RNS Number:0615T
Gyrus Group PLC
16 March 2007
16 March 2007
Gyrus Group PLC
Gyrus grows revenue by 42% and Adjusted EPS* by 20%
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 2006.
Financial Highlights
* Group revenues up 42% to #213.3 million (2005: #150.4 million) including
full year of ACMI revenue
* Underlying proforma** revenue growth of 7% from continuing operations as a
result of a stronger performance in the second half of the year
* Reported operating profit up 84% to #19.1 million (2005: #10.4 million);
Underlying operating profit* up 65% to #35.2 million (2005: #21.3 million)
* Adjusted EPS* rises 20% to 17.1p (2005: 14.2p) slightly ahead of market
expectations and basic EPS increases 61% to 9.0p (2005: 5.6p)
* Excluding, where relevant, material non-recurring items, amortisation of
acquired intangibles, restructuring costs and the separately disclosed IAS 12
adjustment to goodwill and other deferred tax movements.
**Proforma 2005 comparative assumes a full year effect of ACMI rather than from
the date of acquisition (21st July 2005)
Operational Highlights
* Surgical Division sales up to #52.5 million with strong performance from
PK(R) instrument portfolio; proforma** constant currency revenue grows by
19% in the US
* Successful launches of PlasmaCision(R) products in Surgical Division
produce disposable product sales of $4.6 million (2005: $1.3 million) and
an installed base of 407 G400 Generators
* Partnered Technologies Division grows revenue 14% on strong performances by
the portfolio of partners
* Urology & Gynaecology Division finishes year strongly to report 4%
underlying proforma revenue growth after a flat first half. US sales of PK
SuperPulse products reach $10.1 million (2005: $5.4 million)
* ACMI integration programme on track for $25 million savings target overall
and underlying operating margin* improves to 16.5% (2005: 14.2%)
Brian Steer, Executive Chairman, said:
"We have delivered earnings ahead of expectations reflecting the Group's
improved trading and leaner cost base. In 2006 we made excellent progress with
the integration of Gyrus ACMI, having reorganised and refocused the Group on our
"See and Treat" technology. We are now seeing the strategic benefits of the
combined product portfolio and are encouraged by the developing momentum of our
new products.
"Although the weakness of the US dollar remains a translation concern, we
anticipate further improvement in our operating margin and the continued
strengthening of our business in 2007."
Enquiries:
Gyrus Group PLC On 16 March 2007:
Brian Steer, Executive Chairman Tel: 0207 831 3113
Simon Shaw, Chief Financial Officer Tel: 0207 831 3113
Financial Dynamics
Ben Atwell / John Gilbert Tel: 0207 831 3113
Overview
In our last annual report we concluded "...We look at 2006 as the foundation
year for significant integration and new product introductions, which will
determine our future success...". This is a succinct summary of the Group's
strong performance in 2006, a year in which we have progressed well with the
operational integration of Gyrus ACMI, having reorganised and refocused the
Group on the value of our "See and Treat" technology platform. In addition to
bringing a large number of new products to market, we have continued to deliver
strong growth in the Group's revenue and earnings.
The Group's reported sales revenue grew by 42% to #213.3 million (2005: #150.4
million). The majority of this growth derived from the full year effect of the
acquisition of ACMI in July 2005. Underlying proforma constant currency revenue
grew by approximately 7% year-on-year showing a slight improvement in the second
half compared with the first six months.
The Group continued to improve its operating margin, which translated into basic
earnings per share (EPS) growth of 61% to 9.0p (2005: 5.6p) and our underlying
measure of Adjusted EPS, which grew 20% to 17.1p (2005: 14.2p).
The Surgical Division
Global Surgical Division revenue increased on a reported basis by 40% to #52.5
million (2005: #37.6 million) although this includes the effect of the transfer
of certain laparoscopic products from ACMI to the Surgical Division at the end
of 2005. The Division posted 19% proforma revenue growth in the US on a constant
currency basis, primarily due to the continued growth of the laparoscopic
hysterectomy market in the United States. In addition the early stage of the
Division's launch into the large general surgery market is encouraging.
Overall US sales of the Division's PK disposable instrument range grew by over
40% to $38.9 million (2005: $27.5 million). Of this PK Cutting forceps, the
product through which the Division has grown consistently over the last five
years, continued their strong performance in 2006 posting sales of $27.3
million in the US, representing growth of over 34% on the prior year (2005:
$20.3 million). The Division continues to build its position in the laparoscopic
hysterectomy market and last year approximately 400 surgeons were trained in
laparoscopic gynaecological techniques under Gyrus ACMI's sponsored programmes.
The G 400 Generator, which is now the Surgical Division's workstation and can
power the full range of conventional PK and newer PlasmaCision(R) instruments
for use in both gynaecology and general surgery performed well with 407 new
generators installed into the US market since its launch in March 2006.
In March 2006, the Division introduced its first laparoscopic instruments for
general surgery using PlasmaCision, our simultaneous "cut and seal" technology.
The Plasma Trissector and Plasma J Hook joined the PlasmaSeal (for open surgery)
and the PlasmaSpatula (gynaecology) to form the Surgical Division's PlasmaCision
portfolio which represented sales of $4.6 million in 2006, an increase of
approximately 250% on the prior year (2005: $1.3 million).
The two lead products, PlasmaSeal and Plasma Trissector (for open and
laparoscopic surgery respectively) underwent significant optimisation processes
during the period from launch to the end of the year. During this period they
were only available to the market on a restricted basis.
The Urology & Gynaecology Division
The Urology & Gynaecology Division's reported global revenue reached #96.1
million, a 93% increase on the prior period (5.5 month period in 2005: #49.7
million). On a proforma basis, US revenue grew 4% in constant currency when
compared against a strong pre-acquisition comparative. The Division was
refocused onto the sale of single use products and several new product launches
resulted in encouraging signs of a pick up in revenue growth during the second
half of the year.
In the US cysto-resection market, sales grew by approximately 7% in 2006 to just
over $67 million. The PK SuperPulse products for prostate and bladder treatment
performed increasingly strongly during the course of the year. Having posted
$3.4 million in revenue in the first six months of the year, PK product sales
accelerated in the third quarter and finished the year at $10.1 million.
The performance of the Division's stone management portfolio in the US was mixed
with overall sales down by just under 2% on the proforma full year comparative
to a total of $60 million. Some important products in the range performed well,
with semi rigid ureteroscopes showing sales growth of 55% following the launch
of the new MR6-A (autoclaveable) scope and laser fibres and accessories growing
by over 7%. There was a decline in sales of the Division's conventional fibre
optic-based flexible ureteroscopes, primarily as a result of customers delaying
capital investment on replacement scopes until the launch of the Division's new
digital Invisio ureteroscope, the DUR-D. This scope was introduced to the market
late in the year and is expected to generate significant revenue in 2007.
The endoscopic gynaecology portfolio performed well with US sales growing by
just over 13% to $18.7 million supported by strong performances in fluid
management and disposable instruments.
The ENT Division
Whilst underlying revenue from continuing operations remained flat on a constant
currency basis, the ENT Division increased its profit contribution substantially
as it restructured to focus on the surgical aspects of its current and future
portfolio. In the last quarter the Division began a significant overhaul of its
management and sales force to achieve this. Global Divisional revenue fell by 4%
on a reported basis, due to the decline in the dollar, to #38.5 million (2005:
#40.1 million).
The Otology business contributed US sales revenue of approximately $23.2 million
in 2006, a decline of 3% on the previous year (2005: $23.8 million). This
performance is consistent with normal variations between periods for this mature
market in which we hold the leading position.
The Sinus and Rhinology business contributed US sales of $16.3 million in 2006,
approximately 6% higher than the previous year (2005: $15.4 million). During the
first nine months of the year revenue was adversely affected by litigation
mounted against the Division by Medtronic Xomed in respect of the Division's
Diego(R) micro-debrider product. In September 2006, Medtronic dropped the case
and sales of the Diego range have improved since that time to record annual
growth of 12% compared with 9% at the half-year stage.
Head and Neck surgery comprises a number of different products but the primary
focus for the future is on the Division's PlasmaCision derived products, the J
PlasmaKnife for tonsils and the Dissector PlasmaKnife for radical procedures
such as thyroidectomy, which were launched towards the end of the year.
The Partnered Technologies Division
The Partnered Technologies Division showed strong growth with each of its
principal partner relationships contributing well. The Division reported global
revenue growth of 14% to #26.2 million (2005: #23.0 million). In addition it
commenced a potentially interesting new relationship in the area of
robot-assisted surgery with Intuitive Surgical Inc.
International Sales
By the end of the year the International sales organisation had addressed the
need to rationalise its distribution partnerships around the world. The process
of achieving this restricted revenue growth in the year, resulting in constant
currency growth of 2% year-on-year.
Overall the Group enjoyed a strong finish to the year and revenue growth for the
second half began to improve towards the Group's target of 10% per annum.
Gross Margin
The Group's reported gross margin improved to 59.3% in 2006 (2005: 55.6%) and
excluding restructuring costs and material non-recurring item, the gross margin
improved to 60.5% (2005: 58.8%).
This was achieved through a combination of volume, mix, lean manufacturing and
integration improvements. The legacy ACMI manufacturing plants benefited
significantly from both the continuation of the operating efficiency programmes
started pre-acquisition and the implementation of lean manufacturing since then.
Operating Expenses
The Group's operating expenses, before restructuring costs, increased as a
result of the full year effect of the ACMI acquisition but decreased as a
percentage of sales revenue to 44.3% (2005: 45.5%) following the removal of
duplicated overhead costs and improved purchasing power for non-stock expenses
such as insurance coverage.
Selling and distribution expenses increased substantially to 27.8% of sales
revenue (2005: 25.9%). This was primarily due to increased expenditure on sales,
marketing and training/support staff and associated resources to support new
product launches.
R&D and New Products
During the year we focused our development resources primarily on the Group's "
See and Treat" platform comprising the Group's Invisio(R) digital visualisation
capability and PK tissue management technology.
During 2006 our expenditure on research and development, before restructuring
costs, increased 16% to #15.2 million (2005: #13.1m) but declined as a
percentage of sales to 7.1% (2005: 8.7%). Overall R&D spend including
capitalised costs represented 7.6% of revenue (2005: 8.9%). Of this,
approximately #1.3 million (2005: #1.9 million) was expensed in the successful
defence against an intellectual property infringement action brought against the
ENT division by Medtronic Xomed.
In the visualisation field Gyrus ACMI introduced three new camera systems during
the year, including the Titan, the first 3 chip digital camera, which can
withstand repeated sterilisation by autoclave, and two megapixel digital camera
heads. In addition, we introduced the DUR-D ureteroscope, our latest flexible
endoscope to incorporate Invisio digital technology. We have high expectations
for this product's success in the market.
In the tissue management field, Gyrus ACMI introduced the PlasmaCision range of
products for general abdominal surgery and, in the last quarter, for the ENT
market. We now have seven separate disposable instruments incorporating the
Group's proprietary PlasmaCision simultaneous "cut and seal" technology. We
anticipate that the Surgical and ENT Divisions will make significant gains in
their respective markets with these instruments.
Profitability
The Group's reported operating profit for 2006 was #19.1 million (2005: #10.4
million) representing an 84% increase on the prior year. Excluding material
non-recurring items, amortisation of acquired intangibles, restructuring costs
and the separately disclosed IAS 12 adjustment to goodwill, operating profit
increased by 65% to #35.2 million (2005: #21.3 million), representing an
operating margin of 16.5% of sales revenue (2005: 14.2%). Although restructuring
charges will continue to have an impact upon 2007 and 2008 the Group is well on
course to meet its goal of substantially improving its underlying operating
margin to 20%.
Integration of Gyrus ACMI
In 2006 the Group made substantial progress in integrating ACMI. This process,
which involved significant restructuring programmes related to manufacturing
capacity and location, incurred restructuring costs of #5.8 million before
taxation (2005: (23 weeks) #2.4 million).
We are nearing completion of the closure of our facility in Racine, Wisconsin, a
process that commenced in January 2006. In mid-year we announced the instigation
of a sheltered manufacturing programme in Mexico, which is designed to take on
the manufacturing of products for which labour and overhead cost is a
significant barrier to success. The first product to have been manufactured at
our new Saltillo site was despatched in February 2007. In addition we have set
up the Gyrus ACMI Customer Service and Distribution Centre in Maple Grove,
Minnesota and further increased our manufacturing capacity there.
Finally, we have also been working on the implementation of a new Oracle
Enterprise Resource Planning (ERP) system throughout the Group. This is
designed, over the next two years, to replace most of the multiple computer
systems and manual processes which are currently in use throughout the Group.
The Maple Grove Distribution Centre was the first site to go live on the new
system in early March 2007.
Earnings per share
Basic EPS of 9.0p in 2006 increased by 61% on the prior year (2005: 5.6p).
Adjusted EPS, which excludes the amortisation of acquired intangible assets, net
restructuring costs (including the cost of the one-off special LTIP award, but
not "normal" annual awards), material non-recurring items, the separately
disclosed IAS 12 adjustment to goodwill and other movements on deferred taxation
increased 20% to 17.1p (2005: 14.2p).
Installed base of Generators in the US
In 2006 the installed base of generators in the US grew by 21% to 6,353 units
(2005: 5,248 units). Sales of disposable instruments associated with these
generators increased by 30% to $60.2 million (2005: 22% and $46.3 million
respectively). During 2006 the Group continued to sell approximately 50% of the
generators which we supplied to the US market overall, with the remainder placed
under a variety of loan schemes.
The Group's investment in placing generators in the year increased by 27% to
#1.9 million (2005: #1.5 million) in line with placement volumes.
Management and staff
It is a testament to the capability and commitment of our staff around the world
that we have been able to progress on all fronts this year whilst making the
restructuring changes necessary to support our future success.
During the year there have been some changes in personnel and responsibilities
amongst the members of the Group Operating Board, which is the primary forum for
the day-to-day management of the Group's activities. Andy Zappas was appointed
President of the Urology & Gynaecology Division with a particular brief to build
the disposable product business. Following the departure of Frank D'Amelio as
Chief Technology Officer, Roy Davis, Chief Operating Officer, has taken over
responsibility for research and development activities alongside his existing
operational duties. Tom Murphy, Executive Vice President, has taken on
responsibility for the Group's Customer Service and Distribution Centre and, in
addition, he is responsible for the implementation of the Oracle ERP System.
Finally, Simon Shaw, Chief Financial Officer, has assumed executive
responsibility for the Partnered Technologies Division.
Board
In preparation for the next phase of the Group's development, the Board
appointed John Rennocks and Katherine Innes Ker as Non-Executive Directors in
October 2006. Charles Goodson-Wickes will retire at this year's Annual General
Meeting and we thank him for his strong and wise support of the Group over the
10 years he has held office. Michael Garner, Deputy Chairman has agreed to take
responsibility for ensuring an orderly Chief Executive succession process during
2007.
During 2006 the Nominations Committee began its preparation for the Chief
Executive succession programme and the selection process has now commenced. It
is anticipated that a decision will be made by the time of the Group's interim
results in September this year.
Summary and Outlook
We have delivered earnings ahead of expectations reflecting the Group's improved
trading and leaner cost base. In 2006 we made excellent progress with the
integration of Gyrus ACMI, having reorganised and refocused the Group on our "
See and Treat" technology. We are now seeing the strategic benefits of the
combined product portfolio and are encouraged by the developing momentum of our
new products.
Although the weakness of the US dollar remains a translation concern, we
anticipate further improvement in our operating margin and the continued
strengthening of our business in 2007.
Gyrus Group PLC
Consolidated Income Statement
Year ended 31 December 2006
Note Year ended 31 Restructuring IAS 12 Year ended
December 2006 adjustment to 31 December
pre-restructuring (note 4) goodwill (note 2006
costs and IAS 12 5)
adjustment
#000 #000 #000 #000
Revenue 2 213,342 - - 213,342
Cost of sales (84,351) (2,514) - (86,865)
_____ _____ _____ _____
Gross profit 128,991 (2,514) - 126,477
Other operating income 695 - - 695
Selling and distribution expenses
- Selling and distribution (59,334) (1,952) - (61,286)
- Amortisation of acquired intangible (5,506) - - (5,506)
assets
Research and development expenses
- Research and development (15,196) (308) - (15,504)
- Amortisation of acquired intangible (2,942) - - (2,942)
assets
General and administrative expenses (19,982) (1,034) (1,773) (22,789)
_____ _____ _____ _____
Operating profit 2 26,726 (5,808) (1,773) 19,145
Financial income 1,322 - - 1,322
Financial expense (10,342) - - (10,342)
_____ _____ _____ _____
Profit before taxation 17,706 (5,808) (1,773) 10,125
Taxation 5 940 2,128 - 3,068
_____ _____ _____ _____
Profit for the year 18,646 (3,680) (1,773) 13,193
_____ _____ _____ _____
Earnings per ordinary share
Basic 6 9.0p
Diluted 6 8.7p
All activities were in respect of continuing operations
Gyrus Group PLC
Consolidated Income Statement
Year ended 31 December 2005
Note Year ended 31 Restructuring Impact of fair Year ended
December 2005 value 31 December
pre-restructuring (note 4) adjustments on 2005
costs and material acquired
non-recurring items inventory and
(notes (a) and (b) option
below) accounting
(notes (a) and
(b) below)
#000 #000 #000 #000
Revenue 2 150,376 - - 150,376
Cost of sales (62,006) (57) (4,686) (66,749)
_____ _____ _____ _____
Gross profit 88,370 (57) (4,686) 83,627
Other operating income 1,501 - - 1,501
Selling and distribution expenses
- Selling and distribution (38,955) (1,206) - (40,161)
- Amortisation of acquired intangible (2,524) - - (2,524)
assets
Research and development expenses
- Research and development (13,148) - - (13,148)
- Amortisation of acquired intangible (1,349) - - (1,349)
assets
General and administrative expenses (16,422) (1,106) - (17,528)
_____ _____ _____ _____
Operating profit 2 17,473 (2,369) (4,686) 10,418
Financial income 255 - 2,972 3,227
Financial expense (5,718) - (992) (6,710)
_____ _____ _____ _____
Profit before taxation 12,010 (2,369) (2,706) 6,935
Taxation 5 (3,340) 900 1,781 (659)
_____ _____ _____ _____
Profit for the year 8,670 (1,469) (925) 6,276
_____ _____ _____ _____
Earnings per ordinary share
Basic 6 5.6p
Diluted 6 5.4p
a) Fair value adjustment on acquired inventory
As required by IFRS 3 "Business Combinations", at the date of acquisition of
ACMI finished goods were valued at the selling price less the costs of disposal
and a reasonable profit allowance for the selling effort. Work in progress was
valued at the selling price of the finished goods less costs to complete, costs
of disposal and a reasonable profit allowance for completing and selling the
goods. Raw materials were valued at current replacement cost. The fair value
adjustment arising as a result of this valuation exercise amounted to an
increase in the value of inventories of #4,686,000. This inventory uplift
reversed through the income statement over the inventory turn and the charge
arising in the year ended 31 December 2005 was #4,686,000.
b) Option accounting
On 16 June 2005 Gyrus announced the proposed acquisition of ACMI for a total
consideration of $497 million. On the same date it entered a placing agreement
to raise #116 million (net). In order to ensure that #116 million proceeds of
the sterling capital raised would buy at least USD$ 206 million required for
settlement, regardless of movements in the USD$:GBP# exchange rate, Gyrus
entered into an option agreement. The cost of the option was #992,000 and the
terms of the option allowed for exercise up to the 15 August 2005.
On completion, the sale of option generated proceeds of #2,972,000 (a net gain
of #1,980,000). This is an ineffective hedge under the provisions of IAS 39, and
therefore the cost of the option and the sale proceeds thereof were taken to
financial expense and financial income respectively in the year ended 31
December 2005.
Gyrus Group PLC
Statement of recognised income and expense
Year ended 31 December 2006
2006 2005
#000 #000
Exchange differences arising on translation of operations (32,864) 19,027
Deferred tax recognised on income and expenses directly in equity 451 443
Cash flow hedges
Changes in accounting policy relating to the first-time adoption of IAS - (115)
39
Effective portion of changes in fair value of cash flow hedges net of 75 809
recycling
Actuarial gain/(loss) on defined benefit pension plan 227 (35)
_____ _____
(32,111) 20,129
Profit for the year 13,193 6,276
_____ _____
Total recognised income and expense for the year (18,918) 26,405
_____ _____
Gyrus Group PLC
Consolidated Balance Sheet
As at 31 December 2006
2006 2005
#000 #000
Assets
Property, plant and equipment 20,784 20,057
Goodwill 253,538 288,251
Other intangible assets 89,831 110,288
_____ _____
Total non-current assets 364,153 418,596
Inventories 32,353 33,140
Trade receivables 33,713 35,509
Other current assets 7,076 8,849
Cash and cash equivalents 23,327 20,194
_____ _____
Total current assets 96,469 97,692
_____ _____
Total assets 460,622 516,288
_____ _____
Equity
Share capital (2,792) (2,785)
Share premium (305,282) (303,699)
Merger reserve (3,860) (3,860)
Other reserves 22,102 (10,467)
Retained earnings 2,999 19,306
_____ _____
Total equity (286,833) (301,505)
Liabilities
Bank loan (99,633) (136,731)
Obligations under finance leases and hire purchase contracts (44) (146)
Deferred tax liabilities (13,778) (22,801)
Provisions (1,400) (1,624)
_____ _____
Total non-current liabilities (114,855) (161,302)
Bank overdrafts and loans due within one year (20,437) (13,123)
Trade and other payables (34,846) (37,700)
Current tax payable (540) (929)
Obligations under finance leases and hire purchase contracts (99) (134)
Provisions (3,012) (1,595)
_____ _____
Total current liabilities (58,934) (53,481)
_____ _____
Total liabilities (173,789) (214,783)
_____ _____
Total equity and liabilities (460,622) (516,288)
_____ _____
Gyrus Group PLC
Consolidated Cash Flow Statement
For the year ended 31 December 2006
2006 2005
#000 #000
Cash flows from operating activities
Profit for the year 13,193 6,276
Adjustments for:
Depreciation of property, plant and equipment 4,784 4,316
Amortisation of intangible assets 8,803 4,327
IAS 12 adjustment to goodwill (note 5) 1,773 -
Loss on disposal of property, plant and equipment 81 85
Financial income and expense 9,020 5,463
Exchange loss included in financial income and expense (423) (1,062)
Fair value adjustment on acquired inventory and option accounting - 2,705
Equity settled share based payment expense 2,656 1,570
Taxation (3,068) 659
_____ _____
Operating cash flows before movement in working capital 36,819 24,339
Increase in inventories (4,238) (1,263)
Increase in trade and other receivables (263) (10,268)
Increase in trade and other payables 3,176 948
_____ _____
Cash generated from operations 35,494 13,756
Interest paid (9,595) (3,227)
Tax paid (2,850) (573)
_____ _____
Net cash from operating activities 23,049 9,956
_____ _____
Cash flows from investing activities
Interest received 742 192
Proceeds on disposal of property, plant and equipment 306 -
Acquisition of property, plant and equipment (7,685) (4,238)
Acquisition of patents, trademarks and other intangibles (140) (56)
Expenditure on product development (1,104) (253)
Acquisition of subsidiaries (net of cash acquired) - (289,775)
_____ _____
Net cash from investment activities (7,881) (294,130)
_____ _____
Cash flows from financing activities
Proceeds from issue of share capital 1,590 155,660
(Repayment)/proceeds from (decrease)/increase in borrowings (12,403) 141,259
Repayment of obligations under finance leases (110) (133)
_____ _____
Net cash from financing activities (10,923) 296,786
_____ _____
Net increase in cash and cash equivalents 4,245 12,612
Cash and cash equivalents at beginning of year 20,194 7,263
Effect of foreign exchange rate fluctuations on cash held (1,112) 319
_____ _____
Cash and cash equivalents at end of year 23,327 20,194
_____ _____
Bank balances and cash 23,327 20,194
_____ _____
Gyrus Group PLC
Notes to the Preliminary Announcement
Year ended 31 December 2006
1. Basis of preparation
These financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU.
As permitted under IFRS 3 and as disclosed in note 3, an adjustment has been
made to the opening goodwill balance arising on the acquisition of ACMI.
The financial information set out in this preliminary announcement does not
constitute the Company's statutory accounts for the years ended 31 December 2006
or 31 December 2005. Statutory accounts for 2005 have been delivered to the
registrar of companies and 2006 will be delivered in due course. The auditors
have reported on those accounts; their reports were (i) unqualified, (ii) did
not include references to any matters to which the auditors drew attention by
means of emphasis without qualifying their reports and (iii) did not contain
statements under 237(2) or (3) of the Companies Act 1985.
2. Segment reporting
Segment information is presented in respect of the Group's business divisions,
which are the primary basis of segment reporting. The business segment reporting
format reflects the Group's management and internal reporting structures for
2006.
Inter-segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis.
Business segments
The Group is comprised of the following main business segments:
ENT Design, development, manufacture, marketing and sales
of otology, sinus and rhinology and head and neck
products
Surgical Design, development, manufacture, marketing and sales
of laparoscopic surgery products
Urology & Gynaecology Design, development, marketing and sales of urology
and gynaecology and visualisation products
Partnered Technologies Out-licensing of the Group's proprietary technology
in conjunction with a manufacturing contract for
markets outside the Group's core sales and marketing
competence
The 2005 segmental comparative for the Urology & Gynaecology Division represents
the activities of ACMI between the date of acquisition (21 July 2005) and the
year ended 31 December 2005. As part of the Group restructuring, a number of
products were transferred between the Surgical, Urology & Gynaecology and
Partnered Technologies Divisions. The effect of these changes is identified in a
reconciliation of the 2005 revenue comparative in the result by segment.
For the year ended 31 December 2006
ENT Surgical Partnered Urology & Total
Technologies Gynaecology
#000 #000 #000 #000 #000
Revenue
External sales 38,532 52,465 26,238 96,107 213,342
Inter-segment sales - 985 3,669 - 4,654
_____ _____ _____ _____ _____
38,532 53,450 29,907 96,107 217,996
_____ _____ _____ _____ _____
Segment result before 4,138 11,227 5,697 14,777 35,839
amortisation, restructuring
charges and IAS 12 adjustment
Amortisation of acquired - (919) (56) (7,473) (8,448)
intangibles
IAS 12 adjustment (1,542) (231) - - (1,773)
Restructuring charges (335) (1,989) (47) (3,437) (5,808)
_____ _____ _____ _____ _____
Segment result after amortisation, 2,261 8,088 5,594 3,867 19,810
restructuring charges and IAS 12
adjustment _____ _____ _____ _____ _____
Unallocated corporate expenses (665)
_____
Profit from operations 19,145
Net finance costs (9,020)
_____
Profit before tax 10,125
Taxation 3,068
_____
Profit for the year 13,193
_____
As at 31 December 2006
ENT Surgical Partnered Urology & Unallocated Total
Technologies Gynaecology
#000 #000 #000 #000 #000 #000
Capital additions 990 3,488 1,339 3,095 17 8,929
_____ _____ _____ _____ _____ _____
Depreciation 1,497 1,390 640 1,200 57 4,784
_____ _____ _____ _____ _____ _____
Amortisation 110 927 124 7,642 - 8,803
_____ _____ _____ _____ _____ _____
Assets 96,032 55,389 26,824 279,179 3,198 460,622
_____ _____ _____ _____ _____ _____
Liabilities (56,917) (3,182) (4,890) (116,248) 7,448 (173,789)
_____ _____ _____ _____ _____ _____
For the year ended 31 December 2005
ENT Surgical Partnered Urology & Total
Technologies Gynaecology
#000 #000 #000 #000 #000
Revenue
2005 revenue comparative on basis of 40,119 37,561 23,022 49,674 150,376
2006 segments
Effect of restructuring of segment - (387) (370) 757 -
revenue
____ ____ ____ ____ ____
External sales as previously 40,119 37,174 22,652 50,431 150,376
reported
Inter-segment sales 1,715 1,750 1,501 622 5,588
____ ____ ____ ____ ____
41,834 38,924 24,153 51,053 155,964
____ ____ ____ ____ ____
Segment result before amortisation, 1,946 7,967 4,172 7,736 21,821
restructuring charges and material
non-recurring item
Amortisation of acquired intangibles - - - (3,873) (3,873)
Restructuring charges (846) (876) (34) (613) (2,369)
Material non-recurring item - - - (4,686) (4,686)
____ ____ ____ ____ ____
Segment result after amortisation, 1,100 7,091 4,138 (1,436) 10,893
restructuring charges and material
non-recurring item ____ ____ ____ ____ ____
Unallocated corporate expenses (475)
____
Profit from operations 10,418
Net finance costs excluding material (5,463)
non-recurring item
Material non-recurring item 1,980
____
Profit before tax 6,935
Taxation (659)
____
Profit for the year 6,276
____
There was no material impact on segment result for the year ended 31 December
2005 of the effect of restructuring of segment revenue.
As at 31 December 2005
ENT Surgical Partnered Urology & Unallocated Total
Technologies Gynaecology
#000 #000 #000 #000 #000 #000
Capital additions 1,197 1,457 858 921 114 4,547
____ ____ ____ ____ ____ ____
Depreciation 2,221 939 546 555 55 4,316
____ ____ ____ ____ ____ ____
Amortisation 128 63 32 4,104 - 4,327
____ ____ ____ ____ ____ ____
Assets 130,402 45,901 25,835 319,919 (5,769) 516,288
____ ____ ____ ____ ____ ____
Liabilities (59,907) (3,910) (3,497) (145,651) (1,818) (214,783)
____ ____ ____ ____ ____ ____
The average number of employees for the year for each of the Group's principal
divisions was as follows:
Year ended 31 Year ended 31
December 2006 December 2005
ENT 183 235
Surgical 302 273
Partnered Technologies 162 139
Urology & Gynaecology 747 819
Head office & administration 40 32
_____ _____
1,434 1,498
_____ _____
Geographical Segments
Turnover by destination Year ended 31 Year ended 31
December 2006 December 2005
#000 #000
North America 168,139 111,361
United Kingdom and rest of Europe 32,664 28,196
Rest of world 12,539 10,819
_____ _____
213,342 150,376
_____ _____
Assets 2006 2005
#000 #000
North America 404,184 467,769
United Kingdom and rest of Europe 55,280 47,234
Rest of world 1,158 1,285
_____ _____
460,622 516,288
_____ _____
Capital additions
2006 2005
#000 #000
North America 7,459 3,155
United Kingdom and rest of Europe 1,434 1,298
Rest of world 36 94
_____ _____
8,929 4,547
_____ _____
3. Adjustment to opening goodwill on acquisition of ACMI
As disclosed in the Annual Report and Accounts for the year ended 31 December
2005, on 21 July 2005, Gyrus Group PLC acquired 100% of the share capital of
ACMI. Fair values were assigned to ACMI's identifiable assets and liabilities on
the basis of information available. Subsequent to the initial accounting for
this business combination, a liability of #224,000 was identified that existed
at the balance sheet date but for which no fair value was attributed on
acquisition. As permitted under IFRS 3 ("Business Combinations"), the liability
was recognised within twelve months of the acquisition date as an adjustment to
the opening goodwill arising on acquisition. Net assets and liabilities restated
at the acquisition are #14,711,000 and goodwill restated at acquisition
#180,575,000. There was no impact on either profit or adjusted earnings per
share for the years ended 31 December 2005 or 31 December 2006.
4. Restructuring
As a result of the acquisition of ACMI in 2005, a number of restructuring costs
have been incurred across the Group. The total charge for the year ended 31
December 2006 amounted to #5,808,000 (2005: #2,369,000). An analysis of these
costs is shown below.
2006 2005
#000 #000
Severance costs 2,071 1,320
Short-term sales commission alignment - 352
Demonstration equipment write-off 80 148
Alignment of global enterprise resource planning systems 58 456
International distributor settlements 241 -
Manufacturing inefficiencies and other duplicated costs arising from the 1,365 -
relocation of production
Set up costs associated with the customer service and distribution centre 815 -
and Mexico production facility
Core integration team expenses 881 -
Gyrus ACMI rebranding 143 -
Other costs 154 93
_____ _____
5,808 2,369
_____ _____
5. Income tax expense
Current tax expense
2006 2005
#000 #000
UK corporation tax charge on profits for the year (1,790) (379)
Adjustments in respect of previous periods 24 (54)
______ ______
(1,766) (433)
Foreign tax on profits for the year (936) (487)
Adjustments in respect of previous periods 181 -
______ ______
Total current tax charge (2,521) (920)
______ ______
Deferred tax credit
Origination and reversal of temporary differences 2,819 6,175
Benefit of tax losses recognised (1,616) (5,914)
Net effect of IAS 12 adjustment (*) - -
Adjustments in respect of previous periods 4,386 -
______ ______
5,589 261
______ ______
Total income tax credit/(expense) in income statement 3,068 (659)
______ ______
* As a result of previous acquisitions during 2000 and 2001 certain deferred tax
assets were not recognised as it was considered unlikely that they would be
utilised in future periods. The performance of these acquisitions is now better
than originally anticipated thus, under IAS 12 ("Income Taxes"), the Group has
adjusted goodwill equal to the tax benefit of the subsequently recognised
losses. Accordingly a deferred tax asset of #2,054,000 was recognised and
utilised together with a corresponding adjustment to goodwill net of a credit of
#281,000 in respect of over amortisation in the period before transition to
IFRS's. The net charge to operating expense in the year of #1,773,000 (2005:
#nil) is disclosed separately on the face of the income statement.
Reconciliation of effective tax rate
The total tax charge for the year is lower (2005: lower) than the standard rate
of corporation tax in the UK. The differences are explained below.
2006 2005
#000 #000
Profit before taxation 10,125 6,935
Profit before taxation multiplied by standard rate of corporation tax in 3,038 2,081
the UK 30% (2005:30%)
Effect of tax rates in foreign jurisdictions (rates higher than UK 34 456
taxation)
Expenses not deductible for tax purposes 569 216
Other short-term temporary differences - (1,909)
R&D tax credit (563) -
Effect of tax losses utilised (1,760) (239)
Prior year adjustments and changes to prior estimates (4,386) 54
_____ _____
Total tax (credit)/charge for the year (3,068) 659
_____ _____
Deferred tax recognised directly in equity
Relating to foreign exchange gain on translation (2,983) (220)
Relating to share option schemes (451) (443)
_____ _____
(3,434) (663)
_____ _____
In calculating the 2005 tax charge, certain legal and professional fees relating
to the acquisition of ACMI were treated as non-deductible items. However,
following a detailed review of these expenses, #4.1 million has been treated as
allowable resulting in a prior year adjustment of #1.5 million. Other
adjustments were in respect of depreciation, accrued interest and changes in
estimates.
6. Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the year ended 31 December 2006
was based on the profit attributable to ordinary shareholders of #13,193,000
(year ended 31 December 2005:#6,276,000) and a weighted average number of
ordinary shares outstanding for the year ended 31 December 2006 of 146,492,872
(year ended 31 December 2005:111,601,948).
Diluted earnings per share
The calculation of diluted earnings per share for the year ended 31 December
2006 was based on the profit attributable to ordinary shareholders of
#13,193,000 (year ended 31 December 2005:#6,276,000) and a weighted average
number of ordinary shares for the year ended 31 December 2006 of 150,785,514
(year ended 31 December 2005:115,368,521).
Earnings
2006 2005
#000 #000
Earnings for the purposes of basic and diluted earnings per share 13,193 6,276
_____ _____
Weighted average number of ordinary shares
2006 2005
Number Number
Issued ordinary shares at 1 January 146,157,768 83,652,980
Effect of share options exercised 282,963 289,121
Effect of shares issued in connection with deferred consideration 52,141 -
Effect of shares issued to acquire ACMI - 27,659,847
_____ _____
Weighted average number of ordinary shares as at 31 December 146,492,872 111,601,948
Dilutive effect of share options in issue 4,292,642 3,766,573
_____ _____
Weighted average number of ordinary shares as at 31 December (diluted) 150,785,514 115,368,521
_____ _____
Basic earnings per share 9.0p 5.6p
_____ _____
Diluted earnings per share 8.7p 5.4p
_____ _____
Adjusted earnings per share
In order to provide a clearer measure of the Group's underlying performance,
profit attributable to ordinary shareholders is adjusted to exclude items which
management consider will distort comparability. Adjusted basic earnings per
share has been calculated by dividing adjusted profit attributable to ordinary
shareholders (see table below for adjustments made) of #25,030,000 (year ended
31 December 2005:#15,835,000) by the weighted average number of ordinary shares
outstanding for the year ended 31 December 2006 of 146,492,872 (year ended 31
December 2005:111,601,948). Adjusted diluted earnings per share has been
calculated by dividing adjusted profit attributable to ordinary shareholders of
#25,030,000 (year ended 31 December 2005:#15,835,000) by the weighted average
number of ordinary shares outstanding for the year ended 31 December 2006 of
150,785,514 (year ended 31 December 2005: 115,368,521).
Earnings on which adjusted earnings per share is based:
2006 2005
#000 #000
Earnings for the purpose of basic and diluted earnings per share 13,193 6,276
Net impact of fair value adjustments on acquired inventory and option - 2,706
accounting
Restructuring charges 5,808 2,369
Taxable benefit associated with restructuring charges** (201) -
Amortisation of acquired intangible assets 8,448 3,873
IAS 12 adjustment to goodwill 1,773 -
Charge relating to "special" LTIP award* 1,598 872
Deferred taxation (5,589) (261)
_____ _____
Earnings for the purposes of adjusted earnings per share 25,030 15,835
_____ _____
Adjusted basic earnings per share 17.1p 14.2p
_____ _____
Adjusted diluted earnings per share 16.6p 13.7p
_____ _____
*As part of the acquisition of ACMI, a "special" award of conditional shares
under the Group's LTIP scheme was approved by shareholders and was made to
retain and incentivise approximately 25 key executives to integrate the business
effectively. The award will create a charge over approximately three years until
the potential vesting date of July 2008. The charge relating to this award is
considered to be another form of integration/restructuring cost.
** The tax credit of #2,128,000 associated with restructuring costs comprises a
deferred taxation credit of #1,927,000 (2005: #900,000) and a current taxation
benefit of #201,000 (2005: #nil). The current taxation benefit has been deducted
from adjusted earnings per share to correctly reflect the net impact of
restructuring. The current taxation benefit is lower than the effective tax rate
as the costs of integration have principally been incurred within the US where
tax losses are available to offset profits. In 2005, all integration costs were
incurred in the US and hence no tax benefit was added back in that year.
7. Dividend
The Directors do not recommend the payment of a dividend.
8. Approval
This statement was approved by the Board of Directors on 15 March 2007.
9. Copies of the Preliminary Announcement and Annual Report and Accounts
This Preliminary Announcement will be sent to all shareholders and copies are
available at the company's registered office, Fortran Road, St. Mellons,
Cardiff, CF3 0LT.
Copies of the Annual Report and Accounts will be sent to all shareholders and
further copies will be available at the company's registered office, Fortran
Road, St. Mellons, Cardiff, CF3 0LT.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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