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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| SS Lazio SPA | BIT:SSL | Italy | Ordinary Share |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.014 | 1.91% | 0.746 | 0.732 | 0.75 | 0.75 | 0.736 | 0.75 | 4,662 | 16:40:00 |
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RNS Number:9440L
SSL International PLC
05 June 2003
SSL INTERNATIONAL PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31ST MARCH 2003
Profits, Margins, Cash And Earnings All Strongly Ahead
Year Ended March
2003 2002
#'m #'m
Sales 623.9 592.4
Operating profit* 82.0 54.1
Operating margin* 13.1% 9.1%
Pre-tax profit 39.1 (2.9)
Free cashflow 39.1 7.1
EPS 13.1p (7.0p)
* Sales up 5% to #624 million
* Operating profit up by 52% to #82 million*
* Operating margin 13.1% up from 9.1% as cost reductions take effect*
* Free cashflow of #39 million up from #7 million, dividend covered 1.8
times
* EPS of 13.1 pence against a loss of 7.0 pence last year
* Strategic rationalisation well underway
* pre exceptional costs of #20m (2002: #36m)
Commenting, Ian Martin, Chairman said:
"We are very pleased with the significant improvement in the company's financial
position revealed by these results. We see the outcome for the year as a
vindication of our decision to focus on real business improvements to both
revenues and costs. The profits and cash generated this year provide a solid
platform for our focus on the consumer healthcare business in the future"
Brian Buchan, Chief Executive added:
"This has been another busy year for us with a number of complex challenges
undertaken and successfully completed. Our objectives for the current year are
no less demanding as we seek to complete our strategic reshaping simultaneously
with further operational improvements. It is a measure of the confidence within
the Group that we approach these challenges with optimism."
FOR FURTHER INFORMATION, PLEASE CONTACT:
SSL International plc (020 7367 5760)
Brian Buchan, Chief Executive
Garry Watts, Group Finance Director
Jan Young, Head of Investor Relations
The Maitland Consultancy (020 7379 5151)
William Clutterbuck
Brian Hudspith
OPERATING REVIEW
Having completed its second full year under the new management team, SSL
continues to make good progress towards full financial health and in pursuing
our strategy for the future, based around the strength of Durex, Scholl and our
other consumer healthcare brands.
The results for the year show that three key objectives were achieved: sales
recovered as our decision to cease trade loading was vindicated; costs were
reduced in both the product supply and Group overhead areas; and significant
free cashflow was generated, enabling the dividend to be maintained and fully
covered for the first time since the Group was formed in 1998.
Group Strategy
During the year, the Board completed a thorough review of the Group's
operations, its strengths and weaknesses, and opportunities for delivering
shareholder value growth in the future. On the basis of the review, we concluded
that shareholder's interests would best be served by focusing resources on our
consumer healthcare businesses, which include the Durex and Scholl brands, and
by divesting our medical business, as well as our industrial gloves business.
The medical portfolio includes Regent surgical gloves, Hibi antiseptics and the
wound management business; collectively amounting to #182 million in sales in
the year to 31 March 2003. This process is now well underway and has generated a
substantial level of interest.
Completion of these disposals will give management the opportunity to focus on
the consumer business. Here there are encouraging signs that the increased flow
of new products backed by strong advertising is yielding results. Greater
financial resources will drive further development. This, coupled with a
continuing strong focus on cost control will, we believe, lead to enhanced
shareholder value although there is likely to be earnings dilution arising from
the planned divestments.
Brand development
Durex
The condom category is fraught with taboos, embarrassment and innuendo. Yet it
is ultimately a category that is dealing with incredibly serious issues such as
avoiding unwanted pregnancies and helping to prevent the transmission of some of
the most serious diseases affecting the world today.
A three-pronged marketing strategy is aiming, first and foremost, to capture
today's youth - 16-24 year-olds - recruiting new customers as soon as they begin
sexual activity. Condom users retain brand loyalty as long as the product
quality is exceptional - which is the case with Durex. Advertising has to appeal
to this group, even if it unsettles older generations. Novel marketing ideas
plus innovation in the area of 'pleasure-enhancing' products will ensure the
brand continues to evolve and attract consumers to use the brand.
The second strand of our approach is to explore ways in which Durex as a brand
can be 'stretched' into other related categories. For instance, our personal
lubricants range is being repositioned as Durex 'Play'.
Thirdly, we recognise the social responsibility Durex bears as world-leader in
condoms. We continue to develop an active social marketing programme in
developing countries, helping to eradicate sexually transmitted diseases,
unwanted pregnancies and AIDS. Besides the immediate support we can give to such
government or charity-sponsored education and health awareness initiatives,
longer-term, our programmes create awareness of Durex in developing
marketplaces.
Scholl
For Scholl, there is a significant opportunity to grow the business from where
we are today, by building on the brand's heritage rooted in Dr Scholl's
expertise in care of the feet, to make the brand relevant to today's consumer
needs. As we have made additional investment in R&D, we have an increasingly
healthy new product development pipeline. Recent successes include innovations
in the areas of new plasters for corns and blisters, new footcare implements,
toiletries and improvements to our Flight Socks range. We will re-establish the
clear technological edge and passion for foot care that initially drove Scholl
to the reputation it enjoys today. As well as new products, we will also be
working to simplify the current, sometimes confusing range of products, so that
the choice of the right Scholl product is clear and obvious.
We see markedly different development of individual sub-categories within our
Scholl range in different geographic markets. Insoles are very well developed in
the UK, deodorants in Germany, shoes in Thailand. Capitalising upon these
differences and working to ensure that we bring all areas of the business up to
best-in-class levels provides us with plenty of scope for growth.
OTC portfolio
Beyond the primary objective to develop Durex and Scholl, SSL has the potential
to extend its expertise in carefully chosen fields. Our OTC portfolio will also
be developed. We are exploring new opportunities within categories in which we
excel, such as headlice treatment, analgesics and indigestion remedies. As
circumstances allow, we will look to acquisitions to help develop market share
and extend our range into new markets. The sale of the medical division will
free the people and financial resources needed to pursue these opportunities
more aggressively.
Restructuring programme
Looking beyond our brands, we have continued to achieve our group-wide targets
in cost-saving. Our cost base has been reduced by #18 million over the course of
the year. There will inevitably be further significant reorganisation and
restructuring ahead as a result of refocusing on the consumer marketplace. This
will give rise to some understandable anxiety amongst our employees and our
thanks go to them for all their undiminished efforts during these times. We are
acting to provide certainty where this can be done. For example, a new
management structure has already been announced and rationalisation is already
underway in some other areas.
Systems
Our business systems - particularly IT - have continued to be streamlined and
enhanced. These systems will ultimately form the basis of sustained cash
management improvement in other areas such as inventory and trade receivables.
We, together with PeopleSoft, have recently brought on line new software modules
in the UK business. This change was needed to start the process of moving from
the large range of legacy systems the group has inherited. Once fully bedded
down our plan over the next two years is to roll-out these new systems
throughout our European markets.
We are well on the way to achieving group-wide world-class standards in
environmental and quality management in our manufacturing processes. We now have
26 of our sites with ISO 9001 registration and 12 with full ISO 14001
compliance.
People
Training and development of employees continues at every level - creating
multi-skilled, flexible workforces in the factories and creative,
entrepreneurial management in every geographical area of our business. The sales
and marketing initiatives around the world demonstrate that local market
knowledge and awareness of localised cultures is essential.
Outlook
The current year is obviously going to be another very busy year with the twin
challenges of completing the major disposals simultaneously with continuing to
improve the profitability of our consumer business. This improvement will come
both from growing our sales and from ensuring an efficient operating platform,
through the continuation of our radical overhead cost reduction activity. The
new year has begun satisfactorily and we are optimistic that these challenges
can be met successfully, in both the current year and into the future.
FINANCIAL REVIEW
Overall Results
Sales of #623.9 million were achieved during the year (2002: #592.4 million),
generating a pre-exceptional operating profit of #82.0 million (2002: #54.1
million). The operating margin before exceptional items was 13.1% of sales,
compared to 9.1% last year. Profit before tax was #39.1 million, a #42 million
improvement against last year and earnings per share were 13.1p against a loss
of 7.0p. Free cash flow of #39 million (2002: #7 million) was generated and net
debt at the year end was #292 million (2002: #308 million).
Sales
Sales for the year amounted to #623.9 million, 5% ahead of last year's reported
total. After adjusting for the effects of acquisitions and disposals, currency
fluctuations and customer inventory loading, underlying sales are estimated to
be at the same level as last year. Gains in the consumer division were offset by
a decline in our Hibi, Marigold and other businesses; our surgeons' gloves and
wound management businesses were flat overall.
Reported 31/3/03 Reported* Underlying Underlying Growth
31/3/02 31/3/02
#'m #'m #'m %
Family Planning 143.8 127.4 135.2 6.4
Footcare 77.9 72.8 75.8 2.7
Footwear 74.7 71.0 72.4 3.1
Other consumer 80.9 78.1 82.9 (2.4)
Consumer 377.3 349.3 366.3 3.0
Surgical Gloves 101.3 84.5 99.6 1.7
Hibi 22.7 26.1 25.7 (11.6)
Other Medical 57.8 52.2 59.3 (2.5)
Continence Care - 11.5 - -
Medical 181.8 174.3 184.6 (1.5)
Other 64.8 68.8 72.5 (10.6)
Total 623.9 592.4 623.4 0.1
* Reclassified for business changes
Within the consumer division overall sales grew by 3% on an underlying basis.
Family planning sales totalled #143.8 million, 6.4% ahead of last year mainly as
the result of successful new product introductions under our Durex brand in
European markets. We have programmes in place to leverage further the strength
and appeal of the Durex brand to the younger age group, so as to support growth
in the future.
Scholl footcare sales grew by 2.7% as successful new product introductions,
improved marketing and the development of emerging markets outweighed declines
in our two principal markets, the UK and Italy. Our continuing programme of
category reinvigoration and new product development is aimed at accelerating the
growth rate across the Group.
The Scholl footwear business enjoyed a successful spring/summer 2003 season with
second half footwear sales growing at 5% over the previous year and at 3.1% for
the year as a whole. The footwear category is a complicated business that is
beginning to benefit from improved focus in range selection and rationalisation
of the supply chain. The market offers a significant opportunity for expansion
if these initiatives can be maintained in future seasons.
The other consumer businesses declined overall by 2.4% to #80.9 million. Gains
of 2.8% in the UK OTC business to #40.2 million and of 6% in the Scholl medical
compression business to #11m were outweighed by declines elsewhere, notably in
Italy where the combination of strong competition and a weak pharmacy market,
particularly in the second half, caused erosion of our Sauber deodorant and
Mister Baby ranges.
The Group's consumer business continues to enjoy favourable consumer market
dynamics in its principal operating territories of UK, Italy, France and, for
Durex, the USA. Both Durex and Scholl compete in markets that are growing
overall and in which in almost all cases, SSL is maintaining or growing its
market share. It is the Group's intention to continue to invest in new product
development, innovative advertising and marketing support programmes, all aimed
at delivering both top line growth and improved brand contribution.
Sales in the medical division amounted to #182 million compared with #174
million last year, although the growth of 4.6% is the result of the net effect
of adjustments to the comparative number for currency, disposals and customer
loading. Underlying medical sales declined by an estimated 1.5%, primarily due
to the lower Hibi sales resulting from the licence transfer delays experienced
in the first part of the year. We expect Hibi sales to recover from this low
level as we are once again able to bid for contracts now that licence approvals
have been gained.
Surgeons' gloves sales in the US were flat on an underlying basis in the year as
in- market sales growth of some 6% (arising from volume gains of 11% offset by
price decline of 5%) was absorbed by wholesaler and distribution inventory
reductions driven by healthcare cost containment measures. The underlying switch
from powdered gloves continues to support our future growth expectations, as
does the successful introduction of our latest generation of 'latex-free'
gloves. This segment continues to expand at a rapid rate. Biogel has an
estimated 60% (by value) share of the powder-free latex market and a 36% (by
value) share of the synthetic market. Gradual price erosion continues in both
sectors but with the synthetic sector maintaining an approximate 30% premium to
powder free surgical gloves.
Elsewhere in the world, surgical glove sales grew by 3.2% as the result of
growth in Continental European countries and a stable market in the UK.
The other medical businesses comprising wound management and Silipos, achieved
sales of #57.8 million comfortably ahead of last year's number but representing
a decline of 2.5% on an underlying basis after adjustment for customer inventory
loading. The wound management business continues to generate good profitability
and cashflows from an extensive range of staple products supplied to UK and
European hospitals, and the Silipos business has benefited this year from a
significant contract with beauty retail outlets in the US.
Gross Margin
The Group's gross margin improved in the year by a pleasing 2.7 percentage
points to 57.9%. The improvement arose partly as the result of the increased
sales in the year, which the Group estimates generates a marginal gross return
of approximately 80%, and partly as the result of stringent cost control
measures within the supply chain. We estimate that approximately #9 million
savings have been generated in this area in the year.
Market Development Expenditure
Group market development spend of #70.4 million has been maintained at last
year's increased levels in pursuance of the Group's stated policy of growing
brand equity values, particularly in Durex and Scholl. The great majority of the
expense is in-market and aimed at directly influencing consumer offtake. As the
success of this approach becomes established it is the Group's intention to
continue to invest in this area.
Brand Contribution
The Group is developing brand contribution as a key performance measure. This is
defined as gross margin less advertising and promotion and variable selling
costs and is intended as a proxy measure of brand equity, which is a principal
component of the corporate value of SSL. Brand contribution in the year was
#250.6 million, 16% ahead of last year, and the Group aims to continue growth
ahead of the rate of sales growth in the future. Approximately 40% of brand
contribution was generated by the medical business and 60% by the remainder.
Research & Development Expenditure
Over the last two years the Group has shown a strong commitment to developing
new products and bringing them to market. In the past year, we have introduced
new products across our major brands, including the Performa condom, Hydragel
corn and blister plasters and Polyisoprene surgical gloves. R&D expenditure for
the year was #13 million, compared to #11.6 million in 2002.
Selling, General and Administration (SG&A) Costs
SG&A costs for the Group amounted to #159.6 million compared with #152.1 million
last year and represented 25.6% of sales. Included in these costs are Group IT
and insurance costs amounting to #16.2 million in the year, #5.5 million or 51%
ahead of last year. Other SG&A costs grew by around 1%, which, when compared
with an underlying salary inflation of 4% across the Group as a whole,
demonstrates an underlying cost saving of some #4.0 million in the year in this
category. The Group will continue to focus on efficiency improvements in the
future, particularly following the planned disposal of the medical businesses.
Following the disposal we estimate that approximately #10 million of SG&A costs
included in the #52 million currently allocated to these businesses, will not
transfer as part of the disposal.
Operating Profit
Operating profit before exceptional items amounted to #82.0 million compared
with #54.1 million last year, an increase of 52% arising from a combination of
increased sales and cost reductions. The operating margin was 13.1% compared
with 9.1% last year.
Exceptional costs amounted to #20 million, comprising the #18 million
restructuring charge announced at the beginning of the year and #2 million
closure costs associated with the transfer of part of Avanti manufacturing to
India from Cambridge. As anticipated this expenditure has enabled us to
eliminate #18 million from our on-going cost base. As the Group continues with
its efficiency programme and adjusts its operations to reflect the sale of the
medical businesses, it is likely that further exceptional costs will be incurred
in the current year.
Profit before finance charges was #61.6 million compared with #22.7 million last
year.
Financing Costs
The net interest charge incurred in the year was #22.5 million (2002: #25.6
million), which is covered 3.6 times by operating profit before exceptional
items (2002: 2.1 times) and 2.75 times after exceptional items (2002: 0.9
times).
Taxation
The tax charge of #17.9 million before exceptional items represents a rate of
30%, consistent with the previous financial year. Exceptional costs generated a
tax credit of #3.6 million (2002: a charge of #1.6 million)
Earnings & Dividends
Profit after tax was #24.8 million compared with a loss of #13.2 million last
year, which generated earnings per share of 13.1p (2002: loss of 7.0p). The
dividends proposed for the year are at the same level as last year, a 3.9p
interim and 8.4p final, which are covered 1.1 times by earnings.
Profit before exceptional items amounted to #41.6 million and generated earnings
of 22p (2002: 10.4p) which cover the dividend 1.8 times.
Cash Flow and Investing Activities
During the year, the Group generated an increased free cashflow, i.e. before
payment of dividend, of #39 million compared with #7m in the previous period.
Operating cashflow, being the net of earnings before interest, tax, depreciation
and amortisation and working capital movements, amounted to #104.2 million
(2002: #119.7 million); Capital expenditure was #18.2 million (2002: #39.8
million), the cash element of exceptional items was #16.4 million (2002: #28.1
million) and interest and tax payments amounted to #30.5 million (2002: #44.7
million).
Net working capital at 31 March 2003 was #129.9 million, compared with #127.9
million previously. It is made up of receivables #185.5 million, (2002: #181.2
million) plus inventories #106.9 million (2002: #110.7 million) less payables
#162.5 million (2002: #164.0 million) and overall represents 20.8% of sales, an
improvement over last year (21.6%) but still behind the Group's stated target of
15%. Continued efforts to reduce further the receivables days outstanding, 108
days versus 112 days last year, are being made in pursuit of the target.
Cashflow, after dividend payments of #23 million, was applied to reduce net
indebtedness at 31 March 2003 to #292 million from #308 million at the previous
year end.
Financial Condition
Profits retained, after dividends, amounted to #1.5 million, a #38 million
improvement on the previous year. Shareholders' funds at 31 March 2003 were #92
million compared with #88 million at 31 March 2002.
Half-year Performance
Sales in the second half of the year were #315 million compared with #311
million for the comparative period. Operating profit before exceptional items
was #51 million compared with #41 million. Sales and operating profit for the
first half of the year were #309 million and #31 million respectively.
Litigation
In common with most suppliers of latex medical gloves, the Group is engaged in
litigation in the USA in relation to allegations regarding the development of
sensitivity to natural rubber latex. The Board has confidence in both the high
quality of SSL's medical gloves and the Group's defences available against
allegations. In recent months, a number of cases have been settled for nominal
amounts, and there have been no new case filings recently.
The Group is also a defendant in a number of other lawsuits incidental to its
operations, and is involved in investigations by certain regulatory authorities.
In aggregate, these are not expected to have a material adverse financial effect
on the Group.
Consolidated Profit and Loss Account for the year ended 31 March 2003
2003 2003 2003 2002 2002 2002
Before Before
Total Excep-tional Excep-tional Excep-tional Excep-tional Total
items items items items
#'m #'m #'m #'m #'m #'m
Turnover
Continuing operations 623.9 - 623.9 580.9 - 580.9
Discontinued operations - - - 11.5 - 11.5
------ ------- ------- ------- ------- ------
Total turnover 623.9 - 623.9 592.4 - 592.4
Cost of sales (264.9) (1.9) (263.0) (265.4) (11.8) (277.2)
------ ------- ------- ------- ------- ------
Gross profit 359.0 (1.9) 360.9 327.0 (11.8) 315.2
Distribution costs (195.5) (5.3) (190.2) (190.6) (4.4) (195.0)
Administrative expenses (106.6) (13.8) (92.8) (84.8) (19.8) (104.6)
------ ------- ------- ------- ------- ------
Operating profit
Continuing operations 56.9 (21.0) 77.9 50.5 (36.6) 13.9
Discontinued operations - - - 1.1 0.6 1.7
------ ------- ------- ------- ------- ------
Group operating profit 56.9 (21.0) 77.9 51.6 (36.0) 15.6
Share of operating profit in associated 3.9 (0.2) 4.1 2.5 (0.3) 2.2
undertakings
------ ------- ------- ------- ------- -------
Total operating profit: Group and share of 60.8 (21.2) 82.0 54.1 (36.3) 17.8
associates
Sale of fixed assets 1.2 1.2 - - - -
(Loss)/profit on disposal of subsidiary (0.4) (0.4) - - 4.9 4.9
undertakings, businesses and brands
------ ------- ------- ------- ------- ------
Profit on ordinary activities before finance 61.6 (20.4) 82.0 54.1 (31.4) 22.7
charges
Finance charges (net) (22.5) - (22.5) (25.6) - (25.6)
------ ------- ------- ------- ------- -------
Profit/(loss) on ordinary activities before 39.1 (20.4) 59.5 28.5 (31.4) (2.9)
taxation
Tax on profit/(loss) on ordinary activities (14.3) 3.6 (17.9) (8.7) (1.6) (10.3)
------ ------- ------- ------- ------- -------
Profit/(loss) on ordinary activities after 24.8 (16.8) 41.6 19.8 (33.0) (13.2)
taxation
Equity minority interests - - - (0.1) - (0.1)
------ ------- ------- ------- ------- -------
Profit/(loss) for the financial year 24.8 (16.8) 41.6 19.7 (33.0) (13.3)
Dividends paid and proposed on equity shares (23.3) - (23.3) (23.3) - (23.3)
------ ------- ------- ------- ------- ------
Retained profit/(loss) for the year 1.5 (16.8) 18.3 (3.6) (33.0) (36.6)
------ ------- ------- ------- ------- -------
Earnings/(loss) per share (pence)
Basic 13.1 22.0 10.4 (7.0)
Basic (adjusted) 16.2 25.1 13.3 (0.1)
Diluted 13.1 22.0 10.4 (7.0)
Consolidated Balance Sheet as at 31 March 2003
2003 2002
#'m #'m
Fixed assets
Goodwill 74.9 78.1
Brands, trademarks & patents 75.6 73.6
Intangible Assets 150.5 151.7
Tangible assets 158.2 167.3
Investments 9.1 6.0
Investments in own shares 0.5 0.5
------ --------
318.3 325.5
Current assets
Stocks 106.9 110.7
Debtors 192.5 189.8
Cash and deposits 70.0 56.2
------ --------
369.4 356.7
Creditors:
Amounts falling due within one year (327.3) (326.8)
------ --------
Net current assets 42.1 29.9
------ --------
Total assets less current liabilities 360.4 355.4
Creditors:
Amounts falling due after more than one year (236.4) (235.2)
Provisions for liabilities and charges (31.8) (32.3)
------ --------
Net assets 92.2 87.9
------ --------
Capital and reserves - equity
Called up share capital 18.9 18.9
Share premium account 40.3 40.0
Other reserves 136.8 136.8
Profit and loss account (103.9) (107.9)
------ --------
Shareholders' funds 92.1 87.8
Equity minority interests 0.1 0.1
------ --------
Total capital employed 92.2 87.9
------ --------
Consolidated Cash Flow Statement for the year ended 31 March 2003
2003 2002
#'m #'m
Net cash inflow from operating activities after exceptional items 87.8 91.6
------ --------
Dividends received from associated undertakings - 0.7
Returns on investments and servicing of finance
Interest received 0.9 2.0
Interest paid (23.6) (28.1)
------ --------
Net cash (outflow) from returns on investments and servicing of (22.7) (26.1)
finance
------ --------
Taxation (7.8) (18.6)
------ --------
Capital expenditure and financial investment
Purchase of intangible fixed assets (5.9) (1.8)
Purchase of tangible fixed assets (18.6) (38.6)
Purchase of fixed asset investments - (0.2)
Sale of OTC brands and assets 0.1 13.1
Sale of tangible fixed assets 6.3 0.5
Sale of fixed asset investments - 0.3
------ --------
Net cash (outflow) from capital expenditure and financial (18.1) (26.7)
investment
Acquisitions and disposals
Investments in associated undertakings (0.1) -
Deferred consideration - (5.2)
Sale of product rights, businesses and brands - 79.5
------ --------
Net cash (outflow)/inflow from acquisitions and disposals (0.1) 74.3
------ --------
Equity dividends paid (23.2) (23.2)
------ --------
Cash inflow before use of liquid resources and financing 15.9 72.0
------ --------
Management of liquid resources 1.7 (7.6)
------ --------
Financing
Issue of ordinary share capital 0.3 0.7
Increase in loans 64.1 5.2
Repayment of loans (54.2) (78.6)
Repayment of capital element of finance leases (0.6) (0.7)
------ --------
Net cash inflow/(outflow) from financing 9.6 (73.4)
------ --------
Increase/(decrease) in cash in the year 27.2 (9.0)
------ --------
Consolidated Statement of Total Recognised Gains and Losses
2003 2002
#'m #'m
Profit/(loss) for the financial year 24.8 (13.3)
Taxation on gains and losses taken directly to reserves 2.3 -
Currency translation differences on foreign currency net investments (0.2) 2.3
------ --------
Total recognised gains/(losses) relating to the year 26.9 (11.0)
------ --------
Reconciliation of Movements in Shareholders' Funds for the year ended 31 March
2003
2003 2002
#'m #'m
Profit/(loss) for the financial year 24.8 (13.3)
Dividends paid and proposed (23.3) (23.3)
------ --------
Retained profit/(loss) for the financial year 1.5 (36.6)
Other recognised(losses)/gains for the year (0.2) 2.3
Taxation on gains and losses taken directly to reserves 2.3 -
Share capital issued 0.3 0.7
Goodwill written back on disposals 0.4 74.0
------ --------
Net addition to shareholders' funds 4.3 40.4
Opening shareholders' funds 87.8 47.4
------ --------
Closing shareholders' funds 92.1 87.8
------ --------
1. Accounting Policies
The principal accounting policies are summarised below. They have all been
applied consistently throughout the current and preceding year.
(a) Preparation of financial statements
The financial statements have been prepared under the historical cost convention
and in accordance with applicable accounting standards.
(b) Basis of consolidation
The Group accounts include the accounts of the Company and its subsidiary
undertakings made up to 31 March 2003. Unless otherwise stated, the acquisition
method of accounting has been adopted. Under this method, the results of
subsidiary undertakings acquired or disposed of in the year are included in the
consolidated profit and loss account from the date of acquisition or up to the
date of disposal.
An associate is an undertaking in which the Group has a long term interest,
usually from 20% to 50% of the equity voting rights, and over which it exerts
significant influence. The Group's share of results of its associates is
included in the consolidated profit and loss account and its interest in their
net assets is included in investments in the consolidated balance sheet.
(c) Acquisitions and disposals
Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired, is capitalised
as an intangible asset and written off to the profit and loss account on a
straight line basis over its useful economic life, up to a maximum of 20 years.
The useful economic life is determined for each separate acquisition giving
consideration to the period over which the Group expects to derive economic
benefit from the asset. On the subsequent disposal or termination of a business
acquired since 1 March 1998, the profit or loss on disposal or termination is
calculated after charging/(crediting) the unamortised amount of any related
goodwill (negative goodwill).
Goodwill arising on acquisitions prior to 1st March 1998 was written off the
profit and loss reserve in accordance with the accounting standard then in
force. As permitted by FRS10, the goodwill previously written off to reserves is
included in determining the profit and loss on disposal.
When the Group has acquired shares in other companies by the issue of shares,
and the requirements of Section 131 of the Companies Act 1985 have been
satisfied, the Group has utilised the merger relief provisions available and the
issue of shares has been recorded at the nominal value, any premium being
credited to the merger reserve.
(d) Intangible assets
Intangible assets that are acquired and which can be separately identified and
valued are capitalised and amortised over their estimated useful economic lives,
usually between 10-20 years. In determining the useful economic life each asset
is reviewed separately and consideration given to the period over which the
Group expects to derive economic benefit from the asset.
Acquired trade marks and patents include the ownership of the Scholl trade name
throughout the world, with the exception of the Americas. The Scholl trade name
is held at cost and is subject to an annual impairment review to identify any
diminution in the recoverable amount of the acquired rights. The Directors
believe that the Scholl brand does not have a finite economic life because of
its proven value over long periods and its position in the market is sustainable
for the foreseeable future.
Intangible assets that are acquired and which cannot be measured independently
of goodwill and brands are included and accounted for as part of goodwill.
(e) Tangible fixed assets
No fixed assets have been revalued. Depreciation is provided to write tangible
fixed assets down to a residual value over their estimated useful economic lives
at the following annual rates:
Freehold land No depreciation is charged on freehold land
Freehold and long leasehold buildings 2 per cent of cost or over the life of the lease if less than 50
years
Motor vehicles 25 per cent of cost or net book value according to the type of
vehicle concerned
Plant and equipment 7 per cent to 25 per cent of cost or net book value according to the
circumstances of the assets concerned
Assets under the No depreciation is charged on assets under the course of
construction.
course of construction
(f) Associated undertakings
All companies where the Group has significant influence, normally evidenced by
both Board representation and ownership of at least 20 to 50 per cent of the
voting rights on a long-term basis, are treated as associated undertakings.
The Group's share of the results of associated undertakings is included in the
consolidated profit and loss account and the Group' share of net assets is shown
in investments in the consolidated balance sheet.
(g) Investments
Unlisted investments are stated at cost less provisions for any impairment in
value.
(h) Stocks
Stocks are stated at the lower of cost and net realisable value. In determining
the cost of raw materials, consumables and goods purchased for resale, the FIFO
method is used. For work in progress and finished goods, cost is taken as
production cost which includes an appropriate proportion of overheads.
(i) Research and development
Expenditure on research and development is written off against profits in the
period in which it is incurred, except for the development expenditure on new or
substantially improved products which is capitalised only when future
recoverability is reasonably assured. Provision is made for any impairment in
value.
(j) Taxation
The charge for taxation is based on the profit for the period and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes.
Credit is taken for advance corporation tax written off in previous years when
it is covered against corporation tax liabilities.
In accordance with FRS 19, deferred tax is provided where a taxation liability
will arise as a result of transactions or events which have occurred on the
balance sheet date. Deferred tax assets are recognised to the extent that it is
regarded that they will be recovered. Provision is made at rates expected to be
applicable when the liabilities or assets are likely to crystallise.
(k) Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction unless sale proceeds are the subject of a
forward sale for a predetermined sum in sterling. Monetary assets and
liabilities denominated in foreign currencies are translated using the rate of
exchange ruling at the balance sheet date. Gains or losses on transactions are
included in the profit and loss account to the extent that they are not matched
by binding forward trading contracts.
Profit and loss accounts of foreign operations are translated into sterling at
the average rate applicable to the respective accounting period.
Assets and liabilities of foreign operations are translated using the rate of
exchange ruling at the balance sheet date. Gains or losses on translations of
foreign operations and on foreign currency borrowings, to the extent they hedge
the Group's investment in such operations, are included as a movement on
reserves.
(l) Leases
Costs in respect of operating leases are charged to the profit and loss account
on a straight line basis over the term of the lease.
A finance lease is a lease that transfers substantially all the risks and
rewards of ownership of an asset to the lessee. Assets acquired under hire
purchase contracts and finance leases are capitalised and included in tangible
fixed assets. The capital element of future lease obligations is recorded as a
liability. Amounts payable are apportioned between the finance element, which is
charged to the profit and loss account as interest on a reducing balance basis,
and the capital element, which reduces the outstanding obligation for future
instalments.
(m) Pension costs
The Group continues to operate both defined benefit and defined contribution
pension plans. The UK defined benefit plans are closed to new entrants .
For defined contribution schemes, costs are charged to the profit and loss
account as incurred.
For defined benefit schemes, the cost of providing pensions and other employee
post-retirement benefits is charged to the profit and loss account on a
systematic and rational basis over the period during which benefit is derived
from employees' service. The difference between the charges to the profit and
loss account and the actual contributions paid is included as an asset or
liability in the balance sheet.
(n) Turnover
Turnover represents the invoiced value of goods and services provided during the
year net of trade discounts, value added and sales taxes. Sales returns are
recognised as a reduction to turnover as they arise. Credit note reserves are
provided at the year end to account for management estimates of customer
returns.
(o) Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange risk and interest rate movements. The Group does not hold or issue
derivative financial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge the instrument
must be related to actual foreign currency assets or liabilities or to a
probable commitment. It must involve the same currency or similar currencies as
the hedged item and must also reduce the risk of foreign currency exchange
movements on the Group's operations. Gains and losses arising on these contracts
are deferred and recognised in the profit and loss account, or as adjustments to
the carrying amount of fixed assets, only when the hedged transaction has itself
been reflected in the Group's financial statements.
For an interest rate swap to be treated as a hedge the instrument must be
related to actual assets or liabilities or a probable commitment and must change
the nature of the interest rate by changing the basis of calculation e.g. from
fixed to floating rate. Interest differentials under these swaps are recognised
by adjusting net interest payable over the periods of the contracts.
If an instrument ceases to be accounted for as a hedge, for example because the
underlying hedged position is eliminated, the instrument is marked to market and
any resulting profit or loss recognised at that time.
(p) Employee share schemes
The Group operates a number of employee share schemes. The cost to the company
of making awards in the form of shares or rights to shares under these schemes
is charged to the profit and loss account over the period to which the
employee's performance relates. No charge is taken to the profit and loss
account in respect of awards made under SAYE schemes under the exemptions of
UITF 17 "Employee Share Schemes."
2. Consolidated Profit and Loss, Exceptional Items, Discontinued Operations
Exceptional items
The #20.4 million exceptional charge for the year included business processes
review and associated consultancy costs of #7.2 million, manufacturing closure
costs of #1.5 million and professional fees and other charges of #3.3 million,
including costs relating to proposed disposals of part of the group. The
exceptional charge also included #8.4 million of merger, restructuring and
redundancy costs, net of profit on disposal of fixed assets.
The prior year exceptional charge related to restructuring costs (#16.4
million), elimination of trade loading (#11.9 million) and a write off of an
intangible fixed asset (#8.6 million). Profit on disposals of #4.9 million
partially offset these costs.
Discontinued operations
Discontinued operations in the prior year ended 31 March 2002 related to the
Group's continence care business. The profit on disposal of the business was
disclosed as exceptional.
3. Notes to the Consolidated Cash Flow Statement
a. Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
#'m #'m
Group operating profit, pre exceptional 77.9 51.6
Depreciation and amortisation 24.2 23.0
Loss on sales of tangible fixed assets 0.1 0.7
Exchange differences - (0.1)
Decrease in stocks 2.7 0.4
Decrease in debtors 2.7 62.8
(Decrease) in creditors (2.9) (18.6)
(Decrease) in provisions (0.5) (0.1)
------ --------
Net cash inflow from operating activities pre 104.2 119.7
exceptional items
------ --------
Cash effect of exceptional items (16.4) (28.1)
------ --------
Net cash inflow from operating activities after 87.8 91.6
exceptional items
------ --------
Exceptional cash charges of #16.4 million exclude the effect of proceeds
from sale of fixed assets (#5.6 million) and OTC brands (#0.1 million) which
were treated as exceptional items within the consolidated profit and loss
account. Proceeds of #5.6 million from sale of tangible fixed assets are
included within the #6.3 million disclosed within the consolidated cashflow
statement. Proceeds from sale of OTC brands of #0.1 million are disclosed
separately within the consolidated cashflow statement. The net exceptional
cash outflow after taking into account disposal proceeds is #10.7 million.
b. Sale of product rights, businesses and brands
2003 2002
#'m #'m
Net assets sold
Intangible fixed assets - 5.5
Tangible fixed assets - 1.0
Stocks - 6.9
------ --------
- 13.4
Profit/(loss) on disposal - 27.9
Goodwill written back on disposal - 38.2
------ --------
Sale proceeds - 79.5
------ --------
Satisfied by:
Cash consideration - 79.5
------ --------
In 2002, the sale of the continence care business was disclosed within net cash
outflows from acquisitions and disposals in the consolidated cashflow statement.
In both 2002 and 2003, the sale of OTC brands was disclosed within net cash
flows from acquisition and disposals.
(c) Analysis of net debt
At 1 April Cash flow Other non-cash Exchange At 31 March
2002 changes movement 2003
#'m #'m #'m #'m #'m
Cash in hand and at bank 42.5 13.4 - 1.7 57.6
Overdrafts (29.7) 13.8 - (0.5) (16.4)
------ ------ ------ ------- -------
12.8 27.2 - 1.2 41.2
Debt due within one year (103.2) (9.9) (4.1) 3.9 (113.3)
Debt due after one year (230.2) - 4.1 (5.2) (231.3)
Finance leases (1.0) 0.6 (0.5) (0.1) (1.0)
Liquid resources : cash deposits 13.7 (1.7) - 0.4 12.4
------ ------ ------ ------- -------
Net debt (307.9) 16.2 (0.5) 0.2 (292.0)
------ ------ ------ ------- -------
Cash, for the purpose of the cash flow statement, comprises cash in hand and at
banks repayable on demand, less overdrafts payable on demand.
Liquid resources are current asset investments which are disposable without
curtailing or disrupting the business and are either readily convertible into
known amounts of cash, at, or close to their carrying values or traded in an
active market. Liquid resources comprise term deposits of less than one year
(other than cash), government securities and investment in money market managed
funds.
(d) Reconciliation of net cash inflow to movement in net debt
2003 2002
#'m #'m
Increase/(decrease) in cash in the year 27.2 (9.0)
Cash (inflow)/outflow from (increase)/decrease in debt (9.9) 73.4
Cash outflow from payment of finance leases 0.6 0.7
Cash (inflow)/outflow from changes in liquid resources (1.7) 7.6
------- --------
Changes in net debt resulting from cash flows 16.2 72.7
New finance leases (0.5) (1.0)
Exchange differences 0.2 1.3
Movement in net debt in the year 15.9 73.0
Net debt at 1 April 2002 (307.9) (380.9)
------- --------
Net debt at 31 March 2003 (292.0) (307.9)
------- --------
4.Earnings/(Loss) per Share
Earnings/(loss) per share has been calculated by dividing the profit/(loss)
attributable to ordinary shareholders by the weighted average number of ordinary
shares in issue during the year.
An adjusted earnings/(loss) per share figure has been shown in order to achieve
comparability year on year. The calculation uses the basic weighted average
number of shares together with basic earnings/(loss) adjusted to exclude the
impact of amortisation of goodwill and intangibles.
The profit/(loss) attributable to ordinary shareholders is calculated as
follows:
2003 2003 2002 2002
Before Before
Except-ional Except-ional
items items
#'m #'m #'m #'m
Profit/(loss) for the year:
For basic earnings/(loss) per share 24.8 41.6 19.7 (13.3)
Amortisation of goodwill and intangibles 5.9 5.9 5.4 13.1
----- ------ ------ --------
For adjusted earnings/(loss) per share 30.7 47.5 25.1 (0.2)
----- ------ ------ --------
The calculation of diluted earnings/(loss) per share uses basic earnings/(loss),
as defined above, and the basic weighted average number of ordinary shares in
issue during the year adjusted as follows:
2003 2003 2002 2002
Before Before
Except-ional Except-ional
items items
Weighted average number of shares (millions):
For basic earnings/(loss) per share 189.2 189.2 189.1 189.1
Dilutive effect of share options 0.2 0.2 0.3 -
----- ------ ------ --------
For diluted earnings/(loss) per share 189.4 189.4 189.4 189.1
----- ------ ------ --------
Listing Rules note for Preliminary Results Announcement
The financial information set out above does not comprise the company's
statutory accounts. Statutory accounts for the previous financial year ended 31
March 2002 have been delivered to the Registrar of Companies.
The auditors have expressed an opinion on the financial statements for the year
ended 31 March 2003 in their report dated 4th June 2003. This report is
unqualified and does not contain any statement under section 237(2) or (3) of
the Companies Act 1985
The accounts for the year ended 31 March 2003 will be delivered to the Registrar
of Companies following the annual general meeting.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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