May 29, 2013 | edocr |
30 March 2009 Corin Group PLC Final Results Corin Group PLC (LSE: CRG, “Corin” or “the Group”), a leading manufacturer and supplier of orthopaedic devices, has today published final results for the year to 31 December 2008. Highlights • Group sales up 7.7% to £39.8m (2007: £37.0m) o Excluding US, sales up 23% in second half of 2008 at constant currency rates* • Operating profit before exceptional items £3.4m (2007: £5.6m); reflecting lower sales to Stryker and investment in product development and sales resources o Exceptional items of £7.1m, including £5.2m inventory provision • Operating loss of £3.7m (2007: profit of £4.5m) • Loss per share 9.48 pence (2007: earnings per share 6.49 pence) • Proposed final dividend of 0.9 pence per share, making full year dividend of 1.38 pence per share (2007: 1.38 pence per share). • Strategic review completed in first half of 2008 o Continue focus on growth market - demographics, more active population and younger patients o Opportunity to broaden portfolio, innovate, expand internationally and develop Cormet in US • Implementation of new strategy well underway o Completed management restructure, added industry experience o Resourced acceleration of product development o Launched Metafix cementless hip stem; Zenith ankle; evaluated MiniHip small stem hip o Completed portfolio strategy and taken exceptional inventory charge * Constant currency is calculated by translating 2008 results at the average exchange rates used for the 2007 results Peter Huntley, Corin Chief Executive, said: “The management team has moved quickly to implement our new strategy and I am therefore very pleased to report that in the second half of 2008 we saw early signs of good progress with an acceleration in sales growth rates outside the US. “Although growth in the orthopaedic market is expected to slow, overall we are well positioned in a resilient industry. We have made a steady start to 2009 following on the good progress made during the last few months of 2008 and therefore remain confident that implementation of the revised strategy will deliver good returns in the medium term.” Enquiries: Corin Group PLC Peter Huntley, Chief Executive Michael Roller, Finance Director 01285 659 866 College Hill Adrian Duffield/Rozi Morris 020 7457 2020 2 Overview 2008 has been a year of transition for Corin. The Group’s reported financial performance when compared to the Board’s expectations at the beginning of the year has been disappointing, largely as a result of slower than expected sales of Cormet in the USA. However, following the completion of the strategic review in the first half of 2008, the second half of the year has seen some encouraging signs of the Group benefitting from its new strategic direction and investment. Financial Results Group sales in 2008 increased by 7.7% to £39.8m (2007: £37.0m), and were broadly flat on a constant currency basis*. Excluding sales to the US, Group sales were £31.4m (2007: £26.0m), an increase of 21% (and 12% on a constant currency basis). The constant currency growth rate increased from 3% in the first half to 23% in the second half, demonstrating the early impact of the strategy to broaden the hip and knee portfolio. Sales to the US were £8.5m (2007: £11.0m), the decline being primarily due to the reduction in sales to Stryker. Operating profit before exceptional items was £3.4m (2007: £5.6m), reflecting the lower sales to Stryker and the investment in resources to drive the new strategy. Exceptional items totalled £7.1m (2007: £1.1m). The disappointing progress of the Cormet resurfacing hip in the US, particularly in the second half of 2008, caused the Group to review inventories of Cormet implants and instrumentation. This resulted in a provision against these inventories of £2.0m which, together with the provisions against inventories delisted as a result of the EU reclassification (£0.6m) and products being phased out as a result of the new portfolio strategy (£2.6m), resulted in a total inventory provision of £5.2m. Additional exceptional items include a charge for the restructuring of the management team (£0.7m), the costs of an acquisition aborted in the first half of 2008 (£0.6m), the impairment of an investment and the associated fixed assets (£0.3m) and the write-off of costs of an aborted US approval process for one of the knee products (£0.3m). The net cash outflow associated with these exceptional items was £1.1m. After an interest charge of £0.5m (2007: £0.5m), profit before tax and exceptional items was £2.9m (2007: £5.1m) and the reported loss before tax was £4.2m (2007: profit of £4.1m). Earnings per share before exceptional items were 3.03 pence (2007: 8.21 pence). The Group reported a loss per share of 9.48p (2007: earnings per share 6.49p). The Board is recommending a maintained final dividend of 0.9 pence per share, making a full year dividend of 1.38 pence per share (2007: 1.38 pence per share). The Group generated cash from operations of £3.6m after capital expenditure of £6.2m. Net borrowings at 31 December 2008 were £5.5m (2007: £8.0m). * Constant currency is calculated by translating 2008 results at the average exchange rates used for the 2007 results 3 Strategy The Board continues to believe that a substantial opportunity exists for small orthopaedic companies to generate shareholder value and sustained growth in the medium term from the underlying growth in reconstructive procedures. Corin aims to generate shareholder value by exploiting the long-term growth in the reconstructive orthopaedics market. This growth is driven by the demographics of an ageing population and the increased expectations of activity levels within this population. Product innovations are expected to add to the underlying procedure growth, addressing patients at younger ages. Additional growth opportunities also arise from targeting the clinical needs in orthopaedics, such as reduced dislocation of implants, reduced wear and aseptic loosening of implants, reduced infection and more bone conserving implant designs. Corin’s strategy is to provide hip and knee implant solutions that address clinical need, and specifically to generate growth by: • Broadening the hip and knee portfolio to address high growth and high volume segments where Corin is currently underrepresented. • Developing innovative implant solutions, utilising the Group’s existing advanced bearing technologies and new technologies in partnership with key opinion-leading surgeons. • Building the sales and marketing teams internationally, thereby expanding the Group’s presence in key markets. • Driving Cormet growth in the US, through the partnership with Stryker in that market. As previously outlined, the medium term target from successfully implementing this strategy, is to achieve sustained double digit sales growth and margin enhancement. In line with this strategy, Corin has increased its investment in product marketing, product development and regulatory resources, to accelerate the time to market for new products. The Group is also progressively building its international sales and marketing capabilities, supported by an increased programme of clinical publications and education in collaboration with leading surgeons. At the same time, Corin will continue to invest significantly in supporting Stryker to develop the growth of Cormet in the US market. The development of the portfolio and sales network will be implemented in-house and subsequently, where opportunities arise, via bolt-on acquisitions and licence arrangements. Implementation of strategy The implementation of this strategy commenced in June 2008 and considerable progress is being made. The senior management team was reorganised and streamlined with the new roles of Group Marketing Director and International Sales Director filled with experienced Orthopaedic professionals. An annualised investment of £2m in all areas of product development has been made, adding the research, engineering, marketing, clinical research and regulatory resources required to accelerate the strategic development of our product portfolio. The sales teams in the UK, Australia and Japan are also being expanded. 4 The detailed plan to develop the product and technology portfolio has been completed, and is being implemented. The Group plans to progressively apply its existing advanced bearing technologies and any new technologies across the product range. 2008 saw the launch of the cementless hip stem, Metafix, in the UK, Germany and Australia. This allowed Corin to complement its successful cementless Cormet resurfacing with a large head metal-on-metal total hip replacement, specifically addressing the clinical need of active patients and broadening the hip portfolio. The Zenith mobile bearing ankle, utilising the advanced mobile bearing and coatings technologies, was also successfully launched in these markets, again addressing the more active patient’s needs and also providing an innovative instrument platform that enhances surgical accuracy. Corin’s bone conserving small-stem hip system, MiniHip, successfully completed evaluation surgeries in Germany and was launched in that market early this year. This product will complement the Cormet resurfacing and Metafix total hip systems, by providing innovative bone conserving options for patients that are not suitable for resurfacing. The Group’s Minihip system will be made available throughout Corin’s markets during 2009. The Group has commenced the development of an enhanced hip cup system to address multiple patient needs, complementing the advanced bearing offerings and providing surgeons with alternative bearing solutions across the range of hip stems. Evaluation surgeries on this product are targeted for the later part of this year. A major project to update and enhance Corin’s total knee system is also underway and targeted for evaluation surgeries from the second half of 2010. The introduction of the new products is being accompanied by the phasing out of old products. The Group has completed a comprehensive review of the inventory holdings in the light of projected product phase outs. This rolling programme of phase outs over the coming years will be in addition to a number of products that will be delisted by September 2009, because they are not cost effective to re-register as Class 3 devices under the more stringent EU regulatory regime that becomes effective at that time. Operating review Orthopaedics market The global orthopaedic market remained resilient in 2008 despite the economic environment, growing by approximately 7% in hip and knee implants. Growth in the second half of the year was 6% compared to 8% in the first half. In the markets Corin serves outside the US, volume growth remained steady throughout the year. There has been significant price pressure in Europe and Japan during the last few years, a trend we expect to continue. The hip and knee implant market is currently undergoing considerable regulatory change around the world. The key example is the previously announced EU legislation, which requires that all hip and knee implants be re-registered to the more stringent Class 3 level by September 2009. This is creating a substantial body of work for all orthopaedic companies. Its impact will also be felt in the future, increasing the regulatory costs and timescales of maintaining existing products and launching new products. This trend to greater regulation is also being seen in many other markets globally. 5 Hips Sales of hip products fell by 8% to £22.3m (2007: £24.2m), a decline of 14% on a constant currency basis. The first half of 2008 saw significant sales of stocking orders of instruments and implants to Stryker, to support the launch of Cormet resurfacing in the US. However, as previously announced, the growth in the number of implantations was slower than Stryker anticipated, primarily due to strong competition in the US resurfacing market, delays to the US surgeon training programme and the time committed by Stryker to the recall of one of its leading hip products. These factors meant that Stryker did not replenish its inventory of instruments and implants in the second half of 2008. However, both Corin and Stryker remain committed to the growth of Cormet in the US market. Overall, hip sales to the US declined by 28% (28% on a constant currency basis). Excluding sales to the US, the sale of hips increased by 8%, a decline of 2% on a constant currency basis. The second half trend was encouraging, with sales growth of 29% (13% on a constant currency basis). The second half benefited from the launch of the Metafix cementless stem in the UK, Germany and Australia, the evaluation surgeries of MiniHip in Germany, the launch of a distributed revision hip system in the UK and growth in distributed primary hips in Australia. Excluding sales to Stryker in the US, the sales of Cormet and Optimom metal-on-metal hips declined slightly in the full year on a constant currency basis, reflecting increasing competition and a decline in the resurfacing market in Europe as some surgeons narrowed the patient indication range for metal-on-metal implants. Knees Sales of knee products increased by 18% to £9.2m, a growth of 5% on a constant currency basis. Growth in the second half was 17%, (4% on a constant currency basis). Knee growth was driven by the Score total knee in Australia, which Corin distributes on behalf of a French manufacturer, and solid growth with the Uniglide unicondylar knee in most markets. The AMC mobile bearing total knee declined in Germany, due to competitive pressures and the lack of recent enhancements to this product line. The Rotaglide+ mobile bearing total knee increased sales slightly, as its continued success in Corin’s distributor markets was supported by the development of enhanced instrumentation. Implantations under the Uniglide IDE study in the US have commenced. The mobile bearing Uniglide requires a PMA (Pre Market Approval) supported by clinical data in the US, before it can be launched in that market. Implantations under this IDE should accelerate in 2009, with approval still a number of years ahead. Other products Other products, which include the Zenith mobile bearing ankle, LARS ligament augmentation and surgical disposable products, grew reported sales by 73% to £8.2m, a growth of 67% on a constant currency basis. This growth was led by LARS, which more than doubled its sales from growth in Australia, China and the UK. This product, which Corin distributes on behalf of the French manufacturer, 6 continues to gain credibility in reconstruction and sports medicine surgeries. The Group will look to widen the distribution of this product in 2009. The Zenith mobile bearing ankle, launched in the UK and Germany in the first half of 2008, showed strong growth as the year progressed. The sales of surgical disposables grew very strongly in the second half of the year in the UK, in part due to supply problems at other competitors. While some of this volume will come under pressure in 2009 as competition increases again, Corin is capitalising on the opportunity to build a longer term relationship with many of these new customers. Geographic Results In Europe, sales increased by 9% to £19.5m, an increase of 3% on a constant currency basis, and a second half growth of 16% (10% on a constant currency basis). The UK led this development, growing by 28% in the second half to give overall growth of 15% to £10.2m (2007: £8.9m). The UK business not only grasped the benefit of the surgical disposables opportunity, but also generated strong growth in LARS, Metafix, Uniglide and revision hips. Reported sales in Germany, the other main direct market in Europe, were £5.1m, an increase of 5% but 10% down on a constant currency basis, due primarily to a lack of new products in this market over recent years. However, the second half saw a slight improvement in the trend as the business benefited from the launch of Zenith and Metafix, and importantly, the success of the MiniHip evaluation surgeries. In the US, total sales of £8.5m (2007: £11.0m) were dominated by stocking sales to Stryker. There was growth from a small base in other products in the US, led by sales of the Uniglide fixed knee option. In the Rest of the World (ROW), sales grew by 45% to £11.8m (2007: £8.1m), a growth of 30% on a constant currency basis. Australia sales more than doubled to £4.5m, driven by the distributed LARS and Score knee products. Japan sales increased by 14% to £3.8m (a decrease of 7% in constant currency terms). Sales through the Group���s direct sales force were up 46%, 18% on a constant currency basis, driven by growth of the Optimom metal-on-metal bearing and bipolar hip systems. Sales to Kobayashi, Corin’s Japanese distribution partner, were down on 2007, which year included the initial stocking order to them. Progress was made on expanding the distribution of Corin products in China, supported by rapid growth in LARS in this market. Sales through distributors in other countries were broadly flat, with progress in Turkey and South American markets offset by a decline in Canada, following the Stryker Uniglide stocking orders there in 2007. Manufacturing At the beginning of 2008, the manufacturing team at the Cirencester, UK facility had the significant challenge of meeting the demand from Stryker for Cormet implants and instruments, by continuing to utilise the investment in capital and people from the previous two years. With the reduction of orders from Stryker after May 2008, the challenge reversed to become one of managing costs and capacity against the reduced demand. 7 The manufacturing team has responded to this challenge. During the year, the manufacturing headcount was reduced by 21% and the night shift was closed. Other expenditure was curtailed to get a better balance between capacity and demand, whilst retaining the skill base to meet the expected future demand. An inventory reduction programme was also commenced in the last quarter with the goal of generating a cash reduction in Corin’s global inventories in 2009 and 2010 net of the investment in inventory for new product launches. The analysis phase of this project has been completed and implementation commenced in the UK. Current trading and outlook The Group has made a steady start to the 2009 financial year, both in the sales of the broadening portfolio of own and distributed products outside the US, and in the implant rate of Cormet in the US. Stryker has taken small deliveries of Cormet implants in February and March, as the inventories of certain sizes needed replenishing. Corin continues to expect ongoing orders from Stryker which should more closely reflect their implantation rate as the Group progresses through 2009, and their Cormet inventories are used up. While the Board expects some slowing of the orthopaedic market growth rates from those of recent years, it expects the market to remain resilient in the current economic environment. At this early stage in the year the Board remains cautious overall on the full year outlook, but following the strong second half performance by the non US businesses is confident that the implementation of its revised strategy is progressing well. 8 Consolidated Income Statement For the year ended 31 December 2008 N o t e 2008 2008 2008 2007 2007 2007 Before Exceptional Items Exceptional Items Total Before Exceptional Items Exceptional Items Total £’000 £’000 £’000 £’000 £’000 £’000 Revenue 2 39,837 - 39,837 36,993 - 36,993 Cost of sales 9 (14,929) (5,180) (20,109) (13,859) - (13,859) Gross profit 24,908 (5,180) 19,728 23,134 - 23,134 Distribution costs (683) - (683) (825) - (825) Administrative expenses 9 (20,843) (1,950) (22,793) (16,721) (1,066) (17,787) Operating (loss)/profit 9 3,382 (7,130) (3,748) 5,588 (1,066) 4,522 Finance costs (557) - (557) (506) - (506) Finance income 97 - 97 68 - 68 (Loss)/profit before tax 2 2,922 (7,130) (4,208) 5,150 (1,066) 4,084 Taxation 3 300 (1,244) (Loss)/profit for the financial year (3,908) 2,840 Attributable to: Equity holders of parent company (4,112) 2,804 Minority interests 204 36 (3,908) 2,840 (Loss)/earnings per share - Basic 5 (9.48)p 6.49p - Diluted 5 (9.48)p 6.48p 9 Consolidated Balance Sheet At 31 December 2008 2008 2007 Note £’000 £’000 Assets Non-current assets Property, plant and equipment 10,690 7,137 Goodwill 1,393 1,471 Other intangible assets 2,326 2,285 Investments 125 250 Deferred tax assets 1,625 1,984 Total non-current assets 16,159 13,127 Current assets Inventories 15,183 17,363 Trade and other receivables 9,579 13,256 Cash and cash equivalents 7 1,954 1,212 Total current assets 26,716 31,831 Total assets 2 42,875 44,958 Equity and liabilities Equity attributable to equity holders of the parent Share capital 8 1,060 1,036 Share premium account 8 15,559 14,394 Employee share scheme reserve 8 3,590 3,582 Own shares held reserve 8 (10) (10) Translation reserve 8 3,437 (547) Retained earnings 8 5,000 9,697 28,636 28,152 Minority interest 8 193 73 Total equity 28,829 28,225 Non-current liabilities Long-term borrowings 1,269 6,828 Deferred tax liabilities 229 198 Provisions 159 159 Total non-current liabilities 1,657 7,185 Current liabilities Trade and other payables 6,164 5,766 Current tax payable 83 1,349 Short-term borrowings 6,142 2,433 Total current liabilities 12,389 9,548 Total liabilities 2 14,046 16,733 Total equity and liabilities 42,875 44,958 10 Consolidated Cash Flow Statement For the year ended 31 December 2008 2008 2007 restated £’000 £’000 Cash flows from operating activities (Loss)/profit before tax (4,208) 4,084 Adjustments for: Depreciation and amortisation 3,038 2,429 Interest received (97) (68) Interest paid 557 506 Share based payments 606 934 Loss on disposal of property, plant and equipment 170 213 Loss on disposal of internally generated development expenditure 263 - Impairment to goodwill 95 - Impairment to investment 125 - Decrease/(increase) in inventories 4,360 (2,438) Decrease/(increase) in trade and other receivables 4,695 (5,392) Increase in trade and other payables 195 1,140 Cash generated from operations 9,799 1,408 Interest paid (557) (506) Taxes paid (1,411) (772) Net cash flows from operating activities 7,831 130 Cash flows from investing activities Interest received 97 68 Acquisitions (84) (150) Proceeds from sale of fixed assets - 78 Capital expenditure - property, plant and equipment (5,573) (3,714) Capital expenditure - goodwill (17) - Capital expenditure - other intangible assets (617) (680) Net cash used in investing activities (6,194) (4,398) Cash flows from financing activities Proceeds from issue of ordinary share capital (net of issue 1,189 218 costs) Inception of finance leases 1,065 2,572 Repayment of bank borrowings (1,096) - Repayment of finance lease liabilities (748) (500) Dividends paid (585) (571) Net cash (used in) / received from financing activities (175) 1,719 Net increase/(decrease) in cash and cash equivalents 1,462 (2,549) 11 Cash and cash equivalents at the beginning of the year (586) 1,925 Exchange adjustments 417 38 Cash and cash equivalents at the end of the year 7 1,293 (586) Consolidated Statement of Recognised Income and Expense For the year ended 31 December 2008 2008 2007 Note £’000 £’000 Exchange differences on translation of foreign currency net investments 3,984 581 Movement in deferred tax relating to share (598) 905 based payments Net gain recognised directly in equity 3,386 1,486 (Loss) / profit for the year (3,908) 2,840 Total recognised income and expense for the year 8 (522) 4,326 Attributable to: Equity holders of the Parent Company (726) 4,290 Minority interests 204 36 (522) 4,326 12 Notes to the Financial Statements For the year ended 31 December 2008 1. Basis of preparation These financial statements have been prepared in accordance with the measurement and recognition criteria of International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRS. The financial information set out above does not constitute the company’s statutory accounts for the years ended 31 December 2008 or 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. 2. Segmental information For management purposes, the Group is organised into geographical segments which are based on the location of assets. These geographical segments are the basis on which the Group reports its primary information. 2008 2007 £’000 £’000 Revenue by location of assets UK Operations 31,307 31,927 German Operations 5,094 4,871 Japanese Operations 3,756 3,245 Other International Operations 6,431 3,195 46,588 43,238 Less intercompany sales: Germany (2,228) (2,684) Japan (1,159) (1,863) Other (3,364) (1,698) 39,837 36,993 Revenue from intercompany sales is included in revenue from UK operations. 2008 2007 £’000 £’000 Revenue by location of customer UK 10,202 8,892 Germany 5,094 4,871 Japan 3,756 3,290 Europe (excluding Germany and UK) 4,240 4,130 USA 8,483 10,972 Rest of World 8,062 4,838 39,837 36,993 13 Inter-company transfers are priced along the same lines as 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. All revenue is derived from the sales of orthopaedics goods. 2008 2007 £’000 £’000 (Loss)/profit before taxation UK Operations (5,004) 4,352 German Operations (583) (151) Japanese Operations 554 398 Other International Operations 825 (515) (4,208) 4,084 2008 2007 £’000 £’000 Assets UK Operations 25,396 32,164 German Operations 6,824 5,179 Japanese Operations 5,214 2,965 Other International Operations 5,441 4,650 42,875 44,958 2008 2007 £’000 £’000 Liabilities UK Operations 12,103 15,836 German Operations 410 282 Japanese Operations 666 208 Other International Operations 867 407 14,046 16,733 2008 2007 £’000 £’000 Capital expenditure UK Operations 4,503 2,795 German Operations 676 712 Japanese Operations 175 208 Other International Operations 853 679 6,207 4,394 2008 2007 £’000 £’000 Depreciation, amortisation and impairment UK Operations 2,062 1,426 German Operations 667 759 Japanese Operations 186 84 Other International Operations 218 160 3,133 2,429 14 2008 2007 £’000 £’000 Non-cash expenses UK Operations 834 476 Exceptional Items 5,341 447 6,175 923 The Group’s secondary reporting format is by business segments. The Group only has one business segment being orthopaedics. 3. Taxation Tax on (loss)/profit 2008 2007 This represents: £’000 £’000 Current tax expense UK corporation tax on (loss)/ profit for the year (1,317) 1,343 Income tax of overseas operations on (losses)/profits for the year 752 75 Adjustment for under provision in prior periods 473 20 Current tax (credit)/charge (92) 1,438 Deferred Tax expense Origination and reversal of temporary differences – current year (66) (194) Origination and reversal of temporary differences – prior periods (142) - Total deferred tax credit (208) (194) Taxation on (loss)/profit on ordinary activities (300) 1,244 15 Factors affecting current tax charge The tax assessed for the period is higher than the standard rate of corporation tax in the UK of 28.5% (2007: 30%). The differences are explained as follows: 2008 £’000 2007 £’000 (Loss)/profit before tax (4,208) 4,084 (Loss)/profit multiplied by the standard rate of corporation tax in the UK of 28.5% (2007: 30%) (1,199) 1,225 Effect of: Net expenses not deductible for tax purposes 271 (24) Overseas losses not utilised 261 54 Different tax rates applied in overseas jurisdictions 94 (31) Effect of change in tax rate (58) - Adjustment in respect of prior periods 331 20 Total tax (credit) /charge for the year (300) 1,244 4. Dividends 2008 £’000 2007 £’000 Final dividend of 0.9p (2007: 0.9p) per ordinary share proposed and paid during the year relating to previous year’s results 381 372 Interim dividend of 0.48p (2007: 0.48p) per ordinary share paid during the year 204 199 585 571 The directors are proposing a final dividend of 0.9p (2007: 0.9p) per share totalling £382,000 (2007:£381,000). This dividend has not been accrued at the balance sheet date. Subject to shareholder approval at the annual general meeting on 17 June 2009 the final dividend will be paid on 10 July 2009 to shareholders on the register on 26 June 2009. 16 5. (Loss)/earnings per share The calculation of basic (loss)/earnings 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. 2008 2007 (Loss)/ earnings £’000 Weighted average number of shares Per Share amount p Earnings £’000 Weighted average number of shares Per Share amount p Post-exceptional item Basic earnings per share (4,112) 43,400,198 (9.48) 2,804 43,228,576 6.49 Diluted earnings per share (4,112) 43,400,198 (9.48) 2,804 43,287,679 6.48 Underlying earnings per share Basic earnings per share 1,316 43,400,198 3.03 3,550 43,228,576 8.21 The difference between the basic and diluted weighted average number of shares for the year ended 31 December 2007 is wholly attributable to outstanding share options. There are no dilutive options for the year ended 31 December 2008. Underlying earnings per share is before the post tax exceptional cost of £5,428,000 (2007: £746,000) as detailed in note 9. 6. Constant Currency Reconciliation A reconciliation of reported to constant currency sales is set out below: Reported Currency Movement* At Constant Currency £’000 £’000 £’000 Sales 39,837 (2,681) 37,156 * Currency movement is calculated by translating 2008 results at the average exchange rates used for 2007 results. 17 7. Notes to Cash Flow Statement Cash and cash equivalents comprises: Group 2008 2007 restated £’000 £’000 Cash available on demand 1,954 1,212 Bank overdraft (661) (1,798) 1,293 (586) 8. Changes In Shareholders’ Equity Share capital reserve £’000 Employe e share scheme reserve £’000 Translati on reserve £’000 Share premium account £’000 Own shares held reserve £’000 Retained earnings £’000 Total £’000 Minor ity Intere sts £’000 Total Equity £’000 At 1 January 2007 1,032 1,743 (1,128) 14,180 (10) 7,464 23,281 37 23,318 Total recognised income and expense for the year - 905 581 - - 2,804 4,290 36 4,326 Share-based payment expense - 934 - - - - 934 - 934 Issue of share capital 4 - - 214 - - 218 - 218 Dividends paid - - - - - (571) (571) - (571) At 31 December 2007 1,036 3,582 (547) 14,394 (10) 9,697 28,152 73 28,225 Total recognised income and expense for the year - (598) 3,984 - - (4,112) (726) 204 (522) Purchase of minority interest - - - - - - - (84) (84) Share-based payment expense - 606 - - - - 606 - 606 Issue of share capital 24 - - 1,165 - - 1,189 - 1,189 Dividends paid - - - - - (585) (585) - (585) At 31 December 2008 1,060 3,590 3,437 15,559 (10) 5,000 28,636 193 28,829 9. 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 2008, exceptional items comprise: 18 £’000 Administrative expenses Legal fees and associated costs relating to potential acquisition of subsidiary 633 Impairment to goodwill 95 Contractual severance payments 276 Legal fees, recruitment and associated costs of reorganisation 245 Accelerated expenditure on share options 161 Impairment to investment and associated fixed assets 277 Aborted IDE trial 263 Total administrative expenses 1,950 Cost of Sales Inventory impairments 5,180 Total exceptional item 7,130 Tax effect (1,702) Post tax exceptional item 5,428 As a result of the reduction in the Group’s anticipated trading performance, the Board withdrew from a potential acquisition in Europe, having already incurred substantial costs of £633,000. The aborted acquisition in Europe had a major impact on the prospects of one of the Group’s European subsidiaries resulting in an impairment of goodwill of £95,000. The implementation of the Group’s revised strategy has resulted in the senior management team being streamlined. Specific payments totalling £276,000 were made in accordance with the Group’s contractual obligations to employees that have been made redundant, together with legal and recruitment fees associated with these changes. Accelerated expenditure of £161,000, as required by IFRS 2, has also been recognised in respect of the staff member’s associated share schemes which were revised as part of the terms of the redundancies. The disappointing progress of the Cormet resurfacing hip in the US, particularly in the second half of 2008, has caused the Company to review its inventory holding of Cormet implants and instrumentation As a result of this review the Company has taken an exceptional provision against these inventories of £2.0m. A provision against inventories that were not cost effective to register as Class 3 devices in Europe by September 2009 as required by the more stringent European regulations of £0.6m has been taken. A further provision against inventories that are to be phased out as a result of the new portfolio strategy of £2.6m has also been taken. The above three circumstances have resulted in a total exceptional provision of £5.2m against inventory. An impairment charge of 50%, being £125,000, of the carrying value of the Group’s investment in an equity instrument, has been taken. An impairment of non-current tangibles supplied by the company in which the investment is held of £152,000 has been taken. Costs totalling £263,000 have been recognised that had previously been capitalised with regard to an IDE trial on a knee product which has now been aborted. The trial has been stopped due to 19 the new knee development that will supersede the product being trialled in line with the product portfolio strategy. In 2007 exceptional items comprised: 2007 £’000 Contractual severance payments 374 Legal fees, recruitment and associated costs 245 Accelerated expenditure - Share options 447 Total exceptional item 1,066 Tax effect (320) Post tax exceptional item 746 The year 2007 saw the departure of the Chief Executive Officer Ian Paling. Specific payments were made to him in accordance with the Group’s contractual obligations. In addition, legal and other professional fees were incurred and accelerated expenditure was recognised in respect of his associated share schemes, as required per IFRS 2 Share-based Payment. 20
Corin Group plc - Preliminary Results 2008.pdf
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