RNS Number:8020J
Gyrus Group PLC
16 March 2005
16 March 2005
Gyrus Group PLC
Profits up 26%
Gyrus Group PLC ("Gyrus" or "the Group"), a leading supplier of medical devices
which reduce trauma and complications in surgery, today announces its
preliminary results for the year ended 31 December 2004.
Financial Highlights
* Group revenues up 11% (22% on a constant exchange rate basis-CER), to
#86.9m (2003: #78.1m)
* Profit before tax and goodwill amortisation (PBTA) up 26% to #10.2m (2003:
#8.1m), despite weakness of US Dollar
* Reported operating profit (after goodwill amortisation) up 57% to #5.5
million (2003: #3.5 million)
* Adjusted EPS* rises 20% to 11.5p (2003: 9.6p)
* Strong cash generation reduced net debt by 88% to #1.8m (2003: #15.5m)
* Before goodwill amortisation, deferred tax and exceptional items
Operating Highlights
* Surgical Division sales up 24% in local currency, driven by growth in Open
Forceps and SuperPulse
* Continued strong growth in Partnered Technologies - sales up 22% in local
currency
* ENT Division increased sales by 19% in local currency
* Installed base of generators in US ENT and Surgical markets rises by 27%
to 4,681 units (2003: 3,686) with 36% increase in sales of associated
disposable instruments to $37.9 million (2003: $27.9 million)
* R&D drives significant new product launches for Q1 2005
Brian Steer, Executive Chairman, said:
"Gyrus has delivered very strong top and bottom line growth in 2004 despite the
continued depreciation of the dollar. We are now a well-established medical
technology company with a clear focus on supplying the needs of the surgeon.
With exciting product launches underway, we are confident of the Group's
prospects for 2005 and beyond."
Enquiries:
Gyrus Group PLC On 16 March 2005:
Brian Steer, Executive Chairman Tel: 0207 831 3113
Simon Shaw, Chief Financial Officer Tel: 0207 831 3113
Financial Dynamics
David Yates/Ben Atwell Tel: 0207 831 3113
A meeting for analysts will be held at the offices of Financial Dynamics,
Holborn Gate, 26 Southampton Buildings, London WC2A 1PB at 8.30am. Please call
Mo Noonan on 020 7269 7116 for further details.
Overview
2004 was a year of strong performance across the Group, which was reflected in a
significant rise in revenue and profitability. Our three Divisions all made
substantial progress and we are well set to benefit from some important new
product launches in 2005.
For the second year running Gyrus had to contend with significant depreciation
in the US dollar, our principal operating currency, with the average rate for
the year being just over $1.83:#1 (2003: $1.63:#1). Despite this we were able to
grow reported revenues by 11% to #86.9 million (2003: #78.1 million). This
represented underlying revenue growth of 22% in local currency terms,
significantly ahead of our targeted average high teens level.
The Group's Profit Before Tax and Amortisation of goodwill ("PBTA") increased by
26% to #10.2 million (2003: #8.1 million). We continued to meet our goal of
increasing profits at a rate faster than our revenue growth alongside a
maintained focus on working capital efficiencies and cash generation. This
resulted in a substantial reduction in net debt during 2004. At the year end net
debt stood at approximately #1.8 million (2003: #15.5 million).
Our adjusted earnings per share (excluding goodwill amortisation, deferred
taxation and exceptional items) rose 20% to 11.5p (2003: 9.6p).
Business Review
In 2004 we enjoyed strong performances from our Surgical and Partnered
Technologies Divisions and the ENT Division finished strongly in the last
quarter to end the year well. The following chart shows the performance of the
Group's businesses in local currency:
Analysis Of Group Revenues
Area* Currency 2003 2004 Growth
Gynaecology US $m 26.2 32.6 24%
Int #m 2.1 3.1 48%
Urology US $m 2.8 6.2 121%
Int #m 1.4 2.2 57%
General Surgery US $m 2.0 2.1 5%
Int #m 2.8 1.1 -61%
Surgical Total US $m 31.0 40.9 32%
Int #m 6.3 6.4 2%
Surgical Division Total #m 25.3 28.8 14%
Otology US $m 23.3 23.6 1%
Int #m 3.0 4.9 63%
Sinus & Rhinology US $m 12.6 15.2 21%
Int #m 1.7 1.5 -12%
Head & Neck US $m 9.8 10.4 6%
Int #m 2.4 5.1 113%
ENT Total US $m 45.7 49.2 8%
Int #m 7.1 11.5 62%
ENT Division Total #m 35.1 38.4 9%
Partnered Technologies US dollar denominated n/a $m 21.5 27.7 29%
Other currencies n/a #m 4.5 4.6 2%
Partnered Technologies Division Total #m 17.7 19.7 11%
Group Total Revenue n/a #m 78.1 86.9 11%
* US =North American Free Trade Area, Int= World ex. NAFTA
Surgical Division
Gynaecology
The Gynaecology business, specifically the hysterectomy market, represents
approximately 70% of the Surgical Division's revenues worldwide. During the year
sales in the US grew by 24% to $32.6 million, driven by the Group's range of PK
Technology products including the PK Cutting Forceps which is the market leader
in Laparoscopic Supracervical Hysterectomy (LSH). Internationally, the
Gynaecology business grew revenues 48% to #3.1 million as sales of PK
instruments increased, particularly in Europe and the Far East. The Group
commenced direct sales in Benelux through its subsidiary Gyrus Medical B.V.
(formerly "Entermed").
Urology
In 2004 the Urology business represented approximately 19% of the Surgical
Division's revenues, up from 12% in 2003. US revenues in this sector increased
by over 120% to $6.2 million as a result of the success of the SuperPulse system
for Trans Urethral Resection of the Prostate (TURP) procedures, which was
launched into the market in late 2003. In addition to the TURP market, the use
of PK Technology within urology is successfully broadening into open and
laparoscopic prostatectomy and other urological procedures using the SuperPulse
generator as a workstation.
Internationally, revenues increased by 57% year on year to #2.2 million, with
particular success in direct sales in Benelux and via distributors in China and
Australia.
General Surgery
This business unit is designed to promote the use of Gyrus PK Technology in
abdominal surgery outside the core businesses of Gynaecology and Urology. During
2004, the Division's US sales grew by 5% to $2.1 million. Internationally,
General Surgery sales fell by 61% to #1.1 million, principally as a result of
the loss, in 2003, of the distributorship of a range of general surgery products
in the UK.
Additional resources are being devoted to this business unit in 2005 to enable
it to pursue the significant opportunity available for the Group's technology
offering in General Surgery.
ENT Division
Otology
The Otology business representing approximately half of the ENT Division's
revenues and comprising Vent tubes (grommets) and middle ear implants together
with related surgical instruments, drills and scopes, grew sales by 1% during
the year to $23.6 million. Excluding the 83% reduction in sales of RetroX
hearing enhancement products during the period, the core otology business grew
by 5% year on year. As reported at the half-year, the RetroX range has proved to
lie outside the surgeon call point of the ENT Division and, although regular
prescribers are increasing their use of the product, it is no longer a focal
product for the Otology business.
Internationally, Otology revenues increased by 63% to #4.9 million (2003: #3.0
million) principally as a result of the performance of the Group's new EU
subsidiaries.
Sinus & Rhinology
The Sinus and Rhinology business representing approximately 25% of the ENT
Division's revenues and comprising microdebriders, advanced nasal packing
materials, scopes and instruments to enable surgery to be performed on the sinus
and nasal passages, increased US revenues by 21% to $15.2 million, primarily as
a result of the continued strong performance of the Diego Microdebrider system.
Sales of this system slowed somewhat in the second half in advance of the Q1
2005 launch of the new PK Diego which will be Gyrus' first PK Technology derived
product for the ENT Division. Internationally, revenues decreased by 12% year on
year to $1.5 million as a result of limited availability of the Diego
Microdebrider system outside the US as a lead product for the ENT range.
Head & Neck
The Head & Neck business successfully halted 2003's 20% loss of revenue in the
somnoplasty business, allowing other parts of the portfolio to contribute to
overall sales growth of 6% in the US to $10.4 million. This was a strong
performance under difficult circumstances. In January 2005 an experimental
reimbursement code was granted for the somnoplasty treatment. This is designed
to gather information on the breadth of use of the procedure to establish
whether the Academy of Otolaryngologist's application for a full reimbursement
code should be granted. It is anticipated that, if successful, a full
reimbursement code will be granted in January 2006. The second half of 2004 was
substantially associated with the development and early market testing of the
new Tonsil PlasmaKnife which uses the Group's novel PlasmaCision technology.
This exciting product is being launched in the US in March 2005.
Internationally, the business grew by 113% to #5.1 million primarily as a result
of the new EU subsidiaries acquired in 2003.
Partnered Technologies Division
The Partnered Technologies Division consists of development, licence, and supply
relationships with Johnson & Johnson (Depuy Mitek, Ethicon Endo-Surgery,
Gynecare and Guidant), Conmed and, most recently, Rhytec. Overall, the Partnered
Technologies business grew revenue by 11% to #19.7 million in 2004 (2003: #17.7
million) with all partners experiencing growth. The majority of these revenues
(77%) are denominated in US Dollars and, on a constant currency basis, our
revenue growth was 22%.
The end of 2004 saw the addition of a new partner, Rhytec Ltd, which is
commercialising Gyrus's Plasma Skin Resurfacing (PSR) technology in the cosmetic
and dermatological surgery market. During 2004 our Cardiff plant received
development fees of #0.6 million for its work on the development of Rhytec's
first product, which is scheduled for launch into the cosmetic surgery market in
2005. The Partnered Technologies Division will work closely with Rhytec on the
development and supply of products into this sector over the coming years.
Installed Base of Generators
Placed assets comprise generators placed on loan free of charge upon which,
together with those that have been sold outright, the Group makes profitable
revenues from the sale of disposable surgical instruments. In 2004 the installed
base of generators in the Surgical and ENT markets in the US grew by 27% to
4,681 units (2003: 3,686 units). The value of the associated revenues from
disposable instruments increased by 36% to $37.9 million (2003 $27.9 million).
During 2004, in addition to the placement of generators the Group substantially
increased the number of generators, particularly the SuperPulse model, which
were sold into the market.
Partly as a result of the increasing sales of generators, and partly through
continued manufacturing cost reductions, the cost of the Group's investment in
placing generators in the year, reduced by 48% to #1.3 million (2003: #2.5
million).
The net book value of placed assets at 31 December 2004 was #2.9 million (2003:
#3.5 million).
Gross Margin
The Group's reported gross margin declined slightly to 59.1% in 2004 (2003:
59.3%). However, the underlying gross margin, excluding the effect of currency,
increased by 0.5% during the first year of our three year operational
improvement programme. The Surgical Division improved its margin substantially
to over 72% (2003:68%) and the Partnered Technologies Division improved to 42%
(2003: 41%). Gross margin in the ENT Division declined to 58% (2003: 62%) as a
result of accounting for a full year of Gyrus Medical B.V. and Explorent GmbH,
both of which had gross margins below 43%.
The principal currency impact came about as a result of sales from our Cardiff
plant to partners and Group companies in US Dollars, the effect of which was to
reduce the Group gross margin by 0.5%.
Sales and Marketing
Gyrus's strategy is to focus on the surgeon and the operating room environment.
Accordingly we are creating a global sales and marketing structure to promote
and deliver our innovative products to this market.
During the year, we continued to invest in and develop our sales and marketing
capabilities. In the US, which represents the majority of the Group's sales, we
have built a sales force by identifying and supporting independent individuals,
rather than distributor groups, who fit the Gyrus profile. As our business has
progressed we have gradually increased the number of dedicated full time Gyrus
sales representatives, who remain commission based but sell exclusively Gyrus
products. By the year-end 46% of the full line ENT sales force and 11% of the
Surgical sales force were dedicated representatives. At the same time we have
increased our investment in the formal training of our sales people and have
improved the focus and training of our field management team.
Internationally, we have commenced direct sales in Benelux, through Gyrus
Medical B.V., formerly known as Entermed, which we acquired in 2003, and we
intend to open up direct sales and marketing positions in certain target
countries over the next few years.
Research & Development
Research and development remains an important driver of our business and we
continue to invest substantially in creating future growth opportunities for the
Group.
In 2004 the Group increased its R&D spend 12% to #7.3 million (2003: #6.5
million), representing 8.4% of sales (2003: 8.3%). Approximately #0.6 million
of this expense was incurred in the development of the cosmetic surgery
technology on behalf of Rhytec Limited and was reimbursed in full as a
development fee (recognised as other operating income in the profit and loss
account). This expenditure produced innovative products for launch by the
individual businesses such as the PK Diego for Sinus and Rhinology. However,
substantial investment has been made into an important evolutionary development
of our proprietary PK Technology, which is known as "PlasmaCision". This is a
step forward for our technology platform and I am confident that, over the next
few years, we will see it as core technology for many new PK products within the
Gyrus portfolio. The unique feature of PlasmaCision is that it successfully cuts
and seals tissue at the same time. This capability will allow us to develop
instruments that have utility across the spectrum of laparoscopic and open
surgical procedures. During March 2005 we will launch the first
PlasmaCision-derived instrument, the "Tonsil PlasmaKnife" into the Head & Neck
market and, shortly thereafter, the "PlasmaSpatula" into the laparascopic
Gynaecology sector. In the longer term we believe that this technology will have
great utility in General Surgery; the market with the largest potential in which
we operate.
At the end of 2004 we announced the formation of Rhytec Limited, in which the
Group has a minority 19.7% equity stake. Rhytec has raised private equity
capital to pursue the acquisition, development and commercialisation of Gyrus's
Plasma Skin Resurfacing (PSR) technology in the cosmetic and dermatological
surgery market. Gyrus assigned its PSR technology rights to Rhytec in
consideration for a small initial payment and royalties on future sales of PSR
products. Over the next few years Rhytec and Gyrus' Partnered Technologies
Division will work closely on the development and supply of products into this
sector.
Goodwill
In advance of the adoption of International Financial Reporting Standards for
the financial year to 31 December 2005 and beyond, the Group conducted a review
of its accounting policies and the appropriateness of their implementation in
the context of "best practice". This review identified that the goodwill
acquired on the acquisitions of the Surgical and ENT Divisions in 2000 and 2001
respectively had not been accounted for in the currency of the transaction, as
has now become best practice under UK GAAP (FRED 24, now implemented as FRS 23)
and mandatory under IAS. In order to correct this position the Group has amended
its accounting policy to account for goodwill in the originating currency and to
retranslate the asset to sterling at each balance sheet date. As a result of
recent periods of significant US dollar depreciation, it has been necessary to
record a prior year adjustment to reduce the net book value of goodwill by
approximately #12m at 1 January 2003 and by a further #9m at 31 December 2003
with an equal reduction in reserves. Note 2 to the Financial Statements analyses
this adjustment in detail.
The effect on 2004 is to reduce the amount charged to the profit and loss
account in respect of goodwill amortisation by approximately #1.3 million to
#5.5 million (adjusted 2003: #6.0 million). This has no effect upon the
preferred measure of profitability, Profit Before Tax and Amortisation of
goodwill ("PBTA"), which has been consistently calculated through the company's
history.
The Board reviewed the carrying value of goodwill at 31 December 2004 and
confirmed that no provision for impairment was necessary.
Exceptional Items
During the year the Group recorded an exceptional gain of #0.37 million on the
sale of surplus land at its ENT Division in Memphis USA. This was offset by an
exceptional loss on the termination of an operation which was conducting
research into a novel biological product with surgical applications. As a result
a licence fee of #0.4 million, paid by the Group to secure exclusive access to
the potential product, was written off as an exceptional item. The net effect of
these exceptional items was a reduction in profits of #0.03 million.
Adoption of International Accounting Standards
From 1 January 2005 Gyrus is required to adopt EU-adopted International
Financial Reporting Standards (IFRS) for future financial statements.
Considerable work has been conducted during 2004 to prepare the Group for this
new accounting regime. In order to help shareholders and potential investors
assess the effect of IFRS on the Group's results, at the end of this
announcement there is a section entitled "Guidance on the effect of
International Financial Reporting Standards on Gyrus Group PLC" which reconciles
the 2004 profit and loss account and balance sheet under UK GAAP to their
equivalents under IFRS as if adoption of IFRS had occurred at the beginning of
the year. In summary, under IFRS the Group's basic earnings per share would have
been 10.2p compared with 5.0p under UK GAAP. The principal difference arises on
the amortisation of goodwill, which is no longer allowed under IFRS.
Management
During the last 18 months we have restructured both the Board and operating
management in order to deliver the future growth of the business. At Group
level, the Operating Board now comprises the Executive Chairman and the Chief
Operating and Financial Officers, who are Head Office-based, together with the
heads of the Surgical and ENT Divisions and the US and International sales
organisations respectively. This group is responsible for the creation and
implementation of the Group's strategy. The Gyrus Group Board, which comprises
predominantly non-executive directors, is responsible for approving strategy and
the governance of the business.
In August 2004, Mark Goble became a non-executive director of Gyrus Group in
advance of the creation of Rhytec Limited. He continues to provide the Group
with advice on clinical development strategy under a consultancy agreement. In
his place the Board has invited Roy Davis, Chief Operating Officer, to become an
executive director of Gyrus commencing on 1 April 2005.
The Board has invited me to extend my tenure as Executive Chairman by
approximately 2 years to the AGM in 2007. This is designed to ensure management
stability during a period of important growth for the Group, whilst allowing the
Nominations Committee of the Board to undertake an orderly plan for my
succession. A resolution to approve this contract extension will be considered
at the forthcoming Annual General Meeting on 25 April.
Outlook
The strong trading of 2004 has continued into 2005. With the launches of our
first PlasmaCision-derived products into the ENT and Surgical markets to be
followed by further new products in the next twelve to eighteen months, we
remain confident in our ability to achieve our targeted high-teens underlying
revenue growth. We continue to pursue our growth strategy, both organically and
by acquisition, in order to expand our product portfolio and build our presence
in the world market for surgical devices.
Brian Steer
Executive Chairman
Consolidated Profit and Loss Account
Year ended
31 December
Year ended 2003
31 December as restated
2004 - note 2
Note #'000 #'000 #'000 #'000
Turnover 3 86,930 78,132
Cost of sales (35,551) (31,795)
_____ _____
Gross profit 51,379 46,337
Other operating income 641 -
Selling and distribution expenses (23,089) (22,001)
Research and development expenses (7,262) (6,467)
General and administrative expenses
- before goodwill amortisation (10,622) (8,440)
- goodwill amortisation (5,505) (5,965)
Total general and administrative expenses (16,127) (14,405)
_____ _____
Total operating expenses (46,478) (42,873)
Operating profit 5,542 3,464
Exceptional items
Profit on sale of land 4 373 -
Loss on termination of operation 4 (400) -
_____ _____
(27) -
_____ _____
Profit on ordinary activities before interest 5,515 3,464
and taxation
Interest receivable 170 64
Interest payable and similar charges (988) (1,398)
_____ _____
Profit on ordinary activities before taxation 4,697 2,130
Taxation (charge)/credit 5 (485) 4,544
_____ _____
Profit on ordinary activities after taxation 4,212 6,674
_____ _____
Earnings per ordinary share 6
Basic 5.0p 8.0p
Diluted 5.0p 8.0p
Adjusted basic, excluding goodwill 11.5p 9.6p
amortisation, deferred taxation and exceptional
items _____ _____
#'000 #'000
Profit before tax and goodwill amortisation 10,202 8,095
_____ _____
Consolidated Statement of Total Recognised Gains and Losses
Year ended
31 December
Year ended 2003
31 December as restated
2004 - note 2
#'000 #'000
Profit on ordinary activities after taxation 4,212 6,674
Currency translation differences arising on foreign currency net (8,561) (13,175)
investments
Share related awards - 9
____ _____
Total recognised gains and losses relating to the year (4,349) (6,492)
Prior year adjustment (21,421)
_____
Total recognised gains and losses since last annual report (25,770)
_____
Consolidated Balance Sheet
As at
31 December
As at as restated
31 December - note 2
2004 2003
Note #'000 #'000
Fixed assets
Intangible assets 85,365 97,550
Tangible assets 10,396 12,097
Investments - -
_____ _____
95,761 109,647
Current assets
Stocks 13,434 16,814
_____ _____
Debtors - due within one year 16,314 14,243
Deferred tax asset 6,082 6,160
_____ _____
Debtors 22,396 20,403
Cash at bank and in hand 7,263 5,392
_____ _____
43,093 42,609
Creditors: Amounts falling due within one year (21,002) (11,221)
_____ _____
Net current assets/(liabilities) 22,091 31,388
_____ _____
Total assets less current liabilities 117,852 141,035
Creditors: Amounts falling due after more than one year (134) (19,448)
_____ _____
Net assets 117,718 121,587
_____ _____
Consolidated Balance Sheet continued
As at
31 December
As at 2003
31 December as restated
2004 Note - 2
Note #'000 #'000
Capital and reserves
Share capital 7 2,160 2,156
Share premium account 7 152,447 151,971
Merger reserve 7 3,860 3,860
Profit and loss account 7 (40,749) (36,400)
_____ _____
Equity shareholders' funds 117,718 121,587
_____ _____
Consolidated Cash Flow Statement
Year ended Year ended
31 December 31 December
2004 2003
Note #'000 #'000
Net cash inflow from operating activities 8 16,306 12,959
Returns on investment and servicing of finance 10 (616) (1,188)
Taxation 10 (185) (288)
Capital expenditure 10 (2,240) (4,260)
Acquisitions 10 - (4,125)
_____ _____
Cash inflow 13,265 3,098
Financing 10 (10,013) (1,667)
_____ _____
Increase in cash in the year 9 3,252 1,431
_____ _____
Reconciliation of Net Cash Flow to Movement in Net Debt
Year ended Year ended
31 December 31 December
2004 2003
Note #'000 #'000
Increase in cash in the year 9 3,252 1,431
Cash outflow from decrease in debt and lease financing 9 10,493 1,361
_____ _____
Changes in net debt resulting from cash flows 9 13,745 2,792
Inception of new finance leases 9 - (160)
Translation difference 9 (123) (179)
_____ _____
Changes in net debt 13,622 2,453
Net debt at beginning of year 9 (15,471) (17,924)
_____ _____
Net debt at end of year 9 (1,849) (15,471)
_____ _____
Notes to the Financial Information
1. Basis of preparation
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2003 or 2004. The financial
information for 2003 is derived from the statutory accounts for 2003 which have
been delivered to the registrar of companies. The financial information for 2004
has been prepared under the same accounting policies as 2003, except in relation
to the treatment of goodwill acquired in foreign currencies as disclosed in note
2. The auditors have reported on the 2003 accounts; their report was unqualified
and did not contain a statement under section 237 (2) or (3) of the Companies
Act 1985. The financial information for 2004 presented by the directors in this
statement is derived from the statutory accounts for 2004. The accounts have
been audited and the audit report is unqualified and does not contain a
statement under section 237 (2) or (3) of the Companies Act. The accounts will
be delivered to the registrar of companies following the company's annual
general meeting.
2. Prior Year Adjustment
The accounts have been prepared on the same basis as the prior year except that
goodwill arising on consolidation of foreign subsidiaries held in sterling has
been restated to local currency and translated to sterling at closing rate in
accordance with best practice under UK GAAP FRED 24 (now implemented as FRS 23).
As a result of recent periods of US dollar depreciation, it has been necessary
to record a prior year adjustment to reduce the net book value of goodwill by
approximately #12 million at 1 January 2003 and by a further #9 million at 31
December 2003 with an equal reduction in reserves. The effect on 2004 is to
reduce the amount charged to the profit and loss account in respect of goodwill
amortisation by approximately #1.3 million to #5.5 million (2003: adjusted #6.0
million). Further depreciation in the US dollar during 2004 has increased the
loss on foreign currency translation taken to reserves as a result of this
change in policy by approximately #5.9 million. There was no impact on the
Company only numbers as a result of the restatement. The effect of the
restatement is as follows:
Year ended
Year ended 31 December
31 December 2003
2004 as restated
#'000 #'000
Goodwill amortisation
As previous policy (6,848) (6,682)
Effect of retranslation of goodwill to local currency 1,343 717
_____ _____
As restated (5,505) (5,965)
_____ _____
Year ended
Year ended 31 December
31 December 2003
2004 as restated
#'000 #'000
Profit on ordinary activities after taxation
As previous policy 2,869 5,957
Effect of retranslation of goodwill to local currency 1,343 717
_____ _____
As restated 4,212 6,674
_____ _____
Year ended
Year ended 31 December
31 December 2003
2004 as restated
#'000 #'000
Net assets
As previous policy 143,730 143,008
Effect of retranslation of goodwill to local currency (26,012) (21,421)
_____ _____
As restated 117,718 121,587
_____ _____
Year ended
Year ended 31 December
31 December 2003
2004 as restated
#'000 #'000
Loss on foreign currency translation taken to reserves
As previous policy (2,627) (2,860)
Effect of retranslation of goodwill to local currency (5,934) (10,315)
_____ _____
As restated (8,561) (13,175)
_____ _____
Earnings per share (basic)
As previous policy 3.4p 7.2p
Effect of retranslation of goodwill to local currency 1.6p 0.8p
_____ _____
As restated 5.0p 8.0p
_____ _____
Earnings per share (diluted)
As previous policy 3.4p 7.1p
Effect of retranslation of goodwill to local currency 1.6p 0.9p
_____ _____
As restated 5.0p 8.0p
_____ _____
Earnings per share (excluding goodwill amortisation, deferred tax and
exceptional items)
As previous policy 11.5p 9.6p
As restated 11.5p 9.6p
_____ _____
Earnings on which EPS is based are disclosed in note 6 of this financial
information.
3. Segmental Information
i) Geographic
Year ended
31 December
Year ended 2003
31 December as restated
2004 - note 2
#'000 #'000
Turnover by destination
North America 58,427 56,048
United Kingdom and rest of Europe 21,747 19,647
Rest of World 6,756 2,437
_____ _____
86,930 78,132
_____ _____
Turnover by origin
North America 55,146 53,571
United Kingdom and rest of Europe 29,976 24,561
Rest of World 1,808 -
_____ _____
86,930 78,132
_____ _____
Profit before interest and taxation by origin
North America 2,918 3,470
United Kingdom and rest of Europe 2,566 (6)
Rest of World 31 -
_____ _____
5,515 3,464
_____ _____
Year ended
31 December
Year ended 2003
31 December as restated
2004 - note 2
#'000 #'000
Operating net assets
North America 108,323 123,505
United Kingdom and rest of Europe 18,238 17,008
Rest of world 269 270
_____ _____
126,830 140,783
_____ _____
Finance leases (184) (308)
Bank loans (8,928) (18,888)
_____ _____
Net assets 117,718 121,587
_____ _____
ii) Business Segment
Partnered
ENT Surgical Technologies Total
Year ended 31 December 2004 #'000 #'000 #'000 #'000
Turnover 38,369 28,822 19,739 86,930
Cost of sales (16,261) (7,795) (11,495) (35,551)
Other operating income - - 641 641
Sales and marketing (12,550) (10,539) - (23,089)
Research and development (1,995) (1,184) (3,703) (6,882)
General and administration before goodwill (5,171) (2,634) (2,698) (10,503)
amortisation
Exceptional item: Profit on sale of land 373 - - 373
_____ _____ _____ _____
Segment profit before goodwill amortisation 2,765 6,670 2,484 11,919
Amortisation of goodwill (4,095) (1,127) (283) (5,505)
_____ _____ _____ _____
Segment (loss)/profit (1,330) 5,543 2,201 6,414
Expenses not allocated
- Central research and development (380)
- Exceptional item: Loss on termination of (400)
operation
- General and administration (119)
_____
Profit before interest and taxation 5,515
_____
Partnered
ENT Surgical Technologies Total
Year ended 31 December 2003 as restated - note 2 #'000 #'000 #'000 #'000
Turnover 35,099 25,282 17,751 78,132
Cost of sales (13,179) (8,141) (10,475) (31,795)
Sales and marketing (13,368) (8,633) - (22,001)
Research and development (1,910) (1,301) (2,928) (6,139)
General and administration before goodwill (3,304) (1,412) (1,490) (6,206)
amortisation
_____ _____ _____ _____
Segment profit before goodwill amortisation 3,338 5,795 2,858 11,991
Amortisation of goodwill (4,386) (1,263) (316) (5,965)
_____ _____ _____ _____
Segment (loss)/profit (1,048) 4,532 2,542 6,026
Expenses not allocated:
- Central research and development (328)
- General and administration (2,234)
_____
Profit before interest and taxation 3,464
_____
4. Exceptional Items
2004 2003
#'000 #'000
Profit on sale of land 373 -
Loss on termination of operation (400) -
_____ _____
(27) -
_____ _____
During the year the Group decided to discontinue its operations in the
biotechnology sector resulting in a loss of #400,000 on the disposal of its
investment.
The effect on the taxation charge for the year of the exceptional items
recognised below operating profit is disclosed in note 5 of this financial
information.
5. Taxation (charge)/credit
Analysis of (charge)/credit for the year
Year ended Year ended
31 December 31 December
2004 2003
#'000 #'000
Current tax
UK corporation tax charge on profit for the year (286) -
Adjustments in respect of previous periods - 130
_____ _____
(286) 130
Foreign tax on profits for the year (359) (308)
Adjustments in respect of previous periods - 88
_____ _____
(359) (220)
Total current tax charge (645) (90)
Deferred tax
Origination/reversal of timing differences 160 4,634
_____ _____
Tax (charge)/credit on profit on ordinary activities (485) 4,544
_____ _____
Tax (charge)/credit as profit on ordinary activities classified as:
- Trading (605) 4,544
- Exceptional items 120 -
_____ _____
(485) 4,544
_____ _____
Analysis of deferred taxation:
Year ended
31 December
2004
#'000
At 1 January 2004 6,160
Credit to profit and loss account in the year 160
Loss on foreign currency translation (238)
_____
At 31 December 2004 6,082
_____
The elements of deferred taxation are as follows:
2004 2003
#'000 #'000
Difference between accumulated depreciation and amortisation and (396) (665)
capital allowances
Accrued interest 61 490
Other provisions and timing differences 836 715
Tax losses 14,423 17,905
_____ _____
Total potential net deferred tax asset 14,924 18,445
Less: provision for recoverability (8,842) (12,285)
_____ _____
Net deferred tax asset recognised 6,082 6,160
_____ _____
Deferred tax asset recognised 6,478 6,825
Deferred tax liability (396) (665)
_____ _____
Net deferred tax asset recognised 6,082 6,160
_____ _____
Following a change in the Group's transfer pricing policy a deferred tax asset
has been recognised in relation to tax losses arising in Gyrus Group PLC in
prior years. These are now expected to be fully utilised in 2005. The provision
for recoverability relates solely to the deferred tax asset arising from past
losses in the US that are not expected to be utilised within five trading years.
Whilst the quantum of the US losses recognised has remained unchanged in local
currency the sterling deferred tax asset has reduced as a result of the
translation at the exchange rate prevailing at the year end. A loss on
translation of #0.2 million has been recognised through reserves.
6. Earnings per Ordinary Share
The basic and diluted earnings per ordinary share is based on profits
attributable to ordinary shareholders for the period of #4,212,000 (2003:
#6,674,000). The basic earnings per ordinary share is based on the weighted
average number of ordinary shares of 83,426,097 (2003: 83,251,136).
The diluted earnings per ordinary share in 2004 is based on the weighted average
number of ordinary shares of 83,809,138 (2003: 83,583,612).
The adjusted basic earnings per share before amortisation of goodwill and
deferred tax is based on profit attributable to ordinary shareholders of
#9,584,000 (2003: #8,005,000).
Earnings on which EPS is based:
Year ended
31 December
Year ended 2003
31 December as restated
2004 - note 2
#'000 #'000
Basic earnings for the year 4,212 6,674
Goodwill amortisation 5,505 5,965
Exceptional items 27 -
Deferred taxation (160) (4,634)
_____ _____
Earnings for the year excluding goodwill amortisation, deferred 9,584 8,005
taxation and exceptional items
_____ _____
2003 earnings were enhanced by a credit of #4.6 million in respect of deferred
taxation, reflecting an increase in the estimated recoverability of past losses
as a result of the Group's longer and ongoing profitable trading history. For
this reason, in addition to basic and diluted EPS as prescribed in FRS14, the
Group discloses earnings per share excluding deferred taxation. Goodwill
amortisation and exceptional items are also excluded for reasons of ease of
comparability from year to year.
7. Reconciliation of Movements in Shareholders' Funds
Share Share Merger Profit Total Total
capital premium reserve & loss 2004 2003
Group #'000 #'000 #'000 #'000 #'000 #'000
At 1 January 2,156 151,971 3,860 (14,979) 143,008 139,788
Prior year adjustment - - - (21,421) (21,421) (11,823)
_____ _____ _____ _____ _____ _____
At 1 January restated - note 2 2,156 151,971 3,860 (36,400) 121,587 127,965
Issue of shares
Issued on exercise of share options 4 476 - - 480 113
Issued in connection with Gyrus
Share Matching Scheme - - - - - 1
Profit for the year - - - 4,212 4,212 6,674
Loss on foreign currency translation - - - (8,561) (8,561) (13,175)
Share related awards - - - - - 9
_____ _____ _____ _____ _____ _____
At 31 December 2,160 152,447 3,860 (40,749) 117,718 121,587
_____ _____ _____ _____ _____ _____
8. Reconciliation of Operating Profit to Cash Flow from Operating Activities
2004 2003
as restated
- note 2
#'000 #'000
Operating profit 5,542 3,464
Goodwill amortisation 5,505 5,965
Licences and patents amortisation 345 126
Depreciation charges 3,562 3,997
Loss on disposal of fixed assets 137 236
Exceptional items
- Profit on sale of land 373 -
- Loss on termination of operations (400) -
Decrease in stocks 856 2,269
Increase in debtors (1,578) (493)
Increase/(decrease) in creditors 1,964 (2,614)
Share related awards - 9
_____ _____
16,306 12,959
_____ _____
9. Analysis of Net Debt
At At
31 December Cash Exchange 31 December
2003 flows movement 2004
#'000 #'000 #'000 #'000
Cash at bank and in hand 5,392 2,005 (134) 7,263
Bank overdraft (1,247) 1,247 - -
_____ _____ _____ _____
Cash at bank and in hand 4,145 3,252 (134) 7,263
Debt due within one year (420) (8,508) - (8,928)
Debt due after one year (18,888) 18,888 - -
Finance lease (308) 113 11 (184)
_____ _____ _____ _____
Net debt (15,471) 13,745 (123) (1,849)
_____ _____ _____ _____
10. Gross Cash Flows
2004 2003
#'000 #'000
Returns on investment and servicing of finance
Interest received 171 64
Interest paid (766) (1,221)
Interest element in finance lease rental payments (21) (31)
_____ _____
Net cash outflow from returns on investments and servicing of finance (616) (1,188)
_____ _____
Taxation
Tax paid (185) (418)
Research and development tax credit received - 130
_____ _____
Net cash outflow from taxation (185) (288)
_____ _____
Capital expenditure
Purchase of intangible fixed assets - (722)
Purchase of tangible fixed assets (2,657) (3,538)
Proceeds of sale of tangible fixed assets 417 -
_____ _____
Net cash outflow from capital expenditure (2,240) (4,260)
_____ _____
Acquisitions
Purchase of subsidiary undertakings - (4,258)
Net cash acquired with subsidiaries - 133
_____ _____
Net cash outflow from acquisitions - (4,125)
_____ _____
Financing
Capital element of finance lease rental payments (113) (169)
Bank loan (10,380) (1,612)
Issue of share capital 480 114
_____ _____
Net cash (outflow)/inflow from financing (10,013) (1,667)
_____ _____
11. Dividend
The directors do not recommend the payment of a dividend.
12. Approval
This statement was approved by the Board of Directors on 15 March 2005.
13. Copies of the Annual Report and Accounts
Copies of the Annual Report and Accounts will be sent to all shareholders and
further copies will be obtainable from the Company's registered office, Fortran
Road, St. Mellons, Cardiff CF3 0LT.
Guidance on the effect of International Financial Reporting Standards on Gyrus
Group PLC
The IFRS information set out below is unaudited proforma information designed to
illustrate to shareholders the effect that adoption of IFRS would have had on
the 2004 profit and loss account (under IFRS to be known as the Income
Statement), earnings per share and the balance sheet.
First-time Adoption of International Financial Reporting and Accounting Policies
In the year ending 31 December 2005, Gyrus Group PLC will adopt EU-adopted
International Financial Reporting Standards (IFRS) for the first time. The
Group will apply IFRS 1, First-time Adoption of International Financial
Reporting Standard and the date of transition to IFRS is 1 January 2004.
The adoption of IFRS will result in a number of changes to the Group's
accounting policies and the table below illustrates the effect of these changes
on the UK GAAP profit reported for the year ended 31 December 2004 and on the
earnings per share.
Effect on Profit ended for the year ended 31 December 2004
Results Charge for Goodwill Capitalised Deferred tax Interest on Results for
for the share based amortisation development liability deferred the year
year payments expenditure recognised consideration ended 31/12/
ended 31/ 04 under
12/04 IFRS
under UK
GAAP
(audited) (note 1) (note 2) (note 3) (note 4) (note 5) (unaudited)
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Revenue 86,930 - - - - - 86,930
Cost of sales (35,551) (19) - - - - (35,570)
_____ _____ _____ _____ _____ _____ _____
Gross profit 51,379 (19) - - - - 51,360
_____ _____ _____ _____ _____ _____ _____
Other operating income 641 - - - - - 641
Selling and distribution (23,089) (69) - - - - (23,158)
expenses
Research and development (7,262) (18) - 141 - - (7,139)
expenses
General and administrative (16,127) (218) 5,505 - - - (10,840)
expenses
_____ _____ _____ _____ _____ _____ _____
Net Operating Profit 5,542 (324) 5,505 141 - - 10,864
Profit on sale of land 373 - - - - - 373
(note 7)
Loss for the period from (400) - - - - - (400)
terminated operations (note
7) _____ _____ _____ _____ _____ _____ _____
Profit before interest and 5,515 (324) 5,505 141 - - 10,837
taxation
Finance income 170 - - - - - 170
Finance costs (988) - - - - (32) (1,020)
_____ _____ _____ _____ _____ _____ _____
Profit before tax 4,697 (324) 5,505 141 0 (32) 9,987
Tax expense (note 8) (485) 45 - (42) (1,022) - (1,504)
_____ _____ _____ _____ _____ _____ _____
Net profit (loss) 4,212 (279) 5,505 99 (1,022) (32) 8,483
_____ _____ _____ _____ _____ _____ _____
Earnings per ordinary share
Basic 5.0p 10.2p
_____ _____
Diluted 5.0p 10.1p
_____ _____
Adjusted Basic excluding 11.5p 11.2p
goodwill, deferred tax and
material non-recurring _____ _____
items shown separately on
face of income statement
Effect on balance sheet as at 31 December 2004
The effect of the changes to the Group's accounting policies on the equity of
the Group at 31 December 2004 was as follows:
At 31 December 2004 IFRS Note Number At 31 December 2004
adjustments
under UK GAAP as restated
(audited) under IFRS (unaudited)
#'000 #'000 #'000
Non-current Assets
Property, plant and equipment 10,396 - 10,396
Goodwill 85,241 5,468 2 90,709
Intangible assets 124 141 3 265
Deferred tax asset - 4,403 4,5,6 4,403
_____ _____ _____
95,761 10,012 105,773
_____ _____ _____
Current Assets
Inventories 13,434 - 13,434
Trade receivables 13,834 - 13,834
Deferred tax asset 6,082 (6,082) 6 -
Other receivables 2,480 - 2,480
Cash and cash equivalents 7,263 - 7,263
_____ _____ _____
43,093 (6,082) 37,011
_____ _____ _____
Current Liabilities
Trade payables (2,878) - (2,878)
Other taxes and social security (885) - (885)
Obligations under finance leases (58) - (58)
Bank overdrafts and loans (8,928) - (8,928)
Other creditors (739) 5 5 (734)
Accruals and deferred income (7,514) - (7,514)
_____ _____ _____
(21,002) 5 (20,997)
_____ _____ _____
Net Current Assets 22,091 (6,077) 16,014
_____ _____ _____
Total Assets less Current 117,852 3,935 121,787
Liabilities
_____ _____ _____
Non-current Liabilities
Obligations under finance leases (126) - (126)
Other creditors (8) - (8)
____ ____ ____
(134) - (134)
____ ____ ____
Net Assets 117,718 3,935 121,653
____ ____ ____
Equity
Share Capital 2,160 - 2,160
Share Premium 152,447 - 152,447
Merger reserve 3,860 - 3,860
Retained earnings b/f at 1 January (36,400) (708) (37,108)
2004
Profit for 2004 4,212 4,271 8,483
Movement on Share Option Reserve - 324 324
2004
Movement on foreign exchange in (8,561) 48 (8,513)
2004
____ ____ ____
Total equity 117,718 3,935 121,653
____ ____ ____
Notes:
(1) Charge for share based payments
Under IFRS 2 a charge must be recognised for any share based payments including
awards under the Group's share option plans and under the Save As You Earn
Scheme and the US Employee Purchase Plan. The cost of the option is based on the
fair value of the option at the date of grant and is charged to profit and loss
account over the vesting period. A charge has been recognised for all awards
granted since 7 November 2002 and not vested by 31 December 2004. It is charged
to the same profit and loss account expense category as the costs of the
employee to whom the share award has been made. An equivalent amount is credited
to the profit and loss reserve in the balance sheet.
(2) Goodwill
The Group's policy under UK GAAP regarding the amortisation of goodwill was to
amortise the goodwill over 20 years. Under IFRS 3, there is no amortisation of
goodwill so this adjustment removes the goodwill amortisation charge under UK
GAAP. An annual impairment review is performed under IFRS and any reduction in
the carrying value is to be written down through the income statement. The
impairment review at 31 December 2004 confirmed that there had been no
impairment of goodwill.
(3) Capitalised Development Expenditure
Under UK GAAP all research and development expenditure was charged to the profit
and loss account as incurred. Under IAS 38 development expenditure which meets
certain specified criteria is required to be capitalised and amortised over its
useful life. #141,000 (representing 2% of the Group's total Research and
Development cost) of 2004 development expenditure has been identified which
would have been capitalised (net of amortisation) under IFRS. This policy has
not been applied retrospectively due to the non-availability of relevant
information.
(4) Recognition of deferred tax liability where goodwill amortisation is
eligible for a tax deduction
Gyrus' auditors currently advise that under IAS 12, accounting for taxes on
income, it is necessary to recognise the deferred tax liability which arises on
goodwill which is eligible for a tax deduction in the US but for which, under
IAS, there is no amortisation charge in the income statement. The only
circumstances in which the liability would crystallise would be the sale of the
assets of the subsidiary to which the goodwill relates or an impairment of that
goodwill. The board considers the likelihood of either of these events occurring
to be remote and will be seeking further guidance on the relevant accounting.
(5) Deferred consideration
Adjustment for interest on deferred consideration required under IFRS 3.
(6) Reclassification of deferred tax asset as a non current-asset
Deferred tax is shown in the balance sheet as a non-current asset under IAS,
rather than as a current asset as under UK GAAP.
(7) Treatment of exceptional items
The audited profit and loss account for the year ended 31 December includes an
exceptional item of #27,000. Under IFRS, there is no concept of "exceptional"
items. Material non-recurring items, for example, those of a type that under UK
GAAP would be exceptional items, may not be aggregated but may be disclosed
separately below operating profit.
(8) Tax effect
Many of the above adjustments require an adjustment to the tax charge. The
aggregate adjustment represents additional deferred tax provided and does not
involve an additional liability to be paid in cash.
Gyrus Group PLC has taken advantage of the following exemptions:
1. Under IFRS 3, Business Combinations, no restatement of business combinations
prior to adopting IFRS.
2. Under IAS 21, The effects of changes in foreign exchange rates, no prior
adjustment for cumulative translation differences that existed at the date of
transition to IFRS.
3. Under IAS 32, Financial Instruments: Disclosure and Presentation, and IAS 39,
Financial Instruments: Recognition and Measurement, no restatement of
comparatives for 2004 so the information is disclosed in line with UK GAAP.
The IFRS information set out above does not constitute the company's statutory
accounts for the year ended 31 December 2004. The financial information for 2004
presented by the directors in this statement is derived from the statutory
accounts for 2004. The accounts have been audited and the audit report is
unqualified and does not contain a statement under section 237 (2) or (3) of the
Companies Act. The accounts will be delivered to the registrar of companies
following the company's annual general meeting.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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