RNS Number:7501J
Corin Group PLC
08 April 2003
Corin Group PLC
Preliminary Results for year to 31 December 2002
CORIN INCREASES PRE-TAX PROFIT BY 62%
Corin is an innovative developer, manufacturer and distributor of a wide range
of reconstructive orthopaedic devices, with particular focus on treatment of the
young and active patient.
* Sales up 23% to #17.3m (2001: #14.1m).
* Sales increased in the UK by 17% to #6.24m, in continental Europe by
83% to #4.18m, in Japan by 17% to #2.45m and in the USA by 94% to #2.0m.
* Pre-tax profit up 62% to #2.8m (2001: #1.7m).
* Adjusted earnings per share up 56% to 5.0p (2001: 3.2p).
* Recommended final dividend of 0.6p - total for the year 0.9p.
* Sales of flagship products, Cormet and Rotaglide+, grew faster than
market.
* Integration of Alphanorm, acquired in September 2002, on target.
* Three new products launched - the Proxima Total Hip System, BioFuse
Bone Substitute Material and the Cervive Cervical Spinal Plate.
Peter Gibson, Corin Chairman, said:
"2002 was an exceptional year for Corin and an important milestone in our
history. Corin obtained a full listing on the London Stock Exchange in May,
completed a strategically important acquisition in Germany in September and
significantly increased sales and profitability."
"The opportunities for the Group in 2003 are considerable. We anticipate
continued strong growth of our leading products, based on our innovative
technology, their clinically proven track-record and the expansion of our target
market. The current financial year has started well and is in line with our
expectations."
8 April 2003
Enquiries:
Corin Group PLC
Peter Gibson, Executive Chairman Tel: 020 7457 2020 today
01285 659 866 thereafter
College Hill Tel: 020 7457 2020
Adrian Duffield Email: adrian.duffield@collegehill.com
Clare Warren clare.warren@collegehill.com
Results
For the full year, we grew sales by 23%, from #14.1 million to #17.3 million,
with particularly strong revenue increases in the USA and Europe. In the UK,
our largest single market, sales improved by 17%, to #6.24 million, well in
excess of market growth. Sales of our two flagship products, Cormet and
Rotaglide+, continued to grow faster than the market as a whole.
2002 saw continued improvement in both geographical and product sales mix which,
together with greater manufacturing efficiencies, resulted in an increased gross
margin to 67.1% (2001: 64.5%).
Operating profit for the year was #3.0 million compared to #2.1 million in 2001,
an increase of 41%. Alphanorm, acquired in September 2002, contributed an
operating profit of #0.1 million. Group operating margin improved from 15.2% to
17.4%, reflecting a continued tight control on costs.
After a reduced interest charge, pre-tax profit increased by 62%, to #2.8
million from #1.7 million. The tax charge represents an effective rate of 35.0%
on profit before tax, compared to 39.3% in 2001. This relatively high rate of
tax reflects the higher level of taxation in countries outside the UK.
Adjusted earnings per share, calculated using the capital structure resulting
from the flotation, rose 56%, from 3.2p per share to 5.0p per share in 2002.
Due to the payment of preference dividends to the venture capital funds on
flotation, the company reported a basic loss per share of 0.06p (2001: loss per
share 1.5p).
In the light of these strong results, the Board is recommending a final dividend
of 0.6p which, with the interim of 0.3p, makes a total dividend of 0.9p for the
year.
Corin was cash positive during the year, generating an operating cash inflow of
#3.1 million. At the year end, the Group had net funds of #0.3 million
compared to net debt of #3.3 million at the end of 2001. The Group continues to
be focussed on cash generation and the careful management of working capital.
Listing
The listing on the London Stock Exchange in May was a great success, with the
share placing being significantly oversubscribed. #22 million was raised for
the Company. The venture capital funds, who have supported us over the last
eight years, were able to sell their holdings. The Group's overall profile has
also been increased considerably by having the Company's shares traded on a
public market.
Acquisition of Alphanorm
The acquisition of the business and assets of Alphanorm Medizintechnik GmbH in
September, for Euro3.93 million, was an important and highly beneficial strategic
opportunity. The acquisition was funded by placing 3,174,603 ordinary shares of
2.5p each at a price of #1.26 per share, raising approximately #4 million before
expenses. The acquisition brings to the Group a number of benefits.
Firstly, it provides a direct distribution network in Germany, the largest
orthopaedic market in Europe and third largest market in the world; secondly,
the Alphanorm product range is highly complementary to the existing Corin range
in all markets, including the UK; and, thirdly, there is a substantial
opportunity to improve Alphanorm product gross margins through the transfer of
manufacture from sub-contractors in Germany to our facilities in Cirencester,
Gloucestershire.
The integration of Alphanorm into the Group is proceeding, with the transfer of
product manufacture on target. Additionally, our original German sales
subsidiary, Corin Deutschland GmbH, has now been fully absorbed into the
Alphanorm operation following the purchase in December 2002 of the remaining 21%
of the share capital for #0.10 million in cash.
Strategy and Markets
Our strategy is to exploit our proprietary technology's leading position by
focussing on the fast growing reconstructive orthopaedic devices market for the
young and active patient. We plan to increase our direct sales activities,
particularly in continental Europe; we currently sell direct in Germany and
France. We also continue to enhance our third party distribution network
worldwide.
The total orthopaedic market worldwide has continued to grow in excess of 10%
per annum and is now valued in the order of #11 billion. Within our target
sectors, the reconstructive market for knees and hips is valued at some #4
billion, whilst the spinal sector, which is the fastest growing, is valued at
#1.6 billion.
Operating Review
UK
In the UK, sales grew in 2002 by 17% to #6.24 million, up from #5.31 million.
This was well in excess of the general market growth in our targeted sectors of
the orthopaedic market, estimated to be between 3% and 6%. Our growth was
primarily driven by strong sales of the Cormet Resurfacing Hip System and the
Rotaglide+ Knee System, both products designed for the treatment of the young,
active, arthritic patient.
Cormet is one of the Group's leading products. The utilisation of a large
diameter metal on metal bearing, eliminating polyethylene from the joint, makes
this device a particularly attractive treatment option for the young, active,
arthritic group. There is a great deal of interest in this device, both from
the clinician and from potential patients. This has been encouraged by three
significant drivers: the favourable report from the National Institute for
Clinical Excellence (NICE) on metal on metal hip resurfacing; the increasing
success of Corin-run educational courses for clinicians in the related surgical
technique and technology; and from increasing patient awareness (predominantly
aided by Internet access) of the availability of this procedure for patients who
otherwise would be considered unsuitable for hip replacement.
During 2002 we introduced our complementary Stemmed Large Diameter Metal on
Metal Hip Replacement prosthesis, which is an extension to the Cormet
resurfacing technology. It is targeted at patients unsuitable for resurfacing
due to pre-existing physiological indications (such as osteoporosis). A patent
has been granted in several European countries protecting this important
proprietary technology.
The Rotaglide+ Knee has also continued to grow well, again in excess of UK total
market growth. The Rotaglide+ Knee was launched in 2001 as a mobile bearing
knee system that built upon the long-term clinical success of the Rotaglide
Knee. The Rotaglide+ incorporates a series of advanced design features, based on
extensive surgeon feedback, which have further enhanced the product. The roll
out of the Rotaglide+ Knee was accompanied by an upgrading of the knee
instrumentation necessary for optimisation of the surgical procedure. The
conversion from the original Rotaglide to the Rotaglide+ is now essentially
complete in the UK and the advanced design features have allowed us to expand
our customer base.
Europe - other than the UK
Our increased focus on Europe is proving to be successful, with sales growing
from #2.28 million in 2001 to #4.18 million in 2002, an increase of 83% - once
again outstripping overall market growth. Particularly strong growth has been
experienced in Spain, Greece and Italy. Towards the end of 2002 we began to
develop substantial sales opportunities in both Switzerland and Austria, which
we expect to capitalise upon in 2003.
The acquisition of Alphanorm, in Germany, in September 2002 has enabled us to
increase sales of Corin products in Europe's largest market through Alphanorm's
sales force. Towards the end of 2002, new customers in Germany for the Cormet
Resurfacing Hip, the Rotaglide+ Knee and the Trinity Polyaxial Spinal System had
been secured. We expect to benefit further from our sales and marketing focus
in continental Europe during 2003.
USA
Sales in the USA showed excellent growth to #2.0 million, an increase of 94%
over prior year. This increase was driven predominantly by a 48% increase in
sales of our spinal pedicle screw system, which represented almost 50% of
turnover in 2002. Both Cormet and Rotaglide+ showed substantial growth over
prior year as the FDA-approved clinical trials gathered momentum. The
implantation phase of the Cormet trial is now virtually complete and we remain
on target for full approval to be granted in 2006. Implantations on the
Rotaglide+ trial continue and full approval is also anticipated during 2006.
We plan to seek FDA approval for our Stemmed Large Diameter Metal on Metal Hip
System during 2003, which again will be of significant interest to our
customers.
Japan
In Japan, sales increased by 17%, from #2.10 million to #2.45 million. In
particular, sales of our Bipolar Hip System for treatment of hip fractures
continue to advance. We also started to see interest in the Cormet system during
the latter part of the year. In addition, we have enhanced our product and
geographic distribution channels. Most encouragingly, the number of active
sales agents increased from 24 in 2001 to 32 in 2002, which, together with the
enhanced product offering, bodes well for the future.
In October 2002, the Group purchased an additional 20% share holding in Corin
Japan KK for #0.33 million in cash, taking the Group's holding to 80%.
New Product Technologies
The company continues to focus on the development of new products and
technologies in order to enhance its competitive position. During 2002 we
released three new products to support our continued growth aspirations:
* Proxima Total Hip System
Following ten years of clinical trials in Australia by the inventor surgeon,
Associate Professor David Morgan from the University of Queensland in Australia,
the Proxima Total Hip System was made available worldwide during the latter part
of 2002. This system allows for preservation of the femoral neck and thus
enhanced stability of the hip prosthesis. The system is particularly attractive
for use with large diameter metal on metal hip replacement technology.
* BioFuse Bone Substitute Material
BioFuse is an artificial bone material, which can be used to augment both spinal
and other reconstructive surgical procedures. It provides an attractive
alternative to utilisation of the patient's own bone or the use of cadaver bone,
with the consequent risk of cross infection.
* Cervive Cervical Plate System
At the North American Spinal Society Meeting held in November 2002, we launched
the Cervive Cervical Plate System, developed with Dr Emory Alexander of
Columbus, Georgia, USA. Cervive represents the first time that Corin has
developed a product uniquely with a US surgeon and we anticipate strong
acceptance of this spinal device, as it provides a further broadening of our
emerging spinal product portfolio.
In November 2002, the company entered into an agreement, supported by a European
Community grant, for the development of an enhanced ceramic coating for metal on
metal bearings and for other orthopaedic applications. This agreement brings
together both continental European and UK-based research institutes and
manufacturing companies, in order to develop a unique technology for further
enhancing the wear properties of hard on hard bearings.
Throughout the orthopaedic industry, there is considerable interest in the use
of navigated techniques to enhance orthopaedic surgery, using modified
instrumentation. In the latter part of 2002, Corin entered into an agreement
with the University of Erlangen-Nuremburg in Germany, for the further
development of a computerised navigation system. This technology allows for
accurate cuts to be made by the operating surgeon, using a triangulation system
of navigation, thus allowing precise component placement. It is anticipated
that we will develop this system, particularly for use with the Cormet
Resurfacing Hip and the Rotaglide+ and Alphanorm AMC mobile bearing knee
systems.
Manufacturing Strategy
During 2002, the company has continued to pursue its policy of "lean
manufacturing", which incorporates the primary objectives of reducing lead
times, reducing work in progress and increasing flexibility. We continue to
upgrade the factory's manufacturing facilities through the purchase of computer
driven lathes and mills and by the enhancement of the computer-based
manufacturing control systems. The introduction of new "virtual" manufacturing
cells has allowed significant gains in efficiency and reduction of quality
related costs. The company will continue to pursue lean manufacturing
philosophies throughout its operations.
In the last quarter of 2002, we started the process of transferring manufacture
of Alphanorm products from predominantly German based sub-contract sources to
our own manufacturing facility in Cirencester. Where sub-contract operations
are necessary, we will continue to operate a dual-source strategy, in order to
minimise risks of disruption to our manufacturing flow and to ensure competitive
pricing.
Conclusion
In 2002 we accomplished a great deal. Our sales grew significantly across the
world, faster than the market as a whole, with flagship products making notable
gains. We initiated our strategic programme of increasing our direct sales in
certain European countries, whilst we also introduced important new products to
the market. At the same time, we are well advanced in the transfer of
Alphanorm's manufacturing activities to Cirencester, while continuing to upgrade
our facilities.
Consolidated Profit and Loss Account
For the year ended 31 December 2002
2002 2001 Change
Note #'000 #'000
Turnover
Continuing operations:
ongoing 16,031 14,088
acquisitions - Alphanorm GmbH 1,313 -
Group Turnover 2 17,344 14,088 23%
Cost of sales (5,713) (5,002)
Gross Profit 11,631 9,086 28%
Distribution costs (488) (377)
Administrative expenses (8,122) (6,566)
Operating profit
Continuing operations:
ongoing 2,916 2,143
acquisitions - Alphanorm GmbH 105 -
Group Operating profit 3,021 2,143 41%
Net interest (187) (396)
Profit on ordinary activities before 2,834 1,747 62%
taxation
Tax on profit on ordinary activities 3 (991) (687)
Profit on ordinary activities after 1,843 1,060
taxation
Equity minority interests (147) (49)
Profit for the financial year 1,696 1,011
Dividends and appropriations
Preference dividends and appropriations (1,712) (1,206)
Ordinary dividends (335) -
Group dividends and appropriations 4 (2,047) (1,206)
Loss added to the deficit on reserves (351) (195)
Earnings per share 5
- Basic (pence) (0.06) (1.50)
- Diluted (pence) (0.06) (1.50)
- Adjusted Basic (pence) 5.00 3.20 56%
- Adjusted Diluted (pence) 4.83 3.18
Consolidated Balance Sheet
At 31 December 2002
2002 2002 2001 2001
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 1,690 63
Tangible assets 2,466 1,490
Investments 10 10
4,166 1,563
Current Assets
Stocks 5,548 3,488
Debtors 4,143 2,981
Cash at bank and in hand 3,753 596
13,444 7,065
Creditors: amounts falling due within one year (7,926) (5,822)
Net current assets 5,518 1,243
Total assets less current liabilities 9,684 2,806
Creditors: amounts falling due after more than one year
(2,370) (3,424)
Provisions for liabilities and charges (2) (3)
7,312 (621)
Capital and reserves
Called up share capital 958 507
Share premium account 8,086 39
Profit and loss account (2,043) (1,663)
Shareholders' funds 7,001 (1,117)
Equity minority interests 311 496
7,312 (621)
Equity shareholders' funds 7,001 (23,674)
Non-equity shareholders' funds - 22,557
7,001 (1,117)
Consolidated Cash Flow Statement
For the year ended 31 December 2002
2002 2001
Note #'000 #'000
Net cash inflow from operating activities 6 3,089 2,685
Returns on investments and servicing of finance
Interest received 47 -
Interest paid (209) (364)
Finance lease interest paid (25) (32)
Dividends paid to preference shareholders (750) -
Net cash outflow from returns on investments and servicing of finance (937) (396)
Taxation (940) (696)
Capital expenditure and financial investment
Purchase of intangible fixed assets (232) (37)
Purchase of tangible fixed assets (1,176) (610)
Purchase of investments - (47)
Sale of tangible fixed assets - 1
Sale of investments - 66
Net cash outflow from capital expenditure and financial investment (1,408) (627)
Acquisitions and disposals
Purchase of shares in subsidiary undertakings (522) (45)
Purchase of business and assets of Alphanorm Medizintechnik GmbH (1,497) -
Net cash outflow from acquisitions and disposals (2,019) (45)
Equity dividends paid (115) -
Financing
Issue of shares 26,151 20
Redemption of shares (18,316) -
Share issue costs (1,620) -
Receipts from borrowings 1,306 2,250
Repayment of borrowings (1,053) (2,357)
Capital element of finance lease rentals (99) (117)
Net cash inflow/(outflow) from financing 6,369 (204)
Increase in cash 6 4,039 717
Statement of Total Recognised Gains and Losses
For the year ended 31 December 2002
2002 2001
#'000 #'000
Profit on ordinary activities after taxation 1,843 1,060
Currency differences of foreign currency net investments (29) (114)
Total recognised gains and losses for the year 1,814 946
Notes
1 Basis of Preparation
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2001 or 2002. The financial
information for 2001 is derived from the statutory accounts for 2001 which have
been delivered to the registrar of companies. The auditors have reported on the
2001 accounts; their report was unqualified and did not contain a statement
under section 237 (2) or (3) of the Companies Act 1985. The statutory accounts
for 2002 will be finalised on the basis of the financial information presented
by the directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the company's annual general meeting.
The principal accounting policies of the Group have remained unchanged from
those set out in the Group's 2001 Annual Report and financial statements.
2 Turnover and Segmental Analysis
Turnover and profit on ordinary activities before taxation are attributable to
one activity, the manufacture and marketing of orthopaedic devices. The
analysis by geographical segment of the group's turnover is set out below. The
results of Alphanorm GmbH are included within the results for Europe.
Turnover by location of customer 2002 2001
#'000 #'000
United Kingdom 6,236 5,311
Europe (other than the United Kingdom) 4,179 2,284
Rest of the world 6,929 6,493
17,344 14,088
The group's results can be further analysed by operational segment. These
segments reflect the group's organisational structure and are consistent with
the group's internal management reporting structure.
Turnover by operational segment 2002 2001
#'000 #'000
UK operations 11,426 10,931
International operations 5,918 3,157
17,344 14,088
Profit before taxation by operational segment 2002 2001
#'000 #'000
UK operations 1,847 1,341
International operations 987 406
2,834 1,747
3. Taxation
Tax on profit on ordinary activities
The tax charge is made up as follows: 2002 2001
#'000 #'000
United Kingdom corporation tax at 30% (2001: 30%) 851 448
Group relief (241) -
Overseas taxation 381 195
991 643
Adjustments in respect of prior periods:
Overseas taxation - 44
991 687
4. Dividends
2002 2001
#'000 #'000
'A' preference dividend of 13.38p per share (2001: 3.96p per share) 1,712 506
Appropriation in respect of 'A' preference shares dividend rights - 390
Appropriation of interest on 'A' preference shares accrued dividend rights - 236
Appropriation in respect of 'A' preference shares finance costs - 74
Equity dividends on ordinary shares interim paid 0.3p per share 105 -
Equity dividends on ordinary shares final proposed 0.6p per share 230 -
2,047 1,206
At 31 December 2001, the total due to holders of 'A' preference shares in
respect of dividends (declared and not declared) and interest amounted to
#5,316,000. A compromise agreement signed on 10 April 2002 required that as
soon as practicable after flotation a #750,000 dividend would be paid in cash,
#2,283,000 of arrears would be waived with the remaining arrears of #2,283,000
being satisfied by the issue of ordinary shares.
Accordingly, on flotation, the group declared a dividend to the holders of 'A'
preference shares of #1,712,000 as follows:
#'000
'A' preference dividends accrued in financial statements at 31 December 2001 (1,321)
'A' preference dividends satisfied by the issue of 2,056,767 ordinary shares at #1.11 2,283
'A' preference dividend paid in cash 750
1,712
Subsequent to the flotation, all preference shares were redeemed.
The final dividend of 0.6p per share will be paid on 26 June 2003 to
shareholders registered at the close of business on 30 May 2003.
5. Earnings per Share
The calculation of the basic loss per share is based on the losses 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.
Adjusted basic earnings per share represents the adjusted earnings, after adding
back the preference dividend, divided by the number of ordinary shares issued on
flotation for the redemption of the preference shares and the conversion of the
preference dividend arrears, as if they had been in issue throughout the whole
year.
The loss attributable to ordinary shareholders and weighted average number of
ordinary shares for the purpose of calculating the diluted earnings per ordinary
share are identical to those used for basic earnings per ordinary share. This
is because the exercise of share options would have the effect of reducing the
loss per ordinary share and is therefore not dilutive under the terms of FRS 14
Earnings per Share.
The calculation of adjusted diluted earnings per share represents the adjusted
earnings after adding back the preference dividend, divided by the number of
ordinary shares issued on flotation for the redemption of the preference shares
and the concession of the preference dividend arrears, as if they had been in
issue throughout the whole year, adjusted to allow for the issue of shares and
the post tax effect of dividends and/or interest, on the assumed conversion of
all dilutive options.
2002 2001
Earnings Weighted Per Share Earnings Weighted Per Share
average amount average amount
number of number of
shares p. shares p.
#000 #000
Profit for the financial year 1,696 1,011
Preference dividends (1,712) (1,206)
Loss attributable to ordinary
shareholders
(16) (195)
Basic loss per share (16) 28,169,808 (0.06) (195) 13,056,276 (1.50)
Adjustment for preference dividends 1,712 1,206
Adjusted basic earnings per share 1,696 28,169,808 6.02 1,011 13,056,276 7.74
Adjustment of shares in issue 5,727,298 (1.02) 18,557,654 (4.54)
Adjusted basic earnings per share 1,696 33,897,106 5.00 1,011 31,613,930 3.20
Diluted loss per share (16) 28,169,808 (0.06) (195) 13,056,276 (1.50)
Adjustment for preference dividends 1,712 1,206
Adjusted diluted earnings per share 1,696 28,169,808 6.02 1,011 13,056,276 7.74
Adjustment of shares in issue 5,727,298 (0.94) 18,557,654 (4.43)
Dilutive effect of options 1,204,356 (0.25) 184,857 (0.13)
Adjusted diluted earnings per share 1,696 35,101,462 4.83 1,011 31,798,787 3.18
6. Notes to the Cash Flow Statement
Reconciliation of operating profit to net cash inflow from operating activities
2002 2001
#'000 #'000
Operating profit 3,021 2,143
Depreciation and amortisation 727 549
(Increase)/decrease in stocks (2,039) (209)
(Increase)/decrease in debtors (1,171) 245
Increase/(decrease) in creditors 2,371 (42)
Provision utilised in the year (1) (1)
Other non-cash items - loss on disposal of fixed assets 181 -
Net cash inflow from operating activities 3,089 2,685
Reconciliation of net cash flow to movement in net debt
2002 2001
#'000 #'000
Increase in cash in the year 4,039 717
Cash inflow from financing in the year (1,306) (2,250)
Cash outflow from financing in the year 1,053 2,357
Inception of finance leases in the year (212) -
Cash outflow from finance leases in the year 99 117
3,673 941
Exchange differences (25) (41)
Movement in debt 3,648 900
Net debt at 1 January 2002 (3,307) (4,207)
Net funds/(debt) at 31 December 2002 341 (3,307)
Analysis of changes in net debt
At 1 January Cashflow Non-cash Exchange At 31 December
2002 movements movement 2002
#'000 #'000 #'000 #'000 #'000
Cash in hand and at bank 596 3,158 - (1) 3,753
Bank overdraft (881) 881 - - -
(285) 4,039 - (1) 3,753
Debt (2,935) (253) - (24) (3,212)
Finance leases (87) 99 (212) - (200)
(3,307) 3,885 (212) (25) 341
Major non-cash transactions
The non-cash movement of #212,000 related to the inception of finance leases
during the year.
7. Approval
This statement was approved by the Board of Directors on 8 April 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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