RNS Number:9244D
Gyrus Group PLC
17 September 2007
17 September 2007
Gyrus Group PLC
Gyrus increases underlying revenues by 11%
Gyrus Group PLC ("Gyrus" or "the Group"), a leading supplier of medical devices
which reduce trauma and complications in surgery, announces its interim results
for the six months ended 30 June 2007.
Financial Highlights
* Group revenues up 2% to #109.1m (H1 2006: #107.4m) - up 11% on a
continuing product sales and constant currency basis
* Adjusted operating profit* up 2% to #17.5m (H1 2006: #17.1m) - up 13% on a
constant currency basis
* Adjusted EPS** rises 10% to 8.5p (H1 2006: 7.7p) - representing
approximately 23% growth translated on a constant currency basis
* Basic EPS increases 40% to 3.5p (H1 2006: 2.5p)
* Restructuring charges increase by 61% to #3.7m (H1 2006: #2.3m)
* Adjusted for material non-recurring items, amortisation of acquired
intangibles, restructuring costs and IAS 12 adjustment to goodwill
** Adjusted Operating profit basis adjusted for Special LTIP award charge,
deferred tax movements and current tax credits taken to equity
Operating Highlights
* Surgical Division NAFTA* revenues increased by 22% to $45.4m (H1 2006:
$37.3m) - reflecting the continued growth of laparoscopic surgery in the US
* Urology & Gynaecology Division increases NAFTA* product revenues by 11% to
$87.9m (H1 2006: $79.1m) with strong performances from PK SuperPulse and the
Stone Management portfolio
* General Surgery introduction progresses well with revenue from the G 400
and PlasmaCision range up by 136% to $6.6m (H1 2006: $2.8m); 350 new G 400
generators installed in the US (H1 2006 April to June: 105); 513 by
30th August 2007
* Gross margin pre-restructuring costs of 59.8% (H1 2006: 60.7%) negatively
affected by US dollar depreciation and short term manufacturing
inefficiencies on new products
* Adjusted operating margin increases to 16.0% (H1 2006: 15.9%)
*North American Free Trade Area
Commenting on the results, Roy Davis, Chief Executive Officer, said:
"The Group has performed well against the backdrop of a 10% depreciation in the
dollar. Our Surgical and Urology & Gynaecology Divisions have grown strongly in
the United States and we have seen an improvement in our international markets.
Our new PK PlasmaCision surgical instruments and Invisio digital visualisation
products have started well. We look to the second half with confidence in the
underlying performance of the Group, but somewhat temper our enthusiasm as a
result of the continued weakness of the US Dollar."
Enquiries:
Gyrus Group PLC Today:
Roy Davis, Chief Executive Tel: 0207 831 3113
Simon Shaw, Chief Financial Officer Tel: 0207 831 3113
Financial Dynamics
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 9.30 BST. A
conference call for overseas analysts and investors will be held at 2pm BST; 9am
EST today
Please contact Mo Noonan at mo.noonan@fd.com or on +44 (0)20 7269 7116 for
details
Overview
Gyrus has performed well in the half year to 30th June 2007. Reported sales
revenue grew by 2% to #109m (H1 2006: #107m) despite the significant weakness of
the US dollar, our principal operating currency, which had devalued by
approximately 10% against the prior period. On a constant currency basis sales
revenue grew by approximately 11%, which is reflective of the continued
strengthening of the underlying business.
The Group's gross margin before restructuring costs reduced slightly to 59.8%
(H1 2006: 60.7%) as a result of the effect of the weak dollar on the gross
profitability of our UK manufacturing plant and some short term manufacturing
inefficiencies in new products. Both of these causes are temporary in nature, as
we are scheduled to transfer volume manufacturing from our Cardiff plant to
Mexico, and the new product inefficiencies reduce as manufacturing yield
improves and volumes develop over time.
Reported basic earnings per share (EPS) increased by 40% to 3.5p (H1 2006: 2.5p)
and Adjusted EPS, which excludes material non-recurring items, amortisation of
acquired intangibles, restructuring costs, IAS 12 adjustment to goodwill and
other deferred tax movements and current tax credits taken to equity, grew 10%
to 8.5p (H1 2006: 7.7p). This represented approximately 23% growth when
translated on a constant currency basis.
Business Review
The performance of each business unit during the first half of 2006 is shown
below in its principal billing currency:
Analysis of Revenues
Business H12006* H12007 Growth
Surgical NAFTA $m 37.3 45.4 21.7%
International #m 3.8 3.9 2.6%
Urology & Gynaecology NAFTA $m 79.1 89.9(1) 13.7%(1)
International #m 4.4 5.0 13.6%
ENT NAFTA $m 25.6(2) 24.1 (5.9)%(2)
International #m 6.0 6.6 10.0%
Partnered Technologies NAFTA $m 21.8 22.9 5.0%
International #m 1.2 1.2 0.0%
$/# Rate 1.78 1.97 (9.6)%
Total Revenue #m 107.4 109.1 1.6%
* 2006 comparative figures have been reclassified to reflect more accurate
Divisional analysis of product sales, particularly in the International
Division
Note (1) H1 2007 includes the partial release of a sales provision made on a
specific contract in the previous year. This amounted to $2.0m.
Excluding this non-recurring adjustment US domestic revenue growth
was 11.1%
Note (2) H1 2006 comparative includes $0.8m revenue from a product line,
which was disposed of on 31 December 2006. Excluding these sales,
underlying revenue declined by 2.8%
SURGICAL DIVISION
The division's NAFTA revenues grew by 21.7% to $45.4m reflecting the continued
strong growth of the US laparoscopic hysterectomy market and the 22% growth in
our cutting forceps range. In addition the introduction of our PK portfolio
(including the new PlasmaCision-based products) into general surgery resulted in
strong performances from portfolio products such as the Lyons dissector (31%
growth), and the PK Needle (23% growth) alongside the PlasmaCision-based
instruments, which together grew by approximately 77%. Of the PlasmaCision
instruments, the Plasma Trissector and PlasmaSpatula performed well, and the
portfolio outweighed the modest revenue shortfall from the PlasmaSeal, which is
on limited release until Q1 2008 pending design modifications.
In summary, the PlasmaCision portfolio generated approximately $3.4m in
disposable instrument sales during the period (H1 2006: $1.9m) and 350 G400
generators were installed into the US market. Of these, 55% were sold,
generating additional revenues of $3.2m (H1 2006: $0.9m), and the remainder were
placed. This ratio of sales to placements is slightly higher than normal and
reflects the fact that a number of G400 generators were sold into accounts
either solely or partially to drive the Intuitive Surgical Endowrist PK
Dissecting forceps instrument, which was developed under licence from Gyrus and
launched last year.
International revenues in this relatively small part of the division grew by
approximately 3% to #3.9m (H1 2006: #3.8m).
UROLOGY & GYNAECOLOGY DIVISION
The Urology & Gynaecology Division's headline NAFTA revenue of $89.9m included
the benefit of the partial release of a specific provision on a longstanding
supply contract in the US, which was successfully renewed in May 2007. Excluding
this one-off item, the Division grew its underlying NAFTA revenues by 11.1% to
$87.9m (H1 2006: $79.1m).
This performance is evidence of the continued strengthening of the business
since the Group's acquisition of ACMI in the second half of 2005. The Division's
revenue was driven by a strong performance in the cysto-resection business which
grew 12% overall to $34.3m (H1 2006: $30.7m) as a result of continued strong
growth in the PK SuperPulse line which grew 56%. Stone management, the
Division's second largest business area in the US, also performed strongly with
revenue growth of 13% to $31.4m (H1 2006: $27.8m). This was driven by the laser
and lithotripsy product ranges growing substantially, albeit against a weak
comparable in the first half of 2006.
The launch of the Invisio DUR-D, the first ureteroscope to be based upon distal
chip digital technology, commenced successfully in April 2007 and has begun to
help drive an increase in the sales of disposable products for stone management
such as laser fibres, which grew revenues by 23% in the period.
Internationally, the Division achieved revenue of #5.0m (H1 2006: #4.4m), which
represents growth of 13.6%.
ENT DIVISION
The Division's NAFTA revenue declined by 5.9% to $24.1m (H1 2006: $25.6m) on a
reported basis and 2.8% on an underlying basis, which excludes revenues from a
product range, which was disposed of at the end of 2006. This decline was in
line with expectations for the first half as the Division completed the
reorganisation and retraining of the sales force, which it had begun late in the
fourth quarter of 2006, as a prelude to the introduction of the second iteration
of the JPK instrument for tonsillectomy. The launch occurred in late April and
helped PlasmaCision-derived revenue to increase by just under 60% in the period,
albeit from a small comparative base. In addition sales of the Diego
microdebrider disposable instrument range grew by 10% in the period. The otology
business declined 3% and the Division experienced continued weakness in
somnoplasty, based on the historical loss of reimbursement.
Since its launch in April 2007, the JPK for tonsils has been doing well in
evaluations and a number of significant accounts have been converted to the
product. With the reorganised sales force stabilised, we anticipate a
strengthened performance in the second half.
Internationally, divisional revenues increased by 10% to #6.6m, with stronger
performances in Benelux, the UK and certain distributor markets.
Partnered Technologies DIVISION
The Partnered Technologies Division consists of technology licence, marketing
and supply relationships with Johnson & Johnson (Depuy Mitek, Ethicon
Endo-Surgery and Gynecare), Guidant, Conmed, Rhytec and Intuitive Surgical. The
Division's US dollar denominated revenues increased by 5.0% to $22.9m (H1 2006:
$21.8m), with the majority of our partners showing sound growth. This was a good
performance against the backdrop of a very strong comparative period, which had
itself shown more than 30% revenue growth on new product launches and associated
filling of the supply chain. During the period, we further enhanced our
relationship with Intuitive Surgical Inc, developers of the da Vinci system for
robotic assisted laparoscopic surgery, by embarking upon a new development
collaboration based upon the Group's Invisio digital visualisation technology.
Research & Development
The Group's investment in R&D for the first half was #6.4m excluding
restructuring costs (5.9% of sales) (H1 2006: #8.2m of which #1.1m represented
patent litigation costs). The reduction in mainstream R&D expenditure reflected
the effect of US dollar devaluation and the restructuring benefits of
integrating all PK developments into one site (Cardiff, UK).
Operations & Integration
During the first half of 2007 the Group enjoyed a small increase in
profitability with the Adjusted Operating Margin, before restructuring costs,
IAS 12 Goodwill adjustment and the amortisation of acquired intangible assets
increasing to 16.0% (H1 2006: 15.9%). Continued strong control of overheads and
associated integration benefits mitigated certain short term manufacturing
inefficiencies and the negative impact of currency at the gross margin level.
The Group's reported gross margin fell to 57.9% (H1 2006: 59.7%) and the gross
margin before restructuring costs was 59.8% (H1 2006: 60.7%). The devaluation in
the US dollar negatively affected the Group gross margin as the profitability of
products manufactured in Cardiff but sold in US dollars was reduced. The
manufacturing of the majority of these products is due to be transferred to the
Group's Mexican facility by mid 2008, thereby mitigating the margin exposure due
to currency.
Aside from currency, the principal sources of the underlying short term
reduction in gross margin were manufacturing inefficiencies including labour,
abnormal scrap and raw material and component inventory write-downs associated
with the new PlasmaCision and DUR-D products at their early stage of
development. Finally, continued manufacturing inefficiencies on products
manufactured in Maple Grove, which had been transferred on restructuring from
the ex-ACMI Racine plant, contributed a further reduction in the gross margin.
Each of these effects is expected to be short term in nature, and we anticipate
activities during the second half of 2007 and into 2008, which will continue to
improve operating profitability towards our target of 20% by the end of July
2008.
Financial Review
Operating expenses net of other operating income increased by 0.6% to #54.1m (H1
2006: #53.8m) primarily as a result of a 61% increase in restructuring charges
to #3.7m (H1 2006: #2.3m). Excluding restructuring costs, amortisation of
acquired intangibles and IAS 12 adjustment to goodwill, underlying net operating
expenses decreased by 0.6% to #47.8m (H1 2006: #48.1m), which reflected an
increase of 9% on a constant currency basis and represented 43.8% of revenue (H1
2006: 44.8%). Within this reduced overhead cost, reported selling and
distribution costs increased by 9% (representing approximately 19% growth on a
constant currency basis) in support of the new product launches in General
Surgery and tonsillectomy together with the reorganisation of the ENT sales
force.
Basic earnings per share (EPS) increased by 40% to 3.5p (H1 2006: 2.5p).
Adjusted EPS, which is adjusted for amortisation of acquired intangible assets,
restructuring costs (including the Special LTIP award charge), IAS 12 adjustment
to goodwill and other deferred tax movements and current tax credits taken to
equity, increased by 10.4% to 8.5p (H1 2006: 7.7p).
During the period, the Group increased the installed base of generators in the
US market by 21% to 6913 units (H1 2006: 5694 units). 59% of new installations
were sold rather than placed. Sales of the related disposable instruments
increased 27% to $36.2m (H1 2006: $28.6m).
During the period the Group successfully completed the first phase of its Oracle
ERP implementation into the new customer service and distribution centre in
Minnesota, which manages order taking, inventory logistics and account
management for approximately 70% of the Group's revenue.
The impact of this implementation together with the continuing integration
programme resulted in a temporary adverse movement in working capital during the
period of 12% compared with the year- end position. The primary causes of this
growth were the creation of buffer inventories for the transfer of certain
production from Cardiff to Mexico and other production restructuring initiatives
and an increase in receivables outstanding as the customer account registers of
the Urology & Gynaecology and Surgical Divisions were combined through the
Oracle implementation. Both of these primary causes are short term in nature
although it is anticipated that they will continue at least in part until the
major integration initiatives, including the Oracle implementation are
completed.
The effect of currency translation decreased the sterling value of the Group's
assets and liabilities as a whole, which are materially denominated in US
dollars. At the period end net debt stood at #91m, equivalent to #93m on a
constant currency basis (31st December 2006: #96.9m); representing a net debt to
equity gearing ratio of 31.3% (31st December 2006: 33.8%).
Subsequent to the period end, the Group's existing syndicated $250 million debt
facility was converted and extended into a revolving credit facility with a five
year term. The terms and covenants were re-negotiated to reflect the Group's
strengthened financial position since July 2005, when the original facility was
created, and to provide the flexibility for the Group to undertake bolt-on
transactions should the need arise.
Management
On 1st June 2007, the Group announced the appointment of Roy Davis, Chief
Operating Officer since October 2003, as Chief Executive Officer and Brian Steer
became Non-executive Chairman following the separation of the role of CEO and
Chairman in line with best practice in corporate governance.
Outlook
The first half of 2007 has been successful for the Group. Our new products have
performed well in their early stages, the Surgical Division has continued to
grow strongly and the Urology & Gynaecology Division has continued to strengthen
since the fourth quarter of last year. The early response to our tonsillectomy
offering in ENT is encouraging and we expect the international business to
continue to improve. Accordingly, we look to the second half of 2007 and beyond
with confidence in the underlying performance of the Group, but somewhat temper
our enthusiasm as a result of the continued weakness of the US dollar.
Gyrus Group PLC
Consolidated Interim Income Statement
For the six months ended 30 June 2007
Note Six months ended 30 Restructuring IAS 12 Six months
June 2007 (note 2) adjustment to ended 30
pre-restructuring goodwill June 2007
costs and IAS 12 (note 4) (unaudited)
adjustment
(unaudited)
#000 #000 #000 #000
Revenue 3 109,121 - - 109,121
Cost of sales (43,895) (2,049) - (45,944)
_____ _____ _____
Gross profit 65,226 (2,049) - 63,177
Other operating income 529 - - 529
Selling and distribution expenses
- Selling and distribution (31,950) (73) - (32,023)
- Amortisation of acquired
intangible assets (2,565) - - (2,565)
Research and development expenses
- Research and development (6,381) (223) - (6,604)
- Amortisation of acquired intangible (1,370) - - (1,370)
assets
General and administrative expenses (9,968) (1,349) (733) (12,050)
_____ _____ _____ _____
Operating profit 13,521 (3,694) (733) 9,094
Financial income 746 - - 746
Financial expense (3,942) - - (3,942)
_____ _____ _____ _____
Profit before taxation 10,325 (3,694) (733) 5,898
Income tax expense 4 (2,026) 1,236 - (790)
_____ _____ _____
Profit for the period 8,299 (2,458) (733) 5,108
_____ _____ _____ _____
Earnings per ordinary share
Basic 7 3.5p
_____
Diluted 7 3.4p
_____
Gyrus Group PLC
Consolidated Interim Income Statement
For the six months ended 30 June 2007
Note Six months ended Year ended
30 June 2006 31 December 2006
(unaudited) (audited)
#000 #000
Revenue 3 107,413 213,342
Cost of sales (43,262) (86,865)
_____ _____
Gross profit 64,151 126,477
Other operating income 329 695
Selling and distribution expenses
- Selling and distribution (30,099) (61,286)
- Amortisation of acquired intangible assets (2,838) (5,506)
Research and development expenses
- Research and development (8,180) (15,504)
- Amortisation of acquired intangible assets (1,516) (2,942)
General and administrative expenses (11,485) (22,789)
_____ _____
Operating profit 10,362 19,145
Financial income 859 1,322
Financial expense (5,649) (10,342)
_____ _____
Profit before taxation 5,572 10,125
Income tax expense 4 (1,936) 3,068
_____ _____
Profit for the period 3,636 13,193
_____ _____
Earnings per ordinary share
Basic 7 2.5p 9.0p
_____ _____
Diluted 7 2.4p 8.7p
_____ _____
Gyrus Group PLC
Statement of Recognised Income and Expense
For the six months ended 30 June 2007
6 months ended 6 months ended Year ended
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited) (unaudited)
#000 #000 #000
Exchange differences arising on translation of foreign
operations (6,082) (26,783) (32,864)
Deferred tax on income and expenses recognised directly in
equity 751 404 451
Current tax credit recognised directly in equity 444 - -
Cash flow hedges
Effective portion of changes in fair value of cash flow
hedges net of recycling (54) 1,009 75
Actuarial gain on defined benefit pension plan 29 11 227
_____ _____ _____
(4,912) (25,359) (32,111)
Profit for the period 5,108 3,636 13,193
_____ _____ _____
Total recognised income and expense for the period 196 (21,723) (18,918)
_____ _____ _____
Gyrus Group PLC
Consolidated Balance Sheet
As at 30 June 2007
Note As at As at As at
30 June 2007 30 June 2006 31 December 2006
(unaudited) (unaudited) (audited)
#000 #000 #000
Assets
Property, plant and equipment 5 20,366 19,992 20,784
Goodwill 247,914 269,204 253,538
Other intangible assets 83,915 90,413 89,831
_____ _____ _____
Total non-current assets 352,195 379,609 364,153
Inventories 34,253 32,429 32,353
Trade receivables 38,105 29,711 33,713
Other current assets 7,257 8,007 7,076
Cash and cash equivalents 22,471 28,756 23,327
_____ _____ _____
Total current assets 102,086 98,903 96,469
_____ _____ _____
Total assets 454,281 478,512 460,622
_____ _____ _____
Equity
Share capital 6 (2,802) (2,789) (2,792)
Share premium 6 (307,761) (304,536) (305,282)
Merger reserve (3,860) (3,860) (3,860)
Other reserves 28,246 15,306 22,102
Retained earnings (4,098) 14,437 2,999
_____ _____ _____
Total equity (290,275) (281,442) (286,833)
Liabilities
Bank loan 8 (84,729) (118,944) (99,633)
Obligations under finance leases and hire purchase
contracts (1) (83) (44)
Deferred tax liabilities 4 (11,281) (20,842) (13,778)
Provisions (995) (3,693) (1,400)
_____ _____ _____
Total non-current liabilities (97,006) (143,562) (114,855)
Bank overdrafts and loans due within one year 8 (28,658) (20,028) (20,437)
Trade and other payables (33,851) (31,209) (34,846)
Current tax payable (2,645) (2,160) (540)
Obligations under finance leases and hire purchase
contracts (67) (111) (99)
Provisions (1,779) - (3,012)
_____ _____ _____
Total current liabilities (67,000) (53,508) (58,934)
_____ _____ _____
Total liabilities (164,006) (197,070) (173,789)
_____ _____ _____
Total equity and liabilities (454,281) (478,512) (460,622)
_____ _____ _____
Gyrus Group PLC
Consolidated Cash Flow Statement
For the six months ended 30 June 2007
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
(unaudited) (unaudited) 2006 (audited)
#000 #000 #000
Cash flows from operating activities
Profit for the period 5,108 3,636 13,193
Adjustments for:
Depreciation of property, plant and equipment 3,054 2,747 4,784
Amortisation of intangible assets 4,201 4,483 8,803
IAS 12 adjustment to goodwill 733 - 1,773
Loss on disposal of property, plant and equipment 155 58 81
Financial income and expense 3,196 4,790 9,020
Exchange gain/(loss) included in financial income
and expense 76 (290) (423)
Equity settled share based payment expense 1,152 1,199 2,656
Taxation 790 1,936 (3,068)
_____ _____ _____
Operating cash flows before movement in working
capital 18,465 18,559 36,819
Increase in inventories (2,824) (765) (4,238)
(Increase)/decrease in trade and other receivables (5,544) 3,994 (263)
(Decrease)/increase in trade and other payables (1,894) (3,093) 3,176
_____ _____ _____
Cash generated from operations 8,203 18,695 35,494
Interest paid (4,042) (4,772) (9,595)
Tax paid (826) (878) (2,850)
_____ _____ _____
Net cash from operating activities 3,335 13,045 23,049
_____ _____ _____
Cash flows from investing activities
Interest received 582 342 742
Proceeds on disposal of property, plant and
equipment - - 306
Acquisition of property, plant and equipment (3,182) (4,150) (7,685)
Acquisition of patents, trademarks and other
intangibles - (10) (140)
Expenditure on product development (26) (267) (1,104)
_____ _____ _____
Net cash outflow from investment activities (2,626) (4,085) (7,881)
_____ _____ _____
Cash flows from financing activities
Proceeds from issue of share capital 2,489 841 1,590
Repayment of borrowings (3,914) (546) (12,403)
Repayment of obligations under finance leases (33) (65) (110)
_____ _____ _____
Net cash outflow from financing activities (1,458) 230 (10,923)
_____ _____ _____
Net (decrease)/ increase in cash and cash
equivalents (749) 9,190 4,245
Cash and cash equivalents at beginning of period 23,327 20,194 20,194
Effect of foreign exchange rate fluctuations on
cash held (107) (628) (1,112)
_____ _____ _____
Cash and cash equivalents at end of period 22,471 28,756 23,327
_____ _____ _____
Bank balances and cash 22,471 28,756 23,327
_____ _____ _____
Gyrus Group PLC
Notes to the Preliminary Announcement
For the six months ended 30 June 2007
1. Basis of preparation
Gyrus Group PLC is a company domiciled in the United Kingdom. The condensed
consolidated interim financial statements of the Company for the six months
ended 30 June 2007 comprise the Company and its subsidiaries (together referred
to as the "Group").
This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Group's
published consolidated financial statements for the year ended 31 December 2006.
The interim financial statements do not constitute statutory accounts as they
are unaudited.
The comparative figures for the financial year ended 31 December 2006 are not
the Group's audited statutory accounts for that financial year. Those accounts,
which were prepared under EU adopted International Financial Reporting
Standards, have been reported on by the Group's auditor and delivered to the
registrar of companies. The report of the auditors was (i) unqualified, (ii) did
not include a reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report, and (iii) did not contain
statements under section 237(2) or (3) of the Companies Act 1985.
The condensed consolidated interim financial statements were authorised for
issuance on 17 September 2007.
2. Restructuring costs
As a result of the acquisition of American Cystoscope Makers Inc in July 2005,
the Group continues to incur restructuring costs arising from the integration of
the legacy Gyrus business with that of ACMI. The total charge for the period
ended 30 June 2007 was #3,694,000 (year ended 31 December 2006: #5,808,000 and
six months ended 30 June 2006: #2,336,000). An analysis of these costs is shown
below.
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
(audited) (audited) (audited)
#000 #000 #000
Severance costs 305 1,081 2,071
Demonstration equipment write-off - - 80
Alignment of global enterprise resource planning 115 - 58
systems
International distributor settlements - 216 241
Manufacturing inefficiencies and other duplicated 1,683 276 1,365
costs arising as a result of the relocation of
production
Set up costs associated with the customer service and 1,055 95 815
distribution centre and Mexico production facility
Core integration team expenses 451 413 881
Gyrus ACMI rebranding - 66 143
Other costs 85 189 154
_____ _____ _____
3,694 2,336 5,808
_____ _____ _____
3. Segment reporting
Segment information is presented in the condensed consolidated interim financial
statements 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 structure.
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.
For the six months ended 30 June 2007 (unaudited)
ENT Surgical Partnered Urology & Total
Technologies Gynaecology
#000 #000 #000 #000 #000
Revenue
External sales 18,863 26,894 12,776 50,588 109,121
Inter-segment sales - 480 2,669 - 3,149
____ ____ ____ ____ ____
18,863 27,374 15,445 50,588 112,270
____ ____ ____ ____ ____
Segment result before amortisation,
restructuring charges and IAS 12
adjustment to goodwill 2,474 5,888 2,757 7,644 18,763
Amortisation of acquired intangibles - (428) (26) (3,481) (3,935)
IAS 12 adjustment to goodwill (574) (159) - - (733)
Restructuring charges (58) (892) (432) (2,312) (3,694)
____ ____ ____ ____ ____
Segment result after amortisation,
restructuring charges and IAS 12
adjustment to goodwill 1,842 4,409 2,299 1,851 10,401
____ ____ ____ ____ ____
Unallocated corporate expenses (1,307)
____
Profit from operations 9,094
Net finance costs (3,196)
____
Profit before tax 5,898
Taxation (790)
____
Profit for the period 5,108
____
For the six months ended 30 June 2006 (unaudited)
ENT Surgical Partnered Urology & Total
Technologies Gynaecology
#000 #000 #000 #000 #000
Revenue
External sales as previously reported 20,416 22,967 13,470 50,560 107,413
_____ _____ _____ _____ _____
External sales excluding discontinued product
lines 19,830 22,967 13,470 50,560 106,827
Discontinued product lines 586 - - - 586
Effect of reclassification of revenue - 1,732 - (1,732) -
_____ _____ _____ _____ _____
External sales 20,416 24,699 13,470 48,828 107,413
Inter-segment sales - 438 3,439 - 3,877
_____ _____ _____ _____ _____
20,416 25,137 16,909 48,828 111,290
_____ _____ _____ _____ _____
Segment result before amortisation and
restructuring charges as previously reported 2,688 5,967 3,106 7,313 19,074
Effect of reclassification of revenue and
associated costs - 328 - (328) -
_____ _____ _____ _____ _____
Segment result before amortisation and
restructuring charges 2,688 6,295 3,106 6,985 19,074
Amortisation of acquired intangibles - (500) (30) (3,824) (4,354)
Restructuring charges (75) (337) (135) (1,789) (2,336)
_____ _____ _____ _____ _____
Segment result after amortisation and
restructuring charges 2,613 5,458 2,941 1,372 12,384
_____ _____ _____ _____ _____
Unallocated corporate expenses (2,022)
_____
Profit from operations 10,362
Net finance costs (4,790)
_____
Profit before tax 5,572
Taxation (1,936)
_____
Profit for the period 3,636
_____
For the year ended 31 December 2006 (audited)
ENT Surgical Partnered Urology & Total
Technologies Gynaecology
#000 #000 #000 #000 #000
Revenue
External sales as previously reported 38,532 52,465 26,238 96,107 213,342
_____ _____ _____ _____ _____
External sales excluding discontinued product
lines 37,492 52,465 26,238 96,107 212,302
Discontinued product lines 1,040 - - - 1,040
_____ _____ _____ _____ _____
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 amortisation,
restructuring charges and IAS 12 adjustment
to goodwill 4,138 11,227 5,697 14,777 35,839
Amortisation of acquired intangibles - (919) (56) (7,473) (8,448)
IAS 12 adjustment to goodwill (1,542) (231) - - (1,773)
Restructuring charges (335) (1,989) (47) (3,437) (5,808)
_____ _____ _____ _____ _____
Segment result after amortisation,
restructuring charges and IAS 12 adjustment
to goodwill 2,261 8,088 5,594 3,867 19,810
_____ _____ _____ _____ _____
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
_____
4. Tax expense
Under IFRS the overall rate of tax for the period is 13.4% (six months ended 30
June 2006: 34.7%) which is lower than the standard rate of UK corporation tax of
30%. This is due, in particular, to the impact of IFRS2 on share based payments,
the beneficial effect of the Research & Development Credit scheme and the change
in corporation tax rate used for the deferred tax position.
Current taxation
Six months Six months ended Year ended 31
ended 30 June 30 June December
2007 2006 2006
(unaudited) (unaudited) (audited)
#000 #000 #000
Domestic 1,795 1,267 1,766
Foreign 400 515 755
_____ _____ _____
2,195 1,782 2,521
_____ _____ _____
Deferred taxation
Current period (credit)/charge (1,405) 154 (5,589)
_____ _____ _____
Taxation attributable to the company and its subsidiaries 790 1,936 (3,068)
_____ _____ _____
Current taxation
Share based payment tax deductions recognised
directly in equity 444 - -
_____ _____ _____
Deferred taxation #000
Net deferred tax liability recognised at 31 (13,778)
December 2006
Credit to income for the period 1,405
Charged directly to equity 751
Exchange differences 341
_____
Net deferred tax liability recognised at 30 June (11,281)
2007
_____
In June 2007, the Finance Bill 2007 was 'substantively enacted' approving a
reduction in the UK corporation tax rate from 30% to 28% from 1 April 2008.
Therefore the UK tax rate applied for the purposes of the measurement of the
Group's deferred tax has been reduced to 28%.
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 benefit of the subsequently recognised losses.
Accordingly, a deferred tax asset of #854,000 was recognised and utilised
together with a corresponding adjustment to goodwill net of a credit of #121,000
in respect of over amortisation in the period before transition to IFRSs.
5. Property, plant and equipment
Capital commitments
As at 30 June 2007, the Group entered into contracts to purchase property, plant
and equipment of #610,000 (year ended 31 December 2006: #455,000 and six months
ended 30 June 2006: #1,102,000).
6. Capital and reserves
Share capital and share premium
The Group recorded the following amounts within shareholder's equity as a result
of the issuance of ordinary shares.
Share capital Share premium
Six months Six months Year ended Six months Six months Year ended
ended 30 ended 30 31 ended 30 ended 30 31
June June December June June December
2007 2006 2006 2007 2006 2006
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
#000 #000 #000 #000 #000 #000
Issuance of ordinary shares 10 4 7 2,479 837 1,583
____ ____ ____ ____ ____ ____
Dividends
The directors do not propose the payment of a dividend (30 June 2006: #nil).
7. Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the six months ended 30 June
2007 was based on the profit attributable to ordinary shareholders of #5,108,000
(year ended 31 December 2006: #13,193,000 and six months ended 30 June 2006:
#3,636,000) and a weighted average number of ordinary shares outstanding during
the six months ended 30 June 2007 of 147,105,358 (year ended 31 December 2006:
146,492,872 and six months ended 30 June 2006: 146,287,927).
Diluted earnings per share
The calculation of diluted earnings per share for the six months ended 30 June
2007 was based on the profit attributable to ordinary shareholders of #5,108,000
(year ended 31 December 2006: #13,193,000 and six months ended 30 June 2006:
#3,636,000) and a weighted average number of ordinary shares outstanding during
the six months ended 30 June 2007 of 150,490,860 (year ended 31 December 2006:
150,785,514 and six months ended 30 June 2006: 150,513,041).
Earnings
Six months ended Six months ended Year ended 31
30 June 2007 30 June 2006 December 2006
(unaudited) (unaudited) (audited)
#000 #000 #000
Earnings for the purposes of basic and diluted earnings per
share 5,108 3,636 13,193
_____ _____ _____
Weighted average number of ordinary shares
Six months ended Six months ended Year ended 31
30 June 2007 30 June 2006 December 2006
(unaudited) (unaudited) (audited)
Number Number Number
Weighted average number of shares for purposes of calculating
basic earnings per share 147,105,358 146,287,927 146,492,872
Effect of dilutive options 3,385,502 4,225,114 4,292,642
_____ _____ _____
Weighted average number of shares for purposes of calculating
diluted earnings per share 150,490,860 150,513,041 150,785,514
_____ _____ _____
Basic earnings per share 3.5p 2.5p 9.0p
_____ _____ _____
Diluted earnings per share 3.4p 2.4p 8.7p
_____ _____ _____
Adjusted earnings per share
In order to provide a trended measure of underlying performance, profit
attributable to ordinary shareholders is adjusted for 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 #12,556,000 (year ended 31 December
2006: #25,030,000 and six months ended 30 June 2006: #11,252,000) by the
weighted average number of ordinary shares outstanding during the six months
ended 30 June 2007 of 147,105,358 (year ended 31 December 2006: 146,492,872 and
six months ended 30 June 2006: 146,287,927).
Adjusted diluted earnings per share has been calculated by dividing adjusted
profit attributable to ordinary shareholders (see table below for adjustments
made) of #12,556,000 (year ended 31 December 2006: #25,030,000 and six months
ended 30 June 2006: #11,252,000) by the weighted average number of ordinary
shares outstanding during the six months ended 30 June 2007 of 150,490,860 (year
ended 31 December 2006: 150,785,514 and six months ended 30 June 2006:
150,513,041).
Earnings on which adjusted earnings per share is based:
Six months ended Six months ended Year ended 31
30 June 2007 30 June 2006 December 2006
(unaudited) (unaudited) (audited)
#000 #000 #000
Basic earnings for the period 5,108 3,636 13,193
Restructuring charges 3,694 2,336 5,808
Taxable benefit associated with restructuring charges** (144) - (201)
Amortisation of acquired intangible assets 3,935 4,354 8,448
IAS 12 adjustment to goodwill 733 - 1,773
Charge relating to "special" LTIP award* 191 772 1,598
Deferred taxation (1,405) 154 (5,589)
Current tax credit recognised directly in equity*** 444 - -
_____ _____ _____
Adjusted earnings for the period 12,556 11,252 25,030
_____ _____ _____
Adjusted basic earnings per share 8.5p 7.7p 17.1p
_____ _____ _____
Adjusted diluted earnings per share 8.3p 7.5p 16.6p
_____ _____ _____
* As part of the acquisition of American Cystoscope Makers Inc, 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
to the income statement 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 #1,236,000 (year ended 31 December 2006: #2,128,000 and six
months ended 30 June 2006: #nil) associated with restructuring costs comprises a
deferred tax credit of #1,092,000 (year ended 31 December 2006: #1,927,000 and
six months ended 30 June 2006: #nil) and a current taxation benefit of #144,000
(year ended 31 December 2006: #201,000 and six months ended 30 June 2006: #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 the integration
have principally been incurred within the US where tax losses are available to
offset profits.
*** Under the provisions of IAS 12 the current tax credit taken to the income
statement on the exercise of share options is restricted to the aggregate
remuneration expense charged to the income statement in respect of the options.
The excess of any current tax credit is taken to equity through the Statement of
Recognised Income and Expense, although it will reduce the cash tax payable by
the Group to below that which is charged as current taxation in the Income
Statement. In the period to 30 June 2007, the excess of the current tax credit
over and above the aggregate remuneration expense amounted to #444,000 (year
ended 31 December 2006:#nil and period ended 30 June 2006:#nil) and, as required
by the standard, this has been taken to equity. In order to maintain the
continuity of adjusted earnings per share being calculated on a cash tax basis,
earnings are adjusted for the effect of this amount.
8. Interest-bearing loans and borrowings
As at 30 June 2007 Gyrus Group PLC had a loan of #109,649,000 ($220 million)
under a term loan facility of $250 million and #3,738,000 ($7.5 million) under a
revolving credit facility of $15 million (year ended 31 December 2006:
#120,070,000 under a term loan facility and #nil under a revolving credit
facility of $15 million and 6 months ended 30 June 2006: #135,165,000 under a
term loan facility and #3,807,000 under a revolving credit facility of $30
million).
The $250 million loan facility is for a fixed term of five years. The loan
attracts a maximum rate of US LIBOR plus 1.75% provided that Total Net Debt to
Consolidated EBITDA (as defined in the facility agreement) is less than 3.50 and
a minimum rate of US dollar LIBOR plus 0.75% provided that Total Net Debt to
Consolidated EBITDA is less than 1.00. The margin on the facility from inception
to 30 October 2006 was 1.75%. As at 31 October 2006 the quarterly Net Debt to
Consolidated EBITDA fell below 3.00:1 resulting in a reduction in the margin on
the facility of 0.5% to 1.25%. As at 27 February 2007, the margin was further
reduced to 1.00% as Net Debt to Consolidated EBITDA fell below 2.50:1.
Each advance drawn down under the $15 million revolving credit facility is
repaid on the last business day of each fixed term interest period (typically
three to six months). As the term of the revolving credit facility is for a
period of five years from 21 July 2005, amounts drawn down under this facility
are shown as non-current liabilities where repayments are due in greater than
one year and current liabilities where repayments are due in less than one year.
The interest rate for each advance drawn under the revolving facility is fixed
on the date of the advance for the agreed interest period at US dollar LIBOR
plus a margin. The margin added to US dollar LIBOR follows that of the term loan
facility. The amount drawn down on this facility at 30 June 2007 was #3,738,000
(year ended 31 December 2006: #nil and six months ended 30 June 2006:
#3,456,000).
The $250 million loan facility and $15 million revolving credit facility are
secured by a fixed and floating debenture on the assets of the Group.
Repayments on the US dollar loan and advances on the revolving credit facility
over the period from 1 January 2007 to 30 June 2007 were as follows:
#000
Loan balance as at 1 January 2007 (audited) 120,070
Repayments (7,664)
Advances on revolving credit facility 3,750
Foreign exchange movement (2,769)
_____
Loan balance as at 30 June 2007 (unaudited) 113,387
_____
9. Provisions
As at 31 December 2006, the Group disclosed a sales provision for the resolution
of an ongoing customer dispute of #1,303,000. During the period to 30 June 2007,
following negotiations with the customer, there has been a partial release of
this provision. As at 30 June 2007, the remaining provision pertaining to this
dispute amounted to #274,000. The provision is disclosed within current
liabilities.
10. Financial Instruments
Interest rate risk
The Group adopts a policy of ensuring that at least 50% of its exposure to
changes in interest rates on fixed term borrowings is hedged. At 30 June 2007,
the Group had entered into two interest rate cap and collar transactions. The
cap on both financial instruments is US dollar LIBOR rate of 4.75% and the
collars are 4.19% and 3.96% respectively. The maturation of both instruments is
consistent with that of the $250 million term loan facility. At 30 June 2007,
the Group had interest rate hedges with a notional contract amount of
$165,000,000 (year ended 31 December 2006: $176,250,000 and six months ended 30
June 2006: $187,500,000).
The Group classifies interest rate hedges as cash flow hedges and states them at
fair value.
Foreign currency risk
The Group incurs foreign currency risk on sales and purchases that are
denominated in currencies other than sterling. The currency primarily giving
rise to this risk is the US dollar.
Unless otherwise approved by the Board, the Group hedges at least 80% of the
anticipated US dollar cash flows for net anticipated receivables/payables in the
first three months forward, at least 50% in months four to six and at least 25%
in months seven to twelve forward. The Group uses forward exchange contracts to
hedge its foreign currency risk. All of the forward exchange contracts have
maturities of less than one year later than the balance sheet date.
The Group designates its forward exchange contracts of the variability of cash
flows of a recognised asset or liability, or highly probable forecasted
transaction as cash flow hedges and states them at fair value.
Estimation of fair values
The fair value of forward foreign exchange contracts is the mark to market value
of the contracts as at 30 June 2007. The fair value of forward foreign exchange
contracts at 30 June 2007 is an asset of #22,000 (year ended 31 December 2006 an
asset of #51,000 and six months ended 30 June 2006 an asset of #104,000). The
fair value of the interest rate hedges as at 30 June 2007 is an asset of
#713,000 (six months ended 30 June 2006 an asset of #1,712,000 and year ended 31
December 2006 an asset of #695,000).
Adjustments to the fair value of cash flow hedges are reported in equity when
designated as effective hedges. The ineffective portion is immediately
recognised in the income statement. Otherwise the gains and losses will be
reported in the income statement only when the forecasted transaction occurs and
is recognised in the income statement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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