number of marketing initiatives around branding, bringing more aligned messages across the three operating companies in the Group and launched a new website that went live at the end of February 2023.

Strengthened Team

During the year we improved the management of our supply chain, with the critical appointment of Francesca Stenhouse as Head of Procurement and Supply Chain. This role is pivotal in working with our suppliers, including internal and external logistics, to drive efficiencies in our business. The year has been difficult for our suppliers and I thank them for their support during the year. Without their assistance we would not have been able to produce the products we did and, although we invested in component stock, our suppliers helped with their understanding of the situation.

Jon Ballard our Chief Financial Officer, resigned during the year. On behalf of the Board, I would like to thank Jon for his hard work over the past five years and wish him all the very best for the future. Paul Bergin joined

the Company as Interim CFO and the recruitment for a new permanent CFO is expected to conclude in the Summer of this year.

Our employees have endured a tough year. I can only thank them all for their support of the company during the last 12 months and we hope that we can all enjoy a better year ahead.

Positioned for Future Growth

Although the external disruptions to supply chain and markets remain, we have been able to adapt to, and cope with, this new environment. We have introduced more resilience into our supply chain and this has helped our ability to ease our customers through these uncertain times with the robust assurance of our quality and excellence of our life saving products.

Following a strong Q4 FY2023, the year has commenced in line with our plans. While uncertainties remain, we are cautiously optimistic that we will return to our usual growth patterns.

The Group's world leading expertise, broad portfolio of best-in-class, specialist products and established customer relationships enables us to address the critical needs of the neonatal intensive care market and help save lives and improve outcomes of premature and sick babies around the world. We have a clear growth strategy focused on maximising in-market sales, geographic and portfolio expansion and strategic M&A and we believe we are well placed to realise our long-term ambition of becoming a world leading provider of innovative medical technology.

Mark Abrahams

Chairman

3 May 2023

Going concern basis

The Group provides essential equipment to the NHS, to private healthcare providers and to distributors who provide the equipment to other healthcare systems internationally. With a focus on neonatal intensive care the use of the Group's products is not something that can be reduced by election or choice.

Although the Group has no information to suggest such a scenario might occur, it has modelled a significant downside scenario based on its main risks, including a significant downturn in forecast revenue of 15%. If such a scenario occurred, the Group would implement procedures to reduce overheads and if necessary, utilise the remaining undrawn Invoice Discounting Facility and Revolving Credit Facility (due for renewal June 2024).

As at 31 March 2023 net cash of the Group was (£2.0m), and there was cash headroom of £8.0m. The Group has access to borrowing facilities of up to £10.0m. Consequently, the Directors believe that the Group has sufficient liquidity to meet obligations as they fall due up to the end of May 2024 and consider it appropriate to prepare the financial statements on the going concern basis.

Operating and Financial Review

I am pleased to report on the Group performance for the financial year ended 31 January 2023 ("FY2023").

REVENUE

Group revenue increased 0.4% to £41.2m (FY2022: £41.1m).

Group Domestic revenue increased by 13% to £19.9m (FY2022: £17.6m) primarily driven by continuing growth in Infusion Therapies, partially offset by the planned exiting of domestic service revenue from distributed

ventilation products. Macro-economic uncertainty, particularly in China, as well as the geopolitical consequence of the conflict in Ukraine, resulted in International revenue reducing overall by 9% to £21.3m (FY2022: £23.4m).

It is worth highlighting that 31% of full year revenue was generated in the fourth quarter. This expected increase in our order inflow and subsequent delivery of product was driven by increased Domestic and International capital purchases, particularly of ventilators.

BRANDED PRODUCTS

Branded Products revenue grew 8% to £24.4m (FY2022: £22.5m) driven by the fourth quarter increase in ventilator sales, referred to above, and also due to the planned exit of distributed products following the acquisition of SLE Ltd. This growth was despite the impact of global market uncertainty on certain export markets.

DISTRIBUTED PRODUCTS

Distributed Products revenue was flat year-on-year at £13.6m (FY2022: £13.6m). Continued growth in our Infusion product range was offset by the planned exit from third-party ventilator sales. These third-party ventilators are being replaced with SLE ventilators in the UK and Ireland, contributing to an increase in Branded Products.

TECHNOLOGY SUPPORT

Technology Support revenue reduced 37% to £2.9m (FY2022: £4.6m). This reduction was impacted by the planned exiting of third-party ventilators and the Tecotherm cooling device change of service arrangements related to its end of life. Group total revenue also includes £0.3m of freight (FY2022: £0.4m).

GROSS PROFIT

Gross profit of £18.1m was 12% lower than the prior year (FY2022: £20.6m). With revenue broadly flat, this reflected a gross margin reduction from 50.2% to 43.9%. This reduction was driven by the mix of products in different territories and a lower revenue from Technology Support which is at high margins.

OPERATING PROFIT

The Group reported Adjusted Operating Profit (before non-recurring items) of £1.6m (FY2022: £4.3m).

Administrative expenses were broadly flat year-on-year at £16.5m (FY2022: £16.3m), despite the highly inflationary macro-economic environment.

There were £1.2m of non-recurring items in the year (FY2022: nil), comprising £0.5m of leased property impairment relating to the consolidation of our property portfolio following the move to the new Manufacturing and Technology Centre, £0.5m of aborted acquisition costs and £0.2m of other costs (see note 4).

This resulted in an Operating profit, post non-recurring items, of £0.4m (FY2022: £4.3m).

Adjusted EBITDA reduced to £4.0m (FY2022: £6.4m). With revenue and administrative expenses broadly flat year-on-year, this reduction was primarily driven by the mix of products in different territories. Adjusted EBITDA margin reduced from 15.6% to 9.7%.

	2023	2022	Change
	£'000	£'000	£'000
Operating Profit	431	4,255	(3,824)
Non-recurring items	1,158	-	1,158
Adjusted Operating Profit	1,589	4,255	(2,666)
Depreciation	1,354	1,069	285
Amortisation of intangible assets	931	837	94
Impairment of right of use asset	-	122	(122)
Share based payment	132	139	(7)
Adjusted EBITDA	4,006	6,422	(2,416)