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