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Financial

Corin Group PLC Financial Results

Corin Group PLC (LSE: CRG, “Corin” or “the Group”), a leading manufacturer and supplier of orthopaedic devices, has today published its half year results for the six months to 30 June 2011.

 

Highlights

·      Group sales up 1% to £22.1m (H1 2010: £21.9m), 1% decrease on a constant currency basis*

 

·      Hip product sales up 14% to £11.7m (H1 2010: £10.2m)

–     Accelerated growth in non metal-on-metal (MoM) hip portfolio, up 50% (H1 2010: 16%)

 

·      Operating profit, before exceptional items,  £0.5m (H1 2010: £0.9m); Operating profit £0.1m (H1 2010: £0.9m)

 

·      Earnings per share, before exceptional items, 0.38p (H1 2010: 0.56p); Loss per share 0.56p (H1 2010 earnings per share 0.56p)

 

·      Maintained interim dividend of 0.48 pence per share (H1 2010: 0.48 pence per share)

 

·      Good progress on strategy to complement growth in new hip products

–     Building critical mass in the US with direct distribution; investing behind portfolio

 

·      Post period end, LARS distribution agreement extended until December 2013

 

 

Peter Huntley, Corin Chief Executive, said:

 

“These results reflect the continued rebalancing of our portfolio towards our non MoM products.  The encouraging level of growth demonstrates that the strategy is on course.  We are now well positioned to be able to support and grow our products and are pleased with the momentum that we are building in the US market.

 

“We are excited about delivering the next stage of our strategy, the total knee system, which is progressing well, with evaluation surgeries on schedule for Q4 this year.”

 

*Constant currency is calculated by translating 2010 revenue at the average exchange rates used for the six month period ended 30 June 2011

 

 

Enquiries:

 

Corin Group PLC  
Peter Huntley, Chief Executive

Michael Roller, Finance Director

01285 659 866
   
College Hill  
Adrian Duffield/Rozi Morris 020 7457 2020

 

 

 

Overview

 

Corin reported a sound operating performance during the first half of 2011 despite the strong headwinds in certain of its markets, while continuing to implement a number of key strategic steps to position the Group for stronger growth in the second half of the year and 2012.

 

Group sales were broadly flat in constant currency terms.  Particularly notable was the accelerated growth in the non MoM hip portfolio, which on a constant currency basis, rose from 28% in the second half of 2010 to 48% in the first half of 2011. As has been the trend for some time, good growth in the new hip portfolio was offset by the continuing industry-wide decline in MoM hip products and the challenge posed by Corin’s mature knee product portfolio.

 

Operating profits, before exceptional items, were £0.5m in the first half of 2011 (H1 2010: £0.85m).  Although gross margin rose slightly, this benefit was offset by less favourable currency movements compared to the first half of 2010, as well as slightly higher costs in the growing Japanese and US businesses.

 

Good progress was also made on strategic steps to complement the growth in the new hip products, particularly in the important US market.

 

In March, Corin agreed to supply MAKO Surgical Corp., the leading robotic company in orthopaedics, with its new hip systems for the US market, in conjunction with MAKO’s RIO Robotic Arm Interactive Orthopaedic system. The remaining key FDA regulatory clearances for the Group’s Trinity cup system were achieved in May, allowing the new cementless hip portfolio to be fully rolled out in the US and the MAKO supply agreement to commence. Corin also commenced the direct distribution of Cormet in July, following the termination of its US Cormet distribution agreement with Stryker Corporation.

 

Corin is also developing its own direct distribution network and support services in the US, with additional resource being added in the second half. The US business will benefit from the greater critical mass provided by combining Cormet with the new hip portfolio, and from the higher profile for the Group’s products generated by the MAKO relationship.

 

Since the period end, the agreement with LARS to distribute its ligament augmentation system in markets including Australia and the UK, was extended for a further two years until the end of 2013. The Group will continue to invest behind LARS in these key countries, adding critical mass and raising Corin’s profile in these markets.

 

Good progress continues to be made towards the Group’s next key milestone, the launch of the new total knee system. CE marking has been achieved for the implant system and, following final instrument developments, evaluation surgeries remain on course to commence in the latter part of this year.

 

 

Financial review

 

Group sales in the first half of 2011 increased by 1% to £22.1m (H1 2010: £21.9m), a decrease of 1% on a constant currency basis.

 

Constant currency is calculated by translating 2010 revenue at the average exchange rates used for six month period ended 30 June 2011 (see note 13)

 

Sales by product and by area of operations, together with comparatives, are set out below:

 

  H1 2011

£m

H1 2010

£m

% Growth (reported) % Growth

(constant currency)

Hips 11.7 10.2 14% 13%
Knees 3.7 4.7 -20% -21%
Other Products 6.7 7.0 -5% -9%
Total 22.1 21.9 1% -1%

 

 

  H1 2011

£m

H1 2010

£m

% Growth (reported) % Growth

(constant currency)

UK 3.8 4.3 -9% -9%
Germany 2.1 2.4 -12% -11%
Rest of Europe 2.1 2.7 -24% -22%
Total Europe 8.0 9.4 -14% -13%
         
Australia 6.2 5.5 12% 3%
Japan 3.5 3.0 16% 10%
US 2.3 1.2 87% 93%
Rest of the World 2.1 2.8 -25% -23%
Total 22.1 21.9 1% -1%

 

Group operating profit, before exceptional items, was £0.5m (H1 2010: £0.9m).  While a marginally higher gross profit of 65% was achieved in the first half of 2011, partly as a result of greater factory efficiency, the benefit of this was offset by less favourable currency movements in the first half of 2011, and by slightly higher costs in the growing Japanese and US businesses.

 

Exceptional items of £0.4m (see note 10) represent professional fees related to an aborted acquisition.

 

Reported Group operating profit was £0.1m (H1 2010: £0.9m).

 

Financing charges were £0.2m (H1 2010: £0.2m) of which £0.1m (H1 2010: £0.1m) related to the amortisation of the discount on the Australian minority put option.

 

Profit before tax, before exceptional items, was £0.3m (H1 2010: £0.6m).  The reported loss before tax was £0.1m (H1 2010: profit £0.6m).

 

The tax charge of £0.1m on ordinary activities represents an underlying tax rate of 47%, an improvement on the prior year underlying tax rate of 63%.

 

Earnings per share, before exceptional items were 0.38p (H1 2010: 0.56p).  The Group reported a loss per share of 0.56p (H1 2010: earnings per share 0.56p).

 

The Board is maintaining the interim dividend of 0.48 pence per share (H1 2010: 0.48 pence per share).

 

The Group absorbed cash from operations after net capital expenditure of £0.8m (H1 2010: cash generated of £1.9m). Capital expenditure, which predominantly related to surgical instrumentation and plant and machinery, was £1.8m (H1 2010: £1.9m) – 93% of depreciation and amortisation (H1 2010: 91%).

 

Net debt was £6.0m at 30 June 2011 (31 December 2010: £4.2m), as the level of stocks increased to meet the increasing demand for the new hip portfolio, particularly some significant stocking orders from MAKO for the third quarter of this year. This increase in working capital is not expected to continue in the second half of the year.

 

 

Strategy implementation

 

Corin’s strategy is to generate growth by broadening its hip and knee portfolio, developing innovative implant solutions and building its sales and marketing teams in a focused set of international markets. The broadening of the hip and knee portfolio is addressing high volume and high growth segments where Corin has been underrepresented. It is being implemented via in-house product development and licensing, with acquisitions if suitable opportunities arise.

 

Product strategy

 

The launch of the Trinity multiple-bearing cementless cup system in 2010 completed the first phase of this strategy, complementing the Metafix cementless hip stem and the innovative, bone-conserving MiniHip cementless short-stem hip.  The innovative features of these recently introduced hip products coupled with the offering of a complete cementless hip system to surgeons and healthcare providers has accelerated the growth of the Group’s portfolio of non MoM hips.

 

Accelerating growth in non MoM hips has enabled the Group to offset the industry-wide decline in the MoM hip market. This has led to the proportion of the Group’s sales represented by MoM products (Cormet and Optimom) declining from approximately 40% of Group sales in 2007 and 2008 to approximately 6% in the first half of 2011.

 

The key milestone in the second phase of the Group’s strategy to broaden its range of hip and knee implant solutions is to develop and launch a new total knee system.  Excellent progress continues to be made on the development of the new implant system, with CE marking being achieved this month. The instrument platform is also well advanced, with evaluation surgeries still targeted to commence in the second half of this year.  The commercial launch of the product is scheduled for the second half of 2012.

 

In addition to the new knee, the second phase of the strategy includes a number of further enhancements to the hip portfolio.

 

Evaluation surgeries of the Group’s new advanced highly cross-linked polyethylene liner, ECiMa, have been completed and the product is now being rolled out commercially as part of the Trinity cup system. ECiMa has been developed under licence, and has an innovative concept of cold irradiation and mechanical annealing, which retains the polyethylene’s mechanical properties, and Vitamin E blending, which reduces medium term oxidation.  ECiMa represents one of the few Vitamin E polyethylene liners on the market, and is expected to provide long term stability and very low wear rates.

 

Further extensions to the Trinity range of cup and liner sizes, which increase stability in the hip by allowing larger femoral head sizes to be inserted in a given cup size, have also achieved CE marking, and are in evaluation surgeries.  The Group’s cemented hip stem, Taperfit, has been upgraded and is being made commercially available during the second half of this year.

 

The development of a further cementless hip stem system, to address another major segment of the primary hip stem market not addressed by Metafix, is well underway with a group of world renowned surgeons. The instrument platform for this system will be innovatively integrated with Corin’s existing hip instrument system. Evaluation surgeries are scheduled to commence in 2012.

 

Other line extension projects are underway, including the addition of a metal-backed fixed tibia option to the Uniglide partial knee range, expansion of the Group’s CTi2 hip system for the Japanese market and further additions to the Trinity cup and Taperfit cemented stem ranges.

 

The Group’s portfolio of research projects has progressed well during the year, with projects covering implant surfaces, stress shielding and kinematics.  Several of these projects have attracted government grant funding, and in most cases are being conducted with partner organisations that bring specific technologies and skills to the projects.

 

Distribution

 

The distribution agreement signed with MAKO in March is a significant development for Corin.  Besides MAKO being an important customer, the agreement will contribute significantly to raising the profile of Corin within the US orthopaedics market. Following the FDA approvals of certain Trinity cup options in May, first orders were delivered to MAKO in the second quarter with further stocking orders placed for the second half.

 

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

 

This will further strengthen the development of the Group’s US business, providing a complementary product to the cementless hip portfolio and adding critical mass.  Corin is investing in the marketing and customer service functions in the US to support this development, and expects the US market to become an increasingly important part of the Group’s operations.

 

The distribution of LARS, the ligament augmentation and reconstruction system which Corin distributes primarily in Australia and the UK, has become a much more significant part of the Group’s operations in these countries in recent years.  The current five year distribution agreement, which was due to expire in early 2012, has now been extended for a further two years until the end of 2013. Under the terms of the agreement, Corin will have the exclusive rights to distribute LARS ligaments in a number of countries including the UK and Australia, as well as non-exclusive rights in a number of other countries. We will continue to invest behind LARS in these key countries, adding critical mass and raising Corin’s profile in these markets.

 

In the first half of the year, Corin has conducted a thorough review of its Chinese joints business, which has not been profitable since its inception in 2005.  As the Board could not see any prospect of this business becoming profitable in the short term, it is being closed (see note 15).  The results of this joints business, which made an operating loss of £0.3m in the first half of 2011 on sales of £0.3m, will be reported as a discontinued activity for the year ending 31 December 2011.  The one-off cash costs of closing the Chinese joints business are estimated to be £0.1m with an additional £0.8m of non-cash charges.

 

 

Operating review

 

Orthopaedic market

 

The global orthopaedic hip and knee market continued to experience difficult conditions in the first half of 2011, as restrictions on government funded health budgets led to price and volume pressures and to a small decline in the market of approximately 0.5%, compared to growth of approximately 3% for 2010. The market in Europe declined by approximately 1% in the first half, and declined by 3% in the UK.

 

Products

 

Against this difficult market backdrop, sales of the Group’s hip products increased by 14% to £11.7m (H1 2010: £10.2m), an increase of 13% on a constant currency basis.

 

The roll out of the new cementless hip range continued across direct markets in Europe and Australia, and many of the key distributor markets.  Complemented by the early stages of the roll out in the US market and the initial stocking orders from MAKO, sales of the non MoM hip portfolio grew by 50% in the first half (48% on a constant currency basis). This compared to growth of 26% for the full year in 2010 (22% on a constant currency basis).

 

This growth in non MoM hips more than offset the continued decline in sales of the Group’s MoM products, Cormet and Optimom. The industry-wide decline in the MoM market continued in 2011, while this decline was exacerbated by many distributors reducing their stocks of MoM hip products during the first half of the year.

 

Sales of knee products were £3.7m (H1 2010: £4.7m), a decline of 21% on a constant currency basis.

 

The Group’s total knee sales continued their decline as expected, as a result of the Group’s limited range of implants and instruments compared to more modern knee systems, as well as competitive pressures in Germany, the UK and the distributor market in Turkey.  In Australia and Austria, where the Group offers distributed knee systems from other manufacturers, knee sales were flat.

 

Other products, which include LARS ligament augmentation, Zenith mobile-bearing ankle and surgical disposable products, were £6.7m (H1 2010: £7.0m), a decline of 9% on a constant currency basis.

 

After three years of very strong growth, Group sales of the LARS ligament augmentation system declined in the first half.  In the key Australian market, sales flattened, in part following an ongoing clinical debate on the range of indications in anterior cruciate ligament (“ACL”) injury that are suitable for repair using LARS. LARS sales declined in China, where the product is currently being re-registered.

 

Corin expects this reduced sales performance to continue for LARS in the short term, but believe that it remains a key product for the Group going forward, with excellent medium term potential.  The number of papers with medium term clinical results for LARS continues to increase, supporting its continued adoption for many ligament and tendon injuries throughout the body.

 

The Zenith mobile bearing ankle continued its growth, led by the UK market and the Group’s surgeon training programme in that market. The sales of surgical disposables declined in the first half, following strong competition in this price sensitive segment of the market.

 

Geographic results

 

Sales in Europe were £8.0m (H1 2010: £9.4m), a decline of 13% on a constant currency basis.

 

Sales in the UK were £3.8m (H1 2010: £4.3m).  Market conditions continued to be challenging, particularly in the first quarter of the year, as the result of uncertainty over NHS reforms and the deferral of elective surgeries by NHS Trusts in the last quarter of their financial year.

 

The non MoM hip range grew very strongly in the UK, as the new hip portfolio, led by the Trinity cup, opened new accounts for Corin.  However, this was more than offset by declines in the MoM hip portfolio and knee portfolio and by a reduction in surgical disposable sales where there has been strong price competition.

 

Sales in Germany were £2.1m (H1 2010: £2.4m), a decline of 11% on a constant currency basis, despite the good growth achieved with the new hip portfolio.  The fall in sales was primarily due to the loss of total knee accounts and the continued decline in the MoM hip market.  A number of management changes were made and despite the costs associated with these changes, the operating loss of the business was substantially reduced compared with the first half of 2010.

 

Given the large share of total knees within the German business’ product portfolio, further improvement in the performance of the German business is ultimately dependent on the introduction of the Group’s new knee system. This is not expected to have a substantial impact on the operating performance of the business until the second half of 2012.

 

Corin’s sales to its distributor markets in Europe were impacted by declines in the general orthopaedic market in Turkey over the last year. Excluding Turkey, sales to other distributor markets in Europe increased as the new hip systems drove encouraging growth in these markets.

 

Sales to US customers grew strongly to £2.3m (H1 2010: £1.2m), an increase of 93% on a constant currency basis. The roll out of the full hip portfolio from May in this market contributed to this growth, as did the first stocking orders from MAKO. These more than offset the decline in Cormet sales to Stryker as the MoM hip market weakened.

 

As expected, the very strong growth in Australia abated in the first half of the year, with sales of £6.2m (H1 2010: £5.5m), growth of 3% on a constant currency basis.  There was very encouraging growth in the sales of Trinity and MiniHip as this range was rolled out in the market, offset by a decline in MoM hips.  Sales of LARS were flat against a very strong comparative number from the previous year.

 

Japanese sales returned to good growth, with sales up 16% to £3.5m (H1 2010: £3.0m), an increase of 10% on a constant currency basis.  There was good growth in the traditional hip portfolio, with the impact of the decline in MoM hips largely having been felt in 2010. The programme to gain regulatory approval for the new cementless hip system is ongoing, and the Group continues to expect the first approvals from this programme during the current year.

 

Current trading and outlook

 

The sales trends of the first half are, in general, expected to continue in the second half.  Sales to distributors (including MAKO) are weighted more towards the second half this year than has recently been the case.

 

The benefits of Corin’s strategy are showing through in revenue growth in new products, rebalancing the portfolio towards non-MoM hips.  With increasing momentum in the US and the planned product launches for its enhanced portfolio, the Group is well positioned for stronger growth in the second half of 2011 and into 2012.

 

 

G M Hart

Chairman

Date: 23 August 2011

 

 

 

Condensed Consolidated Income Statement

 

    6 Months to 6 Months to 12 Months to
    30 June 30 June December
    2011 2010 2010
  Note £’000 £’000 £’000
Revenue 2 22,141 21,940 44,805
Cost of sales   (7,707) (8,032) (16,808)
Gross profit   14,434 13,908 27,997
         
Distribution costs   (441) (450) (872)
Administrative expenses   (13,880) (12,608) (26,221)
Operating profit before exceptional items   533 850 2,004
Exceptional items included: 10      
Within cost of sales   - - (327)
Within administrative expenses   (420)   (733)
Operating profit   113 850 904
Finance costs 3 (239) (216) (432)
Finance income   11 8 21
Profit before tax and exceptional items   305 642 1,593
Exceptional items included 10      
Within cost of sales   - - (327)
Within administrative expenses   (420) - (733)
(Loss)/profit before tax 2 (115) 642 493
Taxation 4 (124) (402) (855)
(Loss)/profit for the period attributable to owners of the parent   (239) 240 (362)
         
(Loss)/Earnings per share        
- Basic 6 (0.56)p 0.56p (0.85)p
- Diluted 6 (0.56)p 0.56p (0.85)p

 

 

Condensed Consolidated Statement of Comprehensive Income

 

  6 Months to 6 Months to 12 Months to
  30 June 30 June December
  2011 2010 2010
  £’000 £’000 £’000
(Loss)/profit for the period (239) 240 (362)
Other comprehensive income/(expense):      
Exchange differences on translation of foreign currency net investments 60 (157) 1,087
Tax taken directly to equity in respect of share based payments 10 (4) 7
       
       
Total comprehensive (expense)/income for the period attributable to owners of the parent (169) 79 732
       

 

 

Condensed Consolidated Statement of Financial Position

 

    30 June 30 June 31 December
    2011 2010 2010
  Note £’000 £’000 £’000
Assets        
Non-current assets        
Property, plant and equipment 7 9,614 9,984 9,701
Goodwill   3,544 2,761 3,544
Other intangible assets   2,499 2,548 2,531
Investments   - 125 -
Deferred tax assets   2,383

 

1,664 1,925
Total non-current assets   18,040 17,082 17,701
Current assets        
Inventories   14,938 14,538 13,307
Trade and other receivables   10,760 9,556 10,937
Cash and cash equivalents   1,513 2,375 1,959
Total current assets   27,211 26,469 26,203
Total assets 2 45,251 43,551 43,904
EQUITY AND LIABILITIES        
Equity attributable to owners of the parent      
Share capital 8 1,070 1,070 1,070
Share premium account   15,751 15,751 15,751
Share scheme reserve   4,740 4,328 4,537
Own shares held reserve   (10) (10) (10)
Translation reserve   3,784 2,480 3,724
Retained earnings   2,366 4,029 3,222
Total equity   27,701 27,648 28,294
         
Non-current liabilities        
Long-term borrowings   3,652 3,851 3,167
Deferred tax liabilities   38 19 47
Provisions   2,217 1,344 2,102
Total non-current liabilities   5,907 5,214 5,316
Current liabilities        
Trade and other payables   7,488 7,188 6,936
Current tax payable   277 579 397
Short-term borrowings   3,878

 

2,922 2,961
Total current liabilities   11,643 10,689 10,294
Total liabilities   17,550 15,903 15,610
 

Total equity and liabilities

   

45,251

 

43,551

43,904

 

 

Condensed Consolidated Statement of Cash Flows

 

 

    6 Months to 6 Months to 12 Months to
    30 June 30 June December
    2011 2010 2010
    £’000 £’000 £’000
Cash flows from operating activities        
(Loss)/profit before tax   (115) 642 493
Adjustments for:        
Depreciation and amortisation   1,956 2,024 4,050
Interest received   (11) (8) (21)
Interest Paid   124 135 432
Share based payments   193 205 403
Movement in fair value of forward exchange contracts   13 (74) (46)
(Profit)/loss on disposal of plant, property and equipment   (4) - 165
Impairment to investment   - - 125
(Increase)/decrease in inventories   (1,467) (1,367) 664
Decrease/(increase) in trade and other receivables   177 174 (989)
Increase in trade and other payables   76 1,944 1,155
Cash generated from operations   942 3,675 6,431
Interest paid   (124) (134) (266)
Taxes paid   (701) (459) (1,350)
Net cash flows from operating activities   117 3,082 4,815
Cash flows from investing activities        
Interest received   11 8 21
Proceeds from sale of property, plant and equipment   37 111 291
Capital expenditure   (1,818) (1,851) (3,459)
Net cash used in investing activities   (1,770) (1,732) (3,147)
Cash flows from financing activities        
Inception of finance leases   202 230 526
Proceeds from borrowings   4,700 - -
Repayment of bank borrowings   (4,200) (600) (1,200)
Repayment of capital portion of finance lease liabilities   (311) (375) (840)
Dividend paid to Australian minority shareholder   (232) - -
Dividend paid to owners of the parent company   - (385) (590)
Net cash received from/(used in) financing activities   159 (1,130) (2,104)
 

Net (decrease)/increase in cash and cash equivalents

   

(1,494)

 

220

(436)
 

Cash and cash equivalents at the beginning of the period

   

746

 

1,064

1,064
Exchange adjustments   37 3 118
Cash and cash equivalents at the end of the period   (711) 1,287 746
         
Cash and cash equivalents comprises: £’000 £’000 £’000  
         
Cash available on demand 1,513 2,375 1,959  
Overdrafts and other short term financing (2,224) (1,088) (1,213)  
  (711) 1,287 746  

 

 

Condensed Consolidated Statement of Changes in Equity

 

          Own    
  Share Share   Share Shares    
  Capital Scheme Translation Premium Held Retained Total
  Reserve Reserve Reserve Account Reserve Earnings Equity
  £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2011 1,070 4,537 3,724 15,751 (10) 3,222 28,294
Total comprehensive income/(expense) for the period - 10 60 - - (239) (169)
Share-based payment expense - 193 - - - - 193
Dividends paid - - - - - (617) (617)
At 30 June 2011 1,070 4,740 3,784 15,751 (10) 2,366 27,701

 

          Own      
  Share Share   Share Shares      
  Capital Scheme Translation Premium Held Retained Total  
  Reserve Reserve Reserve Account Reserve Earnings Equity  
  £’000 £’000 £’000 £’000 £’000 £’000 £’000  
At 1 January 2010 1,070 4,127 2,637 15,751 (10) 4,174 27,749
Total comprehensive income/(expense) for the period - (4) (157) - - 240 79
Share-based payment expense - 205 - - - - 205
Dividends paid - - - - - (385) (385)
At 30 June 2010 1,070 4,328 2,480 15,751 (10) 4,029 27,648

 

          Own    
  Share Share   Share Shares    
  Capital Scheme Translation Premium Held Retained Total
  Reserve Reserve Reserve Account Reserve Earnings Equity
  £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2010 1,070 4,127 2,637 15,751 (10) 4,174 27,749
Total recognised income/(expense) for the period - 7 1,087 - - (362) 732
Share-based payment expense - 403 - - - - 403
Dividends paid - - - - - (590) (590)
At 31 December 2010 1,070 4,537 3,724 15,751 (10) 3,222 28,294

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

1.  Basis of preparation

 

Corin Group PLC (the “Company”) is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2011 comprise the Company and its subsidiaries (together referred to as the “Group”).

 

The condensed consolidated interim financial statements have been prepared using the principal accounting policies set out in the Group’s 2010 annual report and financial statements and in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and IAS 34 Interim Financial Reporting as adopted by the European Union.

 

The IASB has issued IFRS 2 (amended) “Group Cash-settled Share-based Payment Transactions” that is applicable to the Group. This revised standard has no impact upon the reported results of the Group.

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

 

The condensed interim financial statements for the six months ended 30 June 2011 have neither been audited nor reviewed.

 

The financial information for the year ended 31 December 2010 set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. Statutory financial statements for 2010, which were prepared under IFRS as adopted by the European Union (‘adopted IFRSs’), have been delivered to the Registrar of Companies. The auditors’ report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or 498 (3) of the Companies Act 2006.

 

 

2.  Segmental analysis

 

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

 

  6 Months to 6 Months to 12 Months to
  30 June 30 June 31 December
  2011 2010 2010
  £’000 £’000 £’000
Revenue      
UK operations 12,605 13,312 26,311
German operations 2,286 2,509 4,797
Australian operations 6,163 5,493 12,705
Japanese operations 3,496 3,026 6,196
US operations 2,333 1,250 2,191
All other segments 971 1,659 2,906
  27,854 27,249 55,106
Less intercompany sales:      
Germany (1,196) (1,088) (1,929)
Japan (1,821) (992) (2,147)
Australia (1,867) (2,248) (4,276)
All other segments (829) (981) (1,949)
Total revenue to external customers 22,141 21,940 44,805

 

Revenue of £5,538,000 (2010: £5,187,000) from intercompany sales is included in revenue from UK operations.  Revenue of £175,000 (2010: £122,000) is included in revenue from German operations.

 

       
(Loss)/profit before taxation      
UK operations (1,590) (962) (2,780)
German operations (309) (648) (1,089)
Australian operations 1,636 1,609 3,926
Japanese operations 66 395 599
US Operations 545 535 630
All other segments (463) (287) (793)
       
  (115) 642 493
       
Assets      
UK operations 24,969 24,173 23,155
German operations 3,559 4,229 3,555
Japanese operations 6,293 5,828 5,901
Australian operations 7,659 7,091 8,403
US Operations 1,434 976 1,821
All other segments 1,337 1,254 1,069
  45,251 43,551 43,904

 

 

3.  Finance costs

 

  6 Months to 6 Months to 12 Months to
  30 June 30 June 31 December
  2011 2010 2010
  £’000 £’000 £’000
Interest expense on financial liabilities measured at amortised cost 80 82 165
Interest on finance leases 44 52 101
Amortisation of discount on Australian Minority Interest Put Option 115 82 166
Total finance costs 239 216 432

 

 

4.  Taxation

 

  6 Months to 6 Months to 12 Months to
  30 June 30 June 31 December
  2011 2010 2010
The tax charge is made up as follows: £’000 £’000 £’000
United Kingdom corporation tax on profits for the period - 48 -
Income tax of overseas operations on profits/(losses) for the period 141 314 1,418
Adjustment for under provision in prior periods 28 1 28
Total current tax 169 363 1,446
Origination and reversal of temporary differences:      
Deferred tax

Prior year adjustments

(35)

(10)

(32)

71

(406)

(185)

Total tax on profit on ordinary activities 124 402 855

The tax charge for the 6 months to 30 June 2011 has been calculated based on an estimate of the tax charge for the year ending 31 December 2011.

 

 

5.  Dividends

 

  6 Months to 6 Months to 12 Months to
  30 June 30 June 31 December
  2011 2010 2010
  £’000 £’000 £’000
Final dividend of 0.9p per ordinary share accrued/paid during the period relating to previous year’s results 385 385 385
Interim dividend of 0.48p per ordinary share paid during the period - - 205
Dividend paid by Corin Australia to minority shareholder 232 - -
  617 385 590

 

The final dividend of 0.9p relating to the previous year’s results was paid on 8 July 2011.

 

The proposed interim dividend of 0.48p (June 2010: 0.48p) per ordinary share totalling £205,000 (June 2010: £205,000) will be paid on 11 November 2011 to shareholders registered at the close of business on 28 October 2011. The proposed interim dividend has not been accrued in the results to 30 June 2011.

 

 

6.  (Loss)/earnings per share

 

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

 

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

 

 

    June 2011     June 2010     Dec 2010  
    Weighted Per   Weighted Per   Weighted Per
  (Loss)/ average Share   average Share (Loss)/ average Share
  earnings number amount Earnings number amount earnings number amount
  £’000 of shares p £’000 of shares p £’000 of shares p
Post-exceptional item                  
Basic (loss)/ earnings per share (239) 42,765,478 (0.56) 240 42,765,478 0.56 (362) 42,765,478 (0.85)
Diluted (loss)/ earnings per share (239) 42,765,478 (0.56) 240 42,765,478 0.56 (362) 42,765,478 (0.85)
                   
Underlying earnings per share                  
Basic earnings per share 162 42,765,478 0.38 240 42,765,478 0.56 555 42,765,478 1.30
                   

 

 

There were no dilutive potential shares for the periods ended 30 June 2011 and 30 June 2010 and the year ended 31 December 2010.

 

Underlying earnings per share at 30 June 2011 is before the post tax exceptional cost of £401,000 as detailed in note 10.

 

Underlying earnings per share at 31 December 2010 is before the post tax exceptional cost of £917,000 as detailed in note 10.

 

 

7.  Property, plant and equipment

 

    Plant Consigned  
  Leasehold equipment surgical  
  improvements & vehicles Instrumentation Total
Cost £’000 £’000 £’000 £’000
At 1 January 2010 819 8,316 13,542 22,677
Additions 10 292 1,415 1,717
Exchange movement in the year - (12) (213) (225)
Disposals - (8) (589) (597)
At 30 June 2010 829 8,588 14,155 23,572
Additions 15 478 944 1,437
Transfer from current assets - - 279 279
Exchange movement in the year 1 36 498 535
Disposals - (3) (520) (523)
At 31 December 2010 845 9,099 15,356 25,300
Additions 12 1,038 699 1,749
Exchange movement in the period - 41 208 249
Disposals - (121) (246) (367)
At 30 June 2011 857 10,057 16,017 26,931
Depreciation        
At 1 January 2010 280 5,365 6,752 12,397
Provided in the year 36 505 1,277 1,818
Exchange movement in the year - 10 (133) (123)
Eliminated on disposals - (7) (497) (504)
At 30 June 2010 316 5,873 7,399 13,588
Provided in the year 38 518 1,311 1,867
Exchange movement in the year - 14 290 304
Eliminated on disposals - (20) (140) (160)
At 31 December 2010 354 6,385 8,860 15,599
Provided in the period 38 536 1,208 1,782
Exchange movement in the period - 31 155 186
Eliminated on disposals - (86) (164) (250)
At 30 June 2011 392 6,866 10,059 17,317
Net book amount at 30 June 2011 465 3,191 5,958 9,614
Net book amount at 31 Dec 2010 491 2,714 6,496 9,701
Net book amount at 30 June 2010 513 2,715 6,756 9,984

 

 

8.  Share capital

 

  30 June 30 June 31 Dec 30 June 30 June 31 Dec
  2011 2010 2010 2011 2010 2010
  number number number £’000 £’000 £’000
Authorised:            
Ordinary shares of 2.5p each 66,100,000 66,100,000 66,100,000 1,653 1,653 1,653
             
Allotted, called up and fully paid:            
Ordinary shares of 2.5p each 42,784,907 42,784,907 42,784,907 1,070 1,070 1,070

 

 

Share issues under share option schemes

 

No ordinary shares were issued during the period, pursuant to the exercise of options granted under any share or option schemes.

 

 

9.  Related party transactions

 

The directors are related parties within the definition of IAS24 (Related Party Disclosures) for key management personnel. During the period, other than the remuneration of each individual director, there have been no other transactions with key management personnel or with other related parties that have been identified.

 

 

10.  Exceptional items

 

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

 

 

For the period to 30 June 2011, exceptional items comprised:

   
  £’000
Administrative expenses  
Acquisition costs 420
Total exceptional item

 

420
   
Tax effect (19)
Post tax exceptional item 401

 

Costs of £420,000 were expensed in respect of an aborted acquisition.

 

For the year to 31 December 2010, exceptional items comprised:

 
  £’000
Administrative expenses  
Impairment to investment 125
Contractual severance payments 42
Debt written off

Acquisition costs

339

267

Total exceptional administrative expenses 773
Cost of sales  
Inventory impairments

327

 

Total exceptional item 1,100
Tax effect (183)
Post tax exceptional item 917

 

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

 

During the year the consultancy responsible for running Corin’s operations in China was given notice of termination.  As a result of the contractual arrangements with the consultancy, a debt totalling £339,000 owing by the consultancy was written off by the Group.  In addition, contractual notice payments of £42,000 were incurred.

 

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

 

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

 

 

11.  Borrowings

 

In February 2011, Corin Limited entered into a new £4.7 million term loan facility agreement with Lloyds TSB and repaid the £3.6 million existing loan at that time. The £4.7 million loan is repayable in 11 quarterly instalments of £0.3 million commencing in May 2011, with a final repayment of £1.4 million in February 2014. The balance of this loan at 30 June 2011 was £4.4m.

 

 

12.  Net debt

 

  6 Months to 6 Months to 12 Months to
  30 June 30 June 31 December
  2011 2010 2010
  £’000 £’000 £’000
       
Cash available on demand (1,513) (2,375) (1,959)
Overdrafts and other short term financing 2,224 1,088 1,213
Overdraft/(Cash and cash equivalents) 711 (1,287) (746)
Long-term borrowings 3,652 3,851 3,167
Short-term borrowings 1,654 1,834 1,748
Net debt 6,017 4,398 4,169

 

 

13.  Sales at constant currency

 

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

 

Constant currency sales are calculated by translating 2010 results at the average exchange rates used for the six month period ended 30 June 2011.

 

  6 Months to 6 Months to  
  30 June 30 June  
  2011 2010  
  £’000 £’000 Growth
Reported sales 22,141 21,940 1%
Currency movement - 487  
Sales at 2011 rates 22,141 22,427 (1%)

 

 

14.  Principal risks and uncertainties

 

In common with all trading businesses, the Group is exposed to a variety of risks in the conduct of its normal business operations. Set out on page 19 of the Group’s Annual Report for the year ended 31 December 2010 is a summary of some of the most important risks and uncertainties which, in the opinion of the Directors, could impact its performance. These are equally applicable to the current financial year and are unchanged from those disclosed in the Group’s Annual Report.

 

15.  Post balance sheet events

 

On 13 July 2011, the Group announced the termination of its distribution agreement with Stryker Corporation.

 

On 18 August 2011, the Group decided to close its Chinese joints business.  The results of this business will be shown as discontinued in the accounts of the Group for the year ending 31 December 2011.

 

 

 

 

 

Responsibility Statement

 

 

 

 

We confirm that, to the best of our knowledge:

 

(a)  the condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting';

(b)  the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and descriptions of principal risks and uncertainties for the remaining six months of the year); and

(c)  the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein).

 

 

By order of the Board:

 

P W Huntley   M R D Roller
Chief Executive   Finance Director
Date 23 August 2011   Date 23 August 2011
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