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Corin Group PLC (CRG)

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Thursday 08 March, 2012

Corin Group PLC

Full Year Results

RNS Number : 9224Y
Corin Group PLC
08 March 2012
 



 

8 March 2012

 

Corin Group PLC

 

Hip product sales up 43%; total sales up 12%

 

Corin Group PLC (LSE: CRG, "Corin" or "the Group"), a leading manufacturer and supplier of orthopaedic devices, has today published its full year results for the year ended 31 December 2011.

 

Highlights

§   Group sales up 12% to £47.9m (2010: £42.9m), increase of 9% on a constant currency basis*

Hip product sales up 43%, 41% on a constant currency basis

Underlying hip growth (excluding Mako and MoM sales) 29%

§   Operating profit before exceptional items** £2.5m (2010: £2.5m).  Growth in hips offset by decline in knees globally and by LARS in Australia. Operating profit £2.0m (2010: £1.5m). Reported loss after exceptional items, tax and discontinued operations £0.3m (2010: £0.4m)

§   Earnings per share on continuing activities, before exceptional items of 2.96p, (2010: 2.52p).  Reported earnings per share on continuing activities of 1.9p (2010: loss per share 0.47p)

§   US sales 18% of total (2010: 5%) - continued building of US presence with both direct distribution and MAKO agreement

§   Dividend payment suspended due to expected increase in capital expenditure and working capital to support the Unity knee launch

§   Post period end, first new Unity total knee evaluation surgeries successfully completed

 

Peter Huntley, Corin Chief Executive, said:

 

"The excellent growth in our range of new hip products in a number of geographies demonstrates the traction that our innovative product portfolio is now gaining.  The progress made in the US, which remains the world's largest orthopaedic market, is particularly encouraging.

 

"We are also excited to have reached a key milestone in the next phase of our strategy to broaden our hip and knee portfolio, with the completion of the first evaluation surgeries of the new Unity knee.

 

"2012 has started strongly, driven by our hip portfolio, but we remain cautious on the full year outcome, particularly ahead of the LARS reimbursement review in Australia."

 

*Constant currency is calculated by translating 2010 revenue at the average exchange rates used for the year ended 31 December 2011 - see note 9

 

** Exceptional items - see note 8

 

Enquiries:

 

Corin Group PLC


Peter Huntley, Chief Executive

Michael Roller, Finance Director

01285 659 866



College Hill


Adrian Duffield/Rozi Morris

020 7457 2020

 

 

Overview

 

Corin generated strong growth in the second half of 2011, led by the Group's new hip products.  The strategic shift away from metal-on-metal ("MoM") implants to a wider hip portfolio, as well as the development of a new knee product, has continued.

 

Group sales increased by 12% to £47.9m (2010: £42.9m), representing growth of 9% on a constant currency basis. The growth of the new hip products more than offset the continuing industry-wide decline in MoM hip products, resulting in overall hip sales growth of 41% on a constant currency basis. Stocking orders of hip implants and instruments to Mako Surgical Corp. ("MAKO") contributed substantially to this jump in growth. Underlying constant currency sales growth in hips was a very encouraging 29%, excluding sales to MAKO and sales of MoM hips.  MoM sales are now only 5% of Group sales.

 

Corin's mature knee product portfolio continued to decline and, following three years of strong growth, there was a downturn in sales of the distributed LARS product in Australia.

 

Operating profit from continuing operations, before exceptional items, was £2.5m (2010: £2.5m).  Operating profit was £2.0m (2010: £1.5m).  The Group's Chinese operations were closed during the year and made a loss after tax and exceptional items of £1.1m, leading to a reported loss for the Group after tax, exceptional items and discontinued operations of £0.3m (2010: £0.4m).

 

Further good progress was made in implementing the Group's strategy to broaden the portfolio of hip and knee products. A key strategic milestone was recently achieved, with the completion of a number of evaluation surgeries of the new Unity total knee system. Full commercial launch is expected in the first half of 2013, following an extensive programme of evaluation during 2012.

 

A number of important steps were taken in 2011 to build Corin's presence in the US market. The remaining FDA regulatory clearances for the Group's Trinity cup system were achieved in May, allowing the new cementless hip portfolio to be fully rolled out in the US. Corin also commenced supply of its new hip products to MAKO, for use with their robotic orthopaedic system. Critical mass was added to the US business with the direct distribution of Cormet, following the termination of the Cormet distribution agreement with Stryker Corporation in July. Corin added additional resource to its US business to help develop its own direct distribution network and support services.

 

The Board, having considered the cash requirements of the business needed to support growth, the level of borrowings and the cost of continuing to pay dividends has decided that it is in the Group's best interests not to recommend the payment of a final dividend. The Board will continue to monitor closely its policy in relation to dividends with a view to potentially resuming dividends when the current investment phase is complete.

 

Financial review

 

Group sales increased by 12% to £47.9m (2010: £42.9m), an increase of 9% on a constant currency basis, excluding the discontinued operations in China. 

 

Sales by product and by area of operations are set out below alongside comparative results:

 


2011

£m

2010

£m

% Growth (reported)

% Growth

(constant currency)

Hips

27.2

19.0

43%

41%

Knees

7.5

9.3

-19%

-20%

Other Products

13.2

14.6

-10%

-14%

Total

47.9

42.9

12%

9%

 


   2011

£m

2010

£m

% Growth (reported)

% Growth

(constant currency)

UK

8.0

8.5

-6%

-6%

Germany & Austria

5.6

5.5

2%

1%

Australia

12.5

12.7

-2%

-9%

Japan

7.0

6.2

13%

6%

US

8.7

2.2

297%

308%

Distributor markets

6.1

7.8

-21%

-20%

Total

47.9

42.9

12%

9%

 

Group operating profit on continuing operations, before exceptional items, was £2.5m (2010: £2.5m).  Gross margin reduced fractionally from 64.3% to 64%; higher volumes produced additional efficiencies in the Group's manufacturing operation, but the effect of this was offset by the high proportion of low margin instrument sets manufactured during the year.  Excluding exceptional items, costs increased by 12% (10% on a constant currency basis), driven by a 28% increase in R&D expenditure to £2.5m and by costs associated with the build out of the US direct sales operation.

 

Exceptional items of £0.5m (see note 8) represent professional fees related to an aborted acquisition, as reported in the half year results. Group operating profit was £2.0m (2010: £1.5m).  

 

Financing charges were £0.5m (2010: £0.4m) of which £0.3m (2010: £0.2m) related to the amortisation of the discount on the Australian minority interest put option.

 

Profit before tax for continuing operations, before exceptional items, was £2.0m (2010: £2.1m).  The reported profit before tax for continuing operations was £1.5m (2010: £1.1m).

 

The tax charge of £0.7m on ordinary activities (excluding exceptional items, which were not tax deductible) represents an underlying tax rate of 36%, a significant improvement on the prior year underlying tax rate of 49%.

 

Earnings per share on continuing activities, before exceptional items were 2.96p (2010: 2.52p).  The Group reported earnings per share on continuing activities of 1.9p (2010: earnings per share 0.47p).

 

The reported loss for the Group after exceptional items, tax and discontinued operations was £0.3m (2010: £0.4m).

 

No final dividend is proposed (2010: 0.9p per share), making a total dividend for the year of 0.48p per share (2010: 1.38p per share).

 

The Chinese joints business was closed during the year, and is reported as a discontinued activity for the year.  This made an operating loss before exceptional items (see note 4) of £0.5m in 2011 (2010: £0.5m loss) on sales of £0.5m (2010: £1.9m). The one-off costs of closing the Chinese joints business were £0.6m.

 

The Group generated cash from operations after net capital expenditure of £1.2m (2010: £3.3m). Capital expenditure, which predominantly related to surgical instrumentation and plant and machinery, was £4.3m (2010: £3.5m) - 111% of depreciation and amortisation (2010: 85%).

 

Net debt was £5.7m at 31 December 2011 (31 December 2010: £4.2m).  The level of net debt increased towards the end of the year as a result of the phasing of stocking orders to MAKO, and has reduced subsequent to the year end.

 

As a result of the inventory intense roll-out of the Trinity cup and the new cementless hip stems, the balance sheet value of inventory increased to £14.2m (2010: £13.3m), with £0.2m of this increase being attributable to currency movements.

 

Goodwill reduced by £0.8m to £2.7m as a result of the downwards revaluation of the expected cost of the put option over the 10% stake in Corin Australia not owned by Corin.

 

Operating Review

 

Orthopaedic market

 

The slower conditions experienced in the global orthopaedic hip and knee market during the first half of 2011 continued in the second half.  These were driven primarily by restrictions on government funded health budgets leading to price and volume pressures.  In 2011, the global hip and knee market was flat, compared to a 3% growth in 2010. The markets in Europe and the UK were also flat, reflecting the global market.

 

Portfolio strategy implementation

 

Corin's strategy is to generate growth by broadening its hip and knee portfolio, developing innovative implant solutions and building its sales and marketing teams in a focused set of international markets. The broadening of the hip and knee portfolio is addressing high volume and high growth segments where Corin has been underrepresented, rebalancing the portfolio away from the Group's historic reliance on MoM hip implants. It is being implemented via in-house research and product development, in partnership with leading designer surgeons, and licensing of technologies as opportunities arise.

 

The first phase of this strategy was completed in 2010, with the launch of the Trinity multiple-bearing cementless cup system.  Together with the two hip stems introduced in the previous years, the Metafix cementless hip stem and the innovative, bone-conserving MiniHip cementless short-stem hip, Corin now offers a full cementless hip system to the surgeon and to healthcare providers. 

 

The Group is now well advanced on the second phase of its strategy.  The key product introduction in this phase is the Unity total knee system, addressing the largest segment of the orthopaedic hip and knee market. This is progressing successfully, with evaluation surgeries on the Unity implants and instruments recently commenced. Full commercial launch of Unity is planned for 2013.

 

As part of this second phase of the strategy, a major project to develop a second cementless hip stem system is being undertaken, aimed at segments of the hip market not addressed by the Metafix stem.  Development of this new hip stem is well advanced, with evaluation surgeries planned to begin in the second half of 2012 and the commercial launch planned for 2013.

 

The Group's portfolio of research projects, which include implant surfaces, stress shielding and kinematics, continue to progress well.  Several of these projects have attracted government funding, and in most cases they are being conducted with partner organisations that bring specific technologies and skills. The Group's new advanced highly cross-linked polyethylene, ECiMa, which was launched during the second half of the year, was the first product to be commercialised from this research programme.

 

Distribution strategy implementation

 

During the second phase of the strategy, sales operations will continue to focus on Corin's six existing direct markets, while continuing to support distributors in the Group's indirect markets. Within this strategy, emphasis is being placed on the opportunity to develop the Group's US business.  A number of steps were concluded successfully during the year.

 

In March, Corin agreed to supply MAKO, the leading robotic company in orthopaedics, with its Trinity and Metafix hip systems for the US market, in conjunction with MAKO's RIO Robotic Arm Interactive Orthopaedic system. Besides MAKO being an important customer, the agreement will significantly raise the profile of Corin within the US orthopaedics market.

 

In July, Corin and Stryker Corporation ("Stryker") terminated Stryker's US distribution agreement for Cormet.  At the same time, the agreement with Stryker regarding the possible future distribution of the Uniglide mobile bearing partial knee system was also terminated. The transition to the distribution of Cormet through Corin's own direct distribution network was successfully completed in September.

 

Following the FDA approvals of certain Trinity cup options in May, the roll out of the Group's new cementless hip system commenced in the US. The addition of Cormet provided a complementary product and added important critical mass. Corin is investing in its marketing and customer service functions in the US to support these developments and maximise the MAKO opportunity.

 

Corin distributes LARS, the ligament augmentation and reconstruction system, under licence from its French owners. The Group has the exclusive right to distribute LARS in several countries including the UK and Australia, as well as non-exclusive rights in a number of other countries. Sales are made primarily in Australia and the UK through Corin's own direct sales force.  In August, the five year distribution agreement was extended for a further two years until the end of 2013.

 

As reported at the half year results, Corin conducted a review of its Chinese joints business, which had not been profitable since its inception in 2005.  As there was little prospect of this business becoming profitable in the short term, it was closed during the second half of the year. 

 

Product results

 

Sales of the Group's hip products increased by 43% to £27.2m (2010: £19.0m), an increase of 41% on a constant currency basis.

 

Growth in the hip range was driven by the new products, Trinity, Metafix and MiniHip, as these became more established across the Group's direct and indirect markets following the initial roll-out of this full cementless hip system in 2010.  This was complemented by the introduction of these products in the US market following regulatory approvals there.

 

The growth of Trinity was reinforced by the introduction of the ECiMa cup liner in the second half. It is one of the few Vitamin E polyethylene liners on the market, and is expected to provide long term stability and very low wear rates. Evaluation surgeries were also completed successfully on further extensions to the Trinity range of cup and liner sizes, which increase stability in the hip by allowing larger femoral head sizes to be inserted in a given cup size. The Group's cemented hip stem, Taperfit, was upgraded to provide additional sizes and improved instruments, and the roll-out of the enhanced system commenced towards the end of the year.

 

Stocking orders from MAKO during the second half contributed strongly to the growth in hip revenues.  The initial stocking orders, which included a significant proportion of instruments in addition to implant stocks, were largely completed in 2011 as MAKO upgraded many of its existing robotic installations to include its hip application.

The industry-wide decline in the MoM market continued in 2011, as a result of the current negative sentiment regarding MoM hips and the increasingly litigious environment in this sector. The decline in Cormet and Optimom sales across the year was mitigated in the second half of the year by the successful transition of Cormet to direct sales in the US market following the termination of the Stryker distribution agreement. MoM products represented 5% of Group sales in the year, down from approximately 40% of Group sales in 2007 and 2008.

 

Sales of knee products were £7.5m (2010: £9.3m), a decline of 20% on a constant currency basis.

 

The Group's total knee sales continued to decline as anticipated, primarily as a result of the Group's limited range of implants and instruments.  Difficult market conditions in the distributor market in Turkey, together with competitive pressures in Germany and the UK, also contributed to the decline. The recent evaluation surgeries of Unity will begin to address this but are not expected to have a significant financial impact ahead of the full commercial launch in 2013.

 

Sales of other products, which include the LARS ligament augmentation system, the Zenith mobile-bearing ankle and surgical disposable products, were £13.2m (2010: £14.6m), a decline of 14% on a constant currency basis.

 

Group sales of the distributed LARS product were down, after three years of very strong growth. In Australia, the use of LARS declined significantly in the second half of the year as a result of the clinical debate on the range of indications in anterior cruciate ligament ("ACL") injury that are suitable for repair using LARS, exacerbated by some high-profile failures in elite athletes. Sales of LARS grew in the UK where LARS sales are spread more evenly across the various ligament injuries, with a much smaller proportion of LARS ligaments used for ACL repair.

 

Corin expects this reduced sales performance to continue for LARS in this year, due to the high proportion of sales in Australia and the on-going, high-profile clinical debate in that market. The reimbursement of LARS in the private sector of the Australian market is also under review.  In addition to the normal six monthly reviews of reimbursement in Australia, a specific review of the reimbursement of artificial ligaments is currently taking place in this market, the result of which is expected later in the first half of this year.   

 

Sales of the Zenith mobile bearing ankle were flat for the year, while sales of the distributed surgical disposable products declined as a result of strong competition in this price sensitive segment of the market.

 

Geographic results

 

After a very difficult first half of the year, sales in the UK began to recover in the second half, resulting in a full year sales decline of 6% to £8.0m (2010: £8.5m).  Market conditions in the first half were particularly challenging, as the result of uncertainty over NHS reforms and the deferral of elective surgeries by NHS Trusts in the last quarter of their financial year.  The new hip range grew strongly in the UK, led by the Trinity cup, with new accounts being added throughout the year. However, this was more than offset by declines in the MoM portfolio, knee portfolio and by a reduction in surgical disposable sales.

 

Sales in the Group's direct European markets, Germany and Austria, increased by 2%, 1% on a constant currency basis.  Sales in Germany were £4.3m (2010: £4.5m), a decline of 6% on a constant currency basis.  The fall in sales was primarily due to the loss of total knee accounts. Following the management changes made early in the year, and strong growth of the new hip portfolio in the latter part of the year, the German business ended on a positive trend and with the operating loss much reduced from previous years. The Group's small Austrian business continued to grow in 2011.

 

Sales to US customers jumped to £8.7m (2010: £2.2m), an increase of 308% on a constant currency basis. This growth was driven by the stocking orders to MAKO, the successful conversion of Cormet to direct distribution from September and the roll out of the full hip portfolio from May. The last two factors are expected to continue to drive growth in the US in this year, while the sales to MAKO will begin to more closely follow the rate of implants now that the stocking orders are largely completed.

 

The very strong growth in Australia of recent years suffered from the decline in LARS sales, with sales of £12.5m (2010: £12.7m).  Despite the overall decline, there was very encouraging growth in the sales of Trinity, Metafix and MiniHip as this range was rolled out in the market.

 

Japanese sales were £7.0m (2010: £6.2m), an increase of 6% on a constant currency basis.  There was good growth in the traditional hip portfolio, while efforts to gain regulatory approvals for the new cementless hip systems continue.

 

Corin's sales to its distributor markets in Europe were impacted by declines in the general orthopaedic market in Turkey and by a decline in MoM sales. Excluding Turkey, sales to other distributor markets in Europe increased as the new hip systems drove growth in these markets.  Sales to distributor markets outside Europe declined as a result of a slowdown in some key South American markets. In aggregate, sales to distributor markets declined by 21% (20% on a constant currency basis).

 

 

Current trading and outlook

 

The Group has made a strong start to the current financial year.  Good growth in the hip portfolio is being experienced across the majority of markets with continued progress in the Group's direct sales operation in the US.  The UK and Germany are improving, although sales of LARS in Australia continue to decline.

 

The Board remains cautious on the full year outcome at this stage, particularly ahead of the results of the LARS reimbursement review in Australia and until the sales profile is clearer for MAKO in the US, following its large initial stocking orders last year.

 

The success of Corin's strategy to rebalance the portfolio away from MoM hips can be seen in the growth of the hip portfolio and the declining proportion of sales from distributed products.  With the evaluation surgeries on the new Unity knee now commenced, the Group is well positioned to continue its strategic development based on a leading portfolio of hip products and its new knee system.

 

 

 

Consolidated Income Statement

For the year ended 31 December 2011

 

 


 

Note

                 2011

 

  2011

 

2011

                 2010

 

  2010

 

2010



Before Exceptional Items

Exceptional Items

 

Total

Before Exceptional Items

 

Exceptional Items

 

Total



         £'000

£'000

£'000

        £'000

    restated

£'000

restated

£'000

restated

Revenue

2

47,875

-

47,875

42,882

-

42,882

Cost of sales


(17,243)

-

(17,243)

(15,279)

(327)

(15,606)

Gross profit


30,632

-

30,632

27,603

(327)

27,276









Distribution costs


(1,006)

-

(1,006)

(862)

-

(862)

Administrative expenses

8

(27,156)

(455)

(27,611)

(24,216)

(731)

(24,947)

Operating profit

2,470

(455)

2,015

2,525

(1,058)

1,467

Finance costs


(542)

-

(542)

(432)

-

(432)

Finance income


38

-

38

21

-

21

Profit before tax

for continuing operations

 

2

 

1,966

 

(455)

 

1,511

 

2,114

 

(1,058)

 

1,056

Taxation

3

(700)

-

(700)

(1,038)

183

(855)

Profit/ (Loss) after tax

for continuing operations

 

 

 

1,266

 

(455)

 

811

 

1,076

 

(875)

 

201

Loss from discontinued

operations after tax

 

4

 

(1,127)

 

-

 

(1,127)

 

(521)

 

(42)

 

(563)

Profit/ (Loss) for the year attributable to owners of parent company

 

 

 

139

 

(455)

 

(316)

 

555

 

(917)

 

(362)

 

 








(Loss)/earnings per share attributable to the ordinary equity holders of the parent during the year:











- Basic and diluted


        5


(0.74)p



(0.85)p

- Basic and diluted - continuing operations

 


        5


1.90p



0.47p

















 

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011                                                          

 

 





2011

2010



Note


£'000

£'000

Loss for the year




(316)

(362)

Other comprehensive income/(expense):






Tax taken directly to equity in respect of share based payments




-

7

Exchange differences on translation of foreign currency net investment




145

1,087







Total comprehensive (expense)/income for the year




(171)

732













 

 

 

 

Consolidated Statement of Financial Position

At 31 December 2011      

 

 




    2011

2010


Note


   £'000

£'000

Assets





Non-current assets





Property, plant and equipment



9,542

9,701

Goodwill



2,720

3,544

Other intangible assets



2,423

2,531

Deferred tax assets



2,684

1,925

Total non-current assets

        4


    17,369

17,701

Current assets





Inventories



14,219

13,307

Trade and other receivables



   11,004

10,937

Cash and cash equivalents



     1,331

1,959

Total current assets



   26,554

26,203

Total assets

4


   43,923

                 43,904






Equity and liabilities










 

Share capital



 1,070

1,070

Share premium account



 15,751

15,751

Share scheme reserve



4,922

4,537

Own shares held reserve



     (10)

(10)

Translation reserve



3,869

3,724

Retained earnings



2,084

3,222

Total equity



27,686

 28,294






Non-current liabilities





Long-term borrowings



  3,142

3,167

Deferred tax liabilities



   62

47

Provisions



  1,660

2,102

Total non-current liabilities



  4,864

5,316

Current liabilities





Trade and other payables



  6,986

6,936

Current tax payable



 476

397

Short-term borrowings



  3,911

2,961

Total current liabilities



11,373

10,294

Total liabilities

4


16,237

      15,610

Total equity and liabilities



43,923

         43,904

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2011                

 

 




2011

2010


Note


£'000

£'000

restated

Cash flows from operating activities





Profit before tax from continuing operations

4


1,511

1,056

(Loss) before tax from discontinued operations

7


(1,127)

(563)

Adjustments for:





Depreciation and amortisation



3,829

4,050

Finance income



(38)

(21)

Finance cost



542

432

Share-based payments



385

403

Movement in fair value of forward exchange contracts



(60)

(46)

Loss on disposal of property, plant and equipment from continuing operations



64

165

Loss on disposal of property, plant and equipment from discontinued operations



510

-

Impairment to investment



2

125

(Increase)/decrease in inventories



(697)

664

(Increase)/decrease in trade and other receivables



75

(989)

Increase in trade and other payables



207

1,155

Cash generated from operations



5,203

6,431

Finance expense



(271)

(266)

Taxes paid



(1,631)

(1,350)

Net cash flows from operating activities



3,301

4,815

Cash flows from investing activities





Finance income



38

21

Proceeds from sale of fixed assets



174

291

Capital expenditure - property, plant and equipment



(4,042)

(3,154)

Capital expenditure - other intangible assets



(211)

(305)

Net cash used in investing activities



(4,041)

(3,147)

Cash flows from financing activities





Inception of finance leases



           653

526

Receipt of borrowings



1,100

-

Repayment of bank borrowings



(1,200)

(1,200)

Repayment of capital portion of finance lease liabilities



(621)

(840)

Dividends paid

6


(822)

(590)

Net cash used in financing activities



(890)

Net (decrease) in cash and cash equivalents 



(1,630)

 

Cash and cash equivalents at the beginning of the year

 

 


 

746

 

1,064

Exchange adjustments



10

118

Cash and cash equivalents at the end of the year

7


(874)

746

 

Details of the cash flows attributable to the discontinued operations are in Note 4.

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2011

 

 

 

 

 

 

 

Share capital reserve

£'000

 

Share scheme

reserve

£'000

 

 

Translation reserve

£'000

 

Share premium account

£'000

Own

shares

 held reserve

£'000

 

 

Retained earnings

£'000

 

 

Total Equity

£'000









At 1 January 2010

1,070

4,127

2,637

15,751

(10)

4,174

27,749









Total comprehensive income/(expense) for the year

 

-

 

7

 

1,087

 

-

 

-

 

(362)

 

732

Share-based payment expense

-

403

-

-

-

-

403

Dividends paid

 

-

-

-

-

-

(590)

(590)

At 31 December 2010

1,070

4,537

3,724

15,751

(10)

3,222

28,294

 

Total comprehensive income/(expense) for the year

 

 

-

 

 

-

 

 

145

 

 

-

 

 

-

 

 

(316)

 

 

(171)

 

Share-based payment expense

 

-

 

385

 

-

 

-

 

-

 

-

 

385

 

Dividends paid

 

-

-

-

-

-

(822)

(822)

At 31 December 2011

1,070

4,922

3,869

15,751

(10)

2,084

27,686

 

 

Notes to the Financial Statements

For the year ended 31 December 2011

 

1. Principal Accounting Policies

 

Basis of preparation

 

The financial information attached has been extracted from the audited financial statements for the year ended 31st December 2011 which are prepared under International Financial Reporting Standards (IFRS) adopted by the EU and IFRIC interpretations issued and effective at the time of preparing those financial statements.

 

The financial information set out above does not constitute the company's full statutory accounts for the year ended 31 December 2011 or 2010 for the purposes of section 435 of the Companies Act 2006, but it is derived from those accounts that have been audited.  Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered after the forthcoming AGM.  The auditors have reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

No new standards, intepretations and amendments applied for the first time from 1 January 2011 have had an effect  on the financial statements.

 

Since the 2010 Annual Report the IASB has also issued a variety of IFRIC amendments and interpretations that have no impact on the Group's reporting.

 

2. Segmental Information

 

The operating segments reported below reflect the major operating areas by region used for internal management reporting to the CEO who is deemed to be the 'chief operating decision maker' as defined by IFRS 8.  All segments include only orthopaedic products. 

 

The current year results of the Austrian business have been added to the results of the German business.  The prior year results have been restated to reflect this treatment. 

 


2011

2010


£'000

£'000



Restated

Continuing revenue by location of assets



UK operations

26,146

25,255

German and Austrian operations

5,933

5,779

Australian operations

12,461

12,705

Japanese operations

6,995

6,196

US operations

8,686

2,103


60,221

52,038

Less intercompany sales:



Germany

(3,968)

(1,929)

Australia

(3,689)

(4,276)

Japan

(2,988)

(2,147)

All other segments

(1,701)

(804)


47,875

42,882

 

Revenue from intercompany sales is included in revenue from UK operations is £11,986,000 (2010: £8,863,000) and from German operations is £360,000 (2010: £293,000).

 


2011

2010


£'000

£'000

restated

Continuing revenue by location of customer



UK

8,014

8,538

Germany and Austria

5,573

5,486

Australia

12,461

12,705

Japan

6,995

6,214

USA

8,686

2,191

Distributor markets

6,146

7,748


47,875

42,882

 

Inter-company transfers are priced on a similar basis to sales to external customers, except that an appropriate discount is applied to encourage use of Group resources at a rate acceptable to local tax authorities.  This policy was applied consistently throughout the current and prior year.

 

 

 


2011

2010


£'000

£'000

 

Continuing revenue by product



Hips

27,180

19,010

Knees

7,524

9,294

Other

13,171

14,578


47,875

42,882

 

 


2011

2010


£'000

£'000

restated

Continuing profit before taxation



UK operations

(1,555)

(2,637)

German and Austrian operations

(525)

(1,469)

Australian operations

3,144

3,926

Japanese operations

370

599

US operations

85

614

Distributor markets

(8)

23


1,511

1,056

 


2011

2010


£'000

£'000

Assets



UK operations

23,688

23,155

German and Austrian operations

3,345

4,262

Australian operations

7,200

8,403

Japanese operations

7,065

5,901

US operations

2,532

1,821

All other segments

93

362


43,923

43,904

 


2011

2010


£'000

£'000

Non current assets



UK operations

12,464

13,655

German and Austrian operations

1,490

1,514

Australian operations

899

838

Japanese operations

748

685

US operations

1,768

915

All other segments

-

94


17,369

17,701

 


2011

2010


£'000

£'000

Liabilities



UK operations

13,912

13,165

German and Austrian operations

739

373

Australian operations

825

1,258

Japanese operations

559

449

US operations

157

77

All other segments

45

288


16,237

15,610





2011

2010


£'000

£'000

Capital expenditure



UK operations

1,846

1,864

German and Austrian operations

722

485

Australian operations

380

300

Japanese operations

252

401

US operations

1,053

376

All other segments

   -

33


4,253

3,459

 


2011

2010


£'000

£'000

Finance income



UK operations

20

7

Australian operations

16

13

Japanese operations

-

-

All other segments

2

1


38

21

 


2011

2010


£'000

£'000

Finance costs



UK operations

542

432


542

432

 


2011

2010


£'000

£'000

Depreciation, amortisation  and impairment



UK operations

2,508

2,549

German and Austrian operations

566

922

Japanese operations

229

211

Australian operations

323

254

US operations

172

66

All other segments

31

48


3,829

4,050

 


2011

2010


£'000

£'000

Tax



UK operations

(605)

(581)

German and Austrian operations

185

1

Japanese operations

185

246

Australian operations

935

1,189


700

855

 


2011

2010


£'000

£'000

Non-cash expenses



UK operations

325

357


325

357

 

 

3. Tax

 

Tax on profit

 

 

This represents:

            2011

            £000

            2010

            £000

Current tax expense



Income tax of overseas operations on profits/(losses) for the year

1,108

1,418

Adjustment for under/(over) provision in prior periods

336

28

Current tax charge/(credit)

1,444

1,446




Deferred tax expense



Origination and reversal of temporary differences - current year

(435)

(406)

Origination and reversal of temporary differences - prior periods

(309)

(4)

Recognition of previously unrecognised deferred tax assets

-

(181)

Total deferred tax (credit)/charge

(744)

(591)




Taxation on profit before tax

700

855

 

 

Factors affecting current tax charge

 

The tax assessed for the period is higher than the standard rate of corporation tax in the UK of 26.5% (2010: 28.0%).  The differences are explained as follows:


2011

£'000

2010

£'000




Profit before tax

384

493

 

Profit multiplied by the standard rate of corporation tax in the UK of 26.5% (2010: 28.0%)

 

 

102

 

138

Effect of:



Net expenses not deductible for tax purposes

181

136

Overseas losses not utilised

90

354

Different tax rates applied in overseas jurisdictions

167

162

Brought forward tax losses utilised

-

(13)

Effect of change in tax rate on deferred tax

132

62

Adjustment in respect of prior periods

 

 

28

16




Total tax charge for the year

700

855

 

4. Discontinued Operations

 

During the year, the Group discontinued its Chinese operations.

 

The loss attributable to the Chinese operations of £1,127,000 is included in discontinued operations in the Group's consolidated income statement.  The results of discontinued operations for the year are as follows:

 

 


2011

£'000

2010

£'000




Turnover

531

1,924

Operating Expenses

(1,026)

 (2,445)

Operating Loss before taxation and exceptional items

(495)

(521)

Exceptional items - stock

(491)

-

Exceptional items - instruments

(133)

-

Exceptional items - other

(8)

(42)




Operating loss before taxation

(1,127)

(563)

Tax credit on loss on disposal

-

-

Total loss arising from discontinued operations

(1,127)

(563)

 

 

 

Discontinued operations contributed a cash outflow of £110,000 (2010: £90,000) to the Group's net operating cash flows and a cash inflow of £50,000 (2010: £33,000 outflow) to investing activities.

 

The loss attributable to the Chinese operations resulted in a loss per share of 2.64p (2010: loss per share of 1.32p).  For details of discontinued loss per share, see note 5.

 

5.         Earnings per Share

 

The calculation of basic loss per share is based on the (loss)/profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.  Shares held in employee share trusts are treated as cancelled for the purposes of this calculation.

 

The calculation of diluted earnings per share is based on the calculation described above adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.

 

 

Continuing Operations


2011



2010



 

 

Earnings

£'000

 

Weighted average number of shares

 

Per share amount

p

 

 

Earnings

£'000

 

Weighted average number of shares

 

Per share amount

p















Basic loss per share

811

42,765,478

1.90

201

42,765,478

0.47















Diluted loss per share

811

42,765,478

1.90

       201

42,765,478

0.47








Underlying earnings per share














Basic earnings per share

1,266

42,765,478

2.96

1,076

42,765,478

2.52








 

 

Discontinued Operations

 



2011



2010



 

 

(Loss) £'000

 

Weighted average number of shares

 

Per share amount

p

 

 

(Loss) £'000

 

Weighted average number of shares

 

Per share amount

p















Basic loss per share

(1,127)

42,765,478

(2.64)

(563)

42,765,478

(1.32)















Diluted loss per share

(1,127)

42,765,478

(2.64)

(563)

42,765,478

(1.32)








 

 

 

Total operations

 









2011



2010


 

 

 

 

 

 

(Loss)/

£'000

 

Weighted average number of shares

 

Per share amount

p

 

 

(Loss) £'000

 

Weighted average number of shares

 

Per share amount

p















Basic loss per share

(316)

42,765,478

(0.74)

(362)

42,765,478

(0.85)















Diluted loss per share

(316)

42,765,478

(0.74)

(362)

42,765,478

(0.85)








Underlying earnings per share














Basic earnings per share

139

42,765,478

0.33

555

42,765,478

1.30








 

 

There were no dilutive potential shares for the year ended 31 December 2011 and 31 December 2010.

 

Underlying earnings per share is before the post tax exceptional cost of £455,000 (2010: £917,000) as detailed in note 8.

 

6. Dividends

 


2011

£'000

2010

£'000

Final dividend of 0.9p (2010: 0.9p) per ordinary share proposed and paid during the year relating to previous year's results

 

385

 

385

Interim dividend of 0.48p (2010: 0.48p) per ordinary share paid during the year

205

205

Dividend paid by Corin Australia to minority shareholder

232

-


822

590

 

The directors are not proposing a final dividend.

 

7. Notes to the Cash Flow Statement

 

Cash and cash equivalents comprise:







2011

2010




£'000

£'000






Cash available on demand



    1,331

         1,959

Bank overdraft



(1,141)

(902)

Other short term borrowings



(1,064)

     (311)




 (874)

            746

 

8. Exceptional Items

 

Items that are both material and non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the financial statements are referred to as exceptional items and disclosed within their relevant Consolidated Income Statement category. Events and transactions that may give rise to classification as exceptional include, but are not limited to, significant and material announced restructuring and reorganisation programmes, gains or losses arising from the disposal of businesses not classified as discontinued operations, asset impairment charges, changes in the fair value of derivative financial instruments, amortisation of intangible assets on acquisition, and material adjustments to the fair value of acquired assets and/or liabilities on a business combination that arise after the hindsight recognition period.

 

In 2011 exceptional items comprise:

 


2011


£'000

Administrative expenses


Acquisition costs

455

Total exceptional item

455



Tax effect

-

Post tax exceptional item

455

 

 

Costs of £455,000 have been expensed in respect of a potential acquisition. 

 

In 2010 exceptional items comprised:                                                                                          

 


2010


£'000


Restated

Administrative expenses


Impairment to investment

125

Debt written off

Acquisition costs

339

267

Total exceptional administrative expenses

731

Cost of sales


Inventory impairments

327

Total exceptional item

 

1,058

Tax effect

   (183)

Post tax exceptional item

875

 

 

An impairment charge of £125,000, was taken to fully provide against the carrying value of the Group's investment in an equity instrument during 2010. 

 

During 2010 the consultancy responsible for running Corin's operations in China was given notice of termination.  As a result of the contractual arrangements with the consultancy, a debt totalling £339,000 owing by the consultancy was written off by the Group. 

 

Costs of £267,000 were expensed in respect of a potential acquisition. 

 

The reduction in the indication range for Cormet and resulting rapid decline in sales both through Stryker in the US and across the Group resulted in the Group increasing provisions against Cormet stock held in the balance sheet as at 31 December 2010 by £327,000. Given the nature of the metal on metal market, the rapid decline in sales and the fact that it is unlikely that sales will recover to levels attained previously, management have shown this increase in provision as an exceptional item.

 

 

9. Constant Currency Reconciliation

 

A reconciliation of reported to constant currency sales is set out below:

 


2011

2010



£'000

£'000

Growth

 

Reported sales

 

47,875

 

42,882

 

12%

Currency movement

-

1,205


Sales at 2011 rates

47,875

44,087

9%

 

 

 

Constant currency sales are calculated by translating 2010 results at the average exchange rates used for the year to 31 December 2011.

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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