GYG.L Regulatory News (GYG)

17 Sep 2007 07:01

Gyrus Group PLC17 September 2007 17 September 2007 Gyrus Group PLC Gyrus increases underlying revenues by 11% Gyrus Group PLC ("Gyrus" or "the Group"), a leading supplier of medical deviceswhich reduce trauma and complications in surgery, announces its interim resultsfor the six months ended 30 June 2007. Financial Highlights • Group revenues up 2% to £109.1m (H1 2006: £107.4m) - up 11% on a continuing product sales and constant currency basis • Adjusted operating profit* up 2% to £17.5m (H1 2006: £17.1m) - up 13% on a constant currency basis • Adjusted EPS** rises 10% to 8.5p (H1 2006: 7.7p) - representing approximately 23% growth translated on a constant currency basis • Basic EPS increases 40% to 3.5p (H1 2006: 2.5p) • Restructuring charges increase by 61% to £3.7m (H1 2006: £2.3m) * Adjusted for material non-recurring items, amortisation of acquired intangibles, restructuring costs and IAS 12 adjustment to goodwill ** Adjusted Operating profit basis adjusted for Special LTIP award charge, deferred tax movements and current tax credits taken to equity Operating Highlights • Surgical Division NAFTA* revenues increased by 22% to $45.4m (H1 2006: $37.3m) - reflecting the continued growth of laparoscopic surgery in the US • Urology & Gynaecology Division increases NAFTA* product revenues by 11% to $87.9m (H1 2006: $79.1m) with strong performances from PK SuperPulse and the Stone Management portfolio • General Surgery introduction progresses well with revenue from the G 400 and PlasmaCision range up by 136% to $6.6m (H1 2006: $2.8m); 350 new G 400 generators installed in the US (H1 2006 April to June: 105); 513 by 30th August 2007 • Gross margin pre-restructuring costs of 59.8% (H1 2006: 60.7%) negatively affected by US dollar depreciation and short term manufacturing inefficiencies on new products • Adjusted operating margin increases to 16.0% (H1 2006: 15.9%) *North American Free Trade Area Commenting on the results, Roy Davis, Chief Executive Officer, said: "The Group has performed well against the backdrop of a 10% depreciation in thedollar. Our Surgical and Urology & Gynaecology Divisions have grown strongly inthe United States and we have seen an improvement in our international markets.Our new PK PlasmaCision surgical instruments and Invisio digital visualisationproducts have started well. We look to the second half with confidence in theunderlying performance of the Group, but somewhat temper our enthusiasm as aresult of the continued weakness of the US Dollar." Enquiries: Gyrus Group PLC Today:Roy Davis, Chief Executive Tel: 0207 831 3113Simon Shaw, Chief Financial Officer Tel: 0207 831 3113 Financial DynamicsBen Atwell Tel: 0207 831 3113 A meeting for analysts will be held at the offices of Financial Dynamics,Holborn Gate, 26 Southampton Buildings, London WC2A 1PB at 9.30 BST. Aconference call for overseas analysts and investors will be held at 2pm BST; 9amEST today Please contact Mo Noonan at mo.noonan@fd.com or on +44 (0)20 7269 7116 fordetails Overview Gyrus has performed well in the half year to 30th June 2007. Reported salesrevenue grew by 2% to £109m (H1 2006: £107m) despite the significant weakness ofthe US dollar, our principal operating currency, which had devalued byapproximately 10% against the prior period. On a constant currency basis salesrevenue grew by approximately 11%, which is reflective of the continuedstrengthening of the underlying business. The Group's gross margin before restructuring costs reduced slightly to 59.8%(H1 2006: 60.7%) as a result of the effect of the weak dollar on the grossprofitability of our UK manufacturing plant and some short term manufacturinginefficiencies in new products. Both of these causes are temporary in nature, aswe are scheduled to transfer volume manufacturing from our Cardiff plant toMexico, and the new product inefficiencies reduce as manufacturing yieldimproves and volumes develop over time. Reported basic earnings per share (EPS) increased by 40% to 3.5p (H1 2006: 2.5p)and Adjusted EPS, which excludes material non-recurring items, amortisation ofacquired intangibles, restructuring costs, IAS 12 adjustment to goodwill andother deferred tax movements and current tax credits taken to equity, grew 10%to 8.5p (H1 2006: 7.7p). This represented approximately 23% growth whentranslated on a constant currency basis. Business Review The performance of each business unit during the first half of 2006 is shownbelow in its principal billing currency: Analysis of Revenues Business H12006* H12007 GrowthSurgical NAFTA $m 37.3 45.4 21.7% International £m 3.8 3.9 2.6%Urology & Gynaecology NAFTA $m 79.1 89.9(1) 13.7%(1) International £m 4.4 5.0 13.6%ENT NAFTA $m 25.6(2) 24.1 (5.9)%(2) International £m 6.0 6.6 10.0%Partnered Technologies NAFTA $m 21.8 22.9 5.0% International £m 1.2 1.2 0.0%$/£ Rate 1.78 1.97 (9.6)%Total Revenue £m 107.4 109.1 1.6% * 2006 comparative figures have been reclassified to reflect more accurate Divisional analysis of product sales, particularly in the International Division Note (1) H1 2007 includes the partial release of a sales provision made on a specific contract in the previous year. This amounted to $2.0m. Excluding this non-recurring adjustment US domestic revenue growth was 11.1% Note (2) H1 2006 comparative includes $0.8m revenue from a product line, which was disposed of on 31 December 2006. Excluding these sales, underlying revenue declined by 2.8% SURGICAL DIVISION The division's NAFTA revenues grew by 21.7% to $45.4m reflecting the continuedstrong growth of the US laparoscopic hysterectomy market and the 22% growth inour cutting forceps range. In addition the introduction of our PK portfolio(including the new PlasmaCision-based products) into general surgery resulted instrong performances from portfolio products such as the Lyons dissector (31%growth), and the PK Needle (23% growth) alongside the PlasmaCision-basedinstruments, which together grew by approximately 77%. Of the PlasmaCisioninstruments, the Plasma Trissector and PlasmaSpatula performed well, and theportfolio outweighed the modest revenue shortfall from the PlasmaSeal, which ison limited release until Q1 2008 pending design modifications. In summary, the PlasmaCision portfolio generated approximately $3.4m indisposable instrument sales during the period (H1 2006: $1.9m) and 350 G400generators were installed into the US market. Of these, 55% were sold,generating additional revenues of $3.2m (H1 2006: $0.9m), and the remainder wereplaced. This ratio of sales to placements is slightly higher than normal andreflects the fact that a number of G400 generators were sold into accountseither solely or partially to drive the Intuitive Surgical Endowrist PKDissecting forceps instrument, which was developed under licence from Gyrus andlaunched last year. International revenues in this relatively small part of the division grew byapproximately 3% to £3.9m (H1 2006: £3.8m). UROLOGY & GYNAECOLOGY DIVISION The Urology & Gynaecology Division's headline NAFTA revenue of $89.9m includedthe benefit of the partial release of a specific provision on a longstandingsupply contract in the US, which was successfully renewed in May 2007. Excludingthis one-off item, the Division grew its underlying NAFTA revenues by 11.1% to$87.9m (H1 2006: $79.1m). This performance is evidence of the continued strengthening of the businesssince the Group's acquisition of ACMI in the second half of 2005. The Division'srevenue was driven by a strong performance in the cysto-resection business whichgrew 12% overall to $34.3m (H1 2006: $30.7m) as a result of continued stronggrowth in the PK SuperPulse line which grew 56%. Stone management, theDivision's second largest business area in the US, also performed strongly withrevenue growth of 13% to $31.4m (H1 2006: $27.8m). This was driven by the laserand lithotripsy product ranges growing substantially, albeit against a weakcomparable in the first half of 2006. The launch of the Invisio DUR-D, the first ureteroscope to be based upon distalchip digital technology, commenced successfully in April 2007 and has begun tohelp drive an increase in the sales of disposable products for stone managementsuch as laser fibres, which grew revenues by 23% in the period. Internationally, the Division achieved revenue of £5.0m (H1 2006: £4.4m), whichrepresents growth of 13.6%. ENT DIVISION The Division's NAFTA revenue declined by 5.9% to $24.1m (H1 2006: $25.6m) on areported basis and 2.8% on an underlying basis, which excludes revenues from aproduct range, which was disposed of at the end of 2006. This decline was inline with expectations for the first half as the Division completed thereorganisation and retraining of the sales force, which it had begun late in thefourth quarter of 2006, as a prelude to the introduction of the second iterationof the JPK instrument for tonsillectomy. The launch occurred in late April andhelped PlasmaCision-derived revenue to increase by just under 60% in the period,albeit from a small comparative base. In addition sales of the Diegomicrodebrider disposable instrument range grew by 10% in the period. The otologybusiness declined 3% and the Division experienced continued weakness insomnoplasty, based on the historical loss of reimbursement. Since its launch in April 2007, the JPK for tonsils has been doing well inevaluations and a number of significant accounts have been converted to theproduct. With the reorganised sales force stabilised, we anticipate astrengthened performance in the second half. Internationally, divisional revenues increased by 10% to £6.6m, with strongerperformances in Benelux, the UK and certain distributor markets. Partnered Technologies DIVISION The Partnered Technologies Division consists of technology licence, marketingand supply relationships with Johnson & Johnson (Depuy Mitek, EthiconEndo-Surgery and Gynecare), Guidant, Conmed, Rhytec and Intuitive Surgical. TheDivision's US dollar denominated revenues increased by 5.0% to $22.9m (H1 2006:$21.8m), with the majority of our partners showing sound growth. This was a goodperformance against the backdrop of a very strong comparative period, which haditself shown more than 30% revenue growth on new product launches and associatedfilling of the supply chain. During the period, we further enhanced ourrelationship with Intuitive Surgical Inc, developers of the da Vinci system forrobotic assisted laparoscopic surgery, by embarking upon a new developmentcollaboration based upon the Group's Invisio digital visualisation technology. Research & Development The Group's investment in R&D for the first half was £6.4m excludingrestructuring costs (5.9% of sales) (H1 2006: £8.2m of which £1.1m representedpatent litigation costs). The reduction in mainstream R&D expenditure reflectedthe effect of US dollar devaluation and the restructuring benefits ofintegrating all PK developments into one site (Cardiff, UK). Operations & Integration During the first half of 2007 the Group enjoyed a small increase inprofitability with the Adjusted Operating Margin, before restructuring costs,IAS 12 Goodwill adjustment and the amortisation of acquired intangible assetsincreasing to 16.0% (H1 2006: 15.9%). Continued strong control of overheads andassociated integration benefits mitigated certain short term manufacturinginefficiencies and the negative impact of currency at the gross margin level. The Group's reported gross margin fell to 57.9% (H1 2006: 59.7%) and the grossmargin before restructuring costs was 59.8% (H1 2006: 60.7%). The devaluation inthe US dollar negatively affected the Group gross margin as the profitability ofproducts manufactured in Cardiff but sold in US dollars was reduced. Themanufacturing of the majority of these products is due to be transferred to theGroup's Mexican facility by mid 2008, thereby mitigating the margin exposure dueto currency. Aside from currency, the principal sources of the underlying short termreduction in gross margin were manufacturing inefficiencies including labour,abnormal scrap and raw material and component inventory write-downs associatedwith the new PlasmaCision and DUR-D products at their early stage ofdevelopment. Finally, continued manufacturing inefficiencies on productsmanufactured in Maple Grove, which had been transferred on restructuring fromthe ex-ACMI Racine plant, contributed a further reduction in the gross margin.Each of these effects is expected to be short term in nature, and we anticipateactivities during the second half of 2007 and into 2008, which will continue toimprove operating profitability towards our target of 20% by the end of July2008. Financial Review Operating expenses net of other operating income increased by 0.6% to £54.1m (H12006: £53.8m) primarily as a result of a 61% increase in restructuring chargesto £3.7m (H1 2006: £2.3m). Excluding restructuring costs, amortisation ofacquired intangibles and IAS 12 adjustment to goodwill, underlying net operatingexpenses decreased by 0.6% to £47.8m (H1 2006: £48.1m), which reflected anincrease of 9% on a constant currency basis and represented 43.8% of revenue (H12006: 44.8%). Within this reduced overhead cost, reported selling anddistribution costs increased by 9% (representing approximately 19% growth on aconstant currency basis) in support of the new product launches in GeneralSurgery and tonsillectomy together with the reorganisation of the ENT salesforce. Basic earnings per share (EPS) increased by 40% to 3.5p (H1 2006: 2.5p).Adjusted EPS, which is adjusted for amortisation of acquired intangible assets,restructuring costs (including the Special LTIP award charge), IAS 12 adjustmentto goodwill and other deferred tax movements and current tax credits taken toequity, increased by 10.4% to 8.5p (H1 2006: 7.7p). During the period, the Group increased the installed base of generators in theUS market by 21% to 6913 units (H1 2006: 5694 units). 59% of new installationswere sold rather than placed. Sales of the related disposable instrumentsincreased 27% to $36.2m (H1 2006: $28.6m). During the period the Group successfully completed the first phase of its OracleERP implementation into the new customer service and distribution centre inMinnesota, which manages order taking, inventory logistics and accountmanagement for approximately 70% of the Group's revenue. The impact of this implementation together with the continuing integrationprogramme resulted in a temporary adverse movement in working capital during theperiod of 12% compared with the year- end position. The primary causes of thisgrowth were the creation of buffer inventories for the transfer of certainproduction from Cardiff to Mexico and other production restructuring initiativesand an increase in receivables outstanding as the customer account registers ofthe Urology & Gynaecology and Surgical Divisions were combined through theOracle implementation. Both of these primary causes are short term in naturealthough it is anticipated that they will continue at least in part until themajor integration initiatives, including the Oracle implementation arecompleted. The effect of currency translation decreased the sterling value of the Group'sassets and liabilities as a whole, which are materially denominated in USdollars. At the period end net debt stood at £91m, equivalent to £93m on aconstant currency basis (31st December 2006: £96.9m); representing a net debt toequity gearing ratio of 31.3% (31st December 2006: 33.8%). Subsequent to the period end, the Group's existing syndicated $250 million debtfacility was converted and extended into a revolving credit facility with a fiveyear term. The terms and covenants were re-negotiated to reflect the Group'sstrengthened financial position since July 2005, when the original facility wascreated, and to provide the flexibility for the Group to undertake bolt-ontransactions should the need arise. Management On 1st June 2007, the Group announced the appointment of Roy Davis, ChiefOperating Officer since October 2003, as Chief Executive Officer and Brian Steerbecame Non-executive Chairman following the separation of the role of CEO andChairman in line with best practice in corporate governance. Outlook The first half of 2007 has been successful for the Group. Our new products haveperformed well in their early stages, the Surgical Division has continued togrow strongly and the Urology & Gynaecology Division has continued to strengthensince the fourth quarter of last year. The early response to our tonsillectomyoffering in ENT is encouraging and we expect the international business tocontinue to improve. Accordingly, we look to the second half of 2007 and beyondwith confidence in the underlying performance of the Group, but somewhat temperour enthusiasm as a result of the continued weakness of the US dollar. Gyrus Group PLCConsolidated Interim Income StatementFor the six months ended 30 June 2007 Note Six months ended 30 Restructuring IAS 12 Six months June 2007 (note 2) adjustment to ended 30 pre-restructuring goodwill June 2007 costs and IAS 12 (note 4) (unaudited) adjustment (unaudited) £000 £000 £000 £000 Revenue 3 109,121 - - 109,121 Cost of sales (43,895) (2,049) - (45,944) _____ _____ _____ Gross profit 65,226 (2,049) - 63,177 Other operating income 529 - - 529 Selling and distribution expenses - Selling and distribution (31,950) (73) - (32,023) - Amortisation of acquired intangible assets (2,565) - - (2,565) Research and development expenses - Research and development (6,381) (223) - (6,604)- Amortisation of acquired intangible (1,370) - - (1,370)assets General and administrative expenses (9,968) (1,349) (733) (12,050) _____ _____ _____ _____ Operating profit 13,521 (3,694) (733) 9,094 Financial income 746 - - 746Financial expense (3,942) - - (3,942) _____ _____ _____ _____ Profit before taxation 10,325 (3,694) (733) 5,898 Income tax expense 4 (2,026) 1,236 - (790) _____ _____ _____ Profit for the period 8,299 (2,458) (733) 5,108 _____ _____ _____ _____ Earnings per ordinary shareBasic 7 3.5p _____Diluted 7 3.4p _____ Gyrus Group PLCConsolidated Interim Income StatementFor the six months ended 30 June 2007 Note Six months ended Year ended 30 June 2006 31 December 2006 (unaudited) (audited) £000 £000 Revenue 3 107,413 213,342 Cost of sales (43,262) (86,865) _____ _____ Gross profit 64,151 126,477 Other operating income 329 695 Selling and distribution expenses - Selling and distribution (30,099) (61,286) - Amortisation of acquired intangible assets (2,838) (5,506) Research and development expenses - Research and development (8,180) (15,504) - Amortisation of acquired intangible assets (1,516) (2,942) General and administrative expenses (11,485) (22,789) _____ _____ Operating profit 10,362 19,145 Financial income 859 1,322Financial expense (5,649) (10,342) _____ _____ Profit before taxation 5,572 10,125 Income tax expense 4 (1,936) 3,068 _____ _____ Profit for the period 3,636 13,193 _____ _____ Earnings per ordinary shareBasic 7 2.5p 9.0p _____ _____Diluted 7 2.4p 8.7p _____ _____ Gyrus Group PLCStatement of Recognised Income and ExpenseFor the six months ended 30 June 2007 6 months ended 6 months ended Year ended 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £000 £000 £000 Exchange differences arising on translation of foreign operations (6,082) (26,783) (32,864) Deferred tax on income and expenses recognised directly in equity 751 404 451 Current tax credit recognised directly in equity 444 - - Cash flow hedgesEffective portion of changes in fair value of cash flow hedges net of recycling (54) 1,009 75 Actuarial gain on defined benefit pension plan 29 11 227 _____ _____ _____ (4,912) (25,359) (32,111) Profit for the period 5,108 3,636 13,193 _____ _____ _____ Total recognised income and expense for the period 196 (21,723) (18,918) _____ _____ _____ Gyrus Group PLCConsolidated Balance SheetAs at 30 June 2007 Note As at As at As at 30 June 2007 30 June 2006 31 December 2006 (unaudited) (unaudited) (audited) £000 £000 £000Assets Property, plant and equipment 5 20,366 19,992 20,784Goodwill 247,914 269,204 253,538Other intangible assets 83,915 90,413 89,831 _____ _____ _____Total non-current assets 352,195 379,609 364,153 Inventories 34,253 32,429 32,353Trade receivables 38,105 29,711 33,713Other current assets 7,257 8,007 7,076Cash and cash equivalents 22,471 28,756 23,327 _____ _____ _____Total current assets 102,086 98,903 96,469 _____ _____ _____ Total assets 454,281 478,512 460,622 _____ _____ _____ Equity Share capital 6 (2,802) (2,789) (2,792)Share premium 6 (307,761) (304,536) (305,282)Merger reserve (3,860) (3,860) (3,860)Other reserves 28,246 15,306 22,102Retained earnings (4,098) 14,437 2,999 _____ _____ _____Total equity (290,275) (281,442) (286,833) Liabilities Bank loan 8 (84,729) (118,944) (99,633)Obligations under finance leases and hire purchase contracts (1) (83) (44)Deferred tax liabilities 4 (11,281) (20,842) (13,778)Provisions (995) (3,693) (1,400) _____ _____ _____Total non-current liabilities (97,006) (143,562) (114,855) Bank overdrafts and loans due within one year 8 (28,658) (20,028) (20,437)Trade and other payables (33,851) (31,209) (34,846)Current tax payable (2,645) (2,160) (540)Obligations under finance leases and hire purchase contracts (67) (111) (99)Provisions (1,779) - (3,012) _____ _____ _____Total current liabilities (67,000) (53,508) (58,934) _____ _____ _____Total liabilities (164,006) (197,070) (173,789) _____ _____ _____Total equity and liabilities (454,281) (478,512) (460,622) _____ _____ _____ Gyrus Group PLCConsolidated Cash Flow StatementFor the six months ended 30 June 2007 Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December (unaudited) (unaudited) 2006 (audited) £000 £000 £000Cash flows from operating activities Profit for the period 5,108 3,636 13,193 Adjustments for:Depreciation of property, plant and equipment 3,054 2,747 4,784Amortisation of intangible assets 4,201 4,483 8,803IAS 12 adjustment to goodwill 733 - 1,773Loss on disposal of property, plant and equipment 155 58 81Financial income and expense 3,196 4,790 9,020Exchange gain/(loss) included in financial income and expense 76 (290) (423)Equity settled share based payment expense 1,152 1,199 2,656Taxation 790 1,936 (3,068) _____ _____ _____Operating cash flows before movement in working capital 18,465 18,559 36,819 Increase in inventories (2,824) (765) (4,238)(Increase)/decrease in trade and other receivables (5,544) 3,994 (263)(Decrease)/increase in trade and other payables (1,894) (3,093) 3,176 _____ _____ _____Cash generated from operations 8,203 18,695 35,494 Interest paid (4,042) (4,772) (9,595)Tax paid (826) (878) (2,850) _____ _____ _____Net cash from operating activities 3,335 13,045 23,049 _____ _____ _____ Cash flows from investing activities Interest received 582 342 742Proceeds on disposal of property, plant and equipment - - 306Acquisition of property, plant and equipment (3,182) (4,150) (7,685)Acquisition of patents, trademarks and other intangibles - (10) (140)Expenditure on product development (26) (267) (1,104) _____ _____ _____Net cash outflow from investment activities (2,626) (4,085) (7,881) _____ _____ _____ Cash flows from financing activities Proceeds from issue of share capital 2,489 841 1,590Repayment of borrowings (3,914) (546) (12,403)Repayment of obligations under finance leases (33) (65) (110) _____ _____ _____Net cash outflow from financing activities (1,458) 230 (10,923) _____ _____ _____ Net (decrease)/ increase in cash and cash equivalents (749) 9,190 4,245 Cash and cash equivalents at beginning of period 23,327 20,194 20,194 Effect of foreign exchange rate fluctuations on cash held (107) (628) (1,112) _____ _____ _____ Cash and cash equivalents at end of period 22,471 28,756 23,327 _____ _____ _____ Bank balances and cash 22,471 28,756 23,327 _____ _____ _____ Gyrus Group PLCNotes to the Preliminary AnnouncementFor the six months ended 30 June 2007 1. Basis of preparation Gyrus Group PLC is a company domiciled in the United Kingdom. The condensedconsolidated interim financial statements of the Company for the six monthsended 30 June 2007 comprise the Company and its subsidiaries (together referredto as the "Group"). This interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the Group'spublished consolidated financial statements for the year ended 31 December 2006. The interim financial statements do not constitute statutory accounts as theyare unaudited. The comparative figures for the financial year ended 31 December 2006 are notthe Group's audited statutory accounts for that financial year. Those accounts,which were prepared under EU adopted International Financial ReportingStandards, have been reported on by the Group's auditor and delivered to theregistrar of companies. The report of the auditors was (i) unqualified, (ii) didnot include a reference to any matters to which the auditors drew attention byway of emphasis without qualifying their report, and (iii) did not containstatements under section 237(2) or (3) of the Companies Act 1985. The condensed consolidated interim financial statements were authorised forissuance on 17 September 2007. 2. Restructuring costs As a result of the acquisition of American Cystoscope Makers Inc in July 2005,the Group continues to incur restructuring costs arising from the integration ofthe legacy Gyrus business with that of ACMI. The total charge for the periodended 30 June 2007 was £3,694,000 (year ended 31 December 2006: £5,808,000 andsix months ended 30 June 2006: £2,336,000). An analysis of these costs is shownbelow. Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 (audited) (audited) (audited) £000 £000 £000Severance costs 305 1,081 2,071Demonstration equipment write-off - - 80Alignment of global enterprise resource planning 115 - 58systemsInternational distributor settlements - 216 241Manufacturing inefficiencies and other duplicated 1,683 276 1,365costs arising as a result of the relocation ofproductionSet up costs associated with the customer service and 1,055 95 815distribution centre and Mexico production facilityCore integration team expenses 451 413 881Gyrus ACMI rebranding - 66 143Other costs 85 189 154 _____ _____ _____ 3,694 2,336 5,808 _____ _____ _____ 3. Segment reporting Segment information is presented in the condensed consolidated interim financialstatements in respect of the Group's business Divisions, which are the primarybasis of segment reporting. The business segment reporting format reflects theGroup's management and internal reporting structure. Inter-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well asthose that can be allocated on a reasonable basis. Business segments The Group is comprised of the following main business segments: ENT Design, development, manufacture, marketing and sales of otology, sinus and rhinology and head and neck products.Surgical Design, development, manufacture, marketing and sales of laparoscopic surgery products.Urology & Gynaecology Design, development, marketing and sales of urology and gynaecology and visualisation products.Partnered Technologies Out-licensing of the Group's proprietary technology in conjunction with a manufacturing contract for markets outside the Group's core sales and marketing competence. For the six months ended 30 June 2007 (unaudited) ENT Surgical Partnered Urology & Total Technologies Gynaecology £000 £000 £000 £000 £000RevenueExternal sales 18,863 26,894 12,776 50,588 109,121Inter-segment sales - 480 2,669 - 3,149 ____ ____ ____ ____ ____ 18,863 27,374 15,445 50,588 112,270 ____ ____ ____ ____ ____Segment result before amortisation, restructuring charges and IAS 12adjustment to goodwill 2,474 5,888 2,757 7,644 18,763Amortisation of acquired intangibles - (428) (26) (3,481) (3,935)IAS 12 adjustment to goodwill (574) (159) - - (733)Restructuring charges (58) (892) (432) (2,312) (3,694) ____ ____ ____ ____ ____Segment result after amortisation, restructuring charges and IAS 12adjustment to goodwill 1,842 4,409 2,299 1,851 10,401 ____ ____ ____ ____ ____ Unallocated corporate expenses (1,307) ____Profit from operations 9,094Net finance costs (3,196) ____Profit before tax 5,898Taxation (790) ____Profit for the period 5,108 ____ For the six months ended 30 June 2006 (unaudited) ENT Surgical Partnered Urology & Total Technologies Gynaecology £000 £000 £000 £000 £000RevenueExternal sales as previously reported 20,416 22,967 13,470 50,560 107,413 _____ _____ _____ _____ _____ External sales excluding discontinued product lines 19,830 22,967 13,470 50,560 106,827Discontinued product lines 586 - - - 586Effect of reclassification of revenue - 1,732 - (1,732) - _____ _____ _____ _____ _____External sales 20,416 24,699 13,470 48,828 107,413Inter-segment sales - 438 3,439 - 3,877 _____ _____ _____ _____ _____ 20,416 25,137 16,909 48,828 111,290 _____ _____ _____ _____ _____Segment result before amortisation and restructuring charges as previously reported 2,688 5,967 3,106 7,313 19,074Effect of reclassification of revenue and associated costs - 328 - (328) - _____ _____ _____ _____ _____Segment result before amortisation and restructuring charges 2,688 6,295 3,106 6,985 19,074Amortisation of acquired intangibles - (500) (30) (3,824) (4,354)Restructuring charges (75) (337) (135) (1,789) (2,336) _____ _____ _____ _____ _____Segment result after amortisation and restructuring charges 2,613 5,458 2,941 1,372 12,384 _____ _____ _____ _____ _____Unallocated corporate expenses (2,022) _____Profit from operations 10,362Net finance costs (4,790) _____Profit before tax 5,572Taxation (1,936) _____Profit for the period 3,636 _____ For the year ended 31 December 2006 (audited) ENT Surgical Partnered Urology & Total Technologies Gynaecology £000 £000 £000 £000 £000RevenueExternal sales as previously reported 38,532 52,465 26,238 96,107 213,342 _____ _____ _____ _____ _____ External sales excluding discontinued product lines 37,492 52,465 26,238 96,107 212,302Discontinued product lines 1,040 - - - 1,040 _____ _____ _____ _____ _____External sales 38,532 52,465 26,238 96,107 213,342Inter-segment sales - 985 3,669 - 4,654 _____ _____ _____ _____ _____ 38,532 53,450 29,907 96,107 217,996 _____ _____ _____ _____ _____Segment result before amortisation, restructuring charges and IAS 12 adjustmentto goodwill 4,138 11,227 5,697 14,777 35,839Amortisation of acquired intangibles - (919) (56) (7,473) (8,448)IAS 12 adjustment to goodwill (1,542) (231) - - (1,773)Restructuring charges (335) (1,989) (47) (3,437) (5,808) _____ _____ _____ _____ _____Segment result after amortisation, restructuring charges and IAS 12 adjustmentto goodwill 2,261 8,088 5,594 3,867 19,810 _____ _____ _____ _____ _____Unallocated corporate expenses (665) _____Profit from operations 19,145Net finance costs (9,020) _____Profit before tax 10,125Taxation 3,068 _____Profit for the year 13,193 _____ 4. Tax expense Under IFRS the overall rate of tax for the period is 13.4% (six months ended 30June 2006: 34.7%) which is lower than the standard rate of UK corporation tax of30%. This is due, in particular, to the impact of IFRS2 on share based payments,the beneficial effect of the Research & Development Credit scheme and the changein corporation tax rate used for the deferred tax position. Current taxation Six months Six months ended Year ended 31 ended 30 June 30 June December 2007 2006 2006 (unaudited) (unaudited) (audited) £000 £000 £000 Domestic 1,795 1,267 1,766 Foreign 400 515 755 _____ _____ _____ 2,195 1,782 2,521 _____ _____ _____ Deferred taxation Current period (credit)/charge (1,405) 154 (5,589) _____ _____ _____ Taxation attributable to the company and its subsidiaries 790 1,936 (3,068) _____ _____ _____ Current taxation Share based payment tax deductions recognised directly in equity 444 - - _____ _____ _____ Deferred taxation £000 Net deferred tax liability recognised at 31 (13,778) December 2006 Credit to income for the period 1,405 Charged directly to equity 751 Exchange differences 341 _____ Net deferred tax liability recognised at 30 June (11,281) 2007 _____ In June 2007, the Finance Bill 2007 was 'substantively enacted' approving areduction in the UK corporation tax rate from 30% to 28% from 1 April 2008.Therefore the UK tax rate applied for the purposes of the measurement of theGroup's deferred tax has been reduced to 28%. As a result of previous acquisitions during 2000 and 2001 certain deferred taxassets were not recognised as it was considered unlikely that they would beutilised in future periods. The performance of these acquisitions is now betterthan originally anticipated thus, under IAS 12 ("Income Taxes"), the Group hasadjusted goodwill equal to the benefit of the subsequently recognised losses.Accordingly, a deferred tax asset of £854,000 was recognised and utilisedtogether with a corresponding adjustment to goodwill net of a credit of £121,000in respect of over amortisation in the period before transition to IFRSs. 5. Property, plant and equipment Capital commitments As at 30 June 2007, the Group entered into contracts to purchase property, plantand equipment of £610,000 (year ended 31 December 2006: £455,000 and six monthsended 30 June 2006: £1,102,000). 6. Capital and reserves Share capital and share premium The Group recorded the following amounts within shareholder's equity as a resultof the issuance of ordinary shares. Share capital Share premium Six months Six months Year ended Six months Six months Year ended ended 30 ended 30 31 ended 30 ended 30 31 June June December June June December 2007 2006 2006 2007 2006 2006 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) £000 £000 £000 £000 £000 £000Issuance of ordinary shares 10 4 7 2,479 837 1,583 ____ ____ ____ ____ ____ ____ Dividends The directors do not propose the payment of a dividend (30 June 2006: £nil). 7. Earnings per share Basic earnings per share The calculation of basic earnings per share for the six months ended 30 June2007 was based on the profit attributable to ordinary shareholders of £5,108,000(year ended 31 December 2006: £13,193,000 and six months ended 30 June 2006:£3,636,000) and a weighted average number of ordinary shares outstanding duringthe six months ended 30 June 2007 of 147,105,358 (year ended 31 December 2006:146,492,872 and six months ended 30 June 2006: 146,287,927). Diluted earnings per share The calculation of diluted earnings per share for the six months ended 30 June2007 was based on the profit attributable to ordinary shareholders of £5,108,000(year ended 31 December 2006: £13,193,000 and six months ended 30 June 2006:£3,636,000) and a weighted average number of ordinary shares outstanding duringthe six months ended 30 June 2007 of 150,490,860 (year ended 31 December 2006:150,785,514 and six months ended 30 June 2006: 150,513,041). Earnings Six months ended Six months ended Year ended 31 30 June 2007 30 June 2006 December 2006 (unaudited) (unaudited) (audited) £000 £000 £000Earnings for the purposes of basic and diluted earnings per share 5,108 3,636 13,193 _____ _____ _____ Weighted average number of ordinary shares Six months ended Six months ended Year ended 31 30 June 2007 30 June 2006 December 2006 (unaudited) (unaudited) (audited) Number Number Number Weighted average number of shares for purposes of calculating basic earnings per share 147,105,358 146,287,927 146,492,872Effect of dilutive options 3,385,502 4,225,114 4,292,642 _____ _____ _____Weighted average number of shares for purposes of calculating diluted earnings per share 150,490,860 150,513,041 150,785,514 _____ _____ _____ Basic earnings per share 3.5p 2.5p 9.0p _____ _____ _____ Diluted earnings per share 3.4p 2.4p 8.7p _____ _____ _____ Adjusted earnings per share In order to provide a trended measure of underlying performance, profitattributable to ordinary shareholders is adjusted for items which managementconsider will distort comparability. Adjusted basic earnings per share has beencalculated by dividing adjusted profit attributable to ordinary shareholders(see table below for adjustments made) of £12,556,000 (year ended 31 December2006: £25,030,000 and six months ended 30 June 2006: £11,252,000) by theweighted average number of ordinary shares outstanding during the six monthsended 30 June 2007 of 147,105,358 (year ended 31 December 2006: 146,492,872 andsix months ended 30 June 2006: 146,287,927). Adjusted diluted earnings per share has been calculated by dividing adjustedprofit attributable to ordinary shareholders (see table below for adjustmentsmade) of £12,556,000 (year ended 31 December 2006: £25,030,000 and six monthsended 30 June 2006: £11,252,000) by the weighted average number of ordinaryshares outstanding during the six months ended 30 June 2007 of 150,490,860 (yearended 31 December 2006: 150,785,514 and six months ended 30 June 2006:150,513,041). Earnings on which adjusted earnings per share is based: Six months ended Six months ended Year ended 31 30 June 2007 30 June 2006 December 2006 (unaudited) (unaudited) (audited) £000 £000 £000Basic earnings for the period 5,108 3,636 13,193Restructuring charges 3,694 2,336 5,808Taxable benefit associated with restructuring charges** (144) - (201)Amortisation of acquired intangible assets 3,935 4,354 8,448IAS 12 adjustment to goodwill 733 - 1,773Charge relating to "special" LTIP award* 191 772 1,598Deferred taxation (1,405) 154 (5,589)Current tax credit recognised directly in equity*** 444 - - _____ _____ _____Adjusted earnings for the period 12,556 11,252 25,030 _____ _____ _____ Adjusted basic earnings per share 8.5p 7.7p 17.1p _____ _____ _____ Adjusted diluted earnings per share 8.3p 7.5p 16.6p _____ _____ _____ * As part of the acquisition of American Cystoscope Makers Inc, a "special"award of conditional shares under the Group's LTIP scheme was approved byshareholders and was made to retain and incentivise approximately 25 keyexecutives to integrate the business effectively. The award will create a chargeto the income statement until the potential vesting date of July 2008. Thecharge relating to this award is considered to be another form of integration/restructuring cost. ** The tax credit of £1,236,000 (year ended 31 December 2006: £2,128,000 and sixmonths ended 30 June 2006: £nil) associated with restructuring costs comprises adeferred tax credit of £1,092,000 (year ended 31 December 2006: £1,927,000 andsix months ended 30 June 2006: £nil) and a current taxation benefit of £144,000(year ended 31 December 2006: £201,000 and six months ended 30 June 2006: £nil).The current taxation benefit has been deducted from adjusted earnings per shareto correctly reflect the net impact of restructuring. The current taxationbenefit is lower than the effective tax rate as the costs of the integrationhave principally been incurred within the US where tax losses are available tooffset profits. *** Under the provisions of IAS 12 the current tax credit taken to the incomestatement on the exercise of share options is restricted to the aggregateremuneration expense charged to the income statement in respect of the options.The excess of any current tax credit is taken to equity through the Statement ofRecognised Income and Expense, although it will reduce the cash tax payable bythe Group to below that which is charged as current taxation in the IncomeStatement. In the period to 30 June 2007, the excess of the current tax creditover and above the aggregate remuneration expense amounted to £444,000 (yearended 31 December 2006:£nil and period ended 30 June 2006:£nil) and, as requiredby the standard, this has been taken to equity. In order to maintain thecontinuity of adjusted earnings per share being calculated on a cash tax basis,earnings are adjusted for the effect of this amount. 8. Interest-bearing loans and borrowings As at 30 June 2007 Gyrus Group PLC had a loan of £109,649,000 ($220 million)under a term loan facility of $250 million and £3,738,000 ($7.5 million) under arevolving credit facility of $15 million (year ended 31 December 2006:£120,070,000 under a term loan facility and £nil under a revolving creditfacility of $15 million and 6 months ended 30 June 2006: £135,165,000 under aterm loan facility and £3,807,000 under a revolving credit facility of $30million). The $250 million loan facility is for a fixed term of five years. The loanattracts a maximum rate of US LIBOR plus 1.75% provided that Total Net Debt toConsolidated EBITDA (as defined in the facility agreement) is less than 3.50 anda minimum rate of US dollar LIBOR plus 0.75% provided that Total Net Debt toConsolidated EBITDA is less than 1.00. The margin on the facility from inceptionto 30 October 2006 was 1.75%. As at 31 October 2006 the quarterly Net Debt toConsolidated EBITDA fell below 3.00:1 resulting in a reduction in the margin onthe facility of 0.5% to 1.25%. As at 27 February 2007, the margin was furtherreduced to 1.00% as Net Debt to Consolidated EBITDA fell below 2.50:1. Each advance drawn down under the $15 million revolving credit facility isrepaid on the last business day of each fixed term interest period (typicallythree to six months). As the term of the revolving credit facility is for aperiod of five years from 21 July 2005, amounts drawn down under this facilityare shown as non-current liabilities where repayments are due in greater thanone year and current liabilities where repayments are due in less than one year.The interest rate for each advance drawn under the revolving facility is fixedon the date of the advance for the agreed interest period at US dollar LIBORplus a margin. The margin added to US dollar LIBOR follows that of the term loanfacility. The amount drawn down on this facility at 30 June 2007 was £3,738,000(year ended 31 December 2006: £nil and six months ended 30 June 2006:£3,456,000). The $250 million loan facility and $15 million revolving credit facility aresecured by a fixed and floating debenture on the assets of the Group. Repayments on the US dollar loan and advances on the revolving credit facilityover the period from 1 January 2007 to 30 June 2007 were as follows: £000Loan balance as at 1 January 2007 (audited) 120,070Repayments (7,664)Advances on revolving credit facility 3,750Foreign exchange movement (2,769) _____Loan balance as at 30 June 2007 (unaudited) 113,387 _____ 9. Provisions As at 31 December 2006, the Group disclosed a sales provision for the resolutionof an ongoing customer dispute of £1,303,000. During the period to 30 June 2007,following negotiations with the customer, there has been a partial release ofthis provision. As at 30 June 2007, the remaining provision pertaining to thisdispute amounted to £274,000. The provision is disclosed within currentliabilities. 10. Financial Instruments Interest rate risk The Group adopts a policy of ensuring that at least 50% of its exposure tochanges in interest rates on fixed term borrowings is hedged. At 30 June 2007,the Group had entered into two interest rate cap and collar transactions. Thecap on both financial instruments is US dollar LIBOR rate of 4.75% and thecollars are 4.19% and 3.96% respectively. The maturation of both instruments isconsistent with that of the $250 million term loan facility. At 30 June 2007,the Group had interest rate hedges with a notional contract amount of$165,000,000 (year ended 31 December 2006: $176,250,000 and six months ended 30June 2006: $187,500,000). The Group classifies interest rate hedges as cash flow hedges and states them atfair value. Foreign currency risk The Group incurs foreign currency risk on sales and purchases that aredenominated in currencies other than sterling. The currency primarily givingrise to this risk is the US dollar. Unless otherwise approved by the Board, the Group hedges at least 80% of theanticipated US dollar cash flows for net anticipated receivables/payables in thefirst three months forward, at least 50% in months four to six and at least 25%in months seven to twelve forward. The Group uses forward exchange contracts tohedge its foreign currency risk. All of the forward exchange contracts havematurities of less than one year later than the balance sheet date. The Group designates its forward exchange contracts of the variability of cashflows of a recognised asset or liability, or highly probable forecastedtransaction as cash flow hedges and states them at fair value. Estimation of fair values The fair value of forward foreign exchange contracts is the mark to market valueof the contracts as at 30 June 2007. The fair value of forward foreign exchangecontracts at 30 June 2007 is an asset of £22,000 (year ended 31 December 2006 anasset of £51,000 and six months ended 30 June 2006 an asset of £104,000). Thefair value of the interest rate hedges as at 30 June 2007 is an asset of£713,000 (six months ended 30 June 2006 an asset of £1,712,000 and year ended 31December 2006 an asset of £695,000). Adjustments to the fair value of cash flow hedges are reported in equity whendesignated as effective hedges. The ineffective portion is immediatelyrecognised in the income statement. Otherwise the gains and losses will bereported in the income statement only when the forecasted transaction occurs andis recognised in the income statement. This information is provided by RNS The company news service from the London Stock Exchange